ACRE 10-K & 10-Q changes, risk factors and insider trading

•There aremay be significant potential conflicts of interest between us and our Manager and its affiliates that could impact our investment returns;

•Our mezzanine loan assetsassets, B-Notes and C-Notes involve greater risks of loss than senior loans secured by real properties, and investments in preferred equity involve a greater risk of loss than traditional debt financing;

•Our portfolio is concentrated in a limited number of loans and has a higher exposure to the office and mixed-use sectorssector compared to the other property types, which subjects us to a risk of significant loss if any of these loans default;

•Security incidents or cyber-attacks affecting us, our Manager or Ares Management or third-party providers, could adversely affect our business or the business of our borrowers by causing a disruption to our operations or the operations of our borrowers, a compromise or corruption of our or our borrowers’ confidential, personal or other sensitive information and/or damage to our or our borrowers’ business relationships or reputation;

A global economic slowdown or further declines in real estate values,values could impair our investments and have a significant adverse effect on our business, financial condition and results of operations.

GeopoliticalEven instability,though includingmacroeconomic actualvolatility and potential shifts in U.S. foreign, trade, economic and other policies (including as a result of the 2024 U.S. presidential and congressional elections), the war between Russia and Ukraine, the conflictsslowed in the MiddleU.S. East,towards asthe wellend asof other2025, global events have created macroeconomic uncertainty at a global level. Thethe current macroeconomic environment iscontinues to be characterized by inflation, labor shortages or interruptions,shortages, changing interest rates, foreign currency exchange volatility and volatility in global capital markets. Market and economic disruptions have affected, and may in the future affect, consumer confidence levels and spending, bankruptcy rates, levels of incurrence and default on consumer debt and home prices, among other factors. We cannot assure you that market disruptions, including the increased cost of funding for certain governments and financial institutions, will not impact the global economy. The risks associated with our business are more severe during periods of economic slowdown or recession and since such periods are accompanied by declining real estate values, our business could be materially adversely affected.

Our investment model is adversely affected by prolonged economic downturns where declining real estate values reduce the level of new mortgage and other real estate-related loan originations, since borrowers often use appreciation in the value of their existing properties to support the purchase or investment in additional properties. Further, declining real estate values have made and may continue to make it difficult for our borrowers to refinance our loans, which has resulted in losses on our loans as a result of default because the value of our collateral is insufficient to cover our cost on the loan. Any sustained period of increased payment delinquencies, foreclosures or losses adversely affects our Manager’s ability to invest in, sell and securitize loans. In 2023 and early 2024,2025, our portfolio includedcontinued to include a significant amount of risk rated “4” and “5” loans, including loans on non-accrual status and collateralized by office properties. As a result, in 2024,2025, our objectives includedcontinued to include mitigating risk by reducing risk rated “4” and “5” loans, reducing loans collateralized by office properties, increasing our liquidity and reducing debt. WeIn 2026, our objectives will continue to include reducing risk rated “4” and “5” loans and loans collateralized by office properties. In 2026, we also expect to continue to pursue theseincreased objectivesinvestment inactivity 2025.if supported by market conditions. However, there is no guarantee that market conditions will support our strategy or that we will be successful in achieving these objectives. The unsuccessful resolution of risk rated “4” and “5” loans or increases in the numbers of such loans, could result in material realized net losses and impact our net earnings and the price of our common stock.

Provisions in our financing agreements require us to pay margin calls following the occurrence of certain mortgage loan credit events. We may not have the funds available to satisfy such margin calls or repay our debt when due, and may be unable to raise the funds from alternative sources, on favorable terms, or at all, to meet our obligations. Posting additional collateral would reduce our liquidity. If we are unable to make the required payment or if we fail to meet or satisfy any of the covenants in our financing agreements, we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments and enforce their interests against existing collateral. We are also subject to cross-default and acceleration provisions, which could materially and adversely affect our financial condition and ability to implement our investment strategy. See “Risk Factors—Risks Relating to Sources of Financing and Hedging— The Financing Agreements and any bank credit facilities and repurchase agreements that we may use in the future to finance our assets may require us to provide additional collateral or pay down debt” included in this annual report on Form 10-K.

There iscontinues to be significant uncertainty about the future relationship between the U.S. and other countries with respect to trade policies, treaties and tariffs. Developments relating to tariffs between the U.S. and other countries, or the perception that they could occur, mayor reactionary measures in response thereto, including retaliatory tariffs, legal challenges, or currency manipulation, could have a materialan adverse effect on global economic conditions and the stability of global financial markets, and maycould significantly reduce global trade and, in particular, trade between the impacted nations and the U.S. Any of these factors could depress economic activity and impact our borrowers and the value of our collateral. Moreover, concerns over the United States’ debt ceiling and budget-deficit have driven downgrades by rating agencies to the U.S. government’s credit rating, which could cause borrowing costs to rise further,rise, negatively impacting both the perception of credit risk associated with our debt portfolio and our ability to access the debt markets on favorable terms. Although U.S. lawmakers passed legislation to raise the federal debt ceiling on multiple occasions, ratingthe agenciespolitical havedifficulty loweredin orreaching threatenedan toagreement lowerwithout repeated crises has undermined market confidence in the long-termstability sovereignand creditpredictability ratingof onU.S. the United States.policymaking. Market conditions may also make it difficult for us to extend the maturity of or refinance our existing indebtedness or to access or obtain new indebtedness with similar terms and any failure to do so could have a material adverse effect on our business. See “Risk Factors—Risks Relating to Sources of Financing and Hedging—Our access to sources of financing may be limited and thus our ability to grow our business and to maximize our returns may be adversely affected” included in this annual report on Form 10-K.

The effects on our portfolio of loan investments described above, particularly those related to office space, impacted the CECL Reserve in our consolidated balance sheets. Our loans held for investment are carried at cost, net of unamortized purchase discounts, deferred loan fees and origination costs and cost-recovery proceeds, however, we are also required to estimate expected credit losses on such loans using a range of historical experience adjusted for current and future conditions. Management’s current estimate of expected credit losses decreased from $163.1 million on December 31, 2023 to $145.0 million on December 31, 2024 to $127.1 million on December 31, 2025 primarily due to a realized lossesloss on riskan ratedoffice “5”(life loans,sciences) loan, resulting in a reversal of the associated CECL Reserves,Reserve, shorter average remaining loan termterm, loan repayments, a relative improvement in the near-term macroeconomic forecasts and loanother repaymentsloan-specific attributes during the year ended December 31, 2024.2025. These factors were partially offset by annew increaseloan in the CECL Reserves for risk rated “4” and “5” loans in the portfolio as a result of the impact of the current macroeconomic environment, including high inflation and interest rates, and more particularly, volatility and reduced liquidity in the office sectorclosings and other loan-specific factorsattributes during the year ended December 31, 2024.2025. As of December 31, 2024,2025, approximately 65%56% of our CECL Reserve is related to loans collateralized by office space,properties, while 38%28% of our total loan portfolio based on outstanding principal balance of loans held for investment is related to loans collateralized by office space.properties.

We estimate our CECL Reserve primarily using a probability-weighted model that considers the likelihood of default and expected loss given default for each individual loan. Calculation of the CECL Reserve requires loan-specific data as well as significant judgment with respect to various factors. In connection with estimating our CECL Reserve during the year ended December 31, 2024,2025, we utilized macroeconomic forecasts and inputs that reflected a blend of a stable and a weaker economic outlook in the near term given ongoing macroeconomic conditions.term. However, the actual financial impact on us of the current environment is highly uncertain. If the data or judgments we have used to estimate our CECL Reserve are inaccurate or inadequate, we may be required to increase our CECL Reserve in future periods or may suffer more losses than those accounted for under our CECL Reserve.

ChangingChanges in interest rates and credit spreads could adversely impact our financial condition.

We are affected by the fiscal and monetary policies of the United States Government and its agencies, including the policies of the United States Federal Reserve (the “Federal Reserve”), which regulates the supply of money and credit in the United States. Changes in fiscal and monetary policies are beyond our control and are difficult to predict. Although the Federal Reserve decreasedresumed theits federalmonetary fundseasing cycle with an aggregate 75 basis point rate multiple timesreduction in 2024, the rate continues to be elevated and2025, there can be no assurance that the rates will continue to decrease or that itthey will not be increased in 20252026 or beyond. While lower market rates and increased capital markets liquidity supports commercial real estate property transactions and values, regulated lending institutions areremain adjustingunder significant pressure to adjust their business models to increase capital requirements for direct loans to real estate and thus continue to be constrained in providing capital for commercial real estate properties. Additionally, rising operating costs, such as property insurance and raw material costs for property development and improvements, have further pressured cash flow performance across many real estate property types. Changes in the federal funds rate as well as the other policies of the Federal Reserve affect interest rates, which have a significant impact on our financial condition.

