Arbor Realty Trust (ABR) Q2 2022 Earnings Call Transcript

Arbor Realty Trust (ABR -2.73%)
Q2 2022 Earnings Call
Jul 29, 2022, 10:00 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning, ladies and gentlemen, and welcome to the second quarter 2022 Arbor Realty Trust earnings conference call. At this time, all participants are in a listen-only mode. After the speakers presentation, there will be a question-and-answer session. [Operator instruction] I would now like to turn the call over to your speaker today, Paul Elenio, chief financial officer.

Please go ahead.

Paul Elenio -- Chief Financial Officer

OK. Thank you, Chelsea, and good morning, everyone, and welcome to the quarterly earnings call for Arbor Realty Trust. This morning we'll discuss the results of the quarter ended June 30th, 2022. 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 risks and uncertainties, including information about possible or assumed future results of our business, financial condition, 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 our 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.

Although undertakes no obligation to publicly update, or revise these forward-looking statements to reflect events, or circumstances after today or the occurrence of unanticipated events. I will now turn the call over to our president and CEO, Ivan Kaufman.

Ivan Kaufman -- President and Chief Executive Officer

Thank you, Paul. And thanks to everyone for joining us on today's call. As you can see from this morning's press release, we had another tremendous quarter, including producing earnings that were once again well in excess of our dividend. As a result, we're able to increase our dividend to $0.39 a share.

And this is our 9th consecutive quarterly dividend increase representing 3% growth over that time period, all wait while maintaining a lowest dividend payout ratio in the industry. As we have mentioned many times, a diverse business model offers several strategic advantages, which is something that needs to be emphasized, especially given the recessionary environment. We have built a premium operating platform that is focused on the right asset classes with very stable liability structures, including over $8 billion in non-recourse, non-mark to market [inaudible], which requires approximately 70% of our outstanding secured indebtedness with pricing that is well below the current market. We also have a thriving balance sheet, GSA agency, and single family rental business that produces many diverse income streams, which has allowed us to consistently grow our earnings and dividends in all cycles.

We remain continually keenly focused on maintaining a strong liquidity position with currently around $500 million in cash and liquidity on hand, in addition to roughly $450 million of deployable cash and [inaudible] all vehicles. This liquidity will provide us with the unique ability to maintain, remain offensive and take advantage of the many opportunities that will exist during this economic downturn to generate superior returns on our capital. Additionally, we have successfully operated our business through multiple cycles, and have a very seasoned experienced as a management team that positions us exceptionally well to succeed in this cycle as well. These are significant differentiating factors from the rest of our peer group, most of which have [inaudible] businesses that struggle to maintain their dividend, and lack the experience and expertise to manage through this downturn.

And this is why we believe we're superbly in positioned in a class by ourselves, and should trade a substantial premium at a much lower dividend yield than anyone in our peer group. Turning now to our second quarter, as Paul will discuss in more detail. Our quarterly financial results were once again remarkable. We produced distributable earnings of $0.52 per share, which is well in excess of our current dividend representing a payout ratio of around 75%.

Our financial results will also benefit greatly from rising interest rates, which will significantly increase the net interest income on our floating rate loan book, as well as earnings on our fiscal balances. And clearly, with this extremely low payout ratio and a strong earnings outlook, we are uniquely positioned as one of the only companies in our phase that can potentially continue to raise our dividend. In a balance sheet lending business, we had another strong quarter. As one of the top multifamily lenders in the industry, we we're able to grow our balance sheet loan book another 6% in the second quarter to $15 billion on $2.05 billion of loan originations.

We also continue to maintain a strong pipeline. I will be very selective with our originations for the second half of the year given the anticipated market slowdown. This will result in us producing more normalized volumes for the balance of the year, with superior quieter quality and higher spreads. In fact, as I mentioned earlier, we are heavily focused on maintaining a strong liquidity position to be able to take advantage of the many accretive opportunities we think will exist to garner premium yields on our capital.

As result, we recently decided to sell 300 million of multifamily bridge loans, which generated $90 million of fresh capital. We also retained a portion of the upfront origination fees, and all of the potential exit fees, as well as a 12.5 basis point servicing fee, and control all the take out of each loan, which is vital to our business strategy, as these balance sheet loans provide us with a pipeline for 2 to 3 years of new GSE agency loans, and produce additional long dated income streams. We've consistently been a leader in the sale of securitization market. The utilization of these vehicles has contributed greatly to our success by allowing us to appropriate match fund our assets with non-recourse, non-mark to market long-term debt, and generate attractive levered returns on our capital.

