New York Mortgage Trust Inc
NASDAQ:NYMT
Earnings Call Analysis
Q4-2023 Analysis
New York Mortgage Trust Inc
The company has a strong background in generating opportunities in the multifamily bridge loan sector, and now plans to tap into residential bridge loans, expecting to add detailed bridge loans significantly as the year progresses. There's been a shift in strategy to balance increased liquidity against balance sheet growth; given concerns over a potential economic slowdown and credit market strain, they have increased their exposure to Agency RMBS to stabilize interest income, which surged by 22% quarter-over-quarter to $72.5 million.
Operations of consolidated multifamily joint venture properties swung to a net loss of $0.08 per share for the quarter, partly due to disposing of assets and reclassifying of multifamily properties, which led to marked-to-market adjustments referring to GAAP rules. They also realized gains on residential loan and bond portfolios but faced losses in derivative instruments and on the sale of non-Agency RMBS and CMBS.
The company navigated through dramatic interest rate changes with five-year treasuries reaching up to 5% in October before falling to 3.9% by year-end. This shift in monetary policy has been responded to with a mix of investment in various asset classes, showing a strong focus on Agency RMBS and a continued investment in high-coupon BPL bridge loans. Notably, the Agency RMBS portfolio expanded substantially, with the average coupon rates increasing for specified pools.
The BPL bridge portfolio continues to meet expectations with reduced delinquency rates and low cumulative losses. The company avoided riskier sectors like ground-up construction or small-balance multifamily lending, focusing on assets with high FICO scores and favorable LTARVs and LTCs. They aim to capitalize on evolving opportunities in rated bridge securitizations to improve financing costs, and they successfully executed their third BPL bridge securitization adding further structural benefits for funding.
There has been a strategic move away from further equity funding within the multifamily JV equity assets with more focus on managing and selling existing assets amid a difficult market characterized by slow rent growth and increasing costs, which have affected property net operating income (NOI) and widened market spreads. Their plan is to create value-add programs to maintain or improve occupancy and thereby bolster NOI for remaining properties.
The company anticipates continued balance sheet growth focusing on agile and responsive management strategies in a changing market landscape. They intend to pursue further growth in agency securities, bridge loans and structured derivatives, leveraging their ability in organic creation liquidity and prudent liability management as they navigate through structural market changes.
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Good morning, ladies and gentlemen, and thank you for standing by, and welcome to the New York Mortgage Trust Fourth Quarter 2023 Results Conference. [Operator Instructions] This conference is being recorded on Thursday, February 22, 2024. I would now like to turn the call over to Kristi Mussallem, Investor Relations. Please go ahead.
Thank you all for joining New York Mortgage Trust's Fourth Quarter 2023 Earnings Call. A press release and supplemental financial presentation with New York Mortgage Trust's fourth quarter 2023 results was released yesterday. Both the press release and supplemental financial presentation are available on the company's website at www.nymtrust.com. Additionally, we are hosting a live webcast of today's call, which you can access in the Events and Presentations section of the company's website. At this time, management would like me to inform you that certain statements made during the conference call, which are not historical may be deemed forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although New York Mortgage Trust believes the expectations reflected in any forward-looking statements are based on reasonable assumptions, it can give no assurance that its expectations will be attained. Factors and risks that could cause actual results to differ materially from expectations are detailed in yesterday's press release and from time to time in the company's filings with the Securities and Exchange Commission. Now at this time, I would like to introduce Jason Serrano, Chief Executive Officer. Jason, please go ahead.
Thanks, Kristi. Welcome to New York Mortgage Trust's Fourth Quarter Earnings Call. Also joining me is our President, Nick Mah; and our CFO, Kristine Nario. After the Fed chair surprised dovish commentary late in the fourth quarter, much relief was immediately provided to the market in the form of lower medium-term rates. However, the market gave back much as a relief after the latest CPAR trend, which was more than a 2 standard deviation event from market expectations. With these gyrations, economists continue to update models with forecast to predict the likelihood and timing of a soft landing or recession.
Curiously, under extreme unbalanced sector gains in the U.S. equity markets, debate rages on about the ability of the U.S. economy to innovate its way through the hangover of a debt-fueled expansion. Our task is to determine how to prudently allocate capital against the potential long-term investment risk posed by slowing this economy.
