NorthStar Realty Finance Corp. Q3 2009 Earnings Call Transcript

NorthStar Realty Finance Corp. (NRF)

Q3 2009 Earnings Call

November 5, 2009 10:00 am ET

Executives

David Hamamoto – Chairman, President and Chief Executive Officer

Andy Richardson – Executive Vice President, Chief Financial Officer and Treasurer

Al Tylis – Executive Vice President and General Counsel

Analysts

Joshua Barber – Stifel Nicolaus & Company

James Shanahan – Wells Fargo Securities

Lee Cooperman –Omega Advisors

Gabe Poggi – FBR Capital Markets

Presentation

Operator

Welcome to the NorthStar Realty Finance third quarter conference call. (Operator Instructions).

The conference is being recorded today, Thursday, November 5, 2009. I would now like to turn the conference over to Al Tylis, executive vice president and general counsel for NorthStar Realty Finance. Please go ahead.

Albert Tylis

Thank you very much. Welcome to NorthStar's Third Quarter 2009 Earnings call. Before the call begins, I'd like to remind everyone that certain statements made in the course of this call are not based on historical information and may constitute forward-looking statements.

These statements are based on management's current expectations and beliefs are subject to a number of trends and uncertainties that could cause actual results to differ materially from those described in the forward-looking statements.

I refer you to the company's filings made with the SEC for a more detailed discussion of the risks and factors that could cause actual results to differ materially from those expressed or implied in any forward-looking statements made today. The company undertakes no duty to update any forward-looking statements that may be made in the course of this call.

Additionally, certain non-GAAP financial measures will be discussed on this conference call. Our presentation of this information is not intended to be considered in isolation or as a substitute for the financial information presented in accordance with generally accepted accounting principles.

Reconciliations of these non GAAP financial measures to the most comparable measures prepared in accordance with generally accepted accounting principles can be accessed through our filings with the SEC at www.sec.gov.

With that, I'm now going to turn the call over to our Chairman and Chief Executive Officer, David Hamamoto. David.

David Hamamoto

Thanks, Al and thanks everyone for joining us this morning. In addition to Al, I'm joined today by Andy Richardson, our CFO and Dan Gilbert, our CIO. I'll start today's call with an update on commercial real estate market conditions and the real estate finance sector then provide an update on several NorthStar priorities, which we have reviewed with you in the past including some recent positive steps we've taken to further strengthen our liquidity position in this difficult market.

I'll then turn to it over to Andy to review or third quarter results. Within our sector, we are not yet seeing macroeconomic signs to change our view that commercial real estate will remain very challenging through 2010. The unemployment rate has increased above anything any of us have seen in over 25 years and business conditions remain difficult.

The amount of insolvent banks also continues to increase. The FDIC has seized 115 banks year-to-date, an 80% increase from 64 at the time of our second quarter earnings call and the most seizures since the early '80s. In most cases, nonperforming real estate assets are the major cause of these failures and continuing weak economic conditions will further pressure banks' balance sheets.

The poor economic environment of combining with a virtual lack of new financing capital from traditional bank and insurance company lenders and the CMBS market that has not yet opened for new issuance, to create enormous pressure on real estate owners and lenders.

The publicly traded equity REITS are virtually the only real estate investors who have enjoyed access to equity in corporate debt capital in the past year, notwithstanding deteriorating property fundamentals. We believe that a lot of this activity is technically driven with dedicated refunds having yields seeking capital they need to invest.

Unfortunately, the $21 billion of equity and $10 billion of corporate debt raised year-to-date in the REIT market is dwarfed by the over $800 billion of commercial real estate debt maturities over the next two years.

On the positive side, the TALF and PPIP programs have generated demand for senior CMBS securities, with over $6 billion of legacy securities having been submitted to the Fed for TALF financing since the summer.

These programs have continued to drive down yields for the most senior portion of the capital structure, but the difficulty of financing new loans is evident by the absence of any meaningful new loan origination volume utilizing TALF leverage.

Overall, our view remains consistent with prior quarters. We believe that commercial real estate credit and values will continue to experience downward pressure and that we need to see tangible and continuing signs of recovering economy and functioning CMBS markets before we reasonably can forecast a recovery in our sector.

There are some real estate transactions getting done, primarily distressed sales that appear cheap by historical and replacement cost metrics. But the large gap between the supply and demand for capital as well as declines in property cash flows not seen in a very long time makes it difficult to forecast where and when the market will begin to recover.