In the second quarter we closed another 1 billion CLO, with superior execution in a very challenging market, which clearly demonstrates our strong track record, brand recognition, portfolio quality, and securitization expertise. And with approximately 70% of our total debt outstanding CLOs, we're extremely well positioned and have no need to further access the CLO market in this dislocated environment. We also have replenishment features and pricing that are well below the car market in these vehicles that will allow us to recycle capital from our run off into higher yielding assets in today's environment and meaningfully increase 11 returns. And GSE agency and private label programs we originated $1.2 billion of loans in the second quarter.

We also have a robust pipeline which will give us confidence in our ability to produce consistent volumes for the rest of the year. Our GSE agency platform continues to offer a premium value as it requires limited capital and generates significant, long dated, predictable income streams, and produces significant annual cash flow. Additionally, our 27 billion GSE agencies service and portfolio is mostly prepayment protected, and generates approximately $117 million a year in reoccurring cash flow. This is in addition to the strong gain on sale margins we generate from our origination platform, and a significant increase in earnings on our [inaudible] balances that we're experiencing as interest rates continue to rise, which is unique to our platform, and will continue to greatly enhance our earnings and dividends.

In summary, we had another tremendous quarter. Allow us to once again increase our dividend. We strategically built our platform to operate successfully in all cycles with multiple products that produced many diverse income streams, providing us with a future annuity of high quality, long dated reoccurring earnings. We are also the premium multifamily originator in this phase, and are invested in the right asset classes with very stable liability structures and a well capitalized, which positions us extremely well to succeed in this environment, and continue to significantly outperform our peers.

I will now turn the call over to Paul to take you to our financial results.

Paul Elenio -- Chief Financial Officer

OK. Thank you. And as I mentioned, we have another exceptional quarter producing distributable items of $94 million or $0.52 per share. These results translated into industry high release again of approximately 17%, allowing us to once again increase our dividend for the 9th consecutive quarter to an annual run rate of $1.50 a share.

As I mentioned earlier, we made a strategic decision to sell some of our loans in order to bolster our liquidity and lending capacity. In the second quarter, we liquidated $110 million position we had in the construction project, generating $65 million of fresh capital, and recorded a GAAP loss of approximately $9.2 million. We did retain the ability to recover up $2.8 million loss in the future based on certain performance metrics. This loss was largely offset by two loans that paid off in full in the second quarter, which we previously had $2.7 million, a long loss reserves on that we ended up recovering.

And from the disposition of an asset in the second quarter related to one of our unconsolidated equity investments that resulted in a $6 million income pickup to us. Additionally, we closed on the sale of approximately 300 million of multifamily loans yesterday at park, generating an additional $90 million a cash. Recorded small GAAP loss in the second quarter on the sale of approximately $2 million as a portion of the origination fees we collected that were passed along to the buyer, have been accreted into income in the past, and needed to be reversed. As part of the sale, we did retain a 12.5 basis point annual servicing fee, which will increase our servicing annuity going forward by roughly $400 thousand a year.

In addition to any exit fee income, we may receive when these loans pay off. In our GSE agency business, we originated $1.2 billion of GSE loans, and recorded $1 billion in GSE loan sales in the second quarter. We generated margins on our GSE loan sales of 1.59% in the second quarter, which was up from 1.39% in the first quarter, mainly due to a greater percentage of FHA loan sales, which had a much higher margin. We also recorded $17.6 million of mortgage servicing rights income, related to $1.2 billion of committed loans in the second quarter, representing an average MSR rate of around 1.48% compared to 1.57% last quarter, mostly due to a greater mix of larger loans in the second quarter that contained lower servicing fees.

