Arbor Realty Trust Incorporated Q3 2007 Earnings Call Transcript

| About: Arbor Realty (ABR)

Arbor Realty Trust Inc. (NYSE:ABR)

Q3 2007 Earnings Call

November 9, 2007, 10:00 am ET


Paul Elenio - SVP, Finance and Chief Financial Officer

Ivan Kaufman - Chairman, President and CEO


David Boardman - Wachovia Securities

David Fick - Stifel Nicolaus

Don Fandetti - Citigroup


Good day ladies and gentlemen. And welcome to the ThirdQuarter 2007 Arbor Realty Trust Earnings Conference Call. My name is[Shikwana], and I will be coordinator for today. At this time, all participantsare in a listen-only mode. We will facilitate a question-and-answer sessiontowards end of this conference. (Operator Instructions)

As a reminder, this conference is being recorded for replypurposes. I would now like to turn the call over to your host Mr. Paul Elenio,Chief Financial Officer of Arbor Realty Trust. Please proceed, sir.

Paul Elenio

Thank you, Shikwana. Good morning everyone and welcome tothe quarterly earnings call for Arbor Realty Trust. This morning, wewill discuss the results for the quarter and nine months ended September 30,2007. With me on the call today is Ivan Kaufman, our President and ChiefExecutive Officer.

Before we begin, I need to inform you that statements madeon this earnings call maybe deemed forward-looking statements that are subjectto risks and uncertainties, including information about possible or assumedfuture results of our business, financial conditions, liquidity, results ofoperations, plans and objectives.

These statements are based on our beliefs, assumptions andexpectations of our future performance, taking into account the informationcurrently available to us.

Factors that could cause actual results to differ materiallyfrom Arbor's expectations in these forward-looking statements are detailed inour SEC reports.

Listeners are cautioned not to place undue reliance on theseforward-looking statements, which speak only as of today. Arbor undertakes noobligation to publicly update or revise these forward-looking statements toreflect events or circumstances after today or the occurrences of unanticipatedevents.

With that behind us, I’ll now turn the call over to Arbor'sPresident and CEO, Ivan Kaufman.

Ivan Kaufman

Good morning, everybody and thank you for joining us ontoday's call. Before I talk about the quarterly results and ouraccomplishments. I want to take a moment to discuss the market. Clearly theenvironment has changed over the last few months as we experienced asignificant crisis and dislocation in our financial markets.

These are difficult times I’ve been in the industry for morethan 25 years and have great deal of experiencing these environments as I havelived through two cycles like this before.

However, this kind of market change is not a surprise to usand should not be one for any of you who are participating in our calls overthe last two years.

We have been anticipating and preparing for changingenvironment during that period positions our portfolio to more secure, low riskloans at time scarifies a yield for credit. In any market no one can everanticipate when the change will occur and in our market it was ever matter of-- if a change would occur but rather when it would happen.

So what has been so difficult about the change in the marketin this severity and suddenness of the impact and even though we are preparefor this environment we are not immune to its effects.

Therefore, I would like to spend some time talking about howthe market has changed and what we've been doing to solidify our position tooperate effectively over long-term.

Overall, the main areas I will focus on today are liquidity,the credit quality of our portfolio and new origination of fraternities. Duringmy discussion of these areas I will highlights some of our notable achievementswith the goal of giving you a true perspective of our position, our take on themarket and how we are adopting to positions ourselves accordingly.

With respect to liquidity, I think an appropriate statementis that in a down market, you never have as much liquidity as you would like.And with that sentiment since the middle of the summer, we've been totallyfocused on ways to preserve, secure and maximize liquidity of the firm.

We've made significant progress in this area and are verysatisfied with where our balance sheet currently stands but we still have a lotof work in hand. We continue to improve our financing facilities. Our mainfocus on the critical objective of strengthening the right side of our balancesheet and capital structure.

Over the last six months, we've made significant strive inthis area. We added $52 million of trust preferred securities and now have atotal of $275 million outstanding. We raised $75 million of capital in anovernight deal.

We added $60 million working capital line amended certainfacilities and added two new facilities locking in a substantial amount of ourdebt for the long term.

And once again, we've monetized several of our equity kickers,which are generated around $170 million of cash contributing greatly ourliquidity and capital base.