NorthStar's priority on shoring up liquidity and allocating resources to credit risk management early on in this recession have allowed us to create a defensive balance sheet and liquidity position to partially mitigate the impact of these unprecedented poor market conditions.

Our discounted NorthStar debt repurchases in 2008 and year-to-date have created a $189 million cushion against credit losses for our shareholders. Liquidity totaled $251 million at September 30 and we raised approximately $19 million of common equity capital during the third quarter, which was primarily used to repurchase $29 million of our corporate note at a 49% average discount to their [face value].

Long repayment volume remains low and we received approximately $10 million of partial loan repayments during the third quarter. Over the last several months, we've made significant progress in reducing our nondiscretionary, unrestricted cash need, now just $21 million and expect to be funded by the end of 2010 and solely relating to long future funding commitment and in extending the final maturities of our bank debt.

In October 2009, we completed a renewal of the debt we have with Wells Fargo, which finances real estate loan assets. The renewal extended the final maturity of this debt until October 2012 on very attractive terms.

Currently our next corporate debt maturities is just $68 million of our 7.25% corporate notes due in June 2012. In connection with the Wells Fargo debt extension, Wells granted additional credit capacity up to $300 million to NorthStar on a $1 for $1 basis as the outstanding balance on the existing debt is reduced below $300 million.

We made a $53 million pay down at closing using only a portion of our total available liquidity to do so. On the credit front, we are working hard to stay ahead of issues before they become a problem. We had one new nonperforming loan having a $10 million principle balance that we believe it's fully covered by value and cash flow from the underlying collateral.

Our loan is a junior participation in a first mortgage having a maturity default and whose senior portion was securitized. We expect this loan to get restructured and extended so that it can be refinanced in a better lending environment.

Our $24 million credit loss provision for the third quarter reflects the continuing credit challenges. On last quarter's call we provided an update on our efforts toward accessing new capital and fee revenues for NorthStar in the non-listed REIT market.

In the first quarter 2009, we filed an S-11 with SEC for a new $1 billion REIT that will be externally advised and managed by NorthStar called NorthStar Real Estate Income Trust. And we are currently marketing a smaller, unregistered private REIT called NorthStar Income Opportunity REIT.

The new REITs investment objective will be initially focused on lower leveraged commercial real estate finance assets and equity investments and we expect that their cost of capital will be significantly lower than NorthStar's is today.

We are making progress in obtaining all the necessary federal and state approvals for the registered REIT and expect to begin capital raising by early next year. We're also building out our infrastructure to sell this product. While building the distribution platform is costly and time intensive, we believe that owning that platform is an important part of increasing the value of our franchise.

We also continue to believe that the timing of the private REIT capital rate will be complimentary to the availability of investment opportunity. Recent real estate transaction volumes to date has been much lower than many expected.

But increasing bank failures and prolonged poor economic conditions, combined with approximately $800 billion of commercial mortgage loans maturing over the next 30 months should create attractive opportunities in 2010 and 2011.

Our real estate investment platform, which has principles who invested in and managed commercial real estate assets through the early '90's RTC period, is well positioned to capitalize on these opportunities. Last month we declared our fourth quarterly cash dividend in 2009 and we remain one of the only companies in our competitive set that has consistently delivered a regular quarterly cash dividend through this cycle.

We expect to be fully distributed from a taxable income standpoint for 2009 and therefore do not expect any true up dividend for this year. Now I'd like to turn the call over to Andy, who will review the results of the quarter. Andy.

Andy Richardson

Thanks, David. I'll briefly review the third quarter financial highlight and then go into more detail in credit liquidity and our balance sheet. For the third quarter, our GAAP net loss, inclusive of FAS 159 adjustments, was $66.5 million or $0.95 per share.

AFFO for the third quarter was $19.5 million or $0.25 per share. We invested approximately $23 million of equity capital during the third quarter and received approximately $10 million of partial loan repayments and no full pay-offs.

Net interest income, which is interest, rental and advisory fee revenues less interest expense, swap interest expense, property operating costs, and asset management fees was $29.2 million, an approximately $3 million increase from $26.3 million in the second quarter of this year.

Pre-payment penalties and other income totaled about $200,000 during the third quarter which was consistent with the second quarter. General and administrative expenses excluding non-cash stock-based compensation totaled approximately $10.7 million for the third quarter, down approximately $1 million from the second quarter.