Our planning for this cycle was vastly completed last year. Now in 2024, we look forward to building the company's earnings base given a portfolio reshaped with lower credit risk and asset duration. A goal for today is to explain this evolution and why we believe our balance sheet is primed for growth through a dislocated market. We believe this cycle can provide significant value to the company, not just over 2024, but the remainder of the decade.
For success, our team will need to reach deep into the multiple decades of investment experience in sourcing, valuation and asset management execution. We are excited about the opportunity ahead of us.
Starting with fourth quarter activity noted on Page 4 of our Q4 supplemental, the company generated earnings per share of $0.35 or $0.37 on an undepreciated basis. Adjusted book value per share ended the quarter at $12.66 or down 2.09%. After $0.20 dividend, quarterly adjusted economic return was negative 54 basis points.
Book value gains from our single-family portfolio was largely offset by valuation reductions to our multifamily joint venture equity portfolio. After further dispositions, unrealized losses and reclassification of certain properties to held and used in the quarter, we have approximately $35 million remaining of capital allocated to JV multifamily equity that we intend to sell in the near term. Kristine and Nick will provide additional details on this point a bit later.
In setting up 2024, we enhanced our purchasing power by renewing and increasing warehouse lining capacity to $2.2 billion, providing $1.6 billion of undrawn financing as of the fourth quarter. Additionally, to enhance liquidity, we issued our third BPL securitization in early January, consistent with past deals issued by NYMT. The $225 million in securitization contains a revolver for future BPL acquisitions. Page 8 of our supplemental shows 2 important graphs that help shape our market view. Starting with the U.S. deficit spending, which may have had a role in delaying economic contraction in 2023, the CBO recently reported that the U.S. budget deficit is expected to total $1.6 trillion in 2024. Over the next 10 years, the budget gap will grow another $1 trillion. Remarkably, interest expense is expected to total over $1 trillion in this year alone. The consequence of high treasury issuance to fund U.S. debit spending to result in stubbornly high long-term rates, even in the case Yellen continues to utilize a high allocation of short-term bills to fund the budget shortfall.
To meet the liquidity needs of the U.S. government, global investment allocation to U.S. treasuries could be diverted from other sectors and tenders within those sectors. In this scenario, the CRE space is particularly vulnerable. Fresh liquidity is required to recapitalize $2.8 trillion of debt maturing over the next 4 years, half of which is held by banks. Banks' ability to offer CRE refinancing packages on one hand while fending off CRE loss reserves on the other is likely to further restrict lending in the market. The opportunity available for permanent capital vehicles with access to liquidity is great. For over a decade, our team has experienced generating opportunities in the multifamily bridge loan sector, coupled with extensive asset management experience in New York Mortgage Trust platform can opportunistically navigate through the CRE dislocation on multiple fronts. We see a spillover effect constraining residential loan markets as well.
Bridge loans and alternative financing for single-family residential properties used for investment purposes is likely to be transformed into a new generation of lending. After a $3.5 billion of residential bridge loans invested to date, our team has experienced to capitalize on the opportunity.
As previously documented, our approach to enhance company liquidity began in March 2022. We committed to curtailing investment activity, particularly in medium- to long-duration credit risk in favor of a portfolio rebalancing to provide enhanced flexibility. In early 2023, we continue to prioritize increased liquidity over balance sheet growth in consideration of a potential slowing U.S. economy and increased market credit concerns. Later in 2023, we recognized a recession call was premature. Nevertheless, we remain concerned about a strain in market liquidity. Thus, we increased our portfolio exposure to Agency RMBS to stabilize portfolio interest income. We are pleased to report that company adjusted interest income increased 22% quarter-over-quarter to $72.5 million. At the start of the fourth quarter, we added Agency RMBS at attractive spreads. We also continue to add short-duration, high-coupon residential property bridge loans reversing a sequential quarter portfolio decline. With recent improvement to securitization market funding, we expect to meaningfully add detailed bridge loans throughout the year. With $431 million of dry powder available, not including capital allocated to the liquid Agency RMBS sector, our balance sheet is structured for growth. We will continue to utilize a patient approach for portfolio growth. We believe this path will yield superior results not only this year, but has the potential to enhance results in the years ahead as trillions of dollars of maturing commercial real estate debt is sorted out.
