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We are a specialty finance company primarily engaged in originating andinvesting in commercial real estate loans and related investments. We areexternally managed by Ares Commercial Real Estate Management LLC ("ACREM" or our"Manager"), a subsidiary of Ares Management, L.P. (NYSE: ARES) ("AresManagement"), a publicly traded, leading global alternative asset manager,pursuant to the terms of the management agreement dated April 25, 2012, asamended, between us and our Manager (the "Management Agreement"). From thecommencement of our operations in late 2011, we have been primarily focused ondirectly originating and managing a diversified portfolio of commercial realestate ("CRE") debt-related investments for our own account.We were formed and commenced operations in late 2011. We are a Marylandcorporation and completed our initial public offering in May 2012. We haveelected and qualified to be taxed as a real estate investment trust ("REIT") forU.S. federal income tax purposes under the Internal Revenue Code of 1986, asamended, commencing with our taxable year ended December 31, 2012. We generallywill not be subject to U.S. federal income taxes on our REIT taxable income,determined without regard to the deduction for dividends paid and excluding netcapital gains, to the extent that we annually distribute all of our REIT taxableincome to stockholders and comply with various other requirements as a REIT. Wealso operate our business in a manner that will permit us to maintain ourexemption from registration under the Investment Company Act of 1940, as amended(the "1940 Act").We are an "emerging growth company," as defined in the Jumpstart Our BusinessStartups Act of 2012, or the JOBS Act, and we are eligible to take advantage ofcertain exemptions from various reporting requirements that are applicable toother public companies that are not "emerging growth companies." In addition,Section 107 of the JOBS Act also provides that an "emerging growth company" cantake advantage of the extended transition period provided in Section 7(a)(2)(B)of the Securities Act of 1933, as amended (the "Securities Act"), for complyingwith new or revised accounting standards. However, we chose to "opt out" of suchextended transition period, and as a result, we will comply with new or revisedaccounting standards on the relevant dates on which adoption of such standardsis required for non-emerging growth companies. Section 107 of the JOBS Actprovides that our decision to opt out of the extended transition period forcomplying with new or revised accounting standards is irrevocable. StartingDecember 31, 2017, we will no longer be treated as an "emerging growth company."We could remain an "emerging growth company" for up to five years, or until theearliest of (i) the last day of the first fiscal year in which our annual grossrevenues exceed $1.0 billion, (ii) the date that we become a "large acceleratedfiler" as defined in Rule 12b-2 under the Securities Exchange Act of 1934, asamended (the "Exchange Act") which would occur if the market value of our commonstock that is held by non-affiliates exceeds $700 million as of the lastbusiness day of our most recently completed second fiscal quarter, or (iii) thedate on which we have issued more than $1.0 billion in non-convertible debtduring the preceding three-year period.

Sale of Mortgage Banking Subsidiary

On June 28, 2016, we entered into a Purchase and Sale Agreement (as amended, the"Agreement") with Barings Real Estate Advisers LLC (formerly known asCornerstone Real Estate Advisers LLC), a Delaware limited liability company (the"Buyer"), to sell ACRE Capital Holdings LLC ("TRS Holdings"), the holdingcompany that owned our mortgage banking subsidiary, ACRE Capital LLC ("ACRECapital"). Under the terms and subject to the conditions set forth in theAgreement, on September 30, 2016, the Buyer purchased from us all of theoutstanding common units of TRS Holdings (the "ACRE Capital Sale"). ACRE Capitalprimarily originated, sold and serviced multifamily and senior-living relatedloans under programs offered by government-sponsored enterprises and bygovernment agencies.Under the terms of the Agreement, the Buyer paid approximately $93 million incash as consideration for the ACRE Capital Sale. We recognized a net gain on thesale of TRS Holdings of approximately $10.2 million.The ACRE Capital Sale provides us with additional capital to reinvest in ourcore business. As a result of the sale of TRS Holdings, the operations of theMortgage Banking segment have been reclassified as discontinued operations inall periods presented. After giving effect to the ACRE Capital Sale, we nowconduct and manage our business as one operating segment, rather than multipleoperating segments; therefore, we no longer provide segment reporting.

Below are significant developments during the year presented by quarter:

Developments during the First Quarter of 2016:

50--------------------------------------------------------------------------------

• ACRE originated a $56.0 million senior mortgage loan on a hotel portfolio located in California.• ACRE originated a $25.5 million senior mortgage loan on an office property located in Kansas.• ACRE originated a $17.0 million mezzanine loan on an office property located in New Jersey.• ACRE amended its $50.0 million Bridge Loan Warehousing Credit and Security Agreement (the "BAML Facility") with Bank of America, N.A. to expand the eligible assets to include loans secured by general and affordable multifamily properties.• ACRE amended its $50.0 million secured revolving funding facility (the "March 2014 CNB Facility") with City National Bank to extend the maturity date to March 11, 2017.

Developments During the Second Quarter of 2016:

• ACRE originated a $76.0 million senior mortgage loan on a mixed-use property located in New York.• ACRE originated a $15.2 million senior mortgage loan on an office property located in California.• ACRE entered into an agreement to sell TRS Holdings, the holding company that owns ACRE Capital, toBarings Real Estate Advisers LLC for $93 million in cash, subject to certainadjustments.• The commercial mortgage-backed securities securitization was terminated on June 17, 2016.• ACRE amended the master repurchase funding facility with

Wells Fargo

Bank, National Association ("Wells Fargo") (as amended and restated, the "Wells Fargo Facility") to, among other things, increase the size of the facility from $225.0 million to $325.0 million and extend the initial maturity date to December 14, 2017.• The global master repurchase agreement with UBS AG (the "December 2014 UBS Facility") was repaid in full.• ACRE amended the BAML Facility to extend the initial

maturity date

to May 25, 2017 and the final maturity date to May 25, 2020.

