Arbor Realty Trust Inc (ABR) 2007 Q3 法說會逐字稿

Good day, ladies and gentlemen and welcome to the Third Quarter 2007 Arbor Realty Trust Earnings Conference Call. My name is Shiquana and I will be your coordinator for today. At this time, all participants are in a listen-only mode. We will facilitate a question-and-answer session towards the end of this conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the call over to your host, Mr. Paul Elenio, Chief Financial Officer of Arbor Realty Trust. Please proceed, sir.

Thank you, Shiquana. Good morning, everyone and welcome to the quarterly earnings call for Arbor Realty Trust. This morning, we will discuss the results for the quarter and nine months ended September 30, 2007. With me on the call today is Ivan Kaufman, our President and Chief Executive Officer.

Before we begin, I need to inform you that statements made in this earnings call may be deemed forward-looking statements that are subject to risk and uncertainties, including information about possible or assumed future results of our business, financial conditions, liquidity, results of operations, plans and objectives. These statements are based on our beliefs, assumptions and expectations of our future performance, taking into account the information currently available to us. Factors that could cause actual results to differ materially from Arbor's expectations in these forward-looking statements are detailed in our SEC reports.

Listeners are cautioned not to place undue reliance on these forward-looking statements which speak only as of today. Arbor undertakes no obligation to publicly update or revise these forward-looking statements to reflect events or circumstances after today or the occurrences of unanticipated events.

With that behind us, I'll now turn the call over to Arbor's President and CEO, Ivan Kaufman.

Good morning, everybody and thank you for joining us on today's call. Before I talk about the quarterly results and our accomplishments, I want to take a moment to discuss the market. Clearly, the environment has changed over the last few months as we are experience a significant crisis and dislocation in our financial markets. These are difficult times. I've been in the industry for more than 25 years and have a great deal of experience in these environments as I have lived through two cycles like this before. However, this kind of market change is not a surprise to us and should not be one for any of you who have been participating in our calls over the last two years.

We've been anticipating and preparing for a change in the environment during that period, position our portfolio to more secure low risk loans, at times sacrificing yield for credit. In any market, no one can ever anticipate when a change will occur and in our market, it was never a matter of if a change would occur, but rather when it would happen. But what has been so difficult about the change in the market is the severity and suddenness of the impact and even though we have prepared for this environment, we are not immune to its effect. Therefore, I would like to spend some time talking about how the market has changed and what we've been doing to solidify our position to operate effectively over the long term.

Overall, the main areas I will focus on today are liquidity, the credit quality of our portfolio and new origination opportunities. During my discussion of these areas, I'll highlight some of our notable achievements with the goal of giving you a true perspective of our position, our take on the market and how we have adapted and positioned ourselves accordingly.

With respect to liquidity, I think an appropriate statement is that in a down market, you never have as much liquidity as you would like and with that sentiment, since the middle of the summer, we've been totally focused on ways to preserve, secure and maximize the liquidity of the firm. We've made significant progress in this area and are very satisfied with what our balance sheet currently stands, but we still have a lot of work at hand.

We continue to improve our financing facilities and remain focused on the critical objective of strengthening the right side of our balance sheet and capital structure. Over the last six months, we've made significant strides in this area. We added $52 million of trust preferred securities and now have a total of $275 million outstanding. We raised $75 million of capital in an overnight deal. We added a $60 million working capital line, amended certain facilities and added two new facilities locking in a substantial amount of our debt for the long term and once again, we've monetized several of our equity kickers which have generated around $170 million of cash contributing greatly to our liquidity and capital base.

In addition, we have around $150 million between cash on hand and cash available in our CDOs, so between our cash, the capacity of our financing facilities, proceeds from our normal run loss and a capital generated from our equity kickers, we feel we are in a good position to have adequate capital to continue to operate our business effectively. In an environment where access to liquidity has become far more difficult, the monetization of our equity kickers have significantly improved our liquidity position and we believe this additional capital source should be highlighted.

During the third quarter, we monetized one of our equity kickers and created two new ones. We received a $10 million distribution invested in our Prime portfolio. This is the sixth distribution we have received from Prime, totaling around $60 million and we believe this investment has additional value. Furthermore, this distribution was tax deferred, creating additional liquidity to fund new investments.

