Monogram Residential Trust (BHORL) 10-K 2013 FY Annual report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

[Mark One]

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2013

OR

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                          to  

Commission File Number: 000-53195

Behringer Harvard Multifamily REIT I, Inc.

(Exact Name of Registrant as Specified in Its Charter)

Maryland	20-5383745
(State or other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

15601 Dallas Parkway, Suite 600, Addison, Texas 75001

(Address of Principal Executive Offices) (ZIP Code)

(866) 655-3600

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to section 12(b) of the Act:

None

Securities registered pursuant to section 12(g) of the Act:

Common stock, $0.0001 par value per share

(Title of Class)

Indicate by check mark if the Registrant is a well-known seasoned issuer as defined in Rule 405 of the Securities Act. Yes o    No ý

Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

Indicate by check mark whether the Registrant:  (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.  Yes  x  No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes  x  No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ý

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o	Accelerated filer o	Non-accelerated filer ý	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No x

While there is no established market for the Registrant's common stock, the Registrant made an initial public offering of its shares of common stock pursuant to a registration statement on Form S-11, which shares were sold in the primary offering at $10.00 per share, with discounts available for certain categories of purchasers. The Registrant terminated the primary portion of its initial public offering on September 2, 2011. On March 1, 2013, the Registrant's board of directors established an estimated per share value of the Registrant's common stock of $10.03 pursuant to the Registrant's Second Amended and Restated Policy for Estimation of Common Stock Value. For more information, see Part II, Item 5, “Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.”

There were approximately 169.2 million shares of common stock held by non-affiliates as of June 30, 2013, the last business day of the Registrant's most recently completed second fiscal quarter.

As of February 28, 2014, the Registrant had 168,870,089 shares of common stock outstanding.

BEHRINGER HARVARD MULTIFAMILY REIT I, INC.

Form 10-K

Year Ended December 31, 2013

		Page
PART I
Item 1.	Business	5
Item 1A.	Risk Factors	13
Item 1B.	Unresolved Staff Comments	53
Item 2.	Properties	54
Item 3.	Legal Proceedings	57
Item 4.	Mine Safety Disclosures	57
	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	57
Item 6.	Selected Financial Data	63
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	65
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	101
Item 8.	Financial Statements and Supplementary Data	103
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	104
Item 9A.	Controls and Procedures	104
Item 9 B.	Other Information	104
	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	105
Item 11.	Executive Compensation	110
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	121
Item 13.	Certain Relationships and Related Transactions, and Director Independence	123
Item 14.	Principal Accountant Fees and Services	134
	PART IV
Item 15.	Exhibits, Financial Statement Schedules	136
Signatures		137

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Forward-Looking Statements

Certain statements in this Annual Report on Form 10-K constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  These forward-looking statements include discussion and analysis of the financial condition of Behringer Harvard Multifamily REIT I, Inc. and its subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), including, but not limited to, our ability to make accretive investments, our ability to generate cash flow to support cash distributions to our stockholders, our ability to obtain favorable debt financing, our ability to secure leases at favorable rental rates, our assessment of market rental rate trends, capital markets, and other matters.  Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.

These forward-looking statements are not historical facts but reflect the intent, belief or current expectations of our management based on their knowledge and understanding of the business and industry, the economy and other future conditions.  These statements are not guarantees of future performance, and we caution stockholders not to place undue reliance on forward-looking statements.  Actual results may differ materially from those expressed or forecasted in the forward-looking statements due to a variety of risks, uncertainties and other factors, including but not limited to the factors listed and described under Part I, Item 1A, “Risk Factors” in this Annual Report on Form 10-K and the factors described below:

• market and economic challenges experienced by the U.S. economy or real estate industry as a whole and the local economic conditions in the markets in which our properties are located;

• our ability to make accretive investments in a diversified portfolio of assets;

• future changes in market factors that could affect the ultimate performance of our development projects, including but not limited to delays in obtaining all necessary entitlements, increased construction costs, plan or design changes, schedule delays, availability of construction financing, performance of developers, contractors and consultants and growth in rental rates and operating costs;

• our level of co-investments and the terms and limitations imposed on us by co-investment agreements, including the availability of and timing related to cash flow from operations and credit and our realization of our investments;

• the availability of cash flow from operating activities for distributions to our stockholders;

• our level of debt and the terms and limitations imposed on us by our debt agreements;

• the availability of credit generally, and any failure to obtain debt financing at favorable terms or a failure to satisfy the conditions and requirements of that debt;

• our ability to secure resident leases at favorable rental rates;

• our ability to successfully transition to a self-managed company;

• our ability to retain our executive officers and other key personnel, whether employees of ours, our advisor, our property manager or their affiliates;

• conflicts of interest arising out of our relationships with our advisor and its affiliates;

• unfavorable changes in laws or regulations impacting our business, our assets or our key relationships; and

• factors that could affect our ability to qualify as a real estate investment trust.

Forward-looking statements in this Annual Report on Form 10-K reflect our management’s view only as of the date of this Report, and may ultimately prove to be incorrect or false.  We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.  We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.

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Cautionary Note

The agreements filed as exhibits to this Annual Report on Form 10-K have been included to provide stockholders with information regarding their terms.  They are not intended to provide via their terms any other factual information about us.  The representations, warranties, and covenants made by us in any such agreement are made solely for the benefit of the parties to the agreement as of the specific dates, including, in some cases, for the purpose of allocating risk among the parties to the agreement, may be subject to limitations agreed upon by the contracting parties and should not be deemed to be representations, warranties, or covenants to or with any other parties.  Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.  Any mention or description of any document contained herein does not purport to be complete and is qualified in its entirety by reference to such agreements.

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PART I

Item 1.    Business

Organization

Behringer Harvard Multifamily REIT I, Inc. (which, together with its subsidiaries as the context requires, may be referred to as the “Company,” “we,” “us,” or “our”) was organized in Maryland on August 4, 2006 and has elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”) for federal income tax purposes. As a REIT, we generally are not subject to corporate-level income taxes. To maintain our REIT status, we are required, among other requirements, to distribute annually at least 90% of our “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders. If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate tax rates. As of December 31, 2013, we believe we are in compliance with all applicable REIT requirements.

Substantially all of our business is conducted through our operating partnership, Behringer Harvard Multifamily OP I LP, a Delaware limited partnership (the “Operating Partnership”). Our wholly owned subsidiary, BHMF, Inc., a Delaware corporation (“BHMF Inc.”), owns less than 0.1% of the Operating Partnership as its sole general partner. The remaining ownership interest in the Operating Partnership is held as a limited partner's interest by our wholly owned subsidiary BHMF Business Trust, a Maryland business trust.

Our office is located at 15601 Dallas Parkway, Suite 600, Addison, Texas 75001, and our toll free telephone number is (866) 655-3600. The name Behringer Harvard is the property of Behringer Harvard Holdings, LLC (“Behringer Harvard Holdings”) and is used pursuant to a license agreement.

From our inception to July 31, 2013, we had no employees, were externally managed by Behringer Harvard Multifamily Advisors I, LLC (the “Advisor”) and were supported by related party service agreements with the Advisor and its affiliates. Through July 31, 2013, we exclusively relied on the Advisor and its affiliates to provide certain services and personnel for management and day-to-day operations, including advisory services performed by the Advisor and property management services provided by Behringer Harvard Multifamily Management Services, LLC and its affiliates (“BHM Management” or the “Property Manager”).  Effective July 31, 2013, we entered into a series of agreements with the Advisor and its affiliates in order to begin our transition to self-management (“Self-Management Transition Agreements”). In connection with our transition to self-management, on August 1, 2013, we hired five executives who were previously employees of the Advisor and its affiliates and began hiring additional employees. As of February 28, 2014, we have a total of seven employees. In addition to their management responsibilities, the executives and other employees will lead the Company in completing its transition to self-management. The completion of the remainder of the self-management transactions will occur at a second closing, which is expected to occur on June 30, 2014, and where we anticipate hiring additional corporate and property management employees who are currently employees of the Advisor and its affiliates. We also expect to hire other employees as we complete our transition to self-management. Please see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Commencement of Transition to Self-Management” for a more detailed discussion of our transition to self-management and the Self-Management Transition Agreements.

We invest in, develop and operate high quality multifamily communities. These multifamily communities include conventional multifamily assets, such as mid-rise, high-rise, garden style, and age-restricted properties, typically requiring residents to be age 55 or older. We may also invest in other types of multifamily communities, such as student housing. Our targeted communities include existing “core” properties, which we define as properties that are already stabilized and producing rental income, as well as properties in various phases of development, redevelopment, lease up or repositioning with the intent to transition those properties to core properties. Further, we may invest in other types of commercial real estate, real estate-related securities, and mortgage, bridge, mezzanine or other loans, or in entities that make investments similar to the foregoing. We completed our first investment in April 2007.

We invest in multifamily communities that may be wholly owned by us or held through joint venture arrangements with third-party institutional or other national or regional real estate developer/owners which we define as “Co-Investment Ventures” or “CO-JVs.” These are predominately equity investments but also include debt investments, consisting of mezzanine and land loans. If a Co-Investment Venture makes an equity or debt investment in a separate entity with additional third parties, we refer to such separate entity as a “Property Entity” and when applicable may name the multifamily community related to the Property Entity or CO-JV.

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As of December 31, 2013, we have equity and debt investments in 55 multifamily communities, of which 32 are stabilized operating properties, two are in lease up and 21 are in various stages of pre-development and construction. Of the 55 multifamily communities, we wholly own seven multifamily communities and three debt investments for a total of 10 wholly owned investments.  The remaining 45 investments are held through Co-Investment Ventures, 44 of which are consolidated and one is reported on the equity method of accounting. The one unconsolidated Co-Investment Venture holds a debt investment. 

As of December 31, 2013, we are the general partner and/or managing member for each of the separate Co-Investment Ventures. Our two largest Co-Investment Venture partners are Stichting Depositary PGGM Private Real Estate Fund, a Dutch foundation acting in its capacity as depositary of and for the account and risk of PGGM Private Real Estate Fund, and its affiliates, a real estate investment vehicle for Dutch pension funds (“PGGM” or the “PGGM Co-Investment Partner”) and Milky Way Partners, L.P. (the “MW Co-Investment Partner”), the primary partner of which is Korea Exchange Bank, as Trustee for and on behalf of National Pension Service (acting for and on behalf of the National Pension Fund of the Republic of Korea Government) (“NPS”). Our other Co-Investment Venture partners include third-party national or regional real estate developers/owners (“Developer Partners.”) When applicable, we refer to individual investments by referencing the individual co-investment partner or the underlying multifamily community. We refer to our Co-Investment Ventures with the PGGM Co-Investment Partner as “PGGM CO-JVs,” those with the MW Co-Investment Partner as “MW CO-JVs,” and those with Developer Partners as “Developer CO-JVs.”

Prior to July 31, 2013, we had multiple Co-Investment Ventures with Monogram Residential Master Partnership I LP (the “Master Partnership,” which was formerly named Behringer Harvard Master Partnership I LP). Our interest in these Co-Investment Ventures was generally 55% and the Master Partnership’s interest was generally 45%. PGGM held a 99% limited partner interest in the Master Partnership and an affiliate of the Advisor held the 1% general partner interest. Through July 31, 2013, the Master Partnership was our Co-Investment Venture partner in the PGGM CO-JVs. On July 31, 2013, we acquired the 1% general partner interest in the Master Partnership (the “GP Master Interest”) from the affiliate of the Advisor for $23.1 million (effectively increasing our ownership interest in each applicable PGGM CO-JV) and consolidated the Master Partnership. Our acquisition of the GP Master Interest on July 31, 2013, resulted in PGGM becoming our partner in these Co-Investment Ventures as of July 31, 2013.  However, these transactions were not significant to our operating results or our financial statements as we consolidated these Co-Investment Ventures before and after the transactions and our ownership interest did not significantly change. These transactions also did not have a significant effect on the amount of noncontrolling interests in such Co-Investment Ventures because PGGM owns a 99% interest in the Master Partnership, and PGGM’s ownership interest in each applicable Co-Investment Venture was not materially changed. Accordingly, we now consider PGGM to be our co-investment partner in these Co-Investment Ventures, rather than the Master Partnership. For purpose of prior period comparisons in this Annual Report on Form 10-K, we report noncontrolling interests in PGGM CO-JVs formerly held by the Master Partnership as having been held by PGGM, as the difference is not significant. Further, on December 20, 2013, we and PGGM amended the terms of the agreement governing the Master Partnership, primarily by increasing the maximum potential capital commitment of PGGM by $300 million (in addition to any amounts distributed to PGGM from sales or financings of new PGGM CO-JVs), and we sold a noncontrolling interest in 13 developments to PGGM for $146.4 million. 

Offerings of our Common Stock

In December 2007, we completed a private offering (the “Private Offering”), in which we sold approximately 14.2 million shares of our common stock with gross offering proceeds of approximately $127.3 million.  Net proceeds, after selling commissions, dealer manager fees, and other offering costs, were approximately $114.3 million.

On September 2, 2011, we terminated offering shares of common stock in the primary portion of our initial public offering (the “Initial Public Offering”), in which we sold 146.4 million shares of our common stock with aggregate gross primary offering proceeds of approximately $1.46 billion. Net proceeds, after selling commissions, dealer manager fees, and other offering costs, were approximately $1.3 billion.  At termination of our Initial Public Offering, we reallocated 50 million unsold shares remaining from our Initial Public Offering to our distribution reinvestment plan (“DRIP”).  As a result, we are offering a maximum of 100 million total shares pursuant to our DRIP at a DRIP offering price set by our board of directors. The DRIP offering price has been $9.53 per share since March 1, 2013, and is approximately 95% of our estimated per share value which was last established as of March 1, 2013.  For the years ended December 31, 2013 and 2012, the DRIP offering price averaged $9.51 and $9.48, respectively, also based on 95% of our estimated per share value. As of December 31, 2013, we have sold approximately 16.0 million shares under our DRIP for gross proceeds of approximately $152.1 million.  There are approximately 84.0 million shares remaining to be sold under the DRIP as of December 31, 2013.

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Per the terms of our DRIP, we currently expect to offer shares under the DRIP for approximately the next four years, which would be the sixth anniversary of the termination of our Initial Public Offering, although our board of directors has the discretion to extend the DRIP beyond that date, in which case we will notify participants of such extension.  We may suspend or terminate the DRIP at any time by providing ten days’ prior written notice to participants, and we may amend or supplement the DRIP at any time by delivering notice to participants at least 30 days prior to the effective date of the amendment or supplement.

Our common stock is not currently listed on a national securities exchange. Depending upon then-prevailing market conditions, we intend to begin to consider the process of listing or liquidation within the next two to four years, which is unchanged from the four to six years after the date of the termination of our Initial Public Offering as disclosed in the related offering documents.

2013 Highlights

Key transactions and highlights for 2013 included:

• We began the process to transition to self-management, entering into agreements with the Advisor and its affiliates and hiring the Company’s initial executives and other employees;

• We expanded the PGGM CO-JV relationship, generally increasing the maximum potential capital commitment of PGGM by $300 million (plus any amounts distributed to PGGM from sales or financings of new PGGM CO-JVs), which we expect to provide (i) access to additional capital to enable us to increase the size and diversification of our multifamily community portfolio and (ii) through fee income and increased participation rights, the potential for more favorable returns on these investments;

• Our investment activity in 2013:

◦ We expanded the number of our developments by acquiring land and commencing construction in eight developments, adding five new markets and 2,640 multifamily units bringing our total equity investments under development to approximately $1.4 billion;

◦ We acquired a new multifamily community with 202 units in San Francisco, California for an aggregate gross purchase price of $108.7 million, excluding closing costs;

• We sold four multifamily communities with combined sales prices of $211.9 million, before closing costs, resulting in gains of approximately $50.8 million;

• We paid total distributions of $59.0 million, an annual rate of 3.5% (based on a purchase price of $10 per share);

• The Same-Store comparable rental revenues for our multifamily communities increased 6% from $158.8 million in 2012 to $168.9 million in 2013;

• We obtained financings for $107.0 million at a weighted average fixed rate of 3.6%. Additionally, we obtained new construction financing with total commitments of $161.5 million; and

• We reported net income for 2013 of $32.6 million, an increase over a net loss of $30.2 million in 2012, where our 2013 results included gains from sales of multifamily communities of $50.8 million and benefited from improved operations. Funds from operations (“FFO”) increased from $38.3 million in 2012 to $42.0 million in 2013. Modified funds from operations (“MFFO”) increased to $46.3 million in 2013 from $41.0 million in 2012 (see Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K for a discussion regarding FFO and MFFO, including reconciliations to net income in accordance with U.S. generally accepted accounting principles (“GAAP”)).

Investment Objectives

Our overall investment objectives, in their relative order of importance are:

• to preserve and protect investors' capital investments;

• to realize growth in the value of our investments within four to six years of the termination of the Initial Public Offering;

• to generate distributable cash for our stockholders; and

• to enable investors to realize a return on their investment by beginning the process of liquidation and distribution of cash or listing our shares on a national securities exchange within four to six years of termination of the Initial Public Offering.

Investment Policies

Our investment strategy is designed to provide our stockholders with a diversified portfolio, and our management and board of directors have extensive experience in investing in numerous types of real estate, loans and other investments to

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execute this strategy. We intend to focus on acquiring and developing multifamily communities that will produce increasing rental revenue and will appreciate in value within our targeted life. Our targeted communities include existing core properties, as well as properties in various phases of development, redevelopment, lease up or repositioning with the intent to transition those properties to core properties. Some of these multifamily communities may contain retail space, which is positioned as an amenity to the multifamily community and not a separate line of business. We believe multifamily communities that are highly amenitized with higher rents per unit are attractive acquisitions for institutional investors and accordingly have the potential for higher total returns, and therefore, are a favorable market sector for us.

We may also invest in other types of commercial real estate, real estate-related securities and mortgage, bridge, mezzanine, land or other loans, or in entities that make investments similar to the foregoing. Some of these investments may contain options for us to acquire partial or controlling interests in operating or development stage multifamily communities. We may make equity or debt investments in individual multifamily communities, portfolios or mergers with other real estate companies.The advantage of portfolio or merger acquisitions is that larger amounts of capital can be deployed more quickly in a diversified portfolio.

As of December 31, 2013, all but one of our investments have been made in multifamily communities located in the top 50 Metropolitan Statistical Areas located in the United States (“MSAs”). Our multifamily community acquisition and development strategy is to focus on those markets where we believe there are favorable long-term demand and supply factors for multifamily investments. We intend to concentrate on high quality multifamily communities located in the top 50 MSAs, as we believe these types of investments, particularly those in submarkets with significant barriers to entry, are in demand by institutional investors which can result in better exit pricing. We also believe that economic conditions in the major U.S. MSAs will continue to provide adequate demand for properly positioned multifamily communities; such conditions include a broader economic base for more predictable job and salary growth, increased infrastructure, particularly transportation, lifestyle trends, as well as better rental affordability compared to single-family home pricing. The U.S. Census population estimates are used to determine the largest MSAs. Our top 50 MSA strategy focuses on acquiring communities and other real estate assets that provide us with broad geographic diversity.

Although we intend to primarily invest in real estate assets located in the United States, in the future we may make investments in real estate assets located outside the United States. As discussed below, based on changing market factors, we may invest in other geographic areas and in other types of multifamily communities, including student housing and lesser amenitized communities.

A part of our investment strategy is also to acquire and hold high quality multifamily investments through Co-Investment Ventures. We believe this strategy has allowed us to expand the number and size of our investments and may continue to do so in the future, thereby providing greater portfolio diversification, participation in larger real estate investments, and greater access to high quality investment opportunities. To accomplish this strategy, we may continue to enter into Co-Investment Ventures that invest directly or indirectly in multifamily equity interests, mortgage, mezzanine or other loans. Accordingly, each of the strategies and policies discussed in this section may be executed directly by us or through Co-Investment Ventures. We expect that the Developer Partners in these Co-Investment Ventures will primarily be large domestic development companies or institutional entities, but may also include local or regional real estate investors. As of December 31, 2013, 45 of our equity and debt investments have been made through Co-Investment Ventures.

Our investment strategy also provides flexibility in allocating capital between new investments in stabilized communities and in development communities based on market changes. Factors that we consider in our capital allocation decisions include the relative cost of stabilized operating communities compared to their replacement or development cost, the absolute returns and return spreads for developments compared to stabilized operating communities, the availability and pricing of construction and permanent financing, supply trends and operating characteristics in the local market for stabilized operating communities (e.g. age, rental revenue and expense growth trends and local demographics) compared to new developments. In the current market, where capitalization rates have compressed and stabilized operating communities are selling at costs in excess of their replacement cost, we currently expect to place a greater emphasis on developments than on acquisitions of stabilized operating communities.

In this market environment, we will seek developments with characteristics similar to stabilized multifamily investments, but at lower costs per unit, and with potentially higher returns on costs. We also plan to incorporate high quality, updated amenities resulting in higher resident appeal, which we expect to result in higher rents and in fewer capital expenditures as compared to older multifamily communities. We will generally structure developments in Co-Investment Ventures, where we are the controlling partner, partnering with experienced developers, but maintaining control over construction, operations, financing and disposition.

We also have made and may continue to make loan investments, primarily during the development phase of multifamily community projects. Investments in mezzanine and mortgage loans generally can provide higher current income than equity

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investments in development real estate projects while, in some cases, providing the opportunity, at our discretion, to invest in the long-term equity of the projects. In these situations we may have the option of converting our loan investment into an equity position or an increased equity position, where we would participate in operating earnings and would attempt to realize value appreciation upon the sale of the property. We believe this combination of loan and equity investments can lead to higher average returns and a higher quality portfolio over the longer term.

During periods of capitalization rate compression, we will still continue to evaluate stabilized acquisitions and seek out properties and structures where our liquidity, financial strength and experience allow us to differentiate our offers from other buyers. Although we do not expect stabilized acquisitions to be our primary investment strategy in the near term, we will take advantage of the opportunities when they meet our targeted return objectives.

When appropriate, we may also incorporate into our investment portfolio lease up properties, generally newly completed multifamily developments that have not started or just started leasing, which may provide for more timely realization of operating cash flow than value-add redevelopments or traditional developments. Additionally, we may also invest in value-added multifamily communities. Generally, we would make other capital improvements to aesthetically improve the asset and its amenities, increase rents, and stabilize occupancy with the goal of adding an attractive increase in yield and improving total returns.

Co-Investment Ventures

The table below presents a summary of our Co-Investment Ventures.  The effective ownership ranges are based on our share of contributed capital in the multifamily investment. This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements for each respective Co-Investment Venture. Unless otherwise noted, all of our Co-Investment Ventures are reported on the consolidated basis of accounting (dollars in millions).

	December 31, 2013				December 31, 2012
Co-Investment Structure	Number of Multifamily Communities	Total Consolidated Assets		Our Effective Ownership	Number of Multifamily Communities	Total Consolidated Assets		Our Effective Ownership
PGGM CO-JVs (a)	27	$	1,231.4	44% to 74%	16	$	889.6	51% to 74%
MW CO-JVs	14	786.1		55%	15	896.9		55%
Developer CO-JVs	4	88.7		90% to 100%	8	109.7		80% to 100%
	45	$	2,106.2		39	$	1,896.2

(a)    Includes one unconsolidated investment as of December 31, 2013 and 2012. Also as of December 31, 2013 and 2012, the equity partners include Developer Partners in 16 and none multifamily communities, respectively.

Structure of Co-Investment Ventures

As of December 31, 2013, we are the general partner and/or managing member for each of the separate Co-Investment Ventures. Accordingly, we have control rights over the day-to-day operations of each Co-Investment Venture. With respect to PGGM CO-JVs and MW CO-JVs, our management rights are subject to operating plans prepared by us and approved by our partners, who retain approval rights with respect to certain major decisions. In each of our PGGM CO-JVs and MW CO-JVs, both we and our partners have buy/sell rights which, if exercised by us, may require us to acquire the respective Co-Investment Partner’s ownership interest, or if exercised by our respective Co-Investment Partner, may require us to sell our ownership interest. Alternatively, in the event of a dispute, the governing documents may require (or the partners may agree to) a sale of the underlying property to a third party. For tax purposes relating to the status of PGGM and NPS as foreign investors, the underlying properties of PGGM CO-JVs and MW CO-JVs are held through subsidiary REITs, and the agreements may require the investments to be sold by selling the interests in the subsidiary REIT rather than as property sales.

PGGM invests with us in PGGM CO-JVs through the Master Partnership. Capital contributions are made pro rata in accordance with the partner’s respective ownership interest in the PGGM CO-JV. Distributions of net cash flow are generally distributed monthly in accordance with the partner’s respective ownership. As the general partner of the Master Partnership, we are entitled to a promoted interest if PGGM’s investments exceed certain performance returns. We also receive fees related to asset management, financing and dispositions. As of December 31, 2013, PGGM has unfunded commitments of approximately $54.1 million related to PGGM CO-JVs in which they have already invested of which our share is approximately $67.4 million assuming a 45% investment by PGGM. In addition to capital already committed by PGGM through this arrangement, they may commit up to an additional $99.6 million plus any amounts distributed to PGGM from

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sales or financings of PGGM CO-JVs entered into on or after December 20, 2013. If PGGM were to invest the additional $99.6 million, our share would be approximately $124.0 million assuming a 45% investment by PGGM. The Master Partnership intends to make new co-investments in traditional “Class A” multifamily residential properties, such as garden apartments, mid-rise apartments or high-rise apartment complexes, that either are to be developed or are in the process of being developed, or for which development has been completed and a certificate of occupancy has been issued not more than ten years prior to the PGGM CO-JV’s acquisition of an interest in such co-investment. Subject to certain limitations, prior to making, or permitting any of our affiliates or entities formed or advised by us to make, an investment that fits within these parameters, we must first offer the PGGM an opportunity to co-invest until PGGM’s maximum potential capital commitment is reached.

As of December 31, 2013, the MW Co-Investment Partner has invested in 14 joint ventures with us. We do not currently have an arrangement with the MW Co-Investment Partner for additional investments with us. Distributions of net cash flow are generally distributed monthly in accordance with the partner’s respective ownership.

With respect to Developer CO-JVs, during the development stage of the multifamily investment, the Developer Partners generally provide development and construction services, including guarantees over certain development costs and development completion requirements. As the general partner or managing member of each Developer CO-JV, we have day-to-day control over operations of each Developer CO-JV including, but not limited to, setting operating budgets, selecting property management, financing and disposition of the multifamily community. The Developer Partners, who are typically providing development and general contractor services through affiliated entities, have very limited approval rights, generally related to protective rights concerning admittance or transfer of owners, changes in the business purpose of the Co-Investment Venture and bankruptcy.  Generally, these developers have initial capital requirements until certain milestones are achieved, at which point their initial capital contributions will be returned to them.  These Developer Partners have a back-end interest, generally only attributable to distributions related to a property sale or financing, and accordingly, we would expect to receive substantially all net cash flow prior to such events.  The Developer Partners, generally, also have put options, one year after completion of the development, pursuant to which we would be required to acquire their back-end interest at a set price as well as options to require a sale of the development after the seventh year after completion of the development. These Developer CO-JVs also include buy/sell provisions, generally available after the tenth year after completion of the development.  We generally provide substantially all of the equity capital, and accordingly, these Developer CO-JVs are not a significant source of equity capital for us.

In a number of instances, rather than make an investment in a Developer CO-JV on our own, we may make such an investment with PGGM through a PGGM CO-JV. The PGGM CO-JV is then the direct beneficiary and obligor for the Developer CO-JV, where we and PGGM participate through our respective ownership interests. As the general partner of the Master Partnership and each PGGM CO-JV, we continue to exercise our control rights, subject to the provisions of the Master Partnership as discussed above. Accordingly, for simplicity, we continue to refer to such investments as PGGM CO-JVs. As of December 31, 2013, we and PGGM are partners in 16 such development projects through PGGM CO-JVs that have, in turn, partnered with Developer Partners. On February 28, 2014, we sold a 45% noncontrolling interest in two additional Developer CO-JVs to PGGM for $13.3 million.

As of December 31, 2013, we believe all of our Co-Investment Venture partners and Property Entity partners are in compliance with their contractual obligations, and we are not aware of factors that would indicate their inability to meet their obligations.

Portfolio

See Part I, Item 2, “Properties” of this Annual Report on Form 10-K for a description of each of our investments in our portfolio.

Borrowing Policies

There is no limitation on the amount we may invest in any single property or other asset or on the amount we can borrow for the purchase of any individual property or other investment. However, under our charter, our consolidated borrowings may not exceed 300% of our adjusted consolidated net assets unless approved by a majority of our independent directors. For these purposes and consistent with our charter, we define adjusted consolidated net assets as our consolidated net equity less certain intangibles plus accumulated property and finance related depreciation and amortization. In addition to our charter limitation, our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets, unless substantial justification exists that borrowing a greater amount is in our best interests (for purposes

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of this policy limitation and the target leverage ratio discussed below, the value of our assets is based on methodologies and policies determined by our board of directors that may include, but do not require, independent appraisals). Our policy limitation, however, does not apply to unconsolidated investments of individual real estate assets. As a result, we may borrow more than 75% of the value of any particular asset to the extent our board of directors determines that borrowing such amount is prudent.

As of December 31, 2013, we have $1.0 billion in consolidated borrowings, which represents 36% of our adjusted consolidated net assets and 38% of the carrying value of our real estate assets. Accordingly, as of December 31, 2013, our charter limitation has not constrained our ability to incur debt. Our board of directors must review our aggregate borrowings at least quarterly. In addition to these formal policies, our board will evaluate other factors in determining the aggregate borrowings both on a consolidated basis and individually on a per property basis as assets are acquired, disposed and refinanced. These factors may include debt service coverage, fixed rate and variable rate targets and scheduling of maturities. We will also take into consideration requirements imposed by Co-Investment Partners, which may relate to limitations on individual or portfolio debt levels related to such partners. Following the investment of substantially all of our remaining available cash and the completion of the financing of our assets, we will seek a long-term leverage ratio of approximately 50% to 60% of the aggregate value of our assets.

In certain circumstances, generally smaller, garden to mid rise developments, we may finance these developments from our available cash and other capital sources. For other developments, we may use the availability under our existing credit facility to fully or partially finance the developments. For larger, high rise developments, we intend to seek construction financing, generally at 50% to 60% of cost. The base terms of these construction borrowings will extend through the projected stabilization of the development, which may include one or two 12 month extension options. We may also obtain longer term financing construction that would extend past the stabilization period, with terms of seven to 10 years when we can lock in favorable financing at current rates.

As of December 31, 2013, all of our financings have been secured by our investments in real estate, primarily individual mortgage loans secured by a single respective investment with no cross-collateralization with other investments. Generally these financings are non-recourse to us (other than certain limited “bad boy” provisions which we generally control and environmental conditions) and require full payment or assignment to the buyer upon any disposition. However, we may seek facilities and cross-collateralized pool financings similar to our current $150 million credit facility, which may provide greater flexibility in managing our investments, particularly related to dispositions. We may also seek unsecured, recourse financings to us. As of December 31, 2013, we have not utilized such financings.

As with our investment policies, the current state of the capital markets may require us to take a very flexible policy to borrowings in the short term in order to achieve our long-term objectives. Generally, a higher spread between capitalization rates and financing rates will accommodate higher leverage and lower spreads will necessitate lower leverage. Accordingly, notwithstanding the above policies, depending on these and other market conditions and the current life cycle of an acquired property, we may have higher or lower leverage percentages or not borrow at all on a consolidated basis. We may also choose to or be required to have relatively less financing in our Co-Investment Ventures. On an on-going basis we will also continue to evaluate both the individual and portfolio leverage and maturity terms, where our portfolio weighted average may differ from individual investments. In certain market conditions and for certain investments, we may elect to extend maturities or increase leverage for financings deemed to have favorable terms. If we do choose to incur fewer borrowings, we would expect to acquire fewer investments. Depending on the market capitalization rates and interest rates, this may result in lower net returns on our investments.

Tax Status

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and have qualified as a REIT since the year ended December 31, 2007. To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders. As a REIT, we generally will not be subject to federal income tax at the corporate level. We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to qualify or remain qualified as a REIT.

During 2013, we began to utilize a taxable REIT subsidiary (“TRS”) to engage in activities that REITs may be prohibited from performing, including property and asset management and other services and the conduct of certain nonqualifying real estate transactions. Our TRS is a wholly owned subsidiary of the Operating Partnership and is taxable as a regular corporation, and therefore, subject to federal, state and local income taxes. For the year ended December 31, 2013, our TRS did not incur any significant activity and we did not recognize any income tax expense/(benefit) related to the taxable income of the TRS.

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Distribution Policy

Distributions are authorized at the discretion of our board of directors based on its analysis of our prior performance, expectations of performance for future periods, including actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for our portfolio, capital expenditure needs, dispositions, general financial condition and other factors that our board of directors deems relevant.  The board’s decision will be influenced, in part, by its obligation to ensure that we maintain our status as a REIT. 

In addition, with our focus on development investments, there may be a lag before receiving the income from such investments.  During this period, we may use portions of our available cash balances and other sources to fund a portion of the distributions paid to our common stockholders, which could reduce the amount available for new investments.  There is no assurance that these future investments will achieve our targeted returns necessary to maintain our current level of distributions. However, as development, lease up or redevelopment projects are completed and begin to generate income, we would expect to have additional funds available to distribute to our stockholders.

Accordingly, we cannot assure as to when we will consistently generate sufficient cash flow solely from operating activities to fully fund distributions.  Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions. There can be no assurance that future cash flow will support paying our currently established distributions or maintaining distributions at any particular level or at all.

During periods when our operating cash flow has not generated sufficient operating cash flow to fully fund the payment of distributions on our common stock, we have paid and may in the future pay some or all of our distributions from sources other than operating cash flow.  As noted above, we may use portions of our available cash balances to fund a portion of the distributions paid to our common stockholders, which could reduce the amount available for new investments. We may also refinance or dispose of our investments and use the proceeds to fund distributions on our common stock or reinvest the proceeds in new investments to generate additional operating cash flow.  The participation in our DRIP will also reduce the cash portion of our distributions. There is no assurance that these sources will be available in future periods, which could result in temporary or permanent adjustments to our distributions.

Since we began operations, our board of directors has declared daily distributions and a special distribution as summarized below:

	Regular Daily Distributions						Special Distributions Amount per Share
Period	Approximate Amount per Share (Rounded)		Annualized Distribution Rate
April 1, 2012 - March 31, 2014	$	0.000958904	3.5	%	(1	)	$	0.06	(2	)
September 1, 2010 - March 31, 2012	$	0.001643800	6.0	%	(1	)	$	—
March 1, 2009 - August 31, 2010	$	0.001917800	7.0	%	(1	)	$	—
October 1, 2008 - February 28, 2009	$	0.001780800	6.5	%	(1	)	$	—
December 1, 2007 - September 30, 2008	$	0.001013699	4.0	%	(3	)	$	—
July 1, 2007 - November 30, 2007	$	0.000986301	4.0	%	(4	)	$	—

______________________________________

(1) Assuming a share price of $10.00 per share.

(2) In March 2012, our board of directors authorized a special cash distribution related to the sale of the Mariposa Lofts Apartments multifamily community in Atlanta, Georgia (“Mariposa”) in the amount of $0.06 per share of common stock payable to stockholders of record on July 6, 2012. The total special cash distribution of approximately $10.0 million was paid on July 11, 2012.

(3) Assuming a share price of $9.25 per share.

(4) Assuming a share price of $9.00 per share.

Competition

We are subject to significant competition in seeking real estate investments, capital, including both equity and debt capital, and residents. We compete with many third parties engaged in real estate investment activities including other REITs, regional and national developers, specialty finance companies, savings and loan associations, banks, mortgage bankers, insurance

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companies, mutual funds, institutional investors, investment banking firms, lenders, hedge funds, governmental bodies and other entities. We also face competition from other real estate development, lending and investment programs, including other Behringer programs, for investments that may be suitable for us. Many of our competitors have substantially greater financial and other resources than we have and may have substantially more operating experience than either us or our Advisor. They also may enjoy significant competitive advantages related to, among other things, cost of capital, governmental regulation, access to real estate investments and resident services.

Regulations

Our investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, zoning regulations, construction and occupancy permits, construction codes, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts (such as increased motor vehicle activity), rent controls, and fair housing regulations. We believe that we have all permits and approvals necessary under current law to operate our investments.

Environmental

As an owner and developer of real estate, we are subject to various environmental laws of federal, state and local governments. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future. However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future.

Employees

Although we have commenced our transition to self-management, as of February 28, 2014, we have only seven employees and remain dependent on our Advisor and other affiliates of Behringer Harvard Holdings for services that are essential to us. Our Advisor and other affiliates of Behringer Harvard Holdings perform a full range of real estate services for us, including investment and disposition advice, property management, accounting, asset management, and investor relations services, and other general and administrative responsibilities. In the event that these companies are unable to provide these services to us, we would be required to provide such services ourselves or obtain such services from other sources.

Industry Segment

Our current business consists of investing in and operating multifamily communities. Substantially all of our consolidated net income is from multifamily communities and related investments that we wholly own or own through joint ventures. Our management evaluates operating performance on an individual property and/or joint venture level. However, as each of our wholly owned communities and joint ventures has similar economic characteristics, we are managed on an enterprise-wide basis with one reportable segment.

Available Information

We electronically file Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and all amendments to those reports with the SEC. We also have filed with the SEC registration statements on Form S-11 in connection with the Initial Public Offering of our common stock. The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F. Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of our filings with the SEC may be obtained from the website maintained for us and our affiliates at www.behringerinvestments.com or at the SEC's website at www.sec.gov. Access to these filings is free of charge. We are not incorporating our website or any information from the website into this Annual Report on Form 10-K.

Item 1A.  Risk Factors

The factors described below represent our principal risks. Other factors may exist that we do not consider to be significant based on information that is currently available or that we are not currently able to anticipate. Our stockholders or potential investors may be referred to as "you" or "your" in this Item 1A, "Risk Factors" section.

Risks Related to Our Business and Operations

The concentration of our investments in the multifamily sector may leave our profitability vulnerable to a downturn or slowdown in such sector.

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Our investments are concentrated in the multifamily sector. As a result, we are subject to risks inherent in investments in multifamily properties and real estate-related assets. The potential effects on our revenues, and as a result, on cash available for distribution to our stockholders, resulting from a downturn or slowdown in the multifamily sector could be more pronounced than if we had more fully diversified our investments.

We are subject to many risks in the process of becoming a self-managed company, and the transition may not prove successful.

On July 31, 2013, we entered into a series of agreements and amendments to our existing agreements and arrangements with the Advisor and its affiliates (“Behringer”) in order to begin the process to become self-managed. Effective July 31, 2013, we and Behringer entered into a master modification agreement (the “Modification Agreement”), setting forth various terms of and conditions to the modification of the business relationships between us and Behringer. At the initial closing on July 31, 2013 (the “Initial Closing”) of the Modification Agreement, Behringer waived the non-solicitation and non-hire provisions contained in the agreements with the Company with respect to five executive officers who previously provided services on our behalf as employees of Behringer. The completion of the remainder of the self-management transactions contemplated by the Modification Agreement will occur at a second closing (the “Self-Management Closing”), which is expected to occur on June 30, 2014. At the Self-Management Closing, Behringer will waive the non-solicitation and non-hire provisions related to identified individuals currently providing us advisory and property management services under the advisory and property management agreements. We plan to supplement these identified individuals with additional employees that have no prior affiliation with Behringer. As of February 28, 2014, we have hired two additional employees and intend to hire other employees both before and after June 30, 2014 in our transition to self-management. The obligations of the parties to consummate the self-management transactions are subject to certain limited conditions, and there can be no assurance that the Self-Management Closing will occur.

Until the Self-Management Closing occurs, we must rely on Behringer to maintain the team of professionals and staff providing advisory and property management services that are currently employed by Behringer for our benefit. In addition, we will rely on Behringer to provide us with general transition services in support of our transition to self-management. If Behringer is unwilling or unable to do so, our transition to a self-managed company will be more costly or may not be successful, and your investment in us could suffer.

In addition, we cannot be certain that the entire team of professionals and staff providing advisory and property management services that are currently employed by Behringer for our benefit will agree to become our employees following the Self-Management Closing. The loss of the services of any of our key personnel, or our inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results.

Furthermore, we cannot be certain that a transition to a self-managed company will improve our financial performance or otherwise prove to be beneficial to us and our stockholders. Initially, we will recognize costs associated with the negotiation and implementation of the Modification Agreement and related transactions which will hurt our financial performance. Although we believe that becoming self-managed will ultimately prove accretive to our stockholders, this will depend on a number of factors, including but not limited to: (a) the long-term difference between the costs and expenses of being externally-managed versus being self-managed, (b) the consideration paid to Behringer in connection with the Modification Agreement and related transactions, and (c) the additional opportunities that arise as a result of being self-managed.

When we complete our transition to a self-managed company, while we will no longer bear the costs of the various fees and expenses we currently pay to our Advisor and its affiliates, our direct expenses will include general and administrative costs, including legal, accounting, office costs, and other expenses related to corporate governance and reporting and compliance with securities laws. We will also incur the compensation and benefits costs of our officers and other employees and consultants that are now paid by our Advisor or its affiliates. In addition, we may issue equity awards to our officers, employees and consultants, which awards would decrease net income, funds from operations and modified funds from operations and may further dilute your investment. If the expenses we assume as a result of becoming self-managed are higher than the expenses we avoid paying to our Advisor, our net income per share and modified funds from operations per share would be lower as a result of the transition to self-management than it otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares.

We are now dependent on some of our own employees and will become more dependent on our own employees upon the Self-Management Closing.

As of February 28, 2014, we rely on seven of our own employees to carry out our business and investment strategies. These seven employees include five of our most senior executives who will constitute a majority of our senior management executives after the Self-Management Closing. We are now solely responsible for compensating and retaining these employees. Upon the Self-Management Closing, we expect that the remaining professionals and staff providing advisory and property

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management services that are currently employed by Behringer for our benefit will also become our employees. At such time, we will be solely responsible for the hiring, compensation and retention of all of these employees. Any of these employees may cease to provide services to us at any time. The loss of the services of any of our key management personnel, or our inability to recruit and retain qualified personnel in the future, could have an adverse effect on our business and financial results. As we operate our business, we will continue to try to attract and retain qualified senior management and personnel, but may not be able to do so on attractive terms.

Our net income, funds from operations (“FFO”), and modified funds from operations (“MFFO”) may decrease in the near- term as a result of our transition to a self-managed company.

Our net income, FFO, and MFFO may decrease as a result of becoming a self-managed company. While we will no longer bear the costs of certain fees and expense reimbursements previously paid to the Advisor and its affiliates, our expenses will include the compensation and benefits of our officers, employees, and consultants, as well as overhead previously paid by the Advisor and its affiliates. Furthermore, these employees will be providing us services historically provided by the Advisor and its affiliates. There are no assurances that, following our transition to a self-managed company, we will be able to provide those services for the same costs as were previously provided to us by the Advisor and its affiliates, and there may be unforeseen costs, expenses, and difficulties associated with providing those services on a self-managed basis. If the expenses we assume as a result of becoming self-managed are higher than we anticipate, our net income, FFO, and MFFO may be lower as a result of the transition to self-management than they otherwise would have been. See Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K for a discussion regarding FFO and MFFO, including reconciliations to net income in accordance with GAAP.

In connection with becoming self-managed, we will be exposed to risks to which we have not historically been exposed.

Our transition to a self-managed company exposes us to risks to which we have not historically been exposed. As a company with employees, we are now subject to those potential liabilities that are commonly faced by employers, such as workers’ disability and compensation claims, potential labor disputes, office costs, and other employee-related liabilities and grievances, and we bear the costs of the establishment and maintenance of any employee compensation plans. Furthermore, there may be unforeseen costs, expenses, and difficulties associated with providing services previously provided by the Advisor and its affiliates.

We will incur costs associated with changing our name.

In connection with the Modification Agreement and our transition to self-management, we entered into an amended license agreement with Behringer that permits us to use the name “Behringer Harvard” subject to certain limitations and conditions. The term of the license agreement will last until the earlier to occur of (a) the expiration or termination for any reason of either our advisory management agreement or property management agreement with our Advisor and the Property Manager, respectively, or (b) the Self-Management Closing. Upon termination, we must stop using the name “Behringer Harvard” and similar terms within 90 days and will therefore be required to change our name. We will be required to pay any costs associated with changing our name.

We may suffer from delays in locating suitable investments, which could adversely affect the return on your investment.

Our ability to achieve our investment objectives and to make distributions to our stockholders is dependent upon the performance of our Advisor and our employees in the acquisition of our investments and the determination of any financing arrangements as well as the performance of our Property Manager, the selection of multifamily community residents and the negotiation of leases. We currently have available cash, which we are seeking to invest on attractive terms. The current market for properties and real estate-related assets that meet our investment objectives is highly competitive as is the leasing market for multifamily properties. Except for the investments described in this Annual Report on Form 10-K, you will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments. You must rely entirely on the oversight of our board of directors, the management ability of our Advisor, the performance of the Property Manager and the performance of our employees. We cannot be sure that we will be successful in obtaining suitable investments on financially attractive terms.

Additionally, as a public company, we are subject to the ongoing reporting requirements under the Exchange Act. Pursuant to the Exchange Act, we may be required to file with the SEC financial statements of properties we acquire and investments we make in real estate-related assets. To the extent any required financial statements are not available or cannot be obtained, we will not be able to acquire the investment. As a result, we may not be able to acquire certain properties or real estate-related assets that otherwise would be a suitable investment. We could suffer delays in our investment acquisitions due to these reporting requirements.

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Furthermore, if we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, you could suffer delays in the receipt of distributions attributable to those particular properties. In addition, to the extent our investments are in development or redevelopment projects, communities in lease up, or other assets that have significant capital requirements, our ability to make distributions may be negatively impacted.

Delays we encounter in the selection, acquisition and development of properties could adversely affect your returns. In such an event, our ability to pay distributions to our stockholders and the returns to our stockholders would be adversely affected.

We may have to make decisions on whether to invest in certain properties or real estate-related assets prior to receipt of detailed information on the investment.

In order to effectively compete for the acquisition of properties and other real estate-related assets in the current market, our employees, Advisor and board of directors may be required to make investment decisions and be required to make substantial non-refundable deposits prior to the completion of our analysis and due diligence on a property or real estate-related asset acquisition. In such cases, the information available to our employees, Advisor and board of directors at the time of making any particular investment decision, including the decision to pay any non-refundable deposit and the decision to consummate any particular acquisition, may be limited, and our employees, Advisor and board of directors may not have access to detailed information regarding any particular investment property, such as physical characteristics, environmental matters, zoning regulations or other local conditions affecting the investment property. Therefore, no assurance can be given that our employees, Advisor and board of directors will have knowledge of all circumstances that may adversely affect an investment. In addition, our employees, Advisor and board of directors may rely upon independent consultants in connection with their evaluation of proposed investment properties, and no assurance can be given as to the accuracy or completeness of the information provided by such independent consultants.

We have experienced losses in the past and may experience similar losses in the future.

For the years ended December 31, 2012 and 2010, we had net losses of $30.2 million and $34.6 million, respectively. Our losses can be attributed, in part, to depreciation and amortization of operating properties and related intangibles. For the years ended December 31, 2013 and 2011, we reported net income of $32.6 million and $94.5 million, respectively, due to gains on sale of real estate in 2013 and due in part to non-recurring gains related to revaluation of equity on business combinations in 2011. We cannot assure you that, in the future, we will be profitable or that we will realize growth in the value of our assets.

Payment of fees to our Advisor and its affiliates will reduce cash available to us for investment and payment of distributions.

Our Advisor and its affiliates perform services for us in connection with, among other things, the selection and acquisition of our properties and real estate-related assets, the management of our properties, the servicing of our mortgage, bridge, mezzanine or other loans, the administration of our other investments and the disposition of our assets. They are paid substantial fees for these services. In addition, as described above, we will pay fees to our Advisor and its affiliates pursuant to the Modification Agreement and related agreements in connection with our transition to a self-managed company. These fees will reduce the amount of cash available for investment or distributions to stockholders.

If our sponsor, our Advisor or its affiliates waive or defer certain fees due to them, our results of operations and distributions may be artificially high.

From time to time, our sponsor, our Advisor or its affiliates have agreed, and may agree in the future, (1) to waive or defer all or a portion of the acquisition, asset management or other fees, cost reimbursements, compensation or incentives due to them, (2) to pay general administrative expenses or (3) to otherwise supplement stockholder returns in order to increase the amount of cash available to make distributions to stockholders. If our sponsor, our Advisor or its affiliates choose to no longer waive or defer such fees and incentives, our results of operations will be lower than in previous periods and your return on your investment could be negatively affected.

Distributions may be paid from capital and there can be no assurance that we will be able to maintain distributions at any particular level, or at all.

There are many factors that can affect the availability and timing of cash distributions to stockholders. Distributions generally will be based upon such factors as the amount of cash available or anticipated to be available from real estate investments, mortgage, bridge or mezzanine loans and other investments, current and projected cash requirements and tax considerations. Because we may receive income from interest or rents at various times during our fiscal year, distributions paid may not reflect our income earned in that particular distribution period. The amount of cash available for distributions will be affected by many factors, such the performance of our existing assets, our ability to acquire additional properties and real

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estate-related assets with available cash, the income from those investments, as well as our operating expense levels and many other variables. Actual cash available for distribution may vary substantially from estimates. We can give no assurance that we will be able to achieve our anticipated cash flow or that distributions will be maintained or increase over time. Nor can we give any assurance that: (1) rents from the properties will increase; (2) the securities we buy will increase in value or provide constant or increased distributions over time; (3) the loans we make will be repaid or paid on time; (4) loans will generate the interest payments that we expect; or (5) future acquisitions of properties, mortgage, bridge or mezzanine loans, other investments or our investments in securities will increase our cash available for distributions to stockholders. Our actual results may differ significantly from the assumptions used by our board of directors in establishing the distribution rates to stockholders.

Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions. For instance:

• If a significant number of multifamily residents default or terminate on their leases, there could be a decrease or cessation of rental payments, which would mean less cash available for distributions.

• Any failure by a borrower under our mortgage, bridge, mezzanine or other loans to repay the loans or interest on the loans will reduce our income and distributions to stockholders.

• Cash available for distributions may be reduced if we are required to spend money to correct defects or to make improvements to properties.

• Cash available to make distributions may decrease if the assets we acquire have lower yields than expected.

• There may be a delay in investment of our available cash in additional properties and real estate-related assets. During that time, we may invest in lower yielding short-term instruments, which could result in a lower yield on your investment.

• If we lend money to others, such funds may not be repaid in accordance with the loan terms or at all, which could reduce cash available for distributions.

• Federal income tax laws require REITs to distribute at least 90% of their REIT taxable income to stockholders each year to maintain REIT status, and 100% of taxable income and net capital gain to avoid federal income tax. This limits the earnings that we may retain for corporate growth, such as asset acquisition, development or expansion and makes us more dependent upon additional debt or equity financing than corporations that are not REITs. If we borrow more funds in the future, more of our operating cash will be needed to make debt payments and cash available for distributions may decrease.

• In connection with future acquisitions, we may issue additional shares of common stock, operating partnership units or interests in other entities that own our properties. We cannot predict the number of shares of common stock, units or interests that we may issue, or the effect that these additional shares might have on cash available for distribution to you. If we issue additional shares, they could reduce the cash available for distribution to you.

• We make distributions to our stockholders to comply with the distribution requirements of the Code and to eliminate, or at least minimize, exposure to federal income taxes and the nondeductible REIT excise tax. Differences in timing between the receipt of income and the payment of expenses, and the effect of required debt payments, could require us to borrow funds on a short-term basis to meet the distribution requirements that are necessary to achieve the tax benefits associated with qualifying as a REIT.

Further, our board of directors, in its discretion, may retain any portion of our cash on hand for capital needs and improvements. We cannot assure you that sufficient cash will be available to make distributions to you.

We have, and may in the future, pay distributions from sources other than our cash flow from operating activities and if we continue to do so, we will have less funds available to make investments and your overall return may be reduced.

Our organizational documents permit us to fund distributions from any source, such as our distribution reinvestment plan or other offerings, cash advances to us by our Advisor, cash resulting from a waiver of asset management fees, and borrowings, including borrowings secured by our assets, in anticipation of future cash flow from operating activities. The total regular distributions paid to common stockholders (including distributions reinvested pursuant to our DRIP) in the twelve months ended December 31, 2013, 2012 and 2011 were approximately $59.0 million, $72.0 million, and $79.7 million, respectively. For the twelve months ended December 31, 2013, 2012 and 2011, cash flows from operating activities net of distributions paid to noncontrolling interests related to operating activities were approximately $51.6 million, $42.9 million, and $29.9 million, respectively. Accordingly, for the twelve months ended December 31, 2013, 2012 and 2011, cash flows from operating activities net of distributions paid to noncontrolling interests related to operating activities constituted approximately 87%, 60%, and 38% of regular distributions paid to common stockholders, respectively.

We expect that cash distributions to our stockholders generally will be paid from cash available or anticipated from our share of the cash flow from our investments in properties, real estate securities, mortgage, bridge or mezzanine loans and other real estate-related assets. During periods when our operating cash flow has not generated sufficient operating cash flow to fully

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fund the payment of distributions on our common stock, we have paid and may in the future pay some or all of our distributions from sources other than operating cash flow, including portions of our available cash balances, cash advanced to us by our Advisor, cash resulting from a waiver or deferral of asset management fees, cash from the sale of our assets, borrowings (including borrowings secured by our assets) and proceeds from future equity offerings. In addition, to the extent our investments are in development or redevelopment projects, in communities that are in lease up or have not yet reached stabilization, or in properties that have significant capital requirements, our ability to make distributions may be negatively impacted. Accordingly, the amount of distributions paid at any time may not reflect current cash flow from our operations. To the extent distributions are paid in amounts that exceed our operating cash flow in anticipation of future cash flow, we will have less capital available to invest in properties and other real estate-related assets, which may negatively impact our ability to make investments and reduce current returns and capital appreciation. Further, to the extent distributions exceed certain specified amounts of taxable income, a stockholder's tax basis in our stock will be reduced and, to the extent distributions exceed a stockholder's basis, the stockholder may recognize capital gains for federal and state tax purposes.

Our revenue and net income may vary significantly from one period to another due to investments in opportunity-oriented properties and portfolio acquisitions, which could increase the variability of our cash available for distributions.

We have made and may continue to make investments in opportunity-oriented properties in various phases of development, redevelopment or repositioning and portfolio acquisitions, which may cause our revenues and net income to fluctuate significantly from one period to another. Projects do not produce revenue while in development or redevelopment. During any period when the number of our projects in development or redevelopment, communities in lease up or our properties with significant capital requirements increases without a corresponding increase in stable revenue-producing properties, our revenues and net income will likely decrease. Many factors may have a negative impact on the level of revenues or net income produced by our portfolio of investments, including higher than expected construction costs, failure to complete projects on a timely basis, failure of the properties to perform at expected levels upon completion of development or redevelopment, and increased borrowings necessary to fund higher than expected construction or other costs related to the project. Further, our net income and stockholders' equity could be negatively affected during periods with large portfolio acquisitions, which generally require large cash outlays and may require the incurrence of additional financing. Any such reduction in our revenues and net income during such periods could cause a resulting decrease in our cash available for distributions during the same periods.

Development projects in which we invest may not be completed successfully or on time, and guarantors of the projects may not have the financial resources to perform their obligations under the guaranties they provide.

We may make equity investments in, acquire options to purchase interests in or make mezzanine loans to the owners of real estate development projects. Our return on these investments is dependent upon the projects being completed successfully, on budget and on time. To help ensure performance by the developers of properties that are under construction, completion of these properties is generally guaranteed either by a completion bond or performance bond. Our employees and Advisor may rely upon the substantial net worth of the contractor or developer or a personal guarantee accompanied by financial statements showing a substantial net worth provided by an affiliate of the entity entering into the construction or development contract as an alternative to a completion bond or performance bond. For a particular investment, we may obtain guaranties that the project will be completed on time, on budget and in accordance with the plans and specifications and that the mezzanine loan will be repaid. However, we may not obtain such guaranties and cannot ensure that the guarantors will have the financial resources to perform their obligations under the guaranties they provide. We intend to manage these risks by ensuring, to the best of our ability, that we invest in projects with reputable, experienced and resourceful developers. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to make distributions to you will be adversely affected.

The developers of the projects in which we have invested are exposed to risks not only with respect to our projects, but also with respect to other projects in which they are involved. A developer's obligations on another project could cause it financial hardship and even lead to bankruptcy, which could lead to a default on one of our projects. A default by a developer in respect of one of our multifamily development project investments, or the bankruptcy, insolvency or other failure of a developer for one of such projects, may require that we determine whether we want to assume the senior loan, take over development of the project, find another developer for the project, or sell our interest in the project. Such developer failures could delay efforts to complete or sell the development project and could ultimately preclude us from full realization of our anticipated returns. Such events could cause a decrease in the value of our assets and compel us to seek additional sources of liquidity, which may not be available, in order to hold and complete the development project through stabilization.

Generally, under bankruptcy law and our bankruptcy guarantees with our joint venture development partners, we may seek recourse from the developer-guarantor to complete our development project with a substitute developer partner. However, in the event of a bankruptcy by the developer-guarantor, we cannot assure you that the developer or its trustee will continue or otherwise satisfy its obligations. The bankruptcy of any developer and the rejection of its development obligations would likely cause us to have to complete the development on our own or find a replacement developer, which could result in delays and

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increased costs. We cannot assure you that we would be able to complete the development on terms as favorable as when we first entered into the project.

In some cases, in order to obtain financing on a development project, we may be asked to provide recourse, completion or payment guarantees to the lender. This would increase our risk of loss in the event of a developer failing to perform its obligations to us.

We have relatively less experience with respect to international investments as compared to domestic investments, which could adversely affect our return on international investments.

The experience of our employees and our Advisor and its affiliates with respect to investing in multifamily communities or other real estate-related assets located outside the United States is not as extensive as it is with respect to investments in the United States. We may make international investments after one of our independent directors has at least three years of relevant experience acquiring and managing such international investments. If and when we do make international investments, our relatively limited experience with respect to such investments could adversely affect our return on them.

Your investment may be subject to additional risks if we make international investments.

In the future, we may make investments in real estate assets located outside the United States and may make or purchase mortgage, bridge, mezzanine or other loans or joint venture interests in mortgage, bridge, mezzanine or other loans made to a borrower located outside the United States or secured by property located outside the United States. Any international investments may be affected by factors peculiar to the laws of the jurisdiction in which the borrower or the property is located. These laws may expose us to risks that are different from and in addition to those commonly found in the United States. Foreign investments could be subject to the following risks:

• governmental laws, rules and policies, including laws relating to the foreign ownership of real property or mortgages and laws relating to the ability of foreign persons or corporations to remove profits earned from activities within the country to the person's or corporation's country of origin;

• variations in currency exchange rates;

• adverse market conditions caused by inflation or other changes in national or local economic conditions;

• changes in relative interest rates;

• changes in the availability, cost and terms of mortgage funds resulting from varying national economic policies;

• changes in real estate and other tax rates, the tax treatment of transaction structures and other changes in operating expenses in a particular country where we have an investment;

• our REIT tax status not being respected under foreign laws, in which case our income or gains from foreign sources would likely be subject to foreign taxes, withholding taxes, transfer taxes and value added taxes;

• lack of uniform accounting standards (including availability of information in accordance with GAAP);

• changes in land use and zoning laws;

• more stringent environmental laws or changes in these laws;

• changes in the social stability or other political, economic or diplomatic developments in or affecting a country where we have an investment;

• we, our employees, our sponsor and our Advisor and its affiliates have relatively less experience investing in real property or other investments outside the United States than within the United States; and

• legal and logistical barriers to enforcing our contractual rights.

Any of these risks could have an adverse effect on our business, results of operations and ability to pay distributions to our stockholders.

If we lose or are unable to obtain key personnel, our ability to implement our business strategies could be delayed or hindered.

Our success depends to a significant degree upon the continued contributions of our executive officers and other key personnel of us, our Advisor and its affiliates, including Robert S. Aisner, Mark T. Alfieri, Howard S. Garfield, Daniel J. Rosenberg, Ross P. Odland, Margaret M. Daly, Robert T. Poynter, James A. Fadley and James J. McGinley, III, each of whom would be difficult to replace. Although we have employment agreements with all of our executive officers except Mr. Aisner, the employment terms are terminable upon notice, and we cannot guarantee that we will retain our executive officers. We do not have employment agreements with other key personnel of us, our Advisor and its affiliates, and we cannot guarantee that they will remain affiliated with us or become our employees in connection with our transition to self-management. If any of our executive officers or other key personnel were to cease their affiliation with us, or with our Advisor or its affiliates prior to the Self-Management Closing, our operating results could suffer. We believe that our future success depends, in large part, upon our ability and, prior to the Self-Management Closing, our Advisor's and its affiliates' ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for persons with these managerial and operational skills is

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intense, and we cannot assure you that we or our Advisor will be successful in attracting and retaining such skilled personnel. Further, we have established, and intend in the future to establish, strategic relationships with firms that have special expertise in certain services or as to assets both nationally and in certain geographic regions. Maintaining these relationships will be important for us to effectively compete for assets. We cannot assure you that we will be successful in attracting and retaining such strategic relationships. If we lose or are unable to obtain the services of executive officers and other key personnel or do not establish or maintain appropriate strategic relationships, our ability to implement our business strategies could be delayed or hindered, and our operations and financial results could suffer.

Under certain circumstances, assets owned by a subsidiary REIT may be required to be disposed of via a sale of capital stock rather than an asset sale.

Under certain circumstances, assets owned by a subsidiary REIT may be required to be disposed of via a sale of capital stock rather than as asset sale by that subsidiary REIT, which may limit the number of persons willing to acquire indirectly any assets held by that subsidiary REIT. As a result, we may not be able to realize a return on our investment in a joint venture, such as a PGGM CO-JV or MW CO-JV, at the time or on the terms we desire.

The failure of any bank in which we deposit our funds could reduce the amount of cash we have available to pay distributions and make additional investments.

We invest our cash and cash equivalents between several banking institutions in an attempt to minimize exposure to any one of these entities. However, the FDIC generally only insures limited amounts per depositor per insured bank. As of December 31, 2013, we had cash and cash equivalents and restricted cash deposited in interest bearing transaction accounts at certain financial institutions exceeding these federally insured levels. If any of the banking institutions in which we have deposited funds ultimately fails, we may lose our deposits over the federally insured levels. The loss of our deposits could reduce the amount of cash we have available to distribute or invest.

Market disruptions may adversely impact aspects of our operating results and operating condition.

During 2011, the major credit agencies downgraded or placed under review the credit rating for debt issued by the U.S. government and U.S. agencies, due in part to the political uncertainties over U.S. debt limits. Congress subsequently enacted the American Taxpayer Relief Act of 2012 in an attempt to eliminate the so called "fiscal cliff" in January 2013. There is continuing political deadlock in the U.S. regarding the "debt ceiling" and there continues to be a perceived risk of future sovereign credit ratings downgrade of the U.S. government, including the ratings of the U.S. Treasury securities. Failure of Congress to raise the "debt ceiling" and/or a downgrade of U.S. sovereign credit ratings could negatively impact the credit ratings of instruments issued, insured or guaranteed by institutions, agencies or instrumentalities directly linked to the U.S. government, such as debt issued by Fannie Mae and Freddie Mac. In addition, although the European debt crisis has moderated, there is some risk that higher-risk European countries with high sovereign debt and budget deficits could face pressure over proposed austerity measures. Such events could reduce investor confidence and lead to further weakening of the U.S. and global economies. In particular, this could cause disruption in the capital markets and impact the stability of future U.S. Treasury auctions and the trading market for U.S. government securities, resulting in increased interest rates and borrowing costs and less availability of credit.

Our business may be affected by market and economic challenges experienced by the U.S. and global economies or real estate industry as a whole or by the local economic conditions in the markets in which our properties are located. These conditions may materially affect the value of our investment properties, and may affect our ability to pay distributions, the availability or the terms of financing that we have or may anticipate utilizing, and our ability to make principal and interest payments on, or refinance, any outstanding debt when due. These challenging economic conditions may also impact the ability of certain of our tenants to enter into new leasing transactions or satisfy rental payments under existing leases. Specifically, recent global market disruptions may have many consequences including, but not limited to, these listed below:

• significant job losses have occurred and may continue to occur, which may decrease demand for our multifamily communities and result in lower occupancy levels, which will result in decreased revenues and which could diminish the value of our properties, which depend, in part, upon the cash flow generated by our properties;

• credit spreads for major sources of capital could widen as investors demand higher risk premiums, resulting in lenders increasing the cost for debt financing;

• our ability to borrow on terms and conditions that we find acceptable, or at all, may be limited, which could result in our investment operations generating lower overall economic returns and a reduced level of cash flow, which could potentially impact our ability to make distributions to our stockholders at current levels, reduce our ability to pursue acquisition opportunities if any, and increase our interest expense;

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• a reduction in the amount of capital that is available to finance real estate, which, in turn, could lead to a decline in real estate values generally, slow real estate transaction activity, reduce the loan to value ratio upon which lenders are willing to lend, and result in difficulty refinancing our debt; and

• the value and liquidity of our short-term investments could be reduced as a result of the dislocation of the markets for our short-term investments and increased volatility in market rates for such investments or other factors.

We are uncertain of our sources for funding of future capital needs, which could adversely affect the value of our investments.

Substantially all of the proceeds of the Initial Public Offering have been used to make investments in real estate and real estate-related assets and to pay various fees and expenses related to the offering. We establish capital reserves on a property-by-property basis, as we deem appropriate. In addition to any reserves we establish, a lender may require escrow of capital reserves in excess of our established reserves. If these reserves are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. Accordingly, in the event that we develop a need for additional capital in the future for the improvement of our properties or for any other reason, we have not identified any sources for such funding, and we cannot assure you that such sources of funding will be available to us for potential capital needs in the future.

Recent disruptions in the financial markets could adversely affect the multifamily property sector's ability to obtain financing and credit enhancement from Fannie Mae and Freddie Mac, which could adversely impact us.

Fannie Mae and Freddie Mac are major sources of financing for the multifamily sector. In response to the deteriorating financial condition of Fannie Mae and Freddie Mac and the recent credit market disruption, the U.S. Congress and Treasury undertook a series of actions to stabilize these government-sponsored enterprises and the financial markets. Pursuant to legislation enacted in 2008, the U.S. government placed both Fannie Mae and Freddie Mac under its conservatorship. Currently, the U.S. government is discussing potential restructurings of Fannie Mae and Freddie Mac including possible privatizations. As a possible first step to these actions, in August 2012, the U.S. government imposed minimum distribution requirements for Fannie Mae and Freddie Mac, generally equal to their reported net income.

Currently, Fannie Mae and Freddie Mac remain active multifamily lenders. As of December 31, 2013, we and our Co-Investment Ventures secured approximately 68% of our financing through Fannie Mae and Freddie Mac. However, there is significant uncertainty surrounding the futures of Fannie Mae and Freddie Mac. In February 2011, the Obama administration released a report calling for the winding down of the role that Fannie Mae and Freddie Mac play in the mortgage market. Should Fannie Mae and Freddie Mac have their mandates changed or reduced, be disbanded or reorganized by the government or otherwise discontinue providing liquidity to our sector, it would significantly reduce our access to debt capital and/or increase borrowing costs. If new U.S. government regulations heighten Fannie Mae's and Freddie Mac's underwriting standards, adversely affect interest rates and reduce the amount of capital they can make available to the multifamily sector, it could have a material adverse effect on both the multifamily sector and us because many private alternative sources of funding have been reduced or are unavailable. Any potential reduction in loans, guarantees and credit-enhancement arrangements from Fannie Mae and Freddie Mac could jeopardize the effectiveness of the multifamily sector's derivative securities market, potentially causing breaches in loan covenants, and through reduced loan availability, impact the value of multifamily assets, which could impair the value of a significant portion of multifamily communities. Specifically, the potential for a decrease in liquidity made available to the multifamily sector by Fannie Mae and Freddie Mac could: (1) make it more difficult for us to secure new takeout financing for current multifamily development projects; (2) hinder our ability to refinance completed multifamily assets; (3) decrease the amount of available liquidity and credit that could be used to further diversify our portfolio of multifamily assets; and (4) require us to obtain other sources of debt capital with potentially different terms.

To hedge against exchange rate and interest rate fluctuations, we may use derivative financial instruments that may be costly and ineffective and may reduce the overall returns on your investment and affect cash available for distribution to our stockholders.

We may use derivative financial instruments to hedge exposures to changes in exchange rates and interest rates on loans secured by our assets and investments in commercial mortgage-backed securities. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions are determined in light of the facts and circumstances existing at the time of the hedge and may differ from time to time. Our hedging may fail to protect or could adversely affect us because, among other things:

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

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

• the duration of the hedge may not match the duration of the related liability or asset;

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• the amount of income that a REIT may earn from hedging transactions to offset interest rate losses is limited by federal tax provisions governing REITs;

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

• the party owing money in the hedging transaction may default on its obligation to pay; and

• we may purchase a hedge that turns out not to be necessary, i.e., a hedge that is out of the money.

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

To the extent that we use derivative financial instruments to hedge against exchange rate and interest rate fluctuations, we will be exposed to credit risk, basis risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. We intend to manage credit risk by dealing only with major financial institutions that have high credit ratings. Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. We intend to manage basis risk by matching, to a reasonable extent, the contract index to the index upon which the hedged asset or liability is based. Finally, legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. We intend to manage legal enforceability risks by ensuring, to the best of our ability, that we contract with reputable counterparties and that each counterparty complies with the terms and conditions of the derivative contract. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to make distributions to you will be adversely affected.

Hedging instruments often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities and involve risks and costs.

The cost of using hedging instruments increases as the period covered by the instrument increases and during periods of rising and volatile interest rates. We may increase our hedging activity and thus increase our hedging costs during periods when interest rates are volatile or rising and hedging costs have increased. In addition, hedging instruments involve risk since they often are not traded on regulated exchanges, guaranteed by an exchange or its clearing house, or regulated by any U.S. or foreign governmental authorities. Consequently, there are no requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. Furthermore, the enforceability of agreements underlying derivative transactions may depend on compliance with applicable statutory, commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in a default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits and force us to cover our resale commitments, if any, at the then current market price. Although generally we will seek to reserve the right to terminate our hedging positions, it may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty, and we may not be able to enter into an offsetting contract in order to cover our risk. We cannot be certain that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in losses.

Complying with REIT requirements may limit our ability to hedge effectively.

The REIT provisions of the Code may limit our ability to hedge the risks inherent to our operations. From time to time, we may enter into hedging transactions with respect to one or more of our assets or liabilities. Our hedging activities may include entering into interest rate swaps, caps, and floors, options to purchase such items, and futures and forward contracts. Income and gain from "hedging transactions" will be excluded from gross income for purposes of both the 75% and 95% gross income tests. A "hedging transaction" for these purposes means either (1) any transaction entered into in the normal course of our trade or business primarily to manage the risk of interest rate, price changes, or currency fluctuations with respect to borrowings made or to be made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets and (2) any transaction entered into primarily to manage the risk of currency fluctuations with respect to any item of income or gain that would be qualifying income under the 75% or 95% gross income test (or any property which generates such income or gain). We are required to clearly identify any such hedging transaction before the close of the day on which it was acquired,

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originated, or entered into and to satisfy other identification requirements. We intend to structure any hedging transactions in a manner that does not jeopardize our qualification as a REIT.

There can be no assurance that the direct or indirect effects of the Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in July 2010 for the purpose of stabilizing or reforming the financial markets, will not have an adverse effect on our interest rate hedging activities.

On July 21, 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act (the "Dodd-Frank Act") became law in the United States. Title VII of the Dodd-Frank Act contains a sweeping overhaul of the regulation of privately negotiated derivatives. The provisions of Title VII became effective on July 16, 2011 or, with respect to particular provisions, on such other date specified in the Dodd-Frank Act or by subsequent rulemaking. While the full impact of the Dodd-Frank Act on our interest rate hedging activities cannot be assessed until implementing rules and regulations are promulgated, the requirements of Title VII may affect our ability to enter into hedging or other risk management transactions, may increase our costs in entering into such transactions, and may result in us entering into such transactions on more unfavorable terms than prior to effectiveness of the Dodd-Frank Act. The occurrence of any of the foregoing events may have an adverse effect on our business.

Breaches of ours or our Advisor's data security could materially harm our business and reputation.