Developments During the Third Quarter of 2016:

• ACRE originated a $159.2 million senior mortgage loan

collateralized

by a portfolio of assets comprised of self-storage, retail and office properties across a multi-state area.• ACRE originated a $99.0 million senior mortgage loan

collateralized

by a portfolio of assets comprised of self-storage and retail properties across a multi-state area.• ACRE originated a $89.7 million senior mortgage loan on a multifamily property located in Florida.• ACRE originated a $72.0 million senior mortgage loan on an office property located in Illinois.• ACRE originated a $62.5 million senior mortgage loan on an office property located in California.• ACRE originated a $45.4 million senior mortgage loan on a multifamily property located in Florida.• ACRE originated a $34.1 million senior mortgage loan on a multifamily property located in Minnesota.• ACRE originated a $23.3 million senior mortgage loan on a multifamily property located in Florida.• ACRE originated a $20.1 million senior mortgage loan on an office property located in Pennsylvania.• ACRE amended its $250.0 million master repurchase facility (the "Citibank Facility") with Citibank, N.A., which added an accordion feature that provides for an increase in the $250.0 million commitment amount with respect to approved assets, as

determined by

Citibank, N.A. in its sole discretion.• ACRE amended and restated the BAML Facility to increase its commitment size from $50.0 million to $125.0 million.• ACRE repaid in full its $75.0 million revolving funding facility (the "July 2014 CNB Facility") with City National Bank and its terms were not extended.• ACRE entered into a $125.0 million master repurchase and securities contract (the "U.S. Bank Facility") withU.S. Bank National Association ("U.S. Bank").• ACRE drew the remaining $80.0 million commitment under the Credit and Guaranty Agreement (the ''Secured Term Loan") with Highbridge Principal Strategies, LLC, as administrative agent, and DBD Credit Funding LLC, as collateral agent.

• ACRE closed the ACRE Capital Sale.

Developments During the Fourth Quarter of 2016

• ACRE originated a loan on an office property located in Texas, comprised of a $70.1 million senior mortgage loan and a $10.3 million B-Note mortgage loan.• The collateralized loan obligation ("CLO") securitization was terminated on December 16, 2016. 51

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• ACRE amended its Citibank Facility to extend the initial maturity date to December 10, 2018. Additionally, new advances under the Citibank Facility after December 8, 2016 accrue interest at a per annum rate equal to one-month LIBOR plus a pricing margin range of 2.25% to 2.50%, subject to certain exceptions.

Factors Impacting Our Operating Results

The results of our operations are affected by a number of factors and primarilydepend on, among other things, the level of our net interest income, the marketvalue of our assets and the supply of, and demand for, commercial mortgageloans, CRE debt and other financial assets in the marketplace. Our net interestincome, which reflects the amortization of origination fees and direct costs, isrecognized based on the contractual rate and the outstanding principal balanceof the loans we originate. Interest rates will vary according to the type ofinvestment, conditions in the financial markets, credit worthiness of ourborrowers, competition and other factors, none of which can be predicted withany certainty. Our operating results may also be impacted by credit losses inexcess of initial anticipations or unanticipated credit events experienced byborrowers.Changes in Fair Value of Our Assets. We generally hold our target investmentsas long-term investments. We evaluate our investments for impairment on at leasta quarterly basis and impairments will be recognized when it is probable that wewill not be able to collect all amounts due according to the contractual termsof the loan. If a loan is considered to be impaired, we will record an allowanceto reduce the carrying value of the loan to the present value of expected futurecash flows discounted at the loan's contractual effective rate, or if repaymentis expected solely from the collateral, the fair value of the collateral.Loans are collateralized by real estate and as a result, the extent and impactof any credit deterioration associated with the performance and/or value of theunderlying collateral property, as well as the financial and operatingcapability of the borrower, are regularly evaluated. We monitor performance ofour investment portfolio under the following methodology: (1) borrower review,which analyzes the borrower's ability to execute on its original business plan,reviews its financial condition, assesses pending litigation and considers itsgeneral level of responsiveness and cooperation; (2) economic review, whichconsiders underlying collateral (i.e., leasing performance, unit sales and cashflow of the collateral and its ability to cover debt service as well as theresidual loan balance at maturity); (3) property review, which considers currentenvironmental risks, changes in insurance costs or coverage, current sitevisibility, capital expenditures and market perception; and (4) market review,which analyzes the collateral from a supply and demand perspective of similarproperty types, as well as from a capital markets perspective. Such impairmentanalyses are completed and reviewed by asset management and finance personnelwho utilize various data sources, including periodic financial data such asproperty occupancy, tenant profile, rental rates, operating expenses, and theborrower's exit plan, among other factors. As of December 31, 2016 and 2015, allloans were paying in accordance with their contractual terms. There were noimpairments during the years ended December 31, 2016, 2015 and 2014.Although we generally hold our target investments as long-term investments, wemay occasionally classify some of our investments as held for sale. Investmentsheld for sale will be carried at fair value within loans held for sale in ourconsolidated balance sheets, with changes in fair value recorded throughearnings. The fees received are deferred and recognized as part of the gain orloss on sale. At this time, we do not expect to hold any of our investments fortrading purposes.

Changes in Market Interest Rates. With respect to our business operations,increases in interest rates, in general, may over time cause:

• the interest expense associated with our borrowings to increase, subject to any applicable ceilings;

• the value of our mortgage loans to decline;

• coupons on our floating rate mortgage loans to reset to higher interest rates; and• to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates, the value of these agreements to increase.

Conversely, decreases in interest rates, in general, may over time cause:

• the interest expense associated with our borrowings to decrease, subject to any applicable floors;• the value of our mortgage loan portfolio to increase, for such mortgages with applicable floors; 52

