Todd Schuster - President and Chief Executive Officer Tae-Sik Yoon - Chef Financial Officer John Stilmar - Investor Relations.

Dan Altscher - FBR Capital Markets & Co. Steve DeLaney - JMP Securities Sam Choe - Credit Suisse Jade Rahmani - Keefe, Bruyette & Woods, Inc Charles Nabhan - Wells Fargo Securities Ken Bruce - BofA Merrill Lynch.

Good afternoon and welcome to the Ares Commercial Real Estate Corporation's conference call to discuss the Company's First Quarter 2015 earnings results. During today’s presentation, all callers will be placed in a listen-only mode. Following management’s prepared remarks the conference call will be opened up for questions.

As a reminder, this conference is being recorded on May 7, 2015. Comments made during the course of this conference call and webcast and the accompanying documents contain forward-looking statements and are subject to risks and uncertainties.

Many of these forward-looking statements can be identified by the use of such words as anticipates, believes, expects, intends, will, should, may and similar expressions. These forward-looking statements are based on management's current expectations of market conditions and management's judgment.

These statements are not guarantees of future performance, conditions or results and involve a number of risks and uncertainties. The Company's actual results could differ materially from those expressed in the forward-looking statements as a result of a number of factors including those listed in the SEC filings.

Ares Commercial Real Estate Corporation assumes no obligation to update any such forward-looking statements. Please also note that past performance or market information is not a guarantee of future results. I will now turn the call over to Mr. Todd Schuster, Acres' President and CEO..

Thank you, Laura, and good afternoon, everyone. I'm joined today by Tae-Sik Yoon, our Chef Financial Officer and John Stilmar from our Investor Relations. I'm pleased to report that for the second quarter in a row we announced earnings that both covered our dividend and demonstrated strong year-over-year growth.

Specifically, in the first quarter we generated net income of $7.1 million, or $0.25 per diluted common share. Much like Q4, these results were driven by record earnings from our principal lending business, as well as strong production in our mortgage banking business at business at ACRE Capital. Let me walk you through the highlights for the quarter.

Starting with our principal lending business, we earned a record $7.2 million in the first quarter. We continue to find high-quality, accretive investments which, combined with modestly lower expenses and highly efficient financing of our loan book, helped drive these higher earnings.

With respect to our mortgage banking business, we were pleased with production of over $200 million in what is traditionally a seasonally light quarter for new originations. In fact, looking at the last two quarters, from October 2014 through March 2015 we originated more than $500 million in new loans for that six month period.

That’s an average more than $80 million per month. In addition, since the end of the quarter we have originated another $130 million in new loans and on top of that, we have a strong forward pipeline.

When we purchased ACRE Capital, we believed there were synergies we could derive from the integration of our balance sheet with the fee-oriented mortgage banking model. One of these is the ability to capture a portion of loan repayments from our balance sheet and convert them into revenue opportunities by originating a GSE or FHA loan.

We saw this play out in Q1, where three multifamily loans in our principal lending book were refinanced by ACRE Cap, thereby creating a longer-duration revenue stream for our shareholders that otherwise would not have been possible. As the only public REIT with a GSE mortgage banking capability and one of only 15 lenders in the U.S.

with both Freddie Mac and Fannie Mae license, and likely an even smaller group that also have an active FHA business, we believe that our platform is uniquely positioned for these types of synergies.

Before I turn the call over to Tae-Sik, I want to reiterate that we have no intention of offering equity or equity-linked securities at a discount to book.

In fact, because we believe that our stock is trading well below its intrinsic value, our Board has authorized a share buyback program for the repurchase of up to $20 million of common stock over the next year.

While firmly believe our stock is significantly under valued we also recognize that prudent capital allocation is a key component to long-term value creation. In this effort, we will weigh other capital opportunities including the attractiveness of new investments versus share repurchases.

As Tae-Sik will discuss, our 2015 earnings guidance is not predicated on raising incremental common equity or equity-linked capital or, for that matter, share repurchases. I will now turn the call over to Tae-Sik..

