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INDEX TO FINANCIAL STATEMENTS


Filed pursuant to Rule 424(b)(1)
Registration Statement No. 333-176841

            PROSPECTUS

7,700,000 Shares

GRAPHIC

Ares Commercial Real Estate Corporation

Common Stock


Ares Commercial Real Estate Corporation is a newly organized specialty finance company focused on originating, investing in and managing middle-market commercial real estate loans and other commercial real estate-related investments. We are externally managed and advised by Ares Commercial Real Estate Management LLC, or our Manager. Our Manager is an affiliate of Ares Management LLC, a global alternative asset manager that had approximately $46 billion of total committed capital under management as of December 31, 2011. Ares Investments Holdings LLC, an affiliate of our Manager, acquired 1,500,000 shares of our common stock for $30.0 million at an effective per share price of $20.00 and is purchasing an additional 500,000 shares of our common stock in this offering.

This is our initial public offering and no public market currently exists for our common stock. We are offering 7,700,000 shares of our common stock as described in this prospectus. The initial public offering price of our common stock is $18.50 per share. Our common stock has been approved for listing on the New York Stock Exchange, or NYSE, under the symbol "ACRE." We are an "emerging growth company" as that term is used in the Jumpstart Our Business Startups Act of 2012 (the "JOBS Act").

We are incorporated in Maryland and intend to elect and qualify to be taxed as a real estate investment trust for U.S. federal income tax purposes, or "REIT," commencing with our taxable year ending December 31, 2012. To assist us in qualifying as a REIT, among other purposes stockholders generally will be restricted from owning more than 9.8% in value of our outstanding capital stock or 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares or any series of our stock. In addition, our charter contains various other restrictions on the ownership and transfer of our common stock. See "Description of Capital Stock — Restrictions on Ownership and Transfer."


Investing in our common stock involves risks. See "Risk Factors" beginning on page 25 of this prospectus for a discussion of the following and other risks:

    We have limited operating history and may not be able to operate our business successfully or generate sufficient cash flow to make or sustain distributions to our stockholders.

    There are various conflicts of interest in our relationship with our Manager and Ares Management LLC that could result in decisions that are not in the best interest of our stockholders.

    We are dependent on our Manager and its key personnel for our success and upon their access to the investment professionals of Ares Management LLC. We may not find a suitable replacement for our Manager if our management agreement is terminated, or if such key personnel or investment professionals leave the employment of our Manager or Ares Management LLC or otherwise become unavailable to us.

    Our failure to qualify or remain qualified as a REIT in any taxable year would subject us to U.S. federal income tax and potentially state and local taxes, which would reduce the cash available for distribution to our stockholders.

    Maintenance of our exemption from registration under the Investment Company Act of 1940 and our REIT qualification impose significant limits on our operations.

 
  Per Share   Total  

Initial price to public

  $ 18.50   $ 142,450,000  

Underwriting discounts and commissions(1)

  $ 0.74   $ 5,328,000  

Proceeds, before expenses, to Ares Commercial Real Estate Corporation

  $ 18.50   $ 142,450,000  

(1)
Our Manager will pay directly to the underwriters the underwriting discount of $5,328,000 (or, if the underwriters exercise their overallotment option in full, $6,182,700). No underwriting discount will be paid on the 500,000 shares purchased by Ares Investments Holdings LLC in this offering.

We have granted the underwriters a 30-day option to purchase up to an additional 1,155,000 shares of common stock from us at the initial public offering price less the underwriting discount if the underwriters sell more than 7,700,000 shares of common stock in this offering.

None of the Securities and Exchange Commission, any state securities commission, or any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The underwriters expect to deliver the shares on or about May 1, 2012.


Wells Fargo Securities    Citigroup    BofA Merrill Lynch    J.P. Morgan



Keefe, Bruyette & Woods    RBC Capital Markets    Stifel Nicolaus Weisel    SunTrust Robinson Humphrey

Prospectus dated April 25, 2012.


Table of Contents


TABLE OF CONTENTS

 
  Page  

Summary

    1  

Risk Factors

    25  

Forward-Looking Statements

    62  

Use of Proceeds

    64  

Distribution Policy

    65  

Capitalization

    67  

Dilution

    69  

Unaudited Selected Pro Forma and Historical Financial Data

    70  

Management's Discussion and Analysis of Financial Condition and Results of Operations

    77  

Business

    92  

Our Manager and the Management Agreement

    112  

Management

    136  

Principal Stockholders

    144  

Certain Relationships and Related Transactions

    146  

Description of Capital Stock

    150  

Shares Eligible For Future Sale

    158  

Summary of our Charter and Bylaws

    161  

Material U.S. Federal Income Tax Considerations

    166  

Underwriting

    188  

Legal Matters

    194  

Experts

    194  

Where You Can Find More Information

    194  

Index to Financial Statements

    F-1  

          You should rely only on the information contained in this prospectus. We have not, and the underwriters have not, authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of its date or on the date or dates which are specified herein. Our business, financial condition, liquidity, results of operations and prospects may have changed since those dates.

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SUMMARY

          This summary highlights some of the information in this prospectus. It does not contain all of the information that you should consider before investing in our common stock. You should read carefully the more detailed information set forth under "Risk Factors" and the other information included in this prospectus. Except where the context suggests otherwise, the terms "ACRE," the "Company," "we," "us," and "our" refer to Ares Commercial Real Estate Corporation, a Maryland corporation, together with its consolidated subsidiaries; our "Manager" refers to Ares Commercial Real Estate Management LLC, a Delaware limited liability company, our external manager and an affiliate of Ares Management; our "Manager's servicer" refers to Ares Commercial Real Estate Servicer LLC, a Delaware limited liability company and a subsidiary of our Manager; "Ares Management" refers to Ares Management LLC, its subsidiaries and its affiliated investment vehicles (other than us and portfolio companies of its affiliated investment vehicles) and "Ares Investments" refers to Ares Investments Holdings LLC, an affiliate of Ares Management. On February 22, 2012, we effected a one-for-two reverse stock split of our issued and outstanding common stock. Unless indicated otherwise, the information presented in this prospectus gives effect to this reverse stock split. Unless indicated otherwise, the information in this prospectus assumes the underwriters will not exercise their overallotment option to purchase up to an additional 1,155,000 shares of our common stock.


Our Company

          Ares Commercial Real Estate Corporation is a recently organized specialty finance company focused on originating, investing in and managing middle-market commercial real estate loans and other commercial real estate, or "CRE-," related investments. We target borrowers whose capital needs are not being met in the market by offering customized financing solutions. We implement a strategy focused on direct origination combined with experienced portfolio management through our Manager's servicer, which is a Standard & Poor's-ranked commercial primary servicer and commercial special servicer that is included on S&P's Select Servicer List, to meet our borrowers' and sponsors' needs.

          As of the date of this prospectus, Ares Investments has acquired 1,500,000 shares of our common stock for $30 million at an effective per share price of $20. In February 2012, we entered into subscription agreements with certain third party investors, pursuant to which such investors subscribed for commitments to purchase up to 475 shares of our Series A Convertible Preferred Stock, par value $0.01 per share, or "Series A Preferred Stock," at a price per share of $50,000.00. As of the date of this prospectus, we have issued 114.4578 shares of our Series A Preferred Stock. Pursuant to redemption elections we have received from the holders of such shares, all shares of Series A Preferred Stock will be redeemed in connection with this offering for an aggregate redemption price of approximately $6.3 million.

          We rely on our Manager to provide us with investment advisory services pursuant to the terms of a management agreement. Our Manager was formed in 2011 as an affiliate of Ares Management, a global alternative asset manager and SEC registered investment adviser with approximately $46 billion of total committed capital under management as of December 31, 2011.


Our Investment Strategy

          Our investment objective is to generate attractive risk-adjusted returns for our stockholders, primarily through dividends and distributions and secondarily through capital appreciation. We are focused on originating, investing in and managing customized CRE loans and other CRE-related investments ranging in size from $15 million to $100 million, which we refer to as "CRE middle-market" financings. We believe the availability of capital in the CRE middle-market is limited and that borrowers and sponsors have the greatest need for customized solutions in this segment of the market. We act as a single "one stop" financing source by providing our customers with one or more of our customized

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financing solutions. Our customized financing solutions are comprised of our "target investments," which include the following:

    "Transitional senior" mortgage loans that provide strategic, flexible, short-term financing solutions on transitional CRE middle market assets. These assets are typically properties that are the subject of a business plan that is expected to enhance the value of the property. The mortgage loans are usually funded over time as the borrower's business plan for the property is executed. They also typically have a lower initial loan-to-value ratios as compared to "stretch senior" mortgage loans, with the loan-to-value ratios increasing as the loan is further funded over time;

    "Stretch senior" mortgage loans that provide flexible "one stop" financing on quality CRE middle market assets. These assets are typically stabilized or near-stabilized properties with healthy balance sheets and steady cash flows, with the mortgage loans having higher leverage (and thus higher loan-to-value ratios) than conventional mortgage loans and are typically fully funded at closing and non-recourse to the borrower (as compared to conventional mortgage loans, which are usually fully recourse to the borrower);

    "Subordinate debt" mortgage loans (including subordinate tranches of first lien mortgages, or B-Notes) and mezzanine loans, both of which provide subordinate financing on quality CRE middle market assets; and

    "Other CRE debt and preferred equity investments," together with selected other income-producing equity investments.

          We focus primarily on directly originating our target investments, which allows us to:

    take a more active role in underwriting and structuring investments,

    have direct access to our customers' management teams and enhance our due diligence process,

    have meaningful input into our customers' pro forma capital structures,

    actively participate in negotiating transaction pricing and terms, and

    generate structuring and origination fees.

          Our direct origination strategy gives us the flexibility to originate a broad and flexible product that meets the specific needs of our customers and drives portfolio composition in response to changing market conditions. We expect that our Manager will opportunistically adjust our asset allocation, with the proportion and types of investments changing over time depending on our Manager's views on, among other things, the then existing economic and credit environment. Based on current market conditions, we expect that, like our Initial Portfolio (as defined below), the majority of our investments will be senior mortgage loans directly originated by us and secured by cash-flowing properties located in the United States. These investments will typically pay interest at rates that are determined periodically on the basis of a floating base lending rate, primarily LIBOR plus a premium and have an expected duration between two and four years.

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Our Initial Portfolio

          From when we commenced operations in December 2011 through March 31, 2012, we have originated or co-originated four loans secured by CRE middle market properties. The aggregate originated commitment under these loans was approximately $121.0 million, approximately $98.9 million of which we have funded or expect to fund and $22.0 million of which was fully funded by Citibank, N.A., an affiliate of Citigroup Global Markets Inc. (one of the underwriters of this offering). As of March 31, 2012, we had funded approximately $78.2 million of our $98.9 million of commitments as described in more detail below. Such investments are referred to herein as our Initial Portfolio. The following table presents an overview of the Initial Portfolio, based on information available as of March 31, 2012. References to LIBOR are to 30-day LIBOR (unless otherwise specifically stated).


Initial Portfolio
as of March 31, 2012
($ in thousands)

 
   
  Investment Information    
   
 
Property Type
  Location   Our Total
Commitment
  Funded
Amount
  Origination
Date
  Maturity
Date(1)
  Interest
Rate
  Debt Service
Coverage Ratio(2)
at Loan Closing
  Loan to
Value At
Origination(3)
 

Stretch Senior Mortgage Loans

                                             

Boston CBD* Office Building: 12-story office building (approximately 152,000 sq. ft.)

  Boston MA   $ 34,982 (4) $ 34,982 (4)   2/8/2012     3/1/2015   L+5.65%(5)     >1.2     87.5 %

Transitional Senior Mortgage Loans

                                             

Austin Office Building: Two properties consisting of four low-rise office buildings (aggregate of approximately 270,000 sq. ft.)

  Austin TX     37,950     29,944     2/13/2012     3/1/2015   L+5.75% -
L+5.25%(6)
    >1.4     69.5 %

Denver Tech Center Office Building: Low-rise office building (approximately 173,000 sq. ft.)

 

Denver CO

   
11,000
   
5,257
   
12/29/2011
   
1/1/2015
 

L+5.50%(7)

   
>1.4
   
39.8

%

Subordinated Debt Investments

                                             

Fort Lauderdale CBD* Office Building: 28-story office building (approximately 257,000 sq. ft.)

  Ft. Lauderdale FL     15,000 (8)   8,000     1/27/2012     2/1/2015   L+10.75% -
L+8.18%(9)
    >1.6 (10)   51.4 %(11)
                                           
   

Total

      $ 98,932   $ 78,183                              
                                           

(1)
The Boston loan is subject to one 12-month extension option. The Austin and Fort Lauderdale loans are subject to two 12-month extension options.

(2)
Debt Service Coverage Ratio at Loan Closing (the "DSCR") is calculated by dividing the applicable property's net operating income by the sum of the principal and interest payments for the property's first year of the loan (calculated using the outstanding principal amount and applicable interest rate as of March 31, 2012). These amounts are estimates based on each property's annualized net operating income determined by financial analyses conducted in the fourth quarter of 2011. These amounts may change over time and may currently be different than the amounts shown. Past performance is no guarantee of future results.

(3)
Loan to Value At Origination (the "LTV") is calculated as the Funded Amount divided by the valuation of the property underlying the loan based on an appraisal of the property based on current market conditions.

(4)
This $35,000 loan was fully funded at origination. On March 6, 2012, we received an amortization payment on principal of $18, which reduced our total commitment and the funded amount accordingly.

(5)
This loan was originated with a 1.0% origination fee, paid to us, and a 0.5% exit fee payable to us upon the earlier of repayment or the loan's maturity. The interest rate for this loan is L+5.65% with the LIBOR component subject to a minimum rate of 0.65%.

(6)
This loan was originated with a 1.0% origination fee, paid to us, and a 1.0% exit fee payable to us upon the earlier of repayment or the loan's maturity. The initial interest rate for this loan of L+5.75% steps down based on performance hurdles to L+5.25%. The LIBOR component of the rate on this loan is subject to a minimum rate of 1.0%.

(7)
This loan was originated with a 1.0% origination fee, paid to us, and a 1.0% exit fee payable to us upon the earlier of repayment or the loan's maturity. The interest rate for this loan is L+5.50% with the LIBOR component subject to a minimum rate of 1.0%.

(8)
The total commitment we co-originated was a $37,000 first mortgage, of which a $22,000 A-Note was fully funded by Citibank, N.A. We retained a $15,000 B-Note.

(9)
This loan was originated with a 1.0% origination fee, paid to us, and a 0.5% exit fee payable to us upon the earlier of repayment or the loan's maturity. The whole loan, consisting of the A-Note and our B-Note, was priced at L+5.25% on a cumulative basis with the LIBOR component subject to a minimum rate of 0.75%. The fully funded A-Note priced at L+3.25% (with the LIBOR component of the rate subject to a minimum rate of 0.75%) resulting in an interest rate on our B-Note at initial funding of $8,000 of L+10.75% (with the LIBOR component subject to a minimum rate of 0.75%). Upon the B-Note becoming fully funded at $15,000, its effective interest rate will decrease to L+8.18% (with the LIBOR component subject to a minimum rate of 0.75%).

(10)
The DSCR for this loan is calculated as the property net operating income divided by the sum of the principal and interest payments for the first year of the A-Note ($22,000) and B-Note ($8,000). See Notes (2), (8) and (9) above.

(11)
The LTV for this loan is calculated as the sum of Outstanding Balance for the A-Note ($22,000) and B-Note ($8,000) divided by the valuation reflected in the property appraisal. See Notes (3) and (8) above.

*
Central Business District

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Our Funding Facilities

          On December 14, 2011, we entered into a $75 million secured funding facility arranged by Wells Fargo Bank, National Association (an affiliate of Wells Fargo Securities, LLC, one of our underwriters), or the "Wells Fargo Facility." The Wells Fargo Facility is being used for originating qualifying senior commercial mortgage loans and A-Notes. It is the intention of the parties to the Wells Fargo Facility to amend the agreements governing the Wells Fargo Facility to provide for an increase to the Wells Fargo Facility from $75 million to the lesser of (a) $200 million if the gross proceeds of this offering are at least $170 million and (b) the sum of (i) the gross proceeds of this offering (including any gross proceeds from the sale of shares pursuant to the exercise of the underwriters' overallotment option) plus (ii) $30 million provided, in any event, that the aggregate gross proceeds of this offering are at least $125,000,000. There can be no assurance that the conditions necessary for an increase in the size of the Wells Fargo Facility will be satisfied.

          On December 8, 2011, we entered into a $50 million secured funding facility arranged by Citibank, N.A. (an affiliate of Citigroup Global Markets Inc., one of our underwriters), or the "Citibank Facility." The Citibank Facility is being used for originating qualifying senior commercial mortgage loans and A-Notes. It is the intention of the parties to the Citibank Facility to amend the agreements governing the Citibank Facility to provide for an increase to the Citibank Facility from $50 million to the lesser of (a) $100 million, if the sum of the gross proceeds of this offering plus the gross proceeds from Ares Investments' earlier purchases of our common stock is at least $200 million, and (b) an amount equal to 50% of the sum of (i) the gross proceeds of this offering (including any gross proceeds from the sale of shares pursuant to the exercise of the underwriters' overallotment option) plus (ii) the gross proceeds from Ares Investments' earlier purchases of our common stock, provided that such sum is at least $150 million. There can be no assurance that the conditions necessary for an increase in the size of the Citibank Facility will be satisfied.

          In addition, we have entered into a non-binding commitment with Capital One, National Association, to establish a $50 million secured funding facility, or the "Capital One Facility." If entered into, the Capital One Facility will be used for originating qualifying senior commercial mortgage loans and A-Notes. Entry into the Capital One Facility is subject to various conditions, including the negotiation and execution of definitive documentation. No assurance can be given that Capital One, National Association, will provide this proposed facility or that the facility, if provided, will reflect the terms described herein.

          Affiliates of Wells Fargo Bank, National Association and Citibank, N.A. are underwriters in this offering. As of March 31, 2012, approximately $43.8 million was outstanding under the Wells Fargo Facility and approximately $3.5 million was outstanding under the Citibank Facility.


Our Manager and Ares Management

          We are externally managed and advised by our Manager pursuant to the terms of a management agreement. Our Manager is responsible for administering our business activities and day-to-day operations and providing us our executive management team, investment team and appropriate support personnel.

          Our Manager, a SEC registered investment adviser, is an affiliate of Ares Management, a global alternative asset manager and SEC registered investment adviser founded in 1997. As of December 31, 2011, Ares Management had approximately 470 employees in over a dozen offices worldwide, including over 200 investment professionals with significant experience in CRE, private debt, capital markets, private equity, trading and research. We believe that the significant experience of our Manager and Ares Management's investment professionals, our Manager's background in developing customized financing solutions for CRE middle-market borrowers and our Manager's efficient and comprehensive credit underwriting process position us to be a preferred lender for borrowers seeking flexible CRE middle-market financing. As of December 31, 2011, Ares Management managed approximately $46 billion of

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committed capital on behalf of large pension funds, banks, insurance companies, endowments, public institutional and retail investors and certain high net worth individuals.

          The following chart shows the structure and various investment strategies of Ares Management.

GRAPHIC

          Ares Management is organized around three primary investment strategies: Private Debt, Capital Markets and Private Equity. Ares Management's senior principals possess an average of approximately 20 years of experience in CRE, leveraged finance, private equity, distressed debt, investment banking and capital markets and are backed by a large team of highly disciplined professionals. We believe that our Manager's access to the insights of Ares Management's investment professionals in the Private Debt, Capital Markets and Private Equity Groups provides us with a breadth of market knowledge that differentiates us from many of our competitors. Our Manager has adopted Ares Management's rigorous investment process that is based upon an intensive, independent financial analysis, with a focus on preservation of capital, diversification and active portfolio management.

          Our Manager works closely with other investment professionals in the Ares Private Debt Group, which as of December 31, 2011, had approximately $18.5 billion of total committed capital under management. The Ares Private Debt Group includes an origination, investment and portfolio management team of approximately 70 U.S.-based investment professionals focused on investments in the "corporate middle-market," which the Ares Private Debt Group defines as companies with annual earnings before interest, tax, depreciation and amortization, or EBITDA, between $10 million and $250 million. The Ares Private Debt Group primarily focuses on the direct origination of non-syndicated first and second lien senior loans and mezzanine debt in the corporate middle-market. The Ares Private Debt Group also manages Ares Capital Corporation, or Ares Capital, a publicly traded specialty finance company with approximately $15 billion in total committed capital under management as of December 31, 2011. We expect to leverage the Ares Private Debt Group's skill and experience managing a public company and Ares Management's investor and lender relationships as we operate the Company and increase scale.

          As of December 31, 2011, our Manager had approximately $1.7 billion of total committed capital under management in CRE-related investments and an origination, investment and portfolio management team consisting of approximately 35 experienced investment professionals and approximately 10 administrative professionals, including legal and finance professionals. This team is led by the senior investment professionals of the Ares Commercial Real Estate Group, a subgroup of the Ares Private Debt Group, and has significant experience directly originating, underwriting, financing, and managing CRE middle-market loans and other CRE-related assets throughout various market cycles, including the severe economic downturn that began in 2007. For a more detailed discussion on how the current economic conditions may impact us, see "Risk Factors — A prolonged economic slowdown, a lengthy or severe recession or further declines in real estate values could impair our investments and harm our operations."

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Market Opportunity

          We believe that the U.S. CRE markets are currently in the initial stages of a recovery from the severe economic downturn that began in 2007. Following a dramatic decline in CRE lending in 2008 and 2009, debt capital has become more readily available for select stabilized, high quality assets in certain locations such as gateway cities, but remains limited for many other types of properties and locations. For example, we currently anticipate a high demand for customized debt financing from borrowers or sponsors who are looking to refinance indebtedness that is maturing in the next two to five years or are seeking shorter-term debt solutions as they reposition their properties. In addition, we believe the uncertainty surrounding multifamily mortgage finance may provide us incremental lending opportunities in the future as Congress considers restructuring Fannie Mae and Freddie Mac, who have been the most significant sources of multifamily debt capital in recent years.

          We believe that as a result of the aforementioned economic downturn and the subsequent banking regulatory reform, a number of lenders and finance companies who traditionally served the CRE middle-market, are burdened with legacy portfolio issues, balance sheet constraints or have otherwise exited the market. In particular, smaller and regional banks who represented a large portion of the CRE market prior to the downturn, have sharply curtailed their CRE lending activities. We believe that this decreased competition will create a favorable investment environment for the foreseeable future. We also believe that we are well positioned to capitalize on the expected demand generated by the estimated $1.8 trillion of CRE debt maturing between 2012 and 2016 (as reported in Commercial Real Estate Outlook: Top Ten Issues in 2012 published by Deloitte & Touche LLP).


Competitive Advantages

          We believe that we have the following competitive advantages in originating and acquiring assets for our investment portfolio:

The Ares Management Platform

          We benefit from Ares Management's extensive credit-focused culture and investment platform, which have contributed to its reputation as a leading corporate credit manager. We believe Ares Management's existing investment platform provides us with extensive access to capital markets relationships, deal flow and an established investment evaluation process, as well as in-depth market information, company knowledge and industry insight that benefits our investment and due diligence process. Furthermore, in sourcing and analyzing our investments, we benefit from access to Ares Management's substantial portfolio of investments in over 1,100 companies across over 30 industries and its extensive network of relationships focused on middle-market companies, including management teams, members of the investment banking community, private equity groups and other investment firms with whom Ares Management has long-term relationships. We also benefit from Ares Management's experience managing a public company and its well-developed infrastructure as we operate the Company and increase scale.

Seasoned Management Team with Significant Real Estate Experience

          Our Manager's senior investment professionals have extensive experience investing in and financing CRE across market cycles over the last two decades. In particular, our senior investment professionals have substantial experience in the direct origination, structuring and ownership of investments to provide attractive returns without exposing investors to an inappropriate level of risk. Over the course of their careers such individuals have been part of teams that have invested, owned or

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managed over $10 billion of CRE investments. Our senior management team also has significant experience operating and building public and private companies, including real estate and specialty finance companies, and has demonstrated its ability to obtain access to public and private credit and equity capital throughout various market cycles.

National Direct Origination Platform

          Our Manager employs a nationwide team of senior investment professionals who have an average of approximately 20 years in the origination and credit underwriting of CRE loans. We believe having a network of experienced loan originators in key local markets such as Dallas, Chicago, New York, Orange County, Washington D.C. and Los Angeles enhances our focus on fundamental market and credit analyses that emphasize current and sustainable cash flows. We believe this insight, together with the deal flow to be provided by such originators, enables us to originate loans with proper risk-adjusted return profiles. We also believe our national platform of originators helps us maintain relationships with our borrowers and their sponsors, which can lead to future or repeat business.

Established Portfolio Management Functions

          Our Manager currently acts as portfolio manager for a portfolio of CRE-related investments, including senior and subordinated loans, and had approximately $1.7 billion of total committed capital under management as of December 31, 2011. These portfolio management activities include primary and special servicing functions performed by a team of experienced professionals through our Manager's servicer, which is a Standard & Poor's-ranked commercial primary servicer and commerical special servicer that is included on S&P's Select Servicer List. We actively monitor and manage our investments from origination to payment or maturity. Our active portfolio management, which includes the use of our special servicing subsidiary, allows us to assess and manage the risk in our portfolio more accurately, build and maintain strong relationships with borrowers and their sponsors, control costs and ensure operational control over our investments.

Flexible "One Stop" Transaction Structuring

          While maintaining our focus on credit and risk assessment, we are flexible in structuring investments, including the types of assets that we originate or invest in, and the terms associated with such investments. We leverage Ares Management's experience investing across a capital structure and its "buy and hold" philosophy, which enhances our ability to provide "one stop" financing and to tailor an investment to meet the specific needs of a borrower. We believe that having flexibility with our transaction structuring, while maintaining our underwriting standards, rigorous investment approach and target investment and market focus, enhances our competitive position in the CRE middle-market by providing a strong value proposition to borrowers seeking financial solutions that cannot typically be provided by traditional "senior only" or "mezzanine only" lenders or those lenders intending to securitize the underlying investment. Our ability to tailor investments in turn allows us to drive increased earnings through premium pricing on a risk-adjusted basis. Furthermore, we believe that this flexible approach, coupled with Ares Management's market visibility and sourcing capabilities, enables our Manager to identify attractive investment opportunities throughout economic cycles and across a borrower's capital structure, and allows us to make investments consistent with our stated investment objective.

Middle-Market Focus

          We believe that we are one of the few active capital providers operating nationally that focuses on the CRE middle-market and has the benefit of a quality asset manager such as Ares Management and its affiliates. We believe the availability of capital in the CRE middle-market is limited and borrowers and sponsors have the greatest need for customized solutions in this segment of the market. Our access to a permanent capital base will assist us in growing our business and allow us to maintain a consistent

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presence in the market across economic cycles, which provides us with a competitive advantage over fund managers or other finite life investment vehicles pursuing investment opportunities in the CRE middle-market. We also believe the expected pace of CRE debt maturities creates a strong driver of demand for CRE middle-market loans in the short to medium term. Based on our Manager's experience, we believe that we are well positioned to take advantage of this market opportunity.


Our Financing Strategy

          Subject to maintaining our qualification as a real estate investment trust for U.S. federal income tax purposes, or a "REIT," and our exemption from the Investment Company Act of 1940, or the "1940 Act," we initially expect to finance the origination or acquisition of our target investments, to the extent available to us, through the following methods:

    secured funding facilities, including the Wells Fargo Facility and the Citibank Facility;

    other lending facilities and other sources of private financing; and

    offerings of equity or debt securities of us or of our controlled finance vehicles.

          In the future, we may utilize other sources of financing to the extent available to us.


Leverage

          We intend to use prudent amounts of leverage to increase potential returns to our stockholders. To that end, subject to maintaining our qualification as a REIT and our exemption from registration under the 1940 Act, we intend to use borrowings to fund the origination or acquisition of our target investments. Given current market conditions and our focus on first or senior mortgages, we currently expect that such leverage would not exceed, on a debt-to-equity basis, a 4-to-1 ratio. Our charter and bylaws do not restrict the amount of leverage that we may use.


Investment Guidelines

          We currently adhere to the following investment guidelines:

    our investments will be in our target investments;

    no investment will be made that would cause us to fail to qualify as a REIT;

    no investment will be made that would cause us or any of our subsidiaries to be required to be registered as an investment company under the 1940 Act;

    pending indication of appropriate investments in our target investments, our Manager may invest our available cash in interest-bearing, short-term investments, including money market accounts or funds, commercial mortgage backed securities, or CMBS, or corporate bonds, that are consistent with our intention to qualify as a REIT; and

    all investments require the approval of our Manager's Underwriting and Investment Committees, each of which are further described below.

          These investment guidelines may be changed from time to time by our board of directors without our stockholders' consent, but we expect to disclose any material changes to our investment guidelines in the periodic quarterly and annual reports that we will file with the SEC. In addition, our Manager is not subject to any limits or proportions with respect to the mix of target investments that we will acquire other than as necessary to maintain our qualification as a REIT and our exemption from registration under the 1940 Act.

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Our Manager's Underwriting and Investment Committees

          Our Manager has an Underwriting Committee and an Investment Committee. The Underwriting Committee provides the first level of review in the investment process, vetting investment opportunities presented to it by our Manager's senior investment professionals, before referring those that it approves to the Investment Committee for further review.

          The Investment Committee provides a second level of review in the investment process, vetting investment opportunities presented to it by the Underwriting Committee. Its duties also include reviewing our investment portfolio and its compliance with our investment guidelines described above at least on a quarterly basis or more frequently as necessary. The Investment Committee includes CRE professionals and adds cross-disciplinary strength by also seating non-real estate investment professionals of Ares Management.


Risk Management

          As part of our risk management strategy, our Manager closely monitors our portfolio and actively manages the financing, interest rate, credit, prepayment and convexity (a measure of the sensitivity of the duration of a debt investment to changes in interest rates) risks associated with holding a portfolio of our target investments.

Portfolio Management

          Our Manager's portfolio management activities provide not only investment oversight, but also critical input into the origination and acquisition process. Ares Management's portfolio management process creates value through careful investment-specific market review, enforcement of loan and security rights, and timely execution of disposition strategies. In addition, our Manager seeks to leverage Ares Management's research insights into macroeconomic leading indicators.

Interest Rate Hedging

          Subject to maintaining our qualification as a REIT, we engage in a variety of interest rate management techniques that seek, on the one hand to mitigate the economic effect of interest rate changes on the values of, and returns on, some of our assets, and on the other hand help us achieve our risk management objectives.

Market Risk Management

          Because we invest in senior commercial mortgage loans and other debt investments, investment losses from prepayments, defaults, interest rate volatility or other risks can meaningfully reduce or eliminate funds available for distribution to our stockholders. To minimize the risks to our portfolio, we actively employ portfolio-wide and asset-specific risk measurement and management processes in our daily operations.

Credit Risk Management

          While we seek to limit our credit losses through our investment strategy, there can be no assurance that we will be successful. We seek to manage credit risk through our due diligence process prior to origination or acquisition and through the use of non-recourse financing, when and where available and appropriate.

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Our Structure

          We were organized as a Maryland corporation on September 1, 2011.

          The following chart shows our structure after giving effect to this offering on a fully diluted basis (assuming no exercise by the underwriters of their overallotment option).

GRAPHIC

*
Includes the following restricted shares of our common stock to be granted to our independent directors pursuant to our 2012 Equity Incentive Plan as described in "Management — 2012 Equity Incentive Plan" upon completion of this offering: (i) an aggregate of 25,000 restricted shares of our common stock as initial grants and (ii) an aggregate of 10,135 restricted shares of our common stock in respect of 2012 annual compensation.

**
Affiliated companies


Management Agreement

          We are externally managed and advised by our Manager, which is an affiliate of Ares Management. We benefit from the personnel, infrastructure, relationships and experience of our Manager and its affiliates, which enhances the growth of our business. Each of our officers is an employee of our Manager or one of its affiliates. We do not have any employees and we rely completely on our Manager to provide us with investment advisory services. Our Manager is not obligated to dedicate any certain employees exclusively to us, nor is it or its employees obligated to dedicate any specific portion of their time to our business.

          We will enter into a management agreement with our Manager effective upon the completion of this offering. Pursuant to the management agreement, our Manager will implement our business strategy and perform certain services for us, subject to oversight by our board of directors. Our Manager will be responsible for, among other duties, (a) performing all of our day-to-day functions, (b) determining our investment strategy and guidelines in conjunction with our board of directors, (c) sourcing, analyzing and executing investments, asset sales and financing, and (d) performing portfolio management duties. In addition, our Manager will have an Investment Committee that will oversee compliance with our investment strategy and guidelines, investment portfolio holdings and financing strategy.

          The initial term of the management agreement will end three years after the completion of this offering, with automatic one-year renewal terms that end on the applicable anniversary of the completion

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of this offering. Our independent directors will review our Manager's performance annually and, following the initial term, the management agreement may be terminated annually upon the affirmative vote of at least two-thirds of our independent directors based upon: (a) our Manager's unsatisfactory performance that is materially detrimental to us; or (b) our determination that the management fees payable to our Manager are not fair, subject to our Manager's right to prevent termination based on unfair fees by accepting a reduction of management fees agreed to by at least two-thirds of our independent directors. We will provide our Manager with 180 days' prior notice of such a termination. Upon such a termination, we will pay our Manager a termination fee equal to three times the average annual base management fee and incentive fee received by our Manager during the 24 month period immediately preceeding the most recently completed fiscal quarter prior to the date of termination, each as described in the table below. We may also terminate the management agreement at any time, including during the initial term, for cause without payment of any termination fee, with 30 days' prior written notice from our board of directors. During the initial three-year term of the management agreement, we may not terminate the management agreement except for cause. Our Manager may terminate the management agreement if we become required to register as an investment company under the 1940 Act, with such termination deemed to occur immediately before such event, in which case we would not be required to pay our Manager a termination fee. Our Manager may also decline to renew the management agreement by providing us with 180 days' written notice, in which case we would not be required to pay a termination fee. Our Manager is entitled to a termination fee upon termination of the management agreement by us without cause or termination by our Manager if we materially breach the management agreement.

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          The following table summarizes the fees, expense reimbursements and other amounts that we will or may pay to our Manager or its personnel:

Type
  Description
Base management fee   1.5% of our stockholders' equity per annum and calculated and payable quarterly in arrears in cash. For purposes of calculating the management fee, our stockholders' equity means: (a) the sum of (i) the net proceeds from all issuances of our equity securities since inception (allocated on a pro rata daily basis for such issuances during the fiscal quarter of any such issuance), plus (ii) our retained earnings at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods); less (b) any amount that we pay to repurchase our common stock since inception. It also excludes (x) any unrealized gains and losses and other non-cash items that have impacted stockholders' equity as reported in our financial statements prepared in accordance with accounting principles generally accepted in the United States, or GAAP, and (y) one-time events pursuant to changes in GAAP (such as a cumulative change to our operating results as a result of a codification change pursuant to GAAP), and certain non-cash items not otherwise described above (such as depreciation and amortization), in each case after discussions between our Manager and our independent directors and approval by a majority of our independent directors. As a result, our stockholders' equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders' equity shown on our financial statements. The base management fee is payable quarterly in arrears in cash. We expect the base management fee to be paid to our Manager in the first four quarters following completion of this offering (including any partial quarter immediately following thereof) to be approximately $2.5 million, assuming we do not effect any follow-on equity offerings during such period.

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Type
  Description
Incentive fee   Our Manager will be entitled to an incentive fee with respect to each fiscal quarter (or part thereof that the management agreement is in effect) in arrears in cash. The incentive fee will be an amount, not less than zero, equal to the difference between: (a) the product of (i) 20% and (ii) the difference between (A) our Core Earnings (as defined below) for the previous 12-month period, and (B) the product of (1) the weighted average of the issue price per share of our common stock of all of our public offerings multiplied by the weighted average number of all shares of common stock outstanding (including any restricted stock units, any restricted shares of our common stock and other shares of our common stock underlying awards granted under our 2012 Equity Incentive Plan as further described below) in the previous 12-month period, and (2) 8%; and (b) the sum of any incentive fees earned by our Manager with respect to the first three fiscal quarters of such previous 12-month period; provided, however, that no incentive fee is payable with respect to any fiscal quarter unless cumulative Core Earnings for the 12 most recently completed fiscal quarters is greater than zero.

 

 

"Core Earnings" is a non-GAAP measure and is defined as GAAP net income (loss) excluding non-cash equity compensation expense, the incentive fee, depreciation and amortization (to the extent that we foreclose on any properties underlying our target investments), any unrealized gains, losses or other non-cash items recorded in net income for the period, regardless of whether such items are included in other comprehensive income or loss, or in net income. The amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between our Manager and our independent directors and after approval by a majority of our independent directors.

 

 

For purposes of calculating the incentive fee prior to the completion of a 12-month period following this offering, Core Earnings will be calculated on the basis of the number of days that the management agreement has been in effect on an annualized basis.

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Type
  Description
Expense reimbursement   We will reimburse our Manager at cost for operating expenses related to us that are incurred by our Manager, including expenses relating to legal, financial, accounting, servicing, due diligence and other services. Our reimbursement obligation is not subject to any dollar limitation. Expenses will be reimbursed in cash on a monthly basis. We will not reimburse our Manager for the salaries and other compensation of its personnel, except for the allocable share of the salaries and other compensation of our (a) Chief Financial Officer, based on the percentage of his time spent on the Company's affairs and (b) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment professional personnel of our Manager or its affiliates who spend all or a portion of their time managing our affairs based on the percentage of their time spent on the Company's affairs. We may be required to pay our pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of our Manager and its affiliates required for our operations.

Termination fee

 

A termination fee equal to three times the sum of the average annual base management fee and incentive fee earned by our Manager during the 24-month period prior to such termination, calculated as of the end of the most recently completed fiscal quarter prior to the date of termination, will be payable upon termination of the management agreement (a) by us without cause, or (b) by our Manager if we materially breach the management agreement. Termination for cause under the management agreement would include termination as a result of (i) our Manager's continued breach of any material provision of the management agreement following a prescribed period, (ii) the occurrence of certain events with respect to the bankruptcy or insolvency of our Manager, (iii) a change of control of our Manager that a majority of our independent directors determines is materially detrimental to us, (iv) our Manager committing fraud against us, misappropriating or embezzling our funds, or acting grossly negligent in the performance of its duties under the management agreement or (v) the dissolution of our Manager.

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Type
  Description
Equity Incentive Plan   Pursuant to our 2012 Equity Incentive Plan, we may grant awards consisting of restricted shares of our common stock, restricted stock units and/or other equity-based awards to our independent directors, our Chief Financial Officer, our Manager and other eligible awardees under the plan. Under the 2012 Equity Incentive Plan, we are authorized to issue up to an aggregate of 7.5% of the issued and outstanding shares of our common stock immediately after giving effect to the issuance of the shares sold in this offering (including any shares issued pursuant to the underwriters' exercise of their overallotment option but excluding grants of common stock-based awards under our 2012 Equity Incentive Plan or any other equity plan of the Company). We currently expect that grants made in 2012 under such plan (including the grants to our independent directors described herein) will result in the issuance of an aggregate of 2.5% or less of such issued and outstanding shares. The charter of the audit committee of our board of directors provides that the audit committee approves all awards granted under the plan. Upon completion of this offering, each of our five independent directors will be granted 5,000 restricted shares of our common stock as awards granted pursuant to our 2012 Equity Incentive Plan. These initial awards of restricted shares will vest ratably on a quarterly basis over a three-year period beginning on the first day of the fiscal quarter after we complete this offering. In addition, upon completion of this offering, each of our five independent directors will be granted 2,027 restricted shares of our common stock as 2012 annual compensation awards granted pursuant to our 2012 Equity Incentive Plan. These annual awards of restricted shares will vest ratably on a quarterly basis over a one-year period beginning on the first day of the fiscal quarter after we complete this offering.


Conflicts of Interest

          Our Manager and Ares Management have agreed that for so long as our Manager is managing us, neither Ares Management nor any of its affiliates will sponsor or manage any other U.S. publicly traded REIT that invests primarily in the same asset classes as us. Ares Management and its affiliates may sponsor or manage another U.S. publicly traded REIT that invests generally in real estate assets but not primarily in our target investments.

          Other than as set forth herein, neither Ares Management nor any of its affiliates (including our Manager) currently manages any other investment vehicle that primarily focuses on our target investments and none of them have any current plans to do so, but they may in the future sponsor or manage other funds or investment vehicles (other than U.S. publicly traded REITs) that invest in our target investments. Ares Management acquired the investment platform of Wrightwood Capital LLC, or Wrightwood, a provider of debt capital to the U.S. commercial real estate sector, in August 2011. Our Manager manages certain funds, real estate assets and a collateralized debt obligation, or CDO, which were previously managed by Wrightwood. None of the Wrightwood vehicles will be making any further investments (other than follow-on investments in existing investments and additional fundings pursuant to existing commitments) except for the Wrightwood high yield fund, a $243 million fund focused primarily on mezzanine and preferred equity investments in CRE, whose investment period is expected

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to expire on December 31, 2012 (unless the investment period is terminated earlier in accordance with its terms) and which has approximately $94.4 million of available capital remaining to be deployed as of March 31, 2012.

          Ares Management has an investment allocation policy in place that is intended to enable us to share equitably with any other investment vehicles that are managed by Ares Management. In general, investment opportunities are allocated taking into consideration various factors, including, among others, the relevant investment vehicles' available capital, diversification, their investment objectives or strategies, their risk profiles and their existing or prior positions in an issuer/security, as well as potential conflicts of interest, the nature of the opportunity and market conditions. The investment allocation policy may be amended by Ares Management at any time without our consent. Until December 31, 2012 (unless the investment period is terminated earlier in accordance with its terms), the Wrightwood high yield fund will have a right of first offer with respect to investments in mezzanine indebtedness, B-Notes, preferred equity, joint venture equity interests, distressed opportunities (including recapitalizations and the acquisition of distressed indebtedness or equity) or other interests, direct or indirect, in or relating to single or multiple real estate properties or assets (including land, buildings, and other improvements and related personal or intangible personal property), and investments that are substantially similar to the foregoing, and pools or portfolios of real estate interests or assets, partial interests or rights in real estate interests or assets that relate to the foregoing that require less than $12.2 million of capital.

          In addition to the fees payable to our Manager under the management agreement, our Manager and its affiliates may benefit from other fees paid to it in respect of our investments. For example, if we seek to securitize our CRE loans, Ares Management and/or our Manager, may act as collateral manager. In any of these or other capacities, Ares Management and/or our Manager may receive market-based fees for their roles, but only if approved by a majority of our independent directors.

          We may enter into additional transactions with Ares Management or its affiliates. In particular, we may invest in, acquire, sell assets to or provide financing to portfolio companies of investment vehicles managed by Ares Management or its affiliates or co-invest with, purchase assets from, sell assets to or arrange financing from any such investment vehicles and their portfolio companies. Any such transactions will require the approval of a majority of our independent directors. To the extent we co-invest with other investment vehicles that are managed by Ares Management, we will not be responsible for fees other than as set forth in our management agreement, except our proportionate share of fees charged by the managers of such other investment vehicles if approved by a majority of our independent directors. There can be no assurance that any procedural protections will be sufficient to ensure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm's length transaction.

          Certain former Wrightwood personnel who are members of the Ares Commercial Real Estate Group own equity, partnership, profits or other similar interests in Wrightwood and certain of its investment vehicles. The ownership of such interests may be viewed as creating a conflict of interest insofar as such persons may receive greater benefits, by virtue of such interests, than they would receive from our Manager.

          Ares Investments will beneficially own approximately 21.66% of our common stock immediately after this offering (or approximately 19.25% if the underwriters exercise their overallotment option in full). Ares Investments will agree that, for a period of 365 days after the date of this prospectus, it will not, without the prior written consent of Wells Fargo Securities, LLC and Citigroup Global Markets Inc., sell or otherwise transfer these shares, subject to certain exceptions and extensions in certain circumstances. Ares Investments may sell the shares it owns at any time following the expiration of its lock-up period. To the extent Ares Investments sells some of these shares, our Manager's interests may be less aligned with our interests.

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          Certain of our officers and directors, and the officers and other personnel of our Manager, also serve or may serve as officers, directors or partners of Ares Management, as well as Ares Management-sponsored investment vehicles, including new affiliated potential pooled investment vehicles or managed accounts not yet established, whether managed or sponsored by Ares Management's affiliates or our Manager. Accordingly, the ability of our Manager and its officers and employees to engage in other business activities may reduce the time our Manager spends managing our business. These activities could be viewed as creating a conflict of interest insofar as the time and effort of the professional staff of our Manager and its officers and employees will not be devoted exclusively to the business of the Company; instead it will be allocated between the business of the Company and the management of these other investment vehicles. None of our officers are obligated to dedicate any specific portion of their time to our business.

          In the course of our investing activities, we will pay base management fees to our Manager and will reimburse our Manager for certain expenses it incurs. As a result, investors in our common stock will invest on a "gross" basis and receive distributions on a "net" basis after expenses, resulting in, among other things, a lower rate of return than an investor might achieve through direct investments. As a result of this arrangement, our Manager's interests may be less aligned with our interests.

          We do not have any employees and we rely completely on our Manager to provide us with investment advisory services. Our Chief Executive Officer, our President and Chief Financial Officer and other officers also serve as officers of our Manager. Our management agreement with our Manager was negotiated between related parties. The terms of our management agreement, including fees, expense reimbursements and other amounts payable to our Manager may not be as favorable to us as if they had been negotiated at arm's length between unaffiliated third parties.

          We do not have a policy that expressly prohibits our directors, officers, security holders or affiliates from engaging for their own account in business activities of the types conducted by us. However, our code of business conduct and ethics contains a conflicts of interest policy that prohibits our directors, officers and employees from engaging in any transaction that involves an actual conflict of interest with us without the approval of the audit committee of our board of directors. In addition, our management agreement with our Manager does not prevent our Manager and its affiliates from engaging in additional management or investment opportunities, some of which could compete with us, and our code of business conduct and ethics acknowledges that such activities shall not be deemed a conflict of interest.

          Our Manager will pay directly to the underwriters the underwriting discount in connection with this offering.

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Summary Risk Factors

          An investment in shares of our common stock involves various risks. You should consider carefully the risks discussed below and under the heading "Risk Factors" beginning on page 25 of this prospectus before purchasing our common stock. If any of these risks occurred, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you could lose some or all of your investment.

    We are dependent on our Manager and its key personnel for our success and upon their access to the investment professionals of Ares Management. We may not find a suitable replacement for our Manager if our management agreement is terminated, or if such key personnel or investment professionals leave the employment of our Manager or Ares Management or otherwise become unavailable to us. Our Manager is not required to make any particular individual available to us.

    There are various conflicts of interest in our relationship with our Manager and Ares Management that could result in decisions that are not in the best interest of our stockholders.

