Pre-Effective Amendment to Registration Statement by a Real Estate Company — Form S-11 Filing Table of Contents
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Approximate date of commencement of proposed sale to the
public: as soon as practicable after the
registration statement becomes effective.
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act
of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration number of the
earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration number of the
earlier effective registration statement for the same
offering. o
If delivery of this prospectus is expected to be made pursuant
to Rule 434, check the following
box. o
The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Securities
and Exchange Commission, acting pursuant to said
Section 8(a), may determine.
The
information in this prospectus is not complete and may be
changed. We may not sell these securities until the registration
statement filed with the Securities and Exchange Commission is
effective. The prospectus is not an offer to sell the securities
and it is not soliciting an offer to buy these securities in any
state where the offer or sale is not permitted.
Green Realty Trust, Inc. was formed in October 2007 to acquire a
diversified portfolio of environmentally-friendly or green real
properties. We are externally managed by Insight Green REIT
Advisor, LLC, which we refer to as our advisor. We intend to
qualify as a real estate investment trust, or REIT, for federal
income tax purposes.
We are offering up to $1,650,000,000 in shares. We will offer
$1,500,000,000 in shares to the public at a price of $10.00 per
share, which we refer to as the primary offering, and
$150,000,000 in shares will be offered to our stockholders
pursuant to our distribution reinvestment plan at a price of
$9.50 per share. We reserve the right to reallocate the shares
of common stock we are offering between the primary offering and
the distribution reinvestment plan.
This investment involves a high degree of risk. You should
purchase shares of our common stock only if you can afford a
complete loss of your investment. See “Risk Factors”
beginning on page 13. These risks include, among others:
•
We have no prior operating history, and there is no assurance
that we will be able to successfully achieve our investment
objectives.
•
Because there is no public trading market for shares of our
common stock and we are not obligated to effectuate a liquidity
transaction by a certain date, it will be difficult for you to
sell your shares.
•
This is a “blind pool” offering, and you will not have
the opportunity to evaluate our investments prior to purchasing
shares of our common stock.
•
We depend upon our advisor and its affiliates to conduct our
operations and this offering. Adverse changes in the financial
health of our advisor or its affiliates could cause our
operations to suffer.
•
This is a “best efforts” offering, and if we are
unable to raise substantial funds we will be limited in our
investments.
•
Our advisor and other affiliates will face conflicts of interest
as a result of compensation arrangements, time constraints and
competition for investments and for tenants, which could result
in actions that are not in your best interests.
•
The amount of any distributions we may make is uncertain. Our
distribution proceeds may exceed our earnings, particularly
during the period before we have substantially invested the net
proceeds from this offering. Therefore, portions of the
distributions that we make may represent a return of capital to
you.
•
If we fail to qualify as a REIT, it would adversely affect our
operations and our ability to make distributions to our
stockholders.
Neither the Securities and Exchange Commission nor any other
regulatory body has approved or disapproved of these securities
or determined if this prospectus is truthful or complete. The
Attorney General of the State of New York has not passed on or
endorsed the merits of this offering. Any representation to the
contrary is unlawful. Projections or forecasts cannot be used in
this offering. Any representation to the contrary and any
predictions, written or oral, as to the amount or certainty of
any present or future cash benefit or tax consequence which may
flow from an investment in our common stock is not permitted.
C:
C:
Proceeds to
Selling
Dealer
Green Realty Trust, Inc.
Price to Public(1)
Commission(1)(2)
Manager Fee
Before Expenses(1)(3)
Primary Offering Per Share
$
10.00
$
0.70
$
0.25
$
9.05
Total Minimum
$
2,000,000
$
140,000
$
50,000
$
1,810,000
Total Maximum
$
1,500,000,000
$
105,000,000
$
37,500,000
$
1,357,500,000
Distribution Reinvestment Plan Offering Per Share
$
9.50
$
—
$
—
$
9.50
Total Maximum
$
150,000,000
$
—
$
—
$
150,000,000
(1)
Assumes we sell $1,500,000,000 in the primary offering and
$150,000,000 pursuant to our distribution reinvestment plan.
(2)
Proceeds are calculated before reimbursing our advisor for
organization and offering expenses up to $45,000,000, or 3.0% of
the gross offering proceeds from the sale of shares in the
primary offering.
(3)
Discounts are available for certain categories of purchasers.
Our shares will be offered to investors on a best efforts basis
through 1st Worldwide Financial Partners, LLC, the dealer
manager of this offering. The minimum investment is $2,000. We
will not sell any shares unless we raise a minimum of $2,000,000
of subscription proceeds
by ,
2008 (one year from the date of this prospectus). Pending
satisfaction of the minimum offering amount, all subscription
payments will be placed in an escrow account held by the escrow
agent, Wells Fargo Bank, N.A., in trust for the
subscribers’ benefit, pending release to us. If we do not
raise at least $2,000,000
by ,
2008, we will return all funds in the escrow account (including
interest), and we will stop selling shares. This offering will
terminate no later
than ,
2009 (two years from the date of this prospectus), unless
extended.
The shares of common stock we are offering are suitable only as
a long-term investment for persons of adequate financial means.
We do not expect to have a public market for shares of our
common stock, which means that it may be difficult for you to
sell your shares. On a limited basis, you may be able to redeem
shares through our share redemption program, and in the future
we may also consider various forms of additional liquidity. You
should not buy shares of our common stock if you need to sell
them immediately or if you will need to sell them quickly in the
future.
We will make every reasonable effort to determine that the
purchase of shares of our common stock is a suitable and
appropriate investment for each investor based on information
concerning the investor’s financial situation and
investment objectives. In consideration of these factors, we
have established suitability standards for initial stockholders
and subsequent transferees. These suitability standards require
that a purchaser of shares of our common stock have either:
•
A net worth (excluding the value of an investor’s home,
furnishings and automobiles) of at least $250,000; or
•
A gross annual income of at least $70,000 and a net worth
(excluding the value of an investor’s home, furnishings and
automobiles) of at least $70,000.
In addition, a Kentucky investor’s aggregate investment in
this offering may not exceed 10.0% of the investor’s liquid
net worth.
The minimum purchase amount is $2,000, except in certain states
as described below. In order to satisfy the minimum purchase
requirements for retirement plans, unless otherwise prohibited
by state law, a husband and wife may jointly contribute funds
from their separate IRAs, provided that each such contribution
is made in increments of $500. You should note that an
investment in shares of our common stock will not, in itself,
create a retirement plan and that, in order to create a
retirement plan, you must comply with all applicable provisions
of the Internal Revenue Code of 1986, as amended, which we refer
to as the “Code.”
The minimum purchase for Maine, Minnesota, New York and North
Carolina residents is $2,500, except for IRAs which must
purchase a minimum of $2,000.
Purchases of shares of our common stock pursuant to our
distribution reinvestment plan may be in amounts less than set
forth above and are not required to be made in increments of
$500.
In the case of sales to fiduciary accounts, these suitability
standards must be met by the fiduciary account, by the person
who directly or indirectly supplied the funds for the purchase
of the shares of our stock or by the beneficiary of the account.
These suitability standards are intended to help ensure that,
given the long-term nature of an investment in shares of our
stock, our investment objectives and the relative illiquidity of
our stock, shares of our stock are an appropriate investment for
those of you who become stockholders. Each participating
broker-dealer must make every reasonable effort to determine
that the purchase of shares of our stock is a suitable and
appropriate investment for each stockholder based on information
provided by the stockholder in the subscription agreement. Each
participating broker-dealer is required to maintain for six
years records of the information used to determine that an
investment in shares of our stock is suitable and appropriate
for a stockholder.
Please carefully read the information in this prospectus and any
accompanying prospectus supplements, which we refer to
collectively as the “prospectus.” You should rely only
on the information contained in this prospectus. We have not
authorized anyone to provide you with different information.
This prospectus may only be used where it is legal to sell these
securities. You should not assume that the information contained
in this prospectus is accurate as of any date later than the
date hereof or such other dates as are stated herein or as of
the respective dates of any documents or other information
incorporated herein by reference.
This prospectus is part of a registration statement that we
filed with the Securities and Exchange Commission, which we
refer to as the “SEC,” using a continuous offering
process. Periodically, as we make material investments or have
other material developments, we will provide a prospectus
supplement that may add, update or change information contained
in this prospectus. Any statement that we make in this
prospectus will be modified or superseded by any inconsistent
statement made by us in a subsequent prospectus supplement. The
registration statement we filed with the SEC includes exhibits
that provide more detailed descriptions of the matters discussed
in this prospectus. You should read this prospectus and the
related exhibits filed with the SEC and any prospectus
supplement, together with additional information described
herein under “Additional Information.”
The registration statement containing this prospectus, including
exhibits to the registration statement, provides additional
information about us and the securities offered under this
prospectus. The registration statement can be read at the SEC
website (www.sec.gov) or at the SEC public reference room
mentioned under the heading “Additional Information.”
C:
HOW
TO SUBSCRIBE
Investors who meet the suitability standards described herein
may purchase shares of our common stock. See “Suitability
Standards” and “Plan of Distribution,” below, for
the suitability standards. Investors seeking to purchase shares
of our common stock must proceed as follows:
•
Read this entire prospectus and any appendices and supplements
accompanying this prospectus.
•
Complete the execution copy of the subscription agreement. A
specimen copy of the subscription agreement, including
instructions for completing it, is included in this prospectus
as Appendix B.
•
Deliver a check for the full purchase price of the shares of our
common stock being subscribed for along with the completed
subscription agreement to the soliciting broker-dealer.
Initially, your check should be made payable to “Wells
Fargo Bank, N.A., as escrow agent for Green Realty Trust,
Inc.” After we meet the minimum offering requirements, your
check should be made payable to “Green Realty Trust,
Inc.” After you have satisfied the applicable minimum
purchase requirement, additional purchases must be in increments
of $500, except for purchases made pursuant to our distribution
reinvestment plan.
•
By executing the subscription agreement and paying the total
purchase price for the shares of our common stock subscribed
for, each investor attests that he meets the suitability
standards as stated in the subscription agreement and agrees to
be bound by all of its terms.
Subscriptions will be effective only upon our acceptance, and we
reserve the right to reject any subscription in whole or in
part. Subscriptions will be accepted or rejected within
30 days of receipt by us, and if rejected, all funds shall
be returned to subscribers with interest and without deduction
for any expenses within ten business days from the date the
subscription is rejected. We are not permitted to accept a
subscription for shares of our common stock until at least five
business days after the date you receive this prospectus.
An approved trustee must process and forward to us subscriptions
made through individual retirement accounts, or
“IRAs,” Keogh plans and 401(k) plans. In the case of
investments through IRAs, Keogh plans and 401(k) plans, we will
send the confirmation and notice of our acceptance to the
trustee.
This summary highlights selected information contained
elsewhere in this prospectus. Because it is a summary, it may
not contain all of the information that is important to you. To
understand this offering fully, you should read the entire
prospectus carefully, including the “Risk Factors”
section, before making an investment decision.
C:
Green
Realty Trust, Inc.
We were formed as a Maryland corporation on October 26,2007 to invest in a diversified portfolio of
environmentally-friendly or green real properties. We intend to
invest primarily in high quality, income-producing properties of
a variety of property types. Our targeted investments include
office buildings, retail buildings, hotels, industrial
buildings, educational facilities, healthcare facilities and
apartments. We may also make or acquire first mortgages or
second mortgages, mezzanine loans and preferred equity
investments if, in each case, all or a majority in value of the
underlying real estate meets the same criteria by which our
direct real estate investments are measured.
Green properties, also known as “high-performance”
properties, are recognized for their efficient use of natural
resources such as energy, water, materials, land and natural
surroundings. Our targeted investments include green properties
that (1) are certified under the Leadership in Energy and
Environmental Design
(LEED®)
Green Building Rating
Systemtm,
(2) satisfy criteria for energy and environmental design
under other established environmental rating systems or
(3) are properties that we intend to develop, re-develop or
renovate for subsequent certification as green properties.
We intend to operate in a manner that will allow us to qualify
as a real estate investment trust, or “REIT,” under
the Internal Revenue Code of 1986, as amended, which we refer to
as the “Code,” commencing with the taxable year in
which we satisfy the minimum offering requirements. Our office
is located at 120 N. LaSalle Street,
35th Floor,
Chicago, Illinois60602, and our main telephone number is
800-383-4943.
We are externally managed by Insight Green REIT Advisor, LLC, an
affiliate of ours which we refer to as “our advisor.”
Our advisor’s team of real estate professionals will have
substantial discretion with respect to the selection of specific
investments consistent with our investment objectives and
strategy, subject to the approval of our board of directors. Our
advisor’s management team includes senior real estate
professionals who have an average of over 20 years of
hands-on experience in acquisitions, asset management,
dispositions, development, leasing, property management and
portfolio management. Our advisor’s management team also
controls TSG Real Estate, LLC, or TSG, a real estate company
that, as of September 30, 2007, has raised $173,679,000
from 542 investors since its formation in June 2003. Insight
Real Estate, LLC, the sponsor of this offering, has formed a
board of advisors, which we refer to as the Green Advisory
Council, comprised of leading experts in the green building
industry to assist our advisor with investment and management
decisions relating to the specialized sustainability focus of
our investment strategy. The Green Advisory Council will play an
active role in evaluating properties proposed for our portfolio
on the basis of established green building certification
criteria and in assisting our advisor in managing our portfolio
to ensure continued compliance with evolving green building
certification criteria.
Our sponsor contributed $1,000,000 to us in connection with our
formation and is our sole stockholder prior to giving effect to
this offering. Insight Real Estate, LLC is majority owned and
managed by Wayne R. (“Rob”) Hannah III, who is part of
our advisor’s management team. We refer to Insight Real
Estate, LLC as “Insight Real Estate” or “our
sponsor.”
C:
Green
Buildings
Green buildings are high-performance buildings that use
resources more efficiently than traditional buildings through
their design, material selection, water conservation, waste
reduction and energy conservation. Green buildings are
structures that are designed, built, renovated, operated or
reused in an ecological and resource-efficient manner. Green
buildings also enhance the comfort, performance, profitability
and productivity of their occupants while reducing the overall
impact on the environment. Building green
provides an opportunity to use resources efficiently while
creating facilities that improve human health, foster a better
environment and provide cost savings.
Standards for green buildings have evolved over time and
continue to vary depending to some degree on the party
conducting the assessment. Nevertheless, there is a general
consensus regarding the basic guidelines for green buildings
which generally involve an evaluation of the building’s
sensitivity to the following factors: (1) resource and
energy conservation; (2) impact on occupants’ health
and productivity; (3) financial impact; and (4) impact
on the world at large. Green building is an integrated approach
to creating a property that covers all aspects of a building
from the selection of a site and materials to the operation and
maintenance of the property.
Green buildings create healthier work, learning and living
environments through increased natural light, improved air
quality and well-designed spaces that support the needs of their
occupants. The financial benefits of green buildings include
lower energy, waste disposal and water costs, lower
environmental and emissions costs, lower operations and
maintenance costs and savings from increased productivity and
health of their occupants.
C:
Investment
Objectives
Our primary investment objectives are:
•
To preserve, protect and return stockholders’ capital
contributions;
•
To pay regular cash distributions to stockholders; and
•
To realize capital appreciation upon the ultimate sale of the
properties.
C:
Summary
of Risk Factors
An investment in shares of our common stock involves significant
risks, including those listed below.
•
We have no prior operating history, and there is no assurance
that we will be able to successfully achieve our investment
objectives.
•
No public trading market exists for our shares and we are not
required to effectuate a liquidity transaction by a certain
date. As a result, it will be difficult for you to sell your
shares. If you are able to sell your shares, you will likely
sell them at a substantial discount.
•
The amount of distributions we will make, if any, is uncertain.
Our distributions may exceed our earnings, particularly during
the period before we have substantially invested the net
proceeds from this offering. Therefore, portions of the
distributions that we make may represent return of capital to
you.
•
This is a “blind pool” offering, and you will not have
the opportunity to evaluate our investments prior to purchasing
shares of our common stock.
•
This is a “best efforts” offering, and if we are
unable to raise substantial funds then we will be limited in the
number and type of investments we may make.
•
We will pay substantial fees to our advisor, which were not
determined on an arm’s-length basis. Our advisor and other
affiliates will face conflicts of interest as a result of
compensation arrangements, time constraints and competition for
investments and for tenants, including conflicts related to
compensation payable by us to our advisor and other affiliates
that may not be on terms that would result from
arm’s-length negotiations between unaffiliated parties, the
allocation of time between advising us and other affiliates and
the recommendation of acquisitions on our behalf when other
affiliated programs are seeking similar investments.
•
Our investments will be concentrated in green properties, making
us more competitively vulnerable than if our investments were
more diversified.