At this time, I'll pass the call over to Kristine for additional comments on our financial results and then to Nick for portfolio manager discussion. Kristine?
Thank you, Jason. Good morning. Today, I will focus my commentary on the main drivers of fourth quarter financial results. Our financial snapshot on Slide 12 covers key portfolio metrics for the quarter, and Slide 26 summarizes the financial results for the quarter. As Jason just covered, the company has undepreciated earnings per share of $0.37 in the fourth quarter as compared to undepreciated loss per share of $1.02 in the third quarter. Our earnings were impacted primarily by valuation improvements on our residential loan and bond portfolios, which resulted in $1.69 per share of unrealized gains recognized during the quarter. These gains were offset by a recognition of $0.38 per share losses on certain multifamily real estate assets held by JV equity investments and disposal group held for sale due to a decrease in the estimated fair value less cost to sell the real estate assets. And the reclassification of certain of our joint venture equity investments in multifamily properties from held for sale to held and used that I will discuss further. We experienced solid momentum in our portfolio acquisitions over the past 3 quarters after significantly reducing our investment activity for most of 2022, increasing our investment portfolio on a net basis by approximately $0.4 billion and $1.3 billion during the fourth quarter and the year, respectively, ending at $5.1 billion as of December 31. This was the primary driver of the increase in our interest income and adjusted interest income contribution for the quarter.
Net interest income was relatively flat in the fourth quarter, contributing $16.8 million or $0.19 per share, while our adjusted net interest income, a non-GAAP financial measure, increased to $23.5 million from $20.7 million in the third quarter. Our quarterly adjusted interest income increased by $13.2 million, primarily as a result of the $674 million in investments made in Agency RMBS and higher-yielding short-duration BPL bridge loans during the quarter. The increase in adjusted interest income was partially offset by a $10.4 million increase in adjusted interest expense due to the financing of investments made during the quarter. Our interest rate swaps continue to benefit our portfolio, reducing our adjusted interest expense during the quarter. Overall, the operations of our consolidated multifamily joint venture properties contributed a net loss of $0.08 per share during the quarter. Since investing in this asset class, we have disposed of 6 multifamily joint venture properties, 4 of which occurred in the second quarter of this year and 1 in the current quarter. This resulted in a decrease in overall net loss from real estate during the quarter.
As mentioned earlier, we recognized $34.4 million or $0.38 per share of losses related to the following: first, an $18.3 million or $0.20 per share loss from impairment charges and real estate due primarily to lower net operating income estimates, resulting in lower property valuations as compared to our carrying cost of multifamily properties held for sale; and second, a $16.2 million or $0.18 per share loss related to reclassification of 9 multifamily properties from held for sale to held and used as of December 31, as they no longer met the criteria to be held for sale and conformity with GAAP.
The reclassification of the real estate assets from held for sale to held and used was at the lower of fair value or carrying amount before the real estate assets were classified as held for sale. Adjusted for depreciation and amortization expense that would have been recognized had the real estate assets been continuously classified as held and used. This change to our plan of sale on these JV investments in multifamily properties was due to unfavorable market conditions and the lack of transactional activity in the multifamily market that negatively impacted our ability to secure a reasonable buyer and completely exit our investment in these giant ventures. We continue to market for sale our JV equity investments in 5 multifamily properties but we can provide no assurance of the timing or success of our ultimate exit from these investments. As mentioned earlier, fair value changes related to our investment portfolio continued to have significant impact on our earnings. During the quarter, we recognized $152.9 million or $1.69 per share of unrealized gains due to higher asset prices on our residential loan and bond portfolios. These gains were partially offset by a $0.71 per share in losses recognized in our derivative instruments, primarily consisting of interest rate swaps and caps and $0.27 per share in realized losses related to the sale of non-Agency RMBS and CMBS and losses incurred on foreclosed properties during the quarter.