Our servicing portfolio was approximately $27 billion on June 30th, with a weighted average servicing fee of 44 basis points and as an estimated remaining life of nine years. This portfolio will continue to generate a predictable annuity of income going forward of around $117 million gross annually, which is down slightly from last quarter due to increased runoff on our portfolio from extensive sale activity as a result of the current market conditions. As a result of this runoff, prepayments for fees related to certain loans, our prepayment protection provisions continue to be elevated with $15 million of prepayment fees received in the second quarter, compared to $16 million in the first quarter. In our balance sheet lending operation, we grew up portfolio another 6% to $15 billion in the second quarter on $2 billion of new originations, our $15 billion investment portfolio had an all in yield of 5.2% at June 30th, compared to 4.74% at March 31st, mainly due to significant increases in labor and soft rates, which is partially offset by higher rates on runoff as compared to new originations during the quarter.

The average balance in our core investments increased to $14.6 billion this quarter from $13 billion last quarter, mainly due to the significant growth we experienced in both the first and second quarters. The average yield on these investments was 5.26% for the second quarter, compared to 4.86% for the first quarter due to increases in SOFR and LIBOR rate, which is partially offset by higher interest rates on runoff as compared to originations in the first and second quarters. Total debt on our core assets was approximately $13.8 billion at June 30th, with an all in debt costs of approximately 4%, which was up from a debt cost of around 2.81% at March 31st, again mainly due to increased LIBOR and SOFR rates. The average balance on our debt facilities is up to approximately $13.4 billion for the second quarter, from $12 billion for the first quarter, mostly due to financing the growth in our portfolio.

And the average cost of funds in our debt facilities was 3.10% for the second quarter, compared to 2.65% for the first quarter, primarily due to increases in the benchmark index rates in the second quarter. Our overall net issue spreads on our core assets decreased slightly to 2.16% this quarter, compared to 2.21% last quarter. And our overall spot net interest spreads were down slightly as well to 1.82% at June 30th from 1.93% at March 31st, mostly due to yield compression on newer originations as compared to last. Net interest income.

On the other hand, on a balance sheet loan book increased $10.8 million this quarter from portfolio growth and significant increases in LIBOR and SOFR rates during the quarter. And as the current line in SOFR curves are predicted to continue to increase, it's very important to note that any further increases in these rates will continue to increase the net interest income spreads on a floating rate loan book. In fact, all things remaining equal, a 1% increase in rates would produce approximately $0.10 a share annually in additional earnings. Additionally, as we mentioned earlier, we have $8 billion of CLO debt outstanding in average pricing of 163 older, which is well below the current market and will allow us to meaningfully increase the level of returns on our balance sheet loan originations.

And lastly, as rates rise, we will also continue to earn significantly more income from the large amount of [inaudible] balances we have, from our agency build business and balance sheet loan book. These earnings will grow substantially as we have approximately $2 billion [inaudible] balances that are now earning in excess of 1% or around $25 million annually, effective mid-July, which is up significantly from a run rate of approximately 10 million annually at 331 2022. And as I mentioned earlier, these features are unique to our business model, giving us confidence in our ability to continue to generate high quality, long dated, recurring earnings in the future. That completes our prepared remarks for this morning.

And I'll now turn it back to the operator to take any questions you may have this time. Chelsea.

Questions & Answers:

Operator

Thank you, sir. [Operator instruction] And we'll take our first question from Steve Delaney with JMP Securities. Your line is open.

Steve Delaney -- JMP Securities -- Analyst

Good morning, Ivan and Paul. Good to be with you. Now there's another excellent quarter. I did note the cautionary actions that you've taken in some of the remarks about not needing to push the envelope here, given the strength of the existing portfolio.

Referring to Ivan, your comment about no new CLOs at this point in time since they're so expanded in terms of spread. And then we, of course, noted the $300 million bridge loan sale, which is somewhat you I haven't noticed you guys selling structured loans that you've originated in previous times. So I guess first I'd like to know, am I correct in reading that those were not necessary steps that you're taking, but just things you're doing because you've already got a strong portfolio and it's no sense to to reach it at this point in time. Can you comment on that?

Paul Elenio -- Chief Financial Officer

Yeah. Let me address them separately. Hello market requires a tremendous amount of expertise, which we have. And in running the type of business that we have, and I've said it on many calls, we manage our CLO debt relative to outstanding debt in certain percentages.

And in our lowest 50 our high 75 in terms of percentage is a lot of debt to total debt. We're at 70% or roughly right now. If you're watching the market, you have many of our competitors trying to access the CLO debt that are out of balance relative to their bank loans to the sale of debt and are executing to horrendous levels on profitable levels. My comment is basically that we don't need to access a lot of debt.

