Earnings call transcript: Claros Mortgage Trust’s Q2 2025 results surprise

Claros Mortgage Trust (CMTG) reported a significant earnings miss for Q2 2025, posting a loss of $0.77 per share against a forecasted loss of $0.03. Revenue, however, surpassed expectations, coming in at $46.78 million compared to the anticipated $44.78 million. Following the earnings announcement, the company’s stock rose by 13.46%, closing at $2.86, despite the earnings miss. According to InvestingPro data, CMTG currently trades below its Fair Value, with a notable dividend yield of ~14% and a price-to-book ratio of just 0.21.

Key Takeaways

• Claros Mortgage Trust reported a larger-than-expected EPS loss but exceeded revenue forecasts.
• Stock price surged by 13.46% post-earnings, reflecting positive investor sentiment.
• Liquidity increased significantly, with a focus on debt reduction and asset management.
• The company remains optimistic about exceeding its $2 billion UPB resolution target for 2025.

Company Performance

Claros Mortgage Trust’s performance in Q2 2025 reflected a challenging environment, with a GAAP net loss of $1.30 per share. The company’s loan portfolio decreased, yet it managed to resolve $1.9 billion in loans year-to-date with an 88% recovery rate. Despite the loss, the company increased its liquidity to $323 million, up $221 million from the end of 2024. InvestingPro analysis reveals the company maintains strong liquidity with a current ratio of 22.3, though it faces profitability challenges with a significant revenue decline of 51% over the last twelve months. Get detailed insights and 8 additional ProTips with an InvestingPro subscription.

Financial Highlights

• Revenue: $46.78 million, a 4.47% surprise over forecasts.
• Earnings per share: Loss of $0.77, significantly below the expected loss of $0.03.
• Loan portfolio: Decreased from $5.9 billion to $5.0 billion.
• Liquidity: Increased to $323 million from $102 million at the end of 2024.

Earnings vs. Forecast

The actual EPS of -$0.77 was a significant miss compared to the forecasted -$0.03, resulting in a surprise percentage of 2466.67%. This marks a considerable deviation from expectations, highlighting the challenges faced in the quarter. However, revenue exceeded expectations by $2 million, indicating strong performance in certain areas.

Market Reaction

Despite the earnings miss, Claros Mortgage Trust’s stock experienced a notable increase of 13.46%, closing at $2.86. This positive movement suggests investors are focusing on the company’s improved liquidity and strategic initiatives rather than the quarterly loss. The stock remains above its 52-week low of $2.13, but far from the high of $8.82.

Outlook & Guidance

Looking forward, Claros Mortgage Trust aims to exceed its $2 billion UPB resolution target for 2025. The company is also focusing on refinancing its Term Loan B, set to mature in August 2026. Liquidity will be directed towards reducing debt and optimizing the balance sheet. With a beta of 1.21 and debt-to-equity ratio of 2.42, InvestingPro’s comprehensive research report provides deeper analysis of CMTG’s financial health and future prospects, available exclusively to subscribers along with 1,400+ other detailed company reports.

Executive Commentary

CEO Richard Mack stated, "We’re ahead of our projections for our priorities," emphasizing the company’s proactive approach. EVP Priyanka Garg noted, "The capital markets are healing. We’re seeing a lot more activity," reflecting improved market conditions. CFO Mike McGillis expressed confidence in exceeding the $2 billion target for UPB resolutions.

Risks and Challenges

• Continued challenges in the office and multifamily real estate sectors.
• Potential difficulties in refinancing the Term Loan B by 2026.
• Market volatility and its impact on investor sentiment.
• The need for effective management of nonperforming loans and REO assets.

Q&A

During the earnings call, analysts inquired about the company’s liquidity, which includes the payoff of a New York multifamily loan in July. Executives confirmed ongoing efforts to prioritize debt reduction and explore refinancing options for the Term Loan B.

