Rithm Capital (RITM) Q3 2026 earnings call transcript

Thank you and good morning, everyone. I would like to thank you for joining us today for Rhythm Capital's 3rd Quarter 2026 Earnings Call. Joining me today are Michael Nuremberg, Chairman, CEO, and President of Rhythm Capital, Nick Santoro, Chief Financial Officer of Rhythm Capital, Baron Silverstein, President of New Res, and Peter Brinley, head of Real Estate at Elocore Properties. Throughout the call, we are going to reference the earnings supplement that was posted this morning to the Rhythm Capital website, www. rhythmcap. com. If you've not already done so, I'd encourage you to download the presentation now. I would like to point out that certain statements made today will be forward-looking statements. These statements by their nature are uncertain and make different materially from actual results.

I encourage you to review the disclaimers in our press release and earning supplement regarding forward-looking statements and to review the risk factors contained in our annual and quarterly reports filed with the SEC. In addition, we will be discussing some non-GAP financial measures during today's call, reconciliations of these measures to the most directly comparable GAP measures can be found in our earnings supplement.

With that, I will turn the call over to Michael.

Thanks, Emma. Good morning, everyone. Thanks for joining our call this morning. This quarter we demonstrated the power of the platform and the risk discipline we bring to our investors and partners despite a very challenging environment. If you take a step back and look at the quarter, all indices related to markets we invest in were wider, interest rates rose, significantly geopolitical concerns persist, oil rose, and we still had a great quarter.

Our operating business lines, Nurez, Genesis perform really well. Scale matters in those businesses and with our MSR business at approximately $880 billion of MSRs at Nurez, and Genesis initiatives and expense management will help us drive higher earnings in the future. And I firmly believe AI will change the archaic nature of the mortgage industry. Our real estate business and rhythm and asset management business should be a very good growth area for us going forward. Our Alacore investment, which was formerly known as Paramount, where we took the company private and invest in New York City and San Francisco offices in an area we are very excited about. We are seeing significant leasing activity, growing rents, and brought in a partner on 13016th Avenue.

As with most assets, entry point matters. And buying off 75% discount to replacement value should reward our shareholders well. The scope to real estate business is world-class and with an amazing track record. They continue to see more inflows into all of their differentiated strategies, as well as their recent fundraise, which was approximately $5.5 billion. Our asset management business is seeing real inflows. We are launching new funds and did a first close on our new ABF fund. We now have multiple funds in the marketplace, including partnerships with the large banks on the distribution side. Investing in our clients, people, and products is essential to our success. I will say when we set out to launch our asset management business in 2022, upon our separation from Fortress, we were running around the globe making connections and developing relationships with investors everywhere.

Today, we stand at 60 plus billion a third party AUM. We have well north of 200 different partners in LPs, and I feel like we've just begun. Our mantra of performance first in making sure we have the expertise in the products we offer our clients is the backbone of our business. We need to differentiate ourselves from others, and we will. I've never been more excited about the trajectory of our firm and the collaboration that is happening. Really exciting times for us and our partners. This quarter, we changed our presentation a bit, and we speak a little bit to the rhythm journey and where we're going. Please have a look. I'll now refer to the presentation that's been posted online, and I will begin on page three.

So when you look at rhythm today, it's roughly $110 billion of investable assets that includes both the balance sheet and third party assets that we manage on behalf of others.

When you look to the left side of the page, Newres is the third largest mortgage servicer in the United States. I pointed out earlier that we have approximately $880 billion of mortgage servicing rights. And we originate roughly $60 billion of mortgages. There's something there. We don't need to originate a mortgage to make money. If the economics are there, we'll do it. If not, the business performs extremely well and makes a lot of money. Genesis, the number two residential transition lender in the country, doing a lot more today in both RTLs as well as in multi-family, and we serve well north of 700 sponsors. Ellicor Properties, as I mentioned before, was the company we took private that was formerly known as Paramount, and Peter Brilly, who's with me here today, who runs real estate there.

We'll speak to that in a minute. When you look to the right side of the page, our AUM North is $60 billion. I pointed out, you know, when we first started this journey in 22 directly from third parties, we were running around everywhere, and now we have well north of $60 billion of real AUM, multiple funds in the marketplace, a great brand, and most importantly, great teams that manage the money on behalf of our partners in the marketplace. When you look across this north of 30 years of performance across all of our different strategies, the other thing that I think will differentiate us as we go forward in the future is we do invest our own capital along folks that invest in our funds.