In addition, we have around $150 million REIT cash on handand cash available on our CDOs. So between our cash, the capacity in financingfacilities, proceeds from our normal run-off and a capital generated from ourequity kickers, we feel we are in good position and adequate capital continueto operate our business effectively.

In an environment we access the liquidity has become farmore difficult, the monetization of our equity kickers has significantlyimproved our liquidity position and we believe this additional capital sourceshould be highlighted.

In the third quarter we monetized one of our equity kickersand created two new ones. We received the $10 million distribution frominvestment in the Prime portfolio, this is a sixth distribution we havereceived from our Prime totaling around $60 million and we believe thisinvestment has additional value.

Further more this distribution with tax deferred creatingadditional liquidity to fund investments. In mid-October we announced and wereceived around $39 million from the recapitalization of the 1107 BroadwayProperty.

We sell 50% of the economic interest and recapitalized theproperty with about $340 million of new non-recourse set all this portion theretained interest is 10% for about a $6 million of invested capital.

The partnership intense to develop this property into amixed use of residential and retail. We are very pleased with the execution ofthis transaction and received almost $50 million in cash proceeds in 2007 fromour total investment in the Toy project.

We have clearly earned a significant return on ourinvestment in this project excluding a phenomenal yield on a debt we had outstandingwhile retaining an upside in the property going forward.

Additionally, we attend to retain a substantial amount ofthe proceeds after taxes and management fees. Significantly increasing ourliquidity position without diluting shareholders.

Overall our equity kickers have generated around $200million in cash proceeds and I have added almost $7 per share for economic bookvalue, which currently is around $23 a share.

These equity kickers are internal component of our businessand have now generated a positive wind-pack from these kickers and 11 of the 14quarters since transitioning to a public company.

These kickers have also generated significant tax deferredcash proceeds, which have substantially increased our liquidity and capitalbase. As we touched on earlier we have been very active in improving the rightside of our balance sheet and our capital structure.

Yesterday, we announced that Arbor entered into two newfinancing agreements with one of our lead banks. These new agreements will playshort-term facilitates we had with the same financial institutions.

The press release laid out some more details but in summarywe effectively replace the significant amount of our short-term debt withlonger-term financing and eliminated mark to market risk as it related interestrates spreads on these assets.

In addition, we also added a new $200 million revolver tothis term facility, specifically to fund new loans and investments. All in allour cost line went up around 50 basis points from these facilities, like a(inaudible) we feel confident but this normal increase in pricing will be morethan observed by the increase yields on our assets and we're able to originateproducts with widest spreads in this market. As well as, having uncertainty at termand not being subject to mark-to-market.

These new facilities effectively lock up around $600 millionof committed financing for three years. This also means that between our CDOs,trust preferred securities and these facilities a majority of our committeddebt is a non mart-to-market and secured for the long term.

In addition, we amended a warehousing agreement increasingthe committed amount of this facility from $75 million to $90 million andextend the majority to October 2008. In the third quarter we also amendedanother financing facility increasing a capacity by $50 million and reducingthe borrowing costs in our facility by, 50 to 75 basis points and extendingthat majority to September 2008.

As I mentioned before another one of our ongoing criticalobjectives has been transition of our portfolio a higher credit quality byoriginating loans more in the middle of the capitals structure and we have beenvery successful in achieving this goal.

This quarter we added $265 million of new loans and investmentwith $253 million which funded, renewal for the third quarter it come in at$132 million resulting a net growth in our portfolio of around 32% for the ninemonths ended September 30.

One of the keys to the firm is our asset management team.Our experience and ability to not only originate and structure asset but tomanage our way through assets with difficulties in difficult time.

Again, we are not immune to what is happening in themarketplace. And as financial institution have liquidity issues, those issueswill triple down our bar liquidity, as well as, to the finance options in themarket in general.

Realizing this the firm has established the protocol to beproactive and stay ahead of the curve. Therefore, we have established thedelicate the community, which I participate on, that meet minimal or once aweek to review the loan portfolio and deal with current problems, as well as,anticipate any potential issues.

We've taken aggressive stand to work with and educate ourborrowers in the current environment and help them successfully navigate totheir options, well ahead of majorities and all potential performance liquidityissues.