We are the first publicly-offered investment program sponsored
by Insight Real Estate or its affiliates. Because previous
programs and investments sponsored by affiliates of Insight Real
Estate were conducted through privately-held entities, not
subject to either the up-front commissions, fees and expenses
associated with this offering or all of the laws and regulations
we will be subject to, you should not assume that the prior
performance of these programs will be indicative of our future
performance.
•
Our use of leverage increases the risk of loss on our
investments.
•
We will be subject to risks generally incident to the ownership
of real property.
•
If we fail to qualify as a REIT, it would adversely affect our
operations and our ability to make distributions to our
stockholders.
C:
Our
Board of Directors
We operate under the direction of our board of directors, the
members of which are accountable to us and our stockholders as
fiduciaries. Our board of directors is responsible for the
management and control of our affairs. Prior to the commencement
of this offering, we will have six members on our board, four of
whom will be independent of us, our advisor and our respective
affiliates. Our directors will be elected annually by the
stockholders. Our board of directors will establish an
investment committee and an audit committee.
C:
Our
Advisor
Insight Green REIT Advisor, LLC, our advisor, was formed as a
Delaware limited liability company in September 2007. We will
rely on our advisor to manage our day-to-day activities and to
implement our investment strategy. In addition, our advisor will
use its best efforts, subject to the oversight, review and
approval of our board of directors, to, among other things,
research, identify, review and make investments in and
dispositions of real property and real estate related
investments on our behalf consistent with our investment
policies and objectives.
Our advisor performs its duties and responsibilities as our
fiduciary under an advisory agreement. The term of the current
advisory agreement ends one year after the date of this
prospectus, subject to renewals by the board of directors for an
unlimited number of successive one-year periods. Our officers
and our affiliated directors are all officers of our advisor.
The names and biographical information of our directors and
officers are set forth under “Management —
Directors and Executive Officers.”
C:
Green
Advisory Council
Our sponsor has formed the Green Advisory Council comprised of
leaders in the green building industry. The Green Advisory
Council serves at the discretion of our sponsor and will be made
available to our advisor to assist with the evaluation of
potential investments identified by our advisor for our
portfolio on the basis of the green criteria that are an
essential component of our investment strategy. The members of
the Green Advisory Council are green industry professionals with
extensive experience and diverse backgrounds in both the real
estate and environmental sectors. The Green Advisory Council
will play an active role in evaluating green properties for our
portfolio, including providing input regarding the selection of
an appropriate combination of properties at different green
certification levels, and will assist our advisor in managing
our portfolio to ensure continued compliance with evolving green
building certification criteria. The Green Advisory Council will
also provide our advisor with strategic advice regarding
converting investments we acquire for the purpose of subsequent
green certification to meet established green building criteria.
Although the Green Advisory Council will serve a strategic,
advisory function in connection with our advisor’s
evaluation of our investments, it will not have authority to
make investment decisions or to approve our real property
acquisitions and dispositions. The authority to approve
acquisitions and dispositions will be reserved for our board of
directors and its investment committee.
We will also rely upon the expertise of members of the Green
Advisory Council to the extent that we provide services to our
tenants to assist them with meeting green standards for use and
occupancy of their
leased premises to the extent applicable. For example, we may
engage the businesses that members of our Green Advisory Council
represent to advise our tenants how to build-out their leased
space in environmentally-friendly ways, help finance their green
improvements and teach them best practices for incorporating
sustainability in their corporate environments. Providing these
services to our tenants directly or through our affiliation with
Green Advisory Council members will enable us to generate higher
rental income from our properties and will provide greater
tenant attraction and retention.
C:
Our
UPREIT Structure
An “Umbrella Partnership Real Estate Investment
Trust,” which we refer to as an “UPREIT,” is a
REIT that holds all or substantially all of its assets through a
partnership in which the REIT holds an interest. We use this
structure because a transfer of property directly to the REIT in
exchange for cash or REIT shares or a combination of cash and
REIT shares is generally a taxable transaction to the
transferring property owner. In an UPREIT structure, a
transferor of a property who desires to defer taxable gain on
the disposition of his property may transfer the property to the
partnership in exchange for units in the partnership and defer
taxation of gain until the transferor later sells the units in
the partnership or exchanges them, normally on a one-for-one
basis, for REIT shares. If the REIT shares are publicly traded,
the former property or securities owner will achieve liquidity
for his investment. We believe that using an UPREIT structure
gives us an advantage in acquiring desired properties from
persons who may not otherwise sell their properties because of
unfavorable tax results.
C:
Our
Operating Partnership
We intend to own all of our investments through our operating
partnership or its subsidiaries. We refer to common partnership
units in our operating partnership as “common units.”
We are the sole general partner of our operating partnership,
and the initial limited partners of our operating partnership
are our advisor and Insight Management, LLC, a subsidiary of our
sponsor. Our advisor has invested $1,000 in our operating
partnership in exchange for common units, and Insight
Management, LLC has invested $1,000 in our operating partnership
and has been issued a separate class of units which we refer to
as the “special units” and are described below under
“Prospectus Summary — Compensation to Our Advisor
and its Affiliates.”
C:
Our
Affiliates
Various affiliates of ours are involved in this offering and our
operations. Although our current dealer manager is a firm that
is not affiliated with us, we intend to engage IRE Investments,
Inc., a subsidiary of our sponsor that we refer to as IRE
Investments, to provide dealer manager services to us in this
offering at such time as it receives all appropriate licenses to
serve as a broker-dealer. Another affiliate, Insight Property
Management, LLC, will perform certain property management
services for us and our operating partnership. We refer to our
advisor, our property manager and other of our affiliates, each
as an “Insight Real Estate affiliate” and
collectively, as “Insight Real Estate affiliates.”
We are offering up to $1,650,000,000 in shares of our common
stock, $1,500,000,000 of which will be offered at a price of
$10.00 per share, and $150,000,000 of which will be offered
pursuant to our distribution reinvestment plan at a price of
$9.50 per share. We reserve the right to reallocate the shares
of common stock we are offering between the primary offering and
our distribution reinvestment plan.
We will begin selling shares of our common stock in this
offering upon the effective date of the registration statement
of which this prospectus forms a part, and we will continue to
offer shares of our common stock on a continuous basis until
this offering terminates on or
before ,
2009, unless extended. However, in certain states the offering
may continue only one year unless we renew the offering period
for up to one additional year. We reserve the right to terminate
this offering at any time. The offering proceeds will be held in
an escrow account at the escrow agent until we meet the minimum
offering requirements. Thereafter, the offering proceeds will be
released to us and will be available for the acquisition of real
properties or the payment of fees and expenses as soon as we
accept your subscription agreement. We generally intend to admit
stockholders on a weekly basis.
C:
Compensation
to Our Advisor and Affiliates
Our advisor and other affiliates will receive compensation and
fees for services related to this offering and for the
investment and management of our assets, subject to review and
approval of our independent directors. In addition, Insight
Management, LLC, a wholly-owned subsidiary of our sponsor, has
been issued partnership units in our operating partnership
constituting a separate series of partnership interests with
special distribution rights, which we refer to as the
“special units.” Our sponsor intends to award equity
interests in Insight Management, LLC to certain management
personnel in the future, which will serve as an incentive to our
advisor’s management to perform services on our behalf
consistent with our investment objectives.
Set forth below is a summary of the fees and expenses we expect
to pay these entities. The maximum amount that we may pay with
respect to such fees and expenses is also set forth below. See
“Management — The Advisory Agreement” for a
more detailed explanation of the fees and expenses payable to
our advisor and its affiliates and for a more detailed
description of the special units.
7.0% of the gross offering proceeds from the sale of shares in
the primary offering (all or a portion of which may be reallowed
to participating broker-dealers).
Actual amount depends upon the number of shares sold. We will
pay a total of $140,000 if we sell the minimum offering and
$105,000,000 if we sell the maximum offering.
Dealer Manager Fee — Dealer Manager
2.5% of the gross offering proceeds from the sale of shares in
the primary offering (a portion of which may be reallowed to
participating broker-dealers),
Actual amount depends upon the number of shares sold. We will
pay a total of $50,000 if we sell the minimum offering and
$37,500,000 if we sell the maximum offering.
Organizational and Offering Expense Reimbursement —
Advisor or its affiliates
Up to 3.0% of the aggregate gross offering proceeds from the
sale of shares in the primary offering to reimburse our advisor
for incurring or paying our cumulative organizational and
offering expenses. Any such reimbursements will not exceed
actual expenses incurred by the advisor.
Actual amount depends upon the number of shares sold and actual
expenses incurred. We will pay a total of $60,000 if we sell the
minimum offering. If we sell the maximum offering, we estimate
that the actual expenses will be 1.5% of the gross proceeds of
the primary offering or $22,500,000.
Operational Stage
Acquisition Fees — Advisor
An amount equal to 2.0% of the cost of all real estate
investments we acquire.
Amount depends upon the cost of our real estate investments, and
therefore, cannot be determined at this time.
Asset Management Fees — Advisor
Monthly payments in an amount equal to one-twelfth of 1% of the
sum of the cost of all real estate investments we acquire.
Actual amounts depend upon the aggregate cost of our real estate
investments, and, therefore, cannot be determined at this time.
Property Management and Leasing Fees — Property Manager
A monthly amount equal to 4.0% of the gross income of each real
property for services in connection with operating and managing
our real property investments. As is customary in the industry,
we may also reimburse our property manager for
property — level expenses that its pays or incurs on
our behalf such as salaries and benefit expenses for on-site
employees and other miscellaneous expenses. In addition, we may
pay our property manager a separate market-based fee for leasing
services it provides.
Actual amounts depend upon the gross income of the properties
and, therefore, cannot be determined at this time.
Real Estate Sales Commission — Advisor or its
affiliates
If our advisor provides a substantial amount of services in
connection with the sale of a property, the lesser of
(1) one-half of a competitive real estate commission or
(2) 3.0% of the sales price of properties, provided that
such amount shall not exceed, when added to all other real
estate commissions paid to unaffiliated parties in connection
with the sale, the lesser of a competitive real estate
commission or an amount equal to 5.0% of the sales price of the
property.
Actual amounts depend upon the sale price of properties, and,
therefore, cannot be determined at this time.
Special Units — Insight Management, LLC
Insight Management, LLC, a subsidiary of our sponsor, was issued
special units upon its initial investment in our operating
partnership, and as the holder of the special units will be
entitled to receive (1) 15.0% of specified distributions
made upon the disposition of our operating partnership’s
assets, and/or (2) a one time payment in an amount equal to
15% of specified distributions, in the form of a
non-interest-bearing promissory note or shares, in conjunction
with the redemption of the special units upon the occurrence of
certain liquidity events or upon the occurrence of certain
events that result in a termination or non renewal of our
advisory agreement, but in each case only after the other
holders of our operating partnership’s units, including us,
have received (or have been deemed to have received), in the
aggregate, cumulative distributions equal to their capital
contributions plus an 8.0% cumulative non compounded annual pre
tax return on their net contributions. The holder of the special
units will not be entitled to receive quarterly distributions.
Actual amounts depend on the sale price of properties, and,
therefore, cannot be determined at this time.
Our advisor and certain of our other affiliates will experience
conflicts of interest in connection with the management of our
business affairs, including the following:
•
The directors, officers and key personnel of our advisor must
allocate their time between advising us and managing other real
estate projects and business activities in which they may be
involved;
•
The compensation payable by us to our advisor and other
affiliates may not be on terms that would result from
arm’s-length negotiations between unaffiliated parties, and
fees such as asset management fees payable to our advisor,
property management fees payable to our property manager and
acquisition fees payable to our advisor are payable, in most
cases, regardless of the quality of the assets acquired, the
services provided to us or whether we make distributions to our
stockholders;
•
Although our sponsor has agreed generally to provide us with the
first opportunity to acquire stabilized and income-producing
green properties, for which we have sufficient uninvested funds,
our sponsor will be required to make this determination in its
discretion and will be subject to certain conflicts of interest
in recommending acquisitions on our behalf when other affiliated
programs are also seeking investments; and
•
Our property manager is an affiliate of ours. As a result, we
may not always have the benefit of independent property
management.
C:
Distribution
Policy
We intend to qualify as a REIT commencing with the taxable year
in which we satisfy the minimum offering requirements. In order
to qualify as a REIT, we are required to distribute 90% of our
annual taxable income to our stockholders. We intend to accrue
and make distributions on a monthly basis beginning no later
than the first calendar quarter after the quarter in which the
minimum offering requirements are met. In connection with a
distribution to our stockholders, our board of directors will
approve a monthly distribution of a certain dollar amount per
share of our common stock. We will then calculate each
stockholder’s specific distribution amount for the quarter
using daily record and declaration dates and your distributions
will begin to accrue on the date we mail a confirmation of your
subscription for shares of our common stock, subject to our
acceptance of your subscription.
C:
Distribution
Reinvestment Plan
You may participate in our distribution reinvestment plan and
elect to have the cash distributions you receive reinvested in
shares of our common stock at $9.50 per share. Our board may
terminate the distribution reinvestment plan at its discretion
at any time upon ten days notice to you. Following any
termination of the distribution reinvestment plan, all
subsequent distributions to stockholders would be made in cash.
C:
Share
Redemption Program
Our share redemption program may provide a limited opportunity
for you to have your shares of common stock redeemed, subject to
certain restrictions and limitations, at a price equal to or at
a discount from the purchase price you paid for the shares being
redeemed. The discount will vary based upon the length of time
that you have held the shares of our common stock subject to
redemption, as described in the following table:
We are not obligated to redeem shares of our common stock under
the share redemption program. We presently intend to limit the
number of shares to be redeemed to no more than 10.0% of the
weighted-average number of shares of our common stock
outstanding during the prior calendar year. This volume
limitation will not apply to redemptions requested within two
years after the death of a stockholder.
The board of directors may, in its sole discretion, amend,
suspend or terminate the share redemption program at any time if
it determines that the funds available to fund the share
redemption program are needed for other business or operational
purposes or that amendment, suspension or termination of the
share redemption program is in the best interest of our
stockholders. The share redemption program will terminate if the
shares of our common stock are listed on a national securities
exchange.
C:
Liquidity
Strategy
Our charter requires that our board of directors, including our
independent directors, consider a transaction providing
liquidity for our stockholders at least annually beginning on
the date that is five years following the completion of this
offering. Our board may consider a liquidity transaction at an
earlier date if it determines that it would be in our
stockholders’ best interest to do so. Moreover, our charter
does not require the board to pursue a liquidity transaction. We
expect that our board, in the exercise of its fiduciary duty to
our stockholders, will determine to pursue a liquidity
transaction when it believes that then-current market conditions
are favorable for a liquidity transaction, and that such a
transaction is in the best interests of our stockholders. A
liquidity transaction could include (1) the sale of all or
substantially all of our assets either on a portfolio basis or
individually followed by a liquidation, (2) a listing of
our shares on a national securities exchange, or (3) a
merger or another transaction approved by our board in which our
stockholders will receive cash or shares of a publicly traded
company. There can be no assurance as to when a suitable
transaction will be available.
Set forth below are some of the more frequently asked questions
and answers relating to our structure, our management and an
offering of this type.
Q:
What is a “REIT”?
A:
In general, a REIT is a company that:
•
Offers the benefits of a diversified real estate portfolio under
professional management;
•
Is required to make distributions to investors of at least 90%
of its taxable income for each year;
•
Avoids the federal “double taxation” treatment of
income that generally results from investments in a corporation
because a REIT is not generally subject to federal corporate
income taxes on the portion of its net income that is
distributed to the REIT’s stockholders; and
•
Combines the capital of many investors to acquire or provide
financing for real estate assets.
Q:
Do you currently own any assets?
A:
No. This offering is a “blind pool” offering in
that we have not yet identified any specific real property to
acquire using the proceeds from this offering. We discuss the
risks associated with this status under “Risk
Factors — Risks Related to Investing in this
Offering — This is a “blind pool” offering;
therefore, you will not have the opportunity to evaluate
investments prior to purchasing shares of our common
stock.” and “Risk Factors — Risks Related to
Our Business and Our Corporate Structure — If we are
delayed or unable to find suitable investments, we may not be
able to achieve our investment objectives and make distributions
to our stockholders.”
Q:
Who will choose which investments to make?
A:
Our advisor will make investments in real properties based on
specific investment objectives and criteria and subject to the
direction, oversight and approval of our board of directors.
Q:
How does a “best efforts” offering work?
A:
When shares of common stock are offered to the public on a
“best efforts” basis, the broker-dealers participating
in the offering are only required to use their best efforts to
sell the shares of our common stock. Broker-dealers do not have
a firm commitment or obligation to purchase any of the shares of
our common stock.
Q:
How long will this offering last?
A:
The offering will not last
beyond ,
2009 (two years from the date of this prospectus), unless
extended. However, in certain states the offering may only
continue for just one year unless we renew the offering period
for up to one additional year.