When you look at the quarter on page four, very strong quarter, third quarter EAD of 55 cents per diluted share, 28 consecutive quarters where our EAD was greater than dividends paid, cumulative dividends paid just a little bit south of $7 billion at $6.8 billion. Earnings available for distribution in the quarter, again, $315 million, gap net income, $217 million or 38 cents per diluted share. When you look at book value for the quarter, $7 billion, we're actually a little bit higher quarter over quarter. A lot of that is due to, honestly, our hedging activities as well as our MSR business, which in a higher rate environment is going to perform extremely well. Our common stock dividend, 11.2%, 25 cents per diluted share, and cash and liquidity, we ended the quarter at $1.9 billion.

Page five, if you look at the rhythm story and certain slides, I'll take you through, real quick, on this one. We started this company in 2013 to take advantage of opportunistic investing in, at that time, mortgage servicing rights because the banks needed to sell them due to Basel III capital rules as it related to the amount of capital that they needed to hold on balance sheet. Over the years, we focused on broadening our internal capabilities through acquisitions, while working with our private equity business at Fortress, which owned, at that time, Mr. Cooper, and we also had built one main financial at that time. In 2018, when it was clear that we were going to sell these portfolio companies because they sat in our private equity business, we decided to build our own.

So we acquired a company called New Pen Financial, and that was the beginning of NewRes. Today, again, NewRes is one of the top mortgage companies in the United States. 2022, we buy back the management contract from Fortress, and we rebrand the company as Rhythm Capital. It was formerly known as NewResidential. Over the years, we said, okay, let's go broaden our asset management business. 2023, we buy Sculptor 2025, we buy Crestline, and again, we take Paramount Private in 2025 as well. So that's really the beginning, as far as how we got to the place that we did on the asset management side. When you look at our origination businesses at both NewRes and at Genesys, it truly differentiates our product offerings in the ABF space.

We not only have the ability to underwrite a borrower, we have the ability to service that borrower, and whether those underlying loans go into funds, or whether they sit on balance sheet, it is a factor that will differentiate us from others in the marketplace, because we don't have to just go out and bid in competition against everybody else to buy a certain asset class. And as I pointed out before, we have north of 200 institutional investors globally, and well north is 61 billion dollars in AUM. So where are we going? Where are we going on a forward basis? Our origination businesses will continue to be the core of our earnings at the public company level.

We're going to continue to try to scale our asset management business, which we're really excited about. As asset management earnings scale, we have the potential to optimize our corporate structure and actually have that as its own segment, but we need to continue to grow our so-called FRE or fee-related earnings in order to do that. When you look at page six, the quarter in review.

Asset management, I pointed out we're starting to see real momentum in some of the new funds we have in the marketplace. During the quarter, we raised 569 million of new capital and we're starting to see real commitment as we look to the fourth quarter for fund inflows. Year-to-date gross inflows are a little bit south of three billion dollars. fee-paying AUM is about 76% of our total AUM, and that is the key to developing the platform into a more durable earnings stream. Crestline held their final close on a European capital solutions fund and bringing total commitments there to 625 million. Again, we continue to see healthy inflows into our business post the end of the quarter.

When we look at our core areas, Elacore expanded its third-party capital base to a JV with a strategic partner for 13016th Avenue while also signing 320,000 square feet of new leases in the quarter. Genesis originated $1.5 billion in RTL originations in the quarter, bringing year-to-date originations to $5 billion and exceeding all of what we did in 2025. Also, new res originated from a year-to-date perspective, $5.1 billion of non-agency loans, mostly in the non-QM space. It's a new record for new res in the product class. I bring that up as I pointed out in my opening remarks, we don't need to originate alone to be competitive with someone else for the sake of doing it. This is an area where we're using our origination business, we use our funds business, we use our balance sheet to originate products where we're going to make more money for both our shareholders and our clients.

When you look at from an leverage perspective, we continue to leverage technology and investments in AI to achieve additional efficiencies. We expect to drive going forward $125 million in savings for new res. I pointed out in prior quarters, we own roughly 9.9% of a software company called Valen. Valen is going to be our new servicing technology that'll come online at the end of Q1 in 27. Our continued focus on expense, discipline will help drive consistent, sustainable earnings growth and we look in the quarter, new res delivered at 24% operating ROA showcasing the strong performance in a challenging environment. When you look about our resilience across markets, new res is $879 or $880 billion of servicing will continue to reward shareholders extremely well as we go forward with a very strong earning stream, strong credit at Genesis compared to the rest of the industry and then we remain extremely vigilant on our interest rate management across the board.