Furthermore, aan earthquake, wildfire or other disaster or a disruption in the infrastructure that supports our business, including a disruption involving electronic communications, human resources systems or other services used by us, our Manager, Ares Management or third parties with whom we conduct business, could havematerially a material adverse effect ondisrupt our abilityoperations toand continueadversely to operateaffect our business withoutand interruption.financial results. Although Ares Management has disaster recovery programs in place, these may not be sufficient to mitigate the harm that may result from such a disaster or disruption. In addition, insurance and other safeguards might only partially reimburse us for any losses as a result of such a disaster or disruption, if at all.

We, our Manager and Ares Management also rely on third-party service providers for certain aspects of our respective businesses, including for certain information systems, technology and administration of our loan portfolio and compliance matters. Operational risks could increase as third-party service providers increasingly offer mobile and cloud-based software services rather than software services that can be operated within our Manager’s or Ares Management’s own data centers, as certain aspects of the security of such technologies may be complex, unpredictable or beyond their control, and any failure by mobile technology or cloud service providers to adequately safeguard their systems and prevent cyber-attacks could disrupt our operations and the operations of our Manager and Ares Management, and result in misappropriation, corruption or loss of confidential, proprietary or personal information. In addition, such counterparties’ information systems, technology or accounts may be the target of cyber-attacks. Any interruption or deterioration in the performance of these third parties or failures or vulnerabilities of their information systems or technology could impair the quality of our operations and could impact our reputation and adversely affect our business.

Finally, there continues to be significant evolution and developments in the use of artificial intelligence technologies, including generative artificial intelligence. While our Manager has not integrated the use of artificial intelligence in our business currently, we could integrate it in the future and atAt this timetime, we cannot fully determine the impact of such evolving technology to our industry or business.

Security incidents or cyber-attackscyber-attacks, affecting us, our Manager or Ares Management or third-party providers, could adversely affect our business or the business of our borrowers by causing a disruption to our operations or the operations of our borrowers, a compromise or corruption of our confidential, personal or other sensitive information or the confidential, personal or other sensitive information of our borrowers and/or damage to our business relationships or reputation or the business relationships or reputations of our borrowers, all of which could negatively impact the business, financial condition and operating results of us or our borrowers.

The efficient operation of our business is dependent on information systems and technology, including computer hardware and software systems, as well as data processing systems and the secure processing, storage and transmission of information, all of which are potentially vulnerable to security incidents and cyber-attacks. These attacks may be an intentional attack or an unintentional event, either of which, could involve gaining unauthorized access to our information systems or those of our borrowers for purposes of misappropriating assets, stealing confidential information, corrupting data or causing operational disruption. The risk of a security breach or disruption, particularly through cyber-attacks or cyber intrusions, including by computer hackers, nation-states or nation-state affiliated actors and cyber terrorists, has generally increased as the number, intensity and sophistication of attempted attacks and intrusions from around the world have increased. Our Manager’s employees have been and expect to continue to be the target of fraudulent calls, emails and other forms of potentially malicious or otherwise negatively impacting activities and attempts to gain unauthorized access to confidential, personal or other sensitive information, which are becoming more sophisticated and difficult to detect.detect, particularly as threat actors use artificial intelligence technologies to deploy these attacks. Artificial intelligence tools may also be susceptible to new forms of cyber-attacks, such as prompt injection attacks, which may increase our cybersecurity risks where we implement artificial intelligence technologies in our business. Cybersecurity risks are also exacerbated by the rapidly increasing volume of highly sensitive data, including our proprietary business information and intellectual property, personal information of our Manager’s employees, our borrowers and others, and other sensitive information that our Manager collects, processes and stores in its data centers and on its networks or those of its third-party service providers. Many jurisdictions have also enacted laws requiring companies to notify individuals of data security breaches involving certain types of personal information, with which we and our Manager must comply in the event of a security incident or cyber-attack. The rapid evolution and increasing prevalence of artificial intelligence technologies may also increase our and our Manager’s cybersecurity risks.

The result of any security incident or cyber-attack may include disrupted operations, including our, our Manager’s, our counterparties’ or third-parties’ operations, misstated or unreliable financial data, fraudulent transfers or requests for transfers of money, liability for stolen assets or improperly accessed information (including personal information), fines or penalties, investigations, increased cybersecurity protection and insurance costs, litigation, or damage to our business relationships and reputation, in each case, causing our business and results of operations to suffer.suffer or otherwise causing interruptions or malfunctions in our, our Manager’s employees’, its affiliates’ employees’, our counterparties’ or third parties’ operations. The costs related to cyber-attacks or other security incidents or disruptions may not be fully insured or indemnified by other means. As our and our borrowers’ reliance on technology has increased, so have the risks posed to our information systems, both internal and those provided by Ares Management and third party service providers, and the information systems of our borrowers. Ares Management has implemented processes, procedures and internal controls to help mitigate security incidents and cyber-attacks and endeavors to strengthen its computer systems, software, technology assets and networks to prevent and address potential security incidents and cyber-attacks, but these measures do not guarantee that a security incident or cyber-attack will not occur or that our financial results or operations will not be negatively impacted by such an incident.

In addition, Ares Management is dependent on third-party vendors for hosting hardware, software and data processing systems that they do not control. While we rely on the cybersecurity strategy and policies implemented by Ares Management, which includes the performance of risk assessments on third-party providers, our reliance on them and their potential reliance on third-party providers removes certain cybersecurity functions from outside their immediate control, and cyber-attacks on us, our Manager, Ares Management or on third-party service providers could adversely affect us, our business and our reputation. We cannot guarantee that Ares Management’s networks and its partners’ networks have not been compromised or that they do not contain exploitable defects or bugs that could result in a breach of or disruption to Ares Management’s information technology systems or the third-party information technology systems that support services. Ares Management’s ability to monitor these third parties’ information security practices is limited, and they may not have adequate information security measures in place.

In addition, cybersecurity has becomeis a top priority for regulators around the world. State and federal laws and regulations related to cybersecurity compliance continue to evolve and change, which may require substantial investments in new technology, software and personnel, which could affect our profitability. Recently, theThe SEC adopted rules requiringrequires public companies to disclose material cybersecurity incidents on Form 8-K and provide periodic disclosure ofregarding a registrant’stheir cybersecurity risk management, strategy, and governance in annual reports.

With the SEC particularly focused on cybersecurity, we expect increased scrutiny of our, our Manager’s and Ares Management’s policies and systems designed to manage cybersecurity risks and related disclosures. We also expect to face increased costs to comply with the new SEC rules, including increased costs for cybersecurity training and management. Many jurisdictions in which we operate have laws and regulations relating to data privacy, cybersecurity and protection of personal information, including, the California Consumer Privacy Act and the New York SHIELD Act. The SEC has also indicated that one of its examination priorities for the Office of Compliance Inspections and Examinations is to continue to examine cybersecurity procedures and controls, including testing the implementation of these procedures and controls. If we fail to comply with the relevant laws and regulations, we could suffer financial loss, a disruption of our business, liability to investors, regulatory intervention or reputational damage.

In a period of rising interest rates or widening credit spreads, our interest expense on floating rate debt increases, while any additional interest income we earn on our floating rate investments may be subject to caps or may be subject to a tighter credit spread and as a result may not compensate for such increase in interest expense. At the same time, in a period of rising interest rates, the interest income we earn on our fixed rate investments does not change but the market value of such investments could decrease. Conversely, in a period of declining interest rates or tightening credit spreads, our interest income on floating rate investments decreases, while any decrease in the interest we are charged on our floating rate debt may be subject to floors or the interest rate costs on certain of our borrowings could be fixed at a higher floor and not compensate for such decrease in interest income or tightened credit spread. Additionally, in a period of declining interest rates, the interest we are charged on our fixed rate debt does not change but the market value of such debt generally increases. Conversely, in a period of rising interest rates or widening credit spreads, our interest expense on floating rate debt increases, while any additional interest income we earn on our floating rate investments may be subject to caps or may be subject to a tighter credit spread and as a result may not compensate for such increase in interest expense. At the same time, in a period of rising interest rates, the interest income we earn on our fixed rate investments does not change but the market value of such investments could decrease. In 2024,2024 and 2025, the Federal Reserve started to reduce the federal funds rate. If interest rates on our loan investments decrease consistent with decreases in the federal funds rate, we will receive less income from such loans, which could decrease our net income and materially impact our business.

