Ladder Capital Corp

Previous wording

•We cannot predict the effect that government policies, laws, and interventions adopted in response to the current inflationary environment or the impact of future changes in the U.S. political environment, including as a result of 2024 elections, on our business and the markets in which we operate.

Current wording

•We cannot predict the effect that government policies, laws, and interventions adopted in response to an inflationary environment or the impact of changes in the U.S. political environment, including as a result of the change in administration, on our business and the markets in which we operate.

Previous wording

•The repayment of mortgage loans may be limited by the application of federal, state and local law, including state, bankruptcy, insolvency and other debtor and tenant relief laws, the non-recourse and potentially illiquid nature of mortgage loans, our ability to evaluate the credit-worthiness of borrowers and to diligence the underlying property, including environmental issues and the property’s ability to generate sufficient net income, our ability to manage credit risk and modify or restructure non-performing loans, the sufficiency of appropriate reserves, subordination, the lack of full control due to a participation or co-lender arrangement, and proper insurance coverage.

Current wording

•The repayment of mortgage loans may be limited by factors such as: federal, state and local laws, including bankruptcy, insolvency and other debtor and tenant relief laws; their non-recourse and potentially illiquid nature; our evaluation of the creditworthiness of borrowers and the underlying properties, including environmental issues and a property’s income potential; our ability to manage credit risk and modify or restructure non-performing loans; the sufficiency of reserves; subordination; the lack of full control as a participant or co-lender; and insurance coverage.

Previous wording

Current and future venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on venture partners’ financial condition and liquidity and disputes between us and our venture partners.

Current wording

•Current and future venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on venture partners’ financial condition and liquidity and disputes between us and our partners.

Previous wording

•There can be no assurance that we will be able to access financing arrangements in the future on favorable terms, or at all, and our compliance with associated restrictive covenants and the potential need for additional collateral may limit our ability to fully pursue our business strategies.

Current wording

•There can be no assurance that we will be able to access financing on favorable terms, or at all, and restrictive covenants and the potential need for additional collateral may limit our ability to fully pursue our business strategies.

Previous wording

Any credit ratings assigned to our investments could be downgraded, which could have a material impact on our financial condition, liquidity and results of operations.

Current wording

•Any credit ratings assigned to the debt securities we issue or our investments could be downgraded, which could have a material impact on our financial condition, liquidity and results of operations.

Previous wording

•Our captive insurance subsidiary is subject to insurance laws and its borrowings are subject to FHLB policies.

Current wording

•Our captive insurance subsidiary is subject to insurance laws.

Previous wording

•Hedging transactions may be subject to mandatory clearing and/or margin requirements and not have a liquid secondary market.

Current wording

•Hedging transactions may be subject to clearing and/or margin requirements and not have a liquid secondary market.

Previous wording

•Our business model and changes to our investment, asset allocation and financing policies, may not be successful.

Current wording

•Our business model and our investment, asset allocation and financing policies, may not be successful.

Previous wording

•Failure to maintain effective internal controls and the complexity of accounting and tax rules, characterized by significant judgment and assumptions, could materially affect the accuracy of our financial statements.

Current wording

•Failure to maintain effective internal controls and the complexity of accounting and tax rules, characterized by significant judgment and assumptions, could materially affect the accuracy and timeliness of our financial statements.

Previous wording

•Cybersecurity threats, security breaches and artificial intelligence (“AI”) could cause significant business disruption and possibly compromise sensitive information, damage our reputation, and subject us to regulatory scrutiny.

Current wording

•Cybersecurity threats and security breaches could cause significant business disruption and possibly compromise sensitive information, damage our reputation, and subject us to regulatory scrutiny.

Previous wording

The allocation of capital among our business lines may vary, which may adversely affect our financial performance.

Current wording

The allocation of capital among our business lines may vary, which may adversely affect our financial performance and liquidity.

Previous wording

In executing our business plan, we regularly consider the allocation of capital to our various commercial real estate business lines, including commercial mortgage lending, investments in securities secured by first mortgage loans, and investments in selected net leased and diversified commercial real estate properties. The allocation of capital among such business lines may vary due to market conditions, the expected relative return on equity of each activity, the judgment of our management team, the demand in the marketplace for commercial real estate loans and securities and the availability of specific investment opportunities. We also consider the availability and cost of our likely sources of capital. If we fail to appropriately allocate capital and resources across our business lines or fail to optimize our investment and capital raising opportunities, our financial performance may be adversely affected.