Our objective is to minimize any potential exposure that mayoccur in our portfolio that would be proactive with our borrowers by using ahand on approach. I want to be careful here because in this environment we arereally not although we interested in short-term options for our borrowers butthat is not accretive to the firms long-term.

And with that, let me transition to what the opportunitiesare on the origination side. Clearly there will significant originationopportunities of widest spread at lower risk profiles and well-structured loansand the ability to go on our additional equity kickers as well.

There is still a gap between what borrowers think the marketis and where the market actually is, there are few remaining pockets of capitalout there for people to access but those are drying up.

So what you will see is the market reaching at differentlevel on spread and loan dollars and we are beginning to see that happenalready. With that mind it is not our objective to build a short-term balancesheet.

We are guiding the flat portfolio growth but our strategy isto be very selective in deploying our capital and look to take advantage ofwider spread in investments replacing our run-off with high yielding,longer-term product, building a portfolio and has reoccurring long-term valuewith attractive spreads.

So to extent our borrowers have short-term renewals notattractive for us to extend these loans where we could originate loans at ourlonger-term assets with high yields, this is clearly our objective and where wewill be focusing our attention.

I think I have hit all of the items I told prudent to reviewin a moment I will turn it over to Paul. Who will go over some of the financialresults but first let me briefly discussed our dividend and EPS.

As you know, we recently announced quarterly dividend of$0.62 per share of common stock, which is consistent with our previous guidanceof maintaining our current dividend and determining we need to make a specialdividend by the end of the year.

In addition we produce a $1.2 in EPS for the quarter and$3.73 for the first nine months of this year. We have generated significantearnings for the modernization of several equity kickers this year and we havedone an excellent job of creating tax deferrals on a good portion of them.

We are still in the process of calculating our projectedtaxable income for 2007 to evaluate the needs for the special dividend. Once wecomplete this analysis, we report any special dividend if necessary before theend of the year with the current dividend yield at around 15% combined with theaccretive opportunity available in today's market to go on a premium yield, wewill look to retain as much capital as possible to invest in new loans andinvestments creating increase earnings.

I will now turn the call over to Paul to take you throughsome of the financial results.

Paul Elenio

Thank you Ivan, and good morning again everybody. As notedin the press releases our earning for the quarter we're $2 for common share ona fully diluted basis. We had a very profitable quarter and are closing inanother record year with $3.73 in earnings per share for the first nine monthsof 2007.

The third quarter numbers were impacted by the $10 milliondistribution receives from our equity kicker in the Prime transaction. Thedetail of the accounting related to this transaction were laid out in the releasealso as previously announced in October, we received $39 million in cashproceeds from the recapitalization of our interest in 1107 Broadway Property.

As we mentioned several time, this investments are key partof our business model and continue to deliver significant earnings in capitalfor the company. We've now has a positive impact from one or more of our equitykickers and 11 of the 14 quarters since going public. And these equity kickersadded over $7 per share since inception to our economic book value, which nowstand at around $23.

We have also been very successful in structuring the both ofthis monetization

of these kickers in a tax efficient manner. This allows usto recycle a substantial amount of capital create significant additional liquidityto invest in new loans and investments with higher yield in this market.

The monetization of our equity kickers continues todemonstrate the significant off-balance sheet value associated with these typesof investments, creating long-term shareholder and franchise value.

And now let me take you through the rest of the results forthe quarter

First, our average balance and core investments grew about$180 million, which is primarily due to considerable growth we had from thesecond quarter. As a results our core interest margin increased about $2million, a 10% increase from last quarter.

The yield for the quarter in these core investments wasaround 9.27%, compared to 9.55% for the second quarter. Our yield in those coreassets was around 9.16% for the third quarter excluding income from theacceleration of fees, as compared to yield of around 8.89% for the priorquarter, excluding similar items.

The acceleration of these fees occurs frequently when loansrepay prior to their scheduled maturity and the impact of these items wasgreater in the second quarter. The increase yield on our core investment was aresult of rise in the average LIBOR rate during the third quarter, as well as,the funding of the extended Stay Hotel deal, which took place late in thesecond quarter.