We, our Advisor and its affiliates collect and retain certain personal information provided by our investors, tenants and employees. While we, our Advisor and its affiliates have implemented a variety of security measures to protect the confidentiality of this information and periodically review and improve their security measures, there can be no assurance that we will be able to prevent unauthorized access to this information. Any breach of these data security measures and loss of this information may result in legal liability and costs (including damages and penalties), as well as damage to our reputation that could materially and adversely affect our business and financial performance.

Interruptions or delays in service from our third-party data center hosting facility could harm our business.

We utilize third-party data center hosting facilities. All of our data storage is conducted on servers in these facilities. Any damage to, or failure of, the systems of our third-party data centers or the failure of our data centers to meet our capacity requirements could impede or result in interruptions to our day-to-day business operations. Additionally, our failure to effectively manage and communicate our strategies with our third-party data centers, or their failure to perform as required or to properly protect our data, may result in operational difficulties which may adversely affect our business, financial condition and results of operations. If one of our third-party data centers fails, our other third-party data centers may not be able to meet our capacity requirements, which could result in interruptions to our business operations.

The data centers have no obligation to renew their agreements with us on commercially reasonable terms, or at all. If we are unable to renew our agreements with our data centers on commercially reasonable terms, we may experience costs or down time in connection with the transfer to new third-party providers.

The occurrence of a natural disaster, an act of terrorism, vandalism or sabotage, a decision to close one or all of our third-party data centers without adequate notice, or other unanticipated problems at our data centers could result in lengthy interruptions in the day-to-day operations of our business. To date, we have not experienced these types of events, but we cannot provide any assurances that they will not occur in the future. If any such event were to occur to our business, our business could be harmed.

Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we or our subsidiaries become an unregistered investment company, we could not continue our business.

Neither we nor any of our subsidiaries intend to register as investment companies under the Investment Company Act of 1940, as amended (the "Investment Company Act"). If we or any of our subsidiaries were obligated to register as investment companies, we would have to comply with a variety of substantive requirements under the Investment Company Act that impose, among other things:

• limitations on capital structure;

• restrictions on specified investments;

• prohibitions on transactions with affiliates; and

• compliance with reporting, record keeping, voting, proxy disclosure and other rules and regulations that would significantly increase our operating expenses.

Under the relevant provisions of Section 3(a)(1) of the Investment Company Act, an "investment company" is any issuer that:

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• is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities, which criteria we refer to as the primarily engaged test; and

• is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire "investment securities" having a value exceeding 40% of the value of such issuer's total assets on an unconsolidated basis, which criteria we refer to as the 40% test. "Investment securities" excludes U.S. government securities and securities of majority owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) (relating to private investment companies).

We believe that we and our operating partnership satisfy both tests above. With respect to the 40% test, most of the entities through which we and our operating partnership own our assets are majority owned subsidiaries that are not themselves investment companies and are not relying on the exceptions from the definition of investment company under Section 3(c)(1) or Section 3(c)(7).

With respect to the primarily engaged test, we and our operating partnership are holding companies. Through the majority owned subsidiaries of our operating partnership, we and our operating partnership are primarily engaged in the non-investment company businesses of these subsidiaries.

We believe that most of the subsidiaries of our operating partnership may rely on Section 3(c)(5)(C) of the Investment Company Act for an exception from the definition of an investment company. (Any other subsidiaries of our operating partnership should be able to rely on the exceptions for private investment companies pursuant to Section 3(c)(1) and Section 3(c)(7) of the Investment Company Act.) As reflected in no-action letters, the SEC staff's position on Section 3(c)(5)(C) generally requires that an issuer maintain at least 55% of its assets in "mortgages and other liens on and interests in real estate," or qualifying assets; at least 80% of its assets in qualifying assets plus real estate-related assets; and no more than 20% of the value of its assets in other than qualifying assets and real estate-related assets, which we refer to as miscellaneous assets. To constitute a qualifying asset under this 55% requirement, a real estate interest must meet various criteria based on no-action letters.

If, however, the value of the subsidiaries of our operating partnership that must rely on Section 3(c)(1) or Section 3(c)(7) is greater than 40% of the value of the assets of our operating partnership, then we and operating partnership may seek to rely on the exception from registration under Section 3(c)(6) if we and our operating partnership are "primarily engaged," through majority owned subsidiaries, in the business of purchasing or otherwise acquiring mortgages and other interests in real estate. The SEC staff has issued little interpretive guidance with respect to Section 3(c)(6); however, it is our view that we and our operating partnership may rely on Section 3(c)(6) if 55% of the assets of our operating partnership consist of, and at least 55% of the income of our operating partnership is derived from, majority owned subsidiaries that rely on Section 3(c)(5)(C).

To maintain compliance with the Investment Company Act, our subsidiaries may be unable to sell assets we would otherwise want them to sell and may need to sell assets we would otherwise wish them to retain. In addition, our subsidiaries may have to acquire additional assets that they might not otherwise have acquired or may have to forego opportunities to make investments that we would otherwise want them to make and would be important to our investment strategy. Moreover, the SEC may issue interpretations with respect to various types of assets that are contrary to our views and current SEC staff interpretations are subject to change, which increases the risk of non-compliance and the risk that we may be forced to make adverse changes to our portfolio.

If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business and criminal and civil actions could be brought against us. In addition, our contracts would be unenforceable unless a court required enforcement and a court could appoint a receiver to take control of us and liquidate our business.

Rapid changes in the values of potential investments in commercial mortgage-backed securities or other real estate-related investments may make it more difficult for us to maintain our qualification as a REIT or exception from the Investment Company Act.

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

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Risks Related to our Common Stock

There is no public trading market for shares of our common stock; therefore, it will be difficult for you to sell your shares. If you sell your shares outside of our share redemption program, you may have to sell them at a substantial discount from our estimated per share value.

There is no public market for our shares of common stock. In addition, if you sell your shares outside of our share redemption program, you may have to sell them at a substantial discount from our estimated per share value. The minimum purchase requirements and suitability standards imposed on prospective investors in our completed Initial Public Offering also apply to subsequent purchasers of our shares. If you are able to find a buyer for your shares outside of our share redemption program, you may not sell your shares to such buyer unless the buyer meets certain applicable blue sky (state-mandated) suitability standards, which may inhibit your ability to sell your shares. With respect to our share redemption program, it was recently suspended effective with redemptions being sought in the second quarter of 2012 and was reinstated effective with redemptions being sought in the second quarter of 2013. Our share redemption program has volume limitations and our board of directors may reject any request for redemption of shares or amend, suspend or terminate our share redemption program at any time. Therefore, it may be difficult for you to sell your shares promptly or at all. You may not be able to sell your shares in the event of an emergency, and, if you are able to sell your shares, you may have to sell them at a substantial discount from the estimated per share value. It is also likely that your shares would not be accepted as the primary collateral for a loan.

The estimated per share value of our common stock determined pursuant to our valuation policy is subject to certain limitations and qualifications and may not reflect the amount you would obtain if you tried to sell your shares or if we liquidated our assets.

Effective as of March 1, 2013, our board of directors established an estimated per share value of our common stock equal to $10.03 per share. For information regarding our estimated per share value, see Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities-Estimated Per Share Value" of this Annual Report on Form 10-K. As with any valuation methodology, the methodologies used to determine the estimated per share value are based upon a number of estimates and assumptions that may prove later to be inaccurate or incomplete. Further, different market participants using different assumptions and estimates could derive different estimated values or estimated values per share. The estimated per share value determined by our board of directors does not represent the fair value of our assets less liabilities in accordance with GAAP, and such estimated per share value is not a representation, warranty or guarantee that (i) a stockholder would be able to realize the estimated share value if such stockholder attempts to sell his or her shares; (ii) a stockholder would ultimately realize distributions per share equal to the estimated per share value upon our liquidation or sale; (iii) shares of our common stock would trade at the estimated per share value on a national securities exchange; (iv) a third party would offer the estimated per share value in an arm's-length transaction to purchase all or substantially all of our shares of common stock; or (v) the methodologies used to estimate the per share value would be acceptable to FINRA. In addition, we can make no claim as to whether the estimated value will or will not satisfy the applicable annual valuation requirements under ERISA and the Code with respect to employee benefit plans subject to the ERISA and other retirement plans or accounts subject to Section 4975 of the Code that are investing in our shares.

The estimated value of our shares was calculated as of specific date. The estimated value of our shares is expected to fluctuate over time in response to, including but not limited to, changes in multifamily capitalization rates, rental and growth rates, progress and market conditions related to developments, financing interest rates, returns on competing investments, changes in administrative expenses and other costs affecting working capital, amounts of distributions on our common stock, redemptions of our common stock, changes in the amount of common shares outstanding, the proceeds obtained for any common stock transactions and local and national economic factors. Further, as we are actively investing, including initiating and completing our development projects, the composition of our portfolio and the related multifamily fundamentals could change over time. As a result, stockholders should not rely on the estimated per share value as being an accurate measure of the then current value of our shares of common stock in making an investment decision, including whether to tender shares for redemption under our share redemption program or reinvest distributions by participating in the DRIP.

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

In order to qualify as a REIT, we must distribute annually to our stockholders at least 90% of our REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gain. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends.” A dividend is generally not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. Currently, there is uncertainty as to the IRS’s position regarding whether certain arrangements that REITs have with their stockholders could give rise to the inadvertent payment of a

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preferential dividend (e.g., the pricing methodology for stock purchased under a distribution reinvestment plan inadvertently causing a greater than 5% discount on the price of such stock purchased). If the IRS were to take a position that the estimated per share value does not reflect the fair market per share value, it is possible that we may be treated as offering our stock under our distribution reinvestment plan at a discount greater than 5% of its fair market value resulting in the payment of a preferential dividend. There is no de minimis exception with respect to preferential dividends. Therefore, if the IRS were to take the position that we inadvertently paid a preferential dividend, we may be deemed either to (a) have distributed less than 100% of our REIT taxable income and be subject to tax on the undistributed portion, or (b) have distributed less than 90% of our REIT taxable income and our status as a REIT could be terminated for the year in which such determination is made if we were unable to cure such failure. We can provide no assurance that we will not be treated as inadvertently paying preferential dividends.

You may not be able to sell your shares to us under the share redemption program.

Our board of directors may amend, suspend or terminate our share redemption program at any time. It was recently suspended effective with redemptions being sought in the second quarter of 2012 and was modified and reinstated effective with redemptions being sought in the second quarter of 2013. Our board of directors may reject any request for redemption of shares. Further, there are many limitations on your ability to sell your shares pursuant to the share redemption program. Any stockholder requesting repurchase of their shares pursuant to our share redemption program will be required to certify to us that such stockholder either (1) acquired the shares requested to be repurchased directly from us or (2) acquired the shares from the original investor by way of a bona fide gift not for value to, or for the benefit of, a member of the stockholder's immediate or extended family, or through a transfer to a custodian, trustee or other fiduciary for the account of the stockholder or his or her immediate or extended family in connection with an estate planning transaction, including by bequest or inheritance upon death or operation of law.

In addition, our share redemption program contains other restrictions and limitations. We cannot guarantee that we will accommodate all redemption requests made in any particular redemption period. A quarterly funding limit has been established of $7 million per quarter (which our board of directors may increase or decrease from time to time). As a result of this limit, the recent suspension of the program, the modifications to the program and the new estimated share value, there is significant uncertainty as to the number of redemption requests that we will receive and whether we have sufficient capacity to accept all submissions under our funding limit. If we do not redeem all shares presented for redemption during any period in which we are redeeming shares, then all shares will generally be redeemed on a pro rata basis during the relevant period. With respect to any pro rata treatment, redemptions sought upon a stockholder's death, qualifying disability or confinement to a long-term care facility will be considered first, as a group, with any remaining available funds allocated pro rata among requests for ordinary redemptions. Generally, no outstanding requests for ordinary redemptions will be satisfied until all outstanding requests for redemptions sought upon a stockholder's death, qualifying disability or confinement to a long-term care facility are satisfied in full. You must hold your shares for at least one year prior to seeking redemption under the share redemption program, except that our board of directors will waive this one-year holding requirement with respect to redemptions sought upon a stockholder's death, qualifying disability or confinement to a long-term care facility. Our board of directors may also waive this one-year holding requirement for other exigent circumstances affecting a stockholder such as bankruptcy or a mandatory distribution requirement under a stockholder's IRA, or with respect to shares purchased through our distribution reinvestment plan. We will not redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption.

In addition, while we have sufficient cash reserves as of December 31, 2013, in future periods we may not have sufficient funds to redeem shares. Historically, certain other Behringer sponsored real estate programs have limited redemptions in order to conserve capital.

If you are able to resell your shares to us pursuant to our share redemption program, you may receive less than the current estimated share value pursuant to our valuation policy.

Except for redemptions sought upon a stockholder's death, qualifying disability or confinement to a long-term care facility, the purchase price per share redeemed under our share redemption program will equal the lesser of (i) 85% of the current estimated share value pursuant to our valuation policy and (ii) the average price per share the original purchaser or purchasers of shares paid to us for all of his or her shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock) (the "Original Share Price") less the aggregate of any special distributions so designated by our board of directors, distributed to stockholders prior to the redemption date and declared from the date of first issue of such redeemed shares (the "Special Distributions"). For redemptions sought upon a stockholder's death, qualifying disability or confinement to a long-term care facility, the purchase price per share redeemed under our share redemption program will equal the lesser of: (i) the current estimated share value pursuant to our valuation policy and (ii) the Original Share Price less any Special Distributions. Accordingly, you may receive less than the current estimated share value pursuant to our valuation policy by selling your shares back to us.

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We may not successfully implement our exit strategy, in which case you may have to hold your investment for an indefinite period.

Depending upon then-prevailing market conditions, we intend to begin to consider the process of liquidating and distributing cash or listing our shares on a national securities exchange within four to six years after the termination of our Initial Public Offering (which terminated on September 2, 2011). If we have not begun the process to list our shares for trading on a national securities exchange or to liquidate at any time after the sixth anniversary of the termination of our Initial Public Offering, unless such date is extended by our board of directors including a majority of our independent directors, we will furnish a proxy statement to stockholders to vote on a proposal for our orderly liquidation upon the written request of stockholders owning 10% or more of our outstanding common stock. The liquidation proposal would include information regarding appraisals of our portfolio. By proxy, stockholders holding a majority of our shares could vote to approve our liquidation. If our stockholders did not approve the liquidation proposal, we would obtain new appraisals and resubmit the proposal by proxy statement to our stockholders up to once every two years upon the written request of stockholders owning 10% or more of our outstanding common stock.

Market conditions and other factors could cause us to delay the listing of our shares on a national securities exchange or to delay the commencement of our liquidation beyond six years from the termination of our Initial Public Offering. If so, our board of directors and our independent directors may conclude that it is not in our best interest for us to furnish a proxy statement to stockholders for the purpose of voting on a proposal for our orderly liquidation. Our charter permits our board of directors, with the concurrence of a majority of our independent directors, to defer the furnishing of such a proxy indefinitely. Therefore, if we are not successful in implementing our exit strategy, your shares will continue to be illiquid and you may, for an indefinite period of time, be unable to convert your investment into cash easily and could suffer losses on your investment.

Your interest in us will be diluted if we issue additional shares, which could reduce the overall value of your investment.

Our stockholders do not have preemptive rights to any shares issued by us in the future. Our charter currently has authorized 1,000,000,000 shares of capital stock, of which 875,000,000 shares are designated as common stock, 124,999,000 shares are designated as preferred stock and 1,000 shares are designated as convertible stock. Subject to any limitations set forth under Maryland law, our board of directors may amend our charter to increase the number of authorized shares of capital stock, or increase or decrease the number of shares of any class or series of stock designated, and may classify or reclassify any unissued shares without the necessity of obtaining stockholder approval. Shares will be issued in the discretion of our board of directors. Investors will likely experience dilution of their equity investment in us in the event that we: (1) sell shares pursuant to our distribution reinvestment plan or in future public or private offerings; (2) sell securities that are convertible into shares of our common stock; (3) issue shares of common stock upon the conversion of our convertible stock; (4)  issue restricted stock units or other awards pursuant to our Incentive Award Plan; or (5) issue shares of our common stock to sellers of properties acquired by us in connection with an exchange of limited partnership interests of the Operating Partnership. In addition, the partnership agreement for the Operating Partnership contains provisions that allow, under certain circumstances, other entities to merge into or cause the exchange or conversion of their interest for interests of the Operating Partnership. Because the limited partnership interests of the Operating Partnership may be exchanged for shares of our common stock, any merger, exchange or conversion between the Operating Partnership and another entity ultimately could result in the issuance of a substantial number of shares of our common stock, thereby diluting the percentage ownership interest of other stockholders. Because of these and other reasons described in this "Risk Factors" section, you should not expect to be able to own a significant percentage of our shares.

Your investment will be diluted upon conversion of the Series A Preferred Stock.

In connection with the Modification Agreement, we issued to Behringer 10,000 shares of a new Series A non-participating, voting, cumulative, 7.0% convertible preferred stock, par value $0.0001 per share (the “Series A Preferred Stock”) and Behringer surrendered all existing 1,000 convertible shares of non-participating, non-voting stock, par value $0.0001 per share (the “Prior Convertible Stock”), which we immediately canceled. Under limited circumstances, the Series A Preferred Stock may be converted into shares of our common stock, resulting in dilution of our stockholders’ interest in us. The Series A Preferred Stock is potentially more dilutive than the Prior Convertible Stock. Each share of Series A Preferred Stock is entitled to a liquidation preference equal to $10.00 per share before the holders of common stock are paid any liquidation proceeds, and 7.0% cumulative cash dividends on the liquidation preference and any accrued and unpaid dividends.

As determined and limited pursuant to the Articles Supplementary establishing the Series A Preferred Stock, the Series A Preferred Stock will automatically convert into shares of our common stock upon any of the following triggering events: (a) in connection with a listing of our common stock on a national exchange, (b) upon a change of control of the Company or (c) upon election by the holders of a majority of the then outstanding shares of Series A Preferred Stock on or before July 31, 2018. Notwithstanding the foregoing, if a listing occurs prior to December 31, 2016, such listing (and the related triggering event)

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will be deemed to occur on December 31, 2016 and if a change of control transaction occurs prior to December 31, 2016, such change of control transaction will not result in a change of control triggering event.

Upon a triggering event, all of the shares of Series A Preferred Stock will, in total, generally convert into an amount of shares of our common stock equal in value to 15% of the excess of (i) (a) the per share value of our common stock at the time of the applicable triggering event, as determined pursuant to the Articles Supplementary establishing the Series A Preferred Stock and assuming no shares of the Series A Preferred Stock are outstanding, multiplied by the number of shares of common stock outstanding on July 31, 2013, plus (b) the aggregate value of distributions (including distributions constituting a return of capital) paid through such time on the shares of common stock outstanding on July 31, 2013 over (ii) the aggregate issue price of those outstanding shares plus a 7% cumulative, non-compounded, annual return on the issue price of those outstanding shares. In the case of a triggering event based on a listing or change of control only, this amount will be multiplied by another 1.15 to arrive at the conversion value. The performance threshold necessary for the Series A Preferred Stock to have any value is based on the aggregate issue price of our shares of common stock outstanding on July 31, 2013, the aggregate distributions paid on such shares through the triggering event, and the value of our shares of common stock at the time of the applicable triggering event as determined pursuant to the Articles Supplementary. It is not based on the return provided to any individual stockholder. Accordingly, it is not necessary for each of our stockholders to have received any minimum return in order for the Series A Preferred Stock to have any value. In fact, if the Series A Preferred Stock has value, the returns of our stockholders will differ, and some may be less than a 7% cumulative, non-compounded annual return.

A limit on the number of shares a person may own may discourage a takeover.

Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, no person may own more than 9.8% of our outstanding common or preferred stock, in value or number of shares, whichever is more restrictive. This restriction may have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might otherwise provide our stockholders with the opportunity to receive a control premium for their shares.

Our charter permits our board of directors to issue stock with terms that may subordinate the rights of the holders of our current common stock or discourage a third party from acquiring us.

Our charter permits our board of directors to issue up to 1,000,000,000 shares of capital stock. Our board of directors, without any action by our stockholders, may: (1) increase or decrease the aggregate number of shares; (2) increase or decrease the number of shares of any class or series we have authority to issue; or (3) classify or reclassify any unissued common stock or preferred stock and establish the preferences, conversion or other rights, voting powers, restrictions, limitations as to distributions, qualifications or terms or conditions of redemption of any such stock. Thus, our board of directors could authorize the issuance of such stock with terms and conditions that could subordinate the rights of the holders of our current common stock or have the effect of delaying, deferring or preventing a change in control of us, including an extraordinary transaction (such as a merger, tender offer or sale of all or substantially all of our assets) that might provide a premium price for holders of our common stock.

Maryland law prohibits certain business combinations, which may make it more difficult for us to be acquired.

Under Maryland law, "business combinations" between a Maryland corporation and an "interested stockholder" or an affiliate of an interested stockholder are prohibited for five years after the most recent date on which the interested stockholder becomes an interested stockholder. These business combinations include a merger, consolidation, share exchange, or, in circumstances specified in the statute, an asset transfer or issuance or reclassification of equity securities. An interested stockholder is defined as:

• any person who beneficially owns 10% or more of the voting power of the then outstanding voting stock of the corporation; or

• an affiliate or associate of the corporation who, at any time within the two-year period prior to the date in question, was the beneficial owner of 10% or more of the voting power of the then outstanding voting stock of the corporation.

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

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

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

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

These super-majority vote requirements do not apply if the corporation's common stockholders receive a minimum price, as defined under Maryland law, for their shares in the form of cash or other consideration in the same form as previously paid by the interested stockholder for its shares. Maryland law also permits various exemptions from these provisions, including business combinations that are exempted by our board of directors before the time that the interested stockholder becomes an interested stockholder. The business combination statute may discourage others from trying to acquire control of us and increase the difficulty of consummating any offer.

Maryland law also limits the ability of a third party to buy a large stake in us and exercise voting power in electing directors.

Maryland law provides a second anti-takeover statute, the Control Share Acquisition Act, which provides that "control shares" of a Maryland corporation acquired in a "control share acquisition" have no voting rights except to the extent approved by the corporation's disinterested stockholders by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by interested stockholders, that is, by the acquirer, by officers or by directors who are employees of the corporation, are excluded from the vote on whether to accord voting rights to the control shares. "Control shares" are voting shares of stock that would entitle the acquirer to exercise voting power in electing directors within specified ranges of voting power. Control shares do not include shares the acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A "control share acquisition" means the acquisition of control shares. The Control Share Acquisition Act does not apply (1) to shares acquired in a merger, consolidation or share exchange if the corporation is a party to the transaction or (2) to acquisitions approved or exempted by a corporation's charter or bylaws. Our bylaws contain a provision exempting from the Control Share Acquisition Act any and all acquisitions by any person of shares of our stock. We can offer no assurance that this provision will not be amended or eliminated at any time in the future. This statute could have the effect of discouraging offers from third parties to acquire us and increasing the difficulty of successfully completing this type of offer by anyone other than our affiliates or any of their affiliates.

Our charter includes an anti-takeover provision that may discourage a stockholder from launching a tender offer for our shares.

Our charter provides that any tender offer made by a stockholder, including any "mini-tender" offer, must comply with most provisions of Regulation 14D of the Exchange Act. The offering stockholder must provide our company notice of such tender offer at least ten business days before initiating the tender offer. If the offering stockholder does not comply with these requirements, our company will have the right to redeem that stockholder's shares and any shares acquired in such tender offer. In addition, the non-complying stockholder shall be responsible for all of our company's expenses in connection with that stockholder's noncompliance. This provision of our charter may discourage a stockholder from initiating a tender offer for our shares and prevent you from receiving a premium price for your shares in such a transaction.

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

Our board of directors determines our major policies, including our policies regarding financing, growth, debt capitalization, REIT qualification and distributions. Our board of directors may amend or revise these and other policies without a vote of the stockholders. Our charter sets forth the stockholder voting rights required to be set forth therein under the Statement of Policy Regarding Real Estate Investment Trusts adopted by the North American Securities Administrators Association on May 7, 2007 (the "NASAA REIT Guidelines"). Under our charter and the Maryland General Corporation Law, our stockholders currently have a right to vote only on the following matters:

• the election or removal of directors;

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

• change our name;

• increase or decrease the aggregate number of our shares;

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

• classify or reclassify any unissued shares by setting or changing the preferences, conversion or other rights, restrictions, limitations as to distributions, qualifications or terms and conditions of redemption of such shares;

• effect reverse stock splits; and

• after the listing of our shares of common stock on a national securities exchange, opt into any of the provisions of Subtitle 8 of Title 3 of the Maryland General Corporation Law;

• a reorganization as provided in our charter;

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• our liquidation and dissolution; and

• our being a party to any merger, consolidation, sale or other disposition of substantially all of our assets (notwithstanding that Maryland law may not require stockholder approval).

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

Our board of directors may change our investment policies and objectives generally and at the individual investment level without stockholder approval, which could alter the nature of your investment.

Our charter requires that our independent directors review our investment policies with sufficient frequency and at least annually to determine that the policies we are following are in the best interest of the stockholders. In addition to our investment policies and objectives, we may also change our stated strategy for any investment in an individual property. These policies may change over time. The methods of implementing our investment policies may also vary, as new investment techniques are developed. Our investment policies, the methods for their implementation, and our other objectives, policies and procedures may be altered by our board of directors without the approval of our stockholders. As a result, the nature of your investment could change without your consent.

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

Maryland law provides that a director has no liability in that capacity if he performs his duties in good faith, in a manner he reasonably believes to be in our best interests and with the care that an ordinarily prudent person in a like position would use under similar circumstances. Our charter provides that generally no independent director shall be liable to us or our stockholders for monetary damages and that we will generally indemnify them for losses unless they are grossly negligent or engage in willful misconduct. As a result, you and we may have more limited rights against our independent directors than might otherwise exist under common law, which could reduce your and our recovery from these persons if they act in a negligent manner. In addition, we may be obligated to fund the defense costs incurred by our independent directors (as well as by our other directors, officers, employees of our Advisor and its affiliates and agents) in some cases, which would decrease the cash otherwise available for distributions to you. We will also purchase and maintain insurance on behalf of all of our directors and officers against liability asserted against or incurred by them in their official capacities with us, whether we are required or have the power to indemnify them against the same liability.

Risks Related to Conflicts of Interest

We will be subject to conflicts of interest arising out of our relationships with our Advisor and its affiliates, including the material conflicts discussed below.

Our Chief Executive Officer faces conflicts of interest related to the positions that he holds with entities affiliated with our Advisor, which could diminish the value of the services he provides to us.

Mr. Aisner, who serves as our Chief Executive Officer and a director, is also the Chief Executive Officer of the Advisor and our Property Manager, a director of several other Behringer sponsored programs, and the Chief Executive Officer and President of Behringer Harvard Holdings. As a result, he owes fiduciary duties to these other entities and their investors, which may conflict with the fiduciary duties that he owes to us and our stockholders. Mr. Aisner’s loyalties to these other entities and investors could result in action or inaction that is detrimental to our business, which could harm the implementation of our business strategy and our investment and leasing opportunities. Conflicts with our business and interests are most likely to arise from involvement in decisions and activities related to: (1) the Modification Agreement and our transition to self-management; (2) allocation of new investments, management time and services between us and the other entities; (3) the timing and terms of the investment in or sale of an asset; (4) the types of new investments we make with available cash; (5) the timing and amount of distributions to stockholders; (6) matters relating to the share redemption program, potential liquidity events and other strategic transactions; and (7) compensation, cost reimbursements and incentives to our Advisor, the Property Manager and other Behringer entities. Mr. Aisner is expected to serve as our Chief Executive Officer until the Self-Management Closing, at which point Mr. Alfieri, one of our employees and our current President and Chief Operating Officer, is expected to be appointed as our Chief Executive Officer.

Because a number of Behringer sponsored real estate programs use investment strategies that are similar to ours, our Advisor and its personnel will face conflicts of interest relating to the purchase of properties and other real estate-related assets, and such conflicts may not be resolved in our favor.

There may be periods during which one or more Behringer sponsored programs are seeking to invest in similar properties and other real estate-related investments. As a result, we may be buying properties and other real estate-related investments at the same time as one or more of the other Behringer sponsored programs managed by officers and employees of our Advisor

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and/or its affiliates, and these other Behringer sponsored programs may use investment strategies that are similar to ours. Advisor personnel are also the executive officers of other Behringer sponsored REITs and their advisors, the general partners of Behringer sponsored partnerships and/or the advisors or fiduciaries of other Behringer sponsored programs, and these entities are and will be under common control. There is a risk that our Advisor will choose a property that provides lower returns to us than a property purchased by another Behringer sponsored program. In the event these conflicts arise, we cannot assure you that our best interests will be met when officers and employees acting on behalf of our Advisor and on behalf of advisors and managers of other Behringer sponsored programs decide whether to allocate any particular property to us or to another Behringer sponsored program or affiliate of our Advisor, which may have an investment strategy that is similar to ours. In addition, we may acquire properties in geographic areas where other Behringer sponsored programs own properties. Similar conflicts of interest may apply if our Advisor determines to make or purchase mortgage, bridge or mezzanine loans or participations in mortgage, bridge or mezzanine loans on our behalf, because other Behringer sponsored programs may be competing with us for such investments. You will not have the opportunity to evaluate the manner in which these conflicts of interest are resolved.

Our Advisor and its affiliates face conflicts of interest caused by their compensation arrangements with us, which could result in actions that are not in the long-term best interests of our stockholders.

Our Advisor and our Property Manager and their affiliates, are entitled to substantial fees from us under the terms of the advisory management agreement, property management agreement and the Modification Agreement and related agreements. Among other matters, these compensation arrangements could affect their judgment with respect to:

• the continuation, renewal or enforcement of our agreements with our Advisor, our Property Manager, and their affiliates, including the advisory management agreement, the property management agreement and the Modification Agreement;

• property acquisitions from third parties, which entitle our Advisor to acquisition fees, debt finance fees and asset management fees;

• borrowings to acquire properties, which borrowings will increase the acquisition fees, asset management fees and debt financing fees payable to our Advisor;

• determining the compensation paid to the Advisor’s employees for services provided to us, which could be influenced in part by whether the Advisor is reimbursed by us for the related salaries and benefits; and

• cooperation with our transition to self-management.

The fees our Advisor receives in connection with transactions involving the purchase and management of an asset are based on the cost of the investment, including the amount budgeted for the development, construction, and improvement of each asset, and not based on the quality of the investment or the quality of the services rendered to us. This may influence our Advisor to recommend riskier transactions to us. Furthermore, the Advisor will refund these fees to the extent they are based on budgeted amounts that prove too high once development, construction, or improvements are completed, but the fact that these fees are initially calculated in part based on budgeted amounts could influence our Advisor to overstate the estimated costs of development, construction, or improvements in order to accelerate the cash flow it receives.

Our Advisor and its affiliates face conflicts of interests caused by Behringer’s ownership of the Series A Preferred Stock.

Behringer owns 10,000 shares of Series A Preferred Stock. Under limited circumstances, the Series A Preferred Stock may be converted into shares of our common stock, resulting in dilution of our stockholders’ interest in us. The Advisor and its affiliates may be influenced to recommend certain actions to us if they are more likely to increase the value of the Series A Preferred Stock, such as transactions related to liquidity events, distributions, redemptions and other capital activities.

Our Advisor's executive officers and key personnel and the executive officers and key personnel of Behringer-affiliated entities that conduct our day-to-day operations will face competing demands on their time, and this may cause our investment returns to suffer.

We rely, in part, upon the executive officers of our Advisor and the executive officers and employees of Behringer-affiliated entities to conduct our day-to-day operations. These persons also conduct the day-to-day operations of other Behringer sponsored programs, including (1) other public programs such as Behringer Harvard Opportunity REIT I, Behringer Harvard Opportunity REIT II, Behringer Harvard Short-Term Opportunity Fund I, and Behringer Harvard Mid-Term Value Enhancement Fund I, and (2) numerous private programs. These persons may have other business interests as well. Because these persons have competing interests on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. Should our Advisor inappropriately devote insufficient time or resources to our business, the returns on our investments may suffer.

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Our independent directors are involved in other businesses, investments and activities, therefore they may have conflicts of interest in allocating their time between our business and these other activities.

Our independent directors are involved in other businesses, investments and activities. Because these persons have competing interests on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. Should our independent directors inappropriately devote insufficient time or resources to our business, then our performance may suffer.

Because we rely on affiliates of Behringer Harvard Holdings for the provision of advisory and property management services, if Behringer Harvard Holdings is unable to meet its obligations we may be required to find alternative providers of these services, which could result in a significant and costly disruption of our business.

Behringer Harvard Holdings, through one or more of its subsidiaries, owns and controls our Advisor and our Property Manager. The operations of our Advisor and our Property Manager rely substantially on Behringer Harvard Holdings. Behringer Harvard Holdings is largely dependent on fee income from its sponsored real estate programs. Until we complete our transition to a self-managed company, in the event that Behringer Harvard Holdings becomes unable to meet its obligations as they become due, we might be required to find alternative service providers, which could result in a significant disruption of our business and would likely adversely affect the value of your investment in us.

General Risks Related to Investments in Real Estate

Since 2010, capitalization rates in major U.S. markets for multifamily communities have compressed. If capitalization rates remain compressed or decrease further, it may be more challenging for us to find attractive stabilized, income-producing investment opportunities. On the other hand, economic changes, interest rate increases, inflation or budget deficit issues could increase capital costs or prolong the U.S. economic slowdown which could lead to increases in capitalization rates and a potential decline in the value of our investments.

There is evidence that capitalization rates (the rate of return immediately expected upon investment in a real estate asset) in major U.S. markets for stabilized multifamily communities have decreased for the last four years, particularly in the markets that we target. If capitalization rates stabilize or decrease further, we would expect the value of our current investments to hold steady or even increase. However, in such an environment it may be more difficult for us to find attractive stabilized, income-producing investment opportunities. This challenge may be exacerbated if the cost of debt financing increases where our ability to leverage returns through the use of debt financing could be negatively affected.

Despite these current trends, there could also be economic and real estate factors which could lead to a renewed increase in capitalization rates. If capitalization rates increase, we would expect declines in the pricing of those assets upon sale. If we were required to sell investments into such a market, we could experience a substantial decrease in the value of our investments and those of our unconsolidated joint ventures. Apart from the potential for such results on any such sale, we may also be required to recognize an impairment charge in earnings in respect of assets we currently own.

High prolonged unemployment or U.S. political gridlock could adversely affect multifamily property occupancy and rental rates with high quality multifamily communities suffering even more severely.

Although unemployment has generally improved since 2012 and the resolution of the tax portion of the fiscal cliff debate provided some fiscal certainty, there are risks to the U.S. economy related to the global economy and continuing political debates over the U.S. debt limits and government spending levels which could reverse those trends. Stagnant or rising levels of unemployment in our multifamily markets could significantly decrease occupancy and rental rates. In times of increasing unemployment, multifamily occupancy and rental rates have historically been adversely affected by:

• rental residents deciding to share rental units and therefore rent fewer units;

• potential residents moving back into family homes or delaying leaving family homes;

• a reduced demand for higher-rent units, such as those of high quality multifamily communities;

• a decline in household formation;

• persons enrolled in college delaying leaving college or choosing to proceed to or return to graduate school in the absence of available employment;

• the inability or unwillingness of residents to pay rent increases; and

• increased collection losses.

These factors have contributed to lower rental rates. If employment levels worsen or do not continue to improve, our results of operations, financial condition and ability to make distributions to you may be adversely affected.

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Our operating results will be affected by economic and regulatory changes that have an adverse impact on the real estate market in general, and we cannot assure you that we will be profitable or that we will realize growth in the value of our real estate properties.

Our operating results will be subject to risks generally incident to the ownership of real estate, including:

• changes in general economic or local conditions;

• changes in supply of or demand for similar or competing properties in an area;

• changes in interest rates and availability of permanent mortgage funds that may render the sale of a property difficult or unattractive;

• the illiquidity of real estate investments generally;

• changes in tax, real estate, environmental and zoning laws;

• periods of high interest rates and tight money supply;

• residents' perceptions of the safety, convenience, and attractiveness of our properties and the neighborhoods where they are located; and

• our ability to provide adequate management, maintenance, and insurance.

For these and other reasons, we cannot assure you that we will be profitable or that we will realize growth in the value of our real estate properties.

Local conditions in the markets in which we own multifamily communities or in which the collateral securing our loans is located may significantly affect occupancy or rental rates at such properties. The risks that may adversely affect conditions in those markets include the following:

• layoffs, plant closings, relocations of significant local employers and other events negatively impacting local employment rates and the local economy;

• an oversupply of, or a lack of demand for, apartments;

• a decline in household formation;

• the inability or unwillingness of residents to pay rent increases; and

• rent control or rent stabilization laws or other housing laws, which could prevent us from raising rents.

For these and other reasons, we cannot assure you that we will be profitable or that we will realize growth in the value of our real estate properties.

If we have limited diversification of the geographic locations of our properties, our operating results will be affected by economic changes that have an adverse impact on the real estate market in those areas.

In the event that most of our properties are located in a single geographic area, our operating results and ability to make distributions are likely to be impacted by economic changes affecting the real estate markets in that area. Your investment will be subject to greater risk to the extent that we lack a geographically diversified portfolio.

Our failure to integrate acquired communities and new personnel could create inefficiencies and reduce the return of your investment.

To grow successfully, we must be able to apply our experience in managing real estate to a larger number of properties. In addition, we must be able to integrate new management and operations personnel as our organization grows in size and complexity. Failures in either area will result in inefficiencies that could adversely affect our expected return on our investments and our overall profitability.

Short-term multifamily community leases expose us to the effects of declining market rent and could adversely impact our ability to make cash distributions to our stockholders.

Substantially all of our multifamily community leases are for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.

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Any student-housing properties that we acquire will be subject to an annual leasing cycle, short lease up period, seasonal cash flows, changing university admission and housing policies, and other risks inherent in the student-housing industry, any of which could have a negative impact on your investment.

Student-housing properties generally have short-term leases of 12 months, ten months, nine months, or shorter. As a result, we may experience significantly reduced cash flows during the summer months from student-housing properties while most students are on vacation. Furthermore, student-housing properties must be almost entirely re-leased each year, exposing us to increased leasing risk. Student-housing properties are also typically leased during a limited leasing season that usually begins in January and ends in August of each year. We would, therefore, be highly dependent on the effectiveness of our marketing and leasing efforts and personnel during this season.

Changes in university admission policies could also adversely affect us. For example, if a university reduces the number of student admissions or requires that a certain class of students, such as freshmen, live in a university-owned facility, the demand for units at our student-housing properties may be reduced and our occupancy rates may decline. We rely on our relationships with colleges and universities for referrals of prospective student residents or for mailing lists of prospective student residents and their parents. Many of these colleges and universities own and operate their own competing on-campus facilities. Any failure to maintain good relationships with these colleges and universities could therefore have a material adverse effect on our ability to market our properties to students and their families.

Federal and state laws require colleges to publish and distribute reports of on-campus crime statistics, which may result in negative publicity and media coverage associated with crimes occurring on or in the vicinity of any student-housing properties. Reports of crime or other negative publicity regarding the safety of the students residing on, or near, our student-housing properties may have an adverse effect on our business.

We may face significant competition from university-owned student housing and from other residential properties that are in close proximity to any student-housing properties we may acquire, which could have a negative impact on our results of operations.

On-campus student housing has certain inherent advantages over off-campus student housing in terms of physical proximity to the university campus and integration of on-campus facilities into the academic community. Colleges and universities can generally avoid real estate taxes and borrow funds at lower interest rates than us.

Properties that have significant vacancies could be difficult to sell, which could diminish the return on your investment.

A property may incur vacancies either by the continued default of residents under their leases or the expiration of leases. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in decreased distributions to our stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property.

Our investments are dependent on residents for revenue, and lease terminations could reduce our ability to make distributions to stockholders.

The success of our real property investments is materially dependent on the financial stability of our residents. Lease payment defaults by residents could cause us to reduce the amount of distributions to stockholders. A default by a significant number of residents on his or her lease payments to us would cause us to lose the revenue associated with such lease and cause us to have to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. In the event of a lease default, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our property. If a substantial number of leases are terminated, we cannot assure you that we will be able to lease the property for the rent previously received or sell the property without incurring a loss. Additionally, loans that we make generally will relate to real estate. As a result, the borrower's ability to repay the loan may be dependent on the financial stability of our residents leasing the related real estate.

We may be unable to renew leases or relet units as leases expire.

When our residents decide not to renew their leases upon expiration, we may not be able to relet their units. Even if the residents do renew or we can relet the units, the terms of renewal or reletting may be less favorable than current lease terms. If we are unable to promptly renew the leases or relet the units, or if the rental rates upon renewal or reletting are significantly lower than expected rates, then our results of operations and financial condition will be adversely affected. Occupancy levels and market rents may be adversely affected by national and local economic and market conditions including, without limitation, new construction and excess inventory of multifamily and single family housing, slow or negative employment growth, availability of low interest mortgages for single family home buyers and the potential for geopolitical instability, all of which are beyond our control. In addition, various state and local municipalities implement rent control legislation which could

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limit our ability to raise rents. Finally, the federal government's policies, many of which may encourage home ownership, can increase competition and possibly limit our ability to raise rents. Consequently, our cash flow and ability to service debt and make distributions to security holders could be reduced.We may be unable to secure funds for future capital improvements, which could adversely impact our ability to make cash distributions to our stockholders.

When residents do not renew their leases or otherwise vacate their space, in order to attract replacement residents, we may be required to expend funds for capital improvements to the vacated apartment units. In addition, we may require substantial funds to renovate an apartment community in order to sell it, upgrade it or reposition it in the market. If we have insufficient capital reserves, we will have to obtain financing from other sources. We intend to establish capital reserves in an amount we, in our discretion, believe is necessary. A lender also may require escrow of capital reserves in excess of any established reserves. If these reserves or any reserves otherwise established are designated for other uses or are insufficient to meet our cash needs, we may have to obtain financing from either affiliated or unaffiliated sources to fund our cash requirements. We cannot assure you that sufficient financing will be available or, if available, will be available on economically feasible terms or on terms acceptable to us. Moreover, certain reserves required by lenders may be designated for specific uses and may not be available for capital purposes such as future capital improvements. Additional borrowing for capital needs and capital improvements will increase our interest expense, and therefore our financial condition and our ability to make cash distributions to our stockholders may be adversely affected.

We may be unable to sell a property or real estate-related asset if or when we decide to do so, which could adversely impact our ability to make cash distributions to our stockholders.

We intend to hold the various real properties and real estate-related assets in which we invest until such time as we determine that a sale or other disposition appears to be advantageous to achieve our investment objectives or until it appears that these objectives will not be met. Otherwise, we will have no obligation to sell properties at any particular time, except upon our liquidation. If we have not begun the process to list our shares for trading on a national securities exchange or to liquidate at any time after the sixth anniversary of the termination of our Initial Public Offering (which terminated on September 2, 2011), unless such date is extended by our board of directors including a majority of our independent directors, we will furnish a proxy statement to stockholders to vote on a proposal for our orderly liquidation upon the written request of stockholders owning 10% or more of our outstanding common stock. The liquidation proposal would include information regarding appraisals of our portfolio. By proxy, stockholders holding a majority of our shares could vote to approve our liquidation. If our stockholders did not approve the liquidation proposal, we would obtain new appraisals and resubmit the proposal by proxy statement to our stockholders up to once every two years upon the written request of stockholders owning 10% or more of our outstanding common stock.

The real estate market is affected, as discussed above, by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any asset for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a property or real estate-related asset. If we are unable to sell a property or real estate-related asset when we determine to do so, it could have a significant adverse effect on our cash flow and results of operations.

Our co-venture partners, co-tenants or other partners in co-ownership arrangements could take actions that decrease the value of an investment to us and lower your overall return.

As of December 31, 2013, 45 of our 55 investments in multifamily communities have been made through Co-Investment Ventures. In the future, we may enter into additional joint ventures, tenant-in-common investments or other co-ownership arrangements for the acquisition, development or improvement of properties as well as the acquisition of real estate-related investments. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with other forms of real estate investment, including, for example:

• the possibility that our partner in an investment might become bankrupt;

• the possibility that the investment requires additional capital that we and/or our partner do not have, which lack of capital could affect the performance of the investment and/or dilute our interest if the partner were to contribute our share of the capital;

• the possibility that a partner in an investment might breach a loan agreement or other agreement or otherwise, by action or inaction, act in a way detrimental to us or the investment;

• that such partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals;

• the possibility that we may incur liabilities as the result of the action taken by our partner;

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• that such partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, including our policy with respect to qualifying and maintaining our qualification as a REIT; or

• that such partner may exercise buy/sell rights that force us to either acquire the entire investment, or dispose of our share, at a time and price that may not be consistent with our investment objectives.

Any of the above might reduce our returns on a joint venture investment. With respect to our 45 multifamily community investments though Co-Investment Ventures, each investment is subject to buy/sell rights in the event of a dispute over a major decision, such as whether to dispose of the underlying property. These partner rights may also affect our ability to raise capital, both debt and equity, or the cost or terms of such capital. Such constraints could affect our overall cost of capital and the returns to stockholders.

If we have insufficient capital resources to exercise an option to purchase, or comply with a put right that requires us to purchase, an interest of one of our joint venture partners, our results from operations may be adversely affected.

We have, and may have in the future, interests under joint venture agreements that are subject to buy/sell rights. If we are not able to maintain sufficient cash, available borrowing capacity or other capital resources to allow us to elect to purchase, or satisfy an obligation to purchase, an interest of a co-venture partner, we may be forced to forego an investment opportunity, sell our interest when we would otherwise prefer not to sell the interest, and potentially be liable for a breach of an obligation under a joint venture agreement. Any of the foregoing events could have an adverse effect on our results of operations.

Uninsured losses relating to real property or excessively expensive premiums for insurance coverage may adversely affect your returns.

We attempt to ensure that all of our properties are adequately insured to cover casualty losses. The nature of the activities at certain properties we may acquire may expose us and our operators to potential liability for personal injuries and property damage claims. In addition, there are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, pollution, environmental matters or extreme weather conditions such as hurricanes, floods and snowstorms that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential terrorist acts could sharply increase the premiums we pay for coverage against property and casualty claims. Mortgage lenders may require that specific coverage against terrorism be purchased by property owners as a condition for providing mortgage, bridge or mezzanine loans. It is uncertain whether such insurance policies will continue to be available, or be available at reasonable cost, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We cannot assure you that we will have adequate coverage for such losses. In the event that any of our properties incurs a casualty loss that is not fully covered by insurance, the value of our assets will be reduced by the amount of any such uninsured loss. In addition, other than any potential capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property, and we cannot assure you that any such sources of funding will be available to us for such purposes in the future. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in decreased distributions to stockholders.

Our operating results may be negatively affected by potential development and construction delays and result in increased costs and risks, which could diminish the return on your investment.

We may use some or all of the offering proceeds available to us to develop or redevelop multifamily communities and construct improvements. Expansion, development and redevelopment projects entail the following considerable risks which can result in increased costs of a project or loss of our investment:

• We may delay or abandon development and redevelopment opportunities that we have already begun to explore for a number of reasons, including changes in local market rental rates or other operating conditions, unsatisfactory performance by our developer partners or increases in construction or financing costs, and, as a result, we may fail to recover expenses already incurred in exploring these opportunities;

• We project construction costs based on market conditions at the time we prepare our budgets, and our projections include future costs that we anticipate but cannot predict with certainty. The construction costs of a development or redevelopment property, due to factors such as cost overruns, design changes and timing delays arising from a lack of availability of materials and labor, weather conditions and other factors outside of our control, as well as financing costs, may exceed original estimates, possibly making the associated investment unprofitable. We cannot assure you that market rents in effect at the time new development or redevelopment communities complete lease up will be sufficient to fully offset the effects of any increased construction or reconstruction costs. Any substantial unanticipated delays or expenses could adversely affect the investment returns from these redevelopment projects and harm our operating results;

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• Occupancy rates and rents at a new development or redevelopment community may fail to meet our original expectations for a number of reasons, including changes in market and economic conditions beyond our control and the development by competitors of competing communities;

• We may incur liabilities from third parties during the development or redevelopment process, for example, in connection with managing existing improvements on the site prior to tenant terminations and demolition (such as with respect to commercial space) or in connection with providing services to third parties (such as the construction of shared infrastructure or other improvements);

• There may be a significant time lag between commencement and completion of the development or redevelopment project. Such a time lag subjects us to greater risks due to fluctuations in the general economy. Failure to complete construction and leasing of a property on schedule may result in increased debt service expenses and construction or renovation costs. Delays in completion of a multifamily community could also give residents the right to terminate preconstruction leases for a newly developed project;

• Significant changes in economic conditions could adversely affect prospective tenants and our ability to lease newly developed and redeveloped properties;

• We will be subject to risks relating to uncertainties associated with rezoning for development and environmental concerns of governmental entities and/or community groups and our developer's ability to control construction costs or to build in conformity with plans, specifications and timetables. The developer's failure to perform may necessitate legal action by us to rescind the purchase or the construction contract or to compel performance. Performance may also be affected or delayed by conditions beyond the developer's control.

• We may incur additional risks when we make periodic progress payments or other advances to such developers prior to completion of construction;

• We will be subject to normal lease up risks relating to newly constructed projects; and,

• We must also rely upon projections of rental income and expenses and estimates of the fair market value of property upon completion of construction when agreeing upon a price to be paid for the property at the time of acquisition of the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer.

In addition, we may invest in unimproved real property (which we define as property not acquired for the purpose of producing rental or other operating income, has no development or construction in process at the time of acquisition and no development or construction is planned to commence within one year of the acquisition) or mortgage loans on unimproved property. Returns from development of unimproved properties are also subject to risks and uncertainties associated with rezoning the land for development and environmental concerns of governmental entities and/or community groups. Although our intention is to limit any investment in unimproved property to property we intend to develop, your investment nevertheless is subject to the risks associated with investments in unimproved real property.

Unbudgeted capital expenditures or cost overruns could adversely affect business operations and cash flow.

If capital expenditures for ongoing or planned development or redevelopment projects exceed expectations or if such additional capital expenditures are to be reimbursed by the general contractor or the developer partner and are not, the additional cost of these expenditures could have an adverse effect on business operations and cash flow. Such additional costs could cause us to be in default under construction financing agreements, which may require us to pay off all or a portion of the financing. In any of these situations, we might not have access to funds on a timely basis to pay the unexpected expenditures or obligations.

Further, the Company may guarantee all or a portion of the construction financing, including the obligation to pay interest on the financing until the development project is completed, leased up and permanent financing is obtained or the construction loan is otherwise paid. Unexpected delays in the completion of development or redevelopment projects, unexpected cost increases or budget overruns could also have a significant adverse impact on business operations and cash flow.

Any plans that we may have to reposition certain commercial properties through demolition, conversion and redevelopment into new multifamily communities may never commence after we make an investment in the property, be delayed or never reach completion, which could diminish the return on your investment.

We may make investments in a wide variety of commercial properties, including, but not limited to, mixed use developments where multifamily is a portion of the mixed use developments. After we make an investment, we or the developer, as applicable, may be unable to commence conversion of these properties and therefore may be required to continue operating the properties under their current purpose, which would include other than multifamily community uses. In addition, we may also be unable to complete the demolition, conversion or redevelopment of these commercial properties and may be forced to hold or sell these properties at a loss. Although we intend to focus on multifamily communities and limit any investment in commercial properties for repositioning into multifamily communities, your investment is subject to the risks associated with these commercial properties and traditional construction risks associated with this repositioning plan.

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We face competition from third parties, including other multifamily communities, which may limit our profitability and the return on your investment.

The residential multifamily community industry is highly competitive. This competition could reduce occupancy levels and revenues at our multifamily communities, which would adversely affect our operations. We compete with many other entities engaged in real estate investment activities, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities, many of which have greater resources than we do. Larger real estate programs may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors include other multifamily communities both in the immediate vicinity and the broader geographic market where our multifamily communities will be located. Overbuilding of multifamily communities may occur. If so, this will increase the number of multifamily community units available and may decrease occupancy and multifamily unit rental rates. In addition, increases in operating costs due to inflation may not be offset by increased rental rates. We may be required to expend substantial sums to attract new residents.

In connection with the recent credit market disruptions and economic slowdown, we may face increased competition from single-family homes and condominiums for rent, which could limit our ability to retain residents, lease apartment units or increase or maintain rents.

Any multifamily communities we invest in may compete with numerous housing alternatives in attracting residents, including single-family homes and condominiums available for rent. Such competitive housing alternatives may become more prevalent in a particular area where there have been significant foreclosures, unsold homes or condominium units or where investors are actively renting homes or condominium units. These investors may be well capitalized with sophisticated marketing plans to target renters, particularly multifamily residents. The number of single-family homes and condominiums for rent in a particular area could limit our ability to retain residents, lease apartment units or increase or maintain rents.

Failure to succeed in new markets or in new property classes may have adverse consequences on our performance.

We may from time to time commence development activity or make acquisitions outside of our existing market areas or the property classes of our primary focus if appropriate opportunities arise. Our historical experience in our existing markets in developing, owning and operating certain classes of property does not ensure that we will be able to operate successfully in new markets, should we choose to enter them, or that we will be successful in new property classes. We may be exposed to a variety of risks if we choose to enter new markets, including an inability to evaluate accurately local market conditions, to obtain land for development or to identify appropriate acquisition opportunities, to hire and retain key personnel, and a lack of familiarity with local governmental and permitting procedures. In addition, we may abandon opportunities to enter new markets or acquire new classes of property that we have begun to explore for any reason and may, as a result, fail to recover expenses already incurred.

Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect our operations.

From time to time, we may attempt to acquire multiple properties in a single transaction. Portfolio acquisitions are more complex and expensive than single-property acquisitions, and the risk that a multiple-property acquisition does not close may be greater than in a single-property acquisition. Portfolio acquisitions may also result in us owning investments in geographically dispersed markets, placing additional demands on our ability to manage the properties in the portfolio. In addition, a seller may require that a group of properties be purchased as a package even though we may not want to purchase one or more properties in the portfolio. In these situations, if we are unable to identify another person or entity to acquire the unwanted properties, we may be required to operate or attempt to dispose of these properties. To acquire multiple properties in a single transaction we may be required to accumulate a large amount of cash. We would expect the returns that we can earn on such cash to be less than the ultimate returns in real property and therefore, accumulating such cash could reduce the funds available for distributions. Any of the foregoing events may have an adverse effect on our operations.

If we set aside insufficient capital reserves for repairs or capital expenditure, we may be required to defer necessary capital improvements.

If we do not have enough reserves for capital to supply needed funds for capital improvements throughout the life of the investment in a property and there is insufficient cash available from our operations, we may be required to defer necessary improvements to the property, which may cause the property to suffer from a greater risk of obsolescence or a decline in value, or a greater risk of decreased cash flow as a result of fewer potential residents being attracted to the property. If this happens, we may not be able to maintain projected rental rates for affected properties, and our results of operations may be negatively impacted.

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We are subject to risks from natural disasters such as earthquakes and severe weather.

Natural disasters and severe weather such as earthquakes, tornadoes or hurricanes may result in significant damage to our properties. The extent of our casualty losses and loss in operating income in connection with such events is a function of the severity of the event and the total amount of exposure in the affected area. When we have geographic concentration of exposures, a single catastrophe (such as an earthquake, especially in the San Francisco Bay Area or Southern California) or destructive weather event (such as a hurricane, especially in Florida or the Washington, D.C. Area) affecting a region may have a significant negative effect on our financial condition and results of operations. As of December 31, 2013, we owned or had an ownership interest in properties that are located in the San Francisco Bay Area, Southern California, Florida and the Washington, D.C. Area. As a result, our operating and financial results may vary significantly from one period to the next. Our financial results may be adversely affected by our exposure to losses arising from natural disasters or severe weather.

We are also exposed to risks associated with inclement winter weather, particularly in the New England, Mid-Atlantic, Mid-West and Mountain states in which many of our properties are located, including increased costs for the removal of snow and ice as well as from delays in construction. Inclement weather also could increase the need for maintenance and repair of our properties.

Climate change may adversely affect our business.

To the extent that climate change does occur, we may experience extreme weather and changes in precipitation and temperature, all of which may result in physical damage or a decrease in demand for our properties located in these areas or affected by these conditions. Should the impact of climate change be material in nature or occur for lengthy periods of time, our financial condition or results of operations would be adversely affected.

In addition, changes in federal and state legislation and regulation on climate change could result in increased capital expenditures to improve the energy efficiency of our existing properties and could also require us to spend more on our new development properties without a corresponding increase in revenue.

The costs of compliance with environmental laws and other governmental laws and regulations may adversely affect our income and the cash available for any distributions.

All real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Many environmental laws restrict the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures. These laws and regulations generally govern wetlands protection, storm water runoff, wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, and the remediation of contamination associated with disposals. Such environmental laws often provide for sanctions in the event of noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Some of these laws and regulations may impose joint and several liability on residents, owners or operators for the costs of investigation or remediation of contaminated properties, regardless of fault or the legality of the original disposal. Noncompliance with such laws and regulations may therefore subject us to fines and penalties. We can provide no assurance that we will not incur any material liabilities as a result of noncompliance with these laws and regulations. In addition, the presence of these substances, or the failure to properly remediate these substances, may adversely affect our ability to sell or rent the property or to use the property as collateral for future borrowing.

Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require material expenditures by us. For example, various federal, regional and state laws and regulations have been implemented or are under consideration to mitigate the effects of climate change caused by greenhouse gas emissions. Among other things, "green" building codes may seek to reduce emissions through the imposition of standards for design, construction materials, water and energy usage and efficiency and waste management. We are not aware of any such existing requirements that we believe will have a material impact on our current operations. However, future requirements could increase the costs of maintaining or improving our existing properties or developing new properties.

High costs associated with the investigation or remediation of previously undetected environmentally hazardous conditions may adversely affect our operating results.

We are subject to various federal, state and local environmental and public health laws, regulations and ordinances.

Under various federal, state and local environmental and public health laws, ordinances and regulations (including those of foreign jurisdictions), we may be required to investigate and remediate the effects of hazardous or toxic substances or petroleum product releases at our properties (including in some cases natural substances such as methane and radon gas). We may also be held liable under these laws or common law to a governmental entity or to third parties for property, personal

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injury or natural resources damages and for investigation and remediation costs incurred as a result of the contamination. These laws often impose liability whether the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances. The costs of investigation, removal or remediation could be substantial and may exceed any insurance coverage that we have for such events. The presence of such substances, or the failure to properly remediate the contamination, may adversely affect our ability to borrow against, sell or rent the affected property. In addition, some environmental laws create or allow a government agency to impose a lien on the contaminated site in favor of the government for damages and costs it incurs as a result of the contamination.

We may face risks relating to asbestos.

Certain federal, state and local laws, regulations and ordinances govern the removal, encapsulation or disturbance of asbestos containing materials, or "ACMs", when such materials are in poor condition or in the event of renovation or demolition of a building. These laws and the common law may impose liability for the release of ACMs and may allow third parties to seek recovery from owners or operators of real properties for personal injury associated with exposure to ACMs. ACMs are not suspected to be present in the portfolio buildings based on their age (2003 and later construction); however, because ACMs have not been completely banned in the U.S., it is possible that some ACMs are present. Building materials are maintained in good condition, reducing the risk associated with ACMs. Additionally, we comply with applicable regulations relating to conducting asbestos surveys prior to renovations or demolition. As a result, ACMs do not present a material risk factor for the portfolio.

We may face risks relating to chemical vapors and subsurface contamination.

We are also aware that environmental agencies and third parties have, in the case of certain properties with on-site or nearby contamination, asserted claims for remediation, property damage or personal injury based on the alleged actual or potential intrusion into buildings of chemical vapors or volatile organic compounds from soils or groundwater underlying or in the vicinity of those buildings or in nearby properties. In addition, some of our retail tenants, such as dry cleaners, may operate businesses which may emit chemical vapors or otherwise use chemicals subject to environmental regulation. We can provide no assurance that we will not incur any material liabilities as a result of vapor intrusion at our properties.

We may face risks relating to mold growth.

Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. Although the occurrence of mold at multifamily and other structures, and the need to remediate such mold, is not a new phenomenon, there has been increased awareness in recent years that certain molds may produce airborne toxins or irritants and exposure to such mold may cause a variety of adverse health effects and symptoms, including allergic or other reactions. To help limit mold growth, we educate residents about the importance of adequate ventilation and include a lease requirement that they notify us when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or excessive moisture from our properties when we become aware of its presence regardless of whether we or the resident believe a health risk is present. However, we can provide no assurance that mold or excessive moisture will be detected and remediated in a timely manner. If a significant mold problem arises at one of our properties, we could be required to undertake a costly remediation program to contain or remove the mold from the affected property and could be exposed to other liabilities that may exceed any applicable insurance coverage, thereby reducing our operating results.

Our environmental assessments may not identify all potential environmental liabilities and our remediation actions may be insufficient.

Operating properties or land being considered for potential acquisition by us are subjected to at least a Phase I or similar environmental assessment prior to closing, which generally does not involve invasive techniques such as soil or ground water sampling. A Phase II assessment is conducted if recommended in the Phase I report. These assessments, together with subsurface assessments conducted on some properties, have not revealed, and we are not otherwise aware of, any environmental conditions that we believe would have a material adverse effect on our business, assets, financial condition or results of operations. However, such environmental assessments may not identify all potential environmental liabilities. Moreover, we may in the future discover adverse environmental conditions at our properties, including at properties we acquire in the future, which may have a material adverse effect on our business, assets, financial condition or results of operations. In connection with our ownership, operation and development of communities, from time to time we undertake substantial remedial action in response to the presence of subsurface or other contaminants, including contaminants in soil, groundwater and soil vapor beneath or affecting our buildings. In some cases, an indemnity exists upon which we may be able to rely if environmental liability arises from the contamination, or if remediation costs exceed estimates. We can provide no assurance, however, that all necessary remediation actions have been or will be undertaken at our properties or that we will be indemnified, in full or at all, in the event that environmental liability arises.

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Our liability insurance may be insufficient to cover liabilities.

We maintain a liability insurance policy to cover claims arising from certain pollution conditions and cleanup costs (including limited mold coverage). Should an uninsured loss arise against us, we would be required to use our own funds to resolve the issue, including litigation costs. Liabilities resulting from moisture infiltration and the presence of or exposure to mold may have a future material impact on our financial results.

The cost of defending against claims of liability such as those described above, of compliance with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury claims could materially adversely affect our business, assets or results of operations and, consequently, amounts available for distribution to you.

Our costs associated with and the risk of failing to comply with the Americans with Disabilities Act and the Fair Housing Act may affect cash available for distributions.

Our properties and the properties underlying our investments are generally expected to be subject to the Americans with Disabilities Act of 1990, as amended (“Disabilities Act”), or similar laws of foreign jurisdictions. Under the Disabilities Act, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The Disabilities Act has separate compliance requirements for "public accommodations" and "commercial facilities" that generally require that buildings and services be made accessible and available to people with disabilities. The Disabilities Act's requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We will attempt to acquire properties that comply with the Disabilities Act or similar laws of foreign jurisdictions or place the burden on the seller or other third party to comply with such laws. However, we cannot assure you that we will be able to acquire properties or allocate responsibilities in this manner. If we cannot, our funds used for compliance with these laws may affect cash available for distributions and the amount of distributions to you.

The multifamily communities in which we invest must comply with Title III of the Disabilities Act, to the extent that such properties are “public accommodations” and/or “commercial facilities” as defined by the Disabilities Act. Compliance with the Disabilities Act could require removal of structural barriers to handicapped access in certain public areas of our multifamily communities where such removal is readily achievable. The Disabilities Act does not, however, consider residential properties, such as multifamily communities to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as the leasing office, are open to the public.

We also must comply with the Fair Housing Amendment Act of 1988 (“FHAA”), which requires that multifamily communities first occupied after March 13, 1991 be accessible to handicapped residents and visitors. Compliance with the FHAA could require removal of structural barriers to handicapped access in a community, including the interiors of apartment units covered under the FHAA. Recently there has been heightened scrutiny of multifamily housing communities for compliance with the requirements of the FHAA and Disabilities Act and an increasing number of substantial enforcement actions and private lawsuits have been brought against multifamily communities to ensure compliance with these requirements. Noncompliance with the FHAA and Disabilities Act could result in the imposition of fines, awards of damages to private litigants, payment of attorneys' fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation.

By owning age-restricted communities, we may incur liability by failing to comply with the FHAA, the Housing for Older Persons Act or certain state regulations, which may affect cash available for distributions.

Any age-restricted communities we acquire must comply with the FHAA and the Housing for Older Persons Act (“HOPA”). The FHAA prohibits housing discrimination based upon familial status, which is commonly referred to as age-based discrimination. However, there are exceptions for housing developments that qualify as housing for older persons. The HOPA provides the legal requirements for such housing developments. In order for housing to qualify as housing for older persons, the HOPA requires (1) all residents of such developments to be 62 years of age or older or (2) that at least 80% of the occupied units are occupied by at least one person who is 55 years of age or older and that the housing community publish and adhere to policies and procedures that demonstrate this required intent and comply with rules issued by the United States Department of Housing and Urban Development for verification of occupancy. In addition, certain states require that age-restricted housing communities register with the state. Noncompliance with the FHAA, HOPA and state registration requirements could result in the imposition of fines, awards of damages to private litigants, payment of attorneys' fees and other costs to plaintiffs, substantial litigation costs and substantial costs of remediation.

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If we sell properties by providing financing to purchasers, we will bear the risk of default by the purchaser.

If we decide to sell any of our properties, we intend to use commercially reasonable efforts to sell them for cash or in exchange for other property. However, in some instances we may sell our properties by providing financing to purchasers. If we provide financing to purchasers, we will bear the risk of default by the purchaser and will be subject to remedies provided by law, which could negatively impact distributions to our stockholders. There are no limitations or restrictions on our ability to take purchase money obligations. We may, therefore, take a purchase money obligation secured by a mortgage as partial payment for the purchase price of a property. The terms of payment to us generally will be affected by custom in the area where the property being sold is located and the then-prevailing economic conditions. If we receive promissory notes or other property in lieu of cash from property sales, the distribution of the proceeds of sales to our stockholders, or their reinvestment in other assets, will be delayed until the promissory notes or other property are actually paid, sold or refinanced or we have otherwise disposed of such promissory notes or other property. In some cases, we may receive initial down payments in cash and other property in the year of sale in an amount less than the selling price and subsequent payments will be spread over a number of years. If any purchaser defaults under a financing arrangement with us, it could negatively impact our ability to make distributions to our stockholders.

We may be contractually obligated to purchase property even if we are unable to secure financing for the acquisition.

We may finance a portion of the purchase price for any property that we acquire. However, to ensure that our offers are as competitive as possible, we generally will not enter into contracts to purchase property that include financing contingencies. Thus, we may be contractually obligated to purchase a property even if we are unable to secure financing for the acquisition. In this event, we may choose to close on the property by using cash on hand, which would result in less cash available for our operations and distributions to stockholders. Alternatively, we may choose not to close on the acquisition of the property and default on the purchase contract. If we default on any purchase contract, we could lose our earnest money and become subject to liquidated or other contractual damages and remedies. These consequences could have a material adverse effect on our business, results of operations, financial condition and ability to pay distributions to our stockholders.

Difficulty of selling multifamily communities could limit flexibility.

Federal tax laws may (subject to a statutory "safe harbor") limit our ability to earn a gain on the sale of a community (unless we own it through a subsidiary which will incur a taxable gain upon sale) if we are found to have held, acquired or developed the community primarily with the intent to resell the community or otherwise hold the asset as a "dealer," and this limitation may affect our ability to sell communities without adversely affecting returns to our stockholders. In addition, real estate in our markets can at times be difficult to sell quickly at prices we find acceptable. These potential difficulties in selling real estate in our markets may limit our ability to change or reduce the communities in our portfolio promptly in response to changes in economic or other conditions.

Risks Associated with Debt Financing

We will incur mortgage indebtedness and other borrowings, which will increase our business risks.

We and the entities in which we invest have utilized debt financing secured by real property investments to finance acquisitions. We anticipate that we will acquire additional properties and other real estate-related assets by using existing financing, if available, or borrowing new funds. In order to satisfy the requirement that we distribute to stockholders at least 90% of our annual REIT taxable income, or otherwise as is necessary or advisable to assure that we maintain our qualification as a REIT for federal income tax purposes and/or avoid federal income tax, we may also borrow additional funds for payment of distributions to stockholders.

There is no limitation on the amount we may invest in any single property or other asset or on the amount we can borrow for the purchase of any individual property or other investment. Under our charter, the maximum amount of our indebtedness shall not exceed 300% of our "net assets" (as defined by our charter) as of the date of any borrowing; however, we may exceed that limit if approved by a majority of our independent directors.

In addition to our charter limitation, our board of directors has adopted a policy to generally limit our aggregate borrowings to approximately 75% of the aggregate value of our assets unless substantial justification exists that borrowing a greater amount is in our best interests (for purposes of this policy limitation and the target leverage ratio discussed below, the value of our assets is based on methodologies and policies determined by our board of directors that may include, but do not require, independent appraisals). Our policy limitation, however, does not apply to individual real estate assets. As a result, we expect to borrow more than 75% of the value of any particular asset to the extent our board of directors determines that borrowing such amount is prudent. Such debt may be at higher leverage than REITs with similar investment objectives or criteria. High debt levels would cause us to incur higher interest charges, would result in higher debt service payments, and could be accompanied by restrictive covenants. These factors could limit the amount of cash we have available to distribute and

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could result in a decline in the value of your investment. We will seek a long-term leverage ratio of approximately 50% to 60% upon stabilization of our portfolio.

We do not intend to incur mortgage debt on a particular real property unless we believe the property's projected cash flow is sufficient to service the mortgage debt. However, if there is a shortfall in cash flow, then the amount available for distributions to stockholders may be affected. In addition, incurring mortgage debt increases the risk of loss because (1) loss in investment value is generally borne entirely by the borrower until such time as the investment value declines below the principal balance of the associated debt and (2) defaults on indebtedness secured by a property may result in foreclosure actions initiated by lenders and our loss of the property securing the loan that is in default. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds from the foreclosure. We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties. When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to our lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one real property may be affected by a default. If any of our properties are foreclosed upon due to a default, our ability to make distributions to our stockholders will be adversely affected. In addition, since we intend to begin to consider the process of liquidating and distributing cash or listing our shares on a national securities exchange within four to six years after the termination of our Initial Public Offering, our approach to investing in properties utilizing leverage in order to accomplish our investment objectives over this period of time may present more risks to our stockholders than comparable real estate programs that have a longer intended duration and that do not utilize borrowing to the same degree.

If mortgage debt is unavailable at reasonable rates, we may not be able to finance the multifamily communities, which could reduce the number of properties we can acquire and the amount of cash distributions we can make.

When we place mortgage debt on multifamily communities, we run the risk of being unable to refinance the properties when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when the properties are refinanced, we may not be able to finance the properties at reasonable rates and our income could be reduced. If this occurs, it would reduce cash available for distribution to our stockholders, and it may prevent us from borrowing more money.

We may obtain and/or guaranty construction loans to finance multifamily developments.

We and our joint venture partners, including the developers, may obtain construction loans to finance the construction of multifamily developments. The construction loan lender may require that the developer of the project provide a guaranty that the project will be completed. The construction loan lender may also require that we provide a similar completion guaranty or a full recourse payment guaranty. If the developer fails to complete the project, if the project is delayed or if the completed project fails to generate the expected cash flow, we may be liable under a loan guaranty. If we choose not to complete an unfinished project, it may be liquidated based on the "as-is" value as opposed to a valuation based on the ability to complete the project. The occurrence of such events may have a negative impact on our results of operations and our ability to pay distributions.

Our financial condition could be adversely affected by financial covenants under our credit facility.

Our $150.0 million credit facility agreement contains certain financial and operating covenants, including, among other things, leverage ratios, certain coverage ratios, as well as limitations on our ability to incur secured indebtedness. The credit facility agreement also contains customary default provisions including the failure to timely pay debt service issued thereunder and the failure to comply with our financial and operating covenants and cross-default provision with other debt. These covenants could limit our ability to obtain additional funds needed to address liquidity needs or pursue growth opportunities or transactions that would provide substantial return to our stockholders. In addition, a breach of these covenants could cause a default and accelerate payment of advances under the credit facility agreement, which could have a material adverse effect on our financial condition.

Violating the covenants contained in our credit facility agreement would likely result in us incurring higher finance costs and fees and/or an acceleration of the maturity date of advances under the credit facility agreement all of which could have a material adverse effect on our results of operations and financial condition.

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.

