| Related Party Transactions | Note 5. Related Party Transactions
Compensation of FS Real Estate Advisor and the Dealer
Manager
Pursuant to the amended and restated advisory agreement dated as of
August 30, 2017, or the advisory agreement, FS Real Estate
Advisor is entitled to a base management fee that accrues
daily equal to 1/365th of 1.25% of the NAV for the Company’s
Class T, Class T-C, Class
FS Real Estate Advisor is also entitled to the performance fee
calculated and payable quarterly in arrears in an amount equal to
10.0% of the Company’s Core Earnings (as defined below) for
the immediately preceding quarter, subject to a hurdle rate,
expressed as a rate of return on average adjusted capital, equal to
1.625% per quarter, or an annualized hurdle rate of 6.5%. As a
result, FS Real Estate Advisor does not earn a performance fee for
any quarter until the Company’s Core Earnings for such
quarter exceed the hurdle rate of 1.625%. For purposes of the
performance fee, “adjusted capital” means cumulative
net proceeds generated from sales of the Company’s common
stock other than Class S common stock (including proceeds from
the Company’s distribution reinvestment plan) reduced for
distributions from non-liquidating “catch-up”
For purposes of calculating the performance fee, “Core
Earnings” means: the net income (loss) attributable to
stockholders of Class Y, Class T, Class T-C, Class (i) non-cash non-cash (v) one-time non-cash
Pursuant to the amended and restated sub-advisory sub-advisory
The Company reimburses FS Real Estate Advisor and Rialto for their
actual costs incurred in providing administrative services to the
Company. FS Real Estate Advisor and Rialto are required to allocate
the cost of such services to the Company based on objective factors
such as total assets, revenues and/or time allocations. At least
annually, the Company’s board of directors reviews the amount
of the administrative services expenses reimbursable to FS Real
Estate Advisor and Rialto to determine whether such amounts are
reasonable in relation to the services provided. The Company will
not reimburse FS Real Estate Advisor or Rialto for any services for
which it receives a separate fee or for any administrative expenses
allocated to employees to the extent they serve as executive
officers of the Company.
FS Investments funded the Company’s organization and offering
costs in the amount of $4,581 for the period from November 7,
2016 (Inception) to June 30, 2018. These expenses include
legal, accounting, printing, mailing and filing fees and expenses,
due diligence expenses of participating broker-dealers supported by
detailed and itemized invoices, costs in connection with preparing
sales materials, design and website expenses, fees and expenses of
the Company’s transfer agent, fees to attend retail seminars
sponsored by participating broker-dealers and reimbursements for
customary travel, lodging, and meals, but excluding selling
commissions, dealer manager fees and stockholder servicing fees.
Under the advisory agreement, FS Real Estate Advisor has agreed to
advance all of the Company’s organization and offering
expenses on the Company’s behalf until it has raised $250,000
of gross proceeds from its public offering.
The Company will reimburse FS Real Estate Advisor for any
organization and offering expenses that it or Rialto has incurred
on the Company’s behalf, up to a cap of 0.75% of the gross
proceeds from its public offering in excess of $250,000. As of
June 30, 2018, the Company has not reimbursed FS Real Estate
Advisor for any organization and offering expenses.
During the year ended December 31, 2017, the Company incurred
costs of $341 in connection with obtaining the WF-1
The following table describes the fees and expenses accrued under
the advisory agreement during the three and six months ended
June 30, 2018:
Related Party
Source Agreement
Description Three Months June 30, 2018 Six Months June 30, 2018
FS Real Estate Advisor Advisory Agreement Base Management Fee $ 4 $ 4
FS Real Estate Advisor Advisory Agreement Performance Fee (1) $ 0 $ 0
FS Real Estate Advisor Advisory Agreement
Administrative Services Expenses (2) $ 399 $ 639
(1)
During the three and six months ended June 30,
2018, less than $1 of performance fees were accrued by the
Company.
(2)
During the six months ended June 30, 2018, $622
of administrative services expenses related to the allocation of
costs of administrative personnel for services rendered to the
Company by FS Real Estate Advisor and Rialto and the remainder
related to other reimbursable expenses.
The dealer manager for the Company’s continuous public
offering is FS Investment Solutions, LLC, or FS Investment
Solutions, which is an affiliate of FS Real Estate
Advisor. Under the dealer manager agreement dated as of
September 7, 2017, or the dealer manager agreement, FS
Investment Solutions is entitled to receive upfront selling
commissions of up to 3.0%, and upfront dealer manager fees of 1.25%
of the purchase price of each Class T share sold in the
primary offering (subject to reductions for certain categories of
purchasers). FS Investment Solutions is entitled to receive upfront
selling commissions of up to 3.0% of the purchase price
per Class T-C share re-allowed
No selling commissions or dealer manager fees will be payable on
the sale of Class D, Class M, Class I, Class S
or Class Y shares or on shares of any class sold pursuant to
the Company’s distribution reinvestment plan.
