Claros Mortgage Trust, Inc. Q3 FY2024 earnings call

• Richard Mack discussed economic and real estate market dynamics, noting interest rate sensitivity and the need for the Fed to adjust rates. He highlighted that while the Fed cut was helpful for transitional real estate assets, uncertainty remains regarding property value inflection points. • Mike McGillis reported GAAP net loss of $0.40 per share and distributable loss of $0.17 per share. The loan portfolio decreased due to loan repayments, including $374 million in repayments, with reductions in office and life science properties. • Three loans were reclassified to held for sale, with decisions based on optimal outcomes for CMTG considering various facts and circumstances. • Multifamily remains a high conviction theme with supply constraints supporting pricing trends in major urban markets, and efforts to extract value from multifamily assets by leveraging sponsors' experience.

For the third quarter of 2024, CMTG's loan held for investment portfolio decreased to $6.3 billion at September 30 from $6.8 billion at June 30. The quarter-over-quarter decrease was due to $374 million in loan repayments, including the full repayment of 4 loans totaling $354 million of UPB. Multifamily continues to be the largest portfolio exposure, accounting for 42% of the portfolio at quarter end. Office exposure was relatively small at 14% of the portfolio at quarter end. During the quarter, 2 multifamily loans were moved to a 4-risk rating with a total UPB of $325 million, and 3 multifamily loans were moved to a 5-risk rating with a combined UPB of $186 million, with specific reserves of $30 million recorded against these loans.

• Anticipate transaction volume to pick up momentum in 2025 as sponsors begin to favorably access capital markets again. • Potential uptick in construction as developers revisit projects on hold for two years or more. • Opportunities for multifamily developers to capitalize on supply-demand imbalances in certain markets as new inventory is absorbed.

• Uncertainty in Fed actions and their impact on property values. • Market volatility and potential deflationary pressures from factors like China. • Credit migration risks, especially in the multifamily book, and the need for careful capital allocation in resolving loans.

Q: Talk about the 4 rated loan bucket and how you see those progressing.

A: Priyanka Garg stated about half of the 4s and 5s exposure is multifamily, with progress in non-multifamily assets through sales, and decisions on capital allocation based on long-term value creation and use of capital.

Q: Discussion on reserves and charge offs.

A: Mike McGillis said reserves are subjective based on resolution plans for assets, with decisions driven by facts and circumstances at the time of making them.

Q: Emerging new vintage bridge loan market.

A: Richard Mack mentioned better assets, flight to quality, back leverage coming in, and private capital (including family offices and high net worth) being active in the loan sale market.

Q: CMTG's capital availability and needs.

A: Mike McGillis said unfunded commitments are manageable, with potential capital access through refinancing multifamily assets taken as REO, and no expectation of accessing the term loan market at present.