Q4 2023 Blackstone Mortgage Trust Inc Earnings Call
Participants
Tim Hayes; Vice President, Shareholder Relations; Blackstone Mortgage Trust Inc
Katie Keenan; CEO; Blackstone Mortgage Trust Inc
Anthony Marone; CFO; Blackstone Mortgage Trust Inc
Steven C Delaney; Analyst; JMP
Sarah Barcomb; Analyst; BTIG
Doug Harter; Analyst; UBS
Don Fabdetti; Analyst; Wells Fargo
Stephen Laws; Analyst; Raymond James
Jade Rahmani; Analyst; KBW
Rich Shane; Analyst; JP Morgan
Arren Cyganovich; Analyst; Citi
Presentation
Operator
Good day and welcome to the Blackstone Mortgage Trust Fourth Quarter and Full Year 2023 investor call. Today's conference is being recorded. (Operator Instructions)At this time, I'd like to turn the conference over to Tim Hayes, Vice President, Shareholder Relations. Please go ahead.
Tim Hayes
Good morning, and welcome, everyone to Blackstone Mortgage Trust's Fourth Quarter and Full Year 2023 conference call. I am joined today by Jonathan Pollok, Blackstone's global head of real estate credit, Tim Johnson, Global Head of breads and Chair of the Board of Directors, Katie Keenan, Chief Executive Officer; Anthony Marone, Chief Financial Officer, and also Tanya, Executive Vice President of Investments.
This morning, we filed our 10 K and issued a press release with a presentation of our results, which are available on our website and have been filed with the SEC.
I'd like to remind everyone that today's call may include forward-looking statements, which are subject to risk, uncertainties and other factors outside of the company's control. Actual results may differ materially. For a discussion of some of the risks that could affect results, please see the Risk Factors section of our most recent 10K.
We do not undertake any duty to update forward-looking statements, and we will also refer to certain non-GAAP measures on this call and for reconciliations, you should refer to the press release and 10K. This audiocast is copyrighted material of Blackstone Mortgage Trust and may not be duplicated without our consent.
For the fourth quarter, we reported a GAAP net loss of $0.01 per share. While distributable earnings were $0.69 per share. A few weeks ago, we paid a dividend of $0.62 per share. With respect to the fourth quarter. Please let me know if you have any questions following today's call. With that, I'll now turn things over to Katie.
Katie Keenan
Thanks, Tim. Pearson BXMT weathered a challenging 2023 with results that underscore the resilience of our business. We reported record interest income and distributable earnings generating $3.05 per share for the year and covering our dividend 123%. This dividend delivered $2.48 per share of current income to our shareholders, exceeding the $1.10 net reduction in our book value from CECL reserve increases and underpinning a positive total return in 2023.
And we maintained near record levels of liquidity and reduced our leverage over the course of the year moving into 2024, while the path clearly will not be linear, we see an improving backdrop with inflation, receding rates moving lower and the economy showing stability it will take time for the tail of legacy credit issues to work through the system and our portfolio.
But macro momentum has shifted benchmark commercial real estate borrowing costs are down 150 basis points in the last four months. Issuance pipelines across corporate debt and CMBS markets have rebounded sharply. New construction starts are 30% to 60% below recent peak levels. This will not alleviate fundamental issues in certain segments like older vintage office, but for most of the real estate market dynamics are driving renewed confidence among lenders, incumbent owners and new buyers at BS. and T. We also enter 2024 with greater visibility.
Our portfolio is 93% performance of $10 billion of loans that hit interim or final maturities. In 2023, 89% repaid past their extension performance tests for extended with substantial new equity commitment. And notably, this includes nearly $6 billion of office those loans that didn't are already impaired. Part of the nearly $600 million of reserves that are already incorporated in our book value.
Our borrowers renewed or replaced 93% of the nearly $15 billion of rate caps that rolled in 2023 with new caps or guarantees. Fourth quarter outcomes were similar to the full year $4.6 billion rose 89%, replaced at in-the-money strike prices of 3.6% at renewal. And when borrower business plans were impacted by higher interest costs or other headwinds, the vast majority chose to support their assets, committing over $1.6 billion of incremental equity subordinate to our loans.
These are sophisticated, well-capitalized investors to carefully evaluate incremental investments. Their support is a powerful indicator on multifamily. Specifically, we see continued resilience. Our multi loans were 99.4% performing at year end, and we subsequently sold the single nonperformer. We lend at 67% average LTV at origination. And our operating collateral has seen average NOI growth of 35% since then.