We had total G&A expenses of $11.7 million, which remained relatively flat as compared to the third quarter. We had portfolio operating expenses of $6.1 million, which increased primarily due to legal fees incurred related to the asset management of our BPL bridge portfolio. Adjusted book value per share ended at $12.66, down 2% from September 30. The main drivers of our adjusted book value change was a $0.35 in basic income per share, a reduction of $0.20 per share related to our declared dividend; a reduction of $0.07 per share, primarily due to the removal of cumulative depreciation and amortization add-back attributable to consolidated multifamily properties for which impairment was recognized during the quarter; and a negative $0.39 per share change in estimated fair value of our liabilities.
As of quarter end, the company's recourse leverage ratio and portfolio recourse leverage ratio increased to 1.6x and 1.5x, respectively, from 1.3x and 1.2x, respectively, as of September 30. While our financing leverage remains low relative to historic levels, we would expect our leverage to move higher as we expand our holdings of highly liquid Agency RMBS.
Our portfolio recourse leverage on our credit book is up slightly at 0.4x when compared to 0.3x for the previous quarter. Currently, 58% of our debt is subject to mark-to-market margin calls, of which 45% is collateralized by Agency RMBS and 13% collateralized by residential credit assets. The remaining 42% of our debt as of December 31 has no exposure to collateral repricing by our counterparties. And as Jason mentioned earlier, we completed our revolving business purpose loan securitization last month. Consequently, this securitization reduced debt subject to mark-to-market risk from 58% to 55% and our recourse leverage ratio and portfolio recourse leverage ratio to 1.5x and 1.4x, respectively.
We paid a $0.20 per common share dividend down from $0.30 in the prior quarter. We continue to evaluate our dividend policy each quarter and look at the 12- to 18-month projection of not only our net interest income, but also realized capital gains that can be generated from our investment portfolio. We remain committed to maintaining an attractive current yield for our shareholders, and we believe that the current dividend provides excess liquidity for reinvestment in a more attractively priced market.
I will now turn it over to Nick to go over the market and strategy update. Nick?
Thanks, Kristine. Good morning, everyone. In the quarter, we witnessed a key moment in the shift of the market sentiment. This follows the pivot in the Fed's stance on future monetary policy. Through Q4, we experienced dramatic moves in interest rates with 5-year treasuries trending up to 5% in October then sharply reversing course to end the year at 3.9%.
The Fed's restricted policy has made further inroads in subduing inflation. With economic data in the quarter, pointing to the continued moderation of inflationary pressures. Fed Chair Powell's remarks in December further highlighted that the FOMC is now taking a more balanced approach to tackling inflation and managing economic risks. The market reacted positively with tightening spreads across asset classes alongside a falling interest rate curve. Over the course of the last year, NYMT has refocused on growing the balance sheet to achieve more consistent earnings. This was a shift in strategy given several prior quarters of minimal investment activity. We were initially concerned of heightened credit risks under the Fed's restrictive interest rate regime. Through 2023, we grew our portfolio such that we can generate more consistent income while also maintaining liquidity for future opportunities. Over the quarter, we invested in $674 million of assets, primarily concentrated in $416 million of Agency RMBS and $232 million of BPL bridge loans. The pace of Agency RMBS purchases has slowed from last quarter's $946 million as we curbed our buying in response to the decline in yields in the latter half of the quarter. Current coupon mortgage spreads to interpolate a 5- and 10-year treasuries started the quarter in the high 170s and reached a quarterly peak in October in the high 180s, then trended down to the end of the year in the high 130s.