Salaries and other cash comp costs were down 17% on an annualized basis compared to 2008 actual costs. Other G&A expenses were down approximately $700,000 from the second quarter. The decrease was primarily related to one-time costs incurred in the prior quarter related to our net lease to health care business.

For the third quarter, NorthStar's book value decreased approximately $53 million from the prior quarter due primarily to a decrease in the net mark-to-market adjustment on NorthStar's assets and liabilities, partially offset by the common equity raised and used principally to retire corporate debt.

Overall, our GAAP book value as of September 30th was $15.93 per share. The earnings release contains a detailed reconciliation between our second and third quarter 2009 book value. If all mark-to-market adjustments and accumulated depreciation were excluded, book value would be $7.54 per share at September 30.

Our most attractive investment opportunities, once again during this quarter, were opportunistic acquisitions of NorthStar's senior recourse debt securities at significant discounts to par. During the third quarter, we purchased $29 million base of our convertible notes at an average 49% discount to par, resulting in $14 million of extinguishment gains net of accelerated deferred financing expenses.

During the third quarter, we also funded $20 million of preexisting commitments under our existing loans representing approximately $7 million of equity capital. We sold securities for $65 million and reinvested the cash and an additional $17 million in new securities investments. We made no new net lease or joint venture investments during the third quarter.

At September 30th, we had $2 billion of commercial real estate loans consisting of 106 separate loans. Many of these loans were structured with commitments by NorthStar to provide additional debt proceeds as certain value-enhancement hurdles were achieved by the borrowers.

These commitments represent our only significant non-discretionary funding obligations within NorthStar. If a loan is financed in a CDO, then the CDO provides the funding and NorthStar has no further obligation.

As of September 30, we expected that the equity portion or unrestricted cash needs of the approximately $21 million of preexisting commitments not within our CDOs will be $9 million for the remainder of 2009 and the remaining $12 million should be funded in 2010. These amounts assume that each loan with a remaining funding commitment will qualify for that funding.

On a credit front, we are experiencing further weakening of underlying property level performance resulting from extremely poor macroeconomic conditions and refinancing difficulty from a lack of new debt capital.

Because most of our loans have floating rates, low one-month LIBOR has partially offset the negative impact declining cash flows have on debt service coverage. For loans which do not currently have positive debt service coverage, we have approximately 12 months of debt service remaining on a weighted average basis based on current LIBOR rates.

Funded reserves underlying our loans totaled $81 million at September 30. Approximately 80% of our portfolio loan balance is directly originated. Because we focused on originating loans directly with borrowers rather than participating in many of the Wall Street structured and widely syndicated financing, we typically have more control over our loans and can negotiate directly with our borrowers when issues arise.

Also, approximately 40% of our loans have some sort of recourse obligation to the sponsors such as debt service reserve replenishment, and our experience continues to be that the ability to go after recourse guarantee provides significant leverage in negotiations with borrowers.

During the third quarter, we added $24.2 million of new credit loss reserve relating to 10 loans, bringing our total loan credit loss reserves to $73.9 million as of September 30. We added a $10 million first mortgage participation backed by two performing retail properties located in New York to the NPL list in the third quarter due to a maturity default.

Because of the strong collateral value in cash flow coverage to our position, we expect this loan to be restructured and return to performing status. As of September 30th, we had five non-performing loans totaling $83.1 million, all of which had unresolved maturity defaults. Four of the loans, totaling $73.7 million, represent two first mortgages.

Two are first mortgage participations and the remaining loan is a $9.4 million mezzanine loan that was fully reserved for as of the first quarter of 2009. We were foreclosed out of this loan in October. Four of the NPL loans totaling $73.1 million have partially developed a raw land as their underlying collateral type.

We more fully described each of these loans in prior quarter conference calls and in our 10-Q filings. As of September 30, we had reserves totaling $34 million for these five assets. Our $3.3 billion managed securities portfolio continues to suffer ratings downgrades with downgrade actions impacting approximately $600 million of our securities in the third quarter.

Such downgrades may not necessarily be indicative of the current performance of the security. The weighted average credit rating of our managed security portfolio remains double B plus as of September 30. Approximately $800 million of our managed securities are consolidated and $2.5 billion are accounted for in off-balance sheet financing.

Many are seasoned and of older vintage with 65% of NorthStar's CMBS portfolio issued in 2005 or prior years. Despite the continued negative ratings actions across the CMBS sector, the vast majority of our managed CMBS securities are current and paying according to their contractual terms.