Fluctuations in interest rates and credit spreads as well as protracted periods of increases or decreases in interest rates and credit spreads could adversely affect the operation and income of multifamily and other CRE properties, as well as the demand from investors for CRE debt in the secondary market. In particular, highera decrease in interest rates or tightening credit spreads increases the likelihood that certain holdings will be refinanced at lower rates, which could negatively impact our earnings. Higher interest rates and widening credit spreads tend to decrease the number of loans originated. An increase in interest rates or widening credit spreads could cause refinancing of existing loans to become less attractive and qualifying for a loan to become more difficult. However, a decrease in interest rates or tightening credit spreads increases the likelihood that certain holdings will be refinanced at lower rates that would negatively impact our earnings.

We borrow funds under the Financing Agreements andand, thefrom time to time, collateralized loan obligation securitizations (“CLO Securitizations.Securitizations”). As of December 31, 2024,2025, we had approximately $718.5$948.2 million of outstanding borrowings under the Financing Agreements and $456.0$99.9 million outstanding under the FL4 CLO Securitizations.Securitization. We have incurred and, subject to market conditions and availability, we may continue to incur significant debt through bank credit facilities (including term loans and revolving facilities), repurchase agreements, warehouse facilities and structured financing arrangements, public and private debt issuances and derivative instruments, in addition to transaction or asset specific funding arrangements. We may also issue additional debt or equity securities to fund our growth. The percentage of leverage we employ varies depending on our available capital, our ability to obtain and access financing arrangements with lenders, debt restrictions contained in those financing arrangements and the lenders’ and rating agencies’ estimate of the stability of our investment portfolio’s cash flow. We may significantly increase the amount of leverage we utilize at any time. In addition, we may leverage individual assets at substantially higher levels. Incurring substantial debt subjects us to many risks that, if realized, would materially and adversely affect us, including the risk that:

Our CLO Securitizations have contained and may contain in the future certain senior note overcollateralization ratio tests and future securitizations may be subject toor similar tests. The value of loans in our CLO Securitizations which aremay be subject to default or aremay be materially modified arehas been reduced in the past, and may be reduced in the future, for the purposes of the senior note overcollateralization ratio in accordance with the applicable indenture. To the extent we fail to meet these tests, amounts that would otherwise be used to make payments on the subordinate securities that we hold willwould be used to repay principal on the more senior securities to the extent necessary to satisfy the senior note overcollateralization ratio and we may incur significant losses. There can be no assurance that our leveraging strategy will be successful.

The documents that govern the Financing Agreements and our securitizations contain, and any additional lending facilities wouldare be expectedlikely to contain, customary negative covenants and other financial and operating covenants, that among other things, may affect our ability to incur additional debt, make certain investments or acquisitions, reduce liquidity below certain levels, make distributions to our stockholders, redeem debt or equity securities, make other restricted payments, impose asset concentration limits and impact our flexibility to determine our operating policies and investment strategies. For example, certain of the Financing Agreements contain (i) negative covenants that limit, among other things, our ability to repurchase our common stock, make distributions to our stockholders, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates (including amending the Management Agreement in a material respect) and (ii) operating and financial covenants, including those requiring us to maintain a certain tangible net worth, asset coverage ratio, total net leverage ratio, fixed charge coverage ratio and loan concentration. Certain of the restrictive covenants that apply to the Financing Agreements are further described in Note 6 to our consolidated financial statements included in this annual report on Form 10-K. Deterioration of the credit of our loans in 2023 resulted in an increase in realized losses and non-accrual loans, which impacted the level of our tangible net worth, fixed charge coverage ratio and asset coverage ratio covenants. In 2024, we renegotiated our Financing Agreements to lower certain of these ratios. ContinuedHowever, continued deterioration of the credit of our loans may negatively impact our ability to satisfy the negative covenants and other financial and operating covenants in the Financing Agreements, and there can be no guarantee that we would be able to renegotiate the covenants in our Financing Agreements in the future. If we fail to meet or satisfy any of these covenants, we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral, including cash to satisfy margin calls, further limit our ability to make distributions to our stockholders (subject to a minimum to maintain our status as a REIT) and enforce their interests against existing collateral. We are also subject to cross-default and acceleration provisions and, with respect to collateralized debt, the posting of additional collateral, including cash to satisfy margin calls, and foreclosure rights upon default. Further, these restrictions could also make it difficult for us to satisfy the qualification requirements necessary to maintain our status as a REIT.

We borrow funds under the Financing Agreements. We anticipate that we will also utilize additional bank credit facilities or repurchase agreements (including term loans and revolving facilities) to finance our assets if they become available on acceptable terms. The Financing Agreements and any future financing arrangements involve the risk that the value of the loans or securities pledged or sold by us to the provider of the bank credit facility or repurchase agreement counterparty may decline in value, in which case the lender may require us to provide additional collateral, including cash to satisfy margin calls, or to repay all or a portion of the funds advanced. With respect to certain facilities, subject to certain conditions, our lenders retain sole discretion over the market value of loans or securities that serve as collateral for the borrowings under such facilities for purposes of determining whether we are required to pay margin to such lenders. WeIf required, we may not have the funds available to repay our debt at that time, which would likely result in defaults unless we are able to raise the funds from alternative sources, which we may not be able to do on favorable terms or at all. Posting additional collateral would reducereduces our liquidity and limitlimits our ability to leverage our investments. If we cannot meet these requirements, the lender could accelerate our indebtedness, increase the interest rate on advanced funds or terminate our ability to borrow funds from it, which could materially and adversely affect our financial condition and ability to implement our investment strategy. In addition, if the lender files for bankruptcy or becomes insolvent, our loans may become subject to bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of these assets. Such an event could restrict our access to bank credit facilities and increase our cost of capital. The providers of bank credit facilities and repurchase agreement financing may also require us to maintain a certain amount of cash or set aside assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on assets. If we are unable to meet these collateral obligations, our financial condition and prospects could deteriorate rapidly.

Our business requires a significant amount of funding capacity on an interim basis. Our access to sources and availability of financing will depend upon a number of factors, over which we have little or no control, including:

From time to time, capital markets have experienced and may experience periods of disruption and instability, which may also adversely affect our ability to refinance our financing arrangements. There can be no assurance that current market conditions will not worsen in the future. See “Risk Factors—Risks Related to Our Business—A global economic slowdown or further declines in real estate values could impair our investments and harm our operations.”

We need to periodically access the capital markets to raise cash to fund new investments in excess of our repayments. A prolonged decline in the price of our shares of common stock compared to book value could negatively affect our access to these markets. We have elected and qualified for taxation as a REIT. Among other things, in order to maintain our REIT status, we are generally required to annually distribute to our stockholders an amount equal to at least 90% of our REIT taxable income, and, as a result, such distributions will not be available to fund investment originations. We must continue to borrow from financial institutions and issue additional securities to fund the growth of our investments and to ensure that we can meet ongoing maturities of our outstanding debt. Unfavorable economic or capital market conditions increase our funding costs, limit our access to the capital markets and could result in a decision by our potential lenders not to extend credit. An inability to successfully access the capital markets could limit our ability to grow our business and fully execute our business strategy and could decrease our earnings, if any. In addition, weakness in the capital and credit markets could adversely affect one or more private lenders and could cause one or more of our private lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing. In addition, if regulatory capital requirements imposed on our private lenders change, they may be required to limit, or increase the cost of, financing they provide to us. In general, this could potentially increase our financing costs and reduce our liquidity or require us to sell assets at an inopportune time or price. No assurance can be given that we will be able to obtain any such financing (including any replacement financing for our current financing arrangements) on favorable terms or at all.

