Good afternoon. And welcome to the Ares Commercial Real Estate Corporation's Conference Call to discuss the Company's Fourth Quarter 2015 and Full Year Earnings Results. As a reminder, this conference is being recorded on March 1, 2016. I will now turn the call over to John Stilmar from Investor Relations.

Thank you, Amy. Good afternoon. We appreciate you all for joining us today for ACRE's Q4 and full year 2015 earnings call. I am joined today by Rob Rosen, our Chairman and Interim Co-CEO; John Jardine, our President and Co-CEO; Tae-Sik Yoon, our CFO; and Carl Drake, Ares Head of Public Investor Relations. Before I begin, I want to remind everyone that 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 words such as anticipates, believes, expects, intends, will, should, may, and similar expressions. These forward-looking statements are based on management's current expectation of markets' 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 its 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 would now turn the call over to Rob Rosen, our Chairman and Interim Co-CEO.

Thank you, John. Good afternoon to everybody. Our fourth quarter earnings of $8.9 million or $0.31 per share concluded a strong year of execution against our goals and objectives. For 2015 we generated record earnings of $34.3 million or $1.20 per share, a 40% year-over-year increase and a 1.2x coverage of our cash dividend. We also materially outperformed the initial earnings guidance we set at the beginning of 2015 of $1.2 to a $1.14 per share. As we reflect on 2015, we would like to review our progress measured against the four goals we established at the beginning of last year. First, we sought to enhance our return on equity in our principle lending business by being highly selective on new originations and by optimizing our available capital. During 2015, we focused on high quality and accretive investments across a diverse set of property types to enhance our earnings and further diversify our principle lending portfolio. We also took steps to improve profitability by opportunistically selling lower earning investments which allowed us to redeploy this capital into higher earning assets. Collectively, these actions enabled us to generate $27.3 million in net earnings representing a 21% year-over-year improvement in principle lending earnings compared to 2014. Secondly, we sought to improve the profitability of ACRE Capital through greater scale and our repositioning efforts that occurred in 2014. In 2015, our GSC and FHA originations collectively increased 69% to 838 million which enabled us to drive a 28% increase in revenues for mortgage banking. Our revenue growth along with the reduction of $2.4 million in G&A expenses in our back office drove an additional $5 million in net income. ACRE Capital's 2015 earnings represented a 600 basis point improvement in return on equity compared to 2014. Third, we sought to further enhance our…

Thank you Rob, and good afternoon everyone. Let me start with an update on recent market dynamics. As we discussed on our last call, we started to see increased market volatility in the broad credit markets along with some minor spread widening in our markets during the fourth quarter of last year. Given the changing market environment we made a conscious deliberate decision not to step on the gas in late 2015 with production as we expected terms and pricing to continue to improve and that is exactly what has occurred. If you look at CMBS, triple V minus spreads as a proxy. They widened from 400 basis points in September to 500 basis points in mid November 2015, but have since widened to 800 basis points in February of 2016. As you may recall, we closed our 150 delayed draw secured term loan in late 2015 in order to have available capital for growth and new market opportunities. With this capital, our leverage is up at low end of our targeted range at a moderate 2.1x debt-to-equity, leaving the opportunity to increase our return on equity as we deploy our available capacity throughout the year into the improving investment environment. The good news is that we are now seeing an improving investment environment as traditional lenders to commercial real estate are tightening their underwriting standards or cannot provide attractive dependable sources of financing for real estate. Therefore, Ares often shift from the traditional fixed rate financing strategies to lenders that can provide certainty of closing with often lower oil in cost and shorter term floating rate options. This shift in demand is improving our deal flow and allowing us to be even more selective about properties and sponsors. Given the elevated market volatility in this shift and demand, we…

