CMTG Q3 2026 Earnings Call: Entschuldung und Reduzierung der Beobachtungsliste

Wichtigste Erkenntnisse

• Claros Mortgage Trust (NYSE: CMTG) wies für das dritte Quartal 2026 einen GAAP-Nettoverlust von 0,10 US-Dollar je Aktie sowie einen ausschüttungsfähigen Verlust von 0,08 US-Dollar je Aktie aus. Der ausschüttungsfähige Verlust vor realisierten Gewinnen und Verlusten belief sich auf 0,05 US-Dollar je Aktie.
• Im Laufe des Quartals und bis zum 2. November schloss CMTG Kredit- und REO-Bereinigungen im Umfang von 702 Millionen US-Dollar ab und verwendete die Erlöse zur Reduzierung der ausstehenden Finanzierungen um 599 Millionen US-Dollar, einschließlich Entschuldungszahlungen in Höhe von 231 Millionen US-Dollar.
• Die Pro-forma-Nettoverschuldung im Verhältnis zum Eigenkapital sank nach Kreditbereinigungen und Netto-Finanzierungsrückzahlungen nach Quartalsende auf 1,5x, verglichen mit 2,0x zum 30. Juni. Die Liquidität lag per 2. November bei 143 Millionen US-Dollar.
• Das Portfolio umfasst nun 21 Kredite mit einer ausstehenden Kapitalsumme von 2,8 Milliarden US-Dollar bzw. einem Buchwert von 2,3 Milliarden US-Dollar sowie acht REO-Investments mit einem Gesamtbuchwert von 701 Millionen US-Dollar.
• Das Watchlist-Engagement fiel von 2,8 Milliarden US-Dollar ausstehender Kapitalsumme bzw. 2,7 Milliarden US-Dollar Buchwert Ende 2024 auf 1,6 Milliarden US-Dollar ausstehender Kapitalsumme und 1,1 Milliarden US-Dollar Buchwert.
• Der Buchwert lag am 30. September bei 8,49 US-Dollar je Aktie. Das Management erklärte, dass die Prioritäten weiterhin auf der Abwicklung von Watchlist-Krediten, der Vorbereitung von REO-Vermögenswerten für den Verkauf und dem Abbau des Verschuldungsgrads liegen, bevor Kapital ertragssteigernden Verwendungen zugeführt wird.

Wichtige Finanzdaten

CMTG führte seinen Buchwert von 8,49 US-Dollar je Aktie auf 0,93 US-Dollar an liquiden Mitteln, 4,04 US-Dollar an bedienten Krediten der Risikoklassen 2 und 3 (abzüglich Rückstellungen und Finanzierungen) sowie 1,99 US-Dollar an REO-Investments (abzüglich Finanzierungen) zurück. Watchlist-Kredite und ein Kredit-Joint-Venture machten 4,10 US-Dollar je Aktie aus, während das besicherte Laufzeitdarlehen den Buchwert um 3,47 US-Dollar je Aktie verringerte.

Geschäftliche und operative Entwicklung

Seit Anfang 2025 hat CMTG 33 Kredite mit einer ausstehenden Kapitalsumme von insgesamt 3,8 Milliarden US-Dollar bereinigt, darunter 18 Watchlist-Kredite, die zu rund 80 % des Nennwerts abgewickelt wurden. Im selben Zeitraum reduzierte das Unternehmen seine Verbindlichkeiten um 2,9 Milliarden US-Dollar, refinanzierte sein besichertes Laufzeitdarlehen und verlängerte dessen Laufzeit bis 2030.

Im bisherigen Jahresverlauf bereinigte das Unternehmen 12 Kredite in Höhe von insgesamt 1,3 Milliarden US-Dollar vor Kapitalabschreibungen. Sieben davon waren Watchlist-Kredite, die zu rund 79 % des Nennwerts aufgelöst wurden. Nach zwei Kreditrückzahlungen im Beherbergungssektor im Gesamtwert von 269 Millionen US-Dollar nach Quartalsende verringerte sich das Portfolio auf 21 Kredite.

CMTG schloss verbindliche Vereinbarungen über den Verkauf von zwei Krediten der Risikoklasse 5 ab. Der Bruttoerlös beläuft sich auf insgesamt rund 311 Millionen US-Dollar, was etwa 97 % ihres Buchwerts zum 30. September entspricht. Nach ihrem Abschluss werden durch die Transaktionen im vierten Quartal voraussichtlich Verluste von insgesamt etwa 10,4 Millionen US-Dollar bzw. 0,07 US-Dollar je Aktie entstehen.