Great. Thank you, Todd and good afternoon everybody. Thanks again for joining our quarterly earnings call. I'm going to begin today with a recap of our first-quarter results and then discuss our liquidity as well as our loan portfolio and then conclude with an update to our full-year 2015 earnings guidance.

We are very pleased with our first-quarter 2015 results. First quarter net income was $7.1 million, or $0.25 per diluted common share compared to $4.8 million or $0.17 per diluted common share for the same period a year ago. This represents nearly a 50% growth in our earnings year-over-year.

At quarter end, we had 41 loans held for investment, totaling $1.4 billion in commitments and $1.2 billion of outstanding principal, excluding non-controlling interests held by third parties.

All of our loans held for investment continue to perform in accordance with their terms, and we have no delinquencies, defaults, or impairments as of March 31, 2015. We also continued to match-fund our assets and liabilities with respect to interest rate exposure.

Approximately 91% of our $1.2 billion in loans held for investment, as measured by outstanding principal, are floating-rate, meaning that they earn interest based on one-month LIBOR. This compares well to our liability structure, where approximately 92% is comprised of floating-rate debt.

Due to our match-funding strategy, we believe that we are well positioned to benefit in a rising interest rate environment so that if LIBOR goes up, we expect our net income to commensurately go up.

Turning now to our mortgage banking business, we originated $202 million of new loans comprised of $81 million in Fannie Mae DUS loans and $121 million in Freddie Mac loans.

Because Freddie Mac loans represent approximately 60% of our production in the first quarter of 2015 which is about double what we would expect on average, our gross margins in the mortgage banking business was lower than our historical averages.

Going forward, however, for the balance of 2015, we expect a more normalized mix of production, made up of approximately equal parts of Fannie, Freddie, and FHA loans which we believe will result in higher gross margins and higher overall profitability.

As far as liquidity, as of May 6, 2015, we have approximately $56 million of cash or approved and undrawn capacity under our financing facilities.

After reserving approximately $10 million for liquidity, we have $46 million of investable capital which, together with leverage, gives us capacity to originate approximately $180 million of additional senior loans, assuming a 3-to-1 debt-to-equity ratio.

Given our capital, we may remain highly selective with new investments, with an emphasis on higher-returning strategies. Now let me address a question that we hear frequently from shareholders about our exposure to energy-related markets.

Of our $1.2 billion in loans held for investment, approximately 6%, or $77 million are backed by multifamily properties located in the Houston, Texas, metropolitan area. All of these loans are undergoing value-enhancing business plans which we believe will further increase cash flow and the values of these properties.

All of these loans are performing well in accordance with the terms of the loan agreement. We do not have office, industrial, retail, hotel, or land exposure in Houston.

And similarly, in our mortgage banking business, the loans in which we share risk of loss, our total exposure is approximately $46 million in the Houston metropolitan area - again, all backed by loans in multifamily properties. This compares to a total servicing portfolio of more than $4 billion.

All the loans in Houston are well seasoned, with an average age of six years. And finally, looking further into 2015 you may have seen from our earnings release this morning that we increased our earnings guidance for the full year 2015 to $4 to $14 per diluted common share.

The increase in our guidance range reflects our continued confidence in our business plan and our strong start to the year. Importantly, among the many assumptions we detail in our earnings release, our earnings range is not dependent upon raising common equity, raising equity-linked capital, or repurchasing our shares.

Our guidance range, however, does take into consideration the in-place GSE lending caps today. We may revisit the higher end of our guidance range in the future as we gain more clarity about possible modifications to GSE lending caps and the potential positive impact this could have on our mortgage banking production.

We are in a strong position to deliver against our earnings plan for this year, having already originated over $330 million of GSE-related loans. In addition, we have built a growing and visible pipeline of FHA loans that, importantly, are not directly impacted by changes in GSE lending policies and caps.

Lastly, as you may have seen in our press release, we declared a second-quarter dividend of $0.25 per share, which is consistent with our prior quarter's level. So with that, I will now turn the call back over to Todd for some closing remarks..

Thanks, Tae-Sik. In closing, we are pleased with our first quarter results and the improvement in our earnings. We believe, importantly, that these results reflect our progress in building out an integrated platform that is funded by multiple capital sources.