We have no short-term or repo financing and all of our securities are financed to maturity in CDO term financings or are held unleveraged, so we not only have the intent but also the ability to hold these assets to maturity. During the third quarter, there were no significant changes to our net lease portfolio.

Moving to the right side of the balance sheet, we fully repaid at maturity the $12 million outstanding balance on the secure credit facility with JP Morgan. With the completion last week of the extension of our Wells Fargo bank debt, we have no significant corporate debt maturities until June 2012.

We used existing liquidity to make a $53 million pay down on the facility in October and after the repayment continue to have an excess of $100 million of unrestricted cash on hand. We believe that the terms of the facility cannot be replicated in today's market and that the extension of our existing balance and the new revolving credit capacity provided by Wells demonstrates the value of long-term banking relationships.

As of September 30, we were in compliance with the financial covenants in our debt facilities and our CDO financings were in compliance with the related interest and collateral coverage set. The table contained in the supplemental information section of the earnings release shows the status of the CDO coverage test.

If we were to fail any of these tests, cash flow from the respective financing would be temporarily diverted from NorthStar to repay senior debt until the failed test is back in compliance. Credit ratings downgrades of the CMBS collateral backing our security CDOs can negatively impact OC tests if downgrades reach certain levels, even if the security is fully performing.

Typically, a CDO can have a maximum amount of triple-C rated securities before OC deteriorates.

This quarter, the CMBS market continued to experience ratings downgrade actions as the rating agencies adjust their ratings models and incorporate increasingly severe economic and underlying asset performance assumptions.

Notwithstanding these actions, our security CDOs continue to comply with the coverage tests, largely because investment opportunities have allowed us to invest in discounted securities that resulted in increased OC cushions.

This strategy has proven effective to date. However, S&P recently put virtually every CMBS issue rated by them on negatives rating watch. Even super senior AAA securities which many industry professionals believe have virtually no risk of principal loss appear to be candidates for downgrades.

We expect these ratings actions to be taken before the end of this year. At this time, we cannot predict whether these future downgrades will cause us to not comply with our OC test in our security CDOs.

CDOs one and two currently have no reinvestment remaining. So their OC and IC coverages are more susceptible to ratings' downgrades and default, because we cannot sell securities with ratings issues and purchase higher quality securities with the proceeds.

For the quarter ended September 30, we've received just $482,000 of cash distributions from CDOs one and two. In our loan CDOs, actual loan defaults negatively impact OC. The agencies may also downgrade our issued CDO notes, but such downgrades would have no liquidity impact on NorthStar.

Our consolidated assets totaled $3.8 billion as of September 30 and were virtually unchanged from the second quarter. NorthStar had approximately $251 million of total liquidity at September 30, comprised of $108 million of unrestricted cash and $143 million of un-invested cash in our CDO-term financing. This concludes our prepared remarks for today. Now let's open up the call for questions. Operator

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Joshua Barber – Stifel Nicolaus.

Joshua Barber – Stifel Nicolaus & Company

Good morning. Congratulations on the Wells extension. Couple of quick questions as related to the property portfolio, I noticed that rental revenue was up pretty decently this quarter, and NOI was up about $2 million quarter-over-quarter but property leasing stayed about flat. Just wondering what happened there?

David Hamamoto

Hey, Josh. That relates principally to our healthcare portfolio. We had an opportunity earlier this year to basically convert one of those portfolios from a leased portfolio to an owned and managed portfolio using the new REIT rules.

So as a result of that, we're consolidating the revenues and expenses of those properties and so therefore revenues are increased, but also property-operating expenses have increased as well. So the net increase is – the net of the revenues less the expenses, is a slight increase of income to NorthStar because we can capture more of the profit.

Joshua Barber – Stifel Nicolaus & Company

Okay. Would that have any effect on depreciation because I noticed it that it was also off by quite a bit this quarter?

David Hamamoto

That was off because the properties that were formerly leased to Washington Mutual were transferred to the lender during the quarter, so we no longer had those assets on our balance sheet and aren't depreciating them.

Operator

Thank you. (Operator Instructions) Our next question comes from the line of James Shanahan – Wells Fargo Securities.

James Shanahan – Wells Fargo Securities

Thank you, I have some income-statement questions. I also wanted to follow up with a couple additional questions. I appreciate the disclosure here on the CMBS and loan CDOs. Now with the overcollateralization cushions that you're showing here at Sept. 30 are multiples higher than where they were at the offering.