Current wording

In executing our business plan, we regularly consider the allocation of capital to our various commercial real estate business lines, including: (i) our primary business of originating senior first mortgage fixed and floating rate loans collateralized by commercial real estate with flexible loan structures; (ii) owning and operating commercial real estate, including net leased commercial properties; and (iii) investing in investment grade securities secured by first mortgage loans on commercial real estate. The allocation of capital among such business lines may vary due to market conditions, the expected relative return on equity of each activity, the judgment of our management team, the demand in the marketplace for commercial real estate loans and securities and the availability of specific investment opportunities. We also consider the availability and cost of our likely sources of capital. If we fail to appropriately allocate capital and resources across our business lines or fail to optimize our investment and capital raising opportunities, our liquidity and financial performance may be adversely affected.

Previous wording

We operate using financial models and according to proprietary underwriting criteria in a highly competitive market for lending and other investment opportunities, which may limit our ability to originate or acquire desirable loans and other investments in our target assets and/or our ability to yield a certain return on our investments.

Current wording

We operate using financial models and according to proprietary underwriting criteria in a highly competitive market for lending and other investment opportunities, which may limit our ability to originate or acquire desirable loans and other investments in our target assets and/or our ability to finance and yield a certain return on our investments.

Previous wording

To evaluate our target assets, our management team uses financial models and underwriting criteria, the effectiveness of which cannot be guaranteed. Our profitability depends, in large part, on our ability to originate loans or acquire target assets at attractive prices that, in our judgment, meet our criteria according to the results of our modeling. However, we operate in a highly competitive market for lending and other investment opportunities. In originating or acquiring target assets, we compete with a variety of institutional lenders and investors and many other market participants, including specialty finance companies, REITs, commercial banks and thrift institutions, investment banks, insurance companies, hedge funds and other financial institutions. Many competitors are substantially larger and have considerably greater financial, technical, marketing and other resources than we do. Unlike Ladder, certain of our competitors may not be subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from registration under the Investment Company Act. Some competitors may have a lower cost of funds and access to funding sources that may not be available to us. Under our credit facilities, the lenders have the right to review the assets which we are seeking to finance and approve the purchase and financing of such assets in their sole discretion. Our underwriting criteria and lender approvals may restrict us from being able to compete with others for commercial mortgage loan origination and acquisition opportunities and these criteria may be stricter than those employed by our competitors. In addition, these underwriting criteria and approvals impose conditions and limitations on our ability to originate certain of our target assets, including, in particular, restrictions on our ability to originate junior mortgage loans, mezzanine loans and preferred equity investments. Furthermore, competition for originations of, and investments in, our target assets may lead to the yield of such assets decreasing, which may further limit our ability to generate desired returns.

Current wording

REIT tax compliance or maintenance of an exemption from registration under the Investment Company Act. Some competitors may have a lower cost of funds and access to funding sources that may not be available to us. Under our credit facilities, the lenders have the right to review the assets which we are seeking to finance and approve the purchase and financing of such assets in their sole discretion. Our underwriting criteria and lender approvals may restrict us from being able to compete with others for commercial mortgage loan origination and acquisition opportunities and these criteria may be stricter than those employed by our competitors. In addition, these underwriting criteria and approvals impose conditions and limitations on our ability to originate certain of our target assets, including, in particular, restrictions on our ability to originate junior mortgage loans, mezzanine loans and preferred equity investments. Furthermore, competition for originations of, and investments in, our target assets may lead to the yield of such assets decreasing, which may further limit our ability to generate desired returns.

Previous wording

We cannot predict the effect that government policies, laws, and interventions adopted in response to the current inflationary environment or the impact of future changes in the U.S. political environment, including as a result of 2024 elections, on our business and the markets in which we operate.

Current wording

We cannot predict the effect that government policies, laws, and interventions adopted in response to an inflationary environment or the impact of changes in the U.S. political environment, including as a result of the change in administration, on our business and the markets in which we operate.