The pools of commercial loans that we may originate, securitize or acquire as asset-backed securities and for which we act as special servicer are structures commonly referred to as securitizations. We have utilized and, if available, we may utilize in the future non-recourse long-term securitizations of our investments in mortgage loans, especially loan originations, if and when they become available.originations. Prior to any such financing, we may seek to finance these investments with relatively short-term facilities until a sufficient portfolio is accumulated. As a result, we would be subject to the risk that we would not be able to originate or acquire, during the period that any short-term facilities are available, sufficient eligible assets to maximize the efficiency of securitizations. We also would bear the risk that we would not be able to obtain new short-term facilities or would not be able to renew any short-term facilities after they expire should we need more time to seek and originate or acquire sufficient eligible assets for securitizations. In addition, conditions in the capital markets, including volatility and disruption in the capital and credit markets, may not permit non-recourse securitizations at any particular time or may make the issuance of any such securitizations less attractive to us even when we do have sufficient eligible assets. While we would intend to retain the unrated equity component of securitizations and, therefore, still have exposure to any investments included in such securitizations, our inability to enter into such securitizations would increase our overall exposure to risks associated with direct ownership of such investments, including the risk of default, as we may have utilized recourse facilities to finance such investments. Our inability to refinance any short-term facilities would also increase our risk because borrowings thereunder would likely be recourse to us as an entity. If we are unable to obtain and renew short-term facilities or to consummate securitizations to finance our investments on a long-term basis, we may be required to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price.

The pools of commercial loans that we may originate, securitize or acquire as asset-backed securities and for which we act as special servicer are structures commonly referred to as securitizations. As a result of the dislocation of the credit markets, and in anticipation of more extensive regulation, including regulations promulgated pursuant to the Dodd-Frank Act,Act and the new “Basel III Endgame” capital requirements, the securitization industry crafted and continues to craft changes to securitization practices, including changesmore torigorous representations and warranties in securitization transaction documents, newthe widespread adoption of Simple, Transparent and Standardized (STS) underwriting guidelines and disclosure guidelines.guidelines, and the integration of new technologies like AI and blockchain to improve transparency and monitoring. Pursuant to the Dodd-Frank Act, various federal agencies, including the SEC (collectively, “the agencies”) have promulgated regulations with respect to issues that affect securitizations. Pursuant to Regulation AB and other rules, issuers of registered asset-backed securities are subject to significant disclosure, review and reporting requirements. In addition, pursuant to rules adopted by the agencies, securitizers in both public and private securitization transactions are required to retain at least 5% of the risk associated with the securities, subject to certain exceptions, which we are subject to in our securitizations. These regulations, and other proposed regulations affecting securitizations, couldcontinue to alter the structure of securitizations inand the future,could pose additional risks to our participation in future securitizations or reduce or eliminate the economic incentives for participating in future securitizations, increase the costs associated with our origination, securitization or acquisition activities, or otherwise increase the risks or costs of us doing business.

Subject to maintaining our qualification as a REIT, from time to time, we may pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates or currencies. This hedging activity may varyvaries in scope based on the level and volatility of interest rates, the type of assets held and other changing market conditions.

We regularly measure our exposure to interest rate risk and assess interest rate risk and manage our interest rate exposure on an ongoing basis by comparing our interest rate sensitive assets to our interest rate sensitive liabilities. Based on that review, we determine whether or not we should enter into hedging transactions and derivative financial instruments, such as forward sale commitments and interest rate floors in order to mitigate our exposure to changes in interest rates. While hedging activities may mitigate our exposure to adverse fluctuations in interest rates, certain hedging transactions that we have entered into or may enter into in the future, such as interest rate swap agreements, may also limit our ability to participate in the benefits of lower interest rates with respect to our investments. As of December 31, 2025, we did not have hedging or derivative financial instruments in place. In addition, interest rate hedging may fail to protect or could adversely affect us because, among other things:

The cost of using hedging instruments increases as the period covered by the instrument increases and during periods of rising and volatile interest rates, we may increase our hedging activity and thus increase our hedging costs. In addition, hedging instruments involve risk since they often are not traded on regulated exchanges or guaranteed by an exchange or its clearing house. Consequently, there are no requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. Furthermore, the counterparties to these contractual arrangements may not perform as agreed and the enforceability of agreements underlying hedging transactions may depend on compliance with applicable statutory and commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in its default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits and force us to cover our commitments, if any, at the then current market price. Although generally we will seekintend to reserve the right to terminate our hedging positions, it may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty and we may not be able to enter into an offsetting contract in order to cover our risk. We cannot assure you that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in significant losses.

Stockholders are not able to participate in decisions regarding the manner in which our available capital is invested or the economic merit of our investments. As a result, we may use our available capital to make investments with which stockholders may not agree. Additionally, our investments are selected by our Manager and our stockholders do not have input into such investment decisions. Both of these factors increase the uncertainty, and thus the risk, of investing in our securities. The failure of our Manager to apply our capital effectively or find investments that meet our investment criteria in sufficient time or on acceptable terms could result in unfavorable returns, could cause a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders, and could cause the value of our common stock to decline.

The illiquidity of our target investments makes it difficult for us to sell such investments if the need or desire arises. Certain target investments such as whole and co-invested senior mortgage loans, subordinated debt, preferred equity,equity and mezzanine loansloans, andas well as other CRE investments are also particularly illiquid investments due to their short life, their potential unsuitability for securitization and the greater difficulty of recovery in the event of a borrower’s default. In addition, many of the securities we invest in are not registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or disposition except in a transaction that is exempt from the registration requirements of, or otherwise in accordance with, those laws. As a result, many of our investments are illiquid, and if we are required to liquidate all or a portion of our portfolio quickly, for example, as a result of margin calls, we may realize significantly less than the value at which we have previously recorded investments. Further, we may face other restrictions on our ability to liquidate an investment in a business entity to the extent that we or our Manager has or could be attributed as having material, non-public information regarding such business entity. Moreover, certain of our loan investments have become less liquid as a result of current market conditions, which may make it more difficult for us to dispose of such assets at advantageous times or in a timely manner. As a result, our ability to vary our portfolio in response to changes in economic and other conditions is relatively limited, which has adversely affected our results of operations and financial condition.

Our portfolio is concentrated in a limited number of loans and has a higher exposure to the office and mixed-use sectorssector compared to the other property types, which subjects us to a risk of significant loss if any of these loans default.

As of December 31, 20242025 and 2023,2024, our portfolio totaled 3634 and 4636 loans held for investment, respectively. The number of loans in which we are invested may be higher or lower depending on the amount of our assets under management at any given time, market conditions and the extent to which we employ leverage, and fluctuates over time. A consequence of this limited number of investments is that the aggregate returns we realize are significantly adversely affected even if only a small number of investments perform poorly, if we need to write downwrite-down the value of any one investment or if an investment is repaid prior to maturity and we are not able to promptly redeploy the proceeds. While we intend to continue to diversify our portfolio of investments in the manner described in our filings with the SEC, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few loans and/or relatively few property types. As of December 31, 2024,2025, approximately 44.2%28% of our total loan portfolio based on outstanding principal balance of loans held for investment is related to loans collateralized by office space and mixed-use space,properties, which are at higher risk of foreclosure. If our portfolio of investments is concentrated in property types that are subject to higher risk of foreclosure (such as office space or mixed-use properties), or secured by properties concentrated in a limited number of geographic locations, downturns relating generally to such industry, region or type of asset may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our common stock and accordingly reduce our ability to pay dividends to our stockholders.

•with respect to office properties, increases in remote working arrangements and employer flexibility, and the subsequent effect on demand for such properties;

Our CRE loans areare, or may be in the future, secured by industrial, multifamily, mixed-use, self-storage, student housinghousing, hospitality, office, residential/condo and office and residentialretail properties. In particular, mixed-usecurrently, office and officeresidential/condo properties are subject to risks of delinquency and foreclosure, and risks of loss that may be greater than similar risks associated with loans made on the security of other types of property. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. As the net operating income of the property declines, the borrower’s ability to repay the loan is impaired. Net operating income of an income-producing property has been in the past and in the future can be adversely affected by, among other things, the following:

Real property that we currently own or that we may own in the future subjects us to risks particular to CRE property. We currently own a mixed-use property located in Florida and ana multi-building office property located in North Carolina. We acquired legal title to these properties through a consensual foreclosure and a deed in lieu of foreclosure, respectively, with respect to the loans secured by such properties. In the past, we have owned similar properties under similar circumstances. We do not manage real estate properties in the ordinary course of our business and the ownership of these properties subjects us to certain operating risks that vary in degree among different real estate asset classes. These risks include tenants’ failure or unwillingness to make rental payments when due, decreased demand for the space as a result of market volatility, lack of liquidity, work-from-home arrangements andarrangements, online shopping alternatives, changes in discretionary spending and traveling, or lower occupancy due to macroeconomic conditions. Additionally, tenants of properties we own or may own in the future may elect to not renew their leases or to renew them for less space than they currently occupy, especially in the case of office space, if substantial reconfiguration is required, which could increase vacancy, place downward pressure on occupancy, rental rates and income and property valuation. All of these factors could have a material adverse effect on the income we generate, if any, or expenses we incur, from the ownership of such properties.