And we have virtually no exposure to New York City or San Francisco, rent-regulated, multi-family, perhaps most importantly, across the portfolio, our loans continue to repay. We collected $3.8 billion of repayments in 2023, including over $600 million in 4Q. This included $1 billion of office wells three in the fourth quarter alone.
How does this work a lot has to do with the types of loans we make BXMT finances value add business plans were high-quality sponsors, invest capital to drive cash flow growth. Our underwriting is based on current and potential real estate value, and we lend at a meaningful discount to those levels for transitional assets. Real estate value cannot be measured by current cash flow. About 40% of the loans that repaid this quarter had in-place debt service coverage ratios under one-times as takeout investors credited hard asset value and the potential for cash flow growth over time or it comes also has to do with our asset management approach.
We have substantial structure in our loans, guarantees, performance tests, rebalancing rates and sweep triggers that give us the path to enhancing our credit position. We can trade additional equity for rate or time when we deem it accretive. We have the full toolkit of execution strategies and the benefit of deep experience and extensive real-time data. And we channel all of this toward improving our credit position over time, putting our portfolio in a better position to perform. We saw this strategy at work in 4Q on two vacant office buildings where we secured incremental paydowns or recourse over our loan term, including the path to full repayments this quarter.
This included a London office loan originated in 2019 to vacate renovate and deliver a full building to rework. We heavily structured the deal upfront given the tenant profile and use our structure over time to negotiate a 40% reduction in our loan commitments. The asset sold in October empty to an institutional buyer, resulting in a full repayment at our lower basis. In other cases, we manage our loans to add collateral value over time. It is a clear positive for a senior lender to support accretive office leasing. And we generally fund leasing in concert with our borrowers as a lender, we get 100% of the benefit of incremental rents while funding a portion of the cost.
We recently did this on a Chicago office level where our borrower signed one of the city's largest leases of the year, a testament to the asset's strong positioning in the market. We also expect to fund 70% of TILC. costs going forward. Capital that goes and only when leases are signed. We gave our borrower additional term at a partial spread reduction in exchange for guarantees and increased (inaudible)of additional equity commitments.
While there still remains on our watch list. This modification enhances the value of our collateral, secured additional equity support and places this loan on stronger footing. In total, we have completed modifications on 50% of our watch list at Office stabilizing performance 95. We expect to take a similar tack on impaired assets where we see the potential for better recovery over time through capital investments. Our overall approach to impaired assets is guided by a singular focus on maximizing shareholder returns. We will exit assets when that's the best path, but with our robust liquidity and long duration balance sheet, we are not a forced seller.
Instead, we carefully evaluate strategies on an asset by asset basis, informed by Blackstone's deep experience as one of the largest real estate investors in the world. With this approach, we are making progress on our five rated assets. Post year end, we sold one loan placed to others under hard contract and completed a loan restructure all generally in line with our reserves. We also expect to take one small office REO in the coming months where we believe we can leverage our deep real estate, operational expertise and reset basis to add value over time.
This deliberate and strategic approach to asset management is supported by the strong balance sheet positioning we have established over the last several years. We ended 2023 with $1.7 billion of liquidity while reducing our leverage over the course of the year, our financing complex with an average cost of [195] over on our loan level financing and no corporate maturities until 2026 is a meaningful asset for our business, which enables us to pursue value-maximizing resolution while preserving distributable earnings and dividend coverage.
Our relationship with our lenders remains highly constructive. Mona loan facility lending has performed very well for banks through this cycle and with capital rules tightening, it provides them significantly better relative value than direct real estate lending. This evolution of the lending market is a distinct advantage for BXMT as one of the top counterparties in the industry. We regularly hear from banks that wish to expand their relationships with us and the rebound of the securitization market should provide further tailwinds for financing capacity to close in late 2022 and into 2023.
We fortified BXMT with the staying power to navigate a highly volatile period. We raised and preserved capital extended our corporate maturities and proactively manage our portfolio to reduce credit risks where we could now in 2024, we see the backdrop improving. We will continue to tackle residual credit challenges in the portfolio with some potential reserves along the way, but market conditions are aligning for a more active 2024, both on legacy asset resolutions and new investments. While we expect to maintain a highly disciplined approach to deployment.