Page 7 really just talks again to the sum of the parts valuation, I'm not going to take you through this. The bottom line here is we take our equity, it's extremely cheap, we trade at a discount to book. When we look at our book value of give or take $12.5, the stock will likely open up higher this morning but we still trade way too cheap on a relative basis and we continue to evaluate ways to get our share price up. The asset management segments have a look at page 9, 200 institutional investors, 16 global offices, the products that we offer and I pointed this out again in my opening remarks, we must have expertise in any fund or product that we offer to the market.

The way that I think about our business, we are everything in credit, we are everything in real estate, we're everything in the multi-strad business or A. B. F. franchise should be significantly bigger and sometimes we think about what's next and it's likely to be something in infrastructure as we go forward. It was extremely scalable in the TAM and that marketplace is massive. Page 19, the asset management business, I'm not going to hit the same bullet that I did. If you look to the bottom part of the page, the performance numbers, I think they stand out relative to the pack. You look at some of the Crestline numbers, you look at Sculptor on the multi-strad side which has been around forever and again very, very excited about where we're going in that business.

Page 11, the asset management business, as we continue to scale, again a lot of these numbers will repeat a couple of things I do want to point out where I think we go organically. When you look at our organic growth initiatives, we expect to deliver AUM of about 75 to 80 billion by the end of 2028. We continue to look at the opportunities to grow asset management business in the M&A world and again, like I say always, we need to lead with performance. On the commercial real estate side, I'll hit one bullet here, just talking about opportunistic investing. We had bought two years ago an office building just outside Washington DC that we monetized in the third quarter.

Again, these are examples how we think about buying assets at the right times. This asset was located in Boston, Virginia. I think we paid 26 or 27 million dollars for it. We sold it with a 50-something million dollar handle, 30% IRR, 1.6 mic. When you look across the rhythm side on the balance sheet, third quarter realizations from an IRR perspective, 43%, and 1.6 mic across three different transactions.

The other thing is when you look at capital markets and our financing business, we closed on 31 West 52nd Street on a 500 plus million dollar transaction, and we continue to focus on selective refinancing.

With that, I'll turn it over to Peter, so we'll take you through Ellicore.

Thanks, Michael, and good morning, and turning to page 14. We had a great quarter at Ellicore Properties, and we continue to execute on our business plan. The third quarter was largely defined by strongly seeing results. The refinancing of 31 West 52nd Street, the New Joint Venture Agreement at 1301 Avenue of the Americas, the advancement of our significant amenity plans and continued operational excellence across the portfolio.

Year to date, we have executed leases and have leases pending on approximately 1 million square feet across our New York and San Francisco core portfolio with a weighted average initial rent of approximately 100 dollars per square foot, 22% higher at share than the weighted average initial rent for our 2025 transactions. Year to date, approximately 77% of our leasing activity in New York and San Francisco has occurred on vacant space and space scheduled to expire in 2026, and the balance has served to de-risk lease role in 2027 and beyond. Our pipeline remains robust, and our lease expiration profile was manageable with approximately 2% at share, expiring per annum in 2027 and 2028, paving the way for occupancy gains in our portfolio going forward.

Turning to page 15, our markets and our portfolio. In New York, Midtown's leasing fundamentals continue to strengthen, particularly in well-located, well-ematized, class-aid buildings. Looking at the broader Midtown market, the third quarter marked the 12th consecutive quarter leasing activity outpaced the five-year quarterly average. Net absorption in Midtown remained positive for the ninth consecutive quarter, the longest run on record, resulting in the ongoing reduction of availability, particularly in Midtown's core sub-markets. We continue to gain momentum and expect robust demand coupled with the ongoing absorption of quality space in Midtown to support significantly improved deal economics moving forward.

We believe we are well-positioned to capitalize on current tenant demand in Midtown as we execute on our growth-focused business plan. At quarter end, our New York core portfolio's least occupancy was 88.6% at share. Year to date, initial rents in our New York portfolio of approximately 110 dollars per square foot on leases signed and leases pending are approximately 36% higher as compared to our 2025 transactions. Our third quarter was highlighted by the 113,000 square foot renewal and expansion of a financial institution at 1301 Avenue of America's building that is currently 100% least.

