Ares Commercial Real Estate (ACRE) risk factors, FY2025 10-K

RISKS RELATED TO OUR BUSINESS

1. 01A global economic slowdown or further declines in real estate values could impair our investments and have a significant adverse effect on our business, financial condition and results of operations53% rewritten
2. 02Macroeconomic conditions, including those adversely impacting office properties, have resulted and may continue to result in increases to our CECL Reserve and could have an adverse effect on our financial results63% rewritten
3. 03If there is a further deterioration of credit in our existing loan portfolio secured by office properties, as a result of increased vacancy rates, volatility, liquidity or otherwise, we may need to increase our CECL Reserve to account for such conditions
4. 04Changes in interest rates and credit spreads could adversely impact our financial conditionNew
5. 05Our board of directors may change our investment strategy or guidelines, financing strategy or leverage policies without stockholder consent
6. 06We are highly dependent on the information systems of Ares Management and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends84% rewritten
7. 07Finally, there continues to be significant evolution and developments in the use of artificial intelligence technologies, including generative artificial intelligence. At this time, we cannot fully determine the impact of such evolving technology to our industry or businessNew
8. 08Technological developments in artificial intelligence could disrupt the markets in which we and our borrowers operate and subject us to increased competition, legal and regulatory risks and compliance costsNew
9. 09State licensing requirements causes us to incur expenses and our failure to comply with such requirements may have a material adverse effect on us and our operations

RISKS RELATED TO SOURCES OF FINANCING AND HEDGING

1. 10We incur significant debt, which subjects us to increased risk of loss and reduces cash available for distributions to our stockholders30% rewritten
2. 11The Financing Agreements impose, and any additional lending facilities will impose, restrictive covenants and other restrictions
3. 12The Financing Agreements and any bank credit facilities and repurchase agreements that we may use in the future to finance our investments may require us to provide additional collateral or pay down debt
4. 13Our 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
5. 14Lender consent rights under warehouse facilities we may utilize may limit our ability to originate or acquire assets
6. 15We have utilized and may continue to utilize in the future non-recourse long-term securitizations. Such structures expose us to risks which could result in losses
7. 16The securitization process is subject to an evolving regulatory environment that may affect certain aspects of our current business43% rewritten
8. 17We enter into hedging transactions from time to time and such transactions expose us to contingent liabilities
9. 18Hedging against interest rate or currency exposure may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders
10. 19Hedging instruments often are not traded on regulated exchanges or guaranteed by an exchange or its clearing house, and involve risks and costs that could result in material losses

