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What changed in Ares Commercial Real Estate Corp's 10-K — 2024 vs 2025

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Paragraph-level year-over-year comparison of Ares Commercial Real Estate Corp's 2024 and 2025 10-K annual filings, covering the Business, Risk Factors, Legal Proceedings, Cybersecurity, MD&A and Market Risk sections. Every new, removed and edited paragraph is highlighted side-by-side so you can see exactly what management changed in the 2025 report.

+709 added−750 removedSource: 10-K (2026-02-10) vs 10-K (2025-02-12)

Top changes in Ares Commercial Real Estate Corp's 2025 10-K

709 paragraphs added · 750 removed · 599 edited across 7 sections

Item 1. Business

Business — how the company describes what it does

237 edited+29 added−77 removed182 unchanged
Biggest changeF-19 Table of Contents A more detailed listing of the Company’s loans held for investment portfolio based on information available as of December 31, 2024 is as follows ($ in millions): Loan Type Location Outstanding Principal (1) Carrying Amount (1) Interest Rate Unleveraged Effective Yield (2) Maturity Date (3) Payment Terms (4) Senior Mortgage Loans: Office IL $163.8 $150.1 (5) —% (5) Mar 2025 I/O Multifamily NY 132.2 131.9 S+3.90% 8.7% Jun 2025 I/O Residential/Condo NY 119.0 99.7 S+8.95% —% (6) Dec 2025 (6) I/O Office Diversified 83.9 83.3 S+3.75% 8.6% Jul 2026 (7) P/I (8) Mixed-use NY 77.2 77.1 S+3.75% 8.3% Jul 2025 (9) I/O Office AZ 77.1 76.9 S+3.61% 8.3% Oct 2025 (10) I/O Residential/Condo FL 75.0 75.0 S+5.35% 9.7% Jul 2025 (11) I/O Office NC 70.6 70.5 S+3.65% 8.0% Aug 2028 (12) I/O Multifamily TX 68.5 68.3 S+2.95% 7.6% Dec 2025 (13) I/O Hotel CA 60.2 60.2 S+4.20% 9.0% Mar 2025 I/O Multifamily SC 59.2 58.9 S+3.00% 9.2% Mar 2025 (14) I/O Office NY 59.0 59.0 S+2.65% 7.0% (15) Jul 2027 (15) I/O Multifamily OH 57.3 56.9 S+3.05% 7.8% Oct 2026 I/O Office IL 55.7 55.7 S+4.25% 9.1% Jan 2025 P/I (8) Hotel NY 55.5 55.3 S+4.40% 9.1% Mar 2026 I/O Office (Life Sciences) MA 51.5 50.1 S+3.75% —% (16) Apr 2026 (16) I/O Office GA 48.1 48.1 S+3.15% 12.5% Mar 2025 (17) P/I (8) Industrial MA 47.4 47.3 S+2.90% 7.4% Jun 2028 I/O Mixed-use TX 34.3 34.3 S+3.85% 9.0% Dec 2024 (18) I/O Multifamily CA 31.7 31.7 S+3.00% 7.6% Dec 2025 I/O Multifamily PA 28.2 28.2 S+2.50% 6.8% Dec 2025 I/O Industrial NJ 27.8 27.8 S+8.85% 13.2% Nov 2024 (19) I/O Industrial FL 25.5 25.5 S+3.00% 7.6% Dec 2025 I/O Multifamily WA 23.1 23.1 S+3.00% 7.5% Nov 2025 I/O Multifamily TX 23.1 23.0 S+2.60% 7.5% Oct 2025 (20) I/O Office CA 20.2 20.1 S+3.50% 8.1% Nov 2025 P/I (8) Self Storage PA 18.2 18.1 S+3.00% 7.6% Dec 2025 I/O Self Storage NJ 17.6 17.6 S+2.90% 8.0% Apr 2025 I/O Self Storage WA 11.5 11.5 S+2.90% 8.0% Mar 2025 I/O Self Storage IN 11.2 11.2 S+3.60% 8.0% Jun 2026 I/O Self Storage MA 7.7 7.7 S+3.00% 7.6% Nov 2025 (21) I/O Industrial CA 7.0 7.0 S+3.85% 8.2% Jan 2027 (22) I/O Self Storage MA 6.8 6.7 S+3.00% 7.6% Oct 2025 (23) I/O Subordinated Debt and Preferred Equity Investments: Multifamily SC 20.6 20.4 S+9.53% 15.7% Sep 2025 I/O Industrial CA 12.6 10.9 S+3.85% —% (22) Jan 2027 (22) I/O Office NY 10.2 7.6 5.50% —% (15) Jul 2027 (15) I/O Total/Weighted Average $1,698.5 $1,656.7 6.9% _________________________ (1) The difference between the Carrying Amount and the Outstanding Principal amount of the loans held for investment consists of unamortized purchase discounts, deferred loan fees and origination costs and cost-recovery proceeds.
Biggest changeF-18 Table of Contents A more detailed listing of the Company’s loans held for investment portfolio based on information available as of December 31, 2025 is as follows ($ in millions): Loan Type Location Outstanding Principal (1) Carrying Amount (1) Interest Rate Unleveraged Effective Yield (2) Maturity Date (3) Payment Terms (4) Senior Mortgage Loans: Residential/Condo NY $167.7 $129.8 S+8.95% —% (5) Dec 2026 (5) I/O Office IL 166.2 139.6 (6) —% (6) Jan 2026 (6) I/O Multifamily NY 132.2 131.6 S+3.90% 8.6% Jun 2026 (7) I/O Industrial GA 96.8 95.9 S+2.25% 6.3% Oct 2028 I/O Office NC 71.8 71.7 S+3.65% 7.4% Aug 2028 I/O Self Storage Diversified 70.5 69.8 S+2.50% 6.6% Dec 2028 I/O Multifamily TX 68.5 68.5 S+2.95% 6.6% Jan 2026 (8) I/O Office NY 65.0 65.0 S+2.65% 6.3% Jul 2028 (9) I/O Office AZ 65.0 65.0 S+2.00% 5.7% Oct 2027 (10) I/O Hotel CA 60.8 60.8 S+4.20% 8.1% Mar 2026 (11) I/O Multifamily OH 57.3 57.1 S+3.05% 7.1% Oct 2026 I/O Hotel NY 55.7 55.6 S+4.40% 8.4% Mar 2026 I/O Office IL 54.2 54.2 S+4.25% 8.0% Jan 2027 (12) I/O Industrial CA 50.7 50.2 S+3.00% 7.1% Nov 2028 I/O Multifamily NC 50.0 49.6 S+2.40% 6.6% Oct 2027 I/O Multifamily MA 49.0 48.5 S+3.10% 7.3% Oct 2027 I/O Hotel SC 48.3 47.8 S+3.50% 7.6% Nov 2028 I/O Industrial MA 45.6 45.5 S+2.90% 6.7% Jun 2028 I/O Multifamily PA 28.2 27.8 S+2.50% —% (13) Jan 2026 (13) I/O Industrial NJ 27.8 27.8 S+8.85% 12.5% Nov 2024 (14) I/O Hotel Diversified 23.9 23.7 S+3.75% 7.8% Nov 2028 I/O Multifamily TX 18.2 18.2 S+2.60% 6.5% Jan 2026 (15) I/O Hotel FL 17.3 17.1 S+3.35% 7.6% Dec 2028 I/O Office Diversified 16.1 15.9 S+3.75% 10.0% Jul 2026 P/I (16) Self Storage FL 11.9 11.9 S+3.25% 7.1% Dec 2027 I/O Self Storage IN 11.4 11.4 S+3.60% 7.4% Jun 2026 I/O Self Storage AZ 10.5 10.4 S+3.25% 7.2% Feb 2028 I/O Self Storage FL 9.3 9.2 S+3.75% 7.6% Jun 2028 I/O Self Storage PA 8.6 8.5 S+3.50% 7.5% May 2028 I/O Self Storage MA 7.7 7.7 S+3.00% 6.9% Nov 2026 (17) I/O Industrial CA 7.0 7.0 S+3.85% 7.5% Jan 2027 (18) I/O Self Storage FL 6.9 6.8 S+3.50% 7.6% Apr 2028 I/O Subordinated Debt and Preferred Equity Investments: Industrial CA 12.6 10.9 S+3.85% —% (18) Jan 2027 I/O Office AZ 8.4 8.3 (10) 6.7% Oct 2027 (10) I/O Total/Weighted Average (19) $1,601.1 $1,528.8 5.7% _________________________ (1) The difference between the Carrying Amount and the Outstanding Principal amount of the loans held for investment consists of unamortized purchase discounts, deferred loan fees and origination costs and cost-recovery proceeds.
Revenue from the operation of the mixed-use and office properties consists primarily of rental revenue from operating leases. For each operating lease with scheduled rent increases over the term of the lease, the Company recognizes rental revenue on a straight-line basis over the lease term when collectability of the lease payment is probable.
Revenue from the operation of the office and mixed-use properties consists primarily of rental revenue from operating leases. For each operating lease with scheduled rent increases over the term of the lease, the Company recognizes rental revenue on a straight-line basis over the lease term when collectability of the lease payment is probable.
Variable lease payments are recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments are based occur. Certain of the Company’s mixed-use and office property leases also contain provisions for tenants to reimburse the Company for property operating expenses. Such reimbursements are included in rental revenue on a gross basis.
Variable lease payments are recognized as rental revenue in the period when the changes in facts and circumstances on which the variable lease payments are based occur. Certain of the Company’s office and mixed-use property leases also contain provisions for tenants to reimburse the Company for property operating expenses. Such reimbursements are included in rental revenue on a gross basis.
(2) Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) and assumes no dispositions, early prepayments or defaults.
(2) Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) and assumes no dispositions, early prepayments or defaults.
In certain instances, the Company may identify specific loans to be collateral dependent. The Company considers loans to be collateral dependent if both of the following criteria are met: (i) loan is expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) the borrower is experiencing financial difficulty.
In certain instances, the Company may identify specific loans to be collateral dependent. The Company considers loans to be collateral dependent if both of the following criteria are met: (i) the loan is expected to be substantially repaid through the operation or sale of the underlying collateral, and (ii) the borrower is experiencing financial difficulty.
Intangible Lease Assets and Liabilities The weighted average amortization period for the intangible lease assets and liabilities acquired in connection with the Company’s real estate owned held for investment during the year ended December 31, 2024 was 5.0 years as of the acquisition date.
The weighted average amortization period for the intangible lease assets and liabilities acquired in connection with the Company’s real estate owned held for investment during the year ended December 31, 2024 was 5.0 years as of the acquisition date.
Excise tax represents a 4% tax on the sum of a portion of the Company’s ordinary income and net capital gains not distributed during the calendar year (including any distribution declared in the fourth quarter and paid following January) plus any prior year shortfall.
Excise tax represents a 4% tax on the sum of a portion of the Company’s ordinary income and net capital gains not distributed during the calendar year (including any distribution declared in the fourth quarter and paid the following January) plus any prior year shortfall.
The Wells Fargo Facility contains various affirmative and negative covenants and provisions regarding events of default that are applicable to the Company and certain of the Company’s subsidiaries, which are normal and customary for similar repurchase facilities, including the following: (a) limitations on the incurrence of additional indebtedness or liens, (b) limitations on how borrowed funds may be used, (c) limitations on certain distributions and dividend payments in excess of the minimum amount necessary to continue to qualify as a REIT and avoid the payment of income and excise taxes, (d) maintenance of adequate capital, (e) limitations on change of control, (f) maintaining a ratio of total debt to tangible net worth of not more than 4.50 to 1.00, (g) maintaining liquidity in an amount not less than the greater of (1) $5.0 million or (2) 5% of the Company’s recourse indebtedness, not to exceed $10.0 million (provided that in the event the Company’s total liquidity equals or exceeds $5.0 million, the Company may satisfy the difference between the minimum total liquidity requirement and the Company’s total liquidity with available borrowing capacity), (h) maintaining a fixed charge coverage ratio (expressed as the ratio of EBITDA (net income before net interest expense, income tax expense, depreciation and amortization), as defined, to fixed charges) for the immediately preceding 12-month period ending on the last date of the applicable reporting period to be at least 1.25 to 1.00, (i) maintaining a tangible net worth of at least the sum of (1) $500.0 million plus (2) at any time that the aggregate outstanding principal amount of total debt exceeds $1.8 billion, 80% of the net proceeds raised in all future equity issuances by the Company subsequent to August 2024 and (j) if certain specific debt yield, loan to value or other credit based tests are not met with respect to assets on the Wells Fargo Facility, the Company may be required to repay certain amounts F-31 Table of Contents under the Wells Fargo Facility.
The Wells Fargo Facility contains various affirmative and negative covenants and provisions regarding events of default that are applicable to the Company and certain of the Company’s subsidiaries, which are normal and customary for similar repurchase facilities, including the following: (a) limitations on the incurrence of additional indebtedness or liens, (b) limitations on how borrowed funds may be used, (c) limitations on certain distributions and dividend payments in excess of the minimum amount necessary to continue to qualify as a REIT and avoid the payment of income and excise taxes, (d) maintenance of adequate capital, (e) limitations on change of control, (f) maintaining a ratio of total debt to tangible net worth of not more than 4.50 to 1.00, (g) maintaining liquidity in an amount not less than the greater of (1) $5.0 million or (2) 5% of the Company’s recourse indebtedness, not to exceed $10.0 million (provided that in the event the Company’s total liquidity equals or exceeds $5.0 million, the Company may satisfy the difference between the minimum total liquidity requirement and the Company’s total liquidity with available borrowing capacity), (h) maintaining a fixed charge coverage ratio (expressed as the ratio of EBITDA (net income before net interest expense, income tax expense, depreciation and amortization), as defined, to fixed charges) for the immediately preceding 12-month period ending on the last date of the applicable reporting period to be at least 1.25 to 1.00, (i) maintaining a tangible net worth of at least the sum of (1) $500.0 million plus (2) at any time that the aggregate outstanding principal amount of total debt exceeds $1.8 billion, 80% of the net proceeds raised in all future equity issuances by the Company subsequent to August 2024 and (j) if certain specific debt yield, loan to value or other credit based tests are not met with respect to assets on the Wells Fargo Facility, the Company may be required to repay certain amounts under the Wells Fargo Facility.
The incentive fee is an amount, not less than zero, equal to the difference between: (a) the product of (i) 20% and (ii) the difference between (A) the Company’s Core Earnings (as defined below) for the previous 12-month period, and (B) the product of (1) the weighted average of the issue price per share of the Company’s common stock of all of the Company’s public offerings of common stock multiplied by the weighted average number of all shares of common stock outstanding including any restricted shares of the Company’s common stock, RSUs, or any shares of the Company’s common stock not yet issued, but underlying other awards granted under the Company’s Amended and Restated 2012 Equity Incentive Plan (see Note 10 included in these consolidated financial statements) in the previous 12-month period, and (2) 8%; and (b) the sum of any incentive fees earned by ACREM with respect to the first three fiscal quarters of such previous 12-month period; provided, however, that no incentive fee is payable with respect to any fiscal quarter unless cumulative Core Earnings for the 12 most recently completed fiscal quarters is greater than zero.
The incentive fee is an amount, not less than zero, equal to the difference between: (a) the product of (i) 20% and (ii) the difference between (A) the Company’s Core Earnings (as defined below) for the previous 12-month period, and (B) the product of (1) the weighted average of the issue price per share of the Company’s common stock of all of the Company’s public offerings of common stock multiplied by the weighted average number of all shares of common stock outstanding including any restricted shares of the Company’s common stock, RSUs, or any shares of the Company’s common stock not yet issued, but underlying other awards granted under the Company’s Amended and Restated 2012 Equity Incentive Plan (see Note 9 included in these consolidated financial statements) in the previous 12-month period, and (2) 8%; and (b) the sum of any incentive fees earned by ACREM with respect to the first three fiscal quarters of such previous 12-month period; provided, however, that no incentive fee is payable with respect to any fiscal quarter unless cumulative Core Earnings for the 12 most recently completed fiscal quarters is greater than zero.
During the year ended December 31, 2022, the Company acquired three CRE debt securities for an aggregate purchase price of $27.9 million, which consisted of floating rate, investment grade rated debt securities that had a weighted average coupon of SOFR plus 2.47%. The Company’s available-for-sale debt securities have a contractual maturity greater than 10 years from the purchase date.
During the year ended December 31, 2022, the Company acquired three CRE debt securities for an aggregate purchase price of $27.9 million, which consisted of floating rate, investment grade rated debt securities that had a weighted average coupon of SOFR plus 2.47%. The Company’s available-for-sale debt securities had a contractual maturity greater than 10 years from the purchase date.
Loans purchased by the Company from affiliates of the Company’s Manager or other Ares Management managed investment vehicles are purchased at fair value as determined by an independent third-party valuation expert and are subject to approval by a majority of the Company’s independent directors.
Loans purchased or sold by the Company from or to affiliates of the Company’s Manager or other Ares Management managed investment vehicles are purchased or sold at fair value as determined by an independent third-party valuation expert and are subject to approval by a majority of the Company’s independent directors.
The agreements governing the Secured Term Loan also impose certain covenants on the Company, including the following: (i) F-34 Table of Contents maintaining a fixed charge coverage ratio (expressed as the ratio of EBITDA (net income before net interest expense, income tax expense, depreciation and amortization), as defined, to fixed charges) for the immediately preceding 12-month period ending on the last date of the applicable reporting period to be at least 1.10 to 1.00, (ii) maintaining a ratio of total debt, net of unrestricted cash and cash equivalents, to tangible net worth of not more than 4.25 to 1.00, (iii) maintaining a tangible net worth of at least (1) if the outstanding principal balance of the Secured Term Loan is greater than or equal to $130.0 million, an amount equal to the product of (x) such outstanding principal balance and (y) 3.75, (2) if the outstanding principal balance of the Secured Term Loan is less than $130.0 million but greater than or equal to $110.0 million, an amount equal to the lesser of (A) the product of (x) such outstanding principal balance and (y) 4.00 and (B) $487.5 million, (3) if the outstanding principal balance of the Secured Term Loan is less than $110.0 million but greater than or equal to $90.0 million, an amount equal to the lesser of (A) the product of (x) such outstanding principal balance and (y) 4.25 and (B) $440.0 million, and (4) if the outstanding principal balance of the Secured Term Loan is less than $90.0 million, an amount equal to the lesser of (A) the product of (x) such outstanding principal balance and (y) 4.50 and (B) $382.5 million, (iv) maintaining an asset coverage ratio greater than 115%, (v) maintaining an unencumbered asset ratio greater than 145%, (vi) limitations on mergers, consolidations, transfers of assets and similar transactions, (vii) maintaining its status as a REIT and (viii) maintaining at least 80% of loans held for investment as senior commercial real estate loans, as measured by the average daily outstanding principal balance of all loans held for investment during a fiscal quarter and as adjusted for non-controlling interests.
The agreements governing the Secured Term Loan also impose certain covenants on the Company, including the following: (i) maintaining a fixed charge coverage ratio (expressed as the ratio of EBITDA (net income before net interest expense, income tax expense, depreciation and amortization), as defined, to fixed charges) for the immediately preceding 12-month period ending on the last date of the applicable reporting period to be at least 1.10 to 1.00, (ii) maintaining a ratio of total debt, net of unrestricted cash and cash equivalents, to tangible net worth of not more than 4.25 to 1.00, (iii) maintaining a tangible net worth of at least (1) if the outstanding principal balance of the Secured Term Loan is greater than or equal to $130.0 million, an amount equal to the product of (x) such outstanding principal balance and (y) 3.75, (2) if the outstanding principal balance of the Secured Term Loan is less than $130.0 million but greater than or equal to $110.0 million, an amount equal to the lesser of (A) the product of (x) such outstanding principal balance and (y) 4.00 and (B) $487.5 million, (3) if the outstanding principal balance of the Secured Term Loan is less than $110.0 million but greater than or equal to $90.0 million, an amount equal to the lesser of (A) the product of (x) such outstanding principal balance and (y) 4.25 and (B) $440.0 million, and (4) if the outstanding principal balance of the Secured Term Loan is less than $90.0 million, an amount equal to the lesser of (A) the product of (x) such outstanding principal balance and (y) 4.50 and (B) $382.5 million, (iv) maintaining an asset coverage ratio greater than 115%, (v) maintaining an unencumbered asset ratio greater than 145%, (vi) limitations on mergers, consolidations, transfers of assets and similar transactions, (vii) maintaining its status as a REIT and (viii) maintaining at least 80% of loans held for investment as senior commercial real estate loans, as measured by the average daily outstanding principal balance of all loans held for investment during a fiscal quarter and as adjusted for non-controlling interests.
The Company was formed and commenced operations in late 2011. The Company is a Maryland corporation and completed its initial public offering (the “IPO”) in May 2012. The Company is externally managed by its Manager, pursuant to the terms of a management agreement (the “Management Agreement”).
The Company was formed and commenced operations in late 2011. The Company is a Maryland corporation and completed its initial public offering in May 2012. The Company is externally managed by its Manager, pursuant to the terms of a management agreement (the “Management Agreement”).
ACRC W TRS, FL3 TRS and ACRC WM recognize interest and penalties, if any, related to unrecognized tax benefits within income tax expense in the consolidated statements of operations. Accrued interest and penalties, if any, are included within other liabilities in the consolidated balance sheets.
FL3 TRS and ACRC WM recognize interest and penalties, if any, related to unrecognized tax benefits within income tax expense in the consolidated statements of operations. Accrued interest and penalties, if any, are included within other liabilities in the consolidated balance sheets.
(5) In November 2024, the mezzanine loan on an office property located in New Jersey with outstanding principal of $18.5 million was written off as the mezzanine loan was deemed to be uncollectible based on management’s judgment.
(2) In November 2024, the mezzanine loan on an office property located in New Jersey with outstanding principal of $18.5 million was written-off as the mezzanine loan was deemed to be uncollectible based on management’s judgment.
The Citibank Facility contains various affirmative and negative covenants and provisions regarding events of default that are applicable to the Company and certain of the Company’s subsidiaries, which are normal and customary for similar repurchase facilities, including the following: (a) maintaining a tangible net worth of at least $500.0 million, (b) maintaining liquidity in an amount not less than the greater of (1) $5.0 million or (2) 5% of the Company’s recourse indebtedness, not to exceed $10.0 million (provided that in the event the Company’s total liquidity equals or exceeds $5.0 million, the Company may satisfy the difference between the minimum total liquidity requirement and the Company’s total liquidity with available borrowing capacity), (c) maintaining a fixed charge coverage ratio (expressed as the ratio of EBITDA (net income before net interest expense, income tax expense, depreciation and amortization), as defined, to fixed charges) for the immediately preceding 12-month period ending on the last date of the applicable reporting period to be at least 1.25 to 1.00, (d) maintaining a ratio of total debt to tangible net worth of not more than 4.50 to 1.00, (e) if certain specific debt yield and loan to value tests are not met with respect to assets on the Citibank Facility, the Company may be required to repay certain amounts under the Citibank Facility.
F-29 Table of Contents The Citibank Facility contains various affirmative and negative covenants and provisions regarding events of default that are applicable to the Company and certain of the Company’s subsidiaries, which are normal and customary for similar repurchase facilities, including the following: (a) maintaining a tangible net worth of at least $500.0 million, (b) maintaining liquidity in an amount not less than the greater of (1) $5.0 million or (2) 5% of the Company’s recourse indebtedness, not to exceed $10.0 million (provided that in the event the Company’s total liquidity equals or exceeds $5.0 million, the Company may satisfy the difference between the minimum total liquidity requirement and the Company’s total liquidity with available borrowing capacity), (c) maintaining a fixed charge coverage ratio (expressed as the ratio of EBITDA (net income before net interest expense, income tax expense, depreciation and amortization), as defined, to fixed charges) for the immediately preceding 12-month period ending on the last date of the applicable reporting period to be at least 1.25 to 1.00, (d) maintaining a ratio of total debt to tangible net worth of not more than 4.50 to 1.00, (e) if certain specific debt yield and loan to value tests are not met with respect to assets on the Citibank Facility, the Company may be required to repay certain amounts under the Citibank Facility.
The Company, as the holder of the subordinated FL4 Notes and all of the preferred equity in the FL4 Issuer, has the obligation to absorb losses of the FL4 CLO Securitization, since the Company has a first loss position in the capital structure of the FL4 CLO Securitization.
The Company, as the holder of the subordinated FL4 Notes and all of the preferred equity in the FL4 Issuer, had the obligation to absorb losses of the FL4 CLO Securitization, since the Company has a first loss position in the capital structure of the FL4 CLO Securitization.
Amortization of debt issuance costs is included within interest expense, except as noted below, in the Company’s consolidated statements of operations while the unamortized balance on the (i) Secured Funding Agreements (each individually defined in Note 6 included in these consolidated financial statements) is included within other assets and (ii) Notes Payable, the Secured Term Loan (each defined in Note 6 included in these consolidated financial statements) and debt securitizations are each included as a reduction to the carrying amount of the liability in the Company’s consolidated balance sheets.
Amortization of debt issuance costs is included within interest expense, except as noted below, in the Company’s consolidated statements of operations while the unamortized balance on the (i) Secured Funding Agreements (each individually defined in Note 6 included in these consolidated financial statements) is included within other assets and (ii) the Secured Term Loan (defined in Note 6 included in these consolidated financial statements) and debt securitizations are each included as a reduction to the carrying amount of the liability in the Company’s consolidated balance sheets.
The Company believes the estimates and assumptions underlying its consolidated financial statements are reasonable and supportable based on the information available as of December 31, 2024, however, uncertainty over the global economy and the Company’s business, makes any estimates and assumptions as of December 31, 2024 inherently less certain than they F-11 Table of Contents would be absent the current and potential impacts of current macroeconomic conditions.
The Company believes the estimates and assumptions underlying its consolidated financial statements are reasonable and supportable based on the information available as of December 31, 2025, however, uncertainty over the global economy and the Company’s business, makes any estimates and assumptions as of December 31, 2025 inherently less certain than they F-11 Table of Contents would be absent the current and potential impacts of current macroeconomic conditions.
Current Expected Credit Losses FASB ASC Topic 326, Financial Instruments—Credit Losses (“ASC 326”) , requires the Company to reflect current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broad range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve” or “CECL Reserves”).
Current Expected Credit Losses FASB ASC Topic 326, Financial Instruments—Credit Losses (“ASC 326”) , requires the Company to reflect current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broad range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”).
The CNB Facility contains various affirmative and negative covenants and provisions regarding events of default that are applicable to the Company and certain of the Company’s subsidiaries, which are normal and customary for similar F-32 Table of Contents financing facilities, including the following: (a) limitations on the incurrence of additional indebtedness or liens, (b) limitations on how borrowed funds may be used, (c) limitations on certain distributions and dividend payments following a default or event of default, (d) limitations on dispositions of assets, (e) maintenance of minimum total asset value by the borrower under the CNB Facility and its subsidiaries and (f) prohibitions of certain change of control events.
The CNB Facility contains various affirmative and negative covenants and provisions regarding events of default that are applicable to the Company and certain of the Company’s subsidiaries, which are normal and customary for similar financing facilities, including the following: (a) limitations on the incurrence of additional indebtedness or liens, (b) limitations on how borrowed funds may be used, (c) limitations on certain distributions and dividend payments following a default or event of default, (d) limitations on dispositions of assets, (e) maintenance of minimum total asset value by the borrower under the CNB Facility and its subsidiaries and (f) prohibitions of certain change of control events.
The fair value of the mixed-use property was estimated using significant unobservable inputs, which considered various comparable properties that were valued using capitalization rates ranging from 6.4% to 8.3% and discount rates ranging from 8.0% to 9.5%. No impairment charges have been recognized for the mixed-use property as of December 31, 2024.
The fair value of the mixed-use property was estimated using significant unobservable inputs, which considered various comparable properties that were valued using capitalization rates ranging from 6.4% to 8.3% and discount rates ranging from 8.0% to 9.5%. No impairment charges have been recognized for the mixed-use property as of December 31, 2025.
Entity classification elections to be taxed as a corporation and taxable REIT subsidiary (“TRS”) elections were made with respect to ACRC W TRS, FL3 TRS and ACRC WM.
Entity classification elections to be taxed as a corporation and taxable REIT subsidiary (“TRS”) elections were made with respect to FL3 TRS and ACRC WM.
The fair value of the office property was estimated using significant unobservable inputs, which considered various comparable properties that were valued using capitalization rates ranging from 6.4% to 11.0% and discount rates ranging from 14.0% to 16.0%. No impairment charges have been recognized for the office property as of December 31, 2024.
The fair value of the office property was estimated using significant unobservable inputs, which considered various comparable properties that were valued using capitalization rates ranging from 6.4% to 11.0% and discount rates ranging from 14.0% to 16.0%. No impairment charges have been recognized for the office property as of December 31, 2025.
For such loans that the Company determines that foreclosure of the collateral is probable, the Company estimates the CECL Reserve based on the difference between the fair value of the collateral (less costs to sell the asset if repayment is F-24 Table of Contents expected through the sale of the collateral) and the amortized cost basis of the loan as of the measurement date.