Is that a function of the deals trapping cash to build OC immediately following the issuance of the bond and as matter of course, or is there some other reason why they would build OCs so significantly today versus the head offering?

David Hamamoto

It's primarily because we've had the opportunity this year to buy with the un-invested cash in those CDOs securities at pretty significant discounts to their par amount. And for purposes of the overcollateralization test in these transactions, you get credit for the full par amount of the securities, but we pay $0.30 for security. We get the full dollar benefit in the overcollateralization test.

James Shanahan – Wells Fargo Securities

So securities are down-rated, and I'm looking at the NorthStar 5, 7 and 9 it looks like. The significant overcollateralization there, if securities are downgraded, is the existing overcollateralization cushion relevant or significant in terms of estimating if any additional cash trapping will be required?

David Hamamoto

It's only relevant if securities get downgraded to basically below triple C or below.

James Shanahan – Wells Fargo Securities

In your expectation is the higher quality much like triple A., how many notches of a downgrade would you expect for say super senior, currently triple A?

David Hamamoto

It's hard to determine, Jim. I mean our original portfolio was triple B. I think triple B minus was the original rating and it migrated up to triple B plus. Those funds that are more subordinate in the CMBS capital structure are more susceptible to multiple notches and downgrades than super senior triple As. And therefore those are the downgrades that we've been basically protecting against by building OC this year.

James Shanahan – Wells Fargo Securities

I see. So are you able to comment on what you think the odds are, the probability is that your securities that are either investment-grade or close to investment-grade will be downgraded to that triple C level or below?

David Hamamoto

I mean, I think we tried to address that in our earlier comments, which is it's very difficult to determine exactly or even make an estimate of rating-agency actions in this market.

James Shanahan – Wells Fargo Securities

So in the event that they are downgraded and the trust begins to trap cash where there were implications that an operating company level? Will you be no longer generating sufficient operating cash flow to meet the expenses, or is it just to result in a situation where you're generating income but not cash, and maybe it reduces distributable or re-taxable income?

David Hamamoto

Well our operating cash flow this year has been in excess of the dividends that we paid. So I think the answer to your question depends on which and how many CDOs we can begin trapping cash under what event, and how long that cash becomes trapped.

But we have excess cash flow coverage to our dividends today, and as you can see, the first two CDOs that we have no further reinvestment in and where our cushions are the lowest also happen to distribute the least amount of cash to us.

And I think, Jim, the other thing about the OC test is that obviously we've built them up considerably from where they were at offering and clearly we're trying to stay ahead of the downgrade so that the cash flows do stay on.

The other thing though that you should know is that in the event that the cash flow does shut off, we believe that will be just temporary because as we amortize some of the senior bonds, it enables us to get back into compliance on whatever test we've breached and the cash flow gets turned back on.

James Shanahan – Wells Fargo Securities

Okay. Changing the direction here, with regards to the capital raising, I'm curious about what the market opportunity is for that. Is there a relatively small potential universe of investors that would, could or would likely participate in a private REIT offering for I mean, in other words, is it sort of 140 for any type of investment universe or is it more broad than that?

David Hamamoto

Jim, that effort in terms of what we're building on the distribution side is really targeted at the retail investor and broker-dealer community. And we're positioned as really the first debt product in that space. But it's really competing with the equity guys in that space, like Inland, Dividend, Capital, Hines, CNL, people that have spent time really working at distribution channel and establishing name recognition in that market.

And as we said in our comments, there's a cost to hiring those people and there's a lot of heavy lifting at the front end in order to develop those selling agreements and name recognition. But we believe that the long-term value of being able to access that distribution system and create fees for NorthStar that are long-term and pretty lucrative is worth the investment, so that's basically where that capital is going to be coming from.

James Shanahan – Wells Fargo Securities

And I have a related question, David and Andy. The G&A expenses were down sequentially and $15.7 million I guess that would appear to reflect the impact, positively, of any reducing of certain expenses at the NorthStar Realty Finance level. It may also be impacted by the expenses that you were referring to. What do you thing the appropriate run rate is for Q4 into early 2010 for G&A expenses? Is it similar to where we are today?

David Hamamoto

I think it's pretty similar to where we are today.

James Shanahan – Wells Fargo Securities

And what do you think the potential fee income impact is? Is there a targeted base management fee for the funds that you'd be raising?

