Ready Capital's Balancing Act: Exiting Legacy CRE, Doubling Down on SBA 7(a)
Q2 2026 shows 81% of the liquidity plan complete, but net interest income has swung negative; the path to profitability now rests on portfolio runoff, SBA growth, and cost cuts.
RC · Earnings Call · 2026-08-07
A pivot from liquidation to self-funding growth
Ready Capital's second-quarter 2026 earnings call marked a clear inflection in strategy. CEO Tom Capasse opened by asserting that "the second quarter of 2026 demonstrates meaningful progress in our balance sheet repositioning strategy," and detailed a series of completed sales and financings that have raised roughly $1.9 billion in cash and paid down $1.7 billion of debt. The company now says it has achieved "approximately 81% of our target liquidity plan," and importantly, it is pivoting away from bulk asset sales as the primary source of liquidity.
We have also completed several important financings and believe that multiple initiatives are coming together to meet our corporate obligations as we build towards sustainable profitability.
The remaining funding gap is expected to be closed through three levers: optimizing the financing on ~$950 million of CRE loans, selling or financing a $118 million joint venture position, and ~$900 million of anticipated Portfolio runoff from the legacy book. Management was explicit that "we are no longer budgeting loan sales at this stage," a reversal from prior quarters when sales were central to the plan.
The legacy drag and the path to a smaller, cleaner balance sheet
The legacy CRE book still sits at ~$2.7 billion across 172 positions, with 37% (about $1 billion) in sub- and nonperforming assets. These assets carry an average duration of just 11 months, with an equity position of $436 million. “The balance of what we're looking at is the optimization of financing on $950 million of performing and nonperforming loans and runoff on $900 million, and a potential sale or financing on a $118 million joint venture position.” — Thomas Capasse, Chief Executive Officer · 2026-08-07 The largest single asset remains the Portland Ritz property, which accounts for ~66% of total REO and ~22% of quarter-end stockholders' equity. Condo sellout has reached 40%, with 50 units sold and 3 under contract; hotel operations continue to improve—occupancy up 10% to 52% and RevPAR up 20% year-over-year. The drag on earnings from nonperforming, subperforming, and REO assets was quoted at $0.29 per share in the quarter, and book value declined 8.1% sequentially—a substantial deceleration from the 15.5% and 14.5% declines in the prior two quarters. The company expects this legacy book to run off quickly, and it is already seeing the benefits of a smaller, more focused balance sheet.
SBA 7(a) as the growth engine
With CRE on the backburner, the company is placing its growth bet on SBA business under the SBA 7(a) program. Second-quarter originations were just $82 million, well below capacity, but the June securitization of $158 million of unguaranteed SBA 7(a) loans at a 92% advance added $500 million of incremental funding capacity. Since then, $43 million of new loans have been originated, and management reaffirmed the annual target of $1.5 billion in originations. "We intend to accelerate our capital levels through more frequent SBA 7(a) ABS offerings," said Capasse, framing the SBA pivot as the second leg of the earnings recovery stool. Alongside this, the company is executing a targeted cost optimization program that expects to cut operating expenses by 25–35% through staff reductions, divestitures of noncore businesses, and deeper integration of the CRE lending platform with external manager Waterfall.
The numbers are still bleeding
Despite the strategic progress, the financials remain under pressure. Net interest income swung to -$15 million in Q1 2026, from +$15 million in Q4 2025, as interest expense of $97 million continued to exceed interest income of $86 million. Distributable earnings were a loss of $0.47 per share, though this improved from a loss of $1.33 in Q1. The improvement was driven by lower realized losses and loan loss provisions. Andrew Ahlborn, CFO, said "we expect net interest income to continue improving as nonaccrual loans and REO are resolved, asset level and corporate debt are reduced and capital is recycled into current market yields." Leverage stands at 3.0x, trending toward the 2.5x target, and unencumbered assets were $690 million at quarter end.
Investment takeaway
Ready Capital has transformed from a diversified CRE lender into a company that is essentially running off its legacy portfolio while relaunching around SBA 7(a). The stock, down more than 90% from its 2013 peak, has bounced 19% over the last 90 days, suggesting some market optimism that the worst is over. But the company still faces a challenging path to profitability. The bulk of the remaining asset sales are done, but the secondary market for its nonperforming loans remains uncertain, and the success of the SBA ramp is critical. The CRE loan book will continue to shrink, but the quality of earnings is still heavily dependent on the resolution of the Ritz and other distressed assets. As management itself noted, the company is in the "eighth inning" of its liquidity plan, but it still has to score runs to justify today's ~$300 million market cap.