We the right proportions. We have these embedded low cost structures in place that give us a huge competitive advantage. So we're sitting back and saying, we're the last one. To get the best execution in the market on $1 billion sale of that.

We're not in a position where we're forced to reassess that. So we're in one of the best positions in the market. So that's kind of where that comment or narrative was was based toward.

Steve Delaney -- JMP Securities -- Analyst

Yeah, that's helpful.

Paul Elenio -- Chief Financial Officer

Yeah. If you follow the people who have had to execute, they've had to lock in returns that are just unacceptable. But that's the way it is. So we're in a great position and we're very proud of that.

Steve Delaney -- JMP Securities -- Analyst

To your point there, your May CLO, you were able to execute it 236 over SOFR. And we just noticed earlier this week a June CLO multifamily CLO that was priced it to 280 to 450 basis points above. So obviously that is the case and I can understand why you are pushing up toward 300 over it's not economic to consider that at this time.

Paul Elenio -- Chief Financial Officer

It's not only not economic, but you're lacking in other liability structures and it's stuck with them for a while. You don't have to do it. Don't do it.

Steve Delaney -- JMP Securities -- Analyst

How you go up your of your 8 billion in CLO debt currently how much of that on a percentage basis is still in the reinvestment period?

Paul Elenio -- Chief Financial Officer

All of it is. All of it has an open reinvest. [inaudible] Run off all over the next year to run down.

Steve Delaney -- JMP Securities -- Analyst

I think our first one tips off  in November. Which will be fully allocated with loans. And you got the benefit of that and they tip off over a period of time. So we're managing them, maximizing them.

And keep in mind, I think the average liability costs in that or what, Paul, in the160's?

Paul Elenio -- Chief Financial Officer

For that particular CLO or in total?

Steve Delaney -- JMP Securities -- Analyst

In total.

Paul Elenio -- Chief Financial Officer

In total, yeah. As I said in my commentary, were 163 over blended and that's even with the 230 CLO, we just did [inaudible] So we've got really low cost liabilities locked in. As Ivan said, every one of them has replenishment ability. Still one of them that's a small CLO burns off in November.

And the rest are, you know, late 23, 24. So we've got a lot of runway here to utilize that low cost to those low cost locked in vehicles to really enhance or meaningfully enhance our returns.

Steve Delaney -- JMP Securities -- Analyst

Yeah. That makes perfect sense. Yeah, go ahead. I'm sorry.

Paul Elenio -- Chief Financial Officer

Jumping to the next comment about selling some of our loans. We always like to test the market and see what the different flexibility levels are and have the right levers to generate liquidity when we want to generate it. And doing this loan sale was a great opportunity for us because we tested the market on selling our collateral. We retain service and retain a majority of our fees.

We're able to recycle close to $100 million, I think it was $90 million a capital, and they'll know that that's another way to generate liquidity we want to and still maintain a significant part of our economics. Most importantly, for a firm like us, retaining the servicing, getting a servicing fee, and staying facing with our client, and then potentially creating an agency loan on the back end. So fit our model very very well. Now, we've been preparing for this recession.

For the last year, we've done many many things, including this, to make sure that we're adequately positioned, given where we are today and even if there's going to be another shoe to drop, whether it does or not, to make sure that the firm has adequate liquidity to be offensive, not defensive. And these are all the moves that we've taken and put in place to get ourselves in the position we are.

Steve Delaney -- JMP Securities -- Analyst

Fantastic. I guess that could have also been structured as a senior participation, couldn't it, depending on who the buyer is.

Paul Elenio -- Chief Financial Officer

Yeah, but there are so many different ways to do it. So yes, testing the waters, we've got on our balance sheet so well, we've done a great job, we've used a lot of capital. And it was just another way for us to figure out if we want more capital at any point in time. [Inaudible]

Steve Delaney -- JMP Securities -- Analyst

Thank you both for the comments.

Operator

Thank you. Our next question will come from Richard Shane with J.P. Morgan. Your line is open.

Richard Shane -- J.P. Morgan -- Analyst

Hey, guys. Thanks for taking my question this morning. I'm just curious, in the current environment, with the movement in collateral values, with potential delays related to supply chain and labor shortages in terms of timelines on construction. And finally, any sort of vacancy absorption.

Is it realistic that we will see paper or loans stay on the balance sheet longer before they are migrated for agency sale?