    The management agreement with our Manager was not negotiated on an arm's length basis and may not be as favorable to us as if it had been negotiated with an unaffiliated third party.

    Terminating the management agreement for unsatisfactory performance of the Manager or electing not to renew the management agreement may be difficult and terminating the agreement in certain circumstances requires payment of a substantial termination fee.

    The incentive fee payable to our Manager under the management agreement may cause our Manager to select investments in more risky assets to increase its incentive compensation.

    Our Manager manages our portfolio in accordance with very broad investment guidelines and our board of directors does not approve each investment and financing decision made by our Manager, which may result in our making riskier investments than those comprising our Initial Portfolio.

    We have limited operating history and may not be able to operate our business successfully or generate sufficient cash flow to make or sustain distributions to our stockholders.

    Our board of directors may change our investment strategy, financing strategy, investment guidelines or leverage policies without stockholder consent.

    Changes in laws or regulations governing our operations, changes in the interpretation thereof or newly enacted laws or regulations (including, without limitation, laws and regulations having the effect of exempting mortgage REITs from the 1940 Act) and any failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us or otherwise adversely affect our business.

    We may incur significant additional debt, which may subject us to restrictive covenants and increased risk of loss and may reduce cash available for distributions to our stockholders.

    In order to originate or acquire certain of our target investments, we will depend on various sources of financing, and our inability to access financing for our target investments on favorable terms could materially and adversely impact us.

    Our secured funding facilities impose, and any additional lending facilities will impose, restrictive covenants.

    Interest rate fluctuations could increase our financing costs and reduce our ability to generate income on our investments, each of which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments.

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    We will allocate the net proceeds of this offering without input from our stockholders.

    The lack of liquidity in our investments may adversely affect our business.

    Our investments may be concentrated and will be subject to risk of default.

    A prolonged economic slowdown, a lengthy or severe recession or further declines in real estate values could impair our investments and harm our operations.

    Our real estate investments are subject to risks particular to real property. These risks may result in a reduction or elimination of, or return from, a loan secured by a particular property.

    The senior CRE loans we originate and the mortgage loans underlying any CMBS investments that we may make in the near term will be subject to the ability of the commercial property owner to generate net income from operating the property, as well as the risks of delinquency and foreclosure.

    We operate in a competitive market for investment opportunities and competition may limit our ability to originate or acquire desirable investments in our target investments and could also affect the pricing of these securities.

    If our Manager overestimates the yields or incorrectly prices the risks of our investments, we may experience losses.

    We have not established a minimum distribution payment level and we may be unable to generate sufficient cash flows from our operations to make distributions to our stockholders at any time in the future.

    Maintenance of our exemption from registration under the 1940 Act imposes significant limits on our operations.

    Our failure to qualify or remain qualified as a REIT in any taxable year would subject us to U.S. federal income tax and potentially state and local taxes, which would reduce the cash available for distribution to our stockholders.

    Complying with REIT requirements may cause us to liquidate or forego otherwise attractive investment opportunities or financing or hedging strategies.

    Our investments in certain debt instruments may cause us to recognize "phantom income" for U.S. federal income tax purposes even though no cash payments have been received on the debt instruments, and certain modifications of such debt by us could cause the modified debt to not qualify as a good REIT asset, thereby jeopardizing our REIT qualification.

    An investment in us is not an investment in any other vehicle managed by Ares Management or its affiliates, including Ares Capital.

    We cannot assure you that we will replicate Ares Management's historical performance, including the historical performance of the funds disclosed under "Our Manager and the Management Agreement — Historical Performance of Certain Ares Management-Advised Funds."

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Operating and Regulatory Structure

REIT Qualification

          We intend to elect to qualify as a REIT commencing with our taxable year ending on December 31, 2012. Our qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Internal Revenue Code of 1986, as amended, or the "Code," relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares. We believe that we have been organized in conformity with the requirements for qualification and taxation as a REIT, and that our intended manner of operation will enable us to meet the requirements for qualification and taxation as a REIT.

          So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on our net taxable income that we distribute currently to our stockholders. If we have previously qualified as a REIT and fail to qualify as a REIT in any subsequent taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to state and local taxes on our income or property and will be subject to U.S. federal income tax (and in certain cases U.S. federal excise tax) on our undistributed income.

1940 Act Exemption

          We intend to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act. Section 3(a)(1)(A) of the 1940 Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the 1940 Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer's total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis (the "40% test"). Excluded from the term "investment securities," among other things, are U.S. Government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for private funds set forth in Section 3(c)(1) or Section 3(c)(7) of the 1940 Act.

          We are organized as a holding company that conducts its businesses primarily through wholly owned subsidiaries. We intend to conduct our operations so that we do not come within the definition of an investment company because less than 40% of the value of our adjusted total assets on an unconsolidated basis will consist of "investment securities." The securities issued by any wholly owned or majority-owned subsidiaries that we may form in the future that are excepted from the definition of "investment company" based on Section 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we may own, may not have a value in excess of 40% of the value of our adjusted total assets on an unconsolidated basis. We will monitor our holdings to ensure continuing and ongoing compliance with this test. In addition, we believe we will not be considered an investment company under Section 3(a)(1)(A) of the 1940 Act because we will not engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our wholly owned subsidiaries, we will be primarily engaged in the non-investment company businesses of these subsidiaries.

          If the value of securities issued by our subsidiaries that are excepted from the definition of "investment company" by Section 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we own, exceeds 40% of our adjusted total assets on an unconsolidated basis, or if one or more of such subsidiaries fail to maintain an exception or exemption from the 1940 Act, we could, among other things, be required either (a) to substantially change the manner in which we conduct our

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operations to avoid being required to register as an investment company or (b) to register as an investment company under the 1940 Act, either of which could have an adverse effect on us and the market price of our securities. If we were required to register as an investment company under the 1940 Act, we could, among other things, be required either to (a) change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (c) register as an investment company, any of which could negatively affect the value of our common stock, the sustainability of our business model, and our ability to make distributions which could have an adverse effect on our business and the market price for our shares of common stock.

          We expect that certain of our subsidiaries that we may form in the future may rely upon the exemption from registration as an investment company under the 1940 Act pursuant to Section 3(c)(5)(C) of the 1940 Act, which is available for entities "primarily engaged" in the business of "purchasing or otherwise acquiring mortgages and other liens on and interests in real estate." This exemption generally requires that at least 55% of these subsidiaries' assets comprise qualifying real estate assets and at least 80% of each of their portfolios must comprise qualifying real estate assets and real estate-related assets under the 1940 Act. We expect each of our subsidiaries relying on Section 3(c)(5)(C) to rely on guidance published by the SEC staff or on our analyses of guidance published with respect to other types of assets to determine which assets are qualifying real estate assets and real estate-related assets. To the extent that the SEC staff publishes new or different guidance with respect to these matters, we may be required to adjust our strategy accordingly. In addition, we may be limited in our ability to make certain investments and these limitations could result in the subsidiary holding assets we might wish to sell or selling assets we might wish to hold.

          Certain of our subsidiaries may rely on the exemption provided by Section 3(c)(6) to the extent that they hold mortgage assets through majority-owned subsidiaries that rely on Section 3(c)(5)(C). The SEC staff has issued little interpretive guidance with respect to Section 3(c)(6) and any guidance published by the staff could require us to adjust our strategy accordingly.

          The SEC recently solicited public comment on a wide range of issues relating to Section 3(c)(5)(C) of the 1940 Act, including the nature of the assets that qualify for purposes of the exemption and whether mortgage REITs should be regulated in a manner similar to investment companies. There can be no assurance that the laws and regulations governing the 1940 Act status of REITs, including the SEC or its staff providing more specific or different guidance regarding these exemptions, will not change in a manner that adversely affects our operations. If we or our subsidiaries fail to maintain an exception or exemption from the 1940 Act, we could, among other things, be required either to (a) change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (c) register as an investment company, any of which could negatively affect the value of our common stock, the sustainability of our business model, and our ability to make distributions which could have an adverse effect on our business and the market price for our shares of common stock.

          See "Business — Operating and Regulatory Structure — 1940 Act Exemption" for a further discussion of the specific exemptions from registration under the 1940 Act that our subsidiaries are expected to rely on and the treatment of certain of our targeted asset classes for purposes of such exemptions.

          Qualification for exemption from registration under the 1940 Act will limit our ability to make certain investments. See "Risk Factors — Risks Related to Our Organization and Structure — Maintenance of our exemption from registration under the 1940 Act imposes significant limits on our operations."

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Restrictions on Ownership of Our Common Stock

          To assist us in complying with the limitations on the concentration of ownership of a REIT imposed by the Code, among other purposes, our charter prohibits, with certain exceptions, any stockholder from beneficially or constructively owning, applying certain attribution rules under the Code, more than 9.8% by value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our stock, or 9.8% by value of our outstanding capital stock. Our board of directors may, in its sole discretion, waive the 9.8% ownership limit with respect to a particular stockholder if it is presented with evidence satisfactory to it that such ownership will not then or in the future jeopardize our qualification as a REIT. Our board of directors is expected to establish an excepted holder limit for Ares Investments, an affiliate of our Manager, that will allow Ares Investments to own, subject to certain conditions, up to 22% of the outstanding shares of our common stock. See "Description of Capital Stock — Restrictions on Ownership and Transfer."

          Our charter also prohibits any person from, among other things:

    beneficially or constructively owning shares of our capital stock that would result in our being "closely held" under Code Section 856(h), or otherwise cause us to fail to qualify as a REIT; and

    transferring shares of our capital stock if such transfer would result in our capital stock being beneficially owned by fewer than 100 persons.

          In addition, our charter provides that any transfer of shares of our capital stock that would result in our capital stock being beneficially owned by fewer than 100 persons will be void and that any ownership or purported transfer of our capital stock in violation of the other restrictions described above will result in the shares so owned or transferred being automatically transferred to a charitable trust for the benefit of a charitable beneficiary, and the purported owner or transferee acquiring no rights in such shares. If a transfer to a charitable trust would be ineffective for any reason to prevent a violation of the restriction, the transfer resulting in such violation will be void from the time of such purported transfer.


Emerging Growth Company Status

          We are an "emerging growth company," as defined in the JOBS Act, and we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not "emerging growth companies" including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We have not made a decision whether to take advantage of any or all of these exemptions. If we do take advantage of any of these exemptions, we do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock and our stock price may be more volatile.

          In addition, Section 107 of the JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an "emerging growth company" can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. However, we are choosing to "opt out" of such extended transition period, and as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised accounting standards is irrevocable.

          We could remain an "emerging growth company" for up to five years, or until the earliest of (i) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (ii) the date that we become a "large accelerated filer" as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three year period.

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The Offering

Common stock offered by us   7,700,000 shares (plus up to an additional 1,155,000 shares of our common stock that we may issue and sell upon the exercise of the underwriters' overallotment option).

Common stock to be outstanding after this offering

 

9,235,135 shares.(1)

Use of proceeds

 

We estimate that the net proceeds we will receive from selling common stock in this offering will be approximately $139.4 million, after deducting estimated offering expenses of approximately $3.1 million (or, if the underwriters exercise their overallotment option in full, approximately $160.8 million, after deducting the estimated offering expenses of approximately $3.1 million). We intend to use approximately $47.3 million of the net proceeds of this offering to repay outstanding amounts under the Wells Fargo Facility and the Citibank Facility, approximately $6.3 million to pay the holders of the 114.4578 issued shares of our Series A Preferred Stock that are redeeming their shares upon the completion of this offering, and the balance for general corporate working capital purposes and to originate our target investments. Until appropriate investments can be identified, our Manager may invest this balance in interest-bearing short-term investments, including money market accounts or funds, CMBS or corporate bonds, which are consistent with our intention to qualify as a REIT. These initial investments are expected to provide a lower net return than we will seek to achieve from our target investments. See "Use of Proceeds."

Underwriting Discounts and Commissions

 

Our Manager will pay directly to the underwriters the underwriting discount of approximately $5.3 million (or, if the underwriters exercise their overallotment option in full, approximately $6.2 million). No underwriting discount will be paid on the 500,000 shares purchased by Ares Investments.

Distribution policy

 

We intend to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT distribute annually at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its REIT taxable income. We generally intend over time to pay quarterly distributions in an amount equal to our taxable income. After this offering, we plan to pay a distribution in respect of the period from the completion of this offering through June 30, 2012, which may be prior to the time that we have fully invested the net proceeds of this offering in investments in our target investments. Prior to the time we have fully deployed the net proceeds of this offering for the purposes listed above, we may fund our quarterly distributions out of such net proceeds.

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    Any distributions we make to our stockholders will be at the discretion of our board of directors and will depend upon, among other things, our actual results of operations and liquidity. These results and our ability to pay distributions will be affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures. For more information, see "Distribution Policy."

NYSE symbol

 

"ACRE"

Ownership and transfer restrictions

 

To assist us in complying with limitations on the concentration of ownership of a REIT imposed by the Code and for other purposes, our charter generally prohibits, among other prohibitions, any stockholder from beneficially or constructively owning more than 9.8% by value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our stock, or 9.8% by value of our outstanding capital stock. Our board of directors is expected to establish an excepted holder limit for Ares Investments, an affiliate of our Manager, that will allow Ares Investments to own, subject to certain conditions, up to 22% of the outstanding shares of our common stock. See "Description of Capital Stock — Restrictions on Ownership and Transfer."

Risk factors

 

Investing in our common stock involves a high degree of risk. You should carefully read and consider the information set forth under the heading "Risk Factors" beginning on page 25 of this prospectus and all other information in this prospectus before investing in our common stock.

(1)
Includes the following restricted shares of our common stock to be granted to our independent directors pursuant to our 2012 Equity Incentive Plan described in "Management — 2012 Equity Incentive Plan" upon completion of this offering: (i) an aggregate of 25,000 restricted shares of our common stock as initial grants and (ii) an aggregate of 10,135 restricted shares of our common stock in respect of 2012 annual compensation. Excludes shares of our common stock that we may issue and sell upon the exercise of the underwriters' overallotment option. The number of shares outstanding has been adjusted to reflect the one-for-two reverse stock split effective February 22, 2012.


Our Corporate Information

          Our principal executive offices are located at Two North LaSalle Street, Suite 925, Chicago, IL 60602. Our telephone number is (312) 324-5900. Our website is www.arescre.com. The contents of our website are not a part of this prospectus. The information on our website is not intended to form a part of or be incorporated by reference into this prospectus.

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RISK FACTORS

          Investing in our common stock involves a high degree of risk. You should carefully consider the following risk factors and all other information contained in this prospectus before purchasing our common stock. If any of the following risks occurs, our business, financial condition, liquidity, results of operations or business prospects could be materially and adversely affected. In that case, the trading price of our common stock could decline, and you may lose some or all of your investment.


Risks Related to Our Relationship with Our Manager and its Affiliates

Our future success depends on our Manager, its key personnel and their access to the investment professionals of Ares Management. We may not find a suitable replacement for our Manager if our management agreement is terminated, or if such key personnel or investment professionals leave the employment of our Manager or Ares Management or otherwise become unavailable to us.

          We have no separate facilities and do not expect to have any employees. We rely completely on our Manager to provide us with investment advisory services. Our executive officers also serve as officers of our Manager. Our Manager has significant discretion as to the implementation of our investment and operating policies and strategies. Accordingly, we believe that our success depends to a significant extent upon the efforts, experience, diligence, skill and network of business contacts of the officers and key personnel of our Manager. The officers and key personnel of our Manager evaluate, negotiate, close and monitor our investments; therefore, our success depends on their continued service. The departure of any of the officers or key personnel of our Manager could have a material adverse effect on our business.

          Our Manager is not obligated to dedicate any specific personnel exclusively to us. None of our officers are obligated to dedicate any specific portion of their time to our business. Each of them has significant responsibilities for other investment vehicles managed by affiliates of Ares Management. As a result, these individuals may not always be able to devote sufficient time to the management of our business. Further, when there are turbulent conditions in the real estate markets or distress in the credit markets, the attention of our Manager's personnel and our executive officers and the resources of Ares Management will also be required by other investment vehicles managed by affiliates of Ares Management.

          In addition, we offer no assurance that our Manager will remain our investment manager or that we will continue to have access to our Manager's officers and key personnel. The initial term of our management agreement with our Manager only extends until the third anniversary of the closing of this offering, with automatic one-year renewals thereafter. Furthermore, our Manager may decline to renew the management agreement with 180 days' written notice. If the management agreement is terminated and no suitable replacement is found to manage us, we may not be able to execute our investment strategy.

          We also depend on the diligence, skill and network of business contacts of key personnel of the Ares Private Debt Group and access to the investment professionals of other groups within Ares Management and the information and deal flow generated by Ares Management's investment professionals in the course of their investment and portfolio management activities. The departure of any of these individuals, or of a significant number of the investment professionals or partners of Ares Management, could have a material adverse effect on our business, financial condition or results of operations. We cannot assure you that we will continue to have access to Ares Management's investment professionals or its information and deal flow.

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Our growth depends on the ability of our Manager to make investments on favorable terms that satisfy our investment strategy and otherwise generate attractive risk-adjusted returns initially and consistently from time to time.

          Our ability to achieve our investment objectives depends on our ability to grow, which depends, in turn, on the management and investment teams of our Manager and their ability to identify and to make investments on favorable terms in our target investments as well as on our access to financing on acceptable terms. The demands on the time of the professional staff of our Manager will increase as our portfolio grows, and we cannot assure you that our Manager will be able to hire, train, supervise, manage and retain new officers and employees to manage future growth effectively, and any such failure could have a material adverse effect on our business.

There are various conflicts of interest in our relationship with our Manager and Ares Management that could result in decisions that are not in the best interests of our stockholders.

          We are subject to conflicts of interest arising out of our relationship with our Manager and Ares Management. In the future, we may enter into additional transactions with Ares Management. In particular, we may invest in, acquire, sell assets to or provide financing to portfolio companies of investment vehicles managed by Ares Management or its affiliates or co-invest with, purchase assets from, sell assets to or arrange financing from any such investment vehicles and their portfolio companies. Any such transactions will require approval by a majority of our independent directors. There can be no assurance that any procedural protections will be sufficient to ensure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm's length transaction. In addition, to the extent we co-invest with other investment vehicles that are managed by affiliates of Ares Management, we will not be responsible for fees other than as set forth in our management agreement, except our proportionate share of fees charged by the managers of such other investment vehicles if approved by a majority of our independent directors.

          Our Manager and Ares Management have agreed that for so long as our Manager is managing us, neither Ares Management nor any of its affiliates will sponsor or manage any other U.S. publicly traded REIT that invests primarily in the same asset classes as us. Ares Management and its affiliates may sponsor or manage another U.S. publicly traded REIT that invests generally in real estate assets but not primarily in our target investments.

          Other than as set forth herein, neither Ares Management nor any of its affiliates (including our Manager) currently manages any other investment vehicle that primarily focuses on our target investments and none of them have any current plans to do so, but they may in the future sponsor or manage other funds or investment vehicles (other than U.S. publicly traded REITs) that invest in our target investments. Our Manager manages certain funds, real estate assets and a CDO that were previously managed by Wrightwood. None of the Wrightwood vehicles will be making any further investments (other than follow-on investments in existing investments and additional fundings pursuant to existing commitments) except for the Wrightwood high yield fund, which is a $243 million fund focused primarily on mezzanine and preferred equity investments in CRE whose investment period is expected to expire on December 31, 2012 (unless the investment period is terminated earlier in accordance with its terms) and which has approximately $94.4 million of available capital remaining to be deployed as of March 31, 2012.

          Ares Management has an investment allocation policy in place that is intended to enable us to share equitably with any other investment vehicles that are managed by Ares Management. In general, investment opportunities are allocated taking into consideration various factors, including, among others, the relevant investment vehicles' available capital, their investment objectives or strategies, their risk profiles and their existing or prior positions in an issuer/security, as well as potential conflicts of interest, the nature of the opportunity and market conditions. Until December 31, 2012 (unless the investment period is terminated earlier in accordance with its terms), the Wrightwood high yield fund

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will have a right of first offer with respect to investments in mezzanine indebtedness, B-Notes, preferred equity, joint venture equity interests, distressed opportunities (including recapitalizations and the acquisition of distressed indebtedness or equity) or other interests, direct or indirect, in or relating to single or multiple real estate properties or assets (including land, buildings, and other improvements and related personal or intangible personal property), and investments that are substantially similar to the foregoing, and pools or portfolios of real estate interests or assets, partial interests or rights in real estate interests or assets that relate to the foregoing that require less than $12.2 million of capital. The investment allocation policy may be amended by our Manager and Ares Management at any time without our consent.

          Certain former Wrightwood personnel who are members of the Ares Commercial Real Estate Group own equity, partnership, profits or other similar interests in Wrightwood and certain of its investment vehicles. The ownership of such interests may be viewed as creating a conflict of interest insofar as such persons may receive greater benefits, by virtue of such interests, than they would receive from our Manager.

          In addition to the fees payable to our Manager under the management agreement, our Manager and its affiliates may benefit from other fees paid to it in respect of our investments. For example, if we seek to securitize our CRE loans, Ares Management and/or our Manager, may act as collateral manager. In any of these or other capacities, Ares Management and/or our Manager may receive market-based fees for their roles, but only if approved by a majority of our independent directors.

          Ares Investments may sell the shares it owns at any time following the expiration of its applicable lock-up period or prior thereto with the approval of Wells Fargo Securities, LLC and Citigroup Global Markets Inc. To the extent Ares Investments sells some of these shares, our Manager's interests may be less aligned with our interests.

The ability of our Manager and its officers and employees to engage in other business activities may reduce the time our Manager spends managing our business and may result in certain conflicts of interest.

          Certain of our officers and directors, and the officers and other personnel of our Manager, also serve or may serve as officers, directors or partners of Ares Management, as well as Ares Management-sponsored investment vehicles, including new affiliated potential pooled investment vehicles or managed accounts not yet established, whether managed or sponsored by Ares Management's affiliates or our Manager. Accordingly, the ability of our Manager and its officers and employees to engage in other business activities may reduce the time our Manager spends managing our business. These activities could be viewed as creating a conflict of interest insofar as the time and effort of the professional staff of our Manager and its officers and employees will not be devoted exclusively to the business of the Company; instead it will be allocated between the business of the Company and the management of these other investment vehicles.

          In the course of our investing activities, we will pay base management fees to our Manager and will reimburse our Manager for certain expenses it incurs. As a result, investors in our common stock will invest on a "gross" basis and receive distributions on a "net" basis after expenses, resulting in, among other things, a lower rate of return than one might achieve through direct investments. As a result of this arrangement, our Manager's interests may be less aligned with our interests.

The management agreement with our Manager was not negotiated on an arm's length basis and may not be as favorable to us as if it had been negotiated with an unaffiliated third party.

          We do not have any employees and rely completely on our Manager to provide us with investment advisory services. Our executive officers also serve as officers of our Manager. Our management agreement with our Manager was negotiated between related parties and its terms, including fees payable, may not be as favorable to us as if it had been negotiated with an unaffiliated third party.

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          We will pay our Manager substantial base management fees regardless of the performance of our portfolio. Our Manager's entitlement to a base management fee, which is not based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking investments that provide attractive risk-adjusted returns for our portfolio. This in turn could hurt both our ability to make distributions to our stockholders and the market price of our common stock. In addition, because the calculation of our base management fee takes into account the net proceeds we receive from the sale of our equity securities, our Manager's payment to the underwriters of the underwriting discount in connection with this offering will result in a slightly increased management fee.

Terminating the management agreement for unsatisfactory performance of the Manager or electing not to renew the management agreement may be difficult and terminating the agreement in certain circumstances requires payment of a substantial termination fee.

          Termination of the management agreement with our Manager without cause is difficult and costly. Our independent directors will review our Manager's performance and the management fees annually and, following the initial three-year term, the management agreement may be terminated annually upon the affirmative vote of at least two-thirds of our independent directors based upon: (a) our Manager's unsatisfactory performance that is materially detrimental to us; or (b) a determination that the management fees payable to our Manager are not fair, subject to our Manager's right to prevent termination based on unfair fees by accepting a reduction of management fees agreed to by at least two-thirds of our independent directors. Our Manager will be provided 180 days' prior notice of any such termination. Additionally, upon such a termination, the management agreement provides that we will pay our Manager a termination fee equal to three times the sum of the average annual base management fee and incentive fee received by our Manager during the prior 24-month period before such termination, calculated as of the end of the most recently completed fiscal quarter. This provision increases the cost to us of terminating the management agreement and adversely affects our ability to terminate our Manager without cause.

          During the initial three-year term of the management agreement, we may not terminate the management agreement except for cause.

Our Manager's contractual commitment to manage us is limited to the initial three-year term of the management agreement.

          Our Manager is only contractually committed to serve us until the third anniversary of the closing of this offering. Thereafter, the management agreement is renewable for one-year terms; provided, however, that our Manager may terminate the management agreement annually upon 180 days' prior notice. If the management agreement is terminated and no suitable replacement is found to manage us, we may not be able to execute our investment strategy.

The incentive fee payable to our Manager under the management agreement may cause our Manager to select investments in more risky assets to increase its incentive compensation.

          Our Manager is entitled to receive incentive compensation based upon our achievement of targeted levels of Core Earnings. In evaluating investments and other management strategies, the opportunity to earn incentive compensation based on Core Earnings may lead our Manager to place undue emphasis on the maximization of Core Earnings at the expense of other criteria, such as preservation of capital, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative. This could result in increased risk to the value of our investment portfolio.

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Our Manager manages our portfolio in accordance with very broad investment guidelines and our board of directors does not approve each investment and financing decision made by our Manager, which may result in our making riskier investments than those comprising our Initial Portfolio.

          While our directors periodically review our investment portfolio, they do not review all of our proposed investments. In addition, in conducting periodic reviews, our directors may rely primarily on information provided to them by our Manager. Our investment guidelines may be changed from time to time. Furthermore, our Manager may use complex strategies and transactions entered into by our Manager that may be difficult or impossible to unwind by the time they are reviewed by our directors. Our Manager has great latitude in determining the types of assets it may decide are proper investments for us, which could result in investment returns that are substantially below expectations or that result in losses, which would materially and adversely affect our business operations and results. In addition, our Manager is not subject to any limits or proportions with respect to the mix of target investments that we originate or acquire other than as necessary to maintain our qualification as a REIT and our exemption from registration under the 1940 Act. Decisions made and investments entered into by our Manager may not fully reflect your best interests.

Our Manager may change its investment process, or elect not to follow it, without stockholder consent at any time, which may adversely affect our investments.

          Our Manager may change its investment process without stockholder consent at any time. In addition, there can be no assurance that our Manager will follow its investment process in relation to the identification and underwriting of prospective investments. Changes in our Manager's investment process may result in inferior due diligence and underwriting standards, which may adversely affect the performance of our portfolio.

We do not have a policy that expressly prohibits our directors, officers, security holders or affiliates from engaging for their own account in business activities of the types conducted by us.

          We do not have a policy that expressly prohibits our directors, officers, security holders or affiliates from engaging for their own account in business activities of the types conducted by us. However, our code of business conduct and ethics contains a conflicts of interest policy that prohibits our directors, officers and employees from engaging in any transaction that involves an actual conflict of interest with us without the approval of the audit committee of our board of directors. In addition, our management agreement with our Manager does not prevent our Manager and its affiliates from engaging in additional management or investment opportunities, some of which could compete with us, and our code of business conduct and ethics acknowledges that such activities shall not be deemed a conflict of interest.

Our Manager is subject to extensive regulation as an investment adviser, which could adversely affect its ability to manage our business.

          Our Manager is subject to regulation as an investment adviser by various regulatory authorities that are charged with protecting the interests of its clients, including us. Instances of criminal activity and fraud by participants in the investment management industry and disclosures of trading and other abuses by participants in the financial services industry have led the U.S. government and regulators to consider increasing the rules and regulations governing, and oversight of, the U.S. financial system. This activity is expected to result in changes to the laws and regulations governing the investment management industry and more aggressive enforcement of the existing laws and regulations. Our Manager could be subject to civil liability, criminal liability, or sanction, including revocation of its registration as an investment adviser, revocation of the licenses of its employees, censures, fines, or temporary suspension or permanent bar from conducting business, if it is found to have violated any of these laws or regulations. Any such liability or sanction could adversely affect our Manager's ability to manage our business. Our Manager must continually address conflicts between its interests and those of its clients, including us. In addition, the SEC and other regulators have increased their scrutiny of

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potential conflicts of interest. Our Manager has procedures and controls that are reasonably designed to address these issues. However, appropriately dealing with conflicts of interest is complex and difficult and if our Manager fails, or appears to fail, to deal appropriately with conflicts of interest, it could face litigation or regulatory proceedings or penalties, any of which could adversely affect its ability to manage our business.

We may not replicate Ares Management's historical performance.

          We cannot assure you that we will replicate Ares Management's historical performance, and we caution you that our investment returns could be substantially lower than the returns achieved by other entities managed by Ares Management or its affiliates, including the historical performance of the funds disclosed under "Our Manager and the Management Agreement — Historical Performance of Certain Ares Management-Advised Funds." Although such funds share our general objective of targeting investments in senior secured debt, each of them is or has been focused on making senior debt investments secured primarily by the corporate assets of their borrowers and none of them target investments in senior or any other loans secured by CRE, which is our specific investment objective.

We do not own the Ares name, but we may use the name pursuant to a license agreement with Ares Management. Use of the name by other parties or the termination of our license agreement may harm our business.

          Upon the completion of this offering, we will enter into a license agreement with Ares Management pursuant to which it will grant us a non-exclusive, royalty-free license to use the name "Ares." Under this agreement, we will have a right to use this name for so long as Ares Commercial Real Estate Management LLC serves as our Manager pursuant to the management agreement. Ares Management retains the right to continue using the "Ares" name. We cannot preclude Ares Management from licensing or transferring the ownership of the "Ares" name to third parties, some of whom may compete with us. Consequently, we would be unable to prevent any damage to goodwill that may occur as a result of the activities of Ares Management or others. Furthermore, in the event that the license agreement is terminated, we will be required to change our name and cease using the name. Any of these events could disrupt our recognition in the market place, damage any goodwill we may have generated and otherwise harm our business. Like the management agreement, the license agreement may also be terminated by either party without penalty upon 180 days written notice to the other.

Our Manager's and Ares Management's liability is limited under the management agreement, and we have agreed to indemnify our Manager against certain liabilities. As a result, we could experience poor performance or losses for which our Manager would not be liable.

          Pursuant to the management agreement, our Manager does not assume any responsibility other than to render the services called for thereunder and will not be responsible for any action of our board of directors in following or declining to follow its advice or recommendations. Under the terms of the management agreement, our Manager, its officers, members, managers, directors, personnel, any person controlling or controlled by our Manager (including Ares Management) and any person providing services to our Manager will not be liable to us, any subsidiary of ours, our stockholders or partners or any subsidiary's stockholders or partners for acts or omissions performed in accordance with and pursuant to the management agreement, except by reason of acts constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the management agreement. In addition, we have agreed to indemnify our Manager, its officers, stockholders, members, managers, directors, personnel, any person controlling or controlled by our Manager and any person providing services to our Manager with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts of our Manager not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties, performed in good faith in accordance with and pursuant to the management agreement.

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Our Manager and its affiliates, including Ares Management, have limited experience managing a portfolio of assets in the manner necessary to maintain our exemption under the 1940 Act.

          In order to maintain our exemption from registration under the 1940 Act, the assets in our portfolio are subject to certain restrictions that limit our operations meaningfully. Our Manager and its affiliates, including Ares Management, have limited experience managing a portfolio in the manner necessary to maintain our exemption from registration under the 1940 Act.


Risks Related to Our Company

We have limited operating history and may not be able to operate our business successfully or generate sufficient revenue to make or sustain distributions to our stockholders.

          We were organized on September 1, 2011 and have limited operating history. We originated a portfolio of CRE loans that comprise the Initial Portfolio and will continue making investments upon completion of this offering. We cannot assure you that we will be able to operate our business successfully or implement our operating policies and strategies as described in this prospectus. The results of our operations depend on several factors, including the availability of opportunities for the origination or acquisition of target investments, the level and volatility of interest rates, the availability of adequate short and long-term financing, conditions in the financial markets and economic conditions. In addition, our future operating results and financial data may vary materially from the historical operating results and financial data as well as the pro forma operating results and financial data contained in this prospectus because of a number of factors, including costs and expenses associated with the management agreement and being a public company. Consequently, the historical and pro forma financial statements contained in this prospectus may not be useful in assessing our likely future performance.

Our board of directors may change our investment strategy or guidelines, financing strategy or leverage policies without stockholder consent.

          Our board of directors may change our investment strategy or guidelines, financing strategy or leverage policies with respect to investments, originations, acquisitions, growth, operations, indebtedness, capitalization and distributions at any time without the consent of our stockholders, which could result in an investment portfolio with a different risk profile than that of our Initial Portfolio or of a portfolio comprised of our target investments. A change in our investment strategy may increase our exposure to interest rate risk, default risk and real estate market fluctuations. Furthermore, a change in our asset allocation could result in our making investments in asset categories different from those described in this prospectus. These changes could adversely affect our financial condition, results of operations, the market price of our common stock and our ability to make distributions to our stockholders.

Changes in laws or regulations governing our operations, changes in the interpretation thereof or newly enacted laws or regulations (including, without limitation, laws and regulations having the effect of exempting mortgage REITs from the 1940 Act) and any failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us or otherwise adversely affect our business.

          We are subject to regulation by laws and regulations at the local, state and federal. These laws and regulations, as well as their interpretation, may change from time to time, and new laws and regulations may be enacted. Accordingly, any change in these laws or regulations, changes in their interpretation, or newly enacted laws or regulations and any failure by us to comply with these laws or regulations, could require changes to certain of our business practices, negatively impact our operations, cash flow or financial condition, impose additional costs on us or otherwise adversely affect our business. Furthermore, if regulatory capital requirements imposed on our private lenders change, they may be

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required to limit, or increase the cost of, financing they provide to us. In general, this could potentially increase our financing costs and reduce our liquidity or require us to sell assets at an inopportune time or price.

Actions of the U.S. government, including the U.S. Congress, Federal Reserve, U.S. Treasury and other governmental and regulatory bodies, to stabilize or reform the financial markets, or market response to those actions, may not achieve the intended effect and may adversely affect our business.

          In response to the financial issues affecting the banking system and financial markets and going concern threats to commercial banks, investment banks and other financial institutions, the Emergency Economic Stabilization Act, or EESA, was enacted by the U.S. Congress in 2008. There can be no assurance that the EESA or any other U.S. government actions will have a beneficial impact on the financial markets. To the extent the markets do not respond favorably to any such actions by the U.S. government or such actions do not function as intended, our business may not receive the anticipated positive impact from the legislation and such result may have broad adverse market implications.

          In July 2010, the U.S. Congress enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Dodd-Frank Act, in part to impose significant investment restrictions and capital requirements on banking entities and other organizations that are significant to U.S. financial markets. For instance, the Dodd-Frank Act will impose significant restrictions on the proprietary trading activities of certain banking entities and subject other systemically significant organizations regulated by the U.S. Federal Reserve to increased capital requirements and quantitative limits for engaging in such activities. The Dodd-Frank Act also seeks to reform the asset-backed securitization market (including the mortgage-backed securities market) by requiring the retention of a portion of the credit risk inherent in the pool of securitized assets and by imposing additional registration and disclosure requirements. While the full impact of the Dodd-Frank Act cannot be assessed until all implementing regulations are released, the Dodd-Frank Act's extensive requirements may have a significant effect on the financial markets, and may affect the availability or terms of financing from our lender counterparties and the availability or terms of mortgage-backed securities, both of which may have an adverse effect on our business.

          In addition, the U.S. government, Federal Reserve, U.S. Treasury and other governmental and regulatory bodies have taken or are considering taking other actions to address the financial crisis. We cannot predict whether or when such actions may occur or what effect, if any, such actions could have on our business, results of operations and financial condition.

We are highly dependent on information systems and systems failures could significantly disrupt our business, which may, in turn, negatively affect the market price of our common stock and our ability to pay dividends.

          Our business is highly dependent on communications and information systems of Ares Management. Any failure or interruption of Ares Management's systems could cause delays or other problems in our securities trading activities, which could have a material adverse effect on our operating results and negatively affect the market price of our common stock and our ability to pay dividends to our stockholders.


Risks Related to Sources of Financing and Hedging

We may incur significant additional debt, which may subject us to restrictive covenants and increased risk of loss and may reduce cash available for distributions to our stockholders.

          We borrow funds under the Wells Fargo Facility, the Citibank Facility and, if completed, may borrow funds under the Capital One Facility. Subject to market conditions and availability, we may incur significant additional debt through bank credit facilities (including term loans and revolving facilities),

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repurchase agreements, warehouse facilities and structured financing arrangements, public and private debt issuances and derivative instruments, in addition to transaction or asset specific funding arrangements. The percentage of leverage we employ will vary depending on our available capital, our ability to obtain and access financing arrangements with lenders, debt restrictions contained in those financing arrangements and the lenders' and rating agencies' estimate of the stability of our investment portfolio's cash flow. We may significantly increase the amount of leverage we utilize at any time without approval of our board of directors. In addition, we may leverage individual assets at substantially higher levels. Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including the risk that:

    our cash flow from operations may be insufficient to make required payments of principal of and interest on the debt or we may fail to comply with all of the other covenants contained in the debt, which is likely to result in (a) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all, (b) our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on borrowings under those arrangements, and/or (c) the loss of some or all of our assets to foreclosure or sale;

    our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase with higher financing costs;

    we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities, stockholder distributions or other purposes; and

    we are not able to refinance debt that matures prior to the investment it was used to finance on favorable terms, or at all.

          There can be no assurance that a leveraging strategy will be successful.

Our secured funding facilities impose, and any additional lending facilities will impose, restrictive covenants.

          We borrow funds under the Wells Fargo Facility, the Citibank Facility and, if completed, may borrow funds under the Capital One Facility. The documents that govern these secured funding facilities contain, and any additional lending facilities would be expected to contain, customary negative covenants and other financial and operating covenants, that among other things, may affect our ability to incur additional debt, make certain investments or acquisitions, reduce liquidity below certain levels, make distributions to our stockholders, redeem debt or equity securities and impact our flexibility to determine our operating policies and investment strategies. For example, such loan documents contain negative covenants that limit, among other things, our ability to repurchase our common stock, distribute more than a certain amount of our net income or funds from operations to our stockholders, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates (including amending the management agreement with our Manager in a material respect). Certain of the restrictive covenants that apply to the Wells Fargo Facility and the Citibank Facility are further described in "Management's Discussion and Analysis — Wells Fargo Facility and Citibank Facility." If completed, the Capital One Facility is expected to contain similar restrictive covenants. If we fail to meet or satisfy any of these covenants, we would be in default under these agreements, and our lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral and enforce their interests against existing collateral. We are also subject to cross-default and acceleration rights and, with respect to collateralized debt, the posting of additional collateral and foreclosure rights upon default. Further, these restrictions could also make it difficult for us to satisfy the qualification requirements necessary to maintain our status as a REIT.

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Interest rate fluctuations could increase our financing costs and reduce our ability to generate income on our investments, each of which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments.

          Our primary interest rate exposures will relate to the yield on our investments and the financing cost of our debt, as well as our interest rate swaps that we utilize for hedging purposes. Changes in interest rates will affect our net interest income, which is the difference between the interest income we earn on our interest-earning investments and the interest expense we incur in financing these investments. Interest rate fluctuations resulting in our interest expense exceeding interest income would result in operating losses for us. Changes in the level of interest rates also may affect our ability to invest in investments, the value of our investments and our ability to realize gains from the disposition of assets. Changes in interest rates may also affect borrower default rates.

          To the extent that our financing costs will be determined by reference to floating rates, such as LIBOR or a Treasury index, plus a margin, the amount of such costs will depend on a variety of factors, including, without limitation, (a) for collateralized debt, the value and liquidity of the collateral, and for non-collateralized debt, our credit, (b) the level and movement of interest rates, and (c) general market conditions and liquidity. In a period of rising interest rates, our interest expense on floating rate debt would increase, while any additional interest income we earn on our floating rate investments may not compensate for such increase in interest expense. At the same time, the interest income we earn on our fixed rate investments would not change, the duration and weighted average life of our fixed rate investments would increase and the market value of our fixed rate investments would decrease. Similarly, in a period of declining interest rates, our interest income on floating rate investments would decrease, while any decrease in the interest we are charged on our floating rate debt may not compensate for such decrease in interest income and interest we are charged on our fixed rate debt would not change. Any such scenario could materially and adversely affect us.

          Our operating results will depend, in part, on differences between the income earned on our investments, net of credit losses, and our financing costs. For any period during which our investments are not match-funded, the income earned on such investments may respond more slowly to interest rate fluctuations than the cost of our borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may immediately and significantly decrease our results of operations and cash flows and the market value of our investments.

The Wells Fargo Facility and the Citibank Facility, and any bank credit facilities and repurchase agreements that we may use in the future to finance our assets, may require us to provide additional collateral or pay down debt.

          We borrow funds under the Wells Fargo Facility, the Citibank Facility and, if completed, may borrow funds under the Capital One Facility. We anticipate that we will also utilize additional bank credit facilities or repurchase agreements (including term loans and revolving facilities) to finance our assets if they become available on acceptable terms. Such financing arrangements would involve the risk that the market value of the loans pledged or sold by us to the provider of the bank credit facility or repurchase agreement counterparty may decline in value, in which case the lender may require us to provide additional collateral or to repay all or a portion of the funds advanced. We may not have the funds available to repay our debt at that time, which would likely result in defaults unless we are able to raise the funds from alternative sources, which we may not be able to achieve on favorable terms or at all. Posting additional collateral would reduce our liquidity and limit our ability to leverage our assets. If we cannot meet these requirements, the lender could accelerate our indebtedness, increase the interest rate on advanced funds and terminate our ability to borrow funds from it, which could materially and adversely affect our financial condition and ability to implement our investment strategy. In addition, if the lender files for bankruptcy or becomes insolvent, our loans may become subject to bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of these assets. Such an event could restrict our access to bank credit facilities and increase our cost of capital. The providers of

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bank credit facilities and repurchase agreement financing may also require us to maintain a certain amount of cash or set aside assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on assets. If we are unable to meet these collateral obligations, our financial condition and prospects could deteriorate rapidly.

          In addition, if a counterparty to our repurchase transactions defaults on its obligation to resell the underlying security back to us at the end of the transaction term, or if the value of the underlying security has declined as of the end of that term, or if we default on our obligations under the repurchase agreement, we will likely incur a loss on our repurchase transactions.

          There can be no assurance that we will be able to obtain additional bank credit facilities or repurchase agreements on favorable terms, or at all.

Our access to sources of financing may be limited and thus our ability to grow our business and to maximize our returns may be adversely affected.

          We borrow funds under the Wells Fargo Facility, the Citibank Facility and, if completed, may borrow funds under the Capital One Facility. Subject to market conditions and availability, we may incur significant additional debt through bank credit facilities (including term loans and revolving facilities), repurchase agreements, warehouse facilities and structured financing arrangements, public and private debt issuances and derivative instruments, in addition to transaction or asset specific funding arrangements. We may also issue additional debt or equity securities to fund our growth.

          Our access to sources of financing will depend upon a number of factors, over which we have little or no control, including:

    general economic or market conditions;

    the market's view of the quality of our assets;

    the market's perception of our growth potential;

    our current and potential future earnings and cash distributions; and

    the market price of the shares of our common stock.

          We will need to periodically access the capital markets to raise cash to fund new investments. Unfavorable economic or capital market conditions, such as the severe economic downturn that began in 2007, may increase our funding costs, limit our access to the capital markets or could result in a decision by our potential lenders not to extend credit. An inability to successfully access the capital markets could limit our ability to grow our business and fully execute our business strategy and could decrease our earnings, if any. In addition, the current dislocation and weakness in the capital and credit markets could adversely affect one or more private lenders and could cause one or more of our private lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing. In addition, if regulatory capital requirements imposed on our private lenders change, they may be required to limit, or increase the cost of, financing they provide to us. In general, this could potentially increase our financing costs and reduce our liquidity or require us to sell assets at an inopportune time or price. No assurance can be given that we will be able to obtain any such financing, including any replacement of the Wells Fargo Facility, the Citibank Facility or, if completed, the Capital One Facility on favorable terms or at all.

Any warehouse facilities that we may obtain in the future may limit our ability to originate or acquire assets, and we may incur losses if the collateral is liquidated.

          If securitization financings become available, we may utilize, if available, warehouse facilities pursuant to which we would accumulate mortgage loans in anticipation of a securitization financing,

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which assets would be pledged as collateral for such facilities until the securitization transaction is consummated. In order to borrow funds to originate or acquire assets under any future warehouse facilities, we expect that our lenders thereunder would have the right to review the potential assets for which we are seeking financing. We may be unable to obtain the consent of a lender to originate or acquire assets that we believe would be beneficial to us and we may be unable to obtain alternate financing for such assets. In addition, no assurance can be given that a securitization structure would be consummated with respect to the assets being warehoused. If the securitization is not consummated, the lender could demand repayment of the facility, and in the event that we were unable to timely repay, could liquidate the warehoused collateral and we would then have to pay any amount by which the original purchase price of the collateral assets exceeds its sale price, subject to negotiated caps, if any, on our exposure. In addition, regardless of whether the securitization is consummated, if any of the warehoused collateral is sold before the completion, we would have to bear any resulting loss on the sale.

If non-recourse long-term securitizations become available to us in the future, such structures may expose us to risks which could result in losses.

          If available, we may utilize non-recourse long-term securitizations of our investments in mortgage loans, especially loan originations, if and when they become available. Prior to any such financing, we may seek to finance these investments with relatively short-term facilities until a sufficient portfolio is accumulated. As a result, we would be subject to the risk that we would not be able to originate or acquire, during the period that any short-term facilities are available, sufficient eligible assets to maximize the efficiency of a securitization. We also would bear the risk that we would not be able to obtain new short-term facilities or would not be able to renew any short-term facilities after they expire should we need more time to seek and originate or acquire sufficient eligible assets for a securitization. In addition, conditions in the capital markets, including volatility and disruption in the capital and credit markets, may not permit a non-recourse securitization at any particular time or may make the issuance of any such securitization less attractive to us even when we do have sufficient eligible assets. While we would intend to retain the unrated equity component of securitizations and, therefore, still have exposure to any investments included in such securitizations, our inability to enter into such securitizations would increase our overall exposure to risks associated with direct ownership of such investments, including the risk of default. Our inability to refinance any short-term facilities would also increase our risk because borrowings thereunder would likely be recourse to us as an entity. If we are unable to obtain and renew short-term facilities or to consummate securitizations to finance our investments on a long-term basis, we may be required to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price.

We may enter into hedging transactions that could expose us to contingent liabilities in the future.