Full transcript - Claros Mortgage Trust Inc (CMTG) Q2 2025:

Becky, Conference Facilitator: and welcome to Clarus Mortgage Trust Second Quarter twenty twenty five Earnings Conference Call. My name is Becky, and I’ll be your conference facilitator today. All participants will be in a listen only mode.

After the speakers’ remarks, there will be a question and answer period. I would now like to hand the call over to Ann Huynh, Vice President of Investor Relations for Mortgage Trust. Please proceed.

Ann Huynh, Vice President of Investor Relations, Clarus Mortgage Trust: Thank you. I’m joined by Richard Mack, Chief Executive Officer and Chairman of Clarus Mortgage Trust Mike McGillis, President, Chief Financial Officer and Director of Clarus Mortgage Trust. We also have Priyanka Garg, Executive Vice President, who leads credit strategies for Mack Real Estate Group. Prior to this call, we distributed CMTG’s earnings release and supplement. We encourage you to reference these documents in conjunction with the information presented on today’s call.

If you have any questions, please contact me. I’d like to remind everyone that today’s call may include forward looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in our other filings with the SEC. Any forward looking statements made on this call represent our views only as of today, and we undertake no obligation to update them. We will also be referring to certain non GAAP financial measures on today’s call such as distributable earnings, which we believe may be important to investors to assess our operating performance.

For reconciliations of non GAAP measures to their nearest GAAP equivalents, please refer to the earnings supplement. I would now like to turn the call over to Richard.

Richard Mack, Chief Executive Officer and Chairman, Clarus Mortgage Trust: Thank you, Anh, and thank you all for joining us this morning for CMTG’s second quarter earnings call. While the elevated rate environment remains a headwind for commercial real estate, we’re encouraged to see signs of healing. Investor sentiment has meaningfully improved and transaction volumes have been steadily recovering. This backdrop has been constructive for CMTG and we have made notable progress in achieving our key objectives for the year. To quickly recap, the start of 2025, we outlined three strategic priorities that we believe will deliver long term shareholder value.

Resolving watch list loans, improving our liquidity and accretively redeploying capital for uses such as taking assets REO, reducing leverage and potentially refinancing or extending our TLB. I’m pleased to say that we have made significant progress across all three priorities. The healing of the real estate capital markets and consequent increase in transaction volume has benefited CMTG. During the second quarter, we resolved eight loans totaling $873,000,000 of UPB. This activity included four loans that were paid off by the borrower in full representing $480,000,000 of UPB and the resolution of four watch list loans representing $393,000,000 of UPB.

In addition to these eight resolutions, during the quarter we also resolved two additional watch list loans collateralized by multifamily assets representing $147,000,000 of UPB. Thus far in the third quarter, this resolution momentum has continued with three additional watch list loan resolutions totaling $548,000,000 of UPB, one through discounted repayment and two through multifamily mortgage foreclosures. In aggregate, twenty twenty five resolutions to date total $1,900,000,000 of UPB consisting of 1,500,000,000.0 of loan resolutions and three zero five million dollars of foreclosures on multifamily properties. Accounting for these resolutions, CMTG’s watch list is now down to 17 loans and $2,100,000,000 of UPB, a net decline of $758,000,000 of UPB and seven loans from the first quarter end. This progress demonstrates the management team’s focus on resolving watch list loans for optimal outcomes across our stated priorities.

We have been proactively asset managing our loans on a case by case basis and if needed working with borrowers who demonstrate both the financial wherewithal and the operational commitment to the underlying asset. In this regard, we have been and will continue to be proactive in exploring all options available to us as a lender, including loan sales, discounted payoffs and foreclosures. All this progress has enabled us to achieve our second priority of enhancing our liquidity position. As of August 5, we reported $323,000,000 in total liquidity representing a $221,000,000 increase compared to our position at December 31. Mike will provide more color on this and the realizations I just discussed in his remarks.

