Arbor Realty Trust, Inc. ($ABR)

Good morning, ladies and gentlemen, and welcome to the First Quarter 2026 Arbor Realty Trust Earnings Conference Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would like to now turn the call over to your speaker today, Paul Elenio, Chief Financial Officer. Please go ahead.

Okay. Thank you, Stephanie, and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we'll discuss the results for the quarter ended March 31, 2026. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer. Before we begin, I need to inform you that statements made in this earnings call may be deemed forward-looking statements that are subject to risks and uncertainties, including information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. These statements are based on our beliefs, assumptions and expectations of our future performance, taking into account the information currently available to us. Factors that could cause actual results to differ materially from Arbor's expectations in these forward-looking statements are detailed in our SEC reports. Listeners are cautioned not to place undue reliance on these forward-looking statements, which speak only as of today. Arbor undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events. I'll now turn the call over to our President and Chief Executive Officer, Ivan Kaufman.

Thank you, Paul, and thanks to everyone for joining on today's call. As you're all aware, our stock has been subject to attacks by short sellers in recent years. Some of those short reports appear to have provoked investigative interest from regulators as well as class actions and derivative claims from plaintiffs law firms. We have steadfastly maintained that these attacks and claims they made against us were baseless and misleading. We are pleased to report in that regard that we believe that any pending investigations that were initiated in the wake of the short reports have now been closed without any action against us. Additionally, and very recently, our motion to dismiss the class action lawsuit against us was granted and the claims dismissed without prejudice. We are very pleased with these developments. Although our management team never lost sight of our shareholders and their interest during this challenging period, we are happy to put this chapter behind us and to focus on creating shareholder value free of these costly and unwarranted distractions. On our last earnings call, we discussed at length we feel we are at the bottom of the cycle and have ring-fenced the majority of our nonperforming and subperforming loans and are working exceedingly hard at accelerating the resolution of these loans into performing assets, which will allow us to start to build back our run rate of interest and income for the future. This is our top priority as these loans are having a tremendous drag on our earnings. We also mentioned that if rates went down, the process would accelerate. And if rates increase, it would lead to a longer period of time needed to resolve these loans. Unfortunately, given the geopolitical landscape, the 5- and 10-year have actually increased roughly 50 basis points in the first quarter, which is certainly pushing our timetable out a little bit. Despite these challenges, we continue to make progress in working through our assets. And again, we believe we have a clear line of sight on resolving a bulk of these assets over the next several quarters. We ended the first quarter with approximately $500 million in delinquencies and around $500 million of REO assets for total nonperforming assets of roughly $1 billion. These numbers are down approximately $100 million from the last quarter or a 9% reduction. This is steady progress. And again, our goal is to continue to accelerate the resolution of our noninterest-earning assets and redeploy the capital into performing loans and grow our run rate of income. We had $200 million of new delinquencies in the first quarter and $300 million of resolutions, which is consistent with our goal of continuing to shrink our total delinquencies each quarter. Additionally, we have line of sight on roughly another $200 million to $300 million of delinquencies we expect to resolve in the second and third quarter in addition to another $100 million, we believe we have the potential to resolve by the end of the year. We also remain optimistic that we can reduce our REO assets to around $250 million to $300 million by the end of 2026, even after adding an additional $100 million of REO assets over the next few quarters, which were already reflected in our delinquency numbers at March 31. We have been actively marketing several of these assets for sale, which will go a long way towards helping reduce the drag on earnings and increase our run rate of income for the future. As we discussed in detail in our last quarter, we continue to focus heavily on our legacy portfolio, which currently sits at approximately $5 billion. $500 million of these loans are delinquent and we are working through very aggressively and $1.5 billion continue to perform in accordance with their original terms. The other $3 billion have been modified to pay and accrue features, of which only half of these loans we are accruing the full rate of interest on. We continue to make progress in reducing the amount of accrued interest outstanding on certain loans at the subset by resetting the rates to today's market spreads and requiring that the borrowers pay down a large portion of the outstanding accrued interest as part of the modified terms. In fact, we are currently working on several loans totaling approximately $400 million that we think we can modify in the second and third quarter that will result in receipt approximately $19 million in back accrued interest and reducing the loans outstanding and accrued interest down to around $1.1 billion. This is a very effective strategy that will also put these loans in a much better position to cover our debt service from property operations and is resulting in improved terms from our line lenders. This, combined with having the proper guarantees and requiring the borrowers to commit significant additional capital to support their deals gives us comfort about how these loans