          Subject to maintaining our qualification as a REIT, part of our investment strategy will involve entering into hedging transactions that could require us to fund cash payments in certain circumstances (such as the early termination of the hedging instrument caused by an event of default or other early termination event, or the decision by a counterparty to request margin securities it is contractually owed under the terms of the hedging instrument). The amount due would be equal to the unrealized loss of the open swap positions with the respective counterparty and could also include other fees and charges. These economic losses will be reflected in our results of operations, and our ability to fund these obligations will depend on the liquidity of our assets and access to capital at the time, and the need to fund these obligations could adversely impact our financial condition.

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Hedging against interest rate exposure may adversely affect our earnings, which could reduce our cash available for distribution to our stockholders.

          Subject to maintaining our qualification as a REIT, we intend to pursue various hedging strategies to seek to reduce our exposure to adverse changes in interest rates. Our hedging activity will vary in scope based on the level and volatility of interest rates, the type of assets held and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect us because, among other things:

    interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates;

    available interest rate hedges may not correspond directly with the interest rate risk for which protection is sought;

    due to a credit loss, the duration of the hedge may not match the duration of the related liability;

    the amount of income that a REIT may earn from hedging transactions (other than hedging transactions that satisfy certain requirements of the Code or that are done through a taxable REIT subsidiary, or "TRS") to offset interest rate losses is limited by U.S. federal income tax provisions governing REITs;

    the credit quality of the hedging counterparty owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; and

    the hedging counterparty owing money in the hedging transaction may default on its obligation to pay.

          In addition, we may fail to recalculate, readjust and execute hedges in an efficient manner.

          Any hedging activity in which we engage may materially and adversely affect our business. Therefore, while we may enter into such transactions seeking to reduce interest rate risks, unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions or liabilities being hedged may vary materially. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio positions or liabilities being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.

Hedging instruments often are not traded on regulated exchanges or guaranteed by an exchange or its clearing house, and involve risks and costs that could result in material losses.

          The cost of using hedging instruments increases as the period covered by the instrument increases and during periods of rising and volatile interest rates, we may increase our hedging activity and thus increase our hedging costs during periods when interest rates are volatile or rising and hedging costs have increased. In addition, hedging instruments involve risk since they often are not traded on regulated exchanges or guaranteed by an exchange or its clearing house. Consequently, there are no requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. Furthermore, the enforceability of agreements underlying hedging transactions may depend on compliance with applicable statutory and commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in its default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits and force us to cover our commitments, if any, at the then current market price.

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Although generally we will seek to reserve the right to terminate our hedging positions, it may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty and we may not be able to enter into an offsetting contract in order to cover our risk. We cannot assure you that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in significant losses.

Changes to derivatives regulation imposed by the Dodd-Frank Act could increase our costs of entering into derivative transactions, which could adversely impact our results of operation, financial condition and business.

          Through its comprehensive new regulatory regime for derivatives, the Dodd-Frank Act will impose mandatory clearing, exchange-trading and margin requirements on many derivatives transactions (including formerly unregulated over the-counter derivatives) in which we may engage. The Dodd-Frank Act also creates new categories of regulated market participants, such as "swap dealers," "security-based swap dealers," "major swap participants," and "major security-based swap participants" that will be subject to significant new capital, registration, recordkeeping, reporting, disclosure, business conduct and other regulatory requirements. The details of these requirements and the parameters of these categories remain to be clarified through rulemaking and interpretations by the U.S. Commodity Futures Trading Commission, the SEC, the Federal Reserve Board and other regulators in a regulatory implementation process which is expected to take a year or more to complete.

          Nonetheless, based on information available as of the date of this prospectus, the possible effect of the Dodd-Frank Act will be likely to increase our overall costs of entering into derivatives transactions. In particular, new margin requirements, position limits and capital charges, even if not directly applicable to us, may cause an increase in the pricing of derivatives transactions sold by market participants to whom such requirements apply. Administrative costs, due to new requirements such as registration, recordkeeping, reporting, and compliance, even if not directly applicable to us, may also be reflected in higher pricing of derivatives. New exchange-trading and trade reporting requirements may lead to reductions in the liquidity of derivative transactions, causing higher pricing or reduced availability of derivatives, or the reduction of arbitrage opportunities for us, adversely affecting the performance of certain of our trading strategies.

          In addition, it is possible that the Company may be determined by a governmental authority to be a swap dealer, major swap participant, security-based swap dealer, major security-based swap participant or otherwise become subject to new entity level regulation as a result of the Dodd-Frank Act. This additional regulation could lead to significant new costs which could materially adversely affect our business.

We may fail to qualify for hedge accounting treatment.

          We intend to record derivative and hedging transactions in accordance with Financial Accounting Standards Board ("FASB") ASC 815, Derivatives and Hedging. Under these standards, we may fail to qualify for hedge accounting treatment for a number of reasons, including if we use instruments that do not meet the FASB ASC 815 definition of a derivative (such as short sales), we fail to satisfy FASB ASC 815 hedge documentation and hedge effectiveness assessment requirements or our instruments are not highly effective. If we fail to qualify for hedge accounting treatment, our operating results may suffer because losses on the derivatives that we enter into may not be offset by a change in the fair value of the related hedged transaction or item.

We may enter into derivative contracts that could expose us to contingent liabilities in the future.

          Subject to maintaining our qualification as a REIT, we may enter into derivative contracts that could require us to fund cash payments in the future under certain circumstances (e.g., the early

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termination of the derivative agreement caused by an event of default or other early termination event, or the decision by a counterparty to request margin securities it is contractually owed under the terms of the derivative contract). The amount due would be equal to the unrealized loss of the open swap positions with the respective counterparty and could also include other fees and charges. These economic losses may materially and adversely affect our business.


Risks Related to Our Investments

We will allocate the net proceeds of this offering without input from our stockholders.

          You will not be able to evaluate the manner in which the net proceeds of this offering will be invested or the economic merit of our expected investments before purchasing our common stock. As a result, we may use the net proceeds of this offering to invest in investments with which you may not agree. Additionally, our investments will be selected by our Manager and our stockholders will not have input into such investment decisions. Both of these factors will increase the uncertainty, and thus the risk, of investing in shares of our common stock. The failure of our Manager to apply these proceeds effectively or find investments that meet our investment criteria in sufficient time or on acceptable terms could result in unfavorable returns, could cause a material adverse effect on our business, financial condition, liquidity, results of operations and ability to make distributions to our stockholders, and could cause the value of our common stock to decline.

          Until appropriate investments can be identified, our Manager may invest the net proceeds of this offering in interest-bearing short-term investments, including money market accounts or funds, CMBS or corporate bonds, which are consistent with our intention to qualify as a REIT. These investments are expected to provide a lower net return than we seek to achieve from investments in our target investments. We expect to reallocate a portion of the net proceeds of this offering into our portfolio of investments within three months, subject to the availability of appropriate investment opportunities. Our Manager intends to conduct due diligence with respect to each investment and suitable investment opportunities may not be immediately available. Even if opportunities are available, there can be no assurance that our Manager's due diligence processes will uncover all relevant facts or that any investment will be successful.

          We cannot assure you that we will be able to enter into definitive agreements to invest in any new investments that meet our investment objective; that we will be successful in consummating any investment opportunities we identify; or that one or more investments we may make using the net proceeds of this offering will yield attractive risk-adjusted returns. Our inability to do any of the foregoing likely would materially and adversely affect our business and our ability to make distributions to our stockholders.

The lack of liquidity in our investments may adversely affect our business.

          The illiquidity of our target investments may make it difficult for us to sell such investments if the need or desire arises. Certain target investments such as B-Notes, transitional, mezzanine and other loans are also particularly illiquid investments due to their short life, their potential unsuitability for securitization and the greater difficulty of recovery in the event of a borrower's default. In addition, many of the loans and securities we invest in will not be registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or their disposition except in a transaction that is exempt from the registration requirements of, or otherwise in accordance with, those laws. As a result, we expect many of our investments will be illiquid, and if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments. Further, we may face other restrictions on our ability to liquidate an investment in a business entity to the extent that we or our Manager has or could be attributed as having material, non-public information regarding such business entity. As a result, our ability to vary

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our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition.

Our investments may be concentrated and will be subject to risk of default.

          While we intend to diversify our portfolio of investments in the manner described in this prospectus, we are not required to observe specific diversification criteria. Therefore, our portfolio of target investments may at times be concentrated in certain property types that are subject to higher risk of foreclosure, or secured by properties concentrated in a limited number of geographic locations. To the extent that our portfolio is concentrated in any one region or type of asset, downturns relating generally to such region or type of asset may result in defaults on a number of our investments within a short time period, which may reduce our net income and the value of our common stock and accordingly reduce our ability to pay dividends to our stockholders.

A prolonged economic slowdown, a lengthy or severe recession or further declines in real estate values could impair our investments and harm our operations.

          We believe the risks associated with our business will be more severe during periods of economic slowdown or recession if these periods are accompanied by declining real estate values. For example, the severe economic downturn that began in 2007 continues to limit the availability of debt financing in the overall marketplace and has generally made leveraged acquisitions and refinancing more difficult. Consequently, our investment model may be adversely affected if the current economic conditions persist for longer than we may anticipate. Declining real estate values would likely reduce the level of new mortgage and other real estate-related loan originations since borrowers often use appreciation in the value of their existing properties to support the purchase or investment in additional properties. Borrowers may also be less able to pay principal and interest on our loans if the value of real estate weakens. Further, declining real estate values significantly increase the likelihood that we will incur losses on our loans in the event of default because the value of our collateral may be insufficient to cover our cost on the loan. Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect our manager's ability to invest in, sell and securitize loans, which would materially and adversely affect our results of operations, financial condition, liquidity and business and our ability to pay dividends to stockholders.

Our real estate investments are subject to risks particular to real property. These risks may result in a reduction or elimination of, or return from, a loan secured by a particular property.

          We may own commercial real estate directly in the future as a result of a default of mortgage or other real estate-related loans. Real estate investments are subject to various risks, including:

    acts of God, including earthquakes, floods and other natural disasters, which may result in uninsured losses;

    acts of war or terrorism, including the consequences of terrorist attacks;

    adverse changes in national and local economic and market conditions;

    changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance with laws and regulations, fiscal policies and ordinances;

    costs of remediation and liabilities associated with environmental conditions such as indoor mold; and

    the potential for uninsured or under-insured property losses.

          If any of these or similar events occurs, it may reduce our return from an affected property or investment and reduce or eliminate our ability to pay dividends to stockholders.

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The senior CRE loans we originate and the mortgage loans underlying any CMBS investments that we may make in the near term will be subject to the ability of the commercial property owner to generate net income from operating the property, as well as the risks of delinquency and foreclosure.

          Our senior CRE loans are secured by commercial property and are subject to risks of delinquency and foreclosure, and risks of loss that may be greater than similar risks associated with loans made on the security of single-family residential property. The ability of a borrower to repay a loan secured by an income-producing property typically is dependent primarily upon the successful operation of such property rather than upon the existence of independent income or assets of the borrower. If the net operating income of the property is reduced, the borrower's ability to repay the loan may be impaired. Net operating income of an income-producing property can be adversely affected by, among other things,

    tenant mix;

    success of tenant businesses;

    property management decisions;

    property location, condition and design;

    competition from comparable types of properties;

    changes in laws that increase operating expenses or limit rents that may be charged;

    changes in national, regional or local economic conditions and/or specific industry segments, including the credit and securitization markets;

    declines in regional or local real estate values;

    declines in regional or local rental or occupancy rates;

    increases in interest rates, real estate tax rates and other operating expenses;

    costs of remediation and liabilities associated with environmental conditions;

    the potential for uninsured or underinsured property losses;

    changes in governmental laws and regulations, including fiscal policies, zoning ordinances and environmental legislation and the related costs of compliance; and

    acts of God, terrorist attacks, social unrest and civil disturbances.

          In the event of any default under a mortgage loan held directly by us, we will bear a risk of loss of principal to the extent of any deficiency between the value of the collateral and the principal and accrued interest of the mortgage loan, which could have a material adverse effect on our cash flow from operations and limit amounts available for distribution to our stockholders. In the event of the bankruptcy of a mortgage loan borrower, the mortgage loan to such borrower will be deemed to be secured only to the extent of the value of the underlying collateral at the time of bankruptcy (as determined by the bankruptcy court), and the lien securing the mortgage loan will be subject to the avoidance powers of the bankruptcy trustee or debtor-in-possession to the extent the lien is unenforceable under state law. Foreclosure of a mortgage loan can be an expensive and lengthy process, which could have a substantial negative effect on our anticipated return on the foreclosed mortgage loan.

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We operate in a competitive market for investment opportunities and competition may limit our ability to originate or acquire desirable investments in our target investments and could also affect the pricing of these securities.

          A number of entities compete with us to make the types of investments that we seek to make. Our profitability depends, in large part, on our ability to originate or acquire our target investments on attractive terms. In originating or acquiring our target investments, we compete with a variety of institutional investors, including other REITs, specialty finance companies, public and private funds (including other funds managed by Ares Management), commercial and investment banks, commercial finance and insurance companies and other financial institutions. Several other REITs have raised, or are expected to raise, significant amounts of capital, and may have investment objectives that overlap with ours, which may create additional competition for investment opportunities. Many of our anticipated competitors are significantly larger than we are and have considerably greater financial, technical, marketing and other resources than we do. Some competitors may have a lower cost of funds and access to funding sources that are not available to us, such as the U.S. Government. Many of our competitors are not subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from the 1940 Act. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments, deploy more aggressive pricing and establish more relationships than us. Furthermore, competition for originations of and investments in our target investments may lead to the price of such assets increasing, which may further limit our ability to generate desired returns. We cannot assure you that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, desirable investments in our target investments may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives.

If our Manager overestimates the yields or incorrectly prices the risks of our investments, we may experience losses.

          Our Manager values our potential investments based on yields and risks, taking into account estimated future losses on the mortgage loans and the collateral underlying them, and the estimated impact of these losses on expected future cash flows and returns. Our Manager's loss estimates may not prove accurate, as actual results may vary from estimates. If our Manager underestimates the asset-level losses relative to the price we pay for a particular investment, we may experience losses with respect to such investment.

Loans on properties in transition will involve a greater risk of loss than traditional investment-grade mortgage loans with fully insured borrowers.

          We may originate transitional loans secured by first lien mortgages on a property to borrowers who are typically seeking short-term capital to be used in an acquisition or rehabilitation of a property. The typical borrower under a transitional loan has usually identified an undervalued asset that has been under-managed and/or is located in a recovering market. If the market in which the asset is located fails to improve according to the borrower's projections, or if the borrower fails to improve the quality of the asset's management and/or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the transitional loan, and we bear the risk that we may not recover some or all of our investment.

          In addition, borrowers usually use the proceeds of a conventional mortgage to repay a transitional loan. Transitional loans therefore are subject to risks of a borrower's inability to obtain permanent financing to repay the transitional loan. Transitional loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance. In the event of any default under transitional loans that may be held by us, we bear the risk of loss of

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principal and non-payment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount and unpaid interest of the transitional loan. To the extent we suffer such losses with respect to these transitional loans, the value of the Company and the price of our shares of common stock may be adversely affected.

Risks of cost overruns and noncompletion of renovation of the properties underlying short term senior loans on properties in transition may result in significant losses.

          The renovation, refurbishment or expansion by a borrower under a mortgaged property involves risks of cost overruns and noncompletion. Estimates of the costs of improvements to bring an acquired property up to standards established for the market position intended for that property may prove inaccurate. Other risks may include rehabilitation costs exceeding original estimates, possibly making a project uneconomical, environmental risks and rehabilitation and subsequent leasing of the property not being completed on schedule. If such renovation is not completed in a timely manner, or if it costs more than expected, the borrower may experience a prolonged impairment of net operating income and may not be able to make payments on our investment, which could result in significant losses.

Investments in non-conforming and non-investment grade rated loans or securities involve increased risk of loss.

          Many of our investments will not conform to conventional loan standards applied by traditional lenders and either will not be rated or will be rated as non-investment grade by the rating agencies. The non-investment grade ratings for these assets typically result from the overall leverage of the loans, the lack of a strong operating history for the properties underlying the loans, the borrowers' credit history, the underlying properties' cash flow or other factors. As a result, these investments should be expected to have a higher risk of default and loss than investment grade rated assets. Any loss we incur may be significant and may reduce distributions to our stockholders and adversely affect the market value of our common stock. There are no limits on the percentage of unrated or non-investment grade rated assets we may hold in our investment portfolio.

The B-Notes that we may originate or acquire may be subject to additional risks related to the privately negotiated structure and terms of the transaction, which may result in losses to us.

          We may originate or acquire B-Notes. A B-Note is a mortgage loan typically (a) secured by a first mortgage on a single large commercial property or group of related properties and (b) subordinated to an A-Note secured by the same first mortgage on the same collateral. As a result, if a borrower defaults, there may not be sufficient funds remaining for B-Note holders after payment to the A-Note holders. Because each transaction is privately negotiated, B-Notes can vary in their structural characteristics and risks. For example, the rights of holders of B-Notes to control the process following a borrower default may vary from transaction to transaction. Further, B-Notes typically are secured by a single property and accordingly reflect the risks associated with significant concentration. Significant losses related to our B-Notes would result in operating losses for us and may limit our ability to make distributions to our stockholders.

Our mezzanine loan assets will involve greater risks of loss than senior loans secured by income-producing properties.

          We may originate or acquire mezzanine loans, which take the form of subordinated loans secured by second mortgages on the underlying property or loans secured by a pledge of the ownership interests of either the entity owning the property or a pledge of the ownership interests of the entity that owns the interest in the entity owning the property. These types of assets involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property, because the loan may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to

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the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our initial expenditure. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the property and increasing the risk of loss of principal. Significant losses related to our mezzanine loans would result in operating losses for us and may limit our ability to make distributions to our stockholders.

Any credit ratings assigned to our investments will be subject to ongoing evaluations and revisions and we cannot assure you that those ratings will not be downgraded.

          Some of our investments may be rated by rating agencies such as Moody's Investors Service, Fitch Ratings, Standard & Poors, DBRS, Inc. or Realpoint LLC. Any credit ratings on our investments are subject to ongoing evaluation by credit rating agencies, and we cannot assure you that any such ratings will not be changed or withdrawn by a rating agency in the future if, in its judgment, circumstances warrant. If rating agencies assign a lower-than-expected rating or reduce or withdraw, or indicate that they may reduce or withdraw, their ratings of our investments in the future, the value of our investments could significantly decline, which would adversely affect the value of our investment portfolio and could result in losses upon disposition or the failure of borrowers to satisfy their debt service obligations to us.

We may experience a decline in the fair value of our assets.

          A decline in the fair market value of our assets may require us to recognize an "other-than-temporary" impairment against such assets under GAAP if we were to determine that, with respect to any assets in unrealized loss positions, we do not have the ability and intent to hold such assets to maturity or for a period of time sufficient to allow for recovery to the original acquisition cost of such assets. If such a determination were to be made, we would recognize unrealized losses through earnings and write down the amortized cost of such assets to a new cost basis, based on the fair value of such assets on the date they are considered to be other-than-temporarily impaired. Such impairment charges reflect non-cash losses at the time of recognition; subsequent disposition or sale of such assets could further affect our future losses or gains, as they are based on the difference between the sale price received and adjusted amortized cost of such assets at the time of sale. If we experience a decline in the fair value of our assets, our results of operations, financial condition and our ability to make distributions to our stockholders could be materially and adversely affected.

Some of our portfolio investments may be recorded at fair value and, as a result, there will be uncertainty as to the value of these investments.

          Some of our portfolio investments may be in the form of positions or securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable. We will value these investments quarterly at fair value, which may include unobservable inputs. Because such valuations are subjective, the fair value of certain of our assets may fluctuate over short periods of time and our determinations of fair value may differ materially from the values that would have been used if a ready market for these securities existed. The value of our common stock could be adversely affected if our determinations regarding the fair value of these investments were materially higher than the values that we ultimately realize upon their disposal.

          Additionally, the Company's results of operations for a given period could be adversely affected if its determinations regarding the fair value of these investments were materially higher than the values that the Company ultimately realizes upon their disposal. The valuation process has been particularly challenging recently, as market events have made valuations of certain assets more difficult, unpredictable and volatile.

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If we invest in CMBS, such investments would pose additional risks, including the risks of the securitization process and the risk that the special servicer may take actions that could adversely affect our interests.

          We may acquire CMBS. In general, losses on a mortgaged property securing a mortgage loan included in a securitization will be borne first by the equity holder of the property, then by a cash reserve fund or letter of credit, if any, then by the holder of a mezzanine loan or B-Note, if any, then by the "first loss" subordinated security holder (generally, the "B-Piece" buyer) and then by the holder of a higher-rated security. In the event of default and the exhaustion of any equity support, reserve fund, letter of credit, mezzanine loans or B-Notes, and any classes of securities junior to those in which we invest, we will not be able to recover all of our investment in the securities we purchase. In addition, if the underlying mortgage portfolio has been overvalued by the originator, or if the values subsequently decline and, as a result, less collateral value is available to satisfy interest and principal payments due on the related mortgage-backed securities. The prices of lower credit quality securities are generally less sensitive to interest rate changes than more highly rated investments, but more sensitive to adverse economic downturns or individual issuer developments.

          With respect to the CMBS in which we may invest, overall control over the special servicing of the related underlying mortgage loans will be held by a "directing certificateholder" or a "controlling class representative," which is appointed by the holders of the most subordinated class of CMBS in such series. Because we may acquire classes of existing series of CMBS, we will not have the right to appoint the directing certificateholder. In connection with the servicing of the specially serviced mortgage loans, the related special servicer may, at the direction of the directing certificateholder, take actions with respect to the specially serviced mortgage loans that could adversely affect our interests.

Insurance on mortgage loans and real estate securities collateral may not cover all losses.

          There are certain types of losses, generally of a catastrophic nature, such as earthquakes, floods, hurricanes, terrorism or acts of war, which may be uninsurable or not economically insurable. Inflation, changes in building codes and ordinances, environmental considerations and other factors, including terrorism or acts of war, also might result in insurance proceeds insufficient to repair or replace a property if it is damaged or destroyed. Under these circumstances, the insurance proceeds received with respect to a property relating one of our investments might not be adequate to restore our economic position with respect to our investment. Any uninsured loss could result in the loss of cash flow from, and the asset value of, the affected property and the value of our investment related to such property.

Liability relating to environmental matters may impact the value of properties that we may acquire upon foreclosure of the properties underlying our investments.

          To the extent we foreclose on properties with respect to which we have extended mortgage loans, we may be subject to environmental liabilities arising from such foreclosed properties. Under various U.S. federal, state and local laws, an owner or operator of real property may become liable for the costs of removal of certain hazardous substances released on its property. These laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release of such hazardous substances.

          The presence of hazardous substances may adversely affect an owner's ability to sell real estate or borrow using real estate as collateral. To the extent that an owner of a property underlying one of our debt investments becomes liable for removal costs, the ability of the owner to make payments to us may be reduced, which in turn may adversely affect the value of the relevant mortgage asset held by us and our ability to make distributions to our stockholders.

          If we foreclose on any properties underlying our investments, the presence of hazardous substances on a property may adversely affect our ability to sell the property and we may incur substantial remediation costs, thus harming our financial condition. The discovery of material

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environmental liabilities attached to such properties could have a material adverse effect on our results of operations and financial condition and our ability to make distributions to our stockholders.


Risks Related to Our Common Stock

There is no public market for our common stock and a market may never develop, which could cause our common stock to trade at a discount and make it difficult for holders of our common stock to sell their shares.

          Our shares of common stock are newly issued securities for which there is no established trading market. Our common stock has been approved for listing on the NYSE under the trading symbol "ACRE." However, there can be no assurance that an active trading market for our common stock will develop, or if one develops, be maintained. Accordingly, no assurance can be given as to the ability of our stockholders to sell their common stock or as to the price that our stockholders may obtain for their common stock.

The market price of our common stock may fluctuate significantly.

          The capital and credit markets have recently experienced a period of extreme volatility and disruption. The market price and liquidity of the market for shares of our common stock may be significantly affected by numerous factors, some of which are beyond our control and may not be directly related to our operating performance.

          Some of the factors that could negatively affect the market price of our common stock include:

    our actual or projected operating results, financial condition, cash flows and liquidity, or changes in business strategy or prospects;

    actual or perceived conflicts of interest with our Manager or Ares Management and individuals, including our executives;

    equity issuances by us, or share resales by our stockholders, or the perception that such issuances or resales may occur;

    loss of a major funding source;

    actual or anticipated accounting problems;

    publication of research reports about us or the real estate industry;

    changes in market valuations of similar companies;

    adverse market reaction to any increased indebtedness we incur in the future;

    additions to or departures of our Manager's or Ares Management's key personnel;

    speculation in the press or investment community;

    increases in market interest rates, which may lead investors to demand a higher distribution yield for our common stock, if we have begun to make distributions to our stockholders, and would result in increased interest expenses on our debt;

    failure to maintain our REIT qualification or exemption from the 1940 Act;

    price and volume fluctuations in the overall stock market from time to time;

    general market and economic conditions, and trends including inflationary concerns, the current state of the credit and capital markets;

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    significant volatility in the market price and trading volume of securities of publicly traded REITs or other companies in our sector, which are not necessarily related to the operating performance of these companies;

    changes in law, regulatory policies or tax guidelines, or interpretations thereof, particularly with respect to REITs;

    changes in the value of our portfolio;

    any shortfall in revenue or net income or any increase in losses from levels expected by investors or securities analysts;

    operating performance of companies comparable to us;

    short-selling pressure with respect to shares of our common stock or REITs generally;

    uncertainty surrounding the strength of the U.S. economic recovery particularly in light of the recent downgrade of the U.S. Government's credit rating; and

    concerns regarding European sovereign debt.

          As noted above, market factors unrelated to our performance could also negatively impact the market price of our common stock. One of the factors that investors may consider in deciding whether to buy or sell our common stock is our distribution rate as a percentage of our stock price relative to market interest rates. If market interest rates increase, prospective investors may demand a higher distribution rate or seek alternative investments paying higher dividends or interest. As a result, interest rate fluctuations and conditions in the capital markets can affect the market value of our common stock. For instance, if interest rates rise, it is likely that the market price of our common stock will decrease as market rates on interest-bearing securities increase.

Common stock eligible for future sale may have adverse effects on our share price.

          We are offering 7,700,000 shares of our common stock as described in this prospectus (excluding the underwriters' overallotment option to purchase up to an additional 1,155,000 shares). In addition, shares of the Series A Preferred Stock will automatically be converted into shares of the common stock at a price per share equal to the price per share in this offering if the holders of such shares do not choose to redeem their shares for cash from the net proceeds of this offering. For more information on the Series A Preferred Shares, see "Description of Capital Stock — Preferred Stock." Our 2012 Equity Incentive Plan includes provisions for grants of restricted common stock, restricted stock units and other equity-based awards to our independent directors, our Chief Financial Officer and our Manager. Upon completion of this offering, we will make an initial grant of 5,000 restricted shares of our common stock, as well as a grant of 2,027 restricted shares of our common stock in respect of their 2012 annual compensation, to each of our five independent directors. Ares Investments will agree that, for a period of 365 days after the date of this prospectus, it will not, without the prior written consent of Wells Fargo Securities, LLC and Citigroup Global Markets Inc., dispose of or hedge any of the shares it purchases, subject to certain exceptions and extension in certain circumstances as described elsewhere in this prospectus. Assuming no exercise of the underwriters' overallotment option to purchase additional shares, approximately 16.24% of our common stock outstanding upon completion of this offering will be subject to lock-up agreements. When this lock-up period expires, these shares of common stock will become eligible for sale, in some cases subject to the requirements of Rule 144 under the Securities Act of 1933, as amended, or the Securities Act (after, in the case of our Manager, each of our directors and officers and each of our Manager's members and officers, their 180-day lock-up period), which are described under "Shares Eligible for Future Sale."

          We cannot predict the effect, if any, of future sales of our common stock, or the availability of shares for future sales, on the market price of our common stock. The market price of our common stock may decline significantly when the restrictions on resale by certain of our stockholders lapse.

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Sales of substantial amounts of common stock or the perception that such sales could occur may adversely affect the prevailing market price for our common stock.

          After the completion of this offering, we may issue additional restricted common stock and other equity-based awards under our 2012 Equity Incentive Plan. Also, we may issue additional shares in subsequent public offerings or private placements to make new investments or for other purposes. We are not required to offer any such shares to existing stockholders on a preemptive basis. Therefore, it may not be possible for existing stockholders to participate in such future share issuances, which may dilute the existing stockholders' interests in us.

We have not established a minimum distribution payment level and we may be unable to generate sufficient cash flows from our operations to make distributions to our stockholders at any time in the future.

          We are generally required to annually distribute to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gains, for us to qualify as a REIT, which requirement we currently intend to satisfy through quarterly distributions of all or substantially all of our REIT taxable income in such year, subject to certain adjustments. We have not established a minimum distribution payment level and our ability to pay distributions may be adversely affected by a number of factors, including the risk factors described in this prospectus. All distributions will be made at the discretion of our board of directors and will depend on our earnings, our financial condition, debt covenants, maintenance of our REIT qualification and other factors as our board of directors may deem relevant from time to time. We believe that a change in any one of the following factors could adversely affect our results of operations and impair our ability to pay distributions to our stockholders:

    the profitability of the investment of the net proceeds of this offering;

    our ability to make profitable investments;

    margin calls or other expenses that reduce our cash flow;

    defaults in our asset portfolio or decreases in the value of our portfolio; and

    the fact that anticipated operating expense levels may not prove accurate, as actual results may vary from estimates.

          As a result, no assurance can be given that we will be able to make distributions to our stockholders at any time in the future or that the level of any distributions we do make to our stockholders will achieve a market yield or increase or even be maintained over time, any of which could materially and adversely affect us.

          In addition, distributions that we make to our stockholders out of current or accumulated earnings and profits (as determined for U.S. federal income tax purposes) and not designated by us as capital gain dividends, or, for taxable years beginning before January 1, 2013, qualified dividend income, generally will be taxable to our stockholders as ordinary income. However, a portion of our distributions may be designated by us as capital gain dividends and generally will be taxed to our stockholders as long-term capital gain to the extent that such distributions do not exceed our actual net capital gain for the taxable year, without regard to the period for which the stockholder that receives such distribution has held its stock. Distributions in excess of our current and accumulated earnings and profits, as determined for U.S. federal income tax purposes, and not designated by us as capital gain dividends, or, for taxable years beginning before January 1, 2013, qualified dividend income, may constitute a return of capital. A return of capital is not taxable, but has the effect of reducing the basis of a stockholder's investment in our common stock, but not below zero.

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We may use a portion of the net proceeds of this offering to make quarterly distributions, which would, among other things, reduce our cash available for investing.

          Prior to the time we have fully invested the net proceeds of this offering, we may fund our quarterly distributions out of such net proceeds, which would reduce the amount of cash we have available for investing and other purposes. The use of these net proceeds for distributions could be dilutive to our financial results. In addition, funding our distributions from our net proceeds may constitute a return of capital to our investors, which would have the effect of reducing each stockholder's basis in its shares of our common stock.

Investing in our common stock may involve a high degree of risk.

          The investments that we make in accordance with our investment objectives may result in a high amount of risk when compared to alternative investment options and volatility or loss of principal. Our investments may be highly speculative and aggressive, and therefore an investment in our common stock may not be suitable for someone with lower risk tolerance.

Future offerings of debt or equity securities, which would rank senior to our common stock, may adversely affect the market price of our common stock.

          If we decide to issue debt or equity securities in the future, which would rank senior to our common stock, it is likely that they will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. Additionally, any convertible or exchangeable securities that we issue in the future may have rights, preferences and privileges more favorable than those of our common stock and may result in dilution to owners of our common stock. We and, indirectly, our stockholders, will bear the cost of issuing and servicing such securities. Because our decision to issue debt or equity securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future offerings. Thus holders of our common stock will bear the risk of our future offerings reducing the market price of our common stock and diluting the value of their stock holdings in us.


Risks Related to Our Organization and Structure

The Maryland General Corporation Law, or the MGCL, prohibits certain business combinations, which may make it more difficult for us to be acquired.

          Under the MGCL, "business combinations" between a Maryland corporation and an "interested stockholder" or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as: (a) any person who beneficially owns 10% or more of the voting power of the then-outstanding voting stock of the corporation; or (b) an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then-outstanding stock of the corporation.

          A person is not an interested stockholder under the statute if the board of directors approved in advance the transaction by which the person otherwise would have become an interested stockholder. However, in approving a transaction, the board of directors may provide that its approval is subject to compliance, at or after the time of approval, with any terms and conditions determined by the board of directors.

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          After the expiration of the five-year period described above, any business combination between the Maryland corporation and an interested stockholder must generally be recommended by the board of directors of the corporation and approved by the affirmative vote of at least:

    80% of the votes entitled to be cast by holders of the then-outstanding shares of voting stock of the corporation; and

    two-thirds of the votes entitled to be cast by holders of voting stock of the corporation, other than shares held by the interested stockholder with whom or with whose affiliate the business combination is to be effected, or held by an affiliate or associate of the interested stockholder.

          These supermajority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under the MGCL, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. The MGCL also permits various exemptions from these provisions, including business combinations that are exempted by the board of directors before the time that the interested stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has adopted a resolution exempting any business combination with Ares Investments or any of its affiliates. Consequently, the five-year prohibition and the supermajority vote requirements will not apply to business combinations between us and Ares Investments or any of its affiliates. As a result, Ares Investments or any of its affiliates may be able to enter into business combinations with us that may not be in the best interest of our stockholders, without compliance with the supermajority vote requirements and the other provisions of the statute. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer. See "Description of Capital Stock — Business Combinations."

Stockholders have limited control over changes in our policies and operations.

          Our board of directors determines our major policies, including with regard to financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Under our charter and the MGCL, our stockholders generally have a right to vote only on the following matters:

    the election or removal of directors;

    the amendment of our charter, except that our board of directors may amend our charter without stockholder approval to:

    change our name;

    change the name or other designation or the par value of any class or series of stock and the aggregate par value of our stock;

    increase or decrease the aggregate number of shares of stock that we have the authority to issue;

    increase or decrease the number of our shares of any class or series of stock that we have the authority to issue; and

    effect certain reverse stock splits;

    our liquidation and dissolution; and

    our being a party to a merger, consolidation, sale or other disposition of all or substantially all of our assets or statutory share exchange.

          All other matters are subject to the discretion of our board of directors.

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Our authorized but unissued shares of common and preferred stock may prevent a change in our control.

          Our charter authorizes us to issue up to 450,000,000 shares of common stock and 50,000,000 shares of preferred stock without stockholder approval. In addition, our board of directors may, without stockholder approval, amend our charter from time to time to increase or decrease the aggregate number of shares of our stock or the number of shares of stock of any class or series that we have authority to issue and classify or reclassify any unissued shares of common or preferred stock and set the preferences, rights and other terms of the classified or reclassified shares. As a result, our board of directors may establish a class or series of shares of common or preferred stock that could delay or prevent a merger, third-party tender offer or similar transaction or a change in incumbent management that might involve a premium price for shares of our common stock or otherwise be in the best interest of our stockholders.

Maintenance of our exemption from registration under the 1940 Act imposes significant limits on our operations. Your investment return may be reduced if we are required to register as an investment company under the 1940 Act.

          We intend to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act. We believe we will not be considered an investment company under Section 3(a)(1)(A) of the 1940 Act because we will not engage primarily, or hold ourselves out as being engaged primarily, in the business of investing, reinvesting or trading in securities. However, under Section 3(a)(1)(C) of the 1940 Act, because we are a holding company that will conduct its businesses primarily through wholly owned subsidiaries, the securities issued by these subsidiaries that are excepted from the definition of "investment company" under Section 3(c)(1) or Section 3(c)(7) of the 1940 Act, together with any other investment securities we may own, may not have a combined value in excess of 40% of the value of our total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis. This requirement limits the types of businesses in which we may engage through our subsidiaries. In addition, the assets we and our subsidiaries may originate or acquire are limited by the provisions of the 1940 Act and the rules and regulations promulgated under the 1940 Act, which may adversely affect our business.

          If the value of securities issued by our subsidiaries that are excepted from the definition of "investment company" by Section 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we own, exceeds 40% of our total assets on an unconsolidated basis, or if one or more of such subsidiaries fail to maintain an exception or exemption from the 1940 Act, we could, among other things, be required either (a) to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company or (b) to register as an investment company under the 1940 Act, either of which could have an adverse effect on us and the market price of our securities. If we or any of our subsidiaries were required to register as an investment company under the 1940 Act, the registered entity would become subject to substantial regulation with respect to capital structure (including the ability to use leverage), management, operations, transactions with affiliated persons (as defined in the 1940 Act), portfolio composition, including restrictions with respect to diversification and industry concentration, compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly change our operations.

          Failure to maintain an exemption would require us to significantly restructure our investment strategy. For example, because affiliate transactions are generally prohibited under the 1940 Act, we would not be able to enter into transactions with any of our affiliates if we are required to register as an investment company, and we might be required to terminate our management agreement and any other agreements with affiliates, which could have a material adverse effect on our ability to operate our business and pay distributions. If we were required to register us as an investment company but failed to do so, we would be prohibited from engaging in our business, and criminal and civil actions could be

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brought against us. In addition, our contracts would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of us and liquidate our business.

          We expect certain subsidiaries that we may form in the future to rely upon the exemption from registration as an investment company under the 1940 Act pursuant to Section 3(c)(5)(C) of the 1940 Act, which is available for entities "primarily engaged" in the business of "purchasing or otherwise acquiring mortgages and other liens on and interests in real estate." This exemption generally requires that at least 55% of these subsidiaries' assets must comprise qualifying real estate assets and at least 80% of each of their portfolios must comprise qualifying real estate assets and real estate-related assets under the 1940 Act. We expect each of our subsidiaries relying on Section 3(c)(5)(C) to rely on guidance published by the SEC staff or on our analyses of such guidance to determine which assets are qualifying real estate assets and real estate-related assets. However, the SEC's guidance was issued in accordance with factual situations that may be substantially different from the factual situations we may face, and much of the guidance was issued more than 20 years ago. No assurance can be given that the SEC staff will concur with our classification of our assets. In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of qualifying for an exclusion from regulation under the 1940 Act. If we are required to re-classify our assets, we may no longer be in compliance with the exclusion from the definition of an "investment company" provided by Section 3(c)(5)(C) of the 1940 Act. To the extent that the SEC staff publishes new or different guidance with respect to any assets we have determined to be qualifying real estate assets, we may be required to adjust our strategy accordingly. In addition, we may be limited in our ability to make certain investments and these limitations could result in a subsidiary holding assets we might wish to sell or selling assets we might wish to hold.

          The SEC has not published guidance with respect to the treatment of CMBS for purposes of the Section 3(c)(5)(C) exemption. Unless we receive further guidance from the SEC or its staff with respect to CMBS, we intend to treat CMBS as a real estate-related asset.

          Certain of our subsidiaries may rely on the exemption provided by Section 3(c)(6) to the extent that they hold mortgage assets through majority-owned subsidiaries that rely on Section 3(c)(5)(C). The SEC staff has issued little interpretive guidance with respect to Section 3(c)(6) and any guidance published by the staff could require us to adjust our strategy accordingly.

          We determine whether an entity is one of our majority-owned subsidiaries. The 1940 Act defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a majority-owned subsidiary of such person. The 1940 Act further defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. We treat companies in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes of the 40% test. We have not requested the SEC to approve our treatment of any company as a majority-owned subsidiary and the SEC has not done so. If the SEC were to disagree with our treatment of one or more companies as majority-owned subsidiaries, we would need to adjust our strategy and our assets in order to continue to pass the 40% test. Any such adjustment in our strategy could have a material adverse effect on us.

          The SEC recently solicited public comment on a wide range of issues relating to Section 3(c)(5)(C) of the 1940 Act, including the nature of the assets that qualify for purposes of the exemption and whether mortgage REITs should be regulated in a manner similar to investment companies. There can be no assurance that the laws and regulations governing the 1940 Act status of REITs, including the SEC or its staff providing more specific or different guidance regarding these exemptions, will not change in a manner that adversely affects our operations. If we or our subsidiaries fail to maintain an exception or exemption from the 1940 Act, we could, among other things, be required either to (a) change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) effect sales of our assets in a manner that, or at a time when, we would not

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otherwise choose to do so, or (c) register as an investment company, any of which could negatively affect the value of our common stock, the sustainability of our business model, and our ability to make distributions which could have an adverse effect on our business and the market price for our shares of common stock.

Rapid and steep declines in the values of our CRE finance-related investments may make it more difficult for us to maintain our qualification as a REIT or exemption from the 1940 Act.

          If the market value or income potential of real estate-related investments declines as a result of increased interest rates or other factors, we may need to increase our real estate investments and income and/or liquidate our non-qualifying assets in order to maintain our REIT qualification or exemption from the 1940 Act. If the decline in real estate asset values and/or income occurs quickly, this may be especially difficult to accomplish. This difficulty may be exacerbated by the illiquid nature of any non-qualifying assets that we may own. We may have to make investment decisions that we otherwise would not make absent the REIT and 1940 Act considerations.

Our rights and the rights of our stockholders to recover on claims against our directors and officers are limited, which could reduce your and our recovery against them if they negligently cause us to incur losses.

          The MGCL provides that a director has no liability in such capacity if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. A director who performs his or her duties in accordance with the foregoing standards should not be liable to us or any other person for failure to discharge his or her obligations as a director.

          In addition, our charter provides that our directors and officers will not be liable to us or our stockholders for monetary damages unless the director or officer actually received an improper benefit or profit in money, property or services, or is adjudged to be liable to us or our stockholders based on a finding that his or her action, or failure to act, was the result of active and deliberate dishonesty and was material to the cause of action adjudicated in the proceeding. Our charter also requires us, to the maximum extent permitted by Maryland law, to indemnify and, without requiring a preliminary determination of the ultimate entitlement to indemnification, pay or reimburse reasonable expenses in advance of final disposition of a proceeding to any individual who is a present or former director or officer and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity or any individual who, while a director or officer and at our request, serves or has served as a director, officer, partner, trustee, member or manager of another corporation, REIT, limited liability company, partnership, joint venture, trust, employee benefit plan or other enterprise and who is made or threatened to be made a party to the proceeding by reason of his or her service in that capacity. With the approval of our board of directors, we may provide such indemnification and advance for expenses to any individual who served a predecessor of the Company in any of the capacities described above and any employee or agent of the Company or a predecessor of the Company, including our Manager and its affiliates. For details regarding the circumstances under which we are required or authorized to indemnify and to advance expenses to our directors, officers or our Manager, see "Our Manager and the Management Agreement — Management Agreement — Liability and Indemnification."

          We also are permitted to purchase and maintain insurance or provide similar protection on behalf of any directors, officers, employees and agents, including our Manager and its affiliates, against any liability asserted which was incurred in any such capacity with us or arising out of such status. This may result in us having to expend significant funds, which will reduce the available cash for distribution to our stockholders.

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Our charter contains provisions that make removal of our directors difficult, which could make it difficult for our stockholders to effect changes to our management.

          Our charter provides that a director may only be removed for cause upon the affirmative vote of holders of two-thirds of the votes entitled to be cast generally in the election of directors. Vacancies may be filled only by a majority of the remaining directors in office, even if less than a quorum. These requirements make it more difficult to change our management by removing and replacing directors and may prevent a change in control of the Company that is in the best interests of our stockholders.

          Pursuant to our charter, our board of directors also is divided into three classes of directors. The initial terms of the first, second and third classes will expire in 2013, 2014 and 2015, respectively. Beginning in 2013, directors of each class will be chosen for three-year terms upon the expiration of their current terms, and each year one class of directors will be elected by the stockholders. The staggered terms of our directors may reduce the possibility of a tender offer or an attempt at a change in control, even though a tender offer or change in control might be in the best interest of our stockholders.

Ownership limitations may restrict change of control or business combination opportunities in which our stockholders might receive a premium for their shares.

          In order for us to qualify as a REIT for each taxable year after 2012, no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year. "Individuals" for this purpose include natural persons, private foundations, some employee benefit plans and trusts, and some charitable trusts. To preserve our REIT qualification, our charter generally prohibits any person (except Ares Investments, an affiliate of our Manager, which is expected to be subject to a 22% excepted holder limit) from directly or indirectly owning more than 9.8% in value of the outstanding shares of our capital stock or more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our stock. This ownership limitation could have the effect of discouraging a takeover or other transaction in which holders of our common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be otherwise in their best interests.


U.S. Federal Income Tax Risks

Our failure to qualify or remain qualified as a REIT would subject us to U.S. federal income tax and potentially state and local tax, and would adversely affect our operations and the market price of our common stock.

          We intend to elect and qualify to be taxed as a REIT commencing with our taxable year ending December 31, 2012. However, we may terminate our REIT qualification, if our board of directors determines that not qualifying as a REIT is in the best interests of our stockholders, or inadvertently. Our qualification as a REIT depends upon our satisfaction of certain asset, income, organizational, distribution, stockholder ownership and other requirements on a continuing basis. We intend to structure our activities in a manner designed to satisfy all the requirements for qualification as a REIT. The REIT qualification requirements are extremely complex and interpretation of the U.S. federal income tax laws governing qualification as a REIT is limited. Accordingly, we cannot be certain that we will be successful in operating so we can qualify or remain qualified as a REIT. Our ability to satisfy the asset tests depends on our analysis of the characterization and fair market values of our assets, some of which are not susceptible to a precise determination, and for which we will not obtain independent appraisals. Our compliance with the REIT income or quarterly asset requirements also depends on our ability to successfully manage the composition of our income and assets on an ongoing basis. Accordingly, if certain of our operations were to be recharacterized by the IRS, such recharacterization could jeopardize our ability to satisfy all the requirements for qualification as a REIT. Furthermore, future legislative,

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judicial or administrative changes to the U.S. federal income tax laws could be applied retroactively, which could result in our disqualification as a REIT.

          If we fail to qualify as a REIT for any taxable year, and we do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax on our taxable income at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT qualification. Losing our REIT qualification would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the dividends paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax.

REITs, in certain circumstances, may incur tax liabilities that would reduce our cash available for distribution to you.

          Even if we qualify and maintain our status as a REIT, we may become subject to U.S. federal income taxes and related state and local taxes. For example, net income from the sale of properties that are "dealer" properties sold by a REIT (a "prohibited transaction" under the Code) will be subject to a 100% tax. We may not make sufficient distributions to avoid excise taxes applicable to REITs. Similarly, if we were to fail an income test (and did not lose our REIT status because such failure was due to reasonable cause and not willful neglect) we would be subject to tax on the income that does not meet the income test requirements. We also may decide to retain net capital gain we earn from the sale or other disposition of our property and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have no benefit from their deemed payment of such tax liability unless they file U.S. federal income tax returns and thereon seek a refund of such tax. We also may be subject to state and local taxes on our income or property, including franchise, payroll, mortgage recording and transfer taxes, either directly or at the level of the other companies through which we indirectly own our assets, such as our TRSs, which are subject to full U.S. federal, state, local and foreign corporate-level income taxes. Any taxes we pay directly or indirectly will reduce our cash available for distribution to you.