Great. Thank you, John. On today’s call, I would like to provide a brief recap of key financial elements from our fourth quarter and full year 2015 results, discuss our strong financial position at Iran and then walk you through our 2016 outlook. Fourth quarter earnings were $8.9 million or $0.31 per diluted common share, which was comprised of $6.9 million from principle lending and $2 million from our mortgage banking business. These quarterly results contributed to a strong year in 2015 with $34.3 million in net income or a record $1.20 in earnings per share. This represents a 40% year-over-year increase in earnings and a strong 120% coverage of our dividend. Our balance sheet at the year end 2015 was also strong, leaving us well positioned heading into 2016. Our portfolio has been well constructed consisting primarily of short term floating rate senior loans. As of December 31 2015, the weighted average remaining life of our loan portfolio held for investment was just under two years and 85% of the portfolio was comprised of senior loans collateralized by properties located in diverse geographic markets. And as John mentioned, since our inception in 2011 we have not had any delinquencies, defaults or impairments. This disciplined approach to creating a highly attractive loan portfolio also applies to managing our liquidity and financing sources. Our balance sheet was moderately leveraged at year end at a debt-to-equity ratio of 2.1. And as of February 26, 2016 we had 160 million available cash on approve but undrawn capacity under our financing facilities that we can use to fund new loans, to fund outstanding commitments under our existing loans, to buy back our stock and for other general corporate and working capital purposes. To illustrate the dry powder of our available liquidity, assuming we use…

Thank you, Tae-Sik. As we look forward into 2016 and beyond, we want to remind investors that we are committed to three primary goals and principles. First, we are a credit first organization and culture. We are committed to rigorous credit discipline and we will be highly selective in originating quality investments with appropriate risk adjusted returns. We believe our disciplined approach, experienced team, and investment platform based on direct origination and servicing, provides us with competitive advantages. We feel fortunate to head into more volatile markets with a solid performing portfolio as a foundation, so we can dedicate resources to capitalizing on the market opportunities. Second, we're committed to building shareholder value and growth, which we believe is reflected in our positive outlook for 2016, and our Board's recent decision to increase the dividend. Furthermore as market volatility increased in late 2015 and into 2016, we believe there would be an expanded opportunity set to invest our capital. We were deliberate in maintaining capital levels to position our business to go on offence with capital to deploy in an increasingly attractive opportunities set. We believe our discipline has presented us with attractive opportunities to build shareholder value with the repurchase of our stock, and to invest capital at wider spreads. Admittedly we sacrificed some earnings in the first quarter. However, we believe we had better positioned our business for greater long term value creation. Third, we're committed to collaboration and realization of the many benefits we gain from our Ares external manager, which had $94 billion of assets under management at year end. As part of a large global organization like Ares, our access to external capital sources is materially enhanced through Ares broad and deep relationships. We will also continue to leverage the many other benefits of our relationship with Ares, such as, deal flow, market knowledge, credit insights, and diligent expertise, that we believe enhance our overall performance and profitability for shareholders. I want to thank our employees for their hard work and dedication, and our investors for their support. We would now be happy to take your questions.

[Operator Instructions] Our first question is from Dan Altscher at FBR.

Hi, thanks and I guess good afternoon at this point to everybody. I saw the increase in the buyback authorization of the $30 million. I guess it's already $28 million. I just want to confirm that, I guess there were no stock -- there wasn't a stock repurchase initially on that program yet to-date, and I guess -- what's giving you the impetus now to increase the authorization and maybe how committed are you to go out there and actually do the buyback?

Thanks. This is, Rob. Let me take a crack at the question. First, you're right. There were no share buybacks under the initial authorization. As you recall, in the latter part of 2015, we were in the face of very volatile credit markets putting together our new term loan B, which was a source of capital to repay our maturing convert and also give us fire power entering 2016. We're glad that we put that loan in place, and we think that it probably would be difficult to recreate at this point in time. As we enter 2016, the capital markets and the volatility of the markets were really quite extraordinary. So, in discussions with our Board, and particularly in the face of pulling back on our deployment of capital in our lending areas, we determined to put in place 10b5-1 plan, and expect to be in the markets on a regular basis and actively be buying our shares in 2016.

Okay. Thanks, Rob. That's helpful response. John, I think your comments were -- I guess in speaking of fourth quarter, there seem to be loan pricing out maybe 50 to 75 basis points or so, the terms are improving. I guess, one, if you could maybe talk about what terms you're seeing that have improved, whether it's proceeds or covenants or LTVs, what terms have been improved and I guess how borrowers responded to 50 to 75 basis point increase? Are they pushing back or are they willing to accept it because it's better than what they can do in CMBS?

