Accountability
Shareholder Alignment
Ladder distinguishes itself from its peers by our high insider ownership and internally managed structure. Our Executive Team and Board collectively own over $139 million in LADR stock (over 10% of the market capitalization). In addition, Ladder’s portfolio is managed internally by its employees. This framework enables us to avoid conflicts of interest and align our priorities and day-to-day decision making with the best interests and priorities of our long-term shareholders.
Our shareholder engagement program is a robust process encompassing meetings held throughout the year with shareholders during which we encourage ongoing, meaningful dialogue about the issues our shareholders find most important. See Transparency and Fair Dealing below for further details regarding our shareholder outreach.
Integrity
Business Ethics and Compliance
Our Code of Ethics (Code) establishes the importance of exercising sound, ethical judgment and provides our employees with a framework for making responsible business decisions. Each employee must conduct business with integrity, in compliance with all applicable laws and regulations, and in a manner that excludes consideration of personal advantage. The Code requires that our business-related conduct both inside and outside the Company be guided by the following values:
- Promote and maintain integrity in all dealings
- Create long-term shareholder value
- Respect people and create a positive culture for teamwork
- Encourage responsible, results-oriented performance
- Recognize and respect our fiduciary obligation to our shareholders
- Consider environmental, social, and governance best practices
Our Chief Compliance Officer and Senior Regulatory Counsel (CCO) seeks to ensure that our Compliance Program adequately addresses applicable risks and identifies and addresses violations. Our CCO annually evaluates our Compliance Program and recommends changes for approval by our Audit Committee. As our Compliance Program also serves as the compliance program for our registered investment advisor, we undergo an annual Compliance Program review by a third-party regulatory consulting firm, which includes testing our Code's policies and procedures. We have also adopted a Code of Ethics for Senior Financial Officers that relates primarily to ethical accounting and financial reporting matters and is also reviewed and attested to annually by senior financial officers along with the Code. For more information, please see the Governance Library.
Compliance Program and Employee Certifications
Upon hire and annually thereafter, all employees must listen to, participate in, and attest to annual training and must acknowledge that they have received, read, understood, and agree to comply with the corporate policies and procedures. Our Compliance Program includes, but is not limited to, the following ethics topics, corporate policies, and procedures:
- Ladder’s ESG Initiatives
- Code of Ethics and Personal Trading Policy (and Code of Ethics for Senior Financial Officers, as applicable)
- Insider Trading Policy
- Information Technology (IT) Policies and Procedures
- Anti-Bribery and Anti-Corruption Policies
- Anti-Money Laundering Policy and Office of Foreign Asset Control (OFAC) Program
- Political Contributions, Political Activities, and Public Positions
- Gifts and Entertainment
As one of our subsidiaries is a registered investment adviser, all employees must also complete annual and quarterly brokerage account holdings and transaction certifications.
In 2022, 100% of our employees completed the required training, certifications, and attestations.
Transparency and Fair Dealing
We endeavor to be transparent, clear, and fair in our pricing practices and processes. Our Origination Team aims to cultivate long-term relationships with key direct clients and leading mortgage and investment-sales brokers nationwide. In 2022, over 30% of our loan originations were made to repeat Ladder clients, reflecting the value of our franchise and the strength of our client relationships. Our Asset Management Team maintains regular, direct dialogue with our clients and partners, aiming to ensure responsible and fair treatment of all parties while also managing for timely completion of business plans and full required payments. Our Head of Asset Management, a Co-founder and Member of the Executive Team, demonstrates our commitment to ensure, and emphasizes the importance of, the fair treatment of clients and partners and our dedication to the highest level of risk management.
In addition, Ladder is committed to being open and informative with our shareholders and bondholders. Our CEO, President, Investor Relations Team, and Board regularly engage with our shareholders and bondholders throughout the year through various communication channels, including email, quarterly earnings calls, one-on-one meetings and phone calls, debt and equity investor conferences, our Investor Relations website, and our Annual Stockholder Meeting. Among other informational items, our Investor Relations website includes our financial reports, an introductory overview presentation and presentations that provide detailed supplemental earnings data in an easy-to-read format. Our CCO and/or Head of Legal Structuring reviews and approves all marketing materials and the CAO, CCO, and, as applicable, external counsel review all investor relations disclosures.