Turning to San Francisco, market-wide leasing activity in the third quarter was 2.7 million square feet, bringing the year-to-date total to approximately 9.7 million square feet on pace to be the strongest year in total since 2018. San Francisco-based companies have raised a historic $270 billion of venture capital this year, mainly benefiting AI companies which have contributed 36.5% of the leasing velocity year-to-date. This is further reinforcing San Francisco as the powered San Francisco to its fifth consecutive quarter of positive absorption. At quarter end, our San Francisco core portfolio least occupancy was 65% at share, up 590 basis points since Q1, 2026. Approximately 65% of the 1 million square feet of leasing year to date has occurred in San Francisco, 96% of which has occurred with companies that are new to our portfolio.

Our third quarter was largely defined by a 76,000 square foot lease with a Fortune 100 entertainment company, a 119,000 square foot lease with an AI powered healthcare company, two of San Francisco's top 10 deals during the third quarter. As previously mentioned, planning is underway to deliver exceptional amenities at both one market plaza and one front street which has already begun to generate buzz in the market and will support our growth focus strategy in San Francisco going forward.

We remain focused on further developing our tenant relationships, delivering market leading hospitality, securing renewals for upcoming lease exploration, and filling our vacant spaces. Finally, we believe our capital improvement strategy will drive significant rent growth in occupancy gains in 2026 and beyond. We are moving quickly to execute our key objectives and look forward to updating you on our progress.

Thanks Peter. I'm going to take the Genesis section which begins on page 17 and then Baron will wrap up with and talk about new rent. As I mentioned on the Genesis business, truly scaled, great reputation with high quality sponsors. When you look at this business and you look at delinquency trends across some of the other, what I would call pure originators in the business, we truly stand out. Our delinquency percentages are about 3%. As I mentioned again in earlier comments, we don't need to originate something for the sake of doing it. We need to do it with high quality sponsors. One and a half billion in a quarter which takes us now to 5 billion.

It's not a so-called race to get to 5 or 10 or whatever the number is. It's just creating high quality loans that are going to generate mid-teens for both our third-party partners as well as our balance sheet. When you look at the left side of the page, pretexting comes for the quarter, $33 million, 14%. Growth year over year and then the annualized ROE on that business right now is about 13%. I do think again with AI and technology, those numbers will likely go up over time. When you look at page 18, it's just a snapshot of the portfolio. You can have a look at that at your own leisure. Then finally, if you look at page 19, we continue to outpace the broader market.

We continue to establish more relationships. We are investing in our people. We are investing in our sales force. When you look at the overall growth, that will continue over time.

With that, I'll turn it over to Baron who will take you through the thank you, Michael.

Good morning to everybody. Starting on slide 21 and just kind of continuing with Michael's comments as well, as new res had another great quarter with third quarter pre-tax income, excluding market to market of approximately $330 million, which is up 7% quarter over quarter and delivering a 24% annualized operating ROE for the quarter. The results driven by our and the performance continues to show the power of the platform, delivering on our results first ethos by achieving 15 consecutive quarters of high teens to low 20s annualized operating ROE.

Moving to slide 22, our edge is simple. We stay disciplined and nimble to optimize returns while maintaining operational excellence and client trust. We execute through a dynamic training strategy coupled with the robust product ecosystem with a focus on our homeowners and clients. And we invest in game changing technologies to redefine workloads, raising the bar on customer experience, driving our efficiency throughout our platform.

Turning to slide 23, we estimate annualized savings from our technology and AI investments of approximately $125 million, which will further drive our cost leadership. Our co-development with home vision is a head of schedule with straight through processing of eligible loans expected to launch in the fourth quarter. Our partnership with Valen is on track with phase migration of loans to ValenOS in the first quarter of 2027. And once these platform investments are completed, they're a key driver and a growing market share without sacrificing any shareholder return.

Turning to slide 24 in our originations business, funded volume came in at $12.9 billion down 19% quarter over quarter, mainly due to interest rate environment lowering overall origination volumes.

However, we remain focused on non-agency growth and increased overall non-agency volumes up 8% quarter over quarter and 30% year over year, despite the market conditions. And while market competition continues to pressure gain on sale margins, we maintain pricing discipline. We do not chase market share and we stay focused on maximizing returns. We also remain opportunistic on co-issue MSR acquisitions with 5 billion in notional volume as we continue to diversify our investment strategy.

New products this quarter include our easy click home equity solution, expansion, evented score utilization. And we're excited about our new joint venture with EXP Realty, the second largest real estate platform in the U. S. and are working through our due diligence and more to come in the next few weeks.

