3. Related-Party Transactions

Property Management Agreement

The Corporation and the Operating Company have entered into a property management agreement (“Property Management Agreement”) with the Manager, a related party in which certain officers and directors of the Corporation have either a direct or indirect ownership interest. Under the terms of the Property Management Agreement, the Manager manages and coordinates certain aspects of the leasing of the Corporation’s rental property.

In exchange for various services provided under the Property Management Agreement, the Manager is compensated as outlined in the agreement.

In addition, the Manager may also provide, but is not obligated to provide, short-term financing to, or guarantees for, the Operating Company. In exchange for these services, the Manager is entitled to receive an interest rate of up to the prime rate plus 1.00% in exchange for any advances to the Operating Company, and 0.05% for guaranteeing recourse carve-outs on financing arrangements. No such advances or guarantees were outstanding or made during the six months ended June 30, 2017 and 2016, respectively.

The initial term of the Property Management Agreement is effective through December 31, 2017, after which it automatically renews for successive one-year periods, unless either party provides written notice of termination in accordance with the Property Management Agreement. The Corporation’s Independent Directors Committee (“IDC”) has approved the renewal of the agreement through December 31, 2018. If the Corporation terminates the agreement prior to any renewal term or the Corporation’s IDC terminates the agreement within 30 days following a change in control of the Manager (as defined in Property Management Agreement), the Corporation will be required to pay to the Manager a termination fee equal to three times the Management Fees, as defined in the Property Management Agreement, to which the Manager was entitled during the 12-month period immediately preceding the date of such termination. Although not terminable as of June 30, 2017, if the Property Management Agreement had been terminated at June 30, 2017 subject to the conditions noted above, the termination fee would have been $13,416.

Asset Management Agreement

The Corporation and the Operating Company have entered into an asset management agreement (“Asset Management Agreement”) with the Asset Manager, a wholly-owned subsidiary of the Manager, and therefore a related party in which certain officers and directors of the Company have an indirect ownership interest. Under the terms of the Asset Management Agreement, the Asset Manager is responsible for, among other things, the Corporation’s acquisition, initial leasing, and disposition strategies, financing activities, and providing support to the IDC for its valuation functions and other duties. The Asset Manager also designates two individuals to serve on the Board of Directors of the Corporation.

Under the terms of the Asset Management Agreement, the Asset Manager receives an annual asset management fee (“Asset Management Fee”) equal to 1% of the aggregate value of the Corporation’s common stock, based on the per share value of the Corporation’s common stock as determined by the IDC each quarter, on a fully diluted basis as if all interests in the Operating Company had been converted into shares of the Corporation’s common stock. Through December 31, 2017, compensation to the Asset Manager for any quarter will be deferred in whole or in part at any time during a rolling 12-month period when cumulative distributions are below $3.50 per share. Any deferred compensation under the Asset Management Agreement will accrue interest at the rate of 7% per annum until paid and will be paid from available funds after cumulative 12-month distributions equal $3.50 per share. No compensation to the Asset Manager was deferred during the six months ended June 30, 2017 and 2016. In addition, the Company pays the Asset Manager, or its designee, a marketing fee equal to 0.5% of all contributions of cash or property to the Corporation or the Operating Company, excluding reinvestments of distributions pursuant to the Distribution Reinvestment Plan (See Note 13), as compensation for its internal and third party offering and marketing costs and expenses. The Asset Manager has the responsibility to cover offering, marketing, and brokerage expenses associated with investor related matters of the Corporation and Operating Company.

The Asset Management Agreement includes various other fees paid to the Asset Manager in exchange for services provided under the agreement.

The initial term of the Asset Management Agreement is effective through December 31, 2017, after which it automatically renews for successive one year periods, unless either party provides written notice of termination in accordance with the Asset Management Agreement. The IDC has approved the renewal of the agreement through December 31, 2018. If the Corporation terminates the agreement prior to any renewal term or the IDC terminates the agreement within thirty days following a change in control of the Asset Manager (as defined in the Asset Management Agreement), the Corporation will be required to pay to the Asset Manager a termination fee equal to three times the Asset Management Fee to which the Asset Manager was entitled during the 12-month period immediately preceding the date of such termination. Although not terminable as of June 30, 2017, if the Asset Management Agreement had been terminated at June 30, 2017 subject to the conditions noted above, the termination fee would have been $38,388. Total fees incurred under the Property Management Agreement and Asset Management Agreement for the three months and six months ended June 30, 2017 and 2016 are as follows:

(in thousands)		For the three months ended June 30,				For the six months ended June 30,
Type of Fee	Financial Statement Presentation	2017		2016		2017		2016
Asset management fee	Asset management fees	$	3,629	$	2,610	$	6,822	$	4,981
Property management fee	Property management fees		1,218		974		2,386		1,853
Total management fee expense			4,847		3,584		9,208		6,834

Marketing fee	Additional paid-in capital		391		322		802		658
Acquisition fee	Capitalized as a component of assets acquired in 2017 (See Note 4) and included as acquisition expenses in 2016		1,032		1,896		1,929		2,456
Leasing fee	Leasing fees, net		899		1,869		1,796		2,003
Disposition fee	Gain on sale of real estate		240		17		303		38
Total management fees		$	7,409	$	7,688	$	14,038	$	11,989

Included in management fees are $1,310 and $364 of unpaid fees recorded in Due to related parties on the Condensed Consolidated Balance Sheets at June 30, 2017 and December 31, 2016, respectively. All fees related to the Property Management Agreement and the Asset Management Agreement are paid for in cash within the Company’s normal payment cycle for vendors.

Legal Services

The Company retains the legal services of Vaisey Nicholson & Nearpass, PLLC (“VNN”), formerly a related party. One former minority partner of VNN is an immediate family member to a member of the management of the Company and an indirect minority owner of the Manager. Beginning January 2017, the family member was no longer an owner or partner of VNN and therefore, prospectively, VNN will no longer be deemed a related party. Legal services obtained from VNN are mainly for acquisition and disposition of real estate related matters, as well as general counsel regarding property management and financing. The IDC has reviewed the billings and other aspects of the relationship between VNN and the Company. The Company utilizes the services of other outside legal counsel as well. These fees are paid for in cash within the Company’s normal payment cycle for vendor payments. Included in these expenses are $456 of unpaid fees recorded in Accounts payable and other liabilities at June 30, 2016. The following table details the type of legal fees incurred from VNN for the three months and six months ended June 30, 2016:

(in thousands)
Type of Fee	Financial Statement Presentation	For the three months ended June 30, 2016		For the six months ended June 30, 2016
Legal services – general	General and administrative	$	76	$	169
Organization costs	General and administrative		4		14
			80		183

Finance related	Debt issuance costs^(a)		45		45
Acquisition related fees	Acquisition expenses		1,050		1,667
Legal services - tenant related	Property and operating expenses		12		12
Total related party legal expenses		$	1,187	$	1,907

(a)	Amounts are recorded within Debt issuance costs – unsecured revolver, net, Mortgage and notes payable, net, and Unsecured term notes, net, on the accompanying Condensed Consolidated Balance Sheets.