As I’ve noted in the past, we believe that one of our competitive advantages is our sponsors experience as a value add owner, operator and developer of real estate assets. We believe this perspective has enabled us to evaluate opportunities within the existing portfolio to foreclose on loans when we see an opportunity to enhance value and ultimately recapture this value for our shareholders. For example, you may recall that in 2023 we foreclosed on a mixed use New York City building with office retail and signage components in Times Square. I’m pleased to share that during the second quarter, we completed the commercial condomization of the building. And subsequently, we’ve completed the sale of five office floors, which generated $29,000,000 in gross proceeds.

We believe that the commercial condominium strategy will maximize recovery of our original investment and is a strong example of how our sponsors deep real estate experience positions us well to create value. We also previously shared our plans to pursue foreclosure on a number of cash flowing multifamily assets. Once again, we believe we can significantly optimize recovery values by taking over undermanaged assets, repositioning them to improve cash flows in order to enhance asset value and sell the assets in a strengthening supply demand environment. As mentioned, we recently completed four mortgage foreclosures, two during the second quarter and two subsequent to quarter end. We’re optimistic about our approach to these multifamily REO assets and anticipate being in a position to monetize the first of these assets in the coming quarters.

I would now like to turn the call over to Mike.

Mike McGillis, President, Chief Financial Officer and Director, Clarus Mortgage Trust: Thank you, Richard. For the 2025, CMTG reported a GAAP net loss of $1.3 per share and a distributable loss of $0.77 per share. Distributable earnings prior to realized losses were $0.10 per share. Earnings from REO investments contributed $01 per share to distributable earnings net of financing costs. CMTG’s held for investment loan portfolio decreased to $5,000,000,000 at June 30 compared to $5,900,000,000 at March 31.

The quarter over quarter decrease was primarily the result of loan resolutions that occurred during the second quarter. Of the eight full loan realizations totaling $873,000,000 of UPB that Richard mentioned, four loans totaling $480,000,000 were regular way full repayments, two loans totaling $3.00 $4,000,000 were through loan sales and two loans totaling $89,000,000 were negotiated discounted payoffs. We also received $25,000,000 of partial loan repayments resulting in total repayment and sale proceeds of $773,000,000 for the quarter net of charge offs. As mentioned on our first quarter call, we received the discounted payoff of an $88,000,000 Texas office loan that was previously a watch list loan. The realization of this loan resulted in proceeds equal to 73% of UPB and allowed us to resolve a watch list loan while reducing our office exposure.

We also received a discounted payoff of a sub-one million dollars residual loan position on a $125,000,000 loan that was otherwise repaid. Moving on to the two loan sales, which were at a weighted average recovery at 67% of UPB. The first one was the sale of a California condo loan. The loan was previously classified as held for sale and nonaccrual at our carrying value of $146,000,000 at March 31, which reflected a previously recorded $78,000,000 loss on UPB. As this loan was unencumbered, the $146,000,000 of sale proceeds received were the primary driver in the increase in liquidity during the quarter.

The second loan was an $80,000,000 loan collateralized by a previously four rated Southern California hospitality loan originated in 2018 that was sold at 70% of UPB after consideration of customary prorations and transaction costs. Given the sponsors’ challenges, we view this decision as an opportunity to proactively resolve a watch list loan and reallocate capital to more accretive uses. Not only have we remained proactive in pursuing resolutions, but we’ve also taken a disciplined approach, balancing effectuating loan resolutions, deleveraging the balance sheet and generating liquidity. We believe this discipline is reflected in our results. As Richard mentioned, on a year to date basis, we had a total of 1,900,000,000.0 of UPB in loan resolutions, consisting of $1,550,000,000 of loan repayments and sales and $3.00 $5,000,000 of multifamily property foreclosures.

On a blended basis, we achieved an 88% recovery rate on these loans. We have reduced our watch list loans by $776,000,000 of UPB, now down to 2,100,000,000.0 since year end 2024. Turning to portfolio credit. While we have made meaningful progress in resolving loans and reducing our watch list, we continue to experience negative credit migration in the portfolio. During the quarter, we moved four loans from a four risk rating to a five risk rating.

