Claros (CMTG) Q3 2026 Earnings Call Transcript

DATE

Nov. 4, 2026

CALL PARTICIPANTS

• Executive Vice President - J.D. Siegel
• Chief Executive Officer and Chairman - Richard Mack
• President, Chief Financial Officer, and Director - Mike McGillis
• Executive Vice President - Priyanka Garg

TAKEAWAYS

• GAAP Net Loss -- $14.3 million, or $0.10 per share, reflecting the impact of loan resolutions and credit reserve adjustments.
• Distributable Loss -- $12.1 million, or $0.08 per share, which includes realized gains and losses.
• Book Value -- $8.49 per share at Sept. 30, net of $3.93 per share in CECL reserves.
• Total Liquidity -- $146.9 million as of Sept. 30, including $133.8 million in cash, which declined to $142.7 million by Nov. 2.
• Loan Resolutions -- $702 million in resolutions completed during the third quarter and through Nov. 2, including $492 million in full loan repayments.
• Portfolio Composition -- 21 loans with a carrying value of $2.3 billion and eight REO investments with a carrying value of $701 million.
• Watchlist Loans -- $1.6 billion in unpaid principal balance, or $1.1 billion in carrying value, across 11 loans.
• Total CECL Reserves -- $566.2 million, representing 18.5% of the total unpaid principal balance.
• Specific CECL Reserve -- $516 million, or 33% of the related unpaid principal balance for watchlist loans.
• General CECL Reserve -- $51 million, representing 3.4% of the loans subject to the general reserve.
• Net Debt-to-Equity Ratio -- 1.7x at quarter-end, which declined further to 1.5x on a pro forma basis following subsequent loan resolutions.
• Asset Deleveraging -- Financings outstanding decreased by $330.1 million in the third quarter, including $99.9 million in deleveraging payments.
• October Loan Repayments -- Two full loan repayments totaling $268.7 million, accompanied by $131.5 million in deleveraging payments.
• Unencumbered Asset Pool -- $664.5 million in loans and REO assets, providing financial flexibility for the company's capital allocation.
• Multifamily Loan Sale -- Binding agreement to sell a risk-rated 5 loan for $245 million, representing 98% of its Sept. 30 carrying value.
• Office Loan Sale -- Binding agreement to sell an unencumbered risk-rated 5 loan for $65.7 million, or 92% of its carrying value.
• REO Hotel Sale -- Agreement to sell two New York City hotels for $44.5 million, representing a slight premium to their current allocated carrying value.
• Historical Recovery Rate -- 80% recovery of unpaid principal balance on watchlist loans resolved since the beginning of 2025.
• Term Loan Interest Expense -- Approximately $0.10 per share per quarter on a cash basis.
• Nonaccrual Leverage Cost -- Financing associated with nonaccrual loans costs approximately $0.06 per share per quarter.
• Future Funding Needs -- $3 million in minimal unfunded loan commitments net of in-place financings.

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RISKS

• Mack stated, "Macroeconomic headwinds continue as Federal Reserve monetary policy is being marshaled to manage inflationary pressures," noting that the environment remains challenging for real estate capital markets.
• Garg noted that there is "real pressure on day-to-day household income at the workforce housing class," which impacts the performance of multifamily assets in certain markets.
• McGillis warned that if subsequent sales are completed, the company expects to recognize "incremental combined losses of approximately $10.4 million, or about $0.07 per share in the fourth quarter."

SUMMARY

Claros Mortgage Trust, Inc. (NYSE:CMTG) reported third-quarter results focused on the resolution of watchlist loans, the repositioning of real estate owned assets, and the deleveraging of its balance sheet. Management reported resolving $3.8 billion of loans and reducing indebtedness by $2.9 billion since Jan. 1, 2025. The company is directing proceeds from recent asset sales toward paying down its secured term loan to reduce its highest cost of capital. The company reported that its current portfolio has been reduced to 21 loans and eight REO investments, which management stated increases transparency and reduces variability in book value calculations. While macroeconomic headwinds and elevated interest rates persist, the company has ring-fenced its multifamily exposure and is executing lender-driven price discovery processes to turn over the portfolio.

• Richard Mack noted that since Jan. 1, 2025, the company has resolved $2 billion of watchlist loans and extended its secured term loan maturity to 2030.
• Management indicated that the company's cash position of $0.93 per share represents approximately 80% of its current stock price.
• Priyanka Garg stated that the company was early to identify multifamily issues, with the remaining exposure in the sector limited to two loans in the risk-rated two and three categories.
• The company is preparing an unencumbered New York City land asset for sale with a recommended development plan to maximize value.
• Mike McGillis reported that the watchlist loans resolved since the start of 2025 were settled at approximately 80% of par value.

