← Back to ACR filing summaryOriginal filing text · Part I
Item 2 — Management's Discussion and Analysis
Acres Commercial Realty Corp. · 10-Q · Q2 FY2026 · Period ended Jun 30, 2026
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References in this quarterly report to "we," "us" or the "Company" refer to ACRES Commercial Realty Corp. The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with the consolidated financial statements and accompanying notes appearing elsewhere in this report. Certain information contained in the discussion and analysis set forth below includes forward-looking statements that involve risks and uncertainties.
Special Note Regarding Forward-Looking Statements
This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as "may," "will," "continue," "expect," "intend," "anticipate," "estimate," "believe," "look forward" or other similar words or terms. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from the expectations, intentions, beliefs, plans or predictions of the future expressed or implied by such forward-looking statements. Factors that could cause actual results to differ materially from those anticipated in the forward-looking statements include:
• changes in our industry, interest rates, the debt securities markets, real estate markets or the general economy;
• increased rates of default and/or decreased recovery rates on our investments;
• the performance and financial condition of our borrowers;
• our ability to consummate the proposed Merger (as defined below) and achieve the expected cost savings or other benefits therefrom;
•if we fail to consummate the proposed Merger, our dependence on our Manager and ability to find a suitable replacement in a timely manner, or at all, if our Manager or we were to terminate the management agreement;
• the cost and availability of our financings, which depend in part on our asset quality, the nature of our relationships with our lenders and other capital providers, our business prospects and outlook and general market conditions;
• the availability and attractiveness of terms of additional debt repurchases;
• availability, terms and deployment of short-term and long-term capital;
• events giving rise to increases in our current expected credit loss reserve, including the impact of the current economic environment;
• availability of, and ability to retain, qualified personnel;
• changes in our business strategy;
• the degree and nature of our competition;
• the resolution of our non-performing and sub-performing assets;
• our ability to comply with financial covenants in our debt instruments;
• the adequacy of our cash reserves and working capital;
• the timing of cash flows, if any, from our investments;
• unanticipated increases in financial and other costs, including a rise in interest rates;
• our ability to maintain compliance with over-collateralization and interest coverage tests in our collateralized loan obligations ("CLOs");
• environmental and/or safety requirements;
• our ability to satisfy complex rules in order for us to qualify as a real estate investment trust ("REIT"), for federal income tax purposes and qualify for our exemption under the Investment Company Act of 1940, as amended, and our ability and the ability of our subsidiaries to operate effectively within the limitations imposed by these rules;
• legislative and regulatory changes (including changes to laws governing the taxation of REITs or the exemptions from registration as an investment company); and
• the factors described in this report and the Company’s Annual Report on Form 10-K for the year ended December 31, 2025, including those set forth under the sections captioned "Risk Factors," "Business" and "Management’s Discussion and Analysis of Financial Conditions and Results of Operations," as applicable.
We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. All subsequent written and oral forward-looking statements attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this section. Except to the extent required by applicable law or regulation, we undertake no obligation to update these forward-looking statements to reflect events or circumstances after the date of this report or to reflect the occurrence of unanticipated events.
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Overview
We are a Maryland corporation and an externally-managed real estate investment trust ("REIT") that is primarily focused on originating, holding and managing commercial real estate ("CRE") mortgage loans and equity investments in commercial real estate properties through direct ownership and joint ventures. Our manager is ACRES Capital, LLC (our "Manager"), a subsidiary of ACRES Capital Corp. ("ACC," and collectively with our Manager, "ACRES"), a private commercial real estate lender exclusively dedicated to nationwide middle market CRE lending with a focus on multifamily, student housing, hospitality, office and industrial properties in top United States ("U.S.") markets. Our Manager draws upon the management team of ACRES and its collective investment experience to provide its services. Our longer-term objective is to provide our stockholders with total returns over time, including quarterly distributions and capital appreciation, while seeking to manage the risks associated with our investment strategies, as well as to maximize long-term stockholder value by maintaining stability through our available liquidity and diversified CRE loan portfolio.
Currently, markets are grappling with trade tensions, geopolitical tensions, the risk of increased tariffs, inflation and labor volatility. These market pressures have caused continued disruption in many market segments, including the financial services, real estate and credit markets and these disruptions have affected the availability and the cost of capital. The increase in the cost of capital is expected to cause dislocations in various investment and financing markets in which we participate as we and other market participants adjust to the new financing environment.
Since September 2024, the U.S. Federal Reserve lowered the Federal Funds rate by 1.75% in six rate cuts reaching its lowest levels since 2022. Lowering rates and decreasing costs may encourage consumer spending and accelerate corporate profit growth, which may positively impact the credit profile of the collateral underlying our loans and positively impact our borrowers' ability to sell or refinance in the current market; however, lower rates would also correlate to decreases in our net income. There is also no certainty with respect to the direction, timing, or pace of change for future interest rates.
The multifamily real estate market continues to be a competitive market, and as a result of investors' continued confidence in that asset class, the market for those assets continues to experience spread compression on newly originated deals. Furthermore, the office property market continues to experience high vacancies, slower leasing activity and current tenants reevaluating their needs for physical office space due to remote-work trends across the country. These factors, coupled with inflation, higher interest rates and dislocations in market liquidity, have converged to create higher levels of uncertainty surrounding property values, which in turn, also negatively impact borrowers' ability and willingness to financially support and standby their investments in their office properties, their abilities to sell or refinance their positions in the current market and ultimately our financial results.
In response, we continue to manage corporate liquidity actively and responsibly, manage our CRE assets through a solutions-based approach with our borrowers and manage our daily operations in light of changing macroeconomic circumstances. Our Manager also continuously monitors for new capital opportunities and selectively executes on agreements that are expected to enhance our returns.
As previously reported, on April 29, 2026, we entered into an Agreement and Plan of Merger (the "Merger Agreement"), pursuant to which we will acquire ACC in an all-stock transaction (the "Merger"). As a result of the Merger, among other things, we will acquire our Manager, and transition from an externally-managed REIT to an internally-managed REIT (the "Internalization") which we expect will close in the third quarter. Being internally managed will further align the interest of our seasoned management team with its shareholders. Additionally, the Merger will enhance our financial profile through the recognition of third-party fee income earned from an evergreen fund vehicle, separately managed accounts and a growing insurance platform.
We originate transitional floating-rate CRE loans with a target size between $10.0 million and $100.0 million. During the six months ended June 30, 2026, we originated nine new CRE floating-rate whole loans, purchased one new CRE floating-rate whole loan and purchased a participation in an existing CRE floating-rate whole loan, with total commitments of $495.6 million and funded $31.4 million of loan commitments. These increases were offset by loan payoffs and sales during the six months ended June 30, 2026 in the amount of $203.3 million and unfunded commitments of $24.2 million, producing a net increase to the portfolio of $299.5 million. During the year ended December 31, 2025, we originated 14 new CRE floating-rate whole loans, with total commitments of $733.0 million, one new $15.0 million CRE mezzanine loan, one new $9.3 million CRE preferred equity investment and net funded commitments of $3.1 million. Loan payoffs and sales during the year ended December 31, 2025 were $418.9 million, producing a net increase to the portfolio of $341.5 million.
Our CRE loan portfolio, which had carrying values of $2.1 billion and $1.8 billion at June 30, 2026 and December 31, 2025, respectively, comprised:
• First mortgage loans, which we refer to as whole loans. These loans are typically secured by first liens on CRE property, including the following property types: multifamily, student housing, hospitality, office, self-storage, mixed-use and retail. All but five of our CRE whole loans were current on contractual payments at June 30, 2026.
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• Mezzanine debt that is senior to borrower’s equity but is subordinated to other third-party debt. These loans are subordinated CRE loans, usually secured by a pledge of the borrower’s equity ownership in the entity that owns the property or by a second lien mortgage on the property. At both June 30, 2026 and December 31, 2025, no individual mezzanine loans were included in CRE loans held for investment on our consolidated balance sheet.
• Preferred equity investments that are subordinate to first mortgage loans and mezzanine debt. These investments may be subject to more credit risk than subordinated debt but provide the potential for higher returns upon a liquidation of the underlying property and are typically structured to provide some credit enhancement differentiating it from the common equity in such investments. At June 30, 2026 and December 31, 2025, we had one preferred equity investment included in CRE loans held for investment with a carrying value of $9.7 million and $9.2 million, respectively. We also hold the first mortgage CRE whole loan on the underlying collateral for this investment.
We generate our income primarily from the spread between the revenues we receive from our assets and the cost to finance our ownership of those assets, including corporate debt.
While the CRE whole loans included in the CRE loan portfolio are substantially composed of floating-rate loans benchmarked to the one-month Term Secured Overnight Financing Rate ("Term SOFR"), asset yields are protected through the use of benchmark floors and minimum interest periods that typically range from 12 to 18 months at the time of a loan’s origination. Our benchmark floors provide asset yield protection when the benchmark rate falls below an in-place benchmark floor. Our net investment returns are enhanced by a decline in the cost of our floating-rate liabilities that do not have benchmark floors. Our net investment returns will be negatively impacted by the rising cost of our floating-rate liabilities that do not have floors until the benchmark rate is above the benchmark floor, at which point our floating-rate loans and floating-rate liabilities will be match-funded, effectively locking in our net interest margin until the benchmark floor rate is activated again or the floating-rate loan is paid off or refinanced.
In a business environment where benchmark rates are increasing significantly, cash flows of the CRE assets underlying our loans may not be sufficient to pay debt service on our loans, which could result in non-performance or default. We partially mitigate this risk by generally requiring our borrowers to purchase interest rate cap agreements with non-affiliated, well-capitalized third parties and by selectively requiring our borrowers to have and maintain debt service reserves. These interest rate caps generally mature prior to the maturity date of the loan and the borrowers are required to pay to extend them. In certain cases, the sponsors will need to fund additional equity into the properties to cover these costs as the property may not generate sufficient cash flow to pay these costs. At June 30, 2026, 74% of the par value of our CRE loan portfolio had interest rate caps or funded debt service reserves in place. Our interest rate caps have a weighted-average maturity of 15 months.
At June 30, 2026, our par-value $2.1 billion floating-rate CRE loan portfolio had a weighted average benchmark floor of 2.22%. At December 31, 2025, our par value $1.8 billion floating rate CRE loan portfolio had a weighted average benchmark floor of 1.78%. With the current trend of decreasing benchmark rates, we have seen the coupons on all of our floating-rate assets and debt decrease accordingly. Because we have equity invested in each floating-rate loan, and because in all instances the benchmark interest rates are above our loan floors, the decrease in interest rates resulted in a decrease in our net interest income. See "Interest Rate Risk" in "Item 3: Quantitative and Qualitative Disclosures About Market Risk."
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Our portfolio comprises loans with a diverse array of collateral types and locations. Multifamily continues to comprise the majority of our portfolio, with 80.8% of our portfolio allocated to multifamily at June 30, 2026 and 81.9% at December 31, 2025. The following charts show our portfolio allocation at carrying value by property type at June 30, 2026 and December 31, 2025:
From time to time, we may acquire real estate property through direct equity investments or as a result of our lending activities. We did not acquire any real estate property in the three months ended June 30, 2026.
At June 30, 2026, the net carrying value of our net real estate-related assets and liabilities was $104.6 million on five properties owned, two of which are included in investments in real estate and three of which are included in properties held for sale on our consolidated balance sheets.
We use leverage to enhance our returns. The cost of borrowings to finance our investments is a significant part of our expenses. Our net interest income depends on our ability to control these expenses relative to our revenue. Our CRE loans may initially be financed with term facilities, such as CRE loan warehouse financing facilities, in anticipation of their ultimate securitization. We ultimately seek to finance our CRE loans through the use of non-recourse long-term, match-funded CRE debt securitizations.
At June 30, 2026 and December 31, 2025, our financing arrangements were as follows (dollars in thousands):
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Outstanding Borrowings Percentage of Borrowings
At June 30, 2026
CRE debt securitization (1)(2) $ 873,701 48.9 %
CRE - term reinvestment financing facility (1)(3) 622,766 34.9 %
CRE - term warehouse financing facilities(1) 8,123 0.5 %
Senior secured financing facility(1) 56,398 3.2 %
Mortgage payable(1) 20,904 1.2 %
5.75% Senior Unsecured Notes 149,906 8.4 %
Unsecured junior subordinated debentures 51,548 2.9 %
Total $ 1,783,346 100.0 %
Outstanding Borrowings Percentage of Borrowings
At December 31, 2025:
CRE - term reinvestment financing facility (1)(2) $ 728,167 47.1 %
CRE - term warehouse financing facilities(1) 533,862 34.6 %
Senior secured financing facility(1) 61,645 4.0 %
Mortgage payable(1) 20,185 1.3 %
5.75% Senior Unsecured Notes 149,531 9.7 %
Unsecured junior subordinated debentures 51,548 3.3 %
Total $ 1,544,938 100.0 %
(1)Represents an asset-specific borrowing.
(2)Our CRE debt securitization provides a 30 month reinvestment period that allows us to reinvest CRE loan payoffs and principal paydown proceeds into the securitization, pending certain eligibility criteria are met and rating agency approval is obtained. The reinvestment period expires in August 2028.
(3)Our CRE - term reinvestment financing facility provides for a two-year reinvestment period that allows us to reinvest CRE loan payoffs and principal paydown proceeds into the reinvestment facility, pending certain eligibility criteria are met.
We reevaluate our current expected credit losses ("CECL") allowance quarterly, incorporating our current expectations of macroeconomic factors considered in the determination of our CECL reserves. At June 30, 2026, the CECL allowance on our CRE loan portfolio was $21.1 million, or 1.0% of our $2.1 billion loan portfolio. During the six months ended June 30, 2026, we recorded a net provision for credit losses primarily attributable to a decline in macroeconomic factors, offset by improvements in the modeled credit risk of our loan portfolio and loan payoffs.
At December 31, 2025, the CECL allowance on our CRE loan portfolio was $20.4 million, or 1.1% of our $1.8 billion loan portfolio. During the year ended December 31, 2025, we recorded a reversal of credit losses primarily driven by net improvements in the modeled credit risk of our loan portfolio as well as loan payoffs. These reversals were offset by a general decline in projected macroeconomic factors. We also recorded a charge-off of $4.7 million for one mezzanine loan that was fully reserved for in 2022.