We are starting to see new transactions that stand up to the opportunity cost or preserving our liquidity. Our 4Q distributable earnings of $0.69, which are off the record levels earlier in '23, but still comfortably above our dividend are encumbered, both by loans on cost recovery and excess liquidity. Earnings power, we can recapture over time. And while rate cuts affect interest income for a floating rate lender, they also provide a more constructive environment to deploy capital and resolve challenged credits.
Our stock valuation and contract prices in a far more punitive outlook. Trading at $0.72 of book value implies $1.2 billion of incremental losses beyond our reserves over 43% across all of our watch listed assets. Meanwhile, our dividend delivers a 13.5% current income yield cash return that is highly attractive relative to now lower rates and spreads Finally, I wanted to end with a word about Mike Nash. His long-planned retirement from Blackstone came at the end of 2023.
Mike founded the Blackstone Real Estate Debt Strategies business launched BXMT in 2013 and was the heart of our platform for over 15 years. In constant with his retirement. Mike has stepped down as Chair of the BXMT Board of Directors, but BXMT is privileged to have him continuing as a director.
Jim Johnson, the Global Head of Blackstone Real Estate Debt Strategies will succeed Mike as Chair. Tim has been an integral part of the BXMT business since its since its inception working closely with Mike and the entire BXMT team and leads the overall Brad's business today, we sincerely wish Mike all the best and welcome tenants, BXMT as new chair. Thank you for your time, and I will now turn it over to Anthony.
Anthony Marone
Thank you. Morning, everyone. Starting with our results. Bxmt reported distributable earnings of $0.69 per share for the fourth quarter and $3.5 per share for full year 2023. Our highest annual earnings levels, which we launched be exiting 2013. We incurred a GAAP net loss of $0.01 per share for the fourth quarter, which reflects the sequential increase in our CECL reserves primarily related to three new loans we impaired and placed on cost recovery accounting in the fourth quarter.
Our 4Q earnings, while still above our $0.62 dividend, have come down from the levels we reported earlier this year, reflecting the cumulative impact of loans we have placed on cost recovery status and $1.7 billion of net portfolio contraction. Our cost recovery accounting election will continue to negatively impact earnings until these loans are resolved through sales or other transactions.
In the fourth quarter, we incurred interest expense related to these loans of $0.08 per share net of incentive fees, which represents a potential immediate uplift to our recurring earnings power. Upon resolution of these loans, repayment of the attendant financing redeployment of our capital invested in these loans could also generate an additional $0.02 to $0.04 per share of quarterly earnings, assuming returns in line with our typical investments, reflecting further upside as we move through the credit cycle.
Looking at 1Q, we expect to resolve for loans currently on cost recovery, which will partially offset the impact of the three U.S. based on cost recovery at year end. Earnings will also be impacted periodically as impaired loans are resolved and we realized losses through distributable earnings upon sale, DPL or foreclosure of an asset in general we expect such realized losses to align with our CECL reserves with minimal impact on GAAP earnings or book value, which validates the accuracy of our reserve estimates.
Taking into account the assets we have under contract to sell to small office loan that we will likely take REO. We expect to recognize between $70 million and $80 million of realized losses likely in the first half of the year. And importantly, the majority of these come in concert with the resolution. It allows us to unlock earnings from the assets currently and cost recovery when we think about our $0.62 dividend, which we have paid consistently for 34 consecutive quarters. We primarily focus on our distributable earnings for any such realized losses. We consider a variety of factors as we assess our ability to generate earnings over time, including changes in interest rates, a range of credit outcomes and the environment for new originations.
As in the past, we will make decisions regarding our dividend with this long-term perspective in mind rather than reacting to any short-term changes in earnings that we believe are temporal in nature. Lastly, on earnings, $504 million or 99.7% of the interest income we reported in Q4 was paid current with PIC income representing only 0.3%. This quarter. We enhanced our disclosures by adding a discrete line to our audited statement of cash flows in our 10K. So stockholders can clearly identify the tech versus cash components of our income.
We continue to manage our balance sheet conservatively repaying over $1.4 billion of our asset and corporate level financing in 2023, reducing our leverage to 3.7x from 3.8x at the start of the year. Importantly, we achieved this result while increasing our liquidity to $1.7 billion at year end and remain comfortably in compliance with all financial covenants with ample liquidity, stable term match financing for our assets and no corporate debt maturities for the next two years, BXMT is well equipped to meet our future funding obligations.
