ACRES Commercial Realty Corp. operates as a real estate finance company.
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, a subsidiary of ACRES Capital Corp. (collectively ‘ACRES’), a private commercial real estate lender exclusively dedicated to nat...
ACRES Commercial Realty Corp. operates as a real estate finance company.
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, 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, or U.S., markets.
The company’s investment strategy targets the following CRE credit investments, including:
Floating-rate first mortgage loans, which the company refers to as whole loans;
First priority interests in first mortgage loans, which the company refers to as A-notes;
Subordinated interests in first mortgage loans, which the company 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 generates its income primarily from the spread between the revenues the company receives from its interest-bearing assets and the cost to finance its ownership of those assets, including corporate debt. The company also derives rental income from its direct equity investments in commercial real estate property.
The company typically targets transitional floating-rate CRE loans between $10.0 million and $100.0 million.
Business Strategy
The core components of the company’s business strategy include investment in CRE assets; managing the company’s investment portfolio; managing the company’s interest rate, pricing and liquidity risk; and diversification of investments.
Investment Portfolio
The company holds investments in 100% of the common shares of two trusts, Resource Capital Trust I and RCC Trust II, that were formed for the purpose of providing the company with unsecured junior subordinated debt financing.
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 the company 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 the company’s investment strategy. The company may create tranches of a loan the company originate, consisting of an A-note (described below) and a B-note (described below), as well as mezzanine loans or other participations, which the company may hold or sell to third parties. The company expects to hold its whole loans to maturity.
Whole Loan Participations. The company may opportunistically invest in participations of whole loans with third-parties or with related parties, whereby the company purchases or otherwise shares in the ownership interests of a whole loan made by another financial institution (the lead financial institution) to a borrower with whom the company does not have a direct lending relationship on a pari passu basis.
Whole Loan Syndications. The company may also opportunistically invest in the syndications of whole loans with third-parties or with related parties, whereby the company co-originates a whole loan to a borrower with another financial institution on a pari passu basis, as well as maintains a direct lending relationship with the borrower. In this arrangement each lender in the syndicate has a separate promissory note with the borrower, subject to a co-lender agreement. This type of investment allows the company to strategically diversify risk, as well as further diversify the company’s asset holdings and borrower base. At December 31, 2023, the company’s loan portfolio included 2 related-party whole loan syndications.
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 does not intend to obtain ratings on these investments. 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 the company 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 subordination of a B-note is generally evidenced by an intercreditor or participation agreement between the holders of the A-note and the B-note. In some instances, the B-note lender may require a security interest in the stock or other equity interests of the borrower as part of the transaction.
Mezzanine financing. Historically, the company has invested in mezzanine loans that are senior to the borrower’s equity in, and subordinate to the mortgage loan on, a property. A mezzanine loan is typically secured by a pledge of the ownership interests in the entity that directly owns the real property or by a second lien mortgage loan on the property. In addition, mezzanine loans typically include credit enhancements such as letters of credit, personal guarantees of the principals of the borrower, or collateral unrelated to the property. A mezzanine loan may be structured so that the company receive 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. Mezzanine loans may also have prepayment lockouts, penalties, minimum profit hurdles and other mechanisms to protect and enhance returns in the event of premature repayment.
Preferred equity investments. Historically, the company has invested in preferred equity investments in entities that own or acquire CRE properties. These investments are subordinate to first mortgage loans and mezzanine debt and are typically structured to provide some credit enhancement differentiating it from the common equity.
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.
The Analyst Price Target shows the analysts’ low, high, and average target at a glance.