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• coupons on our floating rate mortgage loans to reset to lower interest rates; and• to the extent we enter into interest rate swap agreements as part of our hedging strategy where we pay fixed and receive floating interest rates, the value of these agreements to decrease.Credit Risk. We are subject to varying degrees of credit risk in connectionwith our target investments. Our Manager seeks to mitigate this risk by seekingto originate or acquire investments of higher quality at appropriate pricesgiven anticipated and unanticipated losses, by employing a comprehensive reviewand selection process and by proactively monitoring originated or acquiredinvestments (see the performance monitoring methodology above). Nevertheless,unanticipated credit losses could occur that could adversely impact ouroperating results and stockholders' equity.Market Conditions. We believe that our target investments currently presentattractive risk-adjusted return profiles, given the underlying propertyfundamentals and the competitive landscape for the type of capital we provide.Following a dramatic decline in CRE lending in 2008 and 2009, debt capital hasbecome more readily available for select stabilized, high quality assets incertain locations such as gateway cities, but less available for many othertypes of properties, either because of the markets in which they are located orbecause the property is undergoing some form of transition. More particularly,many traditional financing products tend to come with limited flexibility,especially with respect to prepayment. Consequently, we anticipate a high demandfor the type of customized debt financing we provide from borrowers or sponsorswho are looking to refinance indebtedness that is maturing in the next two tofive years or are seeking shorter-term debt solutions as they reposition theirproperties. We also envision that demand for financing will be strong forsituations in which a property is being acquired with plans to improve the netoperating income through capital improvements, leasing, cost savings or otherkey initiatives and realize the improved value through a subsequent sale orrefinancing. We believe that this will result in increased demand for shorterduration and often floating rate products, which we anticipate will increasefinancing transaction volumes and benefit our deal flow. We believe thatincreased deal flow will further enhance our ability to be increasinglyselective about the assets for which we provide financing. We believe marketconditions continue to be favorable for disciplined and scaled direct lendingwith broad and flexible product offerings.Performance of Commercial Real Estate Related Markets. Our business isdependent on the general demand for, and value of, commercial real estate andrelated services, which are sensitive to economic conditions. Demand formultifamily and other commercial real estate generally increases during periodsof stronger economic conditions, resulting in increased property values,transaction volumes and loan origination volumes. During periods of weakereconomic conditions, multifamily and other commercial real estate may experiencehigher property vacancies, lower demand and reduced values. These conditions canresult in lower property transaction volumes and loan originations.

Investment Portfolio

As of December 31, 2016, our portfolio totaled 31 loans held for investment,excluding 47 loans that were repaid or sold since inception. Such investmentsare referred to herein as our investment portfolio. As of December 31, 2016, theaggregate originated commitment under these loans at closing was approximately$1.5 billion and outstanding principal was $1.3 billion, excludingnon-controlling interests held by third parties. During the year ended December31, 2016, we funded approximately $863.5 million of outstanding principal andreceived repayments of $685.6 million of outstanding principal, excludingnon-controlling interests held by third parties. As of December 31, 2016, 82.5%of our loans have London Interbank Offered Rates ("LIBOR") floors, with aweighted average floor of 0.38%, calculated based on loans with LIBOR floors.References to LIBOR or "L" are to 30-day LIBOR (unless otherwise specificallystated).

As of December 31, 2016, all loans were paying in accordance with theircontractual terms. During the year ended December 31, 2016, there were noimpairments with respect to our loans held for investment.

Our loans held for investment are accounted for at amortized cost. The followingtable summarizes our loans held for investment as of December 31, 2016 ($ inthousands): 53

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As of December 31, 2016 Weighted Weighted Average Average Weighted Unleveraged Remaining Carrying Outstanding Average Effective Life Amount (1) Principal (1) Interest Rate Yield (2) (Years)Senior mortgage loans $ 1,181,569$ 1,188,425 4.7 % 5.7 % 1.8Subordinated debt andpreferred equity investments 121,828 123,230 10.7 % 11.5 % 4.1Total loans held forinvestment portfolio(excluding non-controllinginterests held by thirdparties) $ 1,303,397$ 1,311,655 5.2 % 6.3 % 2.0

_____________________________________________________________________________

(1) The difference between the Carrying Amount and the Outstanding Principal

face amount of the loans held for investment consists of unamortized purchase discount, deferred loan fees and loan origination costs.

(2) Unleveraged Effective Yield is the compounded effective rate of return

that would be earned over the life of the investment based on the

contractual interest rate (adjusted for any deferred loan fees, costs,

premium or discount) and assumes no dispositions, early prepayments or defaults. The Total Weighted Average Unleveraged Effective Yield is calculated based on the average of Unleveraged Effective Yield of all

loans held by us as of December 31, 2016 as weighted by the Outstanding

Principal balance of each loan.

Non-Controlling Interests

The non-controlling interests held by third parties in our consolidatedfinancial statements represent the equity interests in ACRC KA Investor LLC(“ACRC KA”) that are not owned by us. See Note 12 to our consolidated financialstatements included in this annual report on Form 10-K for more informationabout ACRC KA.

A reconciliation of our loans held for investment portfolio, excludingnon-controlling interests held by third parties, to our loans held forinvestment as included within our consolidated balance sheets is as follows ($in thousands): As of December 31, 2016 Outstanding Carrying

Amount PrincipalTotal loans held for investment portfolio (excludingnon-controlling interests held by third parties)

$ 1,303,397$ 1,311,655Non-controlling interest investment held by third parties 10,540 10,540Loans held for investment $ 1,313,937$ 1,322,195

For more information about our investment portfolio, see Note 3 to ourconsolidated financial statements included in this annual report on Form 10-K.

A reconciliation of our interest income from loans held for investment,excluding non-controlling interests, to our interest income from loans held forinvestment as included within our consolidated statements of operations is asfollows ($ in thousands): For the year ended

December 31, 2016Interest income from loans held for investment, excludingnon-controlling interests

77,424

Interest income from non-controlling interest investment held bythird parties

4,539

Interest income from loans held for investment $ 81,963Critical Accounting PoliciesOur consolidated financial statements have been prepared in accordance withgenerally accepted accounting principles ("GAAP"), which require management tomake estimates and assumptions that affect reported amounts. The estimates andassumptions are based on historical experience and other factors managementbelieves to be reasonable. Actual results may differ from those estimates andassumptions. We believe the following critical accounting policy represents anarea where more significant judgments and estimates are used in the preparationof our consolidated financial statements. 54--------------------------------------------------------------------------------Impairment of Loans Held for Investment. We originate CRE debt and relatedinstruments generally to be held for investment. Loans that are held forinvestment are carried at cost, net of unamortized loan fees and originationcosts, unless the loans are deemed impaired. Impairment occurs when it is deemedprobable that we will not be able to collect all amounts due according to thecontractual terms of the loan. If a loan is considered to be impaired, we willrecord an allowance to reduce the carrying value of the loan to the presentvalue of expected future cash flows discounted at the loan's contractualeffective rate. Significant judgment is required when evaluating loans forimpairment, therefore, actual results over time could be materially different. Each loan classified as held for investment is evaluated for impairment on aquarterly basis. Loans are collateralized by real estate or the equity of thereal estate owner. The extent of any credit deterioration associated with theperformance and/or value of the underlying collateral property and the financialand operating capability of the borrower could impact the expected amountsreceived.

