ACRES Commercial Realty Corp. Fair Value Disclosure

NOTE 18 - FAIR VALUE OF FINANCIAL INSTRUMENTS

The Company had no financial instruments carried at fair value on a recurring basis at either December 31, 2025 or 2024.

The Company measures the fair value of certain assets on a non-recurring basis when events or changes in circumstances indicate that the carrying value of the assets may be impaired. Adjustments to fair value generally result from the application of lower of amortized cost or fair value accounting for assets held for sale or write-downs of an asset's value due to impairment.

During the year ended December 31, 2025, the Company foreclosed on one property that formerly collateralized a CRE whole loan. Upon receipt, the property was immediately contributed to a joint venture, and the Company's investment in that joint venture is included in investments in unconsolidated entities on the consolidated balance sheets. The property was appraised and determined to have a fair value of $74.4 million at the time of acquisition. Fair value was determined using an income capitalization valuation technique, with the significant unobservable input being an overall cap rate of 5.00% The valuation of this property fell under Level 3 of the fair value hierarchy.

During the year ended December 31, 2024, the Company received one deed-in-lieu of foreclosure on a property and foreclosed on a second property that each formerly collateralized a CRE whole loan. Upon receipt, the properties were immediately contributed to joint ventures, and the Company's investment in those joint ventures are included in investments in unconsolidated entities on the consolidated balance sheets. The first property was appraised and determined to have a fair value of $20.3 million at the time of acquisition. Fair value was determined using a discounted cash flow valuation technique, with the significant unobservable inputs being an internal rate of return of 8.50% and a terminal cap rate of 7.00%. The second property was appraised and determined to have a fair value of $32.0 million at the time of acquisition. Fair value was determined using an income capitalization valuation technique, with the significant unobservable input being a terminal cap rate of 6.00%. The valuation of this property fell under Level 3 of the fair value hierarchy.

Additionally, during the year ended December 31, 2024, two other properties were acquired through foreclosure that each formerly collateralized a CRE whole loan. The first property was determined to have a fair value of $17.5 million at the time of acquisition and was immediately classified as a property held for sale on the Company's consolidated balance sheets. The property's value was determined from a range of offers received to purchase the property. The second property was appraised and determined to have a value of $9.8 million at the time of acquisition. Fair value was determined using an income approach valuation technique, with the significant unobservable input being a terminal cap rate of 6.25%. The valuation of these properties fell under Level 3 of the fair value hierarchy.

Additionally, during the year ended December 31, 2024, the Company reclassified one loan from CRE whole loans to Loans held for sale. The loan was transferred upon entering into a loan sale and assignment agreement in December 2024 and marked to the lower of cost or market. The loan had an outstanding par balance of $11.8 million and was written down $700,000 through the allowance for credit losses immediately prior to the reclassification. The carrying value of the loan held for sale is $11.1 million. The valuation of the loan fell under Level 3 of the fair value hierarchy.

The Company is required to disclose the fair value of financial instruments for which it is practicable to estimate that value. The fair values of the Company’s short-term financial instruments such as cash and cash equivalents, restricted cash, accrued interest receivable, accounts payable, and other liabilities, accrued interest payable and distributions payable approximate their carrying values on the consolidated balance sheets. The fair values of the Company’s other financial assets and liabilities are estimated as follows:

CRE whole loans. The fair values of the Company’s loans held for investment are measured by discounting the expected future cash flows using the current interest rates at which similar loans would be made to borrowers with similar credit ratings and for the same remaining maturities. Par values of loans with variable interest rates are expected to approximate fair value unless evidence of credit deterioration exists, in which case the fair value approximates the par value less the loan’s allowance estimated through individual evaluation. The Company’s floating-rate CRE loans had interest rates from 4.63% to 10.88% and 7.13% to 11.63% at December 31, 2025 and 2024, respectively.

CRE mezzanine loans. The fair value of the Company's mezzanine loans are measured by discounting the expected remaining cash flows using the current interest rates at which similar instruments would be originated for the same remaining maturity. At December 31, 2024, the Company held one mezzanine loan, which was fully reserved and had no carrying or fair value. The Company did not hold any mezzanine loans at December 31, 2025, as the one mezzanine loan was charged off.

Preferred equity investments. The fair value of the Company's preferred equity investment is measured by discounting the expected cash flows using the future expected coupon rates. The Company's preferred equity investment is discounted at a rate of 10.00%.

Loan receivable- due from Manager. Fair value is estimated using a discounted cash flow model.

Senior notes in CRE securitizations, 5.75% Senior Unsecured Notes and junior subordinated notes. Fair values are estimated using a discounted cash flow model with implied yields based on trades for similar securities.

CRE term reinvestment financing facility, Senior secured financing facility, warehouse financing facilities and mortgage payable. These are variable rate debt instruments that are indexed to one-month Term SOFR that reset periodically and, as a result, their carrying value approximates their fair value, excluding deferred debt issuance costs.