| Related Party Transactions | Note 5. Related Party Transactions
Compensation of FS Real Estate Advisor and the Dealer
Manager
Pursuant to the second amended and restated advisory agreement
dated as of August 17, 2018, or the advisory agreement, FS
Real Estate Advisor is entitled to a base management fee equal
to 1.25% of the NAV for the Company’s Class T,
Class S, Class D, Class M and Class I shares,
payable quarterly and in arrears. The payment of all or any portion
of the base management fee accrued with respect to any quarter may
be deferred by FS Real Estate Advisor, without interest, and may be
taken in any such other quarter as FS Real Estate Advisor may
determine. In calculating the Company’s base management fee,
the Company will use its NAV before giving effect to accruals for
such fee, stockholder servicing fees or distributions payable on
its shares. The base management fee is a class-specific expense. No
base management fee is paid on the Company’s Class F or
Class Y shares.
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 F 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 S, Class D, Class M and Class I shares,
computed in accordance with GAAP (provided that net income (loss)
attributable to Class Y stockholders shall be reduced by an
amount equal to the base management fee that would have been paid
if Class Y shares were subject to such fee), including
realized gains (losses) not otherwise included in GAAP net income
(loss) and excluding (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 $5,646 for the period from November 7,
2016 (Inception) to September 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
September 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 nine months ended
September 30, 2018 and 2017:
Three Months Nine Months
Related Party Source Agreement
Description 2018 2017 2018 2017
FS Real Estate Advisor Advisory Agreement Base Management Fee $ 19
— $ 23
—
FS Real Estate Advisor Advisory Agreement Performance Fee $ 20
— $ 20
—
FS Real Estate Advisor Advisory Agreement
Administrative Services Expenses (1) $ 557 $ 84 $ 1,196 $ 84
(1)
During the nine months ended September 30, 2018
and 2017, $1,155 and $76, respectively, of the accrued
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 amended and restated dealer manager
agreement dated as of August 17, 2018, 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 0.5% of the transaction 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 3.5% of the transaction price
per Class S share sold in the primary offering
(subject to reductions for certain categories of purchasers). The
dealer manager anticipates that all of the selling commissions and
dealer manager fees will be re-allowed
No selling commissions or dealer manager fees will be payable on
the sale of Class D, Class M, Class I, Class F
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 0.85% per annum of the aggregate NAV
of its outstanding T shares, consisting of an advisor stockholder
servicing fee of 0.65% per annum and a dealer stockholder servicing
fee of 0.20% per annum; however, with respect to Class T
shares sold through certain participating broker-dealers, the
advisor stockholder servicing fee and the dealer stockholder
servicing fee may be other amounts, provided that the sum of such
fees will always equal 0.85% per annum of the NAV of such
shares;
•
with respect to the Company’s outstanding
Class S shares equal to 0.85% per annum of the aggregate NAV
of its outstanding Class S shares;
•
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 F or Class Y shares. The
dealer manager will reallow some or all of the stockholder
servicing fees to participating broker-dealers, servicing
broker-dealers and financial institutions (including bank trust
departments) for ongoing stockholder services performed by such
broker-dealers, and will waive (pay back to the Company)
stockholder servicing fees to the extent a broker-dealer or
financial institution is not eligible or otherwise declines to
receive all or a portion of such fees.
The Company will cease paying stockholder servicing fees with
respect to any Class D, Class M, Class S and
Class T shares held in a stockholder’s account at the
end of the month in which the total underwriting compensation from
the upfront selling commissions, dealer manager fees and
stockholder servicing fees, as applicable, paid with respect to
such account would exceed 1.25%, 7.25%, 8.75% and 8.75%,
respectively (or a lower limit for shares sold by certain
participating broker-dealers or financial institutions) of the
gross proceeds from the sale of shares in such account. These
amounts are referred to as the sales charge cap. At the end of such
month that the sales charge cap is reached, each Class D,
Class M, Class S or Class T share in such account
will convert into a number of Class I shares (including any
fractional shares) with an equivalent aggregate NAV as such
share.
In addition, the Company will cease paying stockholder servicing
fees on each Class D
share, Class M share, Class S share and
Class T share held in a stockholder’s account and each
such share will convert to Class I shares on the earlier to
occur of the following: (i) a listing of Class I shares
on a national securities exchange; (ii) the sale or other
disposition of all or substantially all of the Company’s
assets or the Company’s merger or consolidation with or into
another entity in a transaction in which holders of
Class D, Class M, Class S or Class T
shares receive cash and/or shares of stock that are listed on a
national securities exchange; or (iii) the date following the
completion of the Company’s public offering on which, in the
aggregate, underwriting compensation from all sources in connection
with the Company’s public offering, including selling
commissions, dealer manager fees, stockholder servicing fees and
other underwriting compensation, is equal to 10% of the gross
proceeds from its primary offering.
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
September 30, 2018, the Company accrued $545 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 or served 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
The Company has entered into an amended and restated 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 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 September 30, 2018, the Company accrued $2,103
for reimbursement of expenses that FS Real Estate Advisor and
Rialto have agreed to pay, including $1,562 in reimbursements for
the nine months ended September 30, 2018. During the period
from September 13, 2017 (Commencement of Operations) to
September 30, 2018, the Company received $1,458 in cash
reimbursements from FS Real Estate Advisor. As of
September 30, 2018, the Company had $645 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 F
(previously 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 F 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 have committed
to purchase $50,000 of the Company’s Class F shares, of which
approximately $43,680 has been purchased as of September 30, 2018.
In addition to the $50,000 commitment, FS Investments and/or Rialto
may purchase, or may cause or otherwise arrange for one or more of
their respective directors, employees, partners, officers,
affiliates, and other investors designated by FS Investments and/or
Rialto to purchase or acquire, up to an additional $30,000 of the
Company’s common stock, as notified by the Company that
capital is required to fund additional investments. As of
September 30, 2018, approximately $8,535 of this additional
amount has been purchased. 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,
respectively, it or its affiliates shall maintain an investment of
at least $10,000 in the Company’s common stock until such
date as the Company reaches $750,000 in net assets. |
