Ares Commercial Real Estate Q3 Profit Rises on Property Sale Gain

Ares Commercial Real Estate Corporation (ACRE ) reported its third-quarter results on November 6, 2026: GAAP net income attributable to common stockholders rose to $10.0 million, or $0.18 per diluted share, from $4.7 million, or $0.08, a year earlier. A $7.1 million realized gain on the sale of real estate owned was a major contributor to the increase.

The sale gain helped lift earnings even as net interest margin declined to $7.9 million from $8.5 million. Total expenses fell to $8.7 million from $10.0 million, but the quarter also included a $1.8 million provision for current expected credit losses (CECL), compared with a $2.2 million reversal in the prior-year quarter. The property gain and lower expenses offset the weaker net interest margin and credit-loss provision in GAAP results.

Distributable Earnings, the company’s non-GAAP measure that adjusts net income for items including stock compensation, certain depreciation and amortization, credit-loss provisions and unrealized items while retaining realized loan write-offs, totaled $6.7 million, or $0.12 per diluted share. On the further-adjusted basis excluding realized gains and losses, the company reported $6.4 million, or $0.11, down from $7.1 million, or $0.13, a year earlier.

The board declared a $0.15 per-share fourth-quarter common dividend, unchanged from the third quarter and above both third-quarter Distributable Earnings measures. It is payable on January 15, 2027, to shareholders of record on December 31, 2026.

Two Loans Dominate Credit Risk

The third-quarter earnings presentation showed that the North Carolina office property sold during the quarter generated proceeds above its carrying amount. One real-estate-owned property remained at September 30: a Florida mixed-use asset carried at $76 million, with a company-calculated 10% income yield. Office-loan principal was $444 million, nearly unchanged from the second quarter but down 10% year over year and nearly 50% over three years.

Four risk-rated 4 and 5 loans had a combined carrying amount of $299 million, and the two largest accounted for 94% of that group. The Chicago office loan was carried at $135 million; occupancy exceeded 90%, and the average remaining lease term was more than seven years. Management said it was working to accelerate a resolution over the next few months through either a property sale or acquiring title. The Brooklyn residential and condominium loan was carried at $145 million against $200.5 million of outstanding principal and was moved from risk rating 4 to 5. Construction was complete, and pre-sales were continuing.

The total CECL reserve was $141 million, or 8% of outstanding principal on loans held for investment, with 91% related to risk-rated 5 loans. The reserve against risk-rated 4 and 5 loans was $133 million, equivalent to 34% of that group’s outstanding principal. “We remain focused on addressing our risk rated 4 and 5 loans, as resolving these investments will advance the repositioning of our portfolio and enhance our future earnings,” Chief Financial Officer Jeff Gonzales said.

Portfolio Growth and Post-Quarter Liquidity

The loans-held-for-investment portfolio totaled approximately $1.8 billion in outstanding principal across 37 loans, up 42% year over year; 99% were senior loans and 96% were floating-rate. New activity included a $35 million senior co-investment commitment backed by industrial properties. Of that commitment, $28 million was classified as held for investment and $7 million as held for sale at origination, with the latter sold during the quarter. After quarter-end, the company closed an $11 million senior loan commitment collateralized by a self-storage property.

Loan repayments totaled $35 million in the third quarter. Separately, the senior New Jersey industrial loan, which had $27.8 million of outstanding principal and was in maturity default at September 30, was fully repaid on October 30, 2026.

On October 20, 2026, the company fully repaid and terminated its $90 million secured term loan. Available capital was $116 million at September 30, comprising $22 million of cash and approximately $94 million of available secured-funding proceeds. By November 3, available capital stood at $87 million: cash had increased to $43 million, while available secured-funding proceeds had fallen to approximately $44 million.

The quarter presents two distinct measures of progress. Selling an owned property lifted GAAP earnings and reduced real-estate-owned exposure, but Distributable Earnings excluding realized gains declined and credit risk remained concentrated in Chicago and Brooklyn. The central question for subsequent quarters is whether resolving those two exposures can strengthen distributable earnings while the company continues to fund new loans with less available capital than it had at quarter-end.