will perform going forward and will greatly limit the potential risk of future losses. As Paul will discuss in more detail, we produced distributable earnings of $0.18 a share in the first quarter. Clearly, our earnings are being greatly affected by the significant drag from our noninterest-earning assets as well as from resetting legacy loans to today's market rates. This is something we believe we will improve in the next several quarters. We continue to make progress in resolving our legacy issues and grow our business volumes. Our first quarter numbers were also affected as we expected, by a normally slow start in the agency business from the seasonal nature of that platform, which was also impacted by the increase in rates. On our last call, we mentioned that we would continue to evaluate our dividend policy based on how quickly we think we could resolve our delinquent loans and subperforming loans and reduce that drag on earnings. With the recent increase in rates as well as the expectation that rates can continue to remain volatile, we are now predicting a slightly longer time line in resolving these loans. As a result, the Board has decided to reset our quarterly dividend to $0.17 a share. We believe this is the dividend we will be able to cover from earnings for the rest of the year and the potential for growth in the later part of the year and in 2027 as we work aggressively to reduce the earnings drag from our legacy assets and improve our run rate of interest income. We also believe it is very prudent in this current environment to retain our capital to fund the growth of our platform and to buy back stock where appropriate, which generates strong risk-adjusted returns on our investment. Turning now to the production numbers for the first quarter in our different business lines. In our agency platform, we originated $708 million in volume. In addition to our first CMBS brokerage transaction of $88 million of the total first quarter volume of $795 million. These numbers were in line with our previous guidance as we normally experience a lighter first quarter due to the seasonal nature of the business. Despite the challenging rate environment, we are seeing an influx of new opportunities that are increasing our current pipeline significantly. We're off to a good start for quarter 2 with $350 million of volume closed through the first week of May, and we still feel we can produce similar volumes as last year and a strong second half of the year, which is obviously rates dependent. In our balance sheet lending business, we originated $400 million of volume in the first quarter. This business continues to be incredibly competitive. And as a result, we are being highly selective and are focusing our attention on larger deals with high-quality sponsors. The bridge lending business is a very important part of our overall strategy as it generates strong levered returns on our capital in the short term while continuing to build up our pipeline in future agency deals. And with the significant efficiency we continue to see in the securitization market, and with our line lenders, we are able to produce strong returns on our capital despite the competitive landscape. In fact, in the first quarter, we issued another CLO with very attractive pricing and terms. We priced the deal at 1.73% over and 88% leverage with a 2.5-year replenishment feature. This was an incredible accomplishment, especially in light of the fact that we priced the deal during the height of the Iran conflict. We continue to have access to this market and are a leader in this space, which allows us to finance our new originations with nonrecourse, non-mark-to-market debt and drive higher returns on our capital. In our single-family rental business, we experienced an unusually slow start to the year, which was primarily driven by the noise surrounding the housing bill that is being considered. This bill in its current form surprisingly does not have a full carve-out for the build-to-rent business as initially expected and definitely keeps folks on the sidelines due to this uncertainty. There's been a tremendous amount of talk lately that this bill will not get passed in its current form and will be serious considerations to building in the appropriate carve-outs for the build-to-rent business, including removing the for-sale provisions in year 7 that currently exist in the proposed legislation. As a result, things are starting to loosen up now that people believe this will occur, and we expect to see a real uptick in our new originations in this platform going forward. We originated approximately $125 million in the first quarter and expect we will see a significant increase in these volume numbers over the next few quarters. This is a great business as it offers us returns on our capital through construction bridge and permanent lending opportunities and generate strong levered returns in the short term while providing significant long-term benefits by further diversifying our income stream. In our construction lending business, we continue to see our share of high-quality deals with very experienced developers. We closed 1 deal for $113 million in the first quarter and are expected to close another $250 million in the second quarter. And our pipeline continues to grow each day, give us comfort in our ability to hit our target of between $750 million and $1 billion of production in 2026. In summary, we are laser-focused on resolving our legacy book as quickly as possible, which will reduce the significant drag that these assets are having on our earnings. We believe we have a clear path to resolving the majority of the assets over the next several quarters, which will set us up nicely and build our earnings base heading into 2027. We also continue to focus on growing the many different verticals we have and generate strong returns on our capital that are being enhanced by the significant improvements and efficiencies we continue to create on the right side of our balance sheet. We will continue to work exceedingly hard through the bottom of this cycle. And as always, we remain focused on maximizing shareholder value. I will now turn the call over to Paul to take you through the financial results.