The result is a less volatile, diverse earnings stream with enhanced growth potential, which combined with our strong first quarter results, our well-positioned portfolio, and promising forward pipeline, leads us to increase our 2015 earnings guidance. We want to thank our investors for their support, and we would be happy to take your questions.

Operator, Laura, please open up the lines, please..

[Operator Instructions] And our first question will come from Dan Altscher of FBR..

Thanks and good afternoon everyone.

I know it just kind of hit maybe about an hour or so ago, but do you have any first reactions or takes on FHA's revision to, I guess, these, to many of these exclusions that they're including to the programs?.

Did you say FHA – FHFA's exclusions?.

Yes, sorry, FHFA, I think, came out with their – they were having some exclusions now available against the caps..

Look, there's been a lot of discussion around exclusions, modifications, et cetera, to the caps. We're still digesting new news as it comes through. But again, just to be clear, our guidance takes into consideration where we are today. It doesn't take into consideration any kind of modifications that might come through in the caps. But….

Okay, got it. Todd, I was wondering if you could maybe give some color as to – I think we saw everyone across the board, that first quarter was really strong for GSE lending.

Can you comment and just give some color as to maybe what changed this go-around versus the normal seasonality from an industry overview standpoint?.

So, look, we thought we had a really nice first quarter on the heels of a pretty healthy fourth quarter in mortgage banking. Clearly, the GSEs have been pretty active in the first part of the year which, of course, is exactly what's creating a lot of this discussion around the caps. But we continue to see a very strong pipeline of business.

The nice thing about our business is it's pretty well diversified, so not only do we have Fannie and Freddie, but we've also got an FHA program, and it's pretty active. And in fact, when we think about that diversification, our diversification isn't into what I would call lower-margin business like CMBS or brokerage or anything like that.

FHA is a pretty healthy margin business, so that's a pretty good diversification for us. So GSEs have been very active. There maybe some relief under the caps. If not, our guidance is our guidance. We like our ability to diversify into the FHA side of the business. So overall, we're feeling really good about our mortgage banking business right now..

Okay. And then I think, Tae-Sik, your comment was, in terms of the gain on sale margin for the quarter, that it was fueled by mix of production, and you expect it to kind of normalize.

But do you guys have any sort of real control over what comes through the channel that you can go out there and say, "Yes, it's going to be 50/50 Freddie/Fannie going forward," to just, "It is what it was.".

Yes, I think what happens over time is that these things just tend to equalize. I mean, there are some quarters where Freddie tends to be a little more aggressive. There will be some quarters where Fannie tends to be a little more aggressive.

Again, we're ignoring the whole FHA side of the business for the moment to talk about the Fannie/Freddie portion..

Right..

So it's really – my experience in this business, which pretty long-term player in this space, Fannie and Freddie kind of equalize over time. And in fact, if you look at the numbers in terms of just overall production for Fannie and Freddie over years, you see fairly consistent.

I mean, over the years, Freddie had like lower caps or lower production numbers. It's only more recently that Fannie and Freddie are kind of equal now, if you will. But the numbers equalize over time..

Yes, and Dan, I think just to add to that, as we mentioned on our prepared remarks, when you look at production quarter-by-quarter, you tend to see a little bit more episodic concentrations or diversification of your production mix.

When we look at our forward pipeline, I think we see a very much evening much evening out of the three products that we have – FHA, Fannie, and Freddie. But quarter to quarter, you'll see some concentrations in one part to the other, but again, that's more episodic. It's not a trend..

Got it, okay. And then one other one for me and then I'll hop off. Clearly, we also saw the authorization of the buyback.

What's the trigger point in your mind, going forward, as to whether we actually execute on it as opposed to just having it at our availability? And I know in the prepared remarks you said there was some weighing back and forth against other capital options.

But if you could maybe just elaborate on that, what's a trigger point?.

So it's a great question. We're seeing a lot of really good opportunities in our principal lending business right now, and we have a pretty good pipeline of what I would call high-ROE opportunities we're looking at, some investments in the low teens in terms of an ROE perspective.