They're willing to accept it because it's better than what they can do in CMBS. But, you're seeing some -- in the insurance company world you're seeing lower LTVs that are required. You're seeing stricter covenants. So, the ability of borrowers to obtain very flexible capital from the insurance sector is not as evident as it has been in the past. And certainly in the CMBS world, it's been very, very, very choppy. So, it just poses an environment for us, that is quite attractive.

Okay. And then one for Tae-Sik, or two for Tae-Sik, I guess. I appreciate the color around first quarter being probably below the dividend, I think you were well below the dividend. Can you maybe just frame the magnitude of what maybe you might be expecting? And then I guess on the other side of the equation, for the full year 2015, you guys clearly covered the dividend at $1 and would clearly cover it again even for the $1.04. So, is there any sort of weighted gauge, how much you think you might cover it again in 2016, by the new amount?

Sure, thanks Dan. So, with respect to first quarter dividend, I think I made a comment that the first quarter is going to be negatively impacted by two primary reasons. One is, the typical seasonality particularly in the mortgage banking business, where you basically start each quarter with zero and you have to earn your originations in that quarter. And obviously the first quarters are very weak quarters seasonally. We saw the same thing last year, where certainly the first quarter was also the weakest quarter for ACRE Capital business. And so we expect that same pattern to repeat itself in 2016. What is different about 2016 versus 2015 is really the principal lending business. If you look back at where we ended 2014, our balance sheet was relatively fully invested. I believe we had about $50 million to $55 million of available liquidity. So, we were very well invested going into the first quarter of 2015, and therefore even though we had a weaker seasonally typical quarter for the ACRE Capital business, we had a very strong quarter for the principal lending business. I think really that's what's different about first quarter 2016 is that we ended the year in 2015 with approximately $160 million available to invest versus the $50 million to $55 million in 2014, and therefore I think what you're going to see is a weaker first quarter for the principal lending business versus what we were able to achieve a year ago. And that's why I think you saw her comments of first quarter being well short of the dividend. And then in terms of the rest of the year, I think we decided at this point to provide just a range of where we think we are going to come out. And I think we will exceed our dividend rate. But just given the volatility in the markets today, just given the pace of investments, as well as significant repayments of loans and the timing of all those when this happens, I felt - we all felt the best range to give market today was quickly to say that we believe we will exceed our dividend rate without being more specific on that range.

Okay. Thanks. That was helpful commentary.

The next question is from Steve DeLaney at JMP Securities.

Thanks for taking my question and congratulations everyone on a strong close to 2015. Obviously, a big story last year was the growth in ACRE Capital as Rob mentioned or John, I think up 70% year-over-year. Just wondering with that momentum that you built, have you set any specific goals for 2016 originations relative to '15. And the second part of the question, are you still actively engaged in recruiting efforts in order to expand that platform. Thank you.

It's a great question. It's John Jardine. We have in the fourth quarter higher two, three new originators. And as you know, Fannie and Freddie's limits are going to be up a $1 billion. We also think that there is going to be a better handle on their cap management. And we also think there is going to be more - it's going to be just more consistent. So from that standpoint we see the GSE to be I think even a better environment in 2016 than we saw in 2015. Again, as I mentioned, we have hired new originators and we believe that our origination volume will increase over 2015 and 2016. So if the environment is quite good, we are going to focus on some more of a affordable side of the business where the GSE's want us to really look attractive opportunity. So quite bullish on the ACRE Caps pipeline as well.

Great. And you touched on. Please go ahead, Rob, I'm sorry.

This is Rob. Let me just add one more point please. And it was successive fourth quarter and we'll have to carry over into 2016, because the fourth quarter had several instances where we prove the value of our balance sheet supplementing bridge capability for our GSE lending capability. And having sort of proven and an improve that model, I think that hopefully you'll see more of that as we go through 2016 and I think that that will have the potential to contribute to ACRE Caps performance.

Great. Thanks for adding that Rob. John, back to the - you mentioned in your comments about the GSE capacity, affordable. I was just curious. My follow-up question was going to be this concept of an addition to the quantity of your origination force, but also the level of specialization, because in addition to the $1 billion increase on the cap, we've also had a lot of, I think the term is either exempted or excluded loans from the caps such as senior and small balance, manufactured housing and as you mentioned affordable. So are you specifically looking for individuals that may be have some of that niche type of client base or expertise that would get you into the buckets that are not subject to the cap going forward?