Additionally, the decline in our CECL reserves from our highest reserve balance at June 30, 2020 of $61.1 million, or 3.4% of the par balance of our CRE loan portfolio, to our current reserve balance at June 30, 2026 of $21.1 million, or 1.0% of the par balance of our CRE loan portfolio, has been due to the following: the successful resolution of our individually evaluated loans with specific reserves, except for the charge-off noted above, the overall newer vintage of our CRE loan portfolio (with only 6.7% of the portfolio, at June 30, 2026, being originated prior to the fourth quarter of 2020) as well as the increased percentage allocation of our CRE loan portfolio to multifamily loans over time. Multifamily loans have historically had the lowest credit losses of any asset class, and our percentage allocation of our CRE loan portfolio to multifamily at carrying value has grown from 58.4% at June 30, 2020 to 80.8% at June 30, 2026.
Common stock book value was $26.76 per share at June 30, 2026, a $3.25 per share decrease from December 31, 2025.
Results of Operations
Our net loss allocable to common shares for the three months ended June 30, 2026 was $12.5 million, or ($1.87) per share-basic ($1.87) per share-diluted) as compared to net loss allocable to common shares for the three months ended June 30, 2025 of $732,000 or ($0.10) per share-basic ($0.10 per share-diluted). Our net loss allocable to common shares for the six months ended June 30, 2026 was $13.5 million, or ($2.04) per share-basic ($2.04) per share-diluted), as compared to net loss allocable to common shares for the six months ended June 30, 2025 of $6.6 million, or ($0.90) per share-basic ($0.90) per share-diluted).
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Net Interest Income
The following tables analyze the change in interest income and interest expense for the comparative three and six months ended June 30, 2026 and 2025 by changes in volume and changes in rates. The changes attributable to the combined changes in volume and rate have been allocated proportionately, based on absolute values, to the changes due to volume and changes due to rates (dollars in thousands, except amounts in footnotes):
Three Months Ended June 30, 2026 Compared to Three Months Ended June 30, 2025
Due to Changes in
Net Change Percent Change (1) Volume Rate
Increase (decrease) in interest income:
CRE whole loans (2) $ 10,189 37 % $ 14,315 $ (4,126 )
CRE mezzanine loans (680 ) (100 )% (680 ) —
CRE preferred equity loan 256 100 % 256 —
Other (196 ) (59 )% (146 ) (50 )
Total increase (decrease) in interest income 9,569 33 % 13,745 (4,176 )
Increase (decrease) in interest expense:
Securitized borrowings 12,152 100 % 12,152 —
Senior secured financing facility 617 42 % 652 (35 )
CRE - term warehouse financing facilities (519 ) (46 )% (369 ) (150 )
CRE - term reinvestment financing facility (4,481 ) (32 )% (3,009 ) (1,472 )
5.75% Senior Unsecured Notes (3) 12 1 % 12 —
Unsecured junior subordinated debentures (79 ) (7 )% — (79 )
Hedging (4) (85 ) (21 )% (85 ) —
Total increase (decrease) in interest expense 7,617 38 % 9,353 (1,736 )
Net increase (decrease) in net interest income $ 1,952 $ 4,392 $ (2,440 )
(1)Percent change is calculated as the net change divided by the respective interest income or interest expense for the three months ended June 30, 2025.
(2)Includes an increase in fee income of $391,000 recognized on our CRE whole loans that was due to changes in volume.
(3)Net change pertains to amortization expense and is reflected in the change in volume.
(4)Net decrease is due to a portion of the terminated swaps being fully amortized as of December 31, 2025.
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Six Months Ended June 30, 2026 Compared to Six Months Ended June 30, 2025
Due to Changes in
Net Change Percent Change (1) Volume Rate
Increase (decrease) in interest income:
CRE whole loans (2) $ 14,476 26 % $ 22,548 $ (8,072 )
CRE mezzanine loans (742 ) (100 )% (742 ) —
CRE preferred equity loan 504 100 % 504 —
Other 965 163 % 843 122
Total increase (decrease) in interest income 15,203 26 % 23,153 (7,950 )
Increase (decrease) in interest expense:
Securitized borrowings:
ACR 2026-FL4 Senior Notes 18,444 100 % 18,444 —
ACR 2021-FL1 Senior Notes (6,535 ) (100 )% (6,535 ) —
ACR 2021-FL2 Senior Notes (6,554 ) (100 )% (6,554 ) —
Senior secured financing facility 451 15 % 647 (196 )
CRE - term warehouse financing facilities 1,018 28 % 1,598 (580 )
CRE - term reinvestment financing facility 3,076 19 % 4,770 (1,694 )
5.75% Senior Unsecured Notes (3) 23 — % 23 —
Unsecured junior subordinated debentures (163 ) (7 )% — (163 )
Hedging (152 ) (19 )% (152 ) —
Total increase (decrease) in interest expense 9,608 22 % 12,241 (2,633 )
Net increase (decrease) in net interest income $ 5,595 $ 10,912 $ (5,317 )
(1)Percent change is calculated as the net change divided by the respective interest income or interest expense for the six months ended June 30, 2025.
(2)Includes an increase in fee income of $781,000 recognized on our CRE whole loans that was due to changes in volume.
(3)Net change pertains to amortization expense and is reflected in the change in volume.
(4)Net decrease is due to a portion of the terminated swaps being fully amortized as of December 31, 2025.
Net Change in Interest Income for the Comparative three and six months ended June 30, 2026 and 2025:
Aggregate interest income increased by $9.6 million and $15.2 million for the comparative three and six months ended June 30, 2026 and 2025. We attribute the change to the following:
CRE whole loans. The increase of $10.2 million and $14.5 million for the comparative three and six months ended June 30, 2026 and 2025 was primarily attributable to an increase in the daily average par value of our CRE portfolio resulting from loan production, offset by a decrease in the benchmark rate over the comparative period.
CRE mezzanine loans. The decrease of $680,000 and $742,000 for the comparative three and six months ended June 30, 2026 and 2025 was attributable to the origination and payoff of a mezzanine loan during the fiscal year 2025.
CRE preferred equity loan. The increase of $256,000 and $504,000 for the comparative three and six months ended June 30, 2026 and 2025 was attributable to the origination of a preferred equity loan in September 2025.
Other. The decrease of $196,000 for the comparative three months ended June 30, 2026 and 2025 was primarily attributable to a decrease in the daily average balance and yields on our interest earning money market accounts. The increase of $965,000 for the comparative six months ended June 30, 2026 and 2025 was primarily attributable to an increase in restricted cash from the close of our new CRE securitization, ACRES Commercial Realty 2026-FL4 Issuer, LLC ("ACR 2026-FL4"), and increase in yields on our interest earning money market accounts during the first quarter of fiscal year 2026.
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Net Change in Interest Expense for the Comparative three and six months ended June 30, 2026 and 2025:
Aggregate interest expense increased by $7.6 million and $9.6 million for the comparative three and six months ended June 30, 2026 and 2025. We attribute the change to the following:
Securitized borrowings. The increase of $12.2 million and $5.4 million for the comparative three and six months ended June 30, 2026 and 2025 was primarily attributable to the issuance of our ACR 2026-FL4 securitization, offset by the redemptions of our ACR 2021-FL1 and ACR 2021-FL2 securitizations and a decrease in borrowings and the benchmark rate over the comparative periods.
Senior secured financing facility. The increase of $617,000 and $451,000 for the comparative three and six months ended June 30, 2026 and 2025 was primarily attributable to the acceleration of amortization of deferred debt issuance costs.
CRE - term warehouse financing facilities. The decrease of $519,000 for the comparative three months ended June 30, 2026 and 2025 was primarily attributable to a decrease in the average borrowings balance and benchmark rate over the comparative periods. The increase of $1.0 million for the comparative six months ended June 30, 2026 and 2025 was primarily attributable to an increase in the average daily borrowings balance during the first quarter of fiscal year 2026, offset by a decrease in the benchmark rate over the comparative periods.
CRE - term reinvestment financing facility. The decrease of $4.5 million for the comparative three months ended June 30, 2026 and 2025 was primarily attributable to a decrease in the average borrowings balance and benchmark rate over the comparative periods. The increase of $3.1 million for the comparative six months ended June 30, 2026 and 2025 was attributable to the March 2025 close and subsequent utilization of our CRE term reinvestment financing facility.
Unsecured junior subordinated debentures. The decrease of $79,000 and $163,000 for the comparative three and six months ended June 30, 2026 and 2025 was primarily attributable to a decrease in the benchmark rate over the comparative periods.
Hedging. The decrease of $85,000 and $152,000 for the comparative three and six months ended June 30, 2026 and 2025 was attributable to a portion of our terminated swaps being fully amortized.
Average Net Yield and Average Cost of Funds:
The following tables present the average net yield and average cost of funds for the three and six months ended June 30, 2026 and 2025 (dollars in thousands, except amounts in footnotes):
Three Months Ended June 30, 2026 Three Months Ended June 30, 2025
Average Amortized Cost Interest Income (Expense) Average Net Yield (Cost of Funds) (1) Average Amortized Cost Interest Income (Expense) Average Net Yield (Cost of Funds) (1)
Interest-earning assets
CRE whole loans, floating-rate (2) $ 2,149,347 $ 38,006 7.09 % $ 1,364,030 $ 27,817 8.18 %
CRE mezzanine loans — — — % 19,700 680 13.65 %
CRE preferred equity loan 9,761 256 10.54 % — — — %
Other 20,144 138 2.75 % 40,163 334 3.33 %
Total interest income/average net yield 2,179,252 38,400 7.07 % 1,423,893 28,831 8.12 %
Interest-bearing liabilities
Collateralized by:
CRE whole loans (3) 1,601,033 (24,194 ) (6.06 )% 990,754 (16,425 ) (6.59 )%
General corporate debt:
5.75% Senior Unsecured Notes (4) 149,813 (2,346 ) (6.28 )% 149,078 (2,334 ) (6.28 )%
Unsecured junior subordinated debentures 51,548 (1,029 ) (7.89 )% 51,548 (1,108 ) (8.50 )%
Hedging (5) — (312 ) — % — (397 ) — %
Total interest expense/average cost of funds 1,802,394 (27,881 ) (6.13 )% 1,191,380 (20,264 ) (6.63 )%
Total net interest income $ 10,519 $ 8,567
(1)Average net yield includes net amortization/accretion and fee income and is computed based on average amortized cost.
(2)Includes fee income of $1.3 million and $895,000 recognized on our floating-rate CRE whole loans for the three months ended June 30, 2026 and 2025, respectively.
(3)Includes amortization expense of $2.0 million and $669,000 for the three months ended June 30, 2026 and 2025, respectively, on our interest-bearing liabilities collateralized by CRE whole loans.
(4)Includes amortization expense of $189,000 and $178,000 for the three months ended June 30, 2026 and 2025, respectively.
(5)Includes net amortization expense of $312,000 and $397,000 for both the three months ended June 30, 2026 and 2025, respectively, on 14 and 20 terminated interest rate swap agreements, respectively, that were in net loss positions at the time of termination. The remaining net losses, reported in accumulated other comprehensive loss on the consolidated balance sheets, will be accreted over the remaining life of the debt.
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Six Months Ended June 30, 2026 Six Months Ended June 30, 2025
Average Amortized Cost Interest Income (Expense) Average Net Yield (Cost of Funds) (1) Average Amortized Cost Interest Income (Expense) Average Net Yield (Cost of Funds) (1)
Interest-earning assets
CRE whole loans, floating-rate (2) $ 1,999,952 $ 70,700 7.13 % $ 1,386,183 $ 56,224 8.18 %
CRE mezzanine loans — — — % 13,070 742 11.30 %
CRE preferred equity loan 9,636 504 10.55 % — — — %
Other 78,772 1,556 3.98 % 39,005 591 3.05 %
Total interest income/average net yield 2,088,360 72,760 7.03 % 1,438,258 57,557 8.07 %
Interest-bearing liabilities
Collateralized by:
CRE whole loans (3) 1,543,191 (45,620 ) (5.96 )% 1,005,238 (35,720 ) (7.17 )%
General corporate debt:
5.75% Senior Unsecured Notes (4) 149,719 (4,688 ) (6.31 )% 148,991 (4,665 ) (6.31 )%
Unsecured junior subordinated debentures 51,548 (2,049 ) (7.91 )% 51,548 (2,212 ) (8.53 )%
Hedging (5) — (638 ) — % — (790 ) — %
Total interest expense/average cost of funds 1,744,458 (52,995 ) (6.05 )% 1,205,777 (43,387 ) (7.12 )%
Total net interest income $ 19,765 $ 14,170
(1)Average net yield includes net amortization/accretion and fee income and is computed based on average amortized cost.
(2)Includes fee income of $2.5 million and $1.7 million recognized on our floating-rate CRE whole loans for the six months ended June 30, 2026 and 2025, respectively.
(3)Includes amortization expense of $2.9 million and $3.5 million for the six months ended June 30, 2026 and 2025, respectively, on our interest-bearing liabilities collateralized by CRE whole loans.
(4)Includes amortization expense of $376,000 and $353,000 for the six months ended June 30, 2026 and 2025, respectively.
(5)Includes net amortization expense of $638,000 and $790,000 for the six months ended June 30, 2026 and 2025, respectively, on 17 and 20 terminated interest rate swap agreements, respectively, that were in net loss positions at the time of termination. The remaining net losses, reported in accumulated other comprehensive loss on the consolidated balance sheets, will be accreted over the remaining life of the debt.
Real Estate Income and Other Revenue
The following table sets forth information relating to our real estate income and other revenue for the periods presented (dollars in thousands):
For the Three Months Ended June 30,
2026 2025 Dollar Change Percent Change
Real estate income and other revenue:
Real estate income - Hospitality $ 8,809 $ 8,867 $ (58 ) (1 )%
Real estate income - Rental 1,621 4,406 (2,785 ) (63 )%
Other revenue 31 33 (2 ) (6 )%
Total $ 10,461 $ 13,306 $ (2,845 ) (21 )%
For the Six Months Ended June 30,
2026 2025 Dollar Change Percent Change
Real estate income and other revenue:
Real estate income - Hospitality $ 15,717 $ 15,642 $ 75 0 %
Real estate income - Rental 3,260 8,997 (5,737 ) (64 )%
Other revenue 62 66 (4 ) (6 )%
Total $ 19,039 $ 24,705 $ (5,666 ) -23 %
Aggregate real estate income and other revenue decreased by $2.8 million and $5.7 million for the comparative three and six months ended June 30, 2026 and 2025. The decrease in the comparative three and six months was attributed to: (i) a decrease in revenue related to a student housing property that was sold in September 2025, and (ii) a decrease in revenue at an office property that was sold in December 2025, partially offset by an increase in revenues at a hotel property in the northeast region that had increased occupancy and rates in the comparative period.
