BrightSpire Capital Inc - Ordinary Shares - Class A Stock

Thank you. Good day and welcome to the Bright Spire Capital second quarter 2026 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. a question you may press star then 1 on your touchstone phone. To withdraw your question please press star then 2. Please note, this event is being recorded. I would now like to turn the conference over to David Palame, General Counsel.

Please go ahead.

Good morning and welcome to Brightspire Capital's second quarter 2026 earnings conference call. We will refer to Brightspire Capital as Brightspire, BRSP or the company throughout this call. Speaking on the call today are the company's Chief Executive Officer Mike Mazze, President and Chief Operating Officer Andy Witt. and Chief Financial Officer Frank Saraceno. Before I hand the call over, please note that on this call, certain information presented contains forward-looking statements. These statements, which are based on management's current expectations, are subject to risks, uncertainties, and assumptions. Potential risks and uncertainties could cause the company's business and financial results to differ materially. For a discussion of risks that could affect results, please see the risk factors section of our most recent 10-K and other risk factors and forward-looking statements in the company's current and periodic reports filed with the company. with the SEC from time to time.

All information discussed on this call is as of today, July 29th, 2026, and the company does not intend and undertakes no duty to update for future events or circumstances. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release and supplemental presentation, which was released yesterday afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measures and an explanation of why the company believes such non-GAAP financial measures are useful to investors. Before I turn the call over to Mike, I will provide a brief recap on our results. company reported second quarter gap net loss attributable to common stockholders of $18.3 million or $0.15 per share, distributable earnings of $15.8 million or $0.12 per share, and adjusted distributable earnings of $16.8 million. or 13 cents per share. The company also reported GAAP net book value of $6.81 per share and undepreciated book value of $8.10 per share as of June 30, 2026. Finally, during this call, management may refer to Distributable Earnings at DE. With that, I would now like to turn the call over to Mike.

Thanks, David, and welcome to our second quarter 2026 earnings call. We had a very active second quarter. Along with solid loan originations, we completed our largest quarterly share buyback, while our asset management team continued to advance REO and watch list resolutions. Further, we took another meaningful step in rotating out of real estate equity investments and into our core strategy of first mortgage loans. But first, starting with loan originations, we closed 10 loans in the second quarter for $319 million and subsequent to quarter end, we closed an additional three loans for $117 million. Further, we currently have four loans for $178 million in execution. closing these loans, our loan book will be just over $3 billion. Our next milestone for the loan book is $3.5 billion, which we expect to achieve around year-end.

Moving to capital deployment, during the quarter we bought back 3.8 million shares for $21 million. We took advantage of what we viewed as a compelling market opportunity, evidenced by extreme high daily trading volumes in our stock during this window. will continue to look at buybacks as the circumstances present themselves. Frank will discuss the details and impact of the buyback. Turning to the sale of Albertson's Triple Net Equity position. Last month we filed a Form 8K disclosing the details of the sale which is expected to close in the third quarter. As noted the sale price was $300 million, inclusive of the assumption of $200 million of CMBS debt. This sale removes refinancing risk associated with the 2028 debt maturity.

As a reminder, the current debt interest rate is 4.77%, which is nearly flat to the current 10-year treasury. among the factors we considered were refinancing at a much higher rate, along with the potential for reduction in loan proceeds, thus requiring additional equity capital. For these reasons, the impact of the refinancing would have resulted in a substantial ROE reduction associated with this investment. We also anticipate deploying the $100 million of freed-up capital at a higher ROE than we currently have. While this proactive sale slightly delays reaching full dividend coverage by year-end as it previously anticipated, it reflects the correct course of action from a corporate finance, risk management, and strategic perspective. Once the sale of Albertsons closes, our remaining net lease portfolio will be concentrated in two investments. The first is the Aurora, Colorado office net lease, where we are currently in negotiations with the tenant regarding a lease extension. The second is the Aurora, Colorado office net lease, where we are currently in negotiations with the tenant regarding a lease extension.

Tentatives indicated a desire to stay at the property with some anticipated TI contributions from Bryce Meyer. The debt on this asset matures this August, and we are currently working with the servicer on a maturity extension. The second is the Indianapolis office and lab space property. While there are four and a half years remaining on this lease, the tenant has put us on notice that we'll not be planning to renew. We are exploring all options to maximize value and achieve the best outcome, which may include the as-is sale of the property with the current lease in place. The debt on this does not come due until October 2027. As always, please refer to our supplement, which contains more detailed information on all the NetLease assets.

Moving to the watch list. During the quarter, we continued to make progress. Three watch list loans were resolved, totaling $99 million, and while two loans were added, there was a combined net reduction of $30 million. Important. Importantly, we are scheduled to continue reducing exposure in the back half of 2026, given the occupancy improvements of each of the remaining underlying properties. On the REO side, we now have two multifamily properties under contract for sale. The remaining assets each have a timeline for resolution, some of which are planned for this year. Andy will provide more details in a moment. In closing, as we look at the second half of the year, we expect to continue to recycle capital and grow the loan book to approximately $3.5 billion circa year-end.

At the same time, ongoing originations will continue to improve the portfolio composition with lower average loan sizes and reduced concentrations focused on more multifamily and less office. I will also note the composition of the portfolio is on the verge of predominantly post-rate hike originations. Given this progress, along with the continued tailwinds in the CRE debt capital markets, We also expect to issue our second CLO this year. This will mark the first time we issued two CLOs in the same year. We are encouraged by the continued progress we are making with each passing quarter, and we are optimistic about our ability to grow earnings and reestablish positive dividend coverage. With that, I will turn the call over to our president, Andy Witt. Andy?.

Thank you, Mike. During the second quarter, we continued to make solid progress across all areas of the business. The focus remains on growing the underlying loan portfolio through new originations fueled by capital primarily generated from the resolution of watch list loans and REO assets. As Mike highlighted, Bright Spires Originations activity has been healthy. We continue to see ample deal flow with our year-to-date pipeline volume trending well ahead of 2025. The market continues to be primarily driven by an abundance of multifamily and refinancings. multifamily continue to center around 250 basis points over SOFR. Warehouse lenders remain active and constructive, and the 2026 CRE-CLO market issuance stands at approximately $29 billion across 28 deals, just shy of issuance for the full year 2025. Year to date, Brightspire has committed $892 million of capital across 24 loans with an average loan balance of $37 million.

Loan Origination's activity for the second quarter consisted of 10 loans with an aggregate commitment of $319 million. Repayments during the quarter consisted of $123 million across seven positions, including three watch list loans. of quarter end, the loan portfolio is comprised of 106 loans and an aggregate loan balance of approximately 2.9 billion, a net increase of nearly 200 million quarter over quarter. weighted average loan balance across the entire portfolio is 27 million and has a weighted average risk ranking of 3.0. As it relates to portfolio management, during the second quarter, exposure to watch list loans continues to be directionally positive, despite two additions to the loan list. The $11 million Denver office loan added to the watch list during the quarter is expected to be sold in the near term. During the quarter, we also added a $57 million Las Vegas multifamily loan to the watch list. In terms of watch list updates, the Austin, Texas multifamily loan has experienced positive recent leasing momentum, marking a significant turnaround in performance at the asset level. The property is currently operating near stabilized occupancy levels.

The Dallas office loan, our most tenured watch list loan, is a approaching 70% occupancy and is expected to improve. We are encouraged by the positive progress at both properties, and this may lead to resolutions in the short term. Watchlist resolutions during the quarter consisted of three repayments for a total of $99 million, resulting in $30 million net reduction in watchlist loan exposure. Currently, the watchlist is comprised of four loans with an aggregate loan balance of $136 million. Turning to the REL front, there are six properties with a gross book value of $330 million, of which two multifamily assets with a combined NAV of $62 million are under contract for sale. The remaining two multifamily assets with a combined net asset value of $330 million value of $84 million are expected to be in the market over the next few quarters. We continue to make progress on the execution of the value-add programs at both the Arlington, Texas, and Dallas, Texas multifamily properties.

Under Bright Spires ownership, our in-house asset management team is making progress at these assets, bringing their resolutions closer. The final two REO properties consist of the San Jose Hotel and the Santa Clara Multifamily Predevelopment Property. As for the Santa Clara Predevelopment Property, we continue to remain patient as the market recovery currently underway continues to gain momentum. of note, the Bay Area is experiencing the largest rent increases in the country and the Santa Clara property is benefiting from these improvements. Lastly, with regard to the San Jose hotel loan, we are making substantial progress addressing deferred maintenance, including elevator retrofits. The hotel has seamlessly hosted the major recent sporting events, and we continue to target a resolution in 2027. In summary, we made meaningful progress during the quarter in all phases of the business. and the results were in line with expectations. Looking ahead, our focus remains on executing our business objectives, which will result in portfolio and earnings growth.

With that, I will turn the call over to Frank Saracino, our Chief Financial Officer. Frank?.

Thank you, Andy, and good morning, everyone. For the second quarter, we generated adjusted D at $16.8 million, or 13 cents per share. Second quarter DE was $15.8 million or 12 cents per share, which includes specific reserves of approximately $1 million. Additionally, we reported total company gap net loss of 18.3 million or 15 cents per share, which also includes approximately $9 million of operating real estate impairment related the two legacy retail triple net assets and an RE owned multifamily property. First, the two legacy retail triple net assets. Earlier this year, we received notice of default on mortgage notes payable cross-collateralized by five retail triple net properties. In April, 2026, the receiver was appointed and took possession and full control of one triple net lease Indiana retail property, requiring deconsolidation of the related assets and liabilities from the company's consolidated balance sheet. resulted in our recording a $2.4 million operating real estate impairment charge in the second quarter of 2026.

In July, a second receiver was appointed and took possession and full control of one triple net lease asset, Illinois retail property. As a result, we will deconsolidate the related assets and liabilities from the company's consolidated balance sheet in the third quarter. Accordingly, we also recorded an impairment charge of $3.1 million during the second quarter. Importantly, these gap impairment charge had an immaterial impact on our undepreciated book value as we had written down both investments two years ago. Next, as Mike mentioned earlier, during the second quarter, we agreed to sell a previously REO'd multifamily property located in Mesa, Arizona. Based on expected net sales proceeds, we recorded a gap impairment charge of approximately $3.8 million and an approximate $6.5 million reduction to underappreciated books value. We expect the sale of this property to close during the third quarter.