Recent Accounting Pronouncements

See Note 2 to our consolidated financial statements included in this annualreport on Form 10-K, which describes recent accounting pronouncements that wehave adopted or are currently evaluating.

RECENT DEVELOPMENTS

On January 9, 2017, we originated a $31.4 million senior mortgage loan on amultifamily property located in New York. At closing, the outstanding principalbalance was approximately $31.4 million. The loan has an interest rate of LIBORplus 4.55% (plus fees) and an initial term of two years.On February 14, 2017, we originated a $24.1 million senior mortgage loan on astudent housing property located in Alabama. At closing, the outstandingprincipal balance was approximately $24.1 million. The loan has an interest rateof LIBOR plus 4.45% (plus fees) and an initial term of three years.On February 16, 2017, we originated a $24.4 million senior mortgage loan on amultifamily property located in California. At closing, the outstandingprincipal balance was approximately $20.8 million. The loan has an interest rateof LIBOR plus 3.90% (plus fees) and an initial term of four years.On March 1, 2017, we originated a $53.8 million senior mortgage loan on amultifamily property located in Florida. At closing, the outstanding principalbalance was approximately $53.8 million. The loan has an interest rate of LIBORplus 3.65% (plus fees) and an initial term of four years.On March 2, 2017, ACRC Lender LLC ("ACRC Lender"), a subsidiary of ours, amendedthe March 2014 CNB Facility to extend the initial maturity date to March 11,2018. The initial maturity date of the facility has two one-year extensions,each of which may be exercised at ACRC Lender's option, subject to thesatisfaction of certain conditions, including payment of an extension fee,which, if both were exercised, would extend the maturity date of the March 2014CNB Facility to March 10, 2020.On March 2, 2017, ACRE Commercial Mortgage 2017-FL3 Ltd. (the "Issuer") and ACRECommercial Mortgage 2017-FL3 LLC, both wholly owned indirect subsidiaries of us,issued approximately $272.9 million principal balance secured floating ratenotes (the "Offered Notes") to a third party. We are retaining (through one ofour wholly owned subsidiaries) approximately $68.2 million of the non-investmentgrade notes (together with the Offered Notes, the "Notes") and the preferredequity of the Issuer, which notes and preferred equity were not offered toinvestors. The Notes are collateralized by interests in a pool of twelvemortgage assets having a total principal balance of approximately $341.2million.As of March 3, 2017, we had approximately $173 million in capital, either incash or in approved but undrawn capacity under our Secured Funding Agreements(defined below). After holding in reserve $10 million in liquidity requirements,we expect to have approximately $163 million in capital available to fund newloans, fund outstanding commitments on existing loans, repurchase our commonshares and for other working capital and general corporate purposes. Assumingthat we use all such amount as capital to make new senior loans and we are ableto leverage such amount under our Secured Funding Agreements at a debttoequityratio of 2.5:1, we would have the capacity to fund approximately $570 million ofadditional senior loans. 55

--------------------------------------------------------------------------------As of March 3, 2017, the total unfunded commitments for our existing loans heldfor investment were approximately $66 million. In addition, borrowings under ourSecured Funding Agreements were approximately $559 million, borrowings under ourSecured Term Loan was approximately $155 million, and debt issued in the form ofa securitization financing was approximately $273 million.On March 7, 2017, we declared a cash dividend of $0.27 per common share for thefirst quarter of 2017. The first quarter 2017 dividend is payable on April 17,2017 to common stockholders of record as of March 31, 2017.

RESULTS OF OPERATIONS

The following table sets forth a summary of our consolidated results ofoperations for the years ended December 31, 2016, 2015 and 2014 ($ thousands): For the years ended December 31, 2016 2015 2014Net interest margin $ 45,107$ 49,995$ 36,858Gain on sale of loans - - 680Total expenses 14,426 13,671 14,549Income from continuing operations beforeincome taxes 30,681 36,324

22,989

Income tax expense (benefit), includingexcise tax 230 (11 ) 240Net income from continuing operations 30,451 36,335

22,749

Net income from operations of discontinuedoperations, net of income taxes 4,221 6,985

1,867

Gain on sale of discontinued operations 10,196 - -Net income attributable to ACRE 44,868 43,320

24,616

Less: Net income attributable tonon-controlling interests (4,532 ) (9,035 ) (220 )Net income attributable to commonstockholders $ 40,336$ 34,285$ 24,396The following tables set forth select details of our consolidated results ofoperations from continuing operations for the years ended December 31, 2016,2015 and 2014 ($ thousands):Net Interest Margin For the years ended December 31, 2016 2015 2014

Interest income from loans held for investment $ 81,963$ 86,337

$ 70,495Interest expense (36,856 ) (36,342 ) (33,637 )Net interest margin $ 45,107$ 49,995$ 36,858For the years ended December 31, 2016 and 2015, net interest margin wasapproximately $45.1 million and $50.0 million, respectively. For the years endedDecember 31, 2016 and 2015, interest income from loans held for investment of$82.0 million and $86.3 million, respectively, was generated by weighted averageearning assets of $1.3 billion and $1.2 billion, respectively, offset by$36.9 million and $36.3 million, respectively, of interest expense, unused feesand amortization of deferred loan costs. The weighted average borrowings underthe Secured Funding Agreements, the Secured Term Loan, the CLO and commercialmortgage backed securities ("CMBS") securitizations were $889.5 million and$929.0 million for the years ended December 31, 2016 and 2015, respectively. Thedecrease in net interest margin for the year ended December 31, 2016 compared tothe year ended December 31, 2015 primarily relates to a $4.5 million decrease ininterest income from non-controlling interests for the year ended December 31,2016 as a result of a $36.7 million and a $36.0 million prepayment in November2015 and November 2016, respectively, on the non-controlling interest investmentheld by third parties.For the years ended December 31, 2015 and 2014, net interest margin wasapproximately $50.0 million and$36.9 million, respectively. For the years ended December 31, 2015 and 2014,interest income from loans held for investment of $86.3 million and $70.5million, respectively, was generated by weighted average earning assets of $1.2billion, offset by 56--------------------------------------------------------------------------------$36.3 million and $33.6 million, respectively, of interest expense, unused feesand amortization of deferred loan costs. The weighted average borrowings underthe Secured Funding Agreements and securitization debt, the Secured Term Loanand convertible notes were $929.0 million and $888.3 million for the years endedDecember 31, 2015 and 2014, respectively. The increase in net interest marginfor the year ended December 31, 2015 compared to the year ended December 31,2014 primarily relates to the inclusion of interest income of $9.1 million fromnon-controlling interests for the year ended December 31, 2015 compared to $0.3million for the year ended December 31, 2014, a decrease in our weighted averageborrowing costs resulting from amendments to our Secured Funding Agreements andan increase in our use of leverage for the year ended December 31, 2015.

