ACRES Commercial Realty Profile
ACRES Commercial Realty Corp. operates as a real estate finance company.
The company conducts its operations to qualify as a real estate investment trust (REIT) for federal income tax purposes under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code.
The company’s investment strategy is primarily focused on originating, holding and managing commercial real estate (CRE) mortgage loans and equity investments in commercial real estate property through direct ownership and joint ventures. The company is externally managed by ACRES Capital, LLC (Manager), a subsidiary of ACRES Capital Corp. (collectively ACRES), a private commercial real estate lender exclusively dedicated to nationwide middle market CRE lending with a focus on multifamily, student housing, hospitality, industrial and office property in top United States (U.S.) markets.
The company’s investment strategy targets the following CRE credit investments, including floating-rate first mortgage loans, which it refers to as whole loans; first priority interests in first mortgage loans, which it refers to as A-notes; subordinated interests in first mortgage loans, which it refers to as B-notes; preferred equity investments related to CRE that are subordinate to first mortgage loans and are not collateralized by the property underlying the investment; and CRE equity investments.
The company typically targets transitional floating-rate CRE loans. During the year ended December 31, 2022, the company originated 19 CRE loans.
Investment Portfolio
CRE Debt Investments
Floating-Rate Whole Loans: The company predominantly originates floating-rate first mortgage loans, or whole loans, directly to borrowers. The direct origination of whole loans enables it to better control the structure of the loans and to maintain direct lending relationships with borrowers. Additionally, the company may acquire whole loans from third parties that conform to its investment strategy. The company may create tranches of a loan it originates, consisting of an A-note and a B-note, as well as mezzanine loans or other participations, which it may hold or sell to third parties. With respect to its portfolio as of December 31, 2022, the company’s whole loan investments had loan-to-collateral value, or LTV, ratios that typically do not exceed 85%. Typically, the company’s whole loans are structured with an original term of up to three years, with one-year extensions that bring the loan to a maximum term of five years. Substantially all of the company’s CRE loans held as of December 31, 2022, were whole loans. The company expects to hold its whole loans to maturity.
Senior Interests in Whole Loans (A-notes): The company may invest in senior interests in whole loans, referred to as A-notes, either directly originated or purchased from third parties. The company expects its typical A-note investments to have LTV ratios not exceeding 70% and will generally be structured with an original term of up to three years, with one-year extensions that bring the loan to a maximum term of five years. The company expects to hold any A-note investments to maturity.
Subordinate Interests in Whole Loans (B-notes): To a lesser extent, the company may invest in subordinate interests in whole loans, referred to as B-notes, which it will either directly originate or purchase from third parties. B-notes are loans secured by a first mortgage but are subordinated to an A-note. The company expects its typical B-note investments to have LTV ratios between 55% and 80% and will generally be structured with an original term of up to three years, with one-year extensions that bring the loan to a maximum term of five years. The company expects to hold any B-note investments to maturity.
Mezzanine Financing: A mezzanine loan may be structured so that the company receives a stated fixed or variable interest rate on the loan, as well as a percentage of gross revenues and a percentage of the increase in the fair market value of the property securing the loan, payable upon maturity, refinancing or sale of the property. As of December 31, 2022, the company’s loan portfolio included one mezzanine loan with no carrying value.
Preferred Equity Investments: The company expects its preferred equity investments to have LTV ratios between 65% and 90% with stated maturities from three to eight years. The company expects to hold preferred equity investments to maturity.
CRE Investments
The company may invest directly in the ownership of CRE equity investments by making direct investments where net operating loss (NOL) carryforwards exist and can absorb the creation of REIT taxable income or by restructuring CRE loans and taking control of the properties where the company can protect capital and ultimately generate capital appreciation. The company may acquire CRE equity investments through a joint venture or wholly-owned subsidiary and may classify these investments in real estate as held for investment or held for sale. The company intends to primarily use an affiliate of its Manager to manage the CRE equity investments when held. As of December 31, 2022, the company held four investments in real estate acquired through direct equity investments and two investments in real estate acquired from lending activities (i.e. through the receipt of the deeds-in-lieu of foreclosure on the properties that collateralized former non-performing loans). As of December 31, 2022, two of these investments were classified as held for sale.
Business Strategy
The core components of the company’s business strategy include investing in CRE assets; managing its investment portfolio; and diversification of investments.
Tax Status
The company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended. As a result, the company is not subject to Federal or State income taxation at the corporate level to the extent it distributes annually approximately 90% of its REIT taxable income to its shareholders and satisfies certain other requirements.
History
The company, a Maryland corporation, was incorporated in 2005. It was formerly known as Resource Capital Corp. and changed its name to Exantas Capital Corp. in 2018. Further, the company changed its name to ACRES Commercial Realty Corp. in 2021.