We currently have $1.2 billion of net future fundings under existing loans in our portfolio, which are generally subject to conditional asset performance and distributed over a weighted average term of 2.6 years. Apollo portfolio is supported by $16 billion of term matched asset level financing where we have maintained a low cost of capital despite more challenging market fundamentals. And as noted on previous calls, we have zero capital markets mark-to-market exposure throughout our entire capital structure.
Key component of our portfolio financings is our CLOs, which provide stable funding source for a portion of our US loan originations over time. These viral pools naturally concentrated down and stay at over 60% US office 2.5x our exposure outside of ECM.
Looking at our portfolio, overall, credit performance remained strong, with 93% of our loans performing at year end and a weighted average risk rating of 3.0, up modestly from 2.9 last quarter. At the beginning of the year, we upgraded four loans, including a $361 million Spanish hotel loan that had been on the watch list since COVID, but has since recovered, leading to its upgrade to a risk rating of three this quarter.
We also had 11 loan downgrades this quarter, including five US office loans moving to a four rating and the three new five rated loans that we imperative to place on cost recovery at year-end the loans were all previously watch listed and include two San Francisco hotels and one New York office and retail assets. As it stands today, 7% of our portfolio is risk rated five and impaired by 22% on average and by 26% for office loans, specifically reflecting sober assumptions around collateral value that implied valuation declines of more than 50% origination.
Another 27% of the portfolio is risk rated one or two, reflecting our continued strong performance. The bulk of our portfolio, 55% overall is risk rated three loans that continue to demonstrate business plan progression and are performing in line with expectations. Over 60% of the loans are multifamily, hospitality and industrial sectors, demonstrating consistent fundamental performance and of the 30% in office for that happens in Europe.
Market dynamics are strong. The last segment of our portfolio, 12% of the total or $2.7 billion of losses. Over the past 12 months, we have modified 40% of our watchlist loans, bringing in $335 million of additional equity commitments from borrowers and putting them on more stable footing.
Another 22% has exhibited steady performance despite being on the watch list for seven years several years, the remainder about $1 billion of loans where we most directly focus our asset management efforts today, reflecting the credit migration in the portfolio, continued pressure from higher rates. We increased our CECL reserves by $150 million in the fourth quarter and $250 million throughout 2023 to $592 million a year. On the other hand, we retained nearly $100 million of excess earnings throughout the year. So our book value declined by only 3%, notwithstanding the substantial increase in our reserves.
In closing, the agency business model continues to deliver resilient results during a period of greater uncertainty and pressure for commercial real estate investors. Our balance sheet held firm. Our earnings remained strong and while the pressures of the rate environment weighed on credit performance, the overall impact to book value and dividend coverage was manageable with a well-structured balance sheet and near record liquidity. We entered 2024 on strong footing to maximize value for our stockholders.
Thank you for joining the call. I will now ask the operator to open the call to question.
Question and Answer Session
Operator
Thank you. (Operator Instructions)
Steve Delaney, JMP.
Steven C Delaney
Good morning, everyone. Thanks for taking the question. I appreciate the update on credit. Could I just confirm that currently as far as real estate owned that there is no REO on the books as of year-end '23. Is that correct?
Anthony Marone
That's correct.
Steven C Delaney
Okay. And Tony, in your comments you were talking about you gave us some information about realized losses, $70 million to $80 million of just from it analyst standpoint or projecting G&A, would you suggest we just split that in half as far as in terms of RDE distributable earnings on, would it make sense to you if we just split it in half over the for what, first and second quarter of the year?
Anthony Marone
I think that's a reasonable assumption. It's hard to predict when you're talking about a handful of discrete events markedly in the first quarter and work late in the second quarter, driven by I think if you wanted to split the baby. That's probably a reasonable number.
Steven C Delaney
Okay. Thank you for the comments.
Operator
Sarah Barcomb, BTIG.
Sarah Barcomb
Hey, everyone. Thanks for taking the question on units. So we obviously saw a significant dividend reset last week from one of your peers on. I was just hoping you could talk about your go-forward expectations for interest income in the context of both your income covenants and your dividend coverage on it. You've obviously highlighted that sponsors are coming to the table. They're buying new rate caps. The multifamily portfolio is performing quite well.
And but we're still seeing some pressure on net interest margin. And it looks like the performing portfolio came down from 95% to 93%. And we also know, Mike, we're going to see some REO potentially here. So with all that said, I'm just I'm just hoping for some more detail on your expectations for go-forward earnings. Should we be modeling? Are there contraction and pressure from NPLs? Or how should we think about that?
