BrightSpire Capital, Inc. (BRSP) June 2, 2026 Conference Transcript

Thank you, everybody, for joining us for the 9.30 session with Bright Spire Capital. My name is Gabe Poggi. I'm a managing director at Raymond James. I cover the real estate finance sector. With me this morning, I've got Bright Spire CEO Mike Mazze, President and CEO Andy Witt, and Frank Saracino, CFO of Bright Spire. A quick background on Bright Spire. Ticker is BRSP. Trades on the New York Stock Exchange. Last quote was about $5.60. Market cap is $730 million. Average daily volume about 770,000 shares. Stock trades to yield currently today a little over 11%. Undepreciated book value was $8.25, rounding up a penny as of last quarter. So the stock trades about $0.70 on the book value dollar. I'm going to hand it off to Mike and the management team to give a brief overview history of Bright Spire, talk about where you guys traffic in the market, and we'll go from there.

Great. I'll handle that. So Bright Spire is the former mortgage read of Colony Capital. In early 2021, the company bought back the management contract, internalized the manager, rebranded as Bright Spire, And today, we're predominantly focused on middle market transitional lending. The company has a balance sheet or a loan assets of about $2.7 billion over 100 individual loans. So we're really trafficking in that middle market space between, say, $20 million and $100 million in terms of loan balance. The platform itself is totally vertically integrated. So we've got in-house asset management. We brought over a special servicer from the transition. So we're really managing these loans from the onset of originations through closing. We're targeting a ROE of about 12%. You know, we're about 55 people, so it trades, as was said earlier, under the BRSP ticker.

All right, thanks. We're going to start with the macro narrative, because the macro is driving the bus these days, and then we'll kind of go from there and then get into the Brightspire portfolio, et cetera. So let's start with... Rate volatility. There's been a whole heck of a lot of it over the past few months. Can you guys talk about how benchmark rate vol has impacted the business? Has it impacted the business? Pluses, minuses as we think about different points on the curve, etc.?

Okay. Well, thank you for being here. You're welcome. And welcome back to research. Thank you. It's absolutely impacted the business. It's impacted every business, as we all know and are reading about. The higher rate environment has increased cap costs, interest rate cap costs, dramatically year over year, another issue. Right now, our sector, CRE sector, you're seeing a lot of bridge to bridge. Guys can't, owners cannot go fixed rate at this point. They can't lock in with the Treasury at 4.5% on the 10-year. A lot of their coupons already have four handles on them if they were done pre-COVID. A lot of bridge loans that are coming due can't get refinancing fixed rate. So it's a very active bridge-to-bridge market in our sector. So a lot of inquiry that we're getting, properties coming out of construction where the current lender, surprise, wants a big paydown on the loan. The borrowers don't want to do that paydown because the lender's not giving enough runway. They're only giving a one-year extension for a pretty big paydown on loans that may already be recourse. So we're seeing a lot of inquiry coming to us that are construction to bridge where the bank does not want to do the mini perm or bridge to bridge, Normally, you would not do bridge-to-bridge because something has failed in the business plan, but bridge-to-bridge simply because owners need more time. Owners have been faced with higher expenses, a ton of supply that's hit the market. Longer-term lease-up timelines that they need. So getting through 2026, where we see no supply or very little supply, especially in multifamily in 2027, they need that bridge to get there. And that's where a lot of the activity is. Where it breaks down is, even when we're doing a bridge-to-bridge, everybody wants a cash-neutral deal. So from a volatility's perspective, from Iran and all this other stuff, it has not affected our business. We're still seeing a ton of business. But what you're seeing in the market is you're seeing $20 billion of CLO. That's all bridge paper. You're seeing SASB, large-scale industrial securitizations from big owners like the Blackstones of the world who probably represent the vast majority of the SASB CMBS market. What you're not seeing is fixed-rate conduit loans. That market is the lag in the securitization market. And you're seeing a huge amount of issuance in CLO for what I just said. Owners are coming to us saying, not ready for fix, rates are too high, give me another bridge.