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Operating Expenses
The following tables set forth information relating to our operating expenses for the periods presented (dollars in thousands):
For the Three Months Ended June 30,
2026 2025 Dollar Change Percent Change
Operating expenses:
General and administrative $ 2,722 $ 2,736 $ (14 ) (1 )%
Real estate expenses - Hospitality 8,313 8,597 (284 ) (3 )%
Real estate expenses - Rental 2,210 4,752 (2,542 ) (53 )%
Management fees - related party 1,564 1,601 (37 ) (2 )%
Equity compensation - related party 4,893 585 4,308 736 %
Corporate depreciation and amortization 18 20 (2 ) (10 )%
Merger and internalization costs 5,111 — 5,111 100 %
Provision for (reversal of) credit losses, net 1,683 (780 ) 2,463 316 %
Total $ 26,514 $ 17,511 $ 9,003 51 %
For the Six Months Ended June 30,
2026 2025 Dollar Change Percent Change
Operating expenses:
General and administrative $ 5,758 $ 5,895 $ (137 ) (2 )%
Real estate expenses - Hospitality 16,119 16,833 (714 ) (4 )%
Real estate expenses - Rental 4,114 9,858 (5,744 ) (58 )%
Management fees - related party 3,125 3,232 (107 ) (3 )%
Equity compensation - related party 5,433 1,400 4,033 288 %
Corporate depreciation and amortization 37 38 (1 ) (3 )%
Merger and internalization costs 5,111 — 5,111 100 %
Provision for (reversal of) credit losses, net 716 (2,497 ) 3,213 129 %
Total $ 40,413 $ 34,759 $ 5,654 16 %
Aggregate operating expenses increased by $9.0 million for the comparative three months ended June 30, 2026 and 2025 and increased by $5.7 million for the comparative six months ended June 30, 2026 and 2025. We attribute the changes to the following:
General and administrative. General and administrative expenses decreased by $14,000 and $137,000 for the comparative three and six months ended June 30, 2026 and 2025. The following table summarizes the information relating to our general and administrative expenses for the periods presented (dollars in thousands):
For the Three Months Ended June 30,
2026 2025 Dollar Change Percent Change
General and administrative
Professional services $ 1,283 $ 1,401 $ (118 ) (8 )%
Wages and benefits 272 272 - (— )%
D&O insurance 244 245 (1 ) (0 )%
Operating expenses 433 376 57 15 %
Dues and subscriptions 210 176 34 19 %
Director fees 204 204 — (— )%
Tax penalties, interest & franchise tax 32 24 8 33 %
Travel 44 38 6 16 %
Total $ 2,722 $ 2,736 $ (14 ) (1 )%
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For the Six Months Ended June 30,
2026 2025 Dollar Change Percent Change
General and administrative
Professional services $ 2,837 $ 3,108 $ (271 ) (9 )%
Wages and benefits 642 699 (57 ) (8 )%
D&O insurance 486 486 - (— )%
Operating expenses 781 631 150 24 %
Dues and subscriptions 394 393 1 0 %
Director fees 407 408 (1 ) (0 )%
Tax penalties, interest & franchise tax 133 59 74 125 %
Travel 78 111 (33 ) (30 )%
Total $ 5,758 $ 5,895 $ (137 ) (2 )%
The decrease in general and administrative expense for the comparative three and six months ended June 30, 2026 and 2025 was primarily attributable to decreased professional services related to consulting fees being paid in the first quarter of 2025 that related to prior year services and legal fees related to one-time sales and foreclosures that occurred during the three and six months ended June 30, 2025 but not 2026.
Real estate expenses. The decrease of $2.8 million for the three months ended June 30, 2026 and $6.5 million for the six months ended June 30, 2026 was primarily related to (i) a decrease in expenses related to a student housing property that was sold in September 2025, (ii) a decrease in expenses at an office property that was sold in December 2025, and (iii) a decrease in expenses at a student housing property related to a decrease in marketing and other operating expenses in the comparative periods. This was partially offset by an increase in overall operating expenses at a hotel property in both three and six months ended June 30, 2026.
Equity compensation - related party. The increase of $4.3 million and $4.0 million for the comparative three and six months ended June 30, 2026 and 2025 was primarily related to the acceleration of amortization related to the Manager's shares in connection to the pending Merger.
Merger and internalization costs. The increase of Merger costs of $5.1 million for both the comparative three and six months ended June 30, 2026 and 2025 is due to all of the Merger and internalization payments and accruals occurring in the second quarter of 2026. No Merger and internalization costs occurred prior to the second quarter of 2026.
Provision for (reversal of) credit losses. The increase in the provision for credit losses of $2.5 million and $3.2 million for the comparative three and six months ended June 30, 2026 and 2025 was primarily driven by a decline in macroeconomic factors during the quarter, offset by net improvements in the modeled credit risk of our loan portfolio and loan payoffs.
Other Income (Expense)
The following table sets forth information relating to our other income (expense) incurred for the periods presented (dollars in thousands):
For the Three Months Ended June 30,
2026 2025 Dollar Change Percent Change
Other income (expense):
Equity in earnings (losses) of unconsolidated subsidiaries $ 430 $ (669 ) $ 1,099 164 %
Other income 82 638 (556 ) (87 )%
Total $ 512 $ (31 ) $ 543 1,752 %
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For the Six Months Ended June 30,
2026 2025 Dollar Change Percent Change
Other income (expense):
Equity in earnings (losses) of unconsolidated subsidiaries $ 675 $ (1,161 ) $ 1,836 (158 )%
Gain on sale of investment in real estate 3,336 — 3,336 100 %
Other income 105 722 (617 ) (85 )%
Total $ 4,116 $ (439 ) $ 4,555 (1,038 )%
Aggregate other income (expense) increased $543,000 and $4.6 million for the comparative three and six months ended June 30, 2026 and 2025. We attribute the change to the following:
Equity in income (losses) of unconsolidated subsidiaries. The increase of $1.1 million and $1.8 million for the comparative three and six months ended June 30, 2026 and 2025, respectively, was primarily related to recognizing income at one unconsolidated entity, which is partially offset by loss recognition at two other unconsolidated entities. The two unconsolidated entities with losses are off-balance sheet and losses are only recognized when contributions are made. In 2025, more losses were recognized until the entity became off-balance sheet.
Gain on sale of investment in real estate. The increase of $3.3 million during the comparative six months ended June 30, 2026, was primarily attributed to the sale of a property generating a gain of $3.3 million in the first quarter of 2026 compared to no sales on real estate in the first quarter of 2025.
Other income. The decrease of $556,000 during the comparative three months ended June 30, 2026 and the decrease of $617,000 during the comparative six months ended June 30, 2026 was primarily attributed to the one time settlements of reserves and escrows related to CRE loans that occurred in the second quarter of 2025.
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Financial Condition
Summary
Our total assets were $2.4 billion and $2.2 billion at June 30, 2026 and December 31, 2025, respectively.
Investment Portfolio
The tables below summarize the amortized cost and net carrying amount of our investment portfolio, classified by asset type, at June 30, 2026 and December 31, 2025 as follows (dollars in thousands, except amounts in footnotes):
At June 30, 2026 Amortized Cost Net Carrying Amount (1) Percent of Portfolio Weighted Average Coupon
Loans held for investment:
CRE whole loans $ 2,118,951 $ 2,098,074 93.55 % 7.04%
CRE preferred equity investment 9,928 9,691 0.43 % 10.00%
2,128,879 2,107,765 93.98 %
Other investments:
Investments in unconsolidated entities 30,253 30,253 1.35 % N/A(4)
Investments in real estate(2) 37,848 37,848 1.69 % N/A(4)
Properties held for sale(3) 66,762 66,762 2.98 % N/A(4)
134,863 134,863 6.02 %
Total investment portfolio $ 2,263,742 $ 2,242,628 100.00 %
At December 31, 2025 Amortized Cost Net Carrying Amount (1) Percent of Portfolio Weighted Average Coupon
Loans held for investment:
CRE whole loans $ 1,820,942 $ 1,800,784 91.74 % 7.32%
CRE preferred equity investment 9,425 9,185 0.47 % 10.00%
1,830,367 1,809,969 92.21 %
Other investments:
Investments in unconsolidated entities 29,237 29,237 1.49 % N/A(4)
Investments in real estate(2) 56,277 56,277 2.86 % N/A(4)
Properties held for sale(3) 67,509 67,509 3.44 % N/A(4)
153,023 153,023 7.79 %
Total investment portfolio $ 1,983,390 $ 1,962,992 100.00 %
(1)Net carrying amount includes an allowance for credit losses of $21.1 million and $20.4 million at June 30, 2026 and December 31, 2025, respectively.
(2)Includes real estate related right of use assets of $18.8 million and $19.0 million, intangible assets of $5.8 million and $6.2 million, and lease liabilities of $45.7 million and $45.3 million at June 30, 2026 and December 31, 2025, respectively.
(3)Includes properties held for sale-related liabilities of $3.2 million and $3.1 million at June 30, 2026 and December 31, 2025, respectively. Additionally, includes real estate related right of use assets of $5.4 million, intangible assets of $2.7 million, and mortgage payable of $20.9 million and $20.2 million at June 30, 2026 and December 31, 2025, respectively.
(4)There are no stated rates associated with these investments.
CRE loans. During the six months ended June 30, 2026, we originated nine new CRE floating-rate whole loans, purchased one new CRE floating-rate whole loan and purchased a participation in an existing CRE floating-rate whole loan, with total commitments of $495.6 million of floating-rate CRE whole loan commitments, and funded $31.4 million of loan commitments. These increases were offset by $203.3 million in proceeds from loan payoffs and sales and unfunded loan commitments of $24.2 million, producing a net increase of $299.5 million in the par balance of the portfolio.
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The following is a summary of our loans (dollars in thousands, except amounts in footnotes):
Description Quantity Principal Unamortized (Discount) Premium, net (1) Amortized Cost Allowance for Credit Losses Carrying Value Contractual Interest Rates (2) Maturity Dates (3)(4)
At June 30, 2026:
Whole loans (5)(6)(7) 57 $ 2,127,806 $ (8,855 ) $ 2,118,951 $ (20,877 ) $ 2,098,074 1M Term SOFR + 2.50% to 1M Term SOFR + 7.00% July 2026 to May 2030
Preferred equity investment (see Note 3) (8) 9,999 (71 ) 9,928 (237 ) 9,691 10.00% October 2028
Total $ 2,137,805 $ (8,926 ) $ 2,128,879 $ (21,114 ) $ 2,107,765
At December 31, 2025:
Whole loans (5)(6)(7) 53 $ 1,828,299 $ (7,357 ) $ 1,820,942 $ (20,158 ) $ 1,800,784 1M Term SOFR + 2.50% to 1M Term SOFR + 7.00% January 2026 to May 2030
Preferred equity investment (see Note 3) (8) 9,511 (86 ) 9,425 (240 ) 9,185 10.00% October 2028
Total $ 1,837,810 $ (7,443 ) $ 1,830,367 $ (20,398 ) $ 1,809,969
(1)Amounts include unamortized loan origination fees of $8.5 million and $6.6 million and deferred amendment fees of $434,000 and $852,000 at June 30, 2026 and December 31, 2025, respectively.
(2)References to ("1M Term SOFR") are one-month Term SOFR. The weighted-average one-month benchmark rates was 3.64% and 3.83% at June 30, 2026 and December 31, 2025, respectively. Additionally, the weighted-average benchmark rate floors was 2.22% and 1.78% at June 30, 2026 and December 31, 2025, respectively.
(3)Maturity dates exclude contractual extension options, subject to the satisfaction of certain terms that may be available to the borrowers.
(4)Maturity dates exclude four and two whole loans, with amortized costs of $108.4 million and $37.9 million, in maturity default at June 30, 2026 and December 31, 2025, respectively.
(5)Substantially all loans are pledged as collateral under various borrowings at June 30, 2026 and December 31, 2025.
(6)CRE whole loans had $81.4 million and $88.6 million in unfunded loan commitments at June 30, 2026 and December 31, 2025, respectively. These unfunded loan commitments are advanced as the borrowers formally request additional funding and meet certain benchmarks, as permitted under the loan agreement, and any necessary approvals have been obtained.
(7)Includes four mezzanine loans, with total amortized costs of $21.2 million and $17.8 million, with three having fixed interest rates of 15.0% and one having a fixed interest rate of 20.0% at June 30, 2026 and December 31, 2025, respectively. Because we are also the first mortgage lender on these loans, we consider the first mortgage and mezzanine loans together as one whole loan.
(8)We had one preferred equity investment associated with a CRE whole loan at both June 30, 2026 and December 31, 2025, respectively. Our preferred equity investment has a fixed interest rate of 10%, of which 4.0% interest is deferred until maturity.
At June 30, 2026, 18.2%, 16.3% and 14.7% of our CRE loan portfolio based on carrying value was concentrated in the Southeast, Southwest and East North Central regions, respectively, as defined by the NCREIF. At December 31, 2025, 24.2%, 20.6% and 14.0% of our CRE loan portfolio based on carrying value was concentrated in the Southwest, Southeast, and Pacific regions, respectively. At June 30, 2026 and December 31, 2025, no single loan or investment group represented more than 10% of our total assets and one investment group generated 11% and 14% of our revenue, respectively.
Investments in unconsolidated entities.
The following table summarizes our investments in unconsolidated entities at June 30, 2026 and December 31, 2025 and equity in earnings (losses) of unconsolidated entities for the three and six months ended June 30, 2026 and 2025 (dollars in thousands, except in the footnotes):
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Earnings (Losses) of Unconsolidated Entities
Ownership % For the Three Months Ended June 30, For the Six Months Ended June 30,
at June 30, 2026 June 30, 2026 December 31, 2025 2026 2025 2026 2025
Unsecured Junior Subordinated Debentures(1) 3% $ 1,548 $ 1,548 $ — $ — $ — $ —
65 E. Wacker Joint Venture, LLC 90% 28,705 27,689 532 (553 ) 1,016 (741 )
7720 McCallum JV, LLC 50% — — (21 ) 152 (129 ) (152 )
Pacmulti Affiliates JV, LLC 50% — — (81 ) (268 ) (212 ) (268 )
Total $ 30,253 $ 29,237 $ 430 $ (669 ) $ 675 $ (1,161 )
(1)During the three and six months ended June 30, 2026 and 2025, dividends from the investments in RCT I's and RCT II's common shares in the amounts of $31,000 and $62,000 and $33,000 and $66,000, respectively, are recorded in other revenue on our consolidated statements of operations.