Ivan Kaufman -- President and Chief Executive Officer

So, there's two ways to look at that. We actually think on our balance sheet there could be a facilitation agency execution. Because of the way the yield curve is. If people were borrowing 350 over 400 over.

[Inaudible] has risen to a level of with a bar cluster of 6%. You can execute on to agency, as, you know, maybe 150 to 175 over the ten year you have kind of an inverted yield curve. So we're seeing a lot of people we're talking for them to convert from off the balance sheet from a 6%, 5.5% to 6% pay rate would potentially move up and SOFR and more risks and cap costs into a ten year fixed rate of one quarter four and a half. So for those products that were put on a year ago, year and a half ago, I think we're going to see some real movement which is going to help maintain our agency volumes.

That's on that side of the point. And to our surprise, you have a ten year 275. That's a pretty low. So I think we'll see that happen maybe a little quicker than we thought.

On the new construction side. We've been talking to our clients over the last 12 months, because their costs were up 30%. So even though rents have risen well above historical levels, you know, historically, 3% to 5%, now you're seeing 10 to 20%. So some of those cost increases were offset by rent increases.

We've actually advised a lot of our clients to slow their construction, hold off. And they've done that. And now they're saying costs come back into line. I think there'll be a little bit of a delay with people on their construction timelines because they were waiting for costs to come into line.

But that's on a new construction site. So I think people's construction is going to be 6 to 9 months behind schedule. Their interest costs are going to be up a little bit, but their costs are going to be back in line. So that'll be a little slower.

Richard Shane -- J.P. Morgan -- Analyst

That's great. It's actually very helpful. Both parts of that answer are and I apologize, I think we've asked this before, but given the floating rate nature of the loans, do you require borrowers to take any interest rate protection in the form of caps.

Ivan Kaufman -- President and Chief Executive Officer

Yes. Our loans require caps. Some of them have spring caps. Most of the loans have a lot of caps.

And, of course, rates for moving up all these caps for, f they weren't in place, they were being put in place and that was the whole process. So a majority of our loans, a significant supermajority of volumes, have those caps.

Richard Shane -- J.P. Morgan -- Analyst

OK. Thank you so much, guys.

Operator

Thank you. Our next question will come from Stephen Laws with Raymond James. Your line is open.

Stephen Laws -- Raymond James -- Analyst

Hi. Good morning. Well, to follow up on Steve Delaney's question from CLO, but as older loans pay off and you're able to replenish those vehicles with with new production, how much incremental spread pickup is there on the new loans you're putting into those facilities?

Ivan Kaufman -- President and Chief Executive Officer

So let me give a little bit of an outlook, and I think this will be helpful. We have had, I think, eight price increases in the last nine months on our bridge pricing. That is it then over a period of time. So we think that our bridge pricing, which was a one point time, $300 to $350 overs range, is now $450, almost a full point.

So as loans pay off in those vehicles, we replace them with higher coupons. And Paul, you can really talk more about the math at this point.

Paul Elenio -- Chief Financial Officer

Yeah. So I think that's excellent color. And see, what we're seeing is that we've been targeting over the last year as things were quite competitive somewhere 10%, 11%, 11% returns, maybe -12$0. In the second quarter $2 billion we originate we actually got a 12% return on I think we got just under 11% in the first quarter.

And what I either and I was talking about the other day was the math is simple. When we got this 163 over spread CLO, and we're now price in deals at 4 to 450 over, one loans are paying off there with 3 350 over. And when we originate new loans at 4 50 over and putting them in those low cost vehicles, those returns can meaningfully move. You could you can end up from an 11% to 12% to 14% to a 15%.

And we're starting to see that migration now in the new product. And that's why in Ivan's commentary, we talked about being very selective in our loans going forward and really having more normalized volumes going forward in our balance sheet business. For instance, we think we originated we're about to close out July. We did about 230 million of new production in July.

Bridge wise, we have about 120 million a lower, but more meaningfully than the size of the number is that 230 is going to be higher credit quality and wider spreads and we're going to replace that into vehicles and really drive up the returns pretty meaningfully.

Ivan Kaufman -- President and Chief Executive Officer

And I think with that in mind, our outlook for the balance of the year is to try and manage our production to match our run off. And, you know, we're going to try and take advantage of these low cost vehicles and not have to access the loan market in a dislocated environment and try and maintain our balance sheet at a level that is high at this point in time.