Das Unternehmen stimmte außerdem dem Verkauf von zwei Hotels aus seinem sieben Objekte umfassenden REO-Hotelportfolio in New York City für rund 45 Millionen US-Dollar zu, was leicht über deren zugewiesenem Buchwert liegt. Das Management rechnet mit einem Abschluss der Transaktion bis zum ersten Quartal 2027.

Das Hotelportfolio in New York City erwirtschaftete ein ausschüttungsfähiges Ergebnis von 0,03 US-Dollar je Aktie, was einem Anstieg von 0,01 US-Dollar je Aktie gegenüber dem dritten Quartal 2025 entspricht. Die Umsatzentwicklung im Segment Multifamily-REO verlief weitgehend analog zum zweiten Quartal, jedoch ging das Nettobetriebsergebnis aufgrund selektiver Kapitalinvestitionen und des Verkaufs profitablerer Objekte zurück.

Ausblick des Managements

Das Management geht davon aus, dass sich die Kapitalallokation in naher Zukunft weiterhin auf den Abbau der Verschuldung konzentrieren wird, einschließlich einer möglichen Rückzahlung des besicherten Laufzeitdarlehens, bevor Aktienrückkäufe, Neuvergaben oder eine Wiederaufnahme der Dividende in Betracht gezogen werden.

Wie das Unternehmen mitteilte, belaufen sich die direkten Finanzierungskosten für nicht verzinsliche Kredite derzeit auf rund 0,06 US-Dollar je Aktie pro Quartal. Der Barzinsaufwand für das besicherte Laufzeitdarlehen liegt bei etwa 0,10 US-Dollar je Aktie pro Quartal. Eine Reduzierung dieser Kosten soll die Rückkehr zu einer über der Gewinnzone liegenden operativen Kernperformance unterstützen; ein Zeitplan oder eine Gewinnprognose wurden vom Management jedoch nicht vorgelegt.

CMTG rechnet mit einem zeitnahen Abschluss der beiden vertraglich vereinbarten Kreditverkäufe sowie mit dem Abschluss des vereinbarten Hotelverkaufs bis zum ersten Quartal 2027. Das Management nannte unter Verweis auf unsichere Marktbedingungen und objektspezifische Entscheidungen kein Ziel für die Watchlist zum Jahresende.

Risiken und zu beobachtende Bereiche

• Das Management gab an, dass das erhöhte Zinsniveau weiterhin Druck auf Immobilienwerte, Transaktionsaktivitäten und Marktpreise ausübt.
• Weiterer Druck auf den Buchwert bleibt bei der Bereinigung von Watchlist-Krediten durch CMTG möglich, ungeachtet spezifischer Rückstellungen in Höhe von 33 % der entsprechenden ausstehenden Kapitalsumme.
• Die Märkte für Mehrfamilienhäuser im Südosten und Südwesten der USA sind weiterhin überversorgt, während Mieter im Segment bezahlbarer Wohnraum unter Druck beim Haushaltseinkommen stehen.
• Das Unternehmen wies darauf hin, dass Käufer weiterhin erhöhte Renditen fordern, was den Zeitpunkt und die Preisgestaltung von Vermögensverkäufen beeinflussen könnte.
• Das Portfolio bleibt weiterhin Ausführungsrisiken im Zusammenhang mit Kreditbereinigungen, REO-Veräußerungen und dem geplanten Abbau höher verzinslicher Verbindlichkeiten ausgesetzt.

Highlights der Fragerunde mit Analysten

Das Management erklärte, dass die Erlöse aus den vertraglich vereinbarten Vermögensverkäufen kurzfristig voraussichtlich zum Abbau der Verschuldung verwendet werden. Das Unternehmen beabsichtigt, ertragssteigernde Kapitalverwendungen erst dann in Betracht zu ziehen, wenn ein als angemessen erachteter Verschuldungsgrad erreicht ist.

In Bezug auf Mehrfamilienhauskredite teilte das Management mit, dass nur noch zwei Kredite in den bedienten Risikoklassen 2 und 3 verblieben sind, und zeigte sich zuversichtlich hinsichtlich einer vollständigen Rückzahlung. Andere identifizierte problematische Mehrfamilienhauskredite sind bereits auf der Watchlist enthalten oder in den REO-Status übergegangen.