Q:
What happens if you do not raise a minimum of $2,000,000 in
this offering?
A:
We will not sell any shares unless we sell a minimum of
$2,000,000 in shares to the public
by ,
2008 (one year from the date of this prospectus). Purchases by
our directors, officers and affiliates will not count toward
meeting this minimum threshold. Pending satisfaction of this
minimum offering requirement, all subscription payments will be
placed in an account held by an escrow agent, Wells Fargo Bank,
N.A., in trust for subscribers’ benefit, pending release to
us. If we do not sell $2,000,000 in shares to the public
by ,
2008 (one year from the date of this prospectus), we will
terminate this offering and return all subscribers’ funds,
plus interest. If we meet the minimum offering amount, the
proceeds held in escrow, plus interest will be released to us.
Q:
Will I receive a stock certificate?
A:
No. You will not receive a stock certificate unless
expressly authorized by our board of directors. We anticipate
that all shares of our common stock will be issued in book-entry
form only. The use of book-
entry registration protects against loss, theft or destruction
of stock certificates and reduces the offering costs.
Q:
Who can buy shares of common stock in this offering?
A:
In general, you may buy shares of our common stock pursuant to
this prospectus provided that you have either (1) a net
worth of at least $70,000 and an annual gross income of at least
$70,000, or (2) a net worth of at least $250,000. For this
purpose, net worth does not include your home, home furnishings
and personal automobiles. Generally, you must initially invest
at least $2,000. After you have satisfied the applicable minimum
purchase requirement, additional purchases must be in increments
of $500, except for purchases made pursuant to our distribution
reinvestment plan. These minimum net worth and investment levels
may be higher in certain states, so you should carefully read
the more detailed description under “Suitability
Standards” above.
Our affiliates may also purchase shares of our common stock. The
sales commission and dealer manager fee that are payable by
other investors in this offering will be reduced or waived for
our affiliates. The purchase of shares of our common stock by
our affiliates will not count toward satisfying our minimum
offering requirements.
Q:
Are there any special restrictions on the ownership of
shares?
A:
Yes. Our charter prohibits the ownership of more than 9.8% of
the value or number of shares of our common stock and more than
9.8% in value of the aggregate of our outstanding stock,
whichever is more restrictive, unless exempted by our board of
directors. This prohibition may discourage large investors from
purchasing our shares and may limit your ability to transfer
your shares. In order to comply with tax rules applicable to
REITs, we will require our record holders to provide us with
detailed information regarding the beneficial ownership of our
shares on an annual basis. These restrictions are designed to
enable us to comply with the ownership restrictions imposed on
REITs by the Internal Revenue Code. See “Description of
Capital Stock — Restriction on Ownership of Shares of
Capital Stock.”
Q:
Is there any minimum initial investment required?
A:
Yes. To purchase shares in this offering, you must make an
initial purchase of at least $2,000 in shares, although
residents of certain states have higher initial minimum purchase
requirements. See “Suitability Standards” above for
the states with higher minimum purchase requirements. Once you
have satisfied the minimum initial purchase requirement, any
additional purchases of our shares in this offering must be in
amounts of at least $500, except for additional purchases
pursuant to our distribution reinvestment plan. See “Plan
of Distribution — Minimum Offering.”
Q:
How do I subscribe for shares of common stock?
A:
If you choose to purchase shares of our common stock in this
offering, you will be required to complete a subscription
agreement in the form attached to this prospectus as
Appendix B for a specific number of shares of our common
stock. You must pay for shares of our common stock at the time
you subscribe.
Q:
How will the payment of fees and expenses by the company
affect my invested capital?
A:
We will pay sales commissions and dealer manager fees in
connection with this offering. In addition, we will reimburse
our advisor for our cumulative organizational and offering
expenses. The payment of fees and expenses will reduce the funds
available to us for investment in real properties. The payment
of fees and expenses will also reduce the book value of your
shares of common stock. However, you will not be required to pay
any additional amounts in connection with the fees and expenses
described in this prospectus.
Q:
Will the distributions I receive be taxable?
A:
Distributions that you receive, including distributions that are
reinvested pursuant to our distribution reinvestment plan, will
generally be taxed as ordinary dividend income to the extent
they are paid out of our current or accumulated earnings and
profits. However, if we recognize a long-term capital gain upon
the sale of one of our assets, a portion of our dividends may be
designated and treated in your hands as a long-term capital
gain. In addition, we expect that some portion of your
distributions may not be subject to tax in the year received due
to the fact that depreciation expenses reduce earnings and
profits but do not reduce cash available for distribution.
Amounts distributed to you in excess of our earnings and profits
will reduce the tax basis of your investment and will not be
taxable to the extent thereof, and distributions in excess of
tax basis will be taxable as an amount realized from the sale of
your shares of common stock. This, in effect, would defer a
portion of your tax until your investment is sold or we are
liquidated, at which time you may be taxed at capital gains
rates. However, because each investor’s tax considerations
are different, we suggest that you consult with your tax advisor.
Q:
When will I get my detailed tax information?
A:
We intend to mail your Form 1099 tax information, if
required, by January 31 of each year.
Q:
Where can I find updated information regarding the
company?
A:
You may find updated information on our website,
www.greenrealtytrust.com. In addition, as a result of the
effectiveness of the registration statement of which this
prospectus forms a part, we are subject to the informational
reporting requirements of the Securities Exchange Act of 1934,
as amended, which we refer to as the “Exchange Act,”
and, under the Exchange Act, we will file reports, proxy
statements and other information with the SEC. See
“Additional Information” for a description of how you
may read and copy the registration statement, the related
exhibits and the reports, proxy statements and other information
we file with the SEC. In addition, you will receive periodic
updates directly from us, including three quarterly financial
reports and an annual report.
Q:
Who can answer my questions?
A:
If you have additional questions about the offering or if you
would like additional copies of this prospectus, you should
contact your registered representative or our dealer manager:
1st
Worldwide Financial Partners, LLC
2502 North Clark Street
Suite 217 Chicago, Illinois60614
Telephone:
800-383-4943
Fax:
877-810-1348
Attn: Investor Relations
An investment in our common stock involves various risks and
uncertainties. You should carefully consider the risks described
below in conjunction with the other information contained in
this prospectus before purchasing our common stock. If any of
the risks discussed in this prospectus actually occur, our
results of operations and ability to make distributions would
likely suffer materially or could be eliminated entirely. As a
result, the value of our shares may decline, and you could lose
all or part of your investment.
C:
Investment
Risks
There
is no public trading market for shares of our common stock and
we are not required to effectuate a liquidity event by a certain
date; therefore, it will be difficult for you to sell your
shares of common stock.
There is no current public market for the shares of our common
stock, and we have no obligation to list our shares on any
public securities market or provide any other type of liquidity
to our stockholders by a certain date. It will therefore be
difficult for you to sell your shares of common stock promptly
or at all. Even if you are able to sell your shares of common
stock, the absence of a public market may cause the price
received for any shares of our common stock sold to be less than
what you paid or less than your proportionate value of the
assets we own. On a limited basis, you may be able to redeem
shares through our share redemption program. In the future, our
board of directors will also consider various forms of
additional liquidity, but our charter does not require that we
consummate a transaction to provide liquidity to stockholders on
any date certain or at all. As a result, you should purchase
shares of our common stock only as a long-term investment.
This
is a “blind pool” offering, and you will not have the
opportunity to evaluate our investments prior to purchasing
shares of our common stock.
Neither we nor our advisor has presently identified, acquired or
contracted to acquire any real property investments. As a
result, you will not be able to evaluate the economic merits,
transaction terms or other financial or operational data
concerning our investments prior to purchasing shares of our
common stock. You must rely on our advisor and our board of
directors to implement our investment policies, to evaluate our
investment opportunities and to structure the terms of our
investments. Because investors are not able to evaluate our
investments in advance of purchasing shares of our common stock,
this offering may entail more risk than other types of
offerings. This additional risk may hinder your ability to
achieve your own personal investment objectives related to
portfolio diversification, risk-adjusted investment returns and
other objectives.
We
have no prior operating history, and there is no assurance that
we will be able to successfully achieve our investment
objectives.
We have no prior operating history and may not be able to
successfully operate our business or achieve our investment
objectives. As a result, an investment in our shares of common
stock may entail more risk than the shares of common stock of a
real estate investment trust with a substantial operating
history. In addition, you should not rely on the past
performance of real property or real estate related investments
by other Insight Real Estate affiliated entities to predict our
future results. Our investment strategy and key employees differ
from the investment strategies and key employees of our
affiliates in the past, present and future.
This
is a “best efforts” offering, and if we are unable to
raise substantial funds, we will be limited in the number and
type of investments we may make, which could negatively impact
your investment.
This offering is being made on a “best efforts” basis,
whereby the broker-dealers participating in the offering are
only required to use their best efforts to sell shares of our
common stock and have no firm commitment or obligation to
purchase any of the shares of our common stock. We may release
offering proceeds from escrow upon the sale in this offering of
$2,000,000 in shares of our common stock. As a result, the
amount of proceeds we raise in this offering may be
substantially less than the amount we would need to achieve a
broadly diversified portfolio. Our inability to raise
substantial funds would increase our fixed
operating expenses as a percentage of gross income, and our
financial condition and ability to make distributions could be
adversely affected. Additionally, if we are unable to raise
substantially more than the minimum offering amount of
$2,000,000, we will make fewer investments, resulting in less
diversification in terms of the number of investments owned, the
geographic regions in which our real property investments are
located and the types of investments that we make. Further, it
is likely that in our early stages of growth we may not be able
to achieve portfolio diversification consistent with our longer
term investment objectives. As a result, the likelihood
increases that any single investment’s poor performance
would materially affect our overall investment performance.
Our
ability to successfully conduct this offering is dependent, in
part, on the ability of our dealer manager to successfully
establish, operate and maintain a network of
broker-dealers.
The dealer manager for this offering is 1st Worldwide
Financial Partners, LLC, which we refer to as 1st Worldwide
Financial. Other than serving as dealer manager for this
offering, 1st Worldwide Financial has no experience acting
as a dealer manager for a public offering. The success of this
offering, and correspondingly our ability to implement our
business strategy, is dependent upon the ability of our dealer
manager to establish and maintain a network of licensed
securities brokers-dealers and other agents. If our dealer
manager fails to perform, we may not be able to raise adequate
proceeds through this offering to implement our investment
strategy. If we are unsuccessful in implementing our investment
strategy, you could lose all or a part of your investment.
If we
internalize our management functions, your interest in us could
be diluted, and we could incur other significant costs
associated with being self-managed.
Our board of directors may decide in the future to internalize
our management functions. If we do so, we may elect to negotiate
to acquire our advisor’s assets and personnel. At this
time, we cannot anticipate the form or amount of consideration
or other terms relating to any such acquisition. Such
consideration could take many forms, including cash payments,
promissory notes and shares of our stock. The payment of such
consideration could result in dilution of your interests as a
stockholder and could reduce the earnings per share and funds
from operations per share attributable to your investment.
In addition, while we would no longer bear the costs of the
various fees and expenses we expect to pay to our advisor under
the advisory agreement, our direct expenses would include
general and administrative costs, including legal, accounting,
and other expenses related to corporate governance, SEC
reporting and compliance. We would also incur the compensation
and benefits costs of our officers and other employees and
consultants that we now expect will be paid by our advisor or
its affiliates. In addition, we may issue equity awards to
officers, employees and consultants, which awards would decrease
net income and funds from operations and may further dilute your
investment. We cannot reasonably estimate the amount of fees to
our advisor we would save or the costs we would incur if we
became self-managed. If the expenses we assume as a result of an
internalization are higher than the expenses we avoid paying to
our advisor, our earnings per share and funds from operations
per share would be lower as a result of the internalization than
it otherwise would have been, potentially decreasing the amount
of funds available to distribute to our stockholders and the
value of our shares. As currently organized, we will not have
any employees. If we elect to internalize our operations, we
would employ personnel and would be subject to potential
liabilities commonly faced by employers, such as workers
disability and compensation claims, potential labor disputes and
other employee-related liabilities and grievances.
If we internalize our management functions, we could have
difficulty integrating these functions as a stand-alone entity.
Currently, our advisor and its affiliates perform asset
management and general and administrative functions, including
accounting and financial reporting, for multiple entities. These
personnel have a great deal of know-how and experience which
provides us with economies of scale. We may fail to properly
identify the appropriate mix of personnel and capital needs to
operate as a stand-alone entity. An inability to manage an
internalization transaction effectively could thus result in our
incurring excess costs
and/or
suffering deficiencies in our disclosure controls and procedures
or our internal control over financial
reporting. Such deficiencies could cause us to incur additional
costs, and our management’s attention could be diverted
from most effectively managing our properties.
Our
board of directors will consider a liquidity transaction
annually no later than five years from the termination of this
offering; however, there can be no assurance that we will effect
a liquidity event within such time or at all. If we do not
effect a liquidity event, it will be very difficult for you to
have liquidity for your investment in shares of our common
stock.
In the future, our board will consider various forms of
liquidity events, including but not limited to (1) listing
our common stock on a national securities exchange; (2) our
sale or merger in a transaction that provides our stockholders
with a cash
and/or
securities of a publicly traded company; and (3) sale of
all or substantially all of our real property for cash or other
consideration. Our board must consider a liquidity transaction
annually beginning no later than five years from the termination
of this offering. However, our board is not required to pursue a
liquidity transaction, and there can be no assurance that our
board will effect a liquidity event. If we do not effect a
liquidity event, it will be very difficult for you to have
liquidity for your investment in shares of our common stock
other than limited liquidity through our share redemption
program.
You
are limited in your ability to sell your shares of common stock
pursuant to our share redemption program. You may not be able to
sell any of your shares of our common stock back to us, and if
you do sell your shares, you may not receive the price you
paid.
Our share redemption program may provide you with a limited
opportunity to have your shares of common stock redeemed by us
at a price equal to or at a discount from the purchase price of
the shares of our common stock being redeemed. We anticipate
that shares of our common stock may be redeemed on a quarterly
basis. However, our share redemption program contains certain
restrictions and limitations, including those relating to the
number of shares of our common stock that we can redeem at any
given time and limiting the redemption price. Specifically, we
presently intend to limit the number of shares to be redeemed to
no more than 10.0% of the weighted-average number of shares of
our common stock outstanding during the prior calendar year. In
addition, our board of directors reserves the right to reject
any redemption request for any reason or no reason or to amend
or terminate the share redemption program at any time.
Therefore, you may not have the opportunity to make a redemption
request prior to a potential termination of the share redemption
program
and/or you
may not be able to sell any of your shares of common stock back
to us pursuant to our share redemption program. Moreover, if you
do sell your shares of common stock back to us pursuant to the
share redemption program, you may not receive the same price you
paid for any shares of our common stock being redeemed.
Our
cash distributions are not guaranteed, may fluctuate and may
constitute a return of capital or a taxable gain from the sale
or exchange of property.
The actual amount and timing of distributions will be determined
by our board of directors and typically will depend upon the
amount of funds available for distribution, which will depend on
items such as current and projected cash requirements and tax
considerations. As a result, our distribution rate and payment
frequency may vary from time to time. Our long-term strategy is
to fund the payment of monthly distributions to our stockholders
entirely from our funds from operations. However, during the
early stages of our operations, we may need to borrow funds,
request that our advisor, in its discretion, defer its receipt
of fees and reimbursement of expenses or, to the extent
necessary, utilize offering proceeds in order to make cash
distributions. Accordingly, the amount of distributions paid at
any given time may not reflect current cash flow from
operations. Distributions payable to stockholders may also
include a return of capital, rather than a return on capital. In
the event that we are unable to consistently fund monthly
distributions to stockholders entirely from our funds from
operations, the value of your shares upon the possible listing
of our stock, the sale of our assets or any other liquidity
event may be reduced. Further, if the aggregate amount of cash
distributed in any given year exceeds the amount of our
“REIT taxable income” generated during the year, the
excess amount will either be (i) a return of capital or
(ii) gain from the sale or exchange of property to the
extent that a
stockholder’s basis in our common stock equals or is
reduced to zero as the result of our current or prior year
distributions. In addition, to the extent we make distributions
to stockholders with sources other than funds from operations,
the amount of cash that is distributed from such sources will
limit the amount of investments in properties that we can make,
which will in turn negatively impact our ability to achieve our
investment objectives and limit our ability to make future
distributions.
Payments
to the holder of the special units may reduce cash available for
distribution to our stockholders upon consummation of a
liquidity event.
Insight Management, LLC, as the holder of the special units, may
be entitled to receive a cash payment upon dispositions of our
operating partnership’s assets
and/or
redemption of the special units upon the earliest to occur of
specified events, including, among other events, a listing of
our shares on an exchange or the termination or non-renewal of
the advisory agreement. Payments to the holder of the special
units upon dispositions of our operating partnership’s
assets and redemptions of the special units may reduce cash
available for distribution to our stockholders upon consummation
of a liquidity event.