Katie Keenan
Sure. So I think just to level set, we covered our dividend by 123% over the year at 111% in the fourth quarter. And as we went into in some detail, we think our fourth quarter earnings are encumbered by about $0.10 to $0.15 from non accruals and excess liquidity. So, those will both be gradual, but they provide a tailwind over time.
I think as far as REO, you know that loan is already on nonaccrual. So there's no incremental impact from taking that loan from cost recovery or impairment to REO. And I think that as we look at the overall portfolio in the 95% going to 93%. I think Tony laid out sort of where we're focused as far as the watch list, the overall impact is pretty manageable. The other big picture factors, obviously, rates. I mean, I think we're all watching what will happen with rates. But while lower rates could impact income, they also alleviate credit pressure and potentially accelerate some of these impaired asset revenue resolutions.
So they provide a bit of a natural hedge. So we look at the dividend on a long-term basis. We're thinking about our current income levels where we see the potential for resolutions and incremental investments and obviously sort of how we got there along the way. And I think that's the big picture view of how we're looking at.
Anthony Marone
it also kind of essentially in U.S. for our covenants, we are in compliance with our covenants, and that's not something that we're worried about near.
Sarah Barcomb
Okay. Great. And then just as a follow-up and in the presentation, you gave some great disclosure on sponsor decision making in the context of the amount of sulfur cap. They purchased in 2023. Looks like those are around the 3.7% strike today on. Could you give us an idea of the total cost of those?
So for accounts, like what it does look like in Q4, how it is shaking out for upcoming maturities? I'm just trying to get a handle on, you know, the capital need for your sponsors in the near term here as those rate caps come down?
Katie Keenan
Yes. I mean, I think when you look ahead, so the comps as we provided in the disclosure, they weren't a real issue in 2023 when rates were going up. And now rates are obviously moving in the other direction and the cost to replace caps are cheaper. And I think that when we think about it from the sponsor perspective, the caps are not really a deciding factor.
There are marginal costs relative to the substantial equity sponsors have in their deals, and it's effectively just prepaying interest over there for a year. So we the overall cost of the caps is a factor of where a sponsor buys the strike price on the caps relative to where the base rate is at that time. And so with base rates coming down into the fours, the weighted average cap rate or sort of a strike at the caps in the portfolio today is 3.3%. So you're thinking about it 100 basis points, sort of magnitude of differential based on sort of weighted average so far on the curve and where the caps are today for the cost really isn't that meaningful, I think, to the sponsors. And as we saw in 2023, the vast majority of them renewed, and it wasn't a real decision point.
Operator
Thank you. Doug Harter, UBS.
Doug Harter
Thanks. How are you thinking about '24 maturities and I guess, how would you expect the outcomes for '24 to look relative to them kind of how they looked in '23?
Katie Keenan
Yes. So, we look ahead at the portfolio and I think that looking at the '24 maturities, you can see we put some loans on the watch list. That's really a factor of looking ahead at what we expect but overall, we have pretty good visibility on the '24 maturities. We've obviously addressed a lot of the watch list loans so far this year, 50% of the watch list we have modified with substantial new equity. And there's a couple more that we've moved that we're watching we're working on.
But when we look at the overall scope of the final maturities in 2024. And we think we've identified where the more challenging conversations should be and the vast majority of those we have visibility on. And if we can see it in our risk ratings, one to three risk ratings, 81% of the overall portfolio. And I think in terms of the performance in our occasions of how that maturities will play out that's reflected in the risk rating.
Doug Harter
And then, Tony, did you say how much debt will be kind of repaid or how much capital is freed up with the resolution of those four loans.
Anthony Marone
And I did not give a specific data point. I would focus on is the earnings impact. I mean there will be some liquidity that will tick-up from from those repayments being able to repay some debt. But it, what I would focus on is the earnings impact of unlocking and trapped earnings that we're going to have.
Doug Harter
in those deals just as that earnings come from putting that money back to work or is it immediate one sales results?
Anthony Marone
It's immediate once you resolve and repay the debt and as you'll pick up a center to repaying the debt. And then if we redeploy that, then you have further upside from there. But just just the repayment of the debt.
Doug Harter
Yes, appreciate it. Thank you.
Operator
Don Fabdetti, Wells Fargo.
Don Fabdetti
And can you talk a little bit about the Q1 resolutions? I think you had mentioned there were four loans resolved. How were those resolved for those property sales repayment?