Thank you, Ivan. In the first quarter, we produced distributable earnings of $37.4 million or $0.18 per share, excluding onetime realized losses of $23 million from the resolution of certain delinquent and REO assets. On our last quarter earnings call, we guided to around $10 million of realized losses in Q1, all of which we had previously reserved for. We had some success resolving some loans ahead of schedule, resulting in additional $13 million in losses in Q1. We will continue to do our best to give guidance on expected resolutions, although it is a very fluid process and often hard to predict the exact timing of these resolutions. Having said that, our best estimate is a range of approximately $15 million to $25 million of realized losses a quarter for the balance of the year that we will continue to reserve for as we receive more price discovery on these assets. As Ivan mentioned, our first quarter numbers were in line with our expectations, especially given the light first quarter we usually experience in our agency business. We also expect that it will take a little longer to work through our legacy book given the current rate environment, which will likely keep our earnings in a similar range for the next few quarters before we start to see an increase in our run rate towards the end of the year as we reduce the drag on our earnings from our underperforming assets. This should put us in a position to start to show growth in our earnings in 2027 as we realize the full benefit of converting our delinquent assets into performing loans. With that said, the second and third quarters of this year are likely to be our low watermark and hover around $0.17 a share as we continue to reset certain subperforming loans to lower rates that will affect our earnings run rate for the next few quarters. We do expect this number to grow in the fourth quarter with further upside potential in 2027 as we're working diligently to resolve nearly all of our nonperforming assets over the next several quarters. We're estimating the second quarter will actually come in around $0.15 a share as there is roughly $0.02 a share of unusual drag from some inefficiencies related to our financing costs that are resulting in a temporary overlap of interest for a few months. This includes the $100 million ramp feature in our new CLO that we expect to be able to fully utilize by the end of May and the timing of redrawing on our repo lines to pay off our 4.5% unsecured notes last week as we use some of the proceeds from the December bond issuance to temporarily pay down higher cost repo debt until the April notes came due. And given the nonrecurring nature of this expense, combined with the expectation that we will resolve the bulk of our delinquent loans by the end of the year, we believe we'll be able to start to grow our earnings in the fourth quarter with additional upside expected in 2027 as well. In the first quarter, we recorded an additional $12.5 million of impairment on our REO book to properly mark these assets to where we think we can effectuate a sale. We have engaged brokers to sell the bulk of these REO assets quickly and create interest-earning loans for the future. As Ivan mentioned, we're expecting to take back roughly another $100 million of assets as we work through the bottom of the cycle, $50 million to $75 million of which will likely happen by the end of the second quarter. Most of these assets are already reflected in our delinquent numbers. And again, we are working very diligently to dispose of these assets quickly with an estimated $100 million to $150 million of sales scheduled in the second quarter and another $200 million to $250 million expected in the third and fourth quarter. This should put our REO assets between $250 million and $300 million by the end of '26 and greatly improve our run rate of income for the future. We also booked another $9 million of specific reserves on our balance sheet loan book for total REO impairment and specific reserves of $21.5 million in the first quarter. We expect to book similar level of reserves and impairments over the next few quarters, which is consistent with our strategy of accelerating the resolution of problem loans as we look to mark certain loans that we are marketing for disposition to where we think we can execute a sale. In our GSE agency business, we originated $708 million in volume and had $671 million in loan sales in the first quarter. The margins on these loans were very healthy at 1.86% this quarter compared to 1.36% last quarter, which was mostly due to a shift in product mix and loan size with some larger deals in Q4 that contain lower margins. We also recorded $10 million of mortgage servicing rights income related to $734 million of committed loans in the first quarter, representing an average MSR rate of 1.32%. Our fee-based servicing portfolio of $36.3 million (sic) [ $36.3 billion ] at March 31 with a weighted average servicing fee of 35.5 basis points and an estimated remaining life of 6 years and will continue to generate a predictable annuity of income going forward of around $129 million gross annually. In our balance sheet lending operation, our investment portfolio was $12 billion at March 31, with an all-in yield on that portfolio of 7.03% compared to 7.08% at December 31. This was mainly due to resetting rates on certain legacy loans and from the slight decline in SOFR. The average balance in our core investments was $12.04 billion this quarter compared to $11.84 billion last quarter from the full effect of our fourth quarter growth. The average yield on these assets increased to 7.5% from 7.38% last quarter, mainly due to significantly more back interest and default interest collected in Q1 on loan resolutions, which was partially offset by a decline in SOFR in the first quarter. Total debt on our core assets was approximately $10.7 billion at March 31. The all-in cost of debt was approximately 6.4% at 3/31 versus 6.45% at 12/31, mainly due to a reduction in SOFR, along with a lower rate on our new CLO issuance in March. The average balance on our debt facilities was approximately $10.4 billion for the first quarter compared to $10.1 billion in the fourth quarter, mainly due to funding our fourth quarter growth and from a full quarter of the new unsecured debt issued in December of last year. The average cost of funds in our debt facilities was 6.52% in the first quarter, down from 6.66% for the fourth quarter, excluding interest expense from leveraging our REO assets, the debt balance of which is separately stated in our balance sheet and therefore, not included in our total debt on core assets. This decrease is mostly due to a reduction in SOFR, which was partially offset by the unsecured debt we issued in December. And our overall spot net interest spreads were flat at 0.63% at both March 31 and December 31. So in summary, we continue to make steady progress in resolving our delinquencies and are extremely focused on completing the process as quickly as possible, which will significantly reduce the drag on our earnings. This, combined with growing our origination platforms will go a long way towards allowing us to increase our run rate of income in 2027. That completes our prepared remarks for this morning, and I'll now turn it back to the operator to take any questions you may have at this time. Stephanie?