In connection with obtaining financing, a lender could impose restrictions on us that affect our ability to incur additional debt and our distribution and operating policies. In general, we expect our loan agreements to restrict our ability to encumber or otherwise transfer our interest in the respective property without the prior consent of the lender. Loan documents we enter into

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may contain other negative covenants that may limit our ability to further mortgage the property, discontinue insurance coverage or impose other limitations. Any such restriction or limitation may have an adverse effect on our operations and our ability to make distributions to you.

Our ability to obtain financing on reasonable terms could be impacted by negative capital market conditions.

Commercial real estate debt markets have experienced volatility and uncertainty as a result of certain related factors, including the tightening of underwriting standards by lenders and credit rating agencies, macro-economic issues related to fiscal, tax and regulatory policies and global financial issues arising from the European debt crisis and recessionary implications. Should these conditions increase our overall cost of borrowings, either by increases in the index rates or by increases in lender spreads, we will need to factor such increases into the economics of our acquisitions, developments and property contributions. Investment returns on our assets and our ability to make acquisitions could be adversely affected by our inability to secure financing on reasonable terms, if at all.

Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds available for distribution to our stockholders.

We may finance our property acquisitions using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest-only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump-sum or "balloon" payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments will reduce the funds available for distribution to our stockholders because cash otherwise available for distribution will be required to pay principal and interest associated with these mortgage loans.

Increases in interest rates could increase the amount of our debt payments and adversely affect our ability to make distributions to our stockholders.

We may incur indebtedness that bears interest at a variable rate. In addition, from time to time we may pay mortgage loans or finance and refinance our properties in a rising interest rate environment. Accordingly, increases in interest rates could increase our interest costs, which could have an adverse effect on our cash flow from operating activities and our ability to make distributions to you. In addition, if rising interest rates cause us to need additional capital to repay indebtedness in accordance with its terms or otherwise, we may need to liquidate one or more of our investments at times that may not permit realization of the maximum return on these investments. Prolonged interest rate increases could also negatively impact our ability to make investments with positive economic returns.

If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to make distributions.

Some of our financing arrangements may require us to make a lump-sum or "balloon" payment at maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our ability to obtain additional financing or our ability to sell the property. At the time the balloon payment is due, we may or may not be able to refinance the balloon payment on terms as favorable as the original loan or sell the property at a price sufficient to make the balloon payment. The effect of a refinancing or sale could affect the rate of return to stockholders and the projected time of disposition of our assets. In addition, payments of principal and interest made to service our debts may leave us with insufficient cash to pay the distributions that we are required to pay to maintain our qualification as a REIT and/or avoid federal income tax. Any of these results would have a significant, negative impact on your investment.

Risks Related to Investments in Real Estate-Related Assets

We may invest in real estate-related assets or hold a noncontrolling interest in an asset, which will be subject to the risks typically associated with real estate.

We have invested and may continue to invest in real estate-related loans and other real estate-related assets. In addition, we may hold a noncontrolling interest in a real estate asset, such as a minority interest or preferred equity. Each of these investments will be subject to the risks typically associated with the ownership of real estate.

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We have relatively less experience investing in mortgage, bridge, mezzanine or other loans as compared to investing directly in real property, which could adversely affect our return on loan investments.

The experience of our employees and our Advisor and its affiliates with respect to investing in mortgage, bridge, mezzanine or other loans relating to multifamily communities is not as extensive as it is with respect to investments directly in real properties. However, we have made and may continue to make such loan investments to the extent we determine that it is advantageous to us due to the state of the real estate market or in order to diversify our investment portfolio. Our less extensive experience with respect to mortgage, bridge, mezzanine or other loans could adversely affect our return on loan investments.

The bridge loans in which we may invest involve greater risks of loss than conventional mortgage loans.

We may provide or invest in bridge loans secured by first lien mortgages on a multifamily property to borrowers who are typically seeking short-term capital to be used in an acquisition or refinancing of real estate. We may also provide or invest in bridge loans secured by a pledge of the ownership interests of either the entity owning the real property or the entity that owns the interest in the entity owning the real property. The borrower has usually identified an undervalued multifamily asset that has been undermanaged or is located in a recovering market. If the market in which the asset is located fails to recover according to the borrower's projections, or if the borrower fails to improve the quality of the asset's management or the value of the asset, the borrower may not receive a sufficient return on the asset to satisfy the bridge loan, and we may not recover some or all of our investment.

In addition, owners usually borrow funds under a conventional mortgage loan to repay a bridge loan. We may therefore be dependent on a borrower's ability to obtain permanent financing to repay our bridge loan, which could depend on market conditions and other factors. Bridge loans are also subject to risks of borrower defaults, bankruptcies, fraud, losses and special hazard losses that are not covered by standard hazard insurance. In the event of any default under bridge loans held by us, we bear the risk of loss of principal and nonpayment of interest and fees to the extent of any deficiency between the value of the mortgage collateral and the principal amount of the bridge loan. To the extent we suffer such losses with respect to our investments in bridge loans, the value of our company and the price of our common stock may be adversely affected.

The mezzanine loans in which we invest involve greater risks of loss than senior loans secured by income-producing real properties.

We have and may continue to invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real property or loans secured by a pledge of the ownership interests of either the entity owning the real property or the entity that owns the interest in the entity owning the real property. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of the entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt is paid in full. Where debt senior to our loan exists, the presence of intercreditor arrangements may limit our ability to amend our loan documents, assign our loans, accept prepayments, exercise our remedies (through "standstill periods"), and control decisions made in bankruptcy proceedings relating to borrowers. As a result, we may not recover some or all of our investment, which could have a negative impact on our ability to make distributions.

The construction loans in which we may invest involve greater risks of loss of investment and reduction of return than conventional mortgage loans.

If we decide to invest in construction loans secured by multifamily or other types of underlying properties, the nature of these loans pose a greater risk of loss than traditional mortgages. Since construction loans are made generally for the express purpose of either the original development or redevelopment of a property, the risk of loss is greater than a conventional mortgage because the underlying properties subject to construction loans are generally unable to generate income during the period of the loan. Construction loans may also be subordinate to the first lien mortgages. Any delays in completing the development or redevelopment multifamily project may increase the risk of default or credit risk of the borrower which may increase the risk of loss or risk of a lower than expected return to our portfolio.

Our mortgage, bridge, mezzanine or other loans may be impacted by unfavorable real estate market conditions, which could decrease the value of our loan investments.

If we make or invest in mortgage, bridge, mezzanine or other loans, we will be at risk of defaults on those loans caused by many conditions beyond our control, including local and other economic conditions affecting real estate values and interest rate levels. We do not know whether the values of the property securing the loans will remain at the levels existing on the dates of

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origination of the loans. If the values of the underlying properties drop, our risk will increase and the values of our interests may decrease.

Our mortgage, bridge, mezzanine or other loans will be subject to interest rate fluctuations, which could reduce our returns as compared to market interest rates.

If we invest in fixed-rate, long-term mortgage, bridge, mezzanine or other loans and interest rates rise, the loans could yield a return lower than then-current market rates. If interest rates decrease, we will be adversely affected to the extent that mortgage, bridge, mezzanine or other loans are prepaid, because we may not be able to make new loans at the previously higher interest rate.

Delays in liquidating defaulted mortgage, bridge, mezzanine or other loans could reduce our investment returns.

If there are defaults under our loans, we may not be able to repossess and quickly sell the properties securing such loans. The resulting time delay could reduce the value of our investment in the defaulted loans. An action to foreclose on a property securing a loan is regulated by state statutes and rules and is subject to the delays and expenses of any lawsuit brought in connection with the foreclosure if the defendant raises defenses or counterclaims. In the event of default by a mortgagor, these restrictions, among other things, may impede our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to repay all amounts due to us on the loan.

Returns on our mortgage, bridge, mezzanine or other loans may be limited by regulations.

The mortgage, bridge or mezzanine loans in which we invest, or that we may make, may be subject to regulation by federal, state and local authorities (including those of foreign jurisdictions) and subject to various laws and judicial and administrative decisions. We may determine not to make mortgage, bridge, mezzanine or other loans in any jurisdiction in which we believe we have not complied in all material respects with applicable requirements. If we decide not to make mortgage, bridge, mezzanine or other loans in several jurisdictions, it could reduce the amount of income we would otherwise receive.

Foreclosures create additional ownership risks that could adversely impact our returns on loan investments.

If we acquire property by foreclosure following defaults under our mortgage, bridge, mezzanine or other loans, we will have the economic and liability risks as the owner of that property.

The liquidation of our assets may be delayed as a result of our investment in mortgage, bridge, mezzanine or other loans, which could delay distributions to our stockholders.

The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower's default. If our Advisor determines that it is in our best interest to make or invest in mortgage, bridge, mezzanine or other loans, any intended liquidation of us may be delayed beyond the time of the sale of all of our properties until all mortgage, bridge or mezzanine loans expire or are sold, because we may enter into mortgage, bridge, mezzanine or other loans with terms that expire after the date we intend to have sold all of our properties.

Investments in real estate-related securities will be subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in subordinated real estate securities, which may result in losses to us.

We may invest in real estate-related securities of both publicly traded and private real estate companies. Our investments in real estate-related securities will involve special risks relating to the particular issuer of the real estate-related securities, including the financial condition and business outlook of the issuer. Issuers of real estate-related equity securities generally invest in real estate or real estate-related assets and are subject to the inherent risks associated with real estate-related investments, which are discussed in this "Risk Factors" section, including risks relating to rising interest rates.

Real estate-related securities are often unsecured and also may be subordinated to other obligations of the issuer. As a result, investments in real estate-related securities are subject to risks of: (1) limited liquidity in the secondary trading market in the case of unlisted or thinly traded securities; (2) substantial market price volatility resulting from changes in prevailing interest rates in the case of traded equity securities; (3) subordination to the prior claims of banks and other senior lenders to the issuer; (4) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest redemption proceeds in lower yielding assets; (5) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations; and (6) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic slowdown or downturn. These risks may adversely affect the value of outstanding real estate-related securities and the ability of the issuers thereof to repay principal and interest or make distribution payments.

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Investments in real estate-related preferred equity securities involve a greater risk of loss than traditional debt financing.

We may invest in real estate-related preferred equity securities, which may involve a higher degree of risk than traditional debt financing due to a variety of factors, including that such investments are subordinate to traditional loans and are not secured by property underlying the investment. Furthermore, should the issuer default on our investment, we would be able to proceed only against the entity in which we have an interest, and not the property owned by such entity and underlying our investment. As a result, we may not recover some or all of our investment.

We may make investments in non-U.S. dollar denominated property and real estate-related securities, which will be subject to currency rates exposure and the uncertainty of foreign laws and markets.

We may purchase property or real estate-related securities denominated in foreign currencies. A change in foreign currency exchange rates may have an adverse impact on returns on our non-U.S. dollar denominated investments. Although we may hedge our foreign currency risk subject to the REIT income qualification tests, we may not be able to do so successfully and may incur losses on these investments as a result of exchange rate fluctuations.

We expect that a portion of any real estate-related securities investments we make will be illiquid and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

Certain of the real estate-related securities that we may purchase in connection with privately negotiated transactions will not be registered under the applicable securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result, our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited. The mezzanine and bridge loans we may purchase will be particularly illiquid investments due to their short life, their unsuitability for securitization and the greater difficulty of recoupment in the event of a borrower's default.

Interest rate and related risks may cause the value of our real estate-related securities to be reduced.

Interest rate risk is the risk that prevailing market interest rates change relative to the current yield on fixed income securities such as preferred and debt securities, and to a lesser extent dividend paying common stock. Generally, when market interest rates rise, the market value of these securities declines, and vice versa. In addition, when interest rates fall, issuers are more likely to repurchase their existing preferred and debt securities to take advantage of the lower cost of financing. As repurchases occur, principal is returned to the holders of the securities sooner than expected, thereby lowering the effective yield on the investment. On the other hand, when interest rates rise, issuers are more likely to maintain their existing preferred and debt securities. As a result, repurchases decrease, thereby extending the average maturity of the securities. We intend to manage interest rate risk by purchasing preferred and debt securities with maturities and repurchase provisions that are designed to match our investment objectives. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to pay distributions to you will be adversely affected.

We may acquire real estate-related securities through tender offers, which may require us to spend significant amounts of time and money that otherwise could be allocated to our operations.

We may acquire real estate-related securities through tender offers, negotiated or otherwise, in which we solicit a target company's stockholders to purchase their securities. The acquisition of these securities could require us to spend significant amounts of money that otherwise could be allocated to our operations. Additionally, in order to acquire the securities, the employees of our Advisor likely will need to devote a substantial portion of their time to pursuing the tender offer-time that otherwise could be allocated to managing our business. These consequences could adversely affect our operations and reduce the cash available for distribution to our stockholders.

We may invest in CMBS that are subject to all of the risks of the underlying mortgage loans and the risks of the securitization process.

Commercial mortgage-backed securities ("CMBS") are securities that evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Accordingly, these securities are subject to all of the risks of the underlying mortgage loans.

In a rising interest rate environment, the value of CMBS may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security's effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of CMBS may also change due to shifts in the market's perception of issuers and regulatory or tax changes adversely affecting the mortgage securities market as a whole. In addition, CMBS are subject to the credit risk associated with the performance of the underlying mortgage properties. In certain instances, third-party guarantees or other forms of credit support can reduce the credit risk.

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CMBS are also subject to several risks created through the securitization process. Subordinate CMBS are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes delinquent loans, there is a risk that interest payment on subordinate CMBS will not be fully paid. Subordinate CMBS are also subject to greater credit risk than those CMBS that are more highly rated.

If we use leverage in connection with any potential investments in CMBS, the risk of loss associated with this type of investment will increase.

We may use leverage in connection with our investment in CMBS. Although the use of leverage may enhance returns and increase the number of investments that can be made, it may also substantially increase the risk of loss. There can be no assurance that leveraged financing will be available to us on favorable terms or that, among other factors, the terms of such financing will parallel the maturities of the underlying securities acquired. Therefore, such financing may mature prior to the maturity of the CMBS acquired by us. If alternative financing is not available, we may have to liquidate assets at unfavorable prices to pay off such financing. We may utilize repurchase agreements as a component of our financing strategy. Repurchase agreements economically resemble short-term, variable-rate financing and usually require the maintenance of specific loan-to-collateral value ratios. If the market value of the CMBS subject to a repurchase agreement declines, we may be required to provide additional collateral or make cash payments to maintain the loan to collateral value ratio. If we are unable to provide such collateral or cash repayments, we may lose our economic interest in the underlying CMBS.

Federal Income Tax Risks

Failure to qualify as a REIT would adversely affect our operations and our ability to make distributions.

In order for us to qualify as a REIT, we must satisfy certain requirements set forth in the Code and Treasury Regulations and various factual matters and circumstances that are not entirely within our control. We intend to structure our activities in a manner designed to satisfy all of these requirements. However, if certain of our operations were to be recharacterized by the Internal Revenue Service, such recharacterization could jeopardize our ability to satisfy all of the requirements for qualification as a REIT and may affect our ability to continue to qualify as a REIT. In addition, new legislation, new regulations, administrative interpretations or court decisions could significantly change the tax laws with respect to qualifying as a REIT or the federal income tax consequences of qualifying.

Our qualification as a REIT depends upon our ability to meet, through investments, actual operating results, distributions and satisfaction of specific stockholder rules, the various tests imposed by the Code. We cannot assure you that we will satisfy the REIT requirements in the future.

If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax on our taxable income for that year at corporate rates. In addition, we would generally be disqualified from treatment as a REIT for the four taxable years following the year of losing our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer qualify for the distributions-paid deduction, and we would no longer be required to make distributions. If this occurs, we might be required to borrow funds or liquidate some investments in order to pay the applicable tax. Our failure to qualify as a REIT would adversely affect the return on your investment. We have not sought a tax opinion from counsel since September 30, 2011.

Qualification as a REIT is subject to the satisfaction of tax requirements and various factual matters and circumstances that are not entirely within our control. New legislation, regulations, administrative interpretations or court decisions could change the tax laws with respect to qualification as a REIT or the federal income tax consequences of being a REIT. Our failure to qualify as a REIT would adversely affect your return on your investment.

Our investment strategy may cause us to incur penalty taxes, lose our REIT status, or own and sell properties through taxable REIT subsidiaries, each of which would diminish the return to our stockholders.

It is possible that one or more sales of our properties may be "prohibited transactions" under provisions of the Code. If we are deemed to have engaged in a "prohibited transaction" (i.e., we sell a property held by us primarily for sale in the ordinary course of our trade or business) all income that we derive from such sale would be subject to a 100% penalty tax. The Code sets forth a safe harbor for REITs that wish to sell property without risking the imposition of the 100% penalty tax. A principal requirement of the safe harbor is that the REIT must hold the applicable property for not less than two years prior to its sale.

If we desire to sell a property pursuant to a transaction that does not fall within the safe harbor, we may be able to avoid the 100% penalty tax if we acquired the property through a taxable REIT subsidiary ("TRS"), or acquired the property and transferred it to a TRS for a non-tax business purpose prior to the sale (i.e., for a reason other than the avoidance of taxes). However, there may be circumstances that prevent us from using a TRS in a transaction that does not qualify for the safe

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harbor. Additionally, even if it is possible to effect a property disposition through a TRS, we may decide to forego the use of a TRS in a transaction that does not meet the safe harbor requirements based on our own internal analysis, the opinion of counsel or the opinion of other tax advisers that the disposition should not be subject to the 100% penalty tax. In cases where a property disposition is not effected through a TRS, the Internal Revenue Service could successfully assert that the disposition constitutes a prohibited transaction, in which event all of the net income from the sale of such property will be payable as a tax and none of the proceeds from such sale will be distributable by us to our stockholders or available for investment by us.

If we acquire a property that we anticipate will not fall within the safe harbor from the 100% penalty tax upon disposition, then we may acquire such property through a TRS in order to avoid the possibility that the sale of such property will be a prohibited transaction and subject to the 100% penalty tax. If we already own such a property directly or indirectly through an entity other than a TRS, we may contribute the property to a TRS if there is another, non-tax related business purpose for the contribution of such property to the TRS. Following the transfer of the property to a TRS, the TRS will operate the property and may sell such property and distribute the net proceeds from such sale to us, and we may distribute the net proceeds distributed to us by the TRS to our stockholders. Though a sale of the property by a TRS likely would eliminate the danger of the application of the 100% penalty tax, the TRS itself would be subject to a tax at the federal level, and potentially at the state and local levels, on the gain realized by it from the sale of the property as well as on the income earned while the property is operated by the TRS. This tax obligation would diminish the amount of the proceeds from the sale of such property that would be distributable to our stockholders. As a result, the amount available for distribution to our stockholders would be substantially less than if the REIT had not operated and sold such property through the TRS and such transaction was not successfully characterized as a prohibited transaction. The maximum federal corporate income tax rate currently is 35%. Federal, state and local corporate income tax rates may be increased in the future, and any such increase would reduce the amount of the net proceeds available for distribution by us to our stockholders from the sale of property through a TRS after the effective date of any increase in such tax rates.

As a REIT, the value of the non-mortgage securities we hold in TRSs may not exceed 25% of the total value of our assets at the end of any calendar quarter. If the Internal Revenue Service were to determine that the value of our interests in all of our TRSs exceeded this limit at the end of any calendar quarter, then we would fail to qualify as a REIT. If we determine it to be in our best interests to own a substantial number of our properties through one or more TRSs, then it is possible that the Internal Revenue Service may conclude that the value of our interests in our TRSs exceeds 25% of the value of our total assets at the end of any calendar quarter and therefore cause us to fail to qualify as a REIT. Additionally, as a REIT, no more than 25% of our gross income with respect to any year may, in general, be from sources other than real estate-related assets. Distributions paid to us from a TRS are typically considered to be non-real estate income. Therefore, we may fail to qualify as a REIT if distributions from all of our TRSs, when aggregated with all other non-real estate income with respect to any one year, are more than 25% of our gross income with respect to such year. We will use all reasonable efforts to structure our activities in a manner intended to satisfy the requirements for our continued qualification as a REIT. Our failure to qualify as a REIT would adversely affect the return on your investment.

REIT distribution requirements could adversely affect our ability to execute our business plan.

We generally must distribute annually at least 90% of our REIT taxable income, subject to certain adjustments and excluding any net capital gain, in order for federal corporate income tax not to apply to earnings that we distribute. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our REIT taxable income, we will be subject to federal corporate income tax on our undistributed REIT taxable income. In addition, we will be subject to a 4% nondeductible excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum amount specified under federal tax laws. We intend to make distributions to our stockholders to comply with the REIT requirements of the Code.

Our ownership of interests in TRSs raises certain tax risks.

A TRS is a corporation other than a REIT in which a REIT directly or indirectly holds stock, and that has made a joint election with such REIT to be treated as a TRS. A TRS also includes any corporation other than a REIT with respect to which a TRS owns securities possessing more than 35% of the total voting power or value of the outstanding securities of such corporation. Other than some activities relating to lodging and health care facilities, a TRS may generally engage in any business, including the provision of customary or non-customary services to tenants of its parent REIT. A TRS is subject to income tax as a regular C corporation. In addition, a TRS may be prevented from deducting interest on debt funded directly or indirectly by its parent REIT if certain tests regarding the TRS’s debt to equity ratio and interest expense are not satisfied. A REIT’s ownership of securities of TRSs will not be subject to the 10% vote or value tests or 5% asset test. We currently own interests in TRSs and may acquire securities in additional TRSs in the future.

Our TRSs may pay dividends. Such dividend income should qualify under the 95%, but not the 75%, gross income test. We will monitor the amount of the dividend and other income from our TRSs and will take actions intended to keep this

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income, and any other nonqualifying income, within the limitations of the REIT income tests. While we expect these actions will prevent a violation of the REIT income tests, we cannot guarantee that such actions will in all cases prevent such a violation.

We will be required to pay a 100% tax on any “redetermined rents,” “redetermined deductions” or “excess interest.” In general, redetermined rents are rents from real property that are overstated as a result of services furnished to any of our tenants by a TRS of ours. Redetermined deductions and excess interest generally represent amounts that are deducted by a TRS of ours for amounts paid to us that are in excess of the amounts that would have been deducted based on arm’s length negotiations.

Certain fees paid to us may affect our REIT status.

Income received in the nature of rental subsidies or rent guarantees, in some cases, may not qualify as rental income and could be characterized by the Internal Revenue Service as non-qualifying income for purposes of satisfying the "income tests" required for REIT qualification. In consideration for entering into these agreements, we will be paid fees that could be characterized by the Internal Revenue Service as non-qualifying income for purposes of satisfying the "income tests" required for REIT qualification. If this fee income were, in fact, treated as non-qualifying, and if the aggregate of such fee income and any other non-qualifying income in any taxable year ever exceeded 5% of our gross revenues (as determined by the Code, which is expected to be significantly less than our reported revenue) for such year, we could lose our REIT status for that taxable year and the four taxable years following the year of losing our REIT status. We will use commercially reasonable efforts to structure our activities in a manner intended to satisfy the requirements for our continued qualification as a REIT. Our failure to qualify as a REIT would adversely affect the return on your investment.

Equity participation in mortgage, bridge and mezzanine loans may result in taxable income and gains from these properties, which could adversely impact our REIT status.

If we participate under a loan in any appreciation of the properties securing the loan or its cash flow and the Internal Revenue Service characterizes this participation as "equity," we might have to recognize income, gains and other items from the property for federal income tax purposes. This could affect our ability to qualify as a REIT.

You may have current tax liability on distributions you elect to reinvest in our common stock.

If you participate in our distribution reinvestment plan, you will be deemed to have received, and for income tax purposes will be taxed on, the amount reinvested in shares of our common stock to the extent the amount reinvested was not a tax-free return of capital. In addition, you will be treated for tax purposes as having received an additional distribution to the extent the shares are purchased at a discount to fair market value. As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the shares of common stock received.

If our Operating Partnership fails to maintain its status as a partnership or other flow-through entity for tax purposes, its income may be subject to taxation, which would reduce the cash available to us for distribution to our stockholders.

We intend to maintain the status of the Operating Partnership as a partnership (or other flow-through entity) for federal income tax purposes. However, if the Internal Revenue Service were to successfully challenge the status of the Operating Partnership as an entity taxable as a partnership, the Operating Partnership would be taxable as a corporation. In such event, this would reduce the amount of distributions that the Operating Partnership could make to us. This could also result in our losing REIT status, and becoming subject to a corporate level tax on our income. This would substantially reduce the cash available to us to make distributions and the return on your investment. In addition, if any of the partnerships or limited liability companies through which the Operating Partnership owns its properties, in whole or in part, loses its characterization as a partnership for federal income tax purposes, it would be subject to taxation as a corporation, thereby reducing distributions to the Operating Partnership. Such a recharacterization of an underlying property owner could also threaten our ability to maintain REIT status.

In certain circumstances, we may be subject to federal and state taxes, which would reduce our cash available for distribution to our stockholders.

Even if we qualify and maintain our status as a REIT, we may become subject to federal and state taxes. For example, if we have net income from a "prohibited transaction," such income will be subject to the 100% penalty tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain income we earn from the sale or other disposition of our assets and pay income tax directly on such income. In that event, our stockholders would be treated as if they earned that income and paid the tax on it directly. We may also be subject to state and local taxes, including potentially the "margin tax" in the State of Texas, on our income or property, either directly or at the level of the operating partnership or at the level of the other companies through which we indirectly own our assets. Any federal or state taxes paid by us will reduce the cash available to us for distribution to our stockholders.

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We may be disqualified from treatment as a REIT if a joint venture entity elects to qualify as a REIT and is later disqualified from treatment as a REIT.

As part of our joint ventures, such as our joint ventures with the PGGM Co-Investment Partner and the MW Co-Investment Partner, we have and we may in the future form subsidiary REITs that will acquire and hold assets. In order to qualify as a REIT, among numerous other requirements, each subsidiary REIT must have at least 100 persons as beneficial owners after the first taxable year for which it makes an election to be taxed as a REIT and satisfy all of the other requirements for REITs under the Code. We may be unable to satisfy these requirements for the subsidiary REITs created in our joint ventures. In the event that a subsidiary REIT is disqualified from treatment as a REIT for whatever reason, we will be disqualified from treatment as a REIT as well absent our ability to comply with certain relief provisions, which are unlikely to be available. If we were disqualified from treatment as a REIT we would lose the ability to deduct from our income distributions that we make to our stockholders, and there would be a negative impact on our operations and our stockholders' investment in us.

A subsidiary REIT may become subject to state taxation, negatively affecting its operating results.

A number of states tax captive REITs, and such taxes may impact the subsidiary REITs. In addition, certain other states are considering whether to tax captive REITs. If any subsidiary REIT becomes subject to state taxation, that subsidiary REIT's results of operations could be negatively affected.

Non-U.S. income or other taxes, and a requirement to withhold any non-U.S. taxes, may apply, and, if so, the amount of net cash from operations payable to you will be reduced.

We may acquire real property located outside the United States and may invest in stock or other securities of entities owning real property located outside the United States. As a result, we may be subject to foreign (i.e., non-U.S.) income taxes, stamp taxes, real property conveyance taxes, withholding taxes, and other foreign taxes or similar impositions in connection with our ownership of foreign real property or foreign securities. The country in which the real property is located may impose such taxes regardless of whether we are profitable and in addition to any U.S. income tax or other U.S. taxes imposed on profits from our investments in such real property or securities. If a foreign country imposes income taxes on profits from our investment in foreign real property or foreign securities, you will not be eligible to claim a tax credit on your U.S. federal income tax returns to offset the income taxes paid to the foreign country, and the imposition of any foreign taxes in connection with our ownership and operation of foreign real property or our investment in securities of foreign entities will reduce the amounts distributable to you. Similarly, the imposition of withholding taxes by a foreign country will reduce the amounts distributable to you. We expect the organizational costs associated with non-U.S. investments, including costs to structure the investments so as to minimize the impact of foreign taxes, will be higher than those associated with U.S. investments. Moreover, we may be required to file income tax or other information returns in foreign jurisdictions as a result of our investments made outside of the United States. Any organizational costs and reporting requirements will increase our administrative expenses and reduce the amount of cash available for distribution to you. You are urged to consult with your own tax advisers with respect to the impact of applicable non-U.S. taxes and tax withholding requirements on an investment in our common stock.

Our foreign investments will be subject to changes in foreign tax or other laws, as well as to changes in U.S. tax laws, and such changes could negatively impact our returns from any particular investment.

We may make investments in real estate located outside of the United States. Such investments will typically be structured to minimize non-U.S. taxes, and generally include the use of holding companies. Our ownership, operation and disposition strategy with respect to non-U.S. investments will take into account foreign tax considerations. For example, it is typically advantageous from a tax perspective in non-U.S. jurisdictions to sell interests in a holding company that owns real estate rather than the real estate itself. Buyers of such entities, however, will often discount their purchase price by any inherent or expected tax in such entity. Additionally, the pool of buyers for interests in such holding companies is typically more limited than buyers of direct interests in real estate, and we may be forced to dispose of real estate directly, thus potentially incurring higher foreign taxes and negatively affecting the return on the investment.

We will also capitalize our holding companies with debt and equity to reduce foreign income and withholding taxes as appropriate and with consultation with local counsel in each jurisdiction. Such capitalization structures are complex and potentially subject to challenge by foreign and domestic taxing authorities.

We may use certain holding structures for our non-U.S. investments to accommodate the needs of one class of investors which reduce the after-tax returns to other classes of investors. For example, if we interpose an entity treated as a corporation for United States tax purposes in our chain of ownership with respect to any particular investment, U.S. tax-exempt investors will generally benefit as such investment will no longer generate unrelated business taxable income. However, if a corporate

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entity is interposed in a non-U.S. investment holding structure, this would prevent individual investors from claiming a foreign tax credit for any non-U.S. income taxes incurred by the corporate entity or its subsidiaries.

Foreign investments are subject to changes in foreign tax or other laws. Any such law changes may require us to modify or abandon a particular holding structure. Such changes may also lead to higher tax rates on our foreign investments than we anticipated, regardless of structuring modifications. Additionally, U.S. tax laws with respect to foreign investments are subject to change, and such changes could negatively impact our returns from any particular investment.

Legislative or regulatory action could adversely affect the returns to our investors.

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

There is generally a reduced tax rate on dividends paid by corporations to individuals equal to the capital gain rate, which, as of January 1, 2013, is at a maximum tax rate of 20%. REIT distributions generally do not qualify for this reduced rate. The maximum corporate tax rate for dividends received by corporations is 35%. As a REIT, we generally would not be subject to federal or state corporate income taxes on that portion of our ordinary income or capital gain that we distribute currently to our stockholders, and we thus expect to avoid the "double taxation" to which other corporations are typically subject.

Although REITs continue to receive substantially better tax treatment than entities taxed as corporations, it is possible that future legislation would result in a REIT having fewer tax advantages, and it could become more advantageous for a company that invests in real estate to elect to be taxed for federal income tax purposes as a corporation. As a result, our charter provides our board of directors with the power, under certain circumstances, to revoke or otherwise terminate our REIT election and cause us to be taxed as a corporation, without the vote of our stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only cause such changes in our tax treatment if it determines in good faith that such changes are in the best interest of our stockholders.

U.S. stockholders may be subject to Medicare tax on unearned income.

A U.S. holder that is an individual is subject to a 3.8% tax on the lesser of (1) the U.S. holder’s “net investment income” for the relevant taxable year and (2) the excess of the U.S. holder’s modified adjusted gross income for the taxable year over a certain threshold (which in the case of individuals may be between $125,000 and $250,000, depending on the individual’s circumstances). A U.S. holder that is an estate or trust that does not fall into a special class of trusts that is exempt from such tax is subject to the same 3.8% tax on the lesser of its undistributed net investment income and the excess of its adjusted gross income over a certain threshold. A U.S. holder’s net investment income will include, among other things, dividends on and capital gains from the sale or other disposition of shares. Prospective U.S. holders that are individuals, estates or trusts should consult their tax advisors regarding the effect, if any, of this Medicare tax on their ownership and disposition of our common stock.

Certain stockholders may be subject to other withholding and reporting requirements under FATCA.

Sections 1471 through 1474 of the Code and the Treasury Regulations promulgated thereunder (“FATCA”) generally impose a withholding tax of 30% on certain gross amounts of income not effectively connected with a U.S. trade or business paid to certain “foreign financial institutions” and certain other U.S.-owned “non-financial foreign entities,” unless various information reporting requirements are satisfied. Amounts subject to withholding under FATCA generally include gross U.S.-source dividend, paid on or after July, 1, 2014, and gross proceeds from the sale of stock, paid on or after January 1, 2017. To avoid withholding under FATCA, stockholders that are subject to these rules generally will be obligated to comply with certain information reporting and disclosure requirements, including, in the case of any “foreign financial institution,” entering into an agreement with the IRS or registering with the tax authority in its country of tax residence, if that country has entered into and implemented an “intergovernmental agreement” with the United States on FATCA. Stockholders are encouraged to consult their own tax advisers regarding the possible application of FATCA to their investment in our shares.

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Risks Related to Investments by Benefit Plans Subject to ERISA and Certain Tax-Exempt Entities (including IRAs)

If you fail to meet the fiduciary and other standards under ERISA or the Code as a result of an investment in our stock, you could be subject to criminal and civil penalties.

There are special considerations that apply to employee benefit plans subject to ERISA (such as profit sharing, section 401(k) or pension plans) and other retirement plans or accounts subject to Section 4975 of the Code (such as an IRA) that are investing in our shares. If you are investing the assets of such a plan or account in our common stock, you should satisfy yourself that:

• your investment is consistent with your fiduciary obligations and other duties under ERISA and the Code;

• your investment is made in accordance with the documents and instruments governing your plan or IRA, including your plan's or account's investment policy;

• your investment satisfies the prudence and diversification requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA and other applicable provisions of ERISA and the Code;

• your investment in our shares, for which no public trading market exists, is consistent with the liquidity needs of the plan or IRA;

• your investment will not produce an unacceptable amount of "unrelated business taxable income" for the plan or IRA;

• you will be able to comply with the requirements under ERISA and the Code to value the assets of the plan or IRA annually; and

• your investment will not constitute a prohibited transaction under Section 406 of ERISA or Section 4975 of the Code.

We have adopted a valuation policy in respect of estimating the per share value of our common stock and expect to disclose such estimated value annually. For information regarding our estimated per share value, see Part II, Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters, and Issuer Purchases of Equity Securities-Market Information" of this Annual Report on Form 10-K. We can make no assurances that such estimated value will satisfy the applicable annual valuation requirements under ERISA and the Code. The Department of Labor or the Internal Revenue Service may determine that a plan fiduciary or an IRA custodian is required to take further steps to determine the value of our common shares. In the absence of an appropriate determination of value, a plan fiduciary or an IRA custodian may be subject to damages, penalties or other sanctions.

Failure to satisfy the fiduciary standards of conduct and other applicable requirements of ERISA and the Code may result in the imposition of civil and criminal penalties and could subject the fiduciary to claims for damages or for equitable remedies. In addition, if an investment in our shares constitutes a prohibited transaction under ERISA or the Code, the fiduciary or IRA owner who authorized or directed the investment or a related party may be subject to the imposition of excise taxes with respect to the amount invested. In the case of a prohibited transaction involving an IRA owner, the IRA may be disqualified and all of the assets of the IRA may be deemed distributed and subjected to tax. ERISA plan fiduciaries and IRA owners and custodians should consult with counsel before making an investment in our common shares.

Item 1B.    Unresolved Staff Comments

None.

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Item 2.    Properties

Description of Properties and Real Estate-Related Assets

We make real estate investments through wholly owned entities or through Co-Investment Ventures, which may in turn invest through Property Entities. Our investment criteria, analysis and strategies are substantially the same under each of these ownership structures. As of December 31, 2013, we had 51 consolidated multifamily communities (including 17 developments), one unconsolidated joint venture debt investment in another multifamily community, where the joint venture has made a loan investment to a Property Entity, and three separate, wholly owned debt investments, consisting of mezzanine loans, in three other multifamily communities. As of December 31, 2012, we had 47 consolidated multifamily communities, one unconsolidated joint venture debt investment in another multifamily community, where the joint venture has made a loan investment to the Property Entity, and three separate, wholly owned debt investments in three other multifamily communities.

The following tables present our consolidated real estate investments and our investment in an unconsolidated real estate joint venture as of December 31, 2013. The equity and loan investments are separately categorized based on geographic region and the stages in the development and operation of the investment. All categorizations are based on its status as of December 31, 2013. The definitions of each stage are as follows:

• Same Store are communities that are stabilized (the earlier of 90% occupancy or one year after completion) for both the current and prior reporting year.

• Stabilized Non-Comparable are communities that have been stabilized or acquired after January 1, 2012.

• Lease ups are communities that have commenced leasing but have not yet reached stabilization.

• Developments are communities currently under construction for which leasing activity has not commenced.

							As of December 31, 2013
Consolidated Equity Investments	Location	Units	Ownership %(a)		Year of Initial Investment(b)	Year of Completion or Most Recent Substantial Development(c)	Physical Occupancy Rate(d)		Monthly Rental Revenue per Unit(e)		Total Net Real Estate (in millions)
Operating Properties by Geographic Region(f)
Same Store:
Florida
The District Universal Boulevard	Orlando, FL	425	55	%	2010	2009	94	%	$	1,121	$	57.6
Satori	Fort Lauderdale, FL	279	52	%	2007	2010	96	%	2,100		76.1
Georgia
The Reserve at LaVista Walk	Atlanta, GA	283	100	%	2010	2008	96	%	1,334		34.4
Mid-Atlantic
55 Hundred	Arlington, VA	234	55	%	2007	2010	94	%	1,831		74.1
Bailey's Crossing	Alexandria, VA	414	53	%	2007	2010	94	%	1,899		120.1
Burrough's Mill	Cherry Hill, NJ	308	55	%	2009	2004	97	%	1,533		56.4
The Cameron	Silver Spring, MD	325	55	%	2007	2010	94	%	2,022		95.8
The Lofts at Park Crest	McLean, VA	131	55	%	2010	2008	92	%	3,222		41.9
Mid-West
Burnham Pointe	Chicago, IL	298	100	%	2010	2008	94	%	2,254		78.9
Mountain
4550 Cherry Creek	Denver, CO	288	55	%	2010	2004	92	%	1,825		71.5
7166 at Belmar	Lakewood, CO	308	55	%	2010	2008	94	%	1,402		51.8
Skye 2905	Denver, CO	400	55	%	2008	2010	94	%	1,566		92.7
The Venue	Clark County, NV	168	55	%	2008	2009	92	%	899		23.4
New England
Stone Gate	Marlborough, MA	332	55	%	2011	2007	95	%	1,503		57.9
West Village	Mansfield, MA	200	55	%	2011	2008	96	%	1,627		32.2

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(Table continued from previous page)

							As of December 31, 2013
Consolidated Equity Investments	Location	Units	Ownership %(a)		Year of Initial Investment(b)	Year of Completion or Most Recent Substantial Development(c)	Physical Occupancy Rate(d)		Monthly Rental Revenue per Unit(e)		Total Net Real Estate (in millions)
Northern California
Acacia on Santa Rosa Creek	Santa Rosa, CA	277	55	%	2010	2003	94	%	1,557		33.1
Acappella	San Bruno, CA	163	100	%	2010	2010	96	%	2,498		48.3
Argenta	San Francisco, CA	179	55	%	2011	2008	96	%	3,479		84.6
Renaissance Phase I	Concord, CA	132	55	%	2011	2008	96	%	2,213		37.0
Northwest
Tupelo Alley	Portland, OR	188	55	%	2010	2009	95	%	1,453		36.6
Southern California
Calypso Apartments and Lofts	Irvine, CA	177	55	%	2009	2008	93	%	1,963		52.6
Forty55 Lofts	Marina del Rey, CA	140	55	%	2009	2010	98	%	3,432		73.7
The Gallery at NoHo Commons	Los Angeles, CA	438	55	%	2009	2008	95	%	1,547		93.0
San Sebastian	Laguna Woods, CA	134	55	%	2009	2010	95	%	2,230		33.5
Texas
Briar Forest Lofts	Houston, TX	352	55	%	2010	2008	96	%	1,282		40.9
Eclipse	Houston, TX	330	55	%	2007	2009	94	%	1,338		46.5
Fitzhugh Urban Flats	Dallas, TX	452	55	%	2010	2009	95	%	1,241		53.5
Uptown Post Oak	Houston, TX	392	100	%	2010	2008	97	%	1,704		57.5
Total Same Store		7,747				2008	95	%	1,728		1,655.6
Stabilized Non-Comparable:
Mountain
Veritas (g)	Henderson, NV	430	52	%	2007	2011	94	%	1,007		56.5
New England
Pembroke Woods	Pembroke, MA	240	100	%	2012	2006	97	%	1,433		39.9
Texas
Allegro (h)	Addison, TX	393	100	%	2010	2013	95	%	1,474		54.4
Grand Reserve (g)	Dallas, TX	149	74	%	2010	2009	94	%	2,055		29.1
Total Stabilized Non-Comparable		1,212				2010	95	%	1,372		179.9
Lease Up:
Florida
The Franklin Delray	Delray Beach, FL	180	55	%	2012	2013	71	%	N/A		33.0
Northern California
Vara	San Francisco, CA	202	100	%	2013	2013	88	%	N/A		107.2
Total Lease Up		382				2013	80	%	N/A		140.2
Total Operating Properties		9,341				2009	94	%	$	1,680	$	1,975.7

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							As of December 31, 2013
Consolidated Equity Investments	Location	Units	Ownership %(a)		Year of Initial Investment(b)	Estimated Quarter (“Q”) of Completion(c)	Construction in Progress (in millions)
Developments by Geographic Region(f)
Florida
Brickell	Miami, FL	418	44	%	2013	4Q 2015	$	31.2
Uptown Delray	Delray Beach, FL	146	100	%	2013	1Q 2016	4.3
Georgia
Peachtree	Atlanta, GA	327	44	%	2013	4Q 2015	11.6
Mid-Atlantic
The Marlowe	Rockville, MD	366	90	%	2013	4Q 2016	19.9
Tysons Corner	Tysons Corner, VA	461	50	%	2013	1Q 2016	45.8
Mountain
Point 21	Denver, CO	212	55	%	2012	1Q 2015	20.3
New England
Everly	Wakefield, MA	186	55	%	2012	1Q 2015	21.7
Zinc	Cambridge, MA	392	55	%	2012	4Q 2015	50.3
Northern California
Renaissance Phase II	Concord, CA	180	55	%	2011	3Q 2016	9.4
Southern California
Blue Sol	Costa Mesa, CA	113	100	%	2013	4Q 2014	27.7
Mission Gorge	San Diego, CA	444	100	%	2013	1Q 2016	41.3
Texas
4110 Fairmount	Dallas, TX	299	55	%	2012	3Q 2014	34.2
The Alexan	Dallas, TX	365	50	%	2010	2Q 2016	28.7
Allusion West University	Houston, TX	231	55	%	2012	4Q 2014	33.0
Arpeggio Victory Park	Dallas, TX	377	55	%	2012	3Q 2014	46.4
Muse Museum District	Houston, TX	270	55	%	2012	2Q 2015	29.1
SEVEN	Austin, TX	220	55	%	2011	4Q 2014	24.3
Total Developments		5,007					$	479.2
Total Consolidated Real Estate		14,348

____________________________________________________________

(a) Ownership percentage represents our share of contributed capital. Actual cash distributions may be at different percentages or may vary over time. Each of our investments with our Co-Investment Venture partners may become subject to buy/sell rights with the Co-Investment Venture partners.

(b) Year of initial investment represents the year of our initial equity investment in the multifamily community.

(c) We consider a multifamily community complete when the community is substantially constructed or renovated and capable of generating all significant revenue sources. Accordingly, the date provided may be different from the completion dates defined in the various contractual agreements or the final issuance of any official regulatory recognition of completion related to each multifamily community. The weighted average year of completion for operating properties was based upon number of units.

(d) Physical occupancy is defined as the residential units occupied for Same Store, Stabilized Non-Comparable and Lease Up communities as of December 31, 2013 divided by the total number of residential units. Not considered in the physical occupancy rate is rental space designed for other than residential use, which is primarily retail space. As of December 31, 2013, the total gross leasable area of retail space for all of these communities is approximately 160,000 square feet, which is approximately 2% of total rentable area. As of December 31, 2013, approximately 79% of the 160,000 square feet of retail space was occupied. The calculation of total average physical occupancy rates are based upon weighted average number of residential units.

(e) Monthly rental revenue per unit has been calculated based on the leases in effect as of December 31, 2013 for Same Store and Stabilized Non-Comparable properties. Monthly rental revenue per unit only includes base rents for the occupied units, including the effects of any rental concessions and affordable housing payments and subsidies, and does not include other charges for storage, parking, pets, cleaning, clubhouse or other miscellaneous amounts. For the year ended December 31, 2013, these other charges were approximately $16.8 million, approximately 9% of total combined revenues for the period. The monthly rental revenue per unit also does not include unleased units or non-residential rental areas, which are primarily related to retail space. Because monthly rental revenue per unit during

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lease up is not a meaningful measurement, monthly rental revenue per unit is only presented for Same Store and Stabilized Non-Comparable communities as of December 31, 2013.

(f) Geographic regions not identified to a state are defined in Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations—Property Portfolio” of this Annual Report on Form 10-K.

(g) These properties were consolidated during the year ended December 31, 2012, and accordingly did not meet the definition of Same Store for 2013 and 2012.

(h) In 2013, we completed construction of Phase II adding an additional 121 units.

Development	Location	Units	Ownership % (a)		Maturity Date (b)	Fixed Interest Rate		Loan Balance as of December 31, 2013
Loan Investments by Geographic Region(c)
Developments
Florida
Kendall Square	Miami Dade County, FL	321	100	%	January 2016	15.0	%	$	12.3
Mountain
Jefferson at One Scottsdale	Scottsdale, AZ	388	100	%	December 2015	14.5	%	22.6
Texas
Jefferson Center	Richardson, TX	360	100	%	September 2016	15.0	%	8.9
Jefferson Creekside (d)	Allen, TX	444	55	%	August 2015	14.5	%	14.1
Total Loan Investments		1,513						$	57.9

_________________________________________________________

(a) Ownership percentage represents our share of the loan investment based on contributed capital. Actual cash distributions may be at different percentages or may vary over time. Each of our investments with our Co-Investment Venture partners may become subject to buy/sell rights with the Co-Investment Venture partners.

(b) The maturity date may be extended for one year at the option of the borrower after meeting certain conditions, generally with the receipt of an extension fee of 0.50% of the applicable loan balance.

(c) Geographic regions not identified to a state are defined in Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations—Property Portfolio” of this Annual Report on Form 10-K.

(d) Of the loan total, $5.1 million is included in investment in an unconsolidated real estate joint venture.

For additional information regarding our real estate portfolio, see Part I, Item 1, “Business” and Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K.

Item 3.  Legal Proceedings

We are not party to, and none of our communities are subject to, any material pending legal proceeding nor are we aware of any material legal or regulatory proceedings contemplated by governmental authorities.

Item 4.   Mine Safety Disclosures

Not applicable.

PART II

Item 5.  Market For Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Market Information

There is no established public trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder. Unless and until our shares are listed on a national securities exchange, it is not expected that a public market for the shares will develop.

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Estimated Per Share Value

On March 1, 2013, our board of directors established an estimated per share value of the Company’s common stock effective as of March 1, 2013 equal to $10.03 per share.  See Part II, Item 5 of our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on March 1, 2013, for additional information on this estimated per share value. Our current intention is to update our estimated per share value in connection with the filing of our second quarter 2014 Form 10-Q, but in any event, no later than 18 months from March 1, 2013 and do not anticipate publishing any new estimated per share value prior to the board of directors establishing such estimated per share value. Prior to such updated estimated per share value, we provide the following cautions and limitations:

The estimated value of our shares was calculated as of a specific date.  The estimated value of our shares is expected to fluctuate over time in response to, including but not limited to, changes in multifamily capitalization rates, rental and growth rates, progress and market conditions related to developments, financing interest rates, returns on competing investments, changes in administrative expenses and other costs affecting working capital, amounts of distributions on our common stock, redemptions of our common stock, changes in the amount of common shares outstanding, the proceeds obtained for any common stock transactions and local and national economic factors. Further, as we are actively investing, including initiating and completing our development projects, the composition of our portfolio and the related multifamily fundamentals could change over time.

While the Company believes the methodologies utilized in calculating its estimated per share value were standard in the multifamily real estate sector to determine fair value, the estimated values may or may not represent fair value determined in accordance with GAAP.  The estimated value should not be considered as an alternative to total stockholders’ equity calculated in accordance with GAAP.

As with any valuation methodology, the methodologies used to determine the estimated per share value are based upon a number of estimates and assumptions that may prove later to be inaccurate or incomplete. Further, different market participants using different assumptions and estimates could derive different estimated values or estimated values per share. The estimated per share value may also not represent the amount that our shares would trade at on a national exchange, the amount that would be realized in the sale or liquidation of the Company or what a common stockholder would realize in a sale of shares.

There is no assurance that our methodologies used to estimate per share value would be acceptable to FINRA with respect to its reporting requirements or in compliance with the annual valuation requirements under ERISA and the Code.

Accordingly, stockholders and others are cautioned in the use of our estimated per share value in future periods; any such use should be reviewed in connection with other GAAP measurements presented subsequent to March 1, 2013.

Holders

As of February 28, 2014, we had approximately 168.9 million shares of common stock outstanding held by a total of approximately 47,000 stockholders of record.

Distribution Policy

Distributions are authorized at the discretion of our board of directors based on its analysis of our prior performance, expectations of performance for future periods, including actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for our portfolio, capital expenditure needs, dispositions, general financial condition and other factors that our board of directors deems relevant.  The board’s decision will be influenced, in part, by its obligation to ensure that we maintain our status as a REIT. 

In addition, with our focus on development investments, there may be a lag before receiving the income from such investments.  During this period, we may use portions of our available cash balances and other sources to fund a portion of the distributions paid to our common stockholders, which could reduce the amount available for new investments. 

There is no assurance that these future investments will achieve our targeted returns necessary to maintain our current level of distributions. However, as development, lease up or redevelopment projects are completed and begin to generate income, we would expect to have additional funds available to distribute to our stockholders.

Accordingly, we cannot assure as to when we will consistently generate sufficient cash flow solely from operating activities to fully fund distributions.  Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to pay future

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distributions. There can be no assurance that future cash flow will support paying our currently established distributions or maintaining distributions at any particular level or at all.

During periods when our operating cash flow has not generated sufficient operating cash flow to fully fund the payment of distributions on our common stock, we have paid and may in the future pay some or all of our distributions from sources other than operating cash flow.  As noted above, we may use portions of our available cash balances to fund a portion of the distributions paid to our common stockholders, which could reduce the amount available for new investments. We may also refinance or dispose of our investments and use the proceeds to fund distributions on our common stock or reinvest the proceeds in new investments to generate additional operating cash flow.  The participation in our DRIP will also reduce the cash portion of our distributions. There is no assurance that these sources will be available in future periods, which could result in temporary or permanent adjustments to our distributions.

Distribution Activity

Special Cash Distribution

As discussed above under Part I, Item 1, “Business — Distribution Policy” of this Annual Report on Form 10-K, in March 2012 our board of directors authorized a special cash distribution related to the sale of Mariposa in the amount of $0.06 per share of common stock payable to stockholders of record on July 6, 2012.  The total special cash distribution of approximately $10.0 million was accrued for financial statement purposes during the three months ended March 31, 2012, and was paid on July 11, 2012.  There have been no other special cash distributions authorized or paid through December 31, 2013.

Regular Distributions

The following table shows the regular distributions paid and declared for the years ended December 31, 2013 and 2012 and cash flow from operating activities over the same periods (in millions, except per share amounts):

	Distributions Paid in Cash (a)		Distributions Reinvested (DRIP)		Total Distributions Paid		Funds from Operations (b)		Cash Flow from  Operating Activities (c)		Total Distributions Declared (d)		Declared Distributions Per Share (d)
2013
4th Quarter	$	7.0	$	7.7	$	14.7	$	13.7	$	19.5	$	14.9	$	0.089
3rd Quarter	7.1		7.8		14.9		0.6		13.5		14.9		0.088
2nd Quarter	7.1		7.8		14.9		14.0		23.1		14.7		0.087
1st Quarter	6.8		7.7		14.5		13.7		20.5		14.5		0.086
Total	$	28.0	$	31.0	$	59.0	$	42.0	$	76.6	$	59.0	$	0.350
2012
4th Quarter	$	6.7	$	7.8	$	14.5	$	12.3	$	18.4	$	14.7	$	0.088
3rd Quarter	6.6		8.0		14.6		10.2		16.9		14.7		0.088
2nd Quarter	8.1		10.0		18.1		6.7		16.6		14.4		0.087
1st Quarter	10.9		13.9		24.8		9.1		11.5		24.8		0.150
Total	$	32.3	$	39.7	$	72.0	$	38.3	$	63.4	$	68.6	$	0.413

(a) Regular distributions accrue on a daily basis and are paid in the following month.

(b)   Funds from operations (“FFO”) represents our net income (loss) adjusted primarily for depreciation and amortization expense and excludes gains on sale of real estate.  For a reconciliation of our net income (loss) to FFO, see “Non-GAAP Performance Financial Measures — Funds from Operations and Modified Funds from Operations” below.

(c) Cash flow from operating activities has not been reduced by distributions to noncontrolling interests for operating activities of $25.0 million and $20.4 million for the years ended December 31, 2013 and 2012, respectively. See the paragraph below for additional discussion.

(d)   Represents distributions accruing during the period.

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Cash flow from operating activities exceeded regular distributions by $17.6 million for the year ended December 31, 2013 while regular distributions exceeded cash flow from operating activities by $8.6 million for the year ended December 31, 2012.  By reporting our investments on the consolidated method of accounting, our cash flow from operating activities includes not only our share of cash flow from operating activities but also the share related to noncontrolling interests.  Accordingly, our reported cash flow from operating activities includes cash flow attributable to our consolidated joint venture investments.  During the year ended December 31, 2013, we distributed an estimated $25.0 million of cash flow from operating activities to these noncontrolling interests, effectively reducing the share of cash flow from operating activities available to us to approximately $51.6 million, which was less than our regular distributions by $7.4 million.  For the year ended December 31, 2012, we distributed an estimated $20.4 million of cash flow from operating activities to noncontrolling interests, effectively reducing the share of cash flow from operating activities to approximately $42.9 million, which was less than our regular distributions by $29.1 million.  Further, our regular distributions exceeded our funds from operations by $17.0 million and $33.7 million for the years ended December 31, 2013 and 2012, respectively.  The improvement in the difference between our cash flow from operating activities, both as reported and adjusted, and from our funds from operations are due to improved operations in our multifamily communities and the decrease in the regular distribution rate. Our distribution rate was reduced from 6.0% to 3.5% (based on $10 per share) effective April 1, 2012.

During the years ended December 31, 2013 and 2012, our regular cash distributions in excess of our cash flow from operations, as adjusted, were funded from the DRIP and our available cash.  The primary sources of our available cash were our share of proceeds from the sale of properties, financing proceeds not directly related to a development and the sale of noncontrolling interests. As of December 31, 2013 we had cash and cash equivalents balances of $319.4 million, a significant portion of which related to the December 2013 sale of noncontrolling interests to PGGM of $146.4 million, our share of 2013 property sales of $205.3 million and 2013 financings not directly related to a development of $78.0 million. 

Over the long-term, as we continue to make additional investments in income producing multifamily communities and as our development investments are completed and leased up, we expect that more of our regular distributions will be paid from our share of cash flow from operating activities.  However, operating performance cannot be accurately predicted due to numerous factors, including our ability to invest capital at favorable accretive yields, the financial performance of our investments, including our developments once operating, spreads between capitalization and financing rates, and the types and mix of assets available for investment.  As a result, future distribution rates may change over time and future distributions declared and paid may continue to exceed cash flow from operating activities.

On March 19, 2012, our board of directors, considering the current and expected operations of the Company, authorized regular distributions payable to stockholders of record each day during the second quarter of 2012 equal to an annual rate of 3.5% (based on a purchase price of $10.00 per share), a reduction from the previous annual rate of 6.0%. Our board of directors has authorized daily distributions at this rate through March 31, 2014. With the change, more of our distributions have been paid from current earnings and cash flow from operations. There is no assurance that these operating trends will continue for future periods.

During 2013 and 2012, our distributions were classified as follows for federal income tax purposes:

	2013		2012
Ordinary income	35.8	%	7.8	%
Capital gains	32.2	%	13.7	%
Section 1250 recapture capital gains	3.5	%	2.6	%
Return of capital	28.5	%	75.9	%
Total	100	%	100	%

The classification changes in 2013 were primarily due to increased dispositions in 2013 as compared to 2012, improved operating performance and the decrease in the distribution rate for the full year of 2013. In 2012, our capital gains and associated tax classification related to a sale of a single multifamily community.

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Use of Proceeds from Registered Securities

On September 2, 2008, our Registration Statement on Form S-11 (File No. 333-148414), covering our Initial Public Offering of up to 200 million shares of common stock, was declared effective under the Securities Act. Our Initial Public Offering commenced on September 5, 2008 and was terminated on September 2, 2011.  We offered a maximum of 200 million shares in our Initial Public Offering at an aggregate offering price of up to $2 billion, or $10.00 per share, with discounts available to certain categories of purchasers.  Behringer Securities LP, an affiliate of our Advisor, was the dealer manager of the Initial Public Offering.  We sold approximately 146.4 million shares of our common stock in our Initial Public Offering on a best efforts basis pursuant to the offering for gross offering proceeds of approximately $1.46 billion.

We incurred expenses of approximately $157.1 million in connection with the issuance and distribution of the registered securities pursuant to the Initial Public Offering, all of which was paid to our Advisor and its affiliates, and includes commissions and dealer manager fees paid to Behringer Securities which reallowed all of the commissions and a portion of the dealer manager fees to soliciting dealers.

The net offering proceeds to us from the Initial Public Offering, after deducting the total expenses incurred described above, were $1.3 billion.  From the commencement of the Initial Public Offering through December 31, 2013, we have used all of the net offering proceeds to invest in real estate and real estate-related investments, net of related debt.  Of the amount used for these investments, approximately $49.6 million was paid to the Advisor as acquisition and advisory fees and acquisition expense reimbursements. Not included in our amount invested are commitments related to our developments which as of December 31, 2013 had not yet been incurred.

Share Redemption Program

As we previously announced in the Current Report on Form 8-K filed with the SEC on June 22, 2012 in connection with the Company’s consideration of a strategic review, the Company came into possession of material non-public information.  Based on the advice of outside legal counsel, our board of directors decided that suspending our share redemption program (“SRP”) was in the best interests of the Company and its stockholders.  Accordingly, effective as of June 18, 2012, our board of directors indefinitely suspended our SRP effective for redemptions being sought for the second quarter of 2012.  However, in connection with its determination of the estimated value of our shares, our board of directors modified and reinstated our SRP, which permits our stockholders to sell their shares back to us subject to the significant conditions and limitations of the program.  The modified and reinstated SRP was effective as of March 1, 2013 and the first time period redemptions were considered under the modified and reinstated SRP was at the end of the second quarter of 2013 with respect to redemptions to be made in the third quarter of 2013. No redemptions were made during the second quarter of 2013.

The following is a summary of the significant terms of the SRP:

• For redemptions sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility (“Exceptional Redemptions”), the purchase price per share redeemed under our SRP will equal the lesser of: (i) the current estimated share value pursuant to our valuation policy and (ii) the average price per share the original purchaser or purchasers of shares paid to us for all of their shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock) (the “Original Share Price”) less the aggregate of any special distributions so designated by our board of directors, distributed to stockholders prior to the redemption date and declared from the date of first issue of such redeemed shares (the “Special Distributions”).  Exceptional Redemptions will generally have priority over Ordinary Redemptions (as defined below).

• For redemptions other than those sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility (“Ordinary Redemptions”), the purchase price per share redeemed under our SRP will equal the lesser of (i) 85% of the current estimated share value pursuant to our valuation policy and (ii) the Original Share Price less any Special Distributions.

• A quarterly funding limit has been established of $7 million per quarter (which our board of directors may increase or decrease from time to time).

• If we do not redeem all shares presented for redemption during any period in which we are redeeming shares, then all shares will generally be redeemed on a pro rata basis during the relevant period.  With respect to any pro rata treatment, requests for Exceptional Redemptions will be considered first, as a group, with any remaining available funds allocated pro rata among requests for Ordinary Redemptions.  Generally, no outstanding requests for Ordinary Redemptions will be satisfied until all outstanding requests for Exceptional Redemptions are satisfied in full.

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• There is no time limitation for those seeking an Exceptional Redemption.

• The effective date of any redemption will be the fifth business day following the date the board of directors approves the redemption.

Notwithstanding the redemption prices established above, our board of directors may determine, whether pursuant to formulae or processes approved by our board of directors or otherwise set by our board of directors, the redemption price of the shares, which may differ between Ordinary Redemptions and Exceptional Redemptions; provided, however, that we must provide at least 30 days’ notice to stockholders before applying the new price.

The SRP is generally available only for stockholders who have held their shares for at least one year. Any shares approved for redemption will be redeemed on a periodic basis as determined from time to time by our board of directors, and no less frequently than annually.  In addition to the $7 million per quarter funding limit discussed above, which the board of directors may modify, we will not redeem, during any twelve-month period, more than 5% of the weighted average number of shares outstanding during the twelve-month period immediately prior to the date of redemption.

Our board of directors reserves the right in its sole discretion at any time and from time to time to (1) waive the one-year holding requirement in the event of other exigent circumstances such as bankruptcy, a mandatory distribution requirement under a stockholder’s IRA or with respect to shares purchased under or through our DRIP, (2) reject any request for redemption, (3) change the purchase price for redemptions, (4) limit the funds to be used for redemptions hereunder or otherwise change the redemption limitations or (5) amend, suspend (in whole or in part) or terminate the SRP. If we suspend our SRP (in whole or in part), except as otherwise provided by the board of directors, until the suspension is lifted, we will not accept any requests for redemption in respect of shares to which such suspension applies in subsequent periods and any such requests and all pending requests that are subject to the suspension will not be honored or retained, but will be returned to the requestor. Our Advisor and its affiliates will defer their own redemption requests, if any, until all other requests for redemption have been satisfied in any particular period. If a request for an Exceptional Redemption is made, we will waive the one-year holding requirement (1) upon the request of the estate, heir or beneficiary of a deceased stockholder or (2) upon the qualifying disability of a stockholder or upon a stockholder’s confinement to a long-term care facility, provided that the condition causing such disability or need for long-term care was not preexisting on the date that such person became a stockholder.

During the fourth quarter ended December 31, 2013, we redeemed and purchased shares as follows:

	Total Number of Shares Redeemed	Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Maximum Number of Shares That May Be Purchased Under the Plans or Programs (a)
October	—	$	—	—	—
November	—	—		—	—
December	797,589	8.78		797,589	—
	797,589	$	8.78	797,589	—

(a) A description of the maximum number of shares that may generally be purchased under our SRP is included in the narrative preceding this table.

Since the Company reinstated the SRP, because of the SRP’s funding limits, the Company has not been able to satisfy all properly submitted redemption requests and has been satisfying requests for Ordinary Redemptions on a pro rata basis. Beginning with the second quarter of 2013 (the quarter the SRP was reinstated), the tables below show the number of shares related to the quarterly redemption requests and paid redemptions for Ordinary Redemptions and Exceptional Redemptions. Generally, unfulfilled redemption requests from one quarter are carried forward to the following quarter. The column amount of new redemption requests in the table do not include carried forward redemption requests.

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	Carried Forward Unfulfilled Redemption Requests	New Redemption Requests	Paid Redemptions		Unfulfilled Redemption Requests at End of Quarter
Ordinary Redemptions:
2nd Qtr 2013	—	2,476,064	—		2,476,064
3rd Qtr 2013	2,476,064	610,336	(521,470	)	2,564,930
4th Qtr 2013	2,564,930	735,757	(651,928	)	2,648,759
Exceptional Redemptions:
2nd Qtr 2013	—	904,393	(904,393	)	—
3rd Qtr 2013	—	259,099	(259,099	)	—
4th Qtr 2013	—	145,658	(145,658	)	—

As of December 31, 2013, we have 2.6 million total shares of unfulfilled redemption requests, all of which are Ordinary Requests. Based on our current SRP redemption price for Ordinary Requests of $8.53 per share, this represents a redemption value of approximately $22.6 million.

Stock-Based Compensation

For information regarding securities authorized for issuance under our equity compensation plan, see Part III, Item 12, “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Securities Authorized for Issuance Under Equity Compensation Plans” of this Annual Report on Form 10-K.

Item 6.    Selected Financial Data

We made our first investment in an unconsolidated real estate joint venture in April 2007 and our first investment in a wholly owned multifamily community in September 2009. Through 2008, a large proportion of our investments were in developments of multifamily communities. Beginning in 2009, we began increasing our investment in stabilized operating multifamily communities and in investments reported on the consolidated method of accounting. In 2011, we began to increase our investments in developments. The following table lists the number of investments consolidated by us or made through unconsolidated Co-Investment Ventures and each investment's classification as operating, lease up or development for the last five years:

	As of December 31,
	2013	2012	2011	2010	2009
Consolidated communities	54	50	41	10	3
Investments in unconsolidated real estate joint ventures	1	1	1	23	17
Total	55	51	42	33	20
Stabilized communities	32	36	36	26	8
Lease up communities, including mezzanine loans	2	1	0	7	10
Development, including mezzanine and land loans	21	14	6	—	2
Total	55	51	42	33	20

As shown in the table above, we have increased the total number of investments and the number of our investments classified as operating multifamily communities. The number of communities classified as development or lease up has varied depending on their improvement status at different points in time. Operating properties will generally report higher amounts of revenues, depreciation, amortization and cash flow activities than development and lease up properties. We have also increased our consolidated communities which resulted in gross reporting of assets, liabilities, revenues and expenses. Accordingly, the following selected financial data reflects significant increases in many categories. The following data should be read in conjunction with our consolidated financial statements and the notes thereto and Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” in this Annual Report on Form 10-K. The selected financial data presented below has been derived from our audited consolidated financial statements (in millions, except per share amounts):

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	As of December 31,
	2013		2012		2011		2010		2009
Balance Sheet Data:
Cash and cash equivalents	$	319.4	$	450.6	$	655.5	$	52.6	$	77.5
Net operating real estate	$	1,975.7	$	2,054.1	$	1,997.9	$	523.1	$	159.0
Construction in progress, including land	$	479.2	$	151.6	$	15.7	$	0.9	$	—
Total assets	$	2,898.6	$	2,744.7	$	2,805.7	$	958.8	$	525.7
Debt	$	1,039.1	$	989.6	$	924.5	$	157.4	$	51.3
Total liabilities	$	1,142.3	$	1,048.3	$	992.2	$	188.0	$	74.7
Redeemable, noncontrolling interests	$	22.0	$	8.6	$	8.5	$	—	$	—
Non-redeemable, noncontrolling interests	$	456.2	$	365.4	$	413.1	$	—	$	—
Total equity attributable to common stockholders	$	1,278.1	$	1,322.5	$	1,391.9	$	770.8	$	451.0
Total equity	$	1,734.3	$	1,687.8	$	1,805.0	$	770.8	$	451.0

	For the Year Ended December 31,
	2013			2012			2011			2010			2009
Operating Data:
Rental revenues	$	190.6		$	171.8		$	63.3		$	25.9		$	2.6
Equity in earnings (loss) of investments in unconsolidated real estate joint ventures	$	1.3		$	(1.2	)	$	(6.8	)	$	(5.2	)	$	1.3
Interest income	$	8.5		$	7.2		$	3.4		$	1.4		$	1.1
Depreciation and amortization expenses	$	(86.1	)	$	(99.7	)	$	(36.9	)	$	(18.9	)	$	(1.9	)
Interest expense	$	(23.8	)	$	(31.4	)	$	(11.0	)	$	(4.9	)	$	(0.1	)
Acquisition expenses	$	(3.7	)	$	(2.5	)	$	(6.2	)	$	(10.8	)	$	(3.3	)
Net income (loss)	$	32.6		$	(30.2	)	$	94.5		$	(34.6	)	$	(8.3	)
Income (loss) from continuing operations	$	(17.5	)	$	(40.8	)	$	94.9		$	(33.4	)	$	(6.5	)
Income (loss) from continuing operations per share	$	(0.08	)	$	(0.15	)	$	0.71		$	(0.40	)	$	(0.20	)
Distributions declared per share	$	0.35		$	0.41		$	0.60		$	0.67		$	0.69
Cash Flow Data:
Cash provided by operating activities(a)	$	76.7		$	63.4		$	31.7		$	2.6		$	0.2
Cash used in investing activities	$	(306.6	)	$	(221.6	)	$	(9.7	)	$	(461.2	)	$	(341.0	)
Cash (used in) provided by financing activities	$	98.7		$	(46.6	)	$	580.9		$	433.7		$	394.5
Other Information:
FFO(b)	$	42.0		$	38.3		$	149.0		$	8.5		$	(0.7	)
MFFO(b)	$	46.3		$	41.0		$	34.2		$	18.7		$	4.6

_______________________________________________________________________________

(a) Included as a deduction to cash flow provided by operating activities in 2013, 2012, 2011, and 2010 is $3.7 million,$2.5 million, $6.3 million, and $12.1 million, respectively, of acquisition expenses paid in cash, including our share for equity in earnings of investments in unconsolidated real estate joint ventures.

(b) We believe that funds from operations, or FFO, and modified funds from operations, or MFFO, are helpful as measures of operating performance. FFO and MFFO are non-GAAP performance financial measures. FFO or MFFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO or MFFO do not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness. For a description of how we calculate FFO and MFFO including a discussion of year over year changes and a reconciliation to GAAP net income, see Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K.

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Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and the notes thereto.

Overview

General

We were incorporated on August 4, 2006 as a Maryland corporation and operate as a REIT for federal income tax purposes. We make investments in, develop and operate high quality multifamily communities that we believe have desirable locations, personalized amenities, and high quality construction. We began making investments in multifamily communities in April 2007.  As of December 31, 2013, all but one of our investments have been made in multifamily communities located in the top 50 MSAs.  We invest in multifamily communities that may be wholly owned by us or held through joint venture arrangements with third-party institutional or other national or regional real estate developers/owners.

We have investments in 55 multifamily communities as of December 31, 2013.  Of the 55 multifamily communities, we wholly own seven multifamily communities and three debt investments, consisting of mezzanine and land loans, for a total of 10 wholly owned investments. The remaining 45 multifamily communities are held through Co-Investment Ventures, all reported as consolidated but one, which is reported on the equity method of accounting.  The one unconsolidated multifamily community holds a debt investment. We have funded these investments and intend to fund future investments with a combination of sources, including available cash, dispositions, mortgage debt and unsecured or secured debt facilities.  As discussed below, we have and will continue to utilize available Co-Investment Ventures when it is favorable for us.

Our investment strategy is designed to provide our stockholders with a diversified portfolio, and our management and board of directors have extensive experience in investing in numerous types of real estate, loans and other investments to execute this strategy. We intend to focus on acquiring and developing high quality multifamily communities that will produce increasing rental revenue and will appreciate in value within our targeted life. Our targeted communities include existing core properties, as well as properties in various phases of development, redevelopment, lease up or repositioning which we intend to transition to core properties.  Further, we may invest in other types of commercial real estate, real estate-related securities and mortgage, bridge, mezzanine, land or other loans, or in entities that make investments similar to the foregoing. Although we intend to primarily invest in real estate assets located in the United States, in the future, we may make investments in real estate assets located outside the United States.

Our multifamily community investment strategy concentrates on multifamily communities located in the top 50 MSAs across the United States. The U.S. Census population estimates are used to determine the largest MSAs. Our top 50 MSA strategy focuses on acquiring communities and other real estate assets that provide us with broad geographic diversity.  We believe these types of investments, particularly those in submarkets with significant barriers of entry, are in demand by institutional investors which can result in better exit pricing.  We also believe that economic conditions in the major U.S. metropolitan markets will continue to provide adequate demand for properly positioned multifamily communities; such conditions include job and salary growth to support revenue growth and household formation, lifestyle trends that attract renters, as well as higher single-family home pricing and constrained credit which tends to increase the supply of renters.

Investments in multifamily communities have benefited from changing demographic, housing and supply trends. These demographic trends include the echo-boomer generation coming of age and entering the rental market, growth in non-traditional households, and increased immigration, all groups that have high proportions of renters. Demand for multifamily communities is also affected by tighter standards for single family financing where changes in underwriting have affected the cost, availability and affordability of single family homes.  Consequently, single family home ownership has declined from peaks in the last decade.  Furthermore, supply of new multifamily communities had been limited coming out of the last recession. Accordingly, the multifamily sector has experienced increased rental rates and occupancy, particularly in the last two years, which have been greater than historical averages.  While we believe these trends will still be relatively favorable for multifamily demand in the foreseeable future as the key demographic population increases and single family housing options continue to be more restrictive, we also believe the near term absorption of supply in certain markets could affect future rental rate growth rates. Because the period required to develop new multifamily communities is 18 to 36 months and because local economic growth is generally expected to support the new supply, we believe the effect on our multifamily communities will be incremental over time, resulting in growth rates moving closer to historical averages, and less likely to result in declines.  However, the timing and magnitude of these trends are affected by many factors some of which will vary by each local market.

