Quarterly Report for Quarter Ending September 30, 2026 (Form 10-Q)

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

References herein to "we," "us," "our," "FCR," and the "Company" refer to Fortress Credit Realty Income Trust, together with its consolidated subsidiaries, unless the context specifically requires otherwise.

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto appearing elsewhere in this Form 10-Q. In addition to historical data, this discussion contains forward-looking statements about our business, operations and financial performance based on current expectations that involve risks, uncertainties and assumptions. Our actual results may differ materially from those in this discussion as a result of various factors, including but not limited to those discussed in Part I. Item 1A - "Risk Factors" in our Annual Report.

Overview

Fortress Credit Realty Income Trust is a credit-focused diversified mortgage REIT, which invests in the senior parts of the capital structure, with a focus on (i) floating rate loans across commercial real estate ("CRE") debt ("CRE Debt") and (ii) investments in real estate-related assets. We are externally managed by FCR Advisors, LLC, our Adviser and an affiliate of Fortress.

The Company is a Maryland statutory trust formed on June 4, 2024 ("Date of Formation"); however, no activity occurred until August 2, 2024. The Company is a non-listed, perpetual life REIT that qualifies to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the "Code") for U.S. federal income tax purposes. The Company generally will not be subject to U.S. federal income taxes on our taxable income to the extent we annually distribute all of our net taxable income to shareholders and maintain our qualification as a REIT.

As of September 30, 2026, we have received aggregate proceeds of $1.5 billion from the sale of our common shares. The Company has primarily used the net proceeds to make investments in real estate debt and other investments as further described below under "Overall Portfolio." The Company intends to continue selling common shares on a monthly basis.

Market Conditions and Trends

The Company's businesses are materially affected by conditions in the financial markets and economic conditions in the United States and, to a lesser extent, elsewhere in the world.

During the third quarter of 2026, the persistence of elevated inflation and uncertainty surrounding interest rates, in conjunction with geopolitical instability (including the conflict between Russia and Ukraine and the conflict in the Middle East, including between the U.S. and Iran and other developing conflicts), and limited visibility into future capital availability continued to weigh on industry deal activity and market valuations.

Our business, focused on floating rate loans across CRE debt and residential loans and assets, continued to deploy capital across senior components of the capital structure. Our investors continue to benefit from the inflation-mitigating characteristics and long term risk adjusted returns of our credit-focused diversified mortgage REIT strategy.

We are continuing to closely monitor developments related to the macroeconomic factors that have contributed to market volatility, and to assess the impact of these factors on financial markets and on our business. Our future results may be adversely affected by slowdowns in fundraising activity and the pace of capital deployment. It remains difficult to predict the ultimate effects of these events on the financial markets, overall economy, and our financial statements. See "Item 1A. Risk Factors-Risks Related to Our Business and Operations" in our Annual Report.

Recent Developments

Since September 30, 2026, and through and including the date hereof, we have (i) originated seven CRE loans across the United States with an aggregate loan amount and outstanding principal amount of $435.1 million and $382.6 million, respectively, (ii) received $65.0 million related to the repayment of the outstanding principal balance of four CRE loans (iii) acquired $7.5 million of tax liens across seven states, (iv) funded $8.9 million of residential bridge loans and (v) issued and sold an aggregate of 2,303,185 common shares in our private offering, resulting in proceeds of $46.0 million (see "Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-Note 13. Subsequent Events" and the section titled "Item 2. Unregistered Sales of Equity Securities and Use of Proceeds").

On October 16, 2026, FCR DC GS Seller III LLC, a subsidiary of the Company ("GS Seller III"), FCR DC GS Seller IV LLC, a subsidiary of the Company ("GS Seller IV"), and Goldman Sachs Bank USA ("Goldman Sachs") entered into a sixth amendment to that certain Master Repurchase Agreement, dated as of October 11, 2024 (the "GS Seller III Repurchase Agreement"), by and between GS Seller III and Goldman Sachs (together with the related transaction documents, the "Sixth Amended GS Seller III Repurchase Agreement"). Pursuant to the Sixth Amended GS Seller III Repurchase Agreement, the financing available to GS Seller III and GS Seller IV in connection with the acquisition and/or origination by the Company of certain loans, as more particularly described in the Sixth Amended GS Seller III Repurchase Agreement, was increased from an aggregate amount not to exceed $150.0 million to an aggregate amount not to exceed $250.0 million.