Hinsichtlich der Rückstellungen betonte das Management, dass die verbleibenden Watchlist-Kredite mit etwa 70 % der ausstehenden Kapitalsumme verbucht sind, verglichen mit einer Verwertungsquote von rund 80 % bei den seit Anfang 2025 bereinigten Watchlist-Krediten. Es gab jedoch zu bedenken, dass die Ergebnisse je nach Objekt variieren.

Für die verbleibenden fünf Hotels im REO-Portfolio in New York City erwartet das Management das Erreichen des Buchwerts, räumte jedoch das unsichere Transaktionsumfeld ein. Zudem prüft das Unternehmen Entwicklungspläne für ein unbelastetes Grundstück in New York, bevor ein Verkauf angestrebt wird.

Vollständiges Transkript der Telefonkonferenz zu den Quartalszahlen

Vollständiges Transkript der Telefonkonferenz

Ausführungen des Managements

Operator

Hello, everyone. Thank you for joining us, and welcome to the Claros Mortgage Trust Third Quarter 2026 Earnings Conference Call. [Operator Instructions] I will now hand the conference call over to J.D. Siegel, Executive Vice President of Claros Mortgage Trust. Please go ahead.

Jeffrey Siegel

Thank you. I'm joined by Richard Mack, our Chief Executive Officer and Chairman; Mike McGillis, who serves as President, Chief Financial Officer and Director; and Priyanka Garg, Executive Vice President. Prior to this call, we distributed CMTG's earnings release and supplement. We encourage you to reference those documents in conjunction with the information presented on today's call. If you have any questions, please contact CMTG Investor Relations.

I would like to remind everyone that today's call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our other filings with the SEC. Any forward-looking statements made on this call represent our views only as of today, and we undertake no obligation to update them.

We will also be referring to certain non-GAAP financial measures on today's call, such as distributable earnings, which we believe may be important to investors to assess our operating performance. For reconciliations of non-GAAP measures to their nearest GAAP equivalents, please refer to the earnings supplement. I would now like to turn the call over to Richard.

Richard Mack

Thank you, J.D., and thank you, everyone, for joining us this morning for CMTG's Third Quarter 2026 Earnings Call. Despite improving real estate fundamentals characterized by limited new construction, a resilient economy and healthy levels of capital seeking deployment, macroeconomic headwinds continue as Federal Reserve monetary policy is being marshaled to manage inflationary pressures. This is creating a challenging real estate capital market environment as the equilibrium between buyers and sellers remains in flux. These headwinds are not new. They have characterized the market since 2023. What is perhaps new is the persistence of the trend.

At CMTG, we have managed our book over the last 7 quarters under the expectation of a higher for longer interest rate environment, and we have made meaningful progress, better positioning us to face the most recent rate moves and allowing us to continue executing on our strategic priorities, resolving watchlist loans, repositioning our REO assets for disposition and deleveraging the balance sheet. This is what it takes to be able to make other accretive capital allocation decisions, such as buying back our stock and getting back to originating investments with the ultimate goal of reinstating our dividend. We believe the hard decisions that we have had to make over the last 7 quarters will ultimately be recognized in greater shareholder value and will reduce the impact of the market's most recent rate reset.

To put this in context, since January 1, 2025, we've been highly focused on turning over the portfolio and deleveraging the balance sheet. We have, during that time, resolved $3.8 billion of loans, including $2 billion of watchlist loans, reduced indebtedness by $2.9 billion and refinanced and extended the maturity of our secured term loan to 2030, providing CMTG with the prepayment flexibility and ample runway to execute our plans.

As a result of these efforts, our balance sheet metrics are stronger with $143 million of liquidity and with our net debt-to-equity ratio down to 1.5x after adjusting for fourth quarter loan resolutions and deleveraging of $269 million. Despite this tangible progress, the difference between our stock price and our book value of $8.49 per share continues to present a disconnect that we believe does not reflect the level of progress we have made and the increased granularity, transparency and derisking of our balance sheet.

Page 4 of our earnings supplement attributes our book value across various components of our net assets, highlighting the significant portion of our book value that consists of cash, performing loans and REO assets. Mike will walk through this in more detail. But in analyzing the balance of our book value, it is important to note that last quarter, we reduced the carrying value of a number of our watchlist loans and REO assets in order to reflect the higher returns being commanded by the market and the lower resulting clearing prices given the current interest rate environment.