In mid-October, we announced that we received around $39 million from the recapitalization of the 1107 Broadway property. We sold 50% of the economic interests and recapitalized the property with about $340 million of new non-recourse debt. Arbor's portion of the retain interest at 10% or about $6 million of invested capital. The partnership intends to develop this property into a mixed use of residential and retail. We were very pleased with this execution of this transaction and received almost $50 million in cash proceeds in 2007 from our total investment in the Toy project.

We've clearly earned a significant return on our investment in this project building, including a phenomenal yield on a debt we had outstanding while retaining outside in the property going forward. Additionally, we intend to retain a substantial amount of the proceeds after taxes and management fees significantly increasing our liquidity position without diluting shareholders.

Overall, our equity kickers have generated around $200 million in cash proceeds and have added almost $7 per share or economic book value, which commonly is around $23 a share. These equity kickers are an integral component of our business and have now generated a positive impact from these kickers in 11 of the 14 quarters since transitioning to a public company. These kickers have also generated significant tax deferred cash proceeds which has substantially increased our liquidity in capital base.

As we touched on earlier, we have been very active improving the right side of our balance sheet and our capital structure. Yesterday, we announced that Arbor entered into two new financing arrangements with one of our lead banks. These new agreements replace short-term facilities we had with the same financial institutions. The press release laid out some more detail, but in summary, we effectively replaced a significant amount of our short-term debt with longer term financing and eliminated mark-to-market risk as it relates to interest rate spreads on these assets.

In addition, we also added a new $200 million revolver to this term facility, specifically to fund new loans and investments. All in all, our costs went up around 50 basis points for these facilities. It's important to note that we feel confident that this nominal increase in pricing will be more than absorbed by the increased yields on our assets as we're able to originate products with wider spreads in this market, as well as having certainty of term and not being subject to mark-to markets. These new facilities effectively lock up around $600 million of committed financing for three years. This also means that between our CDOs, trust preferred securities, and these facilities, a majority of our committed debt is a non mark-to-market and secured for the long term.

In addition, we amended a warehousing agreement increasing committed amounts of this facility of $75 million to $90 million and extended the maturity to October 2008. In the third quarter, we also amended another financing facility increasing the capacity by $50 million and reducing the borrowing costs in that facility by 50 to 75 basis points and extending that maturity to September 2008.

As I mentioned before, another one of our ongoing critical objectives has been to transition our portfolio of high credit quality by originating loans more in the middle of the capital structure and we've been very successful in achieving this goal. This quarter, we added $265 million of new loans and investments of which $253 million was funded. Run-off to the third quarter came in at $132 million resulting in net growth in our portfolio of around 32% for the nine months ended September 30th.

One of the keys to the firm is our asset management team. Our experience and ability to not only originate and structure assets, but to manage our weight through assets with difficulties and difficult times. Again, we are not immune to what is happening in the marketplace and as financial institutions have liquidity issues, those issues will trickle down to our borrowers liquidity as well as to the finance options in the market in general. Realizing this, the firm has established a protocol to be proactive and stay ahead of the curve. Therefore, we have established a dedicated committee which I participate on, that meets a minimum of once a week to review the loan portfolio and deal with current problems as well as anticipate any potential issues.

We have taken a very aggressive stance to work with and educate our borrowers in the current environment and helped them successfully navigate through their options well ahead of maturities and or potential performance liquidity issues. Our objective is to minimize any potential exposure that may occur in our portfolio by being proactive with our borrowers by using a hands-on approach. I want to be careful here because in this environment, we are really not overly interested in short-term options for our borrowers as that is not accretive to the firm's long term.

And with that, let me transition to what the opportunities are on the origination side. Clearly, there will be significant origination opportunities and wider spreads at lower risk profiles, well structured loans and the ability to go on our additional equity kickers as well. There is still a gap between where borrowers think the market is and where the market actually is. There are few remaining pockets of capital out there for people to access, but those are drying up. So what you will see is the market reaching a different level on spreads and loan dollars and we are beginning to see that happen already.

With that in mind, it is not our objective to build a short-term balance sheet. We are guiding to flat portfolio growth, but our strategy is to be very selective in deploying our capital and look to take advantage of wider spreads on investments replacing our run-off with higher yielding longer term product building a portfolio that has reoccurring long term value with attractive spreads. So, to the extent that our borrowers have short-term renewals, it's not attractive for us to extend these loans when we could originate loans that are longer term assets with higher yields. This is clearly our objective and where we will be focusing our attention.

I think I have hit all of the items I felt were prudent to review. In a moment, I will turn it over to Paul who will go over some of the financial results, but first let me briefly discuss our dividend and EPS.

