| Related Party Transactions | Note 8. Related Party Transactions
Fees to Affiliates
Our Private Offering Advisory Agreement and our Private Offering
Dealer Manager Agreement entitled our Advisor and our Dealer
Manager to specified fees upon the provision of certain services
with regard to the Private Offering and investment of funds in real
estate properties, among other services, as well as reimbursement
for organization and offering costs incurred by our Advisor on our
behalf and reimbursement of certain costs and expenses incurred by
our Advisor in providing services to us.
Additionally, the Advisory Agreement, Dealer Manager Agreement, and
transfer agent agreement (the “Transfer Agent
Agreement”) executed in connection with the Public Offering,
entitle our Advisor, our Dealer Manager and our Transfer Agent to
specified fees upon the provision of certain services with regard
to the Public Offering and investment of funds in real estate
properties, among other services, as well as reimbursement for
organizational and offering costs incurred by our Advisor on our
behalf and reimbursement of certain costs and expenses incurred by
our Advisor and our Transfer Agent in providing services to us.
Organization and Offering Costs
Organization and offering costs of the Private Offering paid by our
Advisor on our behalf will be reimbursed to our
Advisor. Organization and offering costs consist of all
expenses (other than sales commissions and the dealer manager fee)
to be paid by us in connection with the Private Offering, including
our legal, accounting, printing, mailing and filing fees, charges
of our escrow account holder and other accountable organization and
offering expenses, including, but not limited to, (i) amounts
to reimburse our Advisor for all marketing related costs and
expenses such as salaries and direct expenses of employees of our
Advisor and its affiliates in connection with registering and
marketing our shares; (ii) technology costs associated with
the Private Offering; (iii) our costs of conducting our
training and education meetings; (iv) our costs of attending
retail seminars conducted by participating broker-dealers; and
(v) payment or reimbursement of bona fide due diligence
expenses. We have and will continue to incur similar organization
and offering costs in connection with the Public Offering. Pursuant
to the Advisory Agreement, our Advisor will be required to
reimburse us within 60 days after the end of the month which the
Public Offering terminates to the extent we paid or reimbursed
organization and offering costs (excluding sales commissions,
dealer manager fees, stockholder servicing fees, and dealer manager
servicing fees) in excess of 3.5% of the gross offering proceeds
from the Primary Offering. Organization and offering costs of the
Public Offering may be paid by our Advisor on our behalf and will
be reimbursed to our Advisor from the proceeds of our Primary
Offering; provided, however, that our Advisor will fund, and will
not be reimbursed for, 1.0% of the gross offering proceeds from the
sale of Class W shares.
Advisory Agreements
We do not have any employees. Our Advisor is primarily responsible
for managing our business affairs and carrying out the directives
of our board of directors. Our Advisor receives various fees and
expenses under the terms of our Advisory Agreement. As discussed
above, we are required to reimburse our Advisor for organization
and offering costs from the Offerings; provided, however, pursuant
to the Advisory Agreement, our Advisor will fund, and will not be
reimbursed for, 1.0% of the gross offering proceeds from the sale
of Class W shares in the Primary Offering and will be required
to reimburse us within 60 days after the end of the month in which
the Public Offering terminates to the extent we paid or reimbursed
organization and offering costs (excluding sales commissions,
dealer manager fees, stockholder servicing fees, and dealer manager
servicing fees) in excess of 3.5% of the gross offering proceeds
from the Primary Offering.
The Advisory Agreement also requires our Advisor to reimburse us to
the extent that offering expenses, including sales commissions,
dealer manager fees, stockholder servicing fees and dealer manager
servicing fees, are in excess of 15% of gross proceeds from the
Primary Offering. Our Advisor was due acquisition fees pursuant to
the Private Offering Advisory Agreement equal to 2% of the contract
purchase price of each property we acquired while such agreement
was in effect. Pursuant to the Advisory Agreement, our Advisor will
receive acquisition fees equal to 1.75% of the contract purchase
price of each property we acquire. Our Advisor received
reimbursement of any acquisition expenses our Advisor incurred
pursuant to the Private Offering Advisory Agreement, which
continues under the Advisory Agreement. Our Advisor was entitled to
receive a monthly asset management fee equal to 0.05417% (which is
one twelfth of 0.65%) of our aggregate asset value, pursuant to the
Private Offering Advisory Agreement. Pursuant to the Advisory
Agreement, our Advisor, effective May 1, 2018, is entitled to
receive a monthly asset management fee equal to 0.05208% (which is
one twelfth of 0.625%) of our average invested assets, as defined
by the Advisory Agreement. Pursuant to the Private Offering
Advisory Agreement, our Advisor was due a financing fee of up to
0.5% of the borrowed amount of a loan for arranging for financing
in connection with the acquisition, development or repositioning of
our properties. Our Advisor will not receive financing fees
pursuant to the Advisory Agreement.
