Business Overview and History
Claros Mortgage Trust, Inc. (CMTG) is a commercial real estate (CRE) finance company that has navigated the challenges of the past few years with resilience and a focus on long-term value creation. Headquartered in New York City, CMTG has established itself as a leading provider of debt capital for transitional CRE assets, with a diversified portfolio of senior and subordinate loans primarily in major U.S. markets.
CMTG was formed as a Maryland corporation on April 29, 2015, and commenced operations on August 25, 2015. The company elected and believes it has qualified to be taxed as a real estate investment trust (REIT) for U.S. federal income tax purposes starting in 2015. CMTG is externally managed by Claros REIT Management LP, an affiliate of Mack Real Estate Group, which brings extensive experience in real estate ownership, development, and property management to the table.
During its early years, CMTG focused on originating senior and subordinate loans on transitional commercial real estate assets located primarily in major U.S. markets. The company leveraged its manager's real estate expertise to underwrite and manage these loans, many of which involved repositioning, renovation, or redevelopment of the underlying properties. However, CMTG has faced challenges in the past, including dealing with defaulted borrowers and taking ownership of certain hotel and mixed-use properties through foreclosure in 2021.
In 2022 and 2023, CMTG navigated a period of market volatility and rising interest rates, which impacted its borrowers and the performance of its loan portfolio. The company had to increase reserves and take write-downs on certain loans as a result. CMTG also executed several loan sales during this time to improve liquidity and remove riskier assets from its balance sheet.
As of December 31, 2024, the company's loan portfolio stood at $6.1 billion, down from $6.3 billion at the end of the previous quarter. This decrease was primarily driven by $99 million in loan repayments, including the full repayment of three loans totaling $80 million in unpaid principal balance (UPB), as well as $205 million in loan sales executed during the fourth quarter.
CMTG's portfolio is well-diversified, with 52 loans across various property types, including multifamily (43%), hospitality (19%), office (14%), mixed-use (9%), land (8%), and other (7%). Geographically, the portfolio is concentrated in the United States, with the highest exposures in the West (32%), Northeast (26%), and Mid-Atlantic (12%) regions.
Financial Performance and Liquidity
For the full year 2024, CMTG reported revenue of $601.4 million and a GAAP net loss of $221.3 million, or $1.60 per share. The company's distributable loss was $95.7 million, or $0.67 per share. Distributable earnings prior to realized gains and losses were $114.6 million, or $0.81 per share.
In the fourth quarter of 2024, CMTG recorded revenue of $97.8 million and a net loss of $100.7 million. The company reported a GAAP net loss of $0.72 per share and a distributable loss of $0.59 per share for the quarter. Distributable earnings prior to realized gains and losses were $0.18 per share.
The decrease in revenue and net income was primarily due to a reduction in the size of the loan portfolio, an increase in loans on non-accrual status, and provisions for current expected credit losses. During 2024, CMTG executed $1.3 billion in total realizations, split evenly between repayments and loan sales. Five out of seven loan sales were executed at 97% of par, reflecting the credit quality of those loans.
CMTG's liquidity position remained relatively stable, with $102 million in total liquidity as of December 31, 2024, which includes $99.1 million in cash and cash equivalents and $2.6 million in approved undrawn credit capacity based on existing collateral. The company has been actively managing its balance sheet, with a focus on deleveraging and enhancing liquidity to navigate the challenging market environment.
CMTG's debt-to-equity ratio stood at 0.85x as of December 31, 2024. The company had total debt of $4.9 billion, with a weighted average spread of 3.05% over the applicable benchmark rate. CMTG's Net Debt-to-Equity Ratio was 2.4x, and its Total Leverage Ratio was 2.8x, both of which are within the company's target range.
Navigating Challenges and Seizing Opportunities
The commercial real estate industry has faced significant headwinds in recent years, including the ongoing impact of the COVID-19 pandemic, rising interest rates, and broader macroeconomic uncertainty. CMTG has not been immune to these challenges, as evidenced by the increase in non-accrual and risk-rated loans within its portfolio. As of December 31, 2024, loans on non-accrual status represented 15.3% of CMTG's total loans receivable held-for-investment, based on carrying value net of specific current expected credit loss reserves.