77% of our agency purchases in the quarter was prior to the near-term peak of rates on October 19. In BPL bridge, we have made further progress to boost the volume of asset acquisitions with 3 quarters of consecutive growth. In 2023, we have grown our Agency RMBS book from 0 to almost $2 billion of market value. We took advantage of the historically wide spreads in the sector that persisted throughout the year, driven by high interest rate volatility and tepid incremental demand from banks and money managers. In particular, we sought to build the portfolio of higher coupon specified pools under this favorable return environment. Quarter-over-quarter, the Agency RMBS portfolio grew by approximately 30% on a market value basis. The average coupon of our spec pools continues to rise, increasing from 5.73% to 5.85% this quarter, driven by purchases primarily concentrated in 6.5% coupon bonds. Leverage in the strategy declined to 6.7x as of year-end, down from 8.5x in the prior quarter. The declining leverage ratio was due to price increases in the Agency bonds amid lower yields and the slowdown of acquisitions in the latter half of the quarter. Given the available capital and the ability to scale up leverage in the portfolio, we still have capacity to meaningfully expand our Agency RMBS exposure. We look to increase the portfolio's allocation to agencies under the current market environment with high spreads still presenting a compelling risk-adjusted return. Additionally, the asset class has also an added benefit of having outperformed in periods of economic downturn. BPL Bridge is a core asset class for us due to its high-return and short-tenor profile. The short tenor of the portfolio allows for flexibility to redeploy the return capital into BPL bridge or other investments depending on market conditions. From a credit perspective, the BPL bridge portfolio continues to perform to expectations. Over the past few quarters, the level of delinquency in BPL bridge has moderated to 20%. And life-to-date cumulative losses in the strategy is under 10 basis points. In the past, the shrinking BPL bridge portfolio balance due to our reduction in investment activity, contributed to the high delinquency numbers on a percentage basis. Under the tightening acquisition pace where the portfolio is growing quarter-over-quarter, this delinquency effect should be muted. For our current acquisition pipeline, we note that the credit profile of new purchases has improved versus the existing portfolio. In particular, we try to avoid niche subsectors within BPL bridge such as ground-up construction or small-balance multifamily. These are segments of the market that have experienced constraints given the retrenchment of regional bank lending and therefore, an increased risk of future credit dislocation. Furthermore, both ground-up and small balance multifamily present increased default management challenges if delinquencies rise. Our purchases in the quarter consists of only 3% ground-up construction loans versus the portfolio average of 13%. We did not purchase any multifamily-backed bridge loans in Q4. The credit profile of our purchases, both historically and today, remain strong, with borrower credit scores above 700 FICO, loan to after-repair value ratios, or LTARVs, in the mid-60s and loan-to-cost ratios, or LTCs, in the low 70s. We aim to continue growing our purchases in BPL bridge in the coming quarters.
In January 2024, NYMT also executed on its third BPL bridge securitization. This 2-year revolving structure will be beneficial for the funding of existing and future purchases of BPL bridge. On the heels of tightening rates and spreads in the fourth quarter, there has been a flurry of activity in the non-agency securitization market. Issuers are trying to capitalize on better deal execution than what was available for most of 2023. An additional noteworthy point is that the first-ever investment-grade rated bridge securitization came to market in 2024, which will be an important evolution in the structure to fund these assets. Rated transactions should provide better financing costs relative to the historical unrated structures. NYMT's BPL bridge purchase program fits very well with the tire credit box necessary for a rated transaction. Rated deals have more punitive structural treatment of ground-up construction due to its correlation with higher rehab requirements. It is also restrictive on multifamily bridge loans. As I alluded to before, we have already been reducing exposure to these loans already. We plan to be an issuer of these rated deals in the future.
On multifamily mezzanine lending, 2023 continues the historical strong performance of this asset class. The payoff rate of the portfolio has accelerated in 2023 at 37% compared to 32% in 2022. This is also higher than the historical annual payoff rate of 28%. The expectation for the portfolio is that this payoff rate should continue to remain high, primarily driven by the seasoning of the portfolio at 29 months and the 83% LTV at origination. Occupancy rates of the portfolio today have also been strong at 90%. Given that we significantly reduced our purchases since 2022, our portfolio has more years of locked-in rental growth at lower property acquisition entry points. This translates to additional equity buffer for the borrower and further alignment with NYMT's mezzanine position. We believe that the sponsors in our portfolio are in a position to monetize these assets to date, fueling paydowns in the portfolio. Contrast this with later vintage originations in the market, we have limited exposure to originations from 2022 onwards as Fed rate increases took center stage. There has been upward pressure on cap rates and market shifts causing certain pro forma projections on NOI to be unachievable. On multifamily JV equity, we do not expect any future equity funding of new positions within this asset class as our efforts are focused on the asset management and sale of the existing portfolio. We have made progress on the wind down of these assets that began in Q3 of 2022. So far, we have completed the sale or resolution of 6 of the original 20 properties, leaving 14 remaining properties as of the end of the year. In the quarter, as Kristine noted, we have moved 9 of the remaining 14 assets to held and used. The market for the sale of these properties have become more challenging as the pending forward supply in new multifamily properties has contributed to slowing rent growth. Increased operating expenses, taxes and insurance have also impacted overall property NOI. These factors, along with the interest rate volatility and an uncertain path for future cap rates result in the wider bid-ask spread in the market, we find it more productive for our asset management team to complete any beneficial value-add programs on these properties to maintain or bolster occupancy for an improved NOI profile in the future. I will now turn the call back to Jason.