Whistleblower Protection Policy
We maintain a Whistleblower Protection Policy, overseen by the Chair of the Audit Committee, that includes procedures for the CCO and Audit Committee to receive and investigate complaints as well as ensure the confidentiality and protection of whistleblowers. We have an anonymous phone line and web-based reporting system that permits employees to report, in good faith, any potential unethical business practices or misconduct, including questionable accounting or audit matters, without fear of retaliation. Our CCO proactively reminds employees during annual training and via email of the availability of our whistleblower hotline and website. Internal Audit conducts tests of the phone line and website annually.
Government Relations and Advocacy
We maintain policies regarding political contributions as well as gifts and entertainment intended to prevent any actual or perceived conflict of interest or pay-to-play practices with political contributions to federal, state and local officials who may have influence over the awarding of government and public business to financial services providers. Ladder does not make political contributions as a company. As one of our subsidiaries is a registered investment adviser, employee political contributions are limited to pre-cleared federal contributions while state and local political contributions are prohibited. Annual training on these policies is part of our Compliance Program, and we also send regular email reminders to all employees.
The Executive Team did not make any political contributions in 2022.
Risk Management
ESG Risk Ratings
Morningstar Sustainalytics
In November 2022, Ladder Capital Corp received an ESG Risk Rating of 17.2 and was assessed by Morningstar Sustainalytics to be at low risk of experiencing material financial impacts from ESG factors.1 In no event shall such rating be construed as investment advice or expert opinion as defined by the applicable legislation.
Morningstar Sustainalytics’ ESG Risk Ratings measure a company’s exposure to industry-specific material ESG risks and how well a company is managing those risks. This multi-dimensional way of measuring ESG risk combines the concepts of management and exposure to arrive at an assessment of ESG risk, i.e., a total unmanaged ESG risk score or the ESG Risk Rating, that is comparable across all industries. Sustainalytics’ ESG Risk Ratings provide a quantitative measure of unmanaged ESG risk and distinguish between five levels of risk: negligible, low, medium, high and severe. Learn more about the ESG Risk Ratings here: www.sustainalytics.com/corporate-solutions/esg-solutions/esg-risk-ratings.
1 Copyright ©2023 Sustainalytics. All rights reserved. This publication contains information developed by Sustainalytics (www.sustainalytics.com). Such information and data are proprietary of Sustainalytics and/or its third-party suppliers (Third Party Data) and are provided for informational purposes only. They do not constitute an endorsement of any product or project, nor an investment advice and are not warranted to be complete, timely, accurate or suitable for a particular purpose. Their use is subject to conditions available at https://www.sustainalytics.com/legal-disclaimers.
Board Oversight and Risk Management
At Ladder, we believe that one of the key functions of the Board is informed oversight of our risk management process. The Chairperson and non-executive members of the Board work together to provide strong, independent oversight of the Company’s management and affairs through its standing committees and sessions of the independent directors. Our Executive Team attends Board meetings and is available to address any questions or concerns raised by the Board on risk management and any other matters. In particular, the Board is responsible for monitoring and assessing strategic risk exposure, and our Audit Committee considers and discusses our major financial risk exposures and the steps our Executive Team has taken to monitor and control these exposures. Our Risk and Underwriting Committee assesses and monitors our risk management strategies including, but not limited to, those designed to mitigate credit, interest rate, liquidity, and counterparty risk and investments of material size. The Risk and Underwriting Committee reviews quarterly reports regarding topics such as interest rate risk, counterparty risk, and corporate covenant compliance. Each Board committee’s charter outlines its responsibilities related to our risk management process. In addition, the Board and its committees consult with outside experts as needed to address existing risks and/or anticipate future threats and trends.
Credit Risk Management
We operate a multicylinder platform with a core competency in commercial real estate credit underwriting and invest in three complementary, synergistic products – commercial real estate loans, properties, and securities. Our multicylinder model enables us to pivot and quickly adjust our product mix to target the most favorable risk-adjusted return according to market conditions.
