Ladder Capital (LADR) risk factors, FY2024 10-K

Other

1. 01Summary of Principal Risk Factors

Risks Related to Our Operations

1. 02Market Risks Related to Our Investments
2. 03The allocation of capital among our business lines may vary, which may adversely affect our financial performance and liquidity
3. 04We may not be able to hire and retain qualified loan originators or grow and maintain our relationships with key loan brokers, and if we are unable to do so, our ability to implement our business and growth strategies could be limited
4. 05We may not be able to maintain our strategic business alliances
5. 06We cannot predict the effect that government policies, laws, and interventions adopted in response to an inflationary environment or the impact of changes in the U.S. political environment, including as a result of the change in administration, on our business and the markets in which we operate
6. 07We have a concentration of investments in the real estate sector and may have further concentrations from time to time in certain property types, locations, tenants and borrowers, which may increase our exposure to the risks of certain economic downturns
7. 08The value of our investments may be adversely affected by many factors that are beyond our control, including dislocations, illiquidity and volatility in the market for commercial real estate, commercial real estate finance and the broader financial markets
8. 09Continuing defaults, delinquencies and losses would further decrease property values, thereby resulting in additional defaults by commercial mortgage borrowers, further credit constraints and further declines in property values
9. 10Shifts in consumer patterns, remote work policies and advances in communication and information technology that affect the use of traditional retail, hotel and office space may have an adverse impact on the value of certain of our debt and equity investments
10. 11Our earnings may decrease because of fluctuations in prevailing interest rates and credit spreads and associated borrowing costs
11. 12Prepayment rates on mortgage loans cannot be predicted with certainty and prepayments may result in losses to the value of our assets

Risks Related to Our Portfolio

1. 13Additional risks may be presented by the type and use of a particular commercial property, including specialized use as a nursing home or hospitality property
2. 14Accordingly, advances made to such types of borrowers entail higher risks than advances made to companies who are able to access traditional credit sources
3. 15Consumer demand, combined with tight labor markets, increased government spending, and supply chain imbalances have created inflationary pressure on the economy in recent years. Increased operating costs could stress property performance and thus mortgage loan performance
4. 16Loan modifications or restructurings of non-performing loans may be unsuccessful. The process for collecting or foreclosing mortgage liens or equity pledges may be expensive, lengthy and limited by the application of state, bankruptcy, insolvency and other debtor and tenant relief laws
5. 17The due diligence process that we undertake in regard to investment opportunities may not reveal all facts and risks that may be relevant in connection with an investment and if we incorrectly evaluate the risks of our investments, we may experience losses
6. 18There can be no assurance that our due diligence processes will uncover all relevant facts or that any investment will be successful
7. 19The borrower, or we as property owner and/or originating lender, might not purchase enough or the proper types of insurance coverage to cover all losses
8. 20Provisions for loan losses are difficult to estimate. Our reserves for loan losses may prove inadequate, which could have a material adverse effect on us
9. 21Certain balance sheet investments may be more illiquid and involve a greater risk of loss
10. 22Our investments in subordinate loans, subordinate participation interests in loans, preferred equity and subordinate and/or unrated securities rank junior to other senior debt and we may be unable to recover our investment in these interests
11. 23Our participation in the market for mortgage loan securitizations may expose us to risks that could result in losses to us
12. 24Our access to the CMBS securitization market and the timing of our securitization and real estate sale activities may greatly affect our quarterly financial results
13. 25We may be subject to risks associated with unfunded conditional loan commitments or other future advances, such as declining real estate values and operating performance
14. 26If we purchase or originate loans secured by liens on facilities that are subject to a ground lease and such ground lease is terminated unexpectedly, our interests could be adversely affected
15. 27We have acquired and, in the future, may acquire net leased real estate assets, or make loans to owners of net leased real estate assets (including ourselves), which carry particular risks of loss that may have a material impact on our financial condition, liquidity and results of operations
16. 28The leases at the properties underlying commercial real estate loans, securities or properties held by us may not be relet or renewed on favorable terms, or at all, which may result in a reduction in our net income, and as a result we may be required to reduce or eliminate cash distributions to shareholders
17. 29Current and future venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on venture partners’ financial condition and liquidity and disputes between us and our venture partners
18. 30Our investments in CMBS and other real estate-related securities are generally subject to losses
19. 31Any credit ratings assigned to our investments could be downgraded, which could have a material impact on our financial condition, liquidity and results of operations
20. 32Some of our portfolio investments are recorded at fair value and there is uncertainty as to the value of these investments. Furthermore, our determinations of fair value may have a material impact on our financial condition and results of operations

Risks Related to Our Indebtedness

1. 33Our business is leveraged, which could lead to greater losses than if we were not as leveraged
2. 34The repurchase agreements that we use to finance our investments may require us to provide additional collateral, which could reduce our liquidity and harm our financial condition
3. 35We are dependent upon our ability to access capital at rates and on terms we determine to be attractive. If our ability to access capital becomes constrained, our interest costs could increase, which could have material adverse effect on our results of operations, financial condition and cash flows
4. 36Additionally, if we are unable to securitize our loans, replenish a warehouse line of credit, enter into or meet the managed reinvestment requirements of CLO transactions, we may be required to seek other forms of potentially less attractive financing or otherwise to liquidate our assets
5. 37Any credit ratings assigned to debt securities we issue could be downgraded, which could have a material impact on our financial condition, liquidity and results of operations
6. 38Our use of leverage may create a mismatch between the duration of financing and the life of the investments made using the proceeds of such financing, as well as between the index of our investments and the index of our leverage
7. 39We are subject to counterparty risk associated with our debt obligations and cash balances
8. 40As a result of the requirements of the risk retention rules, if we purchase a horizontal subordinate strip of a CLO to satisfy the risk retention rules, we would not be able to dispose of those subordinate interests during the required risk retention period, which may increase our risk of loss