F-22 Table of Contents For such loans that the Company determines that foreclosure of the collateral is probable, the Company estimates the CECL Reserve based on the difference between the fair value of the collateral (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan as of the measurement date.
There have been no subsequent events that occurred during such period that would require disclosure in this annual report on Form 10-K or would be required to be recognized in the consolidated financial statements as of and for the year ended December 31, 2024, except as disclosed below.
There have been no subsequent events that occurred during such period that would require disclosure in this annual report on Form 10-K or would be required to be recognized in the consolidated financial statements as of and for the year ended December 31, 2025, except as disclosed below.
Secured Term Loan The Company and certain of its subsidiaries are party to a $130.0 million Credit and Guaranty Agreement with the lenders referred to therein and Cortland Capital Market Services LLC, as administrative agent and collateral agent for the lenders (the “Secured Term Loan”). The maturity date of the Secured Term Loan is November 12, 2026.
Secured Term Loan The Company and certain of its subsidiaries are party to a $90.0 million Credit and Guaranty Agreement with the lenders referred to therein and Cortland Capital Market Services LLC, as administrative agent and collateral agent for the lenders (the “Secured Term Loan”). The maturity date of the Secured Term Loan is November 12, 2026.
The Company determined the fair value of the Secured Term Loan and collateralized loan obligation (“CLO”) securitization debt based on a discounted cash flow methodology, taking into consideration various factors including discount rates, actions of other lenders and comparable market quotes and recent trades for similar products. 14.
The Company determined the fair value of the Secured Term Loan and collateralized loan obligation (“CLO”) securitization debt based on a discounted cash flow methodology, taking into consideration various factors including discount rates, actions of other lenders and comparable market quotes and recent trades for similar products. 13.
The office property acquired on September 19, 2024 is classified as real estate owned held for investment in the Company’s consolidated balance sheets as of the acquisition date and is carried at its estimated fair value at acquisition and is presented net of accumulated depreciation or amortization and impairment charges.
The multi-building office property acquired on September 19, 2024 is classified as real estate owned held for investment in the Company’s consolidated balance sheets as of the acquisition date and is carried at its estimated fair value at acquisition and is presented net of accumulated depreciation or amortization and impairment charges.
(the “FL3 Issuer”) and ACRE Commercial Mortgage 2017-FL3 LLC (the “FL3 Co-Issuer”), both wholly-owned indirect subsidiaries of the Company, entered into an Amended and Restated Indenture (the “FL3 Amended Indenture”) with Wells Fargo Bank, National Association, as advancing agent and note administrator, and Wilmington Trust, National Association, as trustee, which governs the approximately $504.1 million principal balance of secured floating rate notes (the “FL3 Notes”) issued by the FL3 Issuer and $52.9 million of preferred equity in the FL3 Issuer (the “FL3 CLO Securitization”).
(the “FL3 Issuer”) and ACRE Commercial Mortgage 2017-FL3 LLC (the “FL3 Co-Issuer”), both wholly-owned indirect subsidiaries of the Company, entered into an Amended and Restated Indenture with Wells Fargo Bank, National Association, as advancing agent and note administrator, and Wilmington Trust, National Association, as trustee, which governed the approximately $504.1 million principal balance of secured floating rate notes (the “FL3 Notes”) issued by the FL3 Issuer and $52.9 million of preferred equity in the FL3 Issuer (the “FL3 CLO Securitization”).
For the loans held for investment that represent co-investments with other investment vehicles managed by Ares Management (see Note 14 included in these consolidated financial statements for additional information on co-investments), only the portion of Carrying Amount and Outstanding Principal held by the Company is reflected.
For the loans held for investment that represent co-investments with other investment vehicles managed by Ares Management (see Note 13 included in these consolidated financial statements for additional information on co-investments), only the portion of Carrying Amount and Outstanding Principal held by the Company is reflected.
Diluted earnings (loss) per share takes into effect any dilutive instruments, such as restricted stock, RSUs and convertible debt, except when doing so would be anti‑dilutive. See Note 11 included in these consolidated financial statements for the earnings per share calculations.
Diluted earnings (loss) per share takes into effect any dilutive instruments, such as restricted stock, RSUs and convertible debt, except when doing so would be anti‑dilutive. See Note 10 included in these consolidated financial statements for the earnings per share calculations.
As of December 31, 2024, the senior New Jersey loan, which is collateralized by an industrial property, is in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the November 2024 maturity date and the borrower is current on all contractual interest payments.
(14) As of December 31, 2025, the senior New Jersey loan, which is collateralized by an industrial property, is in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the November 2024 maturity date and the borrower is current on all contractual interest payments.
The Company has analyzed its various federal and state filing positions and believes that its income tax filing positions and deductions are well documented and supported. As of December 31, 2024 and 2023, based on the Company’s evaluation, there is no reserve for any uncertain income tax positions.
The Company has analyzed its various federal and state filing positions and believes that its income tax filing positions and deductions are well documented and supported. As of December 31, 2025 and 2024, based on the Company’s evaluation, there is no reserve for any uncertain income tax positions.
Loan terms that may be modified include interest rates, required prepayments, asset release prices, maturity dates, covenants, principal amounts and other loan terms. The terms and conditions of each modification vary based on individual circumstances and will be determined on a case by case basis.
Loan terms that may be modified include interest rates, required prepayments, asset release prices, maturity dates, covenants, principal amounts and other loan terms. The terms and conditions of each modification vary based on individual circumstances and are determined on a case-by-case basis.
The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all loans held by the Company as of December 31, 2024 as weighted by the outstanding principal balance of each loan. (3) Reflects the initial loan maturity date excluding any contractual extension options.
The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all loans held by the Company as of December 31, 2025 as weighted by the outstanding principal balance of each loan. (3) Reflects the initial loan maturity date excluding any contractual extension options.
The sale of the FL4 Mortgage Assets to the FL4 Issuer is governed by a FL4 Mortgage Asset Purchase Agreement between the Seller and the FL4 Issuer, and acknowledged by the Company solely for purposes of confirming its status as a REIT, in which the Seller made certain customary representations, warranties and covenants.
The sale of the FL4 Mortgage Assets to the FL4 Issuer was governed by a FL4 Mortgage Asset Purchase Agreement between the Seller and the FL4 Issuer, and acknowledged by the Company solely for purposes of confirming its status as a REIT, in which the Seller made certain customary representations, warranties and covenants.
As of December 31, 2024, there were no contingencies recorded on the Company’s consolidated balance sheets as a result of such conditions; however, if global market conditions worsen, it could adversely affect the Company’s business, financial condition and results of operations.
As of December 31, 2025, there were no contingencies recorded on the Company’s consolidated balance sheets as a result of such conditions; however, if global market conditions worsen, it could adversely affect the Company’s business, financial condition and results of operations.
The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all interest accruing loans held by the Company as of December 31, 2024 and 2023 as weighted by the total outstanding principal balance of each interest accruing loan (excludes loans on non-accrual status as of December 31, 2024 and 2023).
The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all interest accruing loans held by the Company as of December 31, 2025 and 2024 as weighted by the total outstanding principal balance of each interest accruing loan (excludes loans on non-accrual status as of December 31, 2025 and 2024).
If the Company were to have uncollectible accrued interest receivable, it generally would reverse accrued and unpaid interest against interest income and no longer accrue for these amounts. 5. REAL ESTATE OWNED On September 19, 2024, the Company acquired legal title to an office property located in North Carolina through a deed in lieu of foreclosure.
If the Company were to have uncollectible accrued interest receivable, it generally would reverse accrued and unpaid interest against interest income and no longer accrue for these amounts. 5. REAL ESTATE OWNED On September 19, 2024, the Company acquired legal title to a multi-building office property located in North Carolina through a deed in lieu of foreclosure.
The Morgan Stanley Facility also prohibits the Company from amending the management agreement with its Manager in a material respect without the prior consent of the lender. As of December 31, 2024, the Company was in compliance with all financial covenants of the Morgan Stanley Facility.
The Morgan Stanley Facility also prohibits the Company from amending the management agreement with its Manager in a material respect without the prior consent of the lender. As of December 31, 2025, the Company was in compliance with all financial covenants of the Morgan Stanley Facility.
As of December 31, 2024, the FL3 Notes were collateralized by interests in a pool of 12 mortgage assets having a total principal balance of $365.2 million (the “FL3 Mortgage Assets”) that were closed by a wholly-owned subsidiary of the Company.
As of December 31, 2024, the FL3 Notes were collateralized by interests in a pool of 12 mortgage assets having a total principal balance of $365.2 million that were closed by a wholly-owned subsidiary of the Company.
F-10 Table of Contents ARES COMMERCIAL REAL ESTATE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2024 (in thousands, except share and per share data, percentages and as otherwise indicated) 1.
F-10 Table of Contents ARES COMMERCIAL REAL ESTATE CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2025 (in thousands, except share and per share data, percentages and as otherwise indicated) 1.
As of December 31, 2024, the Company was in compliance with all financial covenants of the Wells Fargo Facility. Citibank Facility The Company is party to a $325.0 million master repurchase facility with Citibank, N.A. (“Citibank”) (the “Citibank Facility”).
As of December 31, 2025, the Company was in compliance with all financial covenants of the Wells Fargo Facility. Citibank Facility The Company is party to a $325.0 million master repurchase facility with Citibank, N.A. (“Citibank”) (the “Citibank Facility”).
The Citibank Facility also prohibits the Company from amending the management agreement with its Manager in a material respect without the prior consent of the lender. As of December 31, 2024, the Company was in compliance with all financial covenants of the Citibank Facility.
The Citibank Facility also prohibits the Company from amending the management agreement with its Manager in a material respect without the prior consent of the lender. As of December 31, 2025, the Company was in compliance with all financial covenants of the Citibank Facility.
For the years ended December 31, 2024, 2023 and 2022, the Company incurred a non-utilization fee of $104 thousand, $297 thousand and $247 thousand, respectively. The non-utilization fee is included within interest expense in the Company’s consolidated statements of operations.
For the years ended December 31, 2024 and 2023, the Company incurred a non-utilization fee of $104 thousand and $297 thousand, respectively. The non-utilization fee is included within interest expense in the Company’s consolidated statements of operations.
The Company’s board of directors declared a regular cash dividend of $0.15 per common share for the first quarter of 2025. The first quarter 2025 dividend will be payable on April 15, 2025 to common stockholders of record as of March 31, 2025.
The Company’s board of directors declared a regular cash dividend of $0.15 per common share for the first quarter of 2026. The first quarter 2026 dividend will be payable on April 15, 2026 to common stockholders of record as of March 31, 2026.
The FL3 CLO Securitization and the FL4 CLO Securitization are collectively referred to as the “CLO Securitizations.” As the directing holder of the CLO Securitizations, the Company has the ability to direct activities that could significantly impact the CLO Securitizations’ economic performance.
The FL3 CLO Securitization and the FL4 CLO Securitization are collectively referred to as the “CLO Securitizations.” As the directing holder of the CLO Securitizations, the Company had the ability to direct activities that could significantly impact the CLO Securitizations’ economic performance.
Real estate owned consists of an office property and a mixed-use property that were acquired by the Company on September 19, 2024 and September 8, 2023 through a deed in lieu of foreclosure and a consensual foreclosure, respectively. See Note 5 included in these consolidated financial statements for more information on real estate owned.
Real estate owned consists of a multi-building office property and a mixed-use property that were acquired by the Company on September 19, 2024 and September 8, 2023 through a deed in lieu of foreclosure and a consensual foreclosure, respectively. See Note 5 included in these consolidated financial statements for more information on real estate owned.
See Note 16 included in these consolidated financial statements for further discussion of the Company’s VIEs. Cash and Cash Equivalents Cash and cash equivalents include funds on deposit with financial institutions, including demand deposits with financial institutions.
See Note 15 included in these consolidated financial statements for further discussion of the Company’s VIEs. Cash and Cash Equivalents Cash and cash equivalents include funds on deposit with financial institutions, including demand deposits with financial institutions.
The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all loans held by the Company as of December 31, 2024 and 2023 as weighted by the total outstanding principal balance of each loan.
The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all loans held by the Company as of December 31, 2025 and 2024 as weighted by the total outstanding principal balance of each loan.
For collateral dependent loans that the Company determines foreclosure is not probable, the Company applies a practical expedient to estimate the CECL Reserve using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan.
For collateral dependent loans that the Company determines foreclosure is not probable, the Company may apply a practical expedient to estimate the CECL Reserve using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan.
Unless at least 75% of the CNB Facility is used on average, unused commitments under the CNB Facility accrue non-utilization fees at the rate of 0.375% per annum. For the years ended December 31, 2024, 2023 and 2022, the Company incurred a non-utilization fee of $286 thousand, $285 thousand and $284 thousand, respectively.
Unless at least 75% of the CNB Facility is used on average, unused commitments under the CNB Facility accrue non-utilization fees at the rate of 0.375% per annum. For the years ended December 31, 2025, 2024 and 2023, the Company incurred a non-utilization fee of $285 thousand, $286 thousand and $285 thousand, respectively.
The Company, as the holder of the subordinated FL3 Notes and all of the preferred equity in the FL3 Issuer, has the obligation to absorb losses of the CLO, since the Company has a first loss position in the capital structure of the CLO.
The Company, as the holder of the subordinated FL3 Notes and all of the preferred equity in the FL3 Issuer, had the obligation to absorb losses of the CLO, since the Company had a first loss position in the capital structure of the CLO.
As such, the fair value that is used in calculating the CECL Reserve is subject to uncertainty and any actual losses, if incurred, could differ materially from the CECL Reserve.
As such, the fair value that may be used in calculating the CECL Reserve is subject to uncertainty and any actual losses, if incurred, could differ materially from the CECL Reserve.
Wells Fargo Facility The Company is party to a master repurchase funding facility with Wells Fargo Bank, National Association (“Wells Fargo”) (the “Wells Fargo Facility”), which allows the Company to borrow up to $450.0 million.
Wells Fargo Facility The Company is party to a master repurchase funding facility with Wells Fargo Bank, National Association (“Wells Fargo”) (the “Wells Fargo Facility”), which allows the Company to borrow up to $600.0 million.
Determining the appropriate valuation method and selecting the appropriate key unobservable inputs and assumptions requires significant judgment and consideration of factors specific to the underlying collateral being assessed. Additionally, the key unobservable inputs and assumptions used may vary depending on the information available and market conditions as of the valuation date.
Determining the appropriate valuation method and selecting the appropriate key unobservable inputs and assumptions requires significant judgment and consideration of factors specific to the underlying collateral being assessed. Additionally, the key unobservable inputs and assumptions that may be used could vary depending on the information available and market conditions as of the valuation date.
Global macroeconomic conditions, including high inflation, changes to fiscal and monetary policy, high interest rates, potential market-wide liquidity problems, currency fluctuations, labor shortages and challenges in the supply chain, have the potential to negatively impact the Company and its borrowers.
Global macroeconomic conditions, including higher tariffs, high inflation, changes to fiscal, monetary and trade policy, high interest rates, potential market-wide liquidity problems, currency fluctuations, labor shortages and challenges in the supply chain, have the potential to negatively impact the Company and its borrowers.
Certain of the Company’s subsidiaries, along with the Company’s lenders under certain of the Company’s Secured Funding Agreements, as well as under the CLO transaction have entered into various servicing agreements with ACREM’s subsidiary servicer, Ares Commercial Real Estate Servicer LLC (“ACRES”). The Company’s Manager will specially service, as needed, certain of the Company’s investments.
Certain of the Company’s subsidiaries, along with the Company’s lenders under certain of the Company’s Secured Funding Agreements, have entered into various servicing agreements with ACREM’s subsidiary servicer, Ares Commercial Real Estate Servicer LLC (“ACRES”). The Company’s Manager will specially service, as needed, certain of the Company’s investments.
The Company also formed a wholly-owned subsidiary, ACRC 2017-FL3 TRS LLC (“FL3 TRS”), in March 2017 in order to hold a portion of the CLO Securitizations (as defined below), including the portion that generates excess inclusion income.
The Company formed a wholly-owned subsidiary, ACRC 2017-FL3 TRS LLC (“FL3 TRS”), in March 2017 in order to hold a portion of the CLO Securitizations (as defined below), including the portion that generated excess inclusion income.
The Company operates as one operating segment and is primarily focused on directly originating and managing a diversified portfolio of CRE debt-related investments for the Company’s own account. The Company’s target investments include senior mortgage loans, subordinated debt, preferred equity, mezzanine loans and other CRE investments, including commercial mortgage-backed securities.
The Company operates as one operating segment and is primarily focused on directly originating and managing a diversified portfolio of CRE debt-related investments for the Company’s own account. The Company’s target investments include whole and co-invested senior mortgage loans, subordinated debt, preferred equity and mezzanine loans, as well as other CRE investments, including commercial mortgage-backed securities.
Any restricted shares of the Company’s common stock and RSUs will be accounted for under FASB ASC Topic 718, Compensation—Stock Compensation , resulting in stock-based compensation expense equal to the grant date fair value of the underlying restricted shares of common stock or RSUs.
Any restricted shares of the Company’s common stock and RSUs are accounted for under FASB ASC Topic 718, Compensation—Stock Compensation, resulting in stock-based compensation expense equal to the grant date fair value of the underlying restricted shares of common stock or RSUs.
The TRSs recognize interest and penalties related to unrecognized tax benefits within income tax expense in the Company’s consolidated statements of operations. Accrued interest and penalties, if any, are included within other liabilities in the Company’s consolidated balance sheets. As of December 31, 2024, tax years 2021 through 2024 remain subject to examination by taxing authorities.
The TRSs recognize interest and penalties related to unrecognized tax benefits within income tax expense in the Company’s consolidated statements of operations. Accrued interest and penalties, if any, are included within other liabilities in the Company’s consolidated balance sheets. As of December 31, 2025, tax years 2022 through 2025 remain subject to examination by taxing authorities.
As of December 31, 2024, the FL4 Notes were collateralized by interests in a pool of four mortgage assets having a total principal balance of $186.8 million (the “FL4 Mortgage Assets”) that were closed by a wholly-owned subsidiary of the Company and $60.5 million of real estate owned related to an office property, which had collateralized a previous mortgage asset, and was acquired in September 2024 through a deed in lieu of foreclosure.
As of December 31, 2024, the FL4 Notes were collateralized by interests in a pool of four mortgage assets having a total principal balance of $186.8 million that were closed by a wholly-owned subsidiary of the Company and $58.8 million of real estate owned related to an office property, which had collateralized a previous mortgage asset, and was acquired in September 2024 through a deed in lieu of foreclosure.
The Company uses inputs that are current as of the measurement date, which may fall within periods of market dislocation, during which price transparency may be reduced. Recurring Fair Value Measurements Available-for-Sale Debt Securities The Company designates investments in CRE debt securities as available-for-sale on the acquisition date of such CRE debt securities.
The Company uses inputs that are current as of the measurement date, which may fall within periods of market dislocation, during which price transparency may be reduced. F-36 Table of Contents Recurring Fair Value Measurements Available-for-Sale Debt Securities The Company designates investments in CRE debt securities as available-for-sale on the acquisition date of such CRE debt securities.
This assessment requires that the Company applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.
This assessment requires that the Company apply judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE.
(3) Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) F-18 Table of Contents and assumes no dispositions, early prepayments or defaults.
(3) Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) and assumes no dispositions, early prepayments or defaults.
Unleveraged Effective Yield for each loan is calculated based on SOFR as of December 31, 2024 or the SOFR floor, as applicable.
Unleveraged Effective Yield for each loan is calculated based on SOFR as of December 31, 2025 or the SOFR floor, as applicable.
As described above, for the year ended December 31, 2024, the Company recognized a $2.3 million realized loss on the sale of the office property that was recognized as real estate owned held for sale as the net sale proceeds were less than the net carrying value of the office property as of the sale closing date. 6.
As described above, for the year ended December 31, 2024, the Company recognized a $2.3 million realized loss on the sale of the office property located in California that was recognized as real estate owned held for sale as the net sale proceeds were less than the net carrying value of the office property as of the sale closing date.
Real estate assets that are held for sale are carried at the lower of the asset’s carrying amount or its fair value less costs to sell. Debt Issuance Costs Debt issuance costs under the Company’s indebtedness are capitalized and amortized over the term of the respective debt instrument.
Real estate assets that are held for sale are carried at the lower of the asset’s carrying amount or its fair value less costs to sell. F-14 Table of Contents Debt Issuance Costs Debt issuance costs under the Company’s indebtedness are capitalized and amortized over the term of the respective debt instrument.
The realized loss on the sale of the office property is included within realized (gain) loss on sale of real estate owned in the Company’s consolidated statements of operations. On September 8, 2023, the Company acquired legal title to a mixed-use property located in Florida through a consensual foreclosure.
The realized loss on the sale of the office property is included within realized gain (loss) on sale of real estate owned in the Company’s consolidated statements of operations. F-25 Table of Contents On September 8, 2023, the Company acquired legal title to a mixed-use property located in Florida through a consensual foreclosure.
A TRS generally may engage in any business, including investing in assets and engaging in activities that could not be held or conducted directly by the Company without jeopardizing its qualification as a REIT. A TRS is subject to applicable United States federal, state and local income tax on its taxable income.
A TRS generally may engage in any business, including investing in assets and engaging in activities that could not be held or conducted directly by the Company without jeopardizing its qualification as a REIT. A TRS is subject to applicable F-16 Table of Contents United States federal, state and local income tax on its taxable income.
For the years ended December 31, 2024 and 2023, the Company incurred net depreciation and amortization expense of $4.8 million and $1.0 million, respectively. With the exception of amortization related to intangible assets and liabilities for above-market or below-market leases, depreciation and amortization expense is included within expenses from real estate owned in the Company’s consolidated statements of operations.
For the years ended December 31, 2025 and 2024, the Company incurred net depreciation and amortization expense of $8.5 million and $4.8 million, respectively. With the exception of amortization related to intangible assets and liabilities for above-market or below-market leases, depreciation and amortization expense is included within expenses from real estate owned in the Company’s consolidated statements of operations.
F-42 Table of Contents Loans held for investment are recorded at cost, net of unamortized purchase discounts, deferred loan fees and origination costs and cost-recovery proceeds. To determine the fair value of the collateral, the Company may employ different approaches depending on the type of collateral.
Loans held for investment are recorded at cost, net of unamortized purchase discounts, deferred loan fees and origination costs and cost-recovery proceeds. To determine the fair value of the collateral, the Company may employ different approaches depending on the type of collateral.
The Company includes interest income from its loans and debt securities and interest expense related to its Secured Funding Agreements, Notes Payable, securitization debt, the Secured Term Loan (each individually defined in Note 6 included in these consolidated financial statements) and secured borrowings (described in Note 7 included in these consolidated financial statements) in net interest margin.
The Company includes interest income from its loans and debt securities and interest expense related to its Secured Funding Agreements, Note Payable, securitization debt and the Secured Term Loan (each individually defined in Note 6 included in these consolidated financial statements) in net interest margin.
Further, in March 2022, the Company re-calibrated its net exposure to interest rate changes by terminating its interest rate cap derivative, which had a notional amount of $170.0 million on the termination date and a strike rate of 0.50%.
At the expiration date, the interest rate swap derivative had a notional amount of $30.0 million. Further, in March 2022, the Company re-calibrated its net exposure to interest rate changes by terminating its interest rate cap derivative, which had a notional amount of $170.0 million on the termination date and a strike rate of 0.50%.
Effective May 1, 2012, ACRES agreed that no servicing fees pursuant to these servicing agreements would be charged to the Company or its subsidiaries by ACRES or the Manager for so long as the Management Agreement remains in effect, but that ACRES will continue to receive reimbursement for overhead related to servicing and operational activities pursuant to the terms of the Management Agreement.
ACRES has agreed that no servicing fees pursuant to these servicing agreements would be charged to the Company or its subsidiaries by ACRES or the Manager for so long as the Management Agreement remains in effect, but that ACRES will continue to receive reimbursement for overhead related to servicing and operational activities pursuant to the terms of the Management Agreement.
For the year ended December 31, 2024, the Company recognized a realized loss of $15.7 million, which was equal to the carrying value of the mezzanine loan excluding the CECL Reserve at the time it was written off.
For the year ended December 31, 2024, the Company recognized a realized loss of $15.7 million, which F-21 Table of Contents was equal to the carrying value of the mezzanine loan excluding the CECL Reserve at the time it was written-off.
As of December 31, 2024, the Company was in compliance with all financial covenants of the Secured Term Loan.
As of December 31, 2025, the Company was in compliance with all financial covenants of the Secured Term Loan.
The Company’s subsidiaries, as directing holders, have the ability to remove the special servicer without cause. Based on these factors, the Company is determined to be the primary beneficiary of each of the CLO Securitizations; thus, the CLO Securitizations are consolidated into the Company’s consolidated financial statements.
The Company’s subsidiaries, as directing holders, had the ability to remove the special servicer without cause. Based on these factors, the Company was determined to be the primary beneficiary of each of the CLO Securitizations; thus, the CLO Securitizations are consolidated into the Company’s consolidated financial statements.