RISKS RELATED TO OUR INVESTMENTS

1. 20We allocate our available capital without input from our stockholders
2. 21The lack of liquidity in our investments may adversely affect our business
3. 22Our portfolio is concentrated in a limited number of loans and has a higher exposure to the office sector compared to the other property types, which subjects us to a risk of significant loss if any of these loans default
4. 23Our investments are subject to risks particular to real property. These risks may result in a reduction or elimination of, or return from, a loan secured by a particular property21% rewritten
5. 24The CRE loans we originate and the mortgage loans underlying any commercial mortgage-backed securities investments that we may make are subject to the ability of the commercial property owner to generate net income from operating the property, as well as the risks of delinquency and foreclosure
6. 25We are subject to various risks related to the ownership of real property
7. 26Prepayment rates may adversely affect the value of our portfolio of assets
8. 27If we are unable to successfully integrate new assets and manage our growth, our results of operations and financial condition may suffer
9. 28We operate in a competitive market for investment opportunities and loan originations and competition may limit our ability to originate or acquire our target investments on attractive terms
10. 29If our Manager overestimates the yields or incorrectly prices the risks of our investments, we may experience losses
11. 30Loans on properties in transition will involve a greater risk of loss than traditional investment-grade mortgage loans with fully insured borrowers
12. 31Risks of cost overruns and non-completion of renovation, construction and development of the properties underlying short term senior loans on properties in transition may result in significant losses
13. 32Investments in non-investment grade rated CRE loans or securities involve increased risk of loss23% rewritten
14. 33The B-Notes and C-Notes that we have originated or may originate or acquire in the future may be subject to additional risks related to the privately negotiated structure and terms of the transaction, which may result in losses to us26% rewritten
15. 34Our mezzanine loan assets involve greater risks of loss than senior loans secured by real properties
16. 35Investments in preferred equity involve a greater risk of loss than traditional debt financing
17. 36We face risks associated with selling loans with the intent to earn origination feesNew
18. 37Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded
19. 38We may experience a decline in the fair value of our assets
20. 39Some of our portfolio investments are recorded at fair value and, as a result, there is uncertainty as to the value of these investments27% rewritten
21. 40Commercial mortgage-backed securities pose risks of the securitization process and the risk that the special servicer may take actions that could adversely affect our interests55% rewritten
22. 41CMBS and CLOs because the ability of borrowers to make principal and interest payments on the mortgages or loans underlying such securities may be impaired, as occurred throughout the global financial crisisNew
23. 42Real estate valuation is inherently subjective and uncertain
24. 43We may invest in non-performing real estate loans and participations
25. 44Insurance on mortgage loans and real estate securities collateral may not cover all losses
26. 45Liability relating to environmental matters may impact the value of properties that we may acquire upon foreclosure of the properties underlying our investments
27. 46The properties underlying our CRE loans may be subject to other unknown liabilities that could adversely affect the value of these properties, and as a result, our investments
28. 47Construction loans involve an increased risk of loss
29. 48Our investments in construction loans require us to make estimates about the fair value of land improvements that may be challenged by the IRS
30. 49Our investments may be concentrated and could be subject to risk of default
31. 50We have foreclosed and in the future may need to foreclose on loans that are in default, which could result in losses

RISKS RELATED TO OUR COMMON STOCK

1. 51The market price of our common stock may fluctuate significantly
2. 52As of December 31, 2025 and 2024, we had 55,026,453 and 54,542,178 shares of common stock outstanding, respectively
3. 53We have not established a minimum distribution payment level and we may be unable to generate sufficient cash flows from our operations to make distributions to our stockholders at any time in the future
4. 54Our distributions may exceed our cash flow from our operations and our net income
5. 55Investing in our common stock may involve a high degree of risk
6. 56Future offerings of securities may adversely affect the market price of our common stock

RISKS RELATED TO OUR ORGANIZATION AND STRUCTURE

1. 57The Maryland General Corporation Law, or the “MGCL,” prohibits certain business combinations, which may make it more difficult for us to be acquired
2. 58Stockholders have limited control over changes in our policies and operations
3. 59Our authorized but unissued shares of common and preferred stock may prevent a change in control
4. 60Maintenance of our exemption from registration under the 1940 Act imposes significant limits on our operations. Your investment return may be reduced if we are required to register as an investment company under the 1940 Act
5. 61There can be no assurance that the laws and regulations governing the 1940 Act status of REITs, including the SEC or its staff providing more specific or different guidance regarding these exemptions, will not change in a manner that adversely affects our operations
6. 62Rapid and steep declines in the values of our real estate-related investments may make it more difficult for us to maintain our qualification as a REIT or exemption from the 1940 Act
7. 63Our rights and the rights of our stockholders to recover on claims against our directors and officers are limited, which could reduce our stockholders and our recovery against them if they negligently cause us to incur losses
8. 64Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management
9. 65Ownership limitations may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares59% rewritten