Katie Keenan
Yes, absolutely. So on, as I mentioned, we have one loan that we already sold. We carry that asset unlevered. That was our upper Westside rent-stabilized multi-family asset, which we sold earlier this quarter. We have two others that are under hard contract for sale. One of those will be a full sale. The other will take back some seller financing at a much more rational level with new equity coming in. And then the fourth is a restructure with one of our borrowers, we're bringing new equity at a reset basis and at a rational level where the loan will be performing at an annual level and covering.
So it's really a whole variety. And I think it's a great example of the fact that we bring a customized approach to each one of these impaired loans. We have assets where we see a good appropriate valuation level in the market and where we're prepared to exit at those levels sometimes at the wholesale side at times, if we like the asset with new equity coming in we can stay in at a lower leverage level, either as an anode or as some financing on it.
And then sometimes we'll take a longer-term approach. I think one of the biggest competitive advantages of running this business at Blackstone. We can look at all these deals and think about what is the best way to maximize returns over time. So we want to sell the assets today. And we want to invest capital, implement the business plan, bring to bear all of our operational expertise, and we're really taking that approach on a deal-by-deal basis and thinking about the best results. But I think that having the option of all, all three of those are even more broad options is a real advantage.
And I think the fact that we're resolving four of our impaired loans, generally just at our reserves is a real positive in terms of looking at moving forward in the portfolio and freeing up earnings on those deals,
Don Fabdetti
kind of what's the I'm what's the sort of cone KT and office in general, I mean, obviously still under significant pressure. I mean, are there any are you seeing any signs of capital coming in financing availability or is it still, you know, continues to be very difficult.
Katie Keenan
Yes, you know, I think it's interesting and obviously the bifurcation is really continuing. And you've got the older vintage, more challenged assets in certain markets like San Francisco, where we continue to see real challenge. But I think that as we've seen over the last year in terms of fundamental performance. And also we're now seeing it in the capital markets. The high quality trophy assets are they're really continuing to show performance both on leasing occupancy as well as on the capital markets.
And then just by way of datapoint trophy CMBS capital structure today are 50 to 75 basis points tighter on spreads than they were three or four months ago and obviously see it in office feedstocks. And there's been a lot of news about capital formation coming into the space. So I think that it's pretty clear that there is a segment of the office market that is going to work going forward. And pricing is starting to reflect that.
You know, as we've talked about in the past, the vast majority of our office portfolio is newer build. We have a lot of new construction assets in our newbuild assets and Hudson Yards, et cetera. And so I think that the capital markets are coming around to the value and the investability of those assets. I mean, I think that the market's just getting a little bit more rational.
Don Fabdetti
Thanks.
Operator
Stephen Laws, Raymond James.
Hi, good morning. First question, I'd like to follow up on the on the Kathleen, can you provide a little additional color on the weighted average duration of the caps and you said 97% of performing loans have a cap kind of when we think about that, the expiration of those?
Katie Keenan
So the caps the way the caps are structured are generally coterminous with the initial term of the loan and then the extension time. So we're going to expect to see that the caps will continue to roll in similar magnitude to the $15 billion of tax that we saw roll this year. And I think as I mentioned, I think we expect to continue to see a similar result. So the vast majority, obviously, of the caps that rolled this year were replaced.
We look forward and don't see any real change that other than the fact that rates are coming down. And so the overall cost differential is going to be less. The average taps are, as I mentioned, 3.3% in terms of the cap expiration, and that's for the 2024 on rolls. And so looking at that relative to where sulfur is another base rate, that feels quite manageable.
Stephen Laws
Great. Appreciate the color there, Katie. And as a follow-up, you talked about new originations starting to for the past, the test, I guess, to use some liquidity. How do you think about the right time to do that as it is it looking at leverage? Is it based on these resolutions in the first half? Is it more of an adjusted leverage adding back just the general or maybe the total reserve, how do you think about the right amount of liquidity, the right size of the balance sheet and with respect to doing some new originations as they move through the year?
Katie Keenan
Yes. Well, I think a big part of it comes down to the investment opportunity. And I think right now is a really compelling time to be a lender, you have a competitive environment that is much more favorable banks pulling back. You also have fundamentals which we see on the ground improving. And yet as it's obvious from the last week, you have real volatility and sort of real pockets where we think we can make interesting risk-adjusted returns, though, we feel that now is a really compelling moment to be a lender in our space. And of course, we're also looking at the balance sheet, liquidity leverage.
