NOTE 8: 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 to provide for compensation to our Advisor for periods subsequent to October 1, 2015 as follows:

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

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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:

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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.

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

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

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

For the three and nine months ended September 30, 2016, our Advisor earned $1,727 and $5,141 of asset management fees, respectively. For the three and nine months ended September 30, 2015, our Advisor earned $1,259 and $3,306 of asset management fees, respectively.

For the three and nine months ended September 30, 2016, our Advisor earned $206 and $350 of incentive fees, respectively. For the three and nine months ended September 30, 2015, our Advisor earned $0 and $425 of incentive fees, respectively. These fees are included within asset management fees in our consolidated statements of operations.

As of September 30, 2016 and December 31, 2015 we had liabilities payable to our Advisor for asset management fees and incentive fees of $3,726 and $1,854, 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 and nine months ended September 30, 2016 our property manager earned $1,219 and $3,710 of property management and construction management fees, respectively. For the three and nine months ended September 30, 2015 our property manager earned $861 and $2,381 of property management and construction management fees, respectively. As of September 30, 2016 and December 31, 2015, we had liabilities payable to our property manager for property management and construction management fees of $0 and $440, 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 September 30, 2016 and December 31, 2015, RAIT owned 15.4% and 15.5% of the outstanding shares of our common stock, respectively. For the three and nine months ended September 30, 2016, we declared and subsequently paid dividends of $1,309 and $3,927, respectively, related to shares of common stock owned by RAIT. For the three and nine months ended September 30, 2015, we declared and subsequently paid dividends of $1,309 and $3,926 respectively, related to shares of common stock owned by RAIT. As of September 30, 2016 and December 31, 2015, we had distributions payable to RAIT of $436 and $436, respectively.

RAIT Indebtedness

In the second quarter of 2016, we repaid $38,075 of mortgage indebtedness with proceeds from two property dispositions. This indebtedness was held by RAIT. During the three and nine months ended September 30, 2016, we paid $0 and $486, respectively, in exit fees pursuant to the contractual terms of the mortgage indebtedness to RAIT.

Management Internalization and Stock Repurchase

On September 27, 2016, we announced the management internalization, which involved the acquisition of our external advisor as well as the acquisition of certain assets and the assumption of certain liabilities relating to the multifamily property management business of RAIT, and the repurchase of up to all of the approximately 7,269,719 shares of our common stock owned by certain of RAIT’s subsidiaries. See Note 1: The Company and Note 11: Subsequent Events for further information.