There's one investment in the house right now that's a mid-to-high teens ROE return. So that's obviously important. I mean, if we can continue to invest money in high-returning, high-quality assets, obviously, that's going to be compelling.

But we're always going to look at those returns against what kind of return we think we would be obtaining on share repurchases. And we'll just make the appropriate decision.

I'm not really in a position to tell you exactly where that is, but clearly, we're looking at both of those things all the time to make what we consider to be prudent decisions around capital allocation..

Okay, thanks for the comments, Todd..

Yes, thank you..

Great, thanks Dan..

And the next question comes from the Steve DeLaney of JMP..

Thanks appreciate you guys taking my question. Not to beat up the buyback, but just want to applaud the decision by the Board. It's great for management to have that flexibility. Clearly, anything you would do at this level would be very accretive to book. I'm thinking about your guidance, though.

And Todd, your comments about weighing the return to shareholders from a buyback versus low to -mid-teen investment opportunities. When I hear that, I'm assuming you've got guidance out there, $1.04 to $1.14.

And would it be reasonable for us to assume that you would not make a decision to buy back shares if it would necessarily result – that use of capital would result in you having to lower your guidance versus invest in something that was a low to mid-teen ROE? Do you see where I'm going with the question?.

Sort of, and yes, we're not going to do things that would consciously, purposely – whatever is the right word – that's going to undermine the guidance, in fact. Again, with respect to the guidance, Steve, turning to mortgage banking just for a second, I mean I just want to reiterate, it considers where we are today with the GSEs on the cap issue.

It does not take into consideration what may be pending relief. We don't know that that's coming. But if it does come, that has not been taken into consideration in the high end of our guidance..

No, understood that. And so that if you were to get some relief later in the year, then you may have more – you're basing it off the $30 billion caps, right, per GSE? And without any expansion and there's a lot – obviously, you see all the press we see about an added $5 billion, et cetera. That remains to be seen, I guess.

Okay, that's helpful to me on the guidance. And just book value accretion's great, but I would have to say for ACRE and commercial mortgage REITs generally, we care more about EPS and dividends than we do necessarily book value accretion. But talking shifting gears to the GSE capacity issue, I'm just curious.

You know, there are some existing exemptions – manufactured housing, affordable.

Were any of the loans that you originated in the first quarter, would any of those have been excluded under the current lending caps by the nature of their property type?.

I don't think any of them would have been excluded. I would say there's possibly an exception for small loans in there, but I don't think anything would have – first blush, I don't think anything would have come in outside of the caps..

Okay, okay.

And do you actually have product offerings out there? I mean, that was one quarter, but are you quoting any of those exempt products?.

We do quote those exempt products. It's not a focus of our business. And again I would tell you that the pipeline we have Q2, excuse me, keeping in mind that we’ve already rate-locked $130 million or so business with the pipeline we have, mortgage banking is looking good for 2Q. And the forward pipeline into Q3 looks really good.

So again, all of that's being considered. The caps are being considered in our production capability and pipeline, and we feel really good about it..

Got it. We're all hearing the GSEs have been incredibly aggressive, $10 billion each in the first quarter. I noticed that there were no FHA HUD loans in your first-quarter production. Now, it seems that nobody's talking about HUD in terms of companies who are in the multifamily origination business. And I'm just curious.

You did, I think Tae-Sik's comments, you did mention the very attractive margins on that product. And I'm just curious, your thoughts about how viable the FHA HUD product is with the aggressive GSEs. And are you anticipating that you will have some revenues from HUD loan originations in 2015? Thanks..

Yes, we're definitely anticipating that we will have FHA originations in 2015. That pipeline is pretty healthy, looking out into the remainder of the year. It's interesting. The sponsor who borrows FHA isn't necessarily the sponsor who borrows with Fannie and Freddie, for a variety of reasons..

Understood..

With that said, if Fannie and Freddie raise spreads - which they've done already, by the way - but if they continue to raise spreads at the margins, you will definitely see more FHA business. It will drive people into the product. But generally speaking, it's almost like a different set of borrowers.