Stephen Laws -- Raymond James -- Analyst

Appreciate the color, the math there's certainly powerful things turned over. Paul, I wanted to follow up on the repayment fees. I think you said 15 million this quarter. That was roughly flat from 16 million.

What are your expectations around that going forward? Just kind of given the moves and everything we saw in the second quarter, kind of how should we think. About what that will be on, go forward basis.

Paul Elenio -- Chief Financial Officer

Yeah, so a couple of things and we've talked about this for several quarters, Sephen, and it's been surprising, Ivan, and I have to say that you have two factors, right? We saw about a billion to run off in our servicing book in the second quarter. That was up from about a $1 billion in the first quarter. Fees were was somewhat flat, $16 to $15 million. But we've been talking internally, sales will certainly start to slow.

Right, if the market is changing. In fact, that July I can give you some color. We collected $1.5 million fees in July on $250 million. So if that's any indication of what's to come, the numbers will be significantly down and they'll be significantly down for two reasons.

One, sales volume is going to slow and already has started to in July and to as rates rise with so forth. Sitting at 230 in labor, sitting at 237 year maintenance is a product of rates, right? So as rates rise, your maintenance turns to go down and sometimes even go away. But the good news is we'll be able to retain that in our portfolio and clip that servicing coupon, which is a long term annuity that we love. So I do expect sales to decline significantly and I do expect prepayment fees to come down significantly.

Having said that, because of the size of our book, we're still going to have some of those fees. And again, 1.5 in July. If you annualize that, maybe it's 4.5, or I don't know what the number is, but it's not $15 million going forward. 

Stephen Laws -- Raymond James -- Analyst

That's helpful. Paul, thanks for the color in quantifying that course. Appreciate your time this morning. No problem.

Operator

Our next question will come from Jade Rahmani with KBW. Your line is open.

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

Thank you very much. Considering the growth in the balance sheet portfolio, you all achieved the bridge loan portfolio over the last several quarters and the current change in valuations in real estate. How are you feeling about the credit quality of the existing portfolio and the outlook there?

Ivan Kaufman -- President and Chief Executive Officer

I think, what I mentioned earlier, Jade, that we had eight price increases over the last nine months commensurate with that. We also adjusted our underwriting standards step by step by step. We've adjusted them by having lower LTV. I think our LTV from nine months ago till now on a originations basis probably seven percentage points less.

We've adjusted our exit tests because as we've talked on this call, when we do a bridge loan, every bridge loan is underwritten to agency execution and final take out. So we kept adjusting those underwriting standards. So we feel very comfortable with the books that we've put on over the last nine months. In addition, a lot of our loans have, you know, a lot of different, you know, rebalance and test that have good structural enhancements.

So we're real comfortable with what we have in place, and the way we manage our book, and the features on them, and our asset management capability. So, we've begun to go through our portfolio. We've begun to work with our borrowers, and making sure that they have, you know, adequate interest reserves and replenishments to take into consideration the rise in interest rates and, you know, where we're comfortable with the way we're running our book.

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

Thanks very much. Thanks very much for that. And on the multifamily rent growth side, it seems that rents are continuing to be very robust in the market across the servicing portfolio and the bridge loan portfolio in your surveillance, are you seeing continued strong rent growth and are you seeing the transitional loans, those projects hit their business plans?

Ivan Kaufman -- President and Chief Executive Officer

I think that the growth so far exceeded all of our underwriting and our expectations. I mean, you're seeing 10% to 20% rent growth. You're seeing people not having to use their renovation dollars to turn their units and still get their rent growth. So the rent growth story is still strong.

I would put a caution on that, a little different than the rest of the marketplace, having been through a lot of cycles. I think if you're looking at a recession  we're going to a lower rent growth going forward, we're also going to a little bit higher an economic vacancy. So we're still optimistic about what's in the portfolio in the right roles, but we are proceeding with some level of caution for 2023 with, you know, probably flat 3% rent growth and, you know, 1 to 2 points higher in economic vacancy. That's how we're looking at our 2023.

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

And under that scenario, what kind of delinquency rates or default rates does that imply? Anything, you know, material nominal.