We have and we did.

Okay.

The answer is yes.

Great, okay. Thanks. And it's a small thing. You give us great breakout by the Freddie, Fannie and HUD and the mix is obviously very important, the profitability and so we would appreciate continuing to have then you may be over time some of the other buckets is to have a how they kind of slot into the caps, just a thought that might be helpful looking forward as well. And I just have one final thing your most recent loan in the first quarter was up $56 million hotel loan. Now over the years, we've noticed your focus on multi-family and office and I think hotel was relatively small only 6%. So I’m just curious, if they were any specific attributes with respect to this California hotel portfolio that made it attractive to you since it’s a little bit of a departure from your previous focus. Thank you.

Good question. The hotel sponsorship is quite strong. The supply of new product is extremely limited and it’s just a well run facility so from that standpoint we are extremely careful in our underwriting of hotel properties and this is a fine example of our care in underwriting that particular type of asset. So again, limitation on new product, strong sponsorship are two key elements.

Great. Thank you all for your comments and best of luck for another strong year in 2016. Thank you.

The next question is from Jade Rahmani of KBW.

Good morning or good afternoon. Thanks for taking my question. I guess although the stock is up today I have a strategic question which is ACRE continues to trade at a meaningful discount to book value and I would assume you think is the underwriting value of the business. I think you have done a good job managing the business within existing constrains and also have been prudent with use of capital. But in alternative course of action could have easily been and something that could have the potential to create a stronger company some involvement, increased involvement from the manager. So I would like to ask whether the manager has considered buying in the company which should be at a discount a fair value then proceed to invest in a meaningful amount of capital to allow ACRE to grow its size and scale, generating much stronger ROEs and then later figure out what to do with the business. So, has management or the board contemplated such action or another alternative would be potentially selling ACRE Capital or combining ACRE with another company.

So this is Rob, those are all compelling alternatives and I think consistent with what we’ve said is that we are active in the examination of all sorts of M&A and exogenous opportunities. There are lots of things happening in the space. There are lots of opportunities and we’ve got an external manager that is both the strong, stable and creative in their willingness to examine appropriate opportunities. M&A and alternatives take a while. You spend a lot of time sort of hunting down something and then low and behold at the end of the day things don’t happen. But we’re happy to invest the time and effort in growing number of opportunities that are in the marketplace. I think that the alternatives that exist within the company including ACRE Cap are all part of the play of alternatives that we should and do examine but our objective is to bridge our gap between our book value which we have a great deal of confidence in. We believe that our shares are materially undervalued. We believe that we’ve got a great management team and discipline that overtime will reach that gap through internal growth and also creative and opportunistic team that’s willing to look at external opportunities.

Great, I appreciate those comments. On the ACRE Capital, what can you say about the originations outlook, and I noticed -- or I don’t see anything on what you've rate locked so far this quarter. So, should we expect any originations for the first quarter and also can you give us some color on what drove the lower comp and benefits in that business?

Sure, Jade, this is Tae-Sik. Why don't I talk about the compensation first, and then John can answer your question about the originations outlook for ACRE Cap. In terms of compensation for ACRE Capital, it's really driven by -- the variability is really driven by two aspects. One, is the commissions that our originators earn based upon the loans that they produce, that’s one. And then there is a discretionary bonus component to it. And so when you compare prior results to this year results or you compare this year’s results versus this quarter’s results versus prior quarter results, you will see variability based upon those two factors. In other words, lower origination volume in the fourth quarter versus third quarter, meant that you had both a lower commission rate, commission amount, as well as lower discretionary bonus because the bonus pull for the organization is also tied to both the revenue and the profitability of the business quarter-to-quarter. So, we will accrue different amounts quarter-to-quarter even on the discretionary bonus amounts based upon the actual performance during that time period. And that’s why you see a meaningful lower amount quarter-to-quarter. John, do you want to address the question?