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We have and expect to continue to utilize Co-Investment Ventures in our investment strategy. Co-Investment Ventures’ equity allows us to expand the number and size of our investments, allowing us to obtain interests in multifamily communities we might otherwise not have access to. With a larger portfolio of investments we believe we are also diversifying and managing our risk.  Accordingly, we have used Co-Investment Ventures in many of our different types of investments, including stabilized and development communities and loan investments. While co-investments can provide us with a cost effective source of capital, this strategy may prolong the period to deploy our available cash balances and realize returns on investments.

We currently have available cash balances, primarily from dispositions and financings, which we are seeking to invest on attractive terms.  In the current acquisition environment, we believe that investing in multifamily developments may be more attractive than investing in stabilized multifamily communities. In particular, investing in developments is projected to allow ownership at a lower cost per unit and higher stabilized yield. Competition for new developments is increasing but our available liquidity may be a competitive advantage in sourcing new investments. Developments also provide an advantage due to updated amenities resulting in higher resident appeal and in fewer capital expenditures as compared to older multifamily communities.

In pursuing a development focus, we will generally partner with experienced developers and obtain guaranteed maximum construction contracts whenever possible. The developers will receive a promoted interest after we receive certain minimum annual returns. We have or generally expect to have substantial control over property operations, financing and sale decisions, but the developers may have rights to sell their interests at a set price after a prescribed period, usually one or two years after substantial completion.

Similar to our co-investment strategy, the decision to focus primarily on developments rather than acquisitions will affect our near-term operating cash flow. Developments require a period to entitle, permit, plan, construct and lease up before realizing cash flow from operations. We will attempt to minimize these risks by selecting development projects that have already completed a portion of the early development stages; however, the time from investment to stabilized operations could be two to three years. During these periods, we may use available cash or other liquidity sources to fund our non-operating requirements, including a portion of distributions paid to our common stockholders. The use of these proceeds could reduce the amount available for other new investments.

Developments also include risks related to development schedules, costs and lease up. Local governmental entities have approval rights over new developments, where the permitting process and other approvals can result in delays and additional costs. Estimated construction costs are based on labor, material and other market conditions at the time budgets are prepared, and we intend to use guaranteed maximum construction contracts when possible; however, actual costs may differ due to the available supply of labor and materials and as market conditions change. Rental rates at lease up are subject to local economic factors and demand, competition and absorption trends, which could be different than the assumptions used to underwrite the development. Accordingly, there can be no assurance that all development projects will be completed at all and/or completed in accordance with the projected schedule, cost estimates or revenue projections.

We may also invest our available cash in multifamily-related debt investments. Because government-sponsored entities (“GSEs”) typically do not lend on development properties during construction and banks and other debt providers tend to limit financing to approximately 70% of total costs, we may have lending opportunities with creditworthy borrowers that would provide favorable short-term returns (one to five years). We will seek out these loan investments either as mezzanine or land loans. For mezzanine loans, we will provide financing that is subordinate to the developer’s senior construction loan but senior to the developer’s equity, which we expect to be in the range of 10% to 15% of the total development cost. The mezzanine loans are secured by a pledge, typically of ownership interests in the respective multifamily community development, and will carry interest rates ranging from 12% to 15% for a base term of three years. These loans generally require one to six months to fully fund the loan commitment with interest payments fully or partially deferred until operations have stabilized or the loan is paid off. For land loans, we will finance the developer’s acquisition of the land, usually for a period of approximately one to two years at interest rates ranging from 10% to 13% and require a first lien mortgage as collateral. Similar to mezzanine loans, we will also generally require 10% to 15% of developer equity for each land loan.

While the recent investing trends have positively benefited our multifamily valuations and operations, these trends have also led to increased competition for stabilized multifamily investments, particularly in the markets and with the quality and characteristics that we target, which has resulted in multifamily acquisition prices increasing faster than their underlying returns, a characteristic referred to as capitalization rate compression.  During these periods of capitalization rate compression, we will still continue to evaluate stabilized acquisitions and seek out properties and structures where our liquidity, financial strength and experience allow us to differentiate our offers from other buyers. Although we do not expect stabilized acquisitions

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to be our primary investment strategy, we will take advantage of such opportunities when they meet our targeted return objectives.

When appropriate, we may also incorporate into our investment portfolio lease up properties, generally newly completed multifamily developments that have not started or just started leasing, which may provide for more timely realization of operating cash flow than value-add redevelopments or traditional developments. Additionally, we may also invest in value-added multifamily communities. Generally, we would make other capital improvements to aesthetically improve the asset and its amenities, increase rents, and stabilize occupancy with the goal of adding an attractive increase in yield and improving total returns.

The demand for multifamily acquisitions may also provide opportunities to selectively monetize our existing portfolio and potentially make new investments in multifamily communities with greater total return prospects.  In reviewing a sale opportunity, we may evaluate total return prospects on an individual property basis, which would include specific property characteristics such as current market value, rental rate growth, operating costs or competition.  We may also make an evaluation based on the sub-market or region, which would include factors related to macro-economic conditions, overall multifamily supply trends or investor demand and our own assessment of our critical mass in a market which may result in our decision to exit an entire region.  Because older properties have higher capital and maintenance requirements and may not attract higher rents, we will also monitor the overall age of our portfolio, selling certain communities to maintain targeted age characteristics.  For the last three years ended December 31, 2013, we have sold partial or entire interests in 12 multifamily communities, generating consolidated cash proceeds of $357.5 million, recognizing gains of $191.8 million and net increases to additional paid-in capital of $30.6 million.

Commencement of Transition to Self-Management

As previously disclosed in our Current Report on Form 8-K filed with the SEC on August 6, 2013 and our Quarterly Report on Form 10-Q filed with the SEC on August 14, 2013 and as further described in Part III, Item 13, “Certain Relationships and Related Transactions, and Director Independence — Related Party Transactions,” of this Annual Report on Form 10-K, on July 31, 2013 (the “Initial Closing”), we entered into a series of agreements and amendments to our existing agreements and arrangements with Behringer Harvard Multifamily Advisors I, LLC, our external advisor (the “Advisor”) and its affiliates (collectively “Behringer”) beginning the process of becoming self-managed. Effective July 31, 2013, we and Behringer entered into a Master Modification Agreement (the “Modification Agreement”), which set forth various terms of and conditions to the modification of the business relationships between us and Behringer. In connection with our transition to self-management, on August 1, 2013, we hired five executives who were previously employees of Behringer and began hiring other employees. The completion of the remainder of the self-management transactions will occur at a second closing (the “Self-Management Closing”), which is expected to occur on June 30, 2014, and where we anticipate hiring additional corporate and property management employees who are currently employees of Behringer. As of February 28, 2014, we have hired two additional employees and intend to hire other employees both before and after June 30, 2014 in our transition to self-management. The obligations of the parties to consummate the self-management transactions are subject to certain limited conditions.

At the Initial Closing, we issued 10,000 shares of a new Series A non-participating, voting, cumulative, 7.0% convertible preferred stock, par value $0.0001 per share (the “Series A Preferred Stock”), to Behringer. As part of the consideration for issuing the Series A Preferred Stock, Behringer surrendered all existing 1,000 convertible shares of non-participating, non-voting stock, par value $0.0001 per share, of the Company, which we immediately canceled.

As determined and limited pursuant to the Articles Supplementary establishing the Series A Preferred Stock, the Series A Preferred Stock will automatically convert into shares of our common stock upon any of the following triggering events: (a) in connection with a listing of our common stock on a national exchange, (b) upon a change of control of the Company or (c) upon election by the holders of a majority of the then outstanding shares of Series A Preferred Stock on or before July 31, 2018. Notwithstanding the foregoing, if a listing occurs prior to December 31, 2016, such listing (and the related triggering event) will be deemed to occur on December 31, 2016 and if a change of control transaction occurs prior to December 31, 2016, such change of control transaction will not result in a change of control triggering event. Upon a triggering event, all of the shares of Series A Preferred Stock will, in total, generally convert into an amount of shares of our common stock equal in value to 15% of the excess of (i) (a) the per share value of our common stock at the time of the applicable triggering event, as determined pursuant to the Articles Supplementary establishing the Series A Preferred Stock and assuming no shares of the Series A Preferred Stock are outstanding, multiplied by the number of shares of common stock outstanding on July 31, 2013, plus (b) the aggregate value of distributions (including distributions constituting a return of capital) paid through such time on the shares of common stock outstanding on July 31, 2013 over (ii) the aggregate issue price of those outstanding shares plus a 7% cumulative, non-compounded, annual return on the issue price of those outstanding shares. In the case of a triggering event

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based on a listing or change of control only, this amount will be multiplied by another 1.15 to arrive at the conversion value. The performance threshold necessary for the Series A Preferred Stock to have any value is based on the aggregate issue price of our shares of common stock outstanding on July 31, 2013, the aggregate distributions paid on such shares through the triggering event, and the value of the Company at the time of the applicable triggering event, as determined pursuant to the Articles Supplementary. It is not based on the return provided to any individual stockholder or to the stockholders in total as of the triggering event. Accordingly, it is not necessary for each of our stockholders to have received any minimum return in order for the Series A Preferred Stock to have any value. In fact, if the Series A Preferred Stock has value, the returns of our stockholders will differ, and some may be less than a 7% cumulative, non-compounded annual return. At any time after July 31, 2018, we may redeem all, and not less than all, of the then outstanding shares of Series A Preferred Stock (excluding any shares of Series A Preferred Stock for which a triggering event has occurred) at a price per share of Series A Preferred Stock equal to the $10 per share liquidation preference plus any declared and unpaid dividends.

In addition, at the Initial Closing, we acquired from Behringer the GP Master Interest in the Master Partnership. The purchase price for the GP Master Interest was $23.1 million. This acquisition entitles us to, among other things, the advisory and incentive fees that Behringer would have otherwise been entitled to receive. See Part I, Item1, “Business — Co-Investment Ventures — Structure of Co-Investment Ventures” for further discussion of the Master Partnership.

Mr. Aisner, who will remain an employee of Behringer, will continue as our Chief Executive Officer until the self-management process is completed, after which time Mark T. Alfieri will become our Chief Executive Officer in addition to the positions he now holds. From now through the Self-Management Closing, Behringer will continue to be paid fees and reimbursements under the terms of amended advisory and property management agreements that include a reduction of certain fees and expenses paid to Behringer under the prior agreements. In addition, during the period from the Initial Closing through September 30, 2014, Behringer will provide general transition services in support of our transition to self-management. Following the completion of our transition to being a self-managed company, Behringer will continue to provide certain capital markets and administrative support services to us.

For more information regarding these arrangements, please refer to Part III, Item 13, “Certain Relationships and Related Transactions, and Director Independence — Related Party Transactions,” of this Annual Report on Form 10-K, as well as exhibits filed with our Quarterly Report on Form 10-Q filed with the SEC on August 14, 2013, our Current Report on Form 8-K filed with the SEC on August 6, 2013, each available at www.sec.gov or the website maintained for us at www.behringerinvestments.com.

Offerings of Our Common Stock

We terminated offering shares of common stock in our Initial Public Offering on September 2, 2011, having aggregate gross primary offering proceeds of approximately $1.46 billion. Upon termination of our Initial Public Offering, we reallocated 50 million unsold shares remaining from our Initial Public Offering to our DRIP.  As a result, we are offering a maximum of 100 million total shares pursuant to our DRIP at a DRIP offering price set by our board of directors, which as of March 1, 2013 is $9.53 per share, based on approximately 95% of our estimated per share value as of March 1, 2013.  Prior to March 1, 2013, the DRIP offering price was $9.45 per share, based on approximately 95% of our previous estimated per share value.  For the years ended December 31, 2013 and 2012, the DRIP offering price averaged $9.51 and $9.48, respectively.  As of December 31, 2013, we have sold approximately 16.0 million shares under our DRIP for gross proceeds of approximately $152.1 million.  There are approximately 84 million shares remaining to be sold under the DRIP.

Per the terms of the DRIP, we currently expect to offer shares for approximately the next four years through 2018, which would be the sixth anniversary of the termination of our Initial Public Offering, although our board of directors has the discretion to extend the DRIP beyond that date, in which case we will notify participants of such extension.  We may suspend or terminate the DRIP at any time by providing ten days’ prior written notice to participants, and we may amend or supplement the DRIP at any time by delivering notice to participants at least 30 days prior to the effective date of the amendment or supplement.  Notice may be delivered by use of U.S. mail, electronic means or by including such information in a Current Report on Form 8-K or in our annual or quarterly reports, all of which are filed with the SEC.

Shares of our common stock are not currently listed on a national securities exchange.  Depending upon then-prevailing market conditions, we intend to begin to consider the process of listing or liquidation within the next two to four years, which is unchanged from the four to six years after the date of the termination of our Initial Public Offering as disclosed in the related offering documents.

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Distributions

Regular Distributions

Our board of directors, after considering the current and expected operations of the Company and other market and economic factors, authorized regular distributions payable to stockholders equal to an annual rate of 6.0% (based on a purchase price of $10.00 per share) for the period from September 1, 2010 to March 31, 2012 and 3.5% from April 1, 2012 through March 31, 2014.  See further discussion under “Distribution Policy — Distribution Activity” below.

Special Cash Distribution

On March 29, 2012, our board of directors authorized a special cash distribution related to the sale of Mariposa Lofts Apartments (the “Mariposa Distribution”) in the amount of $0.06 per share of common stock payable to stockholders of record on July 6, 2012.  The Mariposa Distribution of $10.0 million was paid in cash on July 11, 2012.  Our board of directors has not authorized any other special distributions, although it may in future periods.

Market Outlook

For the full year 2013, gross domestic product (“GDP”) grew at a rate of 1.9%, down from 2.8% in 2012 but still trending within annual figures since the end of the recession in 2010. The momentum that was expected after the third quarter economic reports appeared to fade later in the year as annualized GDP for the fourth quarter came in at a disappointing 2.4%. The decline was attributed to reduced government spending, weakness in the housing market and less capital investment. Whether these factors and the slow growth at the start of 2014 are due to a particularly harsh winter or systemic economic weakness is not clear. Many economists are still projecting higher growth in 2014 as higher employment should lead to increased consumer spending and the 2013 reductions in government spending, which include the government shutdown and the effects of the sequestration, are not expected to be as severe in 2014. While the current GDP growth rate is further evidence of a slow, tepid recovery, analysts also emphasize the long-term positive trends in employment, consumer spending and exports, where the U.S. and global economies are more financially stable than at any period since the end of the recession. Further, the U.S. Federal Reserve expects to continue to wind down its bond buying stimulation program, stating it would take a “significant change” to the economy’s prospects to change its course.

While the U.S. economy continued on a modest recovery during 2013, the multifamily sector had another year of above average growth in rental rates while maintaining good occupancy levels. This is a function of positive demand, supply and local economic fundamentals. While we believe these factors will continue to be favorable factors for 2014, there are signs that performance may be moving closer to historical averages.

From a demand perspective, the demographics for the targeted multifamily renter, the age group from 20 to 34 years old, are still positive in the sector. This group is growing in size and while many other age segments have experienced employment declines or stagnation, the 20 to 34 year old segment’s aggregate employment has increased. Their improving economic status is leading to new household formation as this group moves out from their parent’s home or other shared living arrangements. Further, while this age group in previous economic cycles experienced increasing single family home ownership, higher credit standards for single family mortgages and more reluctance to commit to home ownership are currently leading to increasing rental demand.  Also affecting home ownership is a national trend toward delayed marriage. Since 1990, the average age for first time marriages has increased by over 2 years. Given that first time home ownership often follows marriage, this delay is also delaying home ownership. As a result, single family home ownership, which peaked at 69.2% in late 2004, has now reduced to approximately 65.2% as of December 31, 2013.  Historical home ownership figures from pre-1995 hovered around 64%, which is where many analysts predict ownership will eventually settle. Analysts expect that single family housing will become more competitive in certain areas, particularly where the cost of home ownership is less than comparable rentals, but we believe the overall positive effects of such an important component of the economy will still be a net benefit to the multifamily sector.

On the supply side, after a substantial decline in new developments of multifamily communities from 2008, supply trends are increasing. During 2013, more units were delivered than any year since the recession with the fourth quarter amount the highest quarterly total in a decade. These figures and projected totals for 2014 are now above historical averages, closing the supply gap produced from the recession. On the positive side, it appears supply trends may be plateauing with both starts and permits for new multifamily projects having peaked in the first quarter of 2013. Further, we also believe that the new supply will affect certain markets and sub markets, to a greater or lesser extent, where factors such as the strength of the local economy, population and job growth and absolute inventory level of units will allow certain markets to better absorb certain levels of supply. Accordingly, for most major markets, absorption and demand seem to be reasonably in balance. However,

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capital continues to flow into multifamily and accordingly, supply levels will be a key factor in future multifamily fundamentals. The Washington, D.C. and Miami regions are two areas in particular where new investment and new supply may be outpacing current absorption.

In evaluating all of these factors, many analysts are still projecting continued multifamily rental growth, albeit at a slower pace particularly in markets with favorable job and income growth, where the demand fundamentals can absorb the supply. However, some analysts’ reports are already starting to indicate for certain markets that renting is starting to lose its cost advantage over home ownership and that rental increases will eventually hit limits in relation to disposable income.  While the overall factors noted above should still position the multifamily sector to perform better in a slow growth environment, eventually the multifamily sector will need stronger employment, disposable consumer income and household formation to maintain rental growth.

For the Company, our emphasis on coastal and higher employment growth markets has resulted in our investments performing somewhat better than the national averages.  While national employment gains were less than expected, in our geographic markets, job growth for the most part was greater than the national average or was positive as compared to the prior year.  Below is a chart showing for each of our defined geographic regions with operating properties the annual percent changes in population, employment and supply trends for 2013. (See “Property Portfolio” below for definitions of our regions).

Geographic Region	Population		Employment		Supply of New Units
Florida	1.6	%	2.5	%	1.6	%
Georgia	1.4	%	3.0	%	0.6	%
Mid-Atlantic	1.5	%	0.2	%	2.4	%
Mid-West	0.3	%	1.3	%	1.1	%
Mountain	1.8	%	2.2	%	1.5	%
New England	0.5	%	1.3	%	1.2	%
Northern California	0.9	%	2.1	%	1.3	%
Southern California	0.6	%	1.6	%	0.5	%
Texas	2.3	%	3.3	%	1.9	%
Portfolio Average	1.5	%	2.0	%	1.5	%
United States Average	0.9	%	1.6	%	1.3	%

As the chart shows, for all but one of our regions, there are favorable population or employment trends as compared to the increase in supply. While several of our regions have new supply in excess of national averages, these tend to be supported by underlying demand, which should provide for reasonable absorption. The one exception is our Mid-Atlantic region, which is primarily comprised of the Washington, D.C. MSA. We believe there will likely be short term pressure on rental rates and occupancy in the Mid-Atlantic Region; however, we believe the region’s economic drivers will restore fundamentals over the long term.

These positive employment results for our regions have been favorable contributors to our revenue growth.  The Company has equity interests in 28 communities that were stabilized and held for the comparable periods in 2013 and 2012.  These 28 communities produced year over year total revenue increases of approximately 6%.  Since December 31, 2012, we have increased our residential monthly rent per unit for these 28 stabilized communities by 4%, where the national average was approximately 2.7%.  We have been able to achieve these results, while still increasing occupancy, as occupancy increased for these 28 communities from 94% at December 31, 2012 to 95% at December 31, 2013. These properties exceeded the national occupancy rate by approximately1% as of December 31, 2013.

Financing has also been a favorable factor for the multifamily sector. As of the end of February 2014, five and ten year treasury rates, key benchmarks for multifamily financings, are approximately 1.5% and 2.7%, respectively. While these are up about 1% and 2%, respectively, from their recession lows, they are still over 1% below the average over the last 10 years. In addition to favorable general interest rates, GSEs have been a core source for multifamily financing, providing a favorable base level of support for the sector.  Further, the positive multifamily fundamentals, particularly in high quality, stabilized communities such as ours, have brought in other lending sources. In addition to GSEs, insurance companies and commercial banks have been aggressive lenders in our sector.  The Company has taken advantage of these financing opportunities in the last year. During 2013, we closed three loans with a weighted average fixed interest rate of 3.6%. Additionally, we also closed two fixed rate construction loans with a weighted average interest rate of 4.1% and three floating rate construction loans at an

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average margin over 30-day LIBOR of 2.2%. In 2012 we closed five loans with an average fixed interest rate of 2.9%. As of December 31, 2013, our weighted average fixed interest rate was 3.8%, compared to 3.9% at December 31, 2012.

Although the current outlook on these financing trends appears relatively stable, there are risks.  Potential changes in the U.S. Federal Reserve’s monetary policy could further affect interest rates, while the U.S. political deadlock over the debt ceiling, tax policy and government spending levels can affect the overall level of domestic economic growth. Any of these domestic issues or the resurfacing of global issues could slow growth or push the U.S. into a recession, which could affect the amount of capital available or the costs charged for financings.  Specifically related to the multifamily sector, changes related to GSE’s and other regulatory restrictions could result in less multifamily debt capital and potentially higher borrowing costs.

In the event of changing financial market conditions, we believe the Company is reasonably positioned to execute our strategy.  As of December 31, 2013, we held cash and cash equivalents of approximately $319.4 million and had borrowing capacity from our line of credit of $138.1 million. Our cash position is over 30% of our total debt balance and greater than all of our variable rate debt. Should there be an increase in interest rates, approximately 93% of our share of debt is at fixed rates with average maturities of 4.3 years. In addition, the Company owns $162.7 million of LIBOR based interest rate caps providing protection for the notional amount for LIBOR Rates in excess of 2.0% to 4.0% for approximately two more years.  We believe these factors will give us flexibility to manage our interest rate exposure should interest rates in general increase, and our liquidity position may be a competitive advantage over other multifamily companies who are not so positioned.  However, with the volatility and uncertainty noted above, there is no assurance that our liquidity position would maintain our competitive position in all circumstances or that our liquidity would still be available or sufficient at such future time.  If interest rates significantly increase and remain higher for prolonged periods, we would expect to incur higher interest expenses on new or refinanced debt. Because the amount of debt is based, in part, on our ability to pay the debt service, higher interest rates could also reduce our overall debt leverage. In addition, our development strategy is dependent on the availability of development financing at reasonable interest rates.  While development financing is currently available, there is also no assurance such financing or the refinancing of the development debt would be available in the future.

Property Portfolio

We invest in a geographically diversified equity and debt multifamily portfolio which includes operating and development investments.  Our geographic regions are defined by state or by region. Our portfolio is comprised of the following geographic regions and MSAs (with respect to MSAs, we only identify the largest city for each MSA):

• Florida — Includes communities in Miami, FL MSA, and Orlando, FL MSA.

• Georgia — Includes communities in Atlanta, GA MSA.

• Mid-Atlantic includes the states of Virginia, Maryland and New Jersey.  Includes communities in Washington, D.C. MSA and Philadelphia, PA MSA.

• Mid-West includes the state of Illinois.  Includes a community in Chicago, IL MSA.

• Mountain includes the states of Arizona, Colorado and Nevada.  Includes communities in Phoenix, AZ MSA, Denver, CO MSA, and Las Vegas, NV MSA.

• New England includes the states of Connecticut and Massachusetts.  Includes communities in New Haven, CT MSA and Boston, MA MSA.

• Northern California — Includes communities in San Francisco, CA MSA and Santa Rosa, CA MSA.

• Northwest includes the state of Oregon.  Includes a community in Portland, OR MSA.

• Southern California — Includes communities in Los Angeles, CA MSA and San Diego, CA MSA.

• Texas — Includes communities in Austin, TX MSA, Dallas, TX MSA, and Houston, TX MSA.

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The table below presents physical occupancy and monthly rental rate per unit by geographic region for our stabilized multifamily communities as of December 31, 2013 and December 31, 2012. Physical occupancy rates and monthly rental rates per unit as of December 31, 2012 exclude data for multifamily communities sold in 2013:

	December 31, 2013		Physical Occupancy Rates (a)				Monthly Rental Rate per Unit (b)
	Number of	Number of	December 31,		December 31,		December 31,		December 31,
Geographic Region	Communities	Units	2013		2012		2013		2012
Florida	2	704	94	%	94	%	$	1,509	$	1,490
Georgia	1	283	96	%	98	%	1,334		1,241
Mid-Atlantic	5	1,412	94	%	94	%	1,959		1,937
Mid-West	1	298	94	%	95	%	2,254		2,161
Mountain	5	1,594	93	%	93	%	1,360		1,312
New England	3	772	96	%	92	%	1,513		1,504
Northern California	4	751	95	%	94	%	2,335		2,188
Northwest	1	188	95	%	93	%	1,453		1,355
Southern California	4	889	95	%	96	%	2,029		1,946
Texas	6	2,068	95	%	95	%	1,454		1,346
Totals	32	8,959	95	%	94	%	$	1,680	$	1,628

(a)   Physical occupancy is defined as the residential units occupied for stabilized properties as of December 31, 2013 or December 31, 2012 divided by the total number of residential units.  Not considered in the physical occupancy rate is rental space designed for other than residential use, which is primarily retail space.  As of December 31, 2013, the total gross leasable area of retail space for all of these communities is approximately 160,000 square feet, which is approximately 2% of total rentable area.  As of December 31, 2013, all of the communities with retail space are stabilized, and approximately 79% of the 160,000 square feet of retail space was occupied.  The calculation of physical occupancy rates by geographic region and total average physical occupancy rates are based upon weighted average number of residential units.

(b)   Monthly rental revenue per unit has been calculated based on the leases in effect as of December 31, 2013 and December 31, 2012 for stabilized properties.  Monthly rental revenue per unit only includes base rents for the occupied units, including the effects of any rental concessions and affordable housing payments and subsidies, and does not include other charges for storage, parking, pets, cleaning, clubhouse or other miscellaneous amounts. For the years ended December 31, 2013 and 2012, these other charges were approximately $16.8 million and $15.7 million, respectively, approximately 9% and 8% of total revenues, respectively, for both periods.The monthly rental revenue per unit also does not include unleased units or non-residential rental areas, which are primarily related to retail space.

The table below presents the number of communities and units by geographic region for our equity investments in lease up as of December 31, 2013. We had no communities in lease up as of December 31, 2012.

Geographic Region	Number of Communities	Number of Units	Physical Occupancy Rates (a)
Florida	1	180	71	%
Northern California	1	202	88	%
Totals	2	382	80	%

(a)    Physical occupancy is defined and calculated in a similar manner as provided for stabilized properties above.

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The table below presents the number of communities and units by geographic region that are currently in development and in which we have an equity or debt investment, as of December 31, 2013 and December 31, 2012: 

	December 31, 2013		December 31, 2012
	Number of	Number of	Number of	Number of
Geographic Region	Communities	Units	Communities	Units
Equity investments:
Florida	2	564	1	180
Georgia	1	327	—	—
Mid-Atlantic	2	827	—	—
Mountain	1	212	1	212
New England	2	578	2	578
Northern California	1	180	1	180
Southern California	2	557	—	—
Texas	6	1,762	6	1,519
Total equity investments	17	5,007	11	2,669
Debt investments:
Florida	1	321	—	—
Mountain (a)	1	388	1	388
Southern California	—	—	1	113
Texas (b)	2	804	2	764
Total debt investments	4	1,513	4	1,265
Total developments	21	6,520	15	3,934

(a)   As of December 31, 2013, the multifamily community underlying the loan investment has been completed and is currently in lease up.

(b) Includes an unconsolidated loan investment as of December 31, 2013 and December 31, 2012 and a loan investment in a multifamily community completed in 2013 and currently in lease up as of December 31, 2013.

Critical Accounting Policies and Estimates

The following critical accounting policies and estimates apply to both us and our Co-Investment Ventures.

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires our management to make judgments, assumptions and estimates that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate these judgments, assumptions and estimates for changes which would affect the reported amounts. These estimates are based on management’s historical industry experience and on various other judgments and assumptions that are believed to be reasonable under the circumstances. Actual results may differ from these judgments, assumptions and estimates. Our significant judgments, assumptions and estimates include the evaluation and consolidation of variable interest entities (“VIEs”), the allocation of the purchase price of acquired properties, income recognition for investments in unconsolidated real estate joint ventures, the evaluation of our real estate-related investments for impairment, the classification and income recognition for noncontrolling interests and the determination of fair value.

Principles of Consolidation and Basis of Presentation

Our consolidated financial statements include our consolidated accounts and the accounts of our wholly owned subsidiaries.  We also consolidate other entities in which we have a controlling financial interest or VIEs where we are determined to be the primary beneficiary.  VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability.  The primary beneficiary is required to consolidate a VIE for financial reporting purposes.  The determination of the primary beneficiary requires management to make significant estimates and judgments about our rights, obligations, and economic interests in such entities as well as the same of the other owners.  For entities in which we have less than a controlling financial interest or entities with respect to which we are not deemed to be the primary beneficiary, the entities are accounted for using

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the equity method of accounting.  Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income. 

Real Estate and Other Related Intangibles

Acquisitions

For real estate properties acquired by us or our Co-Investment Ventures classified as business combinations, we determine the purchase price, after adjusting for contingent consideration and settlement of any pre-existing relationships.  We record the tangible assets acquired, consisting of land, inclusive of associated rights, and buildings, any assumed debt, identified intangible assets and liabilities, asset retirement obligations and noncontrolling interests based on their fair values.  Identified intangible assets and liabilities primarily consist of the fair value of in-place leases and contractual rights.  Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interest in the acquiree over the fair value of identifiable net assets acquired.  Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interest in the acquiree are less than the fair value of the identifiable net assets acquired.

The fair value of any tangible assets acquired, expected to consist of land and buildings, is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, buildings and improvements.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods.  When we acquire rights to use land or improvements through contractual rights rather than fee simple interests, we determine the value of the use of these assets based on the relative fair value of the assets after considering the contractual rights and the fair value of similar assets. Assets acquired under these contractual rights are classified as intangibles and amortized on a straight-line basis over the shorter of the contractual term or the estimated useful life of the asset. Contractual rights related to land or air rights that are substantively separated from depreciating assets are amortized over the life of the contractual term or, if no term is provided, are classified as indefinite-lived intangibles.  Intangible assets are evaluated at each reporting period to determine whether the indefinite and finite useful lives are appropriate.

We determine the value of in-place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant and by applying a fair value model.  The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease up periods for the respective leasable area considering current market conditions.  In estimating fair value of in-place leases, we consider items such as real estate taxes, insurance, leasing commissions, tenant improvements and other operating expenses to execute similar deals as well as projected rental revenue and carrying costs during the expected lease up period.  The estimate of the fair value of tenant relationships also includes our estimate of the likelihood of renewal. We amortize the value of in-place leases acquired to expense over the remaining term of the leases. The value of tenant relationship intangibles will be amortized to expense over the initial term and any anticipated renewal periods, but in no event will the amortization period for intangible assets exceed the remaining depreciable life of the building. 

We determine the value of other contractual rights based on our evaluation of the specific characteristics of the underlying contracts and by applying a fair value model to the projected cash flows or usage rights that considers the timing and risks associated with the cash flows or usage. We amortize the value of finite contractual rights over the remaining contract period. Indefinite-lived contractual rights are not amortized but are evaluated for impairment.

We determine the fair value of assumed debt by calculating the net present value of the scheduled debt service payments using interest rates for debt with similar terms and remaining maturities that management believes we could obtain.  Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan.

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Developments

We capitalize project costs related to the development and construction of real estate (including interest, property taxes, insurance, and other direct costs associated with the development) as a cost of the development.  Indirect project costs, not clearly related to development and construction, are expensed as incurred. Indirect project costs clearly related to development and construction are capitalized and allocated to the developments to which they relate.  For each development, capitalization begins when we determine that the development is probable and significant development activities are underway.  We suspend capitalization at such time as significant development activity ceases, but future development is still probable.  We cease capitalization when the developments or other improvements, including any portion, are completed and ready for their intended use, or if the intended use changes such that capitalization is no longer appropriate.  Developments or improvements are generally considered ready for intended use when the certificates of occupancy have been issued and the units become ready for occupancy.

Noncontrolling Interests

Redeemable noncontrolling interests are comprised of our consolidated Co-Investment Venture partners’ interests in multifamily communities where we believe it is probable that we will be required to purchase the partner’s noncontrolling interest.  We record obligations under the redeemable noncontrolling interests initially at the higher of (a) fair value, increased or decreased for the noncontrolling interest’s share of net income or loss and equity contributions and distributions or (b) the redemption value.  The redeemable noncontrolling interests are temporary equity not within our control, and presented in our consolidated balance sheet outside of permanent equity between debt and equity.  The determination of the redeemable classification requires analysis of contractual provisions and judgments of redemption probabilities.

The calculation of the noncontrolling interest’s share of net income or loss is based on the economic interests held by all of the owners.

Investment Impairments

If events or circumstances indicate that the carrying amount of the property may not be recoverable, we make an assessment of the property’s recoverability by comparing the carrying amount of the asset to our estimate of the undiscounted future operating cash flows, expected to be generated over the life of the asset including its eventual disposition.  If the carrying amount exceeds the aggregate undiscounted future operating cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.  In addition, we evaluate indefinite-lived intangible assets for possible impairment at least annually by comparing the fair values with the carrying values.  Fair value is generally estimated by valuation of similar assets.

For real estate we own through an investment in an unconsolidated real estate joint venture or other similar real estate investment structure, at each reporting date we compare the estimated fair value of our real estate investment to the carrying value.  An impairment charge is recorded to the extent the fair value of our real estate investment is less than the carrying amount and the decline in value is determined to be other than a temporary decline.  We did not record any impairment losses for the years ended December 31, 2013, 2012 and 2011.

Fair Value

In connection with our GAAP assessments and determinations of fair value for many real estate assets and liabilities, noncontrolling interests and financial instruments, there are generally not available observable market price inputs for substantially the same items.  Accordingly, we make assumptions and use various estimates and pricing models, including, but not limited to, estimated cash flows, costs to lease properties, useful lives of the assets, costs of replacing certain assets, discount and interest rates used to determine present values, market capitalization rates, sales of comparable investments, rental rates, and equity valuations. Many of these estimates are from the perspective of market participants and will also be obtained from independent third-party appraisals. However, we are responsible for the source and use of these estimates. A change in these estimates and assumptions could be material to our results of operations and financial condition.

Results of Operations

Because of our investment of proceeds from our Initial Public Offering and other capital sources, we have experienced significant increases in our real estate investment activity since our inception.  Also, as certain investments have been sold and the status of our lease up and development communities have progressed, our total investments have fluctuated over time, further changing the proportion of our stabilized multifamily communities or development communities to our total

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investments. Also, our transition to a self-managed company will affect our operations in future periods. The following information may be helpful in evaluating current and future fluctuations in our overall results of operations.

Real Estate Investment Activity

During 2013 and 2012, the Company has made significant new investments in multifamily communities, primarily investments in developments. As developments are made and progress through lease up, we have experienced changes in operating results. Further, as we have sold certain investments, investing the proceeds in developments, including debt investments in developments, the mix of our investments has changed, which also contributed to other fluctuations in operations.

These portfolio changes have contributed to significant fluctuations in many of our financial results.  A summary of our investments in multifamily communities as of December 31, 2013 and December 31, 2012 is as follows:

	December 31, 2013	December 31, 2012
Reporting Classifications:
Consolidated investments	54	50
Investments in unconsolidated real estate joint ventures	1	1
Total investments	55	51
Investment Classifications:
Equity investments
Stabilized communities	32	36
Lease up (including developments in lease up)	2	—
Development (pre-development and under development and construction)	17	11
Total equity investments	51	47
Debt investments
Land loans	—	1
Mezzanine loans (including one stabilized community)	4	3
Total debt investments	4	4
Total investments	55	51

Transition to Self-Management

As discussed in “Overview — Commencement of Transition to Self-Management” above, on the Initial Closing, we entered into the Self-Management Transition Agreements and have begun our transition to become a fully integrated self-managed company. Generally, as result of these arrangements, we would expect to begin to have higher direct costs of administration, primarily related to compensation, office and transition costs, and reductions in management fees and expenses. Each of these is separately addressed below.

Prior to August 1, 2013, the Company had no employees and was supported solely by related party service and management agreements. Following the Initial Closing, the Company hired its first five employees, all executive positions which are under employment contracts. As we approach and reach the Self-Management Closing, we would expect to hire employees to fully staff our corporate and property management operations. In addition to the five executives, we hired another employee during 2013. Accordingly, beginning in the third quarter of 2013 and through the Self-Management Closing, we expect our compensation and related costs to increase. During 2013, we incurred $1.8 million of compensation expenses, which was partially offset by a decrease in certain fees and expense reimbursements paid to the Advisor of approximately $1.0 million. After the Self-Management Closing, we expect to benefit from eliminated or reduced advisory and property management fees and cost reimbursements. Going forward, our new expenses are subject to the number of our properties, particularly as it relates to property management compensation, but also our administrative and operational requirements at that time.

We currently reimburse our Advisor for a portion of its office space and office support costs related to our operations. Upon the Self-Management Closing, our office costs will largely be a function of our new office arrangement, which may include arranging for the use of space from affiliates of our Advisor and may also include a lease for a new corporate headquarters, which may begin prior to the Self-Management Closing. We also anticipate incurring costs for office equipment,

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supplies, consultants and related administrative expenses. These increases in costs could be recognized directly as general and administrative expenses or included in depreciation and amortization expense.

The Self-Management Transition Agreements provide for transition services and related costs, which will be paid through September 30, 2014 to Behringer. These primarily include (1) transition services paid through September 30, 2014 totaling approximately $0.4 million per month for the period from the Initial Closing to September 30, 2014 and $1.25 million paid on the Self-Management Closing, (2) a reimbursement of $2.5 million for Behringer’s costs and expenses related to its negotiation of the Self-Management Transition Agreements paid at the Initial Closing, and (3) $3.5 million for certain intangible assets, rights and contracts to be paid at the Self-Management Closing. Accordingly, a significant portion of the amounts paid have been expensed and we expect a significant portion of the future payments to be expensed in future periods with the amount per period dependent on the level and timing of each service and the accounting allocation to each period. Certain of these expenses could be direct transition expenses while others may be included as amortization or depreciation expense. For the year ended December 31, 2013, we incurred $7.9 million of expenses with Behringer in connection with the Self-Management Transition Agreements. For the year ended December 31, 2013, we also incurred, on our own account, approximately $1.1 million of transition costs, primarily related to legal and financial consulting costs and costs of the Company’s special committee of the board of directors, comprised of all of the Company’s independent directors (the “Special Committee”).

Before entering into the Self-Management Transition Agreements, the Company was incurring approximately $1.8 million to $1.9 million in quarterly asset management expenses paid to the Advisor and its affiliates, and an additional quarterly reimbursement to the Advisor and its affiliates of approximately $0.4 million to $0.5 million. Under the Self-Management Transition Agreements, we expect a reduction of approximately $0.5 million per quarter through the Self-Management Closing, at which point we expect that all asset management fees will be eliminated. However, the expected amount of the decrease is based on our current activity. Additionally, should the Company increase its real estate assets, either in cost or in appreciated value, the primary basis for the calculation of the asset management fee, (as has occurred and may continue in the future), the actual amount of asset management fees through the Self-Management Closing could actually be higher, despite the reductions just discussed. Regardless of property activity, we would still expect the asset management fees to be eliminated upon the Self-Management Closing as a result of the Self-Management Transition Agreements. As discussed above, we expect an increase in employee compensation expense, which will in part help us manage our assets, as a result of our entry into the Self-Management Transition Agreements.

Similarly, prior to entering into the Self-Management Transition Agreements, the Company was incurring approximately $2.0 million in quarterly property management fees paid to the Property Manager and its affiliates. Upon the Self-Management Closing, we expect these costs to be eliminated similar to the asset management expense, but the full amount of the savings will be dependent on future operations. We will also benefit from the collection of property management fees which are attributable to the noncontrolling interest owners. In addition, the Company paid to the Property Manager and its affiliates reimbursement of expenses related to the property management agreement. These reimbursements to the Property Manager and its affiliates will also be eliminated upon the Self-Management Closing; however, many of these expenses will then become our responsibility, the largest portion being compensation for on-site property management personnel and related overhead.

The items noted above will be included in our reported consolidated net income (loss). In addition, the purchase of the GP Master Interest, which has been eliminated in preparing our consolidated financial statements, has and is expected in the future to have a positive impact on our net income (loss) attributable to noncontrolling interests. This is primarily related to the asset management fee income we will begin to receive. While this is eliminated in the consolidated net income (loss), this benefit will increase the net income (or reduce the net loss) attributable to common stockholders by approximately $0.2 million to $0.3 million per quarter, based on current operations.

The above discussions related to investment activity and the transition to self-management have affected the comparability of our financial statements as of and for the year ended December 31, 2013 as compared to the same period of 2012. We expect that these items and our transition to a self-managed company will also affect our trends in future periods. In the following sections, where we compare one period to another or comment on potential trends, we may refer to these items to explain the fluctuations.

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Net Operating Income

In our review of operations, we define net operating income (“NOI”) as consolidated rental revenue, less consolidated property operating expenses, real estate taxes and property management fees.  We believe that NOI provides a supplemental measure of our operating performance because NOI reflects the operating performance of our properties and excludes items that are not associated with property operations of the Company, such as general and administrative expenses, asset management fees and interest expense.  NOI also excludes revenues not associated with property operations, such as interest income and other non-property related revenues.  In addition, we review our stabilized multifamily communities on a comparable basis between periods, referred to as “Same Store.”  Our Same Store multifamily communities are defined as those that are stabilized and comparable for both the current and the prior reporting year.  We consider a property to be stabilized upon the earlier of 90% occupancy or one year after completion.

The tables below reflect the number of communities and units as of December 31, 2013 and 2012 and rental revenues, property operating expenses and NOI for the years ended December 31, 2013 and 2012 for our Same Store operating portfolio as well as other properties in continuing operations:

	For the Year Ended   December 31,
	2013		2012		$ Change		% Change
Rental revenue
Same Store	$	168.9	$	158.8	$	10.1	6.4	%
2013 acquisitions	2.2		—		2.2		N/A
2012 acquisitions	13.2		7.8		5.4		69.2	%
Developments	6.3		5.2		1.1		21.2	%
Total rental revenue	190.6		171.8		18.8		10.9	%
Property operating expenses, including real estate taxes
Same Store	65.7		62.1		3.6		5.8	%
2013 acquisitions	1.3		—		1.3		N/A
2012 acquisitions	5.3		3.3		2.0		60.6	%
Developments	3.4		2.6		0.8		30.8	%
Total property operating expenses, including real estate taxes	75.7		68.0		7.7		11.3	%
NOI
Same Store	103.2		96.7		6.5		6.7	%
2013 acquisitions	0.9		—		0.9		N/A
2012 acquisitions	7.9		4.5		3.4		75.6	%
Developments	2.9		2.6		0.3		11.5	%
Total NOI	$	114.9	$	103.8	$	11.1	10.7	%

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	December 31,
	2013	2012	Change
Number of Communities
Same Store	28	28	—
2013 acquisitions	1	—	1
2012 acquisitions	3	3	—
Developments	2	1	1
Total Number of Communities	34	32	2
Number of Units
Same Store	7,747	7,747	—
2013 acquisitions	202	—	202
2012 acquisitions	819	819	—
Developments	573	272	301
Total Number of Units	9,341	8,838	503

See reconciliation of NOI to income from continuing operations at “Non-GAAP Performance Financial Measures — Net Operating Income and Same Store Net Operating Income.”

Fiscal year ended December 31, 2013 as compared to fiscal year ended December 31, 2012

Rental Revenues. Rental revenues for the year ended December 31, 2013 were $190.6 million compared to $171.8 million for the year ended December 31, 2012.  Same Store revenues, which accounted for approximately 89% of total rental revenues for 2013, increased 6% or $10.1 million.  The majority of the increase in Same Store revenues is related to a 4% increase in the monthly rental revenue per unit from $1,668 as of December 31, 2012 to $1,728 as of December 31, 2013. The remaining increase of $8.7 million in total rental revenue for the year ended December 31, 2013 as compared to the comparable period of 2012 is attributable to our 2013 acquisition and developments as well as our 2012 acquisitions which reported rental revenues for the full period in 2013.

Property Operating and Real Estate Tax Expenses. Property operating and real estate tax expenses for the years ended December 31, 2013 and 2012 were $75.7 million and $68.0 million, respectively.  Same Store property operating expenses and real estate taxes, which accounted for approximately 87% of total property operating expenses and real estate taxes for 2013, increased $3.6 million.  Increases in Same Store real estate taxes of approximately $1.8 million were due to increased tax values on our multifamily communities.  Same Store property management fees increased by $0.6 million, which under our current property management agreement is directly related to increased Same Store rental revenue.  Our 2013 acquisition and developments as well as our 2012 acquisitions which were held for the full period in 2013 accounted for $4.1 million of the increase in total property operating and real estate tax expenses.

Asset Management Fees. Asset management fees for the year ended December 31, 2013 increased by $1.1 million compared to the same period of 2012. Increase in our gross real estate costs and investment values, the primary input to the calculation of asset management fees, resulted in an approximate increase of $1.9 million. Prior to July 1, 2013, the Advisor waived the difference between asset management fees calculated on the basis of appraised value of our investments and asset management fees calculated on the basis of cost of our investments. Effective July 1, 2013, the Advisor is no longer waiving this difference. Offsetting the increase, for the year ended December 31, 2013, we received a reduction of $0.8 million from Behringer related to the transfer of the executives from Behringer to the Company and the associated reduction in the duties of Behringer.  

General and Administrative Expenses. General and administrative expenses increased approximately $0.6 million for the year ended December 31, 2013 compared to the same period of 2012. During the year ended December 31, 2013, we incurred compensation expenses of approximately $1.8 million related to the five executives who became employees of the Company effective July 1, 2013 and another employee hired thereafter. We also incurred approximately $0.7 million of legal expenses during the year ended December 31, 2013, related to the restructuring of the Master Partnership as further discussed in Part I, Item 1, “Business — Organization.” During the year ended December 31, 2012, we incurred approximately $2.3 million of

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strategic review expenses, primarily including investment bankers, legal and Special Committee costs. We did not incur strategic review expenses during the year ended December 31, 2013.

Acquisition Expenses. Generally, acquisition costs related to developments are capitalized and other acquisition costs, primarily related to operating properties or businesses, are expensed. For the year ended December 31, 2013, $3.7 million of acquisition costs were expensed with approximately $2.5 million related to our acquisition of a multifamily operating community in San Francisco, California, and the remaining $1.2 million related to the acquisition of the GP Master Interest from Behringer. Acquisition expenses for the year ended December 31, 2012 were principally related to our 2012 acquisitions of two multifamily operating communities.  The majority of these acquisition expenses were fees and expenses due to our Advisor.  As we make additional consolidated investments in operating properties, we expect acquisition expenses to continue to have a significant effect on our operating results. See the section below entitled “Non-GAAP Performance Financial Measures — Funds from Operations and Modified Funds from Operations” for additional discussion.

Transition Expenses. During the year ended December 31, 2013, we incurred $9.0 million of transition expenses related to our transition to becoming a self-managed company. Approximately $7.9 million of the transition expenses relate to amounts incurred with Behringer in connection with the self-management transaction. In addition, we incurred other legal, financial advisors, consultants and costs of the Special Committee of $1.1 million. See further discussion above under “Transition to Self-Management.” We did not incur any transition expenses for the year ended December 31, 2012.

Interest Expense. For the years ended December 31, 2013 and 2012, we incurred total interest charges of $34.4 million and $33.9 million, respectively. For the years ended December 31, 2013 and 2012, we capitalized interest expense of $10.5 million and $2.5 million, respectively, and accordingly, recognized net interest expense for the years ended December 31, 2013 and 2012 of approximately $23.8 million and $31.4 million, respectively. The decrease was principally due to a $8.0 million increase in capitalized interest as a result of increased development activity.

Depreciation and Amortization. Depreciation and amortization expense for the years ended December 31, 2013 and 2012 was approximately $86.1 million and $99.7 million, respectively.  Depreciation and amortization primarily includes depreciation of our consolidated multifamily communities and amortization of acquired in-place leases and other contractual intangibles.  The decrease is principally the result of the $20.6 million decrease in lease intangible amortization expense, which due to its relatively short life (usually less than one year) was fully amortized in prior periods.  The decrease was partially offset by a $4.0 million increase in depreciation expense related to our acquisitions of multifamily operating communities acquired in 2013 and 2012, and a $1.5 million increase in amortization expense related to the intangible assets acquired upon the acquisition of the GP Master Interest and increased depreciation expense related to new capital improvements placed in service subsequent to December 31, 2012.  See the section below entitled “Non-GAAP Performance Financial Measures — Funds from Operations and Modified Funds from Operations” for additional discussion.

Income (Loss) from Discontinued Operations. The income (loss) from discontinued operations relates to the sales of four multifamily communities in 2013 and Mariposa in 2012.  The operations of the four multifamily communities for the years ended December 31, 2013 and 2012 and the operations of Mariposa for the year ended December 31, 2012 have been reported as discontinued operations in the consolidated statements of operations.  The gain of $50.8 million for the year ended December 31, 2013 represents the total gain recognized from the sales of the four multifamily communities.  The gain of $13.3 million for the year ended December 31, 2012 represents the gain recognized from the sale of Mariposa.  Other income related to these communities during the applicable periods was not significant.  There were no other property dispositions during the years ended December 31, 2013 or 2012.

We review our investments for impairments in accordance with GAAP. For the years ended December 31, 2013 and 2012, we have not recorded any impairment losses. However, this conclusion could change in future periods based on changes in market conditions, primarily market rents, occupancy, the availability and terms of capital, investor demand for multifamily investments and U.S. economic trends. 

Fiscal year ended December 31, 2012 as compared to fiscal year ended December 31, 2011

The consolidation of the PGGM CO-JVs and MW CO-JVs in December 2011 and the acquisitions and developments in 2012 and 2011 significantly affected the comparability of our 2012 fiscal year results as compared to our 2011 fiscal year results. Because investments recorded on the consolidated basis of accounting reflect operating results gross, our 2012 results reflect increases in most operating line items, particularly revenue, property operating expenses, real estate taxes, interest expense, depreciation and amortization and a decrease in equity earnings (loss) from unconsolidated real estate joint ventures.

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Additionally, we recorded a gain on revaluation of equity on business combinations of $121.9 million related to the 2011 consolidations.

Due to the activity resulting from our investments, including the consolidation of previously unconsolidated investments in real estate joint ventures in 2011, we have few comparable operating multifamily communities through December 31, 2012. Accordingly, Same Store comparisons are not meaningful with respect to these periods.

Rental Revenues.    Annual rental revenues for 2012 increased $108.4 million over the same period in 2011. A substantial portion of the increase was attributable to the December 2011 consolidation of the PGGM CO-JVs and MW CO-JVs of $89.2 million and the acquisitions of Argenta, Stone Gate and West Village during the spring of 2011 for $6.7 million. Additionally, the three 2012 business combinations discussed further in Note 4, “Business Combinations” to the consolidated financial statements, accounted for approximately $7.8 million of the increase in 2012 revenue over 2011. The remaining increase of $4.7 million in rental revenues is generally due to an increase in occupancy, which was 94% at December 2012 compared to 93% in December 2011, and a 5% increase in overall rental rates in 2012 as compared to 2011.

Property Operating and Real Estate Tax Expenses.    Annual property operating and real estate tax expenses for 2012 increased $40.3 million over the same period in 2011. Approximately $34.9 million of this increase is a result of the consolidation of the PGGM CO-JVs and MW CO-JVs in December 2011, approximately $2.4 million is a result of the acquisitions of Argenta, Stone Gate and West Village during the spring of 2011, and approximately $3.4 million is related to the three 2012 business combinations.

General and Administrative Expenses.    The increase in general and administrative expenses of $6.2 million for 2012 compared to the same period of 2011 included $2.3 million of costs related to the Company's review of strategic alternatives, primarily financial advisory and legal fees. Additionally, in 2012, we incurred $1.8 million of off-site personnel costs reimbursed to the Property Manager in accordance with our property management agreement. During 2011, the Property Manager waived reimbursement of these costs.

Acquisition Expenses.    Acquisition expenses for 2012 were approximately $2.5 million and principally related to our acquisition of Pembroke Woods and the Grand Reserve. The majority of the acquisition expenses were fees and expenses due to our Advisor. For 2011, we incurred acquisition expenses of $6.2 million principally related to our consolidated acquisitions of Argenta, West Village and Stone Gate.

Interest Expense.    Annual interest expense for 2012 increased $20.4 million over the same period in 2011. Approximately $17.9 million of the increase is attributable to the consolidation of the PGGM CO-JVs and MW CO-JVs in December 2011 and their related financing, and approximately $1.8 million is a result of the acquisitions of Argenta, Stone Gate and West Village and their related financing during 2011. Additionally, the increase was due to a full year of increased borrowing related to our mortgage loans payable as we obtained new mortgage financing in 2011 related to Acappella, Allegro, and the Lofts at Park Crest multifamily communities. These increased borrowings were partially offset by a decline in credit facility borrowings and a decline in the LIBOR base rate. Also included in interest expense are credit facility fees related to minimum usage and unused commitments. These fees, which increased as a result of our reduced borrowings under the credit facility, were $2.5 million and $1.4 million during 2012 and 2011, respectively. Additionally, during 2012, interest of $2.5 million was capitalized on 11 developments. We capitalized minimal interest during the comparable period of 2011.

Depreciation and Amortization.    Annual depreciation and amortization expense for 2012 increased $62.9 million over the same period in 2011. Depreciation and amortization primarily includes depreciation of our consolidated multifamily communities and amortization of acquired in-place leases. Approximately $59.7 million of the increase during 2012 is primarily attributable to the consolidation of the PGGM CO-JVs and MW CO-JVs in December 2011. The partially offsetting decline in 2012 is primarily attributable to the amortization of acquired in-place leases, where due to shorter amortization periods, a larger portion was fully amortized in 2011. As we make additional consolidated investments, we expect depreciation and amortization expense to continue to increase and to be a significant factor in our GAAP reported results. See the section below entitled “Funds from Operations and Modified Funds from Operations” for additional discussion.

Interest Income.    Interest income, which primarily included interest earned on our cash equivalents, short-term investments, and loan investments for 2012 and 2011, was approximately $7.2 million and $3.4 million, respectively. Interest income earned on our loan investments increased $3.1 million for 2012 compared to the comparable period of 2011 due to a net increase in loan investments of $11.7 million during 2012. Our cash equivalent and short-term investment balance is primarily a function of our remaining proceeds raised from our Initial Public Offering and the timing of our expenditures for investments. Our average balance of cash equivalents and short-term investments for 2012 was approximately $553.1 million compared to $354.1 million for the comparable period of 2011. Due to our primary emphasis on providing liquidity for future real estate investments, our cash equivalents are substantially held in daily liquidity bank deposits. For 2012 and 2011, interest rates

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continued to be at historical low interest rates, generally in the range of 0.15% to 0.50%, with no significant change between the two years.

Gain on Revaluation of Equity on a Business Combination.    Effective July 31, 2012, the Veritas PGGM CO-JV converted its mezzanine loan receivable into an additional equity interest in the Veritas Property Entity, became the general partner of the Veritas Property Entity, and in conjunction with this transaction, consolidated the Veritas Property Entity at its fair value. A gain on revaluation of equity on a business combination of $1.7 million was recognized for the year ended December 31, 2012. In April 2011, the business combination of our investment in the Waterford Place PGGM CO-JV resulted in a gain of $18.1 million. The gain was primarily a function of the recognition of assets held for sale which were recorded at fair value based on the sale contract for the Waterford Place community. Additionally, in December 2011, the business combinations of our investments in the PGGM CO-JVs and MW CO-JVs resulted in an aggregate gain of approximately $103.8 million. The gain was primarily a function of the recognition of recording the assets of the multifamily communities at their fair value on December 1, 2011, and we do not expect to have similar gains in the near term.

Equity in Loss of Investments in Unconsolidated Real Estate Joint Ventures.    Equity in loss of joint venture investments for 2012 was approximately $1.2 million compared to approximately $6.8 million for the comparable period of 2011. In December 2011, we consolidated 23 PGGM CO-JVs and MW CO-JVs and accordingly ceased recording our share of their operations through equity pick-up on December 31, 2011. As of December 31, 2012, we have only one unconsolidated joint venture.

Other Expense.    Other expense is principally related to the change in the fair values of our non-designated hedge derivatives for 2012. We did not have any non-designated hedge derivatives in 2011.

Income (Loss) from Discontinued Operations.    The gain on sale of real estate for the year ended December 31, 2012 relates to the disposition of Mariposa in March 2012. The gain on sale of real estate for the year ended December 31, 2011 relates to the disposition of Waterford Place in May 2011. Other income related to these communities during the applicable periods was not significant. There were no other property dispositions during 2012 or 2011.

Net Income (Loss) Attributable to Noncontrolling Interests.    Our noncontrolling interests activity relates to our acquisitions of controlling interests in the PGGM CO-JVs and MW CO-JVs effective December 1, 2011, the Waterford Place PGGM CO-JV effective April 1, 2011, and the Grand Reserve PGGM CO-JV effective February 15, 2012, as well as the Veritas PGGM CO-JV's acquisition of a controlling financial interest in the Veritas Property Entity effective July 31, 2012. Net loss attributable to noncontrolling interests represents the net loss attributable to our Co-Investment Venture partners who own noncontrolling interests in our consolidated communities.

Significant Balance Sheet Fluctuations

The discussion below relates to significant fluctuations in certain line items of our consolidated balance sheets from December 31, 2012 to December 31, 2013.

Total real estate, net increased approximately $249.2 million principally as a result of $374.7 million of expenditures related to our development portfolio during 2013 and the acquisition of a multifamily community located in San Francisco for $108.7 million. These increases were partially offset by sales of four multifamily communities carried at a combined net book value of $150.8 million in 2013 and depreciation expense of $81.8 million for the year ended December 31, 2013. See “Liquidity and Capital Resources — Long-Term Liquidity, Acquisition and Property Financing” for further information regarding our development portfolio.

Cash and cash equivalents decreased $131.3 million principally as a result of the cash portion of expenditures related to the development program of $326.0 million, acquisitions of noncontrolling interests of $49.0 million, advances on notes receivable of $31.1 million, $27.7 million in costs related to our transition to self-management, and common stock redemption payments of $22.9 million.  This decrease was partially offset by the receipt of our share of the net sales proceeds of $174.5 million from the sales of real estate and $53.4 million of net loan proceeds received during the year ended December 31, 2013. Additionally, during the year ended December 31, 2013, we sold noncontrolling interests in 13 developments to PGGM for cash proceeds of $146.4 million.

Mortgages and notes payable decreased approximately $49.6 million principally related to the sales of real estate during the year ended December 31, 2013. During the year ended December 31, 2013, we obtained new financings on two of our multifamily communities totaling $78.0 million.

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Non-redeemable noncontrolling interests increased $90.9 million principally as a result of our partial sale of interests in 13 Development CO-JVs to PGGM in December 2013. See further discussion of the transaction in Part I, Item 1, “Business — Co-Investment Ventures” and Note 11, “Noncontrolling Interests” to the consolidated financial statements.

During 2013, the number of our VIEs where we are the primary beneficiary increased from three to ten. The increase in number of VIEs was the result of capital restructurings but, as further explained in Note 6, “Variable Interest Entities” to the consolidated financial statements, these entities were previously consolidated and therefore did not have a direct effect on our financial position but did result in increased parenthetical disclosures on our consolidated balance sheets related to our VIEs.   As these VIEs all relate to developments in multifamily communities, this has resulted in increased amounts for several balance sheet line items, particularly related to construction in progress, mortgages and notes payable and construction costs payable.

Cash Flow Analysis

Similar to our discussion above related to “Results of Operations,” many of our cash flow results are affected by our 2012 and 2013 acquisition activity and the transition of many of our multifamily communities from lease up to stabilized operations, along with changes in the number of our developments.  We anticipate investing a significant portion of our available cash in multifamily investments.  We currently expect developments to constitute one of our primary investment focuses.  Due to the longer periods required to deploy funds during a development and the timing of possible construction financing, we expect that the investment period could extend through parts of 2014 and 2015; however, once the available cash is invested, we expect a decline in our acquisition and development activity.  Accordingly, our sources and uses of funds may not be comparable in future periods.

For the year ended December 31, 2013 as compared to the year ended December 31, 2012

Cash flows provided by operating activities for the year ended December 31, 2013 were $76.7 million as compared to cash flows provided by operating activities of $63.4 million for the same period in 2012.  The increase in cash provided by operating activities is partially due to the $11.1 million increase in NOI from both our Same Store operating properties and our 2013 and 2012 acquisitions and developments completed in 2013.  The increase in NOI is primarily attributable to increased monthly rental revenue per unit and increased occupancy for the year ended December 31, 2013 compared to the same period of 2012.  Also, interest expense included in operating activities decreased approximately $7.5 million principally due to amounts capitalized in our development program.  A substantial portion of our other GAAP expenses are due to non-cash charges, primarily related to depreciation and amortization.  Our amortization of intangible non-cash charges decreased by $21.2 million for the year ended December 31, 2013 as compared to the same period in 2012, principally as a result of the relatively short life of lease intangibles (usually less than one year), which were fully amortized in prior periods.  The decrease was partially offset by $1.6 million of depreciation expense related to the 2013 acquisition of a multifamily operating community in San Francisco, California, depreciation expense related to new capital improvements placed in service subsequent to December 31, 2012, and a $1.5 million increase in amortization expense related to the intangible assets acquired upon the acquisition of the GP Master Interest.  Additionally, cash flow from operating activities decreased by approximately $3.4 million as a result of transition expenses paid during 2013 related to our transition to self-management. We expect that other non-cash charges will continue to be significant determinates for net cash provided by operating activities.  We also expect that acquisition expenses will be a larger factor in our net cash flows provided by operating activities as we invest our available cash.

Cash flows used in investing activities for the year ended December 31, 2013 were $306.6 million compared to cash flow used in investing activities of $221.6 million during the comparable period of 2012.  The increase in cash used in investing activities was principally due to the increase of $202.1 million in expenditures related to our development portfolio during the year ended December 31, 2013 as compared to the same period of 2012.  Additionally, during the year ended December 31, 2013, we acquired a multifamily operating community in San Francisco, California for $108.0 million and the GP Master Interest for $23.1 million, as compared to the acquisitions of two multifamily operating communities during the same period of 2012 for $67.6 million. These decreases in cash used in investing activities were partially offset by the increase of $181.4 million in proceeds from the sale of real estate for the year ended December 31, 2013, compared to the same period of 2012. During 2013, we sold four multifamily operating communities and during 2012, we sold one multifamily operating community. We expect capital expenditures related to our development program to be a significant use of cash during 2014.

Cash flows provided by financing activities for the year ended December 31, 2013 were $98.7 million compared to cash flows used in financing activities of $46.6 million for the year ended December 31, 2012.  During the year ended December 31, 2013, we received noncontrolling interest contributions of $153.5 million ($146.4 million related to PGGM) compared to total contributions of $13.2 million in 2012. During the year ended December 31, 2013, we distributed $51.3 million to

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noncontrolling interests as compared to $29.7 million for the comparable period of 2012. During the year ended December 31, 2013, we repaid mortgages payable of $71.7 million related to our sales of real estate and received mortgage proceeds of $107.0 million related to financing.  During the year ended December 31, 2012, we obtained financing proceeds from two new loans for $33.7 million, and we refinanced four loans, obtaining long term fixed rate financing, paying principal of $199.5 million and receiving proceeds of $200.1 million. 

For the year ended December 31, 2012 as compared to the year ended December 31, 2011

Cash flows provided by operating activities for the year ended December 31, 2012 were $63.4 million as compared to cash flows provided by operating activities of $31.7 million for the same period in 2011. The increase in cash provided by operating activities is primarily due to the acquisitions of consolidated multifamily communities and increased stabilized multifamily community activities noted above. A substantial portion of our GAAP expenses are due to non-cash charges, primarily related to depreciation and amortization. Our depreciation and amortization non-cash charges increased by $66.7 million for 2012 as compared to the same period in 2011. This significant increase in depreciation and amortization is a result of the consolidation of the PGGM CO-JVs and MW CO-JVs on December 1, 2011. Distributions received from investments in unconsolidated real estate joint ventures were $14.6 million for 2011 compared to $0.2 million for the comparable period of 2012 and declined due to the consolidation of the PGGM CO-JVs and MW CO-JVs.

Cash flows used in investing activities for the year ended December 31, 2012 were $221.6 million compared to cash flow used in investing activities of $9.7 million during the comparable period of 2011. The increase in cash used in investing activities was principally due to our acquisitions of Pembroke Woods, the Grand Reserve (through a PGGM CO-JV) and land for future development. Additionally, during 2012, we acquired additional noncontrolling interests in three PGGM CO-JVs for approximately $17.6 million and issued a net of $17.9 million in notes receivable. These increases in cash used in investing activities were partially offset by the sale of Mariposa in March 2012 which generated net cash proceeds of $23.9 million. During 2011, the sale of the Waterford Place multifamily community and the assumption of its mortgage debt by the buyer netted proceeds of $50.6 million. Additionally, during December 2011, we sold joint venture interests in six of our multifamily communities resulting in net proceeds of $101.0 million. We had no such sales in 2012, and while we may have sales in the future, we do not expect future sales to be a regular source of cash flow. We had one new investment in a mezzanine loan through an unconsolidated real estate joint venture for 2012. As all but one of our Co-Investment Ventures are consolidated, we may have fewer investments in unconsolidated real estate joint ventures in future periods. Providing an additional source of investing cash flow for 2011 were PGGM CO-JV and MW CO-JV distributions related to financings for Cyan/PDX, Skye 2905, 55 Hundred, Venue, Satori and The District Universal Boulevard of $14.6 million, which were returns of investments in unconsolidated real estate joint ventures. As all existing PGGM CO-JVs and MW CO-JVs were consolidated in December 2011, we had no distributions related to financings for 2012.

Cash flows used in financing activities for the year ended December 31, 2012 were $46.6 million compared to cash flows provided by financing activities of $580.9 million for the comparable period of 2011. For 2011, net proceeds from our Initial Public Offering were approximately $539.6 million. There were no net proceeds from our Initial Public Offering for 2012, as our Initial Public Offering ended in September 2011. During 2012, we obtained financing proceeds from two new loans for $33.7 million.

Liquidity and Capital Resources

The Company has cash and cash equivalents of $319.4 million as of December 31, 2013.  We intend to deploy these funds for additional investments in multifamily communities, primarily development investments, to refinance existing mortgage and construction financings which may benefit from the lower interest environment, to fund costs associated with our transition to a self-managed company, and, to the extent necessary, for distributions to our common stockholders. We anticipate supplementing our investable cash with capital from Co-Investment Ventures, real estate financing, our credit facility, and possibly other equity and debt offerings. Our investments may include wholly owned and joint venture equity interests in operating or development multifamily communities and loans secured directly or indirectly by multifamily communities.  Once we have deployed these proceeds, we would expect a significant reduction in the use of funds for acquisitions, developments, other real estate and real estate-related investments.

Generally, operating cash needs include our operating expenses, general administrative expenses, and asset management fees.  We expect to meet these requirements from our share of the operations of our existing investments and anticipated new investments.  However, as we currently intend to focus on development investments, which require time to develop, permit, construct and lease up, there will be a delay before development investments are providing positive cash flows.

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Based on our current distribution levels and anticipated redemptions of our common stock, our current operating cash flow, net of the cash requirements noted above, is insufficient to meet our total distributions and redemptions, and we will be dependent on our current cash balances, the continued level of DRIP participation and on the returns from our anticipated investments to increase our operating cash flow. There is no assurance that we will be able to achieve these required returns. During these periods, as we invest and attempt to produce stabilized cash flows, we may use portions of our available cash balances to fund redemptions and the distributions paid to our common stockholders, which could reduce the amount available for new investments.  Lower returns may affect our ability to make distributions or the amount actually disbursed.  We may also refinance or dispose of our investments and use the proceeds to reinvest in new investments, re-lever debt, or use for other obligations, including distributions on our common stock.

We expect to utilize our cash balances, cash flow from operating activities and our credit facility predominantly for the uses described above.  Accordingly, we expect our available cash balances to decrease as we execute our strategy.

Short-Term Liquidity

Currently, our primary indicators of short-term liquidity are our cash and cash equivalents and our credit facility.  As of December 31, 2013, our cash and cash equivalents balance was $319.4 million, compared to $450.6 million as of December 31, 2012. The decrease is primarily due to equity and debt investments of $465.1 million, acquisition costs of noncontrolling interests of $49.0 million, and transition costs of $27.7 million for the year ended December 31, 2013. These decreases were partially offset by our share of the sales proceeds of $174.5 million from the sale of four multifamily communities in 2013, and the sale of noncontrolling interests to PGGM of $146.4 million.

Our consolidated cash and cash equivalent balance of $319.4 million as of December 31, 2013 includes approximately $25.6 million held by the Master Partnership and individual Co-Investment Ventures.  These funds are held for the benefit of the Master Partnership and individual Co-Investment Ventures, including amounts for their specific operating requirements, as well as amounts available for distributions to us and our Co-Investment Venture partners. Accordingly, these amounts are only available to us for general corporate purposes after distributions to us.

Our cash and cash equivalents are invested in bank demand deposits and money market accounts. We manage these credit exposures by diversifying our investments over several financial institutions.  However, because of the degree of our cash balances, a substantial portion of our holdings are in excess of U.S. federally insured limits. Further, beginning in 2013, certain non-interest bearing deposits, which were previously fully federally insured, are now subject to the same $250,000 insurance limit as other deposits, further increasing the amount of our deposits that are in excess of U.S. federal insured limits and requiring us to rely more on the credit worthiness of our deposit holders and our diversification strategy.

With the termination of our Initial Public Offering on September 2, 2011, we are more dependent on our cash flow from operating activities, our available cash balances and the other sources discussed herein.  Cash flow from operating activities was $76.7 million for the year ended December 31, 2013 compared to $63.4 million for the comparable period in 2012.  As most of our investments are accounted for under the consolidated method of accounting, we show our cash flow from operating activities gross, which includes amounts available to us and to Co-Investment Venture partners. Included in our distributions to noncontrolling interests are discretionary distributions related to ordinary operations (i.e., excluding distributions related to capital activity, primarily debt financings, to these Co-Investment Venture partners).  Distributions related to operating activities to these Co-Investment Venture partners were $25.0 million and $20.4 million for the years ended December 31, 2013 and 2012, respectively.

With our positive consolidated cash flow from operating activities, we are able to fund operating costs of our multifamily communities, interest expense, general and administrative costs and asset management fees. Our residents generally pay rents monthly, which generally coincides with the payment cycle for most of our operating expenses and interest and general and administrative expenses.  Real estate taxes and insurance costs, the most significant exceptions to our 30 day payment cycle, are either paid from lender escrows, which are funded by us monthly, or from elective internal cash reserves.  Further, we expect our share of operating cash flows to benefit from our recent acquisitions and anticipated lease up of our development properties.  Accordingly, we do not expect to have to rely on other funding sources to meet our recurring operating, financing and administrative expenses.

We expect to fund our transition expenses through the Self-Management Closing from existing cash balances (including cash available as a result of reduced fees and expense reimbursements related to our advisory and property management agreements). Thereafter, we expect to fund our increased general and administrative expenses, primarily increased staff and facility expenses, from increased operating cash flows as a result of the elimination or reductions of advisory and property management fees.

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Because we evaluate the performance and returns of our investments loaded for all acquisition costs, including acquisition fees paid to our Advisor, we have and expect to primarily fund acquisition expenses from available cash balances, capital contributions of Co-Investment Venture partners and property related debt financing.  However, acquisition costs are a use of operating cash, and in accordance with GAAP, acquisition expenses are a deduction to cash flow from operating activities. Accordingly, as our acquisition activity continues, we expect our GAAP reported cash flow from operating activities to be affected by the magnitude of our acquisitions.