Got it. Um, let's... Talk about, so that's benchmark model. We've talked about, there's a lot of concern about corporate credit, right, AI and software and SaaSpocalypse and things of that nature. You just talked about capital markets, right, CRE CLOs, CMBS market has been strong. Talk about capital markets for commercial real estate, kind of in conjunction with that fear, if you will.

Capital markets have been excellent. A robust supply of, as I said, CLO paper was very well absorbed. Spreads generally tightened through that issuance process, which is good. We just had one deal back up five basis points, but I think it was mostly collateral-driven, so spreads have been resilient. The banks have been wonderful in the sense that they have had zero loss experience in warehouse lending, and they have a very low risk-weighted capital against warehouse lines versus making loans directly. So the banks have had a huge appetite for more warehouse lending with us. Those spreads have been coming in commensurately. And so at the end of the day, while you've seen some stuff going on in the corporate term loan market, you haven't seen that affect spreads in CRA, capital markets, or with banks. And banks now have more capital than they had previously because the Basel III is not being fully implemented. You're reading more about that. Banks are getting more favorable treatment toward real estate. Wells Fargo has now got their balance sheet cap lifted, and so they're back in the market. So there's a still voracious appetite in the capital markets for CRA. And I think generally we feel like we're kind of in the seventh inning, having started with the interest rate bubble lending that went on in 21-22, a lot of it to syndicators, which we all regret. We're all working out of that right now. And I think that 2026, you'll probably see us really at the very, very tail end of what we're experiencing in terms of reset and valuations, Where in the corporate market, we feel like that game is just kind of beginning.

So to piggyback on those two, bank activity from a financing perspective for rights buyer has remained robust, if not better, in conjunction, despite rate ball and kind of what's happened in corporate, right? You're seeing more push into it to be supportive for your lending efforts, that back leverage that folks talk about. Okay, well, that's a good thing. Let's talk about the lending market. Generally speaking, what are you seeing on the ground? How is the market today?

It's very much a, we've been saying this for a year, it's a lenders-driven market. You've got a construction loan with us, it's past time, it was a delay, it's 30% leased, we're not doing the mini-go. So go get another loan or sell the property. So lenders are pushing borrowers. Just at Brightspire, this past quarter, we had four transactions that went off. We had two that were short sales, where we told the borrower, game's over. We may take some heat. You're selling the property. And if we think they're operating the property well, and they can manage it through a sale, We let them do that. So we had two short sales that occurred. Then we had two REO that we advertised that we're going to be selling this quarter. So when I say lender-driven, we have four transactions just on our balance sheet this quarter that were driven by us. When we take back a property, it's because we think that that borrower could actually create more devaluation of that asset in a very short period of time, especially with multifamily, and we just say, just hand back the keys, you're not paying your vendors, the grass is brown, the garbage is piling up, we're not going to do a short sale with you, we need to do some TLC on the property, we'll take it back and we'll sell it. But either way, whether it's foreclosure or asset sales, the lenders are definitely behind the wheel. And that is causing it to be a little bit of a slower market. So we'll get inquiry for a loan. Five of our competitors and us will quote the loan, maybe 10, and then you don't hear back. And what is that borrower doing? That borrower is checking with their existing lender. Saying, okay, I went to the market. You told me to go to the market. Here's what I got. What will you give me? And the lender will say, we want to pay down, and we'll give you this much runway. And that owner is balancing between what their current lender will give them and what the market will give them. And that's taking 30 more, 45 more days to make a decision at the borrower level. So things are slow, but that has been building up for quite a while. So I think through the course of 2026, you're going to see more stuff coming out. We're seeing it in Texas. Quite frankly, you know, we've had situations where we're selling properties, and we go for a second round of bids, and the second round sometimes could be lower. And what does that tell you? It tells you that that buyer pool is seeing a lot of assets coming to market, and they're not worried if they miss this one, because there are 10 more coming. So we think a lot of supply, especially in multifamily, is coming, and that is, as I said, the phrase I would use, lender-driven.