This was slightly offset by the yield and the loans thatpaid-off in the third quarter being higher than the yield in the new loans weput on. However, the impact of this yield reduction in the third quarter wasnot as great as in prior quarters due to the timing of some of our projectedloan.

In addition, the weighted average all in yield of ourportfolios was 8.81% at September 30, 2007, down from around 8.84% at June 30,2007. This decrease is primarily due to a 20 basis point reduction LIBOR forthe comparable dates.

Partially offset by the portion of the portfolio have beenLIBOR for us above the current rate. Since September 30 LIBOR has continued todecline in fact the weighted average all in yield of our portfolio was 8.71% atOctober 31, 2007.

This combined the projected payoffs will result in areduction in our fourth quarter yields. We believe some of this reduction willbe offset by the yield in our new guidance, as we continue to selectivelyoriginate investments with attractive returns.

Additionally, from September 30 to October 31, our weightedaverage all in yield did not put down yield as much as the reduction in LIBORdue to approximately 31% of our portfolio being fixed rate along around 50% ofour variable loan have been LIBOR for us above the October 31 LIBOR rate.

Our average cost to fund this quarter was approximately6.84%, compared to 6.82% from the prior quarter. Excluding some unusual itemsour average cost to fund were approximately 6.92% for both quarters. That costremain flat as a result of the repayment of our participation in the loan thatpaid off at the end of the second quarter, offset by the arise in average LIBORfor the third quarter.

As I have been touched on, we recently modified some of ourfinancial facility locking in the step for a longer period of time. As a resultour cost of funds will increase slightly on this facility, but we believe thiswill be more than offset by the increase yield we earned on our new loansinvestments.

Additionally, the decline in LIBOR since September 30, wereduce our borrowing cost on the portion of our liabilities that are flooding.Next, the average balance in our debt facilities increased by around $30million from last quarter, which mean that the average balance of our coreinvestment increased to $150 million more than increase in our average debtfacility.

This was primarily due to cash received from the equity rateand the monetization of our equity kickers towards the end of last quarter,which we use to pay down debt and fund new investments.

The average leverage on our core assets was around 78% forthe third quarter, down from around 82% for the second quarter. Including thetrust preferred as debt, the average leverage was 88% for the third quarter,compared to 93% for the second quarter.

This decrease in average leverage is the direct results ofusing the bulk of cash receive from our equity and the monetization of ourequity kicker, which took place at the end of the second quarter to repay debt.

Our overall leverage on a spot basis was 2.6 to 1 atSeptember 30 and June 30, 2007. If we include the trust preferred securitiesdebt the overall leverage ration was 4.7 to 1 at September 30 and 4.6 to 1 atJune 30.

There were no significant changes in the balance sheet sincelast quarter, however the restricted cash balance related to our CDOs did godown by about $72 million on a spot basis from June 30 to September 30.

The average balance of restricted cash outstanding for thequarter was relative flat about $189 million on average for the third quarter,compared to around $184 million for the second quarter.

Looking at our portfolio at September 30th, we had about 69%variable rate loans and 31% fixed. The breakout by product type was about 60%reach, 14% junior participation and 26% management preferred equity and ourportfolio has an average duration of around 35 months.

In addition, loans to value of our portfolio was around 71%,our weighted average medium dollar outstanding was 49% and our debt servicecoverage ratio was 123 at September 30th.

The condo concentration in our portfolio was 8% at Septemberof 30 almost falls in New York with over 80% of our average loan balancesecured by pre-sold units with significant non-refundable deposits.

Operating expenses were fairly flat as compared to theprevious quarter with the exception of the incentive management fee, which wassignificantly lower than last quarter due to large gains from our equitykickers during the second quarter.

Stock based compensation expense, which is a non-cashexpense decreased $0.09 million from the second quarter largely due tostock-rent specific employees in April 2007.

And finally, we include to schedule summarizing our equityparticipation interest adjacent this quarter, as Ivan stated, we originate twonew investments with equity kickers recently, one in the third quarter and onein October. This brings a total number of equity kickers in our portfolio to15.

As stated in the press release, we received $10 million incash and recorded approximately $6 million in net income during the quarterfrom our equity kicker interest in the Prime portfolio.