We record our investments in RCT I’s and RCT II’s common shares as investments in unconsolidated entities using the cost method. We record our investment in the Wacker JV, the McCallum JV and the Pacmulti JV as equity method investments.
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Investments in real estate and properties held for sale. At June 30, 2026, we held investments in five real estate properties, two of which are included in investments in real estate and three of which are included in properties held for sale on the consolidated balance sheets. We sold a property in March 2026 for $20.0 million, generating a gain on sale of $3.3 million, net of selling costs.
The following table summarizes the book value of our investments in real estate and related intangible assets at June 30, 2026 and December 31, 2025 (in thousands, except amounts in the footnotes):
June 30, 2026 December 31, 2025
Cost Basis Accumulated Depreciation & Amortization Carrying Value Cost Basis Accumulated Depreciation & Amortization Carrying Value
Assets acquired:
Investments in real estate, equity:
Investments in real estate (1) $ 58,311 $ (8,964 ) $ 49,347 $ 74,468 $ (7,797 ) $ 66,671
Right of use assets (2)(3) 19,664 (1,159 ) 18,505 19,665 (1,024 ) 18,641
Intangible assets (4) 9,469 (3,716 ) 5,753 9,469 (3,342 ) 6,127
Subtotal 87,444 (13,839 ) 73,605 103,602 (12,163 ) 91,439
Investments in real estate from lending activities:
Investments in real estate (1) 10,025 (397 ) 9,628 10,025 (281 ) 9,744
Right of use assets (2)(3) 399 (90 ) 309 399 (63 ) 336
Intangible assets (4) 364 (339 ) 25 364 (270 ) 94
Subtotal 10,788 (826 ) 9,962 10,788 (614 ) 10,174
Properties held for sale (5) 90,899 — 90,899 90,825 — 90,825
Total $ 189,131 $ (14,665 ) $ 174,466 $ 205,215 $ (12,777 ) $ 192,438
Liabilities assumed:
Investments in real estate, equity:
Mortgage payables $ 20,253 $ 651 $ 20,904 $ 19,565 $ 620 $ 20,185
Lease liabilities (3)(6) 45,337 — 45,337 44,958 — 44,958
Subtotal 65,590 651 66,241 64,523 620 65,143
Investments in real estate from lending activities:
Other liabilities 41 (41 ) — 41 (41 ) —
Lease liabilities (3)(6) 382 — 382 378 — 378
Subtotal 423 (41 ) 382 419 (41 ) 378
Liabilities held for sale (7) 3,233 — 3,233 3,131 — 3,131
Total $ 69,246 $ 610 $ 69,856 $ 68,073 $ 579 $ 68,652
Total net investments in real estate and properties held for sale (8) $ 119,885 $ 104,610 $ 137,142 $ 123,786
(1)Investments in real estate include $1.0 million and $15.2 million of land, which is not depreciable, at both June 30, 2026 and December 31, 2025. Also includes $327,000 and $3.7 million of construction in progress, which is also not depreciable until placed in service, at June 30, 2026 and December 31, 2025, respectively.
(2)Primarily comprised of an $18.3 million and $18.4 million right of use asset, at June 30, 2026 and December 31, 2025, respectively, associated with the ground lease disclosed in footnote (6) below accounted for as an operating lease. Amortization is booked to real estate expenses on the consolidated statements of operations. Additionally, we have an operating lease with a value of $300,000 and $322,000 at June 30, 2026 and December 31, 2025, respectively, associated with a parking lease.
(3)Refer to Note 8 in the Notes to the Consolidated Financial Statements for additional information on our remaining operating leases.
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(4)Primarily comprised of a franchise intangible of $3.3 million and $3.5 million, a management contract intangible of $2.5 million and $2.6 million, in-place lease intangible of $5,000 and $7,000 and a customer list intangible of $21,000 and $87,000, at June 30, 2026 and December 31, 2025, respectively.
(5)At June 30, 2026 and December 31, 2025, properties held for sale included a hotel acquired via deed-in-lieu of foreclosure in November 2020, a student housing property acquired in April 2022 and an office property acquired via deed-in-lieu of foreclosure in June 2023.
(6)Primarily comprised of a $45.1 million and $44.7 million ground lease at June 30, 2026 and December 31, 2025, respectively. The ground lease has a remaining term of 90 years. Lease expense was $1.4 million for both the six months ended June 30, 2026 and 2025, respectively, and $725,000 and $705,000 for the three months ended June 30, 2026 and 2025, respectively.
(7)Comprised of an operating lease liability.
(8)Excludes items of working capital, either acquired or assumed.
Financing Receivables
Current market conditions have resulted in, and may continue to result in, a dislocation in capital markets, declining real estate values of certain asset classes and increased delinquencies and defaults, resulting in increased loan modifications, increased allowances for credit losses and an increased risk to borrowers of foreclosure actions. We routinely employ rigorous risk management and underwriting practices to proactively evaluate and maintain the credit quality of our CRE loan portfolio and work closely with our borrowers to mitigate potential losses.
The following table shows the activity in the allowance for credit losses for the six months ended June 30, 2026 and year ended December 31, 2025 (in thousands):
Six Months Ended June 30, 2026 Year Ended December 31, 2025
Allowance for credit losses at beginning of period $ 20,398 $ 32,847
Provision for (reversal of) credit losses 716 (7,749 )
Charge-offs — (4,700 )
Allowance for credit losses at end of period $ 21,114 $ 20,398
During the three months ended June 30, 2026, we recorded a provision for expected credit losses of $1.7 million, primarily attributable to a decline in macroeconomic factors. During the six months ended June 30, 2026, we recorded a net provision for expected credit losses of $716,000, primarily attributable to a decline in macroeconomic factors, offset by net improvements in the modeled credit risk of the Company's loan portfolio and loan payoffs.
At both June 30, 2026 and December 31, 2025, we were not required to individually evaluate any CRE loans for credit loss.
Credit quality indicators
Commercial Real Estate Loans
CRE loans are collateralized by a diversified mix of real estate properties and are assessed for credit quality based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or re-underwritten loan-to-collateral value ("LTV") ratios, loan structure and exit plan. Depending on the loan’s performance against these various factors, loans are rated on a scale from 1 to 5, with loans rated 1 representing loans with the highest credit quality and loans rated 5 representing the loans with the lowest credit quality. Loans are typically rated a 2 at origination. The factors evaluated provide general criteria to monitor credit migration in our loan portfolio; as such, a loan’s rating may improve or worsen, depending on new information received.
The criteria set forth below should be used as general guidelines and, therefore, not every loan will have all of the characteristics described in each category below.
Risk Rating Risk Characteristics
1 • Property performance has surpassed underwritten expectations.
• Occupancy is stabilized, the property has had a history of consistently high occupancy, and the property has a diverse and high quality tenant mix.
2 • Property performance is consistent with underwritten expectations and covenants and performance criteria are being met or exceeded.
• Occupancy is stabilized, near stabilized or is on track with underwriting.
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3 • Property performance lags behind underwritten expectations.
• Occupancy is not stabilized and the property has some tenancy rollover.
4 • Property performance significantly lags behind underwritten expectations. Performance criteria and loan covenants have required occasional waivers.
• Occupancy is not stabilized and the property has a large amount of tenancy rollover.
5 • Property performance is significantly worse than underwritten expectations. The loan is not in compliance with loan covenants and performance criteria and may be in default. Expected sale proceeds would not be sufficient to pay off the loan at maturity.
• The property has a material vacancy rate and significant rollover of remaining tenants.
• An updated appraisal is required upon designation and updated on an as-needed basis.
All CRE loans are evaluated for any credit deterioration by debt asset management and certain finance personnel on at least a quarterly basis. Mezzanine loans and preferred equity investments may experience greater credit risks due to their nature as subordinated investments.
For the purpose of calculating the quarterly provision for credit losses under CECL, we pool CRE loans based on the underlying collateral property type and utilize a probability of default and loss given default methodology for approximately one year after which we immediately revert to a historical mean loss ratio.
Credit risk profiles of CRE loans at amortized cost were as follows (in thousands, except amounts in the footnotes):
Rating 1 Rating 2 Rating 3 Rating 4 Rating 5 Total (1)
At June 30, 2026:
Whole loans $ — $ 1,274,938 $ 456,735 $ 381,664 $ 5,614 $ 2,118,951
Preferred equity investment — 9,928 — — — 9,928
Total $ — $ 1,284,866 $ 456,735 $ 381,664 $ 5,614 $ 2,128,879
At December 31, 2025:
Whole loans $ 28,137 $ 938,416 $ 470,871 $ 377,904 $ 5,614 $ 1,820,942
Preferred equity investment — 9,425 — — — 9,425
Total $ 28,137 $ 947,841 $ 470,871 $ 377,904 $ 5,614 $ 1,830,367
(1)The total amortized cost of CRE loans excluded accrued interest receivable of $33.6 million and $27.2 million at June 30, 2026 and December 31, 2025, respectively.
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Credit risk profiles of CRE loans by origination year at amortized cost were as follows (in thousands, except amounts in footnotes):
2026 2025 (1) 2024 (2) 2023 2022 Prior Total (3)
At June 30, 2026:
Whole loans: (4)
Rating 1 $ — $ — $ — $ — $ — $ — $ —
Rating 2 410,951 635,848 28,605 29,384 — 170,150 1,274,938
Rating 3 16,605 — — — 214,457 225,673 456,735
Rating 4 — 140,683 88,001 15,996 91,783 45,201 381,664
Rating 5 — — — — — 5,614 5,614
Total whole loans 427,556 776,531 116,606 45,380 306,240 446,638 2,118,951
Preferred equity investment (rating 2) — 9,928 — — — — 9,928
Total loans $ 427,556 $ 786,459 $ 116,606 $ 45,380 $ 306,240 $ 446,638 $ 2,128,879
Current Period Gross Write-Offs $ — $ — $ — $ — $ — $ — $ —
2025 (1) 2024 (2) 2023 2022 2021 Prior Total (3)
At December 31, 2025:
Whole loans: (4)
Rating 1 $ — $ — $ — $ — $ 28,137 $ — $ 28,137
Rating 2 649,712 22,249 49,376 — 203,263 13,816 938,416
Rating 3 10,283 — — 235,271 214,356 10,961 470,871
Rating 4 137,906 87,370 15,991 91,675 — 44,962 377,904
Rating 5 — — — — — 5,614 5,614
Total whole loans 797,901 109,619 65,367 326,946 445,756 75,353 1,820,942
Preferred equity investment (rating 2) 9,425 — — — — — 9,425
Total loans $ 807,326 $ 109,619 $ 65,367 $ 326,946 $ 445,756 $ 75,353 $ 1,830,367
Current Period Gross Write-Offs $ — $ — $ — $ — $ — $ (4,700 ) $ (4,700 )
(1)Includes two novated CRE whole loans that resulted from loan workouts.
(2)Includes two novated CRE whole loans that resulted from loan workouts.
(3)The total amortized cost of CRE loans excluded accrued interest receivable of $33.6 million and $27.2 million at June 30, 2026 and December 31, 2025, respectively.
(4)Acquired CRE whole loans are grouped within each loan’s year of origination.
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Loan Portfolio Aging Analysis
The following table presents the CRE loan portfolio aging analysis as of the dates indicated for CRE loans at amortized cost (in thousands, except amounts in footnotes):
30-59 Days 60-89 Days Greater than 90 Days (1) Total Past Due Current (2) Total Loans Receivable (3) Total Loans > 90 Days and Accruing
At June 30, 2026:
Whole loans $ 70,563 $ — $ 59,084 $ 129,647 $ 1,989,304 $ 2,118,951 $ 32,250
Preferred equity investment — — — — 9,928 9,928 —
Total $ 70,563 $ — $ 59,084 $ 129,647 $ 1,999,232 $ 2,128,879 $ 32,250
At December 31, 2025:
Whole loans $ — $ — $ 26,834 $ 26,834 $ 1,794,108 $ 1,820,942 $ —
Preferred equity investment — — — — 9,425 9,425 —
Total $ — $ — $ 26,834 $ 26,834 $ 1,803,533 $ 1,830,367 $ —
(1)During the three and six months ended June 30, 2026, we recognized interest income of $608,000 and $1.2 million, respectively, on one CRE loan with a principal payment past due greater than 90 days at June 30, 2026.
(2)Includes one CRE loan with an amortized cost of $32.3 million in maturity default at December 31, 2025.
(3)The total amortized cost of CRE whole loans excluded accrued interest receivable of $33.6 million and $27.2 million at June 30, 2026 and December 31, 2025, respectively.
At June 30, 2026 and December 31, 2025, we had five and three CRE whole loans, with total amortized costs of $129.6 million and $59.1 million, respectively, in payment default.
During the three and six months ended June 30, 2026 and 2025, we did not recognize interest income on CRE whole loans that were placed on nonaccrual status.
Loan Modifications
We are required to disclose modifications where we determined the borrower is experiencing financial difficulty and modified the agreement to: (i) forgive principal, (ii) reduce the interest rate, (iii) cause an other-than-insignificant payment delay, (iv) extend the loan term, or (v) any combination thereof.
During the six months ended June 30, 2026 and 2025, we did not enter into any loan modifications for borrowers that were experiencing financial difficulty.
Restricted Cash
At June 30, 2026, we had restricted cash of $849,000 held in required account balance minimums in our various escrow and deposit accounts and our consolidated CRE debt securitization that has an expense reserve and reinvestment cash that is collateral to the senior notes. At December 31, 2025, we had restricted cash of $2.2 million held in required account balance minimums in our various escrow and deposit accounts.
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Accrued Interest Receivable
The following table summarizes our accrued interest receivable at June 30, 2026 and December 31, 2025 (in thousands):
June 30, 2026 December 31, 2025 Net Change
Accrued interest receivable from loans $ 33,594 $ 27,232 $ 6,362
Accrued interest receivable from promissory note, escrow, sweep and reserve accounts 42 27 15
Total $ 33,636 $ 27,259 $ 6,377
The increase of $6.4 million in accrued interest receivable was primarily attributable to net production in our CRE loan portfolio and accrued deferred interest on modified loans, offset by loan payoffs.