Previous wording

The U.S. Government and the Federal Reserve have taken significant actions in response to the inflationary environment in the U.S., creating a great deal of volatility in financial and mortgage markets. For example, the tightening of monetary policy to address inflationary concerns drove a rapid and significant increase in interest rates, which resulted in a decline in commercial real estate transactions and an increased risk of economic distress for commercial property owners. There can be no assurance as to how actions taken by the U.S. Government or the Federal Reserve will affect the long-term efficiency, liquidity and stability of the financial and mortgage markets or whether they will be successful in reducing inflation to acceptable levels without creating an economic recession.

Current wording

The U.S. Government and the Federal Reserve took significant actions in response to the inflationary environment in the U.S. in recent years, creating a great deal of volatility in financial and mortgage markets. For example, the tightening of monetary policy to address inflationary concerns drove a rapid and significant increase in interest rates, which resulted in a decline in commercial real estate transactions and an increased risk of economic distress for commercial property owners. Volatility in interest rates and credit spreads made the purchase and sale of real estate by potential borrowers challenging, which in turn affects the frequency of commercial real estate financing opportunities. There can be no assurance as to how actions taken by the U.S. Government or the Federal Reserve will affect the short- or long-term efficiency, liquidity, and stability of the financial and mortgage markets.

Previous wording

Moreover, uncertainty with respect to the actions discussed above combined with uncertainty surrounding legislation, regulation and government policy at the federal, state and local levels, including as a result of 2024 elections, have introduced new and difficult-to-quantify macroeconomic and geopolitical risks with potentially far-reaching implications. There has been a corresponding increase in uncertainty with respect to interest rates, inflation, foreign exchange rates, trade volumes and trade, fiscal and monetary policy. New legislative, regulatory or policy changes could significantly impact our business and the markets in which we operate. To the extent changes in the political environment have a negative impact on the financial and mortgage markets, our business, results of operations, financial condition and ability to make distributions to our shareholders could be materially and adversely impacted.

Current wording

Moreover, uncertainty with respect to the actions discussed above combined with uncertainty surrounding legislation, regulation and government policy at the federal, state and local levels, including as a result of the change in administration, have introduced new and difficult-to-quantify macroeconomic and geopolitical risks with potentially far-reaching implications. There has been a corresponding increase in uncertainty with respect to interest rates, tariffs, inflation, foreign exchange rates, trade volumes and trade, fiscal and monetary policy. Inflation has also increased our operating costs in recent years. New legislative, regulatory or policy changes could significantly impact our business and the markets in which we operate. To the extent changes in the political environment have a negative impact on the financial and mortgage markets, our business, results of operations, financial condition and ability to make distributions to our shareholders could be materially and adversely impacted.

Previous wording

Income from, and the value of, our investments may be adversely affected by many factors that are beyond our control, including:

Current wording

Income from, and the value of, our investments may be adversely affected by many factors that are beyond our control, including, but not limited to:

Previous wording

•changes in generally accepted accounting principles;

Current wording

•changes in generally accepted accounting principles in the United States (“GAAP”);

Previous wording

•the broader impacts of the Ukraine-Russia and Hamas-Israel conflicts;

Current wording

•the broader impacts of global tensions such as the Ukraine-Russia and Middle East conflicts; and

Previous wording

•civil unrest, terrorism, acts of war, outbreaks of communicable diseases, nuclear or radiological disasters and natural disasters, including earthquakes, hurricanes, tornadoes, tsunamis, floods, and other extreme weather and permanent climate changes, which may result in uninsured and underinsured losses; and

Current wording

•civil unrest, terrorism, acts of war, outbreaks of communicable diseases, nuclear or radiological disasters, climate change and natural disasters.

Previous wording

Any significant dislocations, illiquidity or volatility in the real estate and securitization markets, including the markets for CMBS and CLOs, as well as global financial markets and the economy generally, could adversely affect our business and financial results. We cannot assure you that dislocations in the commercial mortgage loan market will not occur in the future.