The first is a $4.00 $2,000,000 loan collateralized by multifamily property located in Southern California. The borrower recently initiated a sales process. However, the sale of the property did not materialize, which was a key factor behind the downgrade. We are currently evaluating all options available to us to pursue our remedies as a lender. The second and third loans totaling $212,000,000 of UPB are both collateralized by multifamily properties located in Dallas, Texas.

After evaluating the borrower’s financial wherewithal and operational commitment to the asset, we determined that it would be prudent to foreclose on these loans in order to reposition these assets and improve operating cash flow under our sponsors’ management, similar to the four assets that Richard mentioned. The fourth loan downgrade was resolved last week at our carrying value. As disclosed at year end 2024, we entered into a contingent discounted payoff arrangement with a borrower on a $390,000,000 loan collateralized by a multifamily property in New York City. The borrower is able to perform in accordance with the modification agreement and completed the discounted payoff at 90% of UPB. This transaction resulted in additional liquidity of $107,000,000 which will be redeployed into more accretive uses.

In addition, during the quarter, we also downgraded office loan located in Seattle to a four rated loan. The loan is in good standing, and the borrower is performing under its guarantee obligations. However, there is a pending maturity, and the performance at the asset is tracking below our expectations. It’s important to note that we have seven office loans with a UPB and carrying value of $834,000,000 and $782,000,000 respectively, in our portfolio. Reflecting third quarter resolutions to date, loans with a risk rating of 4 or 5 or $2,100,000,000 of UPB are 42 of the loan portfolio based on carrying value compared to $2,800,000,000 of UPB or 46% of the loan portfolio based on carrying value at March 31.

As it relates to CECL, our total CECL reserve on loans at June 30 is $333,000,000 or 6.4% of UPB compared to $243,000,000 or 4.1% of UPB at March 31, and our general CECL reserve increased by $15,000,000 to $139,000,000 or 3.8 percent of UPB, subject to our general CECL reserve compared to 2.4% as of the first quarter. General CECL reserve levels reflect our conservative outlook amidst capital market and political uncertainty. Specific CECL reserves also increased during the period to reflect the credit downgrades during the quarter. Moving on to CMTG’s REO portfolio. We continue to leverage our sponsors’ platform as a key component of our loan resolution strategy.

This approach enables us to apply a value add approach to optimize recovery results. Richard already spoke to the mixed use New York City asset, so I’ll turn to the rest of the REO portfolio. Starting with the hotel portfolio. Operating performance of the underlying assets remained strong. During the second quarter, we successfully executed CMBS refinancing of the portfolio and secured attractive pricing on a nonrecourse loan with up to five years of duration.

The portfolio remains held for sale on our balance sheet, generating an attractive levered yield as we continue to seek an exit amidst uncertainty around the upcoming New York City election. As Richard mentioned, we have identified seven multifamily loans where we believe that foreclosing and leveraging our sponsors’ multifamily ownership and management platform will allow us to reposition these assets and optimize outcomes for our shareholders. During the second quarter, we began executing this strategy and completed mortgage foreclosures on two loans. The first was a $50,000,000 loan collateralized by a multifamily property comprising a total of two zero six units in Phoenix, Arizona. The second was a $97,000,000 loan secured by a multifamily complex totaling three seventy six units in the Las Vegas MSA.

Subsequent to quarter end, we completed mortgage foreclosures on two additional family loans. The first was $119,000,000 loan on two assets in Dallas, Texas, comprising a total of five fifty five units. The second was a $39,000,000 loan on a multi family asset also located in Dallas totaling three seventy units. Collateral for all four loans are cash flowing, and we believe they provide opportunities for value creation. We intend to implement a value add strategy across each of these properties, drawing on our sponsors’ multifamily operating expertise to stabilize operations, improve cash flow and ultimately maximize recovery value.