Quarter over quarter, total company gap net book value decreased to $6.81 per share from $7.05 in the first quarter. undepreciated book value decreased to $8.10 per share from $8.24. The change is mainly attributable to an increase in our CISO reserves and the real estate impairments discussed earlier, offset by share repurchases. Looking at CECL reserves, during the second quarter, we recorded and charged off specific CECL reserves over approximately $1 million resulting from the resolution of our three risk-ranked five loans. for general CECL provision increased to $100 million or 327 basis points on total loan commitments. compared to $87 million of 306 basis points reported in the first quarter. was driven by macroeconomic conditions as well as specific inputs on certain ones. As Mike highlighted earlier, during the second quarter, we repurchased a little over 3.8 million shares for approximately $21 million at an average share price of $5.46. This resulted in an $0.08 increase to the company's underappreciated book value per share. Following this activity, we have approximately $29 million remaining under our stock repurchase program. Our debt to assets ratio is 70% and our debt to equity ratio is 2.7 times.

And finally, our liquidity as of today stands at approximately $131 million. This includes 45 million of cash, 30 million available under our credit facility, and approximately 56 million of approved but undrawn borrowings available. on our warehouse lines. This concludes our prepared remarks, and with that, let's open it up for questions. Operator?.

Thank you. We will now begin the question and answer session. To ask a question, you may press star, then 1 on your touch-tone phone. To withdraw your question, please press star, then 2. We ask that you please limit yourself to one question and one follow-up question. If you have additional questions, you may re-enter the question queue. time we will pause momentarily to assemble our roster. And the first question will come from Gabe Pogge from BTIG. Please go ahead.

Hey guys, it's Gabe at Raymond James. Can you guys talk about... We go forward in conjunction with loan portfolio.

And I mean, you're talking about $3.5 billion by the end of the year. You're approaching $3 billion. And I'll perform for the loan.

and just how do we think about kind of the top growth. Dave, you're breaking up. We can't hear you. You're breaking up, Dave. Can you guys hear me? No, we can't.

Sorry, I'll try that one again. It's Gabe at Raymond James. Can you talk about how to think about the run rate for DE on a go forward basis in conjunction with the significant loan portfolio growth that you guys have achieved? Right, you're almost at three billion now, getting to three and a half billion by the end of the year. How should we think about that kind of waterfall down to the bottom line while you're also working with watch list REO.

Right. So they go hand in hand, as we've emphasized before, a lot of this capital for redeployment to the loan book is coming from the REO, some of which is completely unlevered and some which is very low levered. all of which is pretty much a drag on earnings right now, because the REO yield is low. some of the multifamily assets are still, they're covering OpEx, but they're in lease up. So as we pull that forward and we liquidate that portfolio, that'll get funneled into the loan book. As we said, we expect the loan book to get to three and a half billion. And at the three and a half billion, we thought, I guess, indirectly, I'm giving you forward guidance, but I mean, we thought by $3.5 billion, we would be covering the dividend. But for the fact, as we said on the call, we elected to hit an unsolicited bid on Albertsons, which we thought was an extraordinary bid. So we did that. So that's going to put us back a little bit. So as we move into 2027, the goal is to hit an unsolicited to get the loan book closer to $4 billion by mid-year.

And I think that as you get to Q2, Q3 2007, that's where we probably see more positive dividend coverage as we get to beyond $3.5 billion and we redeploy the capital from Albertsons at what could be about 150 basis point higher ROI. we even were getting today. So the sale of the Albertsons put out, put out covering covering the dividend by, you know, maybe two quarters. All good. I still think we'll get much closer to that than where we are today.

Got it. A quick follow-up on Texas and Arizona. Mike, you had been kind of clairvoyant talking about pending issues in Texas and Arizona kind of over the course of heading into 2026. It was interesting to see you guys go back into Texas with three new loans, Arizona with two loans. Can you just talk about the landscape? there the opportunity set to kind of clean up some other folks problems thank you well.

problems and it goes both ways, right? We're selling things at, in some cases, yes, below where our loan amount was. So there's been a reset in that market and that is fueling a lot of asset sales right now. We've spoken about this before where lenders are really pushing borrowers to either execute themselves, which could amount to a short sale, and we've done some of the refinancing ourselves of our own short sales on market terms, or just straight foreclosures, of which we've done as well. So we think a lot of that product that was done in 21-22 is refueling the pipeline for transaction sales, all at a reset basis. And we're glad to go into that market again at much higher debt yields than we were in during the interest rate bubble.

and do you have anything you would add to that no i i think i mean the the markets generally you know you're starting to see supply tail off in terms of new construction and you're continuing to see job growth and and positive dynamics from an in migration perspective so So our general view is positive, and we think the setup is rather good for rent increases as we move into 2027 and beyond, given the lack of new supply coming in behind it.

Thank you, guys. Thanks, Gabe. And the next question comes from Tom Catherwood from BTIG. Please go ahead.

Thanks and good morning everybody Maybe Mike just sticking with that, you know the 3.5 billion dollar portfolio goal by year-end in the past You know, you'd always talked about one of the keys to achieving that was was selling down some of the REO repatriating that capital with the ten-year remaining for six years and above. Does that slow the pace, especially for multifamily assets, slow the pace of selling those and potentially push $3.5 billion out? Or are you willing to run leverage a little bit higher into the end of the year?.

to meet that target goal? I think by definition, as we get there, we're going to be wanting to leverage a little bit higher in the loan book. We're going to do a CLO, you know, fourth quarter. I won't say much more about it, but that leverage is 8% higher than what you get in the loan book. So the leverage will pick up a little bit more. Again, But yes, interest rates being where they are, are no one's friend. It's hurting everyone, but it is what it is. But we're we're we're seeing a lot of buyers actually moving to the floating rate part of the market away from the five year where they're getting more more done.

From what we understand, there are plenty of applications sitting at Fannie and Freddie for five year deals waiting for the five year to take down. We don't know if that's going to happen in In the meantime, the bridge market is open. The CLO market is very liquid with the amount of deals done already this year, surpassing that of last year. So no, we're pretty much full speed ahead. We may pause if we see bids come in on an asset that we really don't think reflect the value. We're always looking at the opportunity cost of capital as well, sitting on REO versus reinvesting at a much higher ROE. But we plan on forging ahead, despite where rates are.

I think it would probably take another 25 basis points up from here, where the 10-year gets closer to 5%, where you see the market have a big impact. We're still seeing buyers active in the market at cap rates, you know, at around where treasuries are, which shows their expression of optimism around what Andy alluded to earlier, no supply coming in 2027 and rent increases from that point on. So the market is still bidding things pretty aggressively in anticipation of rent growth.

Got it. Appreciate that, Mike. And then last one for me, maybe unpacking the CECL uptick a bit more. Obviously, you talked about working through a number of the watch list loans. There's no more five rated ones there. You had the two migrations, but it was a pretty substantial uptick. tick on a percentage basis of the overall portfolio in CECL. And Frank, I know you mentioned some was more on the specific side, some was more on the portfolio side, but I'm I guess, what had the bigger contribution to that increase? Was it on specific assets, like maybe the Las Vegas multifamily that was added to the watch list? Or is this just portfolio-wide, you were more concerned about economic conditions?.

So I think that, you know, we don't give a lot of insight, but it's probably 50-50 between specific and economic conditions. what we still have a fair number of office loans and we take a hard look at those loans every quarter, but also remember we generated a bunch of new loans during the quarter and that obviously adds CECL.

well. Got it. Thanks everyone. Thank you and the next question will come from Timothy Diagnostino with B. Reilly Securities. Please go ahead.

Good morning and thank you for taking the questions. During the prepared remarks, I believe it was mentioned that multifamily is being written at about SOFR plus 250. And I was wondering if you could provide maybe a little color about where you're writing industrial. It seems that through the first half of 26, you know, that's a little bit of a bigger chunk of the origination than compared to the first half.

compared to 2025? Thank you. Well, there's a lot of industrial sale activity going on. We have not done a ton of industrial at all. And part of that is because we really favor properties where there's more granularity in the rent roll. And we steer away from assets that have a lot of binary lease up risk. One, from a credit standpoint. Two, from an execution standpoint. It's something that line lenders don't and it's something that execute less efficiently in a CLO format. So we've been really focused on multi.

Industrial has gotten tighter, I'd say much more inside of 300 than it was last year where it was posting around 325. So you're seeing the market is getting very aggressive and my guess is industrial is going is probably 25, 30 basis points wider than multifamily. But we're seeing, as we alluded to earlier, with the reset that's going on in multifamily, we're seeing a lot of opportunities there, enough to fill the book, and we're seeing an opportunity to rotate the book toward more average loan size, 30 million multifamily loans, which is... clearly what we favor at this point we're open for industrial business but like i said what we've been seeing has been too much.

with binary rent law risk. Okay, great. Thanks for the color. And if I could just ask a follow-up, just generally speaking on the loan originations, it seems, you know, year to date 26, the average loan size is about 37 million compared to about 29 million and 25. Are deals just generally a little bit bigger out in the market or do you see yourself, you know, going a little bit up market. And I know it's only an $8 million increase, but just kind of any color there would be great. Thank you.

Andy? Yes, I wouldn't read too much into the average loan size. We are, you know, targeting, we are trying to stay away from, you know, rather small loans so called sub $20 million loans. But again, I wouldn't read too much into it. It's really a function of what's been available, what we've been successful on. And I think you can underwrite going forward that our average loan balance will be somewhere in that $30 to $35 million range.

Okay, great. Thank you for taking the questions today. Thank you. The next question will be from Jason Weaver from Jones Trading.

Hey, good morning guys. Thanks for taking the question. In conjunction with your prepared remarks, it looks like three Q's off to a really strong start with, you know, July almost as high as the second quarter total. Can you talk about a bit how the pipeline is shaping up here and how we should think about cadence through the end of September?.

Andy? Yes, so this year, you know, we had a strong start to the year in terms of volume at the top end of the funnel that's continued into the second quarter. To date, we've seen about $57 billion worth of product. And again, it's important to highlight that we are targeting the middle market. So that's over a substantial number of opportunities. And in terms of what we're seeing going forward, we expect the trend to continue into the back half of the year. So as we look at kind of expectations in terms of top end of the funnel, that could be somewhere, you know, in the $110, $120 billion range by year end, given what we're seeing. AT THIS POINT. DAN, I DON'T KNOW IF YOU HAVE AT THIS POINT.

DAN, I DON'T KNOW IF YOU HAVE AT THIS POINT. DAN, I DON'T KNOW IF YOU HAVE ANYTHING YOU'D LIKE TO ADD.