Ivan Kaufman -- President and Chief Executive Officer

Not anything, not significant, not anything that we can't handle and not anything that's not within our capital projections.

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

And so far, the color that we've gotten from other mortgage rates as well as diversified rates recover is a decline in values somewhere in the 5% to 10% range and increase in cap rates somewhere in perhaps the 30 to 60 basis point range. Do you concur with that or think that's maybe overly optimistic?

Ivan Kaufman -- President and Chief Executive Officer

I think that's overly optimistic. I think that values are all focused on the marketplace in a lot of areas on the market and the types of collateral. And I think cap rates are up 50 basis points is probably the right level and low mark is probably 75. So we are aware a lot of more conservative and you know, we've been a lot more conservative, a lot more dissipation of the slowdown in the market began 9 to 12 months ago.

So recently we've seen the other stuff that.

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

Thanks very much. Lastly, when you look at the bond market, the Treasury market is behaving,binterestingly, and I think people are surprised by how low, yields are, particularly just, say, the ten year treasury. Are there rates that you look at that are more indicative, maybe a proxy versus the high yield bond market or where CMBS is trading for CLOs What do you think we should be focused on to gauge the health of the commercial real estate finance markets?

Ivan Kaufman -- President and Chief Executive Officer

Well, you know, right now. If you're looking at the liquidity in the CMBS market and the sale on market, it's taken a significant, change. And as we said, we wouldn't want to execute CLO market today. I'm not sure whether it gets worse before it gets better.

We're not thinking the CLO on market is something we would execute until at least for another 6 to 9 months. We'd have to see triple A on this CLO market get down to below two for us to feel attractive, and that would be kind of a return to some normalcy. So the CMBS market, as you know, is not something that one would want to execute into in the near term. So we'll see over the next 3 to 6 months if they return to a normalized level.

These are not normalized levels.

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

And do you think acquiring securities is interesting, acquiring triple A's or other pieces of the capital stack and some of these still deals?

Ivan Kaufman -- President and Chief Executive Officer

Yeah. Listen, we'd love to be in a position on something we'll explore as to whether we can put together some funds to start to acquire subordinate classes. And this fellow market where the ability to understand the underlying assets better than most. As well as the structures.

So we think somebody somewhere in their classes are trading, you know, they went off at 400 over 350 over. You can probably buy them at, you know, 800. And we think that's that's a good trade. It's something that we'd love to do as a firm.

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

Thanks very much. Well, certainly in the past, Arbor has been creative at putting together opportunistic strategy. So look forward to seeing that. Thanks a lot.

Operator

Thank you. Our next question will come from Crispin Love with Piper Sandler. Your line is open.

Crispin Love -- Piper Sandler -- Analyst

Thank you. Good morning. Congrats on a great quarter here. First one on just core expenses.

Core expenses looks to be very well contained during the quarter. So I'm curious if there's anything that you did proactively here to keep them under control, especially on the compensation side or if there's any other areas to call out.

Paul Elenio -- Chief Financial Officer

So let me just do it at a high level. And then maybe if I want to chime in, you can. So you have to look at the numbers comparatively, Crispin. So yeah, last quarter I think we put up about $57 million in comp in G&A combined this quarter to $57.

But there's some some variable items in there that you've got to strip out and kind of compare. So commissions were, you know, about $6.5 million last quarter. They were about %5 million this quarter sat a million and a half change. And that's variable based on where volumes are.

Obviously, we had more sale volume last quarter on the agency side because of an APL trade that we were able to get off. And then stock stock comp was $6 million last quarter and is only $3 million this quarter because there are a lot of onetime grants that we give to our employees in March of the year as part of their complex. And when you strip all that out comp and G&A came in about $44 million this quarter, and it came in about $46 million last quarter without those variable items. So it is down $2 million.

Most of that is because of the [inaudible] The first quarter is always a little bit elevated because you have the [inaudible] cap that you've got to hit on the bonuses for the executives. And then that comes down. But having said all that, I think we've done a really good job of maintaining our staff, maintaining our cost. We've been preparing for the cycle for some time.

And although I guided to probably have in Cartagena up 15% on last quarter's call year over year, I think it's more like 10% now and maybe we'll even do better than that. But yeah, we've done a good job of making sure that we're only growing our staff in the areas that we think are meaningful, the asset management side, the servicing side, and that's the reason the numbers are where they are.