Effective as of October 16, 2026, Goldman Sachs and FCR Key GS Seller II LLC, a subsidiary of the Company, terminated the second amendment to the GS Seller II Repurchase Agreement (the "Second Amended GS Seller II Repurchase Agreement") pursuant to a Termination of Master Repurchase Agreement and Transaction Documents and terminated the guaranty provided in connection with the Second Amended GS Seller II Repurchase Agreement, and released the Company as guarantor thereunder pursuant to an Unconditional Release and Termination of Guaranty.

Emerging Growth Company Status

We are and will remain an "emerging growth company" as defined in the JOBS Act until the earlier of (a) the last day of the fiscal year (i) following the fifth anniversary of the date of an initial public offering pursuant to an effective registration statement under the Securities Act, (ii) in which we have total annual gross revenue of at least $1.235 billion, or (iii) in which we are deemed to be a large accelerated filer, which means the market value of our shares that is held by non-affiliates exceeds $700 million as of the date of our most recently completed second fiscal quarter, and (b) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. For so long as we remain an "emerging growth company" 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. We cannot predict if investors will find our shares less attractive because we may rely on some or all of these exemptions.

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. We will take advantage of the extended transition period for complying with new or revised accounting standards, which may make it more difficult for investors and securities analysts to evaluate us since our financial statements may not be comparable to companies that comply with public company effective dates. Also, because we are not a large accelerated filer or an accelerated filer under Section 12b-2 of the Exchange Act, and will not be for so long as our common shares are not traded on a securities exchange, we will not be subject to auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act even once we are no longer an emerging growth company.

Q3 2026 Highlights

Operating Results

We declared monthly net distributions totaling $28.1 million for the three months ended September 30, 2026. The details of our total returns are shown in the following table:

Investment Activity

For the three months ended September 30, 2026, we originated the below senior secured CRE loans ($ in thousands):

The tables below detail the property type and geographic location of the properties securing our CRE loan investments originated during the three months ended September 30, 2026 ($ in thousands):

On August 2, 2024, we entered into a subscription agreement for an equity investment in a conventional mortgage servicing rights portfolio ("MSR"). The subscription agreement was executed in connection with a joint venture agreement with a third party. Pursuant to the joint venture operating agreement, most major decisions related to the joint venture, including acquisitions thereof, and its assets require the consent of the Company. The Company retains the unilateral right to cause the joint venture to take certain actions, including as to matters related to litigation, servicing and disposition of assets.

During the nine months ended September 30, 2026, the joint venture completed the sale of the underlying MSR portfolio, and the Company began receiving return of capital. A portion of the sale proceeds is subject to a customary holdback, pending satisfaction of post-closing conditions. The remaining investment is recorded at fair value, which was determined based on management's estimate of the remaining proceeds expected to be received. Changes in the fair value are recorded as net unrealized gain (loss) on investments in the Company's Condensed Consolidated Statements of Operations.

On December 20, 2024, we entered into a forward flow relationship with a non-bank lender to purchase newly originated bridge loans secured by mortgages on residential properties. As of September 30, 2026, our residential bridge loans consisted of the following ($ in thousands):

As of September 30, 2026, we have acquired the below tax lien investments ($ in thousands):

Capital Activity and Financings

MS Repurchase Facilities

On July 8, 2026, a subsidiary of the Company, FCR MS Seller LLC, as seller (the "MS Seller"), Morgan Stanley Mortgage Capital Holdings LLC ("Morgan Stanley"), as administrative agent for Morgan Stanley Bank, N.A. and such other financial institutions from time to time party thereto as buyers ("MSBNA" and, together with such other financial institutions from time to time party thereto, the "MS Buyers") entered into an amendment (the "Second Amendment to MS Seller Repurchase Agreement") to the Master Repurchase and Securities Contract Agreement, dated July 24, 2025 (as amended, supplemented or otherwise modified from time to time, together with the related transaction documents, the "MS Seller Repurchase Agreement"), as previously amended on March 12, 2026. Pursuant to the Second Amendment to MS Seller Repurchase Agreement, the financing available in connection with the acquisition and/or origination by the Company of certain loans as more particularly described in the MS Seller Repurchase Agreement was increased from an aggregate of $500.0 million to $750.0 million.

