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Related Party Arrangements
 12 Months Ended
Dec. 31, 2023
Related Party Transactions [Abstract]  
Related Party Arrangements

Note 4 – Related Party Arrangements

 

Our Transactions with Belpointe Investment Holding, LLC

 

In furtherance of the Merger, Belpointe REIT sold its interest (the “1991 Main Interest”) in the holding company for 1991 Main Street (“1991 Main”) to Belpointe Investment Holding, LLC (“BI Holding”), an affiliate of our Chief Executive Officer. As part of the transaction, BI Holding assumed a $10.8 million secured loan (the “Acquisition Loan”), and Belpointe REIT provided BI Holding with a $24.8 million loan, which was evidenced by a secured promissory note bearing interest at an annual rate of 5.0% and due and payable at maturity on September 14, 2022 (the “BI Secured Note”). Upon consummation of the Merger, we acquired the BI Secured Note as successor in interest to Belpointe REIT. Effective November 30, 2021, we acquired the 1991 Main Interest from BI Holding in consideration of its payment to us of $0.3 million in interest that had accrued under the terms of the BI Secured Note through November 30, 2021, and in satisfaction of its remaining obligations under the BI Secured Note. On April 22, 2022, we repaid the Acquisition Loan in full.

 

Our Transaction with Norpointe, LLC

 

On January 3, 2022, through an indirect wholly-owned subsidiary, we provided a commercial mortgage loan in the principal amount of $30.0 million (the “Norpointe Loan”) to Norpointe, LLC (“Norpointe”), an affiliate of our Chief Executive Officer. Norpointe is the owner of certain real property located at 41 Wolfpit Avenue, Norwalk, Connecticut 06851 (the “Norpointe Property”). The Norpointe Loan was evidenced by a promissory note bearing interest at an annual rate of 5.0%, due and payable on December 31, 2022, and was secured by a first mortgage lien on the Norpointe Property.

 

 

On June 28, 2022, for purposes of complying with the qualified opportunity fund requirements under the Code and related Treasury Regulations, we restructured the Norpointe Loan through an indirect majority owned subsidiary (the “Restructured Norpointe Loan”). The Restructured Norpointe Loan was evidenced by a promissory note bearing interest at an annual rate of 5.0%, due and payable on June 28, 2023, and was secured by a first mortgage lien on the Norpointe Property. On December 13, 2022, the Restructured Norpointe Loan including accrued interest of less than $0.1 million was repaid in full.

 

Our Transaction with Belpointe Development Holding, LLC

 

On October 30, 2023, we borrowed $1.5 million from Belpointe Development Holding, LLC, an entity in which certain immediate family members of our Chief Executive Officer have a passive indirect minority beneficial ownership interest, pursuant to the terms of an unsecured promissory note (the “BDH Note”). The BDH Note was due and payable on March 31, 2024 and interest accrued on the BDH Note at an annual rate of 4.5%. The proceeds of the loan were used for general corporate purposes. On December 29, 2023, the BDH Note, including accrued interest of less than $0.1 million, was repaid in full.

 

Our Transaction with Lacoff Holding II, LLC

 

On December 29, 2023, we borrowed $4.0 million from Lacoff Holding II LLC, an affiliate of our Chief Executive Officer, pursuant to the terms of a promissory note (the “LH II Loan”). The LH II Loan is due and payable on April 1, 2024 and interest accrues on the LH II Note at an annual rate of 5.26%. The proceeds of the loan were used for general corporate purposes.

 

Joint Ventures

 

During the years ended December 31, 2023 and 2022, less than $0.1 million, and $0.3 million, respectively, of noncontrolling interest contributions were made by affiliates of our Sponsor representing their 0.1% ownership in various investments. These noncontrolling interests will be allocated profit and loss in accordance with the respective operating agreements.

 

Our Relationship with Our Manager and Sponsor

 

Our Manager is an affiliate of our Sponsor and is indirectly owned by our Chief Executive Officer and beneficially owned by certain immediate family members of our Chief Executive Officer. Our Manager and its affiliates, including our Sponsor, receive fees or reimbursements in connection with our Primary Offering and the management of our investments.