At Ladder, every employee is responsible for mitigating risk. Our risk management processes encompass the active involvement of the Executive Team and department heads, supported by our underlying policies and procedures. We hold regular meetings on the loan origination pipeline, financing, liquidity, and asset management. We continue to have a proven track record with less than 0.1% in losses across all investments originated since inception in 2008.
Ladder employs a system of checks and balances throughout our investment and risk management process by maintaining separate Origination, Credit/Underwriting, Transaction Management, Investment Committee, and Asset Management teams and functions:
Our Comprehensive Investment and Risk Management
Origination. Our rigorous investment process begins with the filtering and selecting of potential investments by the Origination Team, with a preference for senior secured mortgage loans to finance new acquisitions that have recent valuations and newly capitalized business plans with additional funds from the sponsor. Originator compensation, which at increasing levels of seniority includes increasing proportions of restricted stock, is linked to investment performance, aligning our interests with those of our shareholders. The Origination Team conducts an initial due diligence review prior to proposing an investment to members of our Investment Committee for application and further diligence.
Credit/Underwriting. Once the Investment Committee approves the further processing of an investment, it undergoes a comprehensive legal and independent underwriting process. An underwriter who is independent from the Origination Team leads the due diligence and credit review using a checklist-based approach. Our systematic credit evaluation includes stress analyses, a site tour for each property (almost exclusively conducted by Ladder personnel), and third-party due diligence (including appraisal, environmental, and engineering reports) for each prospective loan and/or real estate investment.
Transaction Management. Our highly skilled, independent team of Transaction Management attorneys averages over 20 years of experience and leads legal diligence review, legal document negotiation, and closings.
Investment Committee. The process culminates in the delivery of a comprehensive investment memorandum to our Investment Committee, which includes our CEO, President, Chief Credit Officer and Head of Underwriting, who meet to approve or disapprove each prospective investment. Investment Committee members all have significant stock in the Company and are well aligned with the long-term interests of our shareholders in their decision-making. Every loan and real estate investment undergoes the same Investment Committee process and memorandum delivery regardless of size. Each meeting generally has at least one representative from each of the Origination, Underwriting, Transaction Management, Asset Management, and Finance teams. Approval from the Board's Risk and Underwriting Committee is required for proposed investments of a material size or outside the Company’s ordinary course of business.
Asset Management. Our in-house Asset Management Team, led by the Head of Asset Management who is also a Co-founder and Member of the Executive Team, proactively manages the Company’s investment portfolio, demonstrating our Company-wide emphasis on principal preservation and asset performance. The Asset Management Team, together with our Underwriting Team, retains all decision-making on, and monitors the credit performance of, our investment portfolio in concert with our third-party servicers and property managers. Collectively, they work closely with clients and/or joint- venture partners to manage all of our positions; monitor the financial performance of our assets and collateral assets, including the timely execution of business plans; monitor daily activities within our portfolio; and provide real-time responses to weather-related events affecting properties. Ladder performs detailed asset reviews, endeavors to perform periodic site inspections on every investment, and provides comprehensive internal asset-level performance reporting.
Financing Risk Management
We remain committed to a conservative financial management approach that provides a sustainable capital structure for our business and minimizes liquidity risks. Unsecured bonds and non-recourse, non-mark-to-market funding sources continue to be cornerstones of our capital structure, and our 2021 offerings in both markets further solidified and lengthened our liability structure while reducing our usage of mark-to-market financing. In 2022, we extended, upsized and reduced the cost of our unsecured revolving credit facility, with all nine syndicate banks participating. We have staggered our debt maturities to reduce refinancing risk, adopted a conservative dividend policy, and maintain low overall leverage.
We selectively utilize secured financing from a diverse set of trusted counterparties with whom we have longstanding relationships. All lending counterparties are rated no less than A- (or equivalent) from a nationally recognized credit rating service or are approved by the CEO. We are committed to being transparent with our lending counterparties and provide asset-level and corporate-level reporting on a regular basis.
In May 2022, S&P put us on positive outlook following our upgrade in 2021, and we remain on stable outlook by Moody’s and Fitch.