[Operator Instructions] We'll take our first question from Jade Rahmani with KBW.

Could you comment on the outlook for SFR originations picking up? And also, if you can give any color on the types of borrowers that you are dealing with, the number of properties they hold, what their intended hold period is and how the financing terms from counterparties are changing the cap rates and return profile of that business?

Can you repeat the first part of that question? It didn't clearly...

Yes. Sorry about that. Could you comment on the outlook for the single-family for rent originations business? If you could provide some color on the types of borrowers you're dealing with, whether they're institutional or whether they're smaller number of properties they hold and their hold period. Just about your comments regarding the housing legislation and how that's changing that business.

Sure. Let me respond to that thought first. Let's talk about the legislation because I think the business got frozen a little bit initially with the concern and the fear. But the consensus now, a very strong consensus is those prohibitions that we're putting into that bill restrict closing the sale is not going to be put in the bill. And as a result, we've seen a real momentum over the last couple of weeks in that business. I think we're already at $200 million, and we expect to exceed $300 million for the quarter. So we're back in line and back in pace and the enthusiasm is back in the business. Most of the people we're dealing with, a lot of their investors are institution based. A lot of them have anywhere between 5 and 30 assets. That seems to be the typical profile of what we're dealing with. Some have high net worth families, but a lot of them are institutional based. If you can refresh me on your second part of the question?

I think it was cap rates, returns and how we're seeing the financing side of that business, which I think has been really strong, right.

Yes. Listen, the credit markets are extremely aggressive right now and the cap rates are very aggressive. It's a very, very well-liked business, and we think there's a lot of momentum in the business. So it's still viewed very, very favorably. And anything that's completed and goes to a bridge loan is priced extraordinarily competitively and the agencies, Fannie and Freddie as well as the CMBS market, they love this product.

Great. And that's really good to hear in terms of the resiliency of that asset class. Just turning to the outlook on credit. I think you touched on it that the 5- and 10-year move this year is kind of slowing the pace of resolution. But my main question would be if there's any new delinquencies or new defaults you would expect as a result of where the 5- and 10-year. I imagine that there's at least some cohort of borrowers that have been kind of on the fence as to what they're going to do and the outlook for rates makes a huge difference in their consideration. So if you could just comment on how the 5- and 10-year move this year has affected the credit outlook.