Looking forward, we expect to foreclose on the three remaining multifamily loans, which we have targeted for foreclosure. Moving to the right side of the balance sheet. In March, we closed on a $214,000,000 financing facility that specifically enables us to finance nonperforming loans and hold the underlying collateral as REO assets upon foreclosure. During the second quarter, we upsized the facility to $664,000,000 pledging an additional five loans, four of which are performing, which improves our cost of capital for this facility. Securing this facility has been a critical component in effectively executing our REO strategy as it’s allowed us to complete four mortgage foreclosures on a cash neutral basis.

During the second quarter, we continued to aggressively reduce our indebtedness by $652,000,000 in accordance with our stated priorities. The deleveraging includes $188,000,000 of incremental deleveraging, which reduced our net debt to equity ratio from 2.4x to 2.2x. Quarter to date in the third quarter, we further reduced leverage by $255,000,000 in connection with loan repayments received, reducing our net debt to equity ratio on a pro form a basis to 2.0x. We feel positive about the progress that has been made in executing our strategic priorities year to date, resolving watch list loans, enhancing liquidity and redeploying capital into more accretive uses. Given this progress, an additional focal point remains on addressing the upcoming maturity of our Term Loan B in August 2026.

As it stands as of August 5, one of the potential uses of the $323,000,000 of current liquidity and $513,000,000 of unencumbered assets could be used to facilitate a partial paydown in connection with an extension of the existing term loan or to facilitate replacement financing. To reiterate, year to date, we’ve resolved $1,900,000,000 of UPB of loans, reduced the UPB of outstanding financing by $1,100,000,000 and increased our liquidity position to $323,000,000 Looking ahead, we anticipate continued momentum as we further resolve watch list loans and execute on our REO strategy. We look forward to updating you on our progress next quarter. I would now like to turn the call over to the operator.

Becky, Conference Facilitator: Thank Our first question comes from Doug Harter from UBS. Your line is now open. Please go ahead.

Doug Harter, Analyst, UBS: Thanks and good morning. Just wanted to make sure that the liquidity number you gave, does that already factor in the discounted payoff of the New York City multifamily?

Mike McGillis, President, Chief Financial Officer and Director, Clarus Mortgage Trust: Yes. The $323,000,000 amount reflects the liquidity generated by the New York multifamily loan in July.

Doug Harter, Analyst, UBS: Great. And then clearly success in generating payoffs and liquidity in the first half. What is your outlook for continued resolutions payoffs in the second half you know, and kind of the amount of liquidity that those payoffs might generate?

Priyanka Garg, Executive Vice President, Mack Real Estate Group: It’s Priyanka. Hi, Doug. I’ll jump in here. We we look. The capital markets are healing.

We’re seeing a lot more activity. So I think we think that there will be additional payoffs between now and the end of the year. That said, we have been obviously using all the tools in our toolkit up to this point to generate liquidity and resolve those watch list loans. So it’s an you know, it’s a it’s a larger number because of that, but that’s what we said we would do to enhance shareholder value. And you can see we’ve, you know, unlocked significant equity given the low leverage at which we are operating.

And so I think going forward, we’re gonna be relying more on the regular way payoffs from our borrowers absent some unique situations that come along.

Doug Harter, Analyst, UBS: Yeah. And then I guess what you know, as you look at that liquidity, you know, what what are the signposts you’re looking for to maybe start deploying that liquidity, whether that be into further debt reduction of the term loan, whether would you consider stock buyback at current valuations? Kind of how are you thinking about using that liquidity?

Mike McGillis, President, Chief Financial Officer and Director, Clarus Mortgage Trust: Sure, Doug. Thanks for the question. I think, as we stated, I think we’ll continue to look to deleverage the balance sheet. Although we think the stock price is attractive and is an attractive buy opportunity, You know, there’s other considerations that that we need to think through with respect to that. And, you know, the other thing that we’ve made significant progress on the liquidity front in the last couple of years is really significantly bringing down our unfunded loan commitments.

And really, that is we expect that to be a much less significant, call it, use of cash going forward given that the net future funding obligations are now down to about $123,000,000 net of existing financing on those. And the majority of that is good news money associated with leasing activity. So I think the other uses we really wanna get comfortable that we can either get replacement financing done on our term loan are extended. And, you know, I think a combination of those things, as those occur, may allow us to reevaluate pivoting back to offense.