To qualify as a REIT we must meet annual distribution requirements, which may force us to forgo otherwise attractive opportunities or borrow funds during unfavorable market conditions. This could delay or hinder our ability to meet our investment objectives and reduce your overall return.

          In order to qualify and maintain our status as a REIT, we must annually distribute to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. We will be subject to U.S. federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (a) 85% of our ordinary income, (b) 95% of our capital gain net income and (c) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds, possibly at unfavorable rates, or sell assets to fund these distributions. Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid U.S. federal income and excise taxes on our earnings while we qualify as a REIT, it is possible that we might not always be able to do so.

Certain of our business activities are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.

          For so long as we qualify as a REIT, our ability to dispose of property during the first few years following acquisition may be restricted to a substantial extent as a result of our REIT qualification.

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Under applicable provisions of the Code regarding prohibited transactions by REITs, while we qualify as a REIT, we will be subject to a 100% penalty tax on any gain recognized on the sale or other disposition of any property (other than foreclosure property) that we own, directly or through any subsidiary entity, but generally excluding our TRSs, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of a trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. While we qualify as a REIT, we avoid the 100% prohibited transaction tax by (a) conducting activities that may otherwise be considered prohibited transactions through a TRS (but such TRS will incur income taxes), (b) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary, will be treated as a prohibited transaction, or (c) structuring certain dispositions of our properties to comply with a prohibited transaction safe harbor available under the Code for properties held for at least two years. However, no assurance can be given that any particular property we own, directly or through any subsidiary entity, but generally excluding our TRSs, will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of securitizing mortgage loans that would be treated as sales for U.S. federal income tax purposes.

          A REIT's net income from prohibited transactions is subject to a 100% tax. In general, prohibited transactions are sales or other dispositions of property, other than foreclosure property, but including mortgage loans, held as inventory or primarily for sale to customers in the ordinary course of business. We might be subject to this tax if we were to sell or securitize loans in a manner that was treated as a sale of the loans as inventory for U.S. federal income tax purposes. Therefore, in order to avoid the prohibited transactions tax, we may choose not to engage in certain sales of loans, other than through a TRS, and we may be required to limit the structures we use for our securitization transactions, even though such sales or structures might otherwise be beneficial for us.

Our TRSs are subject to corporate-level taxes and our dealings with our TRSs may be subject to 100% excise tax.

          A REIT may own up to 100% of the stock of one or more TRS. Both the subsidiary and the REIT must jointly elect to treat the subsidiary as a TRS. A corporation of which a TRS directly or indirectly owns more than 35% of the voting power or value of the stock will automatically be treated as a TRS. Overall, no more than 25% of the gross value of a REIT's assets may consist of stock or securities of one or more TRS. In addition, the TRS rules limit the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's length basis.

          TRSs that we may form will pay U.S. federal, state and local income tax on their taxable income, and their after-tax net income will be available for distribution to us but will not be required to be distributed to us, unless necessary to maintain our REIT qualification. While we will be monitoring the aggregate value of the securities of our TRSs and intend to conduct our affairs so that such securities will represent less than 25% of the value of our total assets, there can be no assurance that we will be able to comply with the TRS limitation in all market conditions.

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Our investments in certain debt instruments may cause us to recognize "phantom income" for U.S. federal income tax purposes even though no cash payments have been received on the debt instruments, and certain modifications of such debt by us could cause the modified debt to not qualify as a good REIT asset, thereby jeopardizing our REIT qualification.

          Our taxable income may substantially exceed our net income as determined based on GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash may occur. For example, we may acquire assets, including debt securities requiring us to accrue original issue discount, or OID, or recognize market discount income, that generate taxable income in excess of economic income or in advance of the corresponding cash flow from the assets referred to as "phantom income." In addition, if a borrower with respect to a particular debt instrument encounters financial difficulty rendering it unable to pay stated interest as due, we may nonetheless be required to continue to recognize the unpaid interest as taxable income with the effect that we will recognize income but will not have a corresponding amount of cash available for distribution to our stockholders.

          As a result of the foregoing, we may generate less cash flow than taxable income in a particular year and find it difficult or impossible to meet the REIT distribution requirements in certain circumstances. In such circumstances, we may be required to (a) sell assets in adverse market conditions, (b) borrow on unfavorable terms, (c) distribute amounts that would otherwise be used for future acquisitions or used to repay debt, or (d) make a taxable distribution of our shares of common stock as part of a distribution in which stockholders may elect to receive shares of common stock or (subject to a limit measured as a percentage of the total distribution) cash, in order to comply with the REIT distribution requirements.

          Moreover, we may acquire distressed debt investments that require subsequent modification by agreement with the borrower. If the amendments to the outstanding debt are "significant modifications" under the applicable Treasury Regulations, the modified debt may be considered to have been reissued to us in a debt-for-debt taxable exchange with the borrower. This deemed reissuance may prevent the modified debt from qualifying as a good REIT asset if the underlying security has declined in value and would cause us to recognize income to the extent the principal amount of the modified debt exceeds our adjusted tax basis in the unmodified debt.

The failure of mortgage loans subject to a repurchase agreement or a mezzanine loan to qualify as a real estate asset would adversely affect our ability to qualify as a REIT.

          We have entered into repurchase agreements under which we will nominally sell certain of our assets to a counterparty and simultaneously enter into an agreement to repurchase the sold assets. We believe that we will be treated for U.S. federal income tax purposes as the owner of the assets that are the subject of any such agreements notwithstanding that such agreements may transfer record ownership of the assets to the counterparty during the term of the agreement. It is possible, however, that the IRS could assert that we did not own the assets during the term of the repurchase agreement, in which case we could fail to qualify as a REIT.

          In addition, in order for a loan to be treated as a qualifying real estate asset producing qualifying income for purposes of the REIT asset and income tests, generally the loan must be secured by real property. We may originate or acquire mezzanine loans that are not directly secured by real property but instead secured by equity interests in a partnership or limited liability company that directly or indirectly owns real property. In Revenue Procedure 2003-65, the IRS provided a safe harbor pursuant to which a mezzanine loan that is not secured by real estate would, if it meets each of the requirements contained in the Revenue Procedure, be treated by the IRS as a qualifying real estate asset. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law and in many cases it may not be possible for us to meet all the requirements of the safe harbor. We cannot provide assurance that any mezzanine loan in which we invest would be treated as a qualifying asset producing qualifying income for REIT qualification purposes. If any such loan fails either the REIT income or asset tests, we may be disqualified as a REIT.

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Our qualification as a REIT and exemption from U.S. federal income tax with respect to certain assets may be dependent on the accuracy of legal opinions or advice rendered or given or statements by the issuers of assets that we acquire, and the inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.

          When purchasing securities, we may rely on opinions or advice of counsel for the issuer of such securities, or statements made in related offering documents, for purposes of determining whether such securities represent debt or equity securities for U.S. federal income tax purposes, and also to what extent those securities constitute real estate assets for purposes of the asset tests and produce qualifying income for purposes of the 75% gross income test. In addition, when purchasing the equity tranche of a securitization, we may rely on opinions or advice of counsel regarding the qualification of the securitization for exemption from U.S. corporate income tax and the qualification of interests in such securitization as debt for U.S. federal income tax purposes. The inaccuracy of any such opinions, advice or statements may adversely affect our REIT qualification and result in significant corporate-level tax.

The taxable mortgage pool, or TMP, rules may increase the taxes that we or our stockholders may incur, and may limit the manner in which we effect future securitizations.

          Securitizations by us or our subsidiaries could result in the creation of TMPs for U.S. federal income tax purposes. As a result, we could have "excess inclusion income." Certain categories of stockholders, such as non-U.S. stockholders eligible for treaty or other benefits, stockholders with net operating losses, and certain tax-exempt stockholders that are subject to unrelated business income tax, could be subject to increased taxes on a portion of their dividend income from us that is attributable to any such excess inclusion income. In the case of a stockholder that is a REIT, regulated investment company, or RIC, common trust fund or other pass-through entity, our allocable share of our excess inclusion income could be considered excess inclusion income of such entity. In addition, to the extent that our common stock is owned by tax-exempt "disqualified organizations," such as certain government-related entities and charitable remainder trusts that are not subject to tax on unrelated business income, we may incur a corporate level tax on a portion of any excess inclusion income. Because this tax generally would be imposed on us, all of our stockholders, including stockholders that are not disqualified organizations, generally will bear a portion of the tax cost associated with the classification of us or a portion of our assets as a TMP. A RIC, or other pass-through entity owning our common stock in record name will be subject to tax at the highest U.S. federal corporate tax rate on any excess inclusion income allocated to their owners that are disqualified organizations. Moreover, we could face limitations in selling equity interests in these securitizations to outside investors, or selling any debt securities issued in connection with these securitizations that might be considered to be equity interests for tax purposes. Finally, if we were to fail to qualify as a REIT, any TMP securitizations would be treated as separate taxable corporations for U.S. federal income tax purposes that could not be included in any consolidated U.S. federal corporate income tax return. These limitations may prevent us from using certain techniques to maximize our returns from securitization transactions.

We may choose to make distributions in our own stock, in which case you may be required to pay income taxes in excess of the cash dividends you receive.

          In connection with our qualification as a REIT, we are required to annually distribute to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order to satisfy this requirement, we may make distributions that are payable in cash and/or shares of our common stock (which could account for up to 80% of the aggregate amount of such distributions) at the election of each stockholder. Taxable stockholders receiving such distributions will be required to include the full amount of such distributions as ordinary dividend income to the extent of our current or accumulated earnings and profits, as determined for U.S. federal income tax

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purposes. As a result, U.S. stockholders may be required to pay income taxes with respect to such distributions in excess of the cash portion of the distribution received. Accordingly, U.S. stockholders receiving a distribution of our shares may be required to sell shares received in such distribution or may be required to sell other stock or assets owned by them, at a time that may be disadvantageous, in order to satisfy any tax imposed on such distribution. If a U.S. stockholder sells the stock that it receives as part of the distribution in order to pay this tax, the sales proceeds may be less than the amount it must include in income with respect to the distribution, depending on the market price of our stock at the time of the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to such distribution, including in respect of all or a portion of such distribution that is payable in stock, by withholding or disposing of part of the shares included in such distribution and using the proceeds of such disposition to satisfy the withholding tax imposed. In addition, if a significant number of our stockholders determine to sell shares of our common stock in order to pay taxes owed on dividend income, such sale may put downward pressure on the market price of our common stock.

          Various tax aspects of such a taxable cash/stock distribution are uncertain and have not yet been addressed by the IRS. No assurance can be given that the IRS will not impose requirements in the future with respect to taxable cash/stock distributions, including on a retroactive basis, or assert that the requirements for such taxable cash/stock distributions have not been met.

Dividends payable by REITs generally do not qualify for the reduced tax rates available for some dividends.

          The maximum tax rate applicable to qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates has been reduced by legislation to 15% for tax years beginning before January 1, 2013. Dividends payable by REITs, however, generally are not eligible for the reduced rates. Although this legislation does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.

If we were considered to actually or constructively pay a "preferential dividend" to certain of our stockholders, our status as a REIT could be adversely affected.

          In order to qualify as a REIT, we must annually distribute to our stockholders at least 90% of our REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), determined without regard to the deduction for dividends paid and excluding net capital gain. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be "preferential dividends." A dividend is not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. Currently, there is uncertainty as to the IRS's position regarding whether certain arrangements that REITs have with their stockholders could give rise to the inadvertent payment of a preferential dividend (e.g., the pricing methodology for stock purchased under a distribution reinvestment program inadvertently causing a greater than 5% discount on the price of such stock purchased). There is no de minimis exception with respect to preferential dividends; therefore, if the IRS were to take the position that we inadvertently paid a preferential dividend, we may be deemed to have failed the 90% distribution test, and our status as a REIT could be terminated for the year in which such determination is made if we were unable to cure such failure. While we believe that our operations have been structured in such a manner that we will not be treated as inadvertently paying preferential dividends, we can provide no assurance to this effect.

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Complying with REIT requirements may limit our ability to hedge our liabilities effectively and may cause us to incur tax liabilities.

          The REIT provisions of the Code may limit our ability to hedge our liabilities. Any income from a hedging transaction we enter into to manage risk of interest rate changes, price changes or currency fluctuations with respect to borrowings made or to be made to acquire or carry real estate assets, if properly identified under applicable Treasury Regulations, does not constitute "gross income" for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging transactions, the income from those transactions will likely be treated as non-qualifying income for purposes of both of the gross income tests. As a result of these rules, we may need to limit our use of advantageous hedging techniques or implement those hedges through a taxable REIT subsidiary. This could increase the cost of our hedging activities because our taxable REIT subsidiaries would be subject to tax on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In addition, losses in a taxable REIT subsidiary generally will not provide any tax benefit, except for being carried forward against future taxable income of such taxable REIT subsidiary.

Complying with REIT requirements may force us to forgo and/or liquidate otherwise attractive investment opportunities.

          To qualify as a REIT, we must ensure that we meet the REIT gross income tests annually and that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified REIT real estate assets, including certain mortgage loans and certain kinds of mortgage-related securities. The remainder of our investment in securities (other than government securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer, and no more than 25% of the value of our total securities can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate assets from our portfolio or not make otherwise attractive investments in order to maintain our qualification as a REIT. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

We may be subject to adverse legislative or regulatory tax changes that could increase our tax liability, reduce our operating flexibility and reduce the price of our common stock.

          In recent years, numerous legislative, judicial and administrative changes have been made in the provisions of U.S. federal income tax laws applicable to investments similar to an investment in shares of our common stock. Additional changes to the tax laws are likely to continue to occur, and we cannot assure you that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in our shares or on the market value or the resale potential of our assets. You are urged to consult with your tax advisor with respect to the impact of recent legislation on your investment in our shares and the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in our shares. You also should note that our counsel's tax opinion is based upon existing law, applicable as of the date of its opinion, all of which will be subject to change, either prospectively or retroactively.

          Although REITs generally receive better tax treatment than entities taxed as regular corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be treated for U.S. federal income tax purposes as a corporation. As a result, our charter provides our board of directors

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with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a regular corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

Potential characterization of distributions or gain on sale may be treated as unrelated business taxable income to tax-exempt investors.

          If (a) we are a "pension-held REIT," (b) a tax-exempt stockholder has incurred debt to purchase or hold our common stock or (c) a holder of common stock is a certain type of tax-exempt stockholder, dividends on, and gains recognized on the sale of, common stock by such tax-exempt stockholder may be subject to U.S. federal income tax as unrelated business taxable income under the Code.

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FORWARD-LOOKING STATEMENTS

          We make forward-looking statements in this prospectus that are subject to risks and uncertainties. These forward-looking statements include information about possible or assumed future results of our business, financial condition, liquidity, results of operations, plans and objectives. When we use the words "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, we intend to identify forward-looking statements. Statements regarding the following subjects, among others, may be forward-looking:

    use of proceeds of this offering;

    our business and investment strategy;

    our projected operating results;

    the timing of cash flows, if any, from our investments;

    the state of the U.S. economy generally or in specific geographic regions;

    defaults by borrowers in paying debt service on outstanding items;

    actions and initiatives of the U.S. Government and changes to U.S. Government policies;

    our ability to obtain financing arrangements;

    the amount of commercial mortgage loans requiring refinancing over the 2011 to 2015 period;

    financing and advance rates for our target investments;

    our expected leverage;

    general volatility of the securities markets in which may invest;

    the impact of a protracted decline in the liquidity of credit markets on our business;

    the uncertainty surrounding the strength of the U.S. economic recovery;

    the return or impact of current and future investments;

    allocation of investment opportunities to us by our Manager;

    changes in interest rates and the market value of our investments;

    effects of hedging instruments on our target investments;

    rates of default or decreased recovery rates on our target investments;

    the degree to which our hedging strategies may or may not protect us from interest rate volatility;

    changes in governmental regulations, tax law and rates, and similar matters (including interpretation thereof);

    our ability to maintain our qualification as a REIT;

    our ability to maintain our exemption from registration under the 1940 Act;

    availability of investment opportunities in mortgage-related and real estate-related investments and securities;

    the ability of our Manager to locate suitable investments for us, monitor, service and administer our investments and execute our investment strategy;

    availability of qualified personnel;

    estimates relating to our ability to make distributions to our stockholders in the future;

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    our understanding of our competition; and

    market trends in our industry, interest rates, real estate values, the debt securities markets or the general economy.

          The forward-looking statements are based on our beliefs, assumptions and expectations of our future performance, taking into account all information currently available to us. You should not place undue reliance on these forward-looking statements. These beliefs, assumptions and expectations can change as a result of many possible events or factors, not all of which are known to us. Some of these factors are described in this prospectus under the headings "Summary," "Risk Factors," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Business." If a change occurs, our business, financial condition, liquidity and results of operations may vary materially from those expressed in our forward-looking statements. Any forward-looking statement speaks only as of the date on which it is made. New risks and uncertainties arise over time, and it is not possible for us to predict those events or how they may affect us. Except as required by law, we are not obligated to, and do not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

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USE OF PROCEEDS

          We estimate that the net proceeds we will receive from selling common stock in this offering will be approximately $139.4 million, after deducting estimated offering expenses of approximately $3.1 million (or, if the underwriters exercise their overallotment option in full, approximately $160.8 million, after deducting the estimated offering expenses of approximately $3.1 million). Our Manager will pay directly to the underwriters an underwriting discount of $5.3 million (or, if the underwriters exercise their overallotment option in full, $6.2 million). No underwriting discount will be paid on the 500,000 shares purchased by Ares Investments.

          We intend to use approximately $47.3 million of the net proceeds of this offering to repay outstanding amounts under the Wells Fargo Facility and the Citibank Facility.

          As of March 31, 2012 we had approximately $43.8 million outstanding under the Wells Fargo Facility. This amount was used to finance the acquisition of certain of the senior commercial mortgage loans comprising the Initial Portfolio. As of the date of this prospectus, the interest charged on this indebtedness is 2.85%. The initial maturity date of the Wells Fargo Facility is December 14, 2014 and, provided that certain conditions are met and applicable extension fees are paid, is subject to two 12-month extension options.

          As of March 31, 2012 we had approximately $3.5 million outstanding under the Citibank Facility. This amount was used to finance the acquisition of certain of the senior commercial mortgage loans comprising the Initial Portfolio. As of the date of this prospectus, the interest charged on this indebtedness is 4.5%. The initial maturity date of the Citibank Facility is December 8, 2012. If the gross proceeds of this offering are at least $200 million, then upon the completion of this offering the maturity date will be automatically extended to December 8, 2013, and may be further extended on December 8, 2013 for an additional 12 months upon the payment of the applicable extension fee and provided that no event of default is then occurring.

          We intend to use approximately $6.3 million of the net proceeds of this offering to redeem the Series A Preferred Stock. See "Description of Capital Stock — Preferred Stock" for a more detailed discussion of our Series A Preferred Stock.

          We intend to use any net proceeds of this offering that are not applied as described above for general corporate working capital purposes, including originating our target investments. Until appropriate investments can be identified, our Manager may invest this balance in interest-bearing short-term investments, including money market accounts or funds, CMBS or corporate bonds, which are consistent with our intention to qualify as a REIT. These initial investments are expected to provide a lower net return than we will seek to achieve from our target investments.

          Affiliates of Wells Fargo Securities, LLC and Citigroup Global Markets Inc. are lenders under the Wells Fargo Facility and the Citibank Facility, respectively. Depending on the amount of indebtedness borrowed under the Wells Fargo Facility and the Citibank Facility and the use of proceeds from this offering to repay such amounts, affiliates of certain of the underwriters may receive more than 5% of the proceeds of this offering.

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DISTRIBUTION POLICY

          We intend to make regular quarterly distributions to holders of our common stock and distribution equivalents to holders of vested restricted stock units which are settled in shares of common stock. U.S. federal income tax law generally requires that a REIT annually distribute at least 90% of its REIT taxable income (which does not equal net income, as calculated in accordance with GAAP), without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We generally intend over time to pay quarterly distributions in an amount equal to our taxable income. After this offering, we plan to pay a distribution in respect of the period from the completion of this offering through June 30, 2012, which may be prior to the time when we have fully invested the net proceeds of this offering.

          To the extent that in respect of any calendar year, cash available for distribution is less than our taxable income, we could be required to sell assets or borrow funds to make cash distributions or make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. In addition, prior to the time we have fully invested the net proceeds of this offering, we may fund our quarterly distributions out of such net proceeds, which would reduce the amount of cash we have available for investing and other purposes. The use of these net proceeds for distributions could be dilutive to our financial results. In addition, funding our distributions from our net proceeds may constitute a return of capital to our investors, which would have the effect of reducing each stockholder's basis in its shares of our common stock. We will generally not be required to make distributions with respect to activities conducted through any taxable REIT subsidiary that we form following the completion of this offering. For more information, see "Material U.S. Federal Income Tax Considerations."

          To satisfy the requirements to qualify as a REIT and generally not be subject to U.S. federal income and excise tax, we intend to make regular quarterly distributions of all or substantially all of our taxable income to holders of our common stock out of assets legally available therefor. Any distributions we make to our stockholders will be at the discretion of our board of directors and will depend upon our earnings, financial condition, liquidity, debt covenants, funding or margin requirements under securitizations, warehouse facilities or other secured and unsecured borrowing agreements, maintenance of our REIT qualification, applicable provisions of the MGCL, and such other factors as our board of directors deems relevant. The Wells Fargo Facility provides that if an event of default is continuing or if we are not then in compliance with the applicable financial covenants, then we may make distributions only to the extent of the minimum amount necessary to continue to qualify as a REIT. The Citibank Facility provides that if an event of default is continuing, then we may make distributions only to the extent necessary to maintain our status as a REIT. In addition, we expect that the Capital One Facility, should such funding facility be entered into, will contain similar restrictions as the Wells Fargo Facility and Citibank Facility. Our earnings, financial condition and liquidity will be affected by various factors, including the net interest and other income from our portfolio, our operating expenses and any other expenditures. See "Risk Factors."

          Distributions that stockholders receive (not designated as capital gain dividends, or, for taxable years beginning before January 1, 2013, qualified dividend income) will be taxed as ordinary income to the extent they are paid from our earnings and profits (as determined for U.S. federal income tax purposes). However, distributions that we designate as capital gain dividends generally will be taxable as long-term capital gain to our stockholders to the extent that they do not exceed our actual net capital gain for the taxable year. Some portion of these distributions may not be subject to tax in the year in which they are received because depreciation expense reduces the amount of taxable income, but does not reduce cash available for distribution. The portion of your distribution that is not designated as a capital gain dividend and is in excess of our current and accumulated earnings and profits is considered a return of capital for U.S. federal income tax purposes and will reduce the adjusted tax basis of your investment, but not below zero, deferring such portion of your tax until your investment is sold or our

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company is liquidated, at which time you will be taxed at capital gain rates (subject to certain exceptions for corporate stockholders). To the extent such portion of your distribution exceeds the adjusted tax basis of your investment, such excess will be treated as capital gain if you hold your shares of common stock as a capital asset for U.S. federal income tax purposes. We will furnish annually to each of our stockholders a statement setting forth distributions paid during the preceding year and their characterization as ordinary income, return of capital, qualified dividend income or capital gain. Please note that each stockholder's tax considerations are different, therefore, you should consult with your own tax advisor and financial planners prior to making an investment in our shares. You also should review the section entitled "Material U.S. Federal Income Tax Considerations — Taxation of U.S. Stockholders."

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CAPITALIZATION

          The following table sets forth (a) our actual capitalization as of December 31, 2011, (b) our capitalization on a pro forma basis to reflect (i) the private placement to Ares Investments of 1,170,000 shares of our common stock for $23.4 million, equivalent to a per share price of $20, (ii) the private placement to certain accredited investors of 114.4578 shares of our Series A Preferred Stock at $50,000 per share, (iii) the incurrence of $47.3 million in long term debt under the Wells Fargo Facility and the Citibank Facility, and (iv) the payment of a $52,000 cash dividend on April 2, 2012 in respect of, and in accordance with the terms of, our Series A Preferred Stock and the payment of a $450,000 cash dividend on April 2, 2012 to our common stockholder (collectively, the "Other Transactions"), and (c) our capitalization on a pro forma, as adjusted basis to give effect to the Other Transactions, this offering, the issuance to our independent directors under our 2012 Equity Incentive Plan of an aggregate of 25,000 restricted shares of our common stock as initial grants and an aggregate of 10,135 restricted shares of our common stock in respect of 2012 annual compensation and the use of net proceeds as set forth under the heading "Use of Proceeds." You should read this table together with "Use of Proceeds" and our audited and pro forma financial statements included elsewhere in this prospectus.

 
  As of December 31, 2011
(Amounts in thousands,
except share data)
 
 
  Actual   Pro
Forma
  Pro Forma,
As Adjusted(1)
 
 
   
  (Unaudited)
 

Long term debt:

  $   $ 47,301   $  

Series A Convertible Preferred Stock, par value $0.01 per share; 0 shares authorized and 0 shares issued and outstanding, actual, 600 shares authorized and 114.4578 shares issued and outstanding, pro forma, and 0 shares authorized and 0 shares issued and outstanding, pro forma, as adjusted

   
   
5,723
   
 

Stockholder's equity:

                   

Undesignated preferred stock, par value $0.01 per share; 0 shares authorized and 0 shares issued and outstanding, actual, 4,999,400 shares authorized and 0 shares issued and outstanding, pro forma, and 50,000,000 shares authorized and 0 shares issued and outstanding, pro forma, as adjusted

   
   
   
 

Common stock, par value $0.01 per share; 100,000 shares authorized and 0 shares issued and outstanding, actual, 95,000,000 shares authorized and 1,500,000 shares issued and outstanding, pro forma,(2) and 450,000,000 shares authorized and 9,235,135 shares issued and outstanding, pro forma, as adjusted

   
   
15
   
92
 

Additional paid-in capital

   
6,600
   
29,985
   
168,735
 

Accumulated deficit

    (163 )   (669 )   (718 )
               

Total stockholder's equity

  $ 6,437   $ 29,331   $ 168,109  
               

(1)
Does not include the underwriters' overallotment option to purchase up to 1,155,000 additional shares. Also assumes that the net proceeds we will receive from selling common stock in this offering will be $139,400, after deducting estimated offering expenses of $3,050, based on the sale of 7,700,000 shares.

(2)
As of December 31, 2011, Ares Investments had contributed $6,600 to the Company, pursuant to which it was entitled to receive 330,000 shares of our common stock upon an increase in the

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    authorized number of shares of our common stock. In January and February 2012, Ares Investments contributed an additional $23,400 to the Company, pursuant to which it was entitled to receive 1,170,000 shares of our common stock upon an increase in the authorized number of shares of our common stock. On February 8, 2012, we amended and restated our charter to increase the number of authorized shares of our common stock and 1,500,000 shares of our common stock were issued to Ares Investments in satisfaction of such prior contributions. The number of shares outstanding has been adjusted to reflect the one-for-two reverse stock split effective February 22, 2012.

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DILUTION

          Purchasers of our common stock in this offering will experience dilution to the extent of the difference between the public offering price per share and the net tangible book value per share. On a pro forma basis at December 31, 2011, after giving effect to the net proceeds we received from the private placement to Ares Investments of 1,500,000 shares of our common stock and the net proceeds we will receive from selling common stock in this offering, the deduction of the estimated offering expenses payable by us, our pro forma net tangible book value(1)(2) would be $168.1 million or $18.27 per share. This would represent an increase in pro forma net tangible book value attributable to the sale of shares of common stock in this offering of $139.4 million or $18.10 per share and an immediate dilution in pro forma net tangible book value of $0.23 per share. Our Manager will pay directly to the underwriters the underwriting discount of $5.3 million (or, if the underwriters exercise their overallotment option in full, $6.2 million). No underwriting discount will be paid on the 500,000 shares purchased by Ares Investments in this offering.

          The following table sets forth (a) our actual net tangible book value per share as of December 31, 2011, (b) our net tangible book value per share on an as adjusted pre-offering basis to reflect the private placement to Ares Investments of 1,500,000 shares of our common stock for $30 million, equivalent to a per share price of $20, and the payment of a $52,000 cash dividend on April 2, 2012 in respect of, and in accordance with the terms of, our Series A Preferred Stock and the payment of a $450,000 cash dividend on April 2, 2012 to our common stockholder, and (c) our net tangible book value per share on an as further adjusted basis to give effect to this offering and the use of net proceeds as set forth under the heading "Use of Proceeds." The information in this table has been adjusted to reflect the one-for-two reverse stock split effective February 22, 2012. You should read this table together with "Use of Proceeds" included elsewhere in this prospectus.

Public offering price per share

  $ 18.50  

Net tangible book value per share as of December 31, 2011(3)

  $ 19.51  

Pro forma net tangible book value per share as of December 31, 2011
(as adjusted for the private placement to Ares Investments)

  $ 19.55  

Pro forma net tangible book value per share as of December 31, 2011
(as further adjusted for this offering)

  $ 18.27  

(1)
Net tangible book value per share as of December 31, 2011 includes the deferred financing costs and unamortized loan fees discussed in the Company's consolidated financial statements and related notes, which are included elsewhere in this prospectus.

(2)
Pro forma net tangible book value and pro forma net tangible book value per share, in each case as of December 31, 2011 (as further adjusted for this offering), excludes (a) the issuance of an aggregate of 35,135 restricted shares of our common stock to be granted to our independent directors as initial grants and as part of their annual compensation under our 2012 Equity Incentive Plan upon completion of this offering and (b) the 1,155,000 shares subject to the underwriters' overallotment option.

(3)
As of December 31, 2011, Ares Investments had contributed $6.6 million to the Company, in exchange for the Company's agreement to effectively issue 330,000 shares of our common stock upon an increase in our authorized number of shares. Although there were no shares of our common stock issued and outstanding as of December 31, 2011, this calculation assumes the 330,000 shares were issued to Ares Investments during the period ended December 31, 2011.

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UNAUDITED SELECTED PRO FORMA AND HISTORICAL FINANCIAL DATA
(Amounts in thousands)

          The Company's unaudited pro forma financial information presented below was derived from the application of pro forma adjustments to the Company's consolidated financial statements for the year ended December 31, 2011 to give effect to certain significant activity subsequent to December 31, 2011 as set forth in more detail below (collectively, the "Subsequent Event Transactions") and as further adjusted to give effect to the issuance of common stock in this offering and the use of proceeds therefrom. This unaudited pro forma financial information should be read in conjunction with the information under "Management's Discussion and Analysis of Financial Condition and Results of Operations," and the Company's consolidated financial statements and related notes, which are included elsewhere in this prospectus.

          The unaudited pro forma balance sheet information set forth below reflects the historical consolidated financial information of the Company, as adjusted to give effect to the transactions below as if each had occurred as of December 31, 2011. The unaudited pro forma results of operations information set forth below reflects the historical consolidated financial information of the Company, as adjusted to give effect to the transactions below as if each had occurred at the beginning of the period ending December 31, 2011.

          The following transactions that occurred subsequent to December 31, 2011 are reflected in the Subsequent Event Transactions pro forma financial information and included in the Company Pro Forma financial information:

    The issuance of $23,400 of common stock and a $2,000 intercompany loan to Ares Investments in connection with investments by Ares Investments;

    The issuance of $5,723 of Series A Preferred Stock and the repayment of principal and interest due under the intercompany loan from Ares Investments with $2,004 of the proceeds therefrom;

    The origination of $72,249 of new investments, including loan draws and repayments, net of origination fees;

    The incurrence of approximately $47,301 of outstanding indebtedness; and

    The payment of a $52 cash dividend on April 2, 2012 in respect of, and in accordance with the terms of, our Series A Preferred Stock and the payment of a $450 cash dividend on April 2, 2012 to our common stockholder.

          The Subsequent Event Transactions pro forma financial information is then further adjusted to give effect to this offering and the use of net proceeds as set forth under the heading "Use of Proceeds," including the repayment of approximately $47,301 of outstanding amounts under the Wells Fargo Facility and the Citibank Facility and the redemption of our Series A Preferred Stock for an aggregate redemption price of approximately $6,343. See "Description of Capital Stock — Series A Preferred Stock" for a more detailed discussion of our Series A Preferred Stock.

          Further, the historical financial information presented herein has been adjusted to give pro forma effect to events that are directly attributable to the transaction, are factually supportable and are expected to have a continuing impact on our results. In addition, such adjustments are estimates and may not prove to be accurate. Information regarding these adjustments constitutes forward-looking information and is subject to risks and uncertainties that could cause actual results to differ materially from those anticipated. See "Risk Factors" and "Forward-Looking Statements."

          The pro forma adjustments, which are based on available information and certain assumptions that we believe are reasonable, are applied to the historical consolidated information of the Company. The unaudited pro forma consolidated financial information is provided for informational purposes only and does not purport to represent or be indicative of the results of operations that actually would have been obtained had the transactions described above occurred at the beginning of the period ending December 31, 2011 or, that may be obtained in any future period, or of our financial condition at December 31, 2011 or at any time in the future.

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ARES COMMERCIAL REAL ESTATE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
As of December 31, 2011
(Amounts in thousands)

 
  Company
Historical
December 31,
2011
  Subsequent Event
Transactions
  Company Pro
Forma before
Stock Offering
  Transactions from
Common Stock
Offering
  Company Pro
Forma
 

Assets

                               

Cash

  $ 1,240   $ 3,669 (a)(b)(c) $ 4,909   $ 84,935 (d) $ 89,844  

Loans held for Investment

    4,945     72,249 (a)   77,194         77,194  

Other assets

    1,402         1,402     819 (d)   2,221  
                       

Total Assets

  $ 7,587   $ 75,918   $ 83,505   $ 85,754   $ 169,259  
                       

Liabilities

                               

Secured financing agreements

  $   $ 47,301 (a) $ 47,301   $ (47,301 )(d) $  

Other liabilities

    1,150     (a)(b)   1,150         1,150  
                       

Total Liabilities

    1,150     47,301     48,451     (47,301 )   1,150  
                       

Series A Convertible Preferred Stock

        5,723 (b)   5,723     (5,723) (d)    

Equity

                               

Stockholders' Equity

    6,437     22,894 (a)(c)   29,331     138,778 (d)   168,109  
                       

Total Liabilities and Stockholders' Equity

  $ 7,587   $ 75,918   $ 83,505   $ 85,754   $ 169,259  
                       

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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
(Amounts in thousands except share and per share data)

(a)
Represents all investments funded subsequent to year end, including loan draws and repayments, of $72,249, net of origination fees. The capital sources of subsequently funded investments are from capital draws from Ares Investments, advances on the secured financing agreements and existing cash, as follows:

Ares Investments Capital Contributions

  $ 23,400  

Ares Investments Short Term Note(1)

    2,000  

Wells Fargo/Citibank Borrowings

    47,301  
       

Total Capital Sources

    72,701  

Net Investment Activity(2)

    (72,249 )
       

Net excess cash from originations

    452  

Excess cash from Series A Preferred Stock offering. See Note (b) below

    3,719  

Combined dividends paid in respect of Series A Preferred Stock and common stock. See Note (c) below

    (502 )
       

Remaining cash

  $ 3,669  
       

(1)
Ares Investments provided a short-term note to the company to provide additional capital for the funding of the loans pending the receipt of proceeds of the sale of shares of Series A Preferred Stock.

(2)
Net Investment Activity (net of origination fees) is listed below:

 
Date
  Location   Commitment   Net
Investment
Activity
 
 

Jan. 27, 2012

  Ft. Lauderdale, FL   $ 15,000   $ 7,850  
 

Feb. 8, 2012

  Boston, MA     35,000     34,650  
 

Feb. 13, 2012

  Austin, TX     37,950     29,565  
 

March 6, 2012

  Boston, MA     (18 )   (18 )
 

March 26, 2012

  Denver, CO         202  
                 
 

Subtotal — Subsequent Activity

        87,932     72,249  
 

Dec. 31, 2011

  Denver, CO     11,000     4,945  
                 
 

Total Investments

      $ 98,932   $ 77,194  
                 
(b)
From February 27, 2012 through March 7, 2012, the Company issued $5,723 of Series A Preferred Stock. The proceeds received were used to repay the $2,004 of principal and interest of the short-term loan from Ares Investments, which results in net cash to the Company of $3,719.

(c)
A cash dividend of $52 was paid in respect of, and in accordance with, our Series A Preferred Stock on April 2, 2012 and a cash dividend of $450 was paid to our common stockholder on April 2, 2012.

(d)
Represents the initial public offering of the Company with gross proceeds of $142,450, based on the sale of 7,700,000 shares at $18.50 per share. Net proceeds received will be used to repay draws on the secured financing agreements, redeem the $5,723 of Series A Preferred Stock at a premium,

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    and the remaining proceeds are to be held for future funding requirements of loan originations, as follows:

Public offering proceeds

  $ 142,450  

Estimated offering costs

    (3,050 )
       

Net proceeds

    139,400  

Repayment of Wells Fargo/Citibank borrowings

    (47,301 )

Payment of deferred financing costs with respect to increased availability under the Wells Fargo/Citibank facilities

    (819 )

Redemption of Series A Convertible Preferred Stock

    (6,345 )
       

Remaining Cash

  $ 84,935  
       

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ARES COMMERCIAL REAL ESTATE CORPORATION
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2011
(Amounts in thousands, except share and per share data)

 
  Company
Historical
December 31,
2011
  Subsequent Event
Transactions
  Company Pro
Forma before
Stock Offering
  Transactions from
Common Stock
Offering
  Company Pro
Forma
 

Net interest margin

                               

Interest Income

  $ 3   $ 6,060 (a) $ 6,063   $   $ 6,063  

Interest and debt financing costs

    (39 )   (1,798 )(b)   (1,837 )   1,126 (d)   (711 )
                       

Net interest margin

    (36 )   4,262     4,226     1,126     5,352  

Expenses

                               

Professional Fees

    58         58           58  

Management Fees

                2,541 (f)   2,541  

Other expense

    69         69     573 (g)   642  
                       

    127         127     3,114     3,241  

Income tax benefit (expense)

                     
                       

Net income (loss)

  $ (163 ) $ 4,262   $ 4,099   $ (1,988 ) $ 2,111  

Less: Net income attributable to Series A preferred stockholders

        (572 )(c)   (572 )   572 (e)    
                       

Net income (loss) attributable to the Company

  $ (163 ) $ 3,690   $ 3,527   $ (1,416 ) $ 2,111  
                       

Pro Forma earnings per share — basic

  $ (8.56) (h)       $ 2.35         $ 0.23 (i)

Pro Forma earnings per share — diluted

  $ (8.56) (h)       $ 2.35         $ 0.23 (i)

Pro Forma weighted average common shares outstanding — basic

    19,052 (h)         1,500,000           9,204,617  

Pro Forma weighted average common shares outstanding — diluted

    19,052 (h)         1,500,000           9,204,617  

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NOTES TO UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
(Amounts in thousands, except share and per share data)

(a)
Represents interest income, including accretion of loan discounts, generated from all loans funded by the Company assuming the outstanding loan balances were originated on January 1, 2011. Interest income is calculated assuming each loan's respective interest floor rate. A 1/8% variance (or increase or decrease by 12.5 basis points) in current interest rates would not impact interest income for the year ended December 31, 2011.

(b)
Represents interest expense and amortized financing costs incurred on the Wells Fargo Facility and Citibank Facility assuming the outstanding amounts were in place at January 1, 2011. Interest expense is calculated assuming outstanding indebtedness of $47,301 under our secured funding facilities and the related assumed interest rate of 2.89% charged on the outstanding indebtedness, in each case as of March 31, 2012.


If the interest rates under the facilities changed by a 1/8% variance (or increased or decreased by 12.5 basis points), then the decrease or increase in interest expense of the facilities would be $59, respectively, for the year ended December 31, 2011.

(c)
From February 27, 2012 through March 7, 2012, the Company issued $5,723 of shares of Series A Preferred Stock. The dividend to be earned on the shares of Series A Preferred Stock is 10.0% for the first year outstanding, assuming the offering occurred on January 1, 2011.

(d)
Represents the effect to the income statement on the use of the proceeds from this offering to pay down the outstanding balances on the Wells Fargo Facility and the Citibank Facility and to redeem shares of Series A Preferred Stock.

(e)
Represents the effect to the income statement on the use of the proceeds from this offering to redeem shares of Series A Preferred Stock, in addition to the amortization of the additional financing costs paid in connection with the increase of the debt facility commitments. The $622 ($572 of premium and $50 of accrued and unpaid dividends) paid upon redemption of the Series A Preferred Stock has not been reflected in the pro forma consolidated statements of operations as the payment will not recur subsequent to this offering.

(f)
Represents the base management fee that would have been paid to our Manager for the annual period ending December 31, 2011 after giving effect to the management agreement and this offering (assuming no exercise by the underwriters of their overallotment option and no follow-on equity offerings).

(g)
Represents the compensation that would have been paid to our independent directors for the annual period ending December 31, 2011, which consists of an initial grant of stock in connection with this offering and annual compensation paid in a combination of cash and stock, as detailed below:

Director and committee fees paid in cash and restricted shares of common stock (one year vesting)

  $ 419  

Restricted shares of common stock awarded as an initial grant in connection with this offering (three year vesting)

    154  
       

Total

  $ 573  
       
(h)
As of December 31, 2011, Ares Investments had contributed $6,600 to the Company in exchange for the Company's agreement to effectively issue 330,000 shares of our common stock upon an increase in the authorized number of our shares. Although there were no shares of our common stock issued and outstanding as of December 31, 2011, this calculation assumes the 330,000 shares were issued to Ares Investments during the period ended December 31, 2011.

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(i)
Pro forma earnings (loss) per share — basic and diluted are calculated by dividing pro forma consolidated net income (loss) allocable to common stockholders by the number of shares of common stock issued in this offering, the existing shares outstanding from the original investment by Ares Investments, and the number of restricted shares to be issued to our independent directors under our 2012 Equity Incentive Plan that would vest quarterly over the course of the period presented. Set forth below is a reconciliation of pro forma weighted average shares outstanding:

Number of shares issued in this offering

    7,700,000  

Number of shares issued to Ares Investments prior to this offering

    1,500,000  

Number of restricted shares of our common stock to be issued as initial grants to our independent directors under our 2012 Equity Incentive Plan and in respect of 2012 annual compensation

    4,617  
       

Total shares outstanding

    9,204,617  
       

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

          The information contained in this section should be read in conjunction with the information under "Unaudited Selected Pro Forma and Historical Financial Data" and the Company's consolidated financial statements and related notes, which are included elsewhere in this prospectus.

Overview

          Ares Commercial Real Estate Corporation is a recently organized specialty finance company focused on originating, investing in and managing middle-market CRE loans and other CRE-related investments. We target borrowers whose capital needs are not being met in the market by offering customized financing solutions. We implement a strategy focused on direct origination combined with experienced portfolio management through our Manager's servicer, which is a Standard & Poor's-ranked commercial primary servicer and commercial special servicer that is included on S&P's Select Servicer List, to meet our borrowers' and sponsors' needs.

          Our investment objective is to generate attractive risk-adjusted returns for our stockholders, primarily through dividends and distributions and secondarily through capital appreciation. We are focused on originating, investing in and managing customized CRE loans and other CRE middle-market financings. We believe the availability of capital in the CRE middle-market is limited and borrowers and sponsors have the greatest need for customized solutions in this segment of the market. We act as a single "one stop" financing source by providing our customers with one or more of our customized financing solutions. Our customized financing solutions are comprised of our "target investments," which include the following:

    "Transitional senior" mortgage loans that provide strategic, flexible, short-term financing solutions on transitional CRE middle market assets. These assets are typically properties that are the subject of a business plan that is expected to enhance the value of the property. The mortgage loans are usually funded over time as the borrower's business plan for the property is executed. They also typically have a lower initial loan-to-value ratios as compared to "stretch senior" mortgage loans, with the loan-to-value ratios increasing as the loan is further funded over time;

    "Stretch senior" mortgage loans that provide flexible "one stop" financing on quality CRE middle market assets. These assets are typically stabilized or near-stabilized properties with healthy balance sheets and steady cash flows, with the mortgage loans having higher leverage (and thus higher loan-to-value ratios) than conventional mortgage loans and are typically fully funded at closing and non-recourse to the borrower (as compared to conventional mortgage loans, which are usually fully recourse to the borrower);

    "Subordinate debt" mortgage loans (including subordinate tranches of first lien mortgages, or B-Notes) and mezzanine loans, both of which provide subordinate financing on quality CRE middle market assets; and

    "Other CRE debt and preferred equity investments," together with selected other income-producing equity investments.

          We are externally managed and advised by our Manager pursuant to the terms of a management agreement. Our Manager is an affiliate of Ares Management, a global alternative asset manager and SEC registered investment adviser.

          We commenced operations on December 9, 2011. We are incorporated in Maryland and intend to elect and qualify to be taxed as a REIT, commencing with our taxable year ending December 31, 2012. We generally will not be subject to U.S. federal income taxes on our taxable income to the extent that we annually distribute all or substantially all of our taxable income to stockholders and maintain our

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intended qualification as a REIT. We also intend to operate our business in a manner that will permit us to maintain our exemption from registration under the 1940 Act.

Factors Impacting Our Operating Results

          The results of our operations are affected by a number of factors and primarily depend on, among other things, the level of our net interest income, the market value of our assets and the supply of, and demand for, commercial mortgage loans, CRE debt and other financial assets in the marketplace. Our net interest income, which reflects the amortization of origination fees and direct costs, is recognized based on the contractual rate and the outstanding principal balance of the loans we originate. The objective of the interest method is to arrive at periodic interest income that yields a level rate of return over the loan term. Interest rates will vary according to the type of investment, conditions in the financial markets, credit worthiness of our borrowers, competition and other factors, none of which can be predicted with any certainty. Our operating results may also be impacted by credit losses in excess of initial anticipations or unanticipated credit events experienced by borrowers.

          Changes in Fair Value of Our Assets.    We typically hold our target investments as long-term investments. We evaluate our investments for impairment on a quarterly basis and impairments will be recognized when it is probable that we will not be able to collect all amounts estimated to be collected at the time of origination. We evaluate impairment (both interest and principal) based on the present value of expected future cash flows discounted at the investment's effective interest rate or the fair value of the collateral, if repayment is expected solely from the collateral.

          Although we hold our target investments as long-term investments, we may occasionally classify some of our investments as available-for-sale. Investments classified as available-for-sale will be carried at their fair value, with changes in fair value recorded through accumulated other comprehensive income, a component of stockholders' equity, rather than through earnings. We do not hold any of our investments for trading purposes.