Well, I think it's very clear from management standpoint that we've taken a look at the change in the rate environment. And in the fourth quarter, we clearly had a drop in rates, and there was a lot of liquidity flowing into the sector and a lot of enthusiasm. And now with the Iran situation and rising rates and with the approach that rates will remain a little bit higher, we've adjusted our philosophy, and we're getting ahead of where we think the market is. And that's why we've adjusted our dividend to reflect a more difficult environment. We don't want to be sitting here in the second and third quarter making the adjustments. We think that this rate environment is going to slow the resolutions. It's going to slow liquidity into the sector and it's going to slow where these resolutions go. And in fact, as Paul has guided in his comments, we're expecting to continue to have reserves going in the second, third and fourth quarter, and it's reflective of where this new environment is. So we've made the adjustments. I'm not sure everybody else has, but we do think that this new rate environment is going to affect the balance of the year, and that's what we're reflecting in our comments.

We'll take our next question from Chris Muller with Citizens Capital Markets.

I was having some connection issues, so apologies if you already hit on some of this. But looking at originations in the bridge portfolio, average loan size looked to be about $128 million versus $38 million in the fourth quarter. And I think Ivan touched on this a little bit. But was this more opportunistic? Or are you guys intentionally moving up the loan size spectrum, and we should expect to see more of this going forward?

Well, I think it's a great question. And we are definitely going in a larger loan size, but the market is extremely, extremely competitive. And it's to the point where on each individual loan, you have to make certain credit decisions in order to bring those loans on. So we've chosen to go to larger sponsor, larger deals and be more selective in that sense and put more management attention on each and every loan that we do and the larger loans gives us the ability to do that.

Got it. That makes a lot of sense. And then I guess, gain on sale margin stepped up quite a bit in the quarter to 1.86% from 1.36%. Can you just remind me if there was a large deal in 4Q numbers or something else driving that dynamic?

No, that's exactly right, Chris. So a couple of things happened. If you go back and look at our margins, you may want to go back and look at 3Q, 4Q and even 2Q of last year. If you look at 1Q and 2Q of last year, the margins were actually very strong. Similar, 1.86% is a very healthy margin. We did 1.70% -- I think we did 1.75% in the first quarter of last year, 1.70%, I think, in the second quarter of last year. Then in the third and fourth quarter, you saw that dip of 1.15% and 1.36%. So in the fourth quarter and third quarter, we had some really large off-market deals that we were able to get over the line. And we also had a lot more Freddie Mac business in the fourth quarter, which is a different type of business. In the first quarter, we had a lot more Fannie Mae business, and we had a lot more smaller deal size. So we were able to extract a higher margin. So it all depends on what's in our pipeline. We do have a lot of large deals in our pipeline that we're working through. Our pipeline is growing each and every day. So you could see that number dip a little bit in the second quarter and the third quarter depending on deal size. But it's deal size and mix. And to your point, the fourth quarter did have some really large deals in it.

[Operator Instructions] We'll take our next question from Rick Shane with JPMorgan.

A couple of different things. In prior calls, you had talked about some fairly substantial capital investments in REO properties. I'm curious how much you guys have spent life to date in terms of that CapEx and what you expect going forward given your sort of expectations for additional REO?

Sure, Rick. So I think we look at it a couple of different ways. We break down the REO book. As I said in my commentary, we've been in the process recently of engaging brokers and really trying to find people that are interested in these assets that are experts in that particular market with that particular asset. And we're doing a really nice job, I think, of getting a significant amount of bids. There's certainly more capital out there now chasing deals. So we've seen a real influx in opportunities to dispose of the assets quicker, which is why we are guiding to getting our REO book down to roughly $250 million to $300 million. I would say that from a CapEx perspective, there are certain assets that we expect to hold on to. There's a subset of assets in that $250 million to $300 million that we expect to hold on to a little longer and stabilize, and we are feeding those assets with CapEx. Let me see if I can get some numbers for you of what we've done. In the quarter, I think we put about $8 million to $10 million in CapEx in certain assets. That's what happened in the first quarter. And let me see if I can find for you what we've done life to date because that was your question, right?

Yes, and actually, it's interesting. I appreciate you referencing the comment about working with the brokers. I was curious, that's actually what precipitated -- that comment is what precipitated my question. I'm curious if there's a little bit of a change in strategy here, which instead of sort of investing and trying to potentially optimize outcome on a longer time line, whether you're sort of taking a first loss, best loss approach here and accelerating the disposals.