I would just add that if the trend continues and we hit the numbers that Andy just said, the total top of the funnel would eclipse the very robust years of 21 and 22, where we were over $100 billion but under $110 billion. So the pipelines continue to grow. It's been more refi than acquisition to date, but that is also starting to move a little bit.

with an expectation that more acquisitions might show up in the second half. Got it. Thanks for that. And then secondly, it looks like, as it pertains to your REO, the second quarter NOI on the San Jose hotel property was down about a million from last quarter. Can you talk about the drivers there and how we should think about the run rate for valuation purposes going forward?.

Yes, hi, this is Matt Housland. There's a fair amount of seasonality at that hotel, so it's not unexplored. unexpected for what we've seen in the past. Um, so we, we do see a, you know, drop off a little bit in the summer and then, you know, the, the spring and winter months tend to tend to be a little bit stronger. So, um, Not unexpected, not different than what we've seen in past years. Got it. Thank you for the color.

And again, if you would like to ask a question, please press star then 1.

The next question comes from Gaurav Mehta from Alliance Global Partners. Please go ahead. Thank you. Thank you. Good morning. Good morning. Following up on property NOI, what's the impact of the expected REO sales and triple N sales on the run rate NOI going forward?.

Just one property. It's not significant, the property, REO property that are going to be sold. It's not significant.

Okay. On the balance sheet, you talked about $29 million remaining under the stock repurchase plan. Should we expect more share repurchases going forward?.

We'll always balance the origination pipeline versus cash on hand. There is always a preference or bias toward organic growth of the loan book. Having said that, we indicated that our buybacks last quarter were at 546 a share. We know where the stock is trading today. It's attractive. But like I said, that doesn't necessarily mean we absolutely will go into the market. We'll balance, as I said, cash on hand versus our pipeline. But yes, we bought at 546 and we're trading at 507 right now.

All right, thank you. That's all I have. And ladies and gentlemen, this concludes our question and answer session. I would like to turn the conference back to Mike Mazzei for any closing remarks.

Well, thank you for joining us today. As always, we are available for one-on-one, so reach out if you'd like to coordinate that. Otherwise, we look forward to seeing you at the end of Q3. Thank you.

Thank you, sir. The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

This live transcript is auto-generated without human intervention or review.

[Call has ended.]

Good morning, and welcome to the BrightSpire Capital First Quarter 2026 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Palame, General Counsel. Please go ahead.

Good morning, and welcome to BrightSpire Capital's first quarter 2026 earnings conference call. We will refer to BrightSpire Capital as BrightSpire, BRSP or the company throughout this call. Speaking on the call today are the company's Chief Executive Officer, Mike Mazzei; President and Chief Operating Officer, Andy Witt; and Chief Financial Officer, Frank Saracino. Before I hand the call over, please note that on this call, certain information presented contains forward-looking statements. These statements, which are based on management's current expectations, are subject to risks, uncertainties and assumptions. Potential risks and uncertainties could cause the company's business and financial results to differ materially.

For a discussion of risks that could affect results, please see the Risk Factors section of our most recent 10-K and other risk factors and forward-looking statements in the company's current and periodic reports filed with the SEC from time to time. All information discussed on this call is as of today, April 29, 2026, and the company does not intend and undertakes no duty to update for future events or circumstances. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release and supplemental presentation, which was released yesterday afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measures and an explanation of why the company believes such non-GAAP financial measures are useful to investors.

Before I turn the call over to Mike, I will provide a brief recap on our results. The company reported first quarter GAAP net income attributable to common stockholders of $4.8 million or $0.03 per share, distributable earnings of $15.6 million or $0.12 per share and adjusted distributable earnings of $18.2 million or $0.14 per share. Current liquidity stands at $206 million, of which $58 million is unrestricted cash. The company also reported GAAP net book value of $7.05 per share and undepreciated book value of $8.24 per share as of March 31, 2026. Finally, during this call, management may refer to distributable earnings as DE. With that, I would now like to turn the call over to Mike.

Thanks, David, and welcome to our first quarter 2026 earnings call. I will keep my prepared remarks brief. And as always, Andy will walk through the quarter's loan originations and portfolio activity. Since reinitiating new loan production, we have closed 37 loans totaling $1.1 billion with an additional 9 loans in execution for $283 million for a combined total of just over $1.4 billion. While the process has been gradual, we have steadily increased our loan book each quarter, and it now stands at $2.7 billion. Our strategy remains focused on middle market lending with an average loan size of approximately $27 million. We have been focused on increasing diversification and avoiding loan size and investment concentrations that we deem too large for our equity capital base.

This, in turn, will also allow us to maintain slightly lower cash balances. Thus far, the overwhelming majority of new loans have been multifamily, contributing to a more favorable property type exposure. During the quarter, our portfolio also benefited from payoffs and resolutions of office loans. We expect a further reduction in our office loan exposure to occur this next quarter. As an aside, we also closed loans on hotel and industrial properties during the first quarter. However, overall, we expect multifamily loans to continue to comprise the majority of our activity in the medium term, with bridge loan demand being driven by valuation resets and increasing levels of sales transactions. This reflects lenders incentivizing borrowers with greater frequency to sell or refinance 2021 and 2022 vintage bridge or construction loans.

It is worth noting that in particular, the Sunbelt markets are seeing very high demand for multifamily bridge lending as that region works to absorb vacancies and rent concessions over the next 12 to 18 months. As we look ahead, our priorities remain straightforward, and those are to redeploy capital from the watchlist and REO resolutions into new loans, to grow the loan book to $3.5 billion by year-end and to execute a fifth CLO in the second half of the year. This plan positions us to cover the dividend by year-end. Achieving that goal will provide greater financial clarity, while the continued reduction in REO should remove credit uncertainties that may be overhanging the stock. Taken together, we are confident these actions will position BrightSpire to drive long-term shareholder value. With that, I will turn the call over to our President, Andy Witt. Andrew?

Thank you, Mike. Starting with our originations activity, it has been a busy start to the year despite the geopolitical issues in the Middle East. Equity markets have largely taken the events in stride. And with the exception of a couple of weeks when decision-making slowed, the commercial real estate credit markets have been similarly resilient. In the first quarter and subsequently, we closed on 8 loans totaling $311 million in commitments. Currently, we have 9 additional loans in execution, totaling an incremental $283 million in commitments. In total, this year, we have closed or in execution on 17 loans for total commitments of $594 million, 14 of which were multifamily. Transaction volume picked up in the first quarter. We saw over $29 billion at the top end of the funnel, which represents an increase of over 50% versus the same period last year.

It is worth noting that we are focused on the middle market opportunity, mostly between $20 million and $70 million, highlighting the breadth of transaction volume we're seeing at the top end of the funnel. Repayments during the quarter consisted of $169 million across 6 positions, including 2 risk rank 5 loans. Three of the repayments were office loans, further reducing our office exposure to just over 20% of the loan portfolio. We expect to continue reducing office exposure, both nominally and as a percentage of our loan portfolio throughout the remainder of 2026.

Currently, the property underlying the Phoenix office loan, our largest office loan is being marketed for sale. Our loan book at quarter end was approximately $2.7 billion across 100 loans, a modest increase quarter-over-quarter. Our average loan balance is $27 million and our risk ranking is 3.1, consistent with the previous quarter. Given the recent momentum, we expect to cross $3 billion in loans by approximately halfway through the year. Further, we anticipate our loan book will continue to grow in the back half of the year, targeting at least $3.5 billion loan portfolio by year-end. As it relates to portfolio management, during the first quarter and subsequently, exposure to watch list loans continues to move in the right direction.

During the first quarter, we resolved 3 loans, including 1 property we took ownership of through foreclosure, bringing watch list exposure down to $166 million or 6% of the loan portfolio. We also downgraded and simultaneously resolved one multifamily mezzanine loan for $32 million. As of today, we have 4 loans on our watch list for an aggregate value of $134 million. Multifamily properties underlying 2 of the remaining 4 watch list loans are under purchase and sale agreements, both of which are expected to close during the second quarter. Following the sale of these 2 properties, our watch list will consist of 2 positions, a Dallas office loan and an Austin multifamily loan with an aggregate gross book value of $67 million. The reduction in watch list exposure, both completed and underway in combination with new loan originations are foundational to our loan portfolio growth plan.

While we continue to make progress on the portfolio, we recognize there are headwinds still ahead, particularly in overbuilt Sunbelt markets that are both challenged from a market fundamentals and policy perspective, particularly as it relates to immigration, which is pronounced in border states such as Texas and Arizona. As a result, these markets are experiencing rental rate and concession challenges. As Mike mentioned, it is in these same markets where we are seeing lenders lean on borrowers to sell underlying assets, resulting in a wave of sales, particularly in Texas. As for the REO portion of the portfolio, there are 6 positions totaling $336 million of gross carrying value. Two of the 4 multifamily properties are currently in the market for sale following the completion of value-add business plans we've executed over the past 12 months. The remaining 2 multifamily properties are currently undergoing value-add business plans, and we expect to be in a position to take them to market in late 2026 or early 2027.

The final 2 REO properties consist of the San Jose Hotel and the Santa Clara multifamily predevelopment property. We continue to make progress on the San Jose hotel property, driving operational performance while making physical improvements and upgrades to the property. The loan represents 43% of our current REO exposure with a carrying value of $143 million. Lastly, as it relates to our Santa Clara multifamily predevelopment property, market conditions continue to evolve favorably as the Bay Area is achieving some of the strongest rental rate growth in the country, fueled by the AI boom. We anticipate taking this property to market later this year or very early in 2027. In closing, we made significant progress during the quarter and subsequently in all phases of the business. And results were consistent with the expectations we set for the quarter. Looking ahead, our focus remains on growing the portfolio and increasing earnings over the course of the year. With that, I will turn the call over to Frank Saracino, our Chief Financial Officer.

Thank you, Andy, and good morning, everyone. For the first quarter, we generated adjusted DE of $18.2 million or $0.14 per share. First quarter DE was $15.6 million or $0.12 per share. DE includes a specific reserve of approximately $2.6 million. Additionally, we reported total company GAAP net income of $4.8 million or $0.03 per share. Quarter-over-quarter, total company GAAP net book value decreased to $7.05 per share from $7.30 in the fourth quarter. Undepreciated book value decreased to $8.24 per share from $8.44. The change is mainly attributable to equity granted as part of our stock compensation program and consistent with past practice. Additionally, the first vesting of our performance stock unit awards also contributed to this decrease.