Thanks, Nick. The company is focused on opportunities in a market undergoing a structural landscape change. Balance sheet growth is expected to continue with agency securities, short-term bridge loans and structured derivatives. In this new environment, success may be achieved through organic creation liquidity, tactical asset management and prudent liability management.
At this time, I'd like to open the call for questions. Thank you.
[Operator Instructions] And our first question comes from Jason Weaver from JonesTrading.
So I was wondering how you look at the effective trade-off in terms of allocating new capital to Agency versus BPL bridge and what the relative ROEs are, is that really just a timing issue alone, given that allocating to Agency is just a lot more liquid market in the immediate term?
Yes. This is -- thanks for the question, Jason. This is Nick. Yes, a big part of it is the fact that agencies are liquid, you're seeing faster growth in that portfolio because we can deploy capital much quicker. But the goal is to have our BPL bridge to continue to grow.
In terms of ROEs, we do see, based on our leverage ratios and our agency portfolio, somewhere in the mid-teens type return. And then in our BPL bridge, we see under a securitization profile, somewhere in the high-teens type return. So at the margin from a return perspective, we do prefer BPL bridge. But because of our, as I mentioned earlier, a tighter credit box, it does take a little bit longer to procure.
Got you. That's helpful. And focusing a little bit more on the Agency side. I was curious how you think about the convexity risk in some of those higher-coupon assets, you need softer monetary policy, what's the likely reaction in prepayments on some of those are you thinking?
Yes. I mean we do understand that there is a trade-off between the convexity and the carry profile that we are targeting. Our general stance is that rates -- and we have started to see that at the beginning of this year will potentially stay higher for longer. So we don't mind participating in that particular part of the coupon stack. Furthermore, there is also -- we do have a relatively large credit portfolio. And our credit portfolio that was accumulating in -- at a time period where rates were lower, has a different convexity profile where -- with lower coupons in that particular sector. So we find that this is a nice balance for both. So a lot of the BPL bridge that we're buying has higher coupon, higher return. And a lot of the agencies also have that high care profile at the expense of some convexity risk, but we do believe looking at the portfolio as a whole is relatively balanced.
That's helpful color. And just one more. Taking -- I appreciate your comments on the remaining multifamily JV equity that you have on board. I think it's -- and just to hone in, I believe it's 14 assets at about $35 million in equity or so about. Have you actively been marketing those properties? And have you received any bids but they just really are at haircuts that are not attractive to you? Or is it not at that stage yet?
I'll take that, Jason Serrano. The 5 assets that we have marketed is we have not received bids directly on those assets just yet. Two of those -- and I'm talking about in this year, 2 of those were in a process last year where the sponsor walked away from a deposit that we held back. And it was due to changes in their funding requirements and rates that moved on then during that period and seemed like that buyer wasn't hedged. So in that case, we did have very attractive pricing there. And we look to basically go back out to the market given that the funding costs have alleviated somewhat and are back to the kind of levels where this -- these buyers were engaged. So that's just 2 of the 5.
And again, overall, it's a very small portfolio. And the assets we chose to put out to the market are assets that we've completed, our value-add program, where we believe that the go-forward NOI has been stabilized, and therefore, the bids will be attractive for us to execute. And just to further round up the question, we have 9 assets which are not part of the sale, our disposable group and our held and used. And those are assets that we are still in the process of completing our value-added program and there's a bit of a J curve that's still left in those assets. We have looked at whether or not that should be part of that disposal group. But the answer is given that the cash flows are increasing, NOI is increasing in those assets as those value-add program CapEx programs have achieved higher rents and entails more difficult funding market, we believe it's better to hold those assets on more of a medium- to longer-term basis and benefit from the NOI growth and property valuation increase. So that's kind of the split out. And on those 9, we have not received bids directly on those assets.