Crispin Love -- Piper Sandler -- Analyst

OK. Great. Thanks.

Ivan Kaufman -- President and Chief Executive Officer

Just to comment on that, we're in a very different environment than we were a year or two years ago, where this industry was inundated with massive volumes and. Everybody have to do what they can to retain their staff as well as attract staff. And costs were getting out of control. So clearly there were outsized things that were not in the normal course of business, but, volumes were big enough to offset that.

I think we're going into a more normalized environment. I think you'll see us being in a very good position. Do a better job at, managing our costs, and our productivity. So.

We look forward to getting back to normal in that sense.

Crispin Love -- Piper Sandler -- Analyst

Great. Thank you, Ivan. That all helpful. And then I appreciate your commentary earlier on originations in the structured business.

I'm just curious and get a little bit of a finer point on it. So if I kind of start with the second quarter, that $2.05 billion kind of divided by 3 is about 680 per month, which was a little bit below your 800 that you talked about last quarter. So first, I'm just curious on how originations trended through the quarter. And then in that $230 million that you talked about for July kind of a third kind of jumping off point for for the next few quarters.

Ivan Kaufman -- President and Chief Executive Officer

Yeah. I want to give a little color and maybe this will help on the credit conversation as well. Some of the comments were geared toward us. We had a very, very large pipeline, you know, going in to the last, you know, 3 to 4 months.

Um, and we were scheduled to probably cause, you know, $750 to $1 billion a month. A pipeline was probably one of the larger points. And we took a extraordinarily active approach with Arbors, letting them know that their loans had to be resized. Because,, rates had gone up.

Guys had adjusted. You know, where we're a lender, we're not a broker, and we own the risk on our loans. We worked very hard with the bars to either go back and get a price reduction or recapitalize our loans with, you know, anywhere between five and 10% more. As a result of that, we had, a massive fallout in the pipeline because they understood what our guidance and values were different than what they went to contract under.

So we were able to really shrink the number of loans that we needed to close to a very, very considerable pace, 50% even more. My comment in terms of my outlook going forward is that we're expecting anywhere between on the low side, $100 million a run off per month of $400 million on the high side. What kind of portfolio. So, you know, more normalized 2 to 300 million of runoff a month.

That's probably the level in which we will look to originate for the balance of the year. We think it's a healthy level and we think. That's a level that's appropriate for our capital and still maintain a leading position as a balance sheet originator and. So that's how I would look at the outlook at the present time, given the environment.

That, of course, could change, but that's on to the current scenario. Paul, you want to give any color on that?

Paul Elenio -- Chief Financial Officer

That's exactly \what we're doing, because we're not where we came in to 34 July 120 million, a runoff with a little light runoff in July. But Ivan's right, where we're estimating anywhere $2 to $300 million a month in British production, but we're going to be managing that against our runoff to keep our portfolio kind of constant, to maybe growing a little bit. And things can change. But that's that's our run rate right now.

Crispin Love -- Piper Sandler -- Analyst

Great. Thank you. That's all really helpful. Kind of the idea is you're looking more.

Maintaining the portfolio here, just given the environment rather than increasing it like you have.

Ivan Kaufman -- President and Chief Executive Officer

It and recycle it into higher rate loans as well. That's very important. So while while the portfolio may not grow substantially for the balance of the year, the levered returns will grow because we're putting our capital out at higher returns and financing them in these well, of course, vehicles we have that really drive up that returns.

Operator

Thank you. I'd now like to hand the call back over to Mr. Ivan Kaufman for any closing or additional remarks by.

Ivan Kaufman -- President and Chief Executive Officer

Well, that concludes our call today. I appreciate everybody's participation. Clearly, these are adjusting times and changing times,, which we feel we are extremely well positioned. We're pleased to have once again increased our dividend.

Which which is. A remarkable effort. Um, and result. I look forward to next quarter's call.

Have a great have a great rest of the summer, everybody.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Paul Elenio -- Chief Financial Officer

Ivan Kaufman -- President and Chief Executive Officer

Steve Delaney -- JMP Securities -- Analyst

Richard Shane -- J.P. Morgan -- Analyst

Stephen Laws -- Raymond James -- Analyst

Jade Rahmani -- Keefe, Bruyette and Woods -- Analyst

Crispin Love -- Piper Sandler -- Analyst

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