Operating Expenses

The operating expenses below do not include expenses of ACRE Capital. See Note13 to our consolidated financial statements included in this annual report onForm 10-K for more information about the operating expenses of ACRE Capital. For the years ended December 31, 2016 2015 2014

Management and incentive fees to affiliate $ 5,956$ 5,397

$ 5,440Professional fees 2,228 2,018

2,686

Acquisition and investment pursuit costs - - 20General and administrative expenses 2,801 2,830

3,003

General and administrative expensesreimbursed to affiliate 3,441 3,426 3,400Total expenses $ 14,426$ 13,671$ 14,549For the years ended December 31, 2016 and 2015, we incurred operating expensesof $14.4 million and $13.7 million, respectively. The increase in operatingexpenses for the year ended December 31, 2016 compared to the year endedDecember 31, 2015 primarily relates to incentive fees due to our Manager for theyear ended December 31, 2016 and an increase in management fees due to ourManager that were allocated to continuing operations subsequent to the closingof the sale of ACRE Capital on September 30, 2016.For the years ended December 31, 2015 and 2014, we incurred operating expensesof $13.7 million and $14.5 million, respectively. The decrease in operatingexpenses for the year ended December 31, 2015 compared to the year endedDecember 31, 2014 primarily relates to a reduction in professional fees due to adecrease in our use of third party professionals.

Related Party Expenses

For the year ended December 31, 2016, related party expenses included $5.6million in management fees due to our Manager and $3.4 million for our share ofallocable general and administrative expenses for which we were required toreimburse our Manager pursuant to the Management Agreement. For the year endedDecember 31, 2015, related party expenses included $5.4 million in managementfees due to our Manager and $3.4 million for our share of allocable general andadministrative expenses for which we were required to reimburse our Managerpursuant to the Management Agreement. The increase in management fees due to ourManager for the year ended December 31, 2016 compared to the year ended December31, 2015 primarily relates to an increase in management fees that were allocatedto continuing operations subsequent to the closing of the sale of ACRE Capitalon September 30, 2016. For the year ended December 31, 2016, related partyexpenses also included $0.3 million in incentive fees due to our Manager. Forthe year ended December 31, 2015, there were no incentive fees due to ourManager.For the year ended December 31, 2014, related party expenses included$5.4 million in management fees due to our Manager and $3.4 million for ourshare of allocable general and administrative expenses for which we wererequired to reimburse our Manager pursuant to the Management Agreement.Effective as of September 30, 2013, and through the period ended December 31,2014, our Manager agreed not to seek reimbursement of our share of personnel andoverhead expenses in excess of $1.0 million per quarter.Other Expenses 57--------------------------------------------------------------------------------

For the years ended December 31, 2016 and 2015, professional fees were $2.2million and $2.0 million, respectively, which was relatively consistent yearover year. For both the years ended December 31, 2016 and 2015, general andadministrative expenses were $2.8 million.

For the years ended December 31, 2015 and 2014, professional fees were $2.0million and $2.7 million, respectively. The decrease in professional fees forthe year ended December 31, 2015 compared to the year ended December 31, 2014primarily relates to a decrease in our use of third party professionals due tochanges in transaction activity year over year. For the years ended December 31,2015 and 2014, general and administrative expenses were $2.8 million and $3.0million, respectively. The decrease in general and administrative expenses forthe year ended December 31, 2015 compared to the year ended December 31, 2014primarily relates to a reduction in director stock compensation expense.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity is a measure of our ability to meet potential cash requirements,including ongoing commitments to repayborrowings, fund and maintain our assets and operations, make distributions toour stockholders and other general business needs. We use significant cash topurchase our target investments, make principal and interest payments on ourborrowings, make distributions to our stockholders and fund our operations. Ourprimary sources of cash generally consist of unused borrowing capacity under ourSecured Funding Agreements, the net proceeds of future offerings, payments ofprincipal and interest we receive on our portfolio of assets and cash generatedfrom our operating activities. However, principal repayments from mortgage loansin securitizations where we retain the subordinate securities are appliedsequentially, first used to pay down the senior notes, and accordingly we willnot receive any proceeds from repayment of loans in the securitizations untilall senior notes are repaid in full. Subject to maintaining our qualification asa REIT and our exemption from the 1940 Act, we expect that our primary sourcesof financing will be, to the extent available to us, through (a) credit, securedfunding and other lending facilities, (b) securitizations, (c) other sources ofprivate financing, including warehouse and repurchase facilities, and (d) publicor private offerings of our equity or debt securities. See "Recent Developments"included in this annual report on Form 10-K for information on our availablecapital as of March 3, 2017. We may seek to sell certain of our investments inorder to manage liquidity needs, interest rate risk, meet other operatingobjectives and adapt to market conditions.

Equity Offerings

There were no shares issued in public offerings of our equity securities for theyears ended December 31, 2016, 2015 and 2014.

Cash Flows

The following table sets forth changes in cash and cash equivalents for theyears ended December 31, 2016, 2015 and 2014, which are inclusive of amountsrelated to discontinued operations ($ in thousands):

For the years ended December 31, 2016 2015 2014Net income $ 44,868$ 43,320$ 24,616Adjustments to reconcile net income to netcash provided by (used in) operatingactivities: (36,330 ) 232,199 (247,530 )Net cash provided by (used in) operatingactivities 8,538 275,519 (222,914 )Net cash provided by (used in) investingactivities (43,320 ) 258,339 (433,080 )Net cash provided by (used in) financingactivities 73,057 (541,414 ) 652,445Change in cash and cash equivalents $ 38,275 $ (7,556

) $ (3,549 )

During the years ended December 31, 2016, 2015 and 2014, cash and cashequivalents increased (decreased) by $38.3 million, $(7.6) million and $(3.5)million, respectively.