Going forward, PSU vesting will be an annual first quarter occurrence. Looking at reserves. During the first quarter, we recorded a specific CECL reserve of approximately $2.6 million. As Andy mentioned earlier, we downgraded and simultaneously resolved one mezzanine loan and as a result, charged off the associated reserves. Our general CECL provision decreased slightly to $87 million or 306 basis points on total loan commitments versus $88 million or 315 basis points reported in the fourth quarter. Our debt-to-assets ratio is 68%, and our debt-to-equity ratio is 2.4x. Lastly, our liquidity as of today stands at approximately $206 million. This includes $58 million of cash, $120 million available under our credit facility and approximately $28 million of approved but undrawn borrowings available on our warehouse lines. This concludes our prepared remarks. And with that, let's open it up for questions. Operator.

[Operator Instructions] Our first question today is from Timothy D'Agostino with B. Riley Securities.

I guess for me, it'd be interesting to hear how the investment landscape and the market is in the second quarter compared to the first quarter. Obviously, 10-year treasury was heightened kind of in May. And it'd just be good to hear the opportunity out there. Is your pipeline growing in the second quarter?

Thank you. It's Mike. Thank you for the question. As Andy alluded to in his opening remarks, we did see a little bit of a pause given what was going on in private credit, given what's going on geopolitically, but that was pretty brief. It got pretty much right back on track after about 2 or 3 weeks. Overall, the market is doing pretty well. You're seeing spreads remain tight. We did not see a gap out in spreads that we saw in pricing in certain sectors in private credit. Real estate spreads continue to stay resilient. We kind of hit a wall on how tight we've gone. Everything is getting done pretty much for multifamily around the mid-200s, plus or minus 10 basis points. We are seeing some good response in the capital markets.

We're seeing CRE CLO transactions with price talk on the AAAs at 135. I think that's 10 tighter than where we printed in January before the Iran affair started. So market is pretty much on track. Pipeline looks good. As Andy mentioned, subsequent to quarter end. We've got a lot of stuff in execution, over $300 million in loans in execution now for closing. So we're expecting to hit the $3 billion mark midyear. And right now, things are pretty calm. Pipeline looks good. The flow looks good. We also mentioned that we're seeing a lot of lenders leaning on incentivizing maybe I should say, borrowers to get to the market either vis-a-vis short sales, foreclosures or that's happening tremendously in Texas. Right now, we're seeing a lot of activity there, a lot of price resets. And in that, we're seeing opportunities for new loans.

Okay. Great. And then I guess just as a second question, you had mentioned on the call that the San Francisco area is performing better from the AI boom. And is that true across multifamily, office and industrial? I guess it'd just be interesting to get a little bit more color on per asset class in that area because I have heard that before that San Francisco is doing better with the AI boom.

Yes. I would say San Francisco and the Bay Area, even there was a commentary by Green Street, I think, last night that even Oakland is starting to see some positive tailwinds. So on the resi side, absolutely. If you look at rent increases around the country, I think San Francisco is leading the way even above New York City with positive rent growth. And we also see the same thing in office. You're seeing a lot of activity in AI where start-up companies are starting off with a small amount of square footage year one and they get a second round of financing if they get traction on their strategy and they're coming back for 20,000, 25,000 square feet.

So I think you're seeing office leasing in San Francisco doing better than it was pre-2019. We also think that the same effect is going to be in the lodging sector. That sector has been dormant for quite a while. San Francisco was kind of like on a no-fly list for a few years now. But given what's going on with the new mayor of San Francisco, who's done a miraculous job in turning that city around and what's going on AI, I think generally, people are more bullish on San Francisco, yes.

And then sorry, if I could just ask a follow-up question there. Is there any tailwinds being drawn to the San Jose hotel from that or not as much?

Not as much right now. We're still very largely dependent upon group business. We're still going through our CapEx program and upgrading the hotel. We had some very serious events occur with the Super Bowl and March Madness NCAAs. The hotel handled those very well. We did very well with those. We have FIFA coming as well as another event in July, the CrossFit National Championship. So that should also be a tailwind for us. But we're not yet seeing that transient business traveler yet. We're seeing a lot better resorts in hotels because of the amount of money that the baby boomers have in terms of discretionary income. But we need a pickup in transient overnight stays to really get us to the NOI level that we want. But as we said, we intend to hold that asset through the balance of the year and market it at the end of this year or beginning of next year.

The next question is from Chris Muller with Citizens.

So it's great to see the expected REO sales and also the 5-rated loan repayment and expected underlying property sales there. And it looks like that's going to clean up the rest of the 5-rated loans. So I guess, first off, am I reading into that correctly? And then will there be any realized losses associated with those subsequent activity that will hit second quarter earnings?

Well, on the properties that we have up for sale now in REO, those bids are coming in now. And so the answer is we'll find out. We think we're pretty close to the pin. But as Andy alluded to, there's a lot of supply coming in those markets. And one thing that I want to highlight is as we get -- as we wind down and we're getting -- making magnificent headway on the watch list. There are still areas of the country, particularly in the Southwest, as Andy mentioned on his prepared remarks, that are experiencing a lot of softness. The Dallas-Fort Worth market seems to be tightening. It seems to be coming out of a trough. We could see a potential tightening of rent concessions over the next 6 months.

However, you move to markets like Arizona and Vegas and particularly Arizona, we're seeing very few asset sales. So we have an asset in Mesa that we're selling right now in the REO. The bids are due next week, but there have been very, very few. I think maybe 5% of asset sales relative to the peak of asset transactions in like 2022. I think asset sales in Arizona are kind of like the 2009 levels. So that market has been more slow to recover. We've got a lot of vacancy and a lot of absorption that needs to be dealt with, and that's probably going to take another 12 to 18 months. So we have eyes. We've made some new loans in Arizona at reset basis that we really like.

But with regard to our portfolio, we have some exposure in Arizona, and we're watching it very closely. That market has been chronically difficult with rent concessions, vacancies. As Andy mentioned, we're seeing kind of a reversal of the immigration that we've had over the past few years. That's going backwards now. A lot of the in-migration to the state because of the work from home during COVID has pretty much completely unwound, but there's a lot of supply that's still hitting the market this year. So all eyes and ears on Arizona, and we'll know more about our REO sales this week. As I said, we're expecting bids this week and next week.

Got it. And it looks like the remaining 4 rated loans are in Dallas and Austin. Anything you can share on the potential path of those?

On the multifamily one, that will be pretty straightforward. We'll time the market on that. There's liquidity there. It's all a matter of pricing. On the Dallas office, we have some activity going on with existing tenants that we think will be positive. We're waiting for the outcome there. That property is holding its own. We're also -- there are 2 buildings on the property. The smaller building is up for sale. If we get a bid on that, that will help reduce the loan amount. But it's a nice building, good location. It's been holding its own. The occupancy is about 70%. If we get some of this leasing done and re-leasing done, there's a pretty good chance that we may ask that owner to put that building on the market.

The next question is from John Nickodemus with BTIG.

I know in the prepared remarks, you mentioned that you had originated an industrial and a hotel loan during the quarter. Are those areas that you're looking to incrementally add to at all? Or are these more just one-off opportunities given that those are your only loans in the portfolio in either of those sectors?

Andy, would you like to take a swing at that?

Sure, Mike. So we did do a couple of loans away from multifamily. We're certainly looking to do more. We like the industrial sector. We're going to be selective in the hotel space, and there are other asset classes that we're looking at. However, I would say, going forward, look for us to be predominantly investing in multifamily.

We've looked at some industrial. The issue there is it's all about back leverage as well. We're seeing opportunities where there is a lot of binary lease-up risk that really doesn't lend itself for -- well for CLO or for back leverage. Really -- that's really more of a private credit fund type of investment. So we're seeing a lot of that. We're looking in industrial for more granular rent rolls while there is lease-up needed and the reason why they're coming to a nonbank is for that reason, we're looking for the ones that have a little less binary risk than some of the deals that we've been seeing. In hotel, listen, RevPAR for the year 2025 was down a little bit in the U.S. The shiny spots were resorts.

As I said earlier, there's a vast amount of wealth in a certain demographic that's looking to spend money on wellness and experiences and things like that. So the resorts are doing better. It's really the more full-service economy side of the hotel sector that has been struggling a little bit. So we're very selective there. The hotel loan we did is a very unique transaction. And it wasn't just the asset and the metrics on the loan, the capital structure in the transaction was also very appealing to us. So that was almost a very unique set of circumstances that transcended the fact that it was just a hotel loan. So it's very -- we're seeing opportunities in those sectors still, as Andy said, very selective.

Great. Other one for me, just regarding dividend coverage. I believe last quarter, you mentioned you were looking for full coverage by midyear and then positive coverage by year-end. Now it kind of sounds like it's more full coverage by year-end. Just curious if there's anything that's changed there on your path back to dividend coverage.

Yes. It's just the timing of asset resolutions and putting out money that you could see over a longer period, 6-month period, you get there. But just over the short term, things happen, things get delayed. For instance, we delayed on the Arizona sale. We delayed taking indications on pricing by about 2 weeks. So things like that. are occurring where it ebbs and flows. We're still hovering very close to the dividend, just shy by $0.02 this quarter, but we are very confident that we'll get there by year-end. And when you look at the pipeline and look how much progress we've made, I think we're pretty comfortable that midyear, we'll get to the [ $300 million ]. And it looks like really based on the payoff projections that we're looking at, it looks like the $3.5 million (sic) [ $3.5 billion ] is really a stone throw away. So I think we're pretty optimistic about getting there by year-end. I'm sorry, but during the course of the year, we get the ebbs and flows of things that get delayed and it causes a little bit of a blip. But we're confident we'll get there by year-end.

The next question is from Jason Weaver with JonesTrading.

First, I appreciate your comments on the pricing environment out there. But when I look at it, it looks like the originations out of 1Q were quite a bit tighter inside of the existing book at 2.59%. So with your stated ROE target of around 12% on new originations, what's the all-in financing spread you're underwriting to these loans? And at what point does spread compression force you to either widen the credit screen or reduce origination pace rather than compress ROE?

Yes. This is Matt Heslin. I'll take that one. So as spreads have marched in on the whole loans, we've seen similar on the back leverage side. So we've generally tried to maintain about 100 basis point spread between our loans and our financing source. That's been pretty consistent to date. And as Mike mentioned, we priced our CLO in the early part of the first quarter this year, and we've seen spreads despite the noise, continue to march in there as well, which is great news, right? A lot of demand for that paper. So we've been able to maintain our ROEs despite the tightening.