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Item 1A. Risk Factors

Risk Factors — what could go wrong, per management

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Biggest changeBoth of these factors increase the uncertainty, and thus the risk, of investing in our securities. 21 Table of Contents The failure of our Manager to apply our capital effectively or find investments that meet our investment criteria in sufficient time or on acceptable terms could result in unfavorable returns, could cause a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders, and could cause the value of our common stock to decline.
Biggest changeThe failure of our Manager to apply our capital effectively or find investments that meet our investment criteria in sufficient time or on acceptable terms could result in unfavorable returns, could cause a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders, and could cause the value of our common stock to decline. 22 Table of Contents Until appropriate investments can be identified, our Manager may invest our available capital in interest-bearing short-term investments, including money market accounts or funds, commercial mortgage-backed securities, or corporate bonds, which are consistent with our intention to qualify as a REIT.
We also expect to face increased costs to comply with the new SEC rules, including increased costs for cybersecurity training and management. Many jurisdictions in which we operate have laws and regulations relating to data privacy, cybersecurity and protection of personal information, including, the California Consumer Privacy Act and the New York SHIELD Act.
We also expect to face increased costs to comply with SEC rules, including increased costs for cybersecurity training and management. Many jurisdictions in which we operate have laws and regulations relating to data privacy, cybersecurity and protection of personal information, including, the California Consumer Privacy Act and the New York SHIELD Act.
Specifically, we expect each of our consolidated subsidiaries relying on Section 3(c)(5)(C) to invest at least 55% of its assets in mortgage loans, certain mezzanine loans and B-Notes and other interests in real estate that constitute qualifying real estate assets in accordance with SEC staff guidance, and approximately an additional 25% of its assets in other types of mortgages, securities of REITs and other real estate-related assets such as debt and equity securities of companies primarily engaged in real estate businesses and securities issued by pass-through entities of which substantially all of the assets consist of qualifying real estate assets and/or real estate-related assets.
Specifically, we expect each of our consolidated subsidiaries relying on Section 3(c)(5)(C) to invest at least 55% of its assets in mortgage loans, certain mezzanine loans, B-Notes, C-Notes and other interests in real estate that constitute qualifying real estate assets in accordance with SEC staff guidance, and approximately an additional 25% of its assets in other types of mortgages, securities of REITs and other real estate-related assets such as debt and equity securities of companies primarily engaged in real estate businesses and securities issued by pass-through entities of which substantially all of the assets consist of qualifying real estate assets and/or real estate-related assets.
While our Manager and Ares Management have agreed that for so long as our Manager is managing us, neither Ares Management nor any of its affiliates will sponsor or manage any other United States publicly traded REIT that invests primarily in the same asset classes as us, affiliates of our Manager may manage other investment vehicles (including non-traded or perpetual life REITs) that have investment objectives that compete or overlap with, and may from time to time invest in, our target asset classes.
While our Manager and Ares Management have agreed that for so long as our Manager is managing us, neither Ares Management nor any of its affiliates will sponsor or manage any other United States publicly traded REIT that invests primarily in the same asset classes as us, affiliates of our Manager manage other investment vehicles (including non-traded or perpetual life REITs) that have investment objectives that compete or overlap with, and may from time to time invest in, our target asset classes.
Furthermore, third parties may try to seek to impose liability on us in connection with our loans. Litigation may increase to the extent we find it necessary to foreclose or otherwise enforce remedies with respect to loans that are in default, which borrowers may seek to resist by asserting counterclaims and defenses.
Furthermore, third parties try to seek to impose liability on us in connection with our loans. Litigation may increase to the extent we find it necessary to foreclose or otherwise enforce remedies with respect to loans that are in default, which borrowers may seek to resist by asserting counterclaims and defenses.
Some of the factors that could negatively affect the market price of our common stock include: • our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects; • actual or perceived conflicts of interest with our Manager or Ares Management and individuals, including our executives; • equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur; • loss of a major funding source; • actual or anticipated accounting problems; • publication of research reports about us or the real estate industry; • changes in market valuations of similar companies; • adverse market reaction to any increased indebtedness we incur in the future; • additions to or departures of our Manager’s or Ares Management’s key personnel; • speculation in the press or investment community; • fluctuations in market interest rates and widening of market credit spreads, which may lead investors to demand a higher distribution yield for our common stock and could result in increased interest expenses on our debt; 31 Table of Contents • failure to maintain our REIT qualification or exemption from the 1940 Act; • price and volume fluctuations in the overall stock market from time to time; • general market and economic conditions, and trends, including the current state of the credit and capital markets; • significant volatility in the market price and trading volume of securities of publicly traded REITs or other companies in our sector, which are not necessarily related to the operating performance of these companies; • changes in law, regulatory policies or tax guidelines, or interpretations thereof, particularly with respect to REITs; • changes in the value of our portfolio; • any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; • operating performance of companies comparable to us; • short-selling pressure with respect to shares of our common stock or REITs generally; • uncertainty surrounding the continued strength of the United States economy; and • concerns regarding volatility in the United States and global financial markets.
Some of the factors that could negatively affect the market price of our common stock include: • our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects; • actual or perceived conflicts of interest with our Manager or Ares Management and individuals, including our executives; • equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur; • loss of a major funding source; 32 Table of Contents • actual or anticipated accounting problems; • publication of research reports about us or the real estate industry; • changes in market valuations of similar companies; • adverse market reaction to any increased indebtedness we incur in the future; • additions to or departures of our Manager’s or Ares Management’s key personnel; • speculation in the press or investment community; • fluctuations in market interest rates and widening of market credit spreads, which may lead investors to demand a higher distribution yield for our common stock and could result in increased interest expenses on our debt; • failure to maintain our REIT qualification or exemption from the 1940 Act; • price and volume fluctuations in the overall stock market from time to time; • general market and economic conditions, and trends, including the current state of the credit and capital markets; • significant volatility in the market price and trading volume of securities of publicly traded REITs or other companies in our sector, which are not necessarily related to the operating performance of these companies; • changes in law, regulatory policies or tax guidelines, or interpretations thereof, particularly with respect to REITs; • changes in the value of our portfolio; • any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts; • operating performance of companies comparable to us; • short-selling pressure with respect to shares of our common stock or REITs generally; • uncertainty surrounding the continued strength of the United States economy; and • concerns regarding volatility in the United States and global financial markets.
Conversely, in a period of declining interest rates or tightening credit spreads, our interest income on floating rate investments decreases, while any decrease in the interest we are charged on our floating rate debt may be subject to floors or the interest rate costs on certain of our borrowings could be fixed at a higher floor and not compensate for such decrease in interest income or tightened credit spread.
In a period of declining interest rates or tightening credit spreads, our interest income on floating rate investments decreases, while any decrease in the interest we are charged on our floating rate debt may be subject to floors or the interest rate costs on certain of our borrowings could be fixed at a higher floor and not compensate for such decrease in interest income or tightened credit spread.
Net operating income of an income-producing property has in the past and in the future can be adversely affected by, among other things, the following: • tenant mix; • success of tenant businesses; • property management decisions; • property location, condition and design; • competition from comparable types of properties; • changes in laws that increase operating expenses or limit rents that may be charged; • changes in national, regional or local economic conditions, and/or specific industry segments, including the credit and securitization markets; 23 Table of Contents • declines in regional or local real estate values; • changes in local markets in which our tenants operate, including work and shopping-related dynamics and changes in oil and gas prices; • declines in regional or local rental or occupancy rates; • increases in interest rates, real estate tax rates and other operating expenses, including the cost of insurance; • costs of remediation and liabilities associated with environmental conditions; • the potential for uninsured or underinsured property losses; • the potential for casualty or condemnation loss; • changes in governmental laws and regulations, including fiscal policies, zoning ordinances and environmental legislation and the related costs of compliance; • changes in supply (resulting from the recent growth in CRE debt funds or otherwise) and demand (resulting from increases in remote working arrangements or otherwise); and • acts of God, earthquakes, droughts, floods, hurricanes, fires and other natural disasters, pandemics, terrorist attacks, social unrest and civil disturbances, which may decrease the availability of or increase the cost of insurance or result in uninsured losses.
Net operating income of an income-producing property has been in the past and in the future can be adversely affected by, among other things, the following: • tenant mix; • success of tenant businesses; • property management decisions; • property location, condition and design; • competition from comparable types of properties; • changes in laws that increase operating expenses or limit rents that may be charged; 24 Table of Contents • changes in national, regional or local economic conditions, and/or specific industry segments, including the credit and securitization markets; • declines in regional or local real estate values; • changes in local markets in which our tenants operate, including work and shopping-related dynamics and changes in oil and gas prices; • declines in regional or local rental or occupancy rates; • increases in interest rates, real estate tax rates and other operating expenses, including the cost of insurance; • costs of remediation and liabilities associated with environmental conditions; • the potential for uninsured or underinsured property losses; • the potential for casualty or condemnation loss; • changes in governmental laws and regulations, including fiscal policies, zoning ordinances and environmental legislation and the related costs of compliance; • changes in supply (resulting from the recent growth in CRE debt funds or otherwise) and demand (resulting from increases in remote working arrangements or otherwise); and • acts of God, earthquakes, droughts, floods, hurricanes, fires and other natural disasters, pandemics, terrorist attacks, social unrest and civil disturbances, which may decrease the availability of or increase the cost of insurance or result in uninsured losses.
Moreover, concerns over the United States’ debt ceiling and budget-deficit have driven downgrades by rating agencies to the U.S. government’s credit rating, which could cause borrowing costs to rise further, negatively impacting both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms.
Moreover, concerns over the United States’ debt ceiling and budget-deficit have driven downgrades by rating agencies to the U.S. government’s credit rating, which could cause borrowing costs to rise, negatively impacting both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms.
Compliance with any new laws or regulations increases our regulatory burden and could result in increased legal, accounting and compliance costs, make some activities more difficult, time-consuming and costly, affect the manner in which we conduct our business and adversely affect our profitability. Item 1B. Unresolved Staff Comments None.
In addition, compliance with any new laws or regulations increases our regulatory burden and could result in increased legal, accounting and compliance costs, make some activities more difficult, time-consuming and costly, affect the manner in which we conduct our business and adversely affect our profitability. Item 1B. Unresolved Staff Comments None.
In addition, if regulatory capital requirements imposed on our private lenders change, they may be required to limit, or increase the cost of, financing they provide to us. In general, this could potentially increase our financing costs and reduce our liquidity or require us to sell assets at an inopportune time or price.
In addition, if regulatory capital requirements imposed on our private lenders change, they may be required to limit, or increase the cost of, financing they provide to us. In general, this could increase our financing costs and reduce our liquidity or require us to sell assets at an inopportune time or price.
In general, losses on a mortgaged property securing a mortgage loan included in a securitization will be borne first by the equity holder of the property, then by a cash reserve fund or letter of credit, if any, then by the holder of a mezzanine loan or B-Note, if any, then by the “first loss” subordinated stockholder and then by the holder of a higher-rated security.
In general, losses on a mortgaged property securing a mortgage loan included in a securitization will be borne first by the equity holder of the property, then by a cash reserve fund or letter of credit, if any, then by the holder of a mezzanine loan, B-Note or C-Note, if any, then by the “first loss” subordinated stockholder and then by the holder of a higher-rated security.
ACRC W TRS, FL3 TRS, ACRC WM and other TRSs that we may form will pay United States federal, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to us but will not be required to be distributed to us, unless necessary to maintain our REIT qualification.
FL3 TRS, ACRC WM and other TRSs that we may form will pay United States federal, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to us but will not be required to be distributed to us, unless necessary to maintain our REIT qualification.
In a period of rising interest rates or widening credit spreads, our interest expense on floating rate debt increases, while any additional interest income we earn on our floating rate investments may be subject to caps or may be subject to a tighter credit spread and as a result may not compensate for such increase in interest expense.
Conversely, in a period of rising interest rates or widening credit spreads, our interest expense on floating rate debt increases, while any additional interest income we earn on our floating rate investments may be subject to caps or may be subject to a tighter credit spread and as a result may not compensate for such increase in interest expense.
We have and, subject to market conditions and availability, we may continue to incur significant debt through bank credit facilities (including term loans and revolving facilities), repurchase agreements, warehouse facilities and structured financing arrangements, public and private debt issuances and derivative instruments, in addition to transaction or asset specific funding arrangements.
We have incurred and, subject to market conditions and availability, we may continue to incur significant debt through bank credit facilities (including term loans and revolving facilities), repurchase agreements, warehouse facilities and structured financing arrangements, public and private debt issuances and derivative instruments, in addition to transaction or asset specific funding arrangements.
These regulations, and other proposed regulations affecting securitizations, could alter the structure of securitizations in the future, pose additional risks to our participation in future securitizations or reduce or eliminate the economic incentives for participating in future securitizations, increase the costs associated with our origination, securitization or acquisition activities, or otherwise increase the risks or costs of us doing business.
These regulations, and other proposed regulations affecting securitizations, continue to alter the structure of securitizations and could pose additional risks to our participation in future securitizations or reduce or eliminate the economic incentives for participating in future securitizations, increase the costs associated with our origination, securitization or acquisition activities, or otherwise increase the risks or costs of us doing business.
Commercial mortgage-backed securities pose risks of the securitization process and the risk that the special servicer may take actions that could adversely affect our interests. We have commercial mortgage-backed securities (“CMBS”) and may in the future acquire CMBS in the most subordinated classes of such commercial mortgage-backed securities and collateralized loan obligations (“CLO”).
Commercial mortgage-backed securities pose risks of the securitization process and the risk that the special servicer may take actions that could adversely affect our interests. We have acquired commercial mortgage-backed securities (“CMBS”) and may in the future acquire CMBS in the most subordinated classes of such commercial mortgage-backed securities and collateralized loan obligations (“CLO”).
In the event of default and the exhaustion of any equity support, reserve fund, letter of credit, mezzanine loans or B-Notes, and any classes of securities junior to those in which we invest, we will not be able to recover any or all of our investment in the securities we purchase.
In the event of default and the exhaustion of any equity support, reserve fund, letter of credit, mezzanine loans, B-Notes or C-Notes, and any classes of securities junior to those in which we invest, we will not be able to recover any or all of our investment in the securities we purchase.
To the extent we fail to meet these tests, amounts that would otherwise be used to make payments on the subordinate securities that we hold will be used to repay principal on the more senior securities to the extent necessary to satisfy the senior note overcollateralization ratio and we may incur significant losses.
To the extent we fail to meet these tests, amounts that would otherwise be used to make payments on the subordinate securities that we hold would be used to repay principal on the more senior securities to the extent necessary to satisfy the senior note overcollateralization ratio and we may incur significant losses.
Continued deterioration of the credit of our loans may negatively impact our ability to satisfy the negative covenants and other financial and operating covenants in the Financing Agreements, and there can be no guarantee that we would be able to renegotiate the covenants in our Financing Agreements in the future.
However, continued deterioration of the credit of our loans may negatively impact our ability to satisfy the negative covenants and other financial and operating covenants in the Financing Agreements, and there can be no guarantee that we would be able to renegotiate the covenants in our Financing Agreements in the future.
Other Ares managed investment vehicles may co-invest with us or hold positions in an investment, or provide debt with respect to an underlying property , where we have also invested, including by means of splitting investments, participating in investments or other means of syndication of investments.
Other Ares managed investment vehicles co-invest with us or hold positions in an investment, or provide debt with respect to an underlying property , where we have also invested, including by means of splitting investments, participating in investments or other means of syndication of investments.
If we are unable to successfully integrate new assets and manage our growth, our results of operations and financial condition may suffer . We have in the past and may in the future significantly increase the size and/or change the mix of our portfolio of assets.
If we are unable to successfully integrate new assets and manage our growth, our results of operations and financial condition may suffer . We have in the past increased and may in the future significantly increase the size and/or change the mix of our portfolio of assets.
RISKS RELATED TO SOURCES OF FINANCING AND HEDGING Fluctuations in interest rates and credit spreads could increase our financing costs, reduce our ability to generate income and increase the probability and magnitude of a loss on our investments, each of which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments. 15 Table of Contents Our primary interest rate exposures relate to the yield on our investments and the financing cost of our debt as well as interest rate swaps that we may utilize for hedging purposes.
RISKS RELATED TO SOURCES OF FINANCING AND HEDGING Fluctuations in interest rates and credit spreads could increase our financing costs, reduce our ability to generate income and increase the probability and magnitude of a loss on our investments, each of which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments. 16 Table of Contents Our primary interest rate exposures relate to the yield on our investments and the financing cost of our debt as well as interest rate swaps that we may utilize for hedging purposes.
There is also regulatory interest across jurisdictions in improving transparency regarding the definition, measurement and disclosure of ESG factors in order to allow investors to validate and better understand sustainability claims.
There is also regulatory interest across jurisdictions in improving transparency regarding the definition, measurement and disclosure of sustainability factors in order to allow investors to validate and better understand sustainability claims.
The SEC staff, according to published guidance, takes the view that certain mezzanine loans and B-Notes are qualifying real estate assets. Thus, we intend to treat certain mezzanine loans and B-Notes as qualifying real estate assets.
The SEC staff, according to published guidance, takes the view that certain mezzanine loans, B-Notes and C-Notes are qualifying real estate assets. Thus, we intend to treat certain mezzanine loans, B-Notes and C-Notes as qualifying real estate assets.
Our bylaws require us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to any individual who is a present or former director or officer and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or any individual who, while a director or officer and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, REIT, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity.
Our bylaws require us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to any individual who is a present or former director or officer and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or any individual who, while a director or officer and at our request, serves or has 38 Table of Contents served as a director, officer, partner, trustee, member or manager of another corporation, REIT, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity.
Conversely, if interest rates on our loan investments continue to decrease, we will receive less income from such loans, which could decrease our net income and materially impact our business.
If interest rates on our loan investments continue to decrease, we will receive less income from such loans, which could decrease our net income and materially impact our business.
While we qualify as a REIT, we will seek to avoid the 100% prohibited transaction tax by (a) conducting activities that may otherwise be considered prohibited transactions through a TRS (such TRS will incur income tax at corporate tax rates with respect to any income or gain recognized by it), (b) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary (other than a TRS), will be treated as a prohibited transaction, or (c) structuring certain dispositions of our properties to comply with a prohibited transaction safe harbor available under the Code for properties that have been held for at least two years.
While we qualify as a REIT, we will seek to avoid the 100% prohibited transaction tax by (a) conducting activities that may otherwise be considered prohibited transactions through a TRS (such TRS will incur income tax at corporate tax rates with respect to any income or gain recognized by it), (b) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary (other than a TRS), will be treated as a prohibited transaction, or (c) structuring certain 46 Table of Contents dispositions of our properties to comply with a prohibited transaction safe harbor available under the Code for properties that have been held for at least two years.
There are no limits on the percentage of unrated or non-investment grade rated assets we may hold in our investment portfolio. 26 Table of Contents The B-Notes and C-Notes that we have originated or may originate or acquire in the future may be subject to additional risks related to the privately negotiated structure and terms of the transaction, which may result in losses to us.
There are no limits on the percentage of unrated or non-investment grade rated assets we may hold in our investment portfolio. 27 Table of Contents The B-Notes and C-Notes that we have originated or may originate or acquire in the future may be subject to additional risks related to the privately negotiated structure and terms of the transaction, which may result in losses to us.
We are also subject to cross-default and acceleration provisions and, with respect to collateralized debt, the posting of additional 17 Table of Contents collateral, including cash to satisfy margin calls, and foreclosure rights upon default. Further, these restrictions could also make it difficult for us to satisfy the qualification requirements necessary to maintain our status as a REIT.
We are also subject to cross-default and acceleration provisions and, with respect to collateralized debt, the posting of additional collateral, including cash to satisfy margin calls, and foreclosure rights upon default. Further, these 18 Table of Contents restrictions could also make it difficult for us to satisfy the qualification requirements necessary to maintain our status as a REIT.
If we do not successfully manage expectations across varied stakeholder interests, it could erode stakeholder trust, impact our reputation and constrain our investment opportunities. Such scrutiny of both ESG and DEI related practices could expose our Manager to the risk of litigation, investigations or challenges by federal or state authorities or result in reputational harm.
If we do not successfully manage expectations across varied stakeholder interests, it could erode stakeholder trust, impact our reputation and constrain our investment opportunities. Such scrutiny of both sustainability and DEI related practices could expose our Manager to the risk of litigation, investigations or challenges by federal or state authorities or result in reputational harm.
Under our charter and the MGCL, our stockholders generally have a right to vote only on the following matters: • the election or removal of directors; • the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to: • change our name; • change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock; • increase or decrease the aggregate number of shares of stock that we have the authority to issue; 34 Table of Contents • increase or decrease the number of shares of any class or series of stock that we have the authority to issue; and • effect certain reverse stock splits; • our dissolution; and • our being a party to a merger, consolidation, conversion, sale or other disposition of all or substantially all of our assets or statutory share exchange.
Under our charter and the MGCL, our stockholders generally have a right to vote only on the following matters: • the election or removal of directors; • the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to: • change our name; • change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock; • increase or decrease the aggregate number of shares of stock that we have the authority to issue; • increase or decrease the number of shares of any class or series of stock that we have the authority to issue; and • effect certain reverse stock splits; • our dissolution; and • our being a party to a merger, consolidation, conversion, sale or other disposition of all or substantially all of our assets or statutory share exchange.
To the extent we foreclose on properties with respect to which we have extended mortgage loans, such as the office property we acquired in 2024 through a deed in lieu of foreclosure or the mixed-use property we acquired in 2023 as a result of a consensual foreclosure, we may be subject to environmental liabilities arising from such foreclosed properties.
To the extent we foreclose on properties with respect to which we have extended mortgage loans, such as the multi-building office property we acquired in 2024 through a deed in lieu of foreclosure or the mixed-use property we acquired in 2023 as a result of a consensual foreclosure, we may be subject to environmental liabilities arising from such foreclosed properties.
In such circumstances, we may be required to (a) sell assets in adverse market conditions, (b) borrow on unfavorable terms, (c) distribute amounts that would otherwise be used for future acquisitions or used to repay debt, or (d) make a taxable distribution of our shares of common stock as part of a distribution in which stockholders may elect to receive shares of common stock or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with the REIT distribution requirements.
In such circumstances, we may be required to (a) sell assets in adverse market conditions, (b) borrow on unfavorable terms, (c) distribute amounts that would otherwise be used for future acquisitions or used to repay debt, or (d) make a taxable distribution of our shares of common 47 Table of Contents stock as part of a distribution in which stockholders may elect to receive shares of common stock or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with the REIT distribution requirements.
We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, including, but not limited to human rights, climate change and environmental stewardship, support for local communities, corporate governance and transparency, or consideration of ESG factors in our investment processes.
We risk damage to our brand and reputation if we fail to act responsibly in a number of areas, including, but not limited to human rights, climate change and environmental stewardship, support for local communities, corporate governance and transparency, or consideration of sustainability factors in our investment processes.
In addition, we have agreed to indemnify our Manager, its officers, stockholders, members, managers, directors, personnel, any person controlling or controlled by our Manager and any person providing services to our Manager with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts of our Manager not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties, performed in good faith in accordance with and pursuant to the Management Agreement.
In addition, we have agreed to indemnify our Manager, its officers, stockholders, members, managers, directors, personnel, any person controlling or controlled by our Manager and any person providing services to our Manager with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts 44 Table of Contents of our Manager not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties, performed in good faith in accordance with and pursuant to the Management Agreement.
Hedging against interest rate or currency exposure may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. Subject to maintaining our qualification as a REIT, we may pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates or currencies.
Hedging against interest rate or currency exposure may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders. Subject to maintaining our qualification as a REIT, from time to time, we pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates or currencies.