And also keep in mind that the FHA program has a pretty vibrant nursing home and assisted living financing program, which really doesn't exist with Fannie and Freddie. It also has a construction lending program that doesn’t exist with Fannie and Freddie.

So it's got a lot of other things going for it, other products going for it that just don't exist in the GSE world..

Got it, so the cannibalization of the GSEs has been more on just plain vanilla multifamily?.

Well, yes. And when you say the cannibalization, what you'll see with the GSEs is if they want to cede some market share, it mostly probably goes to the CMBS market, right? If they're trying to regulate their flow, they raise their prices a little bit.

And the CMBS market, being capital markets driven, it is the product, if you will, that has the ability to most quickly react to that, to respond to that. So if they're looking to manage their flows, they raise spreads a little bit and the CMBS market picks it up.

If they're looking to be aggressive, they bring their spreads in a little bit and they take more market share..

Got it. Appreciate the comments, guys. Thank you..

Thanks, Steve..

And our next question comes from Doug Harter of Credit Suisse..

This is Sam Choe filling in for Doug Harter. Most of our questions have been answered, but I did have a follow-up question on the mortgage banking volumes. So the fourth quarter, you reported $313 million, and for the first quarter, it was $202 million.

So I'm just thinking, for modeling purposes, should we expect some sort of meaningful growth that could trend us towards the fourth-quarter levels? Or am I thinking about this incorrectly?.

No, you're not thinking about it incorrectly. I would say a couple of things. One, remember we're in, we have two things going on here - seasonality and a growing business..

Right..

And a third thing, product mix, right? So our business is growing. We're building this business. As I said, I think, on the last call, I would expect that Q4 2015 would be bigger than Q4 2014 from a production perspective or an earnings perspective. So you should continue to see our business build.

There is a seasonality component to it, so Q1 tends to be lower and Q4 tends to be higher. And then there's also the product mix issue. And we expect that our product mix, going forward, is going to be a little bit more balanced which means a higher percentage of higher-margin loans in our overall production, so that's a factor as well..

Got it. All right, thank you so much..

And next we have a question from Jade Rahmani of KBW..

Thanks very much. Todd, I wanted to ask you about your thoughts on the competitive environment, given that you are citing very high return prospects in the lending segment. But just overall, you've seen a bunch of these cycles. I want to get your broader views..

So I'm sorry, Jade.

Are you asking me about the competitive market?.

With respect to real estate, both debt and asset pricing..

Okay. Look, people often ask where we are in the cycle, what inning. Everybody likes to use sports analogies. I'd like to stay away from sports analogies, but I will say that values have come back quite a bit in commercial real estate. I think that if you look at cap rates as a spread to Treasuries on a historical basis, they're still wide.

So I do think there's some room for additional growth in values in the market. Regardless, if you think about where we play, especially on the principal lending side, we're doing a lot of value-add financing, and we love that business because that's typically acquisitions, so we almost always have cash equity in ahead of our loans, which is great.

We tend to get in at a low basis because they're not stabilized assets, they are transitional assets. So we come in at a low basis. And then we're advancing money, if you will, into value enhancement or cash flowing type events like new leases or capital improvements. So our basis goes up, if you will, as the value of the asset goes up.

So we love where we are in the value-add space, if you will. But the commercial real estate market is healthy, and we expect that values can be sustained and possibly just giving the spread between cap rates and Treasuries.

And if Treasuries move up a little bit – I've been noticing the last few days, Treasury rates have been moving up if they continue to move up, that could definitely have an impact on cap rates.

But I would say I think some of that movement is already anticipated in the cap rates, if you will, as evidenced by the difference between the 10-year Treasury and the cap rate. And that spread, that again is high relative to historical standards..

And in terms of the high-ROE opportunities you're talking about, can you give a flavor for what it is? Are those subordinate debt positions? Are those whole loans where you have plans to syndicate part of it or securitize? Exactly how does – also maybe the property type..

Yes, the pipeline has both. So it has interesting first-mortgage opportunities that we can finance to really nice ROEs, and there is also some subordinated debt opportunities in there as well. So we're seeing it all..