Got it. [indiscernible] helped out with that.

And Jason, overall, listen, the banks, and I'm sure some of the line lenders are listening to the call, I don't want to speak on their behalf. But the banks are flushed with capital, a lot of because of the changes in Basel III that were anticipated. This has been a sector that may be one of the best performing sectors at the banks because we know that we don't see any losses on any bank lines for any of our competitors or funds in the back leverage warehouse sector and the risk-based capital treatment for these assets is favorable versus making whole loans. So the banks very much have an appetite for warehouse lending. So they have been slowly playing ball with spreads tightening.

That's good color. I appreciate it. And then on that same subject almost with the pricing environment as it is right here versus where the stock is trading at a discount to undepreciated book value. Talk to me about the trade-off of repurchase versus deployment into new originations and how you're looking at that today?

Well, listen, the buybacks are something we've done. You've seen us do it in the course of 2025. We did a couple to several times. We'll look to do it again. When we did it before, the price was more in the mid-5s. When we looked at the yield on -- the dividend yield on the stock at that level versus where we could put out money, there was a crossover there where it looked very attractive versus making new loans. And so we did that. But as long as the stock is trading where it is now and hopefully higher into the 6s, making loans is what we do, and that's what we want to preserve the capital.

We do realize that there is a halo effect, positive halo effect in buying back stock that typically is not long-lived. We're not buying back enough stock to really affect the overall book value. We can drive it by a few cents a quarter, but not really material enough as much as we see the effect of making new loans and what that will do to the stock price. So the bias is make new loans. And at this level, we think making new loans at the levels we discussed is more attractive to us with our capital.

The next question is from Gaurav Mehta with Alliance Global Partners.

I wanted to ask you on your -- the $3 billion and $3.5 billion expectations for midyear and end of the year and some of your commentary around Sunbelt in the Bay Area. So as you look to deploy that capital, do you have any regional preference as to where you're seeing demand and where you want to put that new capital in?

Sure. This is Matt Heslin. I'll start on this, and Mike can jump in. I mean I think we're generally looking at all those places. Basis is obviously very important, as Mike said, despite the headwinds in some of the Sunbelt markets, we are still lending there at reset basis. So acquisition, new capital coming in, debt yields that work on a going-in basis are obviously very attractive. And then, yes, we're also looking and have done stuff and we'll continue to do stuff in the Bay Area. So we're seeing great rent growth there. So even some older vintage properties are getting the benefit of that. Mike, anything you want to add?

I think if you also look at -- thank you for the question. I think also if you look at and something that we've been studying recently, when you look at the transaction volume that's occurred in 2020, '21 and '22, when interest rates were close to 0, and we had, in some cases, double-digit rent growth in these markets and an influx of immigration where people were living somewhere, and we're sure a lot of that was in workforce housing. You had -- the number of transactions that have occurred were higher than anywhere else in history in some of these markets. We are expecting -- I mean, you see what we're doing with our watch list, with our REO.

We are expecting other lenders, and we're seeing this in deals we quote where existing lenders are behind the scenes, encouraging borrowers to get out to the market and reset values. There is a disgorgement that's going to have to happen. And while we think real estate is in very late innings, certainly relative to private credit with CECL reserves that we've taken across the board with our brethren in the market, we still see that the transactions need to occur. You may have taken a CECL against the loan, but now that loan has to go out into the market and get restructured and recapitalize. So we still think there's going to be a big opportunity on the back end of the 2020 to 2022 cycle, we're going to see a lot of transactions coming out in '26, '27 and '28.

The issue with some markets are they're lagging. And as I highlighted, some of the states in the Southwest are still very much lagging. Texas is doing better. We're seeing a lot of activity in Texas. We do think that there's going to be a dam that breaks in Arizona and Nevada. And there'll be a lot of opportunity to lend there at reset basis.

This concludes our question-and-answer session. I would like to turn the conference back over to Michael Mazzei for any closing remarks.

Thank you. Thank you, as always, for joining us today. And if we're not scheduled to have a one-on-one with you, please call on us, and we'll be glad to do that. If not, we'll see you all on the second quarter earnings call in July. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the BrightSpire Capital Fourth Quarter and Full Year 2025 Earnings Call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mr. David Palame, General Counsel. Please go ahead, sir.

Good morning. And welcome to BrightSpire Capital's Fourth Quarter and Full Year 2025 Earnings Conference Call. We will refer to BrightSpire Capital as BrightSpire, BRSP or the company throughout this call. Speaking on the call today are the company's Chief Executive Officer, Mike Mazzei, President and Chief Operating Officer, Andy Witt; and Chief Financial Officer, Frank Saracino.

Before I hand the call over, please note that on this call, certain information presented contains forward-looking statements. These statements, which are based on management's current expectations, are subject to risks, uncertainties and assumptions. Potential risks and uncertainties could cause the company's business and financial results to differ materially.

For a discussion of risks that could affect results, please see the Risk Factors section of our most recent 10-K and other risk factors and forward-looking statements in the company's current and periodic reports filed with the SEC from time to time.

All information discussed on this call is as of today, February 18, 2026, and the company does not intend and undertakes no duty to update for future events or circumstances. In addition, certain financial information presented on this call represents non-GAAP financial measures.

The company's earnings release and supplemental presentation, which was released yesterday afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measures and an explanation of why the company believes such non-GAAP financial measures are useful to investors.

Before I turn the call over to Mike, I will provide a brief recap on our results. The company reported fourth quarter GAAP net loss attributable to common stockholders of $14.4 million or $0.12 per share. Distributable earnings loss of $35.5 million or $0.28 per share and adjusted distributable earnings of $19.3 million or $0.15 per share. Current liquidity stands at $168 million, of which $98 million is unrestricted cash.

The company also reported GAAP net book value of $7.30 per share and undepreciated book value of $8.44 per share as of December 31, 2025. Finally, during this call, management may refer to distributable earnings as DE. With that, I would now like to turn the call over to Mike.

Thanks, David, and welcome to our fourth quarter 2025 earnings call. As we reflect on the past year, I'm pleased to highlight the significant progress we've made across our business. We entered 2025 focused on rotating the portfolio by addressing challenged investments while simultaneously increasing our new loan originations. .

Throughout the course of the fourth quarter and into the new year, we have continued to reduce watch list loans and REO property exposure. As a result of these efforts, we've improved the quality of the portfolio, ensuring a solid foundation for future growth. Perhaps most importantly, we gained considerable momentum in originations.

As the year progressed, our pipeline grew steadily with loan inquiries and quoting activity increasing with each quarter. Against this backdrop, the fourth quarter ended the year on a high note and was one of our most active periods in several years. Since commencing originations at the tail end of 2024, we have closed 32 new loans for $941 million of total commitments, of which 13 loans were $416 million were closed during the fourth quarter.

Our largest funding quarter since restarting originations. As of December 31, the loan portfolio increased by $315 million to $2.7 billion. That equates to a 13% increase from the third quarter. We also had a very active period executing REO sales as well as resolving loans from the watch list. We made the strategic decision to accelerate the resolutions in this part of our portfolio.

We concluded that the certainty associated with monetizing these assets and reinvesting the proceeds outweighed the prospective upside associated with holding the assets longer term. As a result, we took a limited reduction in book value to effectuate these sales during and subsequent to quarter end. In the fourth quarter supplemental presentation available on our website, we included 2 pages summarizing the watch list and REO activity.

The materials illustrate the substantial progress made to date, along with our projected resolution time line for each of these 2 segments of our portfolio. I want to reiterate that these resolutions continue to be a major focus as they represent a critical source of capital for new loan originations.

Over the coming months, our goal is to cut our current as is watch list exposure to 2 loans totaling approximately $66 million. Further, each of the remaining REO assets has a business plan for their ultimate exit. This, of course, does not reflect the possibility of any downgrades in the future.

Also, as David mentioned, our adjusted DE for the fourth quarter was $0.15 per share. As discussed on previous calls, when we resized our dividend to $0.16, we noted there could be a brief period of modest coverage shortfall primarily related to the timing of capital deployment. For the full year 2025, we covered our entire annual dividend.

However, as anticipated in this last quarter, our adjusted DE reflects the dividend coverage of just $0.01 shy of breakeven. Our plan is to once again cover the dividend by year and achieve a positive coverage by year-end. Turning our attention to the market.

Commercial real estate debt capital markets are wide open with a surge of new issuance in the first 45 days. This was met with high investor demand, especially for CRE CLOs, which is driven by strong historical credit performance and attractive spreads versus other credit sectors.

Along those lines, I'm pleased to report that we announced the closing of BrightSpire's fourth managed CLO. This transaction was $955 million and features a $98 million ramp as well as a 2.5-year reinvestment period, further expanding our lending capacity and flexibility.

This transaction was also very well received with 19 investors participating across all offer tranches, including the sale of the lowest rated investment-grade tranche.

Looking ahead at the demand side for CRE loans, we expect there will be a significant tailwind from continued increases in property sales transactions. On one side, property equity investors are anxious to see monetization of legacy assets. While on the flip side, mortgage lenders are also encouraging borrowers to refinance or sell these same underlying assets.

This is precisely what we are experiencing in our own portfolio. We are, therefore, optimistic that there will be a solid demand for loan originations as more assets change hands in 2026. In closing, allow me to reiterate and underscore our priorities for 2026. First, grow the loan book to approximately $3.5 billion.

Second, to accomplish this, we must continue to resolve our remaining watch list loans and monetize the majority of our remaining REO, most notably the San Jose hotel. Third, execute on a fifth CLO in the second half of the year to match fund our loans and further maximize our capital deployment efficiency. And lastly, in accomplishing these initiatives, we will grow earnings and reestablish positive dividend coverage by year-end.

I would like to thank our team, clients and banking partners for their contributions and collaborations throughout the year. With that, I would like to turn the call over to our President, Andy Witt. Andy?

Thank you, Mike. It has been a transformational year for BrightSpire and a productive fourth quarter. This year was punctuated by a robust fourth quarter originations activity. It was our most active quarter in 2025, closing on $416 million in commitments across 12 multifamily loans and on mixed use loan. Repayments during the quarter were minimal and largely attributable to 2 loan payoffs.

As a result, our loan book as of quarter end grew to approximately $2.7 billion, up from $2.4 billion last quarter. The portfolio is comprised of 98 loans with an average loan balance of $27 million and a risk ranking of $3.1 million, consistent with the previous quarter.