Current wording

Any significant dislocations, illiquidity or volatility in the real estate and securitization markets, including the markets for commercial real estate related securities, as well as global financial markets and the economy generally, could adversely affect our business and financial results. We cannot assure you that dislocations in the commercial mortgage loan market will not occur in the future. Challenging economic conditions affect the financial strength of many commercial, multifamily and other tenants and result in increased rent delinquencies and decreased occupancy. Economic challenges have in the past and may in the future lead to decreased occupancy, decreased rents or other declines in income from, or the value of, commercial, multifamily and manufactured housing community real estate. When a borrower is, or is expected, to be delinquent on payments, we may exercise our judgment to designate the loan as non-accrual and cease recognizing interest income on that loan, directly impacting our profitability. Additionally, we may increase our loan loss reserve to set aside more capital to cover potential losses, which can reduce our shareholders’ equity. However, each of these judgments carries the risk of being incorrect, and if we decide not to take any action, it could result in further losses.

Previous wording

Declining commercial real estate values, coupled with tighter underwriting standards for commercial real estate loans, may prevent commercial borrowers from refinancing their mortgages, which may result in increased delinquencies and defaults on commercial, multifamily and other mortgage loans. Declines in commercial real estate values also tend to result in reduced borrower equity, further hindering borrowers’ ability to refinance in an environment of increasingly restrictive lending standards and giving them less incentive to cure delinquencies and avoid foreclosure. The lack of refinancing opportunities has impacted and could impact in the future, in particular, mortgage loans that do not fully amortize and on which there is a substantial balloon payment due at maturity, because borrowers generally expect to refinance these types of loans on or prior to their maturity date. Finally, declining commercial real estate values would result in lower recoveries on foreclosure and an increase in losses above those that would have been realized had commercial property values remained the same or increased. Continuing defaults, delinquencies and losses would further decrease property values, thereby resulting in additional defaults by commercial mortgage borrowers, further credit constraints and further declines in property values.

Current wording

Declining commercial real estate values, coupled with tighter underwriting standards for commercial real estate loans, may prevent commercial borrowers from refinancing their mortgages, which may result in increased delinquencies and defaults on commercial, multifamily and other mortgage loans. Declines in commercial real estate values also tend to result in reduced borrower equity, further hindering borrowers’ ability to refinance in an environment of increasingly restrictive lending standards and giving them less incentive to cure delinquencies and avoid foreclosure. The lack of refinancing opportunities has impacted and could impact in the future, in particular, mortgage loans that do not fully amortize and on which there is a substantial balloon payment due at maturity, because borrowers generally expect to refinance these types of loans on or prior to their maturity date. Finally, declining commercial real estate values would result in lower recoveries on foreclosure and an increase in losses above those that would have been realized had commercial property values remained the same or increased.

Previous wording

In recent periods, sales by online retailers have increased, and many retailers operating brick and mortar stores have made online sales a vital piece of their business. Some of our debt and equity investments involve exposure to the ongoing operations of brick-and-mortar retailers. Although many of the retailers operating in the properties underlying our debt and/or equity investments include pharmacies and/or sell groceries and other necessity-based soft goods or provide services, including entertainment and dining options, the shift to online shopping may cause declines in brick-and-mortar sales generated by certain of tenants at these properties and/or may cause certain of our tenants to reduce the size or number of their retail locations in the future.

Current wording

Sales by online retailers continue to increase, and many retailers operating brick and mortar stores have made online sales a vital piece of their business. Some of our debt and equity investments involve exposure to the ongoing operations of brick-and-mortar retailers. Although many of the retailers operating in the properties underlying our debt and/or equity investments include pharmacies and/or sell groceries and other necessity-based soft goods or provide services, including entertainment and dining options, the shift to online shopping and other forms of self-service may cause declines in brick-and-mortar sales generated by certain of tenants at these properties and/or may cause certain of our tenants to reduce the size or number of their retail locations in the future.

Previous wording

Technology and remote work policies, including hybrid schedules, have and will continue to impact the use of office space. The office market has seen a shift in the use of space due to the availability of practices such as telecommuting, videoconferencing and renting shared workspaces. These trends have led to more efficient workspace layouts and higher percentages of employees working remotely at least part of the week and, therefore, a decrease in leased office space. The continuing impact of technology and remote work policies could result in tenants utilizing less office space (including downsizing upon renewal), or in tenants seeking office space outside of the typical central business district. These trends could continue to cause an increase in vacancy rates and a decrease in demand for new supply, negatively impacting the value of our debt and equity investments.