Our net income and earnings may be affected by prepayment rates on our existing CRE loans. In periods of declining interest rates and/or credit spreads, prepayment rates on loans generally increase. Borrowers may seek to make prepayments as a result of SOFR or other interest rate floors in our loans which could resultreduce inour highernet interest expense.income. If general interest rates or credit spreads decline at the same time, the proceeds of such prepayments received during such periods are likely to be reinvested by us in assets yielding less than the yields on the assets that were prepaid. In addition, the value of our assets may be affected by prepayment rates on loans. If we originate CRE loans, we expect borrowers will prepay at a projected rate generating an expected yield. When borrowers prepay their loans faster than expected, we may be unable to replace these CRE loans with new CRE loans and the corresponding prepayments on the CRE loans may reduce the expected yield on such loans. If prepayment rates decrease in a rising interest rate environment, and borrowers exercise extension options on CRE loans or we extend the term of CRE loans, the life of the loans could extend beyond the term of the Financing Agreements that we borrow on to fund our CRE loans. In such situations, we may be forced to fund additional cash collateral in connection with the Financing Agreements or sell assets to maintain adequate liquidity, which could cause us to incur losses.

We have in the past increased and may in the future significantly increase the size and/or change the mix of our portfolio of assets. We may be unable to successfully and efficiently integrate newly acquired assets into our existing portfolio or otherwise effectively manage our assets or our growth effectively. In addition, increases in our portfolio of assets and/or changes in the mix of our assets may place significant demands on our Manager’s administrative, operational, asset management, financial and other resources. Any failure to manage increases in size or type effectively could adversely affect our results of operations and financial condition.

Many of our investments willare not be rated or will beare rated as non-investment grade by the rating agencies. The non-investment grade ratings for these assets typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the borrowers’ credit history, the underlying properties’ cash flow or other factors. As a result, these investments should be expected totypically have a higher risk of default and loss than investment grade rated assets. Any loss we incur as a result may be significant and may reduce distributions to our stockholders and adversely affect the market value of our common stock. There are no limits on the percentage of unrated or non-investment grade rated assets we may hold in our investment portfolio.

We have originated and may continue to originate or acquire B-Notes and C-Notes. As of December 31, 2024,2025, we had issuedoutstanding two subordinated B-Notes with no outstanding principal balance and onetwo subordinated C-NoteC-Notes with an aggregate outstanding principal balance of $22.8$21.0 million, all of which $12.6 million was on non-accrual status. A B-Note is a mortgage loan typically (a) secured by a first mortgage on a single large commercial property or group of related properties and (b) subordinated to an A-Note secured by the same first mortgage on the same collateral. A C-Note is a mortgage loan similar to a B-Note, except that it is further subordinated to a B-Note secured by the same first mortgage on the same collateral. As a result, if a borrower defaults, there may not be sufficient funds remaining for the B-Note or C-Note holders after payment to the A-Note holders. Because each transaction is privately negotiated, B-Notes and C-Notes can vary in their structural characteristics and risks. For example, the rights of holders of B-Notes and C-Notes to control the process following a borrower default may vary from transaction to transaction. Further, B-Notes and C-Notes typically are secured by a single property and accordingly reflect the risks associated with significant concentration. Significant losses related to our B-Notes and C-Notes would result in operating losses for us and may limit our ability to make distributions to our stockholders.

We are a specialty finance company primarily engaged in directly originating and investing in CRE loans and related investments. We are externally managed by ACREM, a subsidiary of Ares Management, a publicly traded, leading global alternative assetinvestment manager, pursuant to the terms of the Management Agreement. From the commencement of our operations in late 2011, we have been primarily focused on directly originating and managing a diversified portfolio of CRE debt-related investments for our own account.

•We amended the CNBWells Fargo Facility to, among other things: (1)things, extend the initial maturity date and funding period of the CNBWells Fargo Facility to MarchFebruary 10, 2025,2028. The maturity date of the Wells Fargo Facility continues to be subject to onetwo 12-month extension,extensions, each of which may be exercised at our optionoption, ifsubject to the satisfaction of certain conditions described in the CNB Facility are met, includingand applicable extension fees being paid, which, if both were exercised, would extend the maturity date to March 10, 2026 and (2) setof the interestWells rate on advances under the CNBFargo Facility to aFebruary per10, annum rate equal to the sum of, at our option, either (a) a SOFR-based rate plus 3.25% or (b) a base rate plus 2.25%, in each case, subject to an interest rate floor.2030.

•We received a discounted payoff of a $97.5$51.5 million senior mortgage loan, which was collateralized by aan multifamilyoffice (life sciences) property in Texas,Massachusetts, in conjunction with a short sale of the multifamilyoffice (life sciences) property by the borrower to a third party.borrower. At the time of the discounted payoff, the senior mortgage loan was on non-accrual status. For the three and ninesix months ended SeptemberJune 30, 2024,2025, the Companywe received $2.1$1.1 million and $3.8$2.1 million, respectively, of interest payments in cash on the senior TexasMassachusetts loan that was recognized as a reduction to the carrying value of the loan and the borrower was current on all contractual interest payments. We didrecognized nota recognize any gain orrealized loss onof the$33.0 discounted payoffmillion as the carrying value of the senior mortgage loan,value, not including the CECL Reserve, was equal toexceeded the net proceeds from the payoff of the loan.

Developments During the FourthThird Quarter of 20242025:

•We entered intosold a Purchasebuilding andat Saleour Agreement and closed the sale of themulti-building office property located in CaliforniaNorth Carolina that was classified as real estate owned held for saleinvestment to a third party for $13.0$5.3 million. We recognized a $2.3$2.8 million realized lossgain on the sale of the office propertybuilding as the net sale proceeds were lessgreater than the allocated net carrying value of the office propertybuilding as of the sale closing date.

Rising operating costs, such as property insurance and raw material costs for property development and improvements, placed pressure on cash flow performance across many real estate property types in 2025. Although certain markets are showing a recovery, office properties nationally continue to experience challenges driven by remote work and elevated costs to operate, improve or repurpose these office properties. These factors have largely resulted in lower demand for office space and have driven elevated levels of vacancy rates and default rates. Offsetting some of these challenges, there has been a significant decline in new commercial real estate development that began in 2023 and has continued inbenefitting 2024.existing in-demand property types. Ultimately, this lack of new future inventory may result in a shortage of contemporary, in demandin-demand properties in the years to come, furthering the disparity between supply and demand dynamics. In addition, there is a significant amount of unspent capital targeting commercial real estate properties that could support values and elevate transaction activities.

Loans are generally collateralized by real estate. The extent of any credit deterioration associated with the performance and/or value of the underlying collateral property and the financial and operating capability of the borrower could impact the expected amounts received.repaid. We monitor the performance of our loans held for investment portfolio under the following methodology: (1) borrower review, which analyzes the borrower’s ability to execute on its original business plan, reviews its financial condition, assesses pending litigation and considers its general level of responsiveness and cooperation; (2) economic review, which considers underlying collateral (i.e. leasing performance, unit sales and cash flow of the collateral and its ability to cover debt service, as well as the residual loan balance at maturity); (3) property review, which considers current environmental risks, changes in insurance costs or coverage, current site visibility, capital expenditures and market perception; and (4) market review, which analyzes the collateral from a supply and demand perspective of similar property types, as well as from a capital markets perspective. Such analyses are completed and reviewed by asset management and finance personnel who utilize various data sources, including periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, and the borrower’s exit plan, among other factors.

