Mail Stop 4561
May 24, 2006
Scott D. Peters
Chief Executive Officer
NNN Healthcare/Office REIT, Inc.
1551 N. Tustin Avenue, Suite 200
Santa Ana, CA 92705
Re: NNN Healthcare/Office REIT, Inc.
Registration Statement on Form S-11
Filed April 28, 2006
File No. 333-133652
Dear Mr. Peters:
We have reviewed your filing and have the following
comments.
Where indicated, we think you should revise your document in
response
to these comments. If you disagree, we will consider your
explanation as to why our comment is inapplicable or a revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may raise additional comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or any other aspect
of
our review. Feel free to call us at the telephone numbers listed
at
the end of this letter.
General
1. Please note that any sales literature that is to be used in
connection with this offering must be submitted to us prior to
use,
including sales literature intended for broker-dealer use only.
Please submit all written sales materials proposed to be
transmitted
to prospective investors when such materials become available.
Sales
materials must set forth a balanced presentation of the risks and
rewards to investors and should not contain any information or
disclosure that is inconsistent with or not also provided in the
prospectus. For guidance, refer to Item 19.D of Industry Guide 5.
2. Please provide us with copies of any graphics, maps,
photographs,
and related captions or other artwork including logos that you
intend
to use in the prospectus. Such graphics and pictorial
representations should not be included in any preliminary
prospectus
distributed to prospective investors prior to our review.
3. We note the cites to various sources found in your prospectus,
such as the reference on page 47 to National Healthcare
Expenditures
Projections by the U.S. Department of Health and Human Services.
Please provide us with the cites supporting your disclosure.
Please
highlight the specific portions that support your disclosure.
4. We note that you reserve the right to reallocate the shares you
are offering between the primary offering and the DRP. Please
confirm to us that, should you raise the full amount of the
offering
currently allocated to the primary and intend to then allocate DRP
shares to your primary offering, you will file a supplement
notifying
investors of this occurrence.
5. Please revise to relocate the information on page 1 to follow
the
summary.
Prospectus Cover Page
6. Please revise to include cover page risk factor disclosure
addressing risks associated with your ability to leverage your
debt
up to 300% of the value of your net assets.
7. Please revise to include risk factor disclosure to the effect
that
you may borrow funds, sell assets, or use proceeds, to fund
distributions.
8. Please revise the risk factor at bullet point two to clarify
that
this is a blind pool offering.
9. Please revise the risk factor at bullet point five to disclose
the
relationships that give rise to the conflicts, and to include the
conflict that agreements with affiliates, including the advisory
agreement, were not negotiated at arms-length.
10. Please revise to identify the "certain investors" who will not
be
charged selling commissions and marketing fees (or a portion
thereof)
with respect to shares sold in the primary offering.
11. Please revise the second to the last paragraph to clarify the
affiliate relationship of NNN Capital Corporation, your dealer
manager, both with respect to the REIT and to your advisor.
12. Please revise your proceeds table to state the amount of
proceeds
that will be available for investments after payment of fees and
expenses associated with the offering. In this regard, we are
uncertain why you have not included the due diligence
reimbursement.
Please see Item 501(a)(3) of Regulation S-K.
13. We note that if you are unable to raise the minimum amount
within
one year, funds will be returned to investors within 10 days.
Please
revise to indicate that funds will be returned promptly to
investors
if you should fail to raise the minimum. We do not agree that 10
days meets the requirement found in Rule 10b-9(a)(1) of the
Securities Exchange Act of 1934.
14. If there may be an extension of the 2007 deadline for
achieving
the minimum offering, please provide appropriate cover page
disclosure.
Questions and Answers about this Offering - page 2
15. Please revise to delete the repetition between the Q&A and the
summary section.
What is NNN Healthcare/Office REIT, Inc.?
16. Please revise to clarify that the diversified portfolio of
properties referenced is conditioned upon the receipt of maximum
offering proceeds.
What conflicts of interest exist between you and your advisor and
its
affiliates?
17. Please revise to specifically identify the officers and
directors
subject to conflicts of interest, as well as the affiliated
entities
subject to conflicts. Likewise, please identify the "other Triple
Net
programs" you reference in bullet point two with which allocation
conflicts may arise. Consider the inclusion either here or in the
prospectus summary of chart disclosure indicating the individuals
subject to conflicts of interest, the related entities, and the
positions of these individuals relative to the various entities
subject to conflict.
18. Please revise the first bullet point to address how the
officers
of Triple Net will allocate their time between this and the other
real estate programs with which they are involved, if known.
