Ready Capital's Q2 2025 Earnings: A Deep Dive into Liquidity Strategy and Operational Turnaround Potential

Ready Capital Corporation (NYSE: RC) has navigated a turbulent Q2 2025 with a bold liquidity strategy, selling underperforming assets to fund a pivot toward its core markets. While the company's GAAP loss of $0.31 per share and distributable loss of $0.14 per share highlight short-term pain, the underlying strategy—targeted asset liquidation and reinvestment in high-growth sectors—positions RC for a potential long-term rebound. This article evaluates the feasibility of management's approach, focusing on the interplay between asset sales, capital deployment, and market dynamics in multifamily bridge loans, SBA 7(a) loans, and USDA programs.

The Liquidity Play: Asset Sales as a Catalyst

Ready Capital's Q2 2025 earnings report underscored a deliberate shift in strategy. The company sold 21 loans with a carrying value of $494 million, generating $85 million in net proceeds. These sales, coupled with the $50 million issuance of 9.375% Senior Secured Notes due 2028, reflect a calculated effort to free up capital for reinvestment. CEO Thomas Capasse emphasized that the proceeds will fund “high-conviction opportunities” in its core markets, including multi-family bridge loans and small business lending.

The liquidation of underperforming assets is a double-edged sword. While it erodes short-term earnings, it also reduces risk exposure in a commercial real estate (CRE) market still grappling with elevated interest rates. By focusing on liquidity, Ready Capital aims to capitalize on a narrowing window of opportunity in sectors like multifamily bridge financing, where demand for transitional capital is surging.

Reinvestment Strategy: Targeting High-Growth Sectors

1. Multifamily Bridge Loans: A Resurgent Market

The multifamily bridge loan market in Q2 2025 has emerged as a critical growth driver. Lenders are competing to fund value-add opportunities, offering terms as high as 75–85% loan-to-cost (LTC) and non-recourse structures. For example, a recent Chicago transaction saw a 100% LTC, non-recourse bridge loan used to recapitalize a property with no new equity. These terms, absent in the tighter 2022–2024 environment, suggest a market eager to deploy capital.

Ready Capital's $173 million in LMM commercial real estate loan originations during Q2 align with this trend. The company's focus on multifamily bridge loans is well-timed, as lenders prioritize assets with clear value-add potential. With the Federal Reserve pausing rate hikes and markets like Chicago showing strong occupancy rates, the sector appears poised for sustained growth.

2. SBA 7(a) and USDA Loans: Navigating Risk and Demand

Ready Capital's $359 million in small business lending, including $216 million in SBA 7(a) loans and $96 million in USDA loans, highlights its pivot toward government-backed programs. These loans have gained traction as traditional financing remains costly. SBA 7(a) rates in May 2025 ranged from 12.50% to 15.50%, while USDA rates for farm ownership loans hit 5.875%.

However, the SBA 7(a) program faces headwinds. Default rates for 2024 reached 3.7%, the highest since 2012, driven by relaxed underwriting standards in 2023. The SBA's recent reinstatement of stricter underwriting and lender fees aims to curb this trend, but the risk of defaults remains a concern for Ready Capital. Conversely, USDA loans, with their focus on rural development and lower rates, offer a more stable alternative, particularly in underserved markets.

Capital Structure and Shareholder Value

Ready Capital's Q2 strategy also included stock repurchases of 8.5 million shares at $4.41 per share, signaling management's confidence in the company's intrinsic value. With a book value of $10.44 per share and total assets of $9.31 billion, the company's balance sheet remains robust despite the losses. The 9.375% Senior Secured Notes issuance further strengthens liquidity, providing flexibility for future reinvestment.

Risks and Considerations

While the strategy is compelling, several risks persist:
1. SBA Default Risk: Elevated default rates in the 7(a) program could pressure Ready Capital's credit quality.
2. Interest Rate Volatility: A sudden rate hike could dampen demand for bridge loans and increase borrowing costs.
3. Market Competition: Intense competition in multifamily bridge lending may compress margins.

Investment Thesis

Ready Capital's Q2 2025 earnings reveal a company in transition. The asset liquidation strategy, while painful in the short term, is a necessary step to fund high-conviction opportunities in multifamily bridge loans and small business lending. The company's ability to capitalize on favorable market conditions—such as competitive bridge loan terms and strong demand for SBA/USDA programs—will determine its long-term success.

For investors, the key is to monitor two metrics:
1. Loan Origination Growth: Track the pace of multifamily bridge and SBA/USDA loan originations.
2. Default Rates: Watch for any material increase in SBA 7(a) defaults that could impact credit quality.

If Ready Capital executes its strategy effectively, the company could emerge as a leader in its core markets, delivering value to shareholders through a combination of disciplined capital deployment and strategic reinvestment.

In conclusion, Ready Capital's Q2 2025 earnings present a mixed but strategically sound picture. The company's liquidity-driven approach, while challenging in the near term, is well-aligned with market dynamics in its core sectors. For investors with a medium-term horizon, this could represent an opportunity to invest in a company poised for a turnaround.