Moving to slide 25 and our market leading servicing platform, our focus remains in growing our capital-like fee-based third-party business with 15 new clients and approximately 80 billion in new loan boardings this year. Subservicing remains a foundational capability of our platform and our operational performance is evidenced by our client retention rate. Our own MSR portfolio continues to perform well across products. And while agency and genie delinquencies increase slightly quarter over quarter, we attribute this to seasonal factors. And while delinquencies remain low from a historical context, our special servicing business has significant opportunities to deliver superior outcomes for both homeowners and clients across market cycles. Our business has never been better positioned. And I look forward to continuing to share the next chapter of the new Red's Grow story.

Back to you, Michael.

Thanks, Farron. Finally, just on the investment portfolio, continue to look for opportunities in this marketplace where we see certain dislocations. I would say while spreads are a little bit wider as I again, as I pointed out earlier, the balance sheet has really been there to support our origination businesses as well as our asset management business. And I think you'll see a lot more of that as we go forward. So again, exciting times for us. We look forward to answering any questions that you may have. We'll now turn it back to the operator. And that's it so far.

Sure. So I point to one is continue to establish more relationships with what I would call the big wire house banks who are distributing products through the wealth divisions. When you look where we are or across, whether it be the sculptor platform, we launched something called our home, which is a rhythm fund through. One of the large banks will continue to do more of that. So that will help with growth. The product areas around what I would say the wealth side are things such as capital solutions, which take advantage of dislocations and markets.

We're looking at 40 act funds on the sculptor side through some of the large banks that's more of a liquidity vehicle around a hedge fund type product. The real estate business, as I mentioned earlier, will continue to grow. So when you look at the kind of the wire houses, that's an area of focus for us as well. What I would really say, and then I pointed out we had our first close on our ABF fund, this past quarter from a large pension fund here in the US. The amount of demand that we're seeing today for products that we either manufacture or that we have expertise in is probably the highest I've seen in quite frankly in my career.

I'm old and I've been doing this for a long time. So when you look, for example, on the resis side, we have a ton of interest in whether it be SMAs on, you know, Baron pointed out, you know, doing all this non-agency product. We make the products that our clients want. So right now we're seeing extreme demand, what I would say in ABF and ABF type products. Again, whether it be through our funds business or through specific SMAs, you take the genesis business. You know, when you look at some of the stuff on a levered basis, you're talking about mid-teens returns. We put our money where our mouth is. We take equity positions. So you're going to see a lot more growth in those businesses.

When we look at the broader platform, one thing that I think is extremely different today than where we've been in the past is we have real collaboration across the house. We're working on branding. When you look at, you know, we have three brands. So we have, you know, rhythm, sculptor, cress line. We sit down with a client and we're not changing any of the investment teams. We're not changing any of the investment processes, but it takes us 10 minutes to talk through, you know, the three different brands. We need to get to a place where we have a common brand. It's a much easier story. And quite frankly, LPs want to allocate to fewer managers that have more products that are available.

We're going to lead with our expertise. We're going to lead with our performance first. Credit's going to grow. Our multi-strad business is going to grow. Our real estate business is going to grow. And our ABF business is going to grow. And then we'll continue to look at opportunities to acquire other managers. The other area, you know, I pointed out that we need to be in at some point is infrastructure. It's not hiring, you know, one or two people to build around that. We need to actually have a real infrastructure business. So I think you're going to see some significant growth as we go forward, but and we're really excited about it.

Great. I appreciate that, Michael. Thank you.

So, yeah, I would tell you on the direct consumer channel, it definitely is a little bit of a product mix, right? You're seeing less refinances and you'll start to see more of our home equity products and more of our non QM products. So you'll, you know, you're basically driving a little bit of a higher return overall on the wholesale side. Obviously, it's a very competitive market and, you know, we're continuing to basically, you know, test that product and not chase. But I do think that, you know, coming into the fourth quarter, you're going to continue to see that there's definitely going to be more pressure on the wholesale side on margins overall. And Bose, not surprisingly, you know, the interest rate environment is going to drive overall origination volume.

And, you know, we've seen a pretty material, I'll say decline in production coming from September to October and you're likely going to see something close to about 25%. And Bose, part of that is the market. The other part is like when we think about having one investment dollar, you know, what is going to be the best return for our shareholders.