The significant earnings and liquidity, we have generatedfrom our equity kickers continues to demonstrate our unique ability toconsistently generate substantial value from our investments.

With that, I'll turn it back to the operator and we'll behappy to answer any questions you may have at this time.

Question-and-Answer Session


(Operator Instruction) And your first question comes fromthe line of David Boardman with Wachovia.

David Boardman - Wachovia Securities

Good morning. And thank you for taking my questions. I wasjust wondering, if you could comment on the two kickers that were added thisquarter. The first one being Alpine Meadows it looks likes it out in Lake Tahoearea where you also have another investment. I was wondering if they arerelated or if you could just maybe talk a little bit more about that asset?

And then the St. Johns development asset and Jacksonville,Florida I had seen a report regarding that there maybe a credit stresssituation, I was just wondering, if you could maybe add a little color there?

Ivan Kaufman

Sure. On the Alpine Meadows it is related to the otherinvestment we had the other side of the mountain. And there was just strategicrule to acquire that piece and then combined it to and that was a purpose ofthat investment.

So we are very pleased with the ability to participate inthat acquisition with the J&A group who was the general partners andresponders and will be able to make that happen. With respect to theJacksonville property, that was opportunity that came out of a loan within ourportfolio.

We originated that loan a little over a year ago and the sponsorof that loan ran into some financial difficulties and yes, there is a littleexposure to single family development any other personal recourse loan as wellin exchange or letting what is personal recourse we took the property back andsimultaneously recapitalized it with one of our experienced developer andparticipated in 50% of the equity on that opportunity.

David Boardman - Wachovia Securities

Taking -- considering where were the residential mortgagemarket, I was wondering if you could comment on, you know, just the channel thehealth of demand and your Arbor commercial mortgage?

Ivan Kaufman

On the residential side?

David Boardman - Wachovia Securities


Ivan Kaufman

We have no exposure on the residential side. We are notparticipating the residential...

David Boardman - Wachovia Securities

Yes. But I am talking about the External Manager itself.

Ivan Kaufman

The External Manager?

David Boardman - Wachovia Securities


Ivan Kaufman

I mean, it's a private company its very healthy in fact weare very strong beneficiary of this market because as they're probably awarewhere if any may FHA lender and given the lack of liquidity in Wall Street andCMBS on that revenue and aspects to our businesses picked up dramatically andbeing a if nay may sell services where we enhanced our originations in atremendous way. So we are very pleased with the help of manager and verycomfortable.

David Boardman - Wachovia Securities

You talked about kind of looking for a flat net assetgrowth. I guess you are offering to over the next four or five quarters. I waswondering if you could highlight kind of what your expecting maturities are inyour portfolio and then frame that in terms of the extension risk.

Ivan Kaufman

Sure. I believe just over the next 90 couple of 120 days weare expecting run-off about $400 million somewhere in that neighborhood basedon anticipated maturities.

So we would be very happy since we originating opportunitiesto replenish that replacement and certainly some of those maybe re-originationdepending on where the borrowers stand relative to their execution strategy andrelative access of a debt but $400 million is pretty good amount of moneydeploying this environment. And we are really comfortable if we have that run-offthat we can replace with superior assets.

David Boardman - Wachovia Securities

In the last quarter, spin was relatively strong in Q2 andnot extraordinarily like in Q3 considering where spreads have moved throughoutthe summer here, do you wish you'd had some of the capital back now?

Ivan Kaufman

Look there is no question of the fact that if it didn’toriginate well over the last six months we have that cap so you can deploy thattoday, 20-20 either side. But running a business and filling your CDOs and yourcapital needs you nearly have a business to run but clearly, if we had a back,we got to rewrite the book.

We lost the rewrite loans in this environment and of coursethat environment, that's for sure. But when you have a business to run and youhave CDOs and facilities that have requirement in balancing, you have to meetthose current needs.

David Boardman - Wachovia Securities

Thank you for taking my questions.


Your next question comes from the line of David Fick withStifel Nicolaus. Please proceed.

David Fick - Stifel Nicolaus

Good morning.

Ivan Kaufman

Good morning.

Paul Elenio

Good morning, David.

David Fick - Stifel Nicolaus

Can you give us a bit further review on the repaymentprofile say for all of '08 as opposed to just the next couple of months?