The markdown we took in the second quarter was a painful but important step and reflects our intention to move on from these assets as pressure on values builds. While there is always ongoing risk, we believe that we have meaningfully ring-fenced our exposure. I would also like to point out that over the last 7 quarters, negative credit rating migration has been minimal. Of the 4 loans downgraded to watchlist during that period, 3 have already been resolved. As I stated last quarter, we have made difficult decisions over the last 2 years. And while we still have work to do, we have reduced the portfolio to just 21 loans and 8 REO investments. With this limited number of positions, our book value is more transparent and less variable.

Today, Mike is going to walk you through the portfolio slowly and carefully and give you the detail behind our book value. We are doing this in order to again try to demonstrate how undervalued we believe our stock to be. The bottom line is that because of our decisive actions, we believe we see the light at the end of the tunnel, and we remain steadfast in executing on our strategic priorities. This is what has been and will continue to be necessary to get to the other side where we can capitalize on what we believe will be an increasingly attractive investment environment over time. I'll now turn the call over to Mike.

John McGillis

Thank you, Richard. For the third quarter of 2026, CMTG reported a GAAP net loss of $0.10 per share and a distributable loss of $0.08 per share. Distributable loss prior realized gains and losses was $0.05 per share. We remain focused on executing the strategic priorities Richard discussed. During the third quarter and through November 2, we completed another $702 million of loan and REO resolutions, including full loan repayments of $492 million, resolutions of $186 million of watchlist loans prior to principal charge-offs and REO sales of $24 million. Proceeds from these resolutions were used to reduce financings outstanding by $599 million, including $231 million of deleveraging payments.

We previously reported on 4 loan resolutions completed in July. These included full repayments of 2 loans totaling $223 million of UPB as well as 2 watchlist loan resolutions. The first watchlist loan resolution was the sale of a San Francisco office loan, which had been on our watchlist since early 2022 for gross proceeds of approximately $71 million. The second was the discounted payoff of the Salt Lake City multifamily loan for gross proceeds of $70 million. Subsequent to quarter end, we were repaid in full on 2 hospitality loans totaling $269 million of unpaid principal balance, one in New York City and one in Nashville.

Year-to-date, we have resolved 12 loans totaling $1.3 billion of UPB prior to principal charge-offs, including 7 watchlist loans, which were resolved at approximately 79% of par and received partial loan repayments of $33 million. Since the beginning of 2025, we've resolved 33 loans totaling $3.8 billion of UPB, including 18 watchlist loans, which were resolved at approximately 80% of par and have received partial loan repayments of $127 million. Our watchlist loans have come down steadily from $2.8 billion of UPB or $2.7 billion of carrying value at year-end 2024 to $2 billion of UPB or $1.7 billion of carrying value at year-end '25 to $1.6 billion of UPB or $1.1 billion of carrying value today.

Following resolutions subsequent to quarter end, our portfolio now consists of 21 loans with $2.8 billion of UPB or $2.3 billion of carrying value, and 8 REO investments with a total carrying value of $701 million. Earlier this year, we commenced lender-driven price discovery and sales processes on 8 assets, representing $860 million of loan UPB and REO carrying value. Since then, we have expanded these processes to include additional loan with $127 million of UPB and a portion of our New York City REO hotel portfolio. We've completed $183 million of these sales, including one risk-rated 5 loan and 2 multifamily REO properties, and we've entered into 3 separate purchase and sale agreements, each of which became binding in October with nonrefundable purchaser deposits and have near-term expected closing dates.

Two of the purchase and sale agreements are to sell a risk-rated 5 multifamily loan and a risk-rated 5 unencumbered office loan for approximately $311 million of combined gross proceeds or approximately 97% of their combined September 30 carrying values. At quarter end, we did not reduce these loans carrying values, which were based on the estimated fair values of their underlying collateral to the anticipated sale proceeds. If the sales are completed, we expect them to result in incremental combined losses of approximately $10.4 million or about $0.07 per share in the fourth quarter, reflecting discounts accepted in consideration of resolving these loans within this time frame.

The third purchase and sale agreement is to sell 2 of the 7 hotels within our New York City REO hotel portfolio for approximately $45 million of gross proceeds, reflecting a slight premium to the current allocated carrying value. We expect the sale to close by the first quarter of 2027.