Yes, let me talk to you a little bit about the first quarter with ACRE Cap. We took --had a few loans that were scheduled to close in the first quarter that we actually moved into the fourth quarter of 2015. So, when we look forward as to what the pipeline looks like for ACRE Cap, I’m extremely excited about the prospects for the balance of the year. We have, as I mentioned, some new originators. We fine tuned our processes, we’ve enabled ourselves to fine-tune our ability to use our rich facilities to assist. And again, the FHA pipeline looks quite good as well. As I mentioned in my remarks, there is a lot of potential construction loan financing that's coming out there. So, I couldn’t be more thrilled with the pipeline as I’m looking at for the balance of the year.

And the first quarter in particular, you guys have been providing the amount of loans that have been rate lock?

Yes, we have. The first quarter, I think we’ve told you is going to be weaker. But it's basically the seasonality issues that we experienced last year. So, I’m not sure how else to answer your question except that way.

Okay. Just two quick ones, what’s generally the average warehouse balance you carry, because I noticed the period end balance is typically way below what I model, and the interest expenses, the implied interest expense seems to come in line. So, what’s a good proxy if you did about $200 million in a quarter of the average warehouse capacity, its about 65% or 75% of that?

Yes, Jade, it's going to vary quite a bit. And I’ll give you the reasons, it's because the warehouse facilities for the mortgage banking business is generally, that loan is generally held, call it 5 to 15 days. So we will literally close on a loan. We will finance that loan closing using the warehouse, but we have already presold that loan and so it’s really a matter of that loan being outstanding for 5 to 15 days. So, what you're seeing is, you're seeing a lot of variability in quarter ending balances because just the timing of when loans close versus when loans are sold will drive the quarter ending balance. So, even in a typical quarter where if you see $200 million to $250 million of reduction, you could see a quarter ending warehouse balance as low as $25 million, as high as $150 million, it will all dependents upon what loans we happened to have close to quarter end, but simply have not sold yet right at quarter end. So, you'll see a lot of variability. I think the interest expense that you see is probably a better indicator of the volume of business we did for the quarter. But again, even that is going to be varied quite a bit depending on whether we held a loan for 5 days, 15 days, 30 days.

Okay. And just what’s the advance rate on the warehouse facility?

I believe that’s LIBOR plus 160, don’t quote me exactly but its right around LIBOR plus 160.

But in terms of the leverage that you are able to get, it's been up to 80%?

For the mortgage banking business, it's nearly a 100%. We often times don’t take advantage of this, but because the -- again, I just want to differentiate this versus the principal lending business. When we originate a mortgage banking loan in ACRE Capital, that loan is already been sold to an investor. And so we're simply warehousing that loan for 5 to 15 days. As I mentioned before its actually physically sold to the investor, but because its sold, the price is already fixed. We're not taking spread risk, we're not taking credit risk, we're not taking market risk. We are taking some of counterparty risks, but in our history we never had a default of the counterparty. But because its pre sold and we have a great history, we’re able to generally get, call it 99% of that loan as an advanced rate.

Great, thanks very much for taking my questions.

The next question is from Charles Nabhan, Wells Fargo.

Hi, guys, good afternoon. I'm looking at the maturity schedule, it looks like there is about $250 million to $300 million in loans coming back this year. I know that’s subject to change, but if we think about the pipeline as it stands today and demand environment, could we anticipate that full year principal lending originations will exceed the volume of maturities during the year?

Yes, that will be correct.

Yes, we think by a very comfortable amount. I think one of the casual advantages of having maturities coming up in 2016 is really two fold. One is, it will continue to prove out our credit thesis. In our Company's history, we’ve already had $800 million of loans coming due, all of which obviously successfully paid off at or prior to maturity. And the second advantage that we believe particularly right now is that many of the loans we think we will be up to redeploy the capital at even higher interest rates, just given the spread widening that we've seen in the past couple of quarters here.

Without any material change in risk profile.

Yes, this is Rob. One other observation about that is, I appreciate your pointing towards the repayments because if you take a look at the average life of our loan portfolio, it’s approximately two years, 1.9 years. And it really underscores the sort of, the certainty of repayment that we believe exists in our portfolio, and quite frankly the logic of the discount of value of the Company and the value of the portfolio given both the strength in credit approach that we have, as well as this relatively short duration left in an expanding margin environment. So, we sit down, we sort of look at all of those things, and for us it paints quite a pretty picture.