Other Assets
The following table summarizes our other assets at June 30, 2026 and December 31, 2025 (in thousands):
June 30, 2026 December 31, 2025 Net Change
Tax receivables and prepaid taxes $ 340 $ 376 $ (36 )
Other receivables 4,011 2,987 1,024
Prepaid expenses 2,195 1,890 305
Fixed assets - non real estate 289 325 (36 )
Other assets, miscellaneous 1,042 982 60
Total $ 7,877 $ 6,560 $ 1,317
The increase of $1.3 million in other assets was primarily attributable to increases in other receivables due to a receivable from one of our financing counterparties and in various prepaid assets held at our real estate properties, offset by amortization.
Deferred Tax Assets
At both June 30, 2026 and December 31, 2025, our net deferred tax asset was zero, resulting from a full valuation allowance of $21.8 million and $20.3 million, respectively, on our gross deferred tax assets as we believed it was more likely than not that the deferred tax assets would not be realized. We will continue to evaluate our ability to realize the tax benefits associated with deferred tax assets by analyzing forecasted taxable income using both historical and projected future operating results, the reversal of existing temporary differences, taxable income in prior carry back years (if permitted) and the availability of tax planning strategies.
Derivative Instruments
Historically, we sought to mitigate the potential impact on net income (loss) of adverse fluctuations in interest rates incurred on our borrowings by entering into hedging agreements. We classified our interest rate hedges as cash flow hedges, which are hedges that eliminate the risk of changes in the cash flows of a financial asset or liability.
We terminated all of our interest rate swap positions associated with our prior financed CMBS portfolio in April 2020. At termination, we realized a loss of $11.8 million. At June 30, 2026 and December 31, 2025, we had losses of $1.0 million and $1.6 million, respectively, recorded in accumulated other comprehensive loss, which will be amortized into earnings over the remaining life of the debt. During the three months ended June 30, 2026 and 2025, we recorded amortization expense of $312,000 and $420,000, respectively, reported in interest expense on the consolidated statements of operations. During the six months ended June 30, 2026 and 2025, we recorded amortization expense of $638,000 and $835,000, respectively, reported in interest expense on the consolidated statements of operations.
For each of the three and six months ended June 30, 2025 we recorded accretion income, reported in interest expense on the consolidated statements of operations, of $23,000 and $45,000, respectively, to accrete the accumulated other comprehensive income on the terminated swap agreements. At December 31, 2025, we fully accreted the unrealized balance from the gain attributable to two terminated interest rate swaps, and therefore no accretion income was recorded for the three and six months ended June 30, 2026.
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The following table presents the effect of derivative instruments on our consolidated statements of operations for the six months ended June 30, 2026 and 2025 (in thousands):
Realized and Unrealized Gain (Loss) (1)
Consolidated Statements of Operations Location Six Months Ended June 30, 2026 Six Months Ended June 30, 2025
Interest rate swap contracts, hedging Interest expense $ (638 ) $ (790 )
(1)Negative values indicate a decrease to the associated consolidated statement of operations line items.
Financing Arrangements
Borrowings under our financing arrangements are guaranteed by us or one or more of our subsidiaries. The following table sets forth certain information with respect to our borrowings (dollars in thousands, except amounts in footnotes):
June 30, 2026 December 31, 2025
Outstanding Borrowings Value of Collateral Number of Positions as Collateral Weighted Average Interest Rate Outstanding Borrowings Value of Collateral Number of Positions as Collateral Weighted Average Interest Rate
CRE - Term Reinvestment Financing Facility
JPMorgan Chase Bank, N.A. (1) $ 622,766 $ 917,369 30 5.40% $ 728,167 $ 1,009,622 34 5.50%
Senior Secured Financing Facility
Massachusetts Mutual Life Insurance Company (2) 56,398 147,861 4 7.48% 61,645 166,526 5 7.53%
CRE - Term Warehouse Financing Facilities
JPMorgan Chase Bank, N.A. (3) — — — —% 116,488 149,000 3 5.50%
Morgan Stanley Mortgage Capital Holdings LLC (4)(5) 8,123 10,602 — 5.27% 417,374 544,937 12 5.55%
Mortgage Payable
HGM CRE LP (6) 20,904 26,970 1 7.25% — — — —%
ReadyCap Commercial, LLC — — — —% 20,185 26,964 1 7.57%
Total $ 708,191 $ 1,102,802 $ 1,343,859 $ 1,897,049
(1)Includes $2.5 million and $2.8 million of deferred debt issuance costs at June 30, 2026 and December 31, 2025, respectively.
(2)Includes $105,000 and $1.5 million of deferred debt issuance costs at June 30, 2026 and December 31, 2025, respectively.
(3)Includes $352,000 of deferred debt issuance costs at December 31, 2025.
(4)Includes $324,000 and $546,000 of deferred debt issuance costs at June 30, 2026 and December 31, 2025, respectively, which includes $37,000 of deferred debt issuance costs at June 30, 2026 from another term warehouse financing facility with no balance.
(5)Collateral is composed of seven future funding participations that are components of assets held by ACRES Commercial Realty 2026-FL4 Issuer, LLC ("ACR 2026-FL4") at June 30, 2026.
(6)Includes $774,000 of deferred debt issuance costs at June 30, 2026.
We were in compliance with all covenants in the respective agreements at June 30, 2026 and December 31, 2025.
CRE - Term Reinvestment Financing Facility
In March 2025, an indirect wholly-owned subsidiary of ours entered into a master repurchase agreement (the "JPMorgan Chase 2025 Facility") with JPMorgan Chase Bank, N.A. ("JPMorgan Chase") to finance existing CRE loans and the origination of CRE loans. The JPMorgan Chase 2025 Facility had an initial maximum facility amount of $939.9 million, provides match term funding, charges interest of one-month benchmark plus a 1.75% spread and matures as of the latest maturity date of any purchased asset. The JPMorgan Chase 2025 Facility includes a two-year reinvestment period enabling the reinvestment of principal proceeds from asset repayments into qualifying replacement assets. The reinvestment period for the JPMorgan Chase 2025 Facility ends in March 2027.
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In connection with the JPMorgan Chase 2025 Facility, we provided "bad act" guaranties pursuant to a guarantee agreement (the "2025 JPMorgan Chase Guarantee") where we are liable for 100% of the repurchase price of the purchased assets and JPMorgan Chase’s losses, costs and expenses only upon the occurrence of certain customary bad acts. The JPMorgan Chase 2025 Guarantee includes certain financial covenants required of us, including required liquidity, required capital, ratios of total indebtedness to equity and EBITDA requirements. The JPMorgan Chase 2025 Facility also includes minimum interest coverage requirements and maximum look through LTV requirements. Also, ACRES Realty Funding, Inc. ("ACRES RF"), the direct owner of the wholly-owned subsidiary borrower, executed a pledge agreement with JPMorgan Chase pursuant to which it pledged and granted to JPMorgan Chase a continuing security interest in any and all of its right, title and interest in and to the wholly-owned subsidiary, including all distributions, proceeds, payments, income and profits from its interests in the wholly-owned subsidiary.
The JPMorgan Chase 2025 Facility specifies events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement, including but not limited to: payment defaults; bankruptcy or insolvency proceedings; a change of control of the ACRES SPE 2025-1, LLC, ("Seller SPE") or of us; breaches of covenants and/or certain representations and warranties; and a judgment in an amount greater than $250,000 against the Seller SPE or ACRES RF or $10.0 million against us. The remedies for such events of default are also customary for this type of financing arrangement and include the acceleration of the principal amount outstanding under the JPMorgan Chase 2025 Facility and the liquidation by JPMorgan Chase of purchased assets then subject to the JPMorgan Chase 2025 Facility. In October 2025, the JPMorgan Chase 2025 Facility was amended to allow ACRES Mortgage Fund Levered II, LLC ("AMF Levered II, LLC"), a wholly owned subsidiary of ACRES Mortgage Fund, Ltd., to purchase a non-controlling interest in the Seller SPE. At June 30, 2026, AMF Levered II, LLC owned a $135.2 million non-controlling interest, or 43.2%, of the Seller SPE and assumed a proportionate share of risk in the portfolio.
Senior Secured Financing Facility
In July 2020, our indirect, wholly-owned subsidiary ("Holdings"), along with its direct wholly owned subsidiary (the "Borrower"), entered into a $250.0 million Loan and Servicing Agreement (the "MassMutual Loan Agreement") with Massachusetts Mutual Life Insurance Company ("MassMutual") and the other lenders party thereto (the "Lenders"). The asset-based revolving loan facility (the "MassMutual Facility") provided under the MassMutual Loan Agreement has been used to finance our core CRE lending business.
In December 2022, Holdings, the Borrower and the Lenders entered into an Amended and Restated Loan and Servicing Agreement (the "Amended and Restated Loan and Servicing Agreement"), which amends and restates the MassMutual Loan Agreement, and reflects a senior secured term loan facility, not to exceed $500.0 million, composed of individual loan series issued upon mutual agreement of the Borrower and Lenders. Each loan series will be available for three months after the closing date agreed upon by the Borrower and Lenders ("Commitment Period"), subject to the maximum dollar amount agreed upon for that series. The Commitment Period is subject to immediate termination upon the occurrence of an event of default. Each loan series will have a final maturity of five years from the issuance date for the loan series unless an additional time is mutually agreed upon by the Lenders and Borrower. The advance rate on portfolio assets will be mutually agreed upon by the Lenders and Borrower. Each loan series will have its own mutually agreed upon interest rate equal to one-month Term SOFR plus the applicable spread.
CRE - Term Warehouse Financing Facilities
In October 2018, an indirect, wholly-owned subsidiary of ours entered into a master repurchase agreement (the "JPMorgan Chase Facility") with JP Morgan Chase to finance the origination of CRE loans. As amended, the JPMorgan Chase Facility has a maximum facility amount of $250.0 million, charges interest of one-month Term SOFR plus market spreads and was set to mature in July 2026. In March 2025, we entered into Amendment No. 6 to Guarantee, by and between the us and JPMorgan Chase, which makes certain amendments and modifications to the Guarantee, dated October 26, 2018 between the us and JPMorgan Chase, as amended (the "JPM Guarantee") including but not limited to amending (capitalized terms each as defined in the JPM Guarantee) (i) minimum unencumbered Liquidity requirement, (ii) the ratio of Total Indebtedness to Total Equity, (iii) ratio of Adjusted Total Indebtedness to Total Equity, and (iv) EBITDA to Interest Expense ratio. In August 2025, we entered into Amendment No. 7 to Guarantee, by and between us and JPMorgan Chase, which makes certain amendments and modifications to the Guarantee, dated October 26, 2018 between us and JPMorgan Chase, as amended the JPM Guarantee to amend the terms of the debt service coverage period. In July 2026, we entered into Amendment No. 5 to the JPMorgan Chase Facility, extending its maturity to July 2028. We also have the right to request two one-year extensions.
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In November 2021, an indirect, wholly-owned subsidiary of ours entered into a Master Repurchase and Securities Contract Agreement (the "Morgan Stanley Facility") with Morgan Stanley Mortgage Capital Holdings LLC ("Morgan Stanley") to finance the origination of CRE loans. As amended, the Morgan Stanley Facility has a maximum facility amount of $250.0 million, charges interest of one-month Term SOFR plus market spreads and was scheduled to mature in November 2025. We also have the right to request an extension for an additional one-year period. In March 2025, we entered into Amendment No. 4 to Guaranty (the "Morgan Stanley Amendment") by and between us and Morgan Stanley, which makes certain amendments and modifications to the Guaranty between us and Morgan Stanley as amended (the "MS Guaranty"), including but not limited to (capitalized terms each as defined in the MS Guarantee) (i) minimum unencumbered Liquidity requirement, (ii) ratio of Total Indebtedness to Total Equity, (iii) ratio of Adjusted Total Indebtedness to Total Equity, and (iv) EBITDA to Interest Expense ratio. In November 2025, we entered into Amendment No. 3 to the Morgan Stanley Facility extending its maturity to November 2026 and entered into Amendment No.4 to the Morgan Stanley Facility to increase the facility amount to $400.0 million, as increased from time to time, provided the amount shall be automatically reduced to $250.0 million on the earlier of May 2026 or when we send a request for a reduction in the facility amount. In December 2025, we entered into Amendment No. 5 to the Morgan Stanley Facility to increase the facility amount to $500.0 million. In March 2026, we entered into Amendment No. 6 to the Morgan Stanley Facility to decrease the facility amount to $250.0 million.
Mortgage Payable
In April 2022, Chapel Drive West, LLC, a wholly owned subsidiary of CS – ACRES FSU Student Venture, LLC (the "FSU Student Venture") entered into a Loan Agreement (the "Mortgage") with Readycap Commercial, LLC ("Readycap") to finance the acquisition of a student housing complex. The Mortgage is interest only and had a maximum principal balance of $20.4 million, of which, $18.7 million was advanced in the initial funding. The Mortgage charges interest of one-month Term SOFR plus a spread of 3.80%. The Mortgage was paid off in May 2026.
In May 2026, Chapel Drive West, LLC, entered into a Loan Agreement (the "HGM Mortgage") with HGM CRE LP ("HGM") to finance an existing student housing complex. The HGM Mortgage is interest only and has a maximum principal balance of $23.8 million, of which, $21.7 million was advanced in the initial funding. The HGM Mortgage charges interest of one-month Term SOFR plus a spread of 3.50%. The HGM Mortgage is scheduled to mature in June 2029, subject to two one-year extension options.
The HGM Mortgage contains events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement. The remedies for such events of default are also customary for this type of transaction.
In January 2023, Chapel Drive East, LLC, a wholly owned subsidiary of the FSU Student Venture, entered into a loan agreement (the "Construction Loan Agreement") with Oceanview Life and Annuity Company ("Oceanview") to finance the construction of a student housing complex (the "Construction Loan"). The Construction Loan was interest only and has a maximum principal balance of $48.0 million. The Construction Loan charged one-month Term SOFR plus a spread of 6.00%. In February 2025, the Construction Loan was amended to bifurcate the first one-year extension option into two separate extension options and periods: a seven month extension period ended September 2025 and a five month extension ended February 2026. The Construction Loan had a maturity of September 2025.
In addition to the Construction Loan, Chapel Drive East, LLC entered into a financing agreement with Florida Pace Funding Agency to fund energy efficient building improvements and had a maximum principal balance of $15.5 million. This agreement charged fixed interest of 7.26% and was scheduled to mature in July 2053.
In September 2025, the Construction Loan and the financing agreement with Florida Pace Funding Agency were paid off in connection with the sale of the student housing complex.