Doug Harter, Analyst, UBS: Great. Appreciate those answers.

Becky, Conference Facilitator: Thank you. Our next question comes from Rick Shane from JPMorgan. Your line is now open. Please go ahead.

Rick Shane, Analyst, JPMorgan: Terrific. Thanks for taking my questions this morning. I’d like to focus on the REO and some of this may be redundant, but there’s just so many moving parts. I just want to make sure we have this all right. End of the quarter with about $525,000,000 of REO, foreclosed on another, call it, $235,000,000.

So as of today, REO balance would be 6.5 to $6.6 Is that correct on the balance sheet?

Priyanka Garg, Executive Vice President, Mack Real Estate Group: Yes. That’s correct.

Rick Shane, Analyst, JPMorgan: Okay. Got it. So the six assets that you show, for each one of them, you outline a strategy, pursuing asset sale, pursuing unit sales, improving operational performance for eventual asset sale. Can we just go through one by one the six assets and give some rough time line in terms of how long you think it will take to play out? Is it again, I realize this is a tough exercise, but is it two quarters for the hotel portfolio, six quarters for multifamily in Dallas?

If you can just help us understand how this is going to go through, over the next, call it, eighteen to twenty four months.

Priyanka Garg, Executive Vice President, Mack Real Estate Group: Yeah. Sure, Doug. Sorry, Rick. Happy to happy to do that. So on yeah.

As you said, it is tough to pinpoint time frames. It is obviously dependent external factors. And I’ll I’ll start with the hotel portfolio, which, you know, underlying performance has been really excellent. And TTM through June 30 is at, you know, peak during our ownership period. We have, much higher EBITDA than than last year, higher ADR.

Everything’s tracking in the right direction. I mean, to put numbers on it, EBITDA 16% higher than it was last year for the second quarter. And the balance of the year is looking very, very strong in New York City in terms of compression. Historically, third and fourth quarters are much stronger in New York. So I think we we and and we refinance the portfolio, which gives us time to execute a sale.

We are holding it for sale. We anticipate selling the selling the assets, but we wanna make sure that we’re getting appropriate value. And and so we’re gonna take our time doing that, but that does you know, it is held for sale. So we are targeting to do that over the next couple of quarters. It is absolutely not a long term hold, and we think we’ve done a really good job demonstrating value there in terms of increasing EBITDA.

In terms of the mixed use property, you I’m sure, Sab, in case you missed it, we have executed our commercial condominiumization strategy. We’ve already sold five of the nine office floors. We have two more that are under contract, so that those should be near term sales. And then the the balance of or majority of the balance of the value is in the, retail and signage components. And we are, marketing those now, and we will, you know, ultimately determine if we think the bids that come in are we’re better off, holding them or if, you know, in general in benefiting from the the cash yield that’s coming off of those components because it is a 100% leased or if we’re better off, selling and you and then redeploying that capital and optimizing the balance sheet.

In terms of the multifamily, the the first two, Arizona and Nevada, you know, since we foreclosed, because those we we foreclosed several months ago, we have seen higher values come in unsolicited in terms of offers, just the value created in just foreclosing and some of the really, really easy low hanging fruit we executed on there. And we so we think those could be very near term resolutions over the next couple of quarters. We have seen improvement in operations. We’ve seen improvement in each of those markets. So we’re optimistic about, about the Arizona and Nevada assets.

The Dallas assets are, you know, very fresh foreclosures, and there is we need to do the same amount of work there before we can really talk about timing, as we’ve done in the other two.

Rick Shane, Analyst, JPMorgan: Terrific. I really appreciate It does. It’s a very thoughtful answer and I really appreciate it.

Priyanka Garg, Executive Vice President, Mack Real Estate Group: Thank you for the question.

Becky, Conference Facilitator: Thank you. Our next question comes from John Nicodemus from BTIG. Your line is now open. Please go ahead.