Risks Related to Regulatory and Compliance Matters

1. 41If our subsidiary that is regulated as a registered investment adviser is unable to meet the requirements of the SEC or fails to comply with certain U.S. federal and state securities laws and regulations, it may face termination of its investment adviser registration, fines or other disciplinary action
2. 42Our subsidiary that operates as a captive insurance company is subject to insurance laws
3. 43Certain of our entities have in the past and may in the future make loans to other of our entities on other-than-arms’-length terms
4. 44We intend to conduct our operations so that neither we nor any of our subsidiaries (including any series thereof) are required to register as an investment company under the Investment Company Act
5. 45Risks associated with climate change may adversely affect our business, financial results, and reputation
6. 46Actual or perceived environmental, social and governance matters may cause us to incur additional costs or reputational harm or result in investors ceasing to allocate their capital to us, all of which could adversely affect our business and results of operations

Risks Related to Hedging

1. 47We may choose to hedge our risks or not, and both choices could expose us to potential losses
2. 48In addition, we may fail to recalculate, readjust and execute hedges in an efficient manner. We may also decide not to engage in one or more hedging transactions or refrain from using hedging to mitigate some or all of a specific risk, potentially resulting in losses
3. 49A liquid secondary market may not exist for certain hedging instruments and they, therefore, may involve risks and costs that could result in material losses
4. 50time consuming, and our failure to comply with any of these laws and regulations could subject us to lawsuits or government actions and damage our reputation
5. 51We may enter into hedging transactions that are subject to mandatory clearing and/or margin requirements
6. 52Our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time and our failure to comply with any of these obligations could adversely affect our business, financial condition, results of operations, and our ability to make distributions to our shareholders

Risks Related to Our Class A Common Stock

1. 53The market price and trading volume of our Class A common stock may be volatile, which could result in rapid and substantial losses for our shareholders
2. 54Our charter contains REIT-related restrictions on the ownership of, and ability to transfer, our Class A common stock
3. 55Anti-takeover provisions in our charter documents and Delaware law could delay or prevent a change in control

Risks Related to Our Taxation as a REIT

1. 56If we fail to qualify as a REIT, we will be subject to tax as a regular corporation and could face a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders
2. 57Our ownership of, and relationship with, TRSs is limited, and a failure to comply with the limits would jeopardize our REIT qualification, and our transactions with our TRSs may result in the application of a 100% excise tax if such transactions are not conducted on arm’s-length terms
3. 58Rapid changes in the values of our assets may make it more difficult for us to maintain our qualification as a REIT or exemption from registration under the Investment Company Act
4. 59The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to qualify as a REIT
5. 60REIT distribution requirements could adversely affect our ability to execute our business plan
6. 61Even if we qualify as a REIT, we may face other tax liabilities that reduce our cash flow
7. 62Complying with REIT requirements may cause us to forgo attractive opportunities or liquidate attractive investments
8. 63The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of structuring CMBS transactions, which would be treated as prohibited transactions for U.S. federal income tax purposes
9. 64through a TRS or other taxable corporation, as is the case with our securitization business, although such income will be subject to tax in the hands of the corporation at regular corporate rates
10. 65The “taxable mortgage pool” rules may increase the taxes that we or our shareholders may incur and may limit the manner in which we effect future securitizations
11. 66We may be required to report taxable income for certain investments in excess of the economic income we ultimately realize from them
12. 67We have not established a minimum distribution payment level and we cannot assure you of our ability to pay distributions in the future
13. 68If we were to make a taxable distribution of shares of our Class A common stock, shareholders may be required to sell such shares or sell other assets owned by them in order to pay any tax imposed on such distribution
14. 69Distributions payable by REITs do not qualify for the reduced tax rates available for some dividends
15. 70Distributions to tax-exempt investors may be classified as unrelated business taxable income
16. 71Our taxable income is calculated differently than net income based on GAAP
17. 72Changes to U.S. federal income tax laws could materially and adversely affect us and our shareholders
18. 73Our business model may not be successful. We may change our investment strategy, asset allocation and financing policy in the future without shareholder consent and any such changes may not be successful
19. 74If we fail to maintain an effective system of integrated internal controls, we may not be able to accurately and timely report our financial results
20. 75We depend on our ability to produce accurate and timely financial statements in order to run our business. If we fail to do so, our business could be negatively affected, and our independent registered public accounting firm may be unable to attest to the accuracy of our financial statements
21. 76Accounting and tax rules for certain of our transactions are highly complex and involve significant judgment and assumptions. The accuracy of our financial statements may be materially affected if our estimates, including loan loss reserves, prove to be inaccurate
22. 77governments, financial markets, financial institutions, supply chain vendors, or other businesses have occurred in the past and may occur in the future and could disrupt our normal business operations
23. 78Litigation may adversely affect our business, financial condition and results of operations
24. 79We may face difficulties in obtaining and maintaining required authorizations or licenses to do business