The regular annual distribution rate on our common stock is currently 3.5% (based on a purchase price of $10.00 per share), which was set by our board of directors in the second quarter of 2012. Prior to April 1, 2012, our previous regular annual distribution rate was 6.0%. The current distribution rate has reduced our distributions payable in 2013 as compared to 2012, and if continued going forward would preserve cash for other uses, including investments in multifamily communities. We expect to fund distributions from multiple sources including (1) cash flow from our current investments and investments anticipated from our available cash balances, (2) our available cash balances, (3) financings and (4) dispositions.  In addition, to the extent that stockholders elect to reinvest their regular distributions under our DRIP, less cash is needed to fund distributions.  During 2013 and 2012, the percentage of our regular distributions that has been reinvested has averaged approximately 53% and 55%, respectively.

Our board of directors has modified and reinstated our share redemption program (“SRP”) effective March 1, 2013.  (See Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Share Redemption Program” for a description of our SRP.) Our SRP was suspended effective June 18, 2012, and we did not redeem any shares in the second, third and fourth quarters of 2012.  Prior to the suspension, we fulfilled all redemption requests properly submitted and approved through the first quarter of 2012, paying out $15.5 million in redemptions during 2012 (through the suspension date).

The SRP currently provides a limit of $7.0 million of redemptions per quarter. At that funding limit, this amount generally corresponds to the average participation in our DRIP, substantially netting out the funding requirement. However, the board of directors may modify the funding limit in its discretion. For the third quarter of 2013, the board of directors approved redemptions equal to the $7.0 million funding limit and in the second quarter of 2013, the board directors increased the funding limit for that quarter to $8.9 million. Accordingly, there is no assurance that the board of directors will not modify the redemption funding limit or that the redemptions or the level of stockholder participation in the DRIP will continue in the future in the same relative ranges.

After the December 2013 redemption payments made in accordance with the SRP, the Company has unfulfilled redemption requests of approximately $22.6 million, representing 2.6 million shares at an average price of $8.53 per share. The liquidity required to meet the share redemption requests could affect amounts available for investment, or if borrowings are used to fund the redemptions, the amount and term of our debt financing. We may also dispose of investments to fund redemption requests, which could affect our future operating performance. (See Part II, Item 5, “Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities — Share Redemption Program” for further discussion of our SRP.

We have a $150.0 million credit facility which we intend to use to provide greater flexibility in our cash management and to provide funding on an interim basis for our other short-term needs.  The credit facility matures on April 1, 2017, when all unpaid principal and interest is due, and provides for fees based on unutilized amounts and minimum usage.  The loan requires minimum borrowing of $10.0 million and monthly interest-only payments and monthly or annual payment of fees.  Draws under the credit facility are secured by a pool of certain wholly owned multifamily communities, and we may add and remove multifamily communities from the collateral pool, pursuant to the requirements under the credit facility agreement.  The aggregate borrowings under the credit facility are limited to 70% of the value of the collateral pool, which may be different than the carrying value for financial statement reporting.  We may elect to add multifamily communities to the collateral pool in order to increase amounts available for borrowing.  Conversely, dispositions of multifamily communities in the collateral pool that are not replaced would result in decreases in amounts available for borrowing or require repayment of outstanding draws to comply with borrowing limits.

The credit facility agreement contains customary provisions with respect to events of default, covenants and borrowing conditions.  In particular, the credit facility agreement requires us to maintain a consolidated net worth of at least $150.0 million, liquidity of at least $15.0 million and net operating income of the collateral pool to be no less than 155% of the facility debt service cost.  Certain prepayments may be required upon a breach of covenants or borrowing conditions.  We believe we are in compliance with all provisions as of December 31, 2013.

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If circumstances provide us with incentives to acquire investments in all-cash transactions, we may draw on the credit facility for the funding.  We may also use the credit facility for interim construction financing, which could then be repaid from permanent financing at stabilization of each development.  When we have excess cash, we have the option to pay down the facility, which we have done beginning in the second half of 2011. The total borrowings we are eligible to draw depend upon the value of the collateral we have pledged.  As of December 31, 2013, we may make additional draws of approximately $138.1 million.  Future borrowings under the credit facility are subject to periodic revaluations, either increasing or decreasing available borrowings.

The carrying amount of the credit facility and the average interest rate for different periods is summarized as follows (amounts in millions):

	December 31, 2013				For the Year Ended December 31, 2013
	Balance Outstanding		Interest Rate		Average Balance Outstanding		Interest Rate (a)		Maximum Balance Outstanding
Borrowings	$	10.0	2.25	%	$	10.0	2.27	%	$	10.0

(a)The average rate is based on month-end interest rates for the period.

As we utilize our cash balances as described in this section, we expect to use the credit facility more frequently.

Long-Term Liquidity, Acquisition and Property Financing

Currently, our primary funding source for investments is our available cash balances, joint venture arrangements, debt financings and dispositions. Our Initial Public Offering terminated on September 2, 2011, with gross and net proceeds from our Initial Public Offering of $1.46 billion and $1.3 billion, respectively.  As our Initial Public Offering is closed, we are dependent on the short-term and long-term liquidity sources discussed in this section.

As discussed above, we expect to use a substantial portion of our available cash for additional investments in multifamily communities, primarily developments, and to a lesser extent multifamily operating and debt investments.  The actual amount invested will depend on the extent to which we are able to supplement these funds with other long-term sources as discussed below or the extent to which we utilize funds for distributions and redemptions related to our common stock or other uses. If our primary investments are developments, the time period to invest the funds and achieve a stabilized return could be longer.  Accordingly, our cash requirements during this period may reduce the amounts otherwise available for investment.

We may make equity or debt investments in individual multifamily communities, portfolios or mergers with other real estate companies. 

We may also increase the number and diversity of our investments by entering into Co-Investment Ventures, as we have done with our existing partners. During 2013, the PGGM arrangement was restructured, and as of December 31, 2013, PGGM has unfunded commitments of approximately $54.1 million related to PGGM CO-JVs in which they have already invested of which our share is approximately $67.4 million assuming a 45% investment by PGGM. In addition to capital already committed by PGGM through this arrangement, they may commit up to an additional $99.6 million plus any amounts distributed to PGGM from sales or financings of PGGM CO-JVs entered into on or after December 20, 2013. If PGGM were to invest the additional $99.6 million, our share would be approximately $124.0 million assuming a 45% investment by PGGM. PGGM is an investment vehicle for Dutch pension funds.  According to the website of PGGM’s sponsor, PGGM’s sponsor currently manages approximately 153 billion euro (approximately $210 billion, based on exchange rates as of December 31, 2013) in pension assets for over 2.5 million people as of December 2013.  Accordingly, we believe PGGM has adequate financial resources to meet its funding commitments and its PGGM CO-JV obligations.

We anticipate using our available cash and other sources described in this section to fund any amounts required. We expect that most of these fundings will be in PGGM CO-JVs, where we will be the controlling partner with partial economic interests.

 The MW Co-Investment Partner does not have any commitment for any additional investments.

As of December 31, 2013, we have 16 Developer CO-JVs, 12 of these through PGGM CO-JVs. These Developer CO-JVs were established for the development of multifamily communities, where the Developer Partners are providing development

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services for a fee and a back-end interest in the development but are not expected to be a significant source of capital.  As of December 31, 2013, other than the developments described in the development table below, we do not have any firm commitments to fund any other Co-Investment Ventures.

We make debt investments in multifamily developments for the interest earnings and/or to have options to participate in the equity returns of the development.  As of December 31, 2013, we have three wholly owned debt investments and one unconsolidated debt investment through a PGGM CO-JV. There is $6.0 million remaining to be funded on the wholly owned debt investments. The unconsolidated debt investment is fully funded. We believe each of the borrowers is in compliance with our debt agreements.

For each equity investment, we evaluate the use of new or existing debt, including our $150.0 million credit facility. Accordingly, depending on how the investment is structured, we may utilize financing at our company level (primarily related to our wholly owned investments) or at the Co-Investment Venture level, where the specific property owning entities are the borrowers.  For wholly owned acquisitions, we may acquire communities with all cash and then later or once a sufficient portfolio of unsecured communities is in place, obtain secured or unsecured financing. During 2013, we completed such an acquisition, acquiring Vara initially for all cash in July 2013 and placing mortgage financing on the property in December 2013. We may also use our credit facility to fully or partially fund development costs, which we may later finance with construction or permanent financing. If debt is used, we generally expect it to be secured by the property (either individually or pooled for the credit facility), including rents and leases. As of December 31, 2013, all but two of our loans, other than borrowings under our credit facility, are individually secured property debt.

Company level debt is defined as debt that is a direct or indirect obligation of the Company or its wholly owned subsidiaries.  Co-Investment Venture level debt is defined as debt that is an obligation of the Co-Investment Venture and is not an obligation or contingency for us but does allow us to increase our access to capital. Lenders for these Co-Investment Venture mortgages and notes payable have no recourse to us other than carve-out guarantees for certain matters such as environmental conditions, misuse of funds and material misrepresentations.  If we have provided partial guarantees for the repayment of debt, that debt is considered a company level debt. As of December 31, 2013, there are two construction loans with such partial guarantees with total commitments of $54.8 million, $12.3 million of which is outstanding.

Even with the 2013 increase in interest rates, in relation to historical averages, favorable long-term, fixed rate financing terms remain available for high quality multifamily communities. As of December 31, 2013, the weighted average interest rate on our company level and Co-Investment Venture level communities fixed interest rate financings was 4.0% and 3.7%, respectively.  During 2013, we and Co-Investment Ventures closed mortgage financings of $107.0 million at a weighted average interest rate of 3.6%. 

Based on current market conditions and our investment and borrowing policies, we would expect our share of operating property debt financing to be approximately 50% to 60% following the investment of the proceeds raised from the Initial Public Offering and upon stabilization and permanent financing of our portfolio.  As part of the PGGM CO-JV and MW CO-JV governing agreements, the PGGM CO-JVs and MW CO-JVs shall not have individual permanent financing leverage greater than 65% or aggregate permanent financing leverage greater than 50% of the Co-Investment Venture’s property fair values unless the respective Co-Investment Venture partner approves a greater leverage rate.  Our other Co-Investment Ventures also restrict overall leverage, ranging between 55% and 70%. These limitations may be removed with the consent of the Co-Investment Venture partners.

We also anticipate using construction financing for our developments as an additional source of capital. These financings may be structured as conventional construction loans or so-called construction to permanent loans. Conventional construction loans are usually floating rate with terms of three to four years, with extension options of one to two years. These loan amounts usually range between 50% and 70% of total costs. Construction to permanent loans are usually fixed rate and for a longer term of seven to ten years.  Accordingly, these loans are best suited when we are looking to lock in long term financing rates. Both types of development financing require granting the lender a full security interest in the development property and may require that we provide recourse guarantees to the lender regarding the completion of the development within a specified time and cost and a repayment of all or a portion of the financing. We expect to obtain construction financing separately for each development, generally when we have entered into general contractor construction contracts and obtained necessary local permits. As of December 31, 2013, we have closed five conventional construction loans and expect to close additional loans which may include different structures. See the development tables below for additional discussion of our existing development activity.

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As of December 31, 2013, the total carrying amount of all of our debt and our approximate pro rata share is summarized as follows (amounts in millions; LIBOR at December 31, 2013 was 0.17%):

	Total Carrying Amount		Weighted Average Interest Rate	Maturity Dates	Our Approximate Share (a)
Company Level
Permanent mortgage - fixed interest rate	$	87.3	3.95%	2018 to 2020	$	87.3
Permanent mortgage - variable interest rate	24.0		Monthly LIBOR + 2.45%	2014 (b)	24.0
Construction loans - variable interest rates (c)	12.2		Monthly LIBOR + 2.25%	2017	6.8
Credit facility	10.0		Monthly LIBOR + 2.08%	2017	10.0
Total Company Level	133.5				128.1
Co-Investment Venture Level - Consolidated:
Permanent mortgages - fixed interest rates	852.3		3.73%	2015 to 2020	469.5
Permanent mortgage - variable interest rate	12.2		Monthly LIBOR + 2.35%	2017	6.7
Construction loans - fixed interest rate (c)	24.6		4.13%	2018	17.4
Construction loans - variable interest rates (c)	9.8		Monthly LIBOR + 2.25%	2016 (b)	5.4
	898.9				499.0
Plus: Unamortized adjustments from business combinations	6.7
Total Co-Investment Venture Level - Consolidated	905.6
Total all levels	$	1,039.1			$	627.1

(a) Our approximate share for Co-Investment Ventures and Property Entities is calculated based on our share of contributed capital, as applicable.  These amounts are the contractual amounts and exclude unamortized adjustments from business combinations.  This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements.

(b) Includes loan(s) with one or two-year extension options for a fee of generally 0.25% of outstanding principal.

(c) The construction loans relate to five multifamily community developments with combined committed financing of $161.5 million and total estimated costs of $247.2 million. Draws under the commitment are generally available after we have funded a certain amount of equity, approximately 40% to 50% of the total costs, and are limited to prescribed percentages of the final cost, approximately 50% to 60% of the total costs. See below for additional information on our development activity.

Certain of these debts contain covenants requiring the maintenance of certain operating performance levels.  As of December 31, 2013, we believe the respective borrowers were in compliance with these covenants.  The above table does not include debt of Property Entities in which we or a Co-Investment Venture are only a lender with no equity investment.

As of December 31, 2013, contractual principal payments for our mortgages and notes payable for each of the five subsequent years and thereafter are as follows (in millions):

Years	Company Level		Consolidated Co-Investment Venture Level		Our Approximate Share
2014	$	24.0	$	5.5	$	27.1
2015	$	0.2	$	83.6	$	46.2
2016	$	0.6	$	155.6	$	90.8
2017	$	23.8	$	219.9	$	137.8
2018	$	30.0	$	140.8	$	107.3
Thereafter	$	54.9	$	293.5	$	217.9

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We would expect to refinance these borrowings at or prior to their respective maturity dates and to refinance the conventional construction loans with longer term, permanent mortgages upon stabilization of the development.  There is no assurance that at those times market terms would allow financings at comparable interest rates or leverage levels. In addition, we would anticipate that for some of these communities, lower leverage levels may be necessary or beneficial and may require additional equity or capital contributions from us or the Co-Investment Venture partners. We expect to use our available cash or other sources discussed in this section to fund any such additional capital contributions.

GSEs have been an important financing source for multifamily communities.  The U.S. government continues to discuss potential restructurings of the GSEs including partial or full privatizations.  Accordingly, we have and will continue to maintain other lending relationships.  As of December 31, 2013 and 2012, approximately 70% of all permanent financings currently outstanding by us and the Co-Investment Ventures were originated by GSEs. Recently, other loan providers, primarily insurance companies and to a lesser extent banks and collateralized mortgages (“CMBs”), have been a significant source for multifamily community financing, and we expect this trend to continue.  Accordingly, if the GSEs are restructured, we believe there are or will be sufficient other lending sources to provide financing to the multifamily sector; however in such an event, the cost of financing could increase.

Additional sources of long-term liquidity may be increased leverage on our existing investments.  As of December 31, 2013, the leverage on our operating portfolio, as measured by GAAP property cost, was approximately 48%. Through refinancings, we may be able to generate additional liquidity by increasing this leverage to our target leverage of 50-60%.  In certain circumstances we could be charged with prepayment penalties in executing this strategy. In addition, as of December 31, 2013, two multifamily communities (one of which is wholly owned and the other of which is held through one of our Co-Investment Ventures) with combined total carrying values of approximately $86.3 million, are not encumbered by any secured debt. If the multifamily community is held in a Co-Investment Venture, we will generally need partner approval to increase leverage.

We may use our credit facility to provide bridge or long-term financing for our wholly owned communities.  Where the credit facility is used as bridge financing, we would use proceeds on a temporary basis until we could secure permanent financing. The proceeds of such permanent financing would then be available to repay borrowings under the credit facility. However, the credit facility may also be used on a longer term basis, similar to permanent financing.

Other potential future sources of capital may include proceeds from arrangements with other joint venture partners, proceeds from the sale of our investments, if and when they are sold, and undistributed cash flow from operating activities.  We may also sell our debt or equity securities.  We anticipate that within four to six years after the termination of our Initial Public Offering we will begin the process of either listing our common stock on a national securities exchange or liquidating our assets, depending on the then current market conditions.

Dispositions may be a source of capital which may be recycled into investments in multifamily communities with higher long-term growth potential or into other investments with more favorable earnings prospects.  We may also use sales proceeds for other uses, including distributions on or redemptions of our common stock.  Any such dispositions will be on a selective basis as opportunities present themselves, where we believe current investments have achieved attractive pricing and alternative multifamily investments may provide for higher total returns. Other selection factors may include the age of the community, our critical mass of operating properties in the market where we would look to dispose of properties before major improvements are required, increasing risk of competition, changing sub-market fundamentals, and compliance with applicable federal REIT tax requirements.  For all PGGM CO-JVs and MW CO-JVs, we need approval from the other partner to dispose of an investment.  In 2012, we completed the disposition of Mariposa, generating cash proceeds of $23.9 million and gain on sale of $13.3 million.  In 2013, we completed the dispositions of Johns Creek, Cyan, Halstead, and Grand Reserve Orange generating combined cash proceeds of $205.3 million and gains on sale of $50.8 million.

In March 2012, our board of directors declared a $0.06 per share special cash distribution related to the sale of Mariposa.  (See “Distribution Policy — Distribution Activity — Special Cash Distribution” section below.)  Special cash distributions are in the discretion of our board of directors and, accordingly, there is no assurance the board will declare any special distributions in the future.

Our development investment activity includes both equity and loan investments (including one unconsolidated loan investment through a PGGM CO-JV). Equity investments are structured on our own account or with Co-Investment Venture partners.  Loan investments include mezzanine loans and land loans.

We classify our development investments as follows:

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• Lease up — A multifamily community is considered in lease up when the community has begun leasing. A certificate of occupancy may be obtained as units are completed, and accordingly, lease up may occur prior to final completion of the building. A multifamily community is considered complete when substantially constructed and capable of generating all significant revenue sources. As of December 31, 2013, we do not have any of our developments classified as lease up.

• Under development and construction — A multifamily community is considered under development and construction once we have signed a general contractors agreement and vertical construction has begun and ends once lease up has started.

• Pre-development — A multifamily community is considered in pre-development during finalization of budgets, permits and plans and ends once a general contractor agreement has been signed and vertical construction has begun.

The following table, which may be subject to finalization of budgets, permits and plans, summarizes our equity multifamily development investments as of December 31, 2013, all of which are investments in consolidated Co-Investment Ventures (amounts in millions):

			Our Effective		Total Costs Incurred as of		Total		Estimated		Committed		Estimated Quarter
Community		Location	Ownership (a)	Units	December 31, 2013		Estimated Costs (b)		Percent Complete (c)		Development Financing (d)		(“Q”) of Completion
Under development and construction:
4110 Fairmount		Dallas, TX	55%	299	$	34.2	$	47.9	71	%	$	26.2	3Q 2014
Arpeggio Victory Park		Dallas, TX	55%	377	46.4		61.7		75	%	31.3		3Q 2014
Allusion West University		Houston, TX	55%	231	33.0		43.2		76	%	21.9		4Q 2014
Blue Sol		Costa Mesa, CA	100%	113	27.7		40.0		69	%	—		4Q 2014
SEVEN		Austin, TX	55%	220	24.3		62.3		39	%	—		4Q 2014
Point 21		Denver, CO	55%	212	20.3		50.7		40	%	28.6		1Q 2015
Everly		Wakefield, MA	55%	186	21.7		51.8		42	%	—		1Q 2015
Muse Museum District		Houston, TX	55%	270	29.1		51.3		57	%	—		2Q 2015
Brickell	(e)	Miami, FL	44%	418	31.2		104.9		30	%	—		4Q 2015
Peachtree	(e)	Atlanta, GA	44%	327	11.6		71.1		16	%	—		4Q 2015
Zinc		Cambridge, MA	55%	392	50.3		191.4		26	%	—		4Q 2015
The Alexan		Dallas, TX	50%	365	28.7		94.4		30	%	53.5		2Q 2016
Mission Gorge	(e)	San Diego, CA	100%	444	41.3		130.2		32	%	—		1Q 2016
Tysons Corner	(e)	Tysons Corner, VA	50%	461	45.8		212.8		22	%	—		1Q 2016
Pre-development:
Uptown Delray		Delray Beach, FL	100%	146	4.3		39.6		11	%	—		1Q 2016
Renaissance Phase II		Concord, CA	55%	180	9.4		63.7		15	%	—		3Q 2016
The Marlowe	(e)	Rockville, MD	90%	366	19.9		96.2		21	%	—		4Q 2016
Total equity investments				5,007	$	479.2	$	1,413.2	34	%	$	161.5

(a) Our effective ownership represents our share of contributed capital and may change over time as certain milestones related to budgets, plans and completion are achieved.  Our effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements.

(b) Our share of total estimated costs, net of the Co-Investment Venture partner’s share (calculated as described in (a)), is approximately $873.8 million as of December 31, 2013.

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(c) Estimated percent complete is calculated as total costs incurred as a percentage of total estimated costs. Such percentage is only an approximation and does not include other factors related to timing and completion, such as permitting and entitlement requirements, staging of construction and other items where cost and schedule are not directly proportionate. We consider a multifamily community complete when the community is substantially constructed or renovated and capable of generating all significant revenue sources.

(d) Committed development financing includes the total amount of construction or other loans secured by the development. Draws under the commitment are generally available after we have funded a certain amount of equity, approximately 40% to 50% of the total costs, and are limited to prescribed percentages of the final cost, approximately 50% to 60% of the total costs. See above for additional information regarding our development financing, where we expect to obtain development financing in addition to those currently listed.

(e) If the development achieves certain milestones primarily related to approved budgets less than maximum amounts, we will reimburse the Developer Partner for their equity ownership and we and the PGGM Co-Investment Partner will be responsible for all of the development costs. The Developer Partner would then be entitled to back end interests based on the development achieving certain total returns.

As of December 31, 2013, we have entered into construction and development contracts with $645.1 million remaining to be paid.  These construction costs are expected to be paid during the completion of the development and construction period, generally within 24 months.  These construction contracts provide for guaranteed maximum pricing from the general contractor or cost overrun guarantees from the developer partners for a portion but not all of the construction and development costs, which will serve to provide some protection to us from pricing increases or cost overruns.  We expect to enter into additional construction contracts on similar terms during 2014 and 2015 on our existing developments and additional developments in our pipeline.

Developments classified as pre-development, where we have not entered into final construction contracts, are further subject to market conditions. Depending on such factors as material and labor costs, anticipated supply, projected rents and the state of the local economy, the cost and completion projections could be adjusted, including adjusting the plans and cost or deferring the development until market fundamentals are more favorable.

Based on current market information, we believe construction financing is available for each of these current developments; however, with our liquidity position, we may elect to wait until the communities are stabilized to obtain financing, particularly for smaller developments.  During 2013, we entered into three floating rate construction loans for approximately $76.7 million of financing at a weighted average interest rate of LIBOR plus 2.2% and two fixed rate construction to permanent loans for approximately $84.8 million of financing at a weighted average interest rate of 4.1%. We are currently in discussions with lenders on obtaining other construction financing.  We believe other construction financings would be obtained at 50-60% of cost and at floating rates in the range of 200 basis points to 225 basis points over 30-day LIBOR.  (As of December 31, 2013, 30-day LIBOR was 0.17%.)  There is no assurance that any of these terms would still be available at the time of any future financing.  We expect to utilize the liquidity sources noted above to fund the non-financed portions of the developments.

The following table summarizes our debt investments in developments as of December 31, 2013: 

					Amounts Advanced at		Fixed			Effective
Community	Location	Units	Total Commitment		December 31, 2013		Interest Rate		Maturity Date (a)	Ownership (b)
Mezzanine loans:
Jefferson at One Scottsdale	Scottsdale, AZ	388	22.7		22.7		14.5	%	December 2015	100	%
Kendall Square	Miami Dade County, FL	321	12.3		12.3		15.0	%	January 2016	100	%
Jefferson Creekside (c)	Allen, TX	444	14.1		14.1		14.5	%	August 2015	55	%
Jefferson Center	Richardson, TX	360	15.0		9.0		15.0	%	September 2016	100	%
Total loans		1,513	$	64.1	$	58.1	14.5	%

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(a) The maturity date may be extended for one year at the option of the borrower after meeting certain conditions, generally with the payment of an extension fee of 0.50% of the applicable loan balance.

(b) Effective ownership represents our current ownership percentage in the loan.

(c) Of the total amounts advanced at December 31, 2013, $5.1 million is reflected as an investment in an unconsolidated real estate joint venture.

At the repayment of these loan investments, we may invest in other loan investments or use the proceeds for other uses as described above. During 2013, one loan investment for $10.5 million was repaid.

Due to their recent construction, recurring property capital expenditures for our multifamily communities are not expected to be significant in the near term. For recent stabilized acquisitions, we substantially funded our share of any deferred maintenance at the time of the acquisition.  As of December 31, 2013, the remaining amounts of deferred maintenance for these recent acquisitions are not significant.  For the remainder of our multifamily communities, we would expect recurring capital expenditures to be funded from the Co-Investment Ventures or our cash flow from operating activities. For non-recurring capital expenditures, we would look to the capital sources noted above. For the years ended December 31, 2013 and 2012, we spent approximately $6.9 million and $6.0 million, respectively, in recurring and non-recurring capital expenditures on existing communities. We currently expect our annual recurring and non-recurring non-development capital expenditures going forward, based on our current stabilized multifamily communities, to be in the range of $7.0 million to $10.0 million for the next three to five years.

Distribution Policy

Distributions are authorized at the discretion of our board of directors based on its analysis of our prior performance, expectations of performance for future periods, including actual and anticipated operating cash flow, changes in market capitalization rates for investments suitable for our portfolio, capital expenditure needs, dispositions, general financial condition and other factors that our board of directors deems relevant.  The board’s decision will be influenced, in part, by its obligation to ensure that we maintain our status as a REIT. 

In addition, with our focus on development investments, there may be a lag before receiving the income from such investments.  During this period, we may use portions of our available cash balances and other sources to fund a portion of the distributions paid to our common stockholders, which could reduce the amount available for new investments.  There is no assurance that these future investments will achieve our targeted returns necessary to maintain our current level of distributions. However, as development, lease up or redevelopment projects are completed and begin to generate income, we would expect to have additional funds available to distribute to our stockholders.

Accordingly, we cannot assure as to when we will consistently generate sufficient cash flow solely from operating activities to fully fund distributions.  Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions. There can be no assurance that future cash flow will support paying our currently established distributions or maintaining distributions at any particular level or at all.

During periods when our operations have not generated sufficient operating cash flow to fully fund the payment of distributions on our common stock, we have paid and may in the future pay some or all of our distributions from sources other than operating cash flow.  As noted above, we may use portions of our available cash balances to fund a portion of the distributions paid to our common stockholders, which could reduce the amount available for new investments. We may also refinance or dispose of our investments and use the proceeds to fund distributions on our common stock or reinvest the proceeds in new investments to generate additional operating cash flow.  The participation in our DRIP will also reduce the cash portion of our distributions. There is no assurance that these sources will be available in future periods, which could result in temporary or permanent adjustments to our distributions.

Distribution Activity

Regular Distributions

Cash flow from operating activities exceeded regular distributions by $17.6 million for the year ended December 31, 2013 while regular distributions exceeded cash flow from operating activities by $8.6 million for the year ended December 31, 2012.  By reporting our investments on the consolidated method of accounting, our cash flow from operating activities includes not

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only our share of cash flow from operating activities but also the share related to noncontrolling interests.  Accordingly, our reported cash flow from operating activities includes cash flow attributable to our consolidated joint venture investments.  During the year ended December 31, 2013, we distributed approximately $25.0 million of cash flow from operating activities to these noncontrolling interests, effectively reducing the share of cash flow from operating activities available to us to approximately $51.6 million, which was less than our regular distributions by approximately $7.4 million.  For the year ended December 31, 2012, we distributed approximately $20.4 million of cash flow from operating activities to noncontrolling interests, effectively reducing the share of cash flow from operating activities to approximately $42.9 million, which was less than our regular distributions by approximately $29.1 million.  Further, our regular distributions exceeded our funds from operations by $17.0 million and $33.7 million for the years ended December 31, 2013 and 2012, respectively.  The improvement in the difference between our cash flow from operating activities, both as reported and adjusted, and from our funds from operations are due to improved operations in our multifamily communities and the decrease in the regular distribution rate. Our distribution rate was reduced from 6.0% to 3.5% (based on $10 per share) effective April 1, 2012.

During the years ended December 31, 2013 and 2012, our regular cash distributions in excess of our cash flow from operations, as adjusted, were funded from the DRIP and our available cash.  The primary sources of our available cash were our share of proceeds from the sale of properties, financing proceeds not directly related to a development and the sale of noncontrolling interests. As of December 31, 2013 we had cash and cash equivalents balances of $319.4 million, a significant portion of which related to the December 2013 sale of noncontrolling interests to PGGM of $146.4 million, our share of 2013 property sales of approximately $205.3 million and 2013 financings not directly related to a development of $78.0 million.

Over the long-term, as we continue to make additional investments in income producing multifamily communities and as our development investments are completed and leased up, we expect that more of our regular distributions will be paid from our share of cash flow from operating activities.  However, operating performance and property dispositions cannot be accurately predicted due to numerous factors, including our ability to invest capital at favorable accretive yields, the financial performance of our investments, including our developments once operating, spreads between capitalization and financing rates, and the types and mix of assets available for investment.  As a result, future distribution rates may change over time and future distributions declared and paid may continue to exceed cash flow from operating activities.

Special Cash Distribution

In March 2012 our board of directors authorized a special cash distribution related to the sale of Mariposa in the amount of $0.06 per share of common stock payable to stockholders of record on July 6, 2012.  The total special cash distribution of approximately $10.0 million was accrued during the three months ended March 31, 2012, and was paid on July 11, 2012.  There have been no other special cash distributions authorized or paid through December 31, 2013.

Off-Balance Sheet Arrangements

We generally do not use or seek out off-balance sheet arrangements. Currently, off-balance sheet arrangements are limited to investments in unconsolidated real estate joint ventures by us or through consolidated Co-Investment Ventures.  As of December 31, 2013, we had one investment of $5.5 million in an unconsolidated joint venture which was made through the Custer PGGM CO-JV.  In August 2012, the Custer PGGM CO-JV made a commitment to fund a mezzanine loan to the Custer Property Entity, a development with an unaffiliated third party developer, to develop a 444 unit multifamily community in Allen, Texas, a suburb of Dallas.  The mezzanine loan has an interest rate of 14.5% and matures in 2015, subject to extension options by the borrower. As of December 31, 2013, the total commitment has been advanced under the mezzanine loan.  The Custer PGGM CO-JV does not have an equity investment in the development.  This PGGM CO-JV is a separate legal entity formed for the sole purpose of holding its respective joint venture investment with no other significant operations.  Our effective ownership in the Custer PGGM CO-JV is 55%.  Distributions are made pro rata in accordance with ownership interests.  The Custer PGGM CO-JV has no debt, and its sole operating asset is the mezzanine loan. 

We have no other off-balance sheet arrangements that are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Contractual Obligations

We have contractual obligations related to our mortgage loan payables, credit facility, developments, capital expenditures, maintenance of our multifamily communities and Self-Management Transition Agreements. The following table summarizes our primary contractual obligations as of December 31, 2013 (amounts in millions):

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	Total		2014		2015		2016		2017		2018		Thereafter
Mortgage and Construction Loans
Principal payments	$	1,022.4	$	29.5	$	83.8	$	156.2	$	233.7	$	170.8	$	348.4
Interest expense	148.0		35.3		32.8		30.5		22.8		15.5		11.1
	1,170.4		64.8		116.6		186.7		256.5		186.3		359.5
Credit Facility(a)
Principal payments	10.0		—		—		—		10.0		—		—
Interest expense and fees	8.7		2.7		2.7		2.7		0.6		—		—
	18.7		2.7		2.7		2.7		10.6		—		—
Obligations related to developments(b)	645.1		645.1		—		—		—		—		—
Commitment to fund draws under mezzanine note receivable(c)	6.0		6.0		—		—		—		—		—
Capital expenditures related to multifamily communities	0.4		0.4		—		—		—		—		—
Payments due to Behringer in connection with the Self-Management Transition Agreements(d)	11.9		9.6		1.5		0.8		—		—		—
Total contractual obligations	$	1,852.5	$	728.6	$	120.8	$	190.2	$	267.1	$	186.3	$	359.5

_______________________________________________________________________________

(a) The principal amounts provided for our credit facility are based on amounts outstanding as of December 31, 2013, which are currently not due until final maturity of the credit facility. We may from time to time increase the borrowings under the credit facility and accordingly, the contractual principal obligations may increase in future periods. The interest expense and fees for the credit facility are based on the minimum interest and fees due as of December 31, 2013, under the credit facility. Amounts are included through the current stated maturity date of April 2017.

(b) As of December 31, 2013, we have entered into construction and development contracts with $645.1 million remaining to be paid. Timing of payment is dependent upon the development schedule and other factors outside of our control. For presentation purposes, we have included the full $645.1 million in 2014; however, some expenditures may not occur until 2015. We anticipate entering into additional construction and development contracts as developments are finalized and permitted.

(c) We have made a $15.0 million mezzanine loan to a third party developer, and as of December 31, 2013, $9.0 million is outstanding, with $6.0 million remaining to be funded.

(d) Amounts exclude any transaction based payments under the Self-Management Transition Agreements.

All of our Co-Investment Ventures include buy/sell provisions. Under most of these provisions and during specific periods, a partner could make an offer to purchase the interest of the other partner and the other partner would have the option to accept the offer or purchase the offering partner’s interest at that price.  As of December 31, 2013, no buy/sell arrangements exist; however, we may need additional liquidity sources in order to meet our obligations under any future buy/sell arrangements.

Most of our Developer CO-JVs include put provisions for the Developer Partner. The put provisions are available generally one to two years after substantial completion of the project for a specified purchase price which at December 31, 2013, have a contractual total of approximately $30.2 million for all such Co-Investment Ventures.  The put provisions are recorded as redeemable noncontrolling interests in our consolidated balance sheets at the point they become probable of redemption, and as of December 31, 2013, we have recorded approximately $16.0 million as redeemable noncontrolling interests.  These Co-Investment Ventures also generally include (i) options to require a sale of the development after the seventh year after completion of the development, and (ii) buy/sell provisions available after the tenth year after completion of the development. Separate from put provisions, we have recorded in our December 31, 2013 consolidated balance sheets redeemable noncontrolling interests of $6.0 million which are probable of being redeemed at their stated amounts if the developments achieve certain milestones primarily related to approved budgets at less than the maximum amounts.

The multifamily communities in which we have investments may have commitments to provide affordable housing. Under these arrangements, we generally receive from the resident a below-market rent, which is determined by a local or national

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authority. In certain arrangements, a local or national housing authority makes payments covering some or substantially all of the difference between the restricted rent paid by residents and market rents. In connection with our acquisition of The Gallery at NoHo Commons, we assumed an obligation to provide affordable housing through 2048. As partial reimbursement for this obligation, the California housing authority will make level annual payments of approximately $2.0 million through 2028 and no reimbursement for the remaining 20-year period. We may also be required to reimburse the California housing authority if certain operating results are achieved on a cumulative basis during the term of the agreement. At the acquisition, we recorded a liability of $14.0 million based on the fair value of terms over the life of the agreement.  We will record rental revenue from the California housing authority on a straight-line basis, deferring a portion of the collections as deferred lease revenues. As of December 31, 2013 and December 31, 2012, we have approximately $17.6 million and $17.5 million, respectively, of carrying value for deferred lease revenues related to The Gallery at NoHo Commons.

Non-GAAP Performance Financial Measures

In addition to our net income (loss) which is presented in accordance with GAAP, we also present certain supplemental non-GAAP performance measurements.  These measurements are not to be considered more relevant or accurate than the performance measurements presented in accordance with GAAP.  In compliance with SEC requirements, our non-GAAP measurements are reconciled to net income, the most directly comparable GAAP performance measure.  As with other non-GAAP performance measures, neither the SEC nor any other regulatory body has passed judgment on these non-GAAP performance measures.

Net Operating Income and Same Store Net Operating Income

We define NOI as consolidated rental revenue, less consolidated property operating expenses, real estate taxes and property management fees.  We believe that NOI provides a supplemental measure of our operating performance because NOI reflects the operating performance of our properties and excludes items that are not associated with property operations of the Company, such as general and administrative expenses, asset management fees and interest expense.  NOI also excludes revenues not associated with property operations, such as interest income and other non-property related revenues.  NOI may be helpful in evaluating all of our multifamily operations and providing comparability to other real estate companies.

We define Same Store NOI as NOI for our stabilized multifamily communities that are comparable between periods.  We view Same Store NOI as an important measure of the operating performance of our properties because it allows us to compare operating results of properties owned for the entirety of the current and comparable periods and therefore eliminates variations caused by acquisitions or dispositions during the periods under review.

NOI and Same Store NOI should not be considered a replacement for GAAP net income as they exclude certain income and expenses that are material to our operations.  Additionally, NOI and Same Store NOI may not be useful in evaluating net asset value or impairments as they also exclude certain GAAP income and expenses and non-comparable properties.  Investors are cautioned that NOI and Same Store NOI should only be used to assess the operating performance trends for the properties included within the definition.

Same Store NOI is not provided for the year ended December 31, 2011 as the results would not be meaningful. The following table presents a reconciliation of our loss from continuing operations to NOI and Same Store NOI for our multifamily communities for the years ended December 31, 2013 and 2012 (in millions):

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	For the Year Ended December 31,
	2013			2012
Loss from continuing operations	$	(17.5	)	$	(40.8	)
Adjustments to reconcile loss from continuing operations to NOI:
Asset management fees	7.7			6.6
General and administrative expenses	11.4			10.8
Acquisition expenses	3.7			2.5
Transition expenses	9.0			—
Investment and development expenses	0.6			—
Interest expense	23.8			31.4
Depreciation and amortization	86.1			99.7
Interest income	(8.5		)	(7.2		)
Gain on revaluation of equity on a business combination	—			(1.7		)
Loss on early extinguishment of debt	—			0.5
Equity in (income) loss of investments in unconsolidated real estate joint ventures	(1.3		)	1.2
Other (income) expense	(0.1		)	0.8
NOI	114.9			103.8
Less non-comparable:
Revenue	(21.7		)	(13.0		)
Operating expenses	10.0			5.9
Same Store NOI	$	103.2		$	96.7

Funds from Operations and Modified Funds from Operations

Funds from operations (“FFO”) is a non-GAAP performance financial measure that is widely recognized as a measure of REIT operating performance.  We use FFO as currently defined by the National Association of Real Estate Investment Trusts (“NAREIT”) to be net income (loss), computed in accordance with GAAP excluding extraordinary items, as defined by GAAP, and gains (or losses) from sales of property (including deemed sales and settlements of pre-existing relationships), plus depreciation and amortization on real estate assets, impairment write-downs of depreciable real estate or of investments in unconsolidated real estate partnerships, joint ventures and subsidiaries that are driven by measurable decreases in the fair value of depreciable real estate assets, and after related adjustments for unconsolidated partnerships, joint ventures and subsidiaries and noncontrolling interests.  We believe that FFO is helpful to our investors and our management as a measure of operating performance because it excludes real estate-related depreciation and amortization, impairments of depreciable real estate, gains and losses from property dispositions, and extraordinary items, and as a result, when compared year to year, highlights the impact on operations from trends in occupancy rates, rental rates, operating costs, development activities (including capitalized interest and other costs during the development period), general and administrative expenses, and interest costs, which may not be immediately apparent from net income.  Historical cost accounting for real estate assets in accordance with GAAP assumes that the value of real estate and intangibles diminishes predictably over time independent of market conditions or the physical condition of the asset.  Since real estate values have historically risen or fallen with market conditions (which includes property level factors such as rental rates, occupancy, capital improvements, status of developments and competition, as well as macro-economic factors such as economic growth, interest rates, demand and supply for real estate and inflation), many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting alone to be insufficient.  As a result, our management believes that the use of FFO, together with the required GAAP presentations, is helpful for our investors in understanding our performance.  Factors that impact FFO include start-up costs, fixed costs, delay in buying assets, acquisition expenses, lower yields on cash held in accounts, income from portfolio properties, operating costs during the lease up of developments, interest rates on acquisition financing and operating expenses.  In addition, FFO will be affected by the types of investments in our and our Co-Investment Ventures’ portfolios, which include, but are not limited to, equity and mezzanine, mortgage and bridge loan investments in existing operating properties and properties in various stages of development and the accounting treatment of the investments in accordance with our accounting policies.

Since FFO was promulgated, GAAP has adopted several new accounting pronouncements, such that management, investors and analysts have considered the presentation of FFO alone to be insufficient. Real estate companies are particularly affected by acquisition activity due to the capital nature of their business, especially in their initial life cycle when sustainable

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operations have not been achieved, and in other periods when capital is being deployed. While other start-up entities and other industries may also experience significant acquisition activity, other industries’ acquisitions tend to be more asset focused. Under GAAP, most acquisition costs related to acquisitions of a controlling interest in real estate are expensed, while asset acquisition costs or costs related to investments in noncontrolling interests are capitalized.

Accordingly, in addition to FFO, we use modified funds from operations (“Modified Funds from Operations” or “MFFO”) as currently defined by the Investment Program Association (“IPA”).  The IPA’s Guideline 2010-01, “Supplemental Performance Measure for Publicly Registered, Non-Listed REITs:  Modified Funds from Operations” defines MFFO as FFO further adjusted for the following items:

(1) acquisition fees and expenses;

(2) straight-line rent amounts, both income and expense;

(3) amortization of above or below market intangible lease assets and liabilities;

(4) amortization of discounts and premiums on debt investments;

(5) gains or losses from the early extinguishment of debt;

(6) gains or losses on the extinguishment or sales of hedges, foreign exchange, securities and other derivatives holdings except where the trading of such instruments is a fundamental attribute of our operations;

(7) gains or losses related to fair value adjustments for derivatives not qualifying for hedge accounting, including interest rate and foreign exchange derivatives;

(8) gains or losses related to consolidation from, or deconsolidation to, equity accounting;

(9) gains or losses related to contingent purchase price adjustments; and

(10) adjustments related to the above items for unconsolidated entities in the application of equity accounting.

In October 2011, NAREIT clarified its definition of FFO to exclude impairment charges related to depreciable property and investments in unconsolidated real estate partnerships and joint ventures.  Although IPA has not formally modified its definition of MFFO, with this clarification, we have deleted impairment charges as an adjustment to MFFO.  As we have not recognized any impairment charges, this change in definition has not affected our historical reporting of FFO or MFFO.

We believe that MFFO is helpful in assisting management assess the sustainability of operating performance in future periods and, in particular, after our investment stage is completed, primarily because it excludes acquisition expenses that affect property operations only in the period in which the property is acquired.  Although MFFO includes other adjustments, the exclusion of acquisition expense and other adjustments related to business combinations are generally the most significant adjustments to us at the present time, as we are currently in our acquisition stage.  Thus, MFFO provides helpful information relevant to evaluating our operating performance in periods in which there is no acquisition or business combination activity and to compare our operating performance to other real estate companies that are not incurring acquisition expenses.

As explained below, management’s evaluation of our operating performance excludes the items considered in the calculation based on the following economic considerations:

• Acquisition expenses. In evaluating investments in real estate, including both business combinations and investments accounted for under the equity method of accounting, management’s investment models and analyses differentiate costs to acquire the investment from the operations derived from the investment. Both of these acquisition costs have been and are expected to be funded from the proceeds of the primary portion of our Initial Public Offering and other financing sources and not from operations.  We believe by excluding expensed acquisition costs, MFFO provides useful supplemental information that is comparable for each type of our real estate investments and is consistent with management’s analysis of the investing and operating performance of our properties.  Acquisition expenses include those paid to our Advisor or third parties.

• Gains or losses related to fair value adjustments for derivatives not qualifying for hedge accounting and gains or losses related to contingent purchase price adjustments.  Each of these items relates to a fair value adjustment, which is based on the impact of current market fluctuations and underlying assessments of general market conditions and specific performance of the holding, which may not be directly attributable to our current operating performance. As these gains or losses relate to underlying long-term assets and liabilities, where we are not speculating or trading assets, management believes MFFO provides useful supplemental information by focusing on the changes in our core operating fundamentals rather than changes that may reflect anticipated gains or losses.

• Adjustments for amortization of above or below market intangible lease assets.  Similar to depreciation and amortization of other real estate related assets that are excluded from FFO, GAAP implicitly assumes that the value of intangibles diminishes predictably over time and that these charges be recognized currently in revenue. Since real

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estate values and market lease rates in the aggregate have historically risen or fallen with market conditions, management believes that by excluding these charges, MFFO provides useful supplemental information on the realized economics of the real estate.

• Adjustments for straight-line rents and amortization of discounts and premiums on debt investments.  In the proper application of GAAP, rental receipts and discounts and premiums on debt investments are allocated to periods using various systematic methodologies. This application will result in income recognition that could be significantly different than underlying contract terms. By adjusting for these items, MFFO provides useful supplemental information on the realized economic impact of lease terms and debt investments and aligns results with management’s analysis of operating performance.

• Adjustment for gains or losses related to early extinguishment of hedges and debt, consolidation or deconsolidation and contingent purchase price.  Similar to extraordinary items excluded from FFO, these adjustments are not related to our continuing operations.  By excluding these items, management believes that MFFO provides supplemental information related to sustainable operations that will be more comparable between other reporting periods and to other real estate operators. This adjustment excludes both gains and losses. For the years ended December 31, 2012 and 2011, we excluded gains of $0.9 million and $121.9 million, respectively, on revaluation of equity on business combinations.

Many of these adjustments are similar to adjustments required by SEC rules for the presentation of pro forma business combination disclosures, particularly acquisition expenses, gains or losses recognized in business combinations and other activity not representative of future activities.  However, investors are cautioned that neither FFO nor MFFO is a pro forma measurement.

By providing MFFO, we believe we are presenting useful information that also assists investors and analysts to better assess the sustainability of our operating performance after our acquisition stage is completed.  We also believe MFFO is a recognized measure of sustainable operating performance by the real estate industry.  MFFO is useful in comparing the sustainability of our operating performance after our acquisition stage is completed with the sustainability of the operating performance of other real estate companies that are not as involved in acquisition activities or as affected by other MFFO adjustments.  However, investors are cautioned that MFFO should only be used to assess the sustainability of our operating performance after our acquisition stage is completed, as it excludes acquisition costs that have a negative effect on our operating performance and the reported book value of our common stock and stockholders’ equity during the periods in which properties are acquired.

FFO or MFFO should not be considered as an alternative to net income (loss), nor as an indication of our liquidity, nor are they indicative of funds available to fund our cash needs, including our ability to fund distributions.  In particular, as we are still investing available cash in new investments and developments, acquisition costs and other adjustments which are increases to MFFO are, and may continue to be, a significant use of cash, an expense in the determination of our GAAP net income, and a use of our cash flow from operating activities.  FFO and MFFO are also not useful measures in evaluating net asset value because impairments are taken into account in determining net asset value but not in determining FFO and MFFO.  Although the Company has not historically incurred any impairment charges, investors are cautioned that we may not recover any impairment charges in the future.  MFFO also excludes rental revenue adjustments and unrealized gains and losses related to certain other fair value adjustments.  Although the related holdings are not held for sale or used in trading activities, if the holdings were sold currently, it could affect our operating results and any fair value losses may not be recoverable from future operations.  Accordingly, both FFO and MFFO should be reviewed in connection with other GAAP measurements.  Our FFO and MFFO as presented may not be comparable to amounts calculated by other REITs.

The following table presents our calculation of FFO and MFFO, net of noncontrolling interests, and provides additional information related to our operations (in millions, except per share amounts):

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	For the Year Ended December 31,
	2013			2012			2011
Net income (loss) attributable to common stockholders	$	29.7		$	(12.5	)	$	98.6
Real estate depreciation and amortization (a)	55.3			64.1			56.1
Gain on sale of real estate	(43.0		)	(13.3		)	—
Gain on sale of joint venture interests	—			—			(5.7		)
FFO attributable to common stockholders	42.0			38.3			149.0
Gain on revaluation of equity on a business combination	—			(0.9		)	(121.9		)
Acquisition expenses (b)	3.7			2.5			6.3
Straight-line rents	0.5			0.4			0.8
Loss on early extinguishment of debt	0.1			0.3			—
Loss on derivative fair value adjustment	—			0.7			—
Contingent purchase price obligation adjustment	—			(0.1		)	—
Amortization of premium on debt investment	—			(0.2		)	—
MFFO attributable to common stockholders	$	46.3		$	41.0		$	34.2
GAAP weighted average common shares	168.7			166.2			138.1
Net income (loss) per common share	$	0.18		$	(0.08	)	$	0.71
FFO per common share	$	0.25		$	0.23		$	1.08
MFFO per common share	$	0.27		$	0.25		$	0.25

(a)   The real estate depreciation and amortization amount includes our share of consolidated real estate-related depreciation and amortization of intangibles, less amounts attributable to noncontrolling interests, and our similar estimated share of unconsolidated Co-Investment Venture depreciation and amortization, which is included in earnings of unconsolidated real estate joint venture investments.

(b)   Acquisition expenses include our share of expenses incurred by us, less amounts attributable to noncontrolling interests, and our unconsolidated investments in real estate joint ventures, including amounts incurred with our Advisor. Acquisition expenses also include operating expenses that were identified or given credit by the seller in the acquisition but are expensed in accordance with GAAP.

The following additional information is presented in evaluating the presentation of net income (loss) attributable to common stockholders in accordance with GAAP and our calculations of FFO and MFFO:

• During the years ended December 31, 2013 and 2012, we capitalized interest of $10.5 million and $2.5 million, respectively, on our real estate developments.These amounts are included as an addition in presenting net income (loss), FFO and MFFO attributable to common stockholders.

• During the year ended December 31, 2013, we incurred $9.0 million of transition expenses related to our transition to self-management, primarily including legal, financial advisors, consultants and costs of the Special Committee, general transition services (primarily related to staffing, information technology and facilities), and payments to the Advisor in connection with the transition to self-management. We did not incur any similar costs for the same periods in 2012.

• During the year ended December 31, 2012, we incurred $2.3 million of strategic review expenses, primarily including financial advisors, legal and costs of the Special Committee.

As noted above, we believe FFO is helpful to investors as measures of operating performance and MFFO is useful to investors to assess the sustainability of our operating performance after our acquisition stage is completed.  FFO and MFFO are not indicative of our cash available to fund distributions since other uses of cash, such as capital expenditures and principal payment of debt related to investments in unconsolidated real estate joint ventures, are not deducted when calculating FFO and MFFO.

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We believe the current definition of MFFO is consistent with industry standards for our operations and provides useful information to investors and management, subject to the limitations described above. However, MFFO is not a replacement for financial information presented in conformity with GAAP and should be reviewed in connection with other GAAP measurements.

New Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued updated guidance for the measurement and disclosure of obligations. The guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in the update also requires an entity to disclose the nature and amount of the obligation as well as other information about such obligations. This guidance is effective for the first interim or annual period beginning on or after December 15, 2013. The adoption of this guidance is not expected to have a material impact on our financial statements or disclosures.

Inflation

The real estate market has not been affected significantly by inflation in the past several years due to a relatively low inflation rate.  The majority of our fixed-lease terms are less than 12 months and reset to market if renewed.  The majority of our leases also contain protection provisions applicable to reimbursement billings for utilities.  Should inflation return, due to the short-term nature of our leases, multifamily investments are considered good inflation hedges.

Inflation may affect the costs of developments we invest in, primarily related to construction commodity prices, particularly lumber, steel and concrete. Inflation for these materials has also recently been low due to lower overall construction as a result of the effects of the U.S. and global recessions. However, inflation could be become an issue due to current U.S. monetary policies or accelerated growth in American, Chinese or other global construction activities. We intend to mitigate these inflation consequences through guaranteed maximum construction contracts, developer cost overrun guarantees and pre-buying materials when reasonable to do so. Increases in construction prices could lower our return on the developments and reduce amounts available for other investments.

Inflation may also affect the overall cost of debt, as the implied cost of capital increases. Currently, interest rates are less than historical averages. However, if the Federal Reserve institutes new monetary policies, tightening credit in response to or in anticipation of inflation concerns, interest rates could rise. We intend to mitigate these risks through long term fixed interest rate loans and interest rate hedges, which to date have included interest rate caps.

REIT Tax Election

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and have qualified as a REIT since the year ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code, and we intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to remain qualified as a REIT.

Item 7A.   Quantitative and Qualitative Disclosures About Market Risk.

Our interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower overall borrowing costs. To achieve the financing objectives, we borrow primarily at fixed rates or variable rates with what we believe are the lowest margins available and in some cases, the ability to convert variable rates to fixed rates either directly or through interest rate hedges.  With regard to variable rate financing, we manage interest rate cash flow risk by continually identifying and monitoring changes in interest rate exposures that may adversely impact expected future cash flows and by evaluating hedging opportunities, which to date have included interest rate caps.

As of December 31, 2013, we had approximately $964.2 million of outstanding consolidated mortgage debt at a weighted average fixed interest rate of approximately 3.8%, $58.2 million of variable rate consolidated mortgage debt at a variable interest rate of monthly LIBOR plus 2.4%, and the outstanding amount under our credit facility was $10.0 million with a

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weighted average of monthly LIBOR plus 2.08%.  As of December 31, 2013, we have three consolidated notes receivable with a carrying value of approximately $52.8 million, a weighted average fixed interest rate of 14.7%, and a weighted average remaining maturity of 2.0 years.

Interest rate fluctuations will generally not affect our future earnings or cash flows on our fixed rate debt or fixed rate real estate notes receivable unless such instruments are traded or are otherwise terminated prior to maturity. However, interest rate changes will affect the fair value of our fixed rate instruments. As we do not expect to trade or sell our fixed rate debt instruments prior to maturity and the amounts due under such instruments would be limited to the outstanding principal balance and any accrued and unpaid interest, we do not expect that fluctuations in interest rates, and the resulting change in fair value of our fixed rate instruments, would have a significant impact on our operations.

Conversely, movements in interest rates on variable rate debt, loans receivable and real estate-related securities would change our future earnings and cash flows, but not significantly affect the fair value of those instruments.  As of December 31, 2013, we did not have any loans receivable or real estate-related securities with variable interest rates.  We are exposed to interest rate changes primarily as a result of our variable rate debt for investments in operating and development multifamily communities and our consolidated cash investments. We quantify our exposure to interest rate risk based on how changes in interest rates affect our net income.  We consider changes in the 30-day LIBOR rate to be most indicative of our interest rate exposure as it is a function of the base rate for our credit facility and is reasonably correlated to changes in our earnings rate on our cash investments. We consider increases of 0.5% to 2.0% in the 30-day LIBOR rate to be reflective of reasonable changes we may experience in the current interest rate environment. The table below reflects the annual effect of an increase in the 30-day LIBOR to our net income related to our significant variable interest rate exposures for our wholly owned assets and liabilities as of December 31, 2013 (amounts in millions, where positive amounts reflect an increase in income and bracketed amounts reflect a decrease in income): 

	Increases in Interest Rates
	2.0%			1.5%			1.0%			0.5%
Variable rate mortgage debt and credit facility interest expense	$	(1.4	)	$	(1.0	)	$	(0.7	)	$	(0.3	)
Interest rate caps	0.1			—			—			—
Cash investments	6.4			4.8			3.2			1.6
Total	$	5.1		$	3.8		$	2.5		$	1.3

There is no assurance that we would realize such income or expense as such changes in interest rates could alter our asset or liability positions or strategies in response to such changes. Also, where variable rate debt is used to finance development projects, the cost of the development is also impacted. If these costs exceed interest reserves, we may be required to fund the excess out of other capital sources. The table also does not reflect changes in operations related to any unconsolidated investments in real estate joint ventures, where we may not have control over financing matters and substantial portions of variable rate debt related to multifamily development projects where interest is capitalized.

As of December 31, 2013, we have four separate interest rate caps with a total notional amount of $162.7 million.  Each of these interest rate caps has a single 30 day LIBOR cap rate.  If during its term future market LIBOR interest rates exceed the 30 day LIBOR cap rate, we will be due a payment equal to the excess LIBOR rate over the cap rate multiplied by the notional amount.  In no event will we owe any future amounts in connection with the interest rate caps.  Accordingly, interest rate caps can be an effective instrument to mitigate increases in short-term interest rates without incurring additional costs while interest rates are below the cap rate.  Although not specifically identified to any specific interest rate exposure, we plan to use these instruments related to our developments, credit facility and variable rate mortgage debt.  Because the counterparties providing the interest rate cap agreements are major financial institutions which have investment grade ratings by the Standard & Poor’s Ratings Group, we do not believe there is significant exposure at this time to a default by a counterparty provider. 

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A summary of our interest rate caps as of December 31, 2013 is as follows (amounts in millions):

		LIBOR		Maturity	Carrying and
Notional Amount		Cap Rate		Date	Estimated Fair Value
$	50.0	2.5	%	April 2016	$	—
50.0		2.5	%	April 2016	0.1
50.0		2.0	%	April 2016	0.1
12.7		4.0	%	March 2017	—
$	162.7				$	0.2

We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations as of December 31, 2013.

Item 8.    Financial Statements and Supplementary Data

The information required by this Item 8 is included in our Consolidated Financial Statements beginning on page F-1 of this Annual Report on Form 10-K.

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Item 9.    Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

None.

Item 9A.  Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of December 31, 2013, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2013 to provide reasonable assurance that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Management's Annual Report on Internal Control over Financial Reporting

Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)). Our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of December 31, 2013, the effectiveness of our internal control over financial reporting using the framework in Internal Control—Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal controls, as of December 31, 2013, were effective.

Changes in Internal Control over Financial Reporting

There have been no changes in internal control over financial reporting during the quarter ended December 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 9B.  Other Information

None.

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PART III

Item 10.    Directors, Executive Officers and Corporate Governance

Directors

Because our directors take a critical role in guiding our strategic direction and oversee our management, they must demonstrate broad-based business and professional skills and experiences, concern for the long-term interests of our stockholders, and personal integrity and judgment. In addition, our directors must have time available to devote to board activities and to enhance their knowledge of our industry. As described further below, we believe our directors have the appropriate mix of experiences, qualifications, attributes and skills required of our board members in the context of the current needs of our company.

Sami S. Abbasi, 48, has served as one of our independent directors since November 2006.  Since November 2011, Mr. Abbasi has served as Chief Executive Officer and Director of American Pathology Partners, Inc., a laboratory services and cancer diagnostics company. From January 2007 until September 2011, Mr. Abbasi served as Chairman and Chief Executive Officer of National Surgical Care, Inc., which owns, develops, and operates surgical facilities in partnership with physicians and healthcare systems.  From November 2004 to November 2006, Mr. Abbasi served as President and Chief Executive Officer of Radiologix, Inc., a provider of diagnostic imaging services, which was acquired by RadNet, Inc., formerly known as Primedex Health Systems, Inc., in November 2006.  From February 2005 until November 2006, Mr. Abbasi served as a director of Radiologix.  Mr. Abbasi served as Executive Vice President and Chief Operating Officer of Radiologix from October 2003 until November 2004 and as Executive Vice President and Chief Financial Officer of Radiologix from December 2000 until March 2004.  Radiologix was a leading national provider of diagnostic imaging services and was listed on the American Stock Exchange until its November 2006 acquisition by Primedex.  From January 2000 through June 2000, Mr. Abbasi served as Chief Financial Officer and Chief Operating Officer of Adminiquest, Inc., a private company that provided web-enabled and full-service outsourcing solutions to the insurance and benefits industry.  From August 1996 through December 1999, Mr. Abbasi was Senior Vice President and Chief Financial Officer of Radiologix.  From January 1995 through July 1996, Mr. Abbasi served as Vice President in the Healthcare Group of Robertson, Stephens and Company, where he was responsible for investment banking business development and executing a broad range of corporate finance transactions and mergers and acquisitions.  From June 1988 through January 1995, Mr. Abbasi held various positions at Citicorp Securities, including Vice President and Senior Industry Analyst in the Healthcare Group.  Mr. Abbasi received his Masters of Business Administration from the University of Rochester and his Bachelor of Arts, magna cum laude, in Economics from the University of Pennsylvania.

Our board of directors has concluded that Mr. Abbasi is qualified to serve as one of our directors and the chairman of our audit committee for reasons including his significant executive, corporate finance and accounting experience that complements that of our other board members. In particular, Mr. Abbasi has over 10 years of experience as a director and/or executive officer of private and public companies, with a broad range of responsibilities including those relating to financial statements and coordinating with external auditors. Mr. Abbasi also has many years of experience in commercial and investment banking, which background enables Mr. Abbasi to provide valuable insight to our board.

Roger D. Bowler, 69, has served as one of our independent directors since November 2006.  Mr. Bowler served in various capacities at Embrey Partners, Ltd. (“Embrey”), a San Antonio, Texas-based multifamily development and management company, from 1981 through 2006.  From 1991 through 2006, Mr. Bowler served as Executive Vice President for Embrey and was responsible for corporate operations, as well as project feasibility, financing, and sales.  Prior to his employment at Embrey, Mr. Bowler established and managed a corporate planning group for a Midwest bank holding company.  Mr. Bowler also served as the Senior Financial Officer for a Houston retail and office developer.  Mr. Bowler earned a Bachelor’s degree in Accounting and a Masters of Business Administration in finance from Michigan State University.  From 1984 through 2006, Mr. Bowler served on the Advisory Board of Directors for the JP Morgan Chase Bank of San Antonio.  Mr. Bowler currently serves on the Board of Directors for the Marathon Title Insurance Company and American Village Communities, Inc. of Fairfax, Virginia. Mr. Bowler was a member of the National Multi Housing Council prior to his retirement from Embrey. 

Our board of directors has concluded that Mr. Bowler is qualified to serve as one of our directors for reasons including his significant experience relating to real estate investments and multifamily investments, in particular. For 25 years, Mr. Bowler served in various capacities at an apartment development and management company, including 15 years as an executive officer. Mr. Bowler also has experience as a director and is actively engaged in the professional community, industry trends and issues in the multifamily space.

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Jonathan L. Kempner, 63, has served as one of our independent directors since November 2008. In October 2009, Mr. Kempner became the President of Tiger 21, LLC, a peer-to-peer learning group for high-net-worth investors. Prior to this, Mr. Kempner was President and Chief Executive Officer of the Mortgage Bankers Association (“MBA”) from April 2001 to December 2008. MBA is the national association representing the real estate finance industry with over 2,400 member companies, including mortgage companies, mortgage brokers, commercial banks, thrifts life insurance companies and others in the mortgage lending field. In addition, Mr. Kempner served on MBA’s Board of Directors (ex officio) and on the board of its business development affiliate, Lender Technologies Corp.

Prior to assuming his role at the MBA, for 14 years, Mr. Kempner was President of the National Multi Housing Council, a leading trade association representing apartment owners, managers, developers, lenders and service providers. Previously, from 1983 to 1987, Mr. Kempner was Vice President and General Counsel of Oxford Development Corp., a privately owned real estate services firm in Maryland, with a focus on commercial real estate development, asset and property management, brokerage and investment advisory services. From 1982 to 1983, Mr. Kempner served as Assistant Director and General Counsel of the Pennsylvania Avenue Development Corp., a federally owned real estate firm. From 1981 to 1982, Mr. Kempner also served as Assistant General Counsel to the Charles E. Smith Companies, a significant owner and developer of apartment complexes.

Mr. Kempner practiced law with Fried Frank, a leading international commercial law firm, from 1977 to 1980 immediately following a clerkship for U.S. District Judge David W. Williams of the Central District of California. Mr. Kempner also served as a Special Consultant to the U.S. Department of the Treasury Office of Capital Markets and as a Staff Assistant to the Subcommittee on Representation of Citizen Interests of the U.S. Senate Committee on the Judiciary and in the office of Sen. Abraham Ribicoff.

Mr. Kempner holds a bachelor’s degree from the University of Michigan (high honors and high distinction, Phi Beta Kappa) and a law degree from Stanford University Law School, where he served on the Stanford Law Review. Mr. Kempner serves on the editorial boards of numerous real estate publications and is on the board of directors of a nonprofit organization, the Ciesla Foundation.

Our board of directors has concluded that Mr. Kempner is qualified to serve as one of our directors for reasons including his 21 years of combined experience heading the MBA and the National Multi Housing Council and his prior experience as a director. With this background, Mr. Kempner brings to our board substantial insight and experience with respect to the multifamily real estate and mortgage industries. In addition, Mr. Kempner has substantial experience acting as an attorney and general counsel, which brings a unique perspective to our board. Mr. Kempner also remains active in the professional and charitable communities.

E. Alan Patton, 51, has served as one of our independent directors since November 2006 and Chairman of the Board since September 20, 2013. In May 2013, Mr. Patton became the President of The Morgan Group, Inc., (“Morgan”) a multifamily development and management company, where Mr. Patton is responsible for Morgan’s day-to-day operations. From January 2011 to April 2013, Mr. Patton served as Senior Managing Director of Hines Interests Limited Partnership (“Hines”), an international real estate firm. Mr. Patton’s main focus at Hines was to expand the firm’s multifamily development activity throughout the United States with involvement in site sourcing, product design, development and capital raising and financing. From 1998 to January 2011, Mr. Patton served as President of Morgan. From 1990 to 1998, Mr. Patton was the Managing Director of the Chase Bank of Texas Realty Advisory Group (formerly known as Texas Commerce Realty Advisors). During his eight-year tenure at Chase Bank, Mr. Patton developed and managed Chase's Real Estate Mezzanine Financing product and worked in the Real Estate Workout/Restructuring Group and the Commercial Real Estate Lending Group.

Mr. Patton previously served as a Project Manager with a Houston-based commercial general contractor, Miner-Dederick Companies, Inc., where he managed office and medical building construction projects nationwide for eight years. Mr. Patton attended Harding University and the University of Houston, from which he received his Bachelor in Science-Finance degree and his Masters of Business Administration. Mr. Patton is on the Board of Directors of the National Multi Housing Council and is a council member of the Urban Land Institute.

Our board of directors has concluded that Mr. Patton is qualified to serve as one of our directors for reasons including his significant real estate and real estate finance experience. He provides valuable knowledge and insight with respect to multifamily investment and management issues. In addition, his expertise in the real estate finance markets complements that of our other board members. Mr. Patton is also active in the professional community.

Robert S. Aisner, 67, has served as our Chief Executive Officer and as one of our directors since December 2007. As described above in Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations

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— Overview — Commencement of Transition to Self-Management,” Mr. Aisner is a Behringer Nominee and currently required to be our sole Chief Executive Officer pursuant to the Modification Agreement until the Self-Management Closing. Mr. Aisner serves as Chief Executive Officer of our Advisor and our property manager, Behringer Harvard Multifamily Management Services, LLC (the “Property Manager”). In addition, Mr. Aisner serves as a director of TIER REIT, Inc., formerly known as Behringer Harvard REIT I, Inc. (“TIER REIT”), and as a director and Chairman of the Board of Behringer Harvard Opportunity REIT I, Inc. (“Behringer Harvard Opportunity REIT I”) and Behringer Harvard Opportunity REIT II, Inc. (“Behringer Harvard Opportunity REIT II”). Mr. Aisner is also Chief Executive Officer and President of Behringer Harvard Holdings. Mr. Aisner has over 30 years of commercial real estate experience. In addition to Mr. Aisner’s commercial real estate experience, as an officer and director of Behringer-sponsored programs and their advisors, Mr. Aisner has overseen the acquisition, structuring and management of various types of real estate-related loans, including mortgages and mezzanine loans. From 1996 until joining Behringer in 2003, Mr. Aisner served as: (1) Executive Vice President of AMLI Residential Properties Trust (“AMLI”), formerly a New York Stock Exchange-listed REIT focused on the development, acquisition and management of upscale apartment communities and served as advisor and asset manager for institutional investors with respect to their multifamily real estate investment activities; (2) President of AMLI Management Company, which oversaw all of AMLI’s apartment operations in 80 communities; (3) President of the AMLI Corporate Homes division that managed AMLI’s corporate housing properties; (4) Vice President of AMLI Residential Construction, a division of AMLI that performed real estate construction services; and (5) Vice President of AMLI Institutional Advisors, the AMLI division that served as institutional advisor and asset manager for institutional investors with respect to their multifamily real estate activities. Mr. Aisner also served on AMLI’s executive committee and investment committee. During Mr. Aisner’s tenure, AMLI was actively engaged in real estate debt activities, some of which were similar to our current loan structures. In February 2006, AMLI merged into an indirect subsidiary of Morgan Stanley Real Estate’s Prime Property Fund, and the consideration paid for AMLI represented a 20.7% premium over the closing price of its common shares on the last full trading day prior to the public announcement of the merger. From 1994 until 1996, Mr. Aisner owned and operated Regents Management, Inc., which had both a multifamily development and construction group and a general commercial property management group. From 1984 to 1994, Mr. Aisner served as Vice President of HRW Resources, Inc., a real estate development and management company. Mr. Aisner received a Bachelor of Arts degree from Colby College and a Masters of Business Administration degree from the University of New Hampshire.

Our board of directors has concluded that Mr. Aisner is qualified to serve as one of our directors for reasons including his over 30 years of commercial real estate experience. This experience allows him to offer valuable insight and advice with respect to our investments and investment strategies. In addition, as the Chief Executive Officer of our Advisor and with prior experience as an executive officer of a New York Stock Exchange-listed REIT, Mr. Aisner is able to direct the board of directors to the critical issues facing our company. Further, as a director of TIER REIT, Behringer Harvard Opportunity REIT I and Behringer Harvard Opportunity REIT II, he has an understanding of the requirements of serving on a public company board.

Executive Officers

In addition to Robert S. Aisner, the following individuals serve as our executive officers:

Mark T. Alfieri, 52, has served as our President since July 31, 2013. Mr. Alfieri also serves as our Chief Operating Officer, a position he has held since our inception in 2006. Mr. Alfieri served as Chief Operating Officer of the Advisor and Property Manager from September 2006 and March 2008, respectively, to July 31, 2013. Prior to joining Behringer in May 2006, from January 1999 to April 2006 Mr. Alfieri was Senior Vice President of AMLI Residential Properties Trust (“AMLI”), formerly a New York Stock Exchange-listed REIT, where he directed investment activities for the Southwest region. During his seven-year tenure at AMLI, Mr. Alfieri consummated multifamily transactions in excess of $2.5 billion. From 2000 to 2006, Mr. Alfieri was a member of CEC, AMLI’s senior executive committee. In February 2006, AMLI merged into an indirect subsidiary of Morgan Stanley Real Estate’s Prime Property Fund, and the consideration paid for AMLI represented a 20.7% premium over the closing price of its common shares on the last full trading day prior to the public announcement of the merger. From 1991 until 1998, Mr. Alfieri was president and Chief Executive Officer of Revest Group, Inc., a regional full service investment company. Revest was engaged in the acquisition and development of multifamily and commercial properties as a sponsor/general partner on behalf of international and domestic private investors. Mr. Alfieri also was President and Chief Executive Officer of Revest Management Services. Revest Management Services fee managed office, mini-storage and multifamily properties. Mr. Alfieri graduated from Texas A&M with a Bachelor of Business Administration degree in Marketing. Mr. Alfieri is a licensed Real Estate Broker in the State of Texas. Mr. Alfieri served on the Board of Directors of the National Multi Housing Council from 2002 to 2004 and is currently a member of the National Multi Housing Council.

Margaret M. “Peggy” Daly, 57, was appointed our Senior Vice President-Property Management effective July 31, 2013. Ms. Daly served as the Senior Vice President-Property Management of our Property Manager from September 2011 to July 31, 2013 and as the Vice President of our Property Manager from September 2010 to September 2011. In addition, Ms. Daly served

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as Senior Vice President of Property Management for Harvard Property Trust, LLC, an affiliate of our Advisor, from May 2010 to July 31, 2013. Ms. Daly is responsible for development and leadership of property management and operating platform for our assets.

Ms. Daly has over 30 years of experience in management of Class A multifamily assets. Prior to joining Behringer, from March 2008 to April 2010, Ms. Daly was Executive Vice President of Property Management at Place Properties LLP where she was responsible for the profitability, business development and performance results of over 22,500 beds of student housing. From August 1988 to March 2008, Ms. Daly was with AMLI, where she served as the Executive Vice President-National Director of Operations, Senior Vice President-Revenue Management and Regional Vice President. From June 1979 to March 1988, Ms. Daly was a Divisional Vice President of Property Management with Trammell Crow Residential.

Ms. Daly attended Virginia Polytechnic Institute and studied Business Administration. She served on the board of directors of the Atlanta Apartment Association from 1996 to 2000, was a member of the Advisory Board for the School of Property Management at Virginia Polytechnic Institute, and has served on expert panels at National Apartment Association, National Multi-Housing Council and Multifamily Executive conferences.