So if you just gave some examples from a BRSP perspective, right? Obviously, other lenders are theoretically doing the same thing, which to kind of synthesize that, that then is also creating opportunities. In a reset basis, a reset basis, right? For you guys on the opportunistic side, offensive side, are you seeing, has that accelerated recently? Is it just kind of a constant churn in the context of what you're seeing from out of a pipeline opportunistic perspective?

Yeah, I would say, you know, to highlight what Mike was saying, I mean, when you look at our portfolio and our pipeline specifically, you know, during the course of 2025, we saw about $86 billion worth of product across 2,000 transactions. Here in, you know, early 2026 first quarter, we saw about $30 billion worth of product across 650 transactions. So I would say that you are seeing an increase in the flow of the product. And what you're seeing within that pipeline is a lot of refinance. So if you look at just our last quarter statistics, 78% of the market was refinance. So you are definitely seeing that lender-driven dynamic, and we're seeing a lot of multifamily. So as we look at our pipeline, you're seeing about 60% of the opportunity set is multifamily, and then you're seeing a rather even split between office, hospitality, and industrial at about 10%, and then you've got other and retail in there. So this is certainly a market phenomenon.

If there are any questions from the audience, just raise your hand to interrupt us.

60% of your financing activity is multi-laying. Are you seeing anything in the marketplace overall that suggests, like, the market is turning around, there are green shoots, they're sort of added...

It was supposed to be survive in 25, right? Now it's like, I don't know what it is now, but you've got to get to 27.

No, not at all. So when I said we're seeing about 60 percent, that's on the pipeline side of what we're doing. We've done about $1.5 billion since coming back into the market in late 2024. About 95% of that has been multifamily, and a little over 50% of that has been acquisition financing. So, generally speaking, our view is, you know, the fundamentals are setting up pretty well for multifamily. We still have a period here where we need to absorb a lot of supply, record supply, in markets like Phoenix, Dallas, Austin. You saw a fair bit of supply in Las Vegas as well. So, we really need to work through that supply. So what we're seeing right now is the operators really operating for occupancy, trying to keep their underlying tenants really trying to skew towards quality. And as absorption picks up, we expect to see rents to start to grow again. Obviously, we've seen negative rent growth in the markets I just highlighted. But I think the setup is pretty attractive from the standpoint that there's not a lot of new supply coming into the market after, you know, after this year, really. Now we'll see how that pipeline picks back up. But in terms of what's scheduled, there's relatively little there. So we should start to see some, you know, upward rent pressure and better occupancies, a reduction in concessions, and that should move forward. You've got a lot of people right now who can't get into the home market, right, because interest rates remain high, cost of building is high, so people are, you know, for lack of a better term, they're sheltering in place. They're not moving the way you would see in a normalized market, you know, locked in by historically low interest rates that they got, you know, during the post COVID era. So we think, you know, the demand for rental property is there and will continue to be there. Thank you.

We're strong enough so that when the supply gets absorbed by the end of 26 or early 27, there will continue to be a flood of new perspective vector or view.

I think that's a market-by-market, you know, analysis, right? So, the markets that we've tried to focus on are high-growth markets, where there are clear demand drivers. So, what we're seeing in, you know, markets like Phoenix and Dallas is, you know, in migration and real businesses moving in and bringing real and high-paying jobs. So, you know, it really needs to be looked at from kind of a market-to-market perspective. In other markets, you're seeing, you know, policies that are not favorable, increases in taxes driving folks out of, you know, particular cities or states, and, you know, it remains to be seen whether that demand will be there.