Ivan Kaufman

It's not something we're looking to guide to, David. We lookat the next 90 days to 120 days, looks like about $300 to $400 million arun-off, haven't look really much passed to 120 days because the market is changing.So I think we are going to see probably similar run-off in the second half of'08 as well, but it is something we still need to focus on.

David Fick - Stifel Nicolaus

That net run-off or I mean, you expect you have to re-deploythe capital?

Ivan Kaufman

Yes. Re-deploying the capital won’t be the issue. We areseeing significant opportunities to re-deploy that capital and superior yield.So we are just cautious with re-deploying capital with that run-off and makingsure that we preserve our liquidity as in a very capital intelligent manner.

So I would expect that whatever run-off we do experience, itwouldn't be overly difficult to re-deploy that capital at superior riskadjusted returns and to be a very accretive portfolio.

Paul Elenio

Yes. I guess David to test that’s right we have started topredict all the run-off that we are abiding to here is definitely replacingthat run-off with growth and just having a flat portfolio growth over the nextcouple of quarters.

Ivan Kaufman

Yes. As I mentioned and what I was talking about is, all ourborrowers with luxury renew their loan from us, right, on a short-term basis.But what we're looking to do is put loans on a long-term basis and a lock goesspread in.

Because this environment would not have last forever, it maylast for six months, 12 months, 18 months but my perspective is due to greatyield, the loans are very, very well structured and I want to build theportfolio for locking these yields for a significant period of time.

So I am not interested in 30-day or 60-day extension evenfor extension fees, it is not accretive to the portfolio I want the capital addon a long-term basis.

David Fick - Stifel Nicolaus

Okay. Well that lead to my next question, you are somewhatas I think everyone is they are assuring cap rates at this stage. You are nowlooking to extend term -- these guys have to be able to repay out your papersare all short at this point on a relative basis, you want to push it out, butyou are going to have to be a little flexible with a guy that can’t find thatpermanent financing alternative.

Ivan Kaufman

Well. There are two things, number one, it is nice to beback in control. You know, we were in a period of time over the last two years,where borrowers were dictating the terms, right.

David Fick - Stifel Nicolaus


Ivan Kaufman

So it is nice to be able to be in the drivers seat. If wehave all the options for borrowers, we can do two things, we can either dictategetting a significant amount of fees, number one, number two, dictate getting aloan and structured a little bit more secure, number three, dictate that if weare going to do this, this is going to have to be on a longer-term basis, sothose option arouse.

Clearly, it will be prudent in the market and we want tomake sure the reasonable and we will have to balance all of those interest. Soknowing the capital market, knowing what the options are out there, we will useour judgment.

I will tell you that we spend our last three months justtrying to educate the borrowers as to where the market is because they stillhave that same mentality that they had six months ago, that they think thatthey can demand expansion.

And we are going to be chasing them for the opportunitiesand we are not going to get extension fees and yields, and that's where lot ofour time has been spent. So there's been a significant amount of effort onsenior management side to be proactive with our borrowers but I don't know thematurities are coming off, these are the options.

This is what we expect them to do and not wait till twoweeks before and say well, we didn’t know about where was that. So a lot of itseducation, a lot of its understanding the capital market alternatives.

And as I also mentioned in my script, we put together pool ofsenior management that we regularly -- meets regularly on this and we arereally looking to maximize the long-term value of the firm, but also makingsure that we do what's best on as well as in the short term throughout ourbalance.

David Fick - Stifel Nicolaus

We've already got one situation where you took control ofthe asset. Is -- are you more incline to do that as sort of, a message to themarket or strategically on individual assets by asset basis, if you think thevalue is greater by taking control you are willing to do that and sort of lockin some real estate on your balance sheet?

Ivan Kaufman

Absolutely, we will be very aggressive. I mean most it's afunny mentality out there that we face all the time. Most borrowers think theyare going to default or if they are going to threaten at the lenders they canbend the lenders over with all or just the opposite, we threat only one, we'lltake over the asset, so it’s quicker through unique position to take controlover the asset.

And what we have really worked on and where we've reallyhave a tremendous strategic advantages, I have 10, 12, 14 operators that we doa lot of business with, but we have significant capital, who just can't wait tojump into this type of opportunities.