Howard S. Garfield, 56, has served as our Chief Financial Officer and Treasurer since September 2009, as our Chief Accounting Officer since May 2009, and as our Assistant Secretary since August 2013. In addition, Mr. Garfield served as Chief Financial Officer and Treasurer of our Advisor and our Property Manager from September 2009 to July 31, 2013, as well as Chief Accounting Officer of these entities from September 2011 to July 31, 2013. Prior to joining Behringer in February 2009, from April 2008 to February 2009, Mr. Garfield was Senior Vice President-Private Equity Real Estate Funds for Lehman Brothers Holdings Inc., formerly a New York Stock Exchange listed investment banking firm, where he was responsible for accounting and fund administration for certain private equity real estate funds sponsored by Lehman Brother Holdings Inc. From 2006 to April 2008, Mr. Garfield was Executive Vice President and Chief Financial Officer of Homevestors of America, Inc., a privately held franchisor related to reselling single-family homes. Mr. Garfield received a Bachelor of Business Administration degree, summa cum laude, from the University of Texas at Austin. Mr. Garfield is a certified public accountant in the State of Texas and a member of the National Association of Real Estate Companies.

Daniel J. Rosenberg, 38, was appointed our General Counsel-Securities and Risk Management effective July 31, 2013. Mr. Rosenberg served as our Senior Vice President-Legal and General Counsel from September 2011 to July 31, 2013 and has served as our Secretary since December 2007. Mr. Rosenberg also served as Senior Vice President-Legal and General Counsel and Secretary of our Advisor and Property Manager from September 2011 to July 31, 2013. Mr. Rosenberg joined Behringer in June 2004.  While at Behringer, Mr. Rosenberg was responsible for legal matters related to Behringer’s multifamily platform. Prior to the formation of the first Behringer-sponsored multifamily program in 2006, Mr. Rosenberg was responsible for all legal aspects of Behringer’s private offerings.  Prior to joining Behringer, Mr. Rosenberg was a corporate associate at the New York office of what was then Katten Muchin Zavis Rosenman LLP, a leading national law firm, where he represented private and public companies in a wide range of corporate transactions, including acquisitions, divestitures, mergers, financings, joint ventures, private placements and high-yield debt offerings.  Mr. Rosenberg received a Bachelor of Arts degree from the University of Wisconsin at Madison and a Juris Doctor degree from Emory University School of Law in Atlanta, Georgia.  Mr. Rosenberg is licensed as an attorney in Texas and New York.

Ross P. Odland, 46, was appointed our Senior Vice President-Portfolio Management effective July 31, 2013. Mr. Odland served as the Senior Vice President-Portfolio Management of our Advisor and Property Manager from September 2011 to July 31, 2013, as the Vice President-Portfolio Management of our Advisor from November 2007 to September 2011 and as the Vice President-Portfolio Management of our Property Manager from March 2008 to September 2011. Mr. Odland is responsible for developing investment strategies, sourcing, developing and managing the Company’s programmatic joint venture partnerships, and leading the asset management group for the multifamily group.

Prior to joining Behringer, from 2000 to 2007, Mr. Odland was Vice President of Portfolio Management at AMLI, where he managed the company's joint venture relationships and performed portfolio and asset management duties for the company's southwest region which was valued in excess of $1.1 billion. From 1997 to 2000, Mr. Odland was a consultant with Pricewaterhouse Coopers in the Real Estate Advisory Group. In this role, Mr. Odland performed valuation, market research, and due diligence activities for publicly traded REITS and institutional real estate funds.

Mr. Odland holds a Bachelor of Business Administration degree from the University of Wisconsin-Madison. Mr. Odland is a chartered financial analyst (CFA), a member of the CFA Society of Dallas-Fort Worth and a member of the Pension Real Estate Advisory Association.

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Key Personnel

The following individuals are non-executive personnel who are important to our success:

Robert T. Poynter, 57, has served as the Senior Vice President and Chief Investment Officer of our Advisor and a Senior Vice President of our property manager since September 2011. Prior to his current roles, Mr. Poynter served as Vice President of our Advisor from November 2006 to September 2011 and Vice President—Multifamily of our property manager from March 2008 to September 2011. Mr. Poynter is responsible for reviewing and improving existing policies regarding the multifamily investment and acquisition process for Behringer and for developing best practices for the multifamily group. In this capacity Mr. Poynter also is responsible for sourcing, underwriting and administering the multifamily investment and acquisition process for Behringer.

Prior to joining Behringer, from October 1983 to September 2006, Mr. Poynter was employed by JPI, a national multifamily development and acquisitions company. Mr. Poynter was a Senior Vice President of several different JPI-affiliated entities and served as the Strategic Recapitalization Services Partner. During that time, Mr. Poynter worked on condominium and home sales, corporate housing, third party property management services and acquisitions. Mr. Poynter is a licensed Real Estate Broker in the state of Texas. Mr. Poynter received a Bachelor of Science degree from the Wharton School at the University of Pennsylvania.

James A. Fadley, 56, has served as the Senior Vice President of our Advisor and property manager since September 2011. Mr. Fadley is responsible for Behringer's multifamily due diligence and transactional closing group. Prior to his current roles, Mr. Fadley served in a variety of capacities for affiliates of our Advisor related to the multifamily due diligence and transactional closing group. Prior to joining Behringer in June 2009, Mr. Fadley was employed from September 1986 to January 2009 by JPI, a national multifamily development and acquisitions company. During his career at JPI, Mr. Fadley held a variety of positions including Executive Vice President & Senior Operations Partner of Investment Services and Co-Divisional President and Chief Investment Officer of JPI's Student Living Division. Mr. Fadley served as a member of JPI's Investment Committee, and was also responsible for its design, implementation and administration. During his tenure at JPI, over $8 billion of apartment properties were acquired, developed and sold. At JPI Mr. Fadley was responsible for managing JPI's business relationship with GE Capital, which included investor reporting, venture compliance and the GE approval process. Mr. Fadley also served in a variety of other roles at JPI including investment analysis, asset management and dispositions, project capitalization and market research. Prior to joining JPI, Mr. Fadley was employed by Arthur Andersen & Co. from July 1979 to August 1986 where he was a manager in the audit division. In 1979, Mr. Fadley received his Bachelor of Business Administration, cum laude from Southern Methodist University.

James J. McGinley III, 49, has served as Senior Vice President of an affiliate of our Advisor since August 2013. Mr. McGinley’s responsibilities include overseeing and managing all of the Company’s new multifamily development projects and capital market activities, as well as the sourcing of new equity partner relationships. Mr. McGinley has over 25 years of lending, financing, development and real estate investment experience in excess of $5 billion in transaction value. Prior to joining Behringer, from August 2011 to February 2013, Mr. McGinley served as Group Vice President of Capital Markets for Archstone, formerly a New York Stock Exchange listed apartment REIT that was taken private in 2007 and in 2013 was purchased by two large publicly traded apartment REITs, where he directed the project capital structuring and closing of the firm's equity and capital relationships nationally. Previously, from June 2006 to October 2009, primarily while Archstone was a publicly traded REIT, Mr. McGinley oversaw the firm’s third party joint venture equity investments throughout the U.S. From October 2011 to August 2013, Mr. McGinley operated his own national development consulting business with several clients, including Behringer, Archstone, and Phoenix Property Co., a Dallas, Texas-based developer of multifamily communities and student housing communities (“Phoenix”). Prior to joining Archstone, from March 1999 to June 2006, Mr. McGinley served as a Development Partner for Phoenix, where he oversaw development of infill luxury multifamily and mixed-use properties in several western states. Prior to joining Phoenix, from March 1995 to February 1999, Mr. McGinley was with JPI, a national multifamily development and acquisitions company. During his career at JPI, Mr. McGinley held a variety of positions including Vice President of Development and Vice President of Finance. Mr. McGinley began his career with the predecessor of Bank of America. Mr. McGinley graduated from the University of Notre Dame Graduate School of Business with a Masters of Business Administration in finance, and received his Bachelors of Business Administration in both finance and real estate from Southern Methodist University. Mr. McGinley is a graduate of the inaugural program of the Associate Leadership Council of The Real Estate Council and is an active member of that organization. In addition, Mr. McGinley is a member of the Urban Land Institute and the National Multi Housing Council.

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Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires each director, officer and individual beneficially owning more than 10% of a registered security of us to file with the SEC, within specified time frames, initial statements of beneficial ownership (Form 3) and statements of changes in beneficial ownership (Forms 4 and 5) of our common stock. These specified time frames require the reporting of changes in ownership within two business days of the transaction giving rise to the reporting obligation. Reporting persons are required to furnish us with copies of all Section 16(a) forms filed with the SEC. Based solely on a review of the copies of such forms furnished to us during and with respect to the fiscal year ended December 31, 2013, or written representations that no additional forms were required, we believe that all required Section 16(a) filings were timely and correctly made by reporting persons during 2013.

Code of Ethics

Our board of directors has adopted an Amended and Restated Code of Business Conduct Policy that is applicable to all members of our board of directors, our executive officers and employees of our advisor and its affiliates. We have posted the policy on the website maintained for us at www.behringerinvestments.com. If in the future we amend, modify or waive a provision in the Amended and Restated Code of Business Conduct Policy, we may, rather than filing a Current Report on Form 8-K, satisfy the disclosure requirement by posting promptly such information on the website maintained for us as necessary.

Audit Committee Financial Expert

The Audit Committee consists of independent directors Sami S. Abbasi, the chairman, Roger D. Bowler, Jonathan L. Kempner and E. Alan Patton. Our board of directors has determined that Mr. Abbasi is an “audit committee financial expert,” as defined by the rules of the SEC. The biography of Mr. Abbasi, including his relevant qualifications, is previously described in this Item 10. Our shares are not listed for trading on any national securities exchange and therefore our audit committee members are not subject to the independence requirements of the New York Stock Exchange (“NYSE”) or any other national securities exchange. However, each member of our audit committee is “independent” as defined by the NYSE.

Item 11.    Executive Compensation

Executive Compensation — Compensation Discussion and Analysis

Overview

 We provide what we believe is a competitive total compensation package to our named executive officers through a combination of base salary, annual cash incentive bonuses, long-term equity incentive compensation and broad-based benefits programs.  This Compensation Discussion and Analysis explains our compensation philosophy, objectives and practices with respect to our President, our Chief Financial Officer and the other three most highly-compensated executive officers as of the end of 2013 as determined in accordance with applicable SEC rules, who are collectively referred to as our named executive officers or, in this “Compensation Discussion and Analysis” section, our executives. For purposes of this compensation disclosure, we do not consider our current Chief Executive Officer to be one of our “named executive officers” or “executives” because, as described further below, he is not an employee of ours and not directly compensated by us.  Our executives are as follows: Mark T. Alfieri, President and Chief Operating Officer; Howard S. Garfield, Chief Financial Officer, Chief Accounting Officer, Treasurer and Assistant Secretary; Ross P. Odland, Senior Vice President - Portfolio Management; Daniel J. Rosenberg, General Counsel — Securities and Risk Management and Secretary; and Margaret M. “Peggy” Daly, Senior Vice President — Property Management.

Through July 31, 2013, none of our executive officers received compensation from us for services rendered to us. Through July 31, 2013, all of our executive officers were also officers of our Advisor and its affiliates and were compensated by these entities, in part, for their services to us. Through July 31, 2013, we neither separately compensated our executive officers nor reimbursed our Advisor for any compensation paid to their employees who also served as our executive officers, other than through the general fees and expense reimbursements we paid to them under the advisory management agreement with our Advisor and the property management agreement with our Property Manager.

At the Initial Closing of the Modification Agreement on July 31, 2013, Behringer waived the non-solicitation and non-hire provisions contained in the agreements with the Company with respect to the five named executive officers above who previously provided services on our behalf as employees of Behringer. We offered employment to these persons and all of them accepted our offer and became our employees on August 1, 2013. Accordingly we began compensating our named executive

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officers on August 1, 2013. Our current Chief Executive Officer, Robert S. Aisner, remains an employee of Behringer and is compensated through his arrangements with Behringer rather than from us. Through December 31, 2013, we neither separately compensated Mr. Aisner nor reimbursed Behringer for any compensation paid to Mr. Aisner, other than through the general fees and expense reimbursements we paid to them under the advisory management agreement with our Advisor.

See Part III, Item 13, “Certain Relationships and Related Transactions, and Director Independence-Related Party Transactions” of this Annual Report on Form 10-K for a discussion of the fees paid to and services provided by our Advisor and its affiliates.

Executive Summary

The Company accomplished several key objectives in 2013.

• Began the process to transition to self-management, entering into agreements with the Advisor and its affiliates and hiring the Company’s initial executives and other employees;

• Expanded the PGGM CO-JV relationship, generally increasing the maximum potential commitment of PGGM by $300 million (in addition to any amounts distributed to PGGM from sales or financings of new PGGM CO-JVs), which we expect to provide (i) access to additional capital to enable us to increase the size and diversification of our multifamily community portfolio and (ii) through fee income and increased participation rights, the potential for more favorable returns on these investments;

• Expanded the number of our developments by acquiring land and commencing construction in eight new developments; and

• Sold four multifamily communities with combined sales prices of $211.9 million, before closing costs, resulting in gain of approximately $50.8 million.

• The Same-Store comparable rental revenues for our multifamily communities increased 6% from $158.8 million in 2012 to $168.9 million in 2013;

• We obtained financings for $107.0 million at a weighted average fixed rate of 3.6%. Additionally, we obtained new construction financing with total commitments of $161.5 million; and

• We reported net income for 2013 of $32.6 million, an increase over a net loss of $30.2 million in 2012, where our 2013 results included gains from sales of multifamily communities of $50.8 million and benefited from improved operations. Funds from operations (“FFO”) increased from $38.3 million in 2012 to $42.0 million in 2013. Modified funds from operations (“MFFO”) increased to $46.3 million in 2013 from $41.0 million in 2012 (see Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” of this Annual Report on Form 10-K for a discussion regarding FFO and MFFO, including reconciliations to net income in accordance with U.S. generally accepted accounting principles (“GAAP”)).

Overview of Compensation Philosophy & Objectives

We seek to maintain a total compensation package that provides fair, reasonable and competitive compensation for our executives while also permitting us the flexibility to differentiate actual pay based on the level of individual and organizational performance. We place significant emphasis on annual and long-term performance-based incentive compensation, including cash and equity-based incentives, which are designed to reward our executives based on the achievement of company and individual goals.

The compensation programs for our executives are designed to achieve the following objectives:

• Attract and retain top contributors to ensure that we have high caliber executives;

• Create and maintain a performance-driven organization, by providing upside compensation opportunity for outstanding performance and downside compensation risk in the event performance falls below expectations;

• Align the interests of our executives and stockholders by motivating executives to increase stockholder value along with the achievement of other key corporate goals and objectives;

• Encourage teamwork and cooperation while recognizing individual contributions by linking variable compensation to both company and individual performance based on responsibilities and ability to influence financial and organizational results;

• Provide flexibility and allow for discretion in applying our compensation principles in order to appropriately reflect individual circumstances as well as changing business conditions and priorities; and

• Motivate our executives to manage our business to meet and appropriately balance our short- and long-term objectives, and reward them for meeting these objectives.

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We believe our compensation programs are effectively designed and work in alignment with the interests of our stockholders and include a number of best practices, such as:

WHAT WE DO...	WHAT WE DON’T DO...
ü We do place a greater emphasis on variable, performance-based compensation, particularly in the form of long-term equity-based compensation	û We do not provide tax gross-ups to our executives under any circumstance
ü We do have a clawback provision that requires executives to reimburse the Company for incentive-based compensation to the extent intentional misconduct results in a restatement	û We do not set compensation levels above median for achieving target performance
ü We do intend to establish our annual incentive program based on objective performance criteria, supplemented by subjective criteria	û We do not provide uncapped payouts of bonus awards
ü We do intend to establish our long-term incentive program based on objective performance criteria, supplemented by subjective criteria; the awards will require subsequent vesting over a multi-year period	û We do not pay dividends on unvested performance shares
ü We do engage an independent compensation consultant to advise the Compensation Committee on compensation matters	û We do not guarantee annual salary increases nor do we pay guaranteed minimum bonuses

Determination of Executive Compensation

Our executive compensation programs are administered by the Compensation Committee of our board of directors.  The members of the Compensation Committee are:  Jonathan L. Kempner (Chairman), Sami S. Abbasi, Roger D. Bowler, and E. Alan Patton, each of whom are “independent” under our charter and under the independence standards of the NYSE.

The Compensation Committee sets the overall compensation strategy and compensation policies for our executives and directors.  The Compensation Committee has the authority to determine the form and amount of compensation appropriate to achieve our strategic objectives, including salary and incentive compensation.  The Compensation Committee will review its compensation strategy annually to confirm that it supports our objectives and stockholders’ interests and that executives are being rewarded in a manner that is consistent with our strategy.

The Compensation Committee is responsible for, among other things:

• reviewing the compensation of our executives with actual or expected compensation exceeding $300,000 per year, including annual base salary, annual cash incentive compensation and long-term equity incentive compensation;

• approving and issuing equity incentive awards;

• reviewing and approving all benefit and compensation plans pertaining to our executives (other than those available to our employees generally); and

• advising on board compensation.

On May 20, 2013, our Compensation Committee engaged the services of FPL Associates, L.P., a nationally recognized compensation consulting firm specializing in the real estate industry, to assist us in determining competitive executive compensation levels and the programs to implement.  The Compensation Committee also worked with FPL Associates to negotiate employment agreements with our executives, develop additional incentive compensation programs, structures or initiatives and establish our director compensation program.  As part of FPL Associates’ engagement, the Compensation Committee directed FPL Associates to, among other things, provide competitive market compensation data and make recommendations for pay levels for each component of our executive compensation.  FPL Associates has not been engaged by our executives to perform any work on their behalf, and the Compensation Committee determined that FPL Associates was an independent compensation consultant.

Competitive Benchmark Assessment

FPL Associates considered the following criteria for selecting peer group companies, including, but not limited to:

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• Companies focused primarily in the multifamily sector;

• Real estate companies similar in size to us (defined by gross value/total capitalization, portfolio metrics such as number of properties/units);

• Complexity of operations (active development pipeline and/or joint venture transactions); and

• Geographic location (companies that may compete with us for talent and/or portfolio concentration).

As such, the peer group consisted of the following:

American Campus Communities, Inc.	Colonial Properties Trust
Ashford Hospitality Trust, Inc.	Gables Residential Trust (private)
Associated Estates Realty Corporation	Mid-America Apartment Communities, Inc.
AvalonBay Communities, Inc.	Post Properties, Inc.
BRE Properties, Inc.	Simpson Housing LLLP (private)
Camden Property Trust	UDR, Inc.

The rationale for the inclusion of the peer companies is shown below:

Company Name	Asset Class	Size	Geography	Complexity
American Campus Communities, Inc.	þ		þ	þ
Ashford Hospitality Trust, Inc.		þ	þ
Associated Estates Realty Corporation	þ	þ
AvalonBay Communities, Inc.	þ			þ
BRE Properties, Inc.	þ			þ
Camden Property Trust	þ		þ
Colonial Properties Trust	þ	þ
Gables Residential	þ	þ		þ
Mid-America Apartment Communities, Inc.	þ
Post Properties, Inc.	þ	þ
Simpson Housing	þ
UDR, Inc.	þ			þ

Given that there is a size differential between some of the selected peers and us in terms of capitalization (we generally ranked between the 25^th and 50^th percentile), the competitive benchmarking data was reviewed on a size-adjusted basis. Summary size statistics for us relative to the peer companies are shown below.

Size Statistic (Based on year-end 2012)	Our Relative Ranking
Total Capitalization	30th percentile
Market Capitalization	39th percentile

Using size-adjusted market data and information we received from FPL Associates, we entered into employment agreements with each of our executives on August 1, 2013.  These agreements generally established the base salaries and targets for short-term cash and long-term equity incentive compensation for our executives.  In establishing the amounts in these agreements, we generally targeted between the 25th and 50th percentiles of the competitive market based on the peer group described above based on the size of the Company compared to these peers, but also took into account other factors including, among others, the individual experience and skills of, and expected contributions from, the executives.  For a more detailed discussion of the employment agreements with each of our executives, see “Employment Agreements” below.

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The Role of Executive Officers in Executive Compensation Decisions

Our President consulted with the Compensation Committee regarding 2013 compensation levels for each of our executives based on recommendations to our Compensation Committee provided by FPL Associates.  Our President will annually review the performance of each of the other executives.  Based on this review, he will make compensation recommendations to the Compensation Committee, including recommendations for performance targets, salary adjustments, annual cash incentive compensation bonuses, and long-term equity-based incentive awards.  Although the Compensation Committee considers these recommendations along with data provided by its outside consultants, if any, it retains full discretion to set all compensation.

Elements of Executive Compensation

Base Salary. Our Compensation Committee believes that payment of a competitive base salary is a necessary element of any compensation program that is designed to attract and retain talented and qualified executives.  Subject to our existing contractual obligations, we expect our Compensation Committee to consider salary levels for our executives annually as part of our performance review process, as well as upon any promotion or other change in job responsibility.  In connection with the hiring of our current executives and the negotiation and execution of their employment agreements, our Compensation Committee recommended and the Company’s board of directors approved the following base salaries for fiscal years 2013 and 2014, respectively:

Name and Position	2013		2014
Mark T. Alfieri President and Chief Operating Officer	$	425,000	$	425,000
Howard S. Garfield Chief Financial Officer, Chief Accounting Officer, Treasurer and Assistant Secretary	$	325,000	$	325,000
Ross P. Odland Senior Vice President — Portfolio Management	$	225,000	$	225,000
Daniel J. Rosenberg General Counsel — Securities and Risk Management and Secretary	$	250,000	$	250,000
Margaret M. “Peggy” Daly Senior Vice President — Portfolio Management	$	275,000	$	275,000

The goal of our base salary program is to provide salaries at a level that allows us to attract and retain highly qualified executives while preserving significant flexibility to recognize and reward individual performance with other elements of the overall compensation program.  Base salary levels also affect the annual cash incentive compensation because each executive’s annual cash incentive bonus target opportunity is expressed as a percentage of base salary.  The following items are generally considered when determining base salary levels:

• market data provided by the Compensation Committee’s outside consultants;

• our financial resources; and

• the executive’s experience, scope of responsibilities, performance and prospects.

Annual Cash Incentive Compensation.  It is the intention of our Compensation Committee to make a meaningful portion of the executives’ compensation contingent on achieving certain performance targets and individual objectives each year.  Because we only recently started the self-management transition and hired our executives, in January 2014 the executives’ cash incentive compensation for fiscal year 2013 (which was paid in January 2014) was recommended at the target for each executive by the Compensation Committee, and approved by the Company’s board of directors.  However, the committee will set objective performance metrics for each of the executives for 2014 (which may include, among others, EBITDA (earnings before interest, taxes, depreciation, and amortization), FFO, NOI, NAV (net asset value), total return, growth, occupancy/leasing goals, investment activity, etc.) and intends to utilize a mix of these objective metrics and a subjective review of performance in setting annual cash incentive compensation in future years.  For a description of the target bonuses for each of our executives, please see “Employment Agreements” below.

Long-Term Equity Incentive Compensation. The objective of our long-term equity incentive award program, which is administered through our Incentive Award Plan, is to attract and retain qualified personnel by offering an equity-based program that is competitive with our peer companies, as well as to promote a performance-focused culture by rewarding employees, including our executives, based upon the achievements of the Company and individual performance.  Our Compensation Committee believes that equity awards are necessary to successfully attract qualified employees, including the executives, and

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will continue to be an important incentive for promoting employee retention going forward.  The initial award targets for the executives were determined by the Compensation Committee, in consultation with FPL Associates, and subsequently reviewed with the President (with respect to all awards).  For a description of the target equity incentive awards for each of our executives, please see “Employment Agreements” below.  No equity awards were made to employees, including the executives, during 2013.

Because we only recently started the self-management transition and hired our executives, in January 2014 the executives’ long-term equity incentive compensation for fiscal year 2013 (which was awarded in January 2014) was recommended at the target for each executive by the Compensation Committee, and approved by the Company’s board of directors. However, the committee will set objective performance metrics for each of the executives for 2014 (which may include, among others, EBITDA (earnings before interest, taxes, depreciation, and amortization), FFO (funds from operations), NOI (net operating income), NAV (net asset value), total return, growth, occupancy/leasing goals, investment activity, etc.) and intends to utilize a mix of objective performance metrics and a subjective review of performance in setting long-term equity awards in future years.  The Compensation Committee believes that an emphasis on performance measures will drive our long-term success.

Our Compensation Committee made restricted stock unit (“RSU”) awards to our executives under our Incentive Award Plan in January 2014, pursuant to a form of Employee Restricted Stock Unit Award Agreement included as Exhibit 10.5 hereto. Each RSU governed by the form of Employee Restricted Stock Unit Award Agreement will relate to one share of our common stock. Each RSU will entitle the holder to cash dividends as if he or she held a share of our common stock, regardless of vesting. Subject to continuous employment of the grantee by the Company, each RSU will vest (i) one-third on the 13-month anniversary of the grant date, (ii) one-third on the second anniversary of the grant date, and (iii) one-third on the third anniversary of the grant date. Notwithstanding the foregoing, the grantee will become fully vested in the RSUs in the event of a change of control of the Company, his or her death or disability, the termination of employment of the grantee without “cause” (as defined in the applicable employment agreement) by the Company or termination of employment by the grantee for “good reason” (as defined in the applicable employment agreement). If the grantee’s employment with the Company terminates for any reason (other than death, disability, termination of employment without “cause” (as defined in the applicable employment agreement) by the Company or termination of employment by the grantee for “good reason” (as defined in the applicable employment agreement)), then any unvested RSUs shall automatically be forfeited. Regardless of the vesting of the RSUs, if the grantee has executed a deferral election form, the settlement date specified in such form shall apply and no shares of stock shall be issued to the grantee until the delayed settlement date. The grantee may defer settlement until the earlier of (a) the grantee’s separation from service, the grantee’s death or a change of control of the Company or (b) a date chosen by the grantee that is at least three years from the grant date. The form of Deferral Election Form is included as Exhibit 10.6 hereto.

To the extent we grant options in the future, the exercise price of each stock option awarded to our employees under our Incentive Award Plan will be the “fair market value,” as defined in the Incentive Award Plan to be equal to the estimated per share value of our common stock as established from time to time by the board pursuant to our valuation policy, on the date of grant, which is the date of the Compensation Committee meeting at which the equity award is determined, as specified in our Incentive Award Plan.

Benefits. All full-time employees, including our executives, may participate in our health and welfare benefit programs, including medical, dental and vision care coverage, disability and life insurance, and our 401(k) plan. We do not have any special benefits or retirement plans for our executives.

Severance. Under their employment agreements, each of our executives is entitled to receive severance payments under certain circumstances in the event that their employment is terminated.  These circumstances and payments are described below under “Employment Agreements” and “Potential Payments Upon Termination or Change of Control.”  Our Compensation Committee believes that the negotiation of these severance payments was an important factor in enticing the executives to leave the employment of our Advisor.

Risk Management

The Compensation Committee was involved in negotiating each of the employment agreements with our named executive officers.  The committee believes that our compensation policies and practices do not encourage our employees to take excessive or unnecessary risks and are not reasonably likely to have a material adverse effect on the Company.  In making this assessment, the Compensation Committee considered a variety of factors, including base salary, annual cash incentive compensation and long-term equity incentive compensation opportunities available to our named executive officers.  The committee believes that the combination of the compensation elements should lead to executive and employee behavior that is consistent with our overall objectives and risk profile.

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Impact of Regulatory Requirements on Executive Compensation

Section 162(m).  Under Section 162(m) of the Internal Revenue Code of 1986, as amended, referred to herein as the “Code,” certain limits are placed on the tax deductibility of compensation paid to our Chief Executive Officer and our three most highly compensated executives other than our Chief Executive Officer and Chief Financial Officer unless the compensation meets the requirement for “performance-based compensation” as set forth in the Code and the related regulations.  Our Compensation Committee has considered the possible effect of Section 162(m) of the Code in designing our compensation programs and policies.  Further, as long as we qualify as a REIT, we generally will not pay taxes at the corporate level and, therefore, losing the deductibility of compensation does not have a significant adverse impact on the Company.  Section 162(m) of the Code did not limit our ability to take a tax deduction for all of the compensation paid to these executives for the year ended December 31, 2013.

To the extent that any part of our compensation expense is not deductible under Section 162(m) of the Code, we might be required to pay certain distributions to our stockholders to maintain our status as a REIT.  Also, any compensation allocated to our taxable REIT subsidiaries whose income is subject to federal income tax would result in an increase in income taxes due to the inability to deduct the compensation.  The committee will continue to take into account the materiality of any deductions that might be lost as well as the broader interests to be served by paying competitive compensation.

Section 409A.  Section 409A of the Code may affect the federal income tax treatment of most forms of deferred compensation by accelerating the timing of the inclusion of the deferred compensation to the recipient for federal income tax purposes and imposing an additional federal income tax on the recipient equal to 20% of the amount of the accelerated income under certain circumstances.  The committee considers the potential adverse federal income tax impact of Section 409A of the Code in determining the form and timing of compensation paid to our executives and other employees and service providers.

Section 280G and 4999.  Sections 280G and 4999 of the Code limit a company’s ability to deduct, and impose excise taxes on, certain “excess parachute payments” (as defined in Sections 280G and 4999 of the Code and related regulations) paid to each service provider (including an employee or officer) in connection with a change of control of the company (as set forth in Sections 280G and 4999 of the Code and related regulations).  The committee considers the potential adverse tax impact of Sections 280G and 4999 of the Code, as well as other competitive factors, in structuring certain post-termination compensation or other compensation that might be payable to our executives and other employees and service providers in connection with a change of control of the company but has determined not to provide any tax grossed-up payment to assist any executive in the payment of these excise taxes.

Compensation Committee Report

The Compensation Committee has certain duties and powers as described in its charter. The Compensation Committee is currently comprised of the four independent directors named at the end of this report, each of whom is “independent” under our charter and the independence standards of the NYSE. The Compensation Committee has furnished the following report on executive compensation for the fiscal year ended December 31, 2013.

The Compensation Committee has reviewed and discussed with management the “Executive Compensation —Compensation Discussion and Analysis” section contained in this Annual Report on Form 10-K (the “CD&A”). Based on this review and the committee’s discussions, the Compensation Committee has recommended andapproved the CD&A included in this Annual Report on Form 10-K.

COMPENSATION COMMITTEE:

Jonathan L. Kempner, Chairman

Sami S. Abbasi

Roger D. Bowler

E. Alan Patton

The foregoing report shall not constitute “soliciting material” and shall not be deemed incorporated by reference by any general statement incorporating by reference this Annual Report on Form 10-Kinto any filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, except to the extent that we specifically incorporate this information by reference, and shall not otherwise be deemed filed under either Act.

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Summary Compensation Table

Prior to August 1, 2013, we did not have any employees and did not compensate our executives.  The Advisor was responsible for managing our day-to-day operations.  Each of our executives was an employee of an affiliate of the Advisor and was compensated by this affiliate for services performed by the Advisor on our behalf.  On July 31, 2013, we entered into a series of agreements, and amendments to the agreements and arrangements existing at the time with, among others, the Advisor.  As a result of these agreements and amendments, we began to perform certain functions previously provided to us by the Advisor.  We hired, and entered into employment contracts with, our executives and began paying compensation to these persons.  As a result, the table below reflects compensation paid to our executives beginning August 1, 2013.  A description of the employment agreements with each of our executives is contained herein.  See “Employment Agreements” below.

Name and Principal Position	Year	Salary(1)		Bonus(2)		All Other  Compensation		Total
Mark T. Alfieri President and Chief Operating Officer	2013	$	177,083	$	425,000	$	—	$	602,083
Howard S. Garfield Chief Financial Officer, Chief Accounting Officer, Treasurer and Assistant Secretary	2013	$	135,416	$	325,000	$	—	$	460,416
Ross P. Odland Senior Vice President — Portfolio Management	2013	$	93,750	$	135,000	$	—	$	228,750
Daniel J. Rosenberg General Counsel — Securities and Risk Management and Secretary	2013	$	104,167	$	125,000	$	—	$	229,167
Margaret M. “Peggy” Daly Senior Vice President — Portfolio Management	2013	$	114,583	$	137,500	$	—	$	252,083

(1) Includes base salary paid from August 1, 2013 to December 31, 2013.

(2) Represents amounts paid as bonuses for performance in respect of 2013 although not paid until 2014.  As part of the transition to self-management, the Company agreed to pay full-year 2013 bonuses.

Employment Agreements

Effective as of August 1, 2013, we entered into Employment Agreements (collectively, the “Employment Agreements”) with each of the following executive officers: Mark T. Alfieri, our President and Chief Operating Officer; Howard S. Garfield, our Chief Financial Officer, Chief Accounting Officer, Treasurer and Assistant Secretary; Ross P. Odland, our Senior Vice President — Portfolio Management; Daniel J. Rosenberg, our General Counsel — Securities and Risk Management and Secretary; and Margaret M. “Peggy” Daly, our Senior Vice President — Property Management. The Employment Agreements were approved by the board of directors of the Company, based upon the recommendation of the Compensation Committee of the board. The Compensation Committee reviewed competitive executive contract market materials and retained its own legal counsel and independent compensation consultant to, among other things, negotiate the terms of the Employment Agreements.

The Employment Agreements of Mr. Alfieri and Mr. Garfield provide for a term commencing August 1, 2013 and ending August 1, 2017. The Employment Agreements of Mr. Odland, Mr. Rosenberg and Ms. Daly provide for a term commencing August 1, 2013 and ending August 1, 2016. Each Employment Agreement will automatically continue for an additional one-year period unless either party provides 60 days written notice of non-renewal prior to the expiration of the initial term.

Compensation. During the term of each Employment Agreement, we will pay each executive officer an annual base salary, as set forth in the table below, which will be redetermined annually and may not be reduced without the executive officer’s consent. In addition, during the term of his or her Employment Agreement, each executive officer will be eligible to receive cash incentive compensation as determined by the Compensation Committee of our board. Each executive officer’s target annual incentive compensation will be equal to a percentage of his or her base salary, also as set forth below. The cash incentive compensation will be predicated on both objective corporate and individual measures to be mutually agreed upon between the executive officer and the Compensation Committee. The amount of cash incentive compensation awarded to the executive

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officer each year must be reasonable in light of the contributions made by the executive officer for the year in relation to the contributions made and incentive compensation awarded to other senior executives of the Company for the same year.

Executive	Minimum Annual Base Salary for 2013		Target Annual Cash Incentive  Compensation  (as % of annual base salary)
Mark T. Alfieri	$	425,000	100	%
Howard S. Garfield	$	325,000	100	%
Ross P. Odland	$	225,000	60	%
Daniel J. Rosenberg	$	250,000	50	%
Margaret M. “Peggy” Daly	$	275,000	50	%

During the term of his or her Employment Agreement, each executive officer also will be eligible to receive equity awards under our Incentive Award Plan, as amended, and any other successor plan, at the discretion of the Compensation Committee. Each executive officer’s target annual long-term incentive award will be equal to a percentage of his or her base salary plus his or her target annual cash incentive compensation, as set forth in the table below. The amount of each equity award granted to the executive officer must be reasonable in light of the contributions made, or anticipated to be made, by the executive officer for the period for which that equity award is made.

Executive	Target Annual Long-Term Incentive Award  (as % of annual base salary +  target annual cash incentive compensation)
Mark T. Alfieri	110	%
Howard S. Garfield	90	%
Ross P. Odland	50	%
Daniel J. Rosenberg	67.5	%
Margaret M. “Peggy” Daly	50	%

Payments Upon Termination or Change in Control. Under the Employment Agreements, we are required to provide any earned compensation and other vested benefits to the executive officers in the event of a termination of employment. In addition, each executive officer will have the right to additional compensation and benefits depending upon the manner of termination of employment, as summarized below.

During the term of each Employment Agreement, we may terminate the agreement with or without “cause,” defined as, among other things, the executive officer’s dishonest or fraudulent action, willful misconduct or gross negligence in the conduct of his or her duties to us, or the executive officer’s material uncured breach of the Employment Agreement. In addition, each executive officer may terminate his or her Employment Agreement for “good reason,” defined as, among other things, a material breach of the Employment Agreement by the Company. If the executive officer’s employment is terminated by the Company without “cause” or by the executive officer with “good reason:”

• we will pay the executive officer an amount equal to the product of: (1) a “Severance Multiple,” equal to 2.6 for Mr. Alfieri, 2.0 for Mr. Garfield, 2.0 for Mr. Odland, 2.0 for Mr. Rosenberg, 2.0 for Ms. Daly; and (2) the sum of: (a) the executive officer’s base salary; and (b) the average of the annual cash incentive compensation received by the executive officer each year during the term of his or her Employment Agreement;

• all equity awards with time-based vesting will immediately vest in accordance with their terms, and each equity award with performance vesting which has been granted or would otherwise have been granted to the executive officer during the applicable performance period/calendar year in the ordinary course will vest at an amount based on our performance from the commencement of the performance period through the end of the performance period, multiplied by a fraction, the numerator of which will be equal to the number of days the executive officer was employed by us from the commencement of the performance period through the date of termination and the denominator of which will be equal to the total number of days in the performance period; and

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• if the executive officer was participating in our group medical, vision and dental plan immediately prior to the date of termination, then we will pay to the executive officer a lump sum payment equal to: (1) 18 times the amount of the monthly employer contribution that we made to an insurer to provide these benefits to the executive officer and his or her dependents in the month immediately preceding the date of termination; plus (2) the amount we would have contributed to their health reimbursement arrangement for 18 months from the date of termination if the executive officer had remained employed by us.

In the event that an executive officer’s employment is terminated within 18 months after the occurrence of the first event constituting a “change in control” (as defined in the Employment Agreement) of the Company, each Employment Agreement provides that all equity awards with time-based vesting will immediately vest and each equity award with performance vesting which has been granted or would otherwise have been granted to the executive officer during the applicable performance period/calendar year in the ordinary course will vest, without any proration, based on achievement of our performance from the commencement of the performance period through the end of the calendar month immediately preceding the change in control. Further, during the employment term, if within 18 months after a change in control, the executive officer’s employment is terminated by the Company without “cause” or the executive officer terminates his or her employment for “good reason,” the executive officer will receive the same cash severance as described above (but not the equity severance described above).

In the event that an executive officer’s employment is terminated on account of the death or disability of the executive officer, each Employment Agreement provides that we will pay the executive officer (or his or her authorized representative or estate):

• the sum of the executive officer’s base salary earned through the date of termination, unpaid expense reimbursements, unused paid time off accrued through the date of termination, any vested benefits the executive officer may have under our employment benefit plans through the date of termination, and any awarded and unpaid cash incentive compensation that the executive officer earned on or before the date of termination;

• a lump sum payment equal to 100 percent of his or her current base salary; and

• the pro rata portion of any cash incentive compensation which would have been earned by the executive officer during such year of termination had the executive officer remained employed the entire year.

Upon the date of termination on account of death or disability of the executive officer, all equity awards with time-based vesting will immediately fully vest in accordance with their terms and become non-forfeitable. Each equity award with performance vesting which has been granted or would otherwise have been granted to the executive officer during the applicable performance period/calendar year in the ordinary course shall vest at an amount based upon our achievement of performance goals through the end of the performance period, multiplied by a fraction, the numerator of which will be equal to the number of days the executive officer was employed by us from the commencement of the performance period through the date of termination and the denominator of which will be equal to the total number of days in the performance period.

Other Terms and Conditions. During the term of the Employment Agreement and for a period of 15 months after termination of employment during the term, each executive officer has agreed to certain non-competition and non-solicitation provisions. The executive officers have also agreed to certain non-disclosure and non-disparagement provisions both during and after their employment with the Company. During the term of each Employment Agreement, if the executive officer’s employment is terminated by us without cause or for good reason, we will not pay the executive officer the severance compensation described above unless the executive officer signs a general release of claims in favor of us and our related persons and entities in a form and manner satisfactory to us.

Additionally, in the event that the amount of any compensation, payment or distribution by us to or for the benefit of the executive officers upon the occurrence of a “change in control,” calculated in a manner consistent with Section 280G of the Code and the applicable regulations thereunder (the “Severance Payments”), would be subject to the excise tax imposed by Section 4999 of the Code, the Severance Payments would be reduced to a level that would not subject the executive officer to such excise tax but only if such reduction would result in greater after-tax proceeds to the executive officer.

The determination whether to reduce the Severance Payments payable to the executive officer will be made by a nationally recognized accounting firm jointly selected by us and the executive officer. Any determination by the accounting firm will be binding upon us and the executive officer.

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Potential Payments upon Termination or Change of Control

The following table summarizes the potential cash payments and estimated equivalent cash value of benefits that would be payable to our executives under the terms of their employment agreements described above upon termination of those agreements under the various scenarios listed below, assuming the event took place on December 31, 2013 (without regard to any potential reductions required under the employment agreements for amounts in excess of Section 280G thresholds):

Name	Without Cause/  For Good Reason		Change-in-Control  (Termination Without Cause/  For Good Reason)		Death/Disability
Mark T. Alfieri	$	2,210,000	$	2,210,000	$	850,000
Howard S. Garfield	$	1,300,000	$	1,300,000	$	650,000
Ross P. Odland	$	720,000	$	720,000	$	360,000
Daniel J. Rosenberg	$	750,000	$	750,000	$	375,000
Margaret M. “Peggy” Daly	$	825,000	$	825,000	$	412,500

The amounts described above do not include payment or benefits to the extent they have been earned prior to the termination of employment or are provided on a non-discriminatory basis to salaried employees upon termination of employment, including, but not limited to, accrued vacation.

Directors' Compensation

Terms of Director Compensation Effective as of October 1, 2013

Effective October 1, 2013, within 30 days of each annual meeting of stockholders, each independent director will automatically receive an equity award in the form of RSUs, equal to $60,000, pursuant to a form of Non-Employee Director Restricted Stock Unit Award Agreement included as Exhibit 10.4 hereto. Each RSU governed by the form of Non-Employee Director Restricted Stock Unit Award Agreement will relate to one share of our common stock and be granted pursuant to the Incentive Award Plan. Each RSU will entitle the holder to cash dividends as if he held a share of our common stock, regardless of vesting or settlement. Each RSU will vest (i) one-third upon the earlier of the first anniversary of the grant date or the first annual stockholder meeting following the grant date, (ii) one-third upon the earlier of the second anniversary of the grant date or the second annual stockholder meeting following the grant date, and (iii) one-third upon the earlier of the third anniversary of the grant date or the third annual stockholder meeting following the grant date. Notwithstanding the foregoing, the grantee will become fully vested in the RSUs in the event of his death or disability while serving on the board or in the event of a change of control of the Company. Regardless of the vesting of the RSUs, they will not be settled by issuance of shares of our common stock until certain events occur as set forth in the form of Non-Employee Director Restricted Stock Unit Award Agreement.

Effective October 1, 2013, we also pay each of our independent directors an annual cash retainer of $60,000 per year. In addition, we pay an independent director serving as the Chairman of the Board an annual cash retainer of $40,000 per year, the chairman of our Audit Committee an annual cash retainer of $15,000 per year, the chairman of our Compensation Committee an annual cash retainer of $12,500 per year and the chairman of our Nominating Committee an annual cash retainer of $7,500 per year. These retainers are paid quarterly in arrears. In addition, we pay each of our independent directors (i) $1,500 for each regular and special meeting of the board or of any committee of the board on which such independent director is a member attended in person or by telephone and (ii) $750 for each unanimous written consent considered by the board or of any committee of the board on which such independent director is a member. All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors or any committee thereof.

Generally, if a director is an employee of ours, or an employee of our Advisor or its affiliates, we do not pay compensation for services rendered as a director. However, pursuant to the Modification Agreement entered into on July 31, 2013, upon termination of the Advisory Management Agreement (which we expect to occur at the Self-Management Closing), the Behringer nominees serving on our board will be entitled to compensation equivalent to that provided to non-employee directors so long as he or she is not also serving as one of our officers.

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Terms of Director Compensation Prior to October 1, 2013

From January 1, 2013 through September 30, 2013, we paid each of our independent directors an annual retainer of $30,000 per year. In addition, we paid the chairman of our Audit Committee an annual retainer of $10,000 per year and the chairmen of our Compensation Committee and Nominating Committee annual retainers of $5,000 per year. These retainers were paid quarterly in arrears. In addition, we paid each of our independent directors (i) $1,500 for each regular and special meeting of the board or of any committee of the board on which such independent director is a member attended in person or by telephone and (ii) $750 for each unanimous written consent considered by the board or of any committee of the board on which such independent director is a member. All directors received reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of our board of directors. Through September 30, 2013, if a director also was an employee of ours, or an employee of our Advisor or its affiliates, we did not pay compensation for services rendered as a director.

Director Compensation Earned or Paid during 2013

The following table summarizes compensation earned or paid to the non-employee directors during 2013:

	Fees Earned or Paid in Cash(a)		All Other Compensation		Total
Sami S. Abbasi	$	110,250	$	—	$	110,250
Roger D. Bowler	$	110,625	$	—	$	110,625
Jonathan L. Kempner	$	108,125	$	—	$	108,125
E. Alan Patton	$	118,750	$	—	$	118,750

_______________________________________________________________________________

(a) This column includes fees earned in 2013, a portion of which were paid in 2014. The amounts paid in 2014 are: $32,250 for Mr. Abbasi, $30,375 for Mr. Bowler, $31,625 for Mr. Kempner, and $38,500 for Mr. Patton.

Compensation Committee Interlocks and Insider Participation

No member of our Compensation Committee served as an officer or employee of us or any of our subsidiaries during the fiscal year ended December 31, 2013 or formerly served as an officer of us or any of our subsidiaries. In addition, during the fiscal year ended December 31, 2013, none of our executive officers served as a member of a board of directors or compensation committee of any entity that has one or more executive officers serving as a member of our board of directors or Compensation Committee.

Item 12.    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

Securities Authorized for Issuance Under Equity Compensation Plans

The following table gives information regarding our equity compensation plans as of December 31, 2013:

Plan Category	Number of securities to be issued upon exercise of outstanding options, warrants and rights	Weighted-average exercise price of outstanding options, warrants and rights	Number of securities remaining available for future issuance under equity compensation plans
Equity compensation plans approved by security holders	—	—	9,994,000
Equity compensation plans not approved by security holders	N/A	N/A	N/A
Total	—	—	9,994,000	(a)

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(a) All shares authorized for issuance pursuant to awards not yet granted under the Incentive Award Plan.

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Security Ownership of Certain Beneficial Owners and Management

The following table sets forth information as of February 28, 2014, regarding the beneficial ownership of our common stock and Series A Preferred Stock by each person known by us to beneficially own 5% or more of the outstanding shares of such classes of stock, each of our directors, each of our executive officers, and our directors and executive officers as a group. The percentage of beneficial ownership is calculated based on 168,870,089 shares of common stock outstanding as of February 28, 2014.

Name of Beneficial Owner	Class of Stock	Amount and Nature of Beneficial Ownership(a)	Percentage of Class
Behringer Harvard Multifamily REIT I Services Holdings, LLC (b) (c)	Series A Preferred Stock	10,000	100%
Behringer Harvard Holdings (b) (c)	Common Stock	24,969	*
Robert S. Aisner (c) (d)	Common Stock	6,139	*
Sami S. Abbasi (c)	Common Stock	2,000	*
Roger D. Bowler (c)	Common Stock	4,000	*
Jonathan L. Kempner (c)	—	—	—
E. Alan Patton (c)	Common Stock	5,000	*
Mark T. Alfieri (c)	Common Stock	6,139	*
Margaret M. Daly (c)	—	—	—
Howard S. Garfield (c)	—	—	—
Ross P. Odland (c)	Common Stock	2,456
Daniel J. Rosenberg (c)	—	—	—
All current directors and executive officers as a group (10 persons)	Common Stock	25,734	*

_______________________________________________________________________________

* Represents less than 1%

(a) For purposes of calculating the percentage beneficially owned, the number of shares of common stock deemed outstanding includes 168,870,089 shares of common stock outstanding as of February 28, 2014. Beneficial ownership is determined in accordance with the rules of the SEC that deem shares to be beneficially owned by any person or group who has or shares voting and investment power with respect to such shares.

(b) Behringer Harvard Multifamily REIT I Services Holdings, LLC is an indirect subsidiary of Behringer Harvard Holdings, LLC. Robert M. Behringer is the beneficial owner of approximately 40% of the outstanding limited liability company interests and beneficially controls the voting of approximately 85% of the outstanding limited liability company interests of Behringer Harvard Holdings, LLC. Behringer Harvard Holdings, LLC indirectly owns and controls Behringer Harvard Multifamily REIT I Services Holdings, LLC.

(c) The address of Behringer Harvard Holdings, LLC and Behringer Harvard Multifamily REIT I Services Holdings, LLC is 15601 Dallas Parkway, Suite 600, Addison, Texas 75001. The address of Messrs. Aisner, Abbasi, Bowler, Kempner, Patton, Alfieri, Garfield, Odland and Rosenberg and Ms. Daly is c/o Behringer Harvard Multifamily REIT I, Inc., 15601 Dallas Parkway, Suite 600, Addison, Texas 75001.

(d) Does not include 24,969 shares of common stock owned by Behringer Harvard Holdings, LLC, of which Mr. Aisner controls the disposition of approximately 4% of the limited liability company interests, or 10,000 shares of Series A Preferred Stock owned by Behringer Harvard Multifamily REIT I Services Holdings, LLC, an indirect subsidiary of Behringer Harvard Holdings, LLC. Robert M. Behringer has the right to vote Mr. Aisner’s interest in Behringer Harvard Holdings, LLC.

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Item 13.    Certain Relationships and Related Transactions, and Director Independence

Policies and Procedures with Respect to Related Party Transactions

We do not currently have written formal policies and procedures for the review, approval or ratification of transactions with related persons, as defined by Item 404 of Regulation S-K of the Exchange Act. Under that definition, transactions with related persons are transactions in which we were or are a participant and the amount involved exceeds $120,000 and in which any related person had or will have a direct or indirect material interest. Related parties include any executive officers, directors, director nominees, beneficial owners of more than 5% of our voting securities and immediate family members of any of the foregoing persons.

Our charter, however, contains provisions setting forth our ability to engage in certain transactions. Our board reviews all of these transactions as well as any related party transactions. As a general rule, any related party transaction must be approved by a majority of the directors not otherwise interested in the transaction. In determining whether to approve or authorize a particular related party transaction, these directors will consider whether the transaction between us and the related party is fair and reasonable to us and has terms and conditions no less favorable to us than those available from unaffiliated third parties.

Related Party Transactions

Robert M. Behringer, who was our Chairman of the Board and a director from December 2007 through January 31, 2013, and Robert S. Aisner, who is our Chief Executive Officer and a director, have indirect ownership of the Behringer entities that have benefited or will benefit from the transactions described below. In addition, through July 31, 2013, all of our executive officers were employees of Behringer. As of December 31, 2013, all of our executive officers have indirect ownership interests in Behringer entities that have benefited or will benefit from the transactions described below.

As we have previously disclosed, on the Initial Closing we entered into a series of agreements and amendments to our existing agreements and arrangements with Behringer, beginning the process of becoming self-managed. Effective July 31, 2013, we and Behringer entered into the Modification Agreement, setting forth various terms of and conditions to the modification of the business relationships between us and Behringer. In connection with our transition to self-management, on August 1, 2013, we hired five executives who were previously employees of Behringer and began hiring other employees. The obligations of the parties to consummate the self-management transactions are subject to certain limited conditions. The completion of the remainder of the self-management transactions will occur at the Self-Management Closing where we anticipate hiring additional corporate and property management employees who are currently employees of Behringer. We also expect to hire other employees as we complete our transition to self-management.

We expect to remain dependent on our Advisor, our Property Manager, and their affiliates for certain services that are essential to us, including, but not limited to, investment and disposition decisions, asset management, financing, property management and leasing services and other general administrative responsibilities, until the Self-Management Closing.

Summary of Certain Fee and Expense Reimbursements to our Advisor and its Affiliates

The following is a summary of certain costs paid or incurred pursuant to our advisory management agreement and property management agreement, each as amended from time to time, for the year ended December 31, 2013. For a description of the terms of the agreements, as they have been amended, and the payment of certain other fees and expenses, please see below.

For the year ended December 31, 2013, our Advisor earned acquisition and advisory fees, including the acquisition expense reimbursement, of approximately $15.0 million. For the year ended December 31, 2013, approximately $13.2 million of these amounts were capitalized to our development projects as construction in progress. As of December 31, 2013, acquisition and advisory fees related to 17 developments were subject to final reconciliation to actual amounts as described below.

For the year ended December 31, 2013, our Advisor earned debt financing fees of approximately $1.5 million.

For the year ended December 31, 2013, our Advisor earned asset management fees of approximately $7.7 million. For the year ended December 31, 2013, the Advisor waived the difference between asset management fees calculated on the basis of value of our investments and asset management fees calculated on the basis of cost of our investments, resulting in waivers totaling approximately $0.3 million.

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For the year ended December 31, 2013, the Property Manager or its affiliates earned property management fees, net of expenses to third party property managers but including reimbursements to the Property Manager, of $23.4 million.

For the year ended December 31, 2013, our Advisor was reimbursed approximately $1.8 million. As of December 31, 2013, our payables to our Advisor and its affiliates were $1.9 million.

Summary of Related Party Arrangements in Place Through July 31, 2013

The following description summarizes our related party arrangements in place from January 1, 2013 through July 31, 2013.

Pursuant to the advisory management agreement in place from January 1, 2013 through July 31, 2013, our Advisor and its affiliates received acquisition and advisory fees of 1.75% of (1) the contract purchase price paid or allocated in respect of the development, construction or improvement of each asset acquired directly by us, including any debt attributable to these assets, or (2) when we made an investment indirectly through another entity, our pro rata share, based on our stated or back-end ownership percentage, of the gross asset value of real estate investments held by that entity. Fees due in connection with a development or improvements were based on amounts approved by our board of directors and reconciled to actual amounts at the completion of the development or improvement. Our Advisor and its affiliates also received 1.75% of the funds advanced in respect of a loan or other investment.

Our Advisor received a non-accountable acquisition expense reimbursement in the amount of 0.25% of (1) the funds paid for purchasing an asset, including any debt attributable to the asset, plus the funds budgeted for development, construction or improvement in the case of assets that we acquired and intended to develop, construct or improve, and (2) the funds advanced in respect of a loan or other investment. We also paid third parties, or reimbursed our Advisor, for any investment-related expenses due to third parties in the case of a completed investment, including, but not limited to, legal fees and expenses, travel and communication expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder’s fees, title insurance, premium expenses and other closing costs. In addition, to the extent our Advisor or its affiliates directly provided services formerly provided or usually provided by third parties, including, without limitation, accounting services related to the preparation of audits required by the SEC, property condition reports, title services, title insurance, insurance brokerage or environmental services related to the preparation of environmental assessments in connection with a completed investment, the direct employee costs and burden to our Advisor of providing these services were acquisition expenses for which we reimbursed our Advisor. In addition, acquisition expenses for which we reimbursed our Advisor included any payments made to (1) a prospective seller of an asset, (2) an agent of a prospective seller of an asset, or (3) a party that had the right to control the sale of an asset intended for investment by us that were not refundable and that were not ultimately applied against the purchase price for such asset. Except as described above with respect to services customarily or previously provided by third parties, our Advisor was responsible for paying all of the expenses it incurred associated with persons employed by our Advisor to the extent dedicated to making investments for us, such as wages and benefits of the investment personnel. Our Advisor was also responsible for paying all of the investment-related expenses that we or our Advisor incurred that were due to third parties or related to the additional services provided by our Advisor as described above with respect to investments we did not make, other than certain non-refundable payments made in connection with any acquisition.

Our Advisor received debt financing fees of 1% of the amount available to us under debt financing which were originated, assumed or refinanced by or for us. Our Advisor could pay some or all of these fees to third parties with whom it subcontracted to coordinate financing for us.

From January 1, 2013 through July 31, 2013, our Advisor received a monthly asset management fee for each real estate related asset held by us. The amount of the fee was one-twelfth of 0.50% of the sum of the higher of the cost or value of our assets.

We would pay a development fee to our Advisor in an amount that was usual and customary for comparable services rendered to similar projects in the geographic market of the project; provided, however, we would not pay a development fee to an affiliate of our Advisor if our Advisor or any of its affiliates elected to receive an acquisition and advisory fee based on the cost of such development. Our Advisor has earned no development fees since our inception.

From January 1, 2013 through July 31, 2013, for multifamily communities with respect to which we had control over the selection of the property manager and chose to hire the Property Manager, property management services were provided by the Property Manager and its affiliates through a property management agreement, as it may be amended from time.

From January 1, 2013 through July 31, 2013, under the property management agreement in place, property management fees were equal to 3.75% of gross revenues. In the event that we contracted directly with a non-affiliated third party property

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manager in respect to a property, we would pay the Property Manager or its affiliates an oversight fee equal to 0.5% of gross rental revenues of the property managed. In no event would we pay both a property management fee and an oversight fee to the Property Manager or its affiliates with respect to a particular property. We would reimburse the costs and expenses incurred by the Property Manager on our behalf, including the wages and salaries and other employee-related expenses of all on-site employees of the Property Manager and other out-of-pocket expenses that are directly related to the management of specific properties.

As part of our reimbursement of administrative expenses, we reimbursed our Advisor for any direct expenses and costs of salaries and benefits of persons employed by our Advisor performing advisory services for us, provided, however, that we would not reimburse our Advisor for personnel employment costs incurred by our Advisor in performing services under the advisory management agreement to the extent that the employees performed services for which our Advisor received a separate fee other than with respect to acquisition services formerly provided or usually provided by third parties. We also did not reimburse our Advisor for the salary or other compensation of any of our executive officers.

Summary of Related Party Arrangements in Place as of July 31, 2013

Master Modification Agreement

Effective July 31, 2013, we and Behringer entered into the Modification Agreement, setting forth various terms of and conditions to the modification of the business relationships between us and Behringer.

At the Initial Closing of the Modification Agreement, which also occurred on July 31, 2013, the Advisor waived the non-solicitation and non-hire provisions contained in the agreements with the Company with respect to five executive officers who previously provided services on our behalf as employees of Behringer. We offered employment to these persons, referred to herein as the “Initial Transferred Executives,” and all of them accepted our offer and became our employees on August 1, 2013.

In addition, at the Initial Closing, we acquired from Behringer the GP Master Interest in the Master Partnership, an entity with which we have made a number of co-investments. This acquisition entitles us to, among other things, the advisory and incentive fees that Behringer would have otherwise been entitled to receive as general partner of the Master Partnership. The purchase price for the GP Master Interest was $23.1 million.

At the Initial Closing, we also paid Behringer $2.5 million as reimbursement for its costs and expenses related to the negotiation of the contemplated agreements, arrangements and amendments and the closing of the transaction. These expenses are in addition to the expenses that we have incurred on our own behalf for legal and financial advisors in connection with this transactions, which were approximately $1.1 million. We also issued 10,000 shares of the Series A Preferred Stock to Behringer. The shares of Series A Preferred Stock entitle the holder to one vote per share on all matters submitted to the holders of the common stock, a liquidation preference equal to $10.00 per share before the holders of common stock are paid any liquidation proceeds, and 7.0% cumulative cash dividends on the liquidation preference and any accrued and unpaid dividends. As part of the consideration for issuing the Series A Preferred Stock, the Advisor surrendered all existing 1,000 convertible shares of non-participating, non-voting stock, par value $0.0001 per share, of the Company, which we immediately cancelled.

At the Initial Closing, we also entered into an amended and restated advisory management agreement, an amended and restated property management agreement, an amended and restated license agreement, a transition services agreement, and a registration rights agreement. Each of these is summarized below.

The completion of the remainder of the self-management transactions contemplated by the Modification Agreement will occur at the Self-Management Closing, which is expected to occur on June 30, 2014 or on such other date as described below (the “Self-Management Closing Date”). The obligations of the parties to consummate the self-management transactions are subject to certain limited conditions described below.

We are not obligated to consummate the Self-Management Closing unless certain conditions have been satisfied, including:

• Behringer has provided all required closing deliverables;

• certain of Behringer’s representations and warranties in its representation letter remain true; and

• no judgment of any court or government authority and no law would prohibit the consummation of the Self-Management Closing.

Behringer is not obligated to consummate the Self-Management Closing unless certain conditions have been satisfied, including:

• we have made all requirement payments under the agreement and provided all required closing deliverables;

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• certain of our representations and warranties in our representation letter remain true;

• we have not terminated the Amended and Restated Advisory Agreement (as defined below); and

• no judgment of any court or government authority and no law would prohibit the consummation of the Self-Management Closing.

If the conditions to the Self-Management Closing have not been met as of the Self-Management Closing Date through no fault of us or Behringer, as applicable, then either we or Behringer, as applicable, may extend the Self-Management Closing Date to July 31, 2014, or such earlier date upon which the parties mutually agree. In the event the proposed Self-Management Closing Date is extended pursuant to these provisions, the term of the Amended and Restated Advisory Agreement (as defined and described below) will automatically be extended or renewed, as applicable, through the actual Self-Management Closing Date, subject to the approval of our board of directors of such extension or renewal beyond July 31, 2014. If the Self-Management Closing shall not have occurred on or prior to August 1, 2014, the Modification Agreement will automatically terminate, except that it will be extended to September 1, 2014 in the event that the Self-Management Closing has not occurred on or prior to August 1, 2014 solely because a judgment of any court or government authority, or any law, would prohibit the consummation of the Self-Management Closing.

At the Self-Management Closing, Behringer will waive the non-solicitation and non-hire provisions of the Amended and Restated Advisory Agreement and the Amended and Restated Property Management Agreement (as defined and described below) with respect to a list of specified employees (the “Specified Employees”). The Specified Employees will include (a) each employee of Behringer then exclusively providing services for us under the Amended and Restated Advisory Agreement as of the Self-Management Closing, (b) each employee of Behringer then performing property management services for us on-site under the Amended and Restated Property Management Agreement as of the Self-Management Closing, and (c) such other employees of Behringer then performing property management services under the Amended and Restated Property Management Agreement as of the Self-Management Closing that occupy specified functions or titles.

We will offer the Specified Employees employment upon the Self-Management Closing. For the period commencing on the Self-Management Closing Date and ending no sooner than eighteen months after the Self-Management Closing Date, each of the Specified Employees who accepts employment with us (the “Transferred Employees”) shall receive base salary and cash bonus opportunities on terms at least reasonably comparable, in the aggregate, to the salary and bonus opportunities such Transferred Employee received from Behringer immediately prior to the Self-Management Closing Date.

Behringer must use commercially reasonable efforts to replace employees that would have been Specified Employees, but for the fact that employment with Behringer is terminated prior to the Self-Management Closing. Further, the employment of certain “protected” Specified Employees cannot be terminated by Behringer without our consent until the earlier of the Self-Management Closing and August 1, 2014, other than in connection with the Self-Management Closing or for cause. Furthermore, in the event that, prior to the Self-Management Closing, we desire that Behringer hire any additional employee for our benefit, Behringer must use commercially reasonable efforts to hire such additional employee and we will be responsible for all compensation, benefits and other expenses associated with any such employee. Prior to the Self-Management Closing, we also have certain rights to hire our own employees to perform information technology services or investor relations services.

At the Self-Management Closing, we will be assigned the Amended and Restated Property Management Agreement and assume the associated liabilities, and the Amended and Restated Advisory Agreement will terminate. However, the indemnification-related provisions of each such agreement will remain in effect with respect to us and the applicable Behringer entity and the non-solicitation and non-hire provisions of each such agreement will continue to apply to us, except with respect to the Transferred Employees.

During the period commencing at the Initial Closing, with respect to the Initial Transferred Executives, and on the Self-Management Closing Date, with respect to the Transferred Employees, and ending on the eighteen month anniversary of the Self-Management Closing Date, no member of Behringer may, without our prior written consent, directly or indirectly, (a) solicit or encourage any Initial Transferred Executive or Transferred Employee or other persons then employed by us (the “Covered REIT Employees”) to leave the employment or other service of us or any of our affiliates or offer employment to any such person, or (b) hire, on behalf of Behringer, any Covered REIT Employee or other person employed by us.

In addition, at the Self-Management Closing, we will pay Behringer $3.5 million for certain intangible assets, rights and contracts. Behringer will also transfer to us certain furnishings, fixtures and equipment. We will also enter into the Administrative Services Agreement and the Limited Right to Use Agreement at the Self-Management Closing, as defined and described below.

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Following the Self-Management Closing, certain fees similar to fees under the Amended and Restated Advisory Agreement will be due with respect to our acquisitions and other investments, including developments, if they were approved by our board of directors prior to the Self-Management Closing (“Approved Deals”):

• Acquisition and Advisory Fees. Acquisition and advisory fees (excluding any such fees payable with respect to a development or redevelopment project and any development fees, in each case other than the initial acquisition of the real property) relating to each Approved Deal which is closed or consummated within six months following the Self-Management Closing will be paid as though the Amended and Restated Advisory Agreement remained in full force and effect.

• Development Fees for Development and Redevelopment Projects. For six months following the Self-Management Closing, development fees relating to each Approved Deal (including any development or redevelopment project, but excluding the initial acquisition of the real property) will be paid as though the Amended and Restated Advisory Agreement remained in full force and effect, subject to a true-up every six months and a final true-up of the development fees upon project completion consistent with past practice.

• Debt Financing Fees. For one year following the Self-Management Closing, debt financing fees with respect to each Approved Deal will be paid as though the Amended and Restated Advisory Agreement remained in full force and effect, subject to certain limitations. An affiliate of Behringer will continue to provide capital markets services to us after the Self-Management Closing, as described in the description of the Administrative Services Agreement below.

• Acquisition Expenses. With respect to each Approved Deal for which we must pay acquisition and advisory fees or development fees after the Self-Management Closing, we will also reimburse acquisition expenses to the Advisor with respect to such Approved Deal, as though the Amended and Restated Advisory Agreement remained in full force and effect.

The Modification Agreement sets forth certain additional agreements among the parties, including the following:

• New Platforms. Commencing at the Initial Closing and lasting through the six month anniversary of the Self-Management Closing, Behringer will be entitled to additional fees with respect to any new investment arrangement between us and certain specified funds or programs pursuant to which we receive an asset management or any similar fee and/or a promote interest or similar security, excluding PGGM and its affiliates (each, a “New Platform”). For each New Platform with certain specified potential future investors, Behringer will be entitled to a fee equal to 2.5% of the total aggregate amount of capital committed by such investor or its affiliates. We will not be obligated to pay any fees with respect to a New Platform unless and until the Self-Management Closing. For the year ended December 31, 2013, no New Platform fees were incurred.

• Subsequent Joint Ventures. Commencing at the Initial Closing, the Modification Agreement provides that in certain circumstances, Behringer will rebate to us, or may provide us a credit with respect to, (a) acquisition fees paid pursuant to the Amended and Restated Advisory Agreement and (b) acquisition and advisory fees and development fees paid pursuant to the Modification Agreement, in the event that certain existing investments are subsequently structured as a joint venture or co-investment. As of December 31, 2013, $3.2 million of credits were due to us, of which $1.4 million was paid. The remaining unpaid amounts of $1.8 million were received in February 2014.

• Behringer Nominees. As long as Behringer and its respective employees and any direct and indirect owners of equity in the long term incentive program for current Behringer employees providing services to us hold, in the aggregate, at least 2,500 shares of the Series A Preferred Stock, Behringer will have the right to designate two “Behringer Nominees” to serve as our directors, subject to an aggregate limit of two Behringer Nominees serving on the board at any time. The nominees must be reasonably acceptable to the nominating committee of our board. From and after termination of the Amended and Restated Advisory Agreement, a Behringer Nominee serving on our board will be entitled to compensation equivalent to that generally provided to non-employee directors so long as he or she is not also serving as one of our officers.

• Our Chief Executive Officer. From and after the Initial Closing until the Self-Management Closing, Robert S. Aisner will remain our sole Chief Executive Officer, with certain limited exceptions. This obligation will terminate upon the termination of the Amended and Restated Advisory Agreement. Notwithstanding the foregoing, beginning on January 1, 2014, we may commence a search process for a successor Chief Executive Officer and may hire any individual our board of directors desires to appoint as Chief Executive Officer, provided that the employment of such individual, if he or she is not an employee of ours as of the Initial Closing, will not commence until the Self-Management Closing, and if such individual is an employee of ours as of the Initial Closing, his or her appointment as Chief Executive Officer shall not commence until the Self-Management Closing. Consistent with Mr. Alfieri’s employment agreement, we currently intend to appoint Mr. Alfieri as our Chief Executive Officer upon the Self-Management Closing.

• Estimated Stock Value. From and after the Initial Closing, until the earliest to occur of (i) a Listing (as defined below), (ii) a Change of Control (as defined below) or (iii) the conversion of all outstanding shares of Series A Preferred Stock

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into shares of our common stock, our board of directors will in good faith determine an estimated per share value of our common stock at least once per calendar year (which requirement has already been satisfied with respect to 2013).

Subject to certain limits, the Modification Agreement requires us to indemnify Behringer and its affiliates for any damages arising out of certain matters in connection with the transactions.

Behringer also agreed to indemnify us and our affiliates for any damages arising out of certain matters in connection with the transactions.

Amended and Restated Advisory Agreement

Effective July 31, 2013, we entered into a Fifth Amended and Restated Advisory Management Agreement (the “Amended and Restated Advisory Agreement”) with the Advisor. The significant changes to the prior advisory management agreement are described or included in the descriptions below.

The fees due to the Advisor pursuant to the Amended and Restated Advisory Agreement have been amended as follows:

• Asset Management Fee. We will pay the Advisor a monthly asset management fee in an amount equal to 1/12th of 0.50% of the sum of, for each and every asset, the higher of the cost of investment or the value of investment, reduced by $150,000 per month in recognition of the transfer of the Initial Transferred Executives to us and the associated reduction in the duties of the Advisor.

• Acquisition and Advisory Fees. We will pay the Advisor a fee, as acquisition and advisory fees, at the current rate of 1.75% of the funds paid or budgeted in respect of the purchase, development, construction or improvement of each asset for which the subject transaction (i) was approved prior to July 31, 2013 or (ii) is specifically named in the Amended and Restated Advisory Agreement (collectively, the “Grandfathered Transactions”) and at the reduced rate of 1.575% of the funds paid or budgeted in respect of the purchase, development, construction or improvement of each other asset for which a transaction was approved after July 31, 2013 (the “Subsequent Transactions”). Acquisition and advisory fees and acquisition expenses will be paid as follows: (1) for real property (including properties where development / redevelopment is expected), at the time of acquisition, (2) for development / redevelopment projects (other than the initial acquisition of the real property), at the time of entry into or effectiveness of the respective development agreement based on the estimated development costs for such transaction as set forth in the applicable development agreement or, if not set forth in the development agreement, otherwise approved by our board of directors, except with respect to certain current projects advisory fees and acquisition expenses will instead be paid when the final budget with respect to such project has been approved, and (3) for loans and similar assets (including without limitation mezzanine loans), quarterly based on the value of loans made or acquired. In the case of a development / redevelopment project subject to clause (2) above, upon completion of the development / redevelopment project, we will determine the actual amounts paid with respect to such development / redevelopment project. To the extent the amounts actually paid vary from the budgeted amounts on which the acquisition and advisory fee was initially based, the Advisor will pay or invoice us for 1.75%, in the case of Grandfathered Transactions, or 1.575%, in the case of Subsequent Transactions, of the budget variance such that the acquisition and advisory fee is ultimately 1.75%, in the case of Grandfathered Transactions, or 1.575%, in the case of Subsequent Transactions, of amounts expended on such development / redevelopment project.

• Debt Financing Fee. In the event of any debt financing obtained by or for us (including any refinancing of debt) directly or indirectly through one or more of its affiliates or joint ventures or through other investment interests, we will pay to the Advisor a debt financing fee in an amount equal to 1.0%, in the case of Grandfathered Transactions, or 0.9%, in the case of Subsequent Transactions, of the amount available under the financing (the “Base Fee Amount”); provided, however, that with respect to any debt financing obtained directly or indirectly by or through a joint venture or other co-investment arrangement with a third party (a “Joint Venture Financing”), the debt financing fee payable by us to the Advisor will be an amount equal to the applicable Base Fee Amount multiplied by the percentage of our ownership interest in the joint venture or other arrangement obtaining the Joint Venture Financing, and we will reimburse the Advisor for all costs incurred by the Advisor in connection such financings, including the cost of any third party engaged to assist with sourcing debt financing (“Third Party Engagements”). With respect to any Joint Venture Financing, the Advisor shall reasonably cooperate with us with respect to the negotiation of any Third Party Engagements. With respect to any debt financing other than a Joint Venture Financing, our Advisor will pay all costs of any Third Party Engagements. The Advisor may enter into fee-splitting arrangements with third parties with respect to the debt financing fee. Notwithstanding anything to the contrary, no debt financing fee will be payable with respect to funds advanced under our existing $150 million credit facility to the extent such financing is obtained based on the amount committed under the credit facility as of July 31, 2013.