 

The following table summarizes the fees incurred on our behalf by, and expenses reimbursable to, our Manager and its affiliates, including our Sponsor, in accordance with the terms of our relevant agreements with such parties (amounts in thousands):

 

   2023   2022 
   Years Ended December 31, 
   2023   2022 
Amounts included in the Consolidated Statements of Operations          
Costs incurred by our Manager and its affiliates (1)  $3,050   $2,349 
Management fees (2)   2,693    2,583 
Insurance (3)   449    419 
Director compensation   80    80 
Costs incurred by the manager and its affiliates  $6,272   $5,431 
           
Capitalized costs included in the Consolidated Balance Sheets          
Development fee and reimbursements  $7,324   $5,649 
Insurance (3)   2,160    1,631 
Total capitalized costs  $9,484   $7,280 

 

 

(1) Includes wage, overhead and other reimbursements to our Manager and its affiliates, including our Sponsor, which are included in General and administrative in our consolidated statements of operations.
   
(2) Included in Property expenses in our consolidated statements of operations.
   
(3) Our insurance premiums are prepaid and are included in Other assets in our consolidated balance sheets and are amortized monthly to either Property expenses in our consolidated statements of operations or Real estate under construction in our consolidated balance sheets.

 

 

The following table summarizes amounts included in Due to affiliates in our consolidated balance sheets (amounts in thousands):

 

   2023   2022 
   December 31, 
   2023   2022 
Amounts Due to affiliates          
Development fees  $6,129   $4,256 
Employee cost sharing and reimbursements (1)   2,856    866 
Management fees   1,365    661 
Director compensation   20    20 
Due to affiliates  $10,370   $5,803 

 

 

(1) Includes wage, overhead and other reimbursements to our Manager and its affiliates, including our Sponsor.

 

Public Offering Expenses

 

Our Manager and its affiliates, including our Sponsor, are reimbursed, for organizational and offering expenses incurred in connection with our Public Offerings. We became liable to reimburse our Manager and its affiliates, including our Sponsor, when the first closing was held in connection with our Primary Offering, which occurred in October 2021.

 

There were no organizational or Primary Offering expenses incurred by our Manager and its affiliates during the years ended December 31, 2023 and 2022.

 

Other Operating Expenses

 

Pursuant to the terms of a management agreement between us, our Operating Companies and our Manager (the “Management Agreement”), we reimburse our Manager, Sponsor and their respective affiliates for actual expenses incurred on our behalf in connection with the selection, acquisition or origination of investments, whether or not we ultimately acquire or originate an investment. We also reimburse our Manager, Sponsor and their respective affiliates for out-of-pocket expenses paid to third parties in connection with providing services to us.

 

Pursuant to the terms of an employee and cost sharing agreement between us, our Operating Companies, our Manager and our Sponsor, we reimburse our Sponsor and our Manager for expenses incurred for our allocable share of the salaries, benefits and overhead of personnel providing services to us. During the years ended December 31, 2023, and 2022, our Manager and its affiliates, including our Sponsor, incurred operating expenses of $2.9 million and $2.9 million, respectively, on our behalf. The expenses are payable, at the election of the recipient, in cash, by issuance of our Class A units at the then-current NAV, or through some combination of the foregoing. As of December 31, 2023, all expenses incurred since inception have been paid in cash.

 

Management Fee

 

Subject to the limitations set forth in our Amended and Restated Limited Liability Company Operating Agreement (our “Operating Agreement”) and the oversight of our Board, our Manager is responsible for managing our affairs on a day-to-day basis and for the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including but not limited to commercial real estate loans, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses.

 

Pursuant to the Management Agreement, we pay our Manager a quarterly management fee in arrears of one-fourth of 0.75%. The management fee is based on our NAV at the end of each quarter.

 

Development Fees and Reimbursements

 

Affiliates of our Sponsor are entitled to receive (i) development fees on each project in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project, and (ii) reimbursements for their expenses, such as employee compensation and other overhead expenses incurred in connection with the project.

 

 

In connection with our acquisition of several parcels, comprising 1.6-acres of land, located in St. Petersburg, Florida, in October 2020, and our acquisition of 900 8th Avenue South (as defined and described in greater detail in “Note 5 – Real Estate, Net”), a development fee of 4.5% of total project costs will be charged throughout the course of each project, of which one half was due at the close of each acquisition.