Turning to portfolio credit. During the third quarter, we had no negative credit rating migration and no additional loans placed on nonaccrual status. As a reminder, last quarter, as a result of our lender-driven price discovery and sales processes and our goal of turning over the portfolio, we downgraded 4 loans from risk rated 4 to risk rated 5, including one loan that was repaid at a discount to UPB in July, increased specific reserves on 3 loans and reclassified 2 REO assets to held for sale. One of which was sold in September. These actions reflected real-time market feedback on purchaser return thresholds, which remain elevated in the current rate environment.

Our specific CECL reserve was $516 million at quarter end or 33% of related unpaid principal balance and was relatively unchanged from last quarter. We believe these reserve levels remain appropriate given our proactive actions last quarter and our objective of turning over the book in the near term. As previously noted, the watchlist loans we have resolved since the beginning of 2025 have incurred a loss of approximately 20% of their unpaid principal balance compared to the 33% specific reserves on UPB we carry today, although we recognize that each of our remaining watchlist loans has its own set of circumstances. Our general CECL reserve also remained relatively unchanged quarter-over-quarter at approximately $51 million. As a percentage of UPB of loans subject to the general CECL reserve, it increased from 2.9% to 3.4%.

Turning to REO. During the quarter, we sold another one of our Dallas multifamily REO assets originally foreclosed upon in July 2025 for gross proceeds of $22.5 million, in line with its Q2 held-for-sale carrying value. Including the sale completed in the second quarter, we've sold 2 multifamily REO assets this year for $71 million of gross proceeds. Our unencumbered mixed-use REO asset remains classified as held for sale as we continue to work towards a resolution.

Our multifamily REO portfolio's top line operating performance remained generally in line with the second quarter, although continued selective capital investment and recent sales of more profitable properties caused net operating income contribution to decline. We remain focused on positioning all of these assets for sale in the near to medium term. Our New York City REO hotel portfolio's operating performance was in line with the prior quarter and improved from the same period last year, contributing $0.03 per share of distributable earnings, an improvement of $0.01 per share compared to the third quarter of 2025.

Turning to the balance sheet. During the quarter, we reduced financing outstanding net by approximately $330 million, including $100 million of deleveraging payments. Our net debt-to-equity ratio declined to 1.7x from 2.0x at June 30. As shown on Page 9 of our earnings supplement, following loan resolutions and additional net financing repayments of $269 million subsequent to quarter end, including $131 million of deleveraging payments, our net debt-to-equity ratio has declined further to 1.5x on a pro forma basis.

Liquidity at quarter end totaled $147 million, including $134 million of cash. As of November 2, liquidity was $143 million. Our future funding needs related to our loan portfolio are minimal. Net of in-place financings and loans where funding conditions are not currently met, our unfunded loan commitments are only approximately $3 million. In addition, our unencumbered asset pool totaling $509 million of loan UPB and REO carrying value continues to provide financial flexibility as we execute sales of certain of those assets, which we believe will generate meaningful liquidity to support our capital allocation priorities, including deleveraging our secured term loan, which is our highest cost of capital. Subsequent to quarter end, we fully deleveraged a risk-rated 5 multifamily loan with $155 million of loan UPB and related financing of $48 million.

As shown on Pages 4 and 17 of our earnings supplement, our book value at September 30 was $8.49 per share, the components of which we have attributed as follows based on carrying values. $0.93 per share of cash, which on its own is about 80% of our current stock price; $4.04 per share in performing risk-rated 2 and 3 loans, net of allocated general CECL reserves and related financings and $1.99 per share in REO investments, net of related financings, which we believe reflects achievable resolution levels. The remaining book value includes $4.10 per share in watchlist loans, net of specific and allocated general CECL reserves and related financings and our equity investment in a lending joint venture. And $0.90 per share of other assets net, offset in part by $3.47 per share for our secured term loan principal balance.

Although there may be further pressure on book value as we continue to resolve watchlist loans, we believe significant value remains in these assets, particularly since the book value on watchlist loans already reflects a 33% specific reserve on UPB. As Richard said, we've made significant progress since January 2025 in turning over the portfolio and derisking and strengthening CMTG's balance sheet to position it for its next phase. This quarter's activity reflects our continued focus on our stated priorities, resolving watchlist loans, repositioning our REO assets for disposition and deleveraging the balance sheet.

I would now like to open the call for questions. Operator?

Operator

[Operator Instructions] Your first question is from the line of Tom Catherwood with BTIG.