And how about by property type or location?.

We're seeing – our portfolio is pretty diverse geographically; so is the pipeline. In terms of product types, we tend to be more multifamily-centric. But with that said, we're seeing opportunities across a bunch of different property types..

Okay. Just on the prepayments in the quarter, I was wondering if you could quantify the prepayment income benefit we saw. And secondly, if there were some outsized loans that prepaid or if – what your prepayment expectations would be for the rest of the year..

Sure. Thanks, Jade. So in terms of prepayments for the quarter, as we noted in our earnings release, we had about $218 million of prepayments.

So when we net the acceleration of deferred revenues, which is what I think you're referring to, versus some of the deferred expenses we had related to financing those same investments, the acceleration of those combination of fees and expenses really turned out to be a very small number, but it was a slightly negative number, not a positive number.

And in terms of forecast for the rest of the year and again, this is something we very, very closely monitor just like some of the comments I made previously, if you look at it quarter-to-quarter and really think about life in 91-day increments, it could be fairly episodic.

But, so for example in the fourth quarter, we only had $60 million in prepayments; first quarter, we have $218 million; so far in the second quarter, we've had a very limited amount of borrowers giving us formal notice of prepayment.

So at this point, we still have a month and a half left, a little bit more than a month and a half left in the quarter, but at this point we don't expect significant prepayments in the second quarter, certainly not anywhere near first quarter levels. So it is a bit, as I said, episodic, and it's something that we work very carefully to monitor.

It's something that, because we are a direct servicer of all our loans, we are in constant contact with the borrowers. So it's something we have a very good feel for. And again, we think looking at it quarter-to-quarter is not the right way to look at it.

It is something we look at it in terms of our capital planning, in terms of our earnings model, in terms of our assets that we have on the balance sheet, but again I think its hard to measure on a quarter-to-quarter basis..

Great. Thanks very much for taking my questions..

Thank you, Jade..

And the next question comes from Charles Nabhan of Wells Fargo..

Hey, guys most of my questions have been asked, but have you given any consideration to potentially expanding the ACRE Capital business with new hires to better capitalize on the environment?.

I am sorry, repeat the question..

I'm sorry.

Given that the ACRE capital business has achieved some scale, have you given any consideration to bringing in new hires to help you better capitalize on the favorable trends in multifamily?.

Yes, so look the hiring of new production folks, goes on throughout the year. Right any time we can find really high-quality folks that we kind of our cultural fit in our shop and you can take advantage sort of the product offering in metrics we have – we are always interested. But there is also other ways to build up production.

You can enter into correspondent relationships with outside institutions you have a need to access or a desire to access the licensure, as an example.

So we are exploring that new originators but we are also exploring other options as well to kind of further enhance our production and by the way further enhance our ROE because we need to do for example when you enter into a correspondent relationship is not a lot of front and investment associated with that so it has the ability to kind of I don’t want to overstated but I used turbo-charge ROEs.

.

Okay. And if I could follow-up with Jade's question regarding the competitive environment, on the principal lending front, we've seen a number of non-bank financials enter the space.

And I was wondering if you could comment on the competitive environment and what you're seeing in terms of pricing as well as if you're seeing any decline or deterioration in underwriting standards..

I think underwriting standards are holding up there are clearly a lot of people in the space, but I do thing there is a couple of interesting things going on the people shouldn’t lose side of either one is obviously what we know with the GSEs. They've been widening spreads. That's not a market-driven issue, right? That's a manufactured situation.

But notwithstanding that, they're widening spreads. That can have an impact on the market. We've also seen GE announce that they're getting out of the space entirely, or nearly entirely. So that was a pretty big competitor in the debt space. And so having that competitor out is another, I would say, positive sign for spreads.

So do I think spread compression could stop? Yes. Do I think we could even get a little bit of spread widening in here? Possibly. But I do think there are some, notwithstanding the money that's flowing into this space, I do think there's some important events out there that people should be cognizant of..

Okay. And I'm sorry, if I could sneak in one more.

Could you comment on any rate expectations embedded into your earnings guidance? In other words, does it assume a flat rate environment relative to where we are now?.

