Arbor modifies $1.9B in loans as delinquencies keep rising

Arbor Realty Trust, a prominent multifamily lender, is working to put out fires across its loan books as its borrowers struggle to survive higher interest rates.

The New York-based real estate investment trust modified almost $1.9 billion in loans in the first quarter to help borrowers facing “financial difficulties,” according to a quarterly report filed with the Securities and Exchange Commission.

Arbor modified 39 multifamily bridge loans by extending maturity dates and giving borrowers temporary rate relief. In exchange, some borrowers agreed to pay down principal, buy new rate caps and deposit more cash into reserves for renovations or interest rate jumps.

On about $1.1 billion in loans, borrowers put more cash into the deals — but only about 4 percent of what they owed.

On an earnings call last week, one analyst asked CFO Paul Elenio why Arbor did not require borrowers to contribute more.

“You have to be very pragmatic about how to improve your position on each loan,” he said. “And you have to keep in mind that we have a lot of good borrowers who are failing their assets substantially.”

Some of Arbor’s modifications required the borrower to bring any delinquent loans current. 

Arbor’s loan book is substantially exposed to multifamily borrowers who used floating-rate bridge debt to buy thousands of units across the country while rates were low. After rates soared in 2022, these firms started suffering cash crunches and have struggled to make their new monthly mortgage payments.

At the end of March, Arbor had about $465 million in non-performing loans, meaning at least 60 days past due. That’s up about 70 percent from the end of 2023, according to financial filings.

If it weren’t for those modifications, Arbor would have reported $957 million in non-performing loans. 

The firm is still reporting profits — $57.9 million in net income in the first quarter, down from $84 million in the fourth quarter of last year. 

Many of Arbor’s loans have been packaged into collateralized loan obligations, or CLOs, securities that are sold off to investors. Arbor has the right to buy out a troubled loan in a CLO pool and replace it with a performing one.

On the earnings call, Arbor CFO Paul Elenio said the firm has bought out $223 million in loans from its CLOs, adding the firm has worked out most of that balance.

One short-seller, Viceroy Research, has alleged that the majority of the loans within Arbor’s CLO book are delinquent and in trouble. A Viceroy report in November helped drive the stock down to $12.03 per share from $13.84, but it has since recovered. It closed Monday at $13.42.

On the call, Arbor declined to say how much of the $1.9 billion in modified loans were in Arbor’s CLOs.

“I can’t tell you exactly, but I would say the majority of those loans were probably in the CLOs because the bulk of our loans are financed in the CLOs,” Elenio said.

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