Risk Factors SUMMARY OF RISK FACTORS The following is a summary of the principal risks that you should carefully consider before investing in our securities: • A global economic slowdown or further declines in real estate values could impair our investments and have a significant adverse effect on our business, financial condition and results of operations; • Macroeconomic conditions, including those adversely impacting office properties, have resulted and may continue to result in increases to our CECL Reserve and could have an adverse effect on our financial results; • Changes in interest rates and credit spreads could adversely impact our financial condition; • Our board of directors may change our investment strategy or guidelines, financing strategy or leverage policies, and such changes could affect our financial condition, results of operations and the market price of our common stock; • We are dependent upon certain key personnel of our Manager for our future success and upon their access to other Ares investment professionals; • There are significant potential conflicts of interest that could impact our investment returns; • We operate in a competitive market for investment opportunities and loan originations, and competition may limit our ability to originate or acquire assets on attractive terms; • Our mezzanine loan assets involve greater risks of loss than senior loans secured by real properties, and investments in preferred equity involve a greater risk of loss than traditional debt financing; • Our investments are subject to risks particular to real property; • Our portfolio is concentrated in a limited number of loans and has a higher exposure to the office and mixed-use sectors compared to the other property types, which subjects us to a risk of significant loss if any of these loans default; • The lack of liquidity in our investments may adversely affect our business; • We allocate our available capital without input from our stockholders; • We are subject to various risks related to the ownership of real property; • We may experience a decline in the fair value of our assets; • We incur significant debt, which subjects us to increased risk of loss and reduces cash available for distributions to our stockholders; • Security incidents or cyber-attacks could adversely affect our business or the business of our borrowers by causing a disruption to our operations or the operations of our borrowers, a compromise or corruption of our or our borrowers’ confidential, personal or other sensitive information and/or damage to our or our borrowers’ business relationships or reputation; • We have not established a minimum distribution payment level to our stockholders and we may be unable to generate sufficient cash flows from our operations to make distributions to our stockholders at any time in the future; • Maintenance of our exemption from registration under the 1940 Act imposes significant limits on our operations; • Our failure to remain qualified as a REIT would subject us to United States federal income tax and potentially state and local tax, and could result in us facing a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders, and otherwise adversely affect our operations and the market price of our common stock; and • Complying with REIT requirements may cause us to forgo otherwise attractive investment opportunities or borrow funds during unfavorable market conditions. 10 Table of Contents RISK FACTORS You should carefully consider these risk factors, together with all of the other information included in this annual report on Form 10-K, including our consolidated financial statements and the related notes thereto, before you decide whether to make an investment in our securities.
Risk Factors SUMMARY OF RISK FACTORS The following is a summary of the principal risks that you should carefully consider before investing in our securities: • A global economic slowdown or further declines in real estate values could impair our investments and have a significant adverse effect on our business, financial condition and results of operations; • Macroeconomic conditions, including those adversely impacting office properties, have resulted and may continue to result in increases to our CECL Reserve and could have an adverse effect on our financial results; • Changes in interest rates and credit spreads could adversely impact our financial condition; • Our board of directors may change our investment strategy or guidelines, financing strategy or leverage policies, and such changes could affect our financial condition, results of operations and the market price of our common stock; • We are dependent upon certain key personnel of our Manager for our future success and upon their access to other Ares investment professionals; • There may be significant potential conflicts of interest between us and our Manager and its affiliates that could impact our investment returns; • We operate in a competitive market for investment opportunities and loan originations, and competition may limit our ability to originate or acquire assets on attractive terms; • Our mezzanine loan assets, B-Notes and C-Notes involve greater risks of loss than senior loans secured by real properties, and investments in preferred equity involve a greater risk of loss than traditional debt financing; • Our investments are subject to risks particular to real property; • Our portfolio is concentrated in a limited number of loans and has a higher exposure to the office sector compared to the other property types, which subjects us to a risk of significant loss if any of these loans default; • The lack of liquidity in our investments may adversely affect our business; • We allocate our available capital without input from our stockholders; • We are subject to various risks related to the ownership of real property; • We may experience a decline in the fair value of our assets; • We incur significant debt, which subjects us to increased risk of loss and reduces cash available for distributions to our stockholders; • Security incidents or cyber-attacks affecting us, our Manager or Ares Management or third-party providers, could adversely affect our business or the business of our borrowers by causing a disruption to our operations or the operations of our borrowers, a compromise or corruption of our or our borrowers’ confidential, personal or other sensitive information and/or damage to our or our borrowers’ business relationships or reputation; • We have not established a minimum distribution payment level to our stockholders and we may be unable to generate sufficient cash flows from our operations to make distributions to our stockholders at any time in the future; • Maintenance of our exemption from registration under the 1940 Act imposes significant limits on our operations; • Our failure to remain qualified as a REIT would subject us to United States federal income tax and potentially state and local tax, and could result in us facing a substantial tax liability, which would reduce the amount of cash available for distribution to our shareholders, and otherwise adversely affect our operations and the market price of our common stock; and • Complying with REIT requirements may cause us to forgo otherwise attractive investment opportunities or borrow funds during unfavorable market conditions. 10 Table of Contents RISK FACTORS You should carefully consider these risk factors, together with all of the other information included in this annual report on Form 10-K, including our consolidated financial statements and the related notes thereto, before you decide whether to make an investment in our securities.
However, if (a) we are a “pension-held REIT,” (b) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our common stock or (c) a holder of common stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, our common stock by such tax-exempt stockholder may be subject to United States federal income tax as unrelated business taxable income under the Code.
However, if (a) we are a 50 Table of Contents “pension-held REIT,” (b) a tax-exempt stockholder has incurred (or is deemed to have incurred) debt to purchase or hold our common stock or (c) a holder of common stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, our common stock by such tax-exempt stockholder may be subject to United States federal income tax as unrelated business taxable income under the Code.
Furthermore, the management and resolution of CRE increases our costs and requires significant commitments of time from our management and directors, which can be detrimental to the performance of their other responsibilities. 24 Table of Contents Prepayment rates may adversely affect the value of our portfolio of assets.
Furthermore, the management and resolution of CRE increases our costs and requires significant 25 Table of Contents commitments of time from our management and directors, which can be detrimental to the performance of their other responsibilities. Prepayment rates may adversely affect the value of our portfolio of assets.
Any credit ratings on our investments are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant.
Any credit ratings on our investments are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency if, in its judgment, circumstances warrant.
In addition, if we and such other Ares managed 39 Table of Contents investment vehicles invest in different classes or types of debt or investments relating to the same underlying property or properties, actions may be taken by such other Ares managed investment vehicles that are adverse to our interests, including, but not limited to, during a work-out, restructuring or insolvency proceeding or similar matter occurring with respect to such investment.
In addition, if we and such other Ares managed investment vehicles invest in different classes or types of debt or investments relating to the same underlying property or properties, actions may be taken by such other Ares managed investment vehicles that are adverse to our interests, including, but not limited to, during a work-out, restructuring or insolvency proceeding or similar matter occurring with respect to such investment.
However, there can be no assurance that our net income or cash flow from operating activities will be sufficient to cover our future distributions, and we may use other sources of funds, such as from offering proceeds, borrowings and asset sales, to fund portions of our future distributions. Investing in our common stock may involve a high degree of risk.
However, there can be no assurance that our net income or cash flow from operating activities will be sufficient to cover our future distributions, and we may use other sources of funds, such as from offering proceeds, borrowings and asset sales, to fund portions of our future distributions. 34 Table of Contents Investing in our common stock may involve a high degree of risk.
If investors subject to “anti-ESG” legislation view our Manager’s responsible investing or ESG practices as being in contradiction of such “anti-ESG” policies, legislation or legal opinions, such investors may not invest in us and it could negatively impact the price of our common stock. In addition, corporate diversity, equity and inclusion (“DEI”) practices have recently come under increasing scrutiny.
If investors subject to “anti-ESG” legislation view our Manager’s responsible investing or sustainability practices as being in contradiction of such “anti-ESG” policies, legislation, initiatives or legal opinions, such investors may not invest in us and it could negatively impact the price of our common stock. In addition, corporate diversity, equity and inclusion (“DEI”) practices have recently come under increasing scrutiny.
We conduct our operations in a manner designed so that we do not come within the definition of an investment company because less than 40% of the value of our adjusted total assets on an unconsolidated basis consist of “investment securities.” As such, the securities issued by our wholly-owned or other majority-owned subsidiaries that are exempted from the definition of “investment company” based on Section 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we may own, may not have a value in excess of 40% of the value of our adjusted total assets on an unconsolidated basis.
We conduct our operations in a manner designed so that we do not come within the definition of an investment company because less than 40% of the value of our adjusted total assets on an unconsolidated basis consists of “investment securities.” As such, the securities issued by our wholly-owned or other majority-owned subsidiaries that are exempted from the definition of “investment company” based on Sections 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we may own, may not have a value in excess of 40% of the value of our adjusted total assets on an unconsolidated basis.
Furthermore, competition for originations of and investments in our target investments may lead to the yield on such assets decreasing, which may further limit our ability to generate desired returns. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations.
Furthermore, competition for originations of and investments in our target investments may lead to the yield on such assets decreasing, which may further limit our ability to generate desired returns. We cannot assure you that the competitive pressures we face will not have a 26 Table of Contents material adverse effect on our business, financial condition and results of operations.
In certain limited cases (e.g., in connection with a workout, restructuring and/or foreclosing proceedings involving one or more of our debt investments), the success of our investment strategy with respect thereto will depend, in part, on our ability to effectuate loan modifications and/or restructures. The activity of identifying and implementing any such restructuring programs entails a high degree of uncertainty.
In certain limited cases (e.g., in connection with a workout, restructuring and/or foreclosing proceedings involving one or more of our debt investments), the success of our investment strategy with respect thereto depends, in part, on our ability to effectuate loan modifications and/or restructures. The activity of identifying and implementing any such restructuring programs entails a high degree of uncertainty.
Our qualification as a REIT and exemption from United States federal income tax with respect to certain assets may be dependent on the accuracy of legal opinions or advice rendered or given or statements by the issuers of assets that we 46 Table of Contents acquire, and the inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in corporate-level tax.
Our qualification as a REIT and exemption from United States federal income tax with respect to certain assets may be dependent on the accuracy of legal opinions or advice rendered or given or statements by the issuers of assets that we acquire, and the inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in corporate-level tax.
In addition, interest rate hedging may fail to protect or could adversely affect us because, among other things: • interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; • available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; • due to a credit loss, the duration of the hedge may not match the duration of the related liability; • we may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a TRS to comply with REIT requirements, increasing the cost of our hedging activities because our TRSs would be subject to tax on gains and hedging-related losses in our TRSs will generally not provide any tax benefit, except for losses carried forward against future taxable income in the TRSs; • legal, tax and regulatory changes could occur and may adversely affect our ability to pursue our hedging strategies and/or increase the costs of implementing such strategies; • the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and • the hedging counterparty owing money in the hedging transaction may default on its obligation to pay. 20 Table of Contents In addition, we may fail to recalculate, readjust and execute hedges in an efficient manner.
In addition, interest rate hedging may fail to protect or could adversely affect us because, among other things: • interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; • available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought; • due to a credit loss, the duration of the hedge may not match the duration of the related liability; • we may have to limit our use of hedging techniques that might otherwise be advantageous or implement those hedges through a TRS to comply with REIT requirements, increasing the cost of our hedging activities because our TRSs would be subject to tax on gains and hedging-related losses in our TRSs will generally not provide any tax benefit, except for losses carried forward against future taxable income in the TRSs; • legal, tax and regulatory changes could occur and may adversely affect our ability to pursue our hedging strategies and/or increase the costs of implementing such strategies; • the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and • the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.
See “Risk Factors—Risks Relating to Sources of Financing and Hedging— 11 Table of Contents The Financing Agreements and any bank credit facilities and repurchase agreements that we may use in the future to finance our assets may require us to provide additional collateral or pay down debt” included in this annual report on Form 10-K.
See “Risk Factors—Risks Relating to Sources of Financing and Hedging—The Financing Agreements and any bank credit facilities and repurchase agreements that we may use in the future to finance our assets may require us to provide additional collateral or pay down debt” included in this annual report on Form 10-K.
However, even if a restructuring were successfully accomplished, a risk exists that, upon maturity of such real estate loan, debt securities or other interests replacement “takeout” financing will not be available.
However, even if a restructuring is successfully accomplished, a risk exists that, upon maturity of such real estate loan, debt securities or other interests replacement “takeout” financing will not be available.
The unsuccessful resolution of risk rated “4” and “5” loans or increases in the numbers of such loans, could result in material realized net losses and impact our net earnings and the price of our common stock. Provisions in our financing agreements require us to pay margin calls following the occurrence of certain mortgage loan credit events.
The unsuccessful resolution of risk rated “4” and “5” loans or increases in the numbers of such loans, could result in material realized net losses and impact our net earnings and the price of our common stock. 11 Table of Contents Provisions in our financing agreements require us to pay margin calls following the occurrence of certain mortgage loan credit events.
The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. Stockholders have limited control over changes in our policies and operations. Our board of directors determines our major policies, including with regard to financing, growth, debt capitalization, REIT qualification and distributions.
The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. 35 Table of Contents Stockholders have limited control over changes in our policies and operations. Our board of directors determines our major policies, including with regard to financing, growth, debt capitalization, REIT qualification and distributions.
We also may decide to retain net capital gains we earn from the sale or other disposition of our property and pay United States federal income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly.
We also may decide to retain net capital gains we earn from the sale or other disposition of our property and 45 Table of Contents pay United States federal income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly.
Also, as a result of this competition, desirable investments in our target investments may be limited in the future and we may not be able to take advantage of 25 Table of Contents attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives.
Also, as a result of this competition, desirable investments in our target investments may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives.
Additionally, loans with insufficient cash flow to cover debt service may be modified to include a PIK interest provision that may result in the principal balance at the end of the loan term significantly increasing which in turn increases the probability and magnitude of a loss on our investment.
Additionally, loans with insufficient cash flow to cover debt service have been modified and may in the future be modified to include a PIK interest provision that may result in the principal balance at the end of the loan term significantly increasing which in turn increases the probability and magnitude of a loss on our investment.
We may not find a suitable replacement for our Manager if our Management Agreement is terminated or if such key personnel or investment professionals leave the employment of our Manager or Ares Management or otherwise become unavailable to us. We rely on the resources of our Manager to manage our day-to-day operations, as we do not employ any personnel.
We may not find a suitable replacement for our Manager if our Management Agreement is terminated or if such key personnel or investment professionals leave the employment of our Manager or Ares Management or otherwise become unavailable to us. 39 Table of Contents We rely on the resources of our Manager to manage our day-to-day operations, as we do not employ any personnel.
The impact of the reproposal will not be fully known until after the rules are implemented by the United States federal bank regulatory agencies. However, their implementation may negatively impact our access to financing, affect the terms of our future financing arrangements and negatively impact the mortgage lending industry in which we operate.
The full impact of the finalized rules will not be fully known until after the rules are implemented by the United States federal bank regulatory agencies. However, their implementation may negatively impact our access to financing, affect the terms of our future financing arrangements and negatively impact the mortgage lending industry in which we operate.
The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate level tax. The taxable mortgage pool, or “TMP,” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations.
The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate level tax. 48 Table of Contents The taxable mortgage pool, or “TMP,” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations.
Among other things, in order to maintain our REIT status, we are generally required to annually distribute to our stockholders an amount equal to at least 90% of our REIT taxable income, and, as a result, such distributions will not be available to fund investment originations.
Among other things, in order to maintain our REIT status, we are generally required to annually distribute to our stockholders an amount equal to at least 90% of our REIT taxable 19 Table of Contents income, and, as a result, such distributions will not be available to fund investment originations.
Our net income and earnings may be affected by prepayment rates on our existing CRE loans. In periods of declining interest rates and/or credit spreads, prepayment rates on loans generally increase. Borrowers may seek to make prepayments as a result of SOFR or other interest rate floors in our loans which could result in higher interest expense.
Our net income and earnings may be affected by prepayment rates on our existing CRE loans. In periods of declining interest rates and/or credit spreads, prepayment rates on loans generally increase. Borrowers may seek to make prepayments as a result of SOFR or other interest rate floors in our loans which could reduce our net income.
The 1940 Act further defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. We treat entities in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes of the 40% 35 Table of Contents test.
The 1940 Act further defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. We treat entities in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes of the 40% test.
Although generally we will seek to reserve the right to terminate our hedging positions, it may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty and we may not be able to enter into an offsetting contract in order to cover our risk.
Although generally we intend to reserve the right to terminate our hedging positions, it may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty and we may not be able to enter into an offsetting contract in order to cover our risk.
These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control that is in the best interests of our stockholders. Pursuant to our charter, our board of directors is 37 Table of Contents divided into three classes of directors serving staggered three year terms.
These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control that is in the best interests of our stockholders. Pursuant to our charter, our board of directors is divided into three classes of directors serving staggered three year terms.
Therefore, our investments in our target assets may at times be concentrated in certain 30 Table of Contents property types that are subject to higher risk of foreclosure, such as currently the office sector, or secured by properties concentrated in a limited number of geographic locations.
Therefore, our investments in our target assets may at times be concentrated in certain property types that are subject to higher risk of foreclosure, such as currently the office sector, or secured by properties concentrated in a limited number of geographic locations.
In addition, we offer no assurance that our Manager will remain our investment manager or that we will continue to have access to our Manager’s officers and key personnel. The current term of our Management Agreement expires on April 25, 2025, with automatic one-year term renewals thereafter.
In addition, we offer no assurance that our Manager will remain our investment manager or that we will continue to have access to our Manager’s officers and key personnel. The current term of our Management Agreement expires on April 25, 2026, with automatic one-year term renewals.
This provision increases the cost to us of terminating the Management Agreement and adversely affects our ability to terminate our Manager without cause. If the Management Agreement is terminated and no suitable replacement is found to manage us, we may not be able to continue to execute our investment strategy.
This provision increases the cost to us of terminating the Management Agreement and adversely affects our 42 Table of Contents ability to terminate our Manager without cause. If the Management Agreement is terminated and no suitable replacement is found to manage us, we may not be able to continue to execute our investment strategy.
Any uninsured loss could result in the loss of cash flow from, and the asset value of, the affected property and the value of our investment related to such property. 29 Table of Contents Liability relating to environmental matters may impact the value of properties that we may acquire upon foreclosure of the properties underlying our investments.
Any uninsured loss could result in the loss of cash flow from, and the asset value of, the affected property and the value of our investment related to such property. Liability relating to environmental matters may impact the value of properties that we may acquire upon foreclosure of the properties underlying our investments.
Accordingly, United States stockholders receiving a distribution of our shares may be 47 Table of Contents required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution.
Accordingly, United States stockholders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution.
Legal proceedings or governmental investigations may adversely affect our financial results and reputation. A major public health crisis, pandemic or epidemic, like the COVID-19 pandemic, could disrupt the U.S. and global economy and industries in which we operate and negatively impact us. A major public health crisis, pandemic or epidemic could impact the U.S. and global economy.
Legal proceedings or governmental investigations may adversely affect our financial results and reputation. A major public health crisis, pandemic or epidemic could disrupt the U.S. and global economy and industries in which we operate and negatively impact us. A major public health crisis, pandemic or epidemic could impact the U.S. and global economy.
In addition, pursuant to rules adopted by the agencies, securitizers in both public and private securitization transactions are required to retain at least 5% of the risk associated with the securities, subject to certain exceptions, which we are subject to in our securitizations.
In 20 Table of Contents addition, pursuant to rules adopted by the agencies, securitizers in both public and private securitization transactions are required to retain at least 5% of the risk associated with the securities, subject to certain exceptions, which we are subject to in our securitizations.
This may apply to existing investment vehicles or investment vehicles that may be organized, or that affiliates of our Manager may acquire the management in the future. Consequently, we, on the one hand, and these other investment vehicles, on the other hand, may from time to time pursue the same or similar investment opportunities.
This may apply to existing investment vehicles or investment vehicles that may be organized, or that affiliates of our Manager may acquire the management in the future. Consequently, we, on the one 40 Table of Contents hand, and these other investment vehicles, on the other hand, may from time to time pursue the same or similar investment opportunities.
In other words, the management fee structure will reward our Manager primarily based on the size of our equity raised and not on our financial returns to stockholders. This in turn could hurt both our ability to make distributions to our stockholders and the market price of our common stock.
In other words, the management fee structure rewards our Manager primarily based on the size of our equity raised and not on our financial returns to stockholders. This in turn could hurt both our ability to make distributions to our stockholders and the market price of our common stock.
If our portfolio of investments is concentrated in property types that are subject to higher risk of foreclosure (such as office space or mixed-use properties), or secured by properties concentrated in a limited number of geographic locations, downturns relating generally to such industry, region or type of asset may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our common stock and accordingly reduce our ability to pay dividends to our stockholders.
If our portfolio of investments is concentrated in property types that are subject to higher risk of foreclosure or secured by properties concentrated in a limited number of geographic locations, downturns relating generally to such industry, region or type of asset may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our common stock and accordingly reduce our ability to pay dividends to our stockholders.
A projection of an economic downturn, for example, could cause a decline in the price of lower credit quality CMBS and CLOs because the ability of borrowers to make principal and interest payments on the mortgages or loans underlying such securities may be impaired, as had occurred throughout the global financial crisis.
A projection of an economic downturn, for example, could cause a decline in the price of lower credit quality 29 Table of Contents CMBS and CLOs because the ability of borrowers to make principal and interest payments on the mortgages or loans underlying such securities may be impaired, as occurred throughout the global financial crisis.
We, our Manager and its affiliates are also subject to extensive regulation, which, from time to time, results in requests for information from us or our Manager or regulatory proceedings or investigations against us, our Manager or its affiliates. We may incur significant costs and expenses in connection with any information requests, proceedings or investigations.
We, our Manager and its affiliates are also subject to extensive regulation, which, from time to time, results in requests for information from us or our Manager or legal or regulatory proceedings or investigations against us, our Manager or its affiliates. We incur significant costs and expenses in connection with any such proceedings, information requests and investigations.
The documents that govern the Financing Agreements and our securitizations contain, and any additional lending facilities would be expected to contain, customary negative covenants and other financial and operating covenants, that among other things, may affect our ability to incur additional debt, make certain investments or acquisitions, reduce liquidity below certain levels, make distributions to our stockholders, redeem debt or equity securities, make other restricted payments, impose asset concentration limits and impact our flexibility to determine our operating policies and investment strategies.
The documents that govern the Financing Agreements and our securitizations contain, and any additional lending facilities are likely to contain, customary negative covenants and other financial and operating covenants, that among other things, may affect our ability to incur additional debt, make certain investments or acquisitions, reduce liquidity below certain levels, make distributions to our stockholders, redeem debt or equity securities, make other restricted payments, impose asset concentration limits and impact our flexibility to determine our operating policies and investment strategies.
Any such transactions will require approval by a majority of our independent directors. There can be no assurance that any procedural protections will be sufficient to ensure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm’s-length transaction. Loan Purchase from Affiliates.
Any such transactions will require approval by a majority of our independent directors. There can be no assurance that any procedural protections will be sufficient to ensure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm’s-length transaction.
Instances of criminal activity and fraud by participants in the investment management industry and disclosures of trading and other abuses by participants in the financial services industry have led the United States Government and regulators to increase the rules and regulations governing, and oversight of, the United States financial system.
Instances of criminal activity and fraud by participants in the investment 43 Table of Contents management industry and disclosures of trading and other abuses by participants in the financial services industry have led the United States Government and regulators to increase the rules and regulations governing, and oversight of, the United States financial system.
You are urged to consult with your tax advisor with respect to the impact of recent legislation on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an 48 Table of Contents investment in our shares.
You are urged to consult with your tax advisor with respect to the impact of recent legislation on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares.