Data Security and Customer Privacy
We maintain a best practices, risk-based approach to cybersecurity with oversight by our Cybersecurity Team including the Chief Technology Officer (CTO), CAO, CCO, Head of Asset Management and senior leaders from our outsourced IT firm. The Cybersecurity Team monitors technology trends and developments to inform improvements and adjustments to Ladder’s technology, oversees the Company’s various cybersecurity training initiatives, and, at least annually, performs a formal evaluation of the Company’s cyber risks and mitigants. The Cybersecurity Team is in regular dialogue with the Audit Committee, which oversees cybersecurity on behalf of our Board.
At hire and annually thereafter, all employees participate in cybersecurity training and certify to our comprehensive IT policies and procedures. In 2022, 100% of our employees completed the required training and certifications. Cybersecurity best practices are also discussed during annual compliance training.
We maintain a broad assortment of cybersecurity protocols, including:
- Multifactor authentication
- Managed security service monitoring
- Annual penetration testing by a rotating third-party vendor
- Weekly vulnerability scans
- Quarterly phishing exercises
- Annual tabletop exercises
- Annual vendor cybersecurity diligence
- Cyber insurance and other relevant insurance policies
In our January 2023 anonymous employee survey, 100% of participants agreed that Ladder makes extensive efforts to increase cybersecurity and protect data privacy.
As a commercial real estate lender, we do not offer, and personally identifiable information (PII) is not obtained in connection with, financial products or services used primarily for personal, family, or household purposes. We have implemented and enforce our privacy procedures to protect PII in order to safeguard any PII that is provided for other purposes (e.g., employee onboarding or commercial real estate loan due diligence) and to comply with state privacy laws such as the California Privacy Rights Act (CPRA). Such procedures include, but are not limited to, document removal and destruction.
We have not had a cybersecurity breach or loss of PII in our nine years as a public company.
Business Continuity
We maintain a Business Continuity and Disaster Recovery Plan, Pandemic Preparedness Plan, Model Airborne Infectious Disease Exposure Prevention Plan (under the NY HERO Act), and Security Incident Response Plan (together, our BCP) to provide an appropriate response to emergency situations, protect our employees, minimize disruptions to client services, and protect Company and investor assets. We internally test, analyze, and modify our BCP every year.
Supply Chain Management
Our vendors are primarily in the financial services and real estate industries. In accordance with our Anti-Money Laundering Policy and OFAC Program, Ladder seeks to conduct due diligence prior to engaging any vendor. Ladder conducts further cybersecurity due diligence prior to retaining third-party service providers that have access to PII or are otherwise critical to Ladder’s business operations and annually thereafter. These cybersecurity due diligence questionnaires, overseen by Ladder's CTO, are reviewed by Ladder’s outsourced IT firm and by specialized IT counsel, as needed. Ladder maintains all documentation associated with this due diligence process and includes customized cybersecurity contract requirements based on the vendor’s level of access to Ladder’s confidential and/or personal non-public information. Key vendors with access to such information are required to provide their insider trading policies to our CCO for review and to certify compliance with such policies annually.
Additionally, Ladder has policies in place led by the CCO to prevent conflicts of interest, including limits on gifts and entertainment and outside business activities, further maintaining alignment with our shareholders’ interests.
Borrower Due Diligence
Ladder performs due diligence on borrowers and certain related parties, including sponsors and guarantors. The diligence process typically includes searches of court records; Uniform Commercial Code filings; state and federal tax liens; past and present litigation and judgments, bankruptcies, and foreclosures; OFAC records; criminal records; and news searches.
We expect this diligence to identify, in the jurisdictions we search, past and present claims of illegal activities and adverse human rights impacts such as claims of discrimination or harassment, wage or labor violations, or the illegal or unethical treatment of tenants (including through improper property maintenance). If such items are found, we typically require the searched party to explain and, as applicable, remediate the circumstances before proceeding with the loan. In this way, Ladder strives to mitigate adverse human rights impacts that are directly linked to our business operations through a business relationship, even if Ladder does not directly contribute to such impacts.
Ladder also performs a detailed tenant analysis and lease review on every investment, enabling us to identify tenants whose activities may pose a legal or reputational risk to the Company.