We may
not meet the minimum offering requirements for this offering;
therefore, you may not have access to your funds for one year
from the date of this prospectus.
If the minimum offering requirements are not met within one year
from the date of this prospectus, this offering will terminate
and subscribers who have delivered their funds into escrow will
not have access to those funds until such time. In addition, the
interest rate on the funds delivered into escrow may be less
than the rate of return you could have achieved from an
alternative investment.
This
is a fixed price offering, and the fixed offering price may not
accurately represent the current value of our assets at any
particular time. Therefore, the purchase price you paid for
shares of our common stock may be higher than the value of our
assets per share of our common stock at the time of your
purchase. We established the offering price of our shares on an
arbitrary basis.
This is a fixed price offering, which means that the offering
price for shares of our common stock is fixed and will not vary
based on the underlying value of our assets at any time. Our
board of directors arbitrarily determined the offering price in
its sole discretion. The fixed offering price for shares of our
common stock has not been based on appraisals for any assets we
may own nor do we intend to obtain such appraisals. Therefore,
the fixed offering price established for shares of our common
stock may not accurately represent the current value of our
assets per share of our common stock at any particular time and
may be higher or lower than the actual value of our assets per
share at such time.
C:
Risks
Related To Our Business
We,
our sponsor and our advisor are new companies with no experience
in operating a public company or a REIT, and our failure to
operate successfully or profitably could have a material adverse
effect on our ability to generate cash flow.
We, our sponsor and our advisor are each recently formed
companies. Neither we, nor our advisor, nor our sponsor nor any
of our advisor’s or sponsor’s respective officers or
employees have operated a public company or an entity that has
elected to be taxed as a REIT, and we may not be able to operate
successfully. You should not rely upon the past performance of
other real estate investment programs of our affiliates to
predict our future results. As of the date of this prospectus,
we have not purchased any real estate or made any other
investments, and we have not identified any probable
investments. You should consider our prospects in light of the
risks, uncertainties and difficulties frequently encountered by
companies that are, like us, in their early stage of
development. To be successful, we must, among other things:
•
Identify and acquire investments that align with our investment
strategies;
•
Increase awareness of the Insight Real Estate name within the
investment products market;
Establish and maintain contacts with licensed securities brokers
and other agents to successfully complete this offering;
•
Attract, integrate, motivate and retain qualified personnel to
manage our day-to-day operations;
•
Utilize the expertise in the specialized green building sector
of our sponsor’s Green Advisory Council;
•
Respond to competition for our targeted real estate properties
and other real estate related investments as well as for
potential investors in our shares; and
•
Continue to build and expand our operations structure to support
our business.
Our failure, or our advisor’s or sponsor’s failure, to
operate successfully or profitably could have a material adverse
effect on our ability to generate cash flow to make
distributions to our stockholders and could cause you to lose
all or a portion of your investment in our common shares.
Our
investments will be concentrated in green properties, making us
more competitively vulnerable than if our investments were more
diversified.
We intend to acquire green certified properties and properties
that are excellent candidates for conversion to green certified
properties with the proceeds of this offering. We will be
competing with numerous other persons or entities who are
seeking to acquire these types of properties, and the supply of
green properties currently is more limited than that of
traditional real estate assets. We will face competition for the
acquisition of the properties that we are seeking to acquire
from insurance companies, credit companies, pension funds,
private individuals, investments companies and other REITs as
well as affiliates of our advisor. These entities may have
superior experience and financial strength. These institutions
may accept greater risks or lower returns, allowing them to
offer more attractive terms to prospective sellers. In addition,
our advisor’s evaluation of the acceptability of rates of
return on our behalf will be affected by our relative cost of
capital. Thus, to the extent our fee structure and cost of
capital is higher than our competitors, we may be limited in the
amount of acquisitions we are able to make.
Instability
in the real estate market could reduce our ability to pay
distributions to you.
The real estate market is subject to fluctuation and can be
impacted by factors such as general economic conditions, supply
and demand, availability of financing and interest rates. To the
extent we purchase real estate in an unstable market, we are
subject to the risk that if the real estate market ceases to
attract the same level of capital investment in the future that
it attracts at the time of our purchases, or the number of
companies seeking to acquire green buildings decreases, the
value of our investments may not appreciate or may decrease
significantly below the amount we pay for such investments.
Further, if we acquire properties in a real estate market in
which prices are high in relation to historical norms, we could
be limited in the number of investments that we can make and in
our ability to acquire a diversified portfolio of properties. In
addition, the current credit market is unstable and financing is
not as readily available as it has been in recent years, which
may prevent us from financing our properties at targeted levels
and limit the number of properties we can acquire. These factors
may adversely affect our profitability, our ability to pay
distributions to our stockholders and stockholders’ overall
investment returns.
We may
be required to pay higher prices for green properties, which
could reduce our distributions to you.
We may be required to pay higher prices for green properties or
properties that we convert to green properties to the extent
purchase prices or construction and improvement costs for any
such buildings are higher than the costs associated with
comparable traditional buildings. Although we anticipate that
cost savings will be realized through long-term lower operating
costs of green buildings, there can be no assurances that we
will benefit financially through high rent generated by the
green attributes of such buildings during our ownership or from
the sale of such buildings. If we are unable to realize a return
on such investments, our distributions to you would be reduced.
If we
are delayed or unable to find suitable investments, we may not
be able to achieve our investment objectives.
Delays in selecting, acquiring and developing green real estate
assets could adversely affect investor returns. Because we are
conducting this offering on a “best efforts” basis
over time, our ability to commit to purchase specific assets
will depend, in part, on the amount of proceeds we have received
at a given time. As of the date of this prospectus, we have not
identified the real estate assets that we will purchase with the
proceeds of this offering. If we are unable to access sufficient
capital, we may suffer from delays in deploying the capital into
real properties. Moreover, because our targeted investments are
limited to green buildings and properties suitable for
conversion into green certified properties, it may be more
difficult for us to deploy our capital into real estate if the
supply of green real estate and contractors who specialize in
green building conversions does not increase as projected. As a
consequence, we may not be able to achieve our investment
objectives or make distributions to you.
We are
uncertain of our sources for funding our future capital needs;
if we cannot obtain debt or equity financing on acceptable
terms, our ability to acquire real properties and to expand our
operations will be adversely affected.
The net proceeds from this offering will be used for investments
in real properties and real estate related investments,
operating expenses and for payment of various fees and expenses
such as acquisition fees, asset management fees and property
management fees. We do not intend to establish a general working
capital reserve out of the proceeds from this offering.
Accordingly, in the event that we develop a need for additional
capital in the future for acquisitions, the improvement of our
real properties or for any other reason, sources of funding may
not be available to us. If we cannot establish reserves out of
cash flow generated by operating real properties or out of net
sale proceeds in non-liquidating sale transactions, or obtain
debt or equity financing on acceptable terms, our ability to
acquire real properties and to expand our operations will be
adversely affected. As a result, we would be less able to
achieve portfolio diversification and our investment objectives,
which may negatively impact our results of operations and reduce
our ability to make distributions to our stockholders.
C:
Risks
Relating to Our Organizational Structure
Maryland
law and our organizational documents limit your right to bring
claims against our officers and directors.
Maryland law provides that a director will not have any
liability as a director so long as he or she performs his or her
duties in accordance with the applicable standard of conduct. In
addition, our charter provides that, subject to the applicable
limitations set forth therein or under Maryland law, no director
or officer will be liable to us or our stockholders for monetary
damages. Our charter also provides that we will generally
indemnify our directors, our officers, our advisor and its
affiliates for losses they may incur by reason of their service
in those capacities unless their act or omission was material to
the matter giving rise to the proceeding and was committed in
bad faith or was the result of active and deliberate dishonesty,
they actually received an improper personal benefit in money,
property or services or, in the case of any criminal proceeding,
they had reasonable cause to believe the act or omission was
unlawful. Moreover, we may enter into separate indemnification
agreements with each of our directors and some of our executive
officers. As a result, we and our stockholders may have more
limited rights against these persons than might otherwise exist
under common law. In addition, we may be obligated to fund the
defense costs incurred by these persons in some cases. However,
our charter does provide that we may not indemnify our
directors, our advisor and its affiliates for loss or liability
suffered by them or hold our directors or our advisor and its
affiliates harmless for loss or liability suffered by us unless
they have determined that the course of conduct that caused the
loss or liability was in our best interests, they were acting on
our behalf or performing services for us, the liability was not
the result of negligence or misconduct by our non-independent
directors, our advisor and its affiliates or gross negligence or
willful misconduct by our independent directors, and the
indemnification or obligation to hold harmless is recoverable
only out of our net assets or the proceeds of insurance and not
from the stockholders.
The
limit on the percentage of shares of our common stock that any
person may own may discourage a takeover or business combination
that may have benefited our stockholders.
Our charter restricts the direct or indirect ownership by one
person or entity to no more than 9.8% of the value of our then
outstanding capital stock (which includes common stock and any
preferred stock we may issue) and no more than 9.8% of the value
or number of shares, whichever is more restrictive, of our then
outstanding common stock. This restriction may discourage a
change of control of us and may deter individuals or entities
from making tender offers for shares of our common stock on
terms that might be financially attractive to stockholders or
which may cause a change in our management. This ownership
restriction may also prohibit business combinations that would
have otherwise been approved by our board of directors and
stockholders. In addition to deterring potential transactions
that may be favorable to our stockholders, these provisions may
also decrease your ability to sell your shares of our common
stock.
We may
issue preferred stock or other classes of common stock, which
issuance could adversely affect the holders of our common stock
issued pursuant to this offering.
Investors in this offering do not have preemptive rights to any
shares issued by us in the future. We may issue, without
stockholder approval, preferred stock or other classes of common
stock with rights that could dilute the value of your shares of
common stock. This would increase the number of stockholders
entitled to distributions without simultaneously increasing the
size of our asset base. Our charter authorizes us to issue
1,050,000,000 shares of capital stock, of which
1,000,000,000 shares of capital stock are designated as
common stock and 50,000,000 shares of capital stock are
designated as preferred stock. Our board of directors may
increase the aggregate number of authorized shares of capital
stock or the number of authorized shares of capital stock of any
class or series without stockholder approval. If we ever created
and issued preferred stock with a distribution preference over
common stock, payment of any distribution preferences of
outstanding preferred stock would reduce the amount of funds
available for the payment of distributions on our common stock.
Further, holders of preferred stock are normally entitled to
receive a preference payment in the event we liquidate, dissolve
or wind up before any payment is made to our common
stockholders, likely reducing the amount common stockholders
would otherwise receive upon such an occurrence. In addition,
under certain circumstances, the issuance of preferred stock or
a separate class or series of common stock may render more
difficult or tend to discourage:
•
A merger, offer or proxy contest;
•
The assumption of control by a holder of a large block of our
securities; and/or
•
The removal of incumbent management.
Our
UPREIT structure may result in potential conflicts of interest
with limited partners in our operating partnership whose
interests may not be aligned with those of our
stockholders.
Limited partners in our operating partnership have the right to
vote on certain amendments to the operating partnership
agreement, as well as on certain other matters. Persons holding
such voting rights may exercise them in a manner that conflicts
with the interests of our stockholders. As general partner of
our operating partnership, we are obligated to act in a manner
that is in the best interest of all partners of our operating
partnership. Circumstances may arise in the future when the
interests of limited partners in our operating partnership may
conflict with the interests of our stockholders. These conflicts
may be resolved in a manner stockholders do not believe are in
their best interest.
In addition, Insight Management, LLC, a limited partner of our
operating partnership and the holder of the special units, may
be entitled to certain cash payments, as described in the
“Compensation Table,” upon the disposition of certain
of our operating partnership’s assets or a one time payment
in the form of a promissory note in conjunction with the
redemption of the special units upon the occurrence of a listing
of our shares on a national stock exchange or upon the
occurrence of certain events that result in the termination or
non-renewal of our advisory agreement. This potential obligation
to make substantial payments to the holder of the special units
may limit the amount that stockholders will receive upon the
consummation of a liquidity event.
We
depend on our advisor and its key personnel and if any of such
key personnel were to cease to be affiliated with our advisor,
our business could suffer.
Our ability to make distributions and achieve our investment
objectives is dependent upon the performance of our advisor in
the acquisition, disposition and management of real properties,
the selection of tenants for our real properties and the
determination of any financing arrangements. In addition, our
success depends to a significant degree upon the continued
contributions of certain of the key personnel of Insight Real
Estate, our advisor’s parent, including Messrs. Hannah
and Skibo, each of whom would be difficult to replace. We
currently do not have key man life insurance on any of these key
personnel. If our advisor were to lose the benefit of the
experience, efforts and abilities of one or more of these
individuals, our operating results could suffer.
We may
compete with other Insight Real Estate affiliates for
opportunities to acquire or sell investments, which may have an
adverse impact on our operations.
We may compete with other Insight Real Estate affiliates for
opportunities to acquire or sell certain types of real
properties. We may also buy or sell real properties at the same
time as other Insight Real Estate affiliates. In this regard,
there is a risk that our advisor will purchase a real property
that provides lower returns to us than a real property purchased
by another Insight Real Estate affiliate. Certain of our
affiliates own
and/or
manage real properties in geographical areas in which we expect
to own real properties. Therefore, our real properties may
compete for tenants with other real properties owned
and/or
managed by other Insight Real Estate affiliates. Our advisor may
face conflicts of interest when evaluating tenant leasing
opportunities for our real properties and other real properties
owned and/or
managed by Insight Real Estate affiliates, and these conflicts
of interest may have a negative impact on our ability to attract
and retain tenants.
As a result of our potential competition with other Insight Real
Estate affiliates, certain investment opportunities that would
otherwise be available to us may not in fact be available. This
competition may also result in conflicts of interest that are
not resolved in our favor.
The
time and resources that Insight Real Estate affiliates devote to
us may be diverted, and we may face additional competition due
to the fact that Insight Real Estate affiliates are not
prohibited from raising money for another entity that makes the
same types of investments that we target.
Insight Real Estate affiliates are not prohibited from raising
money for another investment entity that makes the same types of
investments as those we target. As a result, the time and
resources they could devote to us may be diverted. In addition,
we may compete with any such investment entity for the same
investors and investment opportunities. We may also co-invest
with any such investment entity. Even though all such
co-investments will be subject to approval by our independent
directors, they could be on terms not as favorable to us as
those we could achieve co-investing with a third party.
Our
advisor and its affiliates, including our officers and some of
our directors, will face conflicts of interest caused by
compensation arrangements with us and other Insight Real Estate
affiliates, which could result in actions that are not in the
best interests of our stockholders.
Our advisor and its affiliates will receive substantial fees
from us in return for their services, and these fees could
influence our advisor’s advice to us. Among other matters,
the compensation arrangements could affect their judgment with
respect to:
•
Public offerings of equity by us, which allow our dealer manager
to earn additional dealer manager fees and our advisor to earn
increased acquisition fees and asset management fees;
•
Property sales, since the asset management fees payable to our
advisor will decrease and since our advisor will be entitled to
acquisition fees and real estate sales commissions upon purchase
and sales; and
Property acquisitions from other Insight Real Estate affiliates,
which may allow our advisor or its affiliates to earn additional
asset management fees, property management fees and real estate
sales commissions.
Further, our advisor may recommend that we invest in a
particular asset or pay a higher purchase price for the asset
than it would otherwise recommend if it did not receive an
acquisition fee. Certain potential acquisition fees and asset
management fees paid to our advisor and property management and
leasing fees paid to the property manager would be paid
irrespective of the quality of the underlying real estate or
property management services during the term of the related
agreement. For example, our advisor is entitled to an asset
management fee consisting of monthly payments in an amount equal
to one-twelfth of 1% of the sum of the cost of all real estate
investments we own and of our investments and joint ventures,
including acquisition fees, origination fees, acquisition
origination expenses and any debt attributable to such
investments. These fees may incentivize our advisor to recommend
transactions with respect to a property or properties that may
not be in our best interest at the time. Investments with higher
net operating income growth potential are generally riskier or
more speculative. In addition, the premature sale of an asset
may add concentration risk to the portfolio or may be at a price
lower than if we held on to the property. Moreover, our advisor
will have considerable discretion with respect to the terms and
timing of acquisition, disposition and leasing transactions. In
evaluating investments and other management strategies, the
opportunity to earn these fees may lead our advisor to place
undue emphasis on criteria relating to its compensation at the
expense of other criteria, such as preservation of capital, in
order to achieve higher short-term compensation. Considerations
relating to our affiliates’ compensation from us and other
Insight Real Estate affiliates could result in decisions that
are not in the best interests of our stockholders, which could
hurt our ability to pay you distributions or result in a decline
in the value of your investment.