John Nicodemus, Analyst, BTIG: Hello and good morning everyone. So along the lines of one of Doug’s questions, I wanted to look back to the start of the year where you mentioned transactions underway at the time that could lead to $2,000,000,000 of gross proceeds. Now that we’re a bit more than halfway through the year, we’ve seen that $1,900,000,000 of loans resolved. How should we be thinking about that initial $2,000,000,000 number? Has that changed?

Has that gone in line with your expectations? And how are you viewing that playing out throughout the rest of 2025? Thank you.

Mike McGillis, President, Chief Financial Officer and Director, Clarus Mortgage Trust: Thank you. This is Mike. I’ll take a shot, and Priyanka can add on. I think based on what we see coming down the pike, which Priyanka touched on a little bit, I think we are retracting to exceed that target. All these resolution activities are good just because it results in churn of the portfolio, of liquidity for us that we can use in other ways, in line with our stated priorities.

So, we feel pretty comfortable we’ll exceed that that 2,000,000,000 target of UPB of resolutions that we laid out earlier in the year.

Priyanka Garg, Executive Vice President, Mack Real Estate Group: Yeah. I I agree with all that and have nothing to add. I mean, it it’s it’s our we’re using all the the tools in the toolkit to make sure that we’re achieving the goal of turning over the portfolio. And I think we’ve gotten through a lot of it, but there will be some more between now and year end.

John Nicodemus, Analyst, BTIG: Great. Thank you so much, Mike and Priyanka. Very helpful. Then following Rick’s question about the REO, just wanted to, go a little into that. For the two recently foreclosed Texas assets, I know it’s still early days.

What sort of, you know, CapEx operating improvement needs, are you seeing at those properties? Just curious sort of what that whole process is going to look like before, you know, they’re in a more stable state the way the Arizona and the other ones are. Thank you.

Priyanka Garg, Executive Vice President, Mack Real Estate Group: Yeah. I I really appreciate that question, Sean, because I think it goes back to demonstrating the sponsor’s ability to really step in here. I I we have been really pleasantly surprised at just the low hanging fruit. I mean, it’s not it’s not a lot that needs to be done to to really reposition the asset in these markets. They have they need to be you know, for example, they need to be rebranded, and you need to take the prior sponsor’s name off the buildings.

And you need to make sure you know, so it’s a consumer product at the end of the day, so you need to make sure that what people are saying online and the reviews match the the product that we wanna deliver. But then beyond that, there’s a lot of just low hanging fruit around landscaping and curb appeal and, you know, very, very easy things to execute. And I I think one of the other things that we’ve been surprised by is we we strongly believe in, you know, unit renovations and upgrading units, but only if there is the ROI there. And in some of these assets in in Dallas and they’re wide ranging, the economics don’t make sense because it is catering to a target market that really appreciates the lower price point and, you know, in a in a well managed asset. So it’s it’s not a lot of capital and we, you know, we think we can make a a big difference in the matter of just several quarters.

John Nicodemus, Analyst, BTIG: Thanks so much Priyanka. That’s all for me.

Priyanka Garg, Executive Vice President, Mack Real Estate Group: Thanks John.

Becky, Conference Facilitator: Thank you. Our next question comes from Jade Rahmani from KBW.

Jade Rahmani, Analyst, KBW: Your line

Becky, Conference Facilitator: is now open. Please go ahead.

Jade Rahmani, Analyst, KBW: Thanks. Thanks very much. I might be wrong, but it it does sound like the outlook for resolutions in the second half of the year is a bit muted. I’m not sure if you agree with that, but that is a little bit at odds with the very strong transaction environment we’re seeing, the CRE brokers report as well as the select commercial mortgage REITs that are robustly originating loans right now. So what do you think is driving that?

Is it the stories of each of the assets or something else?

Priyanka Garg, Executive Vice President, Mack Real Estate Group: Yeah. Hi hi, Jade. It’s Priyanka. I’ll I’ll take that one. So I think, one, I would just say we we sort of accelerated a lot of that activity.