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Item 1C. Cybersecurity

Cybersecurity — threats and controls disclosure

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Biggest changeItem 1C. Cybersecurity 51 Table of Contents Assessment, Identification and Management of Material Risks from Cybersecurity Threats We rely on the cybersecurity strategy and policies implemented by Ares Management, the parent company of our Manager.
Biggest changeItem 1C. Cybersecurity Assessment, Identification and Management of Material Risks from Cybersecurity Threats We rely on the cybersecurity strategy and policies implemented by Ares Management, the parent company of our Manager. Ares Management’s cybersecurity strategy prioritizes the detection and analysis of, and response to, known, anticipated or unexpected threats, effective management of security risks and resilience against cyber incidents.
In the event of a cybersecurity incident impacting us, our Manager or Ares Management, Ares Management has developed an incident response plan that provides guidelines for responding to such an incident and facilitates coordination across multiple operational functions of Ares Management, including coordinating with the relevant members of our Manager.
In the event of a cybersecurity incident impacting us, our Manager or Ares Management, Ares Management has developed an incident response plan that provides guidelines for responding to such an incident and facilitates coordination across multiple operational functions of Ares Management, including coordinating with the relevant employees of our Manager.
Ares Management undertakes periodic internal security reviews of its information systems and related controls, including systems affecting personal data and the cybersecurity risks of Ares Management’s and our critical third-party vendors and other partners. Ares Management also completes periodic external reviews of its cybersecurity program and practices, which include assessments of relevant data protection practices and targeted attack simulations.
Ares Management undertakes periodic internal security reviews of its information systems and related controls, including systems affecting personal data and the cybersecurity risks of Ares Management’s and our critical third-party service providers and other partners. Ares Management also completes periodic external reviews of its cybersecurity program and practices, which include assessments of relevant data protection practices and targeted attack simulations.
Risk Factors—General Risk Factors— Security incidents or cyber-attacks could adversely affect our business or the business of our borrowers by causing a disruption to our operations or the operations of our borrowers, a compromise or corruption of our confidential, personal or other sensitive information or the confidential, personal or other sensitive information of our borrowers and/or damage to our business relationships or reputation or the business relationships or reputations of our borrowers, all of which could negatively impact the business, financial condition and operating results of us or our borrowers.” Oversight of Cybersecurity Risks Our cybersecurity program is managed by Ares Management’s dedicated internal cybersecurity team, which is responsible for enterprise-wide cybersecurity strategy, policies, standards, engineering, architecture and processes.
Risk Factors—General Risk Factors— Security incidents or cyber-attacks, affecting us, our Manager or Ares Management or third-party providers, could adversely affect our business or the business of our borrowers by causing a disruption to our operations or the operations of our borrowers, a compromise or corruption of our confidential, personal or other sensitive information or the confidential, personal or other sensitive information of our borrowers and/or damage to our business relationships or reputation or the business relationships or reputations of our borrowers, all of which could negatively impact the business, financial condition and operating results of us or our borrowers.” Oversight of Cybersecurity Risks Our cybersecurity program is managed by Ares Management’s dedicated internal cybersecurity team, which is responsible for enterprise-wide cybersecurity strategy, policies, standards, engineering, architecture and processes.
The assessment of cybersecurity threats, including those which may impact us, our Manager or Ares Management, is integrated into Ares Management’s Enterprise Risk Management program, which is overseen by the Ares Enterprise Risk Committee (the “Ares Management ERC”), as discussed below.
The assessment of cybersecurity threats, including those which may impact us, our Manager or Ares Management, is integrated into Ares Management’s Enterprise Risk Management program, which is overseen by the Ares Enterprise Risk Committee (the “Ares Management ERC”), as discussed 53 Table of Contents below.
Such reporting includes updates on Ares Management’s cybersecurity program as it impacts us, the external threat environment, and Ares Management’s programs to address and mitigate the risks associated with the evolving cybersecurity threat environment. These reports also include updates on our and Ares Management’s preparedness, prevention, detection, responsiveness, and recovery with respect to cyber incidents.
Such reporting includes updates on Ares Management’s cybersecurity program as it impacts us, the external threat environment, and Ares Management’s programs to address and mitigate the risks associated with the evolving cybersecurity threat environment. These reports also include updates on our and Ares Management’s preparedness, prevention, detection, responsiveness, and recovery with respect to cyber incidents. 54 Table of Contents
The Ares Management cybersecurity risk management and awareness programs include periodic identification and testing of vulnerabilities, regular phishing simulations and annual general cybersecurity awareness and data protection training, including for all of the employees of Ares Management.
The Ares Management cybersecurity risk management and awareness programs include periodic identification and testing of vulnerabilities, regular phishing simulations and annual general cybersecurity awareness and data protection training, including for the employees of our Manager.
The team is led by Ares Management’s CISO who has a Master’s degree in Cybersecurity from Brown University and over 25 years of experience advising on, and managing risks from cybersecurity threats as well as developing and implementing cybersecurity 52 Table of Contents policies and procedures. The Ares Management CISO is also a member of the Ares Management ERC.
The team is led by Ares Management’s CISO who has a Master’s degree in Cybersecurity from Brown University and over 25 years of experience advising on, and managing risks from cybersecurity threats as well as developing and implementing cybersecurity policies and procedures. The Ares Management CISO reports cybersecurity updates to the Ares Management ERC.
Certain members of the Ares Management ERC periodically report to our audit committee as well as our full board of directors, as appropriate, on cybersecurity matters, primarily through presentations by the CISO and the Ares Management Head of Enterprise Risk.
Periodically, reports are provided to our audit committee as well as our full board of directors, as appropriate, on cybersecurity matters, primarily through presentations by the CISO and the Ares Management Head of Enterprise Risk.
Material Impact of Risks from Cybersecurity Threats In the last three fiscal years, we have not experienced a material information security breach incident and the expenses we have incurred from information security breach incidents have been immaterial, and we are not aware of any cybersecurity risks that are reasonably likely to materially affect our business.
Material Impact of Risks from Cybersecurity Threats In the last three fiscal years, we have not experienced an information security breach incident that has materially affected our business strategy, results of operations or financial condition and the expenses we have incurred from information security breach incidents have been immaterial, and we are not aware of any cybersecurity risks that are reasonably likely to materially affect our business.
The Ares Management ERC is a cross-functional committee that governs and oversees the Ares Management Enterprise Risk Program, including cybersecurity. The Ares Management ERC includes members of Ares Management’s senior executive management, including its CEO, CFO, General Counsel, Global Chief Compliance Officer, Chief Information Officer, CISO, and Head of Enterprise Risk, who acts as chairperson of the Ares Management ERC.
The Ares Management ERC is a committee that governs and oversees the Ares Management Enterprise Risk Program, including cybersecurity. The Ares Management ERC includes its CEO, Co-Presidents, CFO, General Counsel, Chief Compliance Officer, Chief Information Officer and Head of Enterprise Risk, who acts as chairperson of the Ares Management ERC.
Ares Management’s cybersecurity risk management processes include technical security controls, policy enforcement mechanisms, monitoring systems, tools and related services, which include tools and services from third-party providers, and management oversight to assess, identify and manage risks from cybersecurity threats.
Ares Management’s enterprise-wide cybersecurity program is aligned to the National Institute of Standards and Technology Cybersecurity Framework. Ares Management’s cybersecurity risk management processes include technical security controls, policy enforcement mechanisms, monitoring systems, tools and related services, which include tools and services from third-party providers, and management oversight to assess, identify and manage risks from cybersecurity threats.
Ares Management’s cybersecurity training programs also include annual certification requirements for employees of Ares Management with respect to certain policies supporting the cybersecurity program including the Information Security and Electronic Communications policy, Data Protection policy and Privacy Policy.
Ares Management also has annual certification requirements for employees who provide services to us pursuant to the Management Agreement with respect to certain policies supporting the cybersecurity program including information security and electronic communications, data protection and privacy.
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Ares Management’s cybersecurity strategy prioritizes detection and analysis of and response to known, anticipated or unexpected threats, effective management of security risks and resilience against cyber incidents. Ares Management’s enterprise-wide cybersecurity program is aligned to the National Institute of Standards and Technology Cybersecurity Framework.

Item 2. Properties

Properties — owned and leased real estate

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Biggest changeIn conjunction with the deed in lieu of foreclosure, we derecognized the $68.6 million senior mortgage loan and recognized the office property as real estate owned and also recognized the associated assets and liabilities held at the office property.
Biggest changeIn conjunction with the deed in lieu of foreclosure, we derecognized the $68.6 million senior mortgage loan and recognized the office property as real estate owned and also recognized the associated assets and liabilities held at the office property. On December 30, 2025, we sold a building at the multi-building office property to a third party for $5.3 million.
During the year ended December 31, 2024, we acquired legal title to an office property located in North Carolina through a deed in lieu of foreclosure.
During the year ended December 31, 2024, we acquired legal title to a multi-building office property located in North Carolina through a deed in lieu of foreclosure.

Item 5. Market for Registrant's Common Equity

Market for Common Equity — stock, dividends, buybacks

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Biggest changeDistributions that stockholders receive (not designated as capital gain dividends or qualified dividend income) will be taxed as ordinary income to the extent they are paid from our earnings and profits (as determined for United States federal 54 Table of Contents income tax purposes), but may be eligible for a 20% deduction under section 199A of the Code.
Biggest changeSee “Risk Factors” included in this annual report on Form 10-K. 56 Table of Contents Distributions that stockholders receive (not designated as capital gain dividends or qualified dividend income) will be taxed as ordinary income to the extent they are paid from our earnings and profits (as determined for United States federal income tax purposes), but may be eligible for a 20% deduction under section 199A of the Code with respect to non-corporate taxpayers.
However, if a REIT elects to retain any of its net capital gain for any tax year, it must notify its stockholders and pay tax at regular corporate rates on the retained net capital gain. For the year ended December 31, 2024, we plan to satisfy the REIT distribution requirement with dividends paid in 2024.
However, if a REIT elects to retain any of its net capital gain for any tax year, it must notify its stockholders and pay tax at regular corporate rates on the retained net capital gain. For the year ended December 31, 2025, we plan to satisfy the REIT distribution requirement with dividends paid in 2025.
As of December 31, 2024, $50.0 million remained available for future purchases of our common stock under the Repurchase Program.
As of December 31, 2025, $50.0 million remained available for future purchases of our common stock under the Repurchase Program.
Any of these taxes would decrease cash available for distribution to our stockholders. For the year ended December 31, 2024, we did not incur any expense for U.S. federal excise tax. For the years ended December 31, 2023 and 2022, we accrued an excise tax expense (benefit) of $(73) thousand and $430 thousand, respectively.
Any of these taxes would decrease cash available for distribution to our stockholders. For the years ended December 31, 2025 and 2024, we did not incur any expense for U.S. federal excise tax. For the year ended December 31, 2023, we accrued an excise tax benefit of $73 thousand.
For the year ended December 31, 2023, we elected to satisfy the REIT distribution requirement in part with dividends paid in 2024.
For the year ended December 31, 2024, we elected to satisfy the REIT distribution requirement with dividends paid in 2024.
ISSUERS PURCHASES OF EQUITY SECURITIES Purchases of Equity Securities by the Issuer and Affiliated Purchasers Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program (1) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1) ($ in thousands) October 1, 2024 to October 31, 2024 — $— — $50,000 November 1, 2024 to November 30, 2024 — — — 50,000 December 1, 2024 to December 31, 2024 — — — 50,000 Total — — _____________________________ (1) On July 31, 2024, our board of directors renewed our program to repurchase up to $50.0 million of our common stock (the “Repurchase Program”), which is expected to be in effect until July 31, 2025, or until the approved dollar amount has been used to repurchase shares.
ISSUER PURCHASES OF EQUITY SECURITIES Period Total Number of Shares Purchased Average Price Paid Per Share Total Number of Shares Purchased as Part of Publicly Announced Program (1) Maximum Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program (1) ($ in thousands) October 1, 2025 to October 31, 2025 — $— — $50,000 November 1, 2025 to November 30, 2025 — — — 50,000 December 1, 2025 to December 31, 2025 — — — 50,000 Total — — _____________________________ (1) On July 30, 2025, our board of directors extended our program to repurchase up to $50.0 million of our common stock (the “Repurchase Program”), which is expected to be in effect until July 31, 2026, or until the approved dollar amount has been used to repurchase shares.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities COMMON STOCK Our common stock is listed for trading on the NYSE under the symbol “ACRE.” On February 10, 2025, the closing price of our common stock, as reported on the NYSE, was $5.95 per share.
Item 5. Market For Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities COMMON STOCK Our common stock is listed for trading on the NYSE under the symbol “ACRE.” On February 5, 2026, the closing price of our common stock, as reported on the NYSE, was $5.12 per share.
HOLDERS As of February 10, 2025, there were 183 holders of record of our common stock, including Cede & Co, which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of shares of our common stock.
HOLDERS As of February 5, 2026, there were 189 holders of record of our common stock, including Cede & Co, which holds shares as nominee for The Depository Trust Company, which itself holds shares on behalf of the beneficial owners of shares of our common stock.
Some portion of these distributions may not be subject to tax in the year in which they are received because depreciation expense reduces the amount of taxable income, but does not reduce cash available for distribution.
However, distributions that we designate as capital gain dividends generally will be taxable as long-term capital gain to our stockholders. Some portion of these distributions may not be subject to tax in the year in which they are received because depreciation expense reduces the amount of taxable income, but does not reduce cash available for distribution.
Assumes all dividends are reinvested on the respective dividend payment dates without commissions.
Assumes all dividends are reinvested on the respective dividend payment dates without commissions. Item 6. [Reserved] 58 Table of Contents
The Repurchase Program does not obligate us to acquire any particular amount of shares of our common stock and may be modified or suspended at any time at our discretion. 55 Table of Contents STOCK PERFORMANCE GRAPH Comparison of Cumulative Total Return (1) The Bloomberg Mortgage REIT Index was discontinued in February 2024.
The Repurchase Program does not obligate us to acquire any particular amount of shares of our common stock and may be modified or suspended at any time at our discretion. 57 Table of Contents STOCK PERFORMANCE GRAPH Comparison of Cumulative Total Return SOURCE: Bloomberg NOTES: Assumes $100 invested on December 31, 2020 in ACRE, the S&P 500 Index and the FTSE NAREIT All Mortgage Capped Index.
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See “Risk Factors” included in this annual report on Form 10-K.
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This deduction is available to non-corporate taxpayers and is applicable for tax years beginning before January 1, 2026. However, distributions that we designate as capital gain dividends generally will be taxable as long-term capital gain to our stockholders.
Removed
SOURCE: Bloomberg NOTES: Assumes $100 invested on December 31, 2019 in ACRE, the S&P 500 Index, the Bloomberg Mortgage REIT Index and the FTSE NAREIT All Mortgage Capped Index. We have replaced the Bloomberg Mortgage REIT Index following its discontinuation with FTSE NAREIT All Mortgage Capped Index, which we believe is representative of companies similar to ours.

