Related Party Transactions and Arrangements

3 Months Ended

Mar. 31, 2016

NOTE 7: Related Party Transactions and Arrangements

Fees and Expenses Paid to Our Advisor

As of September 25, 2015 we entered into the Second Amendment to the Second Amended and Restated Advisory Agreement. The Second Amendment amends the advisory agreement to extend its term to October 1, 2020, and so that, for periods subsequent to October 1, 2015, our Advisor will be compensated as follows:

Quarterly base management fee of 0.375% of our cumulative equity raised; and

Quarterly incentive fee equal to 20% of our Core FFO, as defined in the advisory agreement, in excess of $0.20 per share.

Prior to the Second Amendment, the Second Amended and Restated Advisory Agreement, which was effective as of May 7, 2013 through September 30, 2015, provided that our Advisor was compensated as follows:

Quarterly base management fee of 0.1875% of average gross real estate assets as of the last day of such quarter. Average gross real estate assets means the average of the aggregate book value of our real estate assets before reserves for depreciation or other similar noncash reserves and excluding the book values attributable to the eight properties that were acquired prior to August 16, 2013. We computed average gross real estate assets by taking the average of these book values at the end of each month during the quarter for which we are calculated the fee.

An incentive fee based on our pre-incentive fee core funds from operations, or Core FFO. The incentive fee is computed at the end of each fiscal quarter as follows:

no incentive fee in any fiscal quarter in which our pre-incentive fee Core FFO does not exceed the hurdle rate of 1.75% (7% annualized) of the cumulative gross amount of equity capital we have obtained; and

20% of the amount of our pre-incentive fee Core FFO that exceeds 1.75% (7% annualized) of the cumulative gross proceeds from the issuance of equity securities.

For the three months ended March 31, 2016 and 2015, our advisor earned $1,631 and $1,001 of asset management fees, respectively.

For the three months ended March 31, 2016 and 2015, our advisor earned $65 and $211 of incentive fees, respectively. These fees are included within asset management fees in our consolidated statements of operations.

As of March 31, 2015 and December 31, 2015 we had liabilities payable to our Advisor for asset management fees and incentive fees of $1,696 and $1,856, respectively. These liabilities are presented within accounts payable and accrued expenses in the accompanying consolidated balance sheets.

Property Management Fees Paid to Our Property Manager

We have entered into property management agreements with RAIT Residential, or our property manager, which is wholly owned by RAIT, with respect to each of our properties. Pursuant to the property management agreements, we pay our property manager property management and leasing fees on a monthly basis of an amount up to 4.0% of the gross revenues from the property for each month. Additionally, we may pay our property manager a separate fee for the one-time initial rent-up or leasing-up of newly constructed properties in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar services in the same geographic area for similar properties as determined by a survey of brokers and agents in such area. Each management agreement has an initial one year term, subject to automatic one-year renewals unless either party gives prior notice of its desire to terminate the management agreement. For the three months ended March 31, 2016 our property manager earned $1,262 of property management and leasing fees. For the three months ended March 31, 2015 our property manager earned $755 of property management and leasing fees. As of March 31, 2016 and December 31, 2015, we had liabilities payable to our property manager for property management and leasing fees of $428 and $263, respectively. These liabilities are presented within accounts payable and accrued expenses in the accompanying consolidated balance sheets.

Dividends Paid to Affiliates of our Advisor

As of March 31, 2016 and December 31, 2015, RAIT owned 15.4% and 15.5% of the outstanding shares of our common stock, respectively. For the three months ended March 31, 2016 and 2015, we declared and subsequently paid dividends of $1,309 and $1,309, respectively, related to shares of common stock owned by RAIT.

RAIT Indebtedness

See NOTE 4: Indebtedness, for a description of our mortgage indebtedness owed to RAIT.

- Definition

The entire disclosure for related party transactions. Examples of related party transactions include transactions between (a) a parent company and its subsidiary; (b) subsidiaries of a common parent; (c) and entity and its principal owners; and (d) affiliates.

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