RISKS RELATED TO OUR RELATIONSHIP WITH OUR MANAGER AND ITS AFFILIATES

1. 66We rely on the resources of our Manager to manage our day-to-day operations, as we do not employ any personnel. We rely completely on our Manager to provide us with investment advisory services
2. 67Our growth depends on the ability of our Manager to make investments on favorable terms that satisfy our investment strategy and otherwise generate attractive risk-adjusted returns initially and consistently from time to time
3. 68There are various conflicts of interest in our relationship with our Manager and Ares Management that could result in decisions that are not in the best interests of our stockholders
4. 69The ability of our Manager and its officers and employees to engage in other business activities may reduce the time our Manager spends managing our business and may result in certain conflicts of interest
5. 70Terminating our Management Agreement for unsatisfactory performance of the Manager or electing not to renew the Management Agreement may be difficult and terminating the agreement in certain circumstances requires payment of a substantial termination fee
6. 71The incentive fee payable to our Manager under the Management Agreement may cause our Manager to select investments in riskier assets to increase its incentive compensation
7. 72Our Manager manages our portfolio in accordance with very broad investment guidelines and our board of directors does not approve each investment and financing decision made by our Manager, which may result in us making riskier investments than those currently comprising our investment portfolio
8. 73Our Manager may change its investment process, or elect not to follow it, without stockholder consent at any time, which may adversely affect our investments
9. 74We do not have a policy that expressly prohibits our directors, officers, stockholders or affiliates from engaging for their own account in business activities of the types conducted by us
10. 75Our Manager is subject to extensive regulation as an investment adviser, which could adversely affect its ability to manage our business
11. 76In addition to other analytical tools, our Manager utilizes financial models to evaluate commercial mortgage loans and CRE-related debt instruments, the accuracy and effectiveness of which cannot be guaranteed
12. 77We do not own the Ares name, but we may use the name pursuant to a license agreement with Ares Management. Use of the name by other parties or the termination of our license agreement may harm our business
13. 78Our Manager’s and Ares Management’s liability is limited under the Management Agreement, and we have agreed to indemnify our Manager against certain liabilities. As a result, we could experience poor performance or losses for which our Manager would not be liable

RISKS RELATED TO UNITED STATES FEDERAL INCOME TAX

1. 79Failure of our subsidiary REIT to qualify as a REIT could adversely impact our ability to qualify as a REIT30% rewritten
2. 80REITs, in certain circumstances, may incur tax liabilities that would reduce the cash available for distribution to our stockholders
3. 81To qualify as a REIT, we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce your overall return
4. 82Complying with REIT requirements may force us to forgo and/or liquidate otherwise attractive investment opportunities
5. 83Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your investment
6. 84The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans that would be treated as sales for United States federal income tax purposes
7. 85TRSs are subject to corporate-level taxes and dealings with TRSs may be subject to 100% excise tax23% rewritten
8. 86stock as part of a distribution in which stockholders may elect to receive shares of common stock or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with the REIT distribution requirementsNew
9. 87The failure of mortgage loans subject to a repurchase agreement to qualify as a real estate asset would adversely affect our ability to qualify as a REIT
10. 88The failure of mezzanine loans to qualify as a real estate asset would adversely affect our ability to qualify as a REIT37% rewritten
11. 89The taxable mortgage pool, or “TMP,” rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations
12. 90We may choose to make distributions in our own stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive
13. 91Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends
14. 92Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities
15. 93We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the price of our common stock50% rewritten
16. 94Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors
17. 95If we fail to comply with laws, regulations and market standards regarding the privacy, use and security of borrower information, we may be subject to legal and regulatory actions and our reputation would be harmed, which would materially adversely affect us
18. 96Ineffective internal controls could impact our business and operating results
19. 97We, our Manager or its affiliates may be subject to litigation risks and may incur significant costs in connection with legal and regulatory proceedings and face liabilities and damage to our, our Manager’s or its affiliates’ reputation32% rewritten
20. 98A major public health crisis, pandemic or epidemic could disrupt the U.S. and global economy and industries in which we operate and negatively impact us47% rewritten
21. 99Increasing scrutiny from stakeholders and regulators with respect to sustainability matters may impose additional costs and expose us to additional risks86% rewritten
22. 100sustainability activities could impact the value of our brand, the cost of our operations and relationships with investors, all of which could adversely affect our business and results of operationsNew