Arbor Reports Declines in Net Income, Distributable Earnings in Q1

A combination of crippling tariffs and less-than-great headlines tarnished Arbor Realty Trust (ABR)’s first quarter of 2025 

The nationwide multifamily REIT and direct housing lender announced during Friday’s earnings call that its net income fell to $30.4 million in the first quarter of 2025, or 16 cents per diluted common share, compared to net income of $57.9 million, or 31 cents per diluted common share in the first three months of 2024. 

Moreover, the firm’s distributable earnings for the quarter dropped to $57.3 million from $96.7 million in distributable earnings it announced in the first quarter of 2024. Arbor recently lowered its dividend to investors from 43 cents per share to 30 cents per share to be paid on May 30. 

“We anticipate the next nine months will continue to be very challenging due to the significant drag on earnings from our REO [real estate owned] assets and delinquencies, and from the effect the higher interest rate environment will have on our originations business,” Ivan Kaufman, founder and CEO of Arbor, said during the first-quarter earnings call. “All of which will make 2025 a transition year, which is reflected in our revised dividend.” 

The main culprit for Arbor’s poor first-quarter performance came from a decline in originations, particularly its agency loan business, where Arbor is a Fannie Mae DUS lender, Freddie Mac Optigo Seller and Servicer, and an approved FHA Multifamily Accelerated Processing lender. 

Arbor’s agency loan volume fell from $1.3 billion in the fourth quarter of 2024 to $605 million in the first quarter of 2025. 

But the firm is also dealing with several negative headlines. Last July, the Department of Justice and FBI announced a probe into Arbor’s lending practices and public claims the firm has made about the performance of its loan book. The REIT has since been hit with two separate lawsuits, filed on Feb. 26 and March 17 this year, that allege Arbor’s net income statements and underwriting standards are fraudulent, according to The Real Deal.   

Arbor Chief Financial Officer Paul Elenio has called the allegations “baseless” and “meritless.” 

But there’s no denying Arbor’s lending book is in trouble. 

The multifamily lender reported Friday that it experienced $109 million worth of delinquencies in the first quarter, bringing its total delinquencies as of March 31 to $654 million. The firm said that it expects to take back roughly 30 percent of the pool of assets as REO, or lender-owned, increasing Arbor’s REO’s assets on its balance sheet anywhere from $400 million to $500 million. 

Kaufman said the REO assets will take one to two years to reposition because the performance of the assets have been “greatly affected by poor management and being undercapitalized,” which has resulted in low occupancy and low net operating income. 

“As a result, these REO assets will temporarily create the greatest drag on our earnings,” Kaufman said. “We are working exceptionally hard at resolving our delinquencies, which have been significantly impacted by the higher interest rate environment.”  

Kaufman also took aim at President Donald Trump’s reciprocal tariff policy, which he said has caused “tremendous uncertainty” and “extreme” interest rate volatility since being announced April 2. 

“It will be very hard to predict. … We expect, at least in the short term, for there to be tremendous amounts of volatility and uncertainty,” said Kaufman. 

However, it’s not all doom and gloom for Arbor. Kaufman added that in recent days the market has experienced some relief from decline in the 5-year and 10-year Treasury yields, which he said will be “a positive catalyst for our business,” by driving new agency originations and helping the firm move loans off its balance sheet.    

In March, Arbor entered into a $1.1 billion repurchase facility deal with J.P. Morgan Chase to refinance assets in two of the firm’s existing collateralized loan obligation (CLO) vehicles and redeem at par all investor capital in the vehicles, a move that will generate $80 million in additional liquidity. 

Kaufman called the deal “transformational,” and said the transaction “reinforces the quality of our loan book,” while noting that Arbor will continue to be a big player in the CLO space.   

Arbor originated $200 million in new business for single-family rentals in the first quarter and closed $131 million in new bridge loans in this period, Kaufman reported. 

Arbor’s leader added that as the firm works through its loan portfolio, it’s encouraging its borrowers to recapitalize their deals, even as it purchases interest rate caps and seeks to bring in new sponsors to take over assets. 

“[We’ve made] significant progress for working through our delinquencies and REO assets despite the challenging environment,” said Kauffman. “We’ve been heavily focused on creating efficiencies on our financing facilities to continue to drive higher returns on our capital.”

Brian Pascus can be reached at bpascus@commercialobserver.com