 

On March 29, 2022, we commenced construction on one of our properties located in Sarasota, Florida, and in connection therewith, due to an increase in scope of work, we agreed to increase the development fee payable to an affiliate of our Sponsor under the terms of our existing development management agreement from 4.0% to 4.25%. In addition, again due to the increase in scope of work, as well as due to increases in construction costs, we also revised our construction budget. As a result of the increase in development fees and revisions to our construction budget, we incurred an additional upfront development fee of $2.5 million, which is included in Real estate under construction in our consolidated balance sheets. The remaining development fee will be charged throughout the course of the project in accordance with the terms of the development management agreement.

 

During the years ended December 31, 2023, and 2022, we incurred development fees earned during the construction phase of $5.9 million, and $4.3 million, respectively. As of December 31, 2023 and 2022, $6.1 million and $4.3 million, respectively, remained due and payable to our affiliates for development fees.

 

During the years ended December 31, 2023, and 2022, we incurred employee reimbursement expenditures to our affiliates acting as development managers of $1.6 million, and $1.5 million, respectively, of which $1.2 million, and $1.3 million, respectively, is included in Real estate under construction in our consolidated balance sheets, and $0.4 million, $0.2 million, respectively, is included in General and administrative expenses in our consolidated statements of operations. As of December 31, 2023 and 2022, $1.3 million and $0.3 million, respectively, remained due and payable to our affiliates for employee reimbursement expenditures.

 

On April 25, 2023, each of the indirect majority-owned subsidiaries for our Nashville investments entered into development management agreements with certain development entities in which immediate family members of our Chief Executive Officer have a passive indirect minority beneficial ownership interest (collectively, the “Nashville DMAs”). The aggregate development fees payable under the Nashville DMAs are equal to 55% of 4.5% of the development budget or hard costs, as applicable. During the year ended December 31, 2023, we incurred $0.4 million of development fees related to the Nashville DMAs, which were capitalized to Real estate under construction in our consolidated balance sheets, with the remaining development fees payable upon our achieving various milestones throughout the development of our Nashville investments. As of December 31, 2023, $0.4 million in development fees related to the Nashville DMAs remained outstanding and payable.

 

Acquisition Fees

 

We will pay our Manager, Sponsor, or an affiliate of our Manager or Sponsor, an acquisition fee equal to 1.5% of the total value of any acquisition transaction, including any acquisition through merger with another entity (but excluding any transactions in which our Sponsor, or an affiliate of our Manager or Sponsor, would otherwise receive a development fee). We did not incur any acquisition fees during the years ended December 31, 2023 and 2022, since all investments acquired during these periods were, or will be, subject to payment of development fees.

 

Insurance

 

Certain immediate family members of our Chief Executive Officer have a passive indirect minority beneficial ownership interest in Belpointe Specialty Insurance, LLC (“Belpointe Specialty Insurance”). Belpointe Specialty Insurance has acted as our broker in connection with the placement of insurance coverage for certain of our properties and operations. Belpointe Specialty Insurance earns brokerage commissions related to the brokerage services that it provides to us, which commissions vary, are based on a percentage of the premiums that we pay and are set by the insurer. We have also engaged Belpointe Specialty Insurance to provide us with contract insurance consulting services related to owner-controlled insurance programs, for which we pay an administration fee.

 

During the years ended December 31, 2023, and 2022, we obtained insurance coverage and paid premiums in the aggregate amount of $2.6 million, and $4.8 million, respectively, from which Belpointe Specialty Insurance earned commissions and administrative fees of $0.2 million, and $0.5 million, respectively. Insurance premiums are prepaid and are included in Other assets in our consolidated balance sheets.

 

 

Economic Dependency

 

Under various agreements we have engaged our Manager and its affiliates, including in certain cases our Sponsor, to provide certain services that are essential to us, including asset management services, asset acquisition and disposition services, supervision of our Primary Offering and any other offerings that we may conduct, as well as other administrative responsibilities for the Company, including, without limitation, accounting services and investor relations services. As a result of these relationships, we are dependent upon our Manager and its affiliates, including our Sponsor. In the event that our Manager and its affiliates are unable to provide us with the services that we have engaged them to provide, we would be required to find alternative service providers.