We have you know, we we saw significant turnover in the book year to date on a percentage basis much higher than our peers and and what a lot of other people have seen. So it’s it’s a timing question, and we were, you know, very focused on encouraging that activity to happen more quickly. We now, I think, can be more patient around regular way repayments, and we have a number of loans where our sponsors are under term sheet and working on refinancing. I just don’t control those outcomes, so I think we’re a little more hesitant to provide forward looking guidance on that. But that said, completely agree with the sentiment out there in terms of transaction volume and ability you know, strength of the capital markets and and sponsors abilities to refinance us out.

We just we don’t control those outcomes, so we’re just being, you know, thoughtful in our response to those questions.

Jade Rahmani, Analyst, KBW: Okay. That’s great. Just on the July, New York multifamily, I’m not sure if you said this. There’s lots of conference calls at this time. But, do you know what the discounted payoff was, if you could give that amount?

Priyanka Garg, Executive Vice President, Mack Real Estate Group: The one that happened in July? Yeah. It was, it was 90¢ So $3.90 was the loan amount, $3.50 was the discounted payoff number.

Jade Rahmani, Analyst, KBW: Okay. Is that the only way I’ve lost

Priyanka Garg, Executive Vice President, Mack Real Estate Group: Just to be clear, that was sorry, Jade. I don’t mean to interrupt you. I just wanna make clear that that was already embedded in our book value as of year end, that loss.

Jade Rahmani, Analyst, KBW: Okay. That’s good to know. Are there any other expected losses in the third quarter that you know of right now?

Priyanka Garg, Executive Vice President, Mack Real Estate Group: No. Everything that we know of, we have reflected in our numbers at this point.

Jade Rahmani, Analyst, KBW: Okay. And then could Mike give an update on the term loan refi, how that’s going, what you’re thinking there? Will you downsize the loan? Will you go with a, you know, private credit option or issue some other form of debt? And then just broadly speaking, the capital structure of the company, do you think issuing a preferred, would be attractive because that would bolster, total equity and therefore improve the financing options, the leverage options because there’d be a much bigger equity base, which would help cushion some of the transitions you’re seeing in these assets like the REO and such.

Mike McGillis, President, Chief Financial Officer and Director, Clarus Mortgage Trust: Yeah. Thanks, Jay. Very thoughtful question. You know, we’re still working through the term loan process, so I can’t give a ton of specifics around it. But we have a number of private credit providers who we’re speaking with.

You know, with respect to the existing holders, we, expect to in engage started engaging with them. And I would expect that we will reduce the size of that financing given the amount of liquidity we have in our balance sheet and our stated objective of reducing leverage with respect to preferred. We thought about it. I think that our best source of capital really continues to be continuing to resolve some of the watch list assets in the portfolio, generate liquidity from that that we can use to delever. Obviously, I think a preferred would be very helpful in the future, but we’d like to approach that from more of a position of strength, which I think we’re continuing to get there.

Becky, Conference Facilitator: Thank you. We currently have no further questions. So I’ll hand back to Richard Mack for closing remarks.

Richard Mack, Chief Executive Officer and Chairman, Clarus Mortgage Trust: Thank you. I want to again thank everyone for the thoughtful questions. I would summarize by saying we’re ahead of our projections for our priorities and just restate them again, is resolving watch list loans, improving liquidity, and redeploying cash to higher and better uses, including stabilizing the business. But before I let everyone go, I want to follow many of our mortgage REIT peers by acknowledging the magnitude of loss created by the senseless tragedy which occurred at 345 Park. We live in a very small New York City real estate community, and many of us here at CMC have close ties with the victims and with the Blackstone and Rudin teams.

I just wanna say on behalf of everyone at CMTG that we mourn their passing, we send our condolences to their families and their colleagues, and just note that the world is a much poorer place for their loss. Thank you all and we look forward to reconvening next quarter.

Becky, Conference Facilitator: This concludes today’s call. Thank you for joining us. You may now disconnect your lines.

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