Okay. And as a follow up, I know that NES lending has been more of an opportunistic secondary strategy for ACRE historically. But, given your comments on the tightening in standards among insurance companies, could you potentially see more opportunity in that space as this volatility persists?

This is John Jardine. Yes, most definitely. In the preferred equity space we'll see more opportunities this year then we've seen in the past. Anecdotally, interestingly, just to hammer home. Again, we've looked at some mezzanine opportunities when we looked them in November and December of last year. And then we elected to sort of step back, because we didn't the environment and now we’re seeing the same opportunity, not sure what we’re going to do about it, come back to us at 250 to 300 basis points wider than we saw in December of last year. So not only you’re going to see more of it, you're going to see at wider spreads.

Okay. I appreciate the commentary on the improvement and the lending terms but I was wondering if you could touch on your - given your conversations with your lenders, can you give us a sense for where spreads are on the borrowing side and I’m assuming that you are able to pass on any increases to your borrowers but can you just give us a sense for - what you are hearing from your conversations with your lenders?

This is John Jardine, I will have basic help with this answer but we spend a considerable amount of time with our lenders to gauge their level of comfort with the credit quality of our loans and also to investigate and examine internally how they are looking at the loan on loan business. And we are comfortable at this point that things are pretty much status quo at this juncture and we’re going to be able to take advantage of widening spreads with efficient leverage and I think that’s what we’re going to see for the time being. Now, the second part of your question relates to what happens if those rates begin to move and they could but we haven’t seen any sign of it, would we be able to pass those under the borrowers, most definitely we would and Tae-Sik, if you’d like to -

Sure. Charles, we have not witnessed our lenders coming to us asking to reprice our liabilities. What we have heard is that each of the banks - most of the banks have really heightened who they are doing business with and I think new entrants into the markets or new facilities will be certainly more challenged than existing facilities. And I think this is largely a great reflection of the strong support and branding we have with Ares management. It's the fact that we have a global relationship with Wells Fargo, with Citi, with UBS, with all of our existing lenders, City National Bank, MetLife, Bank of America because we have this global Aries relationship, I think we at ACRE significantly benefit from that. And I think that is part of the reason we are able to enjoy our existing relationships with the banks. And as I had mentioned they have not come to us asking to increase spreads but we also think that they get advantages that this will in essence limit the competition out there in terms of other lenders trying to get new facilities.

Okay, great. Thank you for the color guys.

The next question is from Rick Shane of JPMorgan.

Thanks guys and good afternoon. You've talked during the calls several times about the improvement in pricing that you have seen given volatility in the markets. One of the things that we have heard Ares across the continuum talk about over the years is that, you can’t price for bad credit, you can't price for bad terms. You haven’t spoken very much about what’s going on in terms of underlying credit or structure in the new environment. I'm assuming that there is an opportunity if you moved through 2016 to continue to sort of high grade that aspect of originations as well. Can you talk about what you’re seeing in the market right now?

Well what we are seeing in the market are similar opportunities that we see and has seen in 2015 at wider spreads, quite honestly without a significant increase at all in the risk profile and credit metrics of those particular loans. So, we’re seeing a lot more borrowers stronger sponsorship, sponsors that are going more into the floating rate market and it’s actually benefitting us significantly that this location in CMBS market is assisting us in many respects. So, I don’t know if that answers your question but I think that’s what we are seeing.

It does to some extent, I guess what I would ask is that if – and again there are many aspects of any loan that you make, price being one of them. And it sounds like so far the initial reaction of the market is repricing assets. My question is do you think as you move through the year as this dislocation persists that you will have more negotiating power on the other terms of the loan?

First of all I want to make the point again that the fundamentals in the real estate market are strong and as we go forward, do we believe that we are going to see these opportunities continue in the 2016, absolutely yes.