Loans are generally placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected in full. Accrued and unpaid interest is generally reversed against interest income in the period the loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to reduce loan carrying value depending upon management’s judgment regarding the borrower’s ability to make pending principal and interest payments. Non-accrual loans are restored to accrual status when past due principal and interest are paid and, in management’s judgment, are likely to remain current. We may make exceptions to placing a loan on non-accrual status if the loan has sufficient collateral value and is in the process of collection. Other than as set forth in Note 3 to our consolidated financial statements included in this annual report on Form 10-K, and as set forth below, as of December 31, 20242025 and 2023,2024, all loans held for investment were paying in accordance with their contractual terms. As of December 31, 2025, we had four loans held for investment on non-accrual status with a carrying value of $308.1 million. As of December 31, 2024, the Companywe had five loans held for investment on non-accrual status with a carrying value of $318.4 million. As of December 31, 2023, the Company had nine loans held for investment on non-accrual status with a carrying value of $399.3 million.

Loan balances that are deemed to be uncollectible are written offwritten-off as a realized loss and are deducted from the CECL Reserve. The write-offs are recorded in the period in which the loan balance is deemed uncollectible based on management’s judgment. During the year ended December 31, 2025, we wrote-off a portion of a subordinated loan on an office property located in New York with outstanding principal of $4.6 million that was extinguished in conjunction with a modification and extension agreement that we entered into with the borrower. During the year ended December 31, 2024, we wrote-off a mezzanine loan on an office property located in New Jersey with outstanding principal of $18.5 million as we deemed the mezzanine loan to be uncollectible. There were no loans written off during the year ended December 31, 2023.

Changes in Market Interest Rates. With respect to our business operations, increasesdecreases in interest rates, in general, may over time cause:

Credit Risk. We are subject to varying degrees of credit risk in connection with our target investments. Our Manager seeks to mitigate this risk by seeking to originate or acquire investments of higher quality at appropriate prices with appropriate risk adjusted returns given anticipated and unanticipated losses, by employing a comprehensive review and selection process andprocess, by proactively monitoring originated or acquired investments (see the performance monitoring methodology above in Changes in Fair Value of Our Assets)., and through the use of non-recourse financing, when and where available and appropriate. Nevertheless, unanticipated credit losses have occurred and could occur thatin the future, and such credit losses could adversely impact our operating results and stockholders’ equity.

Performance of Commercial Real Estate Related Markets. Our business is dependent on the general demand for, and value of, commercial real estate and related services, which are sensitive to economic conditions. Demand for commercial real estate generally increases during periods of stronger economic conditions, resulting in increased property values, transaction volumes and loan origination volumes. During periods of weaker economic conditions, commercial real estate may experience higher property vacancies, lower demand and reduced values. These conditions can result in lower property transaction volumes and loan originations. Decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loan or loans, as the case may be, which could also cause us to suffer losses.

Availability of Leverage and Equity. We expect to use leverage to make additional investments that may increase our potential returns.investments. We may not be able to obtain the amount of leverage we desire and, consequently, the returns generated from our investments may be less than we currently expect. To grow our portfolio of investments, we also may determine to raise additional equity. Our access to additional equity will depend on many factors, and our ability to raise equity in the future cannot be predicted at this time.

On July 31,30, 2024,2025, our board of directors renewedextended the Repurchase Program of up to $50.0 million, which is expected to be in effect until July 31, 2025,2026, or until the approved dollar amount has been used to repurchase shares. Pursuant to the Repurchase Program, we may repurchase shares of our common stock in amounts, at prices and at such times as we deem appropriate, subject to market conditions and other considerations, including all applicable legal requirements. Repurchases may include purchases on the open market or privately negotiated transactions, under Rule 10b5-1 trading plans, under accelerated share repurchase programs, in tender offers and otherwise. The Repurchase Program does not obligate us to acquire any particular amount of shares of our common stock and may be modified or suspended at any time at our discretion. During the year ended December 31, 2024,2025, we did not repurchase any shares through the Repurchase Program.

As of December 31, 2024,2025, our portfolio included 3634 loans held for investment, excluding 179195 loans that were repaid, sold, converted to real estate owned or written offwritten-off since inception. As of December 31, 2024,2025, the aggregate originated commitment under these loans at closing was approximately $1.9$1.8 billion and outstanding principal was $1.7$1.6 billion. During the year ended December 31, 2024,2025, we funded approximately $46.8$491.5 million of outstanding principal, received repayments of $349.6$572.3 million of outstanding principal, converted two loans with outstanding principal of $101.8 million to real estate owned and wrote-off a portion of one loan with outstanding principal of $18.5$4.6 million. As of December 31, 2024,2025, 64.5%84.0% of our loans have SOFR floors, with a weighted average floor of 1.01%,1.52%, calculated based on loans with SOFR floors. References to SOFR or “S” are to 30-day SOFR (unless otherwise specifically stated).

FASB ASC Topic 326, Financial Instruments—Credit Losses (“ASC 326”), requires us to reflect current expected credit losses (“CECL”) on both the outstanding balances and unfunded commitments on loans held for investment and requires consideration of a broad range of historical experience adjusted for current conditions and reasonable and supportable forecast information to inform credit loss estimates (the “CECL Reserve”). Increases and decreases to expected credit losses impact earnings and are recorded within (provision for) (reversal of) current expected credit losses, net in our consolidated statements of operations. The CECL Reserve related to outstanding balances on loans held for investment required under ASC 326 is a valuation account that is deducted from the amortized cost basis of our loans held for investment in our consolidated balance sheets. The CECL Reserve related to unfunded commitments on loans held for investment is recorded within other liabilities in our consolidated balance sheets.

We estimate our CECL Reserve primarily using a probability-weighted model that considers the likelihood of default and expected loss given default for each individual loan. Calculation of the CECL Reserve requires loan specific data, which includes capital senior to us when we are the subordinate lender, changes in net operating income, debt service coverage ratio, loan-to-value,loan-to-value ratio, occupancy, property type and geographic location. Estimating the CECL Reserve also requires significant judgment with respect to various factors, including (i) the appropriate historical loan loss reference data, (ii) the expected timing of loan repayments, (iii) calibration of the likelihood of default to reflect the risk characteristics of our floating-rate loan portfolioportfolio, (iv) the underlying collateral performance and its estimated current and stabilized market values, including projected cash flows and (ivv) our current and future view of the macroeconomic environment. We may consider loan-specific qualitative factors on certain loans to estimate our CECL Reserve. In order to estimate the future expected loan losses relevant to our portfolio, we utilize historical market loan loss data licensed from a third party data service. The third party’s loan database includes historical loss data for commercial mortgage-backed securities, or CMBS, issued dating back to 1998, which we believe is a reasonably comparable and available data set to our type of loans.

Developments During the FirstSecond Quarter of 2026:

•We closed a $100.0$25.0 million senior mortgage loan as part of a co-investment on a multifamily property located in New York.Tennessee.

•We closed a $50.0$69.7 million senior mortgage loan as part of a co-investment on a mixed-useportfolio propertyof self storage properties located in Newvarious York.states.

•We closed a $143.5$35.0 million senior mortgage loan as part of a co-investment on a retailhotel property located in California, of which $75.0 million is classified as held for investment and $68.5 million is classified as held for sale.California.

During the firstsecond quarter of 2026, the U.S. economy continued to expand, supported by continued consumer spending with moderating expectations for U.S. gross domestic product growth and low levels of unemployment amidst heightened geopolitical tensions. During this time, the commercial real estate market exhibited stable to improvingmoderating conditions. Specifically, individual property transaction volumes expandedslowed in the second quarter while broad market indices demonstrated flat to increasing commercial real estate values on a year-over-year basis.values.

Aiding valuations, new construction starts remained near or at 10-year lows across multifamily, industrial, retail and office property types and lending markets remained supportive given increased activity from capital markets and banks. During the quarter, the Federal Reserve held interest rates steady and restated its commitment towards its inflation goals, which may result in future monetary policy actions. There is no certainty that there will be a change in interest rates or of the magnitude or pace of potential changes.

On July 30, 2025, our board of directors extended the Repurchase Program of up to $50.0 million, which was expected to be in effect until July 31, 2026, or until the approved dollar amount had been used to repurchase shares. On July 28, 2026, our board of directors further extended the Repurchase Program of up to $50.0 million, which is expected to be in effect until July 31, 2026,2027, or until the approved dollar amount has been used to repurchase shares. Pursuant to the Repurchase Program, we may repurchase shares of our common stock in amounts, at prices and at such times as we deem appropriate, subject to market conditions and other considerations, including all applicable legal requirements. Repurchases may include purchases on the open market or privately negotiated transactions, under Rule 10b5-1 trading plans, under accelerated share repurchase programs, in tender offers and otherwise. The Repurchase Program does not obligate us to acquire any particular amount of shares of our common stock and may be modified or suspended at any time at our discretion. During the three and six months ended MarchJune 31,30, 2026, we did not repurchase any shares through the Repurchase Program.