If I buy shares, will I receive distributions and how often?
19. Please revise to address tax aspects of distributions
received,
including distributions pursuant to your DRP.
Prospectus Summary - page 6
20. We note your statement that the summary is "not complete."
While
your summary is not expected to include the detailed disclosure
appropriate to other portions of your document, it should be
complete. Please revise to indicate that your summary highlights
the
material information in the prospectus.
21. Please revise to include brief disclosure with respect to the
legal proceedings involving Triple New Properties that you
reference
on pages 19 and 116.
Summary Risk Factors - page 6
22. Please revise to add risk factor disclosure addressing the
conflicts of interests experienced by your officers and non-
independent directors associated with their serving also as
officers
and directors of your advisor, dealer manager, and affiliated
entities.
23. Please revise the risk factor at bullet four to address the
risk
associated with the agreements between the REIT and the advisor
and
affiliated entities not being negotiated at arms-length.
Our Board of Directors - page 7
24. Please advise us whether you have identified the individuals
to
be named to the board of directors.
Our Operating Partnership - page 7
25. Please revise to briefly describe the nature of the
subordinated
interests provided the advisor in exchange for its initial
investment
of $200,000 in the operating partnership.
Terms of the Offering - page 8
26. Please revise to clarify that purchases by affiliates do not
count towards the minimum share purchase requirement necessary to
break escrow.
Our Structure - page 9
27. Please revise to more thoroughly illustrate the relationship
among the REIT, its advisor, and the various affiliates of the
advisor. We note, for example, Mr. Thompson`s interest in Triple
Net
Properties, LLC, Triple Net Properties Realty, Inc., and NNN
Capital
Corporation. In this connection, please revise to disclose in
separate boxes, the "Officers and Managers of the Sponsor" and any
relationship among them and the other entities. Further, please
revise to disclose the significance of the broken line connecting
the
REIT with the Property Manager.
Compensation to the Advisor and its Affiliates - page 9
Offering Stage - page 9
28. Please revise here and throughout to clarify the nature of the
services to be performed by the Advisor for the fee listed as
"Organizational and Offering Expenses."
Liquidity Stage - page 11
29. We note that in the liquidity stage either your advisor or
Realty
will receive fees only if either provides a "substantial amount of
services in connection with the sale of the property." Please
advise
us whether the word "substantial" has been defined, or is rather
at
the discretion of the board of directors.
Prior Investment Programs - page 12
30. We note your reference to the Prior Performance Summary and
the
Prior Performance Tables in Appendix A to the prospectus relating
to
Triple Net programs sponsored through December 31, 2004. Please
revise to include data as of a more recent date, presumably
December
31, 2005, or advise us why you believe it is appropriate not to do
so.
Risk Factors - page 15
You may be unable to sell your shares because your ability to have
your shares redeemed pursuant to our proposed share redemption
program is subject to significant restrictions and limitations -
page
15
31. Please revise your risk factor disclosure to clarify that the
share redemption program may be terminated at any time subject to
10
days notice. Likewise, please clarify, as you state on page 13,
that
the board has the discretion to amend or modify any provision of
the
share redemption program at any time.
32. Please revise to include disclosure regarding the fact that
liquidity may be affected by your ability to reallocate shares
from
the dividend reinvestment plan to the primary offering, insofar as
the ability to redeem shares pursuant to the proposed share
redemption program appears to be directly related to net proceeds
received from the sale of shares under the DRIP.
Payments to our advisor related to its subordinated participation
interest in our operating partnership will reduce cash available
for
distribution to our stockholders - page 16
33. Please revise to quantify the extent to which the advisor will
receive distributions should any of the three named events occur.
You will not have the benefit of an independent due diligence
review
in connection with this offering which increases the risk of your
investment - page 17
34. Please revise to more specifically identify the risk
associated
with the lack of independent due diligence.
We may structure acquisitions of property in exchange for limited
partnership units in our operating partnership on terms that could
limit our liquidity or our flexibility - page 18
35. Please revise to describe the "additional risks" to which an
investment would be subject in the event that you enter into the
acquisition/disposition of properties with entities managed by
your
advisor or its affiliates.
The ongoing SEC investigation of Triple Net Properties could
adversely impact our advisor`s ability to perform its duties to us
- -
page 19
36. We note your statement that Triple Net Properties believes
that
is has and intends to continue to cooperate fully with the SEC.
Please remove this mitigating language.
Certain of our advisor`s management personnel face conflicts of
interest relating to time management, and our results of
operations
may suffer as a result of these conflicts of interest - page 20
37. Please revise paragraph one to identify the members of your
advisor`s management personnel who are subject to conflicts of
interest. Please quantify the ownership interests in the other
Triple
Net programs, and identify the programs which raise the potential
for
conflict.