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

    the interest expense associated with our borrowings to increase;

    the value of our mortgage loans to decline;

    coupons on our mortgage loans to reset, although on a delayed basis, to higher interest rates; and

    to the extent we enter into interest rate swap agreements as part of our hedging strategy, 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;

    the value of our mortgage loan portfolio to increase;

    to the extent we enter into interest rate swap agreements as part of our hedging strategy, the value of these agreements to decrease; and

    coupons on our floating rate mortgage loans to reset, although on a delayed basis, to lower interest rates.

          Credit Risk.    We are subject to varying degrees of credit risk in connection with our target investments. Our Manager seeks to mitigate this risk by seeking to originate or acquire investments of higher quality at appropriate prices given anticipated and unanticipated losses, by employing a comprehensive review and selection process and by proactively monitoring originated or acquired

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investments. Nevertheless, unanticipated credit losses could occur that could adversely impact our operating results.

          Market Conditions.    We believe that our target investments currently present attractive risk-adjusted return profiles. We believe that the U.S. CRE markets are currently in the initial stages of a recovery from the severe economic downturn that began in 2007. Following a dramatic decline in CRE lending in 2008 and 2009, debt capital has become more readily available for select stabilized, high quality assets in certain locations such as gateway cities, but remains limited for many other types of properties. For example, we currently anticipate a high demand for customized debt financing from borrowers or sponsors who are looking to refinance indebtedness that is maturing in the next two to five years or are seeking shorter-term debt solutions as they reposition their properties. In addition, we believe the uncertainty surrounding multifamily mortgage finance may provide us incremental lending opportunities in the future as Congress considers restructuring Fannie Mae and Freddie Mac, who have been the most significant sources of multifamily debt capital in recent years.

          We believe that as a result of the aforementioned economic downturn and the subsequent banking regulatory reform, a number of lenders and finance companies who traditionally served the CRE middle-market, are burdened with legacy portfolio issues, balance sheet constraints or have otherwise exited the market. In particular, smaller and regional banks who represented a large portion of the CRE market prior to the downturn, have sharply curtailed their CRE lending activities. We believe that this decreased competition will create a favorable investment environment for the foreseeable future. We also believe that we are well positioned to capitalize on the expected demand generated by the estimated $1.8 trillion of CRE debt maturing between 2012 and 2016 (as reported in Commercial Real Estate Outlook: Top Ten Issues in 2012 published by Deloitte & Touche LLP).

Recent Developments

          On January 25, 2012, we entered into a subscription agreement with Ares Investments, whereby Ares Investments agreed to purchase 400,000 shares of common stock for a total purchase price of $8.0 million, after giving effect to the reverse stock split on February 22, 2012.

          On January 27, 2012, we co-originated a $37.0 million commitment for a transitional first mortgage loan on an office building located in Fort Lauderdale, FL. The loan was closed as a $15 million subordinated debt B-Note, which we retained, and a $22 million A-Note, which was fully-funded by Citibank, N.A.

          On February 6, 2012, we entered into a subscription agreement with Ares Investments, whereby Ares Investments agreed to purchase 770,000 shares of common stock for a total purchase price of $15.4 million, after giving effect to the reverse stock split on February 22, 2012.

          On February 8, 2012, we originated a $35.0 million stretch first mortgage loan on an office building located in Boston, MA.

          On February 8, 2012, we amended and restated our charter to increase the number of authorized shares of stock to 100,000,000, consisting of 95,000,000 shares of common stock, and 5,000,000 shares of preferred stock, $0.01 par value per share.

          On February 8, 2012, our board of directors adopted resolutions classifying and designating 600 shares of authorized preferred stock as shares of Series A Preferred Stock, par value $0.01 per share.

          On February 8, 2012, we issued 1,500,000 shares of common stock to Ares Investments in consideration of the $30.0 million previously received from Ares Investments (330,000 of which are reflected in the accompanying consolidated statement of operations as having been issued to Ares Investments during the period ended December 31, 2011 in exchange for Ares Investments' aggregate contribution of $6.6 million to the Company as of December 31, 2011).

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          On February 8, 2102, we entered into a promissory note with Ares Investments, whereby Ares Investments loaned us $2.0 million. The note (which was subsequently repaid) matured on the earlier of May 8, 2012 and the date the Company receives $2.0 million or more of proceeds from the sale of the Series A Preferred Stock.

          On February 13, 2012, we funded $29.9 million of the total commitment of $38.0 million for a transitional first mortgage loan on an office building located in Austin, TX.

          On February 22, 2012, with the approval of our board of directors and our sole stockholder, we effected the one-for-two reverse stock split of our issued and outstanding common stock.

          On February 22, 2012, we entered into subscription agreements with certain third party investors, pursuant to which such investors subscribed for commitments to purchase up to 475 shares of our Series A Preferred Stock at a price per share of $50,000. Under the terms of the subscription agreements, investors are required to fund drawdowns to purchase up to the amount of their respective total capital commitments. On February 23, 2012, we filed articles supplementary, which set forth the terms of the 600 shares of Series A Preferred Stock. See "Description of Capital Stock — Series A Preferred Stock" for a more detailed description of our Series A Preferred Stock.

          From February 27, 2012 through March 7, 2012, we issued 114.4578 shares of Series A Preferred Stock for an aggregate subscription price of $5.7 million. The proceeds were used to repay the $2.0 million promissory note with Ares Investments, plus approximately $4,000 in interest due under the note.

          On March 6, 2012, we received an amortization payment on principal of $18,000, which reduced our total commitment and the funded amount accordingly.

          On March 26, 2012, we funded an additional $0.2 million of the $11.0 million commitment we originated in December 2011 with respect to a transitional first mortgage loan on an office building located in Denver, CO.

          As of March 31, 2012, we had approximately $43.8 million and $3.5 million outstanding under the Wells Fargo Facility and the Citibank Facility, respectively. The amounts borrowed under these facilities were used to fund the origination of the senior commercial mortgage loans discussed above.

          On April 2, 2012, a cash dividend of $52,000 was paid in respect of, and in accordance with, our Series A Preferred Stock and a cash dividend of $450,000 was paid to our common stockholder.

Critical Accounting Policies And Use Of Estimates

          Our financial statements are prepared in accordance with U.S. generally accepted accounting principles, or GAAP, which requires the use of estimates and assumptions that involve the exercise of judgment as to future uncertainties. In accordance with SEC guidance, the following discussion addresses the accounting policies that we believe apply to us based on the nature of our initial operations. Our most critical accounting policies involve decisions and assessments that could affect our reported assets and liabilities, as well as our reported revenues and expenses. We believe that all of the decisions and assessments used to draft our financial statements are based upon reasonable assumptions given the information available to us at that time. Our critical accounting policies and accounting estimates will be expanded over time as we fully implement our strategy. Those accounting policies and estimates that we believe are most critical to an investor's understanding of our financial results and condition and require complex management judgment are discussed below.

Cash and Cash Equivalents

          Cash and cash equivalents include funds from time to time deposited with financial institutions. These are carried at cost which approximates fair value. At times, cash held may exceed the Federal Deposit Insurance Corporation insured limit.

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Loans Held for Investment and Interest Income Recognition

          Our originated loans receivable will be classified as held-for-investment based upon our intent and ability to hold them until maturity. Loans that are held-for-investment are carried at cost, net of unamortized loan fees, and origination and acquisition costs, unless the loan is deemed impaired. Interest income will be recognized based on the contractual rate and the outstanding principal balance of the loans. Origination fees, contractual exit fees and direct loan origination costs are also recognized in interest income over the loan term as a yield adjustment using the effective interest method. The objective of the effective interest method is to arrive at periodic interest income that yields a level rate of return over the loan term.

          For some of our subordinated loans, we may use the estimated cash flows from the security and applying assumptions used to determine the fair value of such security and the excess of the future cash flows over the investment will be recognized as interest income under the effective yield method. We will review and, if appropriate, make adjustments to our cash flow projections at least quarterly and monitor these projections based on input and analysis received from external sources, internal models, and our judgment about interest rates, prepayment rates, the timing and amount of credit losses, and other factors. Changes in cash flows from those originally projected, or from those estimated at the last evaluation, may result in a prospective change in interest income recognized on, or the carrying value of, such securities.

          Non-performing loans with evidence of deteriorated credit quality will be placed upon nonaccrual status until we can reasonably estimate the amount and timing of cash flows expected to be collected. We will place loans on nonaccrual status when any portion of principal or interest is more than 30 days past due, or earlier when concern exists as to the ultimate collection of principal or interest. If a loan is placed on nonaccrual status, we will reverse the accrual for unpaid interest and will not recognize interest income until the cash is received and the loan returns to accrual status. Generally, such loans will be returned to accrual status when all delinquent principal and interest are brought current in accordance with the terms of the loan agreement and certain performance criteria have been met by the borrower.

          We will evaluate each loan classified as held for investment for impairment on a periodic basis. Impairment occurs when it is deemed probable that we will not be able to collect all amounts due according to the contractual terms of the loan. If a loan is considered to be impaired, we will record an allowance to reduce the carrying value of the loan to the present value of expected future cash flows discounted at the loan's contractual effective rate or the fair value of the collateral, if repayment is expected solely from the collateral. Our loans are collateralized by real estate. As a result, we will regularly evaluate the extent and impact of any credit deterioration associated with the performance and/or value of the underlying collateral property as well as the financial and operating capability of the borrower. Specifically, a property's operating results and any cash reserves will be analyzed and used to assess (i) whether cash from operations is sufficient to cover the debt service requirements currently and into the future, (ii) the ability of the borrower to refinance the loan, and/or (iii) the property's liquidation value. We will also evaluate the financial wherewithal of any loan guarantors as well as the borrower's competency in managing and operating the properties. In addition, we will consider the overall economic environment, real estate sector, and geographic sub-market in which the borrower operates. Such impairment analyses will be completed and reviewed by asset management and finance personnel who utilize various data sources, including (i) periodic financial data such as property occupancy, tenant profile, rental rates, operating expenses, and the borrower's exit plan.

          Significant judgment will be required in determining impairment, including making assumptions regarding the value of a loan or loan pool, the value of the underlying collateral and other provisions such as guarantees.

          We will evaluate any investment classified as available-for-sale to determine whether there is an other-than-temporary impairment in the value of such investment. Unrealized losses on investments

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considered to be other-than-temporary will be recognized in earnings. The determination of whether an investment is other-than-temporarily impaired will involve judgments and assumptions based on subjective and objective factors. Consideration will be given to (i) the length of time and the extent to which the fair value has been less than cost, (ii) the financial condition and near-term prospects of recovery in fair value of the investment, and (iii) our intent to retain our investment in the loan, or whether it is more likely than not we will be required to sell the loan before its anticipated recovery in fair value. Investments with unrealized losses will not be considered other-than-temporarily impaired if we have the ability and intent to hold the investments for a period of time, to maturity if necessary, sufficient for a forecasted market price recovery up to or beyond the cost of the investments.

          When we deem a security to be other-than-temporarily impaired, we will write it down to its estimated fair value (with the reduction in fair value recorded as a charge to earnings) and will establish a new reference amount for the investment. If there are no adverse changes to our assumptions and the change in value is solely due to changes in interest rates, we will not recognize an other-than-temporary impairment. Estimating cash flows and determining whether there is other-than-temporary impairment requires management to exercise judgment and make significant assumptions, including, but not limited to, assumptions regarding estimated prepayments, loss assumptions and assumptions regarding changes in interest rates. As a result, actual impairment losses, and the timing of income recognized on such investments, could differ from reported amounts.

Underwriting Commissions and Offering Costs

          Underwriting commissions and offering costs to be incurred in connection with our common stock offerings will be reflected as a reduction of additional paid-in capital. Costs incurred that are not directly associated with the completion of a common stock offering will be expensed as incurred.

Deferred Financing Costs

          Deferred financing costs are capitalized and amortized over the terms of the respective credit facilities.

Valuation of Financial Instruments

          GAAP establishes a hierarchy of valuation techniques based on the level of observation of the inputs utilized in measuring financial instruments at fair values. The three levels of inputs that may be used to measure fair value are as follows:

          Level I — Quoted prices in active markets for identical assets or liabilities.

          Level II — Prices are determined using other significant observable inputs. Observable inputs are inputs that other market participants would use in pricing a security. These may include quoted prices for similar securities, interest rates, prepayment speeds, credit risk and others.

          Level III — Prices are determined using significant unobservable inputs. In situations where quoted prices or observable inputs are unavailable (for example, when there is little or no market activity for an investment at the end of the period), unobservable inputs may be used.

          Unobservable inputs reflect our own assumptions about the factors that market participants would use in pricing an asset or liability, and would be based on the best information available. We anticipate that a significant portion of our assets will fall in Level III in the valuation hierarchy.

          Currently, the only financial instruments that we record at fair value on a recurring basis are cash equivalents and derivative instruments. We estimate the fair value of financial instruments carried at historical cost on a quarterly basis. These instruments are recorded at fair value only if they are impaired.

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          Any changes to the valuation methodology will be reviewed by management to ensure the changes are appropriate. As markets and products develop and the pricing for certain products becomes more transparent, we will continue to refine our valuation methodologies. The methods used by us may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while we anticipate that our valuation methods will be appropriate and consistent with other market participants, the use of different methodologies, or assumptions, to determine the fair value of certain financial instruments could result in a different estimate of fair value at the reporting date. We will use inputs that are current as of the measurement date, which may include periods of market dislocation, during which price transparency may be reduced.

Securitizations

          We may enter into transactions in which we sell investments, such as senior commercial mortgage loans, subordinated loans and other securities. Upon a transfer of investments, we will sometimes retain or acquire senior or subordinated interests in the related investments. Gains and losses on such transactions will be recognized based on a financial components approach that focuses on control. Under this approach, after a transfer of investments that meets the criteria for treatment as a sale — legal isolation, ability of transferee to pledge or exchange the transferred assets without constraint and transferred control — an entity recognizes the financial and servicing assets it acquired or retained and the liabilities it has incurred, derecognizes investments it has sold, and derecognizes liabilities when extinguished. We will determine the gain or loss on sale of mortgage loans by allocating the carrying value of the underlying mortgage between securities or loans sold and the interests retained based on their fair values. The gain or loss on sale is the difference between the cash proceeds from the sale and the amount allocated to the securities or loans sold. From time to time, we may securitize mortgage loans we hold if such financing is available. These transactions will be accounted for as either a "sale" and the loans will be removed from our balance sheet or as a "financing" and will be classified as "securitized loans" on our balance sheet, depending upon the structure of the securitization transaction. This may require us to exercise significant judgment in determining whether a transaction should be recorded as a "sale" or a "financing."

Investment Consolidation

          For each investment we make, we will evaluate the underlying entity that issued the securities we acquired or to which we made a loan to determine the appropriate accounting. A similar analysis will be performed for each entity with which we enter into an agreement for management, servicing or related services. GAAP addresses the application of consolidation principles to certain entities in which voting rights are not effective in identifying an investor with a controlling financial interest. A variable interest entity, or VIE, is subject to consolidation if the investors either do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support, are unable to direct the entity's activities or are not exposed to the entity's losses or entitled to its residual returns. Generally, a VIE is an entity with one or more of the following characteristics: (i) the total equity investment at risk is not sufficient to permit the entity to finance its activities without additional subordinated financial support; (ii) as a group, the holders of the equity investment at risk lack (a) the power, through voting rights or similar rights, to direct the activities of the entity that most significantly impact its financial performance, (b) the obligation to absorb the expected losses of the entity, or (c) the right to receive the expected residual returns of the entity; or (iii) the equity investors have voting rights that are not proportional to their economic interests and substantially all of the entity's activities either involve, or are conducted on behalf of, an investor (including its related parties) that has disproportionately few voting rights.

          The primary beneficiary generally is the entity that has both the following characteristics: (i) the power to direct the activities of the VIE that most significantly impact its economic performance; and (ii) the obligation to absorb expected losses of, or the right to receive benefits from, the VIE that could

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potentially be significant to the VIE. VIEs are required to be consolidated by their primary beneficiary. This determination often involves complex and subjective analyses.

Hedging Instruments and Hedging Activities

          GAAP requires an entity to recognize all derivatives as either assets or liabilities in the balance sheets and to measure those instruments at fair value. Additionally, the fair value adjustments will affect either other comprehensive income in stockholders' equity until the hedged item is recognized in earnings or net income depending on whether the derivative instrument qualifies as a hedge for accounting purposes and, if so, the nature of the hedging activity.

          In the normal course of business, we may use a variety of derivative financial instruments to manage, or hedge, interest rate risk. These derivative financial instruments must be effective in reducing our interest rate risk exposure in order to qualify for hedge accounting. When the terms of an underlying transaction are modified, or when the underlying hedged item ceases to exist, all changes in the fair value of the instrument are marked-to-market with changes in value included in net income for each period until the derivative instrument matures or is settled. Any derivative instrument used for risk management that does not meet the hedging criteria is marked-to-market with the changes in value included in net income.

          Derivatives will be used for hedging purposes rather than speculation. We will determine their fair value and we will obtain quotations from a third party to facilitate the process in determining these fair values. If our hedging activities do not achieve our desired results, our reported earnings may be adversely affected.

Income Taxes

          Our financial results are generally not expected to reflect provisions for current or deferred income taxes. We believe that we will operate in a manner that will allow us to qualify for taxation as a REIT. As a result of our expected REIT qualification, we do not generally expect to pay U.S. federal corporate level taxes. Many of the REIT requirements, however, are highly technical and complex. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement to distribute annually at least 90% of our taxable income to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to U.S. federal and state income taxes at regular corporate rates (including any applicable alternative minimum tax) and may not be able to qualify as a REIT for four subsequent taxable years. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state, local and foreign taxes on our income and property and to U.S. federal income and excise taxes on our undistributed REIT taxable income.

Recent Accounting Pronouncements

          In April 2011, the FASB issued new guidance for evaluating whether a restructuring of a receivable by a creditor constitutes a troubled debt restructuring. Under this guidance, in making such an evaluation, the creditor must separately conclude that (1) the restructuring constitutes a concession and (2) the debtor is experiencing financial difficulties and it clarifies the guidance on reaching such conclusions. It also clarifies that a creditor is precluded from using the effective interest rate test in the debtor's guidance on restructuring of payables when evaluating whether a restructuring constitutes a troubled debt restructuring. This guidance is effective for the first interim period beginning on or after June 15, 2011, with retrospective application to the beginning of the year. The adoption of this new guidance did not have a material impact on our consolidated financial position, results of operations or cash flows.

          In April 2011, the FASB issued new guidance that revises the criteria for assessing effective control for repurchase agreements and other agreements that both entitle and obligate a transferor to repurchase or redeem financial assets before their maturity. The update will be effective for the

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Company on January 1, 2012, early adoption is prohibited, and the amendments will be applied prospectively to transactions or modifications of existing transactions that occur on or after the effective date. We will adopt this new guidance beginning with our first quarter 2012 interim financial statements and do not expect the adoption of this standard will have a material impact on our consolidated financial position, results of operations or cash flows.

          In May 2011, the FASB issued new guidance to achieve common fair value and disclosure requirements under GAAP. The new guidance amends current fair value guidance to include increased transparency around valuation inputs and investment categorization. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. We will adopt this new guidance beginning with our first quarter 2012 interim financial statements and do not expect the adoption of this standard will have a material impact on our consolidated financial position, results of operations or cash flows.

          In June 2011, the FASB issued new guidance on the presentation of comprehensive income. Under the new guidance, an entity has the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The new guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The new guidance changes the presentation of comprehensive income, but not the components that are recognized in net income or other comprehensive income under current GAAP. This new guidance is effective for fiscal years and interim periods beginning after December 15, 2011. We will adopt this new guidance beginning with our first quarter 2012 interim financial statements and do not expect the adoption of this standard will have a material impact on our consolidated financial position, results of operations or cash flows.

Results of Operations

          We commenced operations on December 9, 2011. We are not aware of any material trends or uncertainties, other than national economic conditions affecting mortgage loans, mortgage-backed securities and real estate, generally, that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the origination or acquisition of CRE finance-related assets, other than those referred to in this prospectus.

Liquidity and Capital Resources

          Liquidity is a measure of our ability to meet potential cash requirements, including ongoing commitments to repay borrowings, fund and maintain our assets and operations, make distributions to our stockholders and other general business needs. We will use significant cash to purchase our target investments, repay principal and interest on our borrowings, make distributions to our stockholders and fund our operations. Our primary sources of cash will generally consist of unused borrowing capacity under our financing sources, the net proceeds of future offerings, payments of principal and interest we receive on our portfolio of assets and cash generated from our operating results. We expect that our primary sources of financing will be, to the extent available to us, through (a) credit facilities, (b) securitizations, (c) other sources of private financing, including warehouse and repurchase facilities, and (d) public offerings of our equity or debt securities. In the future, we may utilize other sources of financing to the extent available to us.

          The sources of financing for our target investments are described below.

Wells Fargo Facility

          On December 14, 2011, we entered into a $75 million secured revolving funding facility arranged by Wells Fargo Bank, National Association, or the "Wells Fargo Facility." The Wells Fargo Facility is being used for originating qualifying senior commercial mortgage loans and A-Notes. It is the intention of the

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parties to the Wells Fargo Facility to amend the agreements governing the Wells Fargo Facility to provide for an increase to the Wells Fargo Facility (the "Wells Upsize") from $75 million to the lesser of (a) $200 million if the gross proceeds of this offering are at least $170 million and (b) the sum of (i) the gross proceeds of this offering (including any gross proceeds from the sale of shares pursuant to the exercise of the underwriters' overallotment option) plus (ii) $30 million provided, in any event, that the aggregate gross proceeds of this offering are at least $125,000,000. There can be no assurance that the conditions necessary for an increase in the size of the Wells Fargo Facility will be satisfied. Advances under the Wells Fargo Facility accrue interest at a per annum pricing rate equal to the sum of (i) 30 day LIBOR plus (ii) a pricing margin range of 2.50% - 2.75%. Starting after May 14, 2012, the Company is charged a non-utilization fee of 25 basis points on the available balance of the Wells Fargo Facility. As of the date of this prospectus, the interest charged on this indebtedness is 2.85%. The initial maturity date of the Wells Fargo Facility is December 14, 2014, and provided that certain conditions are met and applicable extension fees are paid, is subject to two 12-month extension options. The Wells Fargo Facility imposes upon us negative covenants and other financial and operating covenants, including the following: (a) limitations on the incurrence of additional indebtedness or liens, (b) limitations on how borrowed funds may be used, (c) limitations on certain distributions and dividend payments, (d) maintenance of a minimum of $15 million in eligible assets assigned to us before a sale of the asset for proceeds can occur, (e) maintenance of adequate capital, (f) limitations on change of control, (g) our ratio of total debt to total assets cannot exceed 75%, (h) maintaining liquidity in an amount not less than $7,500,000 (or in the event of the Wells Upsize, in an amount not less than the greater of (1) 5% of our tangible net worth or (2) $20 million), (i) our fixed charge coverage (expressed as the ratio of EBITDA to fixed charges) cannot be less than 1.5:1, and (j) in the event of the Wells Upsize, our tangible net worth must be at least equal to the sum of $24 million, plus 80% of the net proceeds raised in this offering, plus 80% of the net proceeds raised in all future equity offerings. Until the Wells Upsize occurs, the Wells Fargo Facility also prohibits us from amending our management agreement in a material respect without the prior consent of the lender. As of March 31, 2012, approximately $43.8 million was outstanding under the Wells Fargo Facility.

Citibank Facility

          On December 8, 2011, we entered into a $50 million secured revolving funding facility arranged by Citibank, N.A., or the "Citibank Facility". The Citibank Facility is being used for originating qualifying senior commercial mortgage loans and A-Notes. It is the intention of the parties to the Citibank Facility to amend the agreements governing the Citibank Facility to provide for an increase to the Citibank Facility from $50 million to the lesser of (a) $100 million, if the sum of the gross proceeds of this offering plus the gross proceeds from Ares Investments' earlier purchases of our common stock is at least $200 million, and (b) an amount equal to 50% of the sum of (i) the gross proceeds of this offering (including any gross proceeds from the sale of shares pursuant to the exercise of the underwriters' overallotment option) plus (ii) the gross proceeds from Ares Investments' earlier purchases of our common stock, provided that such sum is at least $150 million. There can be no assurance that the conditions necessary for an increase in the size of the Citibank Facility will be satisfied. Advances under the Citibank Facility accrue interest at a per annum rate based on LIBOR. The margin can vary between 3.25% and 4.00% over the greater of LIBOR and 1.0%, based on the debt yield of the assets contributed by us. Upon the completion of this offering, the margin will be modified to a range of 2.50% - 3.50% over the greater of LIBOR and 0.5%. Starting after March 2, 2012, the Company is charged a non-utilization fee of 25 basis points on the average available balance of the Citibank Facility. As of the date of this prospectus, the interest charged on this indebtedness is 4.5%. The initial maturity date of the Citibank Facility is December 8, 2012. If the gross proceeds of this offering are at least $200 million, then upon the completion of this offering the maturity date will be automatically extended to December 8, 2013, and may be further extended on December 8, 2013 for an additional 12 months upon the payment of the applicable extension fee and provided that no event of default is then occurring. The Citibank Facility imposes upon us negative covenants and other financial and operating covenants, including the

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following: (a) our ratio of debt to equity cannot exceed 3:1, (b) we must maintain net worth of at least 80% of ACRC Holdings LLC's net worth immediately prior to this offering, plus 80% of all future equity issuances by us, (c) we must maintain liquidity in an amount not less than the greater of (i) 5% of our tangible net worth or (ii) $20 million, (d) our distributions are capped at the greater of 95% of our taxable net income or such amount as is necessary to maintain our status as a real estate investment trust, and (e) if our average debt yield across the portfolio of assets that are financed with the Citibank Facility falls below certain thresholds, we may be required to repay certain amounts under the Citibank Facility. The Citibank Facility also prohibits us from amending our management agreement in a material respect without the prior consent of the lender. As of March 31, 2012, approximately $3.5 million was outstanding under the Citibank Facility.

Capital One Facility

          We have entered into a non-binding commitment with Capital One, National Association, to establish a $50 million secured funding facility, or the "Capital One Facility." If entered into, the Capital One Facility will be used for originating qualifying senior commercial mortgage loans and A-Notes. Advances under the Capital One Facility are expected to accrue interest at a per annum rate based on LIBOR plus an applicable spread ranging between 2.50% and 4.00%. The initial maturity on the Capital One Facility is expected to be two years with rolling one-year extension options subject to the credit approval of the lender. Entry into the Capital One Facility is subject to various conditions, including the negotiation and execution of definitive documentation. No assurance can be given that Capital One, National Asociation, will provide this proposed facility or that the facility, if provided, will reflect the terms described herein.

Other Credit Facilities, Warehouse Facilities and Repurchase Agreements

          In the future, we may also use other sources of financing to fund the origination or acquisition of our target investments, including other credit facilities, warehouse facilities, repurchase facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized and may involve one or more lenders. We expect that these facilities will typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates.

Capital Markets

          We may seek to raise further equity capital and issue debt securities in order to fund our future investments. For example, we may seek to enhance the returns on our senior commercial mortgage loan investments, especially loan originations, through securitizations, if available. To the extent available, we intend to securitize the senior portion of our some of our loans, while retaining the subordinate securities in our investment portfolio. The securitization of this senior portion will be accounted for as either a "sale" and the loans will be removed from our balance sheet or as a "financing" and will be classified as "securitized loans" on our balance sheet, depending upon the structure of the securitization.

Leverage Policies

          We intend to use prudent amounts of leverage to increase potential returns to our stockholders. To that end, subject to maintaining our qualification as a REIT and our exemption from registration under the 1940 Act, we intend to use borrowings to fund the origination or acquisition of our target investments. Given current market conditions and our focus on first or senior mortgages, we currently expect that such leverage would not exceed, on a debt-to-equity basis, a 4-to-1 ratio. The amount of leverage we will deploy for particular investments in our target investments will depend upon our Manager's assessment of a variety of factors, which may include the anticipated liquidity and price volatility of the assets in our investment portfolio, the potential for losses and extension risk in our portfolio, the gap between the duration of our assets and liabilities, including hedges, the availability and cost of financing the assets, our opinion of the creditworthiness of our financing counterparties, the

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health of the U.S. economy and commercial mortgage markets, our outlook for the level and volatility of interest rates, the slope of the yield curve, 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

          As of December 31, 2011, we had an outstanding commitment to fund $11 million for a transitional first mortgage loan; as of such date and as of March 31, 2012, advances of $5.3 million had been made under this commitment. For a description of the contractual obligations and commitments that we assumed after December 31, 2011, see "Management's Discussion and Analysis of Financial Conditions and Results of Operations — Recent Developments."

          Prior to the completion of this offering, we will enter into a management agreement with our Manager. Our Manager will be entitled to receive a base management fee, an incentive fee and the reimbursement of certain expenses. See "Our Manager and the Management Agreement — Management Agreement — Management Fees, Incentive Fees and Expense Reimbursements."

          Our Manager will use the proceeds from its management fee in part to pay compensation to its officers and personnel who, notwithstanding that certain of them also are our officers, will receive no cash compensation directly from us.

          We expect to enter into certain contracts that may contain a variety of indemnification obligations, principally with brokers, underwriters and counterparties to repurchase agreements. The maximum potential future payment amount we could be required to pay under these indemnification obligations may be unlimited.

Off-Balance Sheet Arrangements

          We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured investment vehicles, special purpose entities or VIEs, established to facilitate off-balance sheet arrangements or other contractually narrow or limited purposes. Further, we have not guaranteed any obligations of unconsolidated entities or entered into any commitment or intent to provide additional funding to any such entities.

Dividends

          We intend to make regular quarterly distributions to holders of our common stock. U.S. federal income tax law generally requires that a REIT annually distribute at least 90% of its REIT taxable income, without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it annually distributes less than 100% of its net taxable income. We intend to pay regular quarterly dividends to our stockholders in an amount equal to our net taxable income, if and to the extent authorized by our board of directors. Before we pay any dividend, whether for U.S. federal income tax purposes or otherwise, we must first meet both our operating requirements and debt service on our secured funding facilities, other lending facilities, repurchase agreements and other debt payable. If our cash available for distribution is less than our net taxable income, we could be required to sell assets or borrow funds to make cash distributions or we may make a portion of the required distribution in the form of a taxable stock distribution or distribution of debt securities. In addition, prior to the time we have fully deployed the net proceeds of this offering to directly originate our target investments, we may fund our quarterly distributions out of such net proceeds.

Inflation

          Virtually all of our assets and liabilities will be interest rate sensitive in nature. As a result, interest rates and other factors influence our performance far more so than does inflation. Changes in interest

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rates do not necessarily correlate with inflation rates or changes in inflation rates. Our financial statements are prepared in accordance with GAAP and our distributions will be determined by our board of directors consistent with our obligation to distribute to our stockholders at least 90% of our REIT taxable income on an annual basis in order to maintain our REIT qualification; in each case, our activities and balance sheet are measured with reference to historical cost and/or fair market value without considering inflation.

Quantitative and Qualitative Disclosures About Market Risk

          We seek to manage our risks related to the credit quality of our assets, interest rates, liquidity, prepayment speeds and market value while, at the same time, seeking to provide an opportunity to stockholders to realize attractive risk-adjusted returns through ownership of our capital stock. While we do not seek to avoid risk completely, we believe the risk can be quantified from historical experience and seek to actively manage that risk, to earn sufficient compensation to justify taking those risks and to maintain capital levels consistent with the risks we undertake.

Credit Risk

          We expect to be subject to varying degrees of credit risk in connection with holding a portfolio of our target investments. We will have exposure to credit risk on our CRE loans and other target investments. Our Manager will seek to manage credit risk by performing deep credit fundamental analysis of potential assets. Credit risk will also be addressed through our Manager's on-going review, and investments will be monitored for variance from expected prepayments, defaults, severities, losses and cash flow on a monthly basis.

          Our investment guidelines do not limit the amount of our equity that may be invested in any type of our target investments. Our investment decisions will depend on prevailing market conditions and may change over time in response to opportunities available in different interest rate, economic and credit environments. As a result, we cannot predict the percentage of our equity that will be invested in any individual target investment at any given time.

Interest Rate Risk

          Interest rates are highly sensitive to many factors, including fiscal and monetary policies and domestic and international economic and political considerations, as well as other factors beyond our control. We will be subject to interest rate risk in connection with our assets and our related financing obligations. In general, we expect to finance the origination or acquisition of our target investments through financings in the form of borrowings under warehouse facilities, bank credit facilities (including term loans and revolving facilities), resecuritizations, securitizations and repurchase agreements. We may mitigate interest rate risk through utilization of hedging instruments, primarily interest rate swap agreements. Interest rate swap agreements are intended to serve as a hedge against future interest rate increases on our borrowings. For many of our investments, we may also seek to limit the exposure of our borrowers and sponsors to future fluctuations of interest rates through their use of interest-rate caps and other interest rate hedging instruments.

Interest Rate Effect on Net Interest Income

          Our operating results will depend in large part on differences between the income earned on our assets and our cost of borrowing and hedging activities. The cost of our borrowings generally will be based on prevailing market interest rates. During a period of rising interest rates, our borrowing costs generally will increase (a) while the yields earned on our leveraged fixed-rate mortgage assets will remain static, and (b) at a faster pace than the yields earned on our leveraged floating rate mortgage assets, which could result in a decline in our net interest spread and net interest margin. The severity of any such decline would depend on our asset/liability composition at the time as well as the magnitude

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and duration of the interest rate increase. Further, an increase in short-term interest rates could also have a negative impact on the market value of our target investments. If any of these events happen, we could experience a decrease in net income or incur a net loss during these periods, which could adversely affect our liquidity and results of operations.

          Hedging techniques are partly based on assumed levels of prepayments of our target investments. If prepayments are slower or faster than assumed, the life of the investment will be longer or shorter, which would reduce the effectiveness of any hedging strategies we may use and may cause losses on such transactions. Hedging strategies involving the use of derivative securities are highly complex and may produce volatile returns.

Interest Rate Cap Risk

          We may originate or acquire floating rate mortgage assets. These are assets in which the mortgages are typically subject to periodic and lifetime interest rate caps and floors, which limit the amount by which the asset's interest yield may change during any given period. However, our borrowing costs pursuant to our financing agreements will not be subject to similar restrictions. Therefore, in a period of increasing interest rates, interest rate costs on our borrowings could increase without limitation by caps, while the interest-rate yields on our floating rate mortgage assets would effectively be limited. In addition, floating rate mortgage assets may be subject to periodic payment caps that result in some portion of the interest being deferred and added to the principal outstanding. This could result in our receipt of less cash income on such assets than we would need to pay the interest cost on our related borrowings. These factors could lower our net interest income or cause a net loss during periods of rising interest rates, which would harm our financial condition, cash flows and results of operations.

Interest Rate Mismatch Risk

          We may fund a portion of our origination or acquisition of mortgage loans with borrowings that are based on LIBOR, while the interest rates on these assets may be indexed to LIBOR or another index rate, such as the one-year Constant Maturity Treasury, or CMT, index, the Monthly Treasury Average, or MTA, index or the 11th District Cost of Funds Index, or COFI. Accordingly, any increase in LIBOR relative to one-year CMT rates, MTA or COFI will generally result in an increase in our borrowing costs that may not be matched by a corresponding increase in the interest earnings on these assets. Any such interest rate index mismatch could adversely affect our profitability, which may negatively impact distributions to our stockholders. To mitigate interest rate mismatches, we may utilize the hedging strategies discussed above.

          Our analysis of risks is based on our Manager's experience, estimates, models and assumptions. These analyses rely on models which utilize estimates of fair value and interest rate sensitivity. Actual economic conditions or implementation of decisions by our management may produce results that differ significantly from the estimates and assumptions used in our models and the projected results shown in this prospectus.

Extension Risk

          Our Manager will compute the projected weighted-average life of our assets based on assumptions regarding the rate at which the borrowers will prepay the mortgages. If prepayment rates decrease in a rising interest rate environment, the life of the fixed-rate assets could extend beyond the term of the interest swap agreement or other hedging instrument. This could have a negative impact on our results from operations, as borrowing costs would no longer be fixed after the end of the hedging instrument while the income earned on the fixed-rate assets would remain fixed. In extreme situations, we may be forced to sell assets to maintain adequate liquidity, which could cause us to incur losses.

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Market Risk

          Available-for-sale investments will be reflected at their estimated fair value, with the difference between amortized cost and estimated fair value reflected in accumulated other comprehensive income. The estimated fair value of these investments fluctuates primarily due to changes in interest rates and other factors. Generally, in a rising interest rate environment, the estimated fair value of the fixed-rate securities would be expected to decrease; conversely, in a decreasing interest rate environment, the estimated fair value of the fixed-rate securities would be expected to increase. As market volatility increases or liquidity decreases, the fair value of our investments may be adversely impacted. If we are unable to readily obtain independent pricing to validate our estimated fair value of any available-for-sale investment in our portfolio, the fair value gains or losses recorded in other comprehensive income may be adversely affected.

Real Estate Risk

          Commercial mortgage assets are subject to volatility and may be affected adversely by a number of factors, including, but not limited to, national, regional and local economic conditions (which may be adversely affected by industry slowdowns and other factors); local real estate conditions; changes or continued weakness in specific industry segments; construction quality, age and design; demographic factors; and retroactive changes to building or similar codes. In addition, decreases in property values reduce the value of the collateral and the potential proceeds available to a borrower to repay the underlying loans or loans, as the case may be, which could also cause us to suffer losses.

Risk Management

          To the extent consistent with maintaining our REIT qualification, we will seek to manage risk exposure by closely monitoring our portfolio and actively managing the financing, interest rate, credit, prepayment and convexity (a measure of the sensitivity of the duration of a debt investment to changes in interest rates) risks associated with holding a portfolio of our target investments. Generally, with the guidance and experience of our Manager:

    we will manage our portfolio through an interactive process with Ares Management and service our self-originated investments through our Manager's servicer, which is a Standard & Poor's-ranked commercial primary servicer and commercial special servicer that is included on S&P's Select Servicer List;

    we intend to engage in a variety of interest rate management techniques that seek, on the one hand to mitigate the economic effect of interest rate changes on the values of, and returns on, some of our assets, and on the other hand help us achieve our risk management objectives, including utilizing derivative financial instruments, such as puts and calls on securities or indices of securities, interest rate swaps, interest rate caps, exchange-traded derivatives, U.S. Treasury securities, options on U.S. Treasury securities and interest rate floors to hedge all or a portion of the interest rate risk associated with the financing of our portfolio;

    we intend to actively employ portfolio-wide and asset-specific risk measurement and management processes in our daily operations, including utilizing our Manager's risk management tools such as software and services licensed or purchased from third parties and proprietary analytical methods developed by Ares Management; and

    we will seek to manage credit risk through our due diligence process prior to origination or acquisition and through the use of non-recourse financing, when and where available and appropriate. In addition, with respect to any particular target investment, our Manager's investment team evaluates, among other things, relative valuation, comparable analysis, supply and demand trends, shape of yield curves, delinquency and default rates, recovery of various sectors and vintage of collateral.

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BUSINESS

Our Company

          Ares Commercial Real Estate Corporation is a recently organized specialty finance company focused on originating, investing in and managing middle-market CRE loans and other CRE-related investments. We target borrowers whose capital needs are not being met in the market by offering customized financing solutions. We implement a strategy focused on direct origination combined with experienced portfolio management through our Manager's servicer, which is a Standard & Poor's-ranked commercial primary servicer and commercial special servicer that is included on S&P's Select Servicer List, to meet our borrowers' and sponsors' needs.

          We rely on our Manager to provide us with investment advisory services pursuant to the terms of a management agreement. Our Manager, a SEC registered investment adviser, was formed in 2011 as an affiliate of Ares Management, a global alternative asset manager and SEC registered investment adviser with approximately $46 billion of total committed capital under management as of December 31, 2011.

Our Manager and Ares Management

          We are externally managed and advised by our Manager pursuant to the terms of a management agreement. Our Manager is responsible for administering our business activities and day-to-day operations and providing us our executive management team, investment team and appropriate support personnel.

          Our Manager is an affiliate of Ares Management, a global alternative asset manager and SEC registered investment adviser founded in 1997. As of December 31, 2011, Ares Management had approximately 470 employees in over a dozen offices worldwide, including over 200 investment professionals with significant experience in CRE, private debt, capital markets, private equity, trading and research. We believe that the significant experience of our Manager and Ares Management's investment professionals, our Manager's background in developing customized financing solutions for CRE middle-market borrowers and our Manager's efficient and comprehensive credit underwriting process position us to be a preferred lender for borrowers seeking flexible CRE middle-market financing. As of December 31, 2011, Ares Management managed approximately $46 billion of committed capital on behalf of large pension funds, banks, insurance companies, endowments, public institutional and retail investors and certain high net worth individuals.

          The following chart shows the structure and the various investment strategies of Ares Management.

GRAPHIC

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          Ares Management is organized around three primary investment strategies: Private Debt, Capital Markets and Private Equity. Ares Management's senior principals possess an average of approximately 20 years of experience in CRE, leveraged finance, private equity, distressed debt, investment banking and capital markets and are backed by a large team of highly disciplined professionals. We believe that our Manager's access to the insights of Ares Management's investment professionals in the Private Debt, Capital Markets and Private Equity Groups provides us with a breadth of market knowledge that differentiates us from many of our competitors. Our Manager has adopted Ares Management's rigorous investment process that is based upon an intensive, independent financial analysis, with a focus on preservation of capital, diversification and active portfolio management.

          Our Manager works closely with other investment professionals in the Ares Private Debt Group, which as of December 31, 2011, had approximately $18.5 billion of total committed capital under management. The Ares Private Debt Group includes an origination, investment and portfolio management team of approximately 70 U.S.-based investment professionals focused on investments in the "corporate middle-market," which the Ares Private Debt Group defines as companies with annual EBITDA, between $10 million and $250 million. The Ares Private Debt Group primarily focuses on the direct origination of non-syndicated first and second lien senior loans and mezzanine debt in the corporate middle-market. The Ares Private Debt Group also manages Ares Capital Corporation, or Ares Capital, a publicly traded specialty finance company with approximately $15 billion in total committed capital under management as of December 31, 2011. We expect to leverage the Ares Private Debt Group's skill and experience managing a public company and Ares Management's investor and lender relationships as we operate the Company and increase scale.

          As of December 31, 2011, our Manager had approximately $1.7 billion of total committed capital under management in CRE-related investments and an origination, investment and portfolio management team consisting of approximately 35 experienced investment professionals and approximately 10 administrative officials, including legal and finance professionals. This team is led by the senior investment professionals of the Ares Commercial Real Estate Group, a subgroup of the Ares Private Debt Group, and has significant experience directly originating, underwriting, financing, and managing CRE middle-market loans and other CRE-related assets throughout various market cycles.

Market Opportunity

          We believe that the U.S. CRE markets are currently in the initial stages of a recovery from the severe economic downturn that began in 2007. Following a dramatic decline in CRE lending in 2008 and 2009, debt capital has become more readily available for select stabilized, high quality assets in certain locations such as gateway cities, but remains limited for many other types of properties and locations. For example, we currently anticipate a high demand for customized debt financing from borrowers or sponsors who are looking to refinance indebtedness that is maturing in the next two to five years or are seeking shorter-term debt solutions as they reposition their properties. In addition, we believe the uncertainty surrounding multifamily mortgage finance may provide us incremental lending opportunities in the future as Congress considers restructuring Fannie Mae and Freddie Mac, who have been the most significant sources of multifamily debt capital in recent years.

          We believe that as a result of the aforementioned economic downturn and the subsequent banking regulatory reform, a number of lenders and finance companies who traditionally served the CRE middle-market, are burdened with legacy portfolio issues, balance sheet constraints or have otherwise exited the market. In particular, smaller and regional banks who represented a large portion of the CRE market prior to the downturn, have sharply curtailed their CRE lending activities. We believe that this decreased competition will create a favorable investment environment for the foreseeable future. We also believe that we are well positioned to capitalize on the expected demand generated by the estimated $1.8 trillion of CRE debt maturing between 2012 and 2016 (as reported in Commercial Real Estate Outlook: Top Ten Issues in 2012 published by Deloitte & Touche LLP).

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Competitive Advantages

          We believe that we have the following competitive advantages in originating and acquiring assets for our investment portfolio:

The Ares Management Platform

          We benefit from Ares Management's extensive credit-focused culture and investment platform, which have contributed to its reputation as a leading corporate credit manager. We believe Ares Management's existing investment platform provides us with extensive access to capital markets relationships, deal flow and an established investment evaluation process, as well as in-depth market information, company knowledge and industry insight that benefits our investment and due diligence process. Furthermore, in sourcing and analyzing our investments, we benefit from access to Ares Management's substantial portfolio of investments in over 1,100 companies across over 30 industries and its extensive network of relationships focused on middle-market companies, including management teams, members of the investment banking community, private equity groups and other investment firms with whom Ares Management has long-term relationships. We also benefit from Ares Management's experience managing a public company and its well-developed infrastructure as we operate the Company and increase scale.

Seasoned Management Team with Significant Real Estate Experience

          Our Manager's senior investment professionals have extensive experience investing in and financing CRE across market cycles over the last two decades. In particular, our senior investment professionals have substantial experience in the direct origination, structuring and ownership of investments to provide attractive returns without exposing investors to an inappropriate level of risk. Over the course of their careers such individuals have been part of teams that have invested, owned or managed over $10 billion of CRE investments. Our senior management team also has significant experience operating and building public and private companies, including real estate and specialty finance companies, and has demonstrated its ability to obtain access to public and private credit and equity capital throughout various market cycles.

National Direct Origination Platform

          Our Manager employs a nationwide team of senior investment professionals who have an average of approximately 20 years in the origination and credit underwriting of CRE loans. We believe having a network of experienced loan originators in key local markets such as Dallas, Chicago, New York, Orange County, Washington D.C. and Los Angeles enhances our focus on fundamental market and credit analyses that emphasize current and sustainable cash flows. We believe this insight, together with the deal flow to be provided by such originators, enables us to originate loans with proper risk-adjusted return profiles. We also believe our national platform of originators helps us maintain relationships with our borrowers and their sponsors, which can lead to future or repeat business.

Established Portfolio Management Functions

          Our Manager currently acts as portfolio manager for a portfolio of CRE-related investments, including senior and subordinated loans, and had approximately $1.7 billion of total committed capital under management as of December 31, 2011. These portfolio management activities include primary and special servicing functions performed by a team of experienced professionals through our Manager's servicer, a Standard & Poor's-ranked commercial primary servicer and commercial special servicer that is included on S&P's Select Servicer List. We actively monitor and manage our investments from origination to payment or maturity. Our active portfolio management, which includes the use of our special servicing subsidiary, allows us to assess and manage the risk in our portfolio more accurately,

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build and maintain strong relationships with borrowers and their sponsors, control costs and ensure operational control over our investments.