And our next question comes from Bose George from KBW.
One more on the Agency MBS. Over the -- in 2024, how big a piece of your -- or your assets or equity, do you think Agency MBS could become?
Thanks for your question. We -- a lot of it is market dependent. Right now, the spreads are around 160 -- in the low 160s in terms of where we were -- what we're seeing today. A lot of the assets that we were purchasing in the earlier half of the last quarter was higher than that. So from -- at this juncture, we do believe that the pace of Agency RMBS procurement, given market conditions will be a little bit slower. But with that said, we do have available capacity to leg into this. I would say that we will still have a relatively consistent pipeline in terms of purchases from quarter-over-quarter, but the pace will not be as quick as -- as robust as we have seen in Q3 and Q4.
Okay. Great. That's helpful. And then switching over to the JV, the multifamily portfolio. What's the kind of the current return on the equity that's in that mix? And I mean if you retain that or the other 9 properties, is the return there really coming from sort of the increase in the value of that over time? Or just trying to think about how that impacts the overall ROE of the balance sheet.
Yes. So on the JV equity book, the $57 million that we have exposed on our held for -- the held and used group and $35 million in JV equity, I would say, overall, not materially significant to our earnings growth given the size that that's remaining. These assets were bought in the 5% cap rate and levered. And go forward, we believe that a lot of the return attribution from here is going to be on property valuation increase as the NOI builds. I mean we -- when I talk about the value-add program, it's more than just re-leasing activity and getting a better sequential quarter -- year-over-year rent increase. It's also our occupancy. Many of the units had to be unoccupied as the value-add program was implemented and then putting tenants back in really materially increases the value of the property. So we expect go forward from here, the cash flows of the property, obviously in kind of the mid-single-digits range, but evaluation is what we're focused on as it relates to that value-add and we call it the J curve in this program.
Okay. Great. And then actually just one more. In terms of the portfolio as it is right now, going into '24, what's kind of the economic return do you think that it can generate?
The portfolio -- are you speaking specifically about the multifamily JV equity or just portfolio...
No. Actually, the whole balance sheet, the ROE or just including expenses, just kind of how do you think it's positioned now in terms of what it can generate?
We estimate about mid-teens return.
Yes. I'll add to that. So Nick just highlighted the return attribution per asset class. One of the biggest factors for us on earnings growth is the deployment of our dry powder that we've highlighted at $431 million at the end of Q4, which also does not include the agency capital allocation that we've included. And with the way we're looking at agencies, we're very opportunistic on that asset class. As Nick mentioned, the pace will change depending on what the market is providing us on entry points. But overall, we see that as a means to deploy capital and to stabilize our interest earnings, which we started in March 2023. But overall, we're looking for further -- look for dislocation in this market and more attractive entry points, particularly in the credit space where risk-adjusted returns, we believe, are not as attractive as will be in the future. And therefore, these are assets where looking in the credit space, anywhere from 5- to 7-year durations, you only have an opportunity to buy it once and then you're dealing with asset management and go-forward returns from there. So we're -- we want to be very patient in our deployment schedule as it relates to those longer-duration assets. We -- as I highlighted in my earlier comments, we do see about $2.8 trillion of CRE debt that's going to be coming due in the next 4 years. That's about $0.5 billion per year. And banks are obviously very exposed to that with 50% of the exposure. And with that said, liquidity, we believe, will be strained as the CRE debt is sorted out. So overall, we do see more attractive opportunities in the future, highlighting our more conservative stance on deployment and asset allocation.
And our next question comes from Matthew P. Howlett from B. Riley.
Jason, how do you -- man, I love the slide on the CRE market, the maturities coming up and what's being held by the banks, and all that stuff is probably underwater. How do you envision NYMT participating in that? Are you going to be buying sort of distressed paper out there? Will you be providing rescue capital? How do you envision yields on levered deals? Are we talking mid-teens? Just walk me through how you think NYMT participated was probably going to be a wave of maturity defaults and other distress?
Yes. Great question. So the way we look at this market is in 2 ways. There's a vintage effect. The vintage effect is based on entry points and financing costs at that time. And so if you look at basically 2021s first half and earlier, we see that as more of a performing market opportunity for us in the case of preferred equity, lending, mezzanine lending, simply as senior lending cut back about 20%, 15% in LTV, there needs to be a bridge lending gap funding source for that paper. That's an opportunity that is more on the performing side.