Current wording

Technology and remote work policies, including hybrid schedules, have and will continue to impact the use of office space. The office market has seen a shift in the use of space due to the availability of practices such as telecommuting, videoconferencing and renting shared workspaces. These trends have led to more efficient workspace layouts and higher percentages of employees working remotely at least part of the week and, therefore, a decrease in leased office space. The continuing impact of technology and remote work policies could result in tenants utilizing less office space (including downsizing upon renewal), or in tenants seeking office space outside of the typical central business district. The increase in hybrid work schedules and the diminishing allure of urban living and socializing near workplaces also present a risk to adjacent retail and multifamily spaces. These trends could continue to cause an increase in vacancy rates and a decrease in demand for new supply, negatively impacting the value of our debt and equity investments.

Previous wording

During 2022 and 2023, the U.S. Federal Reserve raised its benchmark interest rates at the fastest pace since the 1980s. Our primary interest rate exposures relate to the yield on our floating rate assets and the financing cost of our floating rate debt, as well as the Treasury futures that we utilize for hedging purposes. Interest rates are highly sensitive to many factors beyond our control, including but not limited to, governmental monetary and tax policies, and domestic and international economic and political considerations. Interest rate fluctuations present a variety of risks and may adversely affect our income or generate losses. Such risks include a mismatch between asset yields and borrowing rates and variances in the yield curve and prepayment rates. Increased interest rates also impact borrowers’ ability to refinance their loans at maturity and while the interest payable on the existing fixed rate debt on our real estate portfolio and corporate bonds becomes relatively cheaper with higher market interest rates, we may have to refinance this debt at higher rates at maturity.

Current wording

Our primary interest rate exposures relate to the yield on our floating rate assets and the financing cost of our floating rate debt, as well as the Treasury futures that we utilize for hedging purposes. Interest rates are highly sensitive to many factors beyond our control, including but not limited to, governmental monetary and tax policies, and domestic and international economic and political considerations. Interest rate fluctuations present a variety of risks and may adversely affect our income or generate losses. Such risks include a mismatch between asset yields and borrowing rates and variances in the yield curve and prepayment rates. Increased interest rates also impact borrowers’ ability to refinance their loans at maturity and while the interest payable on the existing fixed rate debt on our real estate portfolio and corporate bonds becomes relatively cheaper with higher market interest rates, we may have to refinance this debt at higher rates at maturity.

Previous wording

We are exposed to the risk of increased prepayments or defaults by any mortgage or security that we own at a premium. Any principal paydown diminishes the amount outstanding in these securities and reduces the yield to us. Conversely, if we purchase assets at a discount to par value, when borrowers prepay their loans slower than expected, the decrease in corresponding prepayments on the mortgage-related securities may reduce the expected yield on such securities because we will not be able to accrete the related discount as quickly as originally anticipated. In addition, as a result of the risk of prepayment, the market value of the prepaid assets may benefit from declining interest rates less than other fixed income securities. Because our portfolio is comprised of both discount assets and premium assets, our portfolio may be adversely affected by changes in prepayments in any interest rate environment. Before purchasing a security, we judge the likelihood of prepayment based on certain prepayment and default parameters and our own experience. Different estimates, judgments and assumptions reasonably could be used that would have a material effect on our judgment and, accordingly, result in losses to our business.

Current wording

We are also exposed to the risk of increased prepayments or defaults by any mortgage underlying a security that we own at a premium. Any principal paydown diminishes the amount outstanding in these securities and reduces the yield to us. Conversely, if we purchase securities at a discount to par value, when borrowers prepay their loans slower than expected, the decrease in corresponding prepayments on the mortgage-related securities may reduce the expected yield on such securities because we will not be able to accrete the related discount as quickly as originally anticipated. In addition, as a result of the risk of prepayment, the market value of the prepaid assets may benefit from declining interest rates less than other fixed income securities. Because our portfolio is comprised of both discount assets and premium assets, our portfolio may be adversely affected by changes in prepayments in any interest rate environment. Before purchasing a security, we judge the likelihood of prepayment based on certain prepayment and default parameters and our own experience. Different estimates, judgments and assumptions reasonably could be used that would have a material effect on our judgment and, accordingly, result in losses to our business.