Flexible "One Stop" Transaction Structuring

          While maintaining our focus on credit and risk assessment, we are flexible in structuring investments, including the types of assets that we originate or invest in, and the terms associated with such investments. We leverage Ares Management's experience investing across a capital structure and its "buy and hold" philosophy, which enhances our ability to provide "one stop" financing and to tailor an investment to meet the specific needs of a borrower. We believe that having flexibility with our transaction structuring, while maintaining our underwriting standards, rigorous investment approach and target investment and market focus, enhances our competitive position in the CRE middle-market by providing a strong value proposition to borrowers seeking financial solutions that cannot typically be provided by traditional "senior only" or "mezzanine only" lenders or those lenders intending to securitize the underlying investment. Our ability to tailor investments in turn allows us to drive increased earnings through premium pricing on a risk-adjusted basis. Furthermore, we believe that this flexible approach, coupled with Ares Management's market visibility and sourcing capabilities, enables our Manager to identify attractive investment opportunities throughout economic cycles and across a borrower's capital structure, and allows us to make investments consistent with our stated investment objective.

Middle-Market Focus

          We believe that we are one of the few active capital providers operating nationally that focuses on the CRE middle-market and has the benefit of a quality asset manager such as Ares Management and its affiliates. As noted above, we believe the availability of capital in the CRE middle-market is limited and borrowers and sponsors have the greatest need for customized solutions in this segment of the market. Our access to a permanent capital base will assist us in growing our business and allow us to maintain a consistent presence in the market across economic cycles, which provides us with a competitive advantage over fund managers or other finite life investment vehicles pursuing investment opportunities in the CRE middle-market. We also believe the expected pace of CRE debt maturities creates a strong driver of demand for CRE middle-market loans in the short to medium term. Based on our Manager's experience, we believe that we are well positioned to take advantage of this market opportunity.

Our Investment Strategy

          Our investment objective is to generate attractive risk-adjusted returns for our stockholders, primarily through dividends and distributions and secondarily through capital appreciation. We are focused on originating, investing in and managing customized CRE loans and other CRE-related investments ranging in size from $15 million to $100 million, which we refer to as "CRE middle market" financings. We believe the availability of capital in the CRE middle market is limited and that borrowers and sponsors have the greatest need for customized solutions in this segment of the market. We act as a single "one stop" financing source by providing our customers with one or more of our customized financing solutions. Our customized financing solutions are comprised of our "target investments;" which include the following:

    "Transitional senior" mortgage loans that provide strategic, flexible, short-term financing solutions on transitional CRE middle market assets. These assets are typically properties that are the subject of a business plan that is expected to enhance the value of the property. The mortgage loans are usually funded over time as the borrower's business plan for the property is executed. They also typically have a lower initial loan-to-value ratios as compared to "stretch senior" mortgage loans, with the loan-to-value ratios increasing as the loan is further funded over time;

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    "Stretch senior" mortgage loans that provide flexible "one stop" financing on quality CRE middle market assets. These assets are typically stabilized or near-stabilized properties with healthy balance sheets and steady cash flows, with the mortgage loans having higher leverage (and thus higher loan-to-value ratios) than conventional mortgage loans and are typically fully funded at closing and non-recourse to the borrower (as compared to conventional mortgage loans, which are usually fully recourse to the borrower);

    "Subordinate debt" mortgage loans (including subordinate tranches of first lien mortgages, or B-Notes) and mezzanine loans, both of which provide subordinate financing on quality CRE middle market assets; and

    "Other CRE debt and preferred equity investments," together with selected other income-producing equity investments.

Commercial Real Estate Mortgage Loans

    Commercial Mortgage Loans and A-Notes:  These mortgage loans are typically secured by first or second liens on commercial properties, including the following property types: office, retail, multifamily/manufactured housing, industrial/warehouse and hospitality. In some cases, first lien mortgages may be divided into an A-Note and a B-Note. The A-Note is typically a privately negotiated loan that is secured by a first mortgage on a commercial property or group of related properties that is senior to a B-Note secured by the same first mortgage property or group.

    Subordinated Mortgage Loans and B-Notes:  These loans may include structurally subordinated first mortgage loans and junior participations in first mortgage loans or participations in these types of assets. As noted above, a B-Note is typically a privately negotiated loan that is secured by a first mortgage on a commercial property or group of related properties and is subordinated to an A-Note secured by the same first mortgage property or group. The subordination of a B-Note typically is evidenced by participations or intercreditor agreements with other holders of interests in the note. B-Notes are subject to more credit risk with respect to the underlying mortgage collateral than the corresponding A-Note.

    Mezzanine Loans:  Like B-Notes, these loans are also subordinated CRE loans, but are usually secured by a pledge of the borrower's equity ownership in the entity that owns the property. In a liquidation, these loans are generally junior to any mortgage liens on the underlying property; but senior to any preferred equity or common equity interests in the entity that owns the property. Investor rights are usually governed by intercreditor agreements.

Other CRE Debt and Preferred Equity Investments

          To a lesser extent, we invest in other loans and securities, including but not limited to loans to real estate or hospitality companies, debtor-in-possession loans, preferred equity and selected other income-producing equity investments, such as triple net lease equity.

Direct Origination

          We focus primarily on directly originating our target investments, which allows us to:

    take a more active role in underwriting and structuring investments,

    have direct access to our customers' management teams and enhance our due diligence process,

    have meaningful input into our customers' pro forma capital structures,

    actively participate in negotiating transaction pricing and terms, and

    generate structuring and origination fees.

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          Our direct origination strategy gives us the flexibility to originate a broad and flexible product that meets the specific needs of our customers and drives portfolio composition in response to changing market conditions. Our Manager will opportunistically adjust our asset allocation, with the proportion and types of investments changing over time depending on our Manager's views on, among other things, the then existing economic and credit environment. Based on current market conditions, we expect that, like our Initial Portfolio, the majority of our investments will be senior mortgage loans secured by cash-flowing properties located in the United States and directly originated by us. These investments will typically pay interest at rates that are determined periodically on the basis of a floating base lending rate (primarily LIBOR plus a premium) and have a three-year term and an expected duration between two and four years.

Opportunistic Strategy

          In pursuing investment opportunities with attractive risk-reward profiles, our Manager incorporates its views of the current and future economic environment, its outlook for real estate in general and particular asset classes and its assessment of the risk-reward profile derived from its underwriting. Our Manager's underwriting standards center on the creditworthiness of the borrower and the underlying sponsor of a given asset, with particular focus on an asset's business plan, competitive positioning within the market, existing capital structure, and potential exit opportunities. All investment decisions are made so that we maintain our qualification as a REIT and our exemption from registration under the 1940 Act.

          Our investment strategy may be amended from time to time without the approval of our stockholders, if recommended by our Manager and approved by our board of directors. We expect to disclose any material changes to our investment strategy in the periodic quarterly and annual reports that we will file with the SEC.

Our Initial Portfolio

          From when we commenced operations in December 2011 through March 31, 2012, we have originated or co-originated four loans secured by CRE middle market properties. The aggregate originated commitment under these loans was approximately $121.0 million, approximately $98.9 million of which we have funded or expect to fund and $22.0 million of which was fully funded by Citibank, N.A., an affiliate of Citigroup Global Markets Inc. (one of the underwriters of this offering). As of March 31, 2012, we had funded approximately $78.2 million of our $98.9 million of commitments as described in more detail below. Such investments are referred to herein as our Initial Portfolio. The following table presents an overview of the Initial Portfolio, based on information available as of March 31, 2012. References to LIBOR are to 30-day LIBOR (unless otherwise specifically stated).

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Initial Portfolio
as of March 31, 2012
($ in thousands)

 
   
  Investment Information    
   
 
Property Type
  Location   Our Total
Commitment
  Funded
Amount
  Origination
Date
  Maturity
Date(1)
  Interest
Rate
  Debt Service
Coverage Ratio(2)
at Loan Closing
  Loan to
Value At
Origination(3)
 

Stretch Senior Mortgage Loans

                                             

Boston CBD* Office Building: 12-story office building (approximately 152,000 sq. ft.)

  Boston MA   $ 34,982(4)   $ 34,982 (4)   2/8/2012     3/1/2015   L+5.65%(5)     >1.2     87.5 %

Transitional Senior Mortgage Loans

                                             

Austin Office Building: Two properties consisting of four low-rise office buildings (aggregate of approximately 270,000 sq. ft.)

  Austin TX     37,950     29,944     2/13/2012     3/1/2015   L+5.75% -
L+5.25%(6)
    >1.4     69.5 %

Denver Tech Center Office Building: Low-rise office building (approximately 173,000 sq. ft.)

 

Denver CO

   
11,000
   
5,257
   
12/29/2011
   
1/1/2015
 

L+5.50%(7)

   
>1.4
   
39.8

%

Subordinated Debt Investments

                                             

Fort Lauderdale CBD* Office Building: 28-story office building (approximately 257,000 sq. ft.)

  Ft. Lauderdale FL     15,000 (8)   8,000     1/27/2012     2/1/2015   L+10.75% -
L+8.18%(9)
    >1.6 (10)   51.4 %(11)
                                           
   

Total

      $ 98,932   $ 78,183                              
                                           

(1)
The Boston loan is subject to one 12-month extension option. The Austin and Fort Lauderdale loans are subject to two 12-month extension options.

(2)
Debt Service Coverage Ratio at Loan Closing (the "DSCR") is calculated by dividing the applicable property's net operating income by the sum of the principal and interest payments for the property's first year of the loan (calculated using the outstanding principal amount and applicable interest rate as of March 31, 2012). These amounts are estimates based on each property's annualized net operating income determined by financial analyses conducted in the fourth quarter of 2011. These amounts may change over time and may currently be different than the amounts shown. Past performance is no guarantee of future results.

(3)
Loan to Value At Origination (the "LTV") is calculated as the Funded Amount divided by the valuation of the property underlying the loan based on an appraisal of the property based on current market conditions.

(4)
This $35,000 loan was fully funded at origination. On March 6, 2012, we received an amortization payment on principal of $18, which reduced our total commitment and the funded amount accordingly.

(5)
This loan was originated with a 1.0% origination fee, paid to us, and a 0.5% exit fee payable to us upon the earlier of repayment or the loan's maturity. The interest rate for this loan is L+5.65% with the LIBOR component subject to a minimum rate of 0.65%.

(6)
This loan was originated with a 1.0% origination fee, paid to us, and a 1.0% exit fee payable to us upon the earlier of repayment or the loan's maturity. The initial interest rate for this loan of L+5.75% steps down based on performance hurdles to L+5.25%. The LIBOR component of the rate on this loan is subject to a minimum rate of 1.0%.

(7)
This loan was originated with a 1.0% origination fee, paid to us, and a 1.0% exit fee payable to us upon the earlier of repayment or the loan's maturity. The interest rate for this loan is L+5.50% with the LIBOR component subject to a minimum rate of 1.0%.

(8)
The total commitment we co-originated was a $37,000 first mortgage, of which a $22,000 A-Note was fully funded by Citibank, N.A. We retained a $15,000 B-Note.

(9)
This loan was originated with a 1.0% origination fee, paid to us, and a 0.5% exit fee payable to us upon the earlier of repayment or the loan's maturity. The whole loan, consisting of the A-Note and our B-Note, was priced at L+5.25% on a cumulative basis with the LIBOR component subject to a minimum rate of 0.75%. The fully funded A-Note priced at L+3.25% (with the LIBOR component of the rate subject to a minimum rate of 0.75%) resulting in an interest rate on our B-Note at initial funding of $8,000 of L+10.75% (with the LIBOR component subject to a minimum rate of 0.75%). Upon the B-Note becoming fully funded at $15,000, its effective interest rate will decrease to L+8.18% (with the LIBOR component subject to a minimum rate of 0.75%).

(10)
The DSCR for this loan is calculated as the property net operating income divided by the sum of the principal and interest payments for the first year of the A-Note ($22,000) and B-Note ($8,000). See Notes (2), (8) and (9) above.

(11)
The LTV for this loan is calculated as the sum of Outstanding Balance for the A-Note ($22,000) and B-Note ($8,000) divided by the valuation reflected in the property appraisal. See Notes (3) and (8) above.

*
Central Business District

Description of Initial Portfolio

          A description of the terms and characteristics of each of the investments listed in the table above follows.

          Boston Central Business District ("CBD") Office Building.    We originated and funded a $35.0 million stretch first mortgage loan with respect to this property in February 2012. The borrower is an experienced, regional, office building fund manager and its financial partner. The loan is secured by a first mortgage on the land and 12-story, renovated office building containing approximately 152,000 net square feet. At closing, the building was 88% occupied with a diversified tenant base. The loan has a 36-month initial term and the borrower may qualify for one 12-month extension option. The proceeds of the loan were used to refinance an existing maturing loan.

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          Austin Office Building.    We originated a $38.0 million commitment for a transitional first mortgage loan with respect to this property. We funded $29.9 million of the total commitment in February 2012. The borrower is a national institutional real estate fund manager. The loan is secured by a first mortgage on the land, a two-story parking structure and four mid-rise suburban office buildings containing approximately 270,000 net square feet, which at closing were 81% leased. The loan has an initial 36-month term and the borrower may qualify for two additional 12-month extensions. The initial funding proceeds of $29.9 million were used to return a portion of the borrower's December 2011 all cash acquisition. Our future funding commitment of $8.1 million would be used to fund capital costs and leasing costs associated with the sponsor's business plan to lease the vacant space and address approaching lease maturities.

          Denver Tech Center Office Building.    We originated a $11.0 million commitment for a transitional first mortgage loan with respect to this property. We funded $5.1 million of the total commitment in December 2011 and $0.2 million in March 2012. The borrower is an experienced, regional, office building owner/operator. The loan is secured by a first mortgage on the land, an approximately 173,000 net square foot office building over a two-level parking structure. At origination, the asset was 58% occupied (78% leased after factoring in a recently executed lease). The loan has a 36-month term with no extension options. The initial funding proceeds of $5.1 million in conjunction with a $6.0 million mezzanine loan from an institutional asset manager, and $1.1 million funded by the sponsor at closing, were used to refinance the discounted payoff of an existing matured loan and the buyout of the sponsor's former equity partner. A future funding commitment of $5.7 million would be used to fund capital costs and leasing costs associated with the sponsor's business plan.

          Fort Lauderdale CBD Office Building.    We co-originated a $37.0 million commitment for a transitional first mortgage loan with respect to this property in January 2012. The borrower is an experienced, local, office fund manager and its financial partner. The loan was closed as a $15.0 million subordinated debt B-Note, which we retained, and a $22.0 million A-Note, which was fully funded by Citibank, N.A. The loan is secured by a first mortgage on the land, an approximately 257,000 net square foot office building containing 28 stories and a parking structure for 644 vehicles. Additionally, the loan is secured by excess collateral comprised of 1.82 acres containing approximately 19,371 net square feet in a single-story building; provided that the excess collateral may be released subject to certain criteria being met. The loan has an initial 36-month term and the borrower may qualify for two additional 12-month extensions. At origination, the asset was 74% leased to over 35 tenants. The initial funding proceeds of $30.0 million were used to return a portion of the borrower's July 2011 all cash acquisition of the property out of foreclosure with a future funding commitment of $7.0 million to be used to fund capital costs and leasing costs associated with the sponsor's business plan.

Our Financing Strategy

          Subject to maintaining our qualification as a REIT and our exemption from the 1940 Act, we initially expect to finance the origination or acquisition of our target investments, to the extent available to us, through the following methods:

    one or more senior secured funding facilities, including the Wells Fargo Facility and the Citibank Facility;

    other sources of private financing and any additional lending facilities; and

    capital markets offerings of equity or debt securities of us or of our controlled finance vehicles.

          In the future, we may utilize other sources of financing to the extent available to us.

Wells Fargo Facility

          On December 14, 2011, we entered into a $75 million secured revolving funding facility arranged by Wells Fargo Bank, National Association, or the "Wells Fargo Facility." The Wells Fargo Facility is being

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used for originating qualifying senior commercial mortgage loans and A-Notes. It is the intention of the parties to the Wells Fargo Facility to amend the agreements governing the Wells Fargo Facility to provide for an increase to the Wells Fargo Facility (the "Wells Upsize") from $75 million to the lesser of (a) $200 million if the gross proceeds of this offering are at least $170 million and (b) the sum of (i) the gross proceeds of this offering (including any gross proceeds from the sale of shares pursuant to the exercise of the underwriters' overallotment option) plus (ii) $30 million provided, in any event, that the aggregate gross proceeds of this offering are at least $125,000,000. There can be no assurance that the conditions necessary for an increase in the size of the Wells Fargo Facility will be satisfied. Advances under the Wells Fargo Facility accrue interest at a per annum pricing rate equal to the sum of (i) 30 day LIBOR plus (ii) a pricing margin range of 2.50% - 2.75%. Starting after May 14, 2012, the Company is charged a non-utilization fee of 25 basis points on the available balance of the Wells Fargo Facility. As of the date of this prospectus, the interest charged on this indebtedness is 2.85%. The initial maturity date of the Wells Fargo Facility is December 14, 2014 and, provided that certain conditions are met and applicable extension fees are paid, is subject to two 12-month extension options. The Wells Fargo Facility imposes upon us negative covenants and other financial and operating covenants, including the following: (a) limitations on the incurrence of additional indebtedness or liens, (b) limitations on how borrowed funds may be used, (c) limitations on certain distributions and dividend payments, (d) maintenance of a minimum of $15 million in eligible assets assigned to us before a sale of the asset for proceeds can occur, (e) maintenance of adequate capital, (f) limitations on change of control, (g) our ratio of total debt to total assets cannot exceed 75%, (h) maintaining liquidity in an amount not less than $7,500,000 (or in the event of the Wells Upsize, in an amount not less than the greater of (1) 5% of our tangible net worth or (2) $20 million), (i) our fixed charge coverage (expressed as the ratio of EBITDA to fixed charges) cannot be less than 1.5:1, and (j) in the event of the Wells Upsize, our tangible net worth must be at least equal to the sum of $24 million, plus 80% of the net proceeds raised in this offering, plus 80% of the net proceeds raised in all future equity offerings. Until the Wells Upsize occurs, the Wells Fargo Facility also prohibits us from amending our management agreement in a material respect without the prior consent of the lender. As of March 31, 2012, approximately $43.8 million was outstanding under the Wells Fargo Facility.

Citibank Facility

          On December 8, 2011, we entered into a $50 million secured revolving funding facility arranged by Citibank, N.A., or the "Citibank Facility." The Citibank Facility is being used for originating qualifying senior commercial mortgage loans and A-Notes. It is the intention of the parties to the Citibank Facility to amend the agreements governing the Citibank Facility to provide for an increase to the Citibank Facility from $50 million to the lesser of (a) $100 million, if the sum of the gross proceeds of this offering plus the gross proceeds from Ares Investments' earlier purchases of our common stock is at least $200 million, and (b) an amount equal to 50% of the sum of (i) the gross proceeds of this offering (including any gross proceeds from the sale of shares pursuant to the exercise of the underwriters' overallotment option) plus (ii) the gross proceeds from Ares Investments' earlier purchases of our common stock, provided that such sum is at least $150 million. There can be no assurance that the conditions necessary for an increase in the size of the Citibank Facility will be satisfied. Advances under the Citibank Facility accrue interest at a per annum rate based on LIBOR. The margin can vary between 3.25% and 4.00% over the greater of LIBOR and 1.0%, based on the debt yield of the assets contributed by us. Upon the completion of this offering, the margin will be modified to a range of 2.50% - 3.50% over the greater of LIBOR and 0.5%. Starting after March 2, 2012, the Company is charged a non-utilization fee of 25 basis points on the average available balance of the Citibank Facility. As of the date of this prospectus, the interest charged on this indebtedness is 4.5%. The initial maturity date of the Citibank Facility is December 8, 2012. If the gross proceeds of this offering are at least $200 million, then upon the completion of this offering the maturity date will be automatically extended to December 8, 2013, and may be further extended on December 8, 2013 for an additional 12 months upon the payment of the applicable extension fee and provided that no event of default is then occurring. The Citibank Facility

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imposes upon us negative covenants and other financial and operating covenants, including the following: (a) our ratio of debt to equity cannot exceed 3:1, (b) we must maintain net worth of at least 80% of ACRC Holdings LLC's net worth immediately prior to this offering, plus 80% of all future equity issuances by us, (c) we must maintain liquidity in an amount not less than the greater of (i) 5% of our tangible net worth or (ii) $20 million, (d) our distributions are capped at the greater of 95% of our taxable net income or such amount as is necessary to maintain our status as a real estate investment trust, and (e) if our average debt yield across the portfolio of assets that are financed with the Citibank Facility falls below certain thresholds, we may be required to repay certain amounts under the Citibank Facility. The Citibank Facility also prohibits us from amending our management agreement in a material respect without the prior consent of the lender. As of March 31, 2012, approximately $3.5 million was outstanding under the Citibank Facility.

Capital One Facility

          We have entered into a non-binding commitment with Capital One, National Association, to establish a $50 million secured funding facility, or the "Capital One Facility." If entered into, the Capital One Facility will be used for originating qualifying senior commercial mortgage loans and A-Notes. Advances under the Capital One Facility are expected to accrue interest at a per annum rate based on LIBOR plus an applicable spread ranging between 2.50% and 4.00%. The initial maturity on the Capital One Facility is expected to be two years with rolling one-year extension options subject to the credit approval of the lender. Entry into the Capital One Facility is subject to various conditions, including the negotiation and execution of definitive documentation. No assurance can be given that Capital One, National Association, will provide this proposed facility or that the facility, if provided, will reflect the terms described herein.

Other Credit Facilities, Warehouse Facilities and Repurchase Agreements

          In the future, we may also use other sources of financing to fund the origination or acquisition of our target investments, including other credit facilities, warehouse facilities, repurchase facilities and other secured and unsecured forms of borrowing. These financings may be collateralized or non-collateralized and may involve one or more lenders. We expect that these facilities will typically have maturities ranging from two to five years and may accrue interest at either fixed or floating rates.

Capital Markets

          We may seek to raise further equity capital and issue debt securities in order to fund our future investments. For example, we may seek to enhance the returns on our senior commercial mortgage loan investments, especially loan originations, through securitizations, if available. To the extent available, we intend to securitize the senior portion of our some of our loans, while retaining the subordinate securities in our investment portfolio. The securitization of this senior portion will be accounted for as either a "sale" and the loans will be removed from our balance sheet or as a "financing" and will be classified as "securitized loans" on our balance sheet, depending upon the structure of the securitization.

Leverage

          We intend to use prudent amounts of leverage to increase potential returns to our stockholders. To that end, subject to maintaining our qualification as a REIT and our exemption from registration under the 1940 Act, we intend to use borrowings to fund the origination or acquisition of our target investments. Given current market conditions and our focus on first or senior mortgages, we currently expect that such leverage would not exceed, on a debt-to-equity basis, a 4-to-1 ratio. Our charter and bylaws do not restrict the amount of leverage that we may use.

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Investment Process

          Our investment strategy is implemented through a highly disciplined underwriting, investment and portfolio management process.

GRAPHIC

Step 1: Origination

          Our Manager identifies investment opportunities through its extensive network of relationships within the real estate and finance industries. In addition, our Manager establishes strategic alliances with third parties in order to enhance our access to opportunities. The efforts and sourcing relationships of our Manager's dedicated team of real estate investment professionals are complemented by those across Ares Management's broader team of investment professionals. Given Ares Management's long-term experience in the finance and real estate sectors, strong relationships exist with public and private real estate owners, investors, developers and operators with expertise across all real estate asset classes, as well as key intermediaries such as mortgage brokerage firms, commercial banks, leading investment banks and servicers. We believe these relationships dramatically improve the scale and scope of our senior loan origination platform. Our Manager is focused on originating, evaluating, structuring, investing in and managing customized CRE loans and other CRE middle-market financings.

Step 2: Screening / Initial Analysis

          As soon as a potential investment opportunity arises, our Manager performs an initial credit analysis, including a quantitative and qualitative assessment of the investment, as well as research on the market and sponsor, to determine whether our Manager believes that it is beneficial to pursue the potential investment. The review is conducted by the investment team, which is comprised of the investment originator, a senior credit professional, an investment analyst, and other investment professionals. Our Manager evaluates each investment opportunity based on its experience and expected risk-adjusted return relative to other comparable investment opportunities available to us. Additionally, the investment is screened by our Manager to determine its impact on maintaining the Company's REIT qualification and the Company's exemption from registration under the 1940 Act. Prior to making an investment decision, our Manager determines whether an investment will cause the portfolio to be too heavily weighted to any specific borrower, asset class, or geographic location. As part of the risk management process, our Manager employs portfolio monitoring services, loan servicing operations and finance and accounting policies. If our Manager determines that the proposed investment meets the appropriate risk and return criteria, as well as appropriately complements our existing investment portfolio, the investment team completes a preliminary investment analysis to be presented for initial review by our Manager's Underwriting and Investment Committees. Our Manager maintains an ongoing pipeline of investment opportunities and the members of the Investment Committee are notified about the proposed investment opportunities on at least a weekly basis.

          In addition, as part of our initial consideration of each asset, we apply our proprietary loan pricing methodology, which incorporates inputs from different parts of the CRE lending market, including banks, CMBS, and our competitive landscape in both primary and secondary markets. The loan pricing methodology takes into account our dynamic cost of capital and is based on credit risk tiering as well as the leverage percentage for each individual loan within each property and product type.

Step 3: Preliminary Underwriting Approval

          Upon completion of a preliminary investment analysis by the investment team, our Manager's Underwriting Committee meets to review and discuss the investment to determine (i) whether it fits

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within the investment strategy, (ii) whether it exhibits the appropriate risk/reward characteristics, and (iii) whether to continue to pursue the investment or to pass on the investment.

Step 4: Initial Due Diligence / Underwriting

          Our Manager employs a value-driven approach to underwriting and due diligence, consistent with the historic experience of our Manager's real estate investment professionals and Ares Management's historical investment strategy. Our Manager employs a rigorous, credit-oriented evaluation towards determining the risk/return profile of the opportunity and the appropriate pricing and structure for the prospective investment, with specific reference to the strength of the transaction sponsor(s), the underlying real estate and the structure of the investment. Detailed financial modeling and analysis is used to assess the cash flow and debt service coverage characteristics of the properties as well as interest rate and prepayment analysis. Our focus is on current cash flows and potential risks to cash flow such as those associated with tenant credit quality, lease maturities, reversion to market level rental rates, vacancy and expenses. Cash flow analysis and market comparables are used to determine the current and projected stabilized value of the underlying collateral, assess the capacity to repay or refinance upon maturity, as well as understand sensitivities to various potential changes in asset performance, market fundamentals and real estate capital markets. Our Manager performs extensive property and market-level due diligence, including, where appropriate, a competitive analysis, tenant profile and credit reviews, market and industry research and due diligence on the borrower and its sponsor(s), including meeting with the borrower's and sponsor's respective management teams, checking management's backgrounds and references and analyzing the governance structure of the borrower. The market research incorporates analysis of demographics, key fundamentals such as employment growth and population growth, comparable transactions and the competitive landscape, as well as an investigation into any legal risks. Our Manager's underwriting focus is also on understanding the broader capital structure of the transaction and ensuring that the Company has the appropriate controls and rights within its prospective investment. Our Manager visits the property, tours the market in which the property is located, performs background verification on the prospective borrower and sponsor(s) and reviews their experience and capabilities in managing the collateral and executing the specific business plan. In the event that our Manager is considering the acquisition of CMBS, our Manager will undertake an extensive analysis of the underlying loans and careful review of the bond terms and conditions.

          Our Manager enhances its due diligence and underwriting efforts by accessing Ares Management's extensive knowledge base and industry contacts. Ares Management has a long history investing across a number of industries that support and connect with the real estate sector, such as retail, logistics, residential real estate brokerage and hospitality/leisure. Our access to Ares Management's deep industry knowledge and relationships add an extra dimension to our Manager's perspective when evaluating the fundamental drivers underlying the real estate. Ares Management is a broad participant in the capital markets through its capital markets businesses and strategies. As Ares Management develops its views of the real estate markets and macroeconomic conditions and determines investment strategy, our Manager will benefit from Ares Management's insights into the broader capital markets and investment themes across the economy.

          Once initial due diligence is complete and the investment team has negotiated a term sheet, a preliminary investment brief is presented to our Manager's Underwriting Committee. Our Manager's Underwriting Committee, which is initially comprised of Mr. Cohen, the Chairman of the committee, Messrs. Bartling, Bieber, Choulochas, Friedman, Jaekel and Smith, and Ms. Gu, review the investment opportunity, and refer those that it approves to the Investment Committee for further review.

Step 5: Final Committee Approvals

          Upon completion of due diligence and a decision by our Manager's Underwriting Committee to recommend further review of an investment, the investment team will formally present the investment

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opportunity to our Manager's Underwriting and Investment Committees. All investments made by the Company require approval by a majority of the members of our Manager's Underwriting Committee and a majority of the members of our Manager's Investment Committee, although unanimous consent is sought in each case. Our Manager's Investment Committee is comprised of senior professionals from Ares Management and executive officers of our Manager, including the following individuals: Mr. Bartling, the Chairman of the committee, and Messrs. Arougheti, Cohen, Davis, Jaekel, Sachs and Smith. Our Manager's Investment Committee meets regularly to evaluate potential investments and review our investment portfolio. Additionally, the members of our Manager's Investment Committee are available to guide our Manager's investment professionals throughout their evaluation, underwriting and structuring of prospective investments. Generally, the investment team is responsible for presenting to our Manager's Underwriting and Investment Committees a credit memorandum on the investment opportunity that provides an in-depth overview of the collateral, borrower, due diligence conducted, key financial metrics and analyses, as well as investment considerations and risk mitigants.

Step 6: Final Due Diligence / Closing

          After the investment is approved by our Manager's Underwriting and Investment Committees, an extensive legal due diligence process is employed in combination with our final credit review. As part of the closing process, our Manager deploys members of its closing team, along with outside legal counsel, to complete legal due diligence (including title and insurance review) and document each investment. Our Manager may, as appropriate, engage third party advisors and/or consultants to conduct an engineering and environmental review of the collateral and provide a Property Condition Report, Phase I Environmental Assessment and Appraisal. Once we have determined that a prospective investment is suitable, we work with the borrower and its sponsor(s) to close and fund the investment.

Step 7: Portfolio Management

          Upon closing an investment, our Manager immediately begins proactively managing the asset, including detailed compliance monitoring, regular communications with borrowers and sponsors and periodic property visits depending on the circumstance. Our Manager's portfolio management team has significant prior experience in all aspects of primary and special servicing of CRE investments, as evidenced by the ranking by Standard & Poor's of our Manager's servicing subsidiary as a commercial primary servicer and commercial special servicer that is included on S&P's Select Servicer List. We believe that having the primary and special servicing functions performed for us by our Manager enhances our portfolio performance by helping us control costs and ensure operational control over investments.

          Our investment process focuses on actively monitoring and managing an investment from origination to payment or maturity. Our proactive approach to portfolio management includes a risk rating system based on a uniform set of criteria, review of monthly property statements, active compliance monitoring, regular communications with borrowers and sponsors, monitoring the financial performance of the collateral, periodic property visits, monitoring cash management and reserve accounts and monthly joint meetings to review the performance of each investment. If securities are acquired, in the form of CMBS or corporate bank loans or bonds, our Manager is responsible for interacting with the servicer and/or trustee and reviewing in detail the monthly reports from the issuer. With respect to CMBS, if an investment underperforms the borrower's business plan, our Manager may access the loan servicer's portfolio management capabilities and will also be able to capitalize on Ares Management's experience in distressed credit and restructurings. Any material loan modification or amendment to a security requires the approval of our Manager's Underwriting and Investment Committees. We believe our proactive and regular portfolio management approach allows us to more accurately assess and manage the risk in our portfolio, and to build and maintain strong relationships with borrowers and their sponsors. We can provide no assurances that we will be successful in identifying or managing all of the risks associated with originating, acquiring, holding or disposing of a

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particular asset or that we will not realize losses on certain assets. See also "Investment Guidelines" below.

Investment Guidelines

          We currently adhere to the following investment guidelines:

    our investments will be in our target investments;

    no investment will be made that would cause us to fail to qualify as a REIT;

    no investment will be made that would cause us or any of our subsidiaries to be required to be registered as an investment company under the 1940 Act;

    pending indication of appropriate investments in our target investments, our Manager may invest our available cash in interest-bearing, short-term investments, including money market accounts or funds, CMBS or corporate bonds, that are consistent with our intention to qualify as a REIT; and

    all investments require the approval of our Manager's Underwriting and Investment Committees.

          These investment guidelines may be changed from time to time by our board of directors without our stockholders' consent, but we expect to disclose any material changes to our investment guidelines in the periodic quarterly and annual reports that we will file with the SEC. In addition, our Manager is not subject to any limits or proportions with respect to the mix of target investments that we originate or acquire other than as necessary to maintain our qualification as a REIT and our exemption from registration under the 1940 Act.

          We do not have a formal portfolio turnover policy, and currently do not intend to adopt one. Subject to maintaining our qualification as a REIT for U.S. federal income tax purposes and our exemption from registration under the 1940 Act, we currently expect that we will typically hold assets that we originate or acquire for between two and ten years. However, in order to maximize returns and manage portfolio risk while remaining opportunistic, we may dispose of an asset earlier than anticipated or hold an asset longer than anticipated if we determine it to be appropriate depending upon prevailing market conditions or factors regarding a particular asset.

Risk Management

          As part of our risk management strategy, our Manager closely monitors our portfolio and actively manages the financing, interest rate, credit, prepayment and convexity (a measure of the sensitivity of the duration of a debt investment to changes in interest rates) risks associated with holding a portfolio of our target investments.

Portfolio Management

          We recognize the importance of active portfolio management in successful investing. Our Manager's portfolio management activities provide not only investment oversight, but also critical input into the origination and acquisition process. Ares Management's portfolio management process creates value through careful investment-specific market review, enforcement of loan and security rights, and timely execution of disposition strategies. In addition, our Manager seeks to leverage Ares Management's research insights into macroeconomic leading indicators. This interactive process coordinates underwriting assumptions with direct knowledge of local market conditions and costs and revenue expectations. These critical assumptions then become the operational benchmarks by which the asset managers are guided and evaluated in their ongoing management responsibilities. For mortgage investments, annual budgets are reviewed and monitored quarterly for variance, and follow up and questions are directed by the asset manager back to the owner. For securities investments, monthly remittance reports are reviewed, and questions are prompted by the asset manager to the servicer and

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trustee to ensure strict adherence to the servicing standards set forth in the applicable pooling and servicing agreements. Our Manager services our self-originated investments through our Manager's servicer, a Standard & Poor's-ranked commercial primary servicer and commercial special servicer that is included on S&P's Select Servicer List, which allows us to assess the risk in our portfolio more accurately. All materials are submitted to our Chief Financial Officer for review on a quarterly basis. One of the key components in the underwriting process is the evaluation of potential exit strategies. Our Manager monitors each investment and reviews the disposition strategy on a regular basis in order to realize appreciated values and maximize returns.

Interest Rate Hedging

          Subject to maintaining our qualification as a REIT, we engage in a variety of interest rate management techniques that seek, on the one hand to mitigate the economic effect of interest rate changes on the values of, and returns on, some of our assets, and on the other hand help us achieve our risk management objectives. Under the U.S. federal income tax laws applicable to REITs, we generally are able to enter into certain transactions to hedge indebtedness that we may incur, or plan to incur, to originate, acquire or carry real estate assets, although our total gross income from interest rate hedges that do not meet this requirement and other non-qualifying income generally must not exceed 5% of our gross income.

          We utilize derivative financial instruments, including, among others, puts and calls on securities or indices of securities, interest rate swaps, interest rate caps, exchange-traded derivatives, U.S. Treasury securities, options on U.S. Treasury securities and interest rate floors to hedge all or a portion of the interest rate risk associated with the financing of our portfolio. Specifically, we seek to hedge our exposure to potential interest rate mismatches between the interest we earn on our investments and our borrowing costs caused by interest rate fluctuations. In utilizing leverage and interest rate hedges, our objectives are to improve risk-adjusted returns and, where possible, to lock in, on a long-term basis, a favorable spread between the yield on our assets and the cost of our financing. We rely on our Manager's expertise to manage these risks on our behalf.

          The U.S. federal income tax rules applicable to REITs, may require us to implement certain of these techniques through a TRS that is fully subject to U.S. federal corporate income taxation.

Market Risk Management

          Risk management is an integral component of our strategy to deliver returns to our stockholders. Because we invest in senior commercial mortgage loans and other debt investments, investment losses from prepayments, defaults, interest rate volatility or other risks can meaningfully reduce or eliminate funds available for distribution to our stockholders. In addition, because we employ financial leverage in funding our portfolio, mismatches in the maturities of our assets and liabilities can create risk in the need to continually renew or otherwise refinance our liabilities. Our net interest margin is dependent upon a positive spread between the returns on our portfolio and our overall cost of funding. To minimize the risks to our portfolio, we actively employ portfolio-wide and asset-specific risk measurement and management processes in our daily operations. Our Manager's risk management tools include software and services licensed or purchased from third parties, in addition to proprietary analytical methods developed by Ares Management. There can be no guarantee that these tools will protect us from market risks.

Credit Risk Management

          While we seek to limit our credit losses through our investment strategy, there can be no assurance that we will be successful. However, we retain the risk of potential credit losses on all of the senior commercial mortgage loans and other commercial real-estate related debt investments that we originate or acquire. We seek to manage credit risk through our due diligence process prior to

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origination or acquisition and through the use of non-recourse financing, when and where available and appropriate. In addition, with respect to any particular target investment, our Manager's investment team evaluates, among other things, relative valuation, comparable analysis, supply and demand trends, shape of yield curves, delinquency and default rates, recovery of various sectors and vintage of collateral.

          Our investment guidelines do not limit the amount of our equity that may be invested in any type of our target investments. Our investment decisions depend on prevailing market conditions and may change over time in response to opportunities available in different interest rate, economic and credit environments. As a result, we cannot predict the percentage of our equity that will be invested in any individual target investment at any given time.

Conflicts of Interest

          For a discussion of the conflicts of interest facing our company and our policies to address these conflicts, see "Our Manager and the Management Agreement — Conflicts of Interest."

Policies With Respect to Certain Other Activities

          If our board of directors determines that additional funding is required, we may raise such funds through additional offerings of equity or debt securities or the retention of cash flow (subject to provisions in the Code concerning distribution requirements and the taxability of undistributed REIT taxable income) or a combination of these methods. If our board of directors determines to raise additional equity capital, it has the authority, without stockholder approval, to issue additional common stock or preferred stock in any manner and on such terms and for such consideration as it deems appropriate, at any time.

          In addition, to the extent available, we borrow money to finance the origination or acquisition of our investments. We use traditional forms of financing, including securitizations and other sources of private financing, including warehouse and bank credit facilities. We also may utilize structured financing techniques to create attractively priced non-recourse financing at an all-in borrowing cost that is lower than that provided by traditional sources of financing and that provide long-term, floating rate financing. Our investment guidelines and our portfolio and leverage are periodically reviewed by our board of directors as part of their oversight of our Manager.

          We engage in the purchase and sale of investments. Consistent with our investment guidelines, we intend to continue to make loans to third parties to originate our target assets in the ordinary course of business. See "Business — Our Investment Strategy."

          As of the date of this prospectus, we do not intend to offer equity or debt securities in exchange for property, to underwrite the securities of other issuers, or to repurchase or otherwise reacquire shares of our capital stock or other securities other than as described in this prospectus.

          We may invest in the debt securities of other REITs or other entities engaged in real estate operating or financing activities, but not for the purpose of exercising control over such entities.

          We intend to make available to our stockholders our annual reports, including our audited financial statements. After this offering, we will become subject to the information reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Pursuant to those requirements, we will be required to file annual and periodic reports, proxy statements and other information, including audited financial statements, with the SEC.

          Our board of directors may change any of these policies without prior notice to or a vote of our stockholders, but we expect to disclose any material changes to these policies in the periodic quarterly and annual reports that we will file with the SEC.

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Operating and Regulatory Structure

REIT Qualification

          We intend to elect to qualify as a REIT commencing with our taxable year ending on December 31, 2012. Our qualification as a REIT depends upon our ability to meet on a continuing basis, through actual investment and operating results, various complex requirements under the Code, relating to, among other things, the sources of our gross income, the composition and values of our assets, our distribution levels and the diversity of ownership of our shares. We believe that we have been organized in conformity with the requirements for qualification and taxation as a REIT, and that our manner of operation will enable us to meet the requirements for qualification and taxation as a REIT.

          So long as we qualify as a REIT, we generally will not be subject to U.S. federal income tax on our net taxable income that we distribute currently to our stockholders. If we have previously qualified as a REIT and fail to qualify as a REIT in any subsequent taxable year and do not qualify for certain statutory relief provisions, we will be subject to U.S. federal income tax at regular corporate rates and may be precluded from qualifying as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification. Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and property and to U.S. federal income and excise taxes on undistributed income.

1940 Act Exemption

          We intend to conduct our operations so that neither we nor any of our subsidiaries are required to register as an investment company under the 1940 Act. Section 3(a)(1)(A) of the 1940 Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the 1940 Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer's total assets (exclusive of U.S. Government securities and cash items) on an unconsolidated basis (the "40% test"). Excluded from the term "investment securities," among other things, are U.S. Government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company for private funds set forth in Section 3(c)(1) or Section 3(c)(7) of the 1940 Act.

          We are organized as a holding company that conducts its businesses primarily through wholly owned subsidiaries. We intend to conduct our operations so that we do not come within the definition of an investment company because less than 40% of the value of our adjusted total assets on an unconsolidated basis will consist of "investment securities." The securities issued by any wholly owned or majority-owned subsidiaries that we may form in the future that are excepted from the definition of "investment company" based on Section 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we may own, may not have a value in excess of 40% of the value of our adjusted total assets on an unconsolidated basis. We will monitor our holdings to ensure continuing and ongoing compliance with this test. In addition, we believe we will not be considered an investment company under Section 3(a)(1)(A) of the 1940 Act because we will not engage primarily or hold ourselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our wholly owned subsidiaries, we will be primarily engaged in the non-investment company businesses of these subsidiaries.

          If the value of securities issued by our subsidiaries that are excepted from the definition of "investment company" by Section 3(c)(1) or 3(c)(7) of the 1940 Act, together with any other investment securities we own, exceeds 40% of our adjusted total assets on an unconsolidated basis, or if one or more of such subsidiaries fail to maintain an exception or exemption from the 1940 Act, we could, among other things, be required either (a) to substantially change the manner in which we conduct our operations to avoid being required to register as an investment company or (b) to register as an investment company under the 1940 Act, either of which could have an adverse effect on us and the

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market price of our securities. If we were required to register as an investment company under the 1940 Act, we could, among other things, be required either to (a) change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (c) register as an investment company, any of which could negatively affect the value of our common stock, the sustainability of our business model, and our ability to make distributions which could have an adverse effect on our business and the market price for our shares of common stock.

          We expect that certain of our subsidiaries that we may form in the future may rely upon the exemption from registration as an investment company under the 1940 Act pursuant to Section 3(c)(5)(C) of the 1940 Act, which is available for entities "primarily engaged" in the business of "purchasing or otherwise acquiring mortgages and other liens on and interests in real estate." This exemption generally requires that at least 55% of these subsidiaries' assets comprise qualifying real estate assets and at least 80% of each of their portfolios must comprise qualifying real estate assets and real estate-related assets under the 1940 Act. Specifically, we expect each of our subsidiaries relying on Section 3(c)(5)(C) to invest at least 55% of its assets in mortgage loans, certain mezzanine loans and B-Notes and other interests in real estate that constitute qualifying real estate assets in accordance with SEC staff guidance, and approximately an additional 25% of its assets in other types of mortgages, securities of REITs and other real estate-related assets. We expect each of our subsidiaries relying on Section 3(c)(5)(C) to rely on guidance published by the SEC staff or on our analyses of guidance published with respect to other types of assets to determine which assets are qualifying real estate assets and real estate-related assets. The SEC has not published guidance with respect to the treatment of CMBS for purposes of the Section 3(c)(5)(C) exemption. Unless we receive further guidance from the SEC or its staff with respect to CMBS, we intend to treat CMBS as a real estate-related asset. The SEC may in the future take a view different than or contrary to our analysis with respect to the types of assets we have determined to be qualifying real estate assets. To the extent that the SEC staff publishes new or different guidance with respect to these matters, we may be required to adjust our strategy accordingly. In addition, we may be limited in our ability to make certain investments and these limitations could result in the subsidiary holding assets we might wish to sell or selling assets we might wish to hold.

          The SEC staff, according to published guidance, takes the view that certain mezzanine loans and B-Notes are qualifying real estate assets. Thus, we intend to treat certain mezzanine loans and B-Notes as qualifying real estate assets.

          The SEC recently solicited public comment on a wide range of issues relating to Section 3(c)(5)(C) of the 1940 Act, including the nature of the assets that qualify for purposes of the exemption and whether mortgage REITs should be regulated in a manner similar to investment companies. There can be no assurance that the laws and regulations governing the 1940 Act status of REITs, including the SEC or its staff providing more specific or different guidance regarding these exemptions, will not change in a manner that adversely affects our operations. If we or our subsidiaries fail to maintain an exception or exemption from the 1940 Act, we could, among other things, be required either to (a) change the manner in which we conduct our operations to avoid being required to register as an investment company, (b) effect sales of our assets in a manner that, or at a time when, we would not otherwise choose to do so, or (c) register as an investment company, any of which could negatively affect the value of our common stock, the sustainability of our business model, and our ability to make distributions which could have an adverse effect on our business and the market price for our shares of common stock.

          Although we monitor our portfolio periodically and prior to each investment origination or acquisition, there can be no assurance that we will be able to maintain this exemption from registration for these subsidiaries.

          Certain of our subsidiaries may rely on the exemption provided by Section 3(c)(6) to the extent that they hold mortgage assets through majority-owned subsidiaries that rely on Section 3(c)(5)(C). The

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SEC has issued little interpretive guidance with respect to Section 3(c)(6) and any guidance published by the staff could require us to adjust our strategy accordingly.

          We determine whether an entity is one of our majority-owned subsidiaries. The 1940 Act defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a majority-owned subsidiary of such person. The 1940 Act further defines voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company. We treat companies in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries for purposes of the 40% test. We have not requested the SEC to approve our treatment of any company as a majority-owned subsidiary and the SEC has not done so. If the SEC were to disagree with our treatment of one or more companies as majority-owned subsidiaries, we would need to adjust our strategy and our assets in order to continue to pass the 40% test. Any such adjustment in our strategy could have a material adverse effect on us.

          To the extent that the SEC staff provides more specific guidance regarding any of the matters bearing upon the exceptions we and our subsidiaries rely on from the 1940 Act, we may be required to adjust our strategy accordingly. Any additional guidance from the SEC staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the strategies we have chosen.