Our
advisor may have conflicting fiduciary obligations if we acquire
properties from its affiliates or in joint ventures with it
affiliates; as a result, in any such transaction we may not have
the benefit of arm’s-length negotiations of the type
normally conducted between unrelated parties.
Our advisor may cause us to acquire an interest in a property
from its affiliates or through a joint venture with its
affiliates or to dispose of an interest in a property to its
affiliates. In these circumstances, our advisor will have a
conflict of interest when fulfilling its fiduciary obligation to
us. In any such transaction we may not have the benefit of
arm’s-length negotiations of the type normally conducted
between unrelated parties.
The
fees we pay to affiliates in connection with this offering and
in connection with the acquisition and management of our
investments were not determined on an arm’s-length basis;
therefore, we do not have the benefit of arm’s-length
negotiations of the type normally conducted between unrelated
parties.
Assuming we raise $1,650,000,000 in gross offering proceeds from
the sale of shares of our common stock (including $1,500,000,000
pursuant to the primary offering and $150,000,000 pursuant to
the distribution reinvestment plan), we will pay an aggregate of
up to approximately 12.5% of the gross offering proceeds
(approximately $187,500,000) in fees, commissions and offering
expense reimbursements to our advisor, our dealer manager and
other of our affiliates in exchange for their services and to
reimburse funds advanced on our behalf. Substantially all of the
sales commissions (up to $105,000,000) may be reallowed to third
party broker-dealers participating in the offering. The fees to
be paid to our advisor, our dealer manager and other affiliates
for services they provide us were not determined on an
arm’s-length basis. As a result, the fees have been
determined without the benefit of arm’s-length negotiations
of the type normally conducted between unrelated parties.
We may
purchase real properties from third parties who have existing or
previous business relationships with affiliates of our advisor;
as a result, in any such transaction, we may not have the
benefit of arm’s-length negotiations of the type normally
conducted between unrelated parties.
We may purchase assets from third parties that have existing or
previous business relationships with affiliates of our advisor.
The officers, directors or employees of our advisor and its
affiliates and the principals of our advisor who also perform
services for other Insight Real Estate affiliates may have a
conflict in
representing our interests in these transactions on the one hand
and the interests of such affiliates in preserving or furthering
their respective relationships on the other hand. In any such
transaction, we will not have the benefit of arm’s-length
negotiations of the type normally conducted between unrelated
parties.
C:
Risks
Related To Investments In Real Estate
Changes
in national, regional or local economic, demographic or real
estate market conditions may adversely affect our results of
operations and returns to our stockholders.
We will be subject to risks generally incident to the ownership
of real property including changes in national, regional or
local economic, demographic or real estate market conditions. We
will be subject to risks generally attributable to the ownership
of real property, including: changes in national, regional or
local economic, demographic or real estate market conditions;
changes in supply of or demand for similar properties in an
area; increased competition for real property investments
targeted by our investment strategy; bankruptcies, financial
difficulties or lease defaults by our tenants; changes in
interest rates and availability of financing; and changes in
government rules, regulations and fiscal policies, including
changes in tax, real estate, environmental and zoning laws.
We are unable to predict future changes in national, regional or
local economic, demographic or real estate market conditions.
For example, a recession or rise in interest rates could make it
more difficult for us to lease real properties or dispose of
them. In addition, rising interest rates could also make
alternative interest-bearing and other investments more
attractive and therefore potentially lower the relative value of
our existing real estate investments. These conditions, or
others we cannot predict, may adversely affect our results of
operations and returns to our stockholders.
Changes
in supply of or demand for similar real properties in a
particular area may increase the price of real properties we
seek to purchase and decrease the price of real properties when
we seek to sell them.
The real estate industry is subject to market forces. We are
unable to predict certain market changes including changes in
supply of or demand for similar real properties in a particular
area. For example, if demand for green real property assets in
which we seek to invest were to sharply increase or supply of
those assets were to sharply decrease, the prices of those
assets could rise significantly. Any potential purchase of an
overpriced asset could decrease our rate of return on these
investments and result in lower operating results and overall
returns to our stockholders.
Our
operating expenses may increase in the future, and to the extent
such increases cannot be passed on to tenants, our cash flow and
our operating results would decrease.
Operating expenses, such as expenses for fuel, utilities, labor
and insurance, are not fixed and may increase in the future.
There is no guarantee that we will be able to pass such
increases on to tenants. To the extent such increases cannot be
passed on to tenants, any such increase would cause our cash
flow and our operating results to decrease.
A real
property that incurs a vacancy could be difficult to sell or
re-lease.
A real property may incur a vacancy either by the continued
default of a tenant under its lease or the expiration of one of
our leases. In addition, certain of the real properties we
acquire may have some level of vacancy at the time of closing.
Certain other real properties may be specifically suited to the
particular needs of a tenant and may become vacant. Therefore,
we may have difficulty obtaining a new tenant for any vacant
space we have in our real properties. If the vacancy continues
for a long period of time, we may suffer reduced revenues
resulting in lower cash distributions to stockholders. In
addition, the resale value of the real property could be
diminished because the market value may depend principally upon
the value of the leases of such real property.
We are
dependent on tenants for revenue, and our inability to lease our
real properties or to collect rent from our tenants may
adversely affect our results of operations and returns to our
stockholders.
Certain of our real properties may be occupied by a single
tenant. As a result, the success of those real properties will
depend on the financial stability of a single tenant. Lease
payment defaults by such tenants could cause us to reduce the
amount of distributions to stockholders and could force us to
find an alternative source of revenue to pay any mortgage loan
on the real property. In the event of such a tenant default, we
may also experience delays in enforcing our rights as landlord
and may incur substantial costs in protecting our investment and
re-letting our real property. If a lease is terminated, we may
be unable to lease the real property for the rent previously
received or sell the real property without incurring a loss.
We may
not have funding for future tenant improvements, which may
adversely affect the value of our assets, our results of
operations and returns to our stockholders.
When a tenant at one of our real properties does not renew its
lease or otherwise vacates its space in one of our buildings, it
is likely that, in order to attract one or more new tenants, we
will be required to expend substantial funds to construct new
tenant improvements in the vacated space. Substantially all of
the net proceeds from this offering will be invested in real
properties, and we do not anticipate establishing a general
working capital reserve out of the proceeds from this offering.
We do not currently have an identified funding source to provide
funds which may be required in the future for tenant
improvements and tenant refurbishments in order to attract new
tenants. If we do not establish sufficient reserves for working
capital or obtain adequate secured financing to supply necessary
funds for capital improvements or similar expenses, we may be
required to defer necessary or desirable improvements to our
real properties. If we defer such improvements, the applicable
real properties may decline in value, and it may be more
difficult for us to attract or retain tenants to such real
properties or the amount of rent we can charge at such real
properties may decrease. We cannot assure you that we will have
any sources of funding available to us for repair or
reconstruction of damaged real property in the future.
Our
real properties will be subject to property taxes that may
increase in the future, which could adversely affect our cash
flow.
Our real properties are subject to real and personal property
taxes that may increase as tax rates change and as the real
properties are assessed or reassessed by taxing authorities. We
anticipate that certain of our leases will generally provide
that the property taxes, or increases therein, are charged to
the lessees as an expense related to the real properties that
they occupy, while other leases will generally provide that we
are responsible for such taxes. In any case, as the owner of the
properties, we are ultimately responsible for payment of the
taxes to the applicable government authorities. If real property
taxes increase, our tenants may be unable to make the required
tax payments, ultimately requiring us to pay the taxes even if
otherwise stated under the terms of the lease. If we fail to pay
any such taxes, the applicable taxing authority may place a lien
on the real property and the real property may be subject to a
tax sale. In addition, we will generally be responsible for real
property taxes related to any vacant space.
Uninsured
losses or premiums for insurance coverage relating to real
property may adversely affect your returns.
We will attempt to adequately insure all of our real properties
against casualty losses. There are types of losses, generally
catastrophic in nature, such as losses due to wars, acts of
terrorism, earthquakes, floods, hurricanes, pollution or
environmental matters that are uninsurable or not economically
insurable, or may be insured subject to limitations, such as
large deductibles or co-payments. Risks associated with
potential terrorism acts could sharply increase the premiums we
pay for coverage against property and casualty claims.
Additionally, mortgage lenders sometimes require commercial
property owners to purchase specific coverage against terrorism
as a condition for providing mortgage loans. These policies may
not be available at a reasonable cost, if at all, which could
inhibit our ability to finance or refinance our real properties.
In such instances, we may be required to provide other financial
support, either through financial assurances or self-insurance,
to cover potential losses. Changes in the cost or availability
of insurance could expose us to uninsured casualty losses. In
the event that any of our real properties incurs a casualty loss
which is not fully
covered by insurance, the value of our assets will be reduced by
any such uninsured loss. In addition, we cannot assure you that
funding will be available to us for repair or reconstruction of
damaged real property in the future.
We
compete with numerous other parties or entities for real
property investments and tenants and may not compete
successfully.
We will compete with numerous other persons or entities seeking
to buy real properties or to attract tenants to real properties
we already own. These persons or entities may have greater
experience and financial strength. There is no assurance that we
will be able to acquire real properties or attract tenants on
favorable terms, if at all. For example, our competitors may be
willing to offer space at rental rates below our rates, causing
us to lose existing or potential tenants and pressuring us to
reduce our rental rates to retain existing tenants or convince
new tenants to lease space at our properties. Each of these
factors could adversely affect our results of operations,
financial condition, value of our investments and ability to pay
distributions to you.
Delays
in the acquisition, development and construction of real
properties may have adverse effects on our results of operations
and returns to our stockholders.
Delays we encounter in the selection, acquisition and
development of real properties could adversely affect your
returns. Where properties are acquired prior to the start of
construction or during the early stages of construction, it will
typically take several months to complete construction and rent
available space. Therefore, you could suffer delays in the
distribution of cash distributions attributable to those
particular real properties. Delays in completion of construction
could give tenants the right to terminate preconstruction leases
for space at a newly developed project. We may incur additional
risks when we make periodic progress payments or other advances
to builders prior to completion of construction. Each of those
factors could result in increased costs of a project or loss of
our investment. In addition, we will be subject to normal
lease-up
risks relating to newly constructed projects. Furthermore, the
price we agree to for a real property will be based on our
projections of rental income and expenses and estimates of the
fair market value of real property upon completion of
construction. If our projections are inaccurate, we may pay too
much for a property.
Actions
of joint venture partners could negatively impact our
performance.
We may enter into joint ventures with third parties, including
with entities that are affiliated with our advisor. We may also
purchase and develop properties in joint ventures or in
partnerships, co-tenancies or other co-ownership arrangements
with the sellers of the properties, affiliates of the sellers,
developers or other persons. Such investments may involve risks
not otherwise present with a direct investment in real estate,
including, for example:
•
The possibility that our venture partner or co-tenant in an
investment might become bankrupt;
•
That such venture partner or co-tenant may at any time have
economic or business interests or goals which are or which
become inconsistent with our business interests or goals; or
•
That such venture partner or co-tenant may be in a position to
take action contrary to our instructions or requests or contrary
to our policies or objectives.
Actions by such a joint venture partner or co-tenant might have
the result of subjecting the property to liabilities in excess
of those contemplated and may have the effect of reducing your
returns.
Under certain joint venture arrangements, neither venture
partner may have the power to control the venture, and an
impasse could be reached, which might have a negative influence
on the joint venture and decrease potential returns to you. In
the event that a venture partner has a right of first refusal to
buy out the other partner, it may be unable to finance such
buy-out at that time. It may also be difficult for us to sell
our interest in any such joint venture or partnership or as a
co-tenant in a particular property. In addition, to the extent
that our venture partner or co-tenant is an affiliate of our
advisor, certain conflicts of interest will exist.
Costs
of complying with governmental laws and regulations related to
environmental protection and human health and safety may be
high.
All real property investments and the operations conducted in
connection with such investments are subject to federal, state
and local laws and regulations relating to environmental
protection and human health and safety. Some of these laws and
regulations may impose joint and several liability on customers,
owners or operators for the costs to investigate or remediate
contaminated properties, regardless of fault or whether the acts
causing the contamination were legal.
Under various federal, state and local environmental laws, a
current or previous owner or operator of real property may be
liable for the cost of removing or remediating hazardous or
toxic substances on such real property. Such laws often impose
liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic
substances. In addition, the presence of hazardous substances,
or the failure to properly remediate these substances, may
adversely affect our ability to sell, rent or pledge such real
property as collateral for future borrowings. Environmental laws
also may impose restrictions on the manner in which real
property may be used or businesses may be operated. Some of
these laws and regulations have been amended so as to require
compliance with new or more stringent standards as of future
dates. Compliance with new or more stringent laws or regulations
or stricter interpretation of existing laws may require us to
incur material expenditures. Future laws, ordinances or
regulations may impose material environmental liability.
Additionally, our tenants’ operations, the existing
condition of land when we buy it, operations in the vicinity of
our real properties, such as the presence of underground storage
tanks, or activities of unrelated third parties may affect our
real properties. In addition, there are various local, state and
federal fire, health, life-safety and similar regulations with
which we may be required to comply, and which may subject us to
liability in the form of fines or damages for noncompliance. In
connection with the acquisition and ownership of our real
properties, we may be exposed to such costs in connection with
such regulations. The cost of defending against environmental
claims, of any damages or fines we must pay, of compliance with
environmental regulatory requirements or of remediating any
contaminated real property could materially and adversely affect
our business, lower the value of our assets or results of
operations and, consequently, lower the amounts available for
distribution to you.
The
costs associated with complying with the Americans with
Disabilities Act may reduce the amount of cash available for
distribution to our stockholders.
Investment in real properties may also be subject to the
Americans with Disabilities Act of 1990, as amended. Under this
act, all places of public accommodation are required to comply
with federal requirements related to access and use by disabled
persons. The act has separate compliance requirements for
“public accommodations” and “commercial
facilities” that generally require that buildings and
services be made accessible and available to people with
disabilities. The act’s requirements could require us to
remove access barriers and could result in the imposition of
injunctive relief, monetary penalties or, in some cases, an
award of damages. We will attempt to acquire properties that
comply with the act or place the burden on the seller or other
third party, such as a tenant, to ensure compliance with the
act. We cannot assure you that we will be able to acquire
properties or allocate responsibilities in this manner. Any
monies we use to comply with the act will reduce the amount of
cash available for distribution to our stockholders.
Real
properties are illiquid investments, and we may be unable to
adjust our portfolio in response to changes in economic or other
conditions or sell a property if or when we decide to do
so.
Real properties are illiquid investments. We may be unable to
adjust our portfolio in response to changes in economic or other
conditions. In addition, the real estate market is affected by
many factors, such as general economic conditions, availability
of financing, interest rates and other factors, including supply
and demand, that are beyond our control. We cannot predict
whether we will be able to sell any real property for the price
or on the terms set by us, or whether any price or other terms
offered by a prospective purchaser would be acceptable to us. We
cannot predict the length of time needed to find a willing
purchaser and to close the sale of a real property. Also, we may
acquire real properties that are subject to contractual
“lock-out” provisions that could restrict our ability
to dispose of the real property for a period of time.
We may be required to expend funds to correct defects or to make
improvements before a property can be sold. We cannot assure you
that we will have funds available to correct such defects or to
make such improvements.
In acquiring a real property, we may agree to restrictions that
prohibit the sale of that real property for a period of time or
impose other restrictions, such as a limitation on the amount of
debt that can be placed or repaid on that real property. Our
real properties may also be subject to resale restrictions. All
these provisions would restrict our ability to sell a property.
Real
property investments made outside of the United States will be
subject to currency rate exposure and risks associated with the
uncertainty of foreign laws and markets.
We anticipate acquiring properties in markets outside the United
States to the extent that opportunities exist that may help us
meet our investment objectives. International investments and
operations generally are subject to various political and other
risks that are different from and in addition to those for
U.S. investments and operations. To the extent that we
invest in real property located outside of the United States, in
addition to risks inherent in the investment in real estate
generally discussed in this prospectus, we will also be subject
to fluctuations in foreign currency exchange rates and the
uncertainty of foreign laws and markets including, but not
limited to, unexpected changes in regulatory requirements such
as the enactment of laws prohibiting or restricting the foreign
ownership of property, political and economic instability in
certain geographic locations, difficulties in managing
international operations, potentially adverse tax consequences,
laws restricting us from removing profits earned from activities
within the country to the United States, including the payment
of distributions, additional accounting and control expenses and
the administrative burden associated with complying with a wide
variety of foreign laws. Changes in foreign currency exchange
rates may adversely impact the fair values and earnings streams
of our international holdings and thus the returns on our
non-dollar denominated investments. Although we may hedge our
foreign currency risk subject to the REIT income qualification
tests, we may not be able to do so successfully and may incur
losses on these investments as a result of exchange rate
fluctuations.
C:
Risks
Associated With Debt Financing
We
will incur mortgage indebtedness and other borrowings, which may
increase our business risks, could hinder our ability to make
distributions and could decrease the value of your
investment.
