ARI
#It's always a little bit tough to predict, <UNK>, just because we don't go into the year with any preconceived plans, so to speak.
We very much look at it on a deal-by-deal basis.
I think that being said, given our increased size, given our ability to be a little bit more in control of situations as we're pursuing transactions, and also given some of the relationships we have formed with, I'll call them, partners both in lending as well as those who lend capital to us, I do think it'll be a little bit more weighted toward the first mortgage side of things, which, if you ---+ as you know, if you look at the trend over 2017 and the early part of 2018, that's sort of been where the portfolio has been moving, and I think you'll see that trend continue.
Yes.
Look, I think a lot of it depends on what you're actually lending against.
And obviously, a first mortgage on a construction project or heavy redevelopment project is going to have a different and higher return than some sort of more stabilized asset or one where there's, at least, perceived to be less risk in the execution of a business plan.
I think what we announced in the ---+ for the fourth quarter of 2017 and what we've done in the first quarter of 2018, I don't think there's been a lot of movement in spreads, so to speak, in terms of what we've been able to do.
But I do think, if you looked at the market broadly, it's probably 25 to 50 basis points tighter for first mortgages generally and that tends to be driven more up by what's perceived as a little bit more stable or a little bit less risky.
I think on the mezz side, again, it's deal-by-deal but there's certainly more competition in the world today, not to say there hasn't historically been competition.
But again, I think that competition is 25 to 50 basis points on a transaction, no more than that.
And again, I'll remind you and everybody else listening, right, at the end of the day, our business is finding things where we're comfortable with the risk-adjusted return, and we might be able to get paid a little bit more because we've been able to figure things out from a structuring perspective, been able to dig in on the diligence side and get comfortable with what the true risk is and what the business plan execution will be.
And I think to the extent your view is that we're generating slightly higher spreads on what we're doing, I think it's ---+ because, at the end of the day, we're still just trying to find, in a fairly large market, a handful of transactions where we think we can generate excess return by being a little bit more creative on deal structure.
Again, sort of my standard refrain.
The portfolio is definitely lumpy.
Deals sort of have a life of their own, and ultimately, you're talking about private placements that are tied to legal work, diligence work and everything sort of coming together.
That being said, if I look at our pipeline now and what I expect to happen between now and the end of the first quarter, there are some things that are fairly lumpy that I would expect to happen between now and the end of the quarter.
That will, I think, quickly get the numbers back in line with what you're historically used to seeing.
But then I'll just add my standard disclaimer that I think it's pretty tough to think about this business on a quarterly basis.
Yes, it repaid.
Correct.
Yes.
I mean, operationally, again, it's, call it, a low 80s percent leased asset.
It is covering debt service but not by a wide margin.
I think there are ---+ there's still work to be done in terms of the leasing and overall marketing strategy.
And I think given the size of the asset and given where retail may or may not be headed in this country, I think it's one that we spend a lot of time focusing on from an asset management perspective.
I think there's some interesting conversations going on that could change our view.
But at this point, I think it is one ---+ the 4 is reflective of something that is very much on the radar screen, work still to be done, and we'd like to see a little bit more leasing progress and a little bit more leasing success as we move through the year and one ---+ I think it's one that we'll be monitoring closely from an asset management perspective throughout the year.
That's right.
I mean, I think, again, back to my earlier comments, we've certainly done more that puts us senior in the capital structure.
I think if ---+ you'll see some things later on this year where I think we'll probably, on certain large transactions, will move higher in the capital structure, lower in terms of nominal loan-to-cost or loan-to-value at the time we originate something.
But I don't want to draw too many bright lines in the sense that fundamentally, the business is about looking at things from very much a granular bottoms-up perspective and seeing if we could find a place in the capital stacked on any transaction where we think we're being paid appropriately for the risk we're taking.
I think that generally speaking, our originations today is reflective of the fact that we are 9 years into our recovery cycle, which is certainly long-dated.
But it's equally reflective of the fact that overall economic activity is actually very strong and that is being reflected in the operating performance of a lot of the assets that we are either looking to lend against or are which the ---+ or which are the logical comps for the assets that we are willing to lend against.
So I think it cuts both ways and I think we're just trying to make sure that whenever we're looking at transactions, our underwriting and our analysis is reflective of what we perceive to be both the most current as well as the most relevant information to the situation at the time.
I think to the extent we're able to look out 2 years, I think we've always taken a fairly ---+ and this goes back even 4, 5 years ago, I think we've always been fairly pessimistic in terms of where cap rates go, where residual values go, where prices per square foot go, where prices per key go.
So I think we retain our skepticism and pessimism, which I think we're supposed to do as lenders.
But I don't think that view has gotten any more negative in terms of what's going on right now.
I think it's generally consistent with the approach we've always used historically because in some respects, it feels like, at least for the last 3 years, we've been talking about the fact that this is a long-dated recovery and we need to be thoughtful about how quickly things might change.
Yes.
I think it's unrealistic that we're getting paid off in April.
I think if you'll recall, at the time we took the impairment, this is a 50 condo unit project.
I think there were roughly 24 or 25 unsold condos at the time we took the impairment.
Today, we're down to 17 unsold condos.
So again, chipping away at it sort of unit-by-unit, continue to be, generally speaking, pleased with the reaction of those who come in and tour the project.
I think the challenge at the asset is really about getting more foot traffic in because I would say the hit rate has actually been pretty good, both in terms of price paid and success in getting people to step up when you ---+ when we actually get the right level of foot traffic.
But I think this is going to be one that we sort of just chip away at throughout the year.
I don't think there's a concentration.
I'd make a general comment that on par, the project was a mix of 2- and 3-bedroom units.
I think on par, there's more 3-bedroom units left than 2-bedroom units.
So on the margin, slightly higher price point, but it's not as if there's a bunch of value in our remaining penthouse or anything like that.
It's all from a price per square foot perspective and nominal dollar value, all within a reasonable range.
But if you gave me my choice, I'd rather have more 2-bedroom units than 3-bedroom units.
That's not where we are at this point in the life cycle of the project.
I don't have it at my fingertips, <UNK>, but we can certainly pull it together and follow up post call.
Thanks, operator, and thanks everybody for participating this morning.