INDUSTRY GLOSSARY

• CECL (Current Expected Credit Losses): An accounting standard for estimating allowances for credit losses based on historical experience, current conditions, and reasonable forecasts.
• Distributable Earnings (Loss): A non-GAAP measure used by the company to evaluate operating performance excluding certain non-cash items and GAAP adjustments.
• Nonaccrual: A status for loans where interest income is no longer being recognized because the timely collection of principal or interest is in doubt.
• REIT (Real Estate Investment Trust): A company that owns, operates, or finances income-producing real estate and is required to distribute at least 90% of its taxable income to shareholders.
• REO (Real Estate Owned): Property acquired by a lender through foreclosure or deed-in-lieu of foreclosure.
• UPB (Unpaid Principal Balance): The portion of a loan at a certain point in time that has not yet been remitted to the lender.

Full Conference Call Transcript

Operator: Hello, everyone. Thank you for joining us, and welcome to the Claros Mortgage Trust Third Quarter 2026 Earnings Conference Call. After today's prepared remarks, we will host a question-and-answer session. If you would like to ask a question, please press star one to raise your hand. To withdraw your question, press star one again. I will now hand the conference call over to J.D. Siegel, Executive Vice President of Claros Mortgage Trust. Please go ahead.

J.D. Siegel: Thank you. I am 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 seven 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 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 creative 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 seven 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 have 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 de-risking of our balance sheet. Page four 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. 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 seven quarters, negative credit rating migration has been minimal. Of the four loans downgraded to watchlist during that period, three have already been resolved. As I stated last quarter, we have made difficult decisions over the last two years, and while we still have work to do, we have reduced the portfolio to just 21 loans and eight 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.

Mike 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 2nd, 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 four loan resolutions completed in July.

These included full repayments of two loans totaling $223 million of UPB, as well as two 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 a Salt Lake City multifamily loan for gross proceeds of $70 million. Subsequent to quarter-end, we were repaid in full on two 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 seven 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 2025 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 eight REO investments with a total carrying value of $701 million. Earlier this year, we commenced lender-driven price discovery and sales processes on eight assets representing $860 million of loan UPB and REO carrying value. Since then, we have expanded these processes to include one additional loan with $127 million of UPB and a portion of our New York City REO hotel portfolio.

We have completed $183 million of these sales, including one risk-rated five loan and two multifamily REO properties, and we have entered into three separate purchase and sale agreements, each of which became binding in October with non-refundable purchaser deposits and have near-term expected closing dates. Two of the purchase and sale agreements are to sell a risk-rated five multifamily loan and a risk-rated five unencumbered office loan for approximately $311 million of combined gross proceeds, or approximately 97% of their combined September 30th 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 timeframe. The third purchase and sale agreement is to sell two of the seven 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 this 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 non-accrual 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 four loans from risk-rated four to risk-rated five, including one loan that was repaid at a discount to UPB in July, increased specific reserves on three loans, and reclassified two 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 have sold two 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 and 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 financings 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 nine 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 support for 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 five 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 two and three 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 in 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 de-risking 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: We will now begin the question-and-answer session. If you would like to ask a question, please press star one on your telephone keypad. To withdraw your question, press star one again. Please pick up your handset when asking a question. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question is from the line of Tom Catherwood with BTIG. Please go ahead.

Tom Catherwood: Excellent. Thanks, and good morning, everybody. Mike, maybe going on to the two loan sales that you have under binding agreement, 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?

Mike 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 significant amount of capital for us to make decisions as 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.

Tom Catherwood: Got it. 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? It seems like we've reached an inflection point, at least on a net interest income point this quarter. Kind of two-part question. Is that fair? Then can you talk through a little bit about the potential path for earnings from here? Does it continue to inflect as well?

Mike McGillis: Sure. Good question. The non-accrual loans, the leverage associated with the non-accrual loans essentially costs us about $0.06 per share per quarter. So eliminating that is one key objective, and that's direct financings on those assets. Then as we sort of resolve non-accrual 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 break-even 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. That is an objective, is to put that in the rearview mirror at some point over the medium-term.

Tom Catherwood: Got it. Last one from 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 Sun Belt multifamily. Can you talk about the issues that you are 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 and the markets where you own?