I think the other concern we have is, you know, people are leaving the country, right? And those people, they live somewhere, right? And that's affecting workforce housing. And so you speak to a leasing agent at a property, and they say, here are income verification tests. At the end of the day, they're trying to get this place full. And if you had a syndicator running that property, that leasing agent is doing the best to get bodies in the units. And then they took a lot of chances. So you saw bad debt escalate dramatically at workforce housing, 1980s-type construction stuff in the Southwest. That stuff had a lot of bad debt associated with almost every property. And so that's being turned over right now. So on the demand side, it's yet to be determined how that workforce housing gets affected. Right now, workforce housing... Let me just say, 80s type construction, multifamily Texas is trading on a per unit basis. It's not trading on a cap rate. It's trading between $75,000 and $95,000 a unit. Well, the income is this, and the occupancy went from here to here, and you know what? It's $85,000 a unit. That's it. Don't tell me a story. We're coming at a certain replacement cost, valuation, and that's where that market is beginning to trade. So there is some concern about the underbelly of, you know, demand dissipating a little bit because 3 million people have left the country. Jay. I think generally you'll start to see that flight to quality. We think that the 80s vintage multifamily really was driven. It became a bubble unto itself. In hindsight, if you look at it, it was really driven by a lot of fast money, a lot of syndication money, and this underlying dynamic where millions of people were coming into the country, and you saw rent growth of double digits sometimes back to back during COVID. That's not coming back. Those assets are going to take a little bit longer to lease up versus a quality assets. We are doing more, to address your question, Jade, our focus has been more 2010 and better in terms of age versus sub-2000. We have done some stuff, 80s, 90s, and recently. We did some stuff with some syndicators who actually were very, very good during the cycle. But generally, we're trying to stick to newer properties, and you're seeing that with the stuff that's coming out of construction. Those are typically class B plus A type assets that we're getting that are, you know, new vintage and in lease up. We like those because of the dynamic that Andy stated. People are loan locked in their homes. People can't afford new homes. So some of the stuff that is built to rent a horizontal multifamily, we like that a lot because it's an alternative for housing. It's a three-bedroom with a small backyard. I can park my car in front, and we think that's a great product for this market. There's been overbuilding in that, especially in Arizona, but that's a market that we like right now a lot.

Can you talk about, right, so Andy has said, you know, the loan book's about $2.7 today. You have a goal of three and a half, I think, by the end of 26, right? So you're kind of just piggybacking on the dialogue right now is I want you to outline where you guys are making loan terms, average loan terms, right, sizing. I know things are subject to change and you can do bigger loans, et cetera, but kind of where your attachment points are, et cetera, kind of as you're looking to grow the loan book from today through the course of the year, right, into 2027, I think that would be helpful just in the dynamic of framing The dynamic market that is multifamily right now.

Sure, sure. So I think, you know, from our perspective, obviously, we're trying to grow our loan book on a net basis. I think what you're going to see is more of the same in terms of what we're doing. We've been focused in the middle market. Our average loan balance has been in that $30 million range, kind of on the small side, $20 million, on the larger side, $70 million. Right now, the multifamily market is really centered around 250 basis points over. So that moves with market, asset quality, sponsorship. We also would love to get more exposure to industrial. That's something we've always had a view towards doing. It's a challenging market in the transitional space because, you know, there's not much of that product that fits for our particular strategy, and you run up against a fair bit of binary risk where, you know, major tenants are moving out, and so that's something that we've tried to avoid. So we're really focused on continuing to do what we're doing, continuing We're going to build the book. Anything else you wanted to ...?

No, LTVs, things of that nature, attaching points.

Sure, sure. So in terms of LTVs, we're really playing a little bit north of the banks in that kind of 70% LTV type area, and that's where our capital is the most competitive. We're not trying to take proceeds up to, you know, the max. We're trying to find, you know, a sweet spot in that 70, 75% LTV range, and that's generally where we've been more focused. Our view is we'd probably rather take a few less basis points than push leverage levels.

Got it. We've got about seven minutes, so let's talk about the current book, right? We've kind of been talking about the growth aspect. Bright Spire began playing offense again, right, seven quarters ago, give or take, right? And in conjunction with that, made a more accelerated push to resolve any... Issues that you saw in the book, right? Whether it's a watch list loan, REO, etc. Can you guys talk about the decision to make that accelerated push, where we kind of are in that process, right? And I think it's important to talk about because as you're able to resolve these assets, you get capital back to make new loans. Push, you know, return on equity, things of that nature. So I think it's important to talk about. You guys have great disclosure around it. For anybody in the room, check out their quarterly debts.