Capital One Repurchase Facility

On September 30, 2026, a subsidiary of the Company, FCR CRE CONA Seller LLC (the "CONA Seller") and Capital One, National Association (the "Capital One Buyer") entered into a Master Repurchase and Securities Contract Agreement (together with the related transaction documents, the "Capital One Repurchase Agreement"). The Capital One Repurchase Agreement provides up to an aggregate of $750 million of financing (of which $400 million is available initially and an additional $350 million is available subject to satisfaction of certain conditions, including Capital One Buyer's approval) in connection with the acquisition and/or origination by the Company of certain loans as more particularly described in the Capital One Repurchase Agreement. Subject to the terms and conditions thereof, the Capital One Repurchase Agreement provides for the purchase, sale and repurchase of mortgage loans, mezzanine loans and participation interests in such mortgage loans satisfying certain conditions set forth in the Capital One Repurchase Agreement (collectively, the "Capital One Repurchase Facility").

Advances under the Capital One Repurchase Agreement accrue interest at a per annum rate equal to Term SOFR for a one-month period plus a margin as agreed upon by the Capital One Buyer and the CONA Seller for each transaction. The initial availability period under the Capital One Repurchase Agreement expires September 30, 2027, subject to three one-year extension options, the first two of which are at the CONA Seller's option (subject to satisfaction of certain customary conditions in accordance with the Capital One Repurchase Agreement) and the third of which is subject to Capital One Buyer's approval.

In connection with the Capital One Repurchase Agreement, the Company entered into a Guaranty Agreement, dated September 30, 2026 (the "Capital One Guaranty"), under which the Company (i) guarantees losses associated with customary non-recourse carve-outs with respect to the Company and the CONA Seller, (ii) guarantees a percentage of outstanding advances made by Capital One Buyer to the CONA Seller as agreed upon by the Capital One Buyer and the CONA Seller for each transaction, only for so long as less than five assets remain financed under the Capital One Repurchase Agreement, and (iii) agrees to satisfy certain financial covenants including minimum net worth, liquidity and maximum leverage. The Capital One Guaranty may become fully recourse to the Company up to the entire amount needed for the CONA Seller to repurchase the loans and interests in such loans comprising the Capital One Repurchase Facility if the CONA Seller or the Company become the subject of a voluntary or collusive involuntary proceeding under any bankruptcy, insolvency or similar law and for other customary insolvency related actions. The Company is also liable under the Capital One Guaranty for costs, expenses, damages and losses actually incurred by the Capital One Buyer resulting from customary "bad boy" events pertaining to the Company and/or the CONA Seller as described in the Capital One Guaranty.

GS Repurchase Facilities

Effective as of August 14, 2026, GS Seller IV became an additional seller under the GS Seller III Repurchase Agreement pursuant to a Joinder and Fifth Amendment to Master Repurchase Agreement and Other Transaction Documents (the "Fifth Amended GS Seller III Repurchase Agreement"). The joinder permits GS Seller IV to obtain financing for eligible assets under the existing GS Repurchase Facilities. In connection with the Fifth Amended GS Seller III Repurchase Agreement, the Company reaffirmed its obligations under the guaranty in connection with the GS Seller III Repurchase Agreement. In connection with the Fifth Amended GS Seller III Repurchase Agreement, GS Seller III transferred certain purchased assets to GS Seller IV for financing under the Fifth Amended GS Seller III Repurchase Agreement.

Overall Portfolio

As of September 30, 2026, our portfolio was comprised of the following ($ in thousands):

Results of Operations

The following table sets forth the results of our operations for the three months ended September 30, 2026 and 2025 ($ in thousands):

Interest income

Interest income

Interest income increased $32.9 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 from $43.5 million to $76.4 million, primarily as a result of the larger loan portfolio.

Expenses

Organizational costs

Organizational costs decreased $42,630 for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 from $42,630 to $0, as a result of incurring all organizational costs in 2024 and 2025.

General and administrative

General and administrative expenses increased $0.9 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 from $4.6 million to $5.5 million, primarily as a result of increased professional services expense in line with the Company's growth.

Management fee

Management fee expenses increased $1.4 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 from $3.6 million to $5.0 million, primarily as a result of fee waivers expiring in 2025 and the growth of fee paying share classes.