Priyanka Garg: Hey, Tom, it's Priyanka. I'll take that, and then Richard might want to jump in after. First off, I would just want to highlight that we identified our issues early. We identified the problem loans many quarters ago, and we've been very focused on resolving all of those, particularly on the multifamily front. We 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 two 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. Each of our loans on our watchlist, we have a very specific plan. 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 issue. Then third is just obviously as it impacts value, the rising rate environments have not been helpful or that were 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 two assets near carrying value to date, and we're certainly working on the remainder.

Richard Mack: Yeah, 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 is going to turn into incremental demand for housing, because home construction and purchasing is pretty difficult in this high-interest rate environment right now.

Tom Catherwood: Oh, appreciate the thoughtful answers. Thanks, everyone.

Richard Mack: Thank you.

Priyanka Garg: Thank you, Tom.

Mike McGillis: Thank you, Tom.

Operator: Your next question is from Jade Rahmani with KBW. Please go ahead.

Jade Rahmani: Thank you very much. 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: Yeah, 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 two and three of our earnings supplement and how much work we've done. We've demonstrated we'll make the hard decisions, we'll meet the market where it is, and that is further bolstered by these two contracts that Mike talked about, where we have hard deposits on two watchlist loans, and we expect those to close.

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. I think it's a really hard question to answer, but we are very focused on meeting the market and making the hard decisions.

Jade Rahmani: When you look at the performing part of the portfolio, there's about, I think, a significant amount of multifamily loans still outstanding. Could you give any color as to what the maturity schedule looks like, and also, if the risk three 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 one to two years have debt service coverage ratios that will make refinancing very challenging. So, even though they're still risk three-rated loans, just wondering if that could be another source of pressure the company could face next year.

Priyanka Garg: Yeah, Jade, good question. I want to reiterate, we were very early in identifying all of our issues, 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 two multifamily loans in the bucket of risk rated two and three. And those two 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 two and three bucket.

Jade Rahmani: 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 two quarters? Do you think it'll 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?

Mike McGillis: Jade, why don't I take a shot, then I'll turn it over to Priyanka. The two loans that are under hard contract to sell right now, we expect a very modest loss relative to carrying value in Q4 on those. 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: Yeah. Mike, just to add-

Jade Rahmani: Go ahead.

Priyanka Garg: Sorry. Just two 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 four 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 two contracts are at 97% of the carrying value. So very, very modest discounts, and we're going to make the hard decisions as we need to.

Jade Rahmani: Thanks very much.

Operator: Your next question is from Chris Muller with Citizens Capital Markets. Please go ahead.

Chris Muller: Hey, guys. Thanks for taking the questions, and 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. 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. 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 two of our earnings supplement to really peg it to the UPB. 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. 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?

Mike McGillis: No, I think that's a great point, Priyanka, and I'll just highlight that is a reflection of pretty steady resolution activity over the course of the last 7+ quarters on about $2 billion of watchlist loans. 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.

Chris Muller: Got it. 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. 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: We covered a little bit of this in our opening remarks, but we've anticipated a higher-for-longer environment. 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. Look, anything can happen. The capital markets could decide rates are going higher, and then we want to mark down assets more again. But I think we've tried to be ahead of this and tried to be conservative as we look forward.

Priyanka Garg: Richard, if I may-

Richard Mack: Go ahead.

Priyanka Garg: 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 two 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. 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 two quarters ago.

Chris Muller: Great. Got it.

Richard Mack: Thank you, Chris.

Chris Muller: Well, appreciate you guys taking the questions, and nice to see the market rewarding all the hard work you guys have done.

Richard Mack: Thank you.

Mike McGillis: Thank you.

Operator: Your next question is from Marissa Lobo with UBS. Please go ahead.

Marissa Lobo: Thank you. Good morning. On the REO hotels, with the two 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 will take it. We feel good about it. We are always very thoughtful about where we are going to hold assets and carrying values. These two assets that we are under contract on are the two that offer the most upside to potential buyers, so we wanted to separate those out and then have, as we monetize the other five remaining assets, we expect to hit carrying value. I would be remiss if I did not highlight again, we are operating in a very choppy, uncertain environment, but we think we have taken all of it into consideration.

Marissa Lobo: Okay, thank you. 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, yeah.

Priyanka Garg: Yeah, sure. So that is a couple of things that we should just state up front. 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, 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 recommended development plan in place, 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, 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.

Marissa Lobo: Got it. Okay. Thank you for taking my question.

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

Marissa Lobo: Okay. Thank you.

Priyanka Garg: Thanks for the question, Marissa.

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.

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