We have plenty of liquidity. We have plenty of capacity in terms of our facilities. We also have various ways we can finance these deals so we can participate. And so I think that where we are today, we're not going to go out and do a ton of new loans. Obviously, we're going to be monitoring. Repayments are going to be monitoring liquidity monitoring, managing our overall portfolio. But I think that putting a couple of chips on the table right now in this in this environment at the lender is the right thing in terms of setting up our portfolio on the go forward to access interesting opportunities.
Stephen Laws
Great. Appreciate the comments this morning.
Operator
Jade Rahmani, KBW.
Jade Rahmani
This is Jason Sam on for Jade. So I'm curious what you're hearing from your multifamily and life science borrowers. If properties were underwritten to much lower cap rates and lease up is slower and analyze taking longer to stabilize, how do they typically manage through the next 18 months?
Katie Keenan
Sure. So I think that's a that's a great question. And as we mentioned in the remarks, our multifamily portfolio today is 99.4% performing and post quarter end selling the assets that we sold about 100% performing. And we've seen NOI. growth of 35% since we originated these loans. And we started at 67% LTV. So while we do see some pressure, especially, obviously it's been broadly discussed in the Sunbelt from new supply that's really resulting in rents kind of flattening out there's been a lot of growth in these markets and a lot of NOI growth in our assets.
And then obviously business plans, these are all value-add assets to start. So they had incremental business plans to renovate increase raises, as you know, in addition to the growth in the market generally. And so in terms of how the borrowers are addressing, I mean, I think you can see it in the rate cap rules. We had a couple of billion dollars of multi-rate capital have already happened in '23. And you can see it in the performance of the portfolio. And I think that really a lot of it comes down to the leverage point and the types of borrowers that we're lending to.
These are well-capitalized borrowers. They see the supply demand fundamentals using up in '25, new starts or construction deliveries and '25 are much lower than '24. And this is really sort of a temporary moment in time in a very liquid asset class where there continues to be a lot of capital, a lot of debt availability from agencies, insurance companies and others that's really going through a temporary pocket that I think by and large are sort of long and good outpatient, well-capitalized borrowers are going to be able to see it our way through and we haven't seen any indication otherwise in the performance of the portfolio.
Jade Rahmani
Great, thank you. And then with respect to Life Science borrowers, as have you seen nice uptake in slower than expected or have the benefit of the business plan generally and the following expectations?
Katie Keenan
Yes. So we have very little life science in the portfolio, the largest asset as a brand new builds asset in Berkeley in California, right on the water. It's a super high quality trophy asset at a low leverage point that's in the process under construction. So it's really a little too early to tell, I would say by and large, you know, we really only have a couple of assets and they're all low leverage on new construction.
Jade Rahmani
Thank you very much.
Operator
Rich Shane, JPMorgan.
Rich Shane
Thanks, everybody, for taking my questions. Come clearly, I'd love to talk a little bit about the interplay between GAAP earnings distributable earnings and dividend policy. You've spoken clearly about over-earning the dividend this year on a distributable earnings basis. And if we take, for example, and I'm going to make a couple of assumptions here we look at your reserve, we say that your 25% over-reserved versus what you're going to realize for losses seems like a reasonable assumption.
And I think that it takes three years for the reserves that you're going to use to run through the distributable earnings. That represents about $150 million a year drag on to distributable earnings, it's probably $0.85 $0.9. How would you think about the dividend if it materializes along that path, which seems reasonable in terms of continuing the dividend at the current level if you're not likely to earn it on a distributable basis?
Anthony Marone
Great question, Tom. So, I take the jump to the dividend policy question, which we spoke about all of it in the prepared remarks we focused on when we're setting our dividend, which is what we focused on for several years now is what do we think is the right dividend level relative to the long-term sort of run rate earnings power of BXMT. You've seen many quarters where we well outearned the dividend, for example, and we didn't increase our dividend because we felt like that was a piece that might come down.
We had some quarters, although not many of them going back to 2015 where we under earn the dividend but we again felt like that was temporal and so didn't cut the dividend. So what we really focused on is what do we think is the earnings power of our dividend and so we would anchor to our earnings for this quarter, which were not impacted by losses. And the things that will move that over time, which we've highlighted on the call so you had impact rates. You had impact from other loans going nonaccrual. You have the benefit of previous nonaccrual loans coming back online.