As of MarchJune 31,30, 2026, our portfolio included 3538 loans held for investment, excluding 197 loans that were repaid, sold, converted to real estate owned or written-off since inception. As of MarchJune 31,30, 2026, the aggregate originated commitment under these loans at closing was approximately $1.9$2.0 billion and outstanding principal was $1.7$1.8 billion. During the threesix months ended MarchJune 31,30, 2026, we funded approximately $201.7$339.6 million of outstanding principal and received repayments of $94.3$110.7 million of outstanding principal. As of MarchJune 31,30, 2026, 88.5%89.2% of our loans have SOFR floors, with a weighted average floor of 1.64%,1.71%, calculated based on loans with SOFR floors. References to SOFR or “S” are to 30-day SOFR (unless otherwise specifically stated).

Other than as set forth in Note 3 to our consolidated financial statements included in this quarterly report on Form 10-Q, as of MarchJune 31,30, 2026, all loans held for investment were paying in accordance with their contractual terms.

Our loans held for investment are accounted for at amortized cost. The following table summarizes our loans held for investment as of MarchJune 31,30, 2026 ($ in thousands):

(2)Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) and assumes no dispositions, early prepayments or defaults. The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all loans held by us as of MarchJune 31,30, 2026 as weighted by the outstanding principal balance of each loan.

(3)Unleveraged Effective Yield is the compounded effective rate of return that would be earned over the life of the investment based on the contractual interest rate (adjusted for any deferred loan fees, costs, premiums or discounts) and assumes no dispositions, early prepayments or defaults. The total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all interest accruing loans held by us as of MarchJune 31,30, 2026 as weighted by the total outstanding principal balance of each interest accruing loan (excludes loans on non-accrual status as of MarchJune 31,30, 2026).

Our board of directors declared a regular cash dividend of $0.15 per common share for the secondthird quarter of 2026. The secondthird quarter 2026 dividend will be payable on JulyOctober 15, 2026 to common stockholders of record as of JuneSeptember 30, 2026.

The following table sets forth a summary of our consolidated results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025 ($ in thousands):

The following tables set forth select details of our consolidated results of operations for the three and six months ended MarchJune 31,30, 2026 and 2025 ($ in thousands):

For the three months ended MarchJune 31,30, 2026 and 2025, net interest margin was approximately $7.5$8.6 million and $9.3$7.0 million, respectively. For the three months ended MarchJune 31,30, 2026 and 2025, interest income of $24.9$27.8 million and $27.5$23.1 million, respectively, was generated by weighted average earning assets of $1.7$1.9 billion and $1.5$1.4 billion, respectively, offset by $17.4$19.2 million and $18.2$16.1 million, respectively, of interest expense, unused fees and amortization of deferred loan costs. The weighted average borrowings under the Secured Funding Agreements, the Secured Term Loan and securitization debt, as applicable, were $1.2 billion for the three months ended MarchJune 31,30, 2026 and $1.12025 were $1.3 billion forand the$0.9 threebillion, months ended March 31, 2025.respectively. The decreaseincrease in net interest margin for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025 is primarily due to aan decrease in SOFR rates on our loans held for investment and a decreaseincrease in the weighted average interest-bearingearning cash and cash equivalents balances heldassets for the three months ended MarchJune 31,30, 2026 as compared to the three months ended MarchJune 31,30, 2025.

On September 19, 2024, we acquired legal title to a multi-building office property located in North Carolina through a deed in lieu of foreclosure. Prior to September 19, 2024, the office property collateralized a $68.6 million senior mortgage loan that we held that was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the May 2024 maturity date. In conjunction with the deed in lieu of foreclosure, we derecognized the $68.6 million senior mortgage loan and recognized the office property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the three and six months ended MarchJune 31,30, 20262026, revenue from real estate owned related to this property was $2.6 million and $5.3 million, respectively. For the three and six months ended June 30, 2025, revenue from real estate owned related to this property was $2.7$2.3 million and $2.4$4.7 million, respectively. The increase in revenue from real estate owned related to this property for both the three and six months ended June 30, 2026 compared to the three and six months ended June 30, 2025 is primarily due to an increase in rental revenue from new operating leases.

On September 8, 2023, we acquired legal title to a mixed-use property located in Florida through a consensual foreclosure. Prior to September 8, 2023, the mixed-use property collateralized an $82.9 million senior mortgage loan that we held that was in maturity default due to the failure of the borrower to repay the outstanding principal balance of the loan by the February 2023 maturity date. In conjunction with the consensual foreclosure, we derecognized the $82.9 million senior mortgage loan and recognized the mixed-use property as real estate owned. Revenues from this property consist primarily of rental revenue from operating leases. For the three and six months ended MarchJune 31,30, 2026 and 2025,2026, revenue from real estate owned related to this property was $3.2 million and $3.3$6.4 million, respectively. For the three and six months ended June 30, 2025, revenue from real estate owned related to this property was $3.3 million and $6.5 million, respectively.

See the Related Party Expenses, Other Expenses and Expenses from Real Estate Owned discussions below for the cause of the changes in operating expenses for the three and six months ended MarchJune 31,30, 2026 compared to the three and six months ended MarchJune 31,30, 2025.2025, respectively.

For the three months ended MarchJune 31,30, 2026, related party expenses included $2.4 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the three months ended MarchJune 31,30, 2026. For the three months ended MarchJune 31,30, 2026, related party expenses also included $0.8$0.9 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement. For the three months ended MarchJune 31,30, 2025, related party expenses included $2.6$2.4 million in management fees due to our Manager pursuant to the Management Agreement. No incentive fees were incurred for the three months ended MarchJune 31,30, 2025. For the three months ended MarchJune 31,30, 2025, related party expenses also included $1.0 million for our share of allocable general and administrative expenses for which we were required to reimburse our Manager pursuant to the Management Agreement. The decrease in managementManagement fees were relatively consistent for both the three months ended MarchJune 31,30, 2026 comparedand to the three months ended March 31, 2025 primarily relates to a decrease in our weighted average stockholders’ equity for the three months ended March 31, 2026 as a result of realized losses on loans.2025. The decrease in allocable general and administrative expenses due to our Manager for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025 relates to changes in the mix of employees of our Manager that allocated time to us.

For both the three months ended MarchJune 31,30, 2026 and 2025, professional fees were $0.8$0.7 million and $0.9 million, respectively, which was relatively consistent for both periods.million. For the three months ended MarchJune 31,30, 2026 and 2025, general and administrative expenses were $1.4$1.7 million and $1.7$2.0 million, respectively. The decrease in general and administrative expenses for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025 primarily relates to a decrease in stock-based compensation expense due to a reduction in the weighted average grant date fair value for restricted stock and restricted stock unit awards granted after MarchJune 31,30, 2025 and a reduction in various operating expenses for the three months ended MarchJune 31,30, 2026.

For the three and six months ended MarchJune 31,30, 2026 and 2025, expenses from real estate owned were comprised of the following ($ in thousands):

For both the three months ended MarchJune 31,30, 2026 and 2025, mixed-use property operating expenses were $1.2$1.1 million. For both the six months ended June 30, 2026 and 2025, mixed-use property operating expenses were $2.3 million. Mixed-use property operating expenses consisted primarily of expenses incurred in the day-to-day operation of our mixed-use property, including common area maintenance costs, property taxes and insurance. Common area maintenance costs include items such as maintenance and repairs, utilities, janitorial services, security and property management fees.

For both the three months ended MarchJune 31,30, 2026 and 2025, office property operating expenses were $1.0$1.3 million. For the six months ended June 30, 2026 and 2025, office property operating expenses were $2.3 million and $1.1$2.4 million, respectively, which was relatively consistent for both periods and consists of operating expenses for our multi-building office property that was acquired on September 19, 2024.respectively. Office property operating expenses consisted primarily of expenses incurred in the day-to-day operation of our multi-building office property, including common area maintenance costs, property taxes and insurance. Common area maintenance costs include items such as maintenance and repairs, utilities, janitorial services, security and property management fees.