To address these issues, the company has taken a multi-pronged approach. CMTG has been proactive in working with borrowers to execute loan modifications, provide additional credit support, and explore discounted payoff options where appropriate. The goal is to maximize value while also enhancing liquidity and improving the overall credit quality of the portfolio.
For example, in the fourth quarter of 2024, CMTG agreed to a discounted payoff on a $390 million multifamily loan, which allowed the company to generate approximately $100 million in net liquidity. This transaction, while reducing the size of the loan portfolio, was deemed a prudent move given the market conditions and the company's focus on enhancing its financial flexibility.
CMTG has also been actively pursuing loan sales and foreclosures, particularly on its watch-list loans and non-earning or lower-earning assets. The company executed three loan sales with an aggregate UPB of $205 million during the fourth quarter, and it plans to accelerate the resolution of its risk-rated 4 and 5 loans in 2025, which may include additional foreclosures on certain multifamily assets.
While these actions have contributed to CMTG's near-term financial performance, the company remains committed to its long-term strategy of being a premier provider of debt capital for transitional CRE assets. The company believes that the current market environment presents opportunities to enhance its portfolio's credit metrics, reduce leverage, and selectively deploy capital to more accretive investments.
Outlook and Risks
Looking ahead, CMTG's management is cautiously optimistic about the company's prospects. The improvement in commercial real estate transaction volumes and the tightening of CMBS spreads during 2024 are seen as positive indicators for the industry. However, the company acknowledges that the recovery remains uneven and that the elevated interest rate environment continues to pose challenges for both borrowers and lenders.
To that end, CMTG's strategic priorities for 2025 include accelerating the resolution of its watch-list loans, enhancing liquidity, and reducing leverage. The company expects the pace of resolutions to accelerate in 2025, including the remaining held-for-sale loans, the hotel portfolio, and anticipated loan repayments. CMTG anticipates between one-third and two-thirds of this total to be finalized in the coming quarters, with approximately 40% of such proceeds increasing their liquidity.
Enhancing liquidity, reducing the levels of watch list loans, non-earning or sub-optimal earning assets, and deleveraging the balance sheet will be a focus area for CMTG in 2025. The company believes that by focusing on these areas, it can position itself to take advantage of emerging investment opportunities and drive long-term value creation for its shareholders.
Risks facing CMTG include the potential for further credit deterioration within its portfolio, difficulties in securing or maintaining financing arrangements, and ongoing macroeconomic and geopolitical uncertainties that could impact the commercial real estate market. The company has also faced volatility in its stock price, although it has not reported any major scandals or short seller reports.
Despite these challenges, CMTG remains committed to its core strategy and is leveraging the expertise and resources of its Sponsor, Mack Real Estate Group, to navigate the current environment. The company's strong underwriting capabilities, focus on transitional CRE assets, and diversified portfolio provide a solid foundation for long-term success, even in the face of near-term headwinds.
Conclusion
Claros Mortgage Trust, Inc. (CMTG) has demonstrated resilience and adaptability in the face of a rapidly changing commercial real estate landscape. While the company has faced its fair share of challenges, including credit quality issues and macroeconomic uncertainty, CMTG's management team has taken proactive steps to enhance liquidity, reduce leverage, and position the company for long-term success.
As CMTG looks to the future, its focus on resolving watch-list loans, selectively deploying capital, and leveraging its Sponsor's expertise will be key to navigating the evolving market conditions. With a diversified portfolio, a strong underwriting approach, and a commitment to creating value for shareholders, CMTG appears well-positioned to weather the current storm and emerge as a leading player in the CRE finance industry.
The company's ability to execute its strategy in the face of ongoing market challenges will be crucial in determining its success in the coming years. While CMTG does not have any specific plans to raise additional equity capital at this time, it will continue to evaluate its capital needs and market conditions to ensure it has the resources necessary to capitalize on opportunities and manage risks effectively.