Under our Private Offering Advisory Agreement, our Advisor would
have been due disposition fees equal to 3% of the contract sales
price of each property sold inclusive of any real estate
commissions paid to third party real estate brokers. However, no
such disposition fees were paid, as we have not sold any
properties. Moreover, we will not owe our Advisor any disposition
fees going forward, as no such fees will be due under the Advisory
Agreement.
Our Advisor may also be entitled to various subordinated
distributions under our operating partnership agreement if we
(1) list our shares of common stock on a national exchange,
(2) do not renew or terminate the Advisory Agreement,
(3) liquidate our portfolio or (4) effect a merger or
other corporate reorganization.
The Private Offering Advisory Agreement and Advisory Agreement
provide for reimbursement of our Advisor’s direct and
indirect costs of providing administrative and management services
to us. Beginning four fiscal quarters after commencement of the
Public Offering, pursuant to our Advisory Agreement, our Advisor
will be required to pay or reimburse us the amount by which our
aggregate annual operating expenses, as defined, exceed the greater
of 2% of our average invested assets or 25% of our net income, as
defined, unless a majority of our independent directors determine
that such excess expenses were justified based on unusual
and non-recurring
Dealer Manager Agreements
In connection with our Primary Private Offering, our Dealer Manager
received a sales commission of up to 6.0% of gross proceeds from
sales in the Primary Private Offering and a dealer manager fee
equal to up to 3.0% of gross proceeds from sales in the Primary
Private Offering under the terms of the Private Offering Dealer
Manager Agreement; provided, however, for all shares sold pursuant
to our Primary Private Offering through the Discount Termination
Date, dealer manager fees were reduced to an amount of up 2.0% of
gross proceeds from sales in the Primary Private Offering.
In connection with our Public Offering, our Dealer Manager receives
a sales commission of up to 6.0% of gross proceeds from sales of
Class A Shares and up to 3% of gross proceeds from the sales
of Class T Shares in the Primary Offering and a dealer manager
fee of up to 3.0% of gross proceeds from sales of both Class A
and Class T Shares in the Primary Offering under the terms of
the Dealer Manager Agreement. Our Dealer Manager does not receive
an upfront sales commission or dealer manager fee from sales of
Class W shares in the Primary Offering. In addition, our
Dealer Manager will receive an ongoing stockholder servicing fee
that is payable monthly and accrues daily in an amount equal to
1/365th of 1% of the purchase price per share of the Class T
shares sold in the Primary Offering. Our Dealer Manager will also
receive an ongoing dealer manager servicing fee that is payable
monthly and accrues daily in an amount equal to 1/365th of 0.5% of
the purchase price per share of the Class W shares sold in the
Primary Offering. We will cease paying the stockholder servicing
fee with respect to the Class T shares sold in the Primary
Offering at the earlier of (i) the date we list our shares on
a national securities exchange, merge or consolidate with or into
another entity, or sell or dispose of all or substantially all of
our assets, (ii) the date at which the aggregate underwriting
compensation from all sources equals 10% of the gross proceeds from
the sale of Class A shares, Class T shares, and
Class W shares in our Primary Offering (i.e., excluding
proceeds from sales pursuant to our Distribution Reinvestment
Plan), which calculation shall be made by the Company with the
assistance of our Dealer Manager commencing after the termination
of our Primary Offering; (iii) with respect to a particular
Class T share, the third anniversary of the issuance of the
share; and (iv) the date that such Class T share is
redeemed or is no longer outstanding. We will cease paying the
dealer manager servicing fee with respect to the Class W
shares sold in the Primary Offering at the earlier of (i) the
date we list our shares on a national securities exchange, merge or
consolidate with or into another entity, or sell or dispose of all
or substantially all of our assets, (ii) the date at which the
aggregate underwriting compensation from all sources equals 10% of
the gross proceeds from the sale of Class A shares,
Class T shares, and Class W shares in our Primary
Offering (i.e., excluding proceeds from sales pursuant to our
Distribution Reinvestment Plan), which calculation shall be made by
the Company with the assistance of our Dealer Manager commencing
after the termination of our Primary Offering; (iii) the end
of the month in which the aggregate dealer manager servicing fees
paid in our Primary Offering with respect to Class W shares
equals 9.0% of the gross proceeds from the sale of Class W
shares in our Primary Offering (i.e., excluding proceeds from sales
pursuant to our Distribution Reinvestment Plan), which calculation
shall be made by us with the assistance of our Dealer Manager
commencing after the termination of our Primary Offering, and
(iv) the date that such Class W share is redeemed or is
no longer outstanding.