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• Development Fee. If the Advisor provides development services, we will pay the Advisor development fees in amounts that are usual and customary for comparable services rendered to similar projects in the geographic market; provided, however, that a majority of our Independent Directors (as defined in our charter) must determine that such development fees are fair and reasonable and on terms and conditions not less favorable than those available from unaffiliated third parties. Development fees will include the reimbursement of the specified cost incurred by the Advisor of engaging third parties for such services. We will not pay the Advisor a development fee if the Advisor or any of its affiliates elects to receive an acquisition and advisory fee with respect to the subject project. The Advisor may engage (on behalf of us) third parties to provide development services and pay such third parties all applicable development fees in amounts that are usual and customary for comparable services rendered to similar projects in the geographic market. The Advisor has earned no development fees since our inception.

With respect to the Initial Transferred Executives, we acknowledge and agree that the duties of the Advisor (from and after July 31, 2013) are modified as is reasonably necessary to reflect the fact that the Initial Transferred Executives are no longer employed by Behringer, irrespective of whether such Initial Transferred Executives remain employed by us. In the event that any of the Initial Transferred Executives ceases their employment with us during the term of the Amended and Restated Advisory Agreement, we will use commercially reasonable efforts to hire a replacement employee as promptly as is reasonably practicable to perform the duties and functions of such Initial Transferred Executive. If we have not hired such a replacement employee within specified timeframes, the agreement permits the Advisor to hire a replacement employee on a temporary or permanent basis and pass on the costs of such employee to us.

The Amended and Restated Advisory Agreement will continue in force until June 30, 2014. Generally, if the Self-Management Closing does not close within the timeframe permitted under the Modification Agreement, the term of the Amended and Restated Advisory Agreement will automatically be extended until the last day of the month in which the six month anniversary of the Modification Agreement terminates, subject to the renewal of the term by our board of directors in accordance with our charter for extensions beyond July 31, 2014. Notwithstanding the foregoing, the Amended and Restated Advisory Agreement will automatically terminate upon a listing of our shares of common stock on a national securities exchange, and the agreement also may be terminated at the option of either party upon 60 days written notice without cause or penalty. The Amended and Restated Advisory Agreement will terminate at the Self-Management Closing.

Amended and Restated Property Management Agreement

Effective July 31, 2013, we and the Property Manager replaced the Amended and Restated Property Management Agreement dated September 2, 2008, with a Second Amended and Restated Property Management Agreement (the “Amended and Restated Property Management Agreement”). The significant changes to the prior property management agreement are described or included in the descriptions below.

The Property Manager will continue to have a right of first refusal to manage our properties, to the extent that we have the ability to choose the Property Manager. If the Property Manager does not accept the offer to manage a property, then we may enter into an agreement with a third party to provide such management services, on substantially the same terms as the Amended and Restated Property Management Agreement or any other terms that are not more favorable to such third party. We have the right to appoint the Property Manager to manage any property with respect to which we previously contracted for management services with a third-party property manager. The Property Manager will be entitled to an oversight fee if we contract directly with a third-party property manager for which we had the ability to appoint or hire the Property Manager.

The amendment also provides for a $50,000 per month reduction to the amount of the Property Manager’s reimbursable expenses.

The term of the Amended and Restated Property Management Agreement is through June 30, 2015. If no party gives written notice to the other at least 30 days prior to such date, then the agreement will automatically continue for consecutive two-year periods until the occurrence of an expiration date prior to which either party has given 30 days’ notice in advance of such expiration. However, the Property Manager may terminate the agreement at any time with 60 days’ written notice to us. In addition, we may terminate the Amended and Restated Property Management Agreement on 30 days’ notice in the event of willful misconduct, gross negligence or deliberate malfeasance of the Property Manager, or immediately in the event of the Property Manager’s bankruptcy or insolvency.

At the Self-Management Closing, we will be assigned the Amended and Restated Property Management Agreement and assume the associated liabilities. However, the non-solicitation and non-hire provisions and indemnification-related provisions of the Amended and Restated Property Management Agreement will remain in effect, except with respect to the Transferred Employees.

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Amended and Restated License Agreement

Effective July 31, 2013, we and Behringer Harvard Holdings, LLC (“BHH”) replaced the Service Mark Agreement dated September 2, 2008, with an Amended and Restated License Agreement (the “Amended and Restated License Agreement”). This license agreement permits us to use the name “Behringer Harvard” subject to certain limitations and conditions. As revised, the term of the license agreement will last until the earlier to occur of (a) the expiration or termination for any reason of either the Amended and Restated Property Management Agreement or the Amended and Restated Advisory Agreement or (b) the Self-Management Closing. In addition, if we commit an uncured material breach under the Amended and Restated License Agreement, or under any agreement that may exist from time to time between us and Behringer, Behringer may terminate the license upon 30 days’ notice. If we cease to conduct our operations with the name “Behringer Harvard” or fail to perform our obligations with respect to the Behringer Nominees discussed above, BHH may immediately terminate the agreement. Finally, if we list our shares of common stock on a national securities exchange or become subject to a change of control as described in the Amended and Restated License Agreement, the license will automatically terminate. Upon termination, we must stop using the name “Behringer Harvard” and similar terms within 90 days.

Transition Services Agreement

Effective July 31, 2013, we and Behringer entered into a Transition Services Agreement (the “Transition Services Agreement”), under which Behringer has agreed to provide us with transition services. From the Initial Closing until the termination of the Transition Services Agreement, Behringer will provide us with such services as are required to enable us to become self-managed upon the Self-Management Closing as are reasonably requested by us, including but not limited to certain specified human resources implementation services and information technology-related services. In consideration for the transition services to be provided by Behringer, we will pay Behringer (a) the sum of $0.4 million per month during the period beginning on the Initial Closing and ending on September 30, 2014 and (b) an amount equal to $1.3 million on the Self-Management Closing Date. For the year ended December 31, 2013, $2.1 million was incurred and paid to Behringer pursuant to the Transition Services Agreement. The Transition Services Agreement will continue until September 30, 2014.

Registration Rights Agreement

Effective July 31, 2013, we and the holders of our new Series A Preferred Stock (initially, Behringer) entered into a Registration Rights Agreement (the “Registration Rights Agreement”), under which we have agreed to prepare and file with the SEC a registration statement covering the resale of all of the shares of common stock issued or issuable upon the conversion of the Series A Preferred Stock, including additional shares of common stock otherwise issued or distributed by way of conversion, exchange, exercise, dividend, split, reverse split, combination, recapitalization, reclassification, merger, amalgamation, consolidation, sale of assets, other reorganization or other similar event in respect of those shares of common stock (the “Registrable Shares”).

Specifically, the Registration Rights Agreement grants the holders demand registration rights. Subject to certain limitations, if one holder or a group of holders holding not less than 20% of the Registrable Shares, requests that we file a registration statement and we are not eligible to use Form S-3 in connection with the resale of those Registrable Shares, we must file a registration statement under the Securities Act within 60 days after the holder request and use reasonable best efforts to effect, as expeditiously as possible, the registration. Notwithstanding anything to the contrary, if our common stock is listed on a national securities exchange and Rule 144 is available, we will not be required to effect a demand registration unless the sale of securities in connection therewith will generate at least $20 million in aggregate offering proceeds, or such lesser amount that constitutes all of the Registrable Shares of the requesting holders (subject to a $10 million minimum or all of the Registrable Shares then outstanding). We will be liable for, and pay, all expenses of the demand registration, regardless of whether it is effected.

The Registration Rights Agreement also grants the holders customary piggyback registration rights (unlimited in number and subject to customary limitations) if we propose to register any shares of common stock under the Securities Act, other than pursuant to a shelf registration, a registration on Form S-8, S-4 or S-3D or a registration of shares issuable upon exercise of employee stock options or in connection with any stock option plan. Further, if a “Registration Triggering Event,” as defined below, occurs and we are eligible to use Form S-3, we are required to use our reasonable best efforts to file a registration statement pursuant to Rule 415 under the Securities Act with respect to all of the Registrable Shares that have been converted into shares of common stock pursuant to the Articles Supplementary and all other Registrable Sharescontemplated to be included in the registration statement, within 30 days after the occurrence of the Registration Triggering Event, and use our reasonable best efforts to cause such registration to become effective within 90 days of the filing date (if not automatically

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effective upon filing). As used herein, “Registration Triggering Event” means the earlier to occur of: (a) the automatic conversion of all of the then outstanding shares of Series A Preferred Stock upon a Listing including where such Listing is deemed to occur on December 31, 2016 pursuant to the Articles Supplementary and (b) the request from one holder or a group of holders holding not less than 20% of the then Registrable Shares that we file a shelf registration statement.

Administrative Services Agreement

At the Self-Management Closing, we and Behringer Harvard Multifamily Advisors I, LLC (referred to in this subsection as the “Administrative Services Provider”) will enter into an Administrative Services Agreement (the “Administrative Services Agreement”), pursuant to which the Administrative Services Provider will provide the following support services to us on the following terms. The Administrative Services Provider has agreed to perform, or cause its affiliates to perform, these services in the manner and at the locations and level of service consistent with past practice and with the same standard of care as historically provided under the Amended and Restated Advisory Agreement.

• Standard Shareholder Services. Certain specified standard shareholder services will be provided for an initial two-year term and an optional one-year extension; provided, however, that in the event of any “change of control” of the Company as defined in the agreement or listing of our shares, we must pay the Administrative Services Provider the full amount it would have been entitled to receive for the remaining term. We may terminate the standard shareholder services (in full, not in part) during the period beginning on the Self-Management Closing Date through the second anniversary of the Self-Management Closing Date for an amount equal to the result of: (A) $7.75 multiplied by (B) the number of shareholder accounts of the Company as of the end of the immediately preceding fiscal quarter, multiplied by (C) 8 minus the number of full three month periods that have elapsed since the Self-Management Closing Date; and following the second anniversary of the Self-Management Closing Date, without payment of any termination compensation amount.

• Standard Facilities Management Services. If we are co-located in the same building with the Administrative Services Provider, certain specified standard facilities management services will be provided at an annual rate equal to $225,000. The standard facilities management services will terminate upon the principal executive offices of us and the Administrative Services Provider ceasing to be located in the same building.

• Capital Markets Services. The Administrative Services Provider will provide capital markets services, including assistance with financing transactions consistent with past practice under the Amended and Restated Advisory Agreement, as requested by us; provided that we will use the capital markets services with respect to each Approved Deal (as defined above). In the event of any debt financing obtained by or for us (including any refinancing of debt) directly or indirectly through one or more of its affiliates or joint venture or through other investment interests, we will pay to the Administrative Services Provider a debt financing fee (the “Debt Financing Fee”) in an amount equal to 1.0%, in the case of Grandfathered Transactions (as defined above), or 0.9%, in the case of Subsequent Transactions (as defined above), of the amount available under the financing (the “Base Fee Amount”); provided, however, that with respect to any debt financing obtained directly or indirectly by or through a joint venture or other co-investment arrangement (a “Joint Venture Financing”), the debt financing fee payable by us to the Administrative Services Provider will be an amount equal to the applicable Base Fee Amount multiplied by the percentage of our ownership interest in the joint venture or other arrangement obtaining the Joint Venture Financing and we will pay or reimburse the Administrative Services Provider for the payment of all costs incurred by the Administrative Services Provider in connection with the engagement of third parties to source debt financing (“Third Party Engagements”) payable in connection with any debt financing. With respect to any Joint Venture Financing, the Administrative Services Provider will reasonably cooperate with us with respect to Third Party Engagements. With respect to any debt financing other than a Joint Venture Financing, the Administrative Services Provider will be responsible for the cost of all Third Party Engagements. The Administrative Services Provider may enter into fee-splitting arrangements with third parties with respect to the debt financing fee. Notwithstanding anything to the contrary, no debt financing fee will be payable with respect to funds advanced under our existing $150 million credit facility to the extent such financing is obtained based on the amount committed under the credit facility as of the Self-Management Closing Date.

• Other Administrative Services. The parties may also agree to terms with respect to other administrative services, including but not limited to, non-standard shareholder services, information technology, risk management, legal services, marketing, internal audit, non-standard facilities management services, real estate transactional support, information management or cash management services.

We must give the Administrative Services Provider not less than 90 days’ advance written notice of our intention to terminate the standard shareholder services or any of the “other administrative services” that we elect to use. In addition, any party to the Administrative Services Agreement may terminate any category of administrative services due to an uncured material breach of the agreement with respect to such category. In the event of expiration or termination of the Administrative Services Agreement for any reason, we may, at our option, request transition services, which may reasonably be needed by us

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in connection with the orderly and expeditious transition of the services provided by the Administrative Services Provider to a third-party provider, and the Administrative Services Provider and we will cooperate in negotiating an agreement as to the scope of such services and the other pricing, terms and conditions under which they will be provided.

In addition to the service charges described above, in connection with performance of each administrative service, we will reimburse the Administrative Services Provider with respect to (a) costs of approved or specified subcontractors retained on behalf of or for our benefit, including their products, services, materials and expenses, (b) cost of materials, provided that the amount of reimbursements from us and any other entities that receive similar services from the Administrative Services Provider or its affiliates may not exceed the cost of those materials and (c) out-of-pocket travel and other expenses, in each case consistent with past practice under the Amended and Restated Advisory Agreement.

Neither we nor any of our subsidiaries may enter into an arrangement with any person that would be expected to perform any specified shareholder services or specified facilities management services prior to the date of termination of the respective administrative service, each such administrative service then being provided under the Administrative Services Agreement on an exclusive basis. If we hire any personnel to perform shareholder services covered by the agreement, and if the Administrative Services Provider determines that the functions performed by such employee increase the costs of the Administrative Services Provider to provide such shareholder services, we must pay such increased costs if supported by reasonable documentation.

Limited Right to Use Agreement

Effective upon the Self-Management Closing, we and BHH will enter into a Limited Right to Use Agreement (the “Limited Right to Use Agreement”), pursuant to which BHH will permit us to use and occupy the office space being used and occupied by the Initial Transferred Executives and the Transferred Employees (except for certain offsite personnel) as of the Self-Management Closing. The Limited Right to Use Agreement will commence upon the Self-Management Closing and terminate on July 31, 2015, unless sooner terminated pursuant to the agreement. The Limited Right to Use Agreement will terminate if BHH’s primary lease for the space (the “Primary Lease”) terminates.

Under the Limited Right to Use Agreement, we will pay to BHH base fees per square foot at a rate that equals, on a pro rata basis, the rate it pays in rent under the Primary Lease. We will also reimburse BHH for our proportionate share of utilities and other certain costs related to our limited use of the space.

We may vacate all or a portion of the space during the term of the agreement, in which case BHH may recapture possession of the vacated portion of the space; provided that if BHH occupies and uses any such vacated portion or any portion thereof, our base fees and other costs under the agreement shall be reduced in proportion to the amount of space recaptured by BHH.

The Series A Preferred Stock

Each share of Series A Preferred Stock will be entitled to one vote per share on all matters on which the holders of our common stock are entitled to vote, voting as a single class with our common stock. The affirmative vote of the holders of a majority of the then outstanding shares of Series A Preferred Stock, voting as a single class, will be required for: (a) the adoption of any amendment, alteration or repeal of any provision of the Articles Supplementary and the terms of the Series A Preferred Stock that adversely changes, or has the effect of adversely altering, the preferences, conversion or other rights,voting powers, restrictions, limitations as to dividends or other distributions or qualifications of the shares of the Series A Preferred Stock, or (b) the adoption of any amendment, alteration or repeal of any other provision of the charter that materially adversely changes, or has the effect of materially adversely altering, the preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other distributions or qualifications of the shares of the Series A Preferred Stock. In addition, each share of Series A Preferred Stock will be entitled to a liquidation preference equal to $10.00 per share before the holders of common stock are paid any liquidation proceeds, and 7.0% cumulative cash dividends on the liquidation preference and any accrued and unpaid dividends.

The Series A Preferred Stock will automatically convert into shares of our common stock upon any of the following triggering events: (a) in connection with a listing of our common stock on a national exchange (a “Listing”), (b) upon a “change of control” of the Company, as defined in the Articles Supplementary (a “Change of Control”) or (c) upon election by the holders of a majority of the then outstanding shares of Series A Preferred Stock, during the period beginning on the date of issuance and ending at the close of business on July 31, 2018. Notwithstanding the foregoing, if a Listing occurs prior to December 31, 2016, such Listing (and the related triggering event) shall be deemed to occur on December 31, 2016 and if a Change of Control transaction occurs prior to December 31, 2016 (or after a Listing but prior to the prescribed period of trading

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to determine the value of our common shares), such Change of Control transaction shall be deemed a Fundamental Change (as defined below) (a “Deemed Fundamental Change”) and will not result in a Change of Control triggering event.

Under the Articles Supplementary, a “Fundamental Change” means the occurrence of any transaction or event or series of transactions or events resulting in the reclassification or recapitalization of our outstanding common stock (except a change in par value, or from no par value to par value, or subdivision or other split or combination of the shares of common stock), or the occurrence of any consolidation, merger, share exchange or other such transaction to which the Company is a party, except a consolidation or merger in which the Company is the surviving corporation and which does not result in any such reclassification or recapitalization, and in each case other than a Change of Control transaction except for a Deemed Fundamental Change. In the event of any Fundamental Change, including any Deemed Fundamental Change, the Company or the successor or purchasing business entity will provide that the holders of each share of the Series A Preferred Stock then outstanding shall, in connection with such Fundamental Change, receive shares, or fractions of shares, of capital stock that have at least equivalent economic value and opportunity and other rights and terms as the Series A Preferred Stock following such Fundamental Change, which shall in each case take into account tax consequences.

Upon a triggering event, each share of Series A Preferred Stock will convert into shares of our common stock at a rate equal to the quotient of:

(1) the “Conversion Value Per Share” of Series A Preferred Stock, calculated as:

(a) 15% of the excess, if any, of:

• the per share value of our common stock at the time of the applicable triggering event, as determined pursuant to the Articles Supplementary, multiplied by 168,537,343 shares (which is the number of shares of common stock outstanding on July 31, 2013), as appropriately adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to the common stock after July 31, 2013;

over:

• the amount determined multiplying:

• the sum of (1) the price paid for each share of common stock, as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to the common stock after July 31, 2013 and prior to the date that we next report an estimated per share value of our common stock, and (2) a cumulative, non-compounded, annual rate of return of 7% from the date of initial issuance of the common stock until the date of determination (calculated like simple interest on a daily basis based on a 365 day year) on a per share basis, minus the total amount of dividends (whether in securities, cash or other property) declared (on a per share basis) on the common stock since the date of initial issuance of the common stock until the date of determination (as appropriately adjusted for any stock dividends,combinations, splits, recapitalizations and the like with respect to the common stock after July 31, 2013 and prior to the date that we next report an estimated per share value of our common stock);

by:

• 168,537,343 shares (which is the number of shares of common stock outstanding on July 31, 2013), as appropriately adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to the common stock after July 31, 2013 and prior to the date that we next report an estimated per share value of our common stock;

(b) divided by the number of shares of Series A Preferred Stock outstanding on the date of the applicable triggering event;

(c) and, in the case of a triggering event based on a Listing or Change of Control only, multiplied by 115%;

(2) divided by the per share value of our common stock at the time of the applicable triggering event, as determined pursuant to the Articles Supplementary, assuming the conversion of all shares of Series A Preferred Stock outstanding immediately prior to the triggering event (the “Current Common Stock Value”).

We have agreed to determine the estimated per share value of our common stock at least once each calendar year until the occurrence of a triggering event or a Listing (which requirement has already been satisfied with respect to 2013). Except in the case of the Current Common Stock Value, the estimated per share value will be calculated assuming that the Series A Preferred Stock is not outstanding.

133

At any time after July 31, 2018, we may redeem all, and not less than all, of the then outstanding shares of Series A Preferred Stock (excluding any shares of Series A Preferred Stock for which a triggering event has occurred) at a price per share of Series A Preferred Stock equal to the liquidation preference plus any declared and unpaid dividends.

If, based upon the advice of legal counsel, our board of directors reasonably determines that the conversion of shares of Series A Preferred Stock owned by any holder would create a substantial risk that we would no longer qualify as a REIT for federal income tax purposes (an “Adverse REIT Status Determination”), then only such number of shares of Series A Preferred Stock owned by such holder shall be converted into shares of common stock such that there is no substantial risk that we would no longer qualify as a REIT. When the board determines that conversion of the remaining shares no longer creates a substantial risk of failing to qualify as a REIT, the remaining unconverted shares will convert into an amount equal to the greater of (a) the number of shares of common stock that the holder of the Series A Preferred Stock would have been entitled to receive absent an Adverse REIT Status Determination and (b) the number of shares of common stock that the holder of Series A Preferred Stock would be entitled to receive if the triggering event were to occur on the date of the eventual conversion. In addition, if we delay the conversion due to an Adverse REIT Status Determination, we will pay the affected holders of Series A Preferred Stock additional shares of common stock equal in value to the distributions that would have been received by them if an Adverse REIT Status Determination had not occurred.

Director Independence

Although our shares are not listed for trading on any national securities exchange and therefore our board of directors is not subject to the independence requirements of the NYSE or any other national securities exchange, our board of directors has evaluated whether our directors are “independent” as defined by the NYSE. The NYSE standards provide that to qualify as an independent director, in addition to satisfying certain bright-line criteria, our board of directors must affirmatively determine that a director has no material relationship with us (either directly or as a partner, stockholder or officer of an organization that has a relationship with us). Consistent with these considerations, after review of all relevant transactions or relationships between each director, or any of his family members, and the Company, our senior management and our independent registered public accounting firm, our board of directors has determined that the majority of the members of our board of directors, and each member of our audit committee, compensation committee and nominating committee, is “independent” as defined by the NYSE.

Item 14.    Principal Accountant Fees and Services

Independent Registered Public Accounting Firm

Deloitte & Touche LLP has served as our independent registered public accounting firm since November 14, 2006. Our management believes that Deloitte & Touche LLP is knowledgeable about our operations and accounting practices and is well qualified to act as our independent registered public accounting firm.

Audit, Audit-Related, Tax and Other Fees

The following table presents fees for professional services rendered by our independent registered public accounting firm, Deloitte & Touche LLP, the member firms of Deloitte Touche Tohmatsu, and their respective affiliates (collectively, “Deloitte & Touche”) for the audits of our annual financial statements for the years ended December 31, 2013 and 2012:

	2013		2012
Audit fees(a)	$	637,000	$	482,000
Audit-related fees(b)	14,000		—
Tax fees(c)	—		—
All other fees	—		—
Total fees	$	651,000	$	482,000

_______________________________________________________________________________

(a) Audit fees consist principally of fees for the audit of our annual consolidated financial statements and review of our consolidated financial statements included in our quarterly reports on Form 10-Q.

(b) Audit-related fees consist of professional services performed in connection with a review of registration statements, as amended, for the public offerings of our common stock audits and reviews of historical financial statements for

134

property acquisitions (including compliance with the requirements of Rules 3-05, 3-06, 3-09 or 3-14) and Sarbanes-Oxley Act, Section 404 advisory services.

(c) Tax fees consist principally of assistance with matters related to tax compliance, tax planning and tax advice.

The Audit Committee considers the provision of these services to be compatible with maintaining the independence of Deloitte & Touche.

Audit Committee's Pre-Approval Policies and Procedures

The Audit Committee must approve any fee for services to be performed by our independent registered public accounting firm in advance of the service being performed. For proposed projects using the services of our independent registered public accounting firm that are expected to cost under $25,000, the Audit Committee will be provided information to review and must approve each project prior to commencement of any work. For proposed projects using the services of our independent registered public accounting firm that are expected to cost $25,000 and over, the Audit Committee will be provided with a detailed explanation of what is being included and asked to approve a maximum amount for specifically identified services in each of the following categories: (1) audit fees; (2) audit-related fees; (3) tax fees; and (4) all other fees for any services allowed to be performed by the independent registered public accounting firm. If additional amounts are needed, the Audit Committee must approve the increased amounts prior to the previously approved maximum being reached and before the additional work may continue. Approval by the Audit Committee may be granted at its regularly scheduled meetings or otherwise, including by telephonic or other electronic communications. We will report the status of the various types of approved services and fees, and cumulative amounts paid and owed, to the Audit Committee on a regular basis.

The Audit Committee approved all of the services provided by, and fees paid to, Deloitte & Touche during the years ended December 31, 2013 and 2012.

135

PART IV

Item 15.    Exhibits, Financial Statement Schedules

(a) List of Documents Filed.

1.    Financial Statements

The list of the financial statements filed as part of this Annual Report on Form 10-K is set forth on page F-1 herein.

2.    Financial Statement Schedules

Schedule II—Valuation and Qualifying Accounts

Schedule III—Real Estate and Accumulated Depreciation

Schedule IV—Mortgage Loans on Real Estate

3.    Exhibits

The list of exhibits filed as part of this Annual Report on Form 10-K is set forth in the Exhibit Index following the financial statements in response to Item 601 of Regulation S-K.

(b) Exhibits.

The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

(c) Financial Statement Schedules.

All financial statement schedules, except for Schedules II, III and IV (see (a) 2. above), have been omitted because the required information of such schedules is not present, is not present in amounts sufficient to require a schedule or is included in the financial statements.

136

SIGNATURES

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	BEHRINGER HARVARD MULTIFAMILY REIT I, INC.
Dated: March 12, 2014		/s/ ROBERT S. AISNER
		Robert S. Aisner
		Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

March 12, 2014	/s/ E. ALAN PATTON
	E. Alan Patton Chairman of the Board and Director
March 12, 2014	/s/ ROBERT S. AISNER
	Robert S. Aisner Chief Executive Officer and Director
March 12, 2014	/s/ HOWARD S. GARFIELD
	Howard S. Garfield Chief Financial Officer, Chief Accounting Officer,     Treasurer and Assistant Secretary
March 12, 2014	/s/ MARK T. ALFIERI
	Mark T. Alfieri President and Chief Operating Officer
March 12, 2014	/s/ SAMI S. ABBASI
	Sami S. Abbasi Director
March 12, 2014	/s/ ROGER D. BOWLER
	Roger D. Bowler Director
March 12, 2014	/s/ JONATHAN L. KEMPNER
	Jonathan L. Kempner Director

137

INDEX TO FINANCIAL STATEMENTS

	Page
Financial Statements
Behringer Harvard Multifamily REIT I, Inc.—Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm	F- 2
Consolidated Balance Sheets as of December 31, 2013 and 2012	F- 3
Consolidated Statements of Operations for the Years Ended December 31, 2013, 2012, and 2011	F- 4
Consolidated Statements of Equity for the Years Ended December 31, 2013, 2012, and 2011	F- 5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2013, 2012, and 2011	F- 6
Notes to Consolidated Financial Statements	F- 7
Financial Statements Schedules
Schedule II—Valuation and Qualifying Accounts	F- 34
Schedule III—Real Estate and Accumulated Depreciation	F- 35
Schedule IV—Mortgage Loans on Real Estate	F- 37

F- 1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Behringer Harvard Multifamily REIT I, Inc.

Addison, Texas

We have audited the accompanying consolidated balance sheets of Behringer Harvard Multifamily REIT I, Inc. and subsidiaries (the “Company”) as of December 31, 2013 and 2012, and the related consolidated statements of operations, equity, and cash flows for each of the three years in the period ended December 31, 2013. Our audits also included the financial statement schedules listed in the Index at Item 15. These financial statements and financial statement schedules are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedules based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Behringer Harvard Multifamily REIT I, Inc. and subsidiaries at December 31, 2013 and 2012, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2013, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, present fairly in all material respects the information set forth therein.

/s/ Deloitte & Touche LLP

Dallas, Texas

March 12, 2014

F- 2

Behringer Harvard Multifamily REIT I, Inc.

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

	December 31, 2013			December 31, 2012
Assets
Real estate
Land	$	337,295		$	327,946
Buildings and improvements	1,833,452			1,849,483
	2,170,747			2,177,429
Less accumulated depreciation	(195,048		)	(123,360		)
Net operating real estate	1,975,699			2,054,069
Construction in progress, including land ($279,554 and $46,111 related to VIEs as of December 31, 2013 and 2012, respectively)	479,214			151,605
Total real estate, net	2,454,913			2,205,674
Cash and cash equivalents	319,368			450,644
Intangibles, net	25,753			19,063
Other assets, net	98,567			69,312
Total assets	$	2,898,601		$	2,744,693
Liabilities and equity
Liabilities
Mortgages and notes payable ($32,168 related to VIEs as of December 31, 2013)	$	1,029,111		$	979,558
Credit facility payable	10,000			10,000
Construction costs payable ($27,054 and $1,265 related to VIEs as of December 31, 2013 and 2012, respectively)	44,684			9,751
Accounts payable and other liabilities	30,972			22,461
Deferred revenues, primarily lease revenues, net	18,382			17,497
Distributions payable	5,023			4,980
Tenant security deposits	4,122			4,059
Total liabilities	1,142,294			1,048,306
Commitments and contingencies
Redeemable noncontrolling interests ($13,007 and $3,895 related to VIEs as of December 31, 2013 and 2012, respectively)	21,984			8,585
Equity
Preferred stock, $0.0001 par value per share; 124,999,000 shares authorized:
7.0% Series A non-participating, voting, cumulative, convertible preferred stock, liquidation preference $10 per share, 10,000 shares issued and outstanding as of December 31, 2013, none outstanding as of December 31, 2012	—			—
Non-participating, non-voting convertible stock, $0.0001 par value per share; 1,000 shares authorized, none and 1,000 shares issued and outstanding as of December 31, 2013 and 2012, respectively	—			—
Common stock, $0.0001 par value per share; 875,000,000 shares authorized, 168,320,207 and 167,542,108 shares issued and outstanding as of December 31, 2013 and 2012, respectively	17			17
Additional paid-in capital	1,508,655			1,523,646
Cumulative distributions and net income (loss)	(230,554		)	(201,211		)
Total equity attributable to common stockholders	1,278,118			1,322,452
Non-redeemable noncontrolling interests	456,205			365,350
Total equity	1,734,323			1,687,802
Total liabilities and equity	$	2,898,601		$	2,744,693

See Notes to Consolidated Financial Statements.

F- 3

Behringer Harvard Multifamily REIT I, Inc.

Consolidated Statements of Operations

(in thousands, except per share amounts)

	For the Year Ended December 31,
	2013			2012			2011
Rental revenues	$	190,624		$	171,762		$	63,318
Expenses
Property operating expenses	51,027			46,426			19,020
Real estate taxes	24,740			21,579			8,702
Asset management fees	7,673			6,622			6,306
General and administrative expenses	11,373			10,762			4,567
Acquisition expenses	3,677			2,508			6,163
Transition expenses	9,003			—			—
Investment and development expenses	553			—			—
Interest expense	23,844			31,376			11,000
Depreciation and amortization	86,110			99,716			36,865
Total expenses	218,000			218,989			92,623
Interest income	8,507			7,227			3,360
Gain on revaluation of equity on a business combination	—			1,723			121,938
Gain on sale of joint venture interests	—			—			5,724
Loss on early extinguishment of debt	—			(502		)	—
Equity in income (loss) of investments in unconsolidated real estate joint ventures	1,311			(1,247		)	(6,842		)
Other income (expense)	92			(819		)	—
Income (loss) from continuing operations	(17,466		)	(40,845		)	94,875
Income (loss) from discontinued operations:
Loss from discontinued operations	(724		)	(2,660		)	(387		)
Gain on sale of real estate	50,779			13,312			—
Net income (loss)	32,589			(30,193		)	94,488
Net (income) loss attributable to noncontrolling interests:
Redeemable noncontrolling interests in continuing operations	—			1,825			274
Non-redeemable noncontrolling interests in continuing operations	3,938			14,119			3,712
Non-redeemable noncontrolling interests in discontinued operations	(6,832		)	1,735			158
Net income (loss) available to the Company	29,695			(12,514		)	98,632
Dividends to preferred stockholders	(3		)	—			—
Net income (loss) attributable to common stockholders	$	29,692		$	(12,514	)	$	98,632
Weighted average number of common shares outstanding	168,650			166,178			138,111
Basic and diluted earnings (loss) per common share:
Continuing operations	$	(0.08	)	$	(0.15	)	$	0.71
Discontinued operations	0.26			0.07			—
Basic and diluted earnings (loss) per common share	$	0.18		$	(0.08	)	$	0.71
Amounts attributable to common stockholders:
Continuing operations	$	(13,531	)	$	(24,901	)	$	98,861
Discontinued operations	43,223			12,387			(229		)
Net income (loss) attributable to common stockholders	$	29,692		$	(12,514	)	$	98,632

See Notes to Consolidated Financial Statements.

F- 4

Behringer Harvard Multifamily REIT I, Inc.

Consolidated Statements of Equity

(in thousands)

																		Cumulative Distributions and Net
	Preferred Stock			Convertible Stock				Common Stock				Additional						Income (Loss)
	Number	Par		Number		Par		Number		Par		Paid-in			Noncontrolling			available to			Total
	of Shares	Value		of Shares		Value		of Shares		Value		Capital			Interests			the Company			Equity
Balance at January 1, 2011	—	$	—	1		$	—	102,860		$	10	$	896,500		$	—		$	(125,741	)	$	770,769
Net income (loss)	—	—		—		—		—		—		—			(3,870		)	98,632			94,762
Sales of common stock, net	—	—		—		—		59,550		7		539,554			—			—			539,561
Redemptions of common stock	—	—		—		—		(1,969	)	—		(17,780		)	—			—			(17,780		)
Distributions:																					—
Common stock - regular	—	—		—		—		—		—		—			—			(82,981		)	(82,981		)
Noncontrolling interests	—	—		—		—		—		—		—			7,573			—			7,573
Acquisitions of noncontrolling interests	—	—		—		—		—		—		—			360,405			—			360,405
Sale of noncontrolling interests	—	—		—		—		—		—		39,596			48,963			—			88,559
Stock issued pursuant to distribution reinvestment plan, net	—	—		—		—		4,646				44,140			—			—			44,140
Balance at December 31, 2011	—	$	—	1		$	—	165,087		$	17	$	1,502,010		$	413,071		$	(110,090	)	$	1,805,008
Net loss	—	—		—		—		—		—		—			(15,854		)	(12,514		)	(28,368		)
Redemptions of common stock	—	—		—		—		(1,734	)	—		(15,522		)	—			—			(15,522		)
Acquisition of controlling interest	—	—		—		—		—		—		—			1,018			—			1,018
Acquisitions of noncontrolling interests	—	—		—		—		—		—		(3,746		)	(9,757		)	—			(13,503		)
Sale of noncontrolling interest	—	—		—		—		—		—		1,178			(1,178		)	—			—
Contributions by and adjustments of noncontrolling interests	—	—		—		—		—		—		—			7,783			—			7,783
Distributions:	0	0
Common stock - regular	—	—		—		—		—		—		—			—			(68,638		)	(68,638		)
Common stock - special	—	—		—		—		—		—		—			—			(9,969		)	(9,969		)
Noncontrolling interests	—	—		—		—		—		—		—			(29,733		)	—			(29,733		)
Stock issued pursuant to distribution reinvestment plan, net	—	—		—		—		4,189		—		39,726			—			—			39,726
Balance at December 31, 2012	—	$	—	1		$	—	167,542		$	17	$	1,523,646		$	365,350		$	(201,211	)	$	1,687,802
Net income	—	—		—		—		—		—		—			2,894			29,695			32,589
Redemptions of common stock	—	—		—		—		(2,483	)	—		(22,936		)	—			—			(22,936		)
Acquisitions of noncontrolling interests	—	—		—		—		—		—		(23,210		)	(12,762		)	—			(35,972		)
Sales of noncontrolling interests	—	—		—		—		—		—		148			5,750			—			5,898
Contributions by noncontrolling interests	—	—		—		—		—		—		—			146,276			—			146,276
Distributions:	0	0
Common stock - regular	—	—		—		—		—		—		—			—			(59,035		)	(59,035		)
Noncontrolling interests	—	—		—		—		—		—		—			(51,303		)	—			(51,303		)
Preferred stock	—	—		—		—		—		—		—			—			(3		)	(3		)
Issuance of preferred stock	10	—		—		—		—		—		—			—			—			—
Cancellation of convertible stock	—	—		(1	)	—		—		—		—			—			—			—
Stock issued pursuant to distribution reinvestment plan, net	—	—		—		—		3,261		—		31,007			—			—			31,007
Balance at December 31, 2013	10	$	—	—		$	—	168,320		$	17	$	1,508,655		$	456,205		$	(230,554	)	$	1,734,323

See Notes to Consolidated Financial Statements.

F- 5

Behringer Harvard Multifamily REIT I, Inc.

Consolidated Statements of Cash Flows

(in thousands)

	For the Year Ended December 31,
	2013				2012			2011
Cash flows from operating activities
Net income (loss)	$	32,589			$	(30,193	)	$	94,488
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Gain on revaluation of equity on a business combination	—				(1,723		)	(121,938		)
Gain on sale of joint venture interests	—				—			(5,724		)
Gain on sale of real estate	(50,779		)		(13,312		)	—
Loss on early extinguishment of debt	—				502			—
Equity in (income) loss of investments in unconsolidated real estate joint ventures	(1,311		)		1,247			7,877
Distributions received from investment in unconsolidated real estate joint venture	460				170			14,576
Depreciation	85,054				83,909			28,690
Amortization of deferred financing costs and debt premium/discount	(1,618		)		(950		)	1,674
Amortization of intangibles	2,394				23,606			9,453
Amortization of deferred revenues, primarily lease revenues, net	(1,480		)		(1,406		)	(1,387		)
Other, net	663				1,073			—
Changes in operating assets and liabilities:
Accounts payable and other liabilities	10,992				2,286			5,265
Other assets	(305		)		(1,858		)	(1,323		)
Cash provided by operating activities	76,659				63,351			31,651
Cash flows from investing activities
Additions to real estate:
Acquisitions of real estate, net of cash acquired of $1.5 million and $14.3 million for the years ended December 31, 2012 and 2011, respectively	(108,014		)		(67,583		)	(173,263		)
Additions to existing real estate	(6,934		)		(6,629		)	(3,766		)
Construction in progress, including land	(325,964		)		(123,863		)	(2,236		)
Proceeds from sale of real estate, net	205,336				23,902			50,556
Proceeds from sale of joint venture interests	—				—			101,041
Investments in unconsolidated real estate joint ventures	(4,810		)		(3,119		)	(32,143		)
Acquisition of a controlling interest, net of cash acquired of $0.6 million for the year ended December 31, 2013	(8,643		)		—			14,202
Acquisitions of noncontrolling interests	(49,036		)		(20,324		)	—
Sale of noncontrolling interest	7,272				—			—
Investment in short-term investments	—			��	(25,000		)	—
Proceeds from short-term investments	—				25,000			—
Advances on notes receivable	(31,078		)		(37,789		)	(22,426		)
Collection on note receivable	18,618				19,930			—
Return of investments in unconsolidated real estate joint ventures	—				—			56,202
Escrow deposits	(2,842		)		(5,025		)	2,137
Other, net	(544		)		(1,115		)	(7		)
Cash used in investing activities	(306,639		)		(221,615		)	(9,703		)
Cash flows from financing activities
Proceeds from sales of common stock	—				—			593,841
Mortgage and notes payable proceeds	128,664				233,753			269,365
Mortgage principal payments	(75,314		)		(202,688		)	(120,518		)
Credit facility proceeds	—				—			190,000
Credit facility payments	—				—			(244,000		)
Offering costs paid	—				—			(57,154		)
Contributions from noncontrolling interests	153,496				13,205			10,286
Distributions paid on common stock - regular	(27,983		)		(32,344		)	(35,600		)
Distributions paid on common stock - special	—				(9,969		)	—
Distributions paid to noncontrolling interests	(51,303		)		(29,733		)	(2,806		)
Dividends paid on preferred stock	(3		)		—			—
Redemptions of common stock	(22,936		)		(15,522		)	(17,780		)
Other, net	(5,917		)		(3,289		)	(4,693		)
Cash provided by (used in) financing activities	98,704				(46,587		)	580,941
Net change in cash and cash equivalents	(131,276		)		(204,851		)	602,889
Cash and cash equivalents at beginning of year	450,644				655,495			52,606
Cash and cash equivalents at end of year	$	319,368			$	450,644		$	655,495

 See Notes to Consolidated Financial Statements.

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Behringer Harvard Multifamily REIT I, Inc.

Notes to Consolidated Financial Statements

1.Organization and Business

Organization

Behringer Harvard Multifamily REIT I, Inc. (which, together with its subsidiaries as the context requires, may be referred to as the “Company,” “we,” “us,” or “our”) was organized in Maryland on August 4, 2006.  We invest in, develop and operate high quality multifamily communities. These multifamily communities include conventional multifamily assets, such as mid-rise, high-rise, garden style, and age-restricted properties, typically requiring residents to be age 55 or older.  Our targeted communities include existing “core” properties, which we define as properties that are already stabilized and producing rental income, as well as properties in various phases of development, redevelopment, lease up or repositioning which we intend to transition to core properties.  Further, we may invest in other types of commercial real estate, real estate-related securities, and mortgage, bridge, mezzanine, land or other loans, or in entities that make investments similar to the foregoing.  We completed our first investment in April 2007.

From our inception to July 31, 2013, we had no employees, were externally managed by Behringer Harvard Multifamily Advisors I, LLC (the “Advisor”) and were supported by related party service agreements with the Advisor and its affiliates. Through July 31, 2013, we exclusively relied on the Advisor and its affiliates to provide certain services and personnel for management and day-to-day operations, including advisory services performed by the Advisor and property management services provided by Behringer Harvard Multifamily Management Services, LLC and its affiliates (“BHM Management” or the “Property Manager”). 

Effective July 31, 2013, we entered into a series of agreements with the Advisor and its affiliates in order to begin our transition to self-management (“Self-Management Transition Agreements”). On August 1, 2013, we hired five executives who were previously employees of the Advisor and its affiliates and began hiring other employees. See further discussion at Note 13, “Transition to Self-Management.”

We invest in multifamily communities that may be wholly owned by us or held through joint venture arrangements with third-party institutional or other national or regional real estate developers/owners which we define as “Co-Investment Ventures” or “CO-JVs.”  These are predominately equity investments but also include debt investments, consisting of mezzanine and land loans.  If a Co-Investment Venture makes an equity or debt investment in a separate entity with additional third parties, we refer to such a separate entity as a “Property Entity” and when applicable may name the multifamily community related to the Property Entity or CO-JV.

As of December 31, 2013, we have equity and debt investments in 55 multifamily communities, of which 32 are stabilized operating properties, two are in lease up and 21 are in various stages of pre-development and construction. Of the 55 multifamily communities, we wholly own seven multifamily communities and three debt investments for a total of 10 wholly owned investments.  The remaining 45 investments are held through Co-Investment Ventures, 44 of which are consolidated and one is reported on the equity method of accounting. The one unconsolidated Co-Investment Venture holds a debt investment. 

As of December 31, 2013, we are the general partner and/or managing member for each of the separate Co-Investment Ventures. Our two largest Co-Investment Venture partners are Stichting Depositary PGGM Private Real Estate Fund, a Dutch foundation acting in its capacity as depositary of and for the account and risk of PGGM Private Real Estate Fund and its affiliates, a real estate investment vehicle for Dutch pension funds, (“PGGM” or the “PGGM Co-Investment Partner”), and Milky Way Partners, L.P. (the “MW Co-Investment Partner”), the primary partner of which is Korea Exchange Bank, as Trustee for and on behalf of National Pension Service (acting for and on behalf of the National Pension Fund of the Republic of Korea Government) (“NPS”). Our other Co-Investment Venture partners include national or regional real estate developers/owners (“Developer Partners.”) When applicable, we refer to individual investments by referencing the individual co-investment partner or the underlying multifamily community. We refer to our Co-Investment Ventures with the PGGM Co-Investment Partner as “PGGM CO-JVs,” those with the MW Co-Investment Partner as “MW CO-JVs,” and those with Developer Partners as “Developer CO-JVs.” Certain PGGM CO-JVs also include Developer Partners and are referred to as PGGM CO-JVs.

Prior to July 31, 2013, PGGM’s interest in the PGGM CO-JVs was held through a partnership (the “Master Partnership”), in which PGGM held a 99% limited partner interest and an affiliate of the Advisor held the 1% general partner interest (the “GP Master Interest”). Our interest in the PGGM CO-JVs was generally 55% and the Master Partnership’s interest was generally 45%. On July 31, 2013, we acquired the GP Master Interest from the affiliate of the Advisor for $23.1 million (effectively increasing our ownership interest in each applicable PGGM CO-JV) and consolidated the Master Partnership. Due

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to PGGM’s existing 99% ownership interest in the Master Partnership and because this transaction did not have a significant effect on the amount of noncontrolling interests in such Co-Investment Ventures, PGGM’s ownership interest in each applicable Co-Investment Venture was unchanged. Accordingly, we now consider PGGM to be our co-investment partner in these Co-Investment Ventures. We now refer to these Co-Investment Ventures as “PGGM CO-JVs” and to PGGM as the “PGGM Co-Investment Partner.” In addition, on December 20, 2013, the Master Partnership was restructured to increase the maximum potential capital commitment of PGGM by $300 million (plus any amount distributed to PGGM from sales or financings of new PGGM CO-JVs) and we sold a noncontrolling interest in 13 Developer CO-JVs to PGGM for $146.4 million. See more discussion of the acquisition of the GP Master Interest and sale of the noncontrolling interest at Note 4, “Business Combinations,” Note 11, “Noncontrolling Interests,” and Note 13, “Transition to Self-Management.”

The table below presents a summary of our Co-Investment Ventures. The effective ownership ranges are based on our share of contributed capital in the multifamily investment. This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements for each respective Co-Investment Venture.  Unless otherwise noted, all are reported on the consolidated basis of accounting (dollars in millions).

	December 31, 2013		December 31, 2012
Co-Investment Structure	Number of Multifamily Communities	Our Effective Ownership	Number of Multifamily Communities	Our Effective Ownership
PGGM CO-JVs (a)	27	44% to 74%	16	51% to 74%
MW CO-JVs	14	55%	15	55%
Developer CO-JVs	4	90% to 100%	8	80% to 100%
Total	45		39

(a) Includes one unconsolidated investment as of December 31, 2013 and 2012. Also, as of December 31, 2013 and 2012, includes Developer Partners in 16 and none multifamily communities, respectively.

We have elected to be taxed, and currently qualify, as a real estate investment trust (“REIT”) for federal income tax purposes. As a REIT, we generally are not subject to corporate-level income taxes.  To maintain our REIT status, we are required, among other requirements, to distribute annually at least 90% of our “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the “Code”), to our stockholders.  If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate tax rates.  As of December 31, 2013, we believe we are in compliance with all applicable REIT requirements.

Offerings of Our Common Stock

In December 2007, we completed a private offering (the “Private Offering”), in which we sold approximately 14.2 million shares of our common stock with gross offering proceeds of approximately $127.3 million.  Net proceeds, after selling commissions, dealer manager fees, and other offering costs, were approximately $114.3 million.

On September 2, 2011, we terminated offering shares of common stock in the primary portion of our initial public offering (the “Initial Public Offering”), in which we sold 146.4 million shares of our common stock with aggregate gross primary offering proceeds of approximately $1.46 billion. Net proceeds, after selling commissions, dealer manager fees, and other offering costs, were approximately $1.30 billion.  At termination of our Initial Public Offering, we reallocated 50 million unsold shares remaining from our Initial Public Offering to our distribution reinvestment plan (“DRIP”).  As a result, we are offering a maximum of 100 million total shares pursuant to our DRIP at a DRIP offering price set by our board of directors. Since March 1, 2013, the DRIP offering price has been $9.53 per share, based on approximately 95% of our estimated per share value which was last established as of March 1, 2013.  For the years ended December 31, 2013 and 2012, the DRIP offering price averaged $9.51 and $9.48, respectively. As of December 31, 2013, we have sold approximately 16.0 million shares under our DRIP for gross proceeds of approximately $152.1 million.  There are approximately 84.0 million shares remaining to be sold under the DRIP as of December 31, 2013.

Per the terms of our DRIP, we currently expect to offer shares under the DRIP for approximately the next four years, which would be the sixth anniversary of the termination of our Initial Public Offering although our board of directors has the discretion to extend the DRIP beyond that date, in which case we will notify participants of such extension.  We may suspend or terminate the DRIP at any time by providing ten days’ prior written notice to participants, and we may amend or supplement the DRIP at any time by delivering notice to participants at least 30 days’ prior to the effective date of the amendment or supplement.

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Our common stock is not currently listed on a national securities exchange. Depending upon then-prevailing market conditions, we intend to begin to consider the process of listing or liquidation within the next two to four years, which is unchanged from the four to six years after the date of the termination of our Initial Public Offering as disclosed in the related offering documents.

2.Summary of Significant Accounting Policies

Basis of Presentation

The accompanying consolidated financial statements include our consolidated accounts and the accounts of our wholly owned subsidiaries.  We also consolidate other entities in which we have a controlling financial interest or other entities (referred to as variable interest entities or “VIEs”) where we are determined to be the primary beneficiary.  VIEs are generally entities that lack sufficient equity to finance their activities without additional financial support from other parties or whose equity holders lack adequate decision making ability.  The primary beneficiary is required to consolidate a VIE for financial reporting purposes.  The determination of the primary beneficiary requires management to make significant estimates and judgments about our rights, obligations, and economic interests in such entities as well as the same of the other owners.  See Note 6, “Variable Interest Entities” for further information about our VIEs.  For entities in which we have less than a controlling financial interest or entities with respect to which we are not deemed to be the primary beneficiary, the entities are accounted for using the equity method of accounting.  Accordingly, our share of the net earnings or losses of these entities is included in consolidated net income.  See Note 7, “Other Assets” for further information on our unconsolidated investment.  All inter-company accounts and transactions have been eliminated in consolidation.

Real Estate and Other Related Intangibles

Acquisitions

For real estate properties acquired by us or our Co-Investment Ventures classified as business combinations, we determine the purchase price, after adjusting for contingent consideration and settlement of any pre-existing relationships. We record the acquired assets and liabilities based on their fair values, including tangible assets (consisting of land, any associated rights, buildings and improvements), identified intangible assets and liabilities, asset retirement obligations, assumed debt, other liabilities and noncontrolling interests.  Identified intangible assets and liabilities primarily consist of the fair value of in-place leases and contractual rights.  Goodwill is recognized as of the acquisition date and measured as the aggregate fair value of the consideration transferred and any noncontrolling interest in the acquiree over the fair value of identifiable net assets acquired.  Likewise, a bargain purchase gain is recognized in current earnings when the aggregate fair value of the consideration transferred and any noncontrolling interest in the acquiree are less than the fair value of the identifiable net assets acquired.

The fair value of any tangible real estate assets acquired is determined by valuing the property as if it were vacant, and the “as-if-vacant” value is then allocated to land, buildings and improvements.  Land values are derived from appraisals, and building values are calculated as replacement cost less depreciation or estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods.  When we acquire rights to use land or improvements through contractual rights rather than fee simple interests, we determine the value of the use of these assets based on the relative fair value of the assets after considering the contractual rights and the fair value of similar assets. Assets acquired under these contractual rights are classified as intangibles and amortized on a straight-line basis over the shorter of the contractual term or the estimated useful life of the asset. Contractual rights related to land or air rights that are substantively separated from depreciating assets are amortized over the life of the contractual term or, if no term is provided, are classified as indefinite-lived intangibles.  Intangible assets are evaluated at each reporting period to determine whether the indefinite and finite useful lives are appropriate.

We determine the value of in-place lease values and tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant by applying a fair value model.  The estimates of fair value of in-place leases include an estimate of carrying costs during the expected lease up periods for the respective leasable area considering current market conditions.  In estimating fair value of in-place leases, we consider items such as real estate taxes, insurance, leasing commissions, tenant improvements and other operating expenses to execute similar deals as well as projected rental revenue and carrying costs during the expected lease up period.  The estimate of the fair value of tenant relationships also includes our estimate of the likelihood of renewal. We amortize the value of in-place leases acquired to expense over the remaining term of the leases. The value of tenant relationship intangibles will be amortized to expense over the initial term and any anticipated renewal periods, but in no event will the amortization period for intangible

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assets exceed the remaining depreciable life of the building. The in-place leases are amortized over the remaining term of the in-place leases, approximately a six month term for multifamily in-place leases and terms ranging from three to 20 years for retail in-place leases.   

We determine the value of above-market and below-market in-place leases for acquired properties based on the present value (using an interest rate that reflects the risks associated with the leases acquired) of the difference between (1) the contractual amounts to be paid pursuant to the in-place leases and (2) estimates of current market lease rates for the corresponding in-place leases, measured over a period equal to (i) the remaining non-cancelable lease term for above-market leases, or (ii) the remaining non-cancelable lease term plus any fixed rate renewal options for below-market leases. We record the fair value of above-market and below-market leases as intangible assets or intangible liabilities, respectively, and amortize them as an adjustment to rental income over the above determined lease term.  Given the short-term nature of multifamily leases, the value of above-market or below-market in-place leases are generally not material.

We determine the value of other contractual rights based on our evaluation of the specific characteristics of the underlying contracts and by applying a fair value model to the projected cash flows or usage rights that considers the timing and risks associated with the cash flows or usage. We amortize the value of finite contractual rights over the remaining contract period. Indefinite-lived contractual rights are not amortized but are evaluated for impairment.

We determine the fair value of assumed debt by calculating the net present value of the scheduled debt service payments using interest rates for debt with similar terms and remaining maturities that management believes we could obtain.  Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan.

Initial valuations are subject to change until our information is finalized, which is no later than 12 months from the acquisition date.  We have had no significant valuation changes for acquisitions prior to December 31, 2013.

Developments

We capitalize project costs related to the development and construction of real estate (including interest, property taxes, insurance, and other direct costs associated with the development) as a cost of the development. Indirect project costs, not clearly related to development and construction, are expensed as incurred.  Indirect project costs that clearly relate to development and construction are capitalized and allocated to the developments to which they relate.  For each development, capitalization begins when we determine that the development is probable and significant development activities are underway.  We suspend capitalization at such time as significant development activity ceases, but future development is still probable.  We cease capitalization when the developments or other improvements, including any portion, are completed and ready for their intended use, or if the intended use changes such that capitalization is no longer appropriate.  Developments or improvements are generally considered ready for intended use when the certificates of occupancy have been issued and the units become ready for occupancy.

For the years ended December 31, 2013, 2012, and 2011, we capitalized interest of $10.5 million, $2.5 million, and $0.1 million, respectively.

Depreciation

Buildings are depreciated over their estimated useful lives ranging from 25 to 35 years using the straight-line method.  Improvements are depreciated over their estimated useful lives ranging from 3 to 15 years using the straight-line method.  Properties classified as held for sale are not depreciated.  Depreciation of developments begins when the development is substantially completed and ready for its intended use.

Repairs and Maintenance

Expenditures for ordinary repairs and maintenance costs are charged to expense as incurred.

Investment in Unconsolidated Real Estate Joint Venture

We and our Co-Investment Ventures account for investments in unconsolidated real estate joint ventures using the equity method of accounting because we exercise significant influence over, but do not control, these entities.  These investments are initially recorded at cost, including any acquisition costs, and are adjusted for our share of equity in earnings and distributions.  We report our share of income and losses based on our economic interests in the entities.

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We capitalize interest expense to investments in unconsolidated real estate joint ventures for our share of qualified expenditures during their development phase.

We amortize any excess of the carrying value of our investments in joint ventures over the book value of the underlying equity over the estimated useful lives of the underlying operating property, which represents the assets to which the excess is most clearly related.

When we or our Co-Investment Ventures acquire a controlling interest in a previously noncontrolled investment, a gain or loss on revaluation of equity is recognized for the differences between the investment’s carrying value and fair value.

Impairment of Real Estate Related Assets and Investments in Unconsolidated Real Estate Joint Ventures

If events or circumstances indicate that the carrying amount of the property may not be recoverable, we make an assessment of the property’s recoverability by comparing the carrying amount of the asset to our estimate of the undiscounted future operating cash flows expected to be generated over the holding period of the asset including its eventual disposition.  If the carrying amount exceeds the aggregate undiscounted future operating cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the property.  In addition, we evaluate indefinite-lived intangible assets for possible impairment at least annually by comparing the fair values with the carrying values.  The fair value of intangibles is generally estimated by valuation of similar assets.

For real estate we own through an investment in an unconsolidated real estate joint venture or other similar real estate investment structure, at each reporting date we compare the estimated fair value of our real estate investment to the carrying value.  An impairment charge is recorded to the extent the fair value of our real estate investment is less than the carrying amount and the decline in value is determined to be other than a temporary decline. 

We did not record any impairment losses for the years ended December 31, 2013, 2012 or 2011.

Assets Held for Sale and Discontinued Operations

Assuming we have no involvement after the sale of a multifamily community, the sale is considered a discontinued operation.  In addition, multifamily communities classified as held for sale are also considered discontinued operations.  We generally consider assets to be held for sale when all significant contingencies surrounding the closing have been resolved, which generally corresponds with the actual closing date.  Multifamily communities held for sale are reported at the lower of their carrying value or their estimated fair value less costs to sell.

Cash and Cash Equivalents

We consider investments in bank deposits, money market funds and highly-liquid cash investments with original maturities of three months or less to be cash equivalents.

As of December 31, 2013 and December 31, 2012, cash and cash equivalents include $25.6 million and $19.0 million, respectively, held by individual Co-Investment Ventures that are available only for use in the business of the related Co-Investment Venture.  Cash held by individual Co-Investment Ventures is not restricted to specific uses within those entities. However, the terms of the joint venture agreements limit the ability to distribute those funds to us or use them for our general corporate purposes.  Cash held by individual Co-Investment Ventures is distributed from time to time to the Company and to the other Co-Investment Venture partners in accordance with the applicable Co-Investment Venture governing agreement, which may not be the same as the stated effective ownership interest.  Cash distributions received by the Company from the individual Co-Investment Ventures are then available for our general corporate purposes.

Noncontrolling Interests

Redeemable noncontrolling interests are comprised of our consolidated Co-Investment Venture partners’ interests in multifamily communities where we believe it is probable that we will be required to purchase the partner’s noncontrolling interest.  We record obligations under the redeemable noncontrolling interest initially at the higher of (a) fair value, increased or decreased for the noncontrolling interest’s share of net income or loss and equity contributions and distributions or (b) the redemption value.  The redeemable noncontrolling interests are temporary equity not within our control, and presented in our consolidated balance sheet outside of permanent equity between debt and equity.  The determination of the redeemable classification requires analysis of contractual provisions and judgments of redemption probabilities.

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Non-redeemable noncontrolling interests are comprised of our consolidated Co-Investment Venture partners’ interests in multifamily communities as well as Class A, preferred cumulative, non-voting membership units (“Preferred Units”) issued by subsidiary REITs.  We record these noncontrolling interests at their initial fair value, adjusting the basis prospectively for their share of the respective consolidated investments’ net income or loss or equity contributions and distributions.  These noncontrolling interests are not redeemable by the equity holders and are presented as part of permanent equity.

Income and losses are allocated to the noncontrolling interest holder based on its economic interests.

Transactions involving a partial sale or acquisition of a noncontrolling interest that does not result in a change of control are recorded at carrying value with no recognition of gain or loss.  Any differences between the cash received or paid (net of any expenses) and the change in noncontrolling interest is recorded as a direct charge to additional paid-in capital.  Transactions involving a partial sale or acquisition of a controlling interest resulting in a change in control are recorded at fair value with recognition of a gain or loss.

Other Assets

Other assets primarily include deferred financing costs, notes receivable, equity method investments, accounts receivable, restricted cash, interest rate caps, prepaid assets and deposits.  Deferred financing costs are recorded at cost and are amortized using a straight-line method that approximates the effective interest method over the life of the related debt.  We evaluate whether notes receivable are loans, investments in joint ventures or acquisitions of real estate based on a review of any rights to participate in expected residual profits and other equity and loan characteristics.  As of and for the years ended December 31, 2013 and 2012, all of our notes receivable were appropriately accounted for as loans.  We account for our derivative financial instruments, all of which are interest rate caps, at fair value.  We use interest rate cap arrangements to manage our exposure to interest rate changes.  We have not designated any of these derivatives as hedges for accounting purposes, and accordingly, changes in fair value are recognized in earnings.

Revenue Recognition

Rental income related to leases is recognized on an accrual basis when due from residents or commercial tenants, generally on a monthly basis.  Rental revenues for leases with uneven payments and terms greater than one year are recognized on a straight-line basis over the term of the lease.  Any deferred revenue is classified as a liability on the consolidated balance sheet and recognized on a straight-line basis as income over its contractual term.

Interest income is generated primarily on notes receivable and cash balances. Interest income is recorded on an accrual basis as earned.

Acquisition Costs

Acquisition costs for business combinations, which are expected to include most consolidated property acquisitions other than land acquisitions, are expensed when it is probable that the transaction will be accounted for as a business combination and the purchase will be consummated. Our acquisition costs related to investments in unconsolidated real estate joint ventures are capitalized as a part of our basis in the investment. Acquisition costs related to unimproved or non-operating land, primarily related to developments, are capitalized.  Pursuant to our Advisory Management Agreement (as defined below), our Advisor is obligated to reimburse us for all investment-related expenses that the Company pursues but ultimately does not consummate.  Prior to the determination of its status, amounts incurred are recorded in other assets.  Acquisition costs and expenses include amounts incurred with our Advisor and with third parties.

Transition Expenses

Transition expenses include expenses related to our transition to self-management, primarily including legal, financial advisors, consultants, costs of the Company’s special committee of the board of directors, comprised of all of the Company’s independent directors (the “Special Committee”), general transition services (primarily related to staffing, information technology and facilities) and payments to the Advisor and its affiliates (collectively “Behringer”) in connection with the transition to self-management discussed further in Note 13, “Transition to Self-Management.”

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Redemptions of Common Stock

We account for the possible redemption of our shares by classifying securities that are convertible for cash at the option of the holder outside of equity.  We do not reclassify the shares to be redeemed from equity to a liability until such time as the redemption has been formally approved by our board of directors.  The portion of the redeemed common stock in excess of the par value is charged to additional paid-in capital.

Income Taxes

We have elected to be taxed as a REIT under Sections 856 through 860 of the Code and have qualified as a REIT since the year ended December 31, 2007.  To qualify as a REIT, we must meet a number of organizational and operational requirements, including a requirement that we distribute at least 90% of our REIT taxable income to our stockholders.  As a REIT, we generally will not be subject to federal income tax at the corporate level.  We are organized and operate in such a manner as to qualify for taxation as a REIT under the Code and intend to continue to operate in such a manner, but no assurance can be given that we will operate in a manner so as to remain qualified as a REIT. Beginning in 2013, taxable income from certain non-REIT activities is managed through a taxable REIT subsidiary (“TRS”) and is subject to applicable federal, state, and local income and margin taxes. We have no significant taxable income associated with our TRS.

We have evaluated the current and deferred income tax related to state taxes or other operations for which we do not have a REIT exemption, and we have no significant tax liability or benefit as of December 31, 2013 or December 31, 2012.

The carrying amounts of our assets and liabilities for financial statement purposes differ from our basis for federal income taxes due to tax accounting related to Co-Investment Ventures, fair value accounting for business combinations, straight lining of lease and related agreements and differing depreciation methods.  The primary asset and liability balance sheet accounts with differences are real estate, assets and liabilities held for sale, intangibles, other assets, mortgages and notes payable and deferred revenues, primarily lease revenues, net. As a result of these differences, our net federal income tax basis exceeds the carrying value for financial statement purposes as of December 31, 2013 by approximately $54.2 million.

We recognize the financial statement benefit of an uncertain tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. As of December 31, 2013 and December 31, 2012, we had no significant uncertain tax positions.

Concentration of Credit Risk

We invest our cash and cash equivalents among several banking institutions and money market accounts in an attempt to minimize exposure to any one of these entities.  As of December 31, 2013 and December 31, 2012, we had cash and cash equivalents deposited in certain financial institutions in excess of federally-insured levels.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents.

Earnings per Share

Basic earnings per share is calculated by dividing net income (loss) attributable to common stockholders by the weighted average common shares outstanding during the period. Diluted earnings per share is calculated similarly, except that during periods of income from continuing operations it includes the dilutive effect of the assumed exercise of securities, including the effect of shares issuable under our preferred stock or stock-based incentive plans.  During periods of net loss, the assumed exercise of securities is anti-dilutive and is not included in the calculation of earnings per share.

The Behringer Harvard Multifamily REIT I, Inc. Amended and Restated 2006 Incentive Award Plan (the “Incentive Award Plan”) authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards.  A total of 10 million shares has been authorized and reserved for issuance under the Incentive Award Plan.  As of December 31, 2013, no options have been issued.  For the years ended December 31, 2013, 2012, and 2011, 6,000 shares of the restricted stock have been included in the basic and dilutive earnings per share calculation.

For all years presented, the preferred stock and the convertible stock, with respect to periods each were outstanding, were excluded from the calculation of earnings per share because the effect would not be dilutive. However, based on changing market conditions, the outstanding preferred stock could be dilutive in future periods.

F- 13

Reportable Segments

Our current business primarily consists of investing in and operating multifamily communities. Substantially all of our consolidated net income (loss) is from investments in real estate properties that we wholly own or own through Co-Investment Ventures, the latter of which may be accounted for under the equity method of accounting. Our management evaluates operating performance on an individual investment level. However, as each of our investments has similar economic characteristics in our consolidated financial statements, the Company is managed on an enterprise-wide basis with one reportable segment.

Use of Estimates in the Preparation of Financial Statements

The preparation of consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts included in the financial statements and accompanying notes to consolidated financial statements.  These estimates include such items as: the purchase price allocations for real estate and other acquisitions; impairment of long-lived assets, notes receivable and equity-method real estate investments; fair value evaluations; earning recognition of note receivable interest income, noncontrolling interests and equity in earnings of investments in unconsolidated real estate joint ventures; depreciation and amortization; and recognition and timing of transition expenses.  Actual results could differ from those estimates.

Reclassifications

Certain financial information on the Consolidated Balance Sheet as of December 31, 2012 has been revised to conform to the current year presentation. As of December 31, 2012, investment in unconsolidated real estate joint venture of $3.0 million previously included in its own line item is now being included in other assets, net. As of December 31, 2012, construction costs payable of $9.8 million previously included in the line item accounts payable and other liabilities is now being disclosed separately on the Consolidated Balance Sheet.

3.New Accounting Pronouncements

In February 2013, the Financial Accounting Standards Board issued updated guidance for the measurement and disclosure of obligations. The guidance requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and any additional amount the reporting entity expects to pay on behalf of its co-obligors. The guidance in the update also requires an entity to disclose the nature and amount of the obligation as well as other information about such obligations. This guidance is effective for the first interim or annual period beginning on or after December 15, 2013. The adoption of this guidance is not expected to have a material impact on our financial statements or disclosures.

4.Business Combinations

Acquisitions of Real Estate and Other Related Party Interests

On July 31, 2013, we acquired the GP Master Interest in a related party transaction with an affiliate of the Advisor for $23.1 million in cash, excluding closing costs, of which $9.3 million related to an acquisition of the general partner’s asset management and related fee revenue services and contracts and has been accounted for as a business combination. The remaining $13.8 million was accounted for as an acquisition of a noncontrolling interest in the PGGM CO-JVs. See Note 11, “Noncontrolling Interests” for additional discussion.

In July 2013, we acquired Vara, a 202 unit multifamily community located in San Francisco, California, from an unaffiliated seller, for an aggregate gross purchase price of $108.7 million, excluding closing costs. Vara was unoccupied at the date of acquisition.

In April 2012, we acquired Pembroke Woods, a 240 unit multifamily community located in Pembroke, Massachusetts, from an unaffiliated seller, for an aggregate gross purchase price of $42.3 million, excluding closing costs.

In February 2012, we settled a dispute concerning the enforceability of an option agreement with the Grand Reserve Property Entity to acquire the Grand Reserve, a 149 unit multifamily community located in Dallas, Texas.  In the settlement, we agreed to acquire the Grand Reserve multifamily community by repaying the outstanding $26.2 million construction loan,

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assuming the other existing standard operating liabilities and receiving $0.4 million in net cash and all other standard operating assets and liabilities.  In connection with the closing, we contributed the full amount of the cash acquisition consideration in exchange for an additional 32.5% interest, increasing our stated, controlling ownership in the PGGM CO-JV to 87.5%.  Prior to this transaction, we had note receivables in the Grand Reserve Property Entity with a carrying value of $5.9 million.  In conjunction with this transaction, the note receivables were canceled.

Consolidation of Previously Unconsolidated Multifamily Community

Effective July 31, 2012, we converted a note receivable due from the Veritas Property Entity, with a carrying value of $20.2 million, into an additional equity interest in the Veritas Property Entity and became the general partner of the Veritas Property Entity. As a result of these transactions, we now account for our investment in the Veritas Property Entity on the consolidated basis of accounting. We also recorded a gain on revaluation of equity of approximately $1.7 million.

Business Combination Summary Information

The following tables present certain additional information regarding our business combinations during the years ended December 31, 2013 and 2012.

The amounts recognized for major assets acquired and liabilities assumed, including a reconciliation to cash consideration as of the business combination date are as follows (in millions):  

	2013 Acquisitions			2012 Acquisitions
Land	$	20.2		$	19.5
Buildings and improvements	88.5			113.7
Cash acquired	0.6			1.5
Intangibles (a)	9.2			2.9
Investment in unconsolidated real estate joint venture	6.4			—
Other assets	0.1			0.3
Mortgage loans payable	—			(37.1		)
Accrued liabilities	(0.9		)	(1.3		)
Noncontrolling interest	(6.8		)	(1.0		)
Other consideration (b)	—			(5.9		)
Net assets	117.3			92.6
Other consolidation/elimination adjustments:
Investment in unconsolidated real estate joint venture	—			(22.4		)
Gain on revaluation of equity for a business combination	—			(1.7		)
Cash consideration	$	117.3		$	68.5

(a) The intangibles for the 2013 acquisitions are $9.2 million of other contractual intangibles, primarily asset management and related fee revenue services and contracts. The intangibles for the 2012 acquisitions are in-place lease intangibles.

(b) Other consideration represents the cancellation of the notes receivable in connection with the acquisition of the Grand Reserve multifamily community in 2012.

Certain operating information for the periods from the business combination dates to December 31, 2013 and 2012 are as follows (in millions):

	For the Periods to December 31, 2013			For the Periods to December 31, 2012
Rental revenues	$	2.2		$	7.8
Acquisition expenses	$	3.3		$	2.5
Depreciation and amortization	$	3.2		$	5.9
Gain on revaluation of equity on a business combination	$	—		$	1.7
Net loss attributable to common stockholders	$	(3.1	)	$	(2.7	)

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The following unaudited consolidated pro forma information is presented as if the acquisitions were acquired on January 1, 2012.  The information excludes activity that is non-recurring and not representative of our future activity, primarily transition expenses of $9.0 million for the year ended December 31, 2013, acquisition expenses of $3.7 million and $2.5 million for the years ended December 31, 2013 and 2012, respectively, and gain on revaluation of equity on a business combination of $1.7 million for the year ended December 31, 2012.  The information presented below is not necessarily indicative of what the actual results of operations would have been had we completed these transactions on January 1, 2012, nor does it purport to represent our future operations (amounts in millions, except per share):

	Pro Forma (unaudited)
	For the Year Ended December 31,
	2013			2012
Rental revenues	$	190.6		$	176.3
Depreciation and amortization	$	88.4		$	106.5
Loss from continuing operations	$	(6.8	)	$	(41.9	)
Loss from continuing operations per share	$	(0.04	)	$	(0.25	)

We are in the process of finalizing our acquisition allocations for our 2013 acquisition, which are subject to change until our information is finalized, no later than twelve months from the acquisition date.

5.Real Estate Investments

Real Estate Investments and Intangibles and Related Depreciation and Amortization

As of December 31, 2013 and December 31, 2012, major components of our real estate investments and intangibles and related accumulated depreciation and amortization were as follows (in millions):

	December 31, 2013									December 31, 2012
	Buildings			Intangibles						Buildings			Intangibles
	and			In-Place			Other			and			In-Place			Other
	Improvements			Leases			Contractual			Improvements			Leases			Contractual
Cost	$	1,833.4		$	41.9		$	25.6		$	1,849.5		$	43.6		$	16.4
Less: accumulated depreciation and amortization	(195.0		)	(39.1		)	(2.6		)	(123.4		)	(40.1		)	(0.8		)
Net	$	1,638.4		$	2.8		$	23.0		$	1,726.1		$	3.5		$	15.6

Depreciation expense for the years ended December 31, 2013, 2012, and 2011 was approximately $81.8 million, $76.4 million, and $25.5 million, respectively.