We intend to finance a portion of the purchase price of real
properties by borrowing funds. Under our charter, we have a
limitation on borrowing which precludes us from borrowing in
excess of 300% of the value of our net assets. Net assets for
purposes of this calculation are defined to be our total assets
(other than intangibles), valued at cost prior to deducting
depreciation or other non-cash reserves, less total liabilities.
Generally speaking, the preceding calculation is expected to
approximate 75% of the aggregate cost of our real property
assets before non-cash reserves and depreciation. In addition,
we may incur mortgage debt and pledge some or all of our real
properties as security for that debt to obtain funds to acquire
additional real properties or for working capital. We may also
borrow funds to satisfy the REIT tax qualification requirement
that we distribute at least 90% of our annual REIT taxable
income to our stockholders. Furthermore, we may borrow if we
otherwise deem it necessary or advisable to ensure that we
maintain our qualification as a REIT for federal income tax
purposes.
High debt levels will cause us to incur higher interest charges,
which would result in higher debt service payments and could be
accompanied by restrictive covenants. If there is a shortfall
between the cash flow from a property and the cash flow needed
to service mortgage debt on that property, then the amount
available for distributions to stockholders may be reduced. In
addition, incurring mortgage debt increases the risk of loss
since defaults on indebtedness secured by a property may result
in lenders initiating foreclosure actions. In that case, we
could lose the property securing the loan that is in default,
thus reducing the value of your investment. For tax purposes, a
foreclosure on any of our properties will be treated as a sale
of the property for a purchase price equal to the outstanding
balance of the debt secured by the mortgage. If the outstanding
balance of the debt secured by the mortgage exceeds our tax
basis in the property, we will recognize taxable
income on foreclosure, but we would not receive any cash
proceeds. If any mortgage contains cross collateralization or
cross default provisions, a default on a single property could
affect multiple properties. If any of our properties are
foreclosed upon due to a default, our ability to pay cash
distributions to our stockholders will be adversely affected.
Instability
in the debt markets may make it more difficult for us to finance
or refinance properties, which could reduce the number of
properties we can acquire and the amount of cash distributions
we can make to our stockholders.
If mortgage debt is unavailable on reasonable terms as a result
of increased interest rates or other factors, we may not be able
to finance the initial purchase of properties. In addition, if
we place mortgage debt on properties, we run the risk of being
unable to refinance such debt when the loans come due, or of
being unable to refinance on favorable terms. If interest rates
are higher when we refinance debt, our income could be reduced.
We may be unable to refinance debt at appropriate times, which
may require us to sell properties on terms that are not
advantageous to us, or could result in the foreclosure of such
properties. If any of these events occur, our cash flow would be
reduced. This, in turn, would reduce cash available for
distribution to you and may hinder our ability to raise more
capital by issuing securities or by borrowing more money.
Increases
in interest rates could increase the amount of our debt payments
and negatively impact our operating results.
Interest we pay on our debt obligations will reduce cash
available for distributions. If we incur variable rate debt,
increases in interest rates would increase our interest costs,
which would reduce our cash flows and our ability to make
distributions to you. If we need to repay existing debt during
periods of rising interest rates, we could be required to
liquidate one or more of our investments in properties at times,
which may not permit realization of the maximum return on such
investments.
Lenders
may require us to enter into restrictive covenants relating to
our operations, which could limit our ability to make
distributions to our stockholders.
When providing financing, a lender may impose restrictions on us
that affect our distribution and operating policies and our
ability to incur additional debt. Loan documents we enter into
may contain covenants that limit our ability to further mortgage
the property, discontinue insurance coverage, or replace Insight
Green REIT Advisor, LLC as our advisor. In addition, loan
documents may limit our ability to replace the property manager
or terminate certain operating or lease agreements related to
the property. These or other limitations may adversely affect
our flexibility and our ability to achieve our investment
objectives.
If we
enter into financing arrangements involving balloon payment
obligations, it may adversely affect our ability to refinance or
sell properties on favorable terms and to make distributions to
our stockholders.
Some of our financing arrangements may require us to make a
lump-sum or “balloon” payment at maturity. Our ability
to make a balloon payment at maturity will be uncertain and may
depend upon our ability to obtain additional financing or our
ability to sell the particular property. At the time the balloon
payment is due, we may or may not be able to refinance the
balloon payment on terms as favorable as the original loan or
sell the particular property at a price sufficient to make the
balloon payment. The effect of a refinancing or sale could
affect the rate of return to stockholders and the projected time
of disposition of our assets. If we place mortgage debt on
properties, we run the risk of being unable to refinance such
debt if mortgage rates are higher at a time a balloon payment is
due. In addition, payments of principal and interest made to
service our debts, including balloon payments, may leave us with
insufficient cash to pay the distributions that we are required
to pay to maintain our qualification as a REIT.
Our
derivative financial instruments that we may use to hedge
against interest rate fluctuations may not be successful in
mitigating our risks associated with interest rates and could
reduce the overall returns on your investment.
We may use derivative financial instruments to hedge exposures
to changes in interest rates on loans secured by our real
properties, but no hedging strategy can protect us completely.
We cannot assure you that our hedging strategy and the
derivatives that we use will adequately offset the risk of
interest rate volatility or that our hedging transactions will
not result in losses. In addition, the use of such instruments
may reduce the overall return on our investments. These
instruments may also generate income that may not be treated as
qualifying REIT income for purposes of the 75% or 95% REIT
income test.
C:
Federal
Income Tax Risks
Failure
to qualify as a REIT could adversely affect our operations and
our ability to make distributions.
We intend to operate in a manner designed to permit us to
qualify as a REIT for federal income tax purposes commencing
with the taxable year in which we satisfy the minimum offering
requirements. Although we do not intend to request a ruling from
the Internal Revenue Service as to our REIT status, we have
received the opinion of our special U.S. federal income tax
counsel, Baker & McKenzie LLP, with respect to our
qualification as a REIT. This opinion has been issued in
connection with this offering. Investors should be aware,
however, that opinions of counsel are not binding on the
Internal Revenue Service or on any court. The opinion of
Baker & McKenzie LLP represents only the view of our
counsel based on our counsel’s review and analysis of
existing law and on certain representations as to factual
matters and covenants made by us, including representations
relating to the values of our assets and the sources of our
income. Baker & McKenzie LLP has no obligation to
advise us or the holders of our common stock of any subsequent
change in the matters stated, represented or assumed in its
opinion or of any subsequent change in applicable law.
Furthermore, both the validity of the opinion of
Baker & McKenzie LLP and our qualification as a REIT
will depend on our satisfaction of numerous requirements (some
on an annual and quarterly basis) established under highly
technical and complex provisions of the Code, for which there
are only limited judicial or administrative interpretations, and
involves the determination of various factual matters and
circumstances not entirely within our control. The complexity of
these provisions and of the applicable income tax regulations
that have been promulgated under the Code is greater in the case
of a REIT that holds its assets through a partnership, as we
will. Moreover, no assurance can be given that legislation, new
regulations, administrative interpretations or court decisions
will not change the tax laws with respect to qualification as a
REIT or the federal income tax consequences of that
qualification. See “Federal Income Tax
Considerations — REIT Qualification.”
If we were to fail to qualify as a REIT for any taxable year, we
would be subject to federal income tax on our taxable income at
corporate rates. In addition, we would generally be disqualified
from treatment as a REIT for the four taxable years following
the year in which we lose our REIT status. Losing our REIT
status would reduce our net earnings available for investment or
distribution to stockholders because of the additional tax
liability. In addition, distributions to stockholders would no
longer be deductible in computing our taxable income and we
would no longer be required to make distributions. To the extent
that distributions had been made in anticipation of our
qualifying as a REIT, we might be required to borrow funds or
liquidate some investments in order to pay the applicable
corporate income tax. In addition, although we intend to operate
in a manner intended to qualify as a REIT, it is possible that
future economic, market, legal, tax or other considerations may
cause our board of directors to recommend that we revoke our
REIT election.
We believe that our operating partnership will be treated for
federal income tax purposes as a partnership and not as an
association or as a publicly traded partnership taxable as a
corporation. If the Internal Revenue Service were successfully
to determine that our operating partnership were properly
treated as a corporation, our operating partnership would be
required to pay federal income tax at corporate rates on its net
income, its partners would be treated as stockholders of our
operating partnership and distributions to partners would
constitute distributions that would not be deductible in
computing our operating partnership’s taxable income. In
addition, we could fail to qualify as a REIT, with the resulting
consequences described above. See “Federal
Income Tax Considerations — Federal Income Tax Aspects
of Our Operating Partnership — Classification as a
Partnership.”
To
qualify as a REIT, we must meet annual distribution
requirements, which may result in us distributing amounts that
may otherwise be used for our operations.
To obtain the favorable tax treatment accorded to REITs, we
normally will be required each year to distribute to our
stockholders at least 90% of our real estate investment trust
taxable income, determined without regard to the deduction for
distributions paid and by excluding net capital gains. We will
be subject to federal income tax on our undistributed taxable
income and net capital gain and to a 4% nondeductible excise tax
on any amount by which distributions we pay with respect to any
calendar year are less than the sum of (i) 85% of our
ordinary income, (ii) 95% of our capital gain net income
and (iii) 100% of our undistributed income from prior
years. These requirements could cause us to distribute amounts
that otherwise would be spent on acquisitions of properties and
it is possible that we might be required to borrow funds or sell
assets to fund these distributions. Although we intend to make
distributions sufficient to meet the annual distribution
requirements and to avoid corporate income taxation on the
earnings that we distribute, it is possible that we might not
always be able to do so.
Recharacterization
of sale-leaseback transactions may cause us to lose our REIT
status.
We may purchase real properties and lease them back to the
sellers of such properties. While we will use our best efforts
to structure any such sale-leaseback transaction such that the
lease will be characterized as a “true lease,” thereby
allowing us to be treated as the owner of the property for
federal income tax purposes, we cannot assure you that the IRS
will not challenge such characterization. In the event that any
such sale-leaseback transaction is challenged and
recharacterized as a financing transaction or loan for federal
income tax purposes, deductions for depreciation and cost
recovery relating to such property would be disallowed. If a
sale-leaseback transaction were so recharacterized, we might
fail to satisfy the REIT qualification “asset tests”
or the “income tests” and, consequently, lose our REIT
status effective with the year of recharacterization.
Alternatively, the amount of our REIT taxable income could be
recalculated which might also cause us to fail to meet the
distribution requirement for a taxable year.
You
may have current tax liability on distributions if you elect to
reinvest in shares of our common stock.
If you participate in our distribution reinvestment plan, you
will be deemed to have received, and for income tax purposes
will be taxed on, the amount reinvested in shares of our common
stock to the extent the amount reinvested was not a tax-free
return of capital. As a result, unless you are a tax-exempt
entity, you may have to use funds from other sources to pay your
tax liability on the value of the common stock received.
Distributions
payable by REITs do not qualify for the reduced tax rates that
apply to other corporate distributions.
Tax legislation enacted in 2003 generally reduces the maximum
tax rate for distributions payable by corporations to
individuals to 15% through 2010. Distributions payable by REITs,
however, generally continue to be taxed at the normal rate
applicable to the individual recipient, rather than the 15%
preferential rate. Although this legislation does not adversely
affect the taxation of REITs or distributions paid by REITs, the
more favorable rates applicable to regular corporate
distributions could cause investors who are individuals to
perceive investments in REITs to be relatively less attractive
than investments in the stocks of non-REIT corporations that pay
distributions, which could adversely affect the value of the
stock of REITs, including our common stock. See “Federal
Income Tax Considerations — Taxation of Taxable
U.S. Stockholders — Distributions Generally.”
In
certain circumstances, we may be subject to federal and state
income taxes as a REIT, which would reduce our cash available
for distribution to you.
Even if we qualify and maintain our status as a REIT, we may be
subject to federal income taxes or state taxes. For example, net
income from a “prohibited transaction” will be subject
to a 100% tax. We may not be able to make sufficient
distributions to avoid excise taxes applicable to REITs. We may
also decide to retain income we earn from the sale or other
disposition of our property and pay income tax directly on such
income. In that event, our stockholders would be treated as if
they earned that income and paid the tax on it directly.
However, stockholders that are tax-exempt, such as charities or
qualified pension plans, would have no benefit from their deemed
payment of such tax liability. We may also be subject to state
and local taxes on our income or property, either directly or at
the level of the companies through which we indirectly own our
assets. Any federal or state taxes we pay will reduce our cash
available for distribution to you.
Distributions
to tax-exempt investors may be classified as unrelated business
taxable income.
Neither ordinary nor capital gain distributions with respect to
our common stock nor gain from the sale of common stock should
generally constitute unrelated business taxable income to a
tax-exempt investor. However, there are certain exceptions to
this rule. In particular:
•
Part of the income and gain recognized by certain qualified
employee pension trusts with respect to our common stock may be
treated as unrelated business taxable income if shares of our
common stock are predominately held by qualified employee
pension trusts, and we are required to rely on a special
look-through rule for purposes of meeting one of the REIT share
ownership tests, and we are not operated in a manner to avoid
treatment of such income or gain as unrelated business taxable
income;
•
Part of the income and gain recognized by a tax exempt investor
with respect to our common stock would constitute unrelated
business taxable income if the investor incurs debt in order to
acquire the common stock; and
•
Part or all of the income or gain recognized with respect to our
common stock by social clubs, voluntary employee benefit
associations, supplemental unemployment benefit trusts and
qualified group legal services plans which are exempt from
federal income taxation under Sections 501(c)(7), (9),
(17), or (20) of the Code may be treated as unrelated
business taxable income.
See “Federal Income Tax Considerations —
Treatment of Tax Exempt Stockholders” section of this
prospectus for further discussion of this issue if you are a
tax-exempt investor.
Complying
with the REIT requirements may cause us to forego otherwise
attractive opportunities.
To qualify as a REIT for federal income tax purposes, we must
continually satisfy tests concerning, among other things, the
sources of our income, the nature and diversification of our
assets, the amounts we distribute to our stockholders and the
ownership of shares of our common stock. We may be required to
make distributions to stockholders at disadvantageous times or
when we do not have funds readily available for distribution.
Thus, compliance with the REIT requirements may hinder our
ability to operate solely on the basis of maximizing profits.
Complying
with the REIT requirements may force us to liquidate otherwise
attractive investments.
To qualify as a REIT, we must ensure that at the end of each
calendar quarter, at least 75% of the value of our assets
consists of cash, cash items, government securities and
qualified REIT real estate assets, including shares of stock in
other REITs, certain mortgage loans and mortgage backed
securities. The remainder of our investment in securities (other
than governmental securities and qualified real estate assets)
generally cannot include more than 10% of the outstanding voting
securities of any one issuer or more than 10% of the total value
of the outstanding securities of any one issuer. In addition, in
general, no more than 5% of the value of our assets (other than
government securities and qualified real estate assets) can
consist of the securities of any one issuer, and no more than
20% of the value of our total securities can be represented by
securities of one or more taxable REIT subsidiaries. See
“Federal Income Tax Considerations — Requirements
for Qualification as a REIT— Operational
Requirements — Asset Tests.” If we fail to comply
with these requirements at the end of any calendar quarter, we
must correct such failure within 30 days after the end of
the calendar quarter to avoid losing our REIT status and
suffering adverse tax consequences. As a result, we may be
required to liquidate otherwise attractive investments.
Liquidation
of assets may jeopardize our REIT status.
To continue to qualify as a REIT, we must comply with
requirements regarding our assets and our sources of income. If
we are compelled to liquidate our investments to satisfy our
obligations to our lenders, we may be unable to comply with
these requirements, ultimately jeopardizing our status as a
REIT, or we may be subject to a 100% tax on any resultant gain
if we sell assets that are treated as dealer property or
inventory.
Legislative
or regulatory action could adversely affect
investors.
In recent years, numerous legislative, judicial and
administrative changes have been made to the federal income tax
laws applicable to investments in REITs and similar entities.
Additional changes to tax laws are likely to continue to occur
in the future, and we cannot assure you that any such changes
will not adversely affect the taxation of a stockholder. Any
such changes could have an adverse effect on an investment in
shares of our common stock. We urge you to consult with your own
tax advisor with respect to the status of legislative,
regulatory or administrative developments and proposals and
their potential effect on an investment in shares of our common
stock.
Foreign
investors may be subject to FIRPTA on the sale of common shares
if we are unable to qualify as a “domestically
controlled” REIT.
A foreign person disposing of a U.S. real property
interest, including shares of a U.S. corporation whose
assets consist principally of U.S. real property interests,
is generally subject to a tax, known as FIRPTA, on the gain
recognized on the disposition. FIRPTA does not apply, however,
to the disposition of stock in a REIT if the REIT is a
“domestically controlled REIT.” A domestically
controlled REIT is a REIT in which, at all times during a
specified testing period, less than 50% in value of its shares
is held directly or indirectly by
non-U.S. holders.