Performance participation allocation

Performance participation allocation expense increased $0.7 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 from $0.3 million to $1.0 million, primarily as a result of fee waivers expiring in 2025 and the growth of fee paying share classes.

Other income (expense)

Interest expense

Interest expense increased $19.1 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 from $16.8 million to $35.9 million, primarily as a result of increased borrowings on our Repurchase Facilities and Revolving Credit Facility.

Net unrealized gain (loss) on investments

Net unrealized loss on investments decreased $2.4 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 from $3.2 million to $0.9 million, primarily as a result of unrealized losses on an equity investment from the prior year.

Net realized gain (loss) on investments

Net realized gain (loss) on investments increased $0.5 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 from ($0.2) million to $0.2 million. The prior-period loss was primarily the result of the resolution of tax lien investments in jurisdictions where upfront premiums are not recoverable, resulting in a write-off of the acquisition premium. The current-period gain was primarily due to gains realized on the disposition of other investments. Realized losses are consistent with our original underwriting assumptions. Income from resolved tax lien investments, subject to such realized losses, are included in interest income on the Company's Condensed Consolidated Statements of Operations.

Other income

Other income decreased $3.4 million for the three months ended September 30, 2026 compared to the three months ended September 30, 2025 from $3.8 million to $0.4 million, primarily as a result of less money market interest earned and income related to an equity investment.

The following table sets forth the results of our operations for the nine months ended September 30, 2026 and 2025 ($ in thousands):

Revenues

Interest income

Interest income increased $103.9 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $93.6 million to $197.5 million, primarily as a result of the larger loan portfolio.

Expenses

Organizational costs

Organizational costs decreased $0.3 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $0.3 million to $0, as a result of incurring all organizational costs in 2024 and 2025.

General and administrative

General and administrative expenses increased $6.0 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $9.8 million to $15.8 million, primarily as a result of increased professional services expense in line with the Company's growth.

Management fee

Management fee expenses increased $7.5 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $6.6 million to $14.1 million, primarily as a result of fee waivers expiring in 2025 and the growth of fee paying share classes.

Performance participation allocation

Performance participation allocation expense increased $1.9 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $0.5 million to $2.3 million, primarily as a result of fee waivers expiring in 2025 and the growth of fee paying share classes.

Other income (expense)

Interest expense

Interest expense increased $59.4 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $32.8 million to $92.2 million, primarily as a result of increased borrowings on our Repurchase Facilities and Revolving Credit Facility.

Net unrealized gain (loss) on investments

Net unrealized gain (loss) on investments decreased $3.8 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $4.2 million to $0.4 million, primarily as a result of lower unrealized losses on an equity investment in the current year.

Net realized loss on investments

Net realized loss on investments increased $0.1 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $1.1 million to $1.2 million, primarily as a result of the resolution of tax lien investments in jurisdictions where upfront premiums are not recoverable, resulting in a write-off of the acquisition premium. These realized losses are consistent with our original underwriting assumptions. Income from resolved tax lien investments, subject to such realized losses, are included in interest income on the Company's Condensed Consolidated Statements of Operations.

Other income

Other income decreased $3.8 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $10.2 million to $6.4 million, primarily as a result of less money market interest earned and income related to an equity investment.

Net Asset Value

EA RESIG, LLC, a subsidiary of Eisner Advisory Group LLC, calculates our NAV per share, which our Adviser subsequently reviews and confirms the calculations in connection therewith, in each case, in accordance with the valuation guidelines that have been approved by our board of trustees. Our total NAV presented in the following tables includes the NAV of our outstanding classes of common shares, which includes Class B, Class R, Class J-1 shares, Class J-2 shares, Class J-3 shares, Class J-4 shares, Class J-5 shares, Class S, Class D, Class I, Class F-I, Class F-S and Class E common shares. The following table provides a breakdown of the major components of our NAV as of September 30, 2026 ($ in thousands):

The following table provides a breakdown of our total NAV and NAV per share by class as of September 30, 2026 ($ in thousands, except per share data):

The following table reconciles equity per our Condensed Consolidated Balance Sheets to our NAV ($ in thousands):

The following details the adjustments to reconcile GAAP equity to our NAV:

Distributions

Beginning on August 31, 2024, we declared monthly distributions for each class of our common shares, which are generally paid four days after month-end. The net distribution may vary for each class based on the applicable shareholder servicing fee, which is deducted from the monthly distribution per share and paid directly to Independent Brokerage Solutions LLC (the prior dealer manager) or, after April 11, 2025, the Dealer Manager, for further remittance to the applicable distributor.