Fragen und Antworten

William Catherwood

Mike, maybe going on to the 2 loan sales that you have under binding agreement. There's -- especially on the unencumbered office, there's a good chunk of capital that comes back to you when those close. Is the expectation that those proceeds will allow you to further delever? Or are you earmarking those for different near-term uses?

John McGillis

Thanks, Tom. Good question. I think we will use those proceeds to continue to delever. The term loan has a high cost of capital, that is a consideration. And obviously, there's direct financings against the loan being sold, but it frees up a significant amount of capital for us to make decisions as to how we want to -- how to utilize that. But I think in the near term, we'll continue to focus on deleveraging the balance sheet until we get to a point in time where we're comfortable pivoting to more accretive utilization of available capital.

William Catherwood

Got it. And then kind of along those lines, as you continue to delever, it seems like the drag on net interest income from kind of some of that, a, under-earning loans; and b, the debt that was associated with it, some of that reverses, right? And so it seems like we've reached an inflection point, at least on a net interest income point this quarter. Two-part question. Is that fair? And then can you talk through a little bit about the potential path for earnings from here? Does it continue to inflect as well?

John McGillis

Sure. Good question. So the nonaccrual loans, the leverage associated with the nonaccrual loans essentially cost us about $0.06 per share per quarter. So eliminating that is one key objective, and that's direct financings on those assets. And then as we sort of resolve nonaccrual or under-earning assets that are unencumbered, proceeds from those activities, the way we're thinking about it can be used to pay down the term loan financing or other direct financings on various assets once we get to those points in time. But that is an interim step that sort of really helps us get back to better than a breakeven core operating performance level. It's important to note the interest expense represents on a cash basis, about $0.10 per share per quarter on just the term loan itself. And so that is an objective is to put that in the rearview mirror at some point over the medium term.

William Catherwood

Got it. And last one for me. Maybe going back to some of the comments that you made about the multifamily assets that you're holding REO. If I heard you right, I think the commentary was that operating performance was roughly flat with 2Q, but there was a little bit of a drag on NOI. In general, there's a lot of fear in the investment market right now around Sunbelt multifamily. Can you talk about the issues that you're seeing there, is it demand related? Is it that there's just the oversupply continues to drag on rents? Or is it something more structural that's kind of impacting at least the assets in the markets where you own?

Priyanka Garg

Tom, it's Priyanka. I'll take that, and then Richard might want to jump in after. So first off, I would just want to highlight that we identified our issues early. We identified the problem loans many quarters ago. And so we've been very focused on resolving all of those, particularly on the multifamily front. We've made a concerted effort to have a financing plan in place where we could hold REO and hold it longer term and create value over time, which is exactly what we've done, which has allowed us to dispose of 2 REO assets year-to-date already, and we continue working down that road. Our remaining multifamily exposure that we have not foreclosed on or is not on our watchlist is very minimal. And each of our loans on our watchlist, we have a very specific plan. So overall, I would say we've really ring-fenced our exposure on multifamily because we were early to identify the issues.

On your point on what's really driving the challenges, I think it's a couple of different pieces. One, some markets are clearly just oversupplied, even though nationally, we're undersupplied, but certain markets have a tough going. I think secondly, there is a real pressure on day-to-day household income at the workforce housing class. They're not renters by choice. They're really selecting where they're going to use their dollars. Is it paying rent? Is it other -- paying for gas to go to work. I think that is a real, real issue.

And then third is just obviously, as it impacts value, the rising rate environments have not been helpful or the continued elevated rate environment. But again, as Richard said in his opening remarks, we've really accounted for that, and we think that's reflected in our carrying values, which is why we've been able to dispose of 2 assets near carrying value to date, and we're certainly working on the remainder.

Richard Mack

Yes. I would just add very little, Priyanka, that was excellent. The Southeast and Southwest markets are still overbuilt. But the demand story is very strong. On the other hand, as Priyanka mentioned, workforce housing is going to continue to struggle here as -- in this inflationary environment. Part of what is impacting the inflationary -- these renters also is a lot of fear of ICE raids and other things in some of these workforce housing. To the extent that the election reduces the fear of deportations, I think that could be positive as we see kind of job creation really taking hold and in migration in the Southwest and Southeast.