Subject to the limitations described below, the Company will pay FS
Investment Solutions stockholder servicing fees for ongoing
services rendered to stockholders by participating broker-dealers
or by broker-dealers servicing investors’ accounts, referred
to as servicing broker-dealers:
•
with respect to the Company’s outstanding
Class T shares equal to 1.0% per annum of the aggregate NAV of
its outstanding Class T shares;
•
with respect to the Company’s outstanding
Class T-C T-C Class T-C
•
with respect to the Company’s outstanding
Class D shares equal to 0.3% per annum of the aggregate NAV of
its outstanding Class D shares; and
•
with respect to the Company’s outstanding
Class M shares equal to 0.3% per annum of the aggregate NAV of
its outstanding Class M shares.
The Company will not pay a stockholder servicing fee with respect
to its Class I, Class S or Class Y shares. The
dealer manager will re-allow
The Company will cease paying stockholder servicing fees with
respect to any Class T, Class T-C Class T-C
In addition, the Company will cease paying stockholder servicing
fees on each Class T share, Class T-C Class T-C,
The Company accrues future stockholder servicing fees in an amount
equal to its best estimate of fees payable to FS Investment
Solutions at the time such shares are sold. As of June 30,
2018, the Company accrued $40 of stockholder servicing fees payable
to FS Investment Solutions. FS Investment Solutions has entered
into agreements with selected dealers distributing the
Company’s shares in the public offering, which provide, among
other things, for the re-allowance
FS Investment Solutions also serves as the placement agent for the
Company’s private offerings of Class S and Class Y
shares pursuant to placement agreements. FS Investment Solutions
does not receive any compensation pursuant to these agreements.
Expense Limitation Agreement
The Company has entered into an expense limitation agreement with
FS Real Estate Advisor and Rialto pursuant to which FS Real Estate
Advisor and Rialto have agreed to waive reimbursement of or pay, on
a quarterly basis, the Company’s annualized ordinary
operating expenses for such quarter to the extent such expenses
exceed 1.5% per annum of its average daily net assets attributable
to each of its classes of common stock. The Company will repay FS
Real Estate Advisor or Rialto on a quarterly basis any ordinary
operating expenses previously waived or paid, but only if the
reimbursement would not cause the then-current expense limitation,
if any, to be exceeded. In addition, the reimbursement of expenses
will be made only if payable not more than three years from the end
of the fiscal quarter in which the expenses were paid or
waived.
During the period from September 13, 2017 (Commencement of
Operations) to June 30, 2018, the Company accrued $1,458 for
reimbursement of expenses that FS Real Estate Advisor and Rialto
have agreed to pay, including $917 in reimbursements for the six
months ended June 30, 2018. During the period from
September 13, 2017 (Commencement of Operations) to
June 30, 2018, the Company received $897 in cash
reimbursements from FS Real Estate Advisor. As of June 30,
2018, the Company had $561 of reimbursements due from FS Real
Estate Advisor and Rialto.
Investment Activity
During the year ended December 31, 2017, the Company purchased
a $9,500 floating-rate whole mortgage loan from an affiliate of
Rialto at cost. The purchase was approved by the Company’s
board of directors, including all of the independent directors, in
accordance with the Company’s charter.
Capital Contributions by FS Investments and Rialto
In December 2016, pursuant to a private placement, Michael C.
Forman and David J. Adelman, principals of FS Investments,
contributed an aggregate of $200 to purchase 8,000 Class S
shares at the price of $25.00 per share. These individuals will not
tender these shares of common stock for repurchase as long as FS
Real Estate Advisor remains the Company’s adviser. FS
Investments is controlled by Mr. Forman, the Company’s
president and chief executive officer, and Mr. Adelman.
In addition, the Company is conducting a private placement of its
Class S shares concurrent with the public offering, in which
FS Investments and Rialto and certain of their respective
directors, employees, partners, officers and affiliates, and other
investors designated by FS Investments and Rialto collectively
intend to purchase $50,000 of the Company’s Class S
shares. In addition to the $50,000 commitment, FS Investments and
Rialto will purchase, or will cause or otherwise arrange for one or
more of their respective directors, employees, partners, officers,
affiliates, and other investors designated by FS Investments and
Rialto to purchase or acquire, up to an additional $40,000 of the
Company’s common stock, as notified by the Company that
capital is required to fund additional investments. As of
June 30, 2018, approximately $48,000 of the total commitments
have been purchased by FS Investments, Rialto or their respective
directors, employees, partners, officers and affiliates, and other
investors designated by FS Investments and Rialto. FS Investments
and Rialto have agreed that for so long as it or its affiliate is
serving as the Company’s adviser or the Company’s
sub-adviser, |