Following quarter end, we have closed on an additional 3 loans for $118 million. We anticipate the loan book will expand to nearly $3 billion by approximately halfway through the year. Furthermore, we anticipate our loan book will continue to grow in the back half of the year, targeting at least a $3.5 billion loan portfolio by year-end.

As it relates to portfolio management, during the fourth quarter and subsequently, we have been active and made significant progress. I will start with a review of watch list loans. During the fourth quarter, 2 loans were added to the watch list, both associated with the same borrower bringing the total watch list to $220 million or 8% of our loan portfolio. As it relates to these 2 loans, our Dallas-based asset manager observed a notable shift in borrower behavior and property performance.

As a result of these observations and further analysis, we decided the best course of action was to accelerate a resolution of the entire borrower relationship comprised of 3 loans, 1 of which was already on the watch list.

Ultimately, we moved decisively taking ownership of 1 property by foreclosure and working cooperatively with the borrower to market the other 2 properties. Following quarter end, 2 watch-list loans have been resolved via sales processes that were previously underway. As mentioned earlier, 2 additional properties are in the process of being sold and on watch-list loan property is now REO.

Pro forma for the anticipated sales of these 2 properties our watch list would consist of 2 remaining loans, a Dallas office loan and an Austin multifamily loan for a combined total of $66 million. Repayment proceeds from the resolution of these watch list loans will be repatriated and deployed into new loans.

The plan for the Dallas property, which was foreclosed on post quarter end is to implement a value-add business plan, stabilizing operating performance and, ultimately, to sell the property. As for the REO portion of the portfolio, during the quarter, we sold 1 of the 2 Long Island City office properties as well as the Oregon office property.

At the end of Q4 2025 REO exposure stood at $315 million across 6 properties. As previously noted, post quarter end, a Dallas multifamily property from the watch list moved to REO through foreclosure, bringing the total number of REO properties to 7 with an aggregate balance of approximately to $360 million.

Currently, the remaining Long Island City property is under contract to be sold. We expect that transaction to close during Q1. And Additionally, 2 multifamily properties are listed for sale, 1 located in Fort Worth, Texas; and the other in Mesa, Arizona. Pro forma for the sale of these 3 properties our remaining REO will be comprised of 4 assets totaling $266 million.

The San Jose hotel represents 50% of the remaining balance with 2 multifamily and 1 residential predevelopment property making up the remainder. We anticipate marketing the majority, if not all, of the remaining REO properties for sale during the back half of 2026.

In closing, we made substantial progress throughout 2025, managing and growing the loan portfolio, particularly during the fourth quarter. The decisive actions taken this quarter should result in resolution proceeds, which will fuel continued portfolio and earnings growth throughout the course of 2026.

With that, I will turn the call over to Frank Saracino, our Chief Financial Officer. Frank?

Thank you, Andy, and good morning, everyone. For the fourth quarter, we generated adjusted DE of $19.3 million or $0.15 per share. Fourth quarter DE was a loss of $35.5 million or $0.28 per share. DE include specific reserves of approximately $54.9 million.

Additionally, we reported total company GAAP net loss of $14.4 million or $0.12 per share, which also included an approximately $8 million impairment charge related to the sale of our Long Island City office properties. For the full year of 2025, we generated adjusted DE of $83.6 million or $0.64 per share, representing a return on undepreciated shareholders' average equity of approximately 7.4%.

Our dividend for the year of $0.64 per share was fully covered one time. Quarter-over-quarter, total company GAAP net book value decreased to $7.30 from $7.53 per share in the third quarter. We reported undepreciated book value of $8.44 versus $8.68 per share in the third quarter.

As Mike mentioned earlier, we made the strategic decision to pull forward the resolution of certain watch list and REO assets, noting that resolving and reinvesting these proceeds from these investments outweighed the prospective upside associated with holding the assets longer term. As a result, we took a limited reduction in book value.

During the quarter, we also repurchased approximately 1.1 million shares of stock at an average share price of $5.39, which resulted in approximately $0.03 of book value accretion.

Given the strong origination momentum and improvements in the portfolio, we continue to believe the stock is significantly undervalued. Looking at reserves. During 4Q, we recorded specific CECL reserves of approximately $54.9 million. As Andy mentioned earlier, we took ownership of the Dallas multifamily property that was previously held on the watch list. Resolved 2 watch list loans via sales process. And TAP2 properties underlying 2 additional watch list loans anticipated to close in the first half of this year.

Since these loans are either resolved or will be resolved imminently, we have charged off the reserves. Our general CECL provision decreased to $88 million or 315 basis points on total loan commitments versus $127 million or 517 basis points reported in the third quarter. Our debt to assets ratio is 66%, and our debt-to-equity ratio stands at 2.3x.

Lastly, our liquidity as of today stands at approximately $168 million. This includes $98 million of cash, of which $64 million will be received tomorrow, associated with our CLO execution and unwind of the 2021 FL1 CLL. Additionally, we have $70 million available under our credit facility. This concludes our prepared remarks.

And with that, let's open it up for questions. Operator?

[Operator Instructions] And our first question today will come from Gabe Poggi with Raymond James.

Mike, Andy, how do you think about the amount of just ballpark, our leverageable capital that sits underneath the various assets have been resolved or are in process of resolution kind of year-to-date? .

That's question one. And question 2 is a quick follow-up of just how do you think about the credit portfolio on a -- from a go-forward basis, you've only got now 2, 4 rated watch list loans, a few assets in REO. What's the general kind of sense on where the book sits now from a 2026 credit perspective?

Gabe, it's Mike. Welcome back Pleasure to have you. Thanks for your question. When you look at our portfolio and we talk about getting to the back half of the year where we get to positive coverage. That's really linked to your question. We have about -- given the foreclosure we had subsequent to quarter end, we have about $200-plus million of equity tied up in [indiscernible] assets, which are basically a drag on the portfolio. The only thing flowing off anything meaningful there is the San Jose hotel whose NOI is probably just shy of $9 million. .

So really at the tail end of the year, you get a full game in the sense that we unwind that REO as best we can, and we deploy that capital into 12-plus ROE levered assets. And that's really what's going to kick us up. So to answer your question directly, about $200 million of latent capital is tied up in the portfolio right now, and we plan on getting out of that toward the end of the year.

And as Andy said, a large part of that is the ROE on the San Jose hotel. We're doing some deferred maintenance on that right now, much needed. We have a lot of things going on in San Jose during the course of the year that will help the cash flow. And so I think we're looking more towards the back half of the year for that asset. So the 2 multifamily assets that are already just need to be stabilized like we've done with the rest of the portfolio, and we'll sell those at the back half of the year.

In terms of credit in the overall portfolio, given the turnover that you're seeing -- we're feeling pretty good about it. We haven't said that for a while, but we are seeing a lot of positive things happen, especially with the movement of the watch list and the REO assets that we're embracing right now.

So we're pretty optimistic about the credit and the underlying portfolio. And then you look at the average loan size, we've got rid of some of the bigger assets. Our average loan size is down $30 million, maybe it's slightly less. And so we're feeling pretty good about the diversification in the portfolio.

That's helpful. A nice job on the recycling or the resolving of the book.

The next question will come from Timothy D'Agostino with B. Riley Securities.

I just want to touch on the San Jose property a little bit more. If you could just provide a little bit of color there. I know you said a couple of earnings calls ago that you're probably holding this through second half of 26% due to events like the Super Bowl, March Madness, the World Cup. I was just wondering what's super behind us, how that event went for the hotel? And are things progressing there out of expectations or at expectations?

Thanks for the question. No, the event went very well. The staff handled the volume incredibly well. We are doing some things in the hotel. We're eating the lobby, and we're upgrading the elevators and all of that takes a little bit of time. The lobby is well underway. We want to reduce some of the washrooms in the ballroom and get that done.

These are things that if you sold the property today, any buyer would look at those items and take those off of the sale price. So we want to get that done and get that behind us. And we also have, as you said, these major events coming up that we want to see through -- including in July, we have the cross fit National Championship there and Prosper is using our hotel as the headquarters for that staging event. So we're looking forward to that as well.

We did have some nonrecurring stuff that hit the NOI last year, some cancellation of events that fell right to the bottom line. We're not modeling that this year. Those were basically windfalls. So we're not modeling that this year. So we do expect -- right now, we're budgeting plus or minus for purposes of our accrual, about $9 million of NOI. And we hope to punch through that as we get to the end of the year to get to more of a double-digit NOI cash flow.

And then we'll consider selling the asset. But at this point in time, we're pretty comfortable. We're holding it well, well below replacement cost. We're seeing other assets trade at higher dollars per key. So we're going to be patient. But again, because we have a lot of capital tied up in that asset, it's throwing off some cash flow, but about $80 million, $85 million of equity based on the leverage we have on our today, we really want to sell that asset and redeploy into the loan book.

Okay. Great. And then just a quick follow-up. Could you just provide maybe a little more color on kind of the plan for the net lease and other real estate portfolio in 2016? I know you touched a budget on the loan portfolio, but it would be great to get some color there.

Okay. So the net lease is really made up of 3 components. We have a triple net to LabCorp in Indianapolis. We have a triple net to Northrop industries in Colorado, and we have the largest part of that is the Albertsons portfolio. And nothing really is happening there at this moment. we have lease term on the LabCorp until 2030.

That doesn't mature until 2027 and the Albertson debt and not until 2028. Quite frankly, we're not really looking to grow the triple net portfolio. So if we could get into a position where we may be able to sell some of those assets, we'd consider doing it. But right now, there's really nothing going on in that portfolio.

The next question will come from Chris Muller with Citizens Capital Markets.

So it's nice to see originations picking up and looks like that momentum is carrying into the first quarter so far. I guess, how are you guys thinking about the pace of originations in 2026? Is 4Q a good baseline? Or will it be more back weighted in the year?

Andy, do you want to take that?

Sure. Thank you, Mike. In terms of the pace of originations, we had a great quarter in with just over $400 million, and we're on track here in Q1 in terms of loans closed and those that we have visibility in execution on at just over $300 million. And we think that's probably a pretty good rate going forward, somewhere between $300 million and $400 million a quarter is what we're modeling from a go-forward perspective. .

Got it. That's helpful. And then just a quick follow-up. On the multifamily foreclosure that was subsequent to quarter end, should we expect to see a realized loss hit the first quarter related to that?