Item 7. Management's Discussion & Analysis

Management's Discussion & Analysis (MD&A) — revenue / margin commentary

109 edited+28 added−49 removed87 unchanged
Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated by reference herein. 70 Table of Contents Summary of Financing Agreements The sources of financing, as applicable in a given period, under our Secured Funding Agreements, Notes Payable and the Secured Term Loan (collectively, the “Financing Agreements”) are described in the following table ($ in thousands): As of December 31, 2024 December 31, 2023 Total Commitment Outstanding Balance Interest Rate Maturity Date Total Commitment Outstanding Balance Interest Rate Maturity Date Secured Funding Agreements: Wells Fargo Facility $ 450,000 $ 210,216 SOFR+1.50 to 3.75% December 15, 2025 (1) $ 450,000 $ 208,540 SOFR+1.50 to 3.75% December 15, 2025 (1) Citibank Facility 325,000 228,727 SOFR+1.50 to 2.60% January 13, 2027 (2) 325,000 221,604 SOFR+1.50 to 2.10% January 13, 2025 (2) CNB Facility 75,000 — SOFR+3.25% March 10, 2025 (3) 75,000 — SOFR+2.65% March 11, 2024 (3) MetLife Facility — — — — (4) 180,000 — SOFR+2.50% August 13, 2024 Morgan Stanley Facility 250,000 149,525 SOFR+1.60 to 3.50% July 16, 2025 (5) 250,000 209,673 SOFR+1.60 to 3.10% July 16, 2025 (5) Subtotal $ 1,100,000 $ 588,468 $ 1,280,000 $ 639,817 Notes Payable $ — $ — — — (6) $ 105,000 $ 105,000 SOFR+2.00% July 28, 2025 (6) Secured Term Loan $ 130,000 $ 130,000 4.50% November 12, 2026 (7) $ 150,000 $ 150,000 4.50% November 12, 2026 (7) Total $ 1,230,000 $ 718,468 $ 1,535,000 $ 894,817 _____________________________ (1) The maturity date of the master repurchase funding facility with Wells Fargo Bank, National Association (the “Wells Fargo Facility”) is subject to two 12-month extensions at our option, each of which may be exercised at our option provided that certain conditions are met and applicable extension fees are paid.
Biggest changeManagement's Discussion and Analysis of Financial Condition and Results of Operations, which is incorporated by reference herein. 72 Table of Contents Summary of Financing Agreements The sources of financing, as applicable in a given period, under our Financing Agreements are described in the following table ($ in thousands): As of December 31, 2025 December 31, 2024 Total Commitment Outstanding Balance Interest Rate Maturity Date Total Commitment Outstanding Balance Interest Rate Maturity Date Secured Funding Agreements: Wells Fargo Facility $ 600,000 $ 438,911 SOFR+1.40 to 3.75% February 10, 2028 (1) $ 450,000 $ 210,216 SOFR+1.50 to 3.75% December 15, 2025 (1) Citibank Facility 325,000 269,265 SOFR+1.50 to 3.00% January 13, 2027 (2) 325,000 228,727 SOFR+1.50 to 2.60% January 13, 2027 (2) CNB Facility 75,000 — SOFR+3.25% March 10, 2026 (3) 75,000 — SOFR+3.25% March 10, 2025 (3) Morgan Stanley Facility 150,000 150,000 SOFR+1.75 to 3.50% July 16, 2026 (4) 250,000 149,525 SOFR+1.60 to 3.50% July 16, 2025 (4) Subtotal $ 1,150,000 $ 858,176 $ 1,100,000 $ 588,468 Secured Term Loan $ 90,000 $ 90,000 5.25% November 12, 2026 (5) $ 130,000 $ 130,000 4.50% November 12, 2026 (5) Total $ 1,240,000 $ 948,176 $ 1,230,000 $ 718,468 _____________________________ (1) In February 2025, we amended the master repurchase funding facility with Wells Fargo Bank, National Association (the “Wells Fargo Facility”) to, among other things, extend the initial maturity date and funding period of the Wells Fargo Facility to February 10, 2028, subject to two 12-month extensions, each of which may be exercised at our option provided that certain conditions are met and applicable extension fees are paid.
Calculation of the CECL Reserve requires loan specific data, which includes capital senior to us when we are the subordinate lender, changes in net operating income, debt service coverage ratio, loan-to-value, occupancy, property type and geographic location.
Calculation of the CECL Reserve requires loan specific data, which includes capital senior to us when we are the subordinate lender, changes in net operating income, debt service coverage ratio, loan-to-value ratio, occupancy, property type and geographic location.
Related Party Expenses For the year ended December 31, 2024, related party expenses included $10.7 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the year ended December 31, 2024.
For the year ended December 31, 2024, related party expenses included $10.7 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the year ended December 31, 2024.
Financing Activities For the year ended December 31, 2024, net cash used in financing activities totaled $507.6 million and was primarily related to repayments of our Secured Funding Agreements of $188.1 million, repayment in full and termination of our $105.0 million recourse note, repayments of debt of consolidated VIEs of $267.9 million, repayments of our Secured Term Loan of $20.0 million and dividends paid of $59.6 million, partially offset by proceeds from our Secured Funding Agreements of $136.8 million.
For the year ended December 31, 2024, net cash used in financing activities totaled $507.6 million and was primarily related to repayments of our Secured Funding Agreements of $188.1 million, repayment in full and termination of our $105.0 million recourse note, repayments of debt of consolidated VIEs of $267.9 million, repayments of our Secured Term Loan of $20.0 million and dividends paid of $59.6 million, partially offset by proceeds from our Secured Funding Agreements of $136.8 million.
Other than as set forth in this annual report on Form 10-K, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.
Other than as set forth in this annual report on Form 10-K, we do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities or variable interest entities, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes.
For collateral dependent loans that we determine foreclosure is not probable, we apply a practical expedient to estimate the CECL Reserve using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan.
For collateral dependent loans that we determine foreclosure is not probable, we may apply a practical expedient to estimate the CECL Reserve using the difference between the collateral’s fair value (less costs to sell the asset if repayment is expected through the sale of the collateral) and the amortized cost basis of the loan.
We have had and may continue to have the opportunity to purchase such loans that are determined by our Manager in good faith to be appropriate for us, depending on our available liquidity. Ares Management or one of its investment vehicles may also acquire mortgage loans from us.
Ares Management or one of its investment vehicles may originate mortgage loans. We have had and may continue to have the opportunity to purchase such loans that are determined by our Manager in good faith to be appropriate for us, depending on our available liquidity. Ares Management or one of its investment vehicles may also acquire mortgage loans from us.
Realized Loss on Sale of Real Estate Owned For the year ended December 31, 2024, we recognized a $2.3 million realized loss on the sale of the office property that was recognized as real estate owned held for sale as the net sale proceeds were less than the net carrying value of the office property as of the sale closing date.
Realized Gain (Loss) on Sale of Real Estate Owned For the year ended December 31, 2024, we recognized a $2.3 million realized loss on the sale of the office property that was recognized as real estate owned held for sale as the net sale proceeds were less than the net carrying value of the office property as of the sale closing date.
Office property operating expenses consisted primarily of expenses incurred in the day-to-day operation of our two office properties, including common area maintenance costs, property taxes and insurance. Common area maintenance costs include items such as maintenance and repairs, utilities, janitorial services, security and property management fees.
Office property operating expenses consisted primarily of expenses incurred in the day-to-day operation of our office properties, including common area maintenance costs, property taxes and insurance. Common area maintenance costs include items such as maintenance and repairs, utilities, janitorial services, security and property management fees.
Additionally, the CECL Reserve is not an indicator of what we expect our CECL Reserve would have been absent the current and potential future impacts of macroeconomic conditions. 66 Table of Contents Realized Losses on Loans In December 2023, we entered into a sale agreement with a third party to sell a senior mortgage loan with outstanding principal of $37.9 million, which was collateralized by a mixed-use property located in California.
Additionally, the CECL Reserve is not an indicator of what we expect our CECL Reserve would have been absent the current and potential future impacts of macroeconomic conditions. 68 Table of Contents Realized Losses on Loans In December 2023, we entered into a sale agreement with a third party to sell a senior mortgage loan with outstanding principal of $37.9 million, which was collateralized by a mixed-use property located in California.
Before we make any distributions, whether for United States federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements under on our Financing Agreements and other debt payable.
Before we make any distributions, whether for United States federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements under our Financing Agreements and other debt payable.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations We are a specialty finance company primarily engaged in directly originating and investing in CRE loans and related investments. We are externally managed by ACREM, a subsidiary of Ares Management, a publicly traded, leading global alternative asset manager, pursuant to the terms of the Management Agreement.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations We are a specialty finance company primarily engaged in directly originating and investing in CRE loans and related investments. We are externally managed by ACREM, a subsidiary of Ares Management, a publicly traded, leading global alternative investment manager, pursuant to the terms of the Management Agreement.
For example, certain of our Financing Agreements contain (i) negative covenants that limit, among other things, our ability to repurchase our common stock, make distributions to our 68 Table of Contents stockholders, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates (including amending the Management Agreement in a material respect) and (ii) operating and financial covenants, including those requiring us to maintain a certain tangible net worth, asset coverage ratio, total net leverage ratio and loan concentration.
For example, certain of our Financing Agreements contain (i) negative covenants that limit, among other things, our ability to repurchase our common stock, make distributions to our stockholders, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates (including amending the Management Agreement in a material respect) and (ii) operating and financial covenants, including those requiring us to maintain a certain tangible net worth, asset coverage ratio, total net leverage ratio and loan concentration.
Other than as set forth in Note 3 to our consolidated financial statements included in this annual report on Form 10-K, as of December 31, 2024, all loans held for investment were paying in accordance with their contractual terms. Our loans held for investment are accounted for at amortized cost.
Other than as set forth in Note 3 to our consolidated financial statements included in this annual report on Form 10-K, as of December 31, 2025, all loans held for investment were paying in accordance with their contractual terms. Our loans held for investment are accounted for at amortized cost.
The table above does not include the amounts payable to our Manager under our Management Agreement as they are not fixed and determinable. See Note 14 to our consolidated financial statements included in this annual report on Form 10-K for additional terms and details of the fees payable under our Management Agreement.
The table above does not include the amounts payable to our Manager under our Management Agreement as they are not fixed and determinable. See Note 13 to our consolidated financial statements included in this annual report on Form 10-K for additional terms and details of the fees payable under our Management Agreement.
Other than as set forth in Note 3 to our consolidated financial statements included in this annual report on Form 10-K, and as set forth below, as of December 31, 2024 and 2023, all loans held for investment were paying in accordance with their contractual terms.
Other than as set forth in Note 3 to our consolidated financial statements included in this annual report on Form 10-K, and as set forth below, as of December 31, 2025 and 2024, all loans held for investment were paying in accordance with their contractual terms.
If we experience borrower default as a result of the current macroeconomic conditions, we may not be able to negotiate modifications to our borrowings with our lenders or receive financing from our Secured Funding Agreements with respect to our commitments to fund our loans held for investment in the future.
If we experience borrower default as a result of macroeconomic conditions or otherwise, we may not be able to negotiate modifications to our borrowings with our lenders or receive financing from our Secured Funding Agreements with respect to our commitments to fund our loans held for investment in the future.
An impairment charge is recorded equal to the excess of the carrying value of the real estate asset over the fair value. See Notes 2, 5 and 13 included in these consolidated financial statements for additional information regarding real estate owned.
An impairment charge is recorded equal to the excess of the carrying value of the real estate asset over the fair value. See Notes 2, 5 and 12 included in these consolidated financial statements for additional information regarding real estate owned.
The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all interest accruing loans held by us as of December 31, 2024 as weighted by the total outstanding principal balance of each interest accruing loan (excludes loans on non-accrual status as of December 31, 2024).
The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all interest accruing loans held by us as of December 31, 2025 as weighted by the total outstanding principal balance of each interest accruing loan (excludes loans on non-accrual status as of December 31, 2025).
For the years ended December 31, 2023 and 2022 The comparison of our results of operations for the fiscal years ended December 31, 2023 and 2022 can be found in our annual report on Form 10-K for the fiscal year ended December 31, 2023 located within Part II, Item 7.
For the years ended December 31, 2024 and 2023 The comparison of our results of operations for the fiscal years ended December 31, 2024 and 2023 can be found in our annual report on Form 10-K for the fiscal year ended December 31, 2024 located within Part II, Item 7.
For the years ended December 31, 2023 and 2022 The comparison of our cash flows for the fiscal years ended December 31, 2023 and 2022 can be found in our annual report on Form 10-K for the fiscal year ended December 31, 2023 located within Part II, Item 7.
For the years ended December 31, 2024 and 2023 The comparison of our cash flows for the fiscal years ended December 31, 2024 and 2023 can be found in our annual report on Form 10-K for the fiscal year ended December 31, 2024 located within Part II, Item 7.
(7) The maturity date of the Credit and Guaranty Agreement with the lenders referred to therein and Cortland Capital Market Services LLC, as administrative agent and collateral agent for the lenders (the “Secured Term Loan”) is November 12, 2026.
(5) The maturity date of the Credit and Guaranty Agreement with the lenders referred to therein and Cortland Capital Market Services LLC, as administrative agent and collateral agent for the lenders (the “Secured Term Loan”) is November 12, 2026.
These estimates and assumptions are based on historical experience and other factors management believes to be reasonable. Actual results may differ from those estimates and assumptions. We believe the following critical accounting policies represent areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements.
These estimates and assumptions are based on historical experience and other factors management believes to be reasonable. Actual results may 63 Table of Contents differ from those estimates and assumptions. We believe the following critical accounting policies represent areas where more significant judgments and estimates are used in the preparation of our consolidated financial statements.
Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intend to provide additional funding to any such entities. Management Agreement We are also required to pay our Manager a base management fee of 1.5% of our stockholders' equity per year, an incentive fee and expense reimbursements pursuant to our Management Agreement.
Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intend to provide additional funding to any such entities. 74 Table of Contents Management Agreement We are also required to pay our Manager a base management fee of 1.5% of our stockholders' equity per year, an incentive fee and expense reimbursements pursuant to our Management Agreement.
If our cash available for distribution is less than our REIT taxable income, we could be required to sell assets or borrow funds to make cash 73 Table of Contents distributions or we may elect to make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.
If our cash available for distribution is less than our REIT taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may elect to make a portion of the Required Distribution in the form of a taxable stock distribution or distribution of debt securities.
The extent of any credit deterioration associated with the performance and/or value of the underlying collateral property and the financial and operating capability of the borrower could impact the expected amounts received.
The extent of any credit deterioration associated with the performance and/or value of the underlying collateral property and the financial and operating capability of the borrower could impact the expected amounts repaid.
As such, the fair value that is used in calculating the CECL Reserve is subject to uncertainty and any actual losses, if incurred, could differ materially from our CECL Reserve. See Note 4 to our consolidated financial statements included in this annual report on Form 10-K for more information regarding CECL.
As such, the fair value that may be used in calculating the CECL Reserve is subject to uncertainty and any actual losses could differ materially from our CECL Reserve. See Note 4 to our consolidated financial statements included in this annual report on Form 10-K for more information regarding CECL.
In conjunction with the foreclosure, we derecognized the $33.2 million senior mortgage loan and recognized the office property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. On November 15, 64 Table of Contents 2024, we closed the sale of the office property to a third party.
In 66 Table of Contents conjunction with the foreclosure, we derecognized the $33.2 million senior mortgage loan and recognized the office property as real estate owned. Revenues from this property consisted primarily of rental revenue from operating leases. On November 15, 2024, we closed the sale of the office property to a third party.
The CECL Reserve takes into consideration our estimates relating to the impact of macroeconomic conditions on CRE properties and is not specific to any loan losses or impairments on our loans held for investment, unless the Company determines that a specifically identifiable reserve is warranted for a select asset.
The CECL Reserve takes into consideration our estimates relating to the impact of macroeconomic conditions on CRE properties and is not specific to any loan losses or impairments on our loans held for investment, unless we determine that a specifically identifiable reserve is warranted for a select asset.
For the year ended December 31, 2024, adjustments to net income (loss) related to operating activities primarily included the net reversal of current expected credit losses of $18.2 million, accretion of discounts, deferred loan origination fees and costs of $5.0 million, amortization of deferred financing costs of $5.1 million, change in other assets of $1.9 million and realized losses on loans of $83.6 million.
For the year ended December 31, 2024, adjustments to net income (loss) related to operating activities primarily included the net reversal of current expected credit losses of $18.2 million, accretion of discounts, deferred loan origination fees and costs of $5.0 million, amortization of deferred financing costs of $5.1 million and realized losses on loans of $83.6 million.
Such analyses are completed and reviewed by asset management and finance personnel who 59 Table of Contents utilize various data sources, including periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, and the borrower’s exit plan, among other factors.
Such analyses are completed and reviewed by asset management and finance personnel who utilize various data sources, including periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, and the borrower’s exit plan, among other factors.
Revenue From Real Estate Owned On September 19, 2024, we acquired legal title to an office property located in North Carolina through a deed in lieu of foreclosure.
Revenue From Real Estate Owned On September 19, 2024, we acquired legal title to a multi-building office property located in North Carolina through a deed in lieu of foreclosure.
In conjunction with the consensual foreclosure, we derecognized the $82.9 million senior mortgage loan and recognized the mixed-use property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the year ended December 31, 2024, revenue from real estate owned related to this property was $13.2 million.
In conjunction with the consensual foreclosure, we derecognized the $82.9 million senior mortgage loan and recognized the mixed-use property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the years ended December 31, 2025 and 2024, revenue from real estate owned related to this property was $13.0 million and $13.2 million, respectively.
With respect to our business operations, increases in interest rates, in general, may over time cause: • the interest expense associated with our borrowings to increase, subject to any applicable ceilings; • the value of our mortgage loans to decline; • coupons on our floating rate mortgage loans to reset to higher interest rates; and • to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates, the value of these agreements to increase.
Conversely, increases in interest rates, in general, may over time cause: • the interest expense associated with our borrowings to increase, subject to any applicable ceilings; • the value of our mortgage loan portfolio to decline; • coupons on our floating rate mortgage loans to reset to higher interest rates; and • to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates, the value of these agreements to increase.
In March 2024, we received a discounted payoff on a senior mortgage loan with outstanding principal of $56.9 million, which was collateralized by an office property located in Illinois. The discounted payoff was received in conjunction with a short sale of the office property by the borrower to a third party.
In March 2024, we received a discounted payoff on a senior mortgage loan with outstanding principal of $56.9 million, which was collateralized by an office property located in Illinois. The discounted payoff was received in conjunction with a sale of the office property by the borrower.
These factors were partially offset by an increase in the CECL Reserves for risk rated “4” and “5” loans in the portfolio as a result of the impact of the current macroeconomic environment, including high inflation and interest rates, and more particularly, volatility and reduced liquidity in the office sector and other loan-specific factors during the year ended December 31, 2024.
These factors were partially offset by an increase in the CECL Reserve for risk rated “4” and “5” loans in the portfolio as a result of the impact of the macroeconomic environment, including higher inflation and interest rates, and more particularly, volatility and reduced liquidity in the office sector and other loan-specific attributes during the year ended December 31, 2024.
Conversely, decreases in interest rates, in general, may over time cause: • the interest expense associated with our borrowings to decrease, subject to any applicable floors; • the value of our mortgage loan portfolio to increase, for such mortgages with applicable floors; • coupons on our floating rate mortgage loans to reset to lower interest rates, subject to any applicable floors; and • to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates, the value of these agreements to decrease.
With respect to our business operations, decreases in interest rates, in general, may over time cause: • the interest expense associated with our borrowings to decrease, subject to any applicable floors; • the value of our mortgage loan portfolio to increase, for such mortgages with applicable floors; • coupons on our floating rate mortgage loans to reset to lower interest rates, subject to any applicable floors; and 61 Table of Contents • to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates, the value of these agreements to decrease.
For the year ended December 31, 2023, related party expenses also included $3.4 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement.
For the year ended December 31, 2025, related party expenses also included $3.6 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement.
These factors have largely resulted in lower demand for office space and have driven elevated levels of vacancy rates and default rates. Offsetting some of these challenges, there has been a significant decline in new commercial real estate development that began in 2023 and continued in 2024.
