Arbor Realty Trust stock falls on Q3 Earnings

Arbor Realty Trust’s stock fell more than 13 percent after the lender reported a sharp drop in income and an uptick in loan delinquencies.

The company, which primarily makes multifamily loans, reported a net income of $38.5 million in the third quarter, down from $58.2 million during the same period in the previous year.

In the first quarter, Arbor’s CEO Ivan Kaufman said the next nine months will be “challenging.” Higher interest rates have put a strain on borrowers, leading to defaults and foreclosures, especially multifamily borrowers with floating-rate debt.

But Arbor executives said Friday they believe the market is bottoming out, and the firm is using modifications and repossessing assets for an aggressive approach to its troubled loans.

“We are at a very difficult point in the cycle. We are prepared for it. We have anticipated it,” said Kaufman at an earnings call with analysts on Friday. “We would rather not be here, but as operators, we are addressing it.”

Arbor’s income hit was driven by a decline in interest income as a result of modifications and an uptick in delinquencies. Arbor’s interest income fell to $38.2 million in the third quarter from $88.8 million in the prior year.

The company’s executives said loan modifications, which reduced rates on certain problem loans, led to an $8 million hit to interest income in the third quarter.

Arbor’s loan delinquencies also increased to $750 million in the third quarter compared to $529 million in the previous quarter, said Chief Financial Officer Paul Elenio during the call.

But Arbor management noted the market was at “peak stress.” As part of that belief, the company is reclaiming assets. Arbor can then lease up properties or sell them to a better-performing operator, instead of allowing them to languish under bad ownership.

Arbor’s Real Estate Owned (REO) assets increased to $471 million in the third quarter from $176 million at the end of 2024, according to Arbor’s third-quarter financials.

“We’re working very hard at bringing in new sponsors to take over assets and assume our debt over the next few quarters, which will create a longer-term benefit of creating a more predictable run rate of income,” said Elenio.

Arbor has been the subject of short seller reports, which claim Arbor is misrepresenting the value of the firm’s loan portfolio. Bloomberg reported last year that Arbor was facing a probe from federal prosecutors and the FBI. It is unclear whether those investigations are still ongoing.

Earlier this year, Arbor secured a $1.15 billion refinancing from JPMorgan that will go toward paying off its Collateralized Loan Obligation bondholders. Arbor originates loans to multifamily owners and then securitizes them through CLOs.