38. Please revise to identify which of your officers are also
officers of, limited partners in, and/or investors in other Triple
Net programs. Please quantify the extent of their interest in
these
other programs, and identify the programs which raise the
potential
for conflict.
Our advisor will face conflicts of interest relating to its
compensation structure, which could result in actions that are not
necessarily in the long-term best interests of our stockholders.
The
distribution payable to our advisor upon termination of the
advisory
agreement may also influence decisions about terminating our
advisor
or our acquisition or disposition of investments. - page 21
39. Please revise to quantify, to the extent possible, the
respective
fees which may result in the advisor acting in a way not
necessarily
in the long-term best interests of stockholders.
40. Because of the length of this risk factor, and the potential
for
a significant distribution in the event that the advisory
agreement
is terminated, consider breaking out the risk associated with the
termination of the advisory agreement as a separate risk factor
under
its own heading.
Risks related to investments in real estate - page 25
Changes in national, regional or local economic, demographic or
real
estate market conditions may adversely affect our results of
operations and returns to our stockholders - page 25
41. To the extent possible, please revise both your heading and
the
final sentence of this risk factor to specify the adverse effect
that
would follow upon the changes in market conditions you have
identified.
Uninsured losses relating to real estate may reduce your returns -
page 26
42. The first sentence appears to be mitigating of the disclosure
that follows. Please revise to remove it, or advise us why you
believe it may appropriately be retained.
Certain of our properties may not have efficient alternative uses
- -
page 28
43. Please revise the heading to identify the risk associated with
the fact that certain properties you acquire may not have
profitable
uses apart from being specialized medical facilities.
Risks related to investments in real estate related securities -
page
32
We do not have substantial experience in making or acquiring
mortgage
loans or investing in real estate related securities, which may
result in our real estate related securities investments failing
to
produce returns or incurring losses - page 32
44. Please clarify here and throughout whether you intend to
engage
in mortgage origination activities.
The CMBS in which we may invest are subject to several types of
risk
- - page 33
45. Please revise to indicate in the risk factor heading what a
CMBS
is.
Risks associated with debt financing - page 35
We will incur mortgage indebtedness and other borrowings, which
may
increase our business risks, could hinder our ability to make
distributions, and could decrease the value of your investment -
page
35
46. Please revise to clarify, if true, that you have not yet
identified any sources of debt financing. Please also revise your
liquidity discussion to reflect the current lack of availability
of
the proceeds of any such debt financings.
The terms of joint venture agreements or other joint ownership
arrangements into which we may enter could impair our operating
flexibility and our results of operations - page 36
47. Please revise the final sentence of the final paragraph to
briefly characterize the conflicts of interest that would exist
were
your venture partner or co-tenant an affiliate of the advisor.
To qualify as a REIT, we must meet annual distribution
requirements,
which may result in us distributing amounts that may otherwise be
used for operations - page 38
48. Please revise the heading and the narrative discussion of the
risk to clarify that you may borrow funds, sell assets or use
proceeds from the offering to make distributions. We note your
current disclosure that you may use funds that would otherwise be
spent on acquisitions. Please clarify that these funds may be
those
raised in the offering.
49. The final sentence appears to go beyond the risk identified in
the heading. Please revise to include this as a separate risk or
include within the risk discussing the consequences of your
failure
to qualify as a REIT.
Legislative or regulatory action could adversely affect investors
- -
page 40
50. Please revise to more specifically identify that the adverse
effect you are discussing relates to taxation of stockholders.
Investment Objectives, Strategy and Criteria - page 44
51. Please revise to disclose whether or not there are objective
criteria which the board would use in determining whether a change
in
your investment objectives would be advisable. If there are none,
please revise to so state.
Investment Strategy - page 44
52. We note that you may invest up to 25% of your total assets in
real estate related securities. Please revise to disclose, if
applicable, whether the limitations imposed by the Investment
Company
Act of 1940 will impinge upon this ability to invest in real
estate
related securities.
Change in Investment Objectives and Policies - page 55
53. Your statement at the conclusion of this paragraph that "Our
investment objectives and policies may be altered by our board of
directors without the approval of the stockholders" appears
contradictory to disclosure in the second full paragraph on page
58
under "Duties of Directors" stating that, "Any change in our
investment objectives must be approved by the stockholders."
Please
advise or revise. If, in fact, investment objectives can be
changed
absent shareholder approval, consider the inclusion of a risk
factor
discussing that possibility and the attendant risk to
shareholders.