We cannot assure you that we will qualify as a domestically
controlled REIT. If we were to fail to so qualify, gain realized
by a foreign investor on a sale of our common stock would be
subject to FIRPTA unless our common stock was traded on an
established securities market and the foreign investor did not
at any time during a specified testing period directly or
indirectly own more than 5% of the value of our outstanding
common stock. See “Federal Income Tax
Considerations — Special Tax Considerations for
Non-U.S. Stock
holders — Non-Dividend Distributions.”
C:
ERISA
Risks
If our assets are deemed to be ERISA plan assets, our
advisor and we may be exposed to liabilities under Title I
of ERISA and the Internal Revenue Code.
In some circumstances where an ERISA plan holds an interest in
an entity, the assets of the entire entity are deemed to be
ERISA plan assets unless an exception applies. This is known as
the “look-through rule.” Under those circumstances,
the obligations and other responsibilities of plan sponsors,
plan fiduciaries and plan administrators, and of parties in
interest and disqualified persons, under Title I of ERISA
and Section 4975 of the Code, as applicable, may be
applicable, and there may be liability under these and other
provisions of ERISA and the Code. If our advisor or we are
exposed to liability under ERISA or the Code, our performance
and results of operations could be adversely affected. Prior to
making an investment in us, you should consult with your legal
and other advisors concerning the impact of ERISA and the Code
on your investment and our performance.
There are special considerations that apply to pension or
profit sharing trusts or IRAs investing in our common
stock.
If you are investing the assets of an IRA, pension, profit
sharing, 401(k), Keogh or other qualified retirement plan, you
should satisfy yourself that:
•
Your investment is consistent with your fiduciary obligations
under ERISA and the Code;
•
Your investment is made in accordance with the documents and
instruments governing your plan or IRA, including your
plan’s investment policy;
•
Your investment satisfies the prudence and diversification
requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of
ERISA;
•
Your investment will not impair the liquidity of the plan or IRA;
•
Your investment will not produce “unrelated business
taxable income” for the plan or IRA;
•
You will be able to value the assets of the plan annually in
accordance with ERISA requirements; and
•
Your investment will not constitute a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code.
See “ERISA Considerations” for a more complete
discussion of the foregoing issues and other risks associated
with an investment in shares of our common stock by retirement
plans.
Statements included in this prospectus that are not historical
facts (including any statements concerning investment
objectives, other plans and objectives of management for future
operations or economic performance, or assumptions or forecasts
related thereto) are forward-looking statements. These
statements are only predictions. We caution that forward-looking
statements are not guarantees. Actual events or our investments
and results of operations could differ materially from those
expressed or implied in the forward-looking statements.
Forward-looking statements are typically identified by the use
of terms such as “may,”“should,”“expect,”“could,”“intend,”“plan,”“anticipate,”“estimate,”“believe,”“continue,”“predict,”“potential” or the negative of such terms and other
comparable terminology.
The forward-looking statements included herein are based upon
our current expectations, plans, estimates, assumptions and
beliefs that involve numerous risks and uncertainties.
Assumptions relating to the foregoing involve judgments with
respect to, among other things, future economic, competitive and
market conditions and future business decisions, all of which
are difficult or impossible to predict accurately and many of
which are beyond our control. Although we believe that the
expectations reflected in such forward-looking statements are
based on reasonable assumptions, our actual results and
performance could differ materially from those set forth in the
forward-looking statements. Factors which could have a material
adverse effect on our operations and future prospects include,
but are not limited to:
•
Our ability to effectively deploy the proceeds raised in this
offering;
•
Changes in economic conditions generally and the real estate
market specifically;
•
Legislative or regulatory changes (including changes to the laws
governing the taxation of REITs);
•
The availability of capital;
•
Interest rates; and
•
Changes to generally accepted accounting principles.
Any of the assumptions underlying forward-looking statements
could be inaccurate. You are cautioned not to place undue
reliance on any forward-looking statements included in this
prospectus. All forward-looking statements are made as of the
date of this prospectus and the risk that actual results will
differ
materially from the expectations expressed in this prospectus
will increase with the passage of time. Except as otherwise
required by the federal securities laws, we undertake no
obligation to publicly update or revise any forward-looking
statements after the date of this prospectus, whether as a
result of new information, future events, changed circumstances
or any other reason. In light of the significant uncertainties
inherent in the forward-looking statements included in this
prospectus, including, without limitation, the risks described
under “Risk Factors,” the inclusion of such
forward-looking statements should not be regarded as a
representation by us or any other person that the objectives and
plans set forth in this prospectus will be achieved.
The following table presents information regarding our intended
use of the gross and net proceeds from our primary offering and
pursuant to our distribution reinvestment plan, which we refer
to in this section as our “DRIP offering.” The table
assumes we sell (i) the minimum of $2,000,000 in shares of
our common stock pursuant to the primary offering and no shares
of our common stock pursuant to the DRIP offering, (ii) the
maximum of $1,500,000,000 in shares of our common stock pursuant
to the primary offering and no shares of our common stock
pursuant to the DRIP offering, and (iii) the maximum of
$1,500,000,000 in shares of our common stock pursuant to the
primary offering and $150,000,000 in shares of our common stock
pursuant to the DRIP offering. Shares of our common stock will
be offered in our primary offering to the public at $10.00 per
share and issued pursuant to our DRIP offering at $9.50 per
share. The actual use of the capital we raise is likely to be
different than the figures presented in the table because we may
not raise the entire $1,500,000,000 in our primary offering or
the entire amount of $150,000,000 pursuant to our DRIP offering.
Raising less than the full $1,500,000,000 in the primary
offering or the full $150,000,000 pursuant to our DRIP offering
will alter the amounts of commissions, fees and expenses set
forth below. We expect that approximately 87.8% of the proceeds
of the $1,650,000,000 offering will be used for investments,
while the remaining 12.2% will be used to pay expenses and fees.
The amounts in the table assume that the full fees and
commissions are paid on all shares of our common stock offered
to the public in the primary offering. The sales commission and,
in some cases, all or a portion of our dealer manager fee, may
be reduced or eliminated in connection with certain categories
of sales, such as sales for which a volume discount applies,
sales through investment advisors or banks acting as trustees or
fiduciaries and sales to our affiliates. The reduction in these
fees will be accompanied by a corresponding reduction in the per
share purchase price but will not affect the amounts available
to us for investments. After paying the sales commission, our
dealer manager fee, the servicing fee for shares of our common
stock sold pursuant to the DRIP offering, and our organizational
and offering expenses, we will use the net proceeds of the
offering to invest in real properties and to pay the ongoing
fees set forth in the tables below. Because amounts in the
following tables are estimates, they may not accurately reflect
the actual receipt or use of the offering proceeds.
Maximum Primary
Minimum Primary
Maximum Primary
Offering and DRIP
Offering
Offering
Offering(8)
Amount
%
Amount
%
Amount
%
Gross Offering Proceeds
$
2,000,000
100.0
%
$
1,500,000,000
100.0
%
$
1,650,000,000
100.0
%
Less Offering Expenses:
Sales Commissions(1)
140,000
7.0
105,000,000
7.0
105,000,000
6.36
Dealer Manager Fee(1)
50,000
2.5
37,500,000
2.5
37,500,000
2.27
Organization and Offering Expenses(2)
60,000
3.0
22,500,000
1.5
22,500,000
1.5
Net Proceeds(3)
$
1,750,000
87.5
%
$
1,335,000,000
89.0
%
$
1,485,000,000
90.0
%
Less:
Acquisition Fee(4)(5)(6)
35,000
1.8
26,700,000
1.8
29,700,000
1.8
Acquisition Expenses(6)
8,750
0.4
6,675,000
0.4
7,425,000
0.4
Working Capital Reserve(7)
—
—
—
—
—
—
Estimated Amount Available for Investments(5)
$
1,706,250
85.3
%
$
1,301,625,000
86.8
%
$
1,447,875,000
87.8
%
(1)
The purchase price for shares of our common stock sold in the
primary offering includes a sales commission equal to 7.0% of
gross offering proceeds (which commissions may be reduced under
certain circumstances for volume or other discounts) and a
dealer manager fee equal to 2.5% of gross offering proceeds,
both of which will be payable to our dealer manager. Our dealer
manager, in its sole discretion, may reallow all or a portion of
the sales commission attributable to the shares of our common
stock sold by other broker-dealers participating in this
offering to them and may also reallow a portion of its dealer
manager fee for reimbursement of marketing expenses.
Reimbursement will be contingent upon the receipt of an invoice
or a
similar statement from participating broker-dealers that
demonstrate the actual expenses incurred by such broker-dealers.
The maximum amount of reimbursement will be based on such
factors as the number of shares of our common stock sold by
participating broker-dealers, the assistance of such
participating broker-dealers in marketing the offering and due
diligence expenses incurred.
(2)
Organizational and offering expenses consist of reimbursement
of, among other items, the cumulative cost of actual legal,
accounting, printing and other accountable offering expenses,
including, but not limited to, amounts to reimburse our advisor
for marketing, salaries and direct expenses of its employees,
employees of its affiliates and others while engaged in
registering the shares of our common stock to be sold in this
offering, which shall include, but not be limited to,
development of marketing materials and marketing presentations,
participating in training and education meetings and
coordinating generally the marketing process for this offering.
Of the estimated $22,500,000 maximum organizational and offering
expense reimbursement, approximately $18,750,000 of the expenses
(or 1.25% of gross offering proceeds assuming we sell
$1,500,000,000 in shares of our common stock pursuant to the
primary offering) are anticipated to be used for wholesaling
activities and are therefore deemed to be additional
underwriting compensation pursuant to FINRA Rule 2710. Our
advisor and its affiliates will be responsible for the payment
of our cumulative organizational and offering expenses, other
than the sales commission and our dealer manager fee, to the
extent they exceed 3.0% of the aggregate gross proceeds from the
sale of shares of our common stock sold in the primary offering
on a best efforts basis without recourse against or
reimbursement by us.
(3)
Until substantially all of the net offering proceeds are
invested in connection with the acquisition and development of
real properties, substantially all of the net offering proceeds
may be invested in short-term, highly liquid investments
including but not limited to government obligations, bank
certificates of deposit, short-term debt obligations,
interest-bearing accounts and other authorized investments as
determined by our board of directors. The number of real
properties we are able to acquire or develop will depend on
several factors, including the amount of capital raised in this
offering, the extent to which proceeds from the DRIP offering
are used to redeem shares under our share redemption program,
the extent to which we incur debt or issue common units in order
to acquire or develop real properties and the purchase price of
the real properties we acquire or develop.
(4)
Acquisition fees are defined generally as fees and commissions
paid by any party to any person in connection with the purchase,
development or construction of real properties. We will pay
acquisition fees equal to 2.0% of the cost of all real estate
investments we acquire. Our advisor has agreed to waive the
acquisition fees for any property we acquire from any Insight
Real Estate affiliate.
(5)
The amounts in this table assume there is zero leverage in the
portfolio and the proceeds from this offering are fully
invested. These assumptions may change due to different factors
including changes in the allocation of shares between the
primary offering and the DRIP offering. In the event we incur
debt or issue new shares of our common stock outside of this
offering or interests in our operating partnership in order to
acquire real properties, or if we were unable to fully invest
the proceeds from this offering, then the acquisition fees could
change.
(6)
Includes amounts anticipated to be invested in real properties,
including other third party acquisition expenses that are
included in the total acquisition costs of the real properties
acquired. For real properties that are not acquired these costs
are expensed. Third party acquisition expenses may include
legal, accounting, consulting, appraisals, engineering, due
diligence, title insurance, closing costs and other expenses
related to potential acquisitions regardless of whether the real
property is actually acquired. Acquisition expenses as a
percentage of a real property’s contract price vary.
However, in no event will total acquisition fees and acquisition
expenses on a real property exceed 6.0% of the contract price of
the real property. Furthermore, in no event will the total of
all acquisition fees and acquisition expenses paid by us,
including acquisition expenses on real properties which are not
acquired, exceed 6.0% of the aggregate contract price of all
real properties acquired by us.
(7)
We do not anticipate establishing a general working capital
reserve out of the proceeds from this offering; however, we may
establish capital reserves with respect to particular
investments. We also may, but are not required to, establish
reserves out of cash flow generated by operating real properties
or out of net sale proceeds in non-liquidating sale transactions.
(8)
Neither the sales commission, our dealer manager fee nor the
reimbursement of organizational and offering expenses will be
paid on shares of our common stock issued pursuant to our
distribution reinvestment plan.
Over the last few years, the green building movement has gained
tremendous momentum as the environmental, human health and
financial benefits of integrating “sustainable” or
“green” practices into the construction and operation
of buildings has been widely recognized. Green initiatives have
been undertaken on an increasingly frequent basis with respect
to office buildings, retail buildings, hotels, warehouses,
healthcare facilities, apartments, educational facilities,
courthouses, houses and numerous other types of sites.
Characteristics
of a Green Building
The green building concept is used to describe
“high-performance” buildings that use resources more
efficiently than traditional buildings through their design,
material selection, water conservation, waste reduction and
energy conservation. Green buildings are known to enhance the
comfort, performance, profitability and productivity of their
occupants while reducing the overall impact on the environment.
Building green provides an opportunity to use resources
efficiently while creating healthier buildings that improve
human health, foster a better environment and provide cost
savings.
Key
Elements of Building Green
Standards for green buildings have evolved over time and
continue to vary depending to some degree on the party
conducting the assessment. Nevertheless, there is a general
consensus regarding the basic guidelines for green buildings,
which generally involve an evaluation of the building’s
sensitivity to the following factors:
•
Resource and energy conservation;
•
Impact on occupants’ health and productivity; and
•
Impact on the environment and the world at large (such as global
warming).
Green building is an integrated approach to creating a property
that covers all aspects of a building from the selection of a
site and materials to the operation and maintenance of the
property. As detailed by the California Integrated Waste
Management Board, the factors listed below are integral to green
building practices.
Site Selection. Site selection is the first
step in building green and can have a substantial impact on the
local environment as well as on the world at large. Green
builders are encouraged to protect and retain existing
landscaping and natural features. Ideally, green buildings are
also located at sites well suited to take advantage of mass
transit.
Efficient Materials. Selection of sustainable
construction materials and products can be achieved by
evaluating characteristics such as reused and recycled content,
zero or low off-gassing of harmful air emissions, zero or low
toxicity, sustainably harvested materials, high recyclability,
durability, longevity and local production. Such products
promote resource conservation and efficiency. Using
recycled-content products also helps develop markets for
recycled materials that are being diverted from landfills. Green
standards encourage reuse and recycling of construction and
demolition materials and incorporate into their design adequate
space to facilitate recycling collection.
Energy Efficiency. Passive design strategies
can dramatically affect building energy performance. These
measures include building shape and orientation, passive solar
design and the use of natural lighting. Green guidelines
encourage builders to develop strategies to provide natural
lighting, use properly sized and energy-efficient heat and
cooling systems in conjunction with thermally efficient building
shells, maximize light colors for roofing and wall finish
materials, use minimal glass on east and west exposures and
incorporate alternative and renewable energy sources.
Water Efficiency. Green buildings minimize
wastewater by using water conserving fixtures and
micro-irrigation (which excludes sprinklers and high-pressure
sprayers) to supply water in nonturf areas. Guidelines
also encourage the use of recirculating systems for centralized
hot water distribution and state-of-the-art irrigation
controllers and self-closing nozzles on hoses.
Occupant Health and Safety. Studies reveal
that buildings with good overall environmental quality can
reduce the rate of respiratory disease, allergy, asthma, sick
building symptoms (in which building occupants experience acute
health and discomfort that appears to be linked to time spent in
a building) and enhance worker performance. Green guidelines
promote the use of construction materials and interior finish
products with zero or low emissions to improve indoor air
quality as well as adequate ventilation and a high-efficiency,
in-duct filtration system. Selection of materials resistant to
microbial growth is also important in preventing indoor
microbial contamination.
Building Operation and Maintenance. Green
building measures cannot achieve their goals unless they work as
intended. Building commissioning includes testing and adjusting
the mechanical, electrical and plumbing systems to ensure that
all equipment meets design criteria. It also includes
instructing the property management staff on the operation and
maintenance of equipment. Over time, optimal building
performance can be assured through measurement, adjustment and
upgrading. Proper maintenance ensures that a building continues
to perform as designed and commissioned.
C:
Green
Organizations and Rating Systems
Properties must meet guidelines established by environmental
rating systems in order to be recognized as green. A number of
organizations around the world have developed green building
rating systems to objectively evaluate the energy and
environmental performance of properties. Participation in these
programs is generally voluntary. Among the oldest and most
widely used environmental rating systems are the Leadership in
Energy and Environmental Design
(LEED®)
Green Building Rating
Systemtm,
developed in the United States, and the Building Research
Establishment Environmental Assessment Method (BREEAM), which
originated in the United Kingdom. A number of other global and
regional programs have also been implemented that can be applied
in conjunction with or separately from these programs, examples
of which are described below.
