“What, me worry?” Ladder Capital says it can easily meet margin calls

The company was one of the many lenders facing margin calls and liquidity strains due to the impact of the coronavirus

National /
May.May 05, 2020 08:43 PM
Brian Harris, CEO of Ladder Capital (Credit: iStock)

Brian Harris, CEO of Ladder Capital (Credit: iStock)

Ladder Capital’s CEO has a message for investors: The lender is in good health and has enough cash to meet its margin calls. 

“Frankly, I have been dying to get on this call because I could not believe that anybody thought we were having a problem,” Brian Harris said during an earnings call Tuesday. 

Ladder, a REIT founded in 2008 by Pamela McCormack, Robert Perelman and Harris, is perhaps most famous for being a frequent lender to Donald Trump, having provided more than $250 million in debt to entities tied to him over the years. During the coronavirus pandemic, it has become one of the scores of lenders facing margin calls and liquidity strains.

The company’s core earnings fell to $30.9 million in the first quarter, down 34 percent year-over-year from $46.9 million. Ladder has seen its stock price fall by more than 50 percent since the beginning of 2020, closing Tuesday at $7.77.

The company said it has enough cash on hand to deal with future issues from the pandemic and recently secured $510 million in financing from Koch Real Estate Investments and Goldman Sachs. Koch Real Estate Investments, an affiliate of conglomerate Koch Industries, provided $206.4 million in senior secured financing to fund transitional and land loans. Ladder also completed a collateralized loan obligation with Goldman Sachs that generated $310.2 million in proceeds. 

These transactions allowed the company to increase its use of non-recourse debt and reduce the part of its debt that is subject to mark-to-market provisions, which can help prevent margin calls.

“We did have some margin calls that were a little bit larger than I would have expected,” said Harris, “but quite frankly we had no problem with them.”

As of May 1, Ladder had over $830 million of cash on hand and over $2.7 billion of assets that are free and clear of liens. The company had $1.24 billion of unencumbered senior secured first-mortgage loans, with the largest portion of these loans being in mixed-use properties at 28 percent and hotel properties at 24 percent, according to the company’s earnings.

Harris said the biggest opportunity in the near-term is with “single-asset securities backed by AA and Single A bonds.” But he warned that lenders could step back due to the Federal Reserve’s decision to exclude certain CLOs and other loans from its Term Asset-Backed Securities Loan Facility.

“You will have to be out of your mind to write a bridge loan right now unless you had a rate at 12 percent and didn’t plan to leverage it at all,” he said.

During March and April, Ladder Capital sold a total of $408 million of balance sheet loans and securities at an average price of 96 cents to the dollar, according to a presentation that followed its earnings report. Ladder sold a group of loans for as much as $200 million to New York-based lender Madison Realty Capital in April, according to  sources familiar with the transaction.

Like other mortgage REITs that rose during the Great Recession, Ladder relies on borrowing to purchase and sell mortgage securities.

Mortgage REITs borrow short-term debt from banks in the form of repurchase agreements, which they use to buy mortgages with relatively little cash and pool them into commercial mortgage-backed securities, which they sell to bond investors. But when the coronavirus hit, prices for CMBS loans fell. The mortgage REITs had to mark down the assets on their books and their repo lenders instituted margin calls that required the companies to add cash to their accounts in order to keep them in balance.


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