Claros Mortgage Trust (CMTG) risk factors, FY2024 10-K

Risks Related to Our Investments

1. 01We operate in a competitive market for the origination and acquisition of attractive investment opportunities and competition may limit our ability to originate or acquire attractive risk-adjusted investments in our target assets, which could have a material adverse effect on us
2. 02Our investments are and may be concentrated in certain markets, property types and borrowers, among other factors, and will be subject to risk of default
3. 03The lack of liquidity in certain of the assets in our portfolio and our target assets generally may materially and adversely affect us
4. 04In the event of borrower distress or a default, we may lack the liquidity necessary to protect our investment or avoid a corresponding default on any obligations we may have related to financing against our investments
5. 05We may be unable to maintain or refinance debt incurred to finance our investments and our operations, thereby increasing the amount of equity capital risk we bear with respect to particular investments or preventing us from deploying our equity capital in the optimal manner
6. 06As a result of our real estate owned assets, we are subject to the risks commonly associated with real estate owned holdings, including risks related to ownership of a hotel portfolio and a mixed-use property in New York, NY, which differ from the risks associated with lending
7. 07We generally determine the LTV for a loan in our portfolio prior to, or at the time of, our origination or acquisition of the loan and such LTVs may change significantly and in an adverse manner thereafter due to various circumstances
8. 08There are increased risks involved with construction lending activities
9. 09Our investments in construction loans require us to make estimates about the fair value of land improvements that may be challenged by the IRS
10. 10Investments in subordinated mortgage interests, mezzanine loans and other assets that are subordinated or otherwise junior in a borrower’s capital structure may expose us to greater risk of loss
11. 11Most of the CRE loans that we originate or acquire are non-recourse loans and the assets securing these loans may not be sufficient to protect us from a partial or complete loss if the borrower defaults on the loan, which could materially and adversely affect us
12. 12We may invest in derivative instruments, which would subject us to increased risk of loss
13. 13We may be subject to additional risks associated with CRE loan participations
14. 14U.S. and global financial systems and economies have undergone significant disruption, and such disruption and future disruptions may negatively impact our ability and our borrowers’ abilities to execute investment strategies, which would materially and adversely affect us
15. 15Insurance proceeds on a property may not cover all losses, which could result in the corresponding non-performance of or loss on our investment related to such property
16. 16Our investments expose us to risks associated with debt-oriented real estate investments generally
17. 17Investments that are secured, directly or indirectly, by CRE are subject to potential delinquency, foreclosure and loss, which could materially and adversely affect us
18. 18In addition, an increase in or generally high interest rates can decrease a borrower’s ability to service its debt even if net operating income remains stable
19. 19Prepayment rates may adversely affect the yield on our loans, the value of our portfolio of assets, and our liquidity
20. 20Difficulty in redeploying the proceeds from repayments of our existing loans and investments may cause our financial performance and returns to investors to suffer
21. 21A prolonged economic slowdown, a lengthy or severe recession or declining real estate values could impair our investments and harm our operations, which could materially and adversely affect us
22. 22Recent macroeconomic trends, including inflationary pressures and fluctuations in benchmark interest rates, may adversely affect our business, financial condition and results of operations
23. 23Provisions for current expected credit loss reserve are difficult to estimate
24. 24We may not have control over certain of our investments
25. 25rely on independent third-party management or servicing with respect to the management of an asset
26. 26Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on joint venture partners’ financial condition and liquidity and disputes between us and our joint venture partners
27. 27CRE valuation is inherently subjective and uncertain
28. 28The due diligence process that our Manager undertakes in regard to investment opportunities may not reveal all facts that may be relevant in connection with an investment and if our Manager incorrectly evaluates the risks of our investments, we may experience losses, which could materially and adversely affect us
29. 29We may foreclose on certain of the loans we originate or acquire, which could result in material losses
30. 30We may be subject to lender liability claims, and if we are held liable under such claims, we could be subject to losses
31. 31Liability relating to environmental matters may impact the value of our loans or of properties that we may acquire upon foreclosure of the properties underlying our investments
32. 32Climate change, and other risks relating to the environmental, social and governance impact of our investments or the underlying properties and development activities that we finance, could adversely affect our business
33. 33Our business is subject to evolving corporate governance and public disclosure regulations and expectations, including with respect to environmental, social and governance matters, that could expose us to numerous risks