Operating ActivitiesFor the years ended December 31, 2016 and 2015, net cash provided by operatingactivities totaled $8.5 million and $275.5 million, respectively. This change innet cash provided by operating activities was primarily related to the cash usedto originate and fund mortgage loans held for sale exceeding the proceedsreceived from the sale of mortgage loans held for sale 58--------------------------------------------------------------------------------to third parties for the year ended December 31, 2016. For the year endedDecember 31, 2016, adjustments to net income related to operating activitiesprimarily included originations of mortgage loans held for sale of $639.4million, sale of mortgage loans held for sale to third parties of $571.7million, change in the fair value of mortgage servicing rights ("MSRs") of $6.5million, gain on sale of discontinued operations of $10.2 million and change inother assets of $40.0 million. For the year ended December 31, 2015, adjustmentsto net income related to operating activities primarily included originations ofmortgage loans held for sale of $681.9 million, sale of mortgage loans held forsale to third parties of $850.8 million, change in the fair value of MSRs of$8.8 million, change in mortgage banking activities of $12.6 million, change inrestricted cash of $39.0 million and change in other assets of $20.0 million.For the years ended December 31, 2015 and 2014, net cash provided by (used in)operating activities totaled $275.5 million and $(222.9) million, respectively.This change in net cash provided by (used in) operating activities was primarilyrelated to the proceeds received from the sale of mortgage loans held for saleto third parties exceeding the cash used to originate and fund mortgage loansheld for sale for the year ended December 31, 2015. For the year ended December31, 2014, adjustments to net income related to operating activities primarilyincluded originations of mortgage loans held for sale of $497.3 million, sale ofmortgage loans held for sale to third parties of $302.9 million, change in thefair value of MSRs of $7.7 million, change in mortgage banking activities of$8.0 million, change in restricted cash of $43.8 million and change in otherassets of $10.9 million.Investing ActivitiesFor the years ended December 31, 2016 and 2015, net cash provided by (used in)investing activities totaled $(43.3) million and $258.3 million, respectively.This change in net cash provided by (used in) investing activities was primarilyrelated to the cash used for the origination of new loans held for investmentexceeding the cash received from principal repayment of loans held forinvestment and proceeds from the sale of discontinued operations for the yearended December 31, 2016.For the years ended December 31, 2015 and 2014, net cash provided by (used in)investing activities totaled $258.3 million and $(433.1) million, respectively.This change in net cash provided by (used in) investing activities was primarilyrelated to cash received from principal repayment of loans held for investmentexceeding the cash used for the origination of new loans held for investment forthe year ended December 31, 2015.

Financing Activities

For the year ended December 31, 2016, net cash provided by financing activitiestotaled $73.1 million and primarily related to proceeds from our Secured FundingAgreements of $1.3 billion, proceeds from our Warehouse Lines of Credit (definedbelow) of $863.4 million and proceeds from our Secured Term Loan of $80.0million partially offset by repayments of our Secured Funding Agreements of $1.0billion, repayments of debt of consolidated variable interest entities ("VIEs")of $255.3 million and repayments of our Warehouse Lines of Credit of $795.7million.For the year ended December 31, 2015, net cash used in financing activitiestotaled $541.4 million and primarily related to repayments of our SecuredFunding Agreements of $375.5 million, repayments of debt of consolidated VIEs of$272.5 million, repayment of the 2015 Convertible Notes (individually defined inNote 4 to our consolidated financial statements included in this annual reporton Form 10-K) of $69.0 million and repayments of our Warehouse Lines of Creditof $973.3 million partially offset by proceeds from our Secured FundingAgreements of $345.4 million and proceeds from our Warehouse Lines of Credit of$804.9 million.For the year ended December 31, 2014, net cash provided by financing activitiestotaled $652.4 million and related primarily to proceeds from our SecuredFunding Agreements of $1.1 billion, proceeds from issuance of debt ofconsolidated VIEs of $308.7 million, and proceeds from our Warehouse Lines ofCredit of $544.0 million partially offset by repayments of our Secured FundingAgreements of $855.0 million, repayments of debt of consolidated VIEs of$176.0 million, and repayments of our Warehouse Lines of Credit of$350.8 million.We, through our previously owned subsidiary, ACRE Capital, borrowed funds underthe ASAP Line of Credit and the BAML Line of Credit (individually defined belowand together, the "Warehouse Lines of Credit"). ACRE Capital was party to a$80.0 million multifamily as soon as pooled sale agreement (the "ASAP Line ofCredit") with the Federal National Mortgage Association ("Fannie Mae") tofinance installments received from Fannie Mae. ACRE Capital was party to a$135.0 million line of credit agreement with Bank of America, N.A. (as amendedand restated, the "BAML Line of Credit"), which was used to finance mortgageloans originated by ACRE Capital. 59--------------------------------------------------------------------------------

Summary of Financing Agreements

The sources of financing, as applicable in a given period, under the Wells FargoFacility, the Citibank Facility, the BAML Facility, the March 2014 CNB Facility,the July 2014 CNB Facility, the MetLife Facility, the April 2014 UBS Facility,the December 2014 UBS Facility and the U.S. Bank Facility (individually definedabove or below, collectively, the "Secured Funding Agreements") and the $155.0million Credit and Guaranty Agreement (the "Secured Term Loan"), (collectively,the "Financing Agreements") are described in the following table ($ inthousands): As of December 31, 2016 2015 Total Outstanding Interest Maturity Total Outstanding Interest Maturity Commitment Balance Rate Date Commitment Balance Rate Date