In connection with our Public Offering, our Dealer Manager will
enter into participating dealer agreements with certain other
broker-dealers which will authorize them to sell our shares. Upon
sale of our shares by such broker-dealers, our Dealer Manager
will re-allow re-allow non-accountable
Affiliated Dealer Manager
Our Sponsor owns, through a wholly-owned limited liability company,
a 15% non-voting non-voting
Transfer Agent Agreement
Our Sponsor owns 100% of the membership interests of our Transfer
Agent. Pursuant to our Transfer Agent Agreement, our Transfer Agent
provides transfer agent and registrar services to us. These
services are substantially similar to what a third party transfer
agent would provide in the ordinary course of performing its
functions as a transfer agent, including, but not limited to:
processing subscription agreements, providing customer service to
our stockholders, processing payment of any sales commission and
dealer manager fees associated with a particular purchase,
processing distributions and any servicing fees with respect to our
shares and issuing regular reports to our stockholders. Our
Transfer Agent may retain and supervise third party vendors in its
efforts to administer certain services. We expect our Transfer
Agent will conduct transfer agency, registrar and supervisory
services for us and other non-traded
The initial term of the Transfer Agent Agreement is three years,
which term will be automatically renewed for one year successive
terms, but either party may terminate the Transfer Agent Agreement
upon 90 days’ prior written notice. In the event that we
terminate the Transfer Agent Agreement, other than for cause, we
will pay our Transfer Agent all amounts that would have otherwise
accrued during the term of the Transfer Agent Agreement; provided,
however, that when calculating the remaining months in the term for
such purposes, such term is deemed to be a 12 month period starting
from the date of the most recent annual anniversary date.
We agreed to pay our Transfer Agent
a one-time one-time out-of-pocket
Property Managers
Pursuant to our Advisory Agreement, our Advisor is responsible for
overseeing any third party property managers or operators and
may delegate such responsibility to its affiliates. Our Advisor
will assign such oversight responsibilities to our Property
Manager. Currently, we expect to rely on third party property
managers and senior living operators to manage and operate our
properties. We will pay our Property Manager an oversight fee equal
to 1% of the gross revenues attributable to such properties;
provided, however, that our Property Manager will receive an
oversight fee equal to 1.5% of the gross revenues attributable to
any senior housing property other than such properties that are
leased to third party tenants under triple-net
Pursuant to the terms of the agreements described above, the
following table summarizes related party costs incurred and paid by
us for the year ended December 31, 2017 and the three months
ended March 31, 2018, as well as any related amounts payable
as of December 31, 2017 and March 31, 2018:
Year Ended December 31,
2017 Three Months Ended March 31,
2018
Incurred Paid Payable Incurred Paid Payable
Expensed
Operating expenses (including organizational costs) $ 394,654 $ 271,229 $ 123,425 $ 179,206 $ 302,631 $
—
Asset management fees (1) 135,163 93,492 41,671 111,682 153,353
—
Acquisition expenses 2,310,020 2,310,020
— 55,974 55,974
—
Capitalized
Debt issuance costs 499,382 465,500 33,882 357,025 67,290 323,617
Acquisition expenses
—
—
— 1,570,000 1,200,000 370,000
Additional Paid-in
Selling commissions 3,947,269 3,915,109 32,160 806,713 823,333 15,540
Dealer Manager fees 1,490,524 1,474,704 15,820 443,820 450,464 9,176
Offering costs 508,350 508,350
— 114,342 114,342
—
Total $ 9,285,362 $ 9,038,404 $ 246,958 $ 3,638,762 $ 3,167,387 $ 718,333
(1) For the year ended December 31,
2017 and three months ended March 31, 2018, the Advisor
permanently waived one half of the asset management fee totaling
approximately $135,000 and $112,000, respectively. Such amount was
waived permanently and accordingly, will not be paid to the
Advisor.
Please see Note 5 – Debt and Note 6 – Preferred Equity
in our Operating Partnership for detail regarding additional
related party transactions.
Investment in Reno Student Housing, DST
On October 20, 2017, we completed an investment in a private
placement offering by Reno Student Housing, DST (“Reno
Student Housing”) using proceeds from our Private Offering of
approximately $1.03 million for an approximately 2.6%
beneficial interest . Reno Student Housing is a Delaware statutory
trust and an affiliate of our Sponsor. Reno Student Housing owns a
student housing property located in Reno, Nevada (the “Reno
Property”). We have determined that Reno Student Housing is a
VIE of which we are not the primary beneficiary, as we do not have
the power to direct the most significant activities of the entity
nor do we have the obligation to absorb losses or the rights to
receive benefits of the entity that could be significant to the
entity. As such, our investment in Reno Student Housing is
accounted for under the equity method of accounting. |