The following table details the total net distribution for each of our share classes for the nine months ended September 30, 2026:

For the nine months ended September 30, 2026, we declared net distributions in the amount of $80.1 million. The Company intends for long-term cumulative distributions to be funded primarily from operating cash flows.

The following table details our distributions declared for the nine months ended September 30, 2026 ($ in thousands):

Liquidity and Capital Resources

Liquidity

We believe we have sufficient liquidity to operate our business, with immediate liquidity comprised of cash and cash equivalents of $166.9 million and $1.9 billion of available borrowings under our Repurchase Facilities and Revolving Credit Facility as of September 30, 2026, which may include borrowings secured by our existing portfolio. The available borrowing capacity assumes the extension of financings that are scheduled to mature within the next twelve months where extension options are available and expected to be exercised. In addition to our immediate liquidity, we obtain incremental liquidity through the sale of our common shares, from which we generated proceeds of approximately $267.3 million for the nine months ended September 30, 2026. In addition, we may incur indebtedness secured by our real estate and real estate debt investments, including through collateralized loan obligation securitizations and other secured financing arrangements, borrow money through unsecured financings, or incur other forms of indebtedness. We closely monitor our liquidity position and believe that we have sufficient current liquidity and access to additional liquidity to meet our financial obligations for at least the next 12 months.

Our primary use of cash will be for (i) origination or acquisition of CRE debt and investments in real estate-related assets, (ii) the cost of operations (including the management fee and performance participation), (iii) debt service of any borrowings, (iv) periodic repurchases, including under our share repurchase plan, and (v) cash distributions (if any) to the holders of our common shares to the extent declared by our board of trustees.

Our cash needs for acquisitions and other capital investments will be funded primarily from the sale of common shares and through the incurrence or assumption of debt. We plan on fulfilling our outstanding commitment obligations for commercial real estate loan investments and investments in real estate-related assets from the sale of common shares. Other potential future sources of capital include secured or unsecured financings from banks or other lenders and proceeds from the sale of assets. If necessary, we may use financings or other sources of capital in the event of unforeseen significant capital expenditures. We continue to believe that our current liquidity position is sufficient to meet the need of our expected investment activity.

Capital Resources

For the nine months ended September 30, 2026, we issued and sold 13,319,435 common shares, consisting of 1,162,008 Class B shares, 70,499 Class R shares, 517,951 Class J-1 shares, 147,732 Class J-2 shares, 2,924,282 Class J-4 shares, 773,238 Class S shares, 340,063 Class D shares, 6,877,151 Class I shares, 141,702 Class F-I shares, 344,475 Class F-S shares and 20,333 Class E shares to accredited investors in our private offering, amounting to proceeds of $267.3 million as payment for such shares, including shares issued pursuant to our distribution reinvestment plan. We also issued 14,990 Class E shares to the Board of Trustees as payment for $0.3 million of compensation expense for 2025 fiscal year service. Additionally, during the nine months ended September 30, 2026, we repurchased 543,547 common shares for $10.8 million.

As of September 30, 2026, we had received aggregate proceeds of $1.5 billion from the issuance and sale of common shares in our private offering. As of September 30, 2026, after giving effect to shares issued pursuant to our distribution reinvestment plan, share transfers, conversions and redemptions, we had an aggregate of 74,667,387 common shares outstanding, consisting of 26,338,452 Class B shares, 4,392,967 Class R shares, 16,484,313 Class J-1 shares, 3,519,790 Class J-2 shares, 7,808,967 Class J-4 shares, 1,869,208 Class S shares, 340,063 Class D shares, 12,163,875 Class I shares, 141,702 Class F-I shares,

344,475 Class F-S shares and 1,263,575 Class E shares. Additionally, as of September 30, 2026, we had 23,615 Class E shares outstanding that were issued to the Board of Trustees as payment for 2024 and 2025 fiscal years service.