Competition

          Our net income depends, in part, on our ability to originate or acquire assets at favorable spreads over our borrowing costs. In originating or acquiring our target investments, we compete with other REITs, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance companies, mutual funds, institutional investors, investment banking firms, financial institutions, governmental bodies and other entities. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Factors Impacting Our Operating Results — Market Conditions." In addition, there are numerous REITs with similar asset origination and acquisition objectives and others may be organized in the future. These other REITs will increase competition for the available supply of mortgage assets suitable for purchase and origination. Many of our anticipated competitors are significantly larger than we are and have considerably greater financial, technical, marketing and other resources than we do. Some competitors may have a lower cost of funds and access to funding sources that are not available to us, such as the U.S. Government. Many of our competitors are not subject to the operating constraints associated with REIT tax compliance or maintenance of an exemption from the 1940 Act. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Current market conditions may attract more competitors, which may increase the competition for sources of financing. An increase in the competition for sources of funding could adversely affect the availability and cost of financing, and thereby adversely affect the market price of our common stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations — Factors Impacting Our Operating Results — Market Conditions."

          In the face of this competition, we have access to our Manager's and Ares Management's professionals and their industry expertise, which may provide us with a competitive advantage and help us assess investment risks and determine appropriate pricing for certain potential investments. These relationships enable us to compete more effectively for attractive investment opportunities. In addition, we believe that current market conditions may have adversely affected the financial condition of certain competitors. Thus, not having a legacy portfolio may also enable us to compete more effectively for attractive investment opportunities. However, we may not be able to achieve our business goals or expectations due to the competitive risks that we face. For additional information concerning these competitive risks, see "Risk Factors — Risks Related to Our Investments — We operate in a competitive market for investment opportunities and competition may limit our ability to originate or acquire desirable investments in our target investments and could also affect the pricing of these securities."

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Staffing

          We are externally managed by our Manager pursuant to the management agreement between our Manager and us. Our executive officers also serve as officers of our Manager. We do not have any employees. See "Our Manager and the Management Agreement — Management Agreement."

Legal Proceedings

          Neither we nor our Manager is currently subject to any legal proceedings that we or our Manager consider to be material.

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OUR MANAGER AND THE MANAGEMENT AGREEMENT

General

          We are externally managed and advised by our Manager, a SEC registered investment adviser and an affiliate of Ares Management, a global alternative asset manager and also a SEC registered investment adviser. Each of our officers is an executive of Ares Management. The executive offices of our Manager are located at Two North LaSalle Street, Suite 925, Chicago, IL 60602, and the telephone number of our Manager's executive offices is (312) 324-5900.

Investment Committee of Our Manager

          Our Manager has an Investment Committee that provides a second and final level of review in our investment approval process, vetting investment opportunities that have first been reviewed by our Manager's Underwriting Committee. Its duties also include reviewing our investment portfolio and its compliance with our investment guidelines described above at least on a quarterly basis or more frequently as necessary. The Investment Committee, which includes CRE professionals, adds cross-disciplinary strength by also seating non-real estate professionals of Ares Management, and is initially composed as follows:

Name
  Position
John B. Bartling
(Chairman of Committee)
  Senior Partner in the Ares Private Debt Group; Chief Executive Officer of the Company

Michael J. Arougheti

 

Senior Partner in the Ares Private Debt Group; Non-Executive Chairman of the Board of Directors

Bruce R. Cohen

 

Senior Partner in the Ares Private Debt Group; President and Chief Operating Officer of the Company

Richard S. Davis

 

Chief Operating Officer of Ares Management; Chief Financial Officer of the Company (interim)

Thomas A. Jaekel

 

Managing Director of the Ares Commercial Real Estate Group

Michael L. Smith

 

Senior Partner in the Ares Private Debt Group

David A. Sachs

 

Senior Advisor of the Ares Capital Markets Group

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Underwriting Committee of Our Manager

          The Underwriting Committee provides the first level of review in the investment process, vetting investment opportunities presented to it by our Manager's senior investment professionals, before referring those that it approves to the Investment Committee for further review. Our Manager's Underwriting Committee is initially composed as follows:

Name
  Position
Bruce R. Cohen
(Chairman of Committee)
  Senior Partner in the Ares Private Debt Group; President and Chief Operating Officer of the Company

John B. Bartling

 

Senior Partner in the Ares Private Debt Group; Chief Executive Officer of the Company

Henry J. Bieber

 

Managing Director of the Ares Commercial Real Estate Group

J. Jason Choulochas

 

Managing Director of the Ares Commercial Real Estate Group

David J. Friedman

 

Managing Director of the Ares Commercial Real Estate Group

Vivian Gu

 

Managing Director of the Ares Commercial Real Estate Group

Thomas A. Jaekel

 

Managing Director of the Ares Commercial Real Estate Group

Timothy B. Smith

 

Senior Associate Counsel of the Ares Commercial Real Estate Group; Vice President, Secretary, and Senior Associate General Counsel of the Company

Principal Executive Officer and Principal Accounting Officer of Our Manager and Our Manager's Servicer

          The following table sets forth certain information with respect to the principal executive officer and principal accounting officer of our Manager and our Manager's servicer.

Officer
  Age   Position Held with Our Manager
and Our Manager's Servicer

Antony P. Ressler

    51  

President

Daniel F. Nguyen

    40  

Chief Financial Officer

Manager Biographical Information

          Set forth below is biographical information for certain officers of our Manager, and the members of our Manager's Investment Committee and Underwriting Committee.

          Michael J. Arougheti serves on the Investment Committee of our Manager. He is also one of our Class III directors and the non-executive Chairman of our board of directors. He has served as President of Ares Capital Corporation since May 2004 and as a director since 2009. Mr. Arougheti joined Ares Management in May 2004 and is a founding member and Senior Partner of Ares Management, where he serves as a member of the Executive Committee of Ares Partners Management Company LLC, or APMC, which indirectly controls Ares Management. Mr. Arougheti also serves as a member of the Investment Committee of Ares Capital Management LLC, the investment adviser of Ares Capital

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Corporation and a wholly owned subsidiary of Ares Management, as a member of the Ares Private Debt Investment Committee and the Investment Committee of Ares Capital Europe, Ares Management's European Private Debt business, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. From 2001 to 2004, Mr. Arougheti was employed by Royal Bank of Canada, where he was a Managing Partner of the Principal Finance Group of RBC Capital Partners and a member of the firm's Mezzanine Investment Committee. At RBC Capital Partners, Mr. Arougheti oversaw an investment team that originated, managed and monitored a diverse portfolio of middle-market leveraged loans, senior and junior subordinated debt, preferred equity and common stock and warrants on behalf of RBC and other third-party institutional investors. Mr. Arougheti joined Royal Bank of Canada in October 2001 from Indosuez Capital, where he was a Principal and an Investment Committee member, responsible for originating, structuring and executing leveraged transactions across a broad range of products and asset classes. Prior to joining Indosuez in 1994, Mr. Arougheti worked at Kidder, Peabody & Co., where he was a member of the firm's Mergers and Acquisitions Group. Mr. Arougheti also serves on the boards of directors of Investor Group Services, Riverspace Arts, a not-for-profit arts organization and Operation Hope, a not-for-profit organization focused on expanding economic opportunity in underserved communities through economic education and empowerment. Mr. Arougheti received a B.A. in Ethics, Politics and Economics, cum laude, from Yale University. Mr. Arougheti's depth of experience in investment management, leveraged finance and financial services gives the board of directors valuable industry-specific knowledge and expertise on these and other matters.

          John B. Bartling, Jr. serves as a Senior Partner of the Ares Private Debt Group, chairs our Manager's Investment Committee, and serves on our Manager's Underwriting Committee. He is also our Chief Executive Officer and one of our Class I directors. Mr. Bartling is Global Head of Real Estate for Ares Management, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. From May 2007 to September 2010, he was Managing Partner and Chief Investment Officer of AllBridge Investments, a portfolio company of Ares Capital Corporation. AllBridge sponsored four real estate investment funds, three of which Mr. Bartling saw through to disposition, and one corporate investment, Helix Financial, a CRE due diligence and analytics firm with operations in India, which AllBridge sold to BlackRock Solutions in 2010. Prior to AllBridge, Mr. Bartling founded WMC Management Company, a privately held real estate operating company with over 3,000 employees and clients including Olympus Real Estate Partners, Arnold Palmer Golf Management, or APGM, Walden, and Hyphen Solutions. Mr. Bartling took Walden private as CEO in 2000, and sold it in March 2006 to a subsidiary of Dubai Investment Group. From December 1995 to October 1999, Mr. Bartling served as the CEO and President for Lexford, f/k/a Cardinal Realty, a publicly traded, fully integrated multifamily REIT. Lexford merged with Equity Residential Properties Trust in 1999. Before Lexford, Mr. Bartling served as Director of the Real Estate Products Group of Credit Suisse First Boston. Prior to CSFB, Mr. Bartling served as an Executive Vice President of NHP Incorporated. Mr. Bartling's previous professional experience also includes Trammell Crow Residential, as a Development Principal, and Mellon Bank, N.A. as a Vice President of the Commercial Mortgage Banking Group. Mr. Bartling has served on the Board of Directors of APGM, the Children's Hospital Research for Ohio State University, the Harvard Joint Center for Housing Studies: Leadership Forum on Pension Fund and Endowment Investments in Domestic Emerging Markets, Big Brothers and Big Sisters Association of Columbus, Ohio and the NMHC Board of Directors. Additionally, he has served on the Executive Council and as Chairman of the Finance Committee for the National Multi Housing Council. Currently, Mr. Bartling is a member of Real Estate Round Table and on the Board of Directors of Texas Real Estate Council. Mr. Bartling won the BBB Business Integrity Award for Lexford, Inc in 1996 and was a judge for Ernst & Young Entrepreneur of the Year. He was the co-founder of Caring Partners for Kids, awarded the 2004 Community Service Award by Multifamily Executive, and served on the Strategic Planning Committee of Saint Michael and All Angels Episcopal Church in Dallas. Mr. Bartling received a B.S. in Marketing from Robert Morris College in Pittsburgh, Pennsylvania. Mr. Bartling's depth of experience in the

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origination, acquisition, management and disposition of real estate-related assets gives the board of directors valuable industry-specific knowledge and expertise on these and other matters.

          Henry J. Bieber joined Ares Management in August 2011 and serves as a Managing Director of the Ares Commercial Real Estate Group overseeing portfolio management. He also serves on our Manager's Underwriting Committee, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. Prior to joining Ares Management, Mr. Bieber served as Managing Director, Portfolio Management, for Wrightwood Capital LLC, where he was responsible for all aspects of the portfolio and asset management in Wrightwood Capital LLC's debt and equity portfolios. Prior to joining Wrightwood Capital LLC, from 1995 to March 2006, Mr. Bieber was a Senior Vice President at GMAC Commercial Mortgage. Prior to GMAC, Mr. Bieber served as Vice President and Business Development Officer focusing on origination activity with the Industrial Bank of Japan. Mr. Bieber's professional experience also includes hospitality consulting for Pannell Kerr Forster and hotel development. Mr. Bieber received a B.S. in Hotel, Restaurant and Institutional Management from Michigan State University and earned a J.D. from Loyola Law School in Los Angeles.

          J. Jason Choulochas joined Ares Management in August 2011 and serves as a Managing Director of the Ares Commercial Real Estate Group overseeing origination. He also serves on our Manager's Underwriting Committee, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. Mr. Choulochas joined Wrightwood Capital LLC's predecessor in 1995 and most recently served as Managing Director, Investments, for Wrightwood Capital LLC, where since January 2008 he was responsible for the origination and structuring of senior debt and subordinate capital investments throughout the United States. Mr. Choulochas originated investments in the Midwest and Western regions for Wrightwood Capital LLC prior to becoming a Managing Director, Investments. Prior to 1995, Mr. Choulochas was with American National Bank & Trust Company of Chicago. Mr. Choulochas frequently moderates and participates on panels at industry functions, including events hosted by the Urban Land Institute, L.A. Mortgage Association, Western States Division of the Mortgage Banking Association and various RealShare and other industry conferences. Mr. Choulochas received his undergraduate degree in Economics and Management from Beloit College in Beloit, Wisconsin.

          Bruce R. Cohen serves as a Senior Partner of the Ares Private Debt Group, is a member of our Manager's Investment Committee and chairs its Underwriting Committee. He is also our President and Chief Operating Officer, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. Prior to joining Ares Management in August 2011, Mr. Cohen served as Chairman of the Board and Chief Executive Officer of Wrightwood Capital LLC, which he founded in 2004. Mr. Cohen is currently a member of the Board of Managers of Wrightwood Capital LLC. From December 1990 to May 2004, Mr. Cohen was with Cohen Financial LP and its predecessor, a national real estate finance and investment company. While at Cohen Financial LP, Mr. Cohen was the co-Managing Member of the General Partner and the firm's Chief Investment Officer. In this capacity, he was responsible for the investment management and capital deployment activities of Cohen Financial and the funds it managed. Mr. Cohen is a member of the Urban Land Institute, the Pension Real Estate Association and the Real Estate Roundtable, where he formerly served as the Co-Chair of the Real Estate Capital Policy Advisory Committee and Chair of the Research Committee. In addition, Mr. Cohen is a member of The Economic Club of Chicago, and serves on the Real Estate Advisory Board of the Kellogg School of Management at Northwestern University. Mr. Cohen has been a guest lecturer at the University of Chicago Booth School of Business, Harvard Business School, Kellogg School of Management and University of Wisconsin Graduate School of Business. Mr. Cohen holds an M.B.A. from the University of Chicago and a B.A. from Tufts University.

          Richard S. Davis serves on our Manager's Investment Committee. He is also our Chief Financial Officer (interim). He joined Ares Management in June 2006 and currently serves as Chief Operating

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Officer of Ares Management, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. He has also served as treasurer of Ares Capital Corporation since December 2010. From March 2007 to December 2010, Mr. Davis served as the Chief Financial Officer of Ares Capital Corporation. From December 1997 to May 2006, Mr. Davis was with Arden Realty, Inc., a real estate investment trust, serving as its Executive Vice President and Chief Financial Officer since July 2000. From 1996 to 1997, Mr. Davis was with Catellus Development Corporation, where he was responsible for accounting and finance for the asset management and development divisions. From 1985 to 1996, Mr. Davis served as a member of the audit staff of both KPMG LLP and Price Waterhouse LLP. Mr. Davis is a Certified Public Accountant (Inactive). Mr. Davis received a B.S. in Accounting from the University of Missouri at Kansas City.

          David J. Friedman joined Ares Management in August 2011 and serves as a Managing Director of the Ares Commercial Real Estate Group. He also serves on our Manager's Underwriting Committee, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. From 2006 to 2011, Mr. Friedman served as Managing Director, Fund Management of Wrightwood Capital LLC and was Fund Manager of the Wrightwood Capital High Yield Partners II fund. From 2001 to 2005, Mr. Friedman served as Senior Managing Director of Sterling Real Estate Partners, the real estate arm of the private equity firm, Sterling Partners. Prior to that, Mr. Friedman was a Managing Director and Executive Vice President of Heller Financial. During his tenure at Heller Financial, he led the company in the following areas: Capital Markets, Heller Real Estate's Marketing, Strategy and Development Group, Credit Tenant Property Group, Central Region Manager, Charitable Contributions Committee. He also served on the firm's Asset Liability Management Committee. Mr. Friedman holds a B.S. from the University of Wisconsin-Madison.

          Vivian Gu joined Ares Management in August 2011 and serves as a Managing Director of the Ares Commercial Real Estate Group. She also serves on our Manager's Underwriting Committee and as the Head of CRE Capital Markets, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. From August 2010 to August 2011, Ms. Gu was the founder and Principal of 3V Capital & Advisory, an investment advisory and management firm focused on fixed income, real estate and other alternative investments. From January 2009 to August 2010, Ms. Gu served as the Head of Structured Products Group at BSB Capital, a wholly owned subsidiary of Beal Bank, where she was responsible for making investments in CMBS and other structured products. From 1998 to 2007, Ms. Gu held various positions with ORIX Capital Markets, LLC, the most recent of which was President and CEO. In that role, Ms. Gu was responsible for developing and implementing investment strategies, portfolio management, capital markets and strategic corporate development. Ms. Gu received a B.A. in English from Nanjing University and an M.B.A. from Baylor University's Hankamer School of Business.

          Thomas A. Jaekel joined Ares Management in August 2011 and serves as a Managing Director of the Ares Commercial Real Estate Group overseeing investments. He also serves on our Manager's Underwriting Committee and Investment Committee, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. From January 2008 to August 2011, Mr. Jaekel served as Senior Managing Director and Chief Investment Officer of Wrightwood Capital LLC, where he was responsible for the implementation and execution of Wrightwood Capital LLC's investment strategies and for managing its investor clients. He joined Wrightwood Capital LLC's predecessor in 1996, playing a role in defining the investment strategies and overseeing the Credit, Underwriting, Portfolio Management and Capital Markets Groups. Prior to joining Wrightwood Capital LLC, Mr. Jaekel was President of Heller Financial's Commercial Real Estate Group responsible for a $2.2 billion nationwide portfolio of both debt and equity investments. Mr. Jaekel spent the initial years of his career as a practicing Certified Public Accountant with Grant Thornton in Chicago. Mr. Jaekel is a member of the Urban Land Institute and

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received his undergraduate degree from the University of Illinois at Champaign-Urbana, graduating with honors.

          Daniel F. Nguyen serves as Chief Financial Officer of our Manager. Mr. Nguyen joined Ares Management in August 2000 and currently serves as an Executive Vice President and the Chief Financial Officer of Ares Management. He is also our Treasurer. Mr. Nguyen may also from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. He has also served as a Vice President of Ares Capital Corporation since December 2010. From March 2007 to December 2010, Mr. Nguyen served as Treasurer of Ares Capital Corporation and from August 2004 to March 2007, as Chief Financial Officer of Ares Capital Corporation. From 1996 to 2000, Mr. Nguyen was with Arthur Andersen LLP, where he was in charge of conducting business audits on numerous financial clients, performing due diligence investigation of potential mergers and acquisitions, and analyzing changes in accounting guidelines for derivatives. At Arthur Andersen LLP, Mr. Nguyen also focused on treasury risk management and on mortgage backed securities and other types of structured financing. Mr. Nguyen graduated with a B.S. in Accounting from the University of Southern California's Leventhal School of Accounting and received an M.B.A. in Global Business from Pepperdine University's Graziadio School of Business and Management. Mr. Nguyen also studied European Business at Oxford University as part of the M.B.A. curriculum. Mr. Nguyen is a Chartered Financial Analyst and a Certified Public Accountant.

          Antony P. Ressler serves as President of our Manager.  Mr. Ressler co-founded Ares Management LLC in 1997, a global alternative asset manager with a focus on investments, including leveraged loans, high yield bonds, distressed debt, private/mezzanine debt and private equity, managed through a variety of funds and investment vehicles with offices in Los Angeles, New York, Chicago, Dallas, London, Paris, Frankfurt, Stockholm and Shanghai. Mr. Ressler also co-founded Apollo Management, L.P in 1990, a publicly traded investment firm based in New York. Prior to 1990, Mr. Ressler served as a Senior Vice President in the High Yield Bond Department of Drexel Burnham Lambert Incorporated, with responsibility for the New Issue/Syndicate Desk. Mr. Ressler serves on several boards of directors including Ares Capital Corporation, Air Lease Corporation as well as several private companies owned or controlled by Ares investment funds. Mr. Ressler is also a former member of the boards of directors of Samsonite Corporation and WCA Waste Corporation. In the not for profit sector, Mr. Ressler serves as a member of the Executive Committee of the Board of Trustees of the Cedars-Sinai Medical Center, as Finance Chair and member of the Executive Committee of the Los Angeles County Museum of Art, a board member of Campbell Hall Episcopal School in Studio City, CA and as Founder and Co-Chairman of the Alliance for College-Ready Public Schools, a high performing group of twenty charter high schools and middle schools based in Los Angeles. Mr. Ressler is also one of the founding members of the board and Finance Chair of the Painted Turtle Camp, a southern California based organization (affiliated with Paul Newman's Hole in the Wall Association) which was created to serve children dealing with chronic and life threatening illnesses by creating memorable, old-fashioned camping experiences. Mr. Ressler received his B.S.F.S. from Georgetown University's School of Foreign Service and received his M.B.A from Columbia University's Graduate School of Business.

          David A. Sachs serves on our Manager's Investment Committee. Mr. Sachs co-founded Ares Management in 1997 and has served at different times as Head/Co-Head of the Ares Capital Markets Group from 1997 until the end of 2008. Since January 2009, he has served as a Senior Advisor in the Ares Capital Markets Group. Mr. Sachs serves as an Investment Committee member on all Ares Management funds, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. From 1994 to 1997, Mr. Sachs was a principal of Onyx Partners, Inc. specializing in merchant banking and related capital raising activities in the private equity and mezzanine debt markets. From 1990 to 1994, Mr. Sachs was employed by Taylor & Co., an investment manager providing investment advisory and consulting services to members of the Bass Family of Fort Worth, Texas. From 1984 to 1990, Mr. Sachs was with Columbia Savings and Loan Association, most recently as Executive Vice

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President, responsible for all asset liability management as well as running the Investment Management Department. Mr. Sachs serves on the Board of Directors of Terex Corporation. Mr. Sachs serves on the Board of Trustees, as well as the McCormick Advisory Council, at Northwestern University. Mr. Sachs graduated from Northwestern University with a B.S. in Industrial Engineering and Management Science.

          Michael L. Smith serves on our Manager's Investment Committee. Mr. Smith joined Ares Management in May 2004 and serves as a Senior Partner of the Ares Private Debt Group. He is a member of the Investment Committee of Ares Capital Management LLC, the Ares Private Debt Group Investment Committee, which oversees an investment team that originates, manages and monitors a diverse portfolio of middle-market loans, and other debt and equity instruments, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. Prior to joining Ares Management, Mr. Smith was a Partner at RBC Capital Partners, a division of Royal Bank of Canada, which led the firm's middle-market financing and principal investment business. Mr. Smith joined RBC in October 2001 from Indosuez Capital, where he was a Vice President in the Merchant Banking Group. Previously, Mr. Smith worked at Kenter, Glastris & Company, and at Salomon Brothers Inc., in their Debt Capital Markets Group and Financial Institutions Group. Mr. Smith received a B.S. in Business Administration, cum laude, from the University of Notre Dame and a Masters in Management from Northwestern University's Kellogg Graduate School of Management.

          Timothy B. Smith serves as Senior Associate Counsel of the Ares Commercial Real Estate Group and serves on our Manager's Underwriting Committee. He is also our Vice President, Secretary and Senior Associate General Counsel. Mr. Smith joined Ares Management in September 2010 in the Real Estate Group and serves as Associate General Counsel of Ares Management, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. Before joining Ares Management, Mr. Smith served as Managing Director and General Counsel for AllBridge Investments from January 2009 to September 2010. Prior to AllBridge, Mr. Smith was a Partner and General Counsel for Olympus Real Estate Partners from July 1996 to December 2008. From June 1992 to December 1995, Mr. Smith served as General Counsel and from January 1996 to June 1996 he served as Chief Operating Officer for GE Capital Realty Group. Prior to GE Capital, Mr. Smith served as Executive Vice President and Director of Legal Services of FGB Realty Advisors from July 1990 to June 1992. Prior to FGB, Mr. Smith served as Regional Counsel for the Dallas Region of the Federal Asset Disposition Association from May 1986 to December 1989. Before FADA, Mr. Smith practiced real estate and tax law with a law firm in Dallas, Texas. Mr. Smith received a B.B.A. in Accounting with highest honors and a J.D. with honors from the University of Texas at Austin and an L.L.M. in Taxation from Southern Methodist University and is a Certified Public Accountant.

          Michael D. Weiner is our Vice President and General Counsel. Mr. Weiner is also Vice President, General Counsel and Chief Legal Officer of Ares Management, and may from time to time serve as an officer, director or principal of entities affiliated with Ares Management or of investment funds managed by Ares Management and its affiliates. He has also served as a Vice President of Ares Capital Corporation since July 2011. From September 2006 to January 2010, Mr. Weiner served as General Counsel of Ares Capital Corporation and from April 2011 to July 2011 Mr. Weiner served as the Chief Compliance Officer of Ares Capital Corporation on an interim basis. Mr. Weiner joined Ares Management in September 2006. Previously, Mr. Weiner served as General Counsel to Apollo Management L.P. and had been an officer of the corporate general partner of Apollo since 1992. Prior to joining Apollo, Mr. Weiner was a partner in the law firm of Morgan, Lewis & Bockius specializing in corporate and alternative financing transactions, securities law as well as general partnership, corporate and regulatory matters. Mr. Weiner has served and continues to serve on the boards of directors of several public and private corporations. Mr. Weiner also serves on the Board of Governors of the Cedars Sinai Medical Center in Los Angeles. Mr. Weiner graduated with a B.S. in Business and Finance from the University of California at Berkeley and a J.D. from the University of Santa Clara.

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Management Agreement

          Upon completion of this offering, we will enter into a management agreement with our Manager pursuant to which it will provide for the day-to-day management of our operations. The management agreement will require our Manager to manage our business affairs in conformity with the investment guidelines and policies that are approved and monitored by our board of directors. Our Manager's role as Manager will be under the supervision and direction of our board of directors.

Management Services

          Our Manager will be responsible for (a) the selection, the origination or purchase and the sale, of our portfolio investments, (b) our financing activities and (c) providing us with investment advisory services. Our Manager will be responsible for our day-to-day operations and will perform (or will cause to be performed) such services and activities relating to our assets and operations as may be appropriate, which may include, without limitation, the following:

                 (i)  serving as our consultant with respect to the periodic review of the investment guidelines and other parameters for our investments, financing activities and operations, any modification to which will be approved by our board of directors;

                (ii)  investigating, analyzing and selecting possible investment opportunities and originating, acquiring, financing, retaining, selling, restructuring or disposing of investments consistent with the investment guidelines;

               (iii)  with respect to prospective purchases, sales or exchanges of investments, conducting negotiations on our behalf with sellers, purchasers and brokers and, if applicable, their respective agents and representatives;

               (iv)  negotiating and entering into, on our behalf, repurchase agreements, interest rate swap agreements and other agreements and instruments required for us to conduct our business;

                 (v)  engaging and supervising, on our behalf and at our expense, independent contractors that provide investment banking, securities brokerage, mortgage brokerage and other financial services, due diligence services, underwriting review services, legal and accounting services, and all other services (including transfer agent and registrar services) as may be required relating to our operations or investments (or potential investments);

               (vi)  coordinating and managing operations of any joint venture or co-investment interests held by us and conducting all matters with the joint venture or co-investment partners;

              (vii)  providing executive and administrative personnel, office space and office services required in rendering services to us;

             (viii)  administering the day-to-day operations and performing and supervising the performance of such other administrative functions necessary to our management as may be agreed upon by our Manager and our board of directors, including the collection of revenues and the payment of our debts and obligations and maintenance of appropriate computer services to perform such administrative functions;

               (ix)  communicating on our behalf with the holders of any of our equity or debt securities as required to satisfy the reporting and other requirements of any governmental bodies or agencies or trading markets and to maintain effective relations with such holders, including website maintenance, logo design, analyst presentations, investor conferences and annual meeting arrangements;

                 (x)  counseling us in connection with policy decisions to be made by our board of directors;

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               (xi)  evaluating and recommending to our board of directors hedging strategies and engaging in hedging activities on our behalf, consistent with such strategies as so modified from time to time, with our qualification as a REIT and with our investment guidelines;

              (xii)  counseling us regarding the maintenance of our qualification as a REIT and monitoring compliance with the various REIT qualification tests and other rules set out in the Code and Treasury Regulations thereunder and using commercially reasonable efforts to cause us to qualify for taxation as a REIT;

             (xiii)  counseling us regarding the maintenance of our exemption from the status of an investment company required to register under the 1940 Act, monitoring compliance with the requirements for maintaining such exemption and using commercially reasonable efforts to cause us to maintain such exemption from such status;

             (xiv)  furnishing reports and statistical and economic research to us regarding our activities and services performed for us by our Manager;

               (xv)  monitoring the operating performance of our investments and providing periodic reports with respect thereto to the board of directors, including comparative information with respect to such operating performance and budgeted or projected operating results;

             (xvi)  investing and reinvesting any moneys and securities of ours (including investing in short-term investments pending investment in other investments, payment of fees, costs and expenses, or payments of dividends or distributions to our stockholders and partners) and advising us as to our capital structure and capital raising;

            (xvii)  causing us to retain qualified accountants and legal counsel, as applicable, to assist in developing appropriate accounting procedures and systems, internal controls and other compliance procedures and testing systems with respect to financial reporting obligations and compliance with the provisions of the Code applicable to REITs and, if applicable, TRSs, and to conduct quarterly compliance reviews with respect thereto;

           (xviii)  assisting us in qualifying to do business in all applicable jurisdictions and to obtain and maintain all appropriate licenses;

              (xix)  assisting us in complying with all regulatory requirements applicable to us in respect of our business activities, including preparing or causing to be prepared all financial statements required under applicable regulations and contractual undertakings and all reports and documents, if any, required under the Exchange Act or the Securities Act, or by the NYSE;

               (xx)  assisting us in taking all necessary action to enable us to make required tax filings and reports, including soliciting stockholders for required information to the extent required by the provisions of the Code applicable to REITs;

              (xxi)  placing, or arranging for the placement of, all orders pursuant to our Manager's investment determinations for us either directly with the issuer or with a broker or dealer (including any affiliated broker or dealer);

            (xxii)  handling and resolving all claims, disputes or controversies (including all litigation, arbitration, settlement or other proceedings or negotiations) in which we may be involved or to which we may be subject arising out of our day-to-day operations (other than with our Manager or its affiliates), subject to such limitations or parameters as may be imposed from time to time by the board of directors;

           (xxiii)  using commercially reasonable efforts to cause expenses incurred by us or on our behalf to be commercially reasonable or commercially customary and within any budgeted parameters or expense guidelines set by the board of directors from time to time;

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            (xxiv)  advising us with respect to and structuring long-term financing vehicles for our portfolio of assets, and offering and selling securities publicly or privately in connection with any such structured financing;

             (xxv)  forming an Investment Committee;

           (xxvi)  forming an Underwriting Committee;

          (xxvii)  serving as our consultant with respect to decisions regarding any of our financings, hedging activities or borrowings undertaken by us, including (A) assisting us, in developing criteria for debt and equity financing that is specifically tailored to our investment objectives, and (B) advising us with respect to obtaining appropriate financing for our investments;

         (xxviii)  providing us with portfolio management services and monitoring services;

            (xxix)  arranging marketing materials, advertising, industry group activities (such as conference participations and industry organization memberships) and other promotional efforts designed to promote our business;

             (xxx)  performing such other services as may be required from time to time for management and other activities relating to our assets and business as our board of directors shall reasonably request or our Manager shall deem appropriate under the particular circumstances; and

            (xxxi)  using commercially reasonable efforts to cause us to comply with all applicable laws.

Liability and Indemnification

          Pursuant to the management agreement, our Manager will not assume any responsibility other than to render the services called for thereunder in good faith. It will not be responsible for any action of our board of directors in following or declining to follow its advice or recommendations, including as set forth in the investment guidelines. Our Manager maintains a contractual as opposed to a fiduciary relationship with us. However, to the extent that employees of our Manager also serve as officers of the Company, such officers will owe us duties under Maryland law in their capacity as officers of the Company, which may include the duty to exercise reasonable care in the performance of such officers' responsibilities, as well as the duties of loyalty, good faith and candid disclosure. Under the terms of the management agreement, our Manager and its affiliates, and any of their members, stockholders, managers, partners, personnel, officers, directors, employees, consultants and any person providing sub-advisory services to our Manager, will not be liable to us, our directors, stockholders, partners or members for any acts or omissions (including errors that may result from ordinary negligence, such as errors in the investment decision-making process or in the trade process) performed in accordance with and pursuant to the management agreement, except by reason of acts or omissions constituting bad faith, willful misconduct, gross negligence, or reckless disregard of their duties under the management agreement, as determined by a final non-appealable order of a court of competent jurisdiction. We have agreed to indemnify our Manager, its affiliates and any of their officers, stockholders, members, partners, managers, directors, personnel, employees, consultants and any person providing sub-advisory services to our Manager with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts of our Manager not constituting bad faith, willful misconduct, gross negligence, or reckless disregard of duties, arising from acts or omissions performed in good faith in accordance with and pursuant to the management agreement. Our Manager has agreed to indemnify us, our directors, officers, stockholders, partners or members and any persons controlling us with respect to all expenses, losses, damages, liabilities, demands, charges and claims arising from acts or omissions of our Manager constituting bad faith, willful misconduct, gross negligence or reckless disregard of its duties under the management agreement or any claims by our Manager's employees relating to the terms and conditions of their employment by our Manager. Notwithstanding the foregoing, our Manager will carry errors and omissions and other customary insurance coverage upon the completion of this offering.

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Management Team

          Pursuant to the terms of the management agreement, our Manager is required to provide us with our management team, including a chief executive officer and a president and chief operating officer, along with appropriate support personnel, to provide the management services to be provided by our Manager to us. None of the officers or employees of our Manager will be dedicated exclusively to us. Members of our management team will be required to devote such time as is necessary and appropriate commensurate with the level of our activity.

          Our Manager is required to refrain from any action that, in its sole judgment made in good faith, (a) is not in compliance with the investment guidelines, (b) would adversely and materially affect our qualification as a REIT under the Code or our status as an entity intended to be exempted or excluded from investment company status under the 1940 Act, or (c) would violate any law, rule or regulation of any governmental body or agency having jurisdiction over us or of any exchange on which our securities may be listed or that would otherwise not be permitted by our charter or bylaws. If our Manager is ordered to take any action by our board of directors, our Manager will promptly notify the board of directors if it is our Manager's judgment that such action would adversely and materially affect such status or violate any such law, rule or regulation or our charter or bylaws. Our Manager, its affiliates and any of their members, stockholders, managers, partners, personnel, officers, directors, employees, consultants and any person providing sub-advisory services to our Manager will not be liable to us, our board of directors, our stockholders, partners or members, for any act or omission by our Manager or any of its affiliates, except as provided in the management agreement.

Term and Termination

          The management agreement may be amended or modified by agreement between us and our Manager. The initial term of the management agreement expires on the third anniversary of the completion of this offering and will be automatically renewed for a one-year term each anniversary date thereafter unless previously terminated as described below. Our independent directors will review our Manager's performance and the management fees annually and, following the initial term, the management agreement may be terminated annually upon the affirmative vote of at least two-thirds of our independent directors, based upon (a) unsatisfactory performance that is materially detrimental to us taken as a whole, or (b) our determination that the management fees payable to our Manager are not fair, subject to our Manager's right to prevent such termination due to unfair fees by accepting a reduction of management fees agreed to by at least two-thirds of our independent directors. We must provide 180 days' prior notice of any such termination. Unless terminated for cause, our Manager will be paid a termination fee equal to three times the sum of the average annual base management fee and incentive fee during the 24-month period immediately preceding most recently completed fiscal quarter prior to the date of termination.

          We may also terminate the management agreement at any time, including during the initial term, without the payment of any termination fee, with 30 days' prior written notice from our board of directors for cause, which is defined as:

    our Manager's continued breach of any material provision of the management agreement following a period of 30 days after written notice thereof (or 45 days after written notice of such breach if our Manager, under certain circumstances, has taken steps to cure such breach within 30 days of the written notice);

    the commencement of any proceeding relating to the bankruptcy or insolvency of our Manager, including an order for relief in an involuntary bankruptcy case or our Manager authorizing or filing a voluntary bankruptcy petition;

    any change of control of our Manager which a majority of our independent directors determines is materially detrimental to us taken as a whole;

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    our Manager committing fraud against us, misappropriating or embezzling our funds, or acting, or failing to act, in a manner constituting bad faith, willful misconduct, gross negligence or reckless disregard in the performance of its duties under the management agreement; provided, however, that if any of these actions is caused by an employee of our Manager or one of its affiliates and our Manager (or such affiliate) takes all necessary and appropriate action against such person and cures the damage caused by such actions within 30 days of our Manager's actual knowledge of its commission or omission, the management agreement shall not be terminable; and

    the dissolution of our Manager.

          During the initial three-year term of the management agreement, we may not terminate the management agreement except for cause.

          Our Manager may assign the agreement in its entirety or delegate certain of its duties under the management agreement to any of its affiliates without the approval of our independent directors if such assignment or delegation does not require our approval under the 1940 Act.

          Our Manager may terminate the management agreement if we become required to register as an investment company under the 1940 Act, with such termination deemed to occur immediately before such event, in which case we would not be required to pay a termination fee. Our Manager may decline to renew the management agreement by providing us with 180 days' written notice, in which case we would not be required to pay a termination fee. In addition, if we default in the performance of any material term of the agreement and the default continues for a period of 30 days after written notice to us specifying such default and requesting the same be remedied in 30 days, our Manager may terminate the management agreement upon 60 days' written notice. If the management agreement is terminated by our Manager upon our breach, we would be required to pay our Manager the termination fee described above.

          We may not assign our rights or responsibilities under the management agreement without the prior written consent of our Manager, except in the case of assignment to another REIT or other organization which is our successor, in which case such successor organization will be bound under the management agreement and by the terms of such assignment in the same manner as we are bound under the management agreement.

Management Fees, Incentive Fees and Expense Reimbursements

          We do not expect to maintain an office or directly employ personnel. Instead, we rely on the facilities and resources of our Manager to manage our day-to-day operations.

Base Management Fee

          We will pay our Manager a base management fee in an amount equal to 1.5% of our stockholders' equity, per annum, calculated and payable quarterly in arrears in cash. For purposes of calculating the base management fee, our stockholders' equity means: (a) the sum of (i) the net proceeds from all issuances of our equity securities since inception (allocated on a pro rata basis for such issuances during the fiscal quarter of any such issuance), plus (ii) our retained earnings at the end of the most recently completed fiscal quarter (without taking into account any non-cash equity compensation expense incurred in current or prior periods), less (b) any amount that we pay to repurchase our common stock since inception. It also excludes (x) any unrealized gains and losses and other non-cash items that have impacted stockholders' equity as reported in our financial statements prepared in accordance with GAAP, and (y) one-time events pursuant to changes in GAAP (such as a cumulative change to our operating results as a result of a codification change to GAAP), and certain non-cash items not otherwise described above (such as depreciation and amortization), in each case after discussions between our Manager and our independent directors and approval by a majority of our

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independent directors. As a result, our stockholders' equity, for purposes of calculating the management fee, could be greater or less than the amount of stockholders' equity shown on our financial statements. Our Manager uses the proceeds from its management fee in part to pay compensation to its officers and personnel who, notwithstanding that certain of them also are our officers, receive no cash compensation directly from us. The management fee is payable independent of the performance of our portfolio.

          The management fee of our Manager shall be calculated within 30 days after the end of each fiscal quarter and such calculation shall be promptly delivered to us. We are obligated to pay the management fee in cash within five business days after delivery to us of the written statement of our Manager setting forth the computation of the management fee for such quarter.

          We expect the base management fee to be paid to our Manager in the first four quarters following completion of this offering (including any partial quarter immediately following thereof) to be approximately $2.5 million, assuming we do not effect any follow-on equity offerings during such period.

Incentive Fee

          We will pay our Manager an incentive fee with respect to each fiscal quarter (or part thereof that the management agreement is in effect) in arrears in cash. The incentive fee will be an amount, not less than zero, equal to the difference between: (a) the product of (i) 20% and (ii) the difference between (A) our Core Earnings (as defined below) for the previous 12-month period and (B) the product of (1) the weighted average issue price per share of our common stock of all of our public offerings of common stock multiplied by the weighted average number of shares of common stock outstanding (including any restricted stock units, any restricted shares of common stock and other shares of common stock underlying awards granted under our 2012 Equity Incentive Plan) in the previous 12-month period, and (2) 8% and (b) the sum of any incentive fees earned by our Manager with respect to the first three fiscal quarters of such previous 12-month period; provided, however, that no incentive fee is payable with respect to any fiscal quarter unless cumulative Core Earnings for the 12 most recently completed fiscal quarters is greater than zero.

          Core Earnings is a non-GAAP measure and is defined as GAAP net income (loss) excluding non-cash equity compensation expense, the incentive fee, depreciation and amortization (related to targeted investments that are structured as debt to the extent that we foreclose on any properties underlying our target investments), any unrealized gains, losses or other non-cash items that are included in net income for the applicable reporting period, regardless of whether such items are included in other comprehensive income or loss, or in net income. The amount will be adjusted to exclude one-time events pursuant to changes in GAAP and certain other non-cash charges after discussions between our Manager and our independent directors and after approval by a majority of our independent directors.

          The following example illustrates how we would calculate our quarterly incentive fee in accordance with the management agreement. Amounts used below for Core Earnings and other components of the incentive fee calculation are for illustrative purposes only. Our actual results may differ materially from the following example.

          Assume the following:

    Core Earnings for the most recently completed 12-month period is $60,000,000.

    Weighted average number of shares of common stock outstanding during this 12-month period= 27,000,000.

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    Weighted average issue price per share of our common stock of all of our public offerings of common stock during this 12-month period= $20.00.

    Incentive fees paid with respect to the first three quarters of this 12-month period total $2,000,000.

          Based on the above assumptions, and the assumption that Core Earnings for the 12 most recently completed calendar quarters is greater than zero, the incentive fee payable for the final quarter of this 12-month period would be calculated as follows:

1.   Core Earnings   $ 60,000,000  

2.

 

$20.00 (weighted average issue price per share of common stock of all of our public offerings of common stock during such 12-month period) multiplied by 27,000,000 (weighted average number of shares of common stock outstanding during such 12-month period) multiplied by 8%

 

$

43,200,000

 

3.

 

$60,000,000 (Core Earnings) less $43,200,000 (amount calculated in 2 above)

 

$

16,800,000

 

4.

 

20% multiplied by $16,800,000 (amount calculated in 3 above)

 

$

3,360,000

 

5.

 

$3,360,000 (amount calculated in 4 above) less $2,000,000 (incentive fees earned with respect to the immediately preceding three quarters)

 

$

1,360,000

 

          Pursuant to the calculation formula, if Core Earnings increases from one quarter to the next and the weighted average share price and weighted average number of shares of common stock outstanding remain constant, the incentive fee will generally increase.

          For purposes of calculating the incentive fee prior to the completion of a 12-month period following this offering, Core Earnings will be calculated on the basis of the number of days that the management agreement has been in effect on an annualized basis.

          Our Manager will compute each quarterly installment of the incentive fee within 45 days after the end of the fiscal quarter with respect to which such installment is payable and promptly deliver such calculation to our board of directors. The amount of the installment shown in the calculation will be due and payable no later than the date which is five business days after the date of delivery of such computation to our board of directors.

Reimbursement of Expenses

          We will reimburse our Manager for the expenses described below. Expense reimbursements to our Manager are made in cash on a monthly basis following the end of each month. Our reimbursement obligation is not subject to any dollar limitation. Because our Manager's personnel perform certain legal, accounting, due diligence tasks and other services that outside professionals or outside consultants otherwise would perform, our Manager is paid or reimbursed for the documented cost of performing such tasks, provided that such costs and reimbursements are in amounts which are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm's length basis.

          We also pay all operating expenses, except those specifically required to be borne by our Manager under the management agreement. The expenses required to be paid by us include, but are not limited to:

    expenses in connection with the issuance and transaction costs incident to the origination, acquisition, disposition and financing of our investments;

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    costs of legal, financial, tax, accounting, servicing, due diligence consulting, auditing and other similar services rendered for us by providers retained by our Manager or, if provided by our Manager's personnel, in amounts that are no greater than those that would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm's length basis;

    the compensation and expenses of our directors and the cost of liability insurance to indemnify our directors and officers and our allocable portion of the fidelity bond, directors and officers/errors and omissions liability insurance, and any other insurance premium;

    costs associated with the establishment and maintenance of any of our secured funding facilities, other financing arrangements, or other indebtedness of ours (including commitment fees, accounting fees, legal fees, closing and other similar costs) or any of our securities offerings;

    expenses connected with communications to holders of our securities and other bookkeeping and clerical work necessary in maintaining relations with holders of such securities and in complying with the continuous reporting and other requirements of governmental bodies or agencies, including all costs of preparing and filing required reports with the SEC, the costs payable by us to any transfer agent and registrar in connection with the listing and/or trading of our securities on any exchange, the fees payable by us to any such exchange in connection with its listing, costs of preparing, printing and mailing our annual report to our stockholders and proxy materials with respect to any meeting of our stockholders;

    costs associated with any computer software or hardware, electronic equipment or purchased information technology services from third-party vendors that is used for us;

    expenses incurred by managers, officers, personnel and agents of our Manager for travel on our behalf and other out-of-pocket expenses incurred by managers, officers, personnel and agents of our Manager in connection with the purchase, financing, refinancing, sale or other disposition of an investment or establishment and maintenance of any of our securitizations or any of our securities offerings;

    costs and expenses incurred with respect to market information systems and publications, research publications and materials, and settlement, clearing and custodial fees and expenses;

    compensation and expenses of our custodian and transfer agent, if any;

    the costs of maintaining compliance with all federal, state and local rules and regulations or any other regulatory agency;

    all federal, state and local taxes and license fees;

    all insurance costs incurred in connection with the operation of our business except for the costs attributable to the insurance that our Manager elects to carry for itself and its personnel;

    costs and expenses incurred in contracting with third parties;

    all other costs and expenses relating to our business and investment operations, including the costs and expenses of originating, acquiring, owning, protecting, maintaining, developing and disposing of investments, including appraisal, reporting, audit and legal fees;

    expenses (including our pro rata portion of rent, telephone, printing, mailing, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses) relating to any office(s) or office facilities, including disaster backup recovery sites and facilities, maintained for us or our investments or the investments of our Manager or their affiliates required for our operation;

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    expenses connected with the payments of interest, dividends or distributions in cash or any other form authorized or caused to be made by the board of directors to or on account of holders of our securities, including in connection with any dividend reinvestment plan;

    any judgment or settlement of pending or threatened proceedings (whether civil, criminal or otherwise) against us, or against any trustee, director, partner, member or officer of us or in his or her capacity as such for which we are required to indemnify such trustee, director, partner, member or officer by any court or governmental agency; and

    all other expenses actually incurred by our Manager (except as described below) which are reasonably necessary for the performance by our Manager of its duties and functions under the management agreement.

          We will not reimburse our Manager for the salaries and other compensation of its personnel, except for the allocable share of the salaries and other compensation of our (a) Chief Financial Officer, based on the percentage of his time spent on the Company's affairs and (b) other corporate finance, tax, accounting, internal audit, legal, risk management, operations, compliance and other non-investment professional personnel of our Manager or its affiliates who spend all or a portion of their time managing our affairs based on the percentage of their time spent on the Company's affairs. In addition, we may be required to pay our pro rata portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of our Manager and its affiliates required for our operations.