Risks Related to Sources of Financing and Hedging

1. 34We have a significant amount of debt outstanding with near-term maturities, and we may be unable to make deleveraging payments, obtain adjustments to modify our repayment schedule or obtain replacement financing with similar terms
2. 35We may incur additional debt in the future, which subjects us to increased risk of loss, which could materially and adversely affect us
3. 36Our secured term loan, debt related to real estate owned, current financing facilities, derivative instruments, and secured loans contain, and additional lending facilities may contain, financial and other covenants that restrict our operational flexibility, which could materially and adversely affect us
4. 37Credit ratings assigned to us, our indebtedness or our investments, will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded or withdrawn or placed on negative outlook, which could adversely impact us
5. 38The arrangements that we currently use, or may in the future use, to finance our investments may require us to provide additional collateral or pay down debt based on the occurrence of certain events
6. 39the market price of shares of our common stock
7. 40Our use of leverage may create a mismatch with the duration and interest rate reference index of the investments that we are financing
8. 41An increase in our borrowing costs relative to the interest that we receive on our leveraged loans and revenues that we receive on our levered real estate owned assets would adversely affect our profitability and our cash available for distribution to our stockholders
9. 42Our existing and future financing arrangements and any debt securities we may issue could restrict our operations, limit our ability to pay dividends and expose us to additional risk
10. 43We may enter into hedging transactions that could expose us to contingent liabilities in the future, which could materially and adversely affect us
11. 44the hedging counterparty may default on its obligations
12. 45We may fail to qualify for, or choose not to elect, hedge accounting treatment
13. 46Our investments may be subject to fluctuations in interest rates that may not be adequately protected, or protected at all, by our hedging strategies
14. 47We may use securitizations to finance our investments and make investments in CMBS, CLOs, and other similar structured finance investments, which may expose us to risks that could result in losses
15. 48We may be subject to losses arising from future guarantees of debt and contingent obligations of our subsidiaries, joint venture or co-investment partners or our borrowers
16. 49We are subject to counterparty risk associated with our hedging activities

Risks Related to Our Company

1. 50Our investment strategy, our investment guidelines, our target assets and our financing strategy may be changed without stockholder consent
2. 51State licensing requirements will cause us to incur expenses and our failure to be properly licensed may have a material adverse effect on us
3. 52Operational risks, including the risk of cyberattacks, may disrupt our businesses, result in losses and limit our growth
4. 53Accounting rules for certain of our transactions are highly complex and involve significant judgment and assumptions. Changes in accounting interpretations or assumptions could impact our ability to timely prepare consolidated financial statements, which could materially and adversely affect us

Risks Related to Our Relationship with Our Manager and its Affiliates

1. 54Our future success depends on our Manager and its access to the key personnel and investment professionals of our Sponsor and its affiliates
2. 55The personnel providing services to our Manager are not required to dedicate a specific portion of their time to the management of our business
3. 56We may compete with other investment vehicles managed by our Sponsor or its affiliates, including our Manager, or have other conflicts of interest with our Sponsor or its affiliates, including our Manager, which may result in decisions that are not in the best interests of our stockholders
4. 57The structure of our Manager’s fees may not create effective incentives and may cause our Manager to make riskier investments
5. 58Termination of the Management Agreement would be costly
6. 59Our Manager’s liability is limited under the Management Agreement and we have agreed to indemnify our Manager against certain liabilities