Secured fundingagreements:WellsFargo LIBOR+1.75 December LIBOR+1.75 DecemberFacility $ 325,000 (1) $ 218,064 to 2.35% (1) 14, 2017 (1) $ 225,000$ 101,473 to 2.35% (1) 14, 2016 (1)Citibank LIBOR+2.25 December LIBOR+2.00 DecemberFacility 250,000 (2) 302,240 to 2.50% (2) 10, 2018 (2) 250,000 112,827 to 2.50% 8, 2016 (2)BAML LIBOR+2.25 May 25, LIBOR+2.25 May 26,Facility 125,000 (3) 77,679 to 2.75% 2017 (3) 50,000 - to 2.75% 2016 (3)March2014 CNB March MarchFacility 50,000 - LIBOR+3.00% 11, 2017 (4) 50,000 - LIBOR+3.00% 11, 2016 (4)July 2014CNB July 31,Facility - - - - (5) 75,000 66,200 LIBOR+3.00% (5) 2016 (5)MetLife August AugustFacility 180,000 53,130 LIBOR+2.35% 12, 2017 (6) 180,000 109,474 LIBOR+2.35% 12, 2017 (6)April2014 UBS LIBOR+1.88 October LIBOR+1.88 OctoberFacility 140,000 71,360 to 2.28% (7) 21, 2018 140,000 75,558 to 2.28% (7) 21, 2018December2014 UBS July 6,Facility - - - - (8) 57,243 57,243 LIBOR+2.74% 2016U.S. Bank July 31,Facility 125,000 58,240 LIBOR+2.25% (9) 2019 (9) - - - -Subtotal $ 1,195,000$ 780,713$ 1,027,243$ 522,775Secured December DecemberTerm Loan $ 155,000$ 155,000 LIBOR+6.00% (10) 9, 2018 $ 155,000$ 75,000 LIBOR+6.00% (10) 9, 2018Total $ 1,350,000$ 935,713$ 1,182,243$ 597,775

______________________________________________________________________________

(1) The maturity date of the Wells Fargo Facility is subject to two 12-month

extensions at our option provided that certain conditions are met and applicable extension fees are paid. Beginning on December 14, 2015, new

advances under the Wells Fargo Facility accrue interest at a per annum

rate equal to the sum of (i) 30 day LIBOR plus (ii) a pricing margin range

of 1.75% to 2.35%. Advances on loans made prior to December 14, 2015 under

the Wells Fargo Facility continue to accrue interest at a per annum rate

equal to the sum of (i) 30 day LIBOR plus (ii) a pricing margin range of

2.00% to 2.50%. In June 2016, we amended the Wells Fargo Facility to,

among other things, increase the size of the facility from $225.0 million

to $325.0 million and extend the initial maturity date to December 14, 2017.(2) The Citibank Facility is subject to three 12-month extensions at our

option provided that certain conditions are met and applicable extension

fees are paid. In July 2016, we entered into an amendment to the Citibank

Facility, which added an accordion feature that provides for an increase

in the $250.0 million commitment amount with respect to approved assets,

as determined by Citibank, N.A. in its sole discretion. In December 2016,

we entered into an amendment to the Citibank Facility to extend the

initial maturity date to December 10, 2018. Additionally, new advances

under the Citibank Facility after December 8, 2016 accrue interest at a per annum rate equal to one-month LIBOR plus a pricing margin range of 2.25% to 2.50%, subject to certain exceptions.(3) In August 2016, we amended and restated the existing BAML Facility to increase its commitment size from $50.0 million to $125.0 million. Individual advances on loans under the BAML Facility generally have a

two-year maturity, subject to a 12-month extension at our option provided

that certain conditions are met and applicable extension fees are paid.(4) We have one 12-month extension at our option provided that certain conditions are met and applicable extension fees are paid, which, if

exercised, would extend the final maturity of the March 2014 CNB Facility

to March 10, 2018. See “Recent Developments” and Note 15 to our

consolidated financial statements included in this annual report on Form

10-K for information on a subsequent event relating to the March 2014 CNB

Facility. 60

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(5) The interest rate of the July 2014 CNB Facility was LIBOR plus 3.00%,

comprised of LIBOR plus 1.50% and a credit support fee of 1.50% payable to

Ares Management. In July 2016, we amended the July 2014 CNB Facility to

extend the maturity date to September 30, 2016. On September 30, 2016, the

July 2014 CNB Facility was repaid in full and its terms were not extended.

(6) The revolving master repurchase facility with Metropolitan Life Insurance

Company (the “MetLife Facility”) is subject to two 12-month extensions at

our option provided that certain conditions are met and applicable extension fees are paid.(7) The price differential (or interest rate) on the revolving master repurchase facility with UBS Real Estate Securities Inc. (the "April 2014

UBS Facility”) is one-month LIBOR plus (i) 1.88% per annum, for assets

that are subject to an advance for one year or less, (ii) 2.08% per annum,

for assets that are subject to an advance in excess of one year but less

than two years, and (iii) 2.28% per annum, for assets that are subject to

an advance for more than two years; in each case, excluding amortization

of commitment and exit fees.

(8) The December 2014 UBS Facility (together with the April 2014 UBS Facility,

the "UBS Facilities") has been repaid in full and its terms were not extended.

(9) The U.S. Bank Facility is subject to two 12-month extensions at our option

provided that certain conditions are met and applicable extension fees are

paid. Advances under the U.S. Bank Facility accrue interest at a per annum

rate of one-month LIBOR plus a spread of 2.25%, unless otherwise agreed

between U.S. Bank and the Company, depending upon the mortgage loans sold

to U.S. Bank in the applicable transaction.

(10) The Secured Term Loan has a LIBOR floor of 1.0% on drawn amounts.

Our Financing Agreements contain various affirmative and negative covenants,including negative pledges, and provisions related to events of default that arenormal and customary for similar financing agreements. As of December 31, 2016,we were in compliance with all financial covenants of each respective FinancingAgreement. See Note 4 to our consolidated financial statements included in thisannual report on Form 10-K for more information on our Financing Agreements.

Commercial Mortgage-Backed Securities and Collateralized Loan Obligations

We may seek to enhance the returns on our senior mortgage loan investmentsthrough securitizations, if available. To the extent available, we intend tosecuritize the senior portion of some of our loans, while retaining thesubordinate securities in our investment portfolio. The securitization of thissenior portion will be accounted for as either a "sale" and the loans will beremoved from our balance sheet or as a "financing" and will be classified as"loans held for investment" in our consolidated balance sheets, depending uponthe structure of the securitization.The following table summarizes our securitizations debt as of December 31, 2015($ in thousands): 2015 Carrying Outstanding Amount Principal

Commercial mortgage-backed securitization debt (consolidatedVIE)

$ 61,815$ 61,856Collateralized loan obligation securitization debt(consolidated VIE) 192,528 193,419Securitizations debt $ 254,343$ 255,275During the year ended December 31, 2016, the CMBS securitization and CLOsecuritization were terminated and have been repaid in full. See Note 12 to ourconsolidated financial statements included in this annual report on Form 10-Kfor additional terms and details of our securitizations.Capital MarketsWe may periodically raise additional capital through public offerings of debtand equity securities to fund newinvestments. On June 6, 2016, we filed a registration statement on Form S-3 withthe Securities and Exchange Commission ("SEC"), which became effective on August29, 2016, in order to permit us to offer, from time to time, in one or moreofferings or series of offerings up to $1.25 billion of our common stock,preferred stock, debt securities, subscription rights to purchase shares of ourcommon stock, warrants representing rights to purchase shares of our commonstock, preferred stock or debt securities, or units.