Our new originations when they happen, et cetera, so we look out over time at how do we think those factors will come together to impact the earnings power of the Company. And if that aligns with the $0.62 dividend. And we feel good about our dividend when that doesn't align with the $0.62 that dividend, then of course, we're going to reconsider our dividend level, but that's more where we're focused and less on trying to make a judgment and you're deleveraging throughout our refined estimate if one wanted to make one, but we're less focused on where do we think the episodic losses are going to head over a period of time and or where do we think the overall earnings power of the company is over time.
Rich Shane
Got it. That's helpful. And look, there's this inherent disconnect. Your GAAP makes you assume losses distributable makes you realized losses and the way it is imperfect in the context of that dividend policy. Ultimately you can't be a lender and not consider the costs of credits. When we look at distributable income for this year, it was about $3 just over $3 and the dividend was $2.48 is a reasonable way to look at this that you see the long-term credit costs and the dividend policy that you just described is about $0.5 per year and that it's because, again, we can't ignore credit, but we also can't we realize that there's a tax implication in terms of distributable as well.
Anthony Marone
So I just I think when you're saying credit cost structure, you're not talking about the cost of our debt, you're talking about credit losses. When you say credit costs?
Rich Shane
Yes, exactly.
Anthony Marone
Yes. So I think So firstly, as I read, maybe that's where you're going as read. We have to anchor to the taxable income impact, which says that we have to distribute our taxable income or 90% of it and you can pay some tax if you want. So we satisfy that. So we don't have any issues as far as satisfying the tax requirements and as we're realizing losses and to your point, does do that does impact your tax accounting? So if you do realize a loss on a loan because you get a DPO or you foreclose and sell for less than your basis. That is a tax deductions.
All of those flow through the timing may not be the exact same, but all of those realized losses will flow through over time GAPNDE. and tax. Again, timing may be different. So I wouldn't interpolate that. We think that there's a some sort of imputed $0.5 credit loss based on how we outearned our dividend this year, which impacted our ability to outearn our dividend this year isn't because there's some tax losses existing below the surface that we think would perpetuate on a year-by-year basis. It's because in some prior periods we had other tax attributes, for example, NOLs from our legacy Capital Trust business or some periods where we had over distributions on a tax basis, again, going back many years that was carried forward to this year and allowed us to earn a level well above our dividend.
Well, satisfying the tax rules be because we had this cushion coming in. It's not that there's some sort of imputed $0.5 tax loss that with allowing us to meet our dividend requirement that you should think of as a go-forward $0.5 loss rate that I would I think big picture what matters in terms of how we look at the dividend is what our earnings power is.
Katie Keenan
After we get through the impairments and the losses that we're going to have some quarters where we have GAAP earnings impacted by reserves. As we did this quarter, we're going to have some quarters where we're going to have DE. impacted by realized losses. But what really matters is on the other hand on the other side of that, our investable equity, the earnings power of that relative to our overall business, and that's how we think about the dividend.
Rich Shane
Okay. Thank you, guys. Really appreciate it.
Operator
Arren Cyganovich, Citi
Arren Cyganovich
Yes, I'm sorry about that. From the Los Angeles office that was downgraded to four from fines on there's a much smaller, I guess, net book value on that versus the principal. Is that something that where you sold a piece of that? Or can you maybe just talk a little bit about that, that loan?
Katie Keenan
Sure. That's a really high-quality asset in West LA, it's signed a couple of big high rate leases, well above our underwriting, but taking longer to lease, I think in part because of the strikes and what happens over the last year in the content industry, we have a we have a loan there that we originated as a whole load and then sold the senior loan. So, that's the difference in terms of book value that you're seeing and we're having. And we're in a very constructive conversation on that deal in terms of modification. But we downgraded it because we're in that conversation.
Arren Cyganovich
Okay, got it. And then you have a couple of risk-rated five loans that matured in January and are those some of the loans that you're going to be realizing losses on the first half or or would those be modified?
Katie Keenan
Yes. I mean, I wouldn't read much into the maturity dates of the impaired loans. I mean those loans obviously are already impaired. We don't recognize income. They're really in the category of. We're just working them out for the best recovery over time. I think maybe one or two of them might have coterminous maturities, but we're really we're in workout on the impaired loans and the maturity dates themselves are not particularly meaningful. I'm not particularly impactful in terms of our disposition we're just going to do the disposition on the time line that we think maximizes recoveries.
Arren Cyganovich
Thank you.
Operator
At this time, I would like to turn the call back over to Mr. Tim Hayes for any additional or closing remarks.
Tim Hayes
Thanks, Gary. And to everyone for joining today's call. Please feel free to reach out with any questions.