As you know, we recently announced a quarterly dividend of $0.62 per share of common stock, which is consistent with our previous guidance of maintaining our current dividend and determining if we need to make a special dividend by the end of the year. In addition, we produced $1.02 in EPS for the quarter and $3.73 for the first nine months of this year. We have generated significant earnings from the modernization of several equity kickers this year and we have done an excellent job of creating tax deferrals on a good portion of them.

We are still in the process of calculating our projected taxable income for 2007 to evaluate the need for a special dividend. Once we complete this analysis, we will report any special dividend if necessary before the end of the year. With a current dividend yield of around 15%, combined with the accretive opportunities available in today's market to go on a premium yield, we will look to retain as much capital as possible to invest in new loans and investments creating increased earnings.

I will now turn the call over to Paul to take you through some of the financial results.

Thank you, Ivan and good morning again everybody. As noted in the press release, our earnings for the quarter were $1.02 per common share on a fully diluted basis. We had a very profitable quarter and are closing in on another record year with $3.73 in earnings per share for the first nine months of 2007. The third quarter numbers were impacted by the $10 million distribution we received from our equity kicker in the Prime transaction. The details and the accounting related to this transaction were laid out in the release.

Also, as previously announced in October, we received $39 million in cash proceeds from the recapitalization of our interests in the 1107 Broadway property. As we've mentioned several times, these investments are a key part of our business model and continue to deliver a significant earnings and capital to the Company. We've now had a positive impact from one or more of our equity kickers in 11 of the 14 quarters since going public and these equity kickers have added almost $7 per share since inception to our economic book value, which now stands at around $23.

We have also been very successful in structuring the bulk of these -- the monetization of these kickers in a tax efficient manner. This allows us to recycle a substantial amount of capital, creating significant additional liquidity to invest in new loans and investments with higher yields in this market. The monetization of our equity kickers continues to demonstrate the significant off-balance sheet value associated with these types of investments, creating long term shareholder and franchise value.

And now, I'd like to take you through the rest of the results for the quarter. First, our average balance in core investments grew about $180 million, which is primarily due to the considerable growth we have in the second quarter. As a result, our core interest margin increased about $2 million, a 10% increase from last quarter. The yield for the quarter in these core investments was around 9.27% compared to 9.55% for the second quarter. The yield in those core assets was around 9.16% for the third quarter, excluding the income from the acceleration of fees as compared to a yield of around 8.89% for the prior quarter, excluding similar items. The acceleration of these fees occur frequently when loans are repaid prior to their scheduled maturities and the impact of these items was greater in the second quarter.

The increased yield on our core investments was the result of a rise in the average LIBOR rate during the third quarter, as well as the funding of the extended stay hotel deal which took place late in the second quarter. This was slightly offset by the yield in the loans they paid off in the third quarter being higher than the yields in the new loans we put on. However, the impact of this yield reduction in the third quarter was not as great as in prior quarters, due to the timing of some of our projected run-off.

In addition, the weighted average all in yield of our portfolio was 8.81% at September 30, 2007 down from around 8.84% at June 30, 2007. This decrease is primarily due to a 20 basis point reduction in LIBOR for the comparable base, partially offset by a portion of the portfolio having LIBOR floors above the current rate. Since September 30th, LIBOR has continued to climb. In fact, the weighted average all in yield on our portfolio was 8.71% at October 31, 2007. This combined with projected payoffs will result in a reduction in our fourth quarter yields. We believe some of this reduction will be offset by the yields in our new guidance as we continue to selectively originate investments with attractive returns.

Additionally, from September 30th to October 31st our weighted average all in yield did not go down nearly as much as the reduction in LIBOR due to approximately 31% of our portfolio being fixed-rate along with around [50%] of our variable loans having LIBOR floors above the October 31st LIBOR rate. Our average cost to fund this quarter was approximately 6.84% compared to 6.82% from the prior quarter. Excluding some unusual items, our average cost of funds were approximately 6.92% for both quarters.

Debt costs remain flat as a result of the repayment of our participation in a loan that paid off at the end of the second quarter, offset by the rise in average LIBOR for the third quarter. As Ivan touched on, we recently modified some of our financial facilities, locking in this debt for a longer period of time. As a result, our cost of funds will increase slightly in these facilities, but we believe this will be more than offset by the increased yields we'll earn on our new loans and investments. Additionally, to the climb in LIBOR since September 30th, we reduced our borrowing costs on the portion of our liabilities that are floating.