Securitizations
ACR 2026-FL4
In February 2026, we closed ACR 2026-FL4, a CRE debt securitization transaction that can finance up to $1.0 billion of CRE loans. ACR 2026-FL4 issued a total of $879.5 million of non-recourse, floating-rate notes to third parties at par. Additionally, we retained 100% of the Class F notes, Class G notes and Income notes. ACR 2026-FL4 includes a 180-day ramp up acquisition period that allows it to acquire CRE loans using unused proceeds from the issuance of the non-recourse floating-rate notes, to which the Company fully utilized for new loan originations as of March 31, 2026. Additionally, ACR 2026-FL4 includes a reinvestment period, which ends in August 2028, that allows it to acquire CRE loans for reinvestment into the securitization using uninvested principal proceeds.
At closing, the offered notes issued to investors consisted of the following classes: (i) $589.7 million of Class A notes bearing
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interest at one-month SOFR plus 1.45%, increasing to 1.70% in August 2031; (ii) $104.2 million of Class A-S notes bearing interest at one-month SOFR plus 1.70%, increasing to 1.95% in August 2031; (iii) $72.4 million of Class B notes bearing interest at one-month SOFR plus 1.95%, increasing to 2.45% in August 2031; (iv) $58.5 million of Class C notes bearing interest at one-month SOFR plus 2.25%, increasing to 2.75% in August 2031; (v) $36.9 million of Class D notes bearing interest at one-month SOFR plus 2.85%, increasing to 3.35% in August 2031 and (vi) $17.8 million of Class E notes bearing interest at one-month SOFR plus 3.60%, increasing to 4.10% in August 2031. All of the notes issued mature in August 2044, although we have the right to call the notes beginning on the payment date in August 2028 and thereafter.
ACR 2021-FL1
In May 2021, we closed ACR 2021-FL1, an $802.6 million CRE debt securitization transaction that provided financing for CRE loans. In March 2025, we exercised the optional redemption on ACR 2021-FL1 in conjunction with the closing of the JPMorgan Chase 2025 Facility.
ACR 2021-FL2
In December 2021, we closed ACR 2021-FL2, a $700.0 million CRE debt securitization transaction that provided financing for CRE loans. In March 2025, we exercised the optional redemption on ACR 2021-FL2 in conjunction with the closing of the JPMorgan Chase 2025 Facility.
Corporate Debt
5.75% Senior Unsecured Notes Due 2026
On August 16, 2021, we issued $150.0 million of our 5.75% senior unsecured notes due 2026 (the "5.75% Senior Unsecured Notes") pursuant to our Indenture, dated August 16, 2021 (the "Base Indenture"), between Wells Fargo, now Computershare Trust Company, N.A. ("CTC"), as trustee (the "Trustee"), and us as supplemented by the First Supplemental Indenture, dated August 16, 2021, between Wells Fargo, now CTC, and us (the "Supplemental Indenture" and, together with the Base Indenture, the "Indenture"). We may at our option redeem the 5.75% Senior Unsecured Notes, at any time, in whole or in part, on not less than 15 days nor more than 60 days’ prior notice, at a redemption price equal to 100% of the principal amount of the 5.75% Senior Unsecured Notes to be redeemed, plus accrued and unpaid interest to, but not including, the redemption date. The 5.75% Senior Unsecured Notes mature in August 2026.
Unsecured Junior Subordinated Debentures
During 2006, we formed RCT I and RCT II for the sole purpose of issuing and selling capital securities representing preferred beneficial interests. RCT I and RCT II are not consolidated into our consolidated financial statements because we are not deemed to be the primary beneficiary of these entities. In connection with the issuance and sale of the capital securities, we issued junior subordinated debentures to RCT I and RCT II of $25.8 million each, representing our maximum exposure to loss. The debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II were included in borrowings and were amortized into interest expense on the consolidated statements of operations using the effective yield method over a ten year period.
There were no unamortized debt issuance costs associated with the junior subordinated debentures for RCT I and RCT II outstanding at June 30, 2026 and December 31, 2025. The interest rates for RCT I and RCT II, at June 30, 2026, were 7.91% and 7.88%, respectively. The interest rates for RCT I and RCT II, at December 31, 2025, were 7.90% and 8.05%, respectively.
Equity
Total equity at June 30, 2026 was $550.2 million compared to total equity at December 31, 2025 of $550.6 million. The decrease in equity during the six months ended June 30, 2026 was primarily attributable to dividends on preferred stock partially offset by amortization of stock based compensation, net income and contributions from non-controlling interest.
Our preferred equity is composed of the following at June 30, 2026:
•4.8 million shares of 8.625% fixed to floating rate Series C cumulative redeemable preferred stock with a $25.00 per share liquidation preference ("Series C Preferred Stock"). The Series C Preferred Stock has no maturity date and we are not required to redeem them at any time. However, we may redeem them at our election, in whole or in apart, on or after July 30, 2024. Effective July 30, 2024, the Series C Preferred Stock converted from its fixed rate of 8.625% to a floating rate equal to three-month Term SOFR plus a spread of 5.927%, but at no time shall the floating rate be less than 8.625%. Dividends are payable quarterly in arrears.
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•4.5 million shares of fixed 7.875% Series D cumulative redeemable preferred stock with a $25.00 per share liquidation preference ("Series D Preferred Stock"). The Series D Preferred Stock has no maturity and we are not required to redeem them at any time. However, we may redeem them at our election, in whole or in apart, on or after May 21, 2026. Dividends are payable quarterly in arrears.
Balance Sheet - Book Value Reconciliation
The following table rolls forward our common stock book value for the three and six months ended June 30, 2026 (in thousands, except per share data and amounts in footnotes):
Three Months Ended June 30, 2026 Six Months Ended June 30, 2026
Total Amount Per Share Amount Total Amount Per Share Amount
Common stock book value at beginning of period (1) $ 196,647 $ 29.98 $ 196,804 $ 30.01
Net loss allocable to common shares (2) (12,519 ) (1.77 ) (13,542 ) (1.92 )
Change in other comprehensive income on derivatives 312 0.05 638 0.09
Impact to equity of share-based compensation 4,887 (1.50 ) 5,427 (1.42 )
Total net decrease (7,320 ) (3.22 ) (7,477 ) (3.25 )
Common stock book value at end of period (1)(3) $ 189,327 $ 26.76 $ 189,327 $ 26.76
(1)Per share calculations exclude unvested restricted stock, as disclosed on our consolidated balance sheets, of 55,559 shares at June 30, 2026 and 328,586 shares at December 31, 2025. The denominators for the calculations were 7,075,542 shares at June 30, 2026 and 6,558,865 shares at December 31, 2025.
(2)The per share amounts are calculated with the denominator referenced in footnote (1) at June 30, 2026. We calculated net income (loss) per common share-diluted of $(1.87) and $(2.04) using the weighted average diluted shares outstanding during the three and six months ended June 30, 2026.
(3)We calculated common stock book value as total stockholders’ equity of $413.3 million less preferred stock equity of $224.0 million at June 30, 2026.
Management Agreement Equity
Our monthly base management fee, as defined in our Management Agreement, is equal to 1/12th of the amount of our equity multiplied by 1.50% and is calculated and paid monthly in arrears.
The following table summarizes the calculation of equity, as defined in the Management Agreement (in thousands):
Amount
At June 30, 2026:
Proceeds from capital stock issuances, net (1) $ 1,330,472
Retained earnings, net (2) (634,218 )
Payments for repurchases of capital stock (279,678 )
Total $ 416,576
(1)Deducts underwriting discounts and commissions and other expenses and costs relating to such issuances.
(2)Excludes non-cash equity compensation expense incurred to date.
Earnings Available for Distribution
Earnings Available for Distribution ("EAD") is a non-GAAP financial measure intended to supplement our financial results computed in accordance with accounting principles generally accepted in the United States of America ("GAAP"), and we believe EAD serves as a useful indicator for investors in evaluating our performance and ability to pay dividends.
EAD excludes the effects of certain transactions and adjustments in accordance with GAAP that we believe are not necessarily indicative of our current CRE loan portfolio and other CRE-related investments and operations. EAD excludes income (loss) from all non-core assets such as commercial finance, residential mortgage lending, certain legacy CRE loans and other non-CRE assets designated as assets held for sale at the initial measurement date of December 31, 2016.
EAD, for reporting purposes, is defined as GAAP net income (loss) allocable to common shares, excluding (i) non-cash equity compensation expense, (ii) unrealized gains and losses, (iii) non-cash provisions for credit losses, (iv) non-cash impairments on securities, (v) non-cash amortization of discounts or premiums associated with borrowings, (vi) net income or loss from a limited partnership interest owned at the initial measurement date, (vii) net income or loss from non-core assets, (viii) real estate depreciation and amortization, (ix) foreign currency gains or losses and (x) income or loss from discontinued operations. EAD may also be adjusted periodically to exclude certain one-time events pursuant to changes in GAAP and certain non-cash items.
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Although pursuant to the Management Agreement we calculate incentive compensation using EAD that excludes incentive compensation payable to our Manager, we include incentive compensation payable to our Manager in calculating EAD for reporting purposes.
The following table provides a reconciliation from GAAP net (loss) income allocable to common shares to EAD allocable to common shares for the periods presented (in thousands, except per share data):
For the Three Months Ended June 30, For the Six Months Ended June 30,
2026 Per Share Data 2025 Per Share Data 2026 Per Share Data 2025 Per Share Data
Net loss allocable to common shares - GAAP $ (12,519 ) $ (1.87 ) $ (732 ) $ (0.10 ) $ (13,542 ) $ (2.04 ) $ (6,591 ) $ (0.90 )
Adjustment for gain on sale of investment in real estate(1) — — — — (3,336 ) (0.50 ) — —
Reconciling Items from Continuing Operations:
Non-cash equity compensation expense 5,098 0.76 585 0.08 5,638 0.85 1,400 0.19
Non-cash provision for (reversal of) for CRE loan losses(2) 1,249 0.19 (780 ) (0.10 ) 695 0.10 (2,497 ) (0.33 )
Realized net gain (loss) on core activities(1),(3) — — — — 3,336 0.50 (700 ) (0.10 )
Real estate depreciation and amortization 1,226 0.18 1,213 0.16 2,396 0.36 2,368 0.32
Earnings (Loss) Available for Distribution allocable to common shares $ (4,946 ) $ (0.74 ) $ 286 $ 0.04 $ (4,813 ) $ (0.73 ) $ (6,020 ) $ (0.82 )
Weighted average common shares - diluted on Earnings Available for Distribution allocable to common shares 6,694 7,458 6,627 7,306
Earnings (Loss) Available for Distribution per common share - diluted $ (0.74 ) $ 0.04 $ (0.73 ) $ (0.82 )
(1)Non-core assets are investments and securities owned by us at the initial measurement date in (i) commercial finance, (ii) residential mortgage lending, (iii) legacy CRE loans designated as held for sale and (iv) other non-CRE assets included in assets held for sale.
(2)Amount presented is net of the amount allocable to the non-controlling interest.
(3)Realized net gain/(loss) on core activities represents the gain or loss, adjusted for any amounts allocable to non-controlling interests, recognized by the Company on dispositions of real estate or real estate related assets, including CRE loans.
For the three and six months ended June 30, 2026, EAD in accordance with the Management Agreement, which excludes incentive compensation payable, was a loss of $4.9 million and a loss of $4.8 million, respectively, or ($0.74) and ($0.73), respectively, per common share outstanding. There was no incentive compensation payable incurred by us for the three and six months ended June 30, 2026.
Incentive Compensation Hurdle
With respect to each fiscal quarter commencing with the quarter ended December 31, 2022, an incentive management fee calculated and payable in arrears in an amount, not less than zero, equal to:
(i)for the first full calendar quarter ended December 31, 2022, the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for such calendar quarter, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) as of the end of such calendar quarter, and (B) 7% per annum;
(ii)for each of the second, third and fourth full calendar quarters following the calendar quarter ended December 31, 2022, the excess of (1) the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for the calendar quarter(s) following September 30, 2022, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) in the calendar quarter(s) following September 30, 2022, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to our Manager with respect to the prior calendar quarter(s) following September 30, 2022 (other than the most recent calendar quarter); and
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(iii)for each calendar quarter thereafter, the excess of (1) the product of (a) 20% and (b) the excess of (i) our EAD (as defined in the Management Agreement) for the previous 12-month period, over (ii) the product of (A) our book value equity (as defined in the Management Agreement) in the previous 12-month period, and (B) 7% per annum, over (2) the sum of any incentive compensation paid to our Manager with respect to the first three calendar quarters of such previous 12-month period; provided, however, that no incentive compensation shall be payable with respect to any calendar quarter unless EAD (as defined in the Management Agreement) for the 12 most recently completed calendar quarters (or such lesser number of completed calendar quarters from September 30, 2022) in the aggregate is greater than zero.
The following table summarizes the calculation of the Incentive Compensation Hurdle for the three months ended June 30, 2026 (dollars in thousands, except per share data):
Book Value Equity Amount
Stockholders' equity less equity attributable to any outstanding preferred stock at September 30, 2022 $ 216,026
Total amount of net proceeds from any issuance of common stock after October 1, 2022 4,651
Cumulative EAD from and after October 1, 2022 to the end of the most recently completed calendar quarter 31,041
Amount paid to repurchase common stock after October 1, 2022 (1) (34,507 )
Incentive Compensation paid after October 1, 2022 (1) (1,235 )
Book value equity at June 30, 2026 $ 215,976
Incentive Compensation Hurdle (2)(3) $ 15,118
(1)Calculated on a daily weighted average basis for the 12-month period ended June 30, 2026.
(2)Calculated as book value equity at June 30, 2026 multiplied by 1.75% (7% per annum).
(3)The amount by which EAD (as defined in the Management Agreement) exceeds the Incentive Compensation Hurdle is multiplied by 20% to arrive at incentive compensation for the quarter.
For the three months ended June 30, 2026, there was no incentive compensation payable to the Manager.
Liquidity and Capital Resources
Liquidity is a measurement of our ability to meet potential cash requirements, including ongoing commitments to pay dividends, fund investments, repay borrowings and provide for other general business needs, including payment of our base management fee and incentive compensation. Our ability to meet our on-going liquidity needs is subject to our ability to generate cash from operating activities, which was a net source of $6.4 million for the six months ended June 30, 2026, and our ability to maintain and/or obtain additional debt financing and equity capital together with the funds referred to below.
At June 30, 2026, our liquidity consisted of $41.1 million of unrestricted cash and cash equivalents and $41.6 million of potential proceeds from unlevered financeable CRE loans.
