Organization

Clipper Realty Inc. (the “Company” or “We”) was organized in the state of Maryland on

July

2015.

August

2015,

We completed certain formation transactions and the sale of shares of common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies (“LLC’s”) that comprised the predecessor of the Company (the “Predecessor”) in exchange for class A LLC units in such LLC’s and became the managing member of such LLC’s. The owners of the LLC’s exchanged their interests for class B LLC units and an equal number of special, non-economic, voting stock in the Company. The class B LLC units, together with the special voting shares, are convertible into common shares of the Company on a

one

-for-

one

basis and are entitled to distributions.

February

2017,

the Company closed an initial public offering of

6,390,149

shares of its common stock (including the exercise in full of the over-allotment option, which closed on

March

10,

2017)

at a price of

$13.50

per share (the “IPO”). The net proceeds of the IPO were approximately

$78.9

million. We contributed the proceeds of the IPO to Clipper Realty L.P., our Operating Partnership, in exchange for units in the Operating Partnership.

As of

March

31,

2017,

the properties owned by the Company consist of the following (collectively, the “Properties”):

•

Tribeca House properties in Manhattan, comprising

two

buildings,

one

with

stories and

one

with

stories, containing residential and retail space with an aggregate of approximately

480,000

square feet of residential rental Gross Leasable Area (“GLA”) and

77,236

of rental retail and parking GLA;

•

Flatbush Gardens in Brooklyn, comprised of a

-building multi-family housing complex with

2,496

rentable units;

•

141

Livingston Street in Brooklyn, a

-story office building with approximately

216,073

square feet of GLA;

•

250

Livingston Street in Brooklyn, a

-story office and residential building with approximately

294,378

square feet of GLA; and

•

Aspen property in Manhattan, a

seven

-story building containing residential and retail space with approximately

166,000

square feet of residential rental GLA and approximately

21,000

of rental retail GLA.

The operations of Clipper Realty, Inc. and its consolidated subsidiaries are carried on primarily through the Operating Partnership. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections

856

through

860

of the Internal Revenue Code. The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLC’s that comprised the Predecessor.

March

31,

2017,

The Company’s interest, through the Operating Partnership, in the LLC’s that own the properties generally entitles it to

40.4%

of the aggregate cash distributions from, and the profits and losses of the LLC’s.

As further discussed in Note

upon adoption of ASU

2015

02,

the Company determined that the LLC’s are variable interest entities (“VIEs”) and that the Company was the primary beneficiary. The assets and liabilities of these VIEs represented substantially all of the Company’s assets and liabilities.