Next, the average balance in our debt facilities increased by around $30 million from last quarter, which means that the average balance of our core investments increased $150 million more than the increase in our average debt facilities. This was primarily due to the cash received from the equity raised and the monetization of our equity kickers towards the end of last quarter, which were used to pay down debt and fund new investments. The average leverage on our core assets was around 78% for the third quarter, down from around 82% for the second quarter, including the trust preferred as debt, the average leverage was 88% for the third quarter compared to 93% for the second quarter. This decrease in average leverage is a direct result of using the bulk of the cash received from our equity raised and the monetization of our equity kickers which took place at the end of the second quarter to repay debt.

Our overall leverage ratio on a spot basis was 2.6 to 1 as of September 30th and June 30, 2007. If you include the trust preferred securities as debt, the overall leverage ratio was 4.7 to 1 as of September 30th and 4.6 to 1 at June 30th. There were no significant changes in the balance sheet since last quarter. However, the restricted cash balance related to our CDOs did go down by about $72 million on a spot basis from June 30th to September 30th. The average balance of restricted cash outstanding for the quarter was relatively flat with about $189 million on average for the third quarter compared to around $184 million for the second quarter.

Looking at our portfolio at September 30th, we had about 69% variable rate loans and 31% fixed. The breakout by product type was about 60% bridge, 14% junior participations and 26% mezz in preferred equity and our portfolio has an average duration of around 35 months. In addition, the loan to value of our portfolio was around 71%, our weighted average median dollar outstanding was 49% and our debt service coverage ratio was 123 at September 30th.

The condo concentration on our portfolio was 8% at September 30th. Almost all was in New York with over 80% of our average loan balance secured by pre-sold units with significant non-refundable deposits. Operating expenses were fairly flat as compared to the previous quarter, with the exception of the incentive management fee, which was significantly lower than last quarter due to the large gains from our equity kickers during the second quarter.

Stock based compensation expense, which is a non-cash expense, decreased $0.9 million from second quarter largely due to stock grants issued to key employees in April of 2007.

And finally, we include the schedule summarizing our equity and participation interest this quarter. As Ivan stated, we originated two new investments with equity kickers recently. One in the third quarter and one in October. This brings the total number of equity kickers in our portfolio to 15. As stated in the press release, we received $10 million in cash and recorded approximately $6 million in net income during the quarter from our equity kicker interest in the Prime portfolio. The significant earnings and liquidity we have generated from our equity kickers continues to demonstrate our unique ability to consistently generate substantial value from our investments.

With that, I'll turn it back to the operator and we'll be happy to answer any questions you may have at this time.

Thank you. (OPERATOR INSTRUCTIONS).

And your first question comes from the line of [David Broadman] with Wachovia. Please proceed.

Good morning, and thank you for taking my questions. I was just wondering if you could comment on the two kickers that were added this quarter, the first one being Alpine Meadows. It looks like it's out in the Lake Tahoe area where you have another investment. I was wondering if they were related or if you could just maybe talk a little bit more about that asset and then the St. John's development asset in Jacksonville, Florida. I've just seen a report regarding that they may be a credit stressed situation. I was just wondering if you could maybe add a little color there.

Sure. On the Alpine Meadows, it is related to the other investment we had at the other side of the mountain and there was this strategic move to acquire that piece and then combine the two and that was the purpose of that investment so we're very pleased with the ability to participate in that acquisition with the JMA Group who are the general partners and the sponsors to be able to make that happen. With respect to the Jacksonville property that was a opportunity that came out of a loan that was in our portfolio.

We originated that loan a little over a year ago and the sponsor of that loan ran into some financial difficulties and he had a little exposure to -- some family development and he had a personal recourse loan as well. In exchange for letting him off his personal recourse we took the property back and simultaneously recapitalize it with one our experienced developers and participated in 50% of the equity on the opportunity.

Considering where the residential mortgage market is, I was wondering if you could comment on just the general health of the manager Arbor Commercial Mortgage.

On the residential side?

Yes.

We have no exposure on the residential side. We're not a participant in the residential side --

Yes, but I'm talking about the external manager itself.

Oh, the external managers?

Yes.

I mean, it's a private company. It's very healthy. In fact we're a very strong beneficiary of this market because as you're probably aware we're a Fannie Mae, FHA lender and given the lack of liquidity on Wall Street and CMDS that avenue and aspects of our businesses has picked up dramatically and being a Fannie Mae sale and service rep we've enhanced our originations in a tremendous way so we're very pleased with the help from the manager and are very comfortable.