So this is Rob, let me give a little bit of color just sitting in my chair of the company. I will reiterate, what ACRE is, is part of the larger credit culture that really drives Ares and our job has to build a great process driven, credit driven company where the lending that we do is against well underwritten cash flow and we attempt as hard as possible and our history shows that so far we have done it where the cash flow that we underwrite, the sponsors with whom we do business, the LTVs that we deploy, do everything we possibly can to not have credit be the source of big mistakes that eat into the value that we are attempting to create. So process, credit, lending against cash flow and as a good friend of mine once said to me, don’t miss it on big mistakes. So that really is how we run our business.

That's fair enough. I would describe I think we try to do run our business the same way.

Then we are in great company.

Flattery, I don’t know how to respond to that one but I'll gloss over it, but I guess what I would say is that, obviously the credit track record speaks for itself and what you are describing to me, I think sounds more like a technical - you view what’s going on right now more as a technical dislocation than a fundamental dislocation and that has potentially different outcomes and maybe a different time horizon.

Yes, I think we agree with you. I mean John Jardine will comment as well, but what we have been reacting to is really a very strange credit market and volatility in credit markets since the latter part of 2015 going into this year. From our point of view, the real estate fundamentals that we are seeing and the real estate fundamentals that our terrific team are underwriting remain quite strong.

I mean, if you look at some of the regulatory issues headwinds that the CMBS market is facing with risk retention, and the fundamental review, the trading book, the FRTV, it’s just been very, very challenging for that market. By way of example if you just look at senior investment grade and what the banks have to charge for a CMBS loan to have on their books, it’s the same charge on investment grade RMBS subprime loan, how about that. And the same is true below investment grade. It's the same charge as an RMBS subprime. So when you look at these headwinds and when you look at that, it’s basically fundamentally regulatory and that's what’s causing us a lot of it for sure. It's not real estate fundamentals it's causing this at all, in my view.

So not to put too fine a point on this, but what I’m hearing is a technical dislocation is something where you tap the gas and a fundamental dislocation is something where you tap the break and you’re looking in to tap the gas situation?

Yes, I think that’s right.

Great, okay, thanks. That really actually helps heading into 2016. Thank you.

The next question is from Ken Bruce of Bank of America.

Thanks. Good afternoon. I'm going to pick up where Rick left off. I guess in the context of tapping the gas is – I want to make sure I am understanding and interpreting your comments – your earlier comments properly but it feels like the overall pricing has improved, you think you may get some better terms and structure at the end of the day. Is it now that you're actually beginning to put capital to work or you still thinking that there’s maybe some reason for being on the sidelines.

No, I think now is the time to begin putting capital to work. And let me be clear here. In the first part of the quarter, the fog was so dense, I pulled the car over and sat on the side of the road. All right now, the fog is cleared in my view where we’re seeing pricing, we’re looking at opportunities that I believe are quite strong and I want to be clear if the fog resumes or it comes back, we‘re going to slow the car down again. So just to be clear, we are seeing the opportunities, we’re putting our foot on the gas, and we will look in forward to a strong second, third and fourth quarter.

Okay. And maybe if we can understand what - how you gauged the fog rolling in or out and being here in San Francisco, we can appreciate that. Is it spreads - I think you pointed out BBBs widening or tightening, is that reflective of basically where market anxiety and volatility and all ultimately all materialize or is there anything that can be – that we can use to maybe understand what is kind of driving the go, no go please.

I think that for the first part of the quarter, there was such volatility and opaqueness in the market that you could not appropriately price risk, it just does not - was not there. And I believe now that we have some time we've seen some CMBS deals go out, we’ve seen some insurance company loans, we’ve also seen some of our competitors pricing. We’re at the point now where we’ve got a framework, where I can appreciably price risk and that’s exactly what I could not do in the first 30 days of 2016.

Okay, great. I think that actually is quite helpful when anxieties - ultimately you’re running the highest year-over-year and I guess there is no price discovery, there is no visibility in the market and that’s what’s going to give you some senses to whether you want to invest or not and right now that’s - I guess hasn’t improved enough over the last few weeks to basically want to move forward and absent the first quarter it sounds like you’re looking pretty constructive at the reminder of the year.

That would be correct. Thank you.

Thank you.

Our next question is from Douglas Harter of Credit Suisse.

Thanks. My questions have been asked and answered.

We are grateful for the time that you’ve spent with us. And we look forward to talking with you at the end of our next quarter. Thanks a lot.