On August 28, 2026 (the "CLO Closing Date"), we entered into a commercial real estate collateralized loan obligation through our subsidiary real estate investment trust, FCR CRE SUB-REIT and FCR 2026-FL1 (the "CLO Issuer"). On the CLO Closing Date, the CLO Issuer issued nine classes of notes (the "CLO Notes") in an aggregate principal amount of $900.0 million pursuant to the terms of an indenture, dated as of August 28, 2026. We retained $114.8 million of the CLO Notes issued by the CLO Issuer. The collateralized loan obligations execution provides us with match-term financing on a non-mark-to-market and non-recourse basis.

Cash Flows

Cash flows provided by operating activities increased $32.4 million for the nine months ended September 30, 2026, compared to the nine months ended September 30, 2025 from $48.3 million to $80.7 million. The increase is primarily attributable to the growth of investments in commercial real estate loans and investments in real estate-related assets.

Cash flows used in investing activities decreased $519.3 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $1.6 billion to $1.1 billion. The decrease is primarily attributable to $232.9 million of principal repayments received on commercial real estate loans, $232.7 million increased proceeds received from other real estate-related investments, and $136.4 million fewer fundings of other real estate-related investments, partially offset by $57.4 million of increased fundings of commercial real estate loans.

Cash flows provided by financing activities decreased $774.2 million for the nine months ended September 30, 2026 compared to the nine months ended September 30, 2025 from $1.6 billion to $858.6 million. The decrease is primarily attributable to a $588.6 million decrease in proceeds from the issuance of common shares and $893.4 million lower net borrowings under our repurchase agreements and revolving credit facility, partially offset by $785.3 million of proceeds from the issuance of collateralized loan obligations.

Future Cash Requirements

The following table aggregates our contractual obligations and commitments as of September 30, 2026 ($ in thousands):

Critical Accounting Estimates

The preparation of our condensed consolidated financial statements in accordance with GAAP involves significant judgments and assumptions and requires estimates about matters that are inherently uncertain. These judgments will affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our condensed consolidated financial statements. The following is a summary of our significant accounting policies that we believe are the most affected by our judgments, estimates, and assumptions. See Note 2 to our condensed consolidated financial statements. See "Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-Note 2. Summary of Significant Accounting Policies" for further descriptions of the below accounting policies.

Fair Value Option

The guidance in Accounting Standards Codification ("ASC") 825, Financial Instruments, provides a fair value option election that allows entities to make an irrevocable election of fair value as the initial and subsequent measurement attribute for certain eligible financial assets. In the cases of loans and investments in real estate-related assets for which the fair value option is elected, loan origination fees and costs related to the origination or acquisition of the instrument should be immediately recognized in earnings. Unrealized gains and losses on assets for which the fair value option has been elected are also reported in earnings without deferral. This is because under the fair value option, a lender reports the instrument at its exit price (i.e., the price that would be received to sell the instrument in an orderly transaction), which reflects the market's assessment of the instrument's cash flows and risks and does not include any entity-specific costs or fees.

As discussed in "Item 1. Financial Statements-Notes to Condensed Consolidated Financial Statements-Note 2. Summary of Significant Accounting Policies", the Company has elected the fair value option for certain eligible financial assets including CRE loans and real estate-related investments.

The decision to elect the fair value option is determined on an instrument-by-instrument basis and must be applied to an entire instrument and is irrevocable once elected. Assets measured at fair value pursuant to this guidance are required to be reported separately on the Company's Condensed Consolidated Balance Sheets from those instruments using another accounting method.

Recent Accounting Pronouncements

In November 2024, the FASB issued ASU 2024-03, "Income Statement (Topic 220-40): Reporting Comprehensive Income - Expense Disaggregation Disclosures" ("Topic 220-40"). Topic 220-40 requires the disaggregation of expenses into required categories in disclosures within the footnotes of the financial statements. The FASB identified the required expense categories as: (1) purchases of inventory, (2) employee compensation, (3) depreciation, (4) intangible asset amortization, and (5) depreciation, depletion and amortization recognized as part of oil- and gas producing activities or other depletion expenses. The guidance is effective for annual periods beginning after December 15, 2026. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. This guidance should be applied on a prospective basis, but retrospective application is permitted. The Company is currently evaluating the impact of adopting this new guidance on our financial statement disclosures.