No, everything was taken in the fourth quarter. Right? It was low in the fourth quarter, so it came through CECL.

So is that the $8 million impairment that hit the income statement?

No, that's for Long Island City. So the amount of the loss was associated with our -- 1 of our specific reserves in the $59 million.

Got it. I appreciate you clearing that up. .

[Operator Instructions]

And our next question will come from Gaurav Mehta with Alliance Global Partners.

I wanted to follow up on your comments around strong demand for loan originations. I was wondering if you could maybe provide some more color on which sectors you're seeing the demand? And is it mostly multifamily? Or are you guys open to the sector as well?

We expect a lot of demand for credit in multifamily for the things that we laid out in the prepared remarks, we have seen -- we're pretty much at the end of the rope here. You've got 2021 loans that are getting to the point where they're past their first extension hurdles. Some are getting close to maturity now. We are seeing the equity getting exhausted and they want to move on.

They want to get that equity repatriated back to the limited partners. So that's one of the drivers that we're seeing. The other driver we're seeing are lenders like us and what we just described in our own portfolio. We're encouraging borrowers to move assets, those same assets.

And we think the confluence of those 2 things are really going to push volume in 2026. We saw a little bit of a dip in originations in the fourth quarter, and we just equate that to some of these owners were saying, hey, it's past Thanksgiving, I'm not going to put something in the market at this point in time for refi or for sale, but we're starting to see that activity pick up tremendously January and February, especially with the conferences, the mortgage banking conferences and the multifamily conference in Vegas that just transpired after those conferences, it's very typical to see volume pick up.

So I think while transaction volume was up in 2025 over 2024, we anticipate in multifamily, the transaction volume will 25 this year. So we're very optimistic about the demand for credit because we think we're just going to see a lot of assets changing hands. Right.

The next question will come from Matthew Erdner with Jones Trading.

I'd like to kind of stay on the credit side there. Spreads have compressed a good bit since this time last year. How are you guys thinking about that going forward and more competition kind of being in the space?

I've been doing this for 40 years, and there's never been a year of buffer a handful where we haven't had severe competition. So that's kind of business as usual. But what I'll say is I'll emphasize the points that we had around the capital markets. We just executed the CLO.

The demand for that and for the army of CLOs that came out before and after us, the demand was incredible. I would have actually expected and told the team, hey, we may see spreads widen given that supply and we saw the opposite. Every deal, the demand was better. I think the market is outperforming the corporate market.

We're seeing what's going on in the BDC market, the term loan market and what's going on in software stock prices and the concern that's having in corporate credit. And we're seeing the opposite in the CRE market. A lot of it has already been dealt with over the past 2 years. and the CRE CLO market has performed very well. So spreads have come in. bank lenders on our warehouse lines have also brought in spreads commensurately with loan spreads. We have seen loan spreads kind of floor out here.

Maybe that's because of the supply that we're seeing. So we don't anticipate a tremendous amount of more tightening in the loan spread market. But right now, as long as we're getting the ROEs that we need based on where we're financing things and the liability structure it's okay. And we've seen that. The market has been met with a lot of demand from investors on the CRE CLO side. Did that add anything to that? We have Matt, who runs our capital market share as well.

Yes. No, as Mike said, we saw tremendous demand. A lot of that market has kind of migrated to full multi. Our deal was predominantly multi but with the ability to reinvest in various property types. So we're trying to keep our options open over the next 2.5 years to deploy capital where we see fit, whether it be in some limited amount of hospitality industrial, retail. So we're trying to keep options open and deploy where it's accretive.

Got it. That's very helpful. And then a quick follow-up. The loans that you guys originated in the fourth quarter, what was kind of the timing of that throughout? Or was it pretty paced throughout the quarter?

It got pretty aggressive towards the end of the quarter. A lot of deals pulled forward actually from the first quarter, where borrowers wanted to close by year-end. So we did have some pull forward there. So I think we'll see the first quarter not be like the fourth quarter, but I think it will pick up during the course of the year.

Got it. Awesome.

This concludes our question-and-answer session. I would like to turn the conference back over to Mr. Mike Mazzei for any closing remarks. Please go ahead, sir.

We're very excited about the momentum we've had coming into 2026, both from our origination side and from the resolution of the assets in the watch list and REO. We're very much looking forward to updating you on our progress on those matters in April, and we thank you for joining us today.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

Good day, and welcome to the BrightSpire Capital Third Quarter 2025 Earnings Conference Call. [Operator Instructions] I would now like to turn the conference over to David Palame, General Counsel.

Good morning, and welcome to BrightSpire Capital's Third Quarter 2025 Earnings Conference Call. We will refer to BrightSpire Capital as BrightSpire, BRSP, or 'the company' throughout this call. Speaking on the call today are the company's Chief Executive Officer, Mike Mazzei; President and Chief Operating Officer, Andy Witt; and Chief Financial Officer, Frank Saracino.

Before I hand the call over, please note that on this call, certain information presented contains forward-looking statements. These statements, which are based on management's current expectations, are subject to risks, uncertainties and assumptions. Potential risks and uncertainties could cause the company's business and financial results to differ materially. For a discussion of risks that could affect results, please see the Risk Factors section of our most recent 10-K and other risk factors and forward-looking statements in the company's current and periodic reports filed with the SEC from time to time. All information discussed on this call is as of today, October 29, 2025, and the company does not intend and undertakes no duty to update for future events or circumstances. In addition, certain financial information presented on this call represents non-GAAP financial measures. The company's earnings release and supplemental presentation, which was released yesterday afternoon and is available on the company's website, presents reconciliations to the appropriate GAAP measures and an explanation of why the company believes such non-GAAP financial measures are useful to investors.

Before I turn the call over to Mike, I will provide a brief recap on our results.

The company reported third quarter GAAP net income attributable to common stockholders of $1 million or $0.01 per share, distributable earnings of $3.3 million or $0.03 per share, and adjusted distributable earnings of $21.2 million or $0.16 per share. Current liquidity stands at $280 million, of which $87 million is unrestricted cash. The company also reported GAAP net book value of $7.53 per share and undepreciated book value of $8.68 per share as of September 30, 2025. Finally, during this call, management may refer to distributable earnings as DE.

With that, I would now like to turn the call over to Mike.

Thanks, David, and welcome to our third quarter earnings call. We're pleased to report the strong results achieved during this past quarter and are particularly encouraged by the overall trajectory of the business.

In the third quarter, book value remained stable, and we made considerable progress toward established objectives, which include resolving watch list loans and REO properties, and rebuilding our loan portfolio and maintaining dividend coverage. Our adjusted DE continued to cover our dividend, but we also achieved net positive loan originations for the second consecutive quarter, and also saw a meaningful growth in our origination pipeline.

Together, these results demonstrate clear progress toward transforming our loan book and growing earnings. Also of note, we are observing continued improvements in the overall commercial real estate markets.

Credit and lending spreads continue to tighten, and this has contributed to a steady increase in loan inquiry. Additionally, both the CMBS and CLO markets remain very highly active, showing solid new issuance growth. Coupled with a more favorable interest rate environment, these trends should create a supportive backdrop for increased loan originations.

Along these lines, during the third quarter and through the first half of October, we originated 10 loans totaling $224 million. We have currently 7 loans in execution for an additional $242 million. To date, this will bring our total new closed and in execution commitments to $741 million since resuming loan originations late last year. Given this progress, we have already begun the process of preparing for our next CLO securitization.

An essential part of our progress this quarter is due to meaningful developments in our watch list, as several of these borrowers have now commenced a formal sales process on the underlying properties. As a reminder, we started 2025 with a watch list of $411 million, which has now been reduced to $182 million. If successful, these borrower-led sales will substantially reduce our remaining watchlist exposure.

Turning to the REO portfolio and our largest exposure, the Signia Hotel property, we continue to make gradual improvements while we address deferred maintenance and CapEx needs at the asset. Given the upcoming sporting events calendar, we expect to hold this property through the first half of 2026. Additionally, we currently have 2 REO office properties in the market for sale, and we have a specific timetable to market additional REO assets early next year.

Our timetable for sale of REO assets will generate liquidity for future loan originations and drive the loan book growth toward our targeted portfolio of approximately $3.5 billion. The execution of this strategy will strengthen earnings and improve positive dividend coverage in 2026. Furthermore, we're also seeing a continued gradual reduction in our office loan portfolio, which now stands at $653 million, down from $769 million at the start of 2025. We expect an additional reduction as some borrowers have indicated intentions to sell properties in this improving market. The CMBS market has also accepted more office loans over this past year.

In closing, we believe the coming quarters will be among our most productive. With each passing quarter, the combination of new loan originations, steady progress on watch list loans and the resolution of REO assets will drive the transformation of our portfolio and improve earnings.

With that, I will now turn the call over to our President, Andy Witt. Andy?

Thank you, Mike. I'll start by walking through the details of our net positive originations activity and then provide further updates on watch list loans and REO assets.

During the third quarter, capital deployment consisted of $146 million of total commitments across 7 multifamily loans, as well as future fundings of $11 million, resulting in total deployment of $157 million.

As for repayments, 2 loans paid off in full, 1 hospitality loan and 1 office loan for total proceeds of $88 million. Additionally, there were 5 partial paydowns during the quarter, totaling $9 million, resulting in $97 million in total repayments.

For the second quarter in a row, we've achieved net positive loan originations, a trend we expect to continue with increasing momentum over the next several quarters. Currently, the loan portfolio stands at $2.4 billion across 85 loans, with an average loan balance of $28 million and a risk ranking of 3.1. Our average loan balance decreased year-over-year as a result of a deliberate strategy to reduce concentration risk and diversify the portfolio.

During the quarter and subsequently, we continue to make progress on the watch list loans. The watch list portion of the loan portfolio currently stands at 8%, comprised of 5 loans for a total gross book value of $182 million. Reducing total watch list exposure remains a priority as we are working actively with the borrowers to effectuate resolutions. In a number of cases, the borrowers are in the process of actively marketing the underlying properties for sale. The reduction in watch list loan exposure quarter-over-quarter was driven by the removal of the Oregon office loan, which we took ownership of during the quarter. The property is currently in the market for sale.

During the third quarter, one Austin, Texas multifamily loan was added to the watch list with a gross carrying value of $23 million. Performance at the property deteriorated primarily due to the insufficient funds to complete the property stabilization.

As for our REO portfolio, it stands at $364 million of undepreciated gross book value across 8 properties. We completed the sale of the Phoenix, Arizona multifamily property in the third quarter, substantially in line with carrying value. Additionally, we are currently in the market with 2 office properties, including the Oregon office property previously mentioned.