Cost of intangibles relates to the value of in-place leases and other contractual intangibles.  As discussed in Note 4, “Business Combinations,” during 2013 we acquired $9.2 million of other contractual intangibles, primarily asset management and related fee revenue services and contracts related to our acquisition of the GP Master Interest on July 31, 2013. Also included in other contractual intangibles as of December 31, 2013 and December 31, 2012 is $6.8 million related to the use rights of a parking garage and site improvements and $9.5 million of indefinite-lived contractual rights related to land air rights.

Amortization expense associated with our lease and other contractual intangibles for the years ended December 31, 2013, 2012, and 2011 was approximately $2.5 million, $21.5 million, and $9.0 million, respectively.

Anticipated amortization associated with lease and other contractual intangibles for each of the following five years is as follows (in millions):

	Anticipated Amortization
Year	of Intangibles
2014	$	4.2
2015	$	2.8
2016	$	1.4
2017	$	1.4
2018	$	0.5

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Sales of Real Estate and Discontinued Operations

The following table presents our sales of real estate for the years ended December 31, 2013, 2012 and 2011 (in millions):

Date of Sale	Multifamily Community	Sales Contract Price		Net Cash Proceeds		Gain on Sale of Real Estate
For the Year Ended December 31, 2013
September 2013	Grand Reserve Orange	$	35.3	$	34.3	$	12.8
June 2013	Halstead	43.5		42.2		11.9
May 2013	Cyan/PDX (“Cyan”)	95.8		95.5		19.2
March 2013	The Reserve at John’s Creek Walk (“Johns Creek”)	37.3		33.3		6.9
	Total	$	211.9	$	205.3	$	50.8
For the Year Ended December 31, 2012
March 2012	Mariposa Lofts Apartments (“Mariposa”)	$	40.0	$	23.9	$	13.3
For the Year Ended December 31, 2011
May 2011	Waterford Place	$	110.0	$	50.6	$	—

The table below includes the results of operations and gain on sale of real estate for the multifamily communities that have been classified as discontinued operations in the accompanying consolidated statements of operations for the years ended December 31, 2013, 2012 and 2011 (in millions):

	For the Year Ended December 31,
	2013			2012			2011
Rental revenues	$	8.0		$	17.8		$	9.0
Expenses
Property operating expenses	2.5			5.4			2.7
Real estate taxes	1.1			2.2			1.3
Interest expense	1.0			3.1			1.3
Depreciation and amortization	3.3			9.7			3.1
Total expenses	7.9			20.4			8.4
Loss on early extinguishment of debt	(0.8		)	—			—
Equity in loss of investments in unconsolidated real estate joint ventures	—			—			(1.0		)
Loss from discontinued operations	(0.7		)	(2.6		)	(0.4		)
(Income) loss attributable to noncontrolling interests	(6.9		)	1.7			0.2
Loss from discontinued operations attributable to common stockholders	$	(7.6	)	$	(0.9	)	$	(0.2	)
Gain on sale of real estate	$	50.8		$	13.3		$	—

6.Variable Interest Entities

As of December 31, 2013 and December 31, 2012, we have concluded that we are the primary beneficiary of ten and three VIEs, respectively.  All of these VIEs are the Property Entities of PGGM CO-JVs or Developer CO-JVs created for the purpose of developing multifamily communities. We entered into these Co-Investment Ventures in 2012 and 2013.  At inception, we had determined that none of the Co-Investment Ventures were VIEs and because we were the general partner (directly or indirectly) of each Co-Investment Venture and had control of their operations and business affairs, we consolidated each Co-Investment Venture.  After separate reconsideration events during 2012 and 2013, all of which were related to capital restructuring, we have concluded that all of these Co-Investment Ventures are now VIEs.  Because these Co-Investment

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Ventures were previously consolidated, the VIE determination did not affect our financial position, financial operations or cash flows.  Our ownership interest in each of the Co-Investment Ventures based upon contributed capital ranges from 55% to 100%.

Any significant amounts of assets and liabilities related to our consolidated VIEs are identified parenthetically on our consolidated balance sheets. Four VIEs, all of which are actively developing multifamily communities, have closed aggregate construction financing of $108.0 million during 2013 which will be drawn on during the construction of the developments. As of December 31, 2013, $32.2 million has been drawn under three of the construction loans. We have provided partial payment guarantees for two of the construction loans with a total commitment of $54.8 million, of which $12.3 million is outstanding as of December 31, 2013. On the other construction loans, the lenders have no recourse to us other than a guaranty provided by the Company with respect to the construction of the project (a completion guaranty). The construction loans are secured by a first mortgage in each development. See Note 9, “Mortgages and Notes Payable” for further information on our construction loans.  The total assets of the VIEs are $288.0 million and $47.0 million as of December 31, 2013 and December 31, 2012, respectively, $279.6 million and $46.1 million of which is reflected in construction in progress. 

7.Other Assets

The components of other assets are as follows (in millions):

	December 31, 2013		December 31, 2012
Notes receivable, net (a)	$	52.8	$	36.0
Escrows and restricted cash	12.4		10.3
Deferred financing costs, net	12.1		8.5
Resident, tenant and other receivables (b)	8.3		6.2
Prepaid assets, deposits and other assets	7.3		5.0
Investment in unconsolidated real estate joint venture	5.5		3.0
Interest rate caps	0.2		0.3
Total other assets	$	98.6	$	69.3

(a) Notes receivable include mezzanine and land loans, primarily related to multifamily development projects.  As of December 31, 2013, the weighted average interest rate is 14.7% and the remaining years to scheduled maturity is 2.0 years.

(b) Includes a receivable from the Advisor of $1.8 million as of December 31, 2013.

As of December 31, 2013 and December 31, 2012, we have a $5.5 million and $3.0 million, respectively, investment in an unconsolidated PGGM CO-JV, the Custer PGGM CO-JV.  Our effective ownership in the Custer PGGM CO-JV is 55%. Distributions are made pro rata in accordance with ownership interests. The primary asset of the Custer PGGM CO-JV is a mezzanine loan secured by the development of a 444 unit multifamily community in Allen, Texas, a suburb of Dallas.  The mezzanine loan, which as of December 31, 2013 has been fully funded, has an interest rate of 14.5% and matures in 2015. 

Prior to July 31, 2012, we had a PGGM CO-JV investment on the equity method of accounting, the Veritas Property Entity.  Effective July 31, 2012, we converted a notes receivable due from the Veritas Property Entity into an additional equity interest in the Veritas Property Entity and became the general partner of the Veritas Property Entity.  As a result of these transactions, effective as of July 31, 2012, we accounted for our investment in the Veritas Property Entity on the consolidated basis of accounting, and recorded a gain on revaluation of equity of approximately $1.7 million in July 2012.

We enter into interest rate cap agreements for interest rate risk management purposes and not for trading or other speculative purposes.  These interest rate cap agreements have not been designated as hedges. The following table provides a summary of our interest rate caps as of December 31, 2013 (in millions):

Notional amount	$	162.7
Range of LIBOR cap rate	2.0% to 4.0%
Range of maturity dates	2016 to 2017
Estimated fair value	$	0.2

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8.Leasing Activity

In addition to multifamily resident units, certain of our consolidated multifamily communities have retail areas, representing approximately 2% of total rentable area of our consolidated multifamily communities.  Future minimum base rental payments due to us under these non-cancelable retail leases in effect as of December 31, 2013 are as follows (in millions): 

	Future Minimum
Year	Lease Payments
2014	$	3.7
2015	3.7
2016	3.6
2017	3.5
2018	3.2
Thereafter	28.8
Total	$	46.5

9.Mortgages and Notes Payable

The following table summarizes the carrying amounts of the mortgages and notes payable classified by whether the obligation is ours or that of the applicable consolidated Co-Investment Venture as of December 31, 2013 and December 31, 2012 (amounts in millions and monthly LIBOR at December 31, 2013 is 0.17%):

					As of December 31, 2013
	December 31,		December 31,		Wtd. Average
	2013		2012		Interest Rates	Maturity Dates
Company Level (a)
Fixed rate mortgage payable	$	87.3	$	30.3	3.95%	2018 to 2020
Variable rate mortgage payable	24.0		24.0		Monthly LIBOR + 2.45%	2014
Variable rate construction loans payable (b)	12.2		—		Monthly LIBOR + 2.25%	2017
Total Company Level	123.5		54.3
Co-Investment Venture Level - Consolidated (c)
Fixed rate mortgages payable	852.3		902.2		3.73%	2015 to 2020
Variable rate mortgage payable	12.2		12.5		Monthly LIBOR + 2.35%	2017
Fixed rate construction loan payable (d)	24.6		—		4.13%	2018
Variable rate construction loans payable (e)	9.8		—		Monthly LIBOR + 2.25%	2016 (b)
	898.9		914.7
Plus: unamortized adjustments from business combinations	6.7		10.6
Total Co-Investment Venture Level - Consolidated	905.6		925.3
Total consolidated mortgages and notes payable	$	1,029.1	$	979.6

(a) Company level debt is defined as debt that is a direct or indirect obligation of the Company or its wholly owned subsidiaries. Company level debt includes Co-Investment debt where the Company has provided guarantees for the repayment of the debt.

(b) Includes two loans with total commitments of $54.8 million. Each loan includes an extension option of one to two years.

(c) Co-Investment Venture level debt is defined as debt that is an obligation of the Co-Investment Venture and

not an obligation or contingency for us.

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(d) Includes two loans with total commitments of $84.8 million. One of the construction loans has an option to convert the construction loan into a permanent loan with a maturity of 2023.

(e) Includes one loan with a total commitment of $21.9 million. This loan includes two one-year extension options.

As of December 31, 2013, $1.9 billion of the net consolidated carrying value of real estate collateralized the mortgages and notes payable.  We believe we are in compliance with all financial covenants as of December 31, 2013.

As of December 31, 2013, contractual principal payments for our mortgages and notes payable for the five subsequent years and thereafter are as follows (in millions):

			Co-Investment		Total
Year	Company Level		Venture Level		Consolidated
2014	$	24.0	$	5.5	$	29.5
2015	0.2		83.6		83.8
2016	0.6		155.6		156.2
2017	13.8		219.9		233.7
2018	30.0		140.8		170.8
Thereafter	54.9		293.5		348.4
Total	$	123.5	$	898.9	1,022.4
Add: unamortized adjustments from business combinations					6.7
Total mortgages and notes payable					$	1,029.1

10.Credit Facility Payable

The $150.0 million credit facility matures on April 1, 2017, when all unpaid principal and interest is due.  Borrowing tranches under the credit facility bear interest at a “base rate” based on either the one-month or three-month LIBOR rate, selected at our option, plus an applicable margin which adjusts based on the facility’s debt service requirements. As of December 31, 2013, the applicable margin was 2.08% and the base rate was 0.17% based on one-month LIBOR.  The credit facility also provides for fees based on unutilized amounts and minimum usage.  The unused facility fee is equal to 1% per annum of the total commitment less the greater of 75% of the total commitment or the actual amount outstanding. The minimum usage fee is equal to 75% of the total credit facility times the lowest applicable margin less the margin portion of interest paid during the calculation period.  The loan requires minimum borrowing of $10.0 million and monthly interest-only payments and monthly or annual payment of fees.  We may prepay borrowing tranches at the expiration of the LIBOR interest rate period without any penalty.  Prepayments during a LIBOR interest rate period are subject to a prepayment penalty generally equal to the interest due for the remaining term of the LIBOR interest rate period.

Draws under the credit facility are secured by a pool of certain wholly owned multifamily communities.  We have the ability to add and remove multifamily communities from the collateral pool, pursuant to the requirements under the credit facility agreement. We may also add multifamily communities in our discretion in order to increase amounts available for borrowing.  As of December 31, 2013, $170.8 million of the net carrying value of real estate collateralized the credit facility.  The aggregate borrowings under the credit facility are limited to 70% of the value of the collateral pool, which may be different than the carrying value for financial statement reporting.  As of December 31, 2013, available but undrawn amounts under the credit facility are approximately $138.1 million.

The credit facility agreement contains customary provisions with respect to events of default, covenants and borrowing conditions.  In particular, the credit facility agreement requires us to maintain a consolidated net worth of at least $150.0 million, liquidity of at least $15.0 million and net operating income of the collateral pool to be no less than 155% of the facility debt service cost. Certain prepayments may be required upon a breach of covenants or borrowing conditions.  We believe we are in compliance with all provisions as of December 31, 2013.

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11.Noncontrolling Interests

Non-redeemable Noncontrolling Interests

Non-redeemable noncontrolling interests for the Co-Investment Venture partners represent their proportionate share of the equity in consolidated real estate ventures.  Income and losses are allocated to the noncontrolling interest holders based on their effective ownership percentage.  This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements.  Each noncontrolling interest is not redeemable by the holder and, accordingly, is reported as equity. 

As of December 31, 2013 and December 31, 2012, non-redeemable noncontrolling interests (“NCI”) consisted of the following (in millions): 

	December 31, 2013			December 31, 2012
			Effective			Effective
	Amount		NCI %(a)	Amount		NCI %(a)
PGGM Co-Investment Partner (b)	$	293.5	26% to 45%	$	166.2	26% to 45%
MW Co-Investment Partner	157.8		45%	192.6		45%
Developer Partners	3.5		0% to 6%	5.1		0% to 20%
Subsidiary preferred units	1.4		N/A	1.5		N/A
Total non-redeemable NCI	$	456.2		$	365.4

(a)        Effective noncontrolling interest percentage is based upon the noncontrolling interest’s share of contributed capital. This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements.

(b) As discussed in Note 1, “Organization and Business”, the Master Partnership was our partner in these Co-Investment Ventures as of December 31, 2012.

Each noncontrolling interest relates to ownership interests in CO-JVs where we have substantial operational control rights. In the case of the PGGM Co-Investment Partner, their noncontrolling interest includes an interest in the Master Partnership and the PGGM CO-JVs. For PGGM CO-JVs and MW CO-JVs, capital contributions and distributions are generally made pro rata in accordance with these ownership interests; however, PGGM CO-JV’s pro rata interest is subject to a promoted interest to us if certain performance returns are achieved. Developer CO-JVs generally have limited participation in contributions and generally only participate in distributions after certain preferred returns are collected by us, which in some cases may not be until we have received all of our investment capital. None of these Co-Investment Venture partners have any rights to put or redeem their ownership interest; however, they generally provide for buy/sell rights after certain periods. In certain circumstances the governing documents of the PGGM CO-JV or MW CO-JV may require a sale of the Co-Investment Venture or its subsidiary REIT rather than as an asset sale. For PGGM CO-JVs we have rights in limited circumstances generally related to a listing of our shares or a merger to acquire the PGGM Co-Investment Partner’s interest at the greater of fair value or an amount that would provide the PGGM Co-Investment Partner certain minimum returns on its invested equity.

Noncontrolling interests also include between 121 to 125  preferred units issued by a subsidiary of each of the PGGM CO-JVs and the MW CO-JVs in order for such subsidiaries to qualify as a REIT for federal income tax purposes.  The preferred units pay an annual distribution of 12.5% on their face value and are senior in priority to all other members’ equity.  The PGGM CO-JVs and MW CO-JVs may cause the subsidiary REIT, at their option, to redeem the preferred units in whole or in part, at any time for cash at a redemption price of $500 per unit (the face value), plus all accrued and unpaid distributions thereon to and including the date fixed for redemption, plus a premium per unit generally of $50 to $100 for the first year which generally declines in value $25 per unit each year until there is no redemption premium remaining.  The preferred units are not redeemable by the unit holders and we have no current intent to exercise our redemption option.  Accordingly, these noncontrolling interests are reported as equity.

For the year ended December 31, 2013, we paid distributions to noncontrolling interests of $51.3 million of which $25.0 million was related to operating activity.  For the year ended December 31, 2012, we paid distributions to noncontrolling interests of $29.7 million, of which $20.4 million was related to operating activity.

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In May 2013, we acquired all of the noncontrolling interest in the Cyan MW CO-JV for cash of $27.9 million. In addition, on July 31, 2013, we acquired the 1% general partnership interest in the Master Partnership in a related party transaction with an affiliate of the Advisor for $23.1 million in cash, excluding closing costs, of which $13.8 million related to the partial acquisition of an approximate 1% noncontrolling interest in the Master Partnership’s interest in the PGGM CO-JVs. The remaining $9.3 million was accounted for as a business combination. No gain or loss was recognized in recording these transactions, but a net decrease to additional paid in capital of $23.2 million was recorded. (See Note 4, “Business Combinations” for additional discussion of the Master Partnership acquisition and Note 5, “Real Estate Investments” for additional information regarding the subsequent sale of the Cyan multifamily community.)

During 2013, we partially sold an additional noncontrolling interest in the Cameron PGGM CO-JV to PGGM for $7.3 million in cash. On December 20, 2013, the Master Partnership was restructured to increase PGGM’s equity commitment, and we partially sold an approximate 42% noncontrolling interest in 13 Developer CO-JVs to PGGM for $146.4 million. No gain or loss was recognized in recording these transactions, but a net increase to additional paid-in capital of $0.1 million was recorded.

During 2012, we separately contributed a total of $25.3 million, net to two PGGM CO-JVs, the Grand Reserve PGGM CO-JV and The Cameron PGGM CO-JV, increasing our controlling indirect financial interests in each entity. No gain or loss was recognized in recording the contributions, but a net decrease to additional paid-in capital of $4.4 million was recorded. Additionally, effective July 31, 2012, we converted a notes receivable due from the Veritas Property Entity into an additional equity interest in the Veritas Property Entity and became the general partner of the Veritas Property Entity, increasing our controlling financial interests in the Veritas Property Entity. A gain on revaluation of equity on a business combination of $1.7 million was recorded in connection with this transaction.

Redeemable Noncontrolling Interests

As of December 31, 2013 and December 31, 2012, redeemable noncontrolling interests (“NCI”) consisted of the following (in millions):

	December 31, 2013			December 31, 2012
			Effective			Effective
	Amount		NCI %(a)	Amount		NCI %(a)
Developer Partners	$	22.0	0% to 20%	$	8.6	0% to 20%

(a) Effective noncontrolling interest percentage is based upon the noncontrolling interest’s share of contributed capital.  This effective ownership is indicative of, but may differ from, percentages for distributions, contributions or financing requirements. For Co-Investment Ventures where the developer’s equity has been returned, the effective noncontrolling interest percentage is shown as zero.

Developer CO-JVs included in redeemable noncontrolling interests represent ownership interests by regional or national multifamily developers, which may require that we pay or reimburse the partners upon certain events.  These amounts include reimbursing partners once certain development milestones are achieved, generally related to entitlements, permits or final budgeted construction costs.They also generally have put options, usually exercisable one year after completion of the development and thereafter, pursuant to which we would be required to acquire their ownership interest at a set price and options to require a sale of the development generally after the seventh year after completion of the development.  These Developer CO-JVs also include buy/sell provisions, generally available after the tenth year after completion of the development.  Each of these Developer CO-JVs is managed by a subsidiary of ours. As manager, we have substantial operational control rights.  These Developer CO-JVs generally provide that we have a preferred cash flow distribution until we receive certain returns on and of our investment.  All of these Developer Partners also have a back end interest, generally only attributable to distributions related to a property sale or financing.  Generally, these noncontrolling interests have no obligation to make any additional capital contributions.

In June 2012, we acquired all of the redeemable, noncontrolling interest related to the Bailey’s Crossing Property Entity for $3.0 million in cash. No gain or loss was recorded in connection with this transaction but an increase to additional paid-in capital of $1.8 million was recorded.

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12.Stockholders’ Equity

Capitalization

As of December 31, 2013 and December 31, 2012, we had 168.3 million and 167.5 million shares of common stock outstanding, respectively, including 6,000 shares of stock issued to our independent directors for no cash, and 24,969 shares owned by an affiliate of the Advisor issued for cash of approximately $0.2 million.

 We are authorized to issue 124,999,000 shares of preferred stock which may be issued in a variety of series with different attributes.

As of December 31, 2012, we had 1,000 shares of convertible stock owned by Behringer, issued for cash of $1,000.  In connection with our transition to self-management, Behringer surrendered all 1,000 shares of convertible stock on July 31, 2013, which we immediately canceled.

Also in connection with our transition to self-management, on July 31, 2013, we issued 10,000 shares of a new Series A non-participating, voting, cumulative, 7.0% convertible preferred stock, par value $0.0001 per share (the “Series A Preferred Stock”), to Behringer. The shares of Series A Preferred Stock entitle the holder to one vote per share on all matters submitted to the holders of the common stock, a liquidation preference equal to $10.00 per share before the holders of common stock are paid any liquidation proceeds, and 7.0% cumulative cash dividends on the liquidation preference and any accrued and unpaid dividends.

As determined and limited pursuant to the Articles Supplementary establishing the Series A Preferred Stock, the Series A Preferred Stock will automatically convert into shares of our common stock upon any of the following triggering events: (a) in connection with a listing of our common stock on a national exchange, (b) upon a change of control of the Company or (c) upon election by the holders of a majority of the then outstanding shares of Series A Preferred Stock on or before July 31, 2018. Notwithstanding the foregoing, if a listing occurs prior to December 31, 2016, such listing (and the related triggering event) will be deemed to occur on December 31, 2016 and if a change of control transaction occurs prior to December 31, 2016, such change of control transaction will not result in a change of control triggering event. Upon a triggering event, all of the shares of Series A Preferred Stock will, in total, generally convert into an amount of shares of our common stock equal in value to 15% of the excess of (i) (a) the per share value of our common stock at the time of the applicable triggering event, as determined pursuant to the Articles Supplementary establishing the Series A Preferred Stock and assuming no shares of the Series A Preferred Stock are outstanding, multiplied by the number of shares of common stock outstanding on July 31, 2013, plus (b) the aggregate value of distributions (including distributions constituting a return of capital) paid through such time on the shares of common stock outstanding on July 31, 2013 over (ii) the aggregate issue price of those outstanding shares plus a 7% cumulative, non-compounded, annual return on the issue price of those outstanding shares. In the case of a triggering event based on a listing or change of control only, this amount will be multiplied by another 1.15 to arrive at the conversion value.

Distributions

On March 29, 2012, our board of directors authorized a special cash distribution related to the sale of Mariposa (the “Mariposa Distribution”) in the amount of $0.06 per share of common stock payable to stockholders of record on July 6, 2012.  The Mariposa Distribution was accrued during March 2012 and paid in cash on July 11, 2012. As of December 31, 2013, no other special distributions have been paid or authorized.

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Distributions, including those paid by issuing shares under the DRIP and the Mariposa Distribution, for the years ended December 31, 2013 , 2012, and 2011 were as follows (amounts in millions):  

	For the Year Ended December 31,
	2013				2012				2011
	Declared(a)		Paid(b)		Declared(a)		Paid(b)		Declared(a)		Paid(b)
Fourth Quarter Distributions
Regular distributions	$	14.9	$	14.7	$	14.7	$	14.5	$	24.9	$	24.6
Special cash distribution	—		—		—		—		—		—
Total	$	14.9	$	14.7	$	14.7	$	14.5	$	24.9	$	24.6
Third Quarter Distributions
Regular distributions	$	14.9	$	14.9	$	14.7	$	14.6	$	23.7	$	22.0
Special cash distribution	—		—		—		10.0		—		—
Total	$	14.9	$	14.9	$	14.7	$	24.6	$	23.7	$	22.0
Second Quarter Distributions
Regular distributions	$	14.7	$	14.9	$	14.4	$	18.1	$	18.5	$	17.7
Special cash distribution	—		—		0.1		—		—		—
Total	$	14.7	$	14.9	$	14.5	$	18.1	$	18.5	$	17.7
First Quarter Distributions
Regular distributions	$	14.5	$	14.5	$	24.8	$	24.8	$	15.9	$	15.4
Special cash distribution	—		—		9.9		—		—		—
Total	$	14.5	$	14.5	$	34.7	$	24.8	$	15.9	$	15.4
Total through December 31
Regular distributions	$	59.0	$	59.0	$	68.6	$	72.0	$	83.0	$	79.7
Special cash distribution	—		—		10.0		10.0		—		—
Total	$	59.0	$	59.0	$	78.6	$	82.0	$	83.0	$	79.7

(a)         Represents distributions accruing during the period on a daily basis.

(b)         The regular distributions that accrue each month are paid in the following month.  Amounts paid include both distributions paid in cash and reinvested pursuant to our DRIP.

We calculate annualized rates as if the shares were outstanding for a full year based on a $10 per share purchase price.

The daily distribution amount from January 1, 2012 through the end of the first quarter of 2012 was $0.0016438 per share of common stock, an annualized rate of 6%.  On March 19, 2012, our board of directors authorized distributions at a daily amount of $0.000958904 per share of common stock, an annualized rate of 3.5%, beginning in the month of April 2012.  Our board of directors has authorized the 3.5% annualized distribution rate through March 31, 2014.

Share Redemption Program

From the inception of our share redemption program (“SRP”) in 2008, all redemption requests properly submitted and approved through the first quarter of 2012 were fulfilled.  For the three months ended March 31, 2012, approximately 1.7 million shares of common stock were redeemed at a total consideration of $15.5 million and a weighted average share price of $9.50. 

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Effective from April 1, 2012 through February 28, 2013, our board of directors suspended our SRP.  In connection with its determination of the estimated value of our shares effective March 1, 2013, our board of directors modified and reinstated our SRP, which permits our stockholders to sell their shares back to us subject to the significant conditions and limitations of the program.  The modified and reinstated SRP was effective as of March 1, 2013, and the first time period redemptions were considered under the modified and reinstated SRP was at the end of the second quarter 2013.

As modified, for redemptions other than those sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility (“Ordinary Redemptions”), the purchase price per share redeemed under our SRP will equal the lesser of (i) 85% of the current estimated share value pursuant to our valuation policy and (ii) the average price per share the original purchaser or purchasers of shares paid to us for all of their shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like with respect to our common stock) (the “Original Share Price”) less the aggregate of any special distributions so designated by our board of directors, distributed to stockholders prior to the redemption date and declared from the date of first issue of such redeemed shares (the “Special Distributions”).  For redemptions sought upon a stockholder’s death, qualifying disability or confinement to a long-term care facility (“Exceptional Redemptions”), the purchase price per share redeemed under our SRP will equal the lesser of: (i) the current estimated share value pursuant to our valuation policy and (ii) the Original Share Price less any Special Distributions.  A quarterly funding limit has been established of $7 million per quarter (which our board of directors may increase or decrease from time to time).  Redemptions are also limited by our charter to no more than 5% of the weighted average of shares outstanding during the preceding twelve months immediately prior to the date of redemption.

During 2013, we redeemed approximately 2.5 million common shares at an average price of $9.24 per share for $22.9 million, and we fulfilled all Exceptional Redemption requests properly submitted in accordance with the terms of the SRP. As of December 31, 2013, there were unfulfilled Ordinary Redemption requests of approximately 2.6 million common shares, for approximately $22.6 million based on the SRP purchase price as of December 31, 2013.

13.Transition to Self-Management

On July 31, 2013 (the “Initial Closing”), we entered into a series of agreements and amendments to our existing agreements and arrangements with Behringer, beginning the process of becoming self-managed and setting forth various terms of and conditions to the modification of the business relationships between us and Behringer. We collectively refer to these agreements as the “Self-Management Transition Agreements.” With the entry into these transactions and the progression to self-management, over time, the Company expects to incur higher direct costs related to compensation and other administration and less reliance on and cost related to related party management agreements.

In connection with our transition to self-management, on August 1, 2013, we hired five executives who were previously employees of Behringer and began hiring other employees. The completion of the remainder of the self-management transactions will occur at a second closing (the “Self-Management Closing”), which is expected to occur on June 30, 2014, and where we anticipate hiring additional corporate and property management employees who are currently employees of Behringer. We also expect to hire other employees as we complete our transition to self-management. The obligations of the parties to consummate the self-management transactions are subject to certain limited conditions.

As discussed in Note 12, “Stockholders’ Equity,” we issued 10,000 shares of Series A Preferred Stock to Behringer at the Initial Closing. As part of the consideration for issuing the Series A Preferred Stock, Behringer surrendered all existing 1,000 convertible shares of non-participating, non-voting stock, par value $0.0001 per share, of the Company, which we immediately canceled.

As discussed in Note 4, “Business Combinations”, at the Initial Closing, we acquired from Behringer the GP Master Interest in the PGGM Co-Investment Partner. The purchase price for the GP Master Interest was $23.1 million. This acquisition entitles us to a 1% ownership interest and a promoted interest in the cash flows of the Master Partnership and the advisory and incentive fees specified in the PGGM Co-Investment Partner agreements that Behringer would have otherwise been entitled to receive.

At the Initial Closing, we also paid Behringer $2.5 million as reimbursement for its costs and expenses related to the negotiation of the Self-Management Transition Agreements. These expenses are in addition to the expenses that we have incurred on our own behalf for legal and financial advisors in connection with this transaction, which were approximately $1.1 million.

Commencing at the Initial Closing and lasting through the six month anniversary of the Self-Management Closing, Behringer will be entitled to additional fees with respect to any new investment arrangements between us and certain specified

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funds or programs pursuant to which we receive an asset management or any similar fee and/or a promote interest or similar security, excluding PGGM (each, a “New Platform”). For each New Platform with certain specified potential future investors, Behringer will be entitled to a fee equal to 2.5% of the total aggregate amount of capital committed by such investor or its affiliates. We will not be obligated to pay any fees with respect to a New Platform unless and until the Self-Management Closing occurs. For the year ended December 31, 2013, no New Platform fees were incurred.

Commencing at the Initial Closing, the Self-Management Transition Agreements provide that in certain circumstances, Behringer will rebate to us, or may provide us a credit with respect to, (a) acquisition fees paid pursuant to the amended and restated advisory management agreement and (b) acquisition fees and development fees paid pursuant to the Self-Management Transition Agreements, in the event that certain existing investments are subsequently structured as a joint venture or co-investment. As of December 31, 2013, $3.2 million of credits were due to us, of which $1.4 million was paid. The remaining unpaid amounts of $1.8 million are recorded as a receivable in other assets and were collected in full subsequent to December 31, 2013.

During the period from the Initial Closing through September 30, 2014, Behringer will provide general transition services in support of our transition to self-management. For these services we will pay Behringer (a) the sum of approximately $0.4 million per month during the period beginning on the Initial Closing and ending on September 30, 2014 and (b) an amount equal to $1.25 million at the Self-Management Closing. For the year ended December 31, 2013, $2.1 million was incurred and paid.

Upon the Self-Management Closing, we anticipate hiring additional corporate and property management employees who are currently employees of Behringer. From now through the Self-Management Closing, Behringer will continue to be paid fees and reimbursements under the terms of amended advisory and property management agreements that include a reduction of certain fees and expenses paid to Behringer under the prior agreements, which are described in Note 16, “Related Party Arrangements.” Regarding asset management fees and property management expense reimbursements, we will receive a monthly reduction of approximately $150,000 and $50,000, respectively, from the amount that otherwise would have been payable, through June 30, 2014.

At the Self-Management Closing, we will pay Behringer $3.5 million for certain intangible assets, rights and contracts. Behringer will also transfer to us certain furnishings, fixtures and equipment.

From the Initial Closing and through and following the Self-Management Closing, certain fees generally similar to fees under the amended and restated advisory management agreement as described in Note 16, “Related Party Arrangements” will be due with respect to acquisitions, financing and asset management. Regarding acquisition and advisory fees, we will pay the Advisor a fee (1) at the current rate of 1.75% of the defined costs for acquisitions that were identified and agreed to as of the Initial Closing and (2) at a rate of 1.575% of the defined costs for other acquisitions generally through the Self-Management Closing, but which may also include acquisitions approved prior to the Self-Management Closing that have closed within six months following the Self-Management Closing. The non-accountable acquisition expense reimbursement of 0.25% was not changed. Regarding debt financing fees, debt financings projected and identified as of the Initial Closing will continue to incur fees based on our pro rata share of the debt at a rate of 1% and other debt financings will incur fees at a rate of 0.9%. In addition, we will reimburse the Advisor for third party financing fees paid on our behalf which were previously included in the debt financing fee. After the Self-Management Closing, the Advisor will provide the debt financing services through June 30, 2015.

Behringer will also provide shareholder services for an initial two year term, commencing on the Self-Management Closing at a cost to us based on the then monthly number of stockholder accounts. We estimate the monthly amount based on current stockholder accounts to be approximately $0.1 million. The monthly number of stockholder accounts is subject to adjustments based on future activity related to our DRIP and SRP. In addition, we may pay approximately $0.3 million over the term of the agreement with Behringer for a limited right to use certain office space. We may also contract with Behringer for additional services.

In addition to the above transactions, the Company incurred other expenses related to our transition to self-management, primarily related to Special Committee and Company legal and financial advisors and general transition services (primarily staffing, information technology and facilities). The components of our transition expenses are as follows (in millions):

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	For the Year Ended December 31, 2013
Special Committee and Company legal and financial advisors	$	0.7
General transition services:
Behringer	7.9
Other service providers	0.4
Total transition expenses	$	9.0

As of December 31, 2013, $5.7 million of the transition costs was an accrued liability to Behringer. We incurred no transition expenses in 2012 or 2011.

14.Commitments and Contingencies

All of our Co-Investment Ventures include buy/sell provisions.  Under most of these provisions and during specific periods, a partner could make an offer to purchase the interest of the other partner and that partner would have the option to accept the offer or purchase the offering partner’s interest at that price.  As of December 31, 2013, no such buy/sell offers are outstanding.

In the ordinary course of business, the multifamily communities in which we have investments may have commitments to provide affordable housing. Under these arrangements, we generally receive from the resident a below market rent, which is determined by a local or national authority. In certain arrangements, a local or national housing authority makes payments covering some or substantially all of the difference between the restricted rent paid by residents and market rents. In connection with our acquisition of The Gallery at NoHo Commons, we assumed an obligation to provide affordable housing through 2048. As partial reimbursement for this obligation, the California housing authority will make level annual payments of approximately $2.0 million through 2028 and no reimbursement for the remaining 20-year period. We may also be required to reimburse the California housing authority if certain operating results are achieved on a cumulative basis during the term of the agreement. At the acquisition, we recorded a liability of $14.0 million based on the fair value of the terms over the life of the agreement.  In addition, we will record rental revenue from the California housing authority on a straight-line basis, deferring a portion of the collections as deferred lease revenues. As of December 31, 2013 and December 31, 2012, we have approximately $17.6 million and $17.5 million, respectively, of carrying value for deferred lease revenues related to The Gallery at NoHo Commons.

As of December 31, 2013, we have entered into construction and development contracts with $645.1 million remaining to be paid.  These construction costs are expected to be paid during the completion of the development and construction period, generally within 24 months.

See Note 13, “Transition to Self-Management” for discussion of commitments of the Company regarding its transition to self-management which commenced on July 31, 2013.  

15.Fair Value of Derivatives and Financial Instruments

Fair value measurements are determined based on the assumptions that market participants would use in pricing the asset or liability.  As a basis for considering market participant assumptions in fair value measurements, a fair value hierarchy that distinguishes between market participant assumptions based on market data obtained from sources independent of the reporting entity (observable inputs that are classified within Levels 1 and 2 of the hierarchy) and the reporting entity’s own assumptions about market participant assumptions (unobservable inputs classified within Level 3 of the hierarchy) has been established.

Level 1 inputs utilize quoted prices (unadjusted) in active markets for identical assets and liabilities that we have the ability to access.  Level 2 inputs are inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly.  Level 2 inputs may include quoted prices for similar assets and liabilities in active markets, as well as inputs that are observable for the asset or liability (other than quoted prices), such as interest rates and yield curves that are observable at commonly quoted intervals.  Level 3 inputs are unobservable inputs for the asset or liability that are typically based on an entity’s own assumptions, as there is little, if any, related market activity.  In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the fair value measurement falls is based on the lowest level input that is significant to the

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fair value measurement in its entirety.  Our assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability.

In connection with our measurements of fair value related to many real estate assets, noncontrolling interests, financial instruments and contractual rights, there are generally not available observable market price inputs for substantially the same items.  Accordingly, each of these are classified as Level 3, and we make assumptions and use various estimates and pricing models, including, but not limited to, the estimated cash flows, discount and interest rates used to determine present values, market capitalization rates, sales of comparable investments, rental rates, costs to lease properties, useful lives of the assets, the cost of replacing certain assets, and equity valuations. These estimates are from the perspective of market participants and may also be obtained from independent third-party appraisals. However, we are responsible for the source and use of these estimates. A change in these estimates and assumptions could be material to our results of operations and financial condition.

Financial Instruments Carried at Fair Value on a Recurring Basis

We currently use interest rate cap arrangements with financial institutions to manage our exposure to interest rate changes for our loans that utilize floating interest rates.  The fair value of these interest rate caps are determined using Level 2 inputs as defined above.  These inputs include quoted prices for similar interest rate cap arrangements, including consideration of the remaining term, the current yield curve, and interest rate volatility.  Because our interest rate caps are on standard, commercial terms with national financial institutions, credit issues are not considered significant.  As of December 31, 2013 and December 31, 2012, we have $0.2 million of interest rate caps that are carried at fair value on a recurring basis.  See further discussion of these interest rate caps in Note 7, “Other Assets.”

The following fair value hierarchy table presents information about our assets measured at fair value on a recurring basis as of December 31, 2013 and December 31, 2012 (in millions):

	Balance Sheet Location	Level 1		Level 2		Level 3		Fair Value as of Reporting Date		Gain (Loss) for the Year Ended December 31,
Assets
Interest rate caps	Other assets
As of December 31, 2013		$	—	$	0.2	$	—	$	0.2	$	—
As of December 31, 2012		$	—	$	0.3	$	—	$	0.3	$	(0.8	)

Nonrecurring Basis — Fair Value Adjustments

For the year ended December 31, 2013, we had no fair value adjustments on a nonrecurring basis.

As discussed in Note 4, “Business Combinations,” in July 2012, we consolidated the Veritas Property Entity and recognized a gain of $1.7 million related to the revaluation of our equity interest for the difference between our carrying value in the unconsolidated real estate joint venture and the fair value of our ownership interest prior to consolidation. The investment in unconsolidated real estate joint venture was recorded at its fair value on July 31, 2012 based on the fair value of the investment’s underlying assets and liabilities. Fair value of real estate was determined based on market capitalization rates, comparable sales and forecasted operations which include estimates of rental rates, costs to lease, and operating expenses. Fair value of the mortgage loan payable was determined based on market pricing, primarily market interest rates and other market terms as of July 31, 2012. All other assets and liabilities were reviewed to determine their fair value based on applicable market factors. All of these estimates were from the perspective of market participants. The nonrecurring fair value measurement of the investment in unconsolidated real estate joint venture related to the consolidation of the Veritas Property Entity was considered a Level 3 input under the fair value hierarchy.

The following fair value hierarchy table presents information about our assets measured at fair value on a nonrecurring basis during the year ended December 31, 2012 (in millions):

For the Year Ended December 31, 2012	Level 1		Level 2		Level 3		Total Fair Value		Gain (Loss)
Assets
Investment in unconsolidated real estate joint venture:
Veritas Property Entity	$	—	$	—	$	24.8	$	24.8	$	1.7

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In April 2011, we consolidated the Waterford Place PGGM CO-JV and recognized a gain of $18.1 million related to the revaluation of our equity interest for the difference between our carrying value in the unconsolidated real estate joint venture and the fair value of our ownership interest prior to consolidation. The nonrecurring fair value measurement of the investment in and advance to unconsolidated real estate joint venture related to the consolidation of Waterford Place PGGM CO-JV was considered a Level 3 input under the fair value hierarchy. The fair value was substantially derived from the terms of the sale agreement, which closed in May 2011.

In December 2011, we consolidated 23 PGGM CO-JVs and MW CO-JVs and recognized a gain on revaluation of equity on business combinations of $103.8 million. The investments in and advances to unconsolidated real estate joint ventures were recorded at their fair value on December 1, 2011 based primarily on the fair value of the investment's underlying assets and liabilities. Fair value of real estate was determined based on market capitalization rates, comparable sales and forecasted operations which include estimates of rental rates, costs to lease, and operating expenses. Fair value of mortgage loan payables and notes receivable were determined based on market pricing, primarily market interest rates and other market terms as of December 1, 2011. All other assets and liabilities were reviewed to determine their fair value based on applicable market factors. All of these estimates are from the perspective of market participants.

The following fair value hierarchy table presents information about our assets measured at fair value on a nonrecurring basis during year ended December 31, 2011 (in millions):

For the Year Ended December 31, 2011	Level 1		Level 2		Level 3		Total Fair Value		Gain (Loss)
Assets
Investments in and advances to unconsolidated real estate joint ventures:
Waterford Place PGGM CO-JV	$	—	$	—	$	27.6	$	27.6	$	18.1
Consolidated PGGM/MW CO-JVs	—		—		389.7		389.7		103.8
	$	—	$	—	$	417.3	$	417.3	$	121.9

Financial Instruments Not Carried at Fair Value

Financial instruments held as of December 31, 2013 and December 31, 2012 and not measured at fair value on a recurring basis include cash and cash equivalents, short-term investments, notes receivable, credit facility payable and mortgages and notes payable.  With the exception of our mortgages and notes payable, the financial statement carrying amounts of these items approximate their fair values due to their short-term nature.  Because the credit facility payable bears interest at a variable rate and has a prepayment option, we believe its carrying amount approximates its fair value.

Estimated fair values for mortgages and notes payable have been determined using market pricing for similar mortgages payable, which are classified as Level 2 in the fair value hierarchy.  Carrying amounts and the related estimated fair value of our mortgages and notes payable as of December 31, 2013 and December 31, 2012 are as follows (in millions):  

	December 31, 2013				December 31, 2012
	Carrying		Fair		Carrying		Fair
	Amount		Value		Amount		Value
Mortgages and notes payable	$	1,029.1	$	1,015.4	$	979.6	$	991.8

16.Related Party Arrangements

From our inception to July 31, 2013, we had no employees, were externally managed by the Advisor and were supported by related party service agreements, as further described below.  Through July 31, 2013, we exclusively relied on the Advisor and its affiliates to provide certain services and personnel for management and day-to-day operations, including advisory services performed by the Advisor and property management services provided by BHM Management and its affiliates. 

Effective July 31, 2013, we entered into a series of agreements with the Advisor and its affiliates in order to begin our transition to self-management. On August 1, 2013, we hired five executives who were previously employees of the Advisor. See further discussion of the transaction and amounts paid to Behringer in relation to the transition at Note 13, “Transition to Self-Management.”

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Upon the Self-Management Closing, most of the remaining professionals and staff providing advisory and property management services that are currently employed by Behringer will also become our employees. From now through the Self-Management Closing, Behringer will continue to be paid fees and reimbursements under the terms of amended advisory and property management agreements that include a reduction of certain fees and expenses paid to Behringer under the prior agreements as discussed further below. At the Self-Management Closing, the amended advisory and property management agreements will effectively be terminated (with the property management agreement being assigned to us) and except as otherwise noted, our obligation to pay fees and reimbursement costs will cease.

The Advisor continues to provide us with day-to-day management services pursuant to our advisory management agreement (the “Advisory Management Agreement”), as it has been amended and restated. Our board of directors has a duty to evaluate the performance of our Advisor annually before the parties can agree to renew the agreement. The Advisory Management Agreement will currently expire on June 30, 2014, unless extended or renewed. Below we describe the principal terms of the Advisory Management Agreement.

Prior to July 31, 2013, the Advisor and its affiliates received acquisition and advisory fees of 1.75%, based on our stated or back-end ownership percentage, of (1) the contract purchase price paid or allocated in respect of the development, construction or improvement of each asset acquired directly by us, including any debt attributable to these assets, or (2) when we make an investment indirectly through another entity, our pro rata share, based on our stated or back-end ownership percentage, of the gross asset value of real estate investments held by that entity. Fees due in connection with a development or improvements are based on amounts approved by our board of directors and reconciled to actual amounts at the completion of the development or improvement.  The Advisor and its affiliates also received a fee based on 1.75% of the funds advanced in respect of a loan or other investment. Effective August 1, 2013, the rate of 1.75% remains unchanged for acquisitions that were identified and agreed to as of the Initial Closing. For other acquisitions, the rate is reduced to 1.575% of the defined costs.

Additionally, the Advisor receives a non-accountable acquisition expense reimbursement in the amount of 0.25% of (1) the funds paid for purchasing an asset, including any debt attributable to the asset, plus the funds budgeted for development, construction or improvement in the case of assets that we acquire and intend to develop, construct or improve, and (2) funds advanced in respect of a loan or other investment.  We will also pay third parties, or reimburse the Advisor, for any investment-related expenses due to third parties in the case of a completed investment, including, but not limited to, legal fees and expenses, travel and communication expenses, costs of appraisals, accounting fees and expenses, third-party brokerage or finder’s fees, title insurance, premium expenses and other closing costs.  In addition, to the extent our Advisor or its affiliates directly provide services formerly provided or usually provided by third parties, including, without limitation, accounting services related to the preparation of audits required by the SEC, property condition reports, title services, title insurance, insurance brokerage or environmental services related to the preparation of environmental assessments in connection with a completed investment, the direct employee costs and burden to our Advisor of providing these services are acquisition expenses for which we reimburse the Advisor. In addition, acquisition expenses for which we reimburse the Advisor include any payments made to (1) a prospective seller of an asset, (2) an agent of a prospective seller of an asset, or (3) a party that has the right to control the sale of an asset intended for investment by us that are not refundable and that are not ultimately applied against the purchase price for such asset. Except as described above with respect to services customarily or previously provided by third parties, our Advisor is responsible for paying all of the expenses it incurs associated with persons employed by the Advisor to the extent dedicated to making investments for us, such as wages and benefits of the investment personnel. The Advisor is also responsible for paying all of the investment-related expenses that we or our Advisor incur that are due to third parties or related to the additional services provided by the Advisor as described above with respect to investments we do not make, other than certain non-refundable payments made in connection with any acquisition.

For the years ended December 31, 2013, 2012 and 2011, the Advisor earned acquisition and advisory fees, including the acquisition expense reimbursement and net of credits provided to us per the Self-Management Transition Agreements, of approximately $15.0 million, $7.3 million, and $4.8 million, respectively. We capitalized approximately $13.2 million and $5.0 million, respectively, of such fees to our development projects as construction in progress for the years ended December 31, 2013 and 2012 and capitalized approximately $1.1 million to investments in unconsolidated real estate joint ventures for the year ended December 31, 2011. As of December 31, 2013, acquisition and advisory fees related to 17 developments were subject to final reconciliation to actual amounts as described above.

Prior to July 31, 2013, the Advisor received debt financing fees of 1% of the amount available to us under debt financing which was originated, assumed or refinanced by or for us. Subsequent to July 31, 2013, the Advisor will continue to receive debt financing fees based on our pro rata share of the debt at a rate of 1% on debt financings identified as of the Initial Closing and other debt financings will incur fees at a rate of 0.9%. For any debt financing other than financing related to our CO-JVs, the Advisor may pay some or all of these fees to third parties with whom it subcontracts to coordinate financing for

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us.  For the years ended December 31, 2013, 2012 and 2011, the Advisor earned debt financing fees of approximately $1.5 million, $1.3 million, and $2.3 million, respectively.

The Advisor receives a monthly asset management fee for each real estate related asset held by us.  The monthly asset management fee is equal to 1/12th of 0.50% of the sum of the higher of the cost of investment or the value of the investment for each and every asset. Prior to July 1, 2013, the Advisor, although under no contractual obligation to do so, waived the difference between asset management fees calculated on the basis of appraised value of our investments and asset management fees calculated on the basis of cost of our investments. Effective July 1, 2013, the Advisor is no longer waiving this difference. Beginning August 1, 2013, we receive a monthly reduction of $150,000 per month from the amount that otherwise would have been paid in asset management fees in recognition of the transfer of the executives to the Company and the associated reduction in the duties of the Advisor.  

For the years ended December 31, 2013, 2012 and 2011, the Advisor earned asset management fees of approximately $7.7 million, $6.6 million, and $6.3 million, respectively.

We will pay a development fee to our Advisor in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project; provided, however, we will not pay a development fee to an affiliate of our Advisor if our Advisor or any of its affiliates elects to receive an acquisition and advisory fee based on the cost of such development. Our Advisor has earned no development fees since our inception.

Property management services are provided by BHM Management and its affiliates through a property management agreement (the “Property Management Agreement”) for multifamily communities with respect to which we have control over the selection of the property manager and choose to hire BHM Management.  The Property Management Agreement, if not assigned to us on Self-Management Closing, expires on June 30, 2015.

Property management fees are equal to 3.75% of gross revenues for each community, based on our pro rata ownership of each community.  In the event that we contract directly with a non-affiliated third party property manager in respect to a property, we pay BHM Management or its affiliates an oversight fee equal to 0.5% of gross rental revenues of the property managed.  In no event will we pay both a property management fee and an oversight fee to BHM Management or its affiliates with respect to a particular property. We reimburse certain costs and expenses incurred by BHM Management on our behalf, including the wages and salaries and other employee-related expenses of all on-site employees of BHM Management and other out-of-pocket expenses that are directly related to the management of specific properties. Beginning August 1, 2013, we receive a monthly reduction of $50,000 per month in property management expense reimbursements.

For the years ended December 31, 2013, 2012, and 2011, BHM Management or its affiliates earned property management fees, net of expenses to third party property managers but including reimbursements to BHM Management, of $23.4 million, $21.3 million, and $8.5 million, respectively.

As part of our reimbursement of administrative expenses, we reimburse the Advisor for any direct expenses and costs of salaries and benefits of persons employed by the Advisor performing advisory services for us, provided, however, we will not reimburse the Advisor for personnel and related costs incurred by the Advisor in performing services under the Advisory Management Agreement to the extent that the employees perform services for which the Advisor receives a separate fee other than with respect to acquisition services formerly provided or usually provided by third parties. We also do not reimburse our Advisor for the salary or other compensation of our executive officers who are employed by our Advisor or its affiliates. 

For the years ended December 31, 2013, 2012, and 2011, the Advisor was reimbursed approximately $1.8 million, $1.8 million, and $1.9 million, respectively. As of December 31, 2013 and December 31, 2012, our payables to the Advisor and its affiliates were $1.9 million and $1.4 million, respectively.

Prior to the termination of our Initial Public Offering on September 2, 2011, we were required to reimburse the Advisor for organization and offering expenses related to our Initial Public Offering of shares (other than pursuant to a distribution reinvestment plan) and any organization and offering expenses previously advanced by the Advisor related to a prior offering of shares to the extent not previously reimbursed by us out of proceeds from the prior offering (“O&O Reimbursement”). Our obligation to reimburse the Advisor was capped at 1.5% of the gross proceeds of the completed Initial Public Offering exclusive of proceeds from the DRIP.

Behringer Securities LP (“Behringer Securities”), an affiliate of the Advisor, served as the dealer manager for the Initial Public Offering and received selling commissions of up to 7% of gross offering proceeds. Behringer Securities reallowed all selling commissions to participating broker-dealers. In connection with the Initial Public Offering, up to 2.5% of gross

F- 31

proceeds were paid to Behringer Securities as a dealer manager fee. Behringer Securities reallowed a portion of its dealer manager fee to certain broker-dealers that participated in the Initial Public Offering. No selling commissions or dealer manager fees are payable on shares sold under our DRIP, and any DRIP offering expenses are nominal.

Because our Initial Public Offering terminated on September 2, 2011, we did not sell any shares of common stock in our Initial Public Offering during the years ended December 31, 2013 and 2012. The following presents the components of our sale of common stock, net related to our Initial Public Offering for the year ended December 31, 2011 (amounts in millions):

	For the Year Ended December 31, 2011
Sale of common stock
Gross proceeds	$	593.8
Less offering costs:
O&O reimbursement	0.6
Dealer manager fees	(14.8		)
Selling commissions	(40.0		)
Total offering costs	(54.2		)
Sale of common stock, net	$	539.6

17.Supplemental Disclosures of Cash Flow Information

Supplemental cash flow information is summarized below (amounts in millions):

	For the Year Ended December 31,
	2013		2012		2011
Supplemental disclosure of cash flow information:
Interest paid, net of amounts capitalized of $10.5 million, $2.5 million, and $0.1 million in 2013, 2012, and 2011, respectively	$	25.8	$	32.9	$	10.2
Non-cash investing and financing activities:
Acquisition of controlling interests in business combinations with no consideration paid:
Assets acquired	$	—	$	38.1	$	1,511.6
Liabilities assumed	$	—	$	37.3	$	746.7
Noncontrolling interests	$	—	$	1.0	$	359.0
Mortgage payable assumed by purchaser of asset held for sale	$	—	$	15.8	$	58.4
Charge to additional paid-in capital in connection with an acquisition of a noncontrolling interest in excess of cash consideration	$	—	$	2.6	$	—
Conversion of note receivable into an equity investment	$	4.9	$	5.9	$	4.6
Assumption of mortgage note payable	$	—	$	—	$	21.5
Acquisition of a noncontrolling interest	$	9.0	$	—	$	—
Funds deposited in escrow related to a development acquisition	$	1.1	$	—	$	—
Transfer of real estate from construction in progress to operating real estate	$	48.9	$	—	$	—
Conversion of investment in unconsolidated real estate joint venture into notes receivable	$	9.5	$	—	$	—
Stock issued pursuant to our DRIP	$	31.0	$	39.7	$	44.1
Distributions payable on common stock - regular	$	5.0	$	4.8	$	8.4
Construction costs and other related payables	$	43.7	$	12.0	$	—

F- 32

18.Subsequent Events

We have evaluated subsequent events for recognition or disclosure in our consolidated financial statements and noted no subsequent events that would require an adjustment to the consolidated financial statements or additional disclosures, other than the ones disclosed herein.

Sale of Multifamily Community

On February 7, 2014, the Tupelo Alley PGGM CO-JV sold its multifamily community for a sale price of $52.9 million. The purchaser assumed the $19.3 million mortgage note payable. As of December 31, 2013, the net carrying value of the multifamily community is $36.6 million. We received cash of approximately $33.0 million, of which approximately $14.7 million was distributed to the PGGM Co-Investment Partner.

Distributions Paid

On January 2, 2014, we paid total distributions of approximately $5.0 million, of which $2.4 million was cash distributions and $2.6 million was funded by issuing shares pursuant to our DRIP, relating to distributions declared each day in the month of December 2013. 

On February 3, 2014, we paid total distributions of approximately $5.0 million, of which $2.4 million was cash distributions and $2.6 million was funded by issuing shares pursuant to our DRIP, relating to distributions declared each day in the month of January 2014.

On March 3, 2014, we paid total distributions of approximately $4.5 million, of which $2.2 million was cash distributions and $2.3 million was funded by issuing shares pursuant to our DRIP, relating to distributions declared each day in the month of February 2014.

19.     Quarterly Results (unaudited)

Presented below is a summary of the unaudited quarterly consolidated financial information for the years ended December 31, 2013 and 2012 (amounts in thousands, except per share data):

	2013 Quarters Ended (a)
	March 31			June 30			September 30			December 31
Rental revenues	$	45,744		$	46,722		$	48,412		$	49,746
Income (loss) from continuing operations	$	(1,241	)	$	(180	)	$	(14,114	)	$	(1,869	)
Net income (loss) attributable to common stockholders	$	4,444		$	26,799		$	(460	)	$	(1,091	)
Basic and diluted weighted average shares outstanding	168,084			168,886			168,881			168,741
Basic and diluted earnings (loss) per share	$	0.03		$	0.16		$	—		$	(0.01	)

	2012 Quarters Ended (a)
	March 31			June 30			September 30			December 31
Rental revenues	$	39,865		$	42,062		$	44,449		$	45,386
Income (loss) from continuing operations	$	(15,855	)	$	(16,308	)	$	(5,033	)	$	(3,649	)
Net income (loss) attributable to common stockholders	$	4,445		$	(11,269	)	$	(3,921	)	$	(1,769	)
Basic and diluted weighted average shares outstanding	164,453			165,571			166,417			167,257
Basic and diluted earnings (loss) per share	$	0.03		$	(0.07	)	$	(0.02	)	$	(0.01	)

(a) Operating properties which have been disposed of have been reclassified to discontinued operations for all periods presented.

*****

F- 33

Behringer Harvard Multifamily REIT I, Inc.

Valuation and Qualifying Accounts

Schedule II

December 31, 2013

(in thousands)

Allowance for Doubtful Accounts	Balance at Beginning of Year		Charged to Costs and Expenses		Charged to Other Accounts		Deductions		Balance at End of Year
For the year ended December 31, 2013	$	193	$	492	$	—	$	583	$	102
For the year ended December 31, 2012	$	184	$	691	$	—	$	682	$	193
For the year ended December 31, 2011	$	152	$	368	$	—	$	336	$	184

F- 34

Behringer Harvard Multifamily REIT I, Inc.

Real Estate and Accumulated Depreciation

Schedule III

December 31, 2013

(in thousands)

		Initial Cost				Costs Subsequent to Acquisition/ Construction			Gross Amount Carried at December 31, 2013
Property Name	Location	Land		Buildings and Improvements							Accumulated Depreciation (a)		Year of Completion/ Acquisition	Encumbrances(b)
4550 Cherry Creek(c)	Denver, CO	$	7,910	$	70,184	$	479		$	78,573	$	7,123	2004/2011	$	28,600
55 Hundred(c)	Arlington, VA	13,196		67,515		38			80,749		6,661		2010/2011	41,750
7166 at Belmar(c)	Lakewood, CO	3,385		52,298		1,252			56,935		5,179		2008/2011	22,825
Acacia on Santa Rosa Creek	Santa Rosa, CA	8,100		29,512		1,128			38,740		5,643		2003/2010	29,000
Acappella	San Bruno, CA	8,000		46,973		274			55,247		6,945		2010/2010	30,250
Allegro (d)	Addison, TX	3,900		55,355		1,143			60,398		6,014		2013/2010	24,000
Argenta	San Francisco, CA	11,100		81,624		1,173			93,897		9,306		2008/2011	51,000
Bailey's Crossing(c)	Alexandria, VA	22,214		108,145		447			130,806		10,668		2010/2011	76,000
Briar Forest Lofts(c)	Houston, TX	4,623		40,155		181			44,959		4,031		2008/2011	20,916
Burnham Pointe	Chicago, IL	10,400		75,960		1,739			88,099		9,150		2008/2010	4,594
Burrough's Mill(c)	Cherry Hill, NJ	10,075		51,869		333			62,277		5,923		2004/2011	25,234
Calypso Apartments and Lofts(c)	Irvine, CA	13,902		42,730		197			56,829		4,253		2008/2011	24,000
The Cameron(c)	Silver Spring, MD	25,191		77,737		277			103,205		7,414		2010/2011	65,453
The District Universal Boulevard(c)	Orlando, FL	5,161		57,448		604			63,213		5,588		2009/2011	37,500
Eclipse(c)	Houston, TX	6,927		44,078		235			51,240		4,744		2009/2011	20,762
Fitzhugh Urban Flats(c)	Dallas, TX	9,394		48,884		363			58,641		5,120		2009/2011	27,848
Forty55 Lofts(c)	Marina del Rey, CA	11,382		68,966		225			80,573		6,890		2010/2011	25,500
The Franklin Delray	Delray Beach, FL	9,065		24,229		—			33,294		248		2013/2013	—
The Gallery at NoHo Commons	Los Angeles, CA	28,700		78,309		1,556			108,565		15,567		2008/2009	51,300
Grand Reserve	Dallas, TX	2,980		29,231		(843		)	31,368		2,313		2009/2012	21,000
The Lofts at Park Crest	McLean, VA	—		49,737		218			49,955		8,035		2008/2011	45,316
Pembroke Woods	Pembroke, MA	11,520		29,807		899			42,226		2,279		2006/2012	—
Renaissance - Phase I(c)	Concord, CA	5,786		33,660		647			40,093		3,122		2008/2011	—
The Reserve at LaVista Walk	Atlanta, GA	4,530		34,159		784			39,473		5,106		2008/2010	2,058
San Sebastian(c)	Laguna Woods, CA	7,841		29,037		95			36,973		3,433		2010/2011	21,000
Satori(c)	Fort Lauderdale, FL	8,223		75,126		311			83,660		7,610		2010/2011	51,000
Skye 2905(c)	Denver, CO	13,831		87,491		(253		)	101,069		8,329		2010/2011	56,100
Stone Gate	Marlborough, MA	8,300		54,634		1,307			64,241		6,324		2007/2011	35,443
Tupelo Alley(c)	Portland, OR	6,348		33,317		180			39,845		3,293		2009/2011	19,250
Uptown Post Oak	Houston, TX	23,340		40,010		864			64,214		6,713		2008/2010	3,348
Vara	San Francisco, CA	20,200		88,500		149			108,849		1,643		2013/2013	57,000
The Venue(c)	Clark County, NV	1,520		24,249		162			25,931		2,504		2009/2011	10,500
Veritas(c)	Henderson, NV	4,950		55,607		138			60,695		4,170		2011/2012	36,437
West Village	Mansfield, MA	5,301		30,068		546			35,915		3,707		2008/2011	20,742
		$	337,295	$	1,816,604	$	16,848		$	2,170,747	$	195,048		$	985,726

F- 35

____________________________________________________________________________

(a) Each of our properties has a depreciable life of 25 to 35 years. Improvements have depreciable lives ranging from 3 to 15 years.

(b) Encumbrances include mortgages and notes payable and our credit facility which had an outstanding balance of $10.0 million as of December 31, 2013. The credit facility is collateralized by the following properties: Burnham Pointe, The Reserve at La Vista Walk and Uptown Post Oak. The credit facility balance was allocated to each property based upon its relative gross real estate amount carried at December 31, 2013. Encumbrances related to mortgage loans excludes the $6.7 million of unamortized adjustment from business combinations as of December 31, 2013.

(c) Property is owned through a Co-Investment Venture. Initial cost is the cost recorded at time of consolidation. Year acquired is the year the property was consolidated.

(d) During 2013, we completed development of the second phase of Allegro which added an additional 121 units. The property was initially completed in 2010.

A summary of activity for real estate and accumulated depreciation for the years ended December 31, 2013, 2012 and 2011 is as follows (in thousands):

	For the Year Ended December 31,
	2013			2012			2011
Real Estate:
Balance at beginning of year	$	2,177,429		$	2,066,099		$	537,026
Additions:
Acquisitions and/or consolidation of joint ventures	163,401			140,069			1,637,647
Deductions:
Sale of real estate property	(170,083		)	(28,739		)	(108,574		)
Balance at end of year	$	2,170,747		$	2,177,429		$	2,066,099
Accumulated Depreciation:
Balance at beginning of year	$	123,360		$	42,123		$	13,941
Depreciation expense	85,054			83,909			28,182
Deductions	(13,366		)	(2,672		)	—
Balance at end of year	$	195,048		$	123,360		$	42,123

F- 36

Behringer Harvard Multifamily REIT I, Inc.

Mortgage Loans on Real Estate

Schedule IV

December 31, 2013

(in thousands)

Description	Interest Rate		Maturity Date	Periodic Payment Terms	Prior Liens	Face Amount of Note		Carrying Amount of Note(a)		Principal Amount of Loans Subject to Delinquent Principal or Interest
Mezzanine note	14.5	%	December 2015	Principal and interest at maturity	N/A	$	22,712	$	22,587	$	—
Mezzanine note	15.0	%	January 2016	Principal and interest at maturity	N/A	12,300		12,302		—
Mezzanine note	14.5	%	August 2015	Principal and interest at maturity	N/A	9,000		9,000		—
Mezzanine note	15.0	%	September 2016	Principal and interest at maturity	N/A	14,989		8,922		—
						$	59,001	$	52,811	$	—

____________________________________________________________________________

(a) Differences between the face amount and the carrying amount of the notes are unfunded commitments under the mezzanine loans and discounts recorded in connection with the business combination and capitalized acquisition costs, including unearned fee income.

Reconciliation of the Carrying Amount of Mortgage Loans (in thousands):
Balance at January 1, 2011	$	2,633
Additions during 2011:
New notes receivable	22,148
Mortgage loan from business combination	3,000
Accrued interest	333
Capitalized acquisition costs	384
Deductions during 2011:
Note receivable converted into equity investment	(3,960		)
Amortization of acquisition costs	(187		)
Balance at December 31, 2011	24,351
Additions during 2012:
New notes receivable, including advances under mezzanine loans	37,789
Capitalized acquisition costs, net of unearned fee income	(61		)
Deductions during 2012:
Note receivable converted into equity investment	(5,926		)
Collections of principal and loan payoffs	(19,760		)
Amortization of acquisition costs and fee income	(353		)
Balance at December 31, 2012	36,040
Additions during 2013:
New notes receivable, including advances under mezzanine loans	40,078
Capitalized acquisition costs, net of unearned fee income	(31		)
Deductions during 2013:
Note receivable converted into equity investment	(4,880		)
Collections of principal and loan payoffs	(18,425		)
Amortization of acquisition costs and fee income	29
Balance at December 31, 2013	$	52,811

*****

F- 37

Item 6.  Exhibits

Exhibit Number	Description
3.1	Articles of Restatement, incorporated by reference to Exhibit 3.1.2 to the Company’s Form 8-K filed on September 8, 2008
3.2	Articles Supplementary, incorporated by reference to Exhibit 3.1 to the Company's Form 8-K filed on August 6, 2013
3.3	Fourth Amended and Restated Bylaws, incorporated by reference to Exhibit 3.2 to the Company's Form 8-K filed on March 1, 2010
4.1	Third Amended and Restated Distribution Reinvestment Plan, incorporated by reference to Exhibit 4.4 to the Company’s Form 10-K filed on March 29, 2012
4.2	Third Amended and Restated Share Redemption Program, incorporated by reference to Exhibit 4.4 to the Company's Form 10-K filed on March 1, 2013
4.3	Statement regarding Restrictions on Transferability of Shares of Common Stock, incorporated by reference to Exhibit 4.5 to the Company's Registration Statement on Form S-11/A filed on May 9, 2008
10.1*	Fourth Amended and Restated Agreement of Limited Partnership of Monogram Residential Master Partnership I LP, dated as of December 20, 2013 +
10.2*	Letter Agreement, dated December 20, 2013, between Behringer Harvard Multifamily REIT I, Inc., Monogram Residential Master Partnership I LP and Stichting Depositary PGGM Private Real Estate Fund
10.3	Behringer Harvard Multifamily REIT I, Inc. Amended and Restated 2006 Incentive Award Plan, incorporated by reference to Exhibit 99.1 to the Company’s Registration Statement on Form S-8 filed on December 18, 2013
10.4	Form of Restricted Stock Unit Award Agreement (Non-Employee Directors) under the Company’s Amended and Restated Incentive Award Plan, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on December 19, 2013
10.5	Form of Restricted Stock Unit Award Agreement (Employees) under the Company’s Amended and Restated Incentive Award Plan, incorporated by reference to Exhibit 10.1 to the Company’s Form 8-K filed on January 14, 2014
10.6	Form of Deferral Election Form, incorporated by reference to Exhibit 10.2 to the Company’s Form 8-K filed on January 14, 2014
10.7	Master Modification Agreement, dated as of July 31, 2013, by and among Behringer Harvard Multifamily REIT I, Inc., Behringer Harvard Multifamily OP I LP, REIT TRS Holding, LLC, Behringer Harvard Multifamily REIT I Services Holdings, LLC, Behringer Harvard Multifamily Advisors I, LLC, Behringer Harvard Multifamily Management Services, LLC and Behringer Harvard Institutional GP LP, incorporated by reference to Exhibit 10.1 to the Company’s Form 10-Q filed on November 7, 2013 +
10.8	Fifth Amended and Restated Advisory Management Agreement, dated as of July 31, 2013, by and between Behringer Harvard Multifamily REIT I, Inc. and Behringer Harvard Multifamily Advisors I, LLC, incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on November 7, 2013 +
10.9	Second Amended and Restated Property Management Agreement, dated as of July 31, 2013, between Behringer Harvard Multifamily REIT In, Inc., Behringer Harvard Multifamily OP I LP and Behringer Harvard Multifamily Management Services, LLC, incorporated by reference to Exhibit 10.3 to the Company’s Form 10-Q filed on November 7, 2013
10.10	Registration Rights Agreement, dated as of July 31, 2013, among Behringer Harvard Multifamily REIT I, Inc. and the Shareholders from time to time party thereto, incorporated by reference to Exhibit 10.4 to the Company’s Form 10-Q filed on November 7, 2013
10.11	Amended and Restated License Agreement, dated July 31, 2013, by and between Behringer Harvard Holdings, LLC and Behringer Harvard Multifamily REIT I, Inc., incorporated by reference to Exhibit 10.5 to the Company’s Form 10-Q filed on November 7, 2013
10.12	Transition Services Agreement, dated July 31, 2013, by and between Behringer Harvard Multifamily REIT I, Inc., REIT TRS Holding, LLC and Behringer Harvard Multifamily REIT I Services Holdings, LLC, incorporated by reference to Exhibit 10.6 to the Company’s Form 10-Q filed on November 7, 2013
10.13	Employment Agreement, effective as of August 1, 2013, with Daniel J. Rosenberg, incorporated by reference to Exhibit 10.7 to the Company’s Form 10-Q filed on November 7, 2013
10.14	Employment Agreement, effective as of August 1, 2013, with Howard Garfield, incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q filed on November 7, 2013

10.15	Employment Agreement, effective as of August 1, 2013, with Margaret Daly, incorporated by reference to Exhibit 10.9 to the Company’s Form 10-Q filed on November 7, 2013
10.16	Employment Agreement, effective as of August 1, 2013, with Mark T. Alfieri, incorporated by reference to Exhibit 10.10 to the Company’s Form 10-Q filed on November 7, 2013
10.17	Employment Agreement, effective as of August 1, 2013, with Ross Odland, incorporated by reference to Exhibit 10.11 to the Company’s Form 10-Q filed on November 7, 2013
10.18	Letter Agreement, dated February 22, 2013, between Behringer Harvard Multifamily REIT I, Inc. and Behringer Harvard Multifamily Advisors I, LLC, incorporated by reference to Exhibit 10.6 to the Company’s Form 10-K filed on March 1, 2013
10.19	Letter Agreement, dated May 7, 2013, between Behringer Harvard Multifamily REIT I, Inc. and Behringer Harvard Multifamily Advisors I, LLC, incorporated by reference to Exhibit 10.2 to the Company’s Form 10-Q filed on May 9, 2013
10.20	Credit Agreement by and among Behringer Harvard Multifamily OP I LP and Behringer Harvard Orange, LLC collectively as borrower and NorthMarq Capital, LLC as lender dated March 26, 2010, incorporated by reference to Exhibit 10.43 to the Company's Form 10-K filed on March 31, 2010
10.21	Multifamily Revolving Credit Note by Behringer Harvard Multifamily OP I LP and Behringer Harvard Orange, LLC as borrower in favor of NorthMarq Capital, LLC dated March 26, 2010, incorporated by reference to Exhibit 10.44 to the Company's Form 10-K filed on March 31, 2010
10.22	Multifamily Open-End Mortgage, Assignment of Rents and Security Agreement between Behringer Harvard Orange, LLC as mortgagor and NorthMarq Capital, LLC as mortgagee dated March 26, 2010, incorporated by reference to Exhibit 10.45 to the Company's Form 10-K filed on March 31, 2010
21.1*	Subsidiaries of the Company
23.1*	Consent of Deloitte & Touche LLP
31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1*	Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002**
99.1	Second Amended and Restated Policy for Estimation of Common Stock Value, incorporated by reference to Exhibit 99.1 to the Company’s Form 10-K filed on March 29, 2012
101*	The following information from the Company’s Annual Report on Form 10-K for the year ended December 31, 2013, formatted in XBRL (eXtensible Business Reporting Language): (i) Consolidated Balance Sheets; (ii) Consolidated Statements of Operations; (iii) Consolidated Statements of Stockholders’ Equity and (iv) Consolidated Statements of Cash Flows

* Filed or furnished herewith

** In accordance with Item 601(b)(32) of Regulation S-K, this Exhibit is not deemed “filed” for purposes of Section 18 of the Exchange Act or otherwise subject to the liabilities of that section.  Such certifications will not be deemed incorporated by reference into any filing under the Securities Act or the Exchange Act, except to the extent that the registrant specifically incorporates it by reference.

⁺ Confidential treatment has been requested for certain portions of this exhibit. These portions have been omitted from this Annual Report and submitted separately to the Securities and Exchange Commission pursuant to a Confidential Treatment Request under Rule 24b-2 of the Exchange Act.