Basically, we're expecting a relatively level interest rate environment, but I think what's important to note, particularly for the principal lending business where we use our own balance sheet, again, more than 90% of our assets and more than 90% of our liabilities are floating-rate, so that if LIBOR moves up, we're actually going to benefit from that.

Again, we haven't factored that interest rate and LIBOR going up into our earnings guidance. But we've said if LIBOR were to go up, we would actually be the net beneficiary of that..

Okay, got it. Appreciate the color, guys. Thank you..

Thank you..

[Operator Instructions] And our next question will come from Ken Bruce of Bank of America Merrill Lynch..

Thank, good afternoon..

Hey, Ken..

My question touches on basically the same thing that Chuck was going after with his first. Maybe to ask it a little bit differently, 2014 was very much a year of restructuring. 2015, I think, was viewed as the year of execution.

I'd like to know, from your vantage point, is ACRE Capital where you want it to be, irrespective of things that you may be adding incrementally over the course of this year? Do you think you've got it basically positioned where you want it to be?.

Nothing is where I want it to be. We're always looking to improve this business and build the business, both in the principal lending space and the mortgage banking side. With respect to your question specifically about the mortgage banking space and business, it continues to be a building business.

Again, I think I made the comment earlier that just, if you looked at Q4 2015 versus 2014, we expect that to be higher, right? So we expect to see a significant amount of production, a building amount of production to be closed on during 2015. And we expect to build the business beyond that into 2016. So we continue to be in a building mode.

We're looking for ways to expand production. As noted before, we're looking for high-quality originators to join the platform. People are pretty focused on our platform right now. The fact that we have a balance sheet, which is a big, big thing for originators in this space - GSE originators in this space.

So the fact that we have a balance sheet to match up with the GSE products, the fact that we have a viable and vibrant FHA business it makes us - I'm not going to say magnet - but it makes us very attractive to folks, originators out in the space, to high-quality originators in the space who really know how to wield those multiple products.

So we’re building, we're excited about it. We think there's a lot more to do in that business, and we're very pleased with the performance to date this year..

Okay. Well, okay. Kind of a work in progress. I can appreciate that.

And maybe can you tease out a little bit more the difference in terms of the correspondent relationship that, or maybe the economics around a correspondent-originated loan versus your typical in-house, just so we can understand, if that becomes any kind of a meaningful impact on numbers, what the differences are?.

Yes, I’m not going to go into too much detail around that. But needless to say, correspondent relationships don't require a lot of upfront investment, and they do typically, if you enter into them with the right folks, generate a pretty high volume of production.

The cost, of course, comes in some kind of fee-splitting arrangement with correspondents, but that's not an upfront cost; that's a sort of over time cost as you close loans. But that's about the most I would say about it right now. And I do just want to say you characterized my comments a little differently than I would.

I wouldn't say ACRE Cap is a work in progress anymore. That business has now been repositioned in many respects, and now I think we're just building on the successes that we have right now..

Okay. And maybe lastly, more of a comment. But as it relates to the buyback, it's always nice to have that flexibility. I guess I look at the business as in a growth mode, and certainly within the context of ACRE Capital, that may be capital efficient, but you do need that balance sheet.

So I'd hate for you to constrain the balance sheet by really tinkering too much around trying to get a little bit of book value accretion. I really do think that the focus on the earnings growth is probably where investors are most focused..

Got it. Appreciate the comments, thanks. End of Q&A.

Thank you. This concludes our question-and-answer session. I would like to turn the conference back over to Todd Schuster for any closing remarks..

At this time, we're going to close up the call here. Thank you for your continuing support of ACRE. We look forward to speaking with you all next quarter..

Ladies and gentlemen, this concludes our conference call for today. If you missed any part of today's call, an archived replay of this conference will be available approximately one hour after the end of the call through May 20, 2015, to domestic callers by dialing 877-344-7529 and to international callers by dialing 1-412-317-0088.

For all replays, please reference conference number 10063484 and archive replay will also be available on a webcast link located on the home page of the Investor Resources section of our website. Thank you very much..