Previous wording

The vast majority of the mortgage loans that we originate or purchase, and those underlying the CMBS in which we invest, are non-recourse loans and our credit management and the assets securing the loans may not be sufficient to protect us from a partial or complete loss if the borrower defaults on the loan.

Current wording

The vast majority of the mortgage loans that we originate or purchase, and those underlying the CMBS and other real estate-related securities in which we invest, are non-recourse loans and our credit management and the assets securing the loans may not be sufficient to protect us from a partial or complete loss if the borrower defaults on the loan.

Previous wording

Despite our efforts to manage credit risk, there are many aspects of credit risk that we cannot control. Our credit policies and procedures may not be successful in limiting future delinquencies, defaults, foreclosures or losses, particularly in relation to declining economic conditions or significant market disruptions, or they may not be cost effective. Our underwriting process, due diligence efforts or hedging strategies, if any, may not be effective or sufficient. Loan servicing companies or our operating partners may not cooperate with our loss mitigation efforts, or those efforts may be ineffective. Service providers to securitizations, such as trustees, loan servicers, bond insurance providers, and custodians, as well as our operating partners and their property managers, may not perform in a manner that promotes our interests. Delay of foreclosures could delay resolution and increase ultimate loss severities, as a result.

Current wording

Despite our efforts to manage credit risk, there are many aspects of credit risk that we cannot control. Our credit policies and procedures may not be successful in limiting future delinquencies, defaults, foreclosures or losses, particularly in relation to declining economic conditions or significant market disruptions, or they may not be cost effective. Our underwriting process, due diligence efforts or hedging strategies, if any, may not be effective or sufficient. Loan servicing companies or our operating partners may not cooperate with our loss mitigation efforts, or those efforts may be ineffective. Service providers to securitizations, such as trustees, loan servicers, bond insurance providers, and custodians, as well as operating partners and property managers, may not perform in a manner that promotes our interests. As a result, delay of foreclosures could delay resolution and increase ultimate loss severities.

Previous wording

Except for customary non-recourse carve-outs for certain actions and environmental liability, most commercial mortgage loans, including those underlying the CMBS in which we invest, are effectively non-recourse obligations of the sponsor and borrower, meaning that there is no recourse against the assets of the borrower or sponsor other than the underlying collateral. In the event of any default under a mortgage loan held directly by us, we will bear a risk of loss to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations. Even if a mortgage loan is recourse to the borrower (or if a non-recourse carve-out to the borrower applies), in many cases, the borrower’s assets are limited primarily to its interest in the related mortgaged property. Further, although a mortgage loan may provide for limited recourse to a principal or affiliate of the related borrower (e.g., a specific guaranty relating to completion, carry, interest rate caps, reserve replenishments or payment), there is no assurance that any recovery from such principal or affiliate will be made or that such principal’s or affiliate’s assets would be sufficient to pay any otherwise recoverable claim. In the event of the bankruptcy of a borrower, the loan to such borrower is deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

Current wording

Except for customary non-recourse carve-outs for certain actions and environmental liability, most commercial mortgage loans, including those underlying the CMBS and other real estate-related securities in which we invest, are effectively non-recourse obligations of the sponsor and borrower, meaning that there is no recourse against the assets of the borrower or sponsor other than the underlying collateral. In the event of any default under a mortgage loan held directly by us, we will bear a risk of loss to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations. Even if a mortgage loan is recourse to the borrower (or if a non-recourse carve-out to the borrower applies), in many cases, the borrower’s assets are limited primarily to its interest in the related mortgaged property. Further, although a mortgage loan may provide for limited recourse to a principal or affiliate of the related borrower (e.g., a specific guaranty relating to completion, carry, interest rate caps, reserve replenishments or payment), there is no assurance that any recovery from such principal or affiliate will be made or that such principal’s or affiliate’s assets would be sufficient to pay any otherwise recoverable claim. In the event of the bankruptcy of a borrower, the loan to such borrower is deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law.

Previous wording

The commercial real estate mortgages and other commercial real estate-related loans we provide, the commercial mortgage loans underlying the CMBS in which we may invest, and the real estate that we own are subject to the ability of the commercial property to generate net income.