You talked about kind of looking for flat net asset growth. I guess you were referring to over the next four or five quarters. I was wondering if you could highlight kind of what you're expected maturities are in your portfolio and then frame that in terms of extension risk.

Sure. I believe just over the next 90 to 120 days, we're expecting runoff of about $400 million. Somewhere in that neighborhood based on anticipated maturities so we'd be very happy since we're originating opportunities to replenish that replacement. Certainly some of those may be originations depending on where the bar stands relative to their execution strategy and their ability to access of a debt. But $400 million is a pretty good amount of money to deploy in this environment and we're fairly comfortable if we have that runoff that we've replaced it with superior assets.

Your net asset growth was relatively strong in Q2 and not extraordinarily light in Q3 considering where spreads have moved throughout the summer year. Do you wish you had some of that capital back now?

Look, there's no question about the fact that if you didn't originate loans over the last six months and you had that capital you could deploy it better today; 20/20 hindsight, but I'm running a business and fulfilling your CDOs and your capital needs you know you have a business to run. But clearly if we had it back and we had to rewrite the book we'd love to rewrite loans in this environment as opposed to that environment that for sure. But when you have a business to run and you have CDOs and facilities that have requirements in balancing you've got to meet those current needs.

Thank you for taking my questions.

Your next question comes from the line of David Fick with Stifel Nicolaus. Please proceed.

Good morning.

Good morning, David.

Can you give us a bit further out view on the repayment profile say for all of '08 as opposed to just the next couple of months?

It's not something we're looking to guide to David. We looked at the next 90 to 120 days. It looks like about $300 million to $400 million of runoff having looked really much past the 120 days because the market is changing. So I think we're going to see probably similar runoff in the second half of '08 as well but it's something we still need to focus on.

Is that net runoff or I mean do you expect to redeploy the capital?

Yes. Redeploying the capital won't be the issue. We're seeing significant opportunity to redeploy that capital and superior yield. So we're just cautious with redeploying the capital with that runoff and making sure that we preserve our liquidity as -- in a very capital and diligent manner. So, I would expect that whatever runoff we do experience that it wouldn't be overly difficult to redeploy that capital at superior risk adjusted returns and be a very accretive to the portfolio.

Yes, I guess David that's right. It's tough for us to predict all the runoffs but what we are abiding to here is definitely replacing that runoff with growth than just having a flat portfolio growth over the next couple of quarters.

As I mentioned in what I was talking about is all of our borrowers would like to renew their loans with us right on a short-term basis. What we're really looking to do is put loans on a long term basis and lock those spreads in because this environment is not going to last forever. It may last for 6 month, 12 month, 18 month, but my perspective is you get a great yield there. The loans are very, very well structured and I want to build the portfolio to lock in the these yields for a significant period of time. So, I'm not interested in 30-day or 60-day extensions even for extension fees. It's not accretive to the portfolio. I want that to capital out on a long term basis.

Okay. Well that leads to my next question. You're somewhat as I think everyone is bearish on cap rates at this stage. You're not looking to extend term. These guys have to be able to refine out -- you're papers are all short at this point on a relative basis. You want to push it out but are you going to have to be a little flexible with a guy that can't find that permanent financing alternative?

Well, two things. Number one, it's nice to be back in control. We were in a period of time over the last two years where to borrow we're dictating their terms right?

Yes.

So, it's nice to be able to be in the driver's seat. If we have all the options for the borrowers we can do two things. We can either dictate getting a significant amount a piece number one. Number two, dictate getting a loan that's structured a little bit more secure or number three, dictate that if we're going to do it it's just going to have to be on a longer term basis. So those options are out. Clearly, we'll be prudent in the market and we'll want to make sure that we're reasonable and we'll have to balance all of those interests.

So, knowing the capital markets. Knowing what the options are out there we will use our judgment. I will tell you that we spent the last three months just trying to educate the borrowers as to where the market is because they still have that -- they still have that same mentality that they had six months ago as I say they think they can demand extensions and we're going to be chasing them for the opportunities and we're not going to get extension fees and yields. That's where a lot of our time is spent. So there's been a significant amount of effort on senior management's side to be proactive with our borrowers. Let them know that the maturities are coming up. These are their options. This is what we expect them to do and not wait until two weeks before and say well we didn't know that where it was at.