So that's the other, you know, the other way we think about the origination business. And again, this echoes the earlier comments in that we don't need to originate alone for the sake, originating alone, you know, with prepayment speeds at, you know, very low levels. Our MSR book will continue to manufacture and produce a lot of great results for the company. So I think that's the other thing to point out here. Okay, great. And then just on the book value quarter to date, is that relatively stable? Yeah, I mean, you should assume it's roughly unchanged.

So, okay, great. Thanks.

Yeah, so I think it's more likely to be similar to, you know, the sculptor, crestline or something that's even potentially larger.

Yeah, I mean, we need to be in the space. We do invest in that space when you look at the credit 50 professionals there, give or take 100 investment professionals. You think that we're everything in credit, we're everything in ABF. So, there is investing that goes on there. Same thing at the crestline side. We're not putting these kind of investments today on our balance sheet at the rhythm level. So, it's got to be something of scale. I don't, you know, we don't want to start with something that is, you know, a couple of folks and then it's going to take us five years to scale it up and miss that opportunity. So, it's something that, you know, we have our eyes and ears out and hopefully there's something that's attracted to us and a potential partner that will help us scale.

Yeah. So, I mean, I'll just start with top line stuff. So, if you think about our mortgage company, which says, give or take about four and a half billion of revenue and you look at what we bring to the bottom line, I think there's a lot of room for higher earnings there. That, you know, and AI has got to help that and I mentioned in my opening remarks, you talk about anybody that's ever taken out of mortgage, which most folks have, the archaic nature of that with providing paperwork and you think about underwriting guidelines, what have you, that'll change and I think AI is going to help significantly. Couple that with the investment and, you know, this company, Valin, that we're working with, which is really a tech company, I referred to it earlier as a software company, but we're going to be using their software platform for our servicing business.

That is going to make us highly efficient as far as the and I'll talk to this one sec and the timing of really seeing the earnings I think is going to be most likely, you'll start to see them kick in in 27, but they'll go on for 27, 28. When you look at product, you know, the one thing and I look across the board at obviously a lot of other pure companies that are in, whether they be in the buy now, pay later business and I look at the valuations on some of those companies versus us, where we trade at five times earnings and, you know, and we actually make more money than most of these other companies out there where I look at some of the kind of the digital banks that are valued higher.

We got to figure out a way one to roll out more products but to the change of valuation and I think a couple things here and it'll catch on, you know, everybody wants to be in a growth equity type stock. I look at us relative to our peers and across the board and this is no reason for us to be trading where we do. That's one but but I do think you're going to see these savings come in in 27, 28 and then, you know, and I'd like to see us launch more products but they got to be credit worthy products because I do think at some point the credit markets will turn and you start to see delinquencies trend higher.

Right now we're not seeing that but I do think you'll see that at some point. That's where our special servicer which is second to numb should kick in and generate even more earnings for the house.

Good morning. So our goal there when you look at the business if we're going to do, I think the production numbers will probably do or something between six and six and a half billion of production. Credit really matters as we all know and all this stuff while saying that I think the opportunity for us to grow our multi-family business on the lending side is significant. So the way to think about that product, a good chunk of production could go into those funds. What we want to do is really grow the amount of origination we have so you continue to grow earnings at the public company level. So it's a combination where I think that the multi-family business from the origination side will grow significantly over time and it has grown significantly over time.

The RTL business, you know, we all know things get challenged when interest rates, you know, you have mortgage rates of seven and a quarter, seven and a half or something in and around there. Things could be challenged. But when you look at this paper, we make loans to high quality sponsors. That's really the bottom line. High quality sponsors, the velocity or the turnover of this product, the duration here is give or take a couple of years. So the real growth I think is going to be on more on the multi-family side as we go forward. Great. Very helpful there. And if I may, on the Ellicore property side, just looking at the San Francisco leased occupancy rates.

Just curious, looking for what factors do you see that could potentially help drive higher occupancy rates going forward? Thanks.

Yeah, Kenneth, thank you for the question. I would say two things really. One is we have very manageable lease roll over the next couple of years. So we have firm ground by which to really, I think, achieve significant occupancy gains going forward. We also know that in San Francisco tenants are pursuing the best product and we have a very, very fine portfolio in San Francisco. Tenant demand is currently in the neighborhood of 10 million square feet of tenants out looking for space. And we are incredibly active. We're as active in San Francisco currently as we have been in a very long time with leading companies across a variety of industry, including tech, AI, legal, financial services.

