Ares Commercial Real Estate posts $10 million after default repayment

By Marcus Bennett

$10 million of third-quarter 2026 net income translated into $0.18 per diluted common share at Ares Commercial Real Estate. The specialty lender also reported distributable earnings, a non-GAAP profitability measure, of $6.7 million, or $0.12 per share. Without a realized gain from an office sale, distributable earnings stood at $6.4 million, or $0.11 per share.

The board declared a fourth-quarter dividend of $0.15 per common share, payable Jan. 15, 2027, to shareholders of record on Dec. 31, 2026. CEO Bryan Donohoe gave no timeline for dividend coverage. He said resolving troubled loans and real estate owned (REO) assets would help drive distributable earnings growth.

What do the asset resolutions change?

Ares sold a Charlotte, North Carolina, office property for net proceeds about $7 million above carrying value; it took title in 2024. CFO Jeffrey Gonzales said the sale produced a $7.1 million gain under generally accepted accounting principles (GAAP), but a $300,000 realized gain for distributable earnings because accumulated depreciation and amortization had not been recognized in that measure.

After quarter-end, Ares received full repayment of a $28 million industrial loan in Newark, New Jersey, that had been in maturity default, including accrued default interest. Donohoe said the loan sat outside Ares’s risk-rated four and five categories and called the default “more technical than indicative of distressed value.” Gonzales said it was the company’s only defaulted loan.

At quarter-end, office loans and office REO investments totaled $444 million, down 10% from the prior quarter and 19% from a year earlier. Seven office loans remained in the portfolio. Those figures leave office sales and loan resolutions central to earnings and capital release.

Why do Chicago and Brooklyn dominate the risk bucket?

Ares began work to acquire title to a Chicago office property backing a risk-rated five loan. Donohoe said taking title would give Ares more control over the property’s sale process and timing. It was more than 90% occupied, with a weighted average lease term above seven years and no significant capital expenditure cycle expected.

Construction finished during the quarter on a Brooklyn residential condominium project backing another troubled loan. Donohoe said increased visibility into the timing and proceeds of unit sales was a primary reason the loan’s risk rating changed from four to five. Ares expects to recognize proportional losses as individual condominium sales close.

Chicago and Brooklyn together represented 95% of the outstanding principal balance on Ares’s four loans in the risk-rated four and five categories at quarter-end. Those four loans made up 10% of loan carrying value, net of related current expected credit loss (CECL) reserves. The concentration leaves the two assets central to reserve coverage and near-term resolution work.

Resolving the remaining REO assets and risk-rated four and five loans, including non-accrual loans, remains management’s priority. Those investments carried approximately $160 million, net of CECL reserves but before associated financing. Donohoe said resolutions could shift capital generating little or no income into earning assets.

What do reserves and liquidity show?

Ares held $141 million of CECL reserves at quarter-end, up approximately $2 million from the prior quarter and equal to about 8% of outstanding principal on loans held for investment. Of that total, $133 million related to risk-rated four and five loans, and the Chicago office loan accounted for nearly half of the overall reserve.

Book value stood at $8.86 per share, which Gonzales described as relatively stable. Available capital totaled $116 million as of Sept. 30, while the net debt-to-equity ratio, excluding CECL, stood at 1.9 times. Ares also fully repaid its secured term loan after quarter-end.

Ares collected $35 million of loan repayments during the third quarter and $146 million during the first nine months of 2026. It closed a $35 million senior co-investment loan on industrial properties, retained $28 million as held for investment, and sold the remaining $7 million during the quarter.

The portfolio grew more than 40% over the preceding 12 months. Donohoe said future growth would depend on liquidity, the pace of asset resolutions and market conditions. He characterized the commercial real estate market as “moderately constructive,” with higher interest rates offsetting generally positive property fundamentals.

What does Ares Commercial Real Estate finance?

Ares Commercial Real Estate Corporation operates as a specialty finance company organized as a real estate investment trust (REIT). It originates and invests in commercial real estate loans, primarily senior mortgages secured by U.S. properties.

The lender generally targets transitional assets and other properties requiring financing for acquisition, redevelopment, renovation or repositioning. Its portfolio can include loans backed by multifamily, office, industrial, retail, hotel and other commercial properties.