But clearly, elevated rates are not helping, and it's going to take some time to soak up the supply. But the good news is right now, at least the economy is strong, and we are generating a lot of jobs, particularly in the Southwest, where we have a large equity presence, we can see industrial demand for manufacturing really picking up, and we think that's going to turn into incremental demand for housing because home construction and purchasing is pretty difficult in this high interest rate environment right now.

Operator

Your next question is from Jade Rahmani with KBW.

Jade Rahmani

Can you give some color, maybe rough numbers or a range as to where you expect the watchlist to reach by year-end or early 2027?

Priyanka Garg

Yes, Jade, it's Priyanka. I think that's a really, really hard question to answer because as we all know, we're operating in really choppy waters, uncertain environment. We remain very focused on turning over the book and resolving watchlist loans. I think we did a really nice job of demonstrating that on Pages 2 and 3 of our earnings supplement and how much work we've done. We've demonstrated we're not -- we'll make the hard decisions. We'll meet the market where it is. And that is further bolstered by these 2 contracts that Mike talked about, where we have hard deposits on 2 watchlist loans, and we expect those to close.

So that said, we're in an environment where buyers are going to make decisions, and we're going to evaluate every opportunity on its own and see if it's accretive to hold if we think more value can be created over time or if it's better for our shareholders to meet the market clearing price. So I think it's a really hard question to answer, but we are very focused on meeting the market and making the hard decision.

Jade Rahmani

And then when you look at the performing part of the portfolio, there's about, I think, a significant amount of multifamily loans still outstanding. Can you give any color as to what the maturity schedule looks like? And also if the risk-free multifamily loans will face any pressure, because I was looking at a report earlier today that showed a significant number of floating rate-based maturities in multifamily in the coming year to 2 years have debt service coverage ratios that will make refinancing very challenging. So even though there's still risk-free rated loans, just wondering if that could be another source of pressure the company could face next year.

Priyanka Garg

Yes, Jade, good question. I want to reiterate, we were very early in identifying all of our issues. And so the multifamily loans that we thought were at risk where there wasn't embedded equity for the borrowers to protect and loans that were not performing, those are already reflected on our watchlist. So if you go through our loan table, what you'd find is there's only 2 multifamily loans in the bucket of risk rated 2 and 3. And those 2 loans, we feel very good about our ability to get fully repaid. There's processes underway. We're focused on it, but we really think we've ring-fenced that risk and those are appropriately rated in the 2 and 3 buckets.

Jade Rahmani

And then just on the earnings outlook, considering processes you have in place, is there a reasonable expectation for what the magnitude of loss could look like for the next 2 quarters? Do you think it will be similar to what we saw this quarter or perhaps a bit lower than that, driven by an increase in the amount of assets on watchlist that you look to resolve?

John McGillis

Jade, why don't I take a shot and then I'll turn it over to Priyanka. So the 2 loans that are under hard contract to sell right now, we expect a very modest loss relative to carrying value in Q4 on those. And I would just echo Richard and Priyanka's sentiment, it's a dynamic environment. We feel like our carrying values are appropriate. But if we're in a situation where we've got to evaluate moving out of an asset at a certain price, if it makes sense, we'll meet the market and get it done. But it's hard to predict what the ultimate outcome will be. But I think we've demonstrated that we've been able to out of these assets at reasonable levels relative to carrying value and UPB related to our existing reserves.

Priyanka Garg

Yes. Mike, just to add...

Jade Rahmani

Go ahead.

Priyanka Garg

Sorry, just 2 quick data points specifically. We've said them before, but I just want to highlight them in this context. The carrying value of our watchlist loans right now is 70% of UPB. That's in the $4.10 that you see on Page 4 of our earnings supplement. That's being held -- the $4.10 per share is being held at 70% of UPB. And the second point I would make is those 2 contracts are at 97% of the carrying value. So very, very modest discounts. And we're going to make our decisions as we need to.

Operator

Your next question is from Chris Muller with Citizens Capital Markets.

Christopher Muller

Apologies if you covered this. I'm bouncing around a little bit this morning. But really nice job on the resolutions and recoveries in the quarter and overall. I guess I'm looking at the 80% recovery rate that you guys have in the slide deck versus 33.4% of the watchlist specific reserves. So I guess the question is, on the resolutions that you guys have completed, where did those come in relative to the specific reserves that you had in place at the time?

Priyanka Garg

I'll start and then maybe Mike will want to jump in. So thank you for that question, Chris. It is a tough question to answer because as we all know and as we've seen in the sector generally, specific reserves move. And so it really depends on where you are pegging the actual transaction and to what prior quarter's carrying value you're comparing it to. That is why we made a very conscious decision on Page 2 of our earnings supplement to really peg it to the UPB.