So we're really flowering on all cylinders and the market has certainly been very receptive to the capital improvements that we're making specifically at one market and one front, which we've not mentioned a few times. So the team is hyper focused on getting that occupancy up back to levels that San Francisco and these three buildings in particular are more accustomed to. But we feel really good about the progress and the execution currently.

So, yeah, I mean, I think you're kind of getting to the floor on speeds. You know, you just have a certain amount of turnover, you know, for just life events that are going to continue to drive, plus also when you think about some of the seasoning on our portfolio, you're just going to really be at that, you know, floor. So, I don't really think that speeds are going to come in, you know, very much lower than what you saw in, say, September speeds overall. You know, in the offset, I will tell you, in between amortization, you know, in originations is pretty linear, right, from the balanced business model on how we look at it. But also, you have to think about it as, you know, Michael's comments and my comments, right, we're not driving, you know, just growth for growth sake, right, we want to make sure that we're focused on margins.

And, you know, if the market really gets very, very competitive, you know, I think that, you know, we're going to look at it in that manner as opposed to just chasing volumes, but I will tell you overall, you know, we do think that we have a balanced business model, we want to stay in front of our customer base, right, in our four million customers and making sure that we, you know, are delivering products for them, right, as our core focus, and if there's opportunity outside of that, you know, we'll basically, you know, look to basically, you know, enter into those markets and that that our multi, you know, channel strategy helps us kind of take advantage of those opportunities when they become available.

The other thing I would say is if you look at the business and, you know, to your question about how the servicing book will offset the origination volumes, you know, we look at the entire company, you know, when you look at the servicing book today, I think there's roughly 15 billion of escrow deposits, fed raises rates, 25 basis points, it's a huge lift to kind of the, you know, the firm firm and that interesting come standpoint. So the balanced nature, I think, of everything that we do across our entire business, and that could include, you know, anything from the mortgage company to Genesis to L, of course, or asset management business is something that I think it's going to reward shareholders as we go forward.

So that's why, you know, when you look at our business model, this quarter versus some of the other folks in the marketplace, you know, that's one of the other reasons why I think we had a good quarter.

I think it's both. It's also the, you know, and I'm going to give you the example where if we don't originate a mortgage loan, but I could, we could take a dollar or capital and reinvest that back in our asset management business, along with a third-party LP who's paying us a management fee. You know, those earnings are recurring and they traded a much higher multiple than the so-called, you know, the mortgage loan that's going to sit on the balance sheet. So I think it's a combination where we'll use our balance sheet to continue to support our origination businesses. We're going to be opportunistic and look for areas where we could deploy significant amounts of capital.

You know, and Baron pointed out, you know, the nonagency business that new res, you know, I think it's six plus billion dollars. When you look at that, a good chunk of that is non-QM that actually sits on balance sheet and then we do securitization. So those continue to be significant earnings as we support our origination businesses, look for opportunities where we have market just locations. As I pointed out, this office building, for example, that we sold in Boston, Virginia, some of the Ellicor stuff where we're entering that, that, that business that is, that is, down to replacement value. And we'll continue to look at other things. And there's always something that comes up. The beauty, I think, where we sit as an organization is that between myself and some of my partners, Charles Sorrentino and others, we've been doing this for a long, long time.

And we have very, very good relationships with our bank partners. But also, we know a lot of folks in the marketplace and, you know, we should continue to see opportunities across the board. So it's a little bit of everything and the investment portfolio will grow over time, but it's going to be opportunistic.

Look, we, obviously, we have good relationships with, you know, our partners in DC, you know, and, and, you know, I do think that, you know, the policies that the director of the FHFA are putting out there, we, you know, we support them. We were on the pilot program with Freddie Mac on the Vantage score. So certainly, you know, from our perspective, we do think that that will continue to drive benefits for homeowners. And if there are changes on, you know, the, any of the insurance premiums, you know, obviously we'll, you know, incorporate that and deliver those savings directly to homeowners. And, you know, so we certainly support, you know, the initiatives that the director continues to drive.

Parents are probably, I'll give you it from a high level and then I'll turn it to Baron. You know, we, our technology budget, you know, when we look at expense overall is pretty significant. The amount of personnel we have around the house related to the technology, so-called business is, you know, is very significant. I'm a believer that on technology, you're better outsourcing to so-called experts in the industry who are going to be there to either build you models or build you software that's going to make your business run better.