And I'll call that dislocated on the distress side, it's the 2021 second half vintage and later where not only have funding costs and LTV has been cut back on senior lending, but there's also issues on NOI and basically negative carry related to current financing costs. So as the market is now in around 6%-plus type of financing cost and your cap rates at those earlier purchase points were at the 4.75% to 5% to 5.25% range, there is going to be some haircuts that have to be taken on those assets to basically refloat the positive carry. So in that case, the opportunity is multiple -- in multiple directions. It's recaps. It's senior loan purchases. And I'd argue that a lot of this is to come. There's been quite a bit of capital raise in the market as a whole, and we're looking at it as well. And there just hasn't been a lot of opportunity with respect to bank selling at discounts. The market has not gotten to that point just yet. But we believe over the course of -- as these maturity schedules continue to come through and the lack of willing buyers stepping up at current valuations, there's an opportunity there to work with banks, not only with respect to loan purchases, but also with respect to servicing. Our asset management platform is a 30-person team, have been doing this for multiple decades, is very capable and very -- not many institutional players are involved in that space where we can come in and use our technology and experience to help these positions and also get a look at the potential outtake of the actual -- of the opportunity or the restructuring that would take place. So we have been spending a lot of time on that and see an enormous opportunity for us in the near term.
That's interesting. You could partner with the banks and buy paper and do all the servicing. That's an interesting dynamic. I mean I know it's early been your crystal ball and are we talking what type of -- I'm assuming a lot of these deals could be unlevered? Do you think you're already getting mid-teens in your agency in '19 on your BPL. Do you think yields could be bad or unlevered yields at or above that in this market? I mean just seems like it could be an incredible opportunity. Any sense on what returns could look like?
Yes. I mean we're seeing our mezzanine, the mezzanine asset class today is around a 15% return opportunity, and that's kind of the 70s to very low 80s LTV range. So if you're looking at these assets and particularly, let's -- what we call loan purchases, the market is going to look at it as a mid-teens type rate return opportunity. I mean all you have to do is look at the debt funds have been raised in this asset class and the return hurdles that they're speaking to their investors, and you can back into what you think -- what those -- that senior note discount based on the 3.5% coupon that would exist on that bond or that note. So overall, our opportunity, we would not avail our capital to it unless we saw a mid-teens and above type of return to our capital.
Great. Well, it's worth keeping all that dry powder for it.
And our next question comes from Doug Harter from UBS.
This is Cory Johnson on for Doug Harter. Sorry if I missed this earlier, but do you happen to provide any update on the book value for -- the updated book value for this upcoming -- for this first quarter?
Cory, no, we did not mention that earlier. So as of February 20, we see quarter-to-date adjusted book value to be down about 3%.
And our next question comes from Eric Hagen from BTIG.
A follow-up on the book value mark-to-market quarter-to-date, can you flesh out or provide any color about what's maybe dragged that down a little bit? And then in the BPL bridge portfolio, is there an unfunded commitment that's associated with that book?
Yes, no problem. On the first question, it's primarily driven by rate moves and primarily driven by rate moves adjusting yields higher on residential credit assets primarily. And then on the second question, yes, there's usually unfunded commitment on these BPL loans. But for the most part, what we try to do is we try to -- a lot of the assets that we tried to purchase have -- we try to limit the amount of additional rehab that needs to be done because as you have larger rehab projects such as ground-up and if there is a point where the borrower hands back the keys that now you have this midstream project that you have to manage. So generally speaking, we try to limit how much additional rehab and try to make it as down the fairway in terms of projects as possible.
Yes. That's helpful. Is there a balance associated with the unfunded commitment? It looks like the total portfolio is about $900 million.
So as of December 31, that's about $6.6 million of unfunded commitment liability that we have on our books.
[Operator Instructions] And I am showing no further questions. I would now like to turn the call over to Jason Serrano for closing remarks.
Yes. Thank you for joining our fourth quarter earnings call. We look forward to speaking with you on our first quarter call in early May. Have a great day.
This concludes today's conference call. Thank you for participating. You may now disconnect.