Risks Related to Our Common Stock

1. 60We have not established a minimum dividend payment level, and we may be unable to generate sufficient cash flows from our operations to pay dividends to our stockholders at any time in the future at a particular level, or at all, which could materially and adversely affect us
2. 61Common stock eligible for future sale may have adverse effects on the market price of our common stock
3. 62We have filed a registration statement on Form S-3 registering the resale of 16,058,983 shares of our common stock held by certain pre-initial public offering stockholders. These shares are freely tradable without compliance with Rule 144

Risks Related to Our Organization and Structure

1. 63Avoiding the need to register under the 1940 Act imposes significant limits on our operations. Your investment return may be reduced if we are required to register as an investment company under the 1940 Act
2. 64Any change in the interpretive positions of the SEC or its staff with respect to Section 3(c)(5)(C) of the 1940 Act could have a material adverse effect on us
3. 65Rapid changes in the values of our other real estate-related investments may make it more difficult for us to maintain our qualification as a REIT or exclusion from registration under the 1940 Act
4. 66Our rights and the rights of our stockholders to recover on claims against our directors and officers are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses
5. 67Our charter contains provisions that are designed to reduce or eliminate duties of our non-employee directors with respect to corporate opportunities and competitive activities
6. 68Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management or ownership
7. 69more than a certain percentage, currently 9.6%, in value or in number of shares, whichever is more restrictive, of the aggregate of the outstanding shares of our common stock or more than a certain percentage, currently 9.6%, in value of the aggregate of the outstanding shares of our capital stock
8. 70Our bylaws designate certain Maryland courts as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees
9. 71Some of the provisions of Maryland law and our charter and bylaws discussed below could make it more difficult for a third-party to acquire us, even if doing so might be beneficial to our stockholders by providing them with the opportunity to sell their shares at a premium to the then current market price
10. 72As permitted by the MGCL, our bylaws contain a provision exempting from the control share acquisition statute any and all acquisitions of our stock. There can be no assurance that this provision will not be amended or eliminated at any time in the future
11. 73Failure to maintain our qualification as a REIT would materially and adversely affect us and the market price of our common stock
12. 74unless we are entitled to relief under applicable statutory provisions, we could not elect to be taxed as a REIT for four taxable years following the year during which we were disqualified
13. 75Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow, which could materially and adversely affect us
14. 76Complying with REIT requirements may force us to liquidate, restructure or forego otherwise attractive investments
15. 77Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us
16. 78The failure of mortgage loans or CMBS subject to a repurchase agreement or a mezzanine loan to qualify as real estate assets would adversely affect our ability to qualify as a REIT
17. 79We may be required to report REIT taxable income for certain investments in excess of the economic income we ultimately realize from them
18. 80The “taxable mortgage pool” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations
19. 81Our ownership of TRSs is subject to certain restrictions, and we will be required to pay a 100% penalty tax on certain income or deductions if our transactions with our TRSs are not conducted on arm’s length terms
20. 82Dividends payable by REITs, including us, generally do not qualify for the reduced tax rates available for some dividends, which may negatively affect the value of our common stock
21. 83Complying with REIT requirements may limit our ability to hedge effectively
22. 84The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans, that would be treated as sales for U.S. federal income tax purposes
23. 85Legislative or other actions affecting REITs may materially and adversely affect our stockholders and us

General Risks

1. 86If we fail to implement and maintain an effective system of internal control, we may not be able to accurately determine our financial results or prevent fraud, which could materially and adversely affect us
2. 87The obligations associated with being a public company require significant resources and attention from our Manager’s senior management team
3. 88The impact of any future terrorist attacks and the potential unavailability of affordable terrorism insurance expose us to certain risks
4. 89The market price of our common stock may fluctuate significantly
5. 90the other factors described under “Risk Factors.”
6. 91Future offerings of debt or equity securities, which would rank senior to our common stock, may adversely affect the market price of our common stock
7. 92Our business and operations could be negatively affected if we become subject to any securities litigation or shareholder activism, which could cause us to incur significant expense, hinder execution of our business strategy and impact the market price of our common stock