But while saying that, you know, we have a ton of people there and we have a ton of investment. The partnership with Valant should be extremely significant across our entire business as we go forward. And it's not only Valant, but there's others as well. So, Baron, may you want to share your thoughts?

Yeah, I mean, Michael's right. I would tell you that, you know, we look at our technology dollars to try to focus on prioritizing the initiatives that have the biggest impact that Michael talks about, Valant, right? And, you know, if you think about Valant, all and there is, you know, nothing like it in the market and we're really excited to basically, you know, incorporate that technology into our business, the investments that rhythm made in Valant back in 2019. You know, we've had that front row seat. We've talked about this before, really kind of seeing how it just drives, you know, overall operational efficiency, improvement in workflows, you know, our entire servicing organization, you know, has been working with Valant for the last, you know, year plus, you know, everybody's definitely excited about, you know, what's ahead.

Obviously, there's a lot of work to, you know, for us to basically go from, I'll just say, today, you know, throughout the end of 2027 and basically in doing that overall conversion. But, you know, if you just even look at, you know, all of the AI initiatives and you just continue to see how and what AI does, you know, it's pretty remarkable about how we think about different initiatives and how that can impact our business. And our focus really is just making sure that we're prioritizing, you know, our technology dollars and our technology focus on the items that really move the needle that drive our efficiency and drive our way. And that, you know, it sounds easy.

I know if we focus on it a lot, the management team here, and we work through it, you know, obviously with Michael on what we try to prioritize every day. So that's what I would tell you and how we focus it. This is, and you asked the question in the beginning, you know, how does this basically, you know, and how will this impact, how we perform in the industry and how we compete. We think this is, you know, one of the top components of how we can continue to drive, you know, from an RLE perspective and differentiate new risk throughout the market.

You know, the one thing that's really different, I think, today about our business versus where we were, again, going back to when we left Fortress, 200 plus different LPs, you know, great teams at Sculptor and Crestline, so working together across the platform, i. e. my, you know, my comment about collaborating. You know, I don't, when I'm here to just grow the balance sheet, quite frankly, we need to use it strategically. I think any large-scale situations, we just saw a large consumer portfolio trade will likely bring in third-party capital alongside the, you know, the bigger family of companies or investment strategies. So, you know, the goal is to continue to manufacture cash, and i. e. have more cash, but it's not just to grow leverage here, particularly in this market.

Is there something specific? I think, you know, ideally, when you put our balance sheet today, it's really MSRs, things that we do to hedge out the broader ecosystem of business lines that we have, and it's extremely clean. I mean, the MSR business is massive right now based on, you know, where we are with rates and overall valuation. So, it's not to get bigger, Jason, it's just more to maintain and bring in more third-party capital along some of the bigger situations. No different than what you'll say from, you know, the biggest money managers out there.

I think on the commercial reach side, I don't know that there's a lot of sellers quite frankly. There are some companies out there that, I mean, it could be where some of the credit's actually challenged. You know, we have RPT that we manage. We, quite frankly, it's a very, very clean portfolio. We cleaned it up. We took over the management contract a couple years ago. We can't get that off the ground because nobody cares. It's tiny and at some point, you know, we're evaluating our options for what to do with that. Yeah, we're always looking for opportunities. I mean, if we are going to grow our real estate presence, whether it be Elacore, we continue to look at more office opportunities, but we don't need to be just an office.

I brought up the Sculptor folks. They have an unbelievable track record and you know, they do things that are very, very different from the rest of the pack.

So across the board, you're going to see us grow pretty significantly, I think, on the real estate space. If there's an opportunity to acquire another commercial reach, we'll do it as long as, you know, from a credit standpoint, it underwrites. We don't want to take over someone else's issues right now. I think that's part of the issue with a lot of these reach that are stuck out there.

And in the correspondent business, what are the real economics of originating in a 7% plus market in terms of you own the customer? How do you think about that?

Yeah, I think if you want to buy cheap MSRs, if MSRs are cheap, you do it. And if not, and this is, you know, Baron and I are on the same page in this, we don't need to originate alone just to have more correspondent value unless we love the valuation of the underlying MSR and there is real gain on sale.

If there's real gain on sale and there's more, then we'll do it. And you love your MSR valuation. If not, you know, I'd rather take the dollar and support our asset management business or put it into genesis or something else where we think we're going to earn a mid-teens return.

Hello, thanks for all the questions. We look forward to updating you during the quarter and next quarter. And thanks for the support always. Have a beautiful weekend.