Other Sources of Financing

61--------------------------------------------------------------------------------In addition to the sources of liquidity described above, in the future, we mayalso use other sources of financing to fund the origination or acquisition ofour target investments or to refinance expiring Financing Agreements andsecuritizations, including other credit facilities, warehouse facilities,repurchase facilities, non-convertible or convertible debt, securitizedfinancings and other public and private forms of borrowing. These financings maybe issued by us or our subsidiaries, be collateralized or non-collateralized,accrue interest at either fixed or floating rates and may involve one or morelenders.Leverage PoliciesWe intend to use prudent amounts of leverage to increase potential returns toour stockholders. To that end, subject to maintaining our qualification as aREIT and our exemption from registration under the 1940 Act, we intend tocontinue to use borrowings to fund the origination or acquisition of our targetinvestments. Given current market conditions and our focus on first or seniormortgages, we currently expect that such leverage would not exceed, on adebt-to-equity basis, a 4-to-1 ratio. Our charter and bylaws do not restrict theamount of leverage that we may use. The amount of leverage we will deploy forparticular investments in our target investments will depend upon our Manager'sassessment of a variety of factors, which may include, among others, theanticipated liquidity and price volatility of the assets in our investmentportfolio, the potential for losses and extension risk in our portfolio, the gapbetween the duration of our assets and liabilities, including hedges, theavailability and cost of financing the assets, our opinion of thecreditworthiness of our financing counterparties, the health of the U.S. economygenerally or in specific geographic regions and commercial mortgage markets, ouroutlook for the level and volatility of interest rates, the slope of the yieldcurve, the credit quality of our assets, the collateral underlying our assets,and our outlook for asset spreads relative to the LIBOR curve.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Our contractual obligations as of December 31, 2016 are described in thefollowing table ($ in thousands):

Less than More than Total 1 year 1 to 3 years 3 to 5 years 5 yearsWells Fargo Facility $ 218,064$ 218,064 $ - $ - $ -Citibank Facility 302,240 - 302,240 - -BAML Facility 77,679 - 77,679 - -March 2014 CNB Facility - - - - -MetLife Facility 53,130 53,130 - - -April 2014 UBS Facility 71,360 - 71,360 - -U.S. Bank Facility 58,240 - 58,240 - -Secured Term Loan 155,000 - 155,000 - -Future Loan FundingCommitments 69,150 11,680 55,022 2,448 -Total $ 1,004,863$ 282,874$ 719,541$ 2,448 $ -The table above does not include the related interest expense under the SecuredFunding Agreements and the Secured Term Loan, as all our interest is variable.Additionally, the table above does not include extension options, as applicable,under the Secured Funding Agreements.We may enter into certain contracts that may contain a variety ofindemnification obligations, principally with underwriters and counterparties torepurchase agreements. The maximum potential future payment amount we could berequired to pay under these indemnification obligations may be unlimited.

Management Agreement

We are also required to pay our Manager a base management fee of 1.5% of ourstockholders' equity per year, an incentive fee and expense reimbursementspursuant to our Management Agreement. The table above does not include theamounts payable to our Manager under our Management Agreement as they are notfixed and determinable. See Note 10 to our consolidated financial statementsincluded in this annual report on Form 10-K for additional terms and details ofthe fees payable under our Management Agreement.

DIVIDENDS

62--------------------------------------------------------------------------------We elected to be taxed as a REIT for U.S. federal income tax purposes and, assuch, anticipate distributing at least90% of our REIT taxable income, determined without regard to the deduction fordividends paid and excluding net capital gains. To the extent that we distributeless than 100% of our REIT taxable income in any tax year (taking into accountany distributions made in a subsequent tax year under Sections 857(b)(9) or 858of the Code), we will pay tax at regular corporate rates on that undistributedportion. Furthermore, if a REIT distributes less than the sum of 85% of itsordinary income for the calendar year, 95% of its capital gain net income forthe calendar year plus any undistributed shortfall from its prior calendar year(the "Required Distribution") to its stockholders during any calendar year(including any distributions declared by the last day of the calendar year butpaid in the subsequent year), then it is required to pay non-deductible excisetax equal to 4% of any shortfall between the Required Distribution and theamount that was actually distributed. Any of these taxes would decrease cashavailable for distribution to our stockholders. The 90% distribution requirementdoes not require the distribution of net capital gains. However, if a REITelects to retain any of its net capital gain for any tax year, it must notifyits stockholders and pay tax at regular corporate rates on the retained netcapital gain. The stockholders must include their proportionate share of theretained net capital gain in their taxable income for the tax year, and they aredeemed to have paid the REIT's tax on their proportionate share of the retainedcapital gain. Furthermore, such retained capital gain may be subject to thenondeductible 4% excise tax. If we determine that our estimated current yeartaxable income (including net capital gain) will be in excess of estimateddividend distributions (including capital gains dividends) for the current yearfrom such income, we accrue excise tax on a portion of the estimated excesstaxable income as such taxable income is earned.Before we make any distributions, whether for U.S. federal income tax purposesor otherwise, we must first meet both our operating requirements and debtservice on our Financing Agreements and other debt payable. If our cashavailable for distribution is less than our REIT taxable income, we could berequired to sell assets or borrow funds to make cash distributions or we maymake a portion of the Required Distribution in the form of a taxable stockdistribution or distribution of debt securities.

OFF-BALANCE SHEET ARRANGEMENTS

We have commitments to fund various senior mortgage loans, as well assubordinated debt and preferred equity investments in our portfolio.

Other than as set forth in this annual report on Form 10-K, we do not have anyrelationships with unconsolidated entities or financial partnerships, such asentities often referred to as structured investment vehicles, special purposeentities or VIEs, established to facilitate off-balance sheet arrangements orother contractually narrow or limited purposes. Further, we have not guaranteedany obligations of unconsolidated entities or entered into any commitment orintend to provide additional funding to any such entities.

0 notes