These factors have largely resulted in lower demand for office space and have driven elevated levels of vacancy rates and default rates. Offsetting some of these challenges, there has been a significant decline in new commercial real estate development that began in 2023 and has continued benefitting existing in-demand property types.
The increase in allocable general and administrative expenses due to our Manager for the year ended December 31, 2024 compared to the year ended December 31, 2023 relates to changes in the mix of employees of our Manager that allocated time to us year over year.
The decrease in allocable general and administrative expenses due to our Manager for the year ended December 31, 2025 compared to the year ended December 31, 2024 relates to changes in the mix of employees of our Manager that allocated time to us year-over-year.
The amendment also included an accordion provision such that the maximum commitment for the Citibank Facility may be increased to up to $425.0 million by up to two increments of $50.0 million with the consent of Citibank, subject to the satisfaction of certain conditions, including payment of an upsize fee.
The Citibank Facility has an accordion provision such that the maximum commitment may be increased to up to $425.0 million by up to two increments of $50.0 million with the consent of Citibank, subject to the satisfaction of certain conditions, including payment of an upsize fee.
During the year ended December 31, 2024, we did not repurchase any shares through the Repurchase Program. Loans Held for Investment Portfolio As of December 31, 2024, our portfolio included 36 loans held for investment, excluding 179 loans that were repaid, sold, converted to real estate owned or written off since inception.
During the year ended December 31, 2025, we did not repurchase any shares through the Repurchase Program. Loans Held for Investment Portfolio As of December 31, 2025, our portfolio included 34 loans held for investment, excluding 195 loans that were repaid, sold, converted to real estate owned or written-off since inception.
In September 2024, we acquired legal title to an office property located in North Carolina through a deed in lieu of foreclosure.
In September 2024, we acquired legal title to a multi-building office property located in North Carolina through a deed in lieu of foreclosure.
During the year ended December 31, 2024, we wrote-off a mezzanine loan on an office property located in New Jersey with outstanding principal of $18.5 million as we deemed the mezzanine loan to be uncollectible. There were no loans written off during the year ended December 31, 2023. Changes in Market Interest Rates.
During the year ended December 31, 2024, we wrote-off a mezzanine loan on an office property located in New Jersey with outstanding principal of $18.5 million as we deemed the mezzanine loan to be uncollectible. Changes in Market Interest Rates.
Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results and stockholders’ equity. Performance of Commercial Real Estate Related Markets. Our business is dependent on the general demand for, and value of, commercial real estate and related services, which are sensitive to economic conditions.
Nevertheless, unanticipated credit losses have occurred and could occur in the future, and such credit losses could adversely impact our operating results and stockholders’ equity. Performance of Commercial Real Estate Related Markets. Our business is dependent on the general demand for, and value of, commercial real estate and related services, which are sensitive to economic conditions.
The decrease in the provision for (reversal of) current expected credit losses, net for the year ended December 31, 2024 is primarily due to realized losses on five risk rated “5” loans, resulting in a reversal of associated CECL Reserves, shorter average remaining loan term and loan repayments during the year ended December 31, 2024.
For the year ended December 31, 2024, the net reversal of current expected credit losses was primarily due to realized losses on five risk rated “5” loans, resulting in a reversal of the associated CECL Reserve, shorter average remaining loan term and loan repayments during the year ended December 31, 2024.
We expect to use leverage to make additional investments that may increase our potential returns. We may not be able to obtain the amount of leverage we desire and, consequently, the returns generated from our investments may be less than we currently expect. To grow our portfolio of investments, we also may determine to raise additional equity.
We may not be able to obtain the amount of leverage we desire and, consequently, the returns generated from our investments may be less than we currently expect. To grow our portfolio of investments, we also may determine to raise additional equity.
Our Manager seeks to mitigate this risk by seeking to originate or acquire investments of higher quality at appropriate prices with appropriate risk adjusted returns given anticipated and unanticipated losses, by employing a comprehensive review and selection process and by proactively monitoring originated or acquired investments (see the performance monitoring methodology above in Changes in Fair Value of Our Assets).
Our Manager seeks to mitigate this risk by seeking to originate or acquire investments of higher quality at appropriate prices with appropriate risk adjusted returns given anticipated and unanticipated losses, by employing a comprehensive review and selection process, by proactively monitoring originated or acquired investments (see the performance monitoring methodology above in Changes in Fair Value of Our Assets), and through the use of non-recourse financing, when and where available and appropriate.
Determining the appropriate valuation method and selecting the appropriate key unobservable inputs and assumptions requires significant judgment and consideration of factors specific to the underlying collateral being assessed. Additionally, the key unobservable inputs and 62 Table of Contents assumptions used may vary depending on the information available and market conditions as of the valuation date.
Determining the appropriate valuation method and selecting the appropriate key unobservable inputs and assumptions requires significant judgment and consideration of factors specific to the underlying collateral being assessed. Additionally, the key unobservable inputs and assumptions that may be used could vary depending on the information available and market conditions as of the valuation date.
Provision for (Reversal of) Current Expected Credit Losses, Net For the years ended December 31, 2024 and 2023, the provision for (reversal of) current expected credit losses, net was $(18.2) million and $91.8 million, respectively.
(Provision for) Reversal of Current Expected Credit Losses, Net For the years ended December 31, 2025 and 2024, the net reversal of current expected credit losses was $17.8 million and $18.2 million, respectively.
The total Weighted Average Unleveraged Effective Yield 61 Table of Contents is calculated based on the average of Unleveraged Effective Yield of all loans held by us as of December 31, 2024 as weighted by the outstanding principal balance of each loan.
The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all loans held by us as of December 31, 2025 as weighted by the outstanding principal balance of each loan.
For the year ended December 31, 2023, we recognized a realized loss of $4.9 million in our consolidated statements of operations upon the payoff of the senior mortgage loan as the carrying value exceeded the net proceeds from the payoff of the loan.
For the year ended December 31, 2025, we recognized a realized loss of $33.0 million in our consolidated statements of operations upon the payoff of the senior mortgage loan as the carrying value exceeded the net proceeds from the payoff of the loan.
As a result of the current macroeconomic environment, certain borrowers have been unable to make interest and principal payments timely, including at the maturity date of the borrower’s loan. We increase our CECL Reserve from time to time, as necessary, to reflect this risk.
As a result of the commercial real estate environment during 2025, certain borrowers have been unable to make interest and principal payments timely, including at the maturity date of the borrower’s loan. We increase our CECL Reserve from time to time, as necessary, to reflect this risk.
We recognized an unrealized loss of $1.0 million in our consolidated statements of operations upon reclassifying the loan to held for sale as the carrying value of the senior mortgage loan exceeded fair value as determined by the agreed upon sale price of the loan and loan reserves. In January 2024, we closed the sale of the senior mortgage loan.
We recognized an unrealized loss of $1.0 million in our consolidated statements of operations for the year ended December 31, 2023 upon reclassifying the loan to held for sale as the carrying value of the senior mortgage loan exceeded fair value as determined by the agreed upon sale price of the loan and loan reserves.
The increase in depreciation and amortization expense for the year ended December 31, 2024 compared to the year ended December 31, 2023 is primarily due to the year ended December 31, 2023 only including depreciation and amortization expense related to the mixed-use property for the period September 8, 2023 to December 31, 2023 as we did not acquire legal title to the mixed-use property and the office property until September 8, 2023 and September 19, 2024, respectively.
The increase in depreciation and amortization expense for the year ended December 31, 2025 compared to the year ended December 31, 2024 is primarily due to the year ended December 31, 2024 only including depreciation and amortization expense related to the multi-building office property for the period September 19, 2024 to December 31, 2024 as we did not acquire legal title to the multi-building office property until September 19, 2024.
The decrease in management fees for the year ended December 31, 2024 compared to the year ended December 31, 2023 primarily relates to a decrease in our weighted average stockholders’ equity for the year ended December 31, 2024 as a result of realized losses on loans and the sale of real estate owned.
The decrease in management fees for the year ended December 31, 2025 compared to the year ended December 31, 2024 primarily relates to a decrease in our weighted average stockholders’ equity for the year ended December 31, 2025 as a result of realized losses on loans.
For the years ended December 31, 2024 and 2023, interest income of $157.7 million and $198.6 million, respectively, was generated by weighted average earning assets of $2.0 billion and $2.3 billion, respectively, offset by $106.0 million and $109.7 million, respectively, of interest expense, unused fees and amortization of deferred loan costs.
For the years ended December 31, 2025 and 2024, interest income of $97.6 million and $157.7 million, respectively, was generated by weighted average earning assets of $1.4 billion and $2.0 billion, respectively, offset by $65.2 million and $106.0 million, respectively, of interest expense, unused fees and amortization of deferred loan costs.
As of December 31, 2024, 64.5% of our loans have SOFR floors, with a weighted average floor of 1.01%, calculated based on loans with SOFR floors. References to SOFR or “S” are to 30-day SOFR (unless otherwise specifically stated).
As of December 31, 2025, 84.0% of our loans have SOFR floors, with a weighted average floor of 1.52%, calculated based on loans with SOFR floors. References to SOFR or “S” are to 30-day SOFR (unless otherwise specifically stated).
Decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loan or loans, as the case may be, which could also cause us to suffer losses. 60 Table of Contents Availability of Leverage and Equity.
Decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loan or loans, as the case may be, which also cause us to suffer losses. Availability of Leverage and Equity. We expect to use leverage to make additional investments.
For the years ended December 31, 2024 and 2023, depreciation and amortization expense were $5.4 million and $1.3 million, respectively, and relates primarily to our mixed-use property that was acquired on September 8, 2023 and our office property acquired on September 19, 2024.
For the years ended December 31, 2025 and 2024, depreciation and amortization expense was $8.4 million and $5.4 million, respectively, and relate primarily to our mixed-use property acquired on September 8, 2023 and our multi-building office property acquired on September 19, 2024.
Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of our floating-rate loan portfolio and (iv) our current and future view of the macroeconomic environment.
Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of our loan portfolio, (iv) the underlying collateral performance and its estimated current and stabilized market values, including projected cash flows and (v) our current and future view of the macroeconomic environment.
In conjunction with the deed in lieu of foreclosure, we derecognized the $68.6 million senior mortgage loan and recognized the office property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases.
In conjunction with the deed in lieu of foreclosure, we derecognized the $68.6 million senior mortgage loan and recognized the office property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the year ended December 31, 2025, revenue from real estate owned related to this property was $9.4 million.
The increase in mixed-use property operating expenses for the year ended December 31, 2024 compared to the year ended December 31, 2023 is primarily due to the year ended December 31, 2023 only including operating expenses for the period September 8, 2023 to December 31, 2023 as we did not acquire legal title to the mixed-use property until September 8, 2023.
The increase in office property operating expenses for the year ended December 31, 2025 compared to the year ended December 31, 2024 is primarily due to the year ended December 31, 2024 only including operating expenses related to the multi-building office property for the period September 19, 2024 to December 31, 2024 as we did not acquire legal title to the multi-building office property until September 19, 2024.
For the three and nine months ended September 30, 2024, the Company received $2.1 million and $3.8 million, respectively, of interest payments in cash on the senior Texas loan that was recognized as a reduction to the carrying value of the loan and the borrower was current on all contractual interest payments.
For the three and six months ended June 30, 2025, we received $1.1 million and $2.1 million, respectively, of interest payments in cash on the senior Massachusetts loan that was recognized as a reduction to the carrying value of the loan and the borrower was current on all contractual interest payments.
At the time of the sale, the senior mortgage loan was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the May 2021 maturity date.
In January 2024, we closed the sale of the senior mortgage loan. At the time of the sale, the senior mortgage loan was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the March 2023 maturity date.
Operating Expenses For the Years Ended December 31, 2024 2023 Management and incentive fees to affiliate $ 10,685 $ 12,263 Professional fees 2,634 3,054 General and administrative expenses 7,822 7,244 General and administrative expenses reimbursed to affiliate 3,825 3,434 Expenses from real estate owned 12,964 2,518 Total expenses $ 37,930 $ 28,513 See the Related Party Expenses, Other Expenses and Expenses from Real Estate Owned discussions below for the cause of the changes in operating expenses for the year ended December 31, 2024 compared to the year ended December 31, 2023.
Operating Expenses For the Years Ended December 31, 2025 2024 Management and incentive fees to affiliate $ 9,837 $ 10,685 Professional fees 2,755 2,634 General and administrative expenses 7,042 7,822 General and administrative expenses reimbursed to affiliate 3,618 3,825 Expenses from real estate owned 18,157 12,964 Total expenses $ 41,409 $ 37,930 See the Related Party Expenses, Other Expenses and Expenses from Real Estate Owned discussions below for the cause of the changes in operating expenses for the year ended December 31, 2025 compared to the year ended December 31, 2024.
Factors Impacting Our Operating Results The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the market value of our assets, including the real estate collateralizing our investments, and the supply of, and demand for, commercial mortgage loans, CRE debt and other financial assets in the marketplace.
Should the risks from these factors become more acute, the commercial real estate market we service may be further adversely impacted. 60 Table of Contents Factors Impacting Our Operating Results The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the market value of our assets, including the real estate collateralizing our investments, and the supply of, and demand for, commercial mortgage loans, CRE debt and other financial assets in the marketplace.
Amount immediately available under the CNB Facility at any given time can fluctuate based on the fair value of the collateral in the borrowing base that secures the CNB Facility.
The amount immediately available under the CNB Facility at any given time can fluctuate based on the fair value of the collateral in the borrowing base that secures the CNB Facility. As of December 31, 2025, there was no immediate availability under the CNB Facility based on the fair value of the collateral in the borrowing base at such time.
This change in net cash provided by investing activities was primarily a result of the cash received from principal collections and cost-recovery proceeds on loans held for investment and from the sale of loans and real estate owned held for sale exceeding the cash used for the origination and funding of loans held for investment for the year ended December 31, 2024.
For the year ended December 31, 2024, net cash provided by investing activities totaled $427.9 million and was primarily related to cash received from principal collections and cost-recovery proceeds on loans held for investment and from the sale of loans held for sale exceeding the cash used for the origination and funding of loans held for investment.
("Citibank") (the “Citibank Facility”) to, among other things, extend the initial maturity date of the Citibank Facility to January 13, 2027, subject to two 12-month extensions, each of which may be exercised at our option provided that certain conditions are met and applicable extension fees are paid.
(the “Citibank Facility”) is subject to two 12-month extensions, each of which may be exercised at our option provided that certain conditions are met and applicable extension fees are paid.
In February 2024, we received a discounted payoff on a senior mortgage loan with outstanding principal of $18.8 million, which was collateralized by a multifamily property located in Washington. The discounted payoff was received in conjunction with a short sale of the multifamily property by the borrower to a third party.
This $1.0 million unrealized loss was realized during the year ended December 31, 2024. In February 2024, we received a discounted payoff on a senior mortgage loan with outstanding principal of $18.8 million, which was collateralized by a multifamily property located in Washington. The discounted payoff was received in conjunction with a sale of the multifamily property by the borrower.
As of December 31, 2024, the Company had five loans held for investment on non-accrual status with a carrying value of $318.4 million. As of December 31, 2023, the Company had nine loans held for investment on non-accrual status with a carrying value of $399.3 million.
As of December 31, 2025, we had four loans held for investment on non-accrual status with a carrying value of $308.1 million. As of December 31, 2024, we had five loans held for investment on non-accrual status with a carrying value of $318.4 million.
For the year ended December 31, 2023, adjustments to net income (loss) related to operating activities primarily included the provision for current expected credit losses of $91.8 million, accretion of discounts, deferred loan origination fees and costs of $6.1 million, amortization of deferred financing costs of $3.9 million, change in other assets of $19.9 million and realized losses on loans of $10.5 million.
For the year ended December 31, 2025, adjustments to net income (loss) related to operating activities primarily included the net reversal of current expected credit losses of $17.8 million, accretion of discounts, deferred loan origination fees and costs of $4.3 million, amortization of deferred financing costs of $4.6 million, depreciation and amortization of real estate owned of $8.5 million and realized losses on loans of $34.6 million.
The following table summarizes our loans held for investment as of December 31, 2024 ($ in thousands): As of December 31, 2024 Carrying Amount (1) Outstanding Principal (1) Weighted Average Unleveraged Effective Yield Weighted Average Remaining Life (Years) (4) Senior mortgage loans $ 1,617,835 $ 1,655,141 6.8 % (2) 8.6 % (3) 0.9 Subordinated debt and preferred equity investments 38,853 43,365 7.5 % (2) 15.7 % (3) 1.5 Total loans held for investment portfolio $ 1,656,688 $ 1,698,506 6.9 % (2) 8.7 % (3) 1.0 _______________________________ (1) The difference between the Carrying Amount and the Outstanding Principal amount of the loans held for investment consists of unamortized purchase discounts, deferred loan fees and origination costs and cost-recovery proceeds.
The following table summarizes our loans held for investment as of December 31, 2025 ($ in thousands): As of December 31, 2025 Carrying Amount (1) Outstanding Principal (1) Weighted Average Unleveraged Effective Yield Weighted Average Remaining Life (Years) (4) Senior mortgage loans $ 1,509,670 $ 1,580,074 5.7 % (2) 7.4 % (3) 1.3 Subordinated debt and preferred equity investments 19,136 20,985 2.7 % (2) 6.7 % (3) 1.3 Total loans held for investment portfolio $ 1,528,806 $ 1,601,059 5.7 % (2) 7.4 % (3) 1.3 _______________________________ (1) The difference between the Carrying Amount and the Outstanding Principal amount of the loans held for investment consists of unamortized purchase discounts, deferred loan fees and origination costs and cost-recovery proceeds.
For the year ended December 31, 2023, net cash used in financing activities totaled $205.1 million and was primarily related to repayments of our Secured Funding Agreements of $109.1 million, repayments of debt of consolidated VIEs of $55.1 million, dividends paid of $76.0 million and repurchases of our common stock of $4.6 million, partially offset by proceeds from our Secured Funding Agreements of $43.7 million.
Financing Activities For the year ended December 31, 2025, net cash used in financing activities totaled $168.6 million and was primarily related to repayments of our Secured Funding Agreements of $217.8 million, repayments of debt of consolidated VIEs of $356.1 million, repayments of our Secured Term Loan of $40.0 million and dividends paid of $39.0 million, partially offset by proceeds from our Secured Funding Agreements of $487.6 million.
Rising operating costs, such as property insurance and raw material costs for property development and improvements, have further pressured cash flow performance across many real estate property types. Office properties, in particular, continue to experience particular challenges driven by the increased prevalence of remote work and elevated costs to operate, improve or repurpose office properties.
Rising operating costs, such as property insurance and raw material costs for property development and improvements, placed pressure on cash flow performance across many real estate property types in 2025. Although certain markets are showing a recovery, office properties nationally continue to experience challenges driven by remote work and elevated costs to operate, improve or repurpose these office properties.
For the year ended December 31, 2024, we recognized a realized loss of $15.7 million in our consolidated statements of operations upon the write-off, which was equal to the carrying value of the mezzanine loan. 67 Table of Contents In January 2023, we closed the sale of a senior mortgage loan with outstanding principal of $14.3 million, which was collateralized by a residential property located in California, to a third party.
For the year ended December 31, 2024, we recognized a realized loss of $15.7 million in our consolidated statements of operations upon the write-off, which was equal to the carrying value of the mezzanine loan. 69 Table of Contents In June 2025, we received a discounted payoff on a senior mortgage loan with outstanding principal of $51.5 million, which was collateralized by an office (life sciences) property located in Massachusetts.
Investing Activities For the years ended December 31, 2024 and 2023, net cash provided by investing activities totaled $427.9 million and $127.5 million, respectively.
Operating Activities For the years ended December 31, 2025 and 2024, net cash provided by operating activities totaled $21.4 million and $35.5 million, respectively.
For the year ended December 31, 2024, office property operating expenses were $2.9 million, which consists of operating expenses for two office properties, which were acquired on June 12, 2024 and September 19, 2024, respectively.
For the years ended December 31, 2025 and 2024, office property operating expenses were $5.0 million and $2.9 million, respectively, which consists of operating expenses for our office property that was acquired on June 12, 2024 and sold on November 15, 2024 and our multi-building office property that was acquired on September 19, 2024.
For the year ended December 31, 2023, related party expenses included $12.3 million in management and incentive fees due to our Manager pursuant to the Management Agreement, which consisted of $11.9 million in management fees and $0.3 million in incentive fees.
Related Party Expenses For the year ended December 31, 2025, related party expenses included $9.8 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the year ended December 31, 2025.