During the six months ended June 30, 2026, our principal sources of liquidity were: (i) gross financing proceeds of $879.5 million from our CRE securitization; (ii) proceeds of $55.5 million from our CRE term reinvestment financing facility; (iii) net proceeds of $33.2 million from repayments on our CRE portfolio; (iv) proceeds of $29.1 million from a CRE loan sale, (v) proceeds of $20.0 million from the sale of an investment in real estate; (vi) proceeds of $13.6 million from our senior secured financing facility; and (vii) $1.3 million contribution by our non-controlling interest. These sources of liquidity were offset by the paydowns on our term warehouse facilities, deployments in CRE loan portfolio and real estate investments, distributions on our preferred stock and ongoing operating expenses and substantially resulted in the $41.1 million of unrestricted cash we held at June 30, 2026.
The outstanding balance of our loan to ACRES Capital Corp., the parent of our Manager, was $10.3 million and $10.4 million at June 30, 2026 and December 31, 2025, respectively. The note bears interest at 3.00% per annum, payable monthly, and matures in July 2026, subject to two one-year extensions, at ACRES Capital Corp.’s option, and amortizes at a rate of $25,000 per month. In July 2026, the loan was amended to extend the maturity date to August 2026.
At June 30, 2026, $10.5 million of interest receivable is current and the remaining $23.1 million of interest receivable is deferred, which we deem fully collectible.
Cash Flows
For the six months ended June 30, 2026, our restricted and unrestricted cash and cash equivalents balance decreased from $86.0 million to $41.9 million. The cash movements can be summarized by the following:
Cash flows from operating activities. For the six months ended June 30, 2026, operating activities increased our cash balances by $6.4 million. Though positive, cash inflows from operating activities are down as we work with our borrowers to structure loan
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repayment terms that allow our borrowers to successfully complete their underwritten plans and that allow us to ultimately maximize our investment. Some of these structures have deferred loan components that impact our current cash position. We expect to be repaid these deferred amounts as our borrowers create value in the underlying collateral through the execution and completion of their project plans and exit our loans through sales or refinance transactions.
Cash flows from investing activities. For the six months ended June 30, 2026, investing activities decreased our cash balances by $276.6 million, primarily driven by deployments in CRE whole loans, funding of existing commitments on CRE whole loans, deployments in our investment in real estate and investments in unconsolidated entities with underlying real estate collateral, partially offset by repayments of CRE loans, proceeds from sales of CRE loans and proceeds from the sales of investments in real estate.
Cash flows from financing activities. For the six months ended June 30, 2026, financing activities increased our cash balances by $226.2 million, primarily driven by proceeds received on our CRE securitization notes and term reinvestment financing facility, offset by repayments on our term warehouse financing facilities, term reinvestment financing facility and distributions on our preferred stock.
Financing Availability
We utilize a variety of financing arrangements to finance certain assets. We generally utilize the following types of financing arrangements:
1.CRE - Term Reinvestment Financing Facility: Our term reinvestment financing facility allows us to borrow effectively against loans that we own. Under this agreement, we transfer loans to a counterparty and agree to repurchase the same loans from the counterparty at a price equal to the transfer price plus interest. The counterparty retains the sole discretion over whether to purchase the loan from us. The facility includes a two-year reinvestment period enabling the reinvestment of principal proceeds from asset repayments into qualifying assets, provided that the proceeds are reinvested within 90 days of the payoff. We can also acquire and finance the future funding participations of the portfolio collateral, subject to the discretion of the counterparty.
2.Senior Secured Financing Facility: Our senior secured financing facility allows us to borrow against loans and real estate investments that we own. This facility has an individual floating rate loan series structure that has a three month commitment period after the financing is approved by the lender, subject to the maximum dollar amount agreed upon for the series. Each floating rate loan series will have mutually agreed upon terms including (i) total commitment, including the capacity to fund future funding commitments, where applicable; (ii) advance rate on portfolio assets; (iii) interest rate composed of one-month Term SOFR plus a market rate spread; and (iv) maturity date of five years from the issuance date for the loan series unless an additional time is mutually agreed upon by the parties. The facility has a maximum portfolio LTV of 85% and contains customary events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement.
3.CRE - Term Warehouse Financing Facilities: Term warehouse financing facilities effectively allow us to borrow against loans that we own. Under these agreements, we transfer loans to a counterparty and agree to purchase the same loans from the counterparty at a price equal to the transfer price plus interest. The counterparty retains the sole discretion over both whether to purchase the loan from us and, subject to certain conditions, the collateral value of such loan for purposes of determining whether we are required to pay margin to the counterparty. Generally, if the lender determines (subject to certain conditions) that the value of the collateral in a repurchase transaction has decreased by more than a defined minimum amount, we would be required to repay any amounts borrowed in excess of the product of (i) the revised collateral or market value multiplied by (ii) the applicable advance rate. During the term of these agreements, we receive the principal and interest on the related loans and pay interest to the counterparty.
4.Securitizations: We seek non-recourse long-term financing from securitizations of our investments in CRE loans. The securitizations generally involve a senior portion of our loan but may involve the entire loan. Securitization generally involves transferring notes to a special purpose vehicle (or the issuing entity), which then issues one or more classes of non-recourse notes pursuant to the terms of an indenture. The notes are secured by the pool of assets. In exchange for the transfer of assets to the issuing entity, we receive cash proceeds from the sale of non-recourse notes. Securitizations of our portfolio investments might magnify our exposure to losses on those portfolio investments because the retained subordinate interest in any particular overall loan would be subordinate to the loan components sold and we would, therefore, absorb all losses sustained with respect to the overall loan before the owners of the senior notes experience any losses with respect to the loan in question.
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5.Mortgage payable: We have entered into a loan agreement to finance the acquisition of a student housing complex. This loan is interest only and has a maximum principal balance, most of which was advanced in the initial funding. The loan agreement contains events of default, subject to certain materiality thresholds and grace periods, customary for this type of financing arrangement. The remedies for such events of default are also customary for this type of transaction.
The issuance of ACR 2026-FL4 includes a reinvestment period, which ends in August 2028, that allows it to acquire CRE loans for reinvestment into the securitization using uninvested principal proceeds. The reinvestment feature of the securitization will allow us to extend the useful life of the securitization financing by extending the life of the senior notes and return liquidity to fund our forward loan pipeline that would otherwise pay down the senior notes of the securitization. The securitization also provides for the acquisition of future funding participations.
We were in compliance with all of our covenants at June 30, 2026 in accordance with the terms provided in agreements with our lenders.
At June 30, 2026, we had financing arrangements as summarized below (in thousands, except amounts in footnotes):
Execution Date Maturity Date Maximum Capacity Facility Principal Outstanding Availability
CRE - term reinvestment financing facility (1)
JPMorgan Chase Bank, N.A. March 2025 November 2030 $ 645,024 $ 625,267 $ 19,757
Senior secured financing facility (2)
Massachusetts Mutual Life Insurance Company July 2020 June 2028 500,000 56,503 443,497
CRE - term warehouse financing facilities (3)
JPMorgan Chase Bank, N.A. October 2018 July 2026 250,000 - 250,000
Morgan Stanley Mortgage Capital Holdings LLC November 2021 November 2026 250,000 8,447 241,553
Mortgage payable (4)
HGM CRE, LP May 2026 June 2029 23,750 21,678 2,072
Total $ 711,895
(1)Excludes deferred debt issuance costs of $2.5 million.
(2)Excludes deferred debt issuance costs of $105,000.
(3)Excludes deferred debt issuance costs of $324,000.
(4)Excludes deferred debt issuance costs of $774,000.
(5)In July 2026, the JPMorgan Chase facility was extended to July 2028.
The following table summarizes the average principal outstanding during the three months ended June 30, 2026 and December 31, 2025 and the principal outstanding on our financing arrangements at June 30, 2026 and December 31, 2025 (in thousands, except amounts in footnotes):
Three Months Ended June 30, 2026 June 30, 2026 Three Months Ended December 31, 2025 December 31, 2025
Average Principal Outstanding Principal Outstanding Average Principal Outstanding Principal Outstanding
Financing Arrangement
CRE - term reinvestment financing facility (1) $ 669,895 $ 625,267 $ 784,225 $ 731,002
Senior secured financing facility (2) 49,043 56,503 63,099 63,099
CRE - term warehouse financing facilities (3) 12,670 8,447 361,988 534,760
Total $ 731,608 $ 690,217 $ 1,209,312 $ 1,328,861
(1)Principal outstanding excludes deferred debt issuance costs of $2.5 million and $2.8 million at June 30, 2026. and December 31, 2025, respectively.
(2)Principal outstanding excludes deferred debt issuance costs of $105,000 and $1.5 million at June 30, 2026 and December 31, 2025, respectively.
(3)Principal outstanding excludes deferred debt issuance costs of $324,000 and $898,000 at June 30, 2026 and December 31, 2025, respectively.
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The following table summarizes the maximum month-end principal outstanding on our financing arrangements during the periods presented (in thousands):
Maximum-Month-End-Principal-Outstanding-During-the
Six Months Ended June 30, 2026 Year-Ended-December 31, 2025
Financing Arrangement
CRE - term reinvestment financing facility $ 711,875 $ 891,098
Senior secured financing facility 63,099 63,099
CRE - term warehouse financing facilities 534,760 534,760
Historically, we have financed the acquisition of our investments through collateralized loan obligations ("CLO") and securitizations that essentially match the maturity and repricing dates of these financing vehicles with the maturities and repricing dates of our investments. In the past, we have derived substantial operating cash from our equity investments in our CLOs and securitizations, which will cease if the CLOs and securitizations fail to meet certain tests. Through June 30, 2026, we did not experience difficulty in maintaining our CLO and securitization financing and passed all of the critical tests required by these financings. Our securitization had a balance of $879.5 million at June 30, 2026.
The following table sets forth the distributions received by us and coverage test summaries for our active securitization and financing facility for the periods presented (in thousands):
Cash Distributions Overcollateralization Cushion(1) Look Through LTV Cushion (2) Annualized Interest Coverage Cushion (3)(4)
Name For the Six Months Ended June 30, 2026 At June 30, 2026 Initial Measurement Date At June 30, 2026 At June 30, 2026 Reinvestment Period End
ACR 2026-FL4 $ 4,399 $ 20,378 $ 20,378 n/a $ 10,829 August 2028
CRE - term reinvestment financing facility n/a n/a n/a $ 56,238 $ 10,803 n/a
(1)Overcollateralization cushion represents the amount by which the collateral held by the securitization issuer exceeds the minimum amount required.
(2)Look through LTV cushion represents the amount by which the collateral held by the counterparty exceeds the minimum amount required.
(3)Interest coverage includes annualized amounts based on the most recent distribution period.
(4)Interest coverage cushion represents the amount by which annualized interest income expected exceeds the annualized amount payable on the CRE term reinvestment financing facility.
Our leverage ratio, defined as the ratio of borrowings to total equity, may vary as a result of the various funding strategies we use. At June 30, 2026 and December 31, 2025, our leverage ratio under GAAP was 3.2 times and 2.8 times, respectively. The leverage ratio increased during the period primarily due to the net increase in borrowings combined with the net decrease to total equity.
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Contractual Obligations and Commitments
Contractual Commitments
(dollars in thousands, except amounts in footnotes)
Payments due by Period
Total Less than 1 year 1 - 3 years 3 - 5 years More than 5 years
At June 30, 2026:
CRE securitization $ 879,499 $ — $ — $ — $ 879,499
CRE - term reinvestment financing facility (1) 625,267 — — 625,267 —
Senior secured financing facility (2) 56,503 — 56,503 — —
CRE - term warehouse financing facilities (3) 8,447 8,447 — — —
Mortgage payable (4) 21,678 — 21,678 — —
5.75% Senior Unsecured Notes (5) 150,000 150,000 — — —
Unsecured junior subordinated debentures (6) 51,548 — — — 51,548
Lease liabilities (7) 857,505 1,781 4,052 4,297 847,375
Unfunded commitments on CRE loans (8) 81,362 18,688 43,744 18,930 —
Base management fees (9) 6,249 6,249 — — —
Total $ 2,738,058 $ 185,165 $ 125,977 $ 648,494 $ 1,778,422
(1)Excludes $1.4 million of accrued interest payable.
(2)Excludes $188,000 of accrued interest payable.
(3)Excludes $15,000 of accrued interest payable.
(4)Excludes $131,000 of accrued interest payable.
(5)Excludes $4.3 million of interest expense payable through maturity in August 2026.
(6)Excludes $21.3 million and $22.4 million of estimated interest expense payable through maturity, in June 2036 and October 2036, respectively.
(7)Lease liabilities include a ground rent lease for a hotel property with a remaining term of 90 years and an annual growth rate of 3% and a parking lease for an asset acquired with a remaining term of 98 years and an annual growth rate of 2%.
(8)These unfunded loan commitments are advanced as the borrowers formally request additional funding and meet certain benchmarks, as permitted under the loan agreements, and any necessary approvals have been obtained. At June 30, 2026, we had unfunded commitments on 32 CRE whole loans.
(9)Base management fees presented are based on an estimate of base management fees payable to our Manager over the next 12 months. Our Management Agreement also provides for an incentive compensation arrangement that is based on operating performance. The incentive compensation is not a fixed and determinable amount, and therefore it is not included in this table.
Net Operating Losses and Loss Carryforwards
The following table sets forth the net operating losses and loss carryforwards for the periods presented (in millions):
Tax Year Recognized REIT (QRS) Tax Loss Carryforwards TRS Tax Loss Carryforwards
Tax Asset Item Operating Capital Operating Capital
Net Operating Loss Carryforwards:
Cumulative as of 2024 2024 Return $ 32.1 $ — $ 62.0 $ —
Net Capital Loss Carryforwards:
Cumulative as of 2024 2024 Return — 115.9 — 20.8
Total tax asset estimates $ 32.1 $ 115.9 $ 62.0 $ 20.8
Useful life Unlimited 5 years Various 5 years
At June 30, 2026, we had $32.1 million of cumulative net operating losses ("NOL") to carry forward to future years. NOL can generally be carried forward to offset both ordinary taxable income and capital gains in future years. The Tax Cuts and Jobs Act ("TCJA"), along with revisions made by the Coronavirus Aid, Relief, and Economic Security ("CARES") Act reduced the deduction for NOLs generated post 2017 to 80% of taxable income and granted an indefinite carryforward period. Additionally, we have cumulative total net capital losses of $115.9 million, which expired at December 31, 2025, if not utilized on our tax return to be filed in October 2026.