So, a lot of it's education. A lot of it's understanding the capital markets the alternatives and as I also mentioned in my script, we've put together a pool of senior managers that meets regularly on this and we're really looking to maximize the long term value of the firm and also making sure that we do what's best as well in the short-term so we do a lot of balancing.

We've already got one situation where you took control of the asset. Are you more inclined to do that as sort of a message to the market or strategically on individual asset by asset basis if you think the value is greater by taking control you're willing to do that and then sort of lock-in some real estate on your balance sheet?

Absolutely. We will be very aggressive. I mean most -- it's a funny mentality out there. We fact it all the time. Most borrowers think they're going to default or if they're going to threaten the lenders they can bend the lenders over. With us it's just the opposite. Threaten us all you want. We'll take over the asset so it puts us in a unique position to take control over the asset and what we've really worked on and where we've really had a tremendous strategic advantage is I have 10, 12, 14 operators that we do a lot of business with who have significant capital who just can't wait to jump into these type of opportunities.

So, either they can take the opportunity themselves or we can step in as well and participate and what we'll do is -- in fact, one our [guys] came back from an asset which really is not impaired but we have a guy who has a liquidity issue and his approach was listen I'll make it difficult for you. We were down at the asset with the operator understanding exactly how to step -- we went to Stephanie who went to put the receiver in and if it comes to that we won't blink which usually works to our advantage of being able to facilitate a smooth result and that's really the difference between being proactive hands-on and having the ability to manage real estate and we will see a lot of opportunities like we just did in Jacksonville and we're looking forward to them.

Okay. Back to the special dividend. I know you're hesitant and you're working on it and you don't the answer yet but we're within 60 days. You have to have some sense I would expect as to if you go to magnitude beyond what you said.

David, it's Paul. You're right. We are within 60 days. We should have this pinned down over the next couple of weeks. The reason it's not pinned down is as you saw in the press release on the 1107 Broadway property we're working through a tax structure right now and we'll be coming out with the results of that once we finalize that. If that successful it could potentially minimize any significant special dividend that we would have to require to distribute it to the end of the year just don't have that locked down yet and obviously our goal is to retain the capital if we can and deploy it back into this market. But in the next couple of weeks we should have that pinned down and be able to get that result out of people.

I think you're smart to hold back on increasing the dividend or [paying] especially if you can because obviously you're not getting yield support at your current dividend levels and it doesn't make any difference.

I think we agree.

Current portfolio LTV and then I'll get off.

LTV the portfolio currently is about 71%. Median dollar outstanding is 49% and that covers 123.

All right. Thank you.

(OPERATOR INSTRUCTIONS).

Your next question comes from the line of Don Fandetti with Citigroup. Please proceed.

Hi, Ivan quick question. Obviously, you've been involved in the New York market for quite some time. There's concern about financial services. Wanted to get your perspective from a commercial real estate standpoint and also can you comment on the outlook for the condo market in New York.

Sure. First, we're very fortunate to have a large part of our portfolio in the New York market and New York has been some kind of anomaly compared to the rest of the United States. Some say it's the euro. Some say that New York is still the capital of the world financially but the fact of the matter is that the market is still on extremely solid ground. But let me give you my outlook a little bit and what I think.

If you have condo products to sell today it's selling very, very nicely and do I think that that market will soften up? I've always said it would soften up. There's other write-off product at a 30% discount to market so I think that with what's happening on Wall Street you would think that there would be some softness in the market. We haven't seen it yet but I expect that market to soften and all non-prime products will suffer first. The prime always retains itself fairly well but we're thinking of 10% to 20% softening on the prices. But I guess if you look at the newspapers yesterday and you saw this guy buying a $150 million apartment you'd be a little surprised. But that's my outlook. It will soften a little bit. But the far buy that we'll see coming on the residential side.

On the office side it's amazed me that the branch enough people have achieved over the last 12 months and we've guided our underwriters on luxury buildings to still maintain an underwriting profile depending on location of the $60 to $100 range is always historically supported in the office market. $150, $175, $125 rents that were being achieved are not sustainable at least from our underwriting standards. I did hear for the first time this week some rumors a little softening in the office market in New York City. I suspect that there will be some softening and you will see office market rents coming down to be more in line with what historical rents have been with some level of appreciation but not the levels that we've seen.

Okay, great. Thank you.

I would now like to turn the call back over to Arbor Realty Trust management for closing remarks.

Okay. Well, I'd just like to thank everybody for participating on the call. These will be very interesting times and we look forward to your continued participation. Thank you.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a good day.