I think a lot of it's loan specific. If we feel we can get to the market with an asset fairly quickly without putting CapEx, and we will do it. Early on in, there were certain assets that really required CapEx to put them in a better position. So it's really an asset-specific situation.

It is asset specific, Rick, but I would say we're leaning towards the side, as you referenced, if we can resolve the asset on an accelerated basis at our mark, we're certainly looking to do that. So we've had a few of those this quarter in my commentary as part of that $23 million of realized losses, and we continue to push that way. It is asset specific, but we are definitely leaning towards if we can resolve them quicker, we will.

Got it. Okay. And then that actually relates to something that someone pinged me about, which is during the quarter, you sold a property for $25 million, provided $24.5 million bridge loan, which seems like a fairly aggressive financing structure. Is -- as you are resolving the REO, are you -- is part of the intention to provide financing for those transactions? And is that type of advance rate going to be typical of how you're approaching things? And how should we think about that from a credit perspective?

I think once again, it's asset specific, but a lot has to do with loan structures as well. So while it may be a high advance rate, there are capital commitments and guarantees that are required on those loans from the people who are stepping into those transactions. So we'll look at our recoveries on our returns and look at it on each particular case. Many of the times, as borrowers we've done a lot of business with have strong balance sheets. And while we may give them a high level of leverage going in and create a very seamless process, their commitment to maintain that asset with the right guarantees of CapEx and interest guarantees offset that high leverage.

Got it. Okay. And then last question, and I know I've asked several. But as we think about dividend policy going forward, and again, it really -- you guys have clearly trued the dividend up to distributable earnings. I know different commercial mortgage REITs talk about distributable earnings ex realized losses, not always our favorite metric. I'm curious, as we are looking at our models, what do you think we should use as the guidepost for dividend? Is it distributable earnings? Or is there something else, particularly, obviously, we know that you guys have an incentive ultimately to increase the dividends aligned with shareholder interest. I want to make sure we're looking at the right metrics so that we catch any inflections either up or down going forward.

Sure. Good question. So we clearly look at it distributable earnings ex the realized -- onetime realized losses that we've provided for already that have reduced book value already. That's how we look at it. What are we earning from a cash perspective, and that's how we look at it. So in this quarter, we put up $0.18 ex the losses. What I've guided you guys to is a little bit of a low watermark in second and third quarter. Absent the $0.02 onetime drag that probably puts me at $0.15 for the second quarter, I think we're really at $0.17 if you add that back in Q2 and $0.17 in Q3. And then what I've guided to is if we can execute our business strategy very effectively, which we're laser focused on and really start to turn a lot of these nonperforming assets into performing assets, we'll start to see growth in the fourth quarter in that distributable earnings number. So we've set the dividend where we think we can earn it for the rest of the year, and we've set it to where we think distributable earnings will be ex those onetime losses.

We'll take our next question from David Farnum with Raymond James.

So roughly 40% of your loan portfolio is in Texas and Florida, where there's quite a bit of housing supply across multifamily, SFR and single-family housing. Can you please provide some updated commentary on what you're seeing on the ground in those geographies?

Sure. What we're really seeing is being at the bottom of the market. I think the last 24 months, there's been an extreme amount of softness, but we're seeing [indiscernible] month. I think some of the issues that we faced in the Texas market and in the Florida market, in particular, and also in the Atlanta market, the issue with immigration and the issue with the ICE rates has really had a real negative impact on the portfolio and has really accelerated some of the delinquencies. We've had assets that were 90% occupied for years and years and years and occupancy dropped to [ 50% ] overnight. So over the last 12 months, I think with the ICE rates, it had a negative impact in those markets. But that's kind of getting behind us at this point. And we are seeing a reset of rental rates, growth in occupancy rates. But we also saw for a period of time, there's a real slowness and a real issue with respect to credit on our tenants and also the inability to remove them from occupancy. That has changed, the court system has sped up, and I think that the software that's been put in place and the discipline that put in place to catch fraud and put the right tenant base in place, that's improved dramatically as well. The other thing we're seeing is we're accelerating our efforts in terms of assets that are not performing properly. We are requiring management changes, and we're taking control over these assets. It's generally the case when assets are cashed off that they get poorly managed. So we've taken very aggressive steps to make those corrections. And that's why it's reflected a little bit in our forecast because we're taking control over those assets either directly or indirectly. And during that period of time, we're going to have a little bit of a drag on earnings while we're doing it. But we're seeing the benefit of our effort by seeing a real stabilization in these assets and our growth back in occupancy and operating income.