Compensation Table - page 70
54. We note from your disclosure in the prior performance section
that "when Realty receives real estate commissions or disposition
fees as part of the purchase or sale of a property, 75% of that
commission is passed through to Triple Net Properties pursuant to
an
agreement between Triple Net Properties and Realty." Please
disclose
whether the same arrangement is in place, or is contemplated to be
implemented, between the parties in this offering and revise the
chart accordingly.
55. Please advise us why you have characterized the Subordinated
Distribution upon Termination of the Advisory Agreement Without
Cause
noted at footnote 8 as compensation in the liquidity stage, as
opposed to compensation in the operational stage.
56. We note that upon termination of the advisory agreement
without
cause your advisor will be entitled to a similar distribution to
the
subordinated distribution upon termination. However, it is
unclear
how that amount would be calculated. Please revise to clarify.
Conflicts of Interest - page 76
Competition - page 77, 78
57. Please advise us how conflicts relating to the employment of
developers, contractors, or building managers will be reduced by
Triple Net Properties making prospective employees aware of all
such
properties seeking to employ such persons. Likewise, please advise
how Triple Net`s making purchasers or renters aware of all
available
properties will tend to reduce conflicts. Does Triple Net have any
allocation procedures in place in order to reduce potential
conflicts, in addition to the disclosure methods here described?
Legal Matters - page 154
58. In the interest of subject matter continuity, please revise to
move the disclosure found at page 116 to immediately follow upon
your
discussion of legal matters.
Exhibit 5.1-Opinion of Venable, LLP
59. We are uncertain why counsel has included the assumption at
numeral 6, page 3, since this appears to be a matter upon which
counsel can opine. Please revise to omit the assumption, or advise
us
why counsel believes it may appropriately be retained.
Exhibit 8.1-Opinion of Alston & Bird LLP
60. We note your assumption that "the representations set forth in
the Officer`s Certificate are true, accurate and complete as of
the
date hereof." Please have counsel revise to include the word
"factual" before the word "representations."
As appropriate, please amend your registration statement in
response to these comments. You may wish to provide us with
marked
copies of the amendment to expedite our review. Please furnish a
cover letter with your amendment that keys your responses to our
comments and provides any requested information. Detailed cover
letters greatly facilitate our review. Please understand that we
may
have additional comments after reviewing your amendment and
responses
to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filing to be certain that the
filing includes all information required under the Securities Act
of
1933 and that they have provided all information investors require
for an informed investment decision. Since the company and its
management are in possession of all facts relating to a company`s
disclosure, they are responsible for the accuracy and adequacy of
the
disclosures they have made.
Notwithstanding our comments, in the event the company
requests
acceleration of the effective date of the pending registration
statement, it should furnish a letter, at the time of such
request,
acknowledging that:
? should the Commission or the staff, acting pursuant to
delegated
authority, declare the filing effective, it does not foreclose the
Commission from taking any action with respect to the filing;
? the action of the Commission or the staff, acting pursuant to
delegated authority, in declaring the filing effective, does not
relieve the company from its full responsibility for the adequacy
and
accuracy of the disclosure in the filing; and
? the company may not assert staff comments and the declaration
of
effectiveness as a defense in any proceeding initiated by the
Commission or any person under the federal securities laws of the
United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in connection with our review of
your
filing or in response to our comments on your filing.
We will consider a written request for acceleration of the
effective date of the registration statement as confirmation of
the
fact that those requesting acceleration are aware of their
respective
responsibilities under the Securities Act of 1933 and the
Securities
Exchange Act of 1934 as they relate to the proposed public
offering
of the securities specified in the above registration statement.
We
will act on the request and, pursuant to delegated authority,
grant
acceleration of the effective date.
We direct your attention to Rules 460 and 461 regarding
requesting acceleration of a registration statement. Please allow
adequate time after the filing of any amendment for further review
before submitting a request for acceleration. Please provide this
request at least two business days in advance of the requested
effective date.
You may contact Robert Telewicz at (202) 551-3438, or Jorge
L.
Bonilla, Senior Staff Accountant, at (202) 551-3414 if you have
questions regarding comments on the financial statements and
related
matters. Please contact Paul Fischer at 202-551-3415 or me at
202-
551-3780 with any other questions.
Sincerely,
Elaine Wolff
Branch Chief
cc: Lesley H. Solomon, Esq. (via facsimile)
Alston & Bird LLP
Mr. Scott D. Peters
NNN Healthcare/Office REIT, Inc.
May 24, 2006
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