Current wording

The commercial real estate mortgages and other commercial real estate-related loans we provide, the commercial mortgage loans underlying the CMBS and other real estate-related securities in which we may invest, and the real estate that we own are subject to the ability of the commercial property to generate net operating income (“NOI”).

Previous wording

The commercial real estate mortgage loans and other commercial real estate-related loans we provide, the commercial mortgage loans underlying the securities in which we may invest, and the real estate that we own are subject to the ability of the commercial property to generate net income (and not the independent income or assets of the borrower in the case of mortgage loans). Any reductions in net operating income (“NOI”) increase the risks of delinquency, foreclosure and default, which could result in losses to us. NOI of an income-producing property can be affected by many factors, including, but not limited to:

Current wording

The commercial real estate mortgage loans and other commercial real estate-related loans we provide, the commercial mortgage loans underlying the securities in which we may invest, and the real estate that we own are subject to the ability of the commercial property to generate NOI (and not the independent income or assets of the borrower in the case of mortgage loans). Any reductions in NOI increase the risks of delinquency, foreclosure and default, which could result in losses to us. NOI of an income-producing property can be affected by many factors, including, but not limited to:

Previous wording

•challenges to the borrower’s claim of title to the real property;

Current wording

•challenges to the owner’s claim of title to the real property;

Previous wording

•a decline in the operational performance of a facility on the real property (such facilities may include multifamily rental facilities, office properties, retail facilities, hospitality facilities, healthcare-related facilities, industrial facilities, warehouse facilities, restaurants, mobile home facilities, recreational or resort facilities, arenas or stadiums, religious facilities, parking lot facilities or other facilities); and

Current wording

•a decline in the operational performance of a facility on the real property (such facilities may include multifamily rental facilities, office properties, retail facilities, hospitality facilities, healthcare-related facilities, industrial facilities, warehouse facilities, restaurants, mobile home facilities, recreational or resort facilities, parking lot facilities or other facilities); and

Previous wording

The ability of a property owner, whether one of our borrowers or ourselves with respect to commercial properties we own, and our own financial performance with respect to commercial properties we own, will depend on the performance and financial health of the underlying tenants, which may be difficult to assess or predict. In addition, as the number of tenants with respect to a commercial property decreases or as tenant spaces on a property must be relet, the nonperformance risk of the loan related to such commercial property may increase. Any one or more of the preceding factors could materially impair our ability to recover principal in a foreclosure on the related loan as lender and repay the principal as borrower. A substantial portion of our portfolio may be committed to the origination or purchasing of commercial real estate loans to small and medium-sized, privately owned businesses. Compared to larger, publicly owned firms, such companies generally have limited access to capital and higher funding costs, may be in a weaker financial position and may need more capital to expand or compete. The above financial challenges may make it difficult for such borrowers to make scheduled payments of interest or principal on their loans. Accordingly, advances made to such types of borrowers entail higher risks than advances made to companies who are able to access traditional credit sources.

Current wording

The ability of a property owner, whether one of our borrowers or ourselves with respect to commercial properties we own, and our own financial performance with respect to commercial properties we own, will depend on the performance and financial health of the underlying tenants, which may be difficult to assess or predict. In addition, as the number of tenants with respect to a commercial property decreases or as tenant spaces on a property must be relet, the nonperformance risk of the loan related to such commercial property may increase. Any one or more of the preceding factors could materially impair our ability to recover principal in a foreclosure on the related loan as lender and repay the principal as borrower. A substantial portion of our portfolio may be committed to the origination or purchasing of commercial real estate loans to small and medium-sized, privately owned businesses. Compared to larger, publicly owned firms, such companies generally have limited access to capital and higher funding costs, may be in a weaker financial position and may need more capital to expand or compete. The above financial challenges may make it difficult for such borrowers to make scheduled payments of interest or principal on their loans.

Previous wording

Consumer demand, combined with tight labor markets and supply chain imbalances have created inflationary pressure on the economy. Increased operating costs could stress property performance and thus mortgage loan performance.

Current wording

Consumer demand, combined with tight labor markets, increased government spending, and supply chain imbalances have created inflationary pressure on the economy in recent years. Increased operating costs could stress property performance and thus mortgage loan performance.