David Hamamoto

The base management fee is about 1.25 points.

James Shanahan – Wells Fargo Securities

Is that similar to what the equity REITs charge that you referred to earlier?

David Hamamoto

Yes. And then there's also some other fees. There are some acquisition and disposition fees and an incentive fee.

James Shanahan – Wells Fargo Securities

Will NorthStar have an equity interest in these funds?

David Hamamoto

There's a small, very small, co-investment obligation, but it's the [minimum].

Operator

Your next question comes from Lee Cooperman – Omega Advisors.

Lee Cooperman – Omega Advisors

I realize we're in unusual times, but when I look at the numbers something doesn't compute. We have $100 million plus of unrestricted cash. We have no maturing corporate liabilities through 2012. You could pick the book value number you think is most meaningful. I guess the one that I would think is $7.54.

We're paying a $0.40 dividend, and we're selling stock at half of the economic value of the company. What I'm referring to is the 5.3 million shares at a net price $3.60 that we've sold in the third quarter.

Why would we want to sell stock at half of the economic value of the business while paying a dividend? I understand we're buying back some corporate debt at a discount, but we do have unrestricted cash. I just doesn't seem we're showing respect for our equity.

Andy Richardson

Yes, and obviously, as we've discussed, Lee, in the past, it's kind of a delicate balancing act. And as you saw and as we commented in the script, the amount of equity we raised this quarter is pretty close to the amount of capital that we invested in buying back our debt, which was basically at $0.50 on the dollar.

And I think if you think about the $3.60 issuance price and gross it up for $0.50 on the dollar, that's about $7.20 a share, which is in the zone of the $7.54 book value number. And I think we also felt we got the incremental benefit of retiring a significant amount of the 2012 maturities, which we ultimately think the stronger the balance sheet and the more liquidity risk is taken off the table, the more likely at some point people are going to look at our stock as being undervalued, and the stock will start to move.

But, again, it's a delicate balance. I think now that we've got Wells extended on favorable terms, we feel pretty good about the balance sheet and we'll just continue to have to monitor the ability to raise capital at certain prices versus the investment opportunity that we have versus reserving enough liquidity that people don't get nervous that we're going to run out of money.

But we certainly appreciate your position and think about it all the time. And I think what we probably erred on the side of being a little more conservative, which we think is appropriate in this market but it's a very difficult decision for us and one that we'll continue to monitor.

Operator

Your next question comes from Gabe Poggi – FBR Capital Markets.

Gabe Poggi – FBR Capital Markets

A quick question on the NorthStar Income Opportunity Fund, what's the size of that? Can you guys disclose that and I assume the fees will work the same as the larger the private REIT?

Andy Richardson

Yes, it's a $100 million REIT.

Gabe Poggi – FBR Capital Markets

And then just broader, what are your guy's thoughts on, you mentioned, TAFL PPIP, and TALF's gotten bids $6 billion in legacy paper, but that is a drop in the bucket relative to the maturities coming due over the next two years that you guys mentioned.

What are your thoughts on at least the program or what would be needed to make that program more relevant? Do we need to see forced sales in the market to really kick start price discovery so that we can get some liquidity back in commercial real estate, just your general thoughts would be appreciated.

Andy Richardson

I think we've seen that the $6 billion financing for securities has really had a pretty dramatic impact in bringing spreads in in CBMS, so we definitely see that when the Fed programs are up and running and there's financing available, that it's had a direct impact and benefited the market.

I think everybody is a little unhappy that the pace of financing new loans by TAFL has been slow, and everyone knows that Goldman is working on a big deal for Developers Diversified, and we think ultimately getting the Fed to lend at cheap rates against new loans is going to be what's going to help kick start the securitization market.

Again, in addition we are seeing signs of deals in the market without TALF financing that are getting securitized where there is significant investor interest on underwriting reasonably conservative loan to values on revalued assets where the pricing is starting to come down and where there could be a functioning market.

So I think with the help of TALF, jumpstarting the securitization market, we remain, I'd say, guardedly optimistic that at some point in 2010 we'll see a lot more financing going on than there has been this year.

Operator

Management, there are no more questions at this time.

Andy Richardson

Thank you very much everyone, we'll talk to you next quarter.

Operator

This concludes the NorthStar Realty Finance third quarter conference call. If you'd like to listen to a replay of today's conference, please dial 303-590-3030 or 1-800-406-4325 with the access code 4173151. You may now disconnect.

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