REO office exposure is comprised of 3 properties for a cumulative undepreciated book value of $81 million or 22% of the REO portfolio. We continue to make progress on our 4 multifamily properties within the REO portfolio. We are actively executing on value-add business plans with respect to 3 of the properties. These plans contemplate repositioning the properties, leasing them up and then taking them to market for sale. In each case, we are making progress toward that end and expect to be in the market with 2 of the 3 properties in Q1 2026, with the remaining property to follow in the summer of 2026. The fourth multifamily property is a predevelopment site in Santa Clara, California, which we intend to hold for the time being. As we've discussed before, the broader Bay Area is seeing a resurgence in demand, and we anticipate this property will benefit as a result of the favorable market tailwinds. Multifamily REO exposure stands at $147 million or 40% of the REO portfolio. Lastly, as Mike highlighted, we continue to make progress on the $137 million San Jose, California hotel, which comprises the remaining 38% of the REO exposure.

In closing, we are encouraged by the momentum generated during the third quarter and look forward to sustaining and increasing that momentum on the originations and asset management front as we head into 2026.

With that, I will turn the call over to Frank Saracino, our Chief Financial Officer. Frank?

Thank you, Andy, and good morning, everyone.

For the third quarter, we generated adjusted DE of $21.2 million or $0.16 per share. Third quarter DE was $3.3 million or $0.03 per share. DE includes specific reserves of approximately $18 million. Additionally, we reported total company GAAP net income of $1 million or $0.01 per share.

First, a reminder regarding one of our legacy office equity investments. Earlier this year, we defaulted on the CMBS financing for our multi-tenanted office equity property located just outside Pittsburgh. During the third quarter, a receiver was appointed and as a result, we deconsolidated the assets and liabilities from the company's consolidated balance sheet. With that, we reported a GAAP impairment of $2.5 million related to the property. However, the impairment charge had no impact on our undepreciated book value as we had previously written the investment down to 0 over a year ago.

Quarter-over-quarter, total company GAAP net book value decreased to $7.53 from $7.65 per share in the second quarter. We reported undepreciated book value of $8.68 versus $8.75 per share in the second quarter, slightly down quarter-over-quarter.

Now I would like to quickly bridge the third quarter adjusted distributable earnings of $0.16 versus the $0.18 recorded in the second quarter. The change was primarily driven by the lender foreclosure of the Equinor Norway net lease asset, which occurred in 2Q, and the deconsolidation of the multi-tenanted office equity property previously highlighted. This was partially offset by positive net loan originations.

Looking at reserves. During 3Q, we recorded a specific CECL reserve of approximately $18 million related to taking ownership of the property associated with the Oregon office loan, which Andy discussed earlier. As the loan was resolved during the quarter, we charged off the reserves.

Our general CECL provision decreased to $127 million or 517 basis points on total loan commitments versus $137 million or 549 basis points reported in the second quarter. Our debt-to-assets ratio is 63% and our debt-to-equity ratio is 1.9x.

Lastly, our liquidity as of today stands at approximately $280 million. This comprises $87 million of current cash, $165 million under our credit facility, and approximately $28 million of approved but undrawn borrowings available on our warehouse lines.

This concludes our prepared remarks. And with that, let's open it up for questions. Operator?

[Operator Instructions] And the first question will be from Jason Weaver from JonesTrading.

Congrats on the quarter. First, I wonder if you could give me some update on your liquidity position, post quarter-to-date originations and those what you expect to -- the ones that are in execution that you expect to close? And if you're placing those recent loans into the 2024 CLO or holding those online?

Those are being held on balance sheet. Liquidity is hovering around $100 million in cash. And as we said in the prepared remarks, much of the future originations that we're doing will come out of the resolution of assets, and the equity repatriation for assets that are either largely unencumbered -- totally unencumbered or largely unencumbered today. So from a liquidity standpoint, we plan on a lot of the fundings coming out of REO resolutions.

Then just help me think about the pace of 4Q originations through the next couple of months. I know you put up the $320 million number, and I guess that's about $308 million net. But for November and December, do you expect that to be more muted or similarly active, just due to the sort of dovish posture and the progress we've seen on rate?

Similarly active, because the pipeline has been gaining some momentum, if you will, and it's been increasing over time. I don't want to jinx this, but it's a pretty good environment. We're seeing a lot more loan inquiry quarter-over-quarter. And so to kind of go to the end result here, what we need to do for 2026, and I've said this on the previous earnings call, we need to get to a loan book of about $3.5 billion. And net-net, between now and the end of next year, we need to do well over $1 billion in originations. Gross, we need to do about $1 billion -- close to $1.5 billion in originations gross to offset any payments that we have. So you're looking at something that is probably like $300 million a quarter to really keep abreast of that.

I think you're on your way.

Our next question will be from Chris Muller from Citizens Capital Markets.

Congrats on a solid quarter. So I want to start and ask about your net lease portfolio. We just saw Blackstone and Starwood jump into that space. So I wanted to ask how you guys are thinking about that space? And is this an area that there could be some growth for BrightSpire? Or are you happy with the assets you have there already?

I'd say we're happy with the assets we have right now. We have not explored going into the triple net market. I don't think we have a necessarily competitive advantage in that market. So I think from a net lease standpoint, we'll deal with the assets we have now. If we can get an interesting bid on some of these assets, we might consider selling them. But right now, no change in plan.

Then I guess on overall sentiment in the market, do you expect to see a boost in demand if we get another cut from the Fed today? Or does that more just help continue to close that gap between buyers and sellers?

It's absolutely improving. The commentary we had yesterday, some of our originators were very pleased to see the price of caps going down in their discussions with borrowers. It is a pretty solid environment. You've got a dovish Fed. The long end seems to be coming down because of maybe the employment numbers. So you have a sub-4% 10-year treasury. I think you've also -- you've got some lenders that are getting exhausted. And I think they've gone on several years with loan modifications, us included. And we're encouraging borrowers to either refinance or sell the properties, which is why you saw the commentary around some of the borrowers on our watch list now have those properties up for sale. And you're seeing that across the board.

So it's a pretty Goldilocks environment right now. You've got still a low level of construction lending, which will hopefully help absorption late 2026, early 2027. Interest rates lower. The negative carry on these assets because the cap rates are still 5% for multifamily, in some cases, even a little less. So that negative carry environment is becoming less. So it's making transaction sales volume increase. So we're starting to see a big uptick in that, and we're starting to see an uptick in acquisition financing versus in the first half of the year, first quarter, substantially refi. So we're seeing a lot more requests for acquisition financing than we have earlier in the year.

Congrats again on a solid quarter and some great progress.

The next question is from Tom Catherwood from BTIG.

So just wanted to pivot back to the answer on originations. Andy, obviously, you had mentioned out originating your repayments, and that's been the second quarter in a row you've done it. But because of REO, the loan portfolio has contracted over the last 2 quarters. With that $320 million of loans that you've talked about closed or in closing in 4Q, are we at the point where you think we can grow the loan book going forward? Or with other potential REOs in the pipeline, could it be 2 steps forward, 1 step back? What are your thoughts as far as getting beyond the takeback period so that the portfolio can get up to $3.5 billion that you're targeting?

Andy, do you want to jump on that?

Yes. So, I think we're really at that point right now. So we've been increasing the momentum of our loan originations. The pipeline is growing, and we are pushing things through REO sale. And so that will be a little bit of a headwind. But it's really that capital that is the fuel for building the loan book.

So I think you will see the loan book increase. It's increased kind of quarter-over-quarter for the last couple of quarters when you're just looking at the loan book. And so what you'll see in the future quarters is increased rate of growth, moving towards that $3.5 billion number.

Andy, then in terms of your San Jose hotel, I was in the market there in September and walked the property. It looked great. It had a tech conference going on, so it was crowded.

The question I have for you, though, is kind of with that packed event schedule that you mentioned for 2026 in San Jose, what could the asset contribute towards distributable earnings as occupancy ramps up? I mean this is a high operating leverage business. To us, it seems like there could be a material contribution. What are you underwriting for 2026?

The NOI, it's still about -- it's still going to be a sub-$10 million NOI. For this year, we're coming in below that. So next year, as we said, we have some significant events occurring in the first half of the year. We also have, as we said in the prepared remarks, some deferred maintenance elevators, lobby work that needed to be done and some CapEx that needs to go into the hotel. So that dovetails well into that timeline.

We have to put these in place, because if we sold the asset, any buyer would look at those and say, elevators need to be redone, and we're taking that off the purchase price. So we need to get that done. Those have been needing to be done for quite a while. But yes, our hope is that we continue to see uplift in that Bay Area. You just saw the hotels in San Francisco, 2 large 3,000 collective rooms in these 2 hotels traded. We are seeing a lot of interest in the -- generally in the Bay Area and in San Francisco.

The one caution I would have is that there is a concern that if San Francisco really is coming back the way people are saying, that there may be some latent group demand to go to San Francisco. So we really need to observe that. But in terms of contribution, I would say roughly a $10 million number for NOI would get you within a stone’s throw where we think we might end up for 2026. We haven't gotten a budget yet for that year. We're running slightly behind that for 2025.

[Operator Instructions] The next question is from Gaurav Mehta Alliance Global Partners.

I think in your prepared remarks, you talked about preparing for a new CLO issuance. Can you provide some details on the size and timing of the expected issuance?

Thank you for the question. Actually, because it is so close, we actually can't comment on it. It would be inappropriate. But I would say it would be within the context of what you're seeing in the CLO market.

As a follow-up, I think in your prepared remarks, you talked about 2 office properties listed for sale. I think one of them was Oregon. Can you provide some detail on which is the second office property you're looking to sell?

It is one of the Long Island City properties, and we are in the process of soliciting offers for that as we speak.

Ladies and gentlemen, this concludes today's question-and-answer session. I would like to turn the conference back to Mike Mazzei for any closing remarks.

Thank you. Well, in summary, we covered our dividend. We had positive net loan originations for the second quarter in a row. Our pipeline is improving. As we mentioned, we are in the process of embarking on a new CLO. And we anticipate, as we said in the prepared remarks, substantial progress on our watch list and REO in the coming 2 quarters. So we look forward to that.

With that, I would like to thank you for joining us on the call today, and we will see you in February.

Thank you, sir. The conference has concluded. Thank you for joining today's presentation. You may now disconnect.