We'll take our next question from Jade Rahmani with KBW.

I wanted to ask you about the CECL reserve or the credit loss reserve, which currently stands at $131 million, which is 1.1% of the portfolio. You said you expect realized losses of about $15 million to $25 million a quarter for the next 3 quarters, so that's $70 million. Assuming that comes out of CECL, there would be a remaining $60 million of CECL, which is 0.6% of the portfolio. So I think the question is if you're going to be taking additional CECL reserves in future quarters and if there's a normalized CECL reserve ratio that should be on this portfolio. You mentioned that there's about $1 billion of nonperforming assets, including REO and nonaccruals.

Sure. So Jade, I think you can't look at it just on the nonperforming assets on the delinquencies. You got to look at it with the REO assets. So yes, we have $130 million of CECL on the balance sheet book. And obviously, we have $500 million or $481 million of delinquencies on the balance sheet book. But we also have $520 million of REO assets that we took another $12.5 million of impairment this quarter, took $20.5 million the prior quarter. And before those loans were transferred to REO, we had booked CECL reserves on those. So there's about $85 million of reserves sitting in the REO book. So that REO book has been written down by $85 million. So you've got to take that $85 million, you got to take the $130 million and you've got to divide it over the REO and delinquency book, which puts your ratio more like 1.7, 1.8x, and that's probably the right ratio. To answer your second question, a couple of parts of your question I want to address. One is, yes, we've guided to $15 million to $25 million realized losses going forward, but not all of those will be delinquencies. Some of those will be REO. So you've got to look at those buckets together. That's how we look at it. And then third, yes, we are guiding that in this market, given the interest rate environment, given the fact that we've engaged brokers and we're getting more price discovery on assets that it's hard to sit here and tell you exactly what the numbers will be. But if past performance is an indication of future events, given this rate environment, we think the range of CECL reserves we'll be booking, including impairment on REO, is probably in the same range for the next few quarters. Does that help answer that question?

Yes, definitely. Lastly, I think I missed the weighted average of the interest rate on the portfolio, which is 6.49%, could you parse out the weighted average cash pay rate or current pay rate?

Sure. I can do that for you. So yes, 6.49% is the pay rate, but another, call it, 25 basis points of that is origination and exit fees that we accrete over time. So that is cash. And then the other $25 million is PIK. But I want to talk about the PIK a little bit because we had some commentary on the call that I think is helpful for you guys. So during the quarter, we booked just about $5 million of PIK interest on our bridge loans, okay? We have about $2 million of PIK interest on our mezz and PE, but that's standard. That's how mezz and PE operates. You put on a mezz and PE behind an agency, you get a certain pay rate and the rest of the PIK. So that's always happened since the beginning of time on our mezz and PE. But on the balance sheet business, the bridge business, the PIK for the quarter was down to $5 million. If you remember going back about a year ago, that PIK was probably about $18 million. So certainly, it's come down a lot. It's a lot smaller portion of our earnings for a few reasons. One, SOFR has dropped. Two, we've worked out a lot of the loans, and we've reset them at current rates and the PIK has now been paid or recovered and doesn't have PIK going forward. And as Ivan mentioned, we're working on a bunch of deals now, some pretty big ones that we're going to get a fair share of that PIK paid back and then it won't have PIK going forward. So I'm thinking that in that all-in rate that we gave you of 7.03% was probably $5 million-ish of balance sheet loan PIK and maybe $2 million-ish of mezz and PE PIK. I think the balance sheet PIK will actually go down because when we work these loans out, there won't be PIK. So I'm thinking that $5 million a quarter goes down to probably like $4 million a quarter on the balance sheet loans.

I'm showing no additional questions at this time. I'd like to now turn the conference back to Ivan Kaufman for any additional or closing remarks.

Thank you, everybody, for your participation today, and everybody, have a great weekend.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.