This market doesn't reward you to hold on to REL, right? It wants you to repatriate capital and do what you're supposed to do. We did that. We own two assets here in Long Island City that we foreclosed on that were manufacturing turned into creative office space during COVID. COVID, which is a great idea during COVID, right? Actually, before COVID, it was done, they were done in like 2018, 19. And we foreclosed on them, held on to them for two years, it was crickets. And we pretty much sold them at the same price that we could have gotten, you know, two years ago. And so I think that's an example of, you know, you're really taking a lot of chances on the balance sheet, you really have to look at your cost of capital, what that capital can do elsewhere. And that's the decision that we made that holding on to these properties, because you feel like you're selling something at 100 bucks a What's the foot? And that's really painful. And the profile of the buyer that we sold to both of our assets in Long Island City, these were quintessential Long Island City real estate dudes. That's where they wake up every morning for 30 years, and they focused on 30 blocks all their life, and they just sat there and waited with their catcher's mitts on to say, you're going to sell to me eventually. And it's killing you to let go of an asset at 100 bucks a foot, especially one of them, where the conversion was done incredibly well to office. But you have to just bite the bullet and say, this is not what we do. This person who's been doing this for 30 years in that market, that's what they do. If they lease that building up and they have a tenant in their pocket, that's what they do. We're not finding that. And so I think we decided to really pivot. And I'll give credit where it's due. One of our brethren in the market, TRTX, did a very good job at saying, let's get out early, let's take some heat, and let's turn the boat around. They're probably about a year ahead of us, I'd say, maybe nine months a year, and we looked at that and said that, by example, we need to do that, and that's what we started. So we have a lot of capital tied up in REO right now, which will give us the earnings power to get to $3.5 billion by the end of the year, and maybe in excess of $4 billion, $4.25 by mid-year next year.

To that point, can you talk about kind of, obviously, markets are dynamic, things of that nature, but from a leverage perspective, balance sheet perspective, what you have today, the ability to kind of get to that $4 billion-ish level as that capital turns?

Yeah, just when you go through the REO we have right now, which is a lot of it is under levered. We own one large hotel asset in San Jose that we've been talking about. For way too long, I'm exhausting shareholders with this one. It's a market that's turning around. It's in a trough. We've got very little leverage against that, like mid-20 million leverage against an NAV asset that's $140 million or $255,000 a key for a newly FF&E hotel in San Jose. So we have a lot of we have assets that are completely unencumbered. So really, all that earnings power is in the watch list and in the REO assets that we need to turn around to get us to that additional, you know, call it billion and a quarter of loan book.

And to be clear, some of that is in process now, at least per disclosure from 1Q, right? Yes. Yeah. Yeah. Any comment or just...

We also have some triple net. Everyone knows we own $300 million of Albertson's triple net equity. It's an equity book. It's got $200 million of leverage on it. That debt comes due in 28. That debt has a 477 coupon on it, which is like, I don't know, 25 basis points over the 10-year treasury. I don't think we're going to get that spread again today. And so that's something that we may look at to say, okay, we have a refinancing, we basically have a long duration asset, and we're hedged for two years into 2028. And so we may do something with that. That's $100 million of equity. That earns an 11, but it's something that we may look at doing something with.

Any other questions from the audience while we've got a minute or two? Okay, that was the end of my question list. Do you guys have any final comments I'm going to wrap up with at the last minute or so?

You know, you're looking at a management team that's along a lot of equity. We get paid in a lot of equity. Stock price is in the 560s. You know, whatever you want to call it, you've got an aid handle. You can do your own math on a mark-to-market and figure out on the back of the envelope what you think, but there's a pretty big gap between that and I think whatever math you come up with. So we think the stock is undervalued. And we're looking to try to cover that dividend. We've been saying that on every earnings call. We're shy just a couple of cents of the 16 cents a quarter that we're looking to cover. Other guys who've cut their dividend were off by 40% and had big, big cuts. We saw that with some of our brethren, KKR, Franklin Benefit did it after acquiring New Point. We're just a couple of cents away, and we're going to slug it out and turn over the REO and turn over the watch list until we get to the 16 cents, and better. Got it. Thank you, guys. Thank you.

Thank you.