Grants of Equity Compensation to Our Manager

          Pursuant to our 2012 Equity Incentive Plan, in addition to grants to our independent directors and our Chief Financial Officer, we may grant awards consisting of restricted shares of our common stock, restricted stock units and/or other equity-based awards to our Manager and other eligible awardees under the plan. We are authorized to issue up to an aggregate of 7.5% of the issued and outstanding shares of our common stock immediately after giving effect to the issuance of the shares sold in this offering (including any shares issued pursuant to the underwriters' exercise of their overallotment option but excluding grants of common stock-based awards under our 2012 Equity Incentive Plan or any other equity plan of the Company). We expect that the restricted shares of our common stock and restricted stock units will be accounted for under Financial Accounting Standards Board ASC Topic 718, resulting in share-based compensation expense equal to the grant date fair value of the underlying restricted shares of common stock or restricted stock units. These equity-based awards under our 2012 Equity Incentive Plan create incentives to improve long-term stock price performance and focus on long-term business objectives, create substantial retention incentives for award recipients and enhance the Company's ability to pay compensation based on the Company's overall performance, each of which further align the interests of our Manager and the other eligible awardees with our stockholders. See "Management — 2012 Equity Incentive Plan."

Conflicts of Interest

          Our Manager and Ares Management have agreed that for so long as our Manager is managing us, neither Ares Management nor any of its affiliates will sponsor or manage any other U.S. publicly traded REIT that invests primarily in the same asset classes as us. Ares Management and its affiliates may sponsor or manage another U.S. publicly traded REIT that invests generally in real estate assets but not primarily in our target investments.

          Other than as set forth herein, neither Ares Management nor any of its affiliates (including our Manager) currently manages any other investment vehicle that primarily focuses on our target investments and none of them have any current plans to do so, but they may in the future sponsor or manage other funds or investment vehicles (other than U.S. publicly traded REITs) that invest in our

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target investments. Our Manager manages certain funds, real estate assets and a CDO that were previously managed by Wrightwood. None of the Wrightwood vehicles will be making any further investments (other than follow-on investments in existing investments and additional fundings pursuant to existing commitments) except for the Wrightwood high yield fund, a $243 million fund focused primarily on mezzanine and preferred equity investments in commercial real estate, whose investment period is expected to expire on December 31, 2012 (unless the investment period is terminated earlier in accordance with its terms) and which has approximately $94.4 million of available capital remaining to be deployed as of March 31, 2012.

          Ares Management has an investment allocation policy in place that is intended to enable us to share equitably with any other investment vehicles that are managed by Ares Management. In general, investment opportunities are allocated taking into consideration various factors, including, among others, the relevant investment vehicles' available capital, diversification, their investment objectives or strategies, their risk profiles and their existing or prior positions in an issuer/security, as well as potential conflicts of interest, the nature of the opportunity and market conditions. The investment allocation policy may be amended by Ares Management at any time without our consent. Until December 31, 2012 (unless the investment period is terminated earlier in accordance with its terms), the Wrightwood high yield fund will have a right of first offer with respect to investments in mezzanine indebtedness, B-Notes, preferred equity, joint venture equity interests, distressed opportunities (including recapitalizations and the acquisition of distressed indebtedness or equity) or other interests, direct or indirect, in or relating to single or multiple real estate properties or assets (including land, buildings, and other improvements and related personal or intangible personal property), and investments that are substantially similar to the foregoing, and pools or portfolios of real estate interests or assets, partial interests or rights in real estate interests or assets that relate to the foregoing that require less than $12.2 million of capital.

          In addition to the fees payable to our Manager under the management agreement, our Manager and its affiliates may benefit from other fees paid to it in respect of our investments. For example, if we seek to securitize our CRE loans, Ares Management and/or our Manager, may act as collateral manager. In any of these or other capacities, Ares Management and/or our Manager may receive market-based fees for their roles, but only if approved by a majority of our independent directors.

          We may enter into additional transactions with Ares Management or its affiliates. In particular, we may invest in, acquire, sell assets to or provide financing to portfolio companies of investment vehicles managed by Ares Management or its affiliates or co-invest with, purchase assets from, sell assets to or arrange financing from any such investment vehicles and their portfolio companies. Any such transactions will require the approval of a majority of our independent directors. To the extent we co-invest with other investment vehicles that are managed by Ares Management, we will not be responsible for fees other than as set forth in our management agreement, except our proportionate share of fees charged by the managers of such other investment vehicles if approved by a majority of our independent directors. There can be no assurance that any procedural protections will be sufficient to ensure that these transactions will be made on terms that will be at least as favorable to us as those that would have been obtained in an arm's length transaction.

          Certain former Wrightwood personnel who are members of the Ares Commercial Real Estate Group own equity, partnership, profits or other similar interests in Wrightwood and certain of its investment vehicles. The ownership of such interests may be viewed as creating a conflict of interest insofar as such persons may receive greater benefits, by virtue of such interests, than they would receive from our Manager.

          In addition, Ares Investments may sell the shares of our common stock it owns at any time following the expiration of its applicable lock-up period. To the extent Ares Investments sells some of these shares, our Manager's interests may be less aligned with our interests.

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          Certain of our officers and directors, and the officers and other personnel of our Manager, also serve or may serve as officers, directors or partners of Ares Management, as well as Ares Management-sponsored investment vehicles, including new affiliated potential pooled investment vehicles or managed accounts not yet established, whether managed or sponsored by Ares Management's affiliates or our Manager. Accordingly, the ability of our Manager and its officers and employees to engage in other business activities may reduce the time our Manager spends managing our business. These activities could be viewed as creating a conflict of interest insofar as the time and effort of the professional staff of our Manager and its officers and employees will not be devoted exclusively to the business of the Company; instead it will be allocated between the business of the Company and the management of these other investment vehicles. None of our officers are obligated to dedicate any specific portion of their time to our business.

          In the course of our investing activities, we will pay base management fees to our Manager and will reimburse our Manager for certain expenses it incurs. As a result, investors in our common stock will invest on a "gross" basis and receive distributions on a "net" basis after expenses, resulting in, among other things, a lower rate of return than an investor might achieve through direct investments. As a result of this arrangement, our Manager's interests may be less aligned with our interests.

          We do not have any employees and rely completely on our Manager to provide us with investment advisory services. Our Chief Executive Officer, our President and Chief Financial Officer and other officers also serve as officers of our Manager. Our management agreement with our Manager was negotiated between related parties. The terms of our management agreement, including fees, expense reimbursements and other amounts payable to our Manager, may not be as favorable to us as if they had been negotiated at arm's length between unaffiliated third parties.

          We do not have a policy that expressly prohibits our directors, officers, security holders or affiliates from engaging for their own account in business activities of the types conducted by us. However, our code of business conduct and ethics contains a conflicts of interest policy that prohibits our directors, officers and employees from engaging in any transaction that involves an actual conflict of interest with us without the approval of the audit committee of our board of directors. In addition, our management agreement with our Manager does not prevent our Manager and its affiliates from engaging in additional management or investment opportunities, some of which could compete with us, and our code of business conduct and ethics acknowledges that such activities shall not be deemed a conflict of interest.

          Our Manager will pay directly to the underwriters the underwriting discount in connection with this offering.

Historical Performance of Certain Ares Management-Advised Funds

          This section provides certain information with respect to certain funds advised by our Manager's Private Debt Group that are focused on making senior secured debt investments. Although these funds share our general objective of targeting investments in senior secured debt, each of these funds is or has been focused on making senior debt investments secured primarily by the corporate assets of their borrowers. None of these funds target investments in senior or any other loans secured by CRE, which is our specific investment objective. Therefore, information provided herein with respect to these funds should not be considered indicative of our possible investment focus or our future investment performance or results of operations. There can be no assurance that our Manager will replicate the historical performance that its affiliates' investment professionals have achieved for the investors in any of these funds. Investors who purchase shares of our common stock will not acquire an ownership interest in any of these funds.

          Neither Ares Management nor any of its affiliates (during the time affiliated with Ares Management) has previously sponsored any public or private funds focused on investing in real estate

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or real estate-related assets. While certain members of our Manager's investment committee previously worked at Wrightwood, the majority of our investment committee is comprised of individuals who have been with Ares Management in excess of five years. The only funds focused on investing in real estate or real estate-related assets that our Manager or any of its affiliates currently advises are the funds that our Manager agreed to assume the management of in connection with its August 2011 acquisition of the Wrightwood investment platform (collectively, the "Wrightwood Funds"). None of the Wrightwood Funds share our primary objective of investing in senior loans secured by CRE. Rather, the Wrightwood Funds focus on investing in preferred equity and subordinated loans and other debt secured by CRE. However, from 2004 through the date our Manager acquired Wrightwood's investment platform in 2011, Wrightwood, on behalf of itself, originated (or, in a limited number of cases, purchased) 240 CRE loans, almost all of which were senior secured loans, with an aggregate committed amount of approximately $3.7 billion. However, because these investments were made by Wrightwood and not as a program sponsored by Ares Management or its affiliates, no historical performance information is included with respect to such investments. In addition, we have not included historical performance information regarding (i) certain real estate related funds currently managed by Ares Management or its affiliates because they do not share our investment objective as they focus more heavily on preferred equity and subordinated debt or (ii) certain senior debt funds secured by corporate assets managed by Ares Management or its affiliates because even though such funds may share our investment objective, investment professionals affiliated with Ares Management were not managing such funds when they were raised.

          The funds advised by our Manager's Private Debt Group that share our general objective of investing in senior secured debt are described below.

Public Fund

    Ares Capital Corporation ("Ares Capital") — Ares Capital (Nasdaq: ARCC) is a publicly traded specialty finance company with approximately $15 billion in total committed capital under management as of December 31, 2011. Ares Capital invests primarily in first and second lien senior loans and mezzanine debt, which in some cases include an equity component, made primarily to U.S. middle market companies. Ares Capital commenced substantial investment operations with five total investment professionals in one office and completed an initial public offering in October 2004, raising approximately $160 million of net proceeds ($165 million of gross proceeds), substantially all of which was used to purchase Ares Capital's initial portfolio. Ares Capital completed its most recent equity offering in January 2012. There can be no assurance that we will be able to replicate Ares Capital's growth.

Private Funds

    Fund A — Fund A is a private fund structured as a collateralized debt obligation ("CDO") that primarily invests in first and second lien bank debt of middle market companies. Fund A is managed by a Private Debt Group affiliate of Ares and commenced substantial investment operations on November 15, 2007, which also was its last funding date. The initial capitalization of Fund A totaled $404 million, consisting of $300 million of Class A Notes, $40 million of Class B Notes and $64 million of Subordinated Notes.

    Fund B — Fund B is a private fund structured as a CDO that primarily invests in first and second lien bank debt of middle market companies. Fund B commenced substantial investment operations on June 10, 2008 and had its last closing on December 9, 2011 when it was recapitalized as a $315 million fund, consisting of $168 million of Class A-1 Notes, $16 million of Class A-2 Notes, $19 million of Class B Notes, $20 million of Class C Notes, $20 million of Class D Notes, $19 million of Class E Notes and $53 million of Subordinated Notes. A Private Debt Group affiliate of Ares took over management of Fund B on March 24, 2010.

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    Fund C — Fund C is a private fund structured as a CDO that primarily invests in first and second lien bank debt of middle market companies. Fund C commenced substantial investment operations on March 15, 2007, which was also its last funding date. While a Private Debt Group affiliate of Ares took over management of Fund C on April 1, 2010, the Ares Management investment professionals primarily responsible for Fund C were managing this fund for the previous manager when it was raised. As a result, we have included information for periods prior to April 1, 2010. The initial capitalization of Fund C totaled $415 million, consisting of $100 million of Class A-1 First Priority Senior Notes, $40 million Class A-2 First Priority Senior Revolving Notes, $132.6 million Class A-3 First Priority Delayed Draw Senior Notes, $26.9 million Class B Second Priority Senior Notes, $37.2 million Class C Third Priority Subordinated Deferrable Notes, $20.7 million Class D Third Priority Subordinated Deferrable Notes, $18.6 million Class E Third Priority Subordinated Deferrable Notes and $39 million of Preferred Shares.

          The data for each fund is presented on either a "GAAP basis" or an "income tax basis" depending on the reporting requirements of the particular fund. The data for the public fund has been prepared and presented in conformity with GAAP. The information for all private funds is presented on an income tax accrual basis, as the only applicable reporting requirement for such funds is for year-end tax information provided to each investor.

          The results of these private funds may be different if they were reported on a GAAP basis. Ares Capital is required to apply fair value accounting to its investments under GAAP. As a result, it is required to report its investments at the price that would be received for the investment in a current sale (assuming an orderly transaction between market participants on the measurement date). In addition, one of the major differences between GAAP accounting and income tax accounting is that GAAP requires that an asset be considered impaired when the carrying amount of the asset is greater than the sum of the future undiscounted cash flows expected to be generated by the asset, and an unrealized impairment loss must then be recognized to decrease the value of the asset to its fair value. For income tax purposes, losses are generally not recognized until the asset has been sold to an unrelated party or otherwise disposed of in an arm's-length transaction.

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Public Fund — Ares Capital

          The following table summarizes the operations of Ares Capital and its subsidiaries as of and for the years ended December 31, 2011, 2010 and 2009. The amounts listed are all presented on a GAAP basis (dollar amounts in millions, except per share data, asset coverage ratio and as otherwise indicated):

 
  As of and for the years ended  
 
  December 31, 2011   December 31, 2010   December 31, 2009  

Total Investment Income

  $ 634.5   $ 483.4   $ 245.3  

Total Expenses

    344.6     262.2     111.3  
               

Net Investment Income Before Income Taxes

    289.9     221.2     134.0  
               

Income Tax Expense (Benefit), Including Excise Tax

    7.5     5.4     0.6  
               

Net Investment Income

    282.4     215.8     133.4  

Net Realized and Unrealized Gains (Losses) on Investments, Foreign Currencies and Extinguishment of Debt and Other Assets

    37.1     280.1     69.3  
               

Gain on the acquisition of Allied Capital Corporation

  $ 0.0   $ 195.9      
               

Net Increase (Decrease) in Stockholders' Equity Resulting from Operations

  $ 319.5   $ 691.8   $ 202.7  
               

Per Share Data:

                   

Net Increase (Decrease) in Stockholder's Equity Resulting from Operations:

                   

Basic

  $ 1.56   $ 3.91   $ 1.99  

Diluted

  $ 1.56   $ 3.91   $ 1.99  

Cash Dividend Declared

  $ 1.41   $ 1.40   $ 1.47  

Net Asset Value

  $ 15.34   $ 14.92   $ 11.44  

Total Assets

  $ 5,387.4   $ 4,562.5   $ 2,313.5  

Total Debt (Carrying Value)

  $ 2,073.6   $ 1,378.5   $ 969.5  

Total Debt (Principal Value)

  $ 2,170.5   $ 1,435.1   $ 969.5  

Total Stockholders' Equity

  $ 3,147.3   $ 3,050.5   $ 1,257.9  

Other Data:

                   

Number of Portfolio Companies at Period End(1)

    141     170     95  

Principal Amount of Investments Purchased

  $ 3,239.0   $ 1,583.9   $ 575.0  

Principal Amount of Investments Acquired as part of the Allied Acquisition

  $ 0.0   $ 1,833.8      

Principal Amount of Investments Sold and Repayments

  $ 2,468.2   $ 1,555.1   $ 515.2  

Leverage Ratio (Total Debt (Carrying Value) as a percentage of Total Assets)(2):

    38.5 %   30.2 %   41.9 %

(1)
Includes commitments to portfolio companies for which funding has yet to occur.

(2)
Ares Capital, as a business development company, is subject to certain regulatory restrictions on the amount of leverage it may incur. As a mortgage REIT that intends to maintain an exemption from registration under the Investment Company Act, we will not be subject to the same regulatory restrictions regarding leverage.

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Private Funds — Fund A

          The following table summarizes the operations of Fund A as of and for the years ended January 31, 2012, 2011 and 2010(1). The amounts listed are all unaudited and presented on an income tax accrual basis (dollar amounts in thousands except as otherwise indicated):

 
  As of and for the years ended  
 
  January 31, 2012   January 31, 2011   January 31, 2010  

Interest Income

  $ 22,741   $ 27,891   $ 27,526  

Interest Expense

    (9,655 )   (8,096 )   (9,167 )
               

Net Interest Margin

    13,086     19,795     18,359  
               

Other Income

             
               

Management Fees

    (1,704 )   (1,963 )   (1,957 )

Other Expenses

    (2,893 )   (1,123 )   (484 )
               

Income From Operations

    8,489     16,709     15,918  
               

Net Realized Gains on Investments

    3,131     3,105     1,712  
               

Net Increase in Capital from Operations

  $ 11,620   $ 19,814   $ 17,630  
               

Distributions in respect of equity and subordinated notes

  $ 10,167   $ 18,201   $ 14,530  

Total Assets

 
$

359,333
 
$

365,442
 
$

401,993
 

Total Debt(2)

 
$

273,000
 
$

283,723
 
$

321,500
 

Leverage Ratio (Total Debt as a percentage of Total Assets)

   
76.5

%
 
77.6

%
 
80.0

%

(1)
In accordance with Fund A's incorporation documents, the Fund's agreed upon tax year end is January 31st. For clarification, for the federal tax year ending December 31, 2011, the Fund reports income earned for the year ending January 31, 2011. Fund A has been managed by a Private Debt Group affiliate of Ares since its inception in 2007.

(2)
Does not include $64,000 of subordinated notes. The subordinated notes are treated as equity for tax purposes and are not included in the Total Debt.

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Private Funds — Fund B

          The following table summarizes the operations of Fund B as of and for the years ended December 31, 2011 and 2010. The amounts listed are all unaudited and presented on an income tax accrual basis (dollar amounts in thousands except as otherwise indicated):

 
  As of and for the years ended  
 
  December 31, 2011   December 31, 2010(1)  

Interest Income

  $ 19,026   $ 20,834  

Interest Expense

    (10,239 )   (9,090 )
           

Net Interest Margin

    8,787     11,744  
           

Other Income

    376     321  
           

Management Fees

    (925 )   (1,755 )

Other Expenses

    (1,359 )   (879 )
           

Income From Operations

    6,879     9,431  
           

Net Realized Gains on Investments

    3,033     1,639  
           

Net Increase in Capital from Operations

  $ 9,912   $ 11,070  
           

Distributions in respect of equity and subordinated notes

  $ 8,571   $ 4,156  

Total Assets

  $ 317,530   $ 294,041  

Total Debt

  $ 258,260 (2) $ 252,566 (3)

Leverage Ratio (Total Debt as a percentage of Total Assets)

    81.3 %   85.9 %

(1)
A Private Debt Group affiliate of Ares assumed management of Fund B on March 25, 2010; prior to that date Fund B was managed by a third party unrelated to Ares.

(2)
Does not include $53,000 of subordinated notes. The subordinated notes are treated as equity for tax purposes and are not included in the Total Debt.

(3)
Does not include $25,500 of subordinated notes. The subordinated notes are treated as equity for tax purposes and are not included in the Total Debt.

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Private Funds — Fund C

          The following table summarizes the operations of Fund C as of and for the years ended December 31, 2011 and 2010. The amounts listed are all unaudited and presented on an income tax accrual basis (dollar amounts in thousands except as otherwise indicated):

 
  As of and for the years ended  
 
  December 31, 2011   December 31, 2010   December 31, 2009(1)  

Interest Income

  $ 20,425   $ 17,325   $ 22,985  

Interest Expense

    (3,353 )   (3,503 )   (5,825 )
               

Net Interest Margin

    17,072     13,822     17,160  
               

Other Income

    603     623     64  
               

Management Fees

    (2,630 )   (2,594 )   (2)

Other Expenses

    (1,663 )   (1,761 )   (866 )
               

Income From Operations

    13,382     10,090     16,358  
               

Net Realized (Losses) on Investments

    (4,983 )   (8,882 )   (5,646 )
               

Net Increase in Capital from Operations

  $ 8,399   $ 1,208   $ 10,712  
               

Distributions in respect of common equity and preferred equity

  $ 8,400   $ 9,731      

Total Assets

  $ 409,359   $ 413,706   $ 416,909  

Total Debt(3)

  $ 377,098   $ 377,005   $ 377,015  

Leverage Ratio (Total Debt as a percentage of Total Assets)

    92.1 %   91.1 %   90.4 %

(1)
While a Private Debt Group affiliate of Ares assumed management of Fund C on April 1, 2010, the Ares Management investment professionals primarily responsible for Fund C were managing this fund for the previous manager when it was raised. As a result, we have included information for periods prior to April 1, 2010.

(2)
In 2009, management fees of $2,645 were incurred but not deducted for tax purposes.

(3)
Does not include $39,000 of preferred equity.

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MANAGEMENT

Our Directors and Executive Officers

          Currently, our board of directors is comprised of eight members. In addition to serving on our board of directors, Messrs. Arougheti and Bartling are also executives of Ares Management. Our board of directors is divided into classes serving staggered terms and will each serve a term of three years until a successor is duly elected and qualifies. Our bylaws provide that a majority of the entire board of directors may at any time increase or decrease the number of directors. However, unless our bylaws are amended, the number of directors may never be less than the minimum required by MGCL nor more than 15.

          The following sets forth certain information with respect to our directors and executive officers:

Name
  Age   Position To Be Held with Us

Michael J. Arougheti

    39   Non-Executive Chairman of the Board of Directors (Class III Director)

John B. Bartling, Jr. 

    54   Chief Executive Officer and Director (Class I Director)

Bruce R. Cohen

    50   President and Chief Operating Officer

Richard S. Davis

    53   Chief Financial Officer (interim)

Daniel F. Nguyen

    40   Treasurer

Timothy B. Smith

    55   Vice President, Secretary and Senior Associate General Counsel

Michael D. Weiner

    59   Vice President and General Counsel

John H. Bryant

    46   Director (Class II Director)*

Michael H. Diamond

    69   Director (Class III Director)*

Jeffrey T. Hinson

    57   Director (Class I Director)*

Paul G. Joubert

    64   Director (Class II Director)*

Robert L. Rosen

    65   Director (Class II Director)

Todd Schuster

    51   Director (Class I Director)*

*
Our board of directors has determined that this director is independent for purposes of the NYSE corporate governance listing requirements.

          Set forth below is biographical information for our directors and executive officers.

Directors

          Information pertaining to Messrs. Arougheti and Bartling may be found in the section entitled "Our Manager and the Management Agreement — Manager Biographical Information."

          John Hope Bryant is one of our Class II directors. Mr. Bryant is the founder, chairman, and chief executive officer of Operation HOPE, America's first non-profit social investment banking organization which began in May 1992 and operates as a global provider of financial dignity and economic empowerment tools and services to low-wealth individuals. Mr. Bryant is also the founder and chief executive officer of Bryant Group Companies, Inc., a private holding company which began in 1991 and invests principally in its own operations, partnerships, companies and opportunities, including Bryant Group Real Estate, LLC. Recently, Mr. Bryant was appointed by U.S. President Barack Obama as the Chairman of the Subcommittee on the Underserved and Community Empowerment for the President's Advisory Council on Financial Capability. Mr. Bryant is also the bestselling author of LOVE LEADERSHIP: The New Way to Lead in a Fear-Based World. He was the recipient of an Honorary Doctorate Degree of Human Letters from Paul Quinn College of Dallas, TX, in April 2008. Mr. Bryant's vast experience as an entrepreneur over the last twenty years will provide the board of directors with a valuable combination of leadership and practical knowledge.

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          Michael H. Diamond is one of our Class III directors. Mr. Diamond is currently the sole member and employee of MHD Group LLC, a business that was founded by Mr. Diamond in November 2007 to provide consulting and expert witness services. Since 1994, Mr. Diamond has also been the Corporate Secretary and a member of the Board of Directors of Neu Holdings, Inc., a holding company that owns entities in the shipping and real estate industries. Prior to founding MHD Group LLC, Mr. Diamond was a partner at the law firm of Milbank, Tweed, Hadley & McCloy from June 2000 to October 2007. Mr. Diamond is a graduate of Brown University and holds a J.D. from Columbia University Law School where he graduated magna cum laude. In addition, Mr. Diamond's 40 years of experience as a lawyer and adviser to corporations, their officers, directors, and shareholders will provide the board of directors with valuable knowledge in the areas of corporate governance, fiduciary duties, reporting and compliance.

          Jeffrey T. Hinson is one of our Class I directors. Mr. Hinson is currently the President of YouPlus Media, LLC, a position which he has held since June 2009. From July 2007 to July 2009, Mr. Hinson was the President and Chief Executive Officer and a member of the board of directors of Border Media Partners, LLC. Prior to joining Border Media Partners, LLC, Mr. Hinson served as a financial consultant from January 2006 to July 2007. From March 2004 to June 2005, he was the Executive Vice President and Chief Financial Officer of Univision Communications, a Spanish language media company in the United States, where he later acted as a consultant from July 2005 to December 2005. Mr. Hinson has also served as Senior Vice President and Chief Financial Officer of Univision Radio, the radio division of Univision Communications, from September 2003 to March 2004. From 1997 to 2003, Mr. Hinson served as Senior Vice President and Chief Financial Officer of Hispanic Broadcasting Corporation, which was acquired by Univision Communications in 2003. Currently, Mr. Hinson serves as a director and Chairman of the Audit Committees for Windstream Corporation, LiveNation Entertainment, Inc., and Tivo, Inc. He is also a member of the Governance Committee of Windstream Corporation and a member of the Strategy Committee of Tivo, Inc. Mr. Hinson holds a B.B.A and an M.B.A. from the University of Texas at Austin. His extensive financial and accounting experience combined with his current service on the Audit Committees of three public companies will provide the board of directors with valuable knowledge and a broad perspective on the challenges and opportunities facing the Company.

          Paul G. Joubert is one of our Class II directors. He is the Founding Partner of EdgeAdvisors, a privately held management consulting organization where he has been employed since June 2008. Since July 2008, Mr. Joubert has also served on the Board of Directors and as the Audit Committee Chairman of Stream Global Services Inc., a public company. From 1971 until he joined EdgeAdvisors, Mr. Joubert held various positions at PricewaterhouseCoopers LLP, or PWC, an international consulting and accounting firm. During his tenure at PWC, Mr. Joubert served as a Partner in the firm's Assurance practice and led its Technology, InfoCom and Entertainment practice for the Northeast region of the United States. Prior to that, he served as Partner-in-Charge of PWC's Northeast Middle Market Group and Chief of Staff to the Vice-Chairman of PWC's domestic operations. From May 2009 to September 2010, Mr. Joubert served on the Board of Directors of Phaseforward, a publicly traded company that was acquired by Oracle in the fall of 2010. He has also been involved with a number of professional organizations, including the Boston Museum of Science, the National Association of Corporate Directors, the National Council for Northeastern University and the American Institute for Certified Public Accountants. Mr. Joubert holds a B.A. from Northeastern University. His long and varied business career provides the board of directors and, specifically, the audit committee of the board of directors, with valuable knowledge, insight and experience in financial and accounting matters.

          Robert L. Rosen is one of our Class II directors. Mr. Rosen is managing partner of RLR Capital Partners, which invests principally in the securities of publicly traded North American companies. From 1987 to present, Mr. Rosen has been CEO of RLR Partners, LLC, a private investment firm with interests in financial services, healthcare media and multi-industry companies. He has served as a director of Ares Capital Corporation since 2004. Mr. Rosen served from 2003 until 2005 as co-Managing Partner of Dolphin Domestic Fund II. In 1998, Mr. Rosen founded National Financial Partners ("NFP"), an

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independent distributor of financial services to high net worth individuals and small to medium-sized corporations. He served as NFP's CEO from 1998 to 2000 and as its Chairman until January 2002. From 1989 to 1993, Mr. Rosen was Chairman and CEO of Damon Corporation, a leading healthcare and laboratory testing company that was ultimately sold to Quest Diagnostics. From 1983 to 1987, Mr. Rosen was Vice Chairman of Maxxam Group. Prior to that, Mr. Rosen spent twelve years at Shearson American Express in positions in research, investment banking and senior management, and for two years was Assistant to Sanford Weill, the then Chairman and CEO of Shearson. Mr. Rosen holds an M.B.A. in finance from NYU's Stern School. Mr. Rosen's 31 years of experience as a senior executive of financial services, healthcare services and private equity funds will bring broad financial industry and specific investment management insight and experience to the board of directors. In addition, Mr. Rosen's expertise in finance, which served as the basis for his appointment as an Adjunct Professor of Finance at Fordham University Graduate School of Business, will provide valuable knowledge to the board of directors.

          Todd Schuster is one of our Class I directors. Mr. Schuster was the founder, principal and a Member of the Board of Managers of CW Financial Services and led its merger in September 2002 with a subsidiary of the Caisse de depot et placement du Quebec, one of Canada's largest pension fund managers. He also served as the company's Chief Executive Officer from its inception in 1991 until January 2009. CW Financial Services operated primarily through three subsidiaries: CWCapital, which provided financing to owners of multifamily and commercial real estate, CWCapital Investments, which provided high yielding commercial real estate debt opportunities to institutional investors, and CWCapital Asset Management, the nation's second largest special servicer. Prior to founding CW Financial Services, Mr. Schuster was employed by Salomon Brothers and Bankers Trust in their respective Commercial Mortgage Finance units. He is also involved in local charities and is an advisor to the Indian Institute for Sustainable Enterprise in Bangalore, India. Mr. Schuster holds a B.A. from Tufts University. His credentials will provide the board of directors with valuable knowledge and practical experience in the commercial real estate finance industry.

Executive Officers

          Information pertaining to our executive officers may be found in the section entitled "Our Manager and the Management Agreement — Manager Biographical Information."

Corporate Governance — Board of Directors and Committees

          Our business is managed by our Manager, subject to the supervision and oversight of our board of directors. A majority of our board of directors is "independent," as determined by the requirements of the NYSE corporate governance listing requirements and the regulations of the SEC. Our directors keep informed about our business by attending meetings of our board of directors and its committees and through supplemental reports and communications. Our independent directors meet regularly in executive sessions without the presence of our corporate officers or non-independent directors.

          Our board of directors has formed an audit committee and a nominating and governance committee and adopted charters for each of these committees, both of which will be available on our website at www.arescre.com. We determined not to form a separate compensation committee because our executive officers are not expected to receive any direct compensation from us other than certain grants to be made to the Chief Financial Officer under our 2012 Equity Incentive Plan. Each of the audit and nominating and governance committees has three directors and is composed exclusively of independent directors, as defined by the NYSE corporate governance listing requirements.

Audit Committee

          The members of the audit committee are Messrs. Hinson, Schuster and Joubert, each of whom is independent for purposes of the NYSE corporate governance listing requirements. Mr. Joubert serves as Chairman of the audit committee.

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          The audit committee is responsible for engaging our independent accountants, reviewing with our independent accountants the plan and results of the audit engagement, approving professional services provided by our independent accountants, reviewing the independence of our independent accountants and reviewing the adequacy of our internal accounting controls. In addition, the audit committee is responsible for discussing with management the Company's major financial risk exposures and the steps management has taken to monitor and control such exposures, including the Company's risk assessment and risk management policies. The audit committee is also responsible for administering our 2012 Equity Incentive Plan and approving the compensation payable to our Manager pursuant to the management agreement.

          Each of Messrs. Hinson, Schuster and Joubert is an "audit committee financial expert" within the meaning of the rules of the SEC.

Nominating and Governance Committee

          The members of the nominating and governance committee are Messrs. Bryant, Diamond and Hinson, each of whom is independent for purposes of the NYSE corporate governance listing requirements. Mr. Hinson serves as Chairman of the nominating and governance committee.

          The nominating and governance committee is responsible for selecting, researching and nominating directors for election by our stockholders, selecting nominees to fill vacancies on the board of directors or a committee of the board of directors, developing and recommending to the board of directors a set of corporate governance principles and overseeing the evaluation of the board of directors and its committees. In considering possible candidates for election as a director, the nominating and governance committee takes into account, in addition to such other factors as it deems relevant, the desirability of selecting directors who:

    are of high character and integrity;

    are accomplished in their respective fields, with superior credentials and recognition;

    have relevant expertise and experience upon which to be able to offer advice and guidance to management;

    have sufficient time available to devote to the affairs of the Company;

    are able to work with the other members of the board of directors and contribute to the success of the Company;

    can represent the long-term interests of the Company's stockholders as a whole; and

    are selected such that the board of directors represents a range of backgrounds and experience.

          The nominating and governance committee may consider recommendations for nomination of directors from our stockholders. Nominations made by stockholders must be delivered to or mailed (setting forth the information required by our bylaws) and received at our principal executive offices not earlier than 150 days nor fewer than 120 days in advance of the first anniversary of the date on which we first mailed our proxy materials for the previous year's annual meeting of stockholders; provided, however, that if the date of the annual meeting has changed by more than 30 days from the prior year, the nomination must be received not earlier than the 150th day prior to the date of such annual meeting nor later than the later of (1) the 120th day prior to the date of such annual meeting or (2) the 10th day following the day on which public announcement of such meeting date is first made.

Compensation Committee

          Instead of having a compensation committee, we have provided that grants under our 2012 Equity Incentive Plan and the compensation payable to our Manager pursuant to the management agreement will be separately approved by our audit committee, which is comprised entirely of independent directors in accordance with the compensation committee requirements of NYSE Rule 303A.05. We decided not to form a separate compensation committee because our executive officers are not expected

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to receive any direct compensation from us other than certain grants to be made to the Chief Financial Officer under our 2012 Equity Incentive Plan.

Compensation of Directors

          Our independent directors receive an annual fee of $75,000, payable 50% in restricted common stock and 50% in cash. They are also entitled to reimbursement of reasonable out-of-pocket expenses incurred in connection with attending each board meeting and each committee meeting. In addition, the chairperson of the audit committee receives an additional annual fee of $15,000 in cash, and each chairperson of any other committee receives an additional annual fee of $5,000 in cash for his or her additional services in these capacities. In addition, each audit committee member other than the chairperson receives an additional annual fee of $10,000 in cash, and each member of any other committee (other than the chairperson of such committee) receives an additional annual fee of $2,000 in cash for his or her services in these capacities. In addition, we purchase directors' and officers' liability insurance on behalf of our directors and officers.

2012 Equity Incentive Plan

          Prior to the completion of this offering, we will adopt the 2012 Equity Incentive Plan to provide incentive compensation to attract and retain qualified directors, officers, advisors, consultants and other personnel, including our independent directors, our Chief Financial Officer and our Manager. Our 2012 Equity Incentive Plan will be administered by a committee appointed by our board of directors, which will initially be our audit committee. Our 2012 Equity Incentive Plan will permit the granting of stock options, restricted shares of common stock, restricted stock units, phantom shares, dividend equivalent rights and other equity-based awards. Prior to the completion of this offering, we will not have issued any equity-based compensation. We currently expect that grants made in 2012 under such plan (including the grants to our independent directors described herein) will result in the issuance of an aggregate of 2.5% or less of such issued and outstanding shares. The charter of the audit committee of our board of directors provides that the audit committee approves all awards granted under the plan. Upon completion of this offering, we will grant 5,000 restricted shares of our common stock to each of our five independent directors. These initial awards of restricted shares will vest ratably on a quarterly basis over a three-year period beginning on the first day of the fiscal quarter after we complete this offering. In addition, upon completion of this offering, each of our five independent directors will be granted 2,027 restricted shares of our common stock as 2012 annual compensation awards granted pursuant to our 2012 Equity Incentive Plan. These annual awards of restricted shares will vest ratably on a quarterly basis over a one-year period beginning on the first day of the fiscal quarter after we complete this offering.

Administration

          The committee appointed by our board of directors to administer our 2012 Equity Incentive Plan has the authority to administer and interpret the plan, to authorize the granting of awards, to determine who is eligible to receive an award, to determine the number of shares of common stock to be covered by each award (subject to the individual participant limitations provided in the plan), to determine the terms, provisions and conditions of each award (which may not be inconsistent with the terms of the plan), to prescribe the form of instruments evidencing awards and to take any other actions and make all other determinations that it deems necessary or appropriate in connection with the plan or the administration or interpretation thereof. In connection with this authority, the committee may, among other things, establish performance goals that must be met in order for awards to be granted or to vest, or for the restrictions on any such awards to lapse. From and after the completion of this offering, our 2012 Equity Incentive Plan will be administered by a committee consisting of two or more non-employee directors, each of whom is intended to be (i) to the extent required by Rule 16b-3 under the Exchange Act, a non-employee director, (ii) at such times as we are subject to Section 162(m) of the Internal Revenue Code and intend that grants be exempt from the restriction of Section 162(m), an outside director for purposes of Section 162(m) of the Internal Revenue Code, and (iii) an "independent director"

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as defined under Section 303A.02 of the NYSE Listed Company Manual or other applicable stock exchange rules, or, if no committee exists, the board of directors. References below to the committee include a reference to the board for those periods in which the board is acting.

Available Shares

          Our 2012 Equity Incentive Plan provides that, subject to adjustments for recapitalizations and other corporate transactions, no grant under the plan may cause the total number of shares of common stock subject to all outstanding awards to exceed 7.5% of the issued and outstanding shares of our common stock (on a fully diluted basis immediately after giving effect to the issuance of the shares sold in this offering and including shares to be sold pursuant to the underwriters' exercise of their overallotment option). Subject to the foregoing limit, if an option or other award or any portion thereof granted under our 2012 Equity Incentive Plan expires or terminates without having been exercised or paid, as the case may be, the shares subject to such portion will again become available for the issuance of additional awards. No new award may be granted under our 2012 Equity Incentive Plan after the tenth anniversary of the date that such plan was initially approved by (i) our board of directors and (ii) our stockholders (which is expected to occur immediately prior to the completion of this offering). No award may be granted under our 2012 Equity Incentive Plan to any person who, assuming exercise of all options and payment of all awards held by such person would own or be deemed to own more than 9.8% of the outstanding shares of our common stock. We expect that the restricted shares of our common stock and restricted stock units will be accounted for under Financial Accounting Standards Board ASC Topic 718, resulting in share-based compensation expense equal to the grant date fair value of the underlying restricted shares of common stock or restricted stock units. Each of our independent directors will receive 5,000 restricted shares of our common stock upon completion of this offering.

Awards Under the Plan

          Stock Options.    The terms of specific options shall be determined by the committee. The exercise price of an option shall be determined by the committee and reflected in the applicable award agreement, and may not be lower than 100% of the fair market value of our common stock on the date of grant. Options will be exercisable at such times and subject to such terms as determined by the committee. Options generally will expire not later than ten years after the date of grant.

          Restricted Shares of Common Stock.    A restricted stock award is an award of shares of common stock that are subject to restrictions on transferability and such other restrictions, if any, as the committee may impose. Grants of restricted shares of common stock will be subject to vesting schedules as determined by the committee. The restrictions may lapse separately or in combination at such times, under such circumstances, including, without limitation, a specified period of employment or the satisfaction of pre-established performance criteria, in installments or otherwise, as the committee may determine. Unless otherwise stated in the applicable award agreement, a participant granted restricted shares of common stock has all of the rights of a stockholder, including, without limitation, the right to vote and the right to receive dividends on the shares.

          Restricted Stock Units.    Restricted stock units are bookkeeping entries, each of which represents the equivalent of one share of common stock, and which may be settled in cash or shares of common stock as the committee may designate in an award agreement or otherwise. Restricted stock units shall be subject to vesting based on continued employment or service or the satisfaction of pre-established performance criteria, or such other restrictions as the committee shall determine.

          Phantom Shares.    A phantom share represents a right to receive the fair market value of a share of common stock, or, if provided by the committee, the right to receive the fair market value of a share of common stock in excess of a base value established by the committee at the time of grant. Phantom shares shall be subject to vesting based on continued employment or service or the satisfaction of pre-established performance criteria, or such other restrictions as the committee shall determine.

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Phantom shares may generally be settled in cash or by transfer of shares of common stock (as may be elected by the participant or the committee, or as may be provided by the committee at grant).

          Dividend Equivalents.    A dividend equivalent is a right to receive (or have credited) the equivalent value (in cash or shares of common stock) of dividends paid on shares of common stock otherwise subject to an award. The committee may provide that amounts payable with respect to dividend equivalents shall be converted into cash or additional shares of common stock. The committee will establish all other limitations and conditions of awards of dividend equivalents as it deems appropriate.

          Other Share-Based Awards.    Our 2012 Equity Incentive Plan authorizes the granting of other awards based upon shares of our common stock (including the grant of securities convertible into shares of common stock and share appreciation rights), subject to terms and conditions established at the time of grant.

Change in Control

          Upon a change in control (as defined in our 2012 Equity Incentive Plan), the committee may make such adjustments as it, in its discretion, determines are necessary or appropriate in light of the change in control, but only if the committee determines that the adjustments do not have a substantial adverse economic impact on the participants (as determined at the time of the adjustments).

Other Changes

          Our board of directors may amend, alter, suspend or discontinue our 2012 Equity Incentive Plan but cannot take any action that would impair the rights of a participant in existing grants without such participant's consent. NYSE rules or other applicable regulations may require approval of our stockholders for any amendment that would:

    other than through adjustment as provided in our 2012 Equity Incentive Plan, increase the total number of shares of common stock available for issuance under our 2012 Equity Incentive Plan; or

    change the class of officers, directors, employees, consultants and advisors eligible to participate in our 2012 Equity Incentive Plan.

          The committee or our board of directors may amend the terms of any award granted under our 2012 Equity Incentive Plan, prospectively or retroactively, but generally may not impair the rights of any participant in existing grants without his or her consent.

Code of Business Conduct and Ethics

          Our board of directors has established a code of business conduct and ethics that applies to our directors, officers and employees. Among other matters, our code of business conduct and ethics is designed to deter wrongdoing and to promote:

    honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships;

    full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications;

    compliance with applicable governmental laws, rules and regulations;

    prompt internal reporting of violations of the code to appropriate persons identified in the code; and

    accountability for adherence to the code.

          Any waiver of the code of business conduct and ethics for our executive officers or directors may be made only by our board of directors or one of our board committees and will be promptly disclosed as required by law or stock exchange regulations.

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Limitation of Liability and Indemnification

          Maryland law permits a Maryland corporation to include in its charter a provision limiting the liability of its directors and officers to the corporation and its stockholders for money damages except for liability resulting from (a) actual receipt of an improper benefit or profit in money, property or services or (b) active and deliberate dishonesty established by a final judgment as being material to the cause of action. Our charter contains such a provision and limits the liability of our directors and officers to the maximum extent permitted by Maryland law.

          Our charter authorizes us, to the maximum extent permitted by Maryland law, to obligate ourselves to indemnify and pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any present or former director or officer of the Company, or (b) any individual who, while serving as our director or officer and at our request, serves or has served another corporation, REIT, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, partner, member, manager or trustee of such corporation, REIT, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, from and against any claim or liability to which such person may become subject or which such person may incur by reason of his or her service in such capacity or capacities. Our bylaws obligate us, to the maximum extent permitted by Maryland law, to indemnify and pay or reimburse reasonable expenses in advance of final disposition of a proceeding to (a) any present or former director or officer of the Company who is made or threatened to be made a party to the proceeding by reason of his service in that capacity, or (b) any individual who, while serving as our director or officer and at our request, serves or has served another corporation, REIT, partnership, limited liability company, joint venture, trust, employee benefit plan or any other enterprise as a director, officer, partner, member, manager or trustee of such corporation, REIT, partnership, limited liability company, joint venture, trust, employee benefit plan or other enterprise, and who is made or threatened to be made a party to the proceeding by reason of his service in that capacity. Our charter and bylaws also permit us to indemnify and advance expenses to any person who served any predecessor of the Company in any of the capacities described above and to any employee or agent of the Company or of any predecessor.

          The MGCL requires us (unless our charter provides otherwise, which our charter does not) to indemnify a director or officer who has been successful, on the merits or otherwise, in the defense of any proceeding to which he is made or threatened to be made a party by reason of his service in that capacity. The MGCL permits a corporation to indemnify its present and former directors and officers, among others, against judgments, penalties, fines, settlements and reasonable expenses actually incurred by them in connection with any proceeding to which they may be made or threatened to be made a party by reason of their service in those or other capacities unless it is established that (a) the act or omission of the director or officer was material to the matter giving rise to the proceeding and (i) was committed in bad faith, or (ii) was the result of active and deliberate dishonesty, (b) the director or officer actually received an improper personal benefit in money, property or services, or (c) in the case of any criminal proceeding, the director or officer had reasonable cause to believe that the act or omission was unlawful. However, under the MGCL, a Maryland corporation may not indemnify a director or officer for an adverse judgment in a suit by or in the right of the corporation or for a judgment of liability on the basis that a personal benefit was improperly received. A court may order indemnification if it determines that the director or officer is fairly and reasonably entitled to indemnification, even though the director or officer did not meet the prescribed standard of conduct or was adjudged liable on the basis that personal benefit was improperly received. However, indemnification for an adverse judgment in a suit by us or in our right, or for a judgment of liability on the basis that personal benefit was improperly received, is limited to expenses. In addition, the MGCL permits a corporation to advance reasonable expenses to a director or officer upon the corporation's receipt of (a) a written affirmation by the director or officer of his good faith belief that he has met the standard of conduct necessary for indemnification by the corporation, and (b) a written undertaking by him or on his behalf to repay the amount paid or reimbursed by the corporation if it is ultimately determined that the appropriate standard of conduct was not met.

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PRINCIPAL STOCKHOLDERS

          Immediately prior to the completion of this offering, there will be 1,500,000 shares of common stock and 114.4578 shares of Series A Preferred Stock outstanding. At that time, we will have no other shares of capital stock outstanding. The following table sets forth certain information, prior to and after this offering, regarding the ownership of each class of our capital stock by:

    each of our directors;

    each of our executive officers;

    each holder of 5% or more of each class of our capital stock; and

    all of our directors and executive officers as a group.

          In accordance with SEC rules, each listed person's beneficial ownership includes:

    all shares the investor actually owns beneficially or of record;

    all shares over which the investor has or shares voting or dispositive control (such as in the capacity as a general partner of an investment fund); and

    all shares the investor has the right to acquire within 60 days (such as restricted shares of common stock that are currently vested or which are scheduled to vest within 60 days).

          Unless otherwise indicated, all shares are owned directly, and the indicated person has sole voting and investment power. Except as indicated in the footnotes to the table below, the business address of the stockholders listed below is the address of our principal executive office, Two North LaSalle Street, Suite 925, Chicago, IL 60602.

 
  Percentage of Common Stock Outstanding  
 
  Immediately Prior to
this Offering
  Immediately After
this Offering(1)
 
Name and Address
  Shares Owned   Percentage   Shares Owned   Percentage  

Ares Investments Holdings LLC(2)

    1,500,000     100 %   2,000,000     21.66 %

Michael J. Arougheti(2)

                 

John B. Bartling, Jr

                 

Bruce R. Cohen

                 

Richard S. Davis

                 

John H. Bryant(3)

            7,027     *  

Michael H. Diamond(3)

            7,027     *  

Jeffrey T. Hinson(3)

            7,027     *  

Paul G. Joubert(3)

            7,027     *  

Robert L. Rosen

                 

Todd Schuster(3)

            7,027     *