Previous wording

Consumer demand, combined with tight labor markets, increased government spending and supply chain imbalances have created inflationary pressure on the U.S. economy. Inflation, along with governmental measures to control inflation, including significant increases to interest rates, coupled with public speculation about possible future governmental measures to be adopted, has had significant negative effects on national, regional and local economies.

Current wording

Consumer demand, combined with tight labor markets, increased government spending and supply chain imbalances have created inflationary pressure on the U.S. economy in recent years. Inflation, along with governmental measures to control inflation, including significant increases to interest rates, coupled with public speculation about possible future governmental measures (such as tariffs) to be adopted, has had significant negative effects on national, regional and local economies.

Previous wording

Loans may be or become non-performing for a variety of reasons, including, without limitation, because the underlying property is too highly leveraged or the borrower falls upon financial distress, in either case, resulting in the borrower being unable to meet its debt service obligations. Such loans may require anything from minor modifications to a substantial amount of workout negotiations and/or restructuring, which may divert attention from other activities and may entail, among other things, a substantial reduction in the interest rate and a substantial write-down of the principal of the loan. Moreover, the ability to implement a successful modification or restructuring entails a high degree of uncertainty, and we may not be able to implement any such modification or restructuring on favorable terms or at all. The financial or operating difficulties relating to the distressed or non-performing loan may never be overcome.

Current wording

Loans may be or become non-performing for a variety of reasons, including, without limitation, because the underlying property is too highly leveraged or the borrower falls upon financial distress, in either case, resulting in the borrower being unable to meet its debt service obligations. Such loans may require anything from minor modifications to a substantial amount of workout negotiations and/or restructuring, which may divert attention from other activities and may entail, among other things, a substantial reduction in the interest rate, a substantial write-down of the principal of the loan and significant legal costs. A loan could also be designated as non-accrual during the collection and/or foreclosure process, which in turn would have a negative effect on our operating results. Moreover, the ability to implement a successful modification or restructuring entails a high degree of uncertainty, and we may not be able to implement any such modification or restructuring on favorable terms or at all. The financial or operating difficulties relating to the distressed or non-performing loan may never be overcome.

Previous wording

The success of our origination or acquisition of investments significantly depends on the financial stability of the borrowers and tenants underlying such investments. Before making a loan to a borrower, we assess the strength and skills of that entity’s management and other factors that we believe are material to the performance of the investment. In making the assessment and otherwise conducting customary due diligence, we rely on the resources available to us and, in some cases, an investigation by third parties.

Current wording

The success of our origination or acquisition of investments significantly depends on the financial healthy of the borrowers and tenants underlying such investments. We assess the strength and skills of that entity’s management and other factors that we believe are material to the performance of the investment using our own resources and, in some cases, an investigation by third parties.

Previous wording

The commercial real estate lending business depends on the creditworthiness and skills of borrowers and the sponsors thereof, which we must judge. In making such judgment, we will depend on information obtained from non-public sources and the borrowers in making many decisions related to our portfolio, and such information may be difficult to obtain or may be inaccurate. As a result, we may be required to make decisions based on incomplete information or information that is impossible or impracticable to verify. A determination as to the creditworthiness of a prospective borrower is based on a wide range of information. Even if we are provided with full and accurate disclosure of all material information concerning a borrower, we may misinterpret or incorrectly analyze this information, which may cause us to originate or purchase loans that we otherwise would not have originated or purchased and, as a result, may negatively impact our business or the borrower could still defraud us after origination leading to a loss and negative publicity.

Current wording

In making a judgment regarding the creditworthiness and skills of a borrower or sponsor and in making many decisions related to our portfolio, we will depend on information obtained from public and non-public sources and the borrower or sponsor, and such information may be difficult to obtain or may be inaccurate. As a result, we may be required to make decisions based on incomplete information or information that is impossible or impracticable to verify. A determination as to the creditworthiness of a prospective borrower is based on a wide range of information. Even if we are provided with full and accurate disclosure of all material information concerning a borrower, we may misinterpret or incorrectly analyze this information, which may cause us to originate or purchase loans that we otherwise would not have originated or purchased and, as a result, may negatively impact our business or the borrower could still defraud us after origination leading to a loss and negative publicity.