So I think the way to think about our reserves today is we've -- historically, using all the tools in the toolkit, loan sales, DPOs, short sales, we've achieved 80% of UPB. And right now, the remaining watchlist that we're carrying, we're carrying it at 70% of UPB. It doesn't mean we're going to get to the same outcomes, but I think it's an important metric, and we think that's the right one to focus on as opposed to percent of carrying value because the carrying values do move when we get new information. Mike, anything you want to add to that?

John McGillis

No, I think that's a great point, Priyanka. And I'll just highlight that, that is a reflection of pretty steady resolution activity over the course of the last 7-plus quarters on about $2 billion of watchlist loans. So there is variability on a loan-by-loan basis. But as outlined in the bottom left chart of the earnings supplement, you see it's pretty consistent quarter-to-quarter when you look at it in the aggregate.

Christopher Muller

Got it. And I guess on the specific reserves, how much of an impact does the rate environment have on those or move them around? We have the 10-year down roughly 35 basis points from quarter end. So could those move, I guess, those specific reserves move lower going forward? Or are they more static and you guys don't move them around all that much?

Richard Mack

So we covered a little bit of this in our opening remarks. But we've anticipated a higher for longer environment. And so while higher rates are not helpful, we think we've baked in a lot of the bad news in the rates already. Rates can go up a lot higher, and we might have to think about readjusting. But I think we've been so proactive around this that we feel like our marks are in a pretty good place. But look, anything can happen. The capital markets could decide rates are going higher and then we're going to -- we want to mark down assets more again. But I think we've tried to be ahead of this and try to be conservative as we look forward.

Priyanka Garg

Richard, if I may add one -- sorry, just one specific data point on that, Chris, as you think through that is we did take meaningful reductions to book value last quarter and these 2 purchase and sale contracts where we have hard deposits from buyers are at 97% of that number, even though the actual rate hike occurred after. So we were really thoughtful about the higher for longer rate environment and really tried to reflect that in our carrying values when we made meaningful shifts 2 quarters ago.

Operator

Your next question is from Marissa Lobo with UBS.

Marissa Lobo

Maybe on the REO hotels, with the 2 properties under contract above their carrying value, how should we think about the read-through on the remaining portfolio?

Priyanka Garg

Okay. Thanks, Marissa, for the question. I'll take it. We feel good about it. I mean we're always very thoughtful about where we're going to hold assets and carrying values. These 2 assets that we're under contract on are the 2 that offer the most upside to potential buyers. And so we wanted to separate those out and then have -- as we monetize the other 5 remaining assets, we expect to hit carrying value. But I'd be remiss if I didn't highlight again, we're operating in a very choppy uncertain environment, but we think we've taken all of it into consideration.

Marissa Lobo

Okay. And on the New York land asset, can you walk us through what needs to happen to create value from here and what additional investment that requires?

Priyanka Garg

On the land REO asset?

Marissa Lobo

Correct. Yes.

Priyanka Garg

Yes, sure. So that is -- a couple of things that we should just state upfront. It's extremely well-located land. It's very attractive purely by location. There's a number of different business plans that can be executed. And so what we are trying to do is really hone the analysis around what the optimal business plan is. Ultimately, our goal is to sell the land with a development -- a recommended development plan in place. And so that is what we're working on. That's not terribly capital intensive, but we're just being very thoughtful about it. As many people likely know, this is the sponsor of Claros, Mack Real Estate Group is a developer at heart, and we have the capabilities to be evaluating that, and that's what we're doing right now.

John McGillis

I would just highlight that, that piece of land is unencumbered. There is no debt against it. So it's another part of our unencumbered asset pool.

Operator

This concludes the Q&A for today. I will now turn the call back to Richard Mack for closing remarks.

Richard Mack

I want to thank everyone again for joining us. Today, we've tried to demonstrate both the progress we have made and the magnitude of the disconnect between our book value and our trading value. We urge you to look at our earnings supplement in detail again when you have a moment. This effort has been difficult, but we believe that our metrics today present a compelling investment opportunity, and we believe that the market is already taking notice and will continue to do so. We thank you again, and we look forward to talking to you at our next earnings call. Thank you.

Operator

This concludes today's call. Thank you for attending. You may now disconnect.