We also have tax assets in our taxable REIT subsidiaries ("TRS"). These tax assets are analyzed and disclosed quarterly in our financial statements. At June 30, 2026, our TRS had $62.0 million of NOLs comprising: $39.8 million of pre-TCJA NOLs, some of which are set to expire beginning in 2044 and $22.2 million of NOLs with an indefinite carryforward period. Additionally, our TRS had cumulative total net capital losses of $20.8 million, which are set to expire at December 31, 2029.
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Distributions
We did not pay distributions on our common shares during the six months ended June 30, 2026 as we were able to utilize NOL carryforwards and net capital loss carryforwards to offset our REIT taxable income. This enabled us to grow book value and our investable equity base. Our Board is responsible for the establishment and evaluation of a plan for the prudent resumption of the payment of common share distributions. No assurance, however, can be given as to the amounts or timing of future distributions as such distributions are subject to our earnings, financial condition, capital requirements and such other factors as our Board deems relevant.
We intend to continue to make regular quarterly distributions to holders of our preferred stock.
U.S. federal income tax law generally requires that a REIT distribute at least 90% of its REIT taxable income annually, determined without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its taxable income. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating and debt service requirements on our repurchase agreements and other debt payable. If our cash available for distribution is less than our taxable income, we could be required to sell assets or borrow funds to make cash distributions, or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities.
Off-Balance Sheet Arrangements
General
At June 30, 2026, we did not maintain any relationships with unconsolidated entities or financial partnerships that were established for the purpose of facilitating off-balance sheet arrangements or contractually narrow or limited purposes, although we do have interests in unconsolidated entities that were not established for those purposes. At June 30, 2026, we had not guaranteed obligations of any unconsolidated entities or entered into any commitment or letter of intent to provide additional funding to any such entities, other than those discussed in the "Guarantees and Indemnifications" section below.
Unfunded Commitments
In the ordinary course of business, we make commitments to borrowers whose loans are in our CRE loan portfolio to provide additional loan funding in the future. Disbursement of funds pursuant to these commitments is subject to the borrower meeting pre-specified criteria. These commitments are subject to the same underwriting requirements and ongoing portfolio maintenance as are the on-balance sheet financial investments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. Whole loans had $81.4 million and $88.6 million in unfunded loan commitments at June 30, 2026 and December 31, 2025, respectively. Unfunded commitments are not considered in the CECL reserve if they are unconditionally cancellable.
Guarantees and Indemnifications
In the ordinary course of business, we may provide guarantees and indemnifications that contingently obligate us to make payments to the guaranteed or indemnified party based on changes in the value of an asset, liability or equity security of the guaranteed or indemnified party. As such, we may be obligated to make payments to a guaranteed party based on another entity’s failure to perform or achieve specified performance criteria, or we may have an indirect guarantee of the indebtedness of others.
In September 2025, we entered into guaranties related to a $62.4 million construction loan and an $10.9 million bridge loan made to a borrower that is held by a joint venture in which we have a 90% membership interest (the "Borrower"). Pursuant to the Guaranty of Completion, executed September 2025, by the individual principals of the partnership and the Company (collectively, the "Guarantors") for the benefit of DL RCF I Loan Holdings, LLC and DL RCF I Loan Holdings (Evergreen), LLC (collectively, the "Lender"), the Guarantors guarantee to the Lender, the Borrower’s obligation to commence, construct, develop and complete the construction project in a good and workmanlike manner in accordance with the terms and conditions of the Loan Agreement, dated September 12, 2025 by and among the Borrower, DL RCF I Loan Holdings, LLC (the "Agent") and the Lender (the "Loan Agreement") and to perform all other work contemplated or required to be completed pursuant to the loan documentation through final completion.
In September 2025, the Guarantors also entered into a Guaranty of Retail Space to guarantee the payment and performance of all of the obligations for the payment of debt and the performance of the obligations under the Loan Agreement and a Guaranty of Recourse Obligations to guarantee the payment and performance of certain liabilities ("bad boy") and payment obligations set forth in the Loan Agreement and agree to be liable for the guaranteed obligations as a primary obligor. Also in September 2025, the Guarantors entered into the Guaranty of Interest and Carry Costs to guarantee the payment and performance of the Borrower’s obligation to timely
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pay all Carry Costs and Debt Service and its obligation to make deposits into the Carry Cost Account (each as defined in the agreement) in accordance with the Loan Agreement, and all interest due to the Bridge Lender (defined below) and/or preferred return due pursuant to the Master Tenant Operating Agreement. The Guarantors also unconditionally covenant and agree to be liable for these guaranteed obligations as a primary obligor. Additionally, the Guarantors with the Borrower also entered into an Environmental Indemnity Agreement jointly and severally in favor of the Lender and Agent whereby the Guarantors serving as Indemnitors provided environmental representations and warranties, covenants and indemnification.
In connection with the $10.9 million bridge loan from Hoyne Savings Bank ("Bridge Lender") to Borrower, we entered into the Repayment and Completion Guaranty in September 2025, in favor of Bridge Lender subject to the Bridge Loan Agreement between Borrower and Bridge Lender (the "Bridge Loan Agreement") to guarantee the prompt payment of all indebtedness under the Bridge Loan Agreement and the prompt performance of all other covenants, obligations and agreements of Borrower under the Bridge Loan Agreement, including but not limited to, construction of the improvements and completion before the completion date and material compliance with all environmental covenants and indemnities set forth in the Bridge Loan Agreement.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared by management in accordance with GAAP. The preparation of financial statements in conformity with GAAP requires that we make estimates and assumptions that may affect the value of our assets or liabilities and disclosure of contingent assets and liabilities at the date of our financial statements and our financial results. We believe that certain of our policies are critical because they require us to make difficult, subjective and complex judgments about matters that are inherently uncertain. The critical policies summarized below relate to allowance for credit losses, investments in real estate, revenue recognition and variable interest entities ("VIEs"). We have reviewed these accounting policies with our Board and believe that all of the decisions and assessments upon which our financial statements are based were reasonable at the time made based upon information available to us at the time.
Allowance for Credit Losses
We maintain an allowance for credit losses on our loans held for investment. CRE loans that are held for investment are carried at cost, net of unamortized acquisition premiums or discounts, loan fees and origination costs as applicable. Effective January 1, 2020, we determine our allowance for credit losses, consistent with GAAP, by measuring CECL on the loan portfolio on a quarterly basis. We utilize a probability of default and loss given default methodology over a reasonable and supportable forecast period after which we revert to the historical mean loss ratio, utilizing a blended approach sourced from our own historical losses and the market losses from an engaged third-party’s database, to be applied for the remaining estimable period. The CECL model requires us to make significant judgments, including: (i) the selection of a reasonable and supportable forecast period, (ii) the selection and weighting of appropriate macroeconomic forecast scenarios, (iii) the determination of the risk characteristics in which to pool financial assets, and (iv) the appropriate historical loss data to use in the model. Unfunded commitments are not considered in the CECL reserve if they are unconditionally cancellable by us.
We measure the loan portfolio’s credit losses by grouping loans based on similar risk characteristics under CECL, which is typically based on the loan’s collateral type. We regularly evaluate the risk characteristics of our loan portfolio to determine whether a different pooling methodology is more accurate. Further, if we determine that foreclosure of a loan’s collateral is probable or repayment of the loan is expected through sale or operation of the collateral and the borrower is experiencing financial difficulty, expected credit losses are measured as the difference between the current fair value of the collateral and the amortized cost of the loan. Fair value may be determined based on (i) the present value of estimated cash flows; (ii) the market price, if available; or (iii) the fair value of the collateral less estimated disposition costs.
While a loan exhibiting credit quality deterioration may remain on accrual status, the loan is placed on nonaccrual status at such time as (i) management believes that scheduled debt service payments will not be met within the coming 12 months; (ii) the loan becomes 90 days past due; (iii) management determines the borrower is incapable of, or has ceased efforts toward, curing the cause of the credit deterioration; or (iv) the net realizable value of the loan’s underlying collateral approximates our carrying value for such loan. While on nonaccrual status, we recognize interest income only when an actual payment is received if a credit analysis supports the borrower’s principal repayment capacity. When a loan is placed on nonaccrual, previously accrued interest is reversed from interest income.
We utilize the contractual life of our loans to estimate the period over which we measure expected credit losses. Estimates for prepayments and extensions are incorporated into the inputs for our CECL model. Modifications to loan terms, such as a modification in connection with a troubled debt restructuring ("TDR"), where a concession is granted to a borrower experiencing financial difficulty, may result in the extension of the loan’s life and an increase in the allowance for credit losses.
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In order to calculate the historical mean loss ratio applied to the loan portfolio, we utilize historical losses from our full underwriting history, along with the market loss history of a selected population of loans from a third-party’s database that are similar to our loan types, loan sizes, durations, interest rate structure and general LTV profiles. We may make adjustments to the historical loss history for qualitative or environmental factors if we believe there is evidence that the estimate for expected credit losses should be increased or decreased.
We record write-offs against the allowance for credit losses if we deem that all or a portion of a loan’s balance is uncollectible. If we receive cash in excess of some or all of the amounts we previously wrote off, we record a recovery to increase the allowance for credit losses.
As part of the evaluation of the loan portfolio, we assess the performance of each loan and assign a risk rating based on the collective evaluation of several factors, including but not limited to: collateral performance relative to underwritten plan, time since origination, current implied and/or re-underwritten LTV ratios, risk inherent in the loan structure and exit plan. Loans are rated "1" through "5," from least risk to greatest risk, in connection with this review.
Investments in Real Estate
We acquire investments in real estate through direct equity investments and as a result of our lending activities (i.e. through foreclosure or the receipt of the deed-in-lieu of foreclosure on a property). Acquired investments in real estate assets are recorded initially at fair value in accordance with U.S. GAAP. We allocate the purchase price of our acquired assets and assumed liabilities based on the relative fair values of the assets acquired and liabilities assumed.
We evaluate whether property obtained as a result of our lending activities should be identified as held for sale. If a property is determined to be held for sale, all of the acquired assets and assumed liabilities will be recorded in property held for sale on the consolidated balance sheets and recorded at the lower of cost or fair value. Once a property is classified as held for sale, depreciation expense is no longer recorded.
Investments in real estate are carried net of accumulated depreciation. We depreciate real property, building and tenant improvements and furniture, fixtures, and equipment using the straight-line method over the estimated useful lives of the assets. We amortize any acquired intangible assets using the straight-line method over the estimated useful lives of the intangible assets. We amortize the value allocated to lease right of use assets and related in-place lease liabilities, when determined to be operating leases, using the straight-line method over the remaining lease term. The value allocated to any associated above or below market lease intangible asset or liability is amortized to lease expense over the remaining lease term.
Ordinary repairs and maintenance are expensed as incurred. Costs related to the improvement of the real property are capitalized and depreciated over their useful lives. Costs related to the development and construction of real property are capitalized to construction in progress during the period beginning with the commencement of development and ending with the completion of construction.
Revenue Recognition
Interest income from our loan portfolio is recognized over the life of each loan using the effective interest method and is recorded on the accrual basis. Premiums and discounts are amortized or accreted into income using the effective yield method. If a loan with a premium or discount is prepaid, we immediately recognize the unamortized portion as a decrease or increase to interest income. In addition, we defer loan origination and extension fees and loan origination costs and recognize them over the life of the related loan with interest income using the straight-line method, which approximates the effective yield method. Income recognition is suspended for loans at the earlier of the date at which payments become 90 days past due or when, in our opinion, a full recovery of principal and income becomes doubtful. When the ultimate collectability of the principal is in doubt, all payments received are applied to principal under the cost recovery method. When the ultimate collectability of the principal is not in doubt, contractual interest is recorded as interest income when received, under the cash method, until an accrual is resumed when the loan becomes contractually current and performance is demonstrated to be resumed.
Through our investments in real estate, we earn revenue associated with rental operations and hospitality operations, which are presented in real estate income on the consolidated statements of operations.
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Rental operating revenue consists of fixed contractual base rent arising from tenant leases at our office properties under operating leases. Revenue is recognized on a straight-line basis over the non-cancelable terms of the related leases. For leases that have fixed and measurable rent escalations, the difference between such rental income earned and the cash rent due under the provisions of the lease is recorded in our consolidated balance sheets. We move to cash basis operating lease income recognition in the period in which collectability of all lease payments is no longer considered probable. At such time, any uncollectible receivable balance will be written off.
Hospitality operating revenue consists of amounts derived from hotel operations, including room sales and other hotel revenues. We recognize hospitality operating revenue when guest rooms are occupied, services have been provided or fees have been earned. Revenues are recorded net of any sales, occupancy or other taxes collected from customers on behalf of third parties. The following provides additional detail on room revenue and other operating revenue:
•Room revenue is recognized when our hotel satisfies its performance obligation of providing a hotel room. The hotel reservation defines the terms of the agreement including an agreed-upon rate and length of stay. Payment is typically due and paid in full at the end of the stay with some customers prepaying for their rooms prior to the stay. Payments received from a customer prior to arrival are recorded as an advance deposit and are recognized as revenue at the time of occupancy.
•Other operating revenue is recognized at the time when the goods or services are provided to the customer or when the performance obligation is satisfied. Payment is due at the time that goods or services are rendered or billed.
Variable Interest Entities
We consolidate entities that are VIEs where we have determined that we are the primary beneficiary of such entities. Once it is determined that we hold a variable interest in a VIE, management performs a qualitative analysis to determine (i) if we have the power to direct the matters that most significantly impact the VIE’s financial performance; and (ii) if we have the obligation to absorb the losses of the VIE that could potentially be significant to the VIE or the right to receive the benefits of the VIE that could potentially be significant to the VIE. If our variable interest possesses both of these characteristics, we are deemed to be the primary beneficiary and would be required to consolidate the VIE. This assessment must be done on an ongoing basis.
At June 30, 2026, we determined that there is one VIE to be consolidated.
Recent Accounting Standards
Accounting Standards to be Adopted in Future Periods
In November 2024, the Financial Accounting Standards Board issued guidance to improve transparency on certain costs and expenses. This guidance is effective for fiscal years beginning after December 15, 2026 and is to be adopted on a prospective basis with the option to apply retrospectively. We are in the process of evaluating the impact of this guidance, however, we do not expect a material impact to our consolidated financial statements.
Inflation
Virtually all of our assets and liabilities are interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more than inflation. Changes in interest rates do not necessarily correlate with inflation rates or changes in inflation rates. Our consolidated financial statements are prepared in accordance with GAAP and our distributions are determined by our Board based primarily on our maintaining our REIT qualification; in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.