Leadership
in Energy and Environmental Design
(LEED®)
The Leadership in Energy and Environmental Design
(LEED®)
Green Building Rating
Systemtm
is a consensus-based program that provides guidelines for the
certification of green buildings. The United States Green
Building Council, or USGBC, a non-profit industry organization,
approved the original version of the LEED rating system in late
1998 and implemented the program in 2000. LEED standards are
continuously refined via an open member consensus-based process,
and LEED has developed into one of the leading systems for the
design, construction and certification of green buildings in the
United States and worldwide.
The LEED rating system has different rating programs for
different segments of the market. Current programs are available
for the rating of new construction, existing buildings, core and
shell (for owners that are not responsible for the interior
design and fit-out of a building project) and commercial
interiors. Pilot programs have been established for neighborhood
developments, single and multi-family homes and retail
properties.
The initial step in the LEED rating process is to register the
project to determine if it is a viable candidate for LEED
certification. Under the LEED rating system, participants must
meet prerequisites and obtain a minimum number of design and
performance credits to obtain green certification. Credits and
prerequisites are divided into six categories:
Credits will be granted when a property is located near public
transportation, has secure bicycle storage, uses high-efficiency
irrigation technology, uses local building materials or falls
within certain other enumerated performance categories believed
to positively impact occupant health and the environment.
Depending on the number of credits obtained, a project will be
awarded one of four progressive levels of certification:
Certified, Silver, Gold or Platinum. As of September 2007, LEED
had certified nearly 1,100 commercial projects.
Building
Research Establishment Environmental Assessment Method
(BREEAM)
The United Kingdom-based Building Research Establishment created
the Building Research Establishment Environmental Assessment
Method, or BREEAM, in 1990. This system is designed to analyze
the environmental performance of both new and old buildings.
BREEAM became the first environmental assessment tool to be used
internationally. Although the first two versions of BREEAM
covered only offices and homes, any type of building can now be
assessed using one of eleven current versions of the system.
Criteria vary depending on building type, but in general the
system awards credits based on environmental impacts a project
has in the following categories:
•
Management;
•
Health and well being;
•
Energy use;
•
Transport;
•
Water (consumption and efficiency);
•
Materials;
•
Land use and ecology; and
•
Pollution (air and water).
Buildings are then rated on a scale of pass, good, very good or
excellent, and a certificate is awarded. The BREEAM system
continues to be widely used in the United Kingdom and is the
benchmark for programs that have been developed in New Zealand,
Australia and Canada. Moreover, buildings outside the United
Kingdom can be assessed using the BREEAM International version
of the system. As of October 2007, nearly 100,000 buildings have
been certified using BREEAM and over 500,000 projects are
registered for assessment.
Other
International Environmental Rating Systems
As the green building movement progresses, additional
environmental assessment programs and rating systems are being
tested and implemented in countries around the world. Canada and
India have developed their own LEED systems, while in Japan the
Comprehensive Assessment System for Building Environmental
Efficiency, also referred to as CASBEE, gives rated buildings a
single numerical value based on performance across different
categories. The HK Beam Society in Hong Kong has established the
Building Environmental Assessment Method, also referred to as
the BEAM, which is another comprehensive standard for evaluating
new and existing building developments.
In addition to the programs being developed in individual
countries, global initiatives have been launched in an effort to
standardize the assessment of green properties. Most notably,
the Green Building Challenge, a collaborative effort of over 20
countries, developed the
GBTooltm
software as part of its commitment to developing a global
standard for environmental assessment. This tool is administered
by the International Initiative for a Sustainable Built
Environment, or iiSBE. This tool enables users from different
countries to adjust the weightings of various criteria to suit
their local climate and construction practices. The last Green
Building Challenge competition was held in 2005 at the World
Sustainable Building Conference SB05 in
Tokyo, Japan. The Green Building Challenge has been renamed the
Sustainable Building Challenge, which has updated the name of
the
GBTooltm
to
SBTooltm.
The
SBTooltm
has been expanded to address social and economic considerations
as well as urban/planning issues. The Sustainable Building
Challenge continues to focus on assessing benchmarks and
standardized techniques that will be needed to implement an
international system.
Regional
Green Rating Systems in the United States
Although the LEED rating program has been at the forefront of
the green movement in the United States, some state and local
governments have also adopted other environmental rating systems
that encourage green building. Regional guidelines implemented
to date include New York City’s High Performance Building
Guidelines, Pennsylvania’s Guidelines for Creating High
Performance Green Buildings, Colorado’s Built Green
Colorado program and Austin, Texas’s Energy Green Building
program. According to the November 2006 Building Design +
Construction report titled “Green Buildings and the Bottom
Line,” the Green Globes online rating system, which is
based on the Building Owners and Managers Association
Canada’s “Go Green Plus” program, is also gaining
the attention of property owners and was considered by the
United Stated federal government for adoption. While the LEED
system was ultimately chosen, similarities in the overall green
building and high-performance building objectives of both
systems serve to promote green building.
ENERGY
STAR Labeling Program
A voluntary labeling program known as the ENERGY STAR program
has emerged as a system of identifying products and properties
that are energy-efficient and reduce greenhouse gas emissions.
The United States Environmental Protection Agency created
the ENERGY STAR program, which is now jointly administered with
the United States Department of Energy, and established strict
energy efficiency guidelines that participants must meet to
receive an ENERGY STAR label. The ENERGY STAR label can be found
on major appliances, office equipment, lighting, home
electronics and other qualifying products. Although the ENERGY
STAR label is commonly associated with energy-efficient
products, the United States Environmental Protection Agency has
extended the ENERGY STAR label to cover new homes and commercial
and industrial buildings. The efficiencies generated through the
use of ENERGY STAR products also provide greater opportunities
for properties to achieve credits under the LEED rating system.
C:
Benefits
of Building Green
Green buildings are known to create healthier work, learning and
living environments through increased natural light, improved
air quality and well-designed spaces that support the needs of
their occupants. The financial benefits of green buildings
include lower energy, waste disposal and water costs, lower
environmental and emissions costs, lower operations and
maintenance costs and savings from increased productivity and
health of their occupants. While advantages such as water
conservation and energy efficiency are easily measurable, other
benefits such as health and productivity improvements are less
quantifiable, though potentially more lucrative.
Many green building measures can be incorporated into a property
with minimal increased up-front costs, particularly when a green
building has an integrated design approach implemented at the
project’s start. Moreover, even in instances in which a
green building has greater up-front costs than a comparable
conventional building, savings may be achieved through lower
operating costs over the period during which the building is
operational. In the October 2003 report by Gregory H. Kats to
California’s Sustainable Building Task Force titled
“The Costs and Financial Benefits of Green Buildings,”
the financial benefits of green design were estimated to be
almost $50 per square foot for LEED certified buildings at the
Certified and Silver levels and over $75 per square foot at the
Gold and Platinum levels. These numbers represent over ten times
the additional cost of approximately $3 per square foot to $5
per square foot associated with the green buildings analyzed in
the report.
Green properties offer various construction, maintenance and
operational advantages. Some of the advantages result from the
types of materials used. As highlighted in the January 2006
update to an article in Environmental Building News entitled
“Building Materials: What Makes a Product Green,” a
number of green buildings use salvaged and recycled products,
which benefits the environment by decreasing the depletion of
natural resources. Green or sustainable projects often take
advantage of natural products and avoid products or chemicals
that are toxic or produce harmful emissions. The production and
use of these materials means less energy consumption and
pollution and provides health benefits for the building’s
occupants. In addition, certain green buildings take advantage
of products that exhibit exceptional durability or low
maintenance requirements, such as fiberglass windows and slate
shingles. In such instances, the buildings benefit from
long-term cost savings through decreased operational and
maintenance requirements over time, as well as reduced
vulnerability from potentially volatile market prices for raw
materials.
Energy,
Water, Waste and Operational Savings
Some of the more quantifiable benefits of green buildings
include energy savings, reduction of waste and decreased water
use. In “The Costs and Financial Benefits of Green
Buildings,” Gregory Kats reports that on average, green
buildings are estimated to use 30% less energy than conventional
buildings. Energy savings are accomplished through a variety of
means including better insulation, more efficient mechanical
equipment, more effective and efficient lighting and the use of
renewable energy sources such as solar and wind power. According
to a 2006 report released by the United States Environmental
Protection Agency, ENERGY STAR-labeled office buildings are
one-third more energy efficient than average United States
office buildings and have annual energy bills that are an
average of $0.50 per square foot per year lower, which is 35%
less than the average building.
A real estate portfolio that includes energy efficient buildings
is particularly attractive from a financial perspective in a
climate of increasingly volatile energy prices. Aaron Binkley
notes in his 2007 study, “Real Estate Opportunities in
Energy Efficiency and Carbon Markets,” that real estate
properties are the largest sector emitter of greenhouse gases in
the United States, with 43% of all annual emissions attributable
to building construction and maintenance. Therefore, green
buildings that reduce both tenants’ and owners’
vulnerability to fluctuating energy prices are projected to be
highly desirable.
Water conservation is also an important component of the green
building movement. Water conservation can be accomplished
outdoors through efficient landscape and irrigation designs, and
indoors with efficient appliances and leak detection. According
to the USGBC, the cost savings to green buildings from more
efficient water use range from 30% to 50%. In addition, waste
reduction through reuse and recycling can produce cost savings
for green properties. In particular, the USGBC has calculated
financial savings relating to waste disposal to be between 50%
and 90% in green buildings.
Overall, reduced operating costs in green buildings that result
from efficient use of natural resources and building materials
can generate increased cash flow, which we believe will
contribute to our ability to meet our investment objectives and
make distributions to our stockholders.
Increased
Health and Productivity
Recognition regarding the impact indoor air quality can have on
health and productivity is increasing. In particular, poor
indoor air quality in buildings has been linked to significant
health problems such as asthma, allergies, sick building
syndrome and other respiratory ailments. Poor indoor air quality
impacts productivity, absenteeism and owner liability. In his
October 2003 report to California’s Sustainable Building
Task Force entitled “Green Building Costs and Financial
Benefits,” Gregory Kats noted that asthma is the leading
cause of student absenteeism from school. Mold in buildings has
also been linked to health problems. Mold problems in buildings
in particular are uninsurable liabilities and are often linked
to poor indoor air quality and toxic materials off-gassing from
the building. Although the health and productivity benefits of
green buildings are less easily quantifiable than factors such
as energy savings or waste reduction, a number of studies and
testimonials have provided evidence that green building design
can have a positive impact on heath and productivity.
Attributes of green buildings that promote healthier work
environments include better ventilation and thermal comfort,
better lighting quality and lower emissions. As reported in the
November 2006 Building Design + Construction report “Green
Buildings and the Bottom Line,” researchers at the Carnegie
Mellon University found seven case studies in which high
performance green ventilation systems cut respiratory illness
and allergies by 10% to 90%, while a replacement of noisy
fluorescent lamps reduced headaches by 74%. Moreover, in a 2005
Rocky Mountain Institute report “Design for Health: Summit
for Massachusetts Health Care Decision Makers,” green
hospital design was found to lead to reduced patient falls,
transfers, infections, medication costs and nursing turnover.
Furthermore, as reported in Martin LaMonica’s 2005 CNET
News article “Selling green buildings with people
power,” research commissioned by the USGBC has suggested
that patients at hospitals using green technologies are
discharged an average of 2.5 days earlier than patients at
traditional hospitals.
In addition to reducing sick days and absenteeism through
improved health, the 2003 report to California’s
Sustainable Building Task Force prepared by Gregory Kats
indicates that companies that have moved into green buildings or
refitted their former buildings to meet green criteria have
reported increases in productivity, declines in absenteeism,
less turnover and better recruitment of employees. An example of
these human resources benefits is the case study described in
the September 2006 Green Building News report “Green
Building Macro Trends for Commercial Real Estate,” which
found that PNC Bank experienced a 30% reduction in staff
turnover after moving into its new LEED Silver Operating centre.
Similarly, the November 2006 Building Design + Construction
“Green Buildings and the Bottom Line” reported studies
that link the ability to exercise control over temperature to
performance gains ranging from 0.2% to 7% and improved lighting
to improvements in productivity of between from 0.7% and 23%.
These statistics are not surprising given that one of the
biggest building occupant complaints is temperature.
Furthermore, as reported in Martin LaMonica’s 2005 CNET
News article “Selling green buildings with people
power,” research commissioned by the USGBC has suggested
that children in green schools have 20% better test scores.
Moreover, based on findings reported in the “Green
Buildings and the Bottom Line” Building Design +
Construction report, retail stores with daylighting have
experienced a 40% increase in sales, and even a 1% increase in
productivity can mean potentially enormous cost savings given
that worker salaries are the single largest cost in corporate
operation.
The increased health and productivity offered by green buildings
is contributing to the increasing demand for green space. We
believe that owning a portfolio of green properties that provide
these advantages will increase our ability to attract and retain
commercial tenants who recognize the financial and health
benefits of such buildings. As such, we believe that we will be
able to benefit from the premiums that can be and currently are
being charged for renting space in green buildings, which will
allow us to maximize income from our portfolio for distributions
to stockholders.
Growth
of the Green Building Industry
As evidence of the health and productivity benefits of green
buildings has increased, so has demand for such space. According
to the September 2006 “Engineering Green Buildings”
report, the green building market is projected to grow between
$10.2 and $20.5 billion by 2010. In Canada alone, as
indicated by the 2007 Real Estate News Exchange, the number of
LEED registered and certified buildings has doubled from 2006 to
2007.
We expect the growth of the green building industry will lead to
the availability of more newly developed green properties for
investment and greater demand for conversion of existing
buildings to meet green standards. Our investment strategy is
focused on increasing the supply of quality green buildings for
lease in order to benefit from the increasing demand by
corporate users and other occupants for green space.
Federal,
Regional and International adoption of LEED
The LEED rating system is the green building standard used by
federal agencies and many state and local governments
nationwide. According to CB Richard Ellis’s “Green
Downtown Office Markets: A Future Reality,” over 65 local
governments have made a commitment to LEED standards in building
design and construction for public buildings. The November 2006
Building Design + Construction “Green Buildings and the
Bottom Line” report demonstrates this trend, indicating
that major centers such as Atlanta, Boston, Chicago, Dallas,
Honolulu, Los Angeles, New York, Portland, Sacramento,
San Francisco, San Jose, Kansas City and Seattle are
among cities requiring minimum LEED standards for new public
buildings. To encourage the private sector to adopt green
building practices, these cities use tools such as tax
incremental financing, increased floor area space in return for
green building features and fast-tracking development permits.
The federal government is also moving forward in promoting LEED
green building standards for its real estate portfolio. In 2006,
the General Services Administration, or the GSA, and the
Environmental Protection Agency each adopted a new requirement
that all new buildings must achieve a minimum of LEED Silver and
LEED Gold, respectively. The GSA’s policy will have a
significant impact on promoting the green building industry
since the GSA alone owns and operates more than 340 million
square feet of federal office.
The government’s promotion of green building is paralleled
by a growth in the USGBC itself. Since 2000, the USGBC has
experienced a ten-fold increase in membership. LEED projects
have been implemented in all 50 states and 41 countries,
including Canada, Brazil, Mexico and India. According to the
USGBC, as of September 2007, there were over 6,000 registered
commercial LEED projects worldwide and over 1,100 certified
commercial LEED projects worldwide.
Source: USGBC, through 5/2/2005
Costs
of Green Buildings
According to “The Costs and Financial Benefits of Green
Buildings,” the October 2003 report by Gregory Kats, green
buildings are estimated to average approximately 2% more than
comparable traditional buildings in upfront costs, the majority
of which is due to increased architectural and engineering
design time, modeling costs and time necessary to integrate
sustainable building practices into projects. However, recent
data has indicated that the premium associated with green
construction as compared with traditional construction costs is
overestimated, particularly as the design and construction
industry become more familiar with LEED requirements and
procedures. The cost difference between traditional and green
buildings is even less noticeable once a green building template
has been developed and a contractor has some green building
experience. According to the July 2005 article “PNC Bank
and the Paradox of Green Retail,” featured in the
Environmental Design and Construction magazine, PNC Bank’s
green bank prototype is built for $150,000 less than
competitors’ non-green branches, delivered four to six
weeks faster, and consumes 40% less energy than a typical bank
branch. A July 2007 report by Davis Langdon titled “Cost of
Green Revisited: Reexamining the Feasibility and Cost Impact of
Sustainable Design in the Light of Increased Market
Adoption,” also demonstrates that green buildings can be
constructed without a cost premium. The Langdon study compares
construction