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

Market Risk — interest-rate, FX, commodity exposure

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Biggest changeWe will not receive any proceeds from the repayment of loans in the CLO Securitizations until all senior notes are repaid in full. Financing Risk We borrow funds under our Financing Agreements to finance our target assets.
Biggest changeAdditionally, to the extent we issue CLO securitizations, principal repayment proceeds from mortgage loans in such securitizations are typically applied sequentially, first used to pay down the senior notes in the CLO securitization. We would not receive any proceeds from the repayment of loans in a CLO securitization until all senior notes are repaid in full.
Additionally, in such a case, interest income may continue to accrue for the holders of subordinate securities within the CLO Securitizations notwithstanding the cash being used to repay principal on the more senior securities. This would cause us to recognize income but not have a corresponding amount of cash available for operations or for distribution to our stockholders.
Additionally, in such a case, interest income may continue to accrue for the holders of subordinate securities within the CLO securitization notwithstanding the cash being used to repay principal on the more senior securities. This would cause us to recognize income but not have a corresponding amount of cash available for operations or for distribution to our stockholders.
In addition, there can be no assurance that we will be able to effectively hedge our interest rate risk. As of December 31, 2024, we did not have hedging or derivative financial instruments in place. In addition to the risks discussed above, there is also the risk of non-performance on floating rate assets.
In addition, there can be no assurance that we will be able to effectively hedge our interest rate risk. As of December 31, 2025, we did not have hedging or derivative financial instruments in place. In addition to the risks discussed above, there is also the risk of non-performance on floating rate assets.
As market volatility increases or liquidity decreases, the fair value of our investments and liabilities may be adversely impacted. 75 Table of Contents Prepayment and Securitizations Repayment Risk Our net income (loss) and earnings may be affected by prepayment rates on our existing CRE loans. When we originate our CRE loans, we anticipate that we will generate an expected yield.
As market volatility increases or liquidity decreases, the fair value of our investments and liabilities may be adversely impacted. Prepayment and Securitizations Repayment Risk Our net income (loss) and earnings may be affected by prepayment rates on our existing CRE loans. When we originate our CRE loans, we anticipate that we will generate an expected yield.
In addition, a decrease in interest rates or tightening credit spreads increases the likelihood that certain of our investments will be refinanced at lower rates. These factors could lower our net interest income or cause a net loss during periods of decreasing interest rates, which would harm our financial condition, cash flows and results of operations.
In addition, a decrease in interest rates or tightening credit spreads increases the likelihood that certain of our investments will be refinanced at lower rates. These factors could lower our 76 Table of Contents net interest income or cause a net loss during periods of decreasing interest rates, which would harm our financial condition, cash flows and results of operations.
We seek to manage these risks through our underwriting and asset management processes. 76 Table of Contents Inflation Risk Virtually all of our assets and liabilities are sensitive to interest rates. As a result, interest rates and other factors influence our performance far more so than does inflation.
We seek to manage these risks through our underwriting and asset management processes. Inflation Risk Virtually all of our assets and liabilities are sensitive to interest rates. As a result, interest rates and other factors influence our performance far more so than does inflation.
Higher interest rates and persistent inflation have had, and continue to have, an adverse impact on industries whose properties serve as collateral for some of our portfolio investments.
Elevated interest rates and inflation have had, and continue to have, an adverse impact on industries whose properties serve as collateral for some of our portfolio investments.
The following table estimates the hypothetical increases/(decreases) in net income for a twelve month period, assuming (1) an immediate increase or decrease in 30-day SOFR as of December 31, 2024 and (2) no change in the outstanding principal balance of our loans held for investment portfolio, available-for-sale debt securities and borrowings as of December 31, 2024 ($ in millions): Change in 30-Day SOFR Increase/(Decrease) in Net Income Up 100 basis points $3.1 Up 50 basis points $1.5 Down 50 basis points $(1.5) Down 100 basis points $(3.1) SOFR at 0 basis points $(3.2) The severity of any such impact depends on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase and any applicable floors or hedging transactions.
The following table estimates the hypothetical increases/(decreases) in net income for a twelve month period, assuming (1) an immediate increase or decrease in 30-day SOFR as of December 31, 2025 and (2) no change in the outstanding principal balance of our loans held for investment portfolio and borrowings as of December 31, 2025 ($ in millions): Change in 30-Day SOFR Increase/(Decrease) in Net Income Up 100 basis points $2.6 Up 50 basis points 1.3 Down 50 basis points (1.3) Down 100 basis points (1.7) SOFR at 0 basis points 6.8 The severity of any such impact depends on our asset/liability composition at the time as well as the magnitude and duration of the interest rate increase and any applicable floors or hedging transactions.
We are also subject to cross-default and acceleration rights with respect to our Financing Agreements. In addition, our CLO Securitizations contain certain senior note overcollateralization ratio tests.
We are also subject to cross-default and acceleration rights with respect to our Financing Agreements. In addition, in the past, our CLO securitizations have contained certain senior note overcollateralization ratio tests.
Credit Risk We are subject to varying degrees of credit risk in connection with holding our target investments. We have exposure to credit risk on our CRE loans held for investment and available-for-sale debt securities.
Credit Risk We are subject to varying degrees of credit risk in connection with holding our target investments. We have exposure to credit risk on our CRE loans held for investment.
To the extent we fail to meet these tests, amounts that would otherwise be used to make payments on the subordinate securities that we hold will be used to repay principal on the more senior securities to the extent necessary to satisfy any senior note overcollateralization ratio and we may incur significant losses.
To the extent we issue CLO securitizations in the future and we fail to meet these tests, if included, amounts that would otherwise be used to make payments on the subordinate securities that we would hold would be used to repay principal on the more senior securities to the extent necessary to satisfy any senior note overcollateralization ratio and we may incur significant losses.
In the case of a significant increase in interest rates, the additional debt service payments due from our borrowers may strain the operating cash flows of the real estate assets underlying our mortgages and, potentially, contribute to non-performance or, in severe cases, default, which may be mitigated by borrower purchased interest rate caps. 74 Table of Contents Interest Rate Effect on Net Income Our interest income and expense will generally change directionally with index rates.
In the case of a significant increase in interest rates, the additional debt service payments due from our borrowers may strain the operating cash flows of the real estate assets underlying our mortgages and, potentially, contribute to non-performance or, in severe cases, default, which may be mitigated by borrower purchased interest rate caps.
Continued weakness or volatility in the financial markets, the commercial real estate and mortgage markets and the economy generally could adversely affect one or more of our lenders or potential lenders and could cause one or more of our lenders or potential lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing.
Continued weakness or volatility in the financial markets, the commercial real estate and mortgage markets and the economy generally could adversely affect one or more of our lenders or potential lenders and could cause one or more of our lenders or potential lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing. 77 Table of Contents From time to time, capital markets may also experience periods of disruption and instability, which may adversely affect our ability to refinance our financing arrangements.
The impact of declining interest rates may be mitigated by interest rate floors and the impact of rising or declining interest rates may be mitigated by certain hedging transactions that we have entered into or may enter into in the future.
Interest Rate Effect on Net Income Our interest income and expense will generally change directionally with index rates. The impact of declining interest rates may be mitigated by interest rate floors and the impact of rising or declining interest rates may be mitigated by certain hedging transactions that we have entered into or may enter into in the future.
In some situations, we may be forced to fund additional cash collateral in connection with the Financing Agreements or sell assets to maintain adequate liquidity, which could cause us to incur losses. Additionally, principal repayment proceeds from mortgage loans in the CLO Securitizations are applied sequentially, first used to pay down the senior notes in the CLO Securitizations.
In some situations, we may be forced to fund additional cash collateral in connection with the Financing Agreements or sell assets to maintain adequate liquidity, which could cause us to incur losses.
We have continued regular dialogue with our borrowers and our financing providers to assess this credit risk. Interest Rate Risk Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control.
Interest Rate Risk Interest rates are highly sensitive to many factors, including fiscal, monetary and trade policies and domestic and international economic and political considerations, as well as other factors beyond our control. We are subject to interest rate risk in connection with our assets and our related financing obligations, including our borrowings under the Financing Agreements.
As a result, we significantly reduce our exposure to changes in portfolio value and cash flow variability related to changes in interest rates.
We primarily originate or acquire floating rate mortgage assets and finance those assets with index-matched floating rate liabilities. As a result, we significantly reduce our exposure to changes in portfolio value and cash flow variability related to changes in interest rates.
In addition, with respect to any particular target investment, our Manager’s investment team evaluates, among other things, relative valuation, comparable analysis, supply and demand trends, shape of yield curves, delinquency and default rates, recovery of various sectors and vintage of collateral.
In addition, with respect to any particular target investment, our Manager’s investment team evaluates, among other things, relative valuation, comparable analysis, supply and demand trends, shape of yield curves, delinquency and default rates, recovery of various sectors and vintage of collateral. 75 Table of Contents In the commercial real estate market environment during 2025, certain borrowers have not been able to repay principal upon the loan maturity and may not be able to qualify for loan extensions.
Removed
In the current macroeconomic environment, certain borrowers have not been able to repay principal upon the loan maturity and may not be able to qualify for loan extensions. Additionally, if tenants are not able to pay rent to their landlords, property owners may not be able to make payments to their lenders.
Added
Additionally, when tenants are not able to pay rent to their landlords, property owners have difficulties making payments to their lenders. We have continued regular dialogue with our borrowers and our financing providers to assess this credit risk.
Removed
We are subject to interest rate risk in connection with our assets and our related financing obligations, including our borrowings under the Financing Agreements. We primarily originate or acquire floating rate mortgage assets and finance those assets with index-matched floating rate liabilities.
Added
Financing Risk We borrow funds under our Financing Agreements to finance our target assets.
Removed
From time to time, capital markets may also experience periods of disruption and instability, which may adversely affect our ability to refinance our financing arrangements.

Other ACRE 10-K year-over-year comparisons