So even they can take the opportunity themselves or we canstep in as well participate and you know, what we'll do in fact, one of ourguys came back for an asset, which really is not impeccable when we have a guywho has a liquidity issue.

And his approach was less than hour, you know, make itdifficult to -- we were down at the asset with the operator understandingexactly how to step and went to step and went to put the receiver in. And if itcomes to that, we won't blink, which usually works into our management is beingable to facilitate a smooth result.

And that's really the difference between being proactivehands on and having the ability to manage real estate. And we may see a lot ofopportunity in fact, we just didn't extra zone and we are looking forward tothose.

David Fick - Stifel Nicolaus

Okay. Back to the special dividend, I know you hasn't anyand you work on it, you don't know the answer yet, but we were within 60 days,you have to have some sense, I would expect as to simply go to magnitude beyondwhat you've said?

Paul Elenio

David, it's Paul. You are right we are within 60 days weshould have just spend down over the next couple of weeks. The reason is, it’snot bend down as you saw in the press release on 1107 Broadway Property, we areworking through a tax structure right now and we will be coming out with theresult to that once we finalize that.

If that is successful could potentially minimize anysignificant special dividend that we would have to require to distribute at theend of the year, we just don't have that locked down yet and obviously, ourgoal is to retain the capital if we can and deploy back into this market but inthe next couple weeks we should have that’s been down and we able to get thatresult out to people.

David Fick - Stifel Nicolaus

I think you are smart to hold back on increasing thedividend or being a special you can because obviously you are not getting yieldsupport from your current dividend levels, it does not make any difference.

Ivan Kaufman

I think we agreed.

David Fick - Stifel Nicolaus

Current portfolio, LTV and then I'll get off.

Ivan Kaufman

Okay. Yes. LTV, the portfolio currently is about 71%, $1million outstanding is 49% and debt coverage is $123.

David Fick - Stifel Nicolaus

Great. Thank you.


(Operators Instruction) Your next question comes from theline of Don Fandetti with Citigroup. Please proceed.

Don Fandetti - Citigroup

Hi. Ivan quick question. Obviously, you've been involved inthe New York market for quite sometime. There is a concern about financialservices. Wanted to get your perspective from a commercial real estatestandpoint and also can you comment on the outlook for the condo market in NewYork?

Ivan Kaufman

Sure. First, regarding fortune we have a large part of ourportfolio in the New York market and New York has been some sort of normallycompared to the rest of United States.

Some say it is the Europe, some say that New York is stillthe capital of the world financially. But the fact that the matter is that NewYork is still extremely on solid ground but let me give you my outlook a littlebit on what I think.

If you have condo product to sell today, it is selling very,very nicely. Do I think that that market will soften up, I only said it wouldsoften up? We only got to rate our product to 30% discount to market.

So I think that what's happening on Wall Street, you wouldthink that there would be some softness in the market. We haven't seen it yetbut I expect that market to soften and all non-Prime products will suffer firstthe client always retains itself fairly well.

But I think we have 10% to 20% softening on the prices but Iguess if you look at the newspaper yesterday and you saw a guy buying $150million apartment, you'd be a little surprise but that's my outlook, it willsoften a little bit.

But as far buyers still keep coming on the residential side,on the office side. It amaze me that the rents that people have achieved overthe last 12 months and we've guided our underwriters on luxury buildings to stillmaintain an underwriting profile depending on location of the $60 to $100range, which is only historically New Yorkers supported new office market.

The $150, $175, $125 rents that were being achieved are notsustainable at least from our underwriting standards. I did hear for the firsttime these weeks some members are low softening in the office market in NewYork City.

I suspect that there will some softening, I knew -- you willsee office market rent coming down to be more inline with what historical rentshave been with some level of appreciation, but not the levels that we haveseen.

Don Fandetti - Citigroup

Okay. Great comment. Thank you.


I would know like to turn the call back over to Arbor RealtyTrust Management for closing remarks.

Ivan Kaufman

Okay. Well, I would just like to thank everybody forparticipating on the call. These will be very interesting times. And we lookforward to your continued participation. Take care.


Thank you for your participation in today's conference. Thisconcludes the presentation. You may now disconnect. And have a good day.

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