For the three and six months ended MarchJune 31,30, 2026, depreciation and amortization expense was $0.9 million and $1.8 million, respectively, and relates primarily to our mixed-use property acquired on September 8, 2023. For the three and six months ended MarchJune 31,30, 2026, no depreciation or amortization expense was incurred for our multi-building office property acquired on September 19, 2024 as the multi-building office property was classified as real estate owned held for sale. For the three and six months ended MarchJune 31,30, 2025, depreciation and amortization expense was $2.2 million and $4.4 million, respectively, and related primarily to our mixed-use property acquired on September 8, 2023 and our multi-building office property acquired on September 19, 2024.

For the three months ended MarchJune 31,30, 2026 and 2025, the net (provision for) reversal of current expected credit losses was $(11.10.9) million and $5.3$20.2 million, respectively. For the three months ended MarchJune 31,30, 2026, the net provision for current expected credit losses is primarily due to changes in loanloan- and collateralcollateral-specific specific attributes andattributes, new loan closings and a relative decline in the near-term macroeconomic forecasts during the three months ended MarchJune 31,30, 2026. These factors were partially offset by shorter average remaining loan term and other changes in loan- and collateral-specific attributes during the three months ended June 30, 2026. For the three months ended June 30, 2025, the net reversal of current expected credit losses was primarily due to a realized loss on aan multifamilyoffice (life sciences) loan, resulting in a reversal of the associated CECL Reserve, shorter average remaining loan term, loan repayments, a relative improvement in the near-term macroeconomic forecastsrepayments and changesother in loanloan- and collateral specificcollateral-specific attributes during the three months ended MarchJune 31,30, 2026.2025. ForThese thefactors threewere monthspartially endedoffset March 31, 2025, the net reversal of current expected credit losses was primarily due toby a relative improvementdecline in the near-term macroeconomic forecasts, shorterincluding averagehigher remainingtariffs, loanhigh terminflation and loaninterest repaymentsrates, and other loan- and collateral-specific attributes during the three months ended MarchJune 31,30, 2025.

In MarchJune 2026,2025, we received a discounted payoff on a senior mortgage loan with outstanding principal of $28.2$51.5 million, which was collateralized by aan multifamilyoffice (life sciences) property located in Pennsylvania.Massachusetts. The discounted payoff was received in conjunction with the sale of the multifamilyoffice (life sciences) property by the borrower. For both the three and six months ended MarchJune 31,30, 2026,2025, we recognized a realized loss of $3.3$33.0 million in our consolidated statements of operations upon the payoff of the senior mortgage loan as the Carrying Value exceeded the net proceeds from the payoff of the loan.

We expect our primary sources of cash to continue to be sufficient to fund our operating activities and cash commitments for investing and financing activities for at least the next 12 months and thereafter for the foreseeable future. As a result of the commercial real estate environment during 2025 and 2026, certain borrowers have been unable to make interest and principal payments timely, including at the maturity date of the borrower’s loan. We increaseassess our CECL Reserve and increase it or decrease it from time to time, as necessary, to reflect this risk. Our Secured Funding Agreements contain margin call provisions following the occurrence of certain mortgage loan credit events. If we are unable to make the required payment or if we fail to meet or satisfy any of the covenants in our Financing Agreements, we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral, including cash to satisfy margin calls, and enforce their interests against existing collateral. For example, certain of our Financing Agreements contain (i) negative covenants that limit, among other things, our ability to repurchase our common stock, make distributions to our stockholders, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates (including amending the Management Agreement in a material respect) and (ii) operating and financial covenants, including those requiring us to maintain a certain tangible net worth, asset coverage ratio, total net leverage ratio and loan concentration. We are also subject to cross-default and acceleration rights with respect to our Financing Agreements. If we experience borrower default as a result of macroeconomic conditions or otherwise, we may not be able to negotiate modifications to our borrowings with our lenders or receive financing from our Secured Funding Agreements with respect to our commitments to fund our loans held for investment in the future. See “Summary of Financing Agreements” below for a description of our Financing Agreements.

As of MayJuly 4,30, 2026, we had approximately $101$105 million in liquidity including $24$16 million of cash and $77$89 million of availability under our Secured Funding Agreements.

The following table sets forth changes in cash, cash equivalents and restricted cash for the threesix months ended MarchJune 31,30, 2026 and 2025 ($ in thousands):

During the threesix months ended MarchJune 31,30, 2026 and 2025, cash, cash equivalents and restricted cash increased (decreased) by $67.2$(8.6) million and $62.8$27.8 million, respectively.

For the threesix months ended MarchJune 31,30, 2026 and 2025, net cash provided by (used in) operating activities totaled $(56.6)$6.9 million and $8.0$12.9 million, respectively. For the threesix months ended MarchJune 31,30, 2026, adjustments to net income (loss) related to operating activities primarily included the origination of a loan held for sale with a carrying amount of $60.5 million, the net provision for current expected credit losses of $11.1$12.0 million, accretion of discounts, deferred loan origination fees and costs of $1.2$2.6 million, amortization of deferred financing costs of $1.1$2.4 million, realized losses on loans of $3.3 million and change in other assets of $3.5$7.7 million. For the threesix months ended MarchJune 31,30, 2025, adjustments to net income (loss) related to operating activities primarily included the net reversal of current expected credit losses of $5.3$25.5 million, accretion of discounts, deferred loan origination fees and costs of $1.3$2.0 million, amortization of deferred financing costs of $1.2$2.4 million and changerealized inlosses otheron assetsloans of $1.6$33.0 million.

For the threesix months ended MarchJune 31,30, 2026, net cash used in investing activities totaled $89.8$211.3 million and was primarily related to cash used for the origination and funding of loans held for investment exceeding cash received from principal collections and cost-recovery proceeds on loans held for investment. For the threesix months ended MarchJune 31,30, 2025, net cash provided by investing activities totaled $298.7$325.0 million and was primarily related to cash received from principal collections and cost-recovery proceeds on loans held for investment exceeding the cash used for the origination and funding of loans held for investment.

For the threesix months ended MarchJune 31,30, 2026, net cash provided by financing activities totaled $213.6$195.8 million and was primarily related to proceeds from our Secured Funding Agreements of $333.0$430.6 million partially offset by repayments of our Secured Funding Agreements of $9.1$115.7 million, repayments of debt of consolidated VIEs of $99.9 million and dividends paid of $8.4$16.9 million. For the threesix months ended MarchJune 31,30, 2025, net cash used in financing activities totaled $244.0$310.0 million and was primarily related to repayments of our Secured Funding Agreements of $28.9$61.4 million, repayments of debt of consolidated VIEs of $304.0$318.4 million, repayments of our Secured Term Loan of $10.0$20.0 million and dividends paid of $13.9$22.3 million, partially offset by proceeds from our Secured Funding Agreements of $114.8 million.

(3)In March 2026, we amended the secured revolving funding facility with City National Bank (the “CNB Facility”) to, among other things, extend the maturity date to December 31, 2026. The interest rate on advances under the CNB Facility is a per annum rate equal to the sum of, at our option, either (a) a SOFR-based rate plus 3.25% or (b) a base rate plus 2.25%, in each case, subject to an interest rate floor. The amount immediately available under the CNB Facility at any given time can fluctuate based on the fair value of the collateral in the borrowing base that secures the CNB Facility. As of MarchJune 31,30, 2026, there was $51.1$51.6 million of immediate availability under the CNB Facility based on the fair value of the collateral in the borrowing base at such time. The amount immediately available under the CNB Facility may be increased to up to $75.0 million by the pledge of additional collateral into the borrowing base in accordance with the CNB Facility agreement.

Our Financing Agreements contain various affirmative and negative covenants, including negative pledges, and provisions related to events of default that are normal and customary for similar financing agreements. As of MarchJune 31,30, 2026, we were in compliance with all financial covenants of each respective Financing Agreement. We may be required to fund commitments on our loans held for investment in the future and we may not receive funding from our Secured Funding Agreements with respect to these commitments. See Note 6 to our consolidated financial statements included in this quarterly report on Form 10-Q for more information on our Financing Agreements.

On January 20, 2026, we exercised our redemption option under the FL4 CLO Securitization, and in connection therewith, exchanged our remaining FL4 Notes and preferred equity in the FL4 Issuer for the remaining mortgage loans and real estate owned held by the FL4 Issuer and all of the FL4 Notes held by third parties were repaid in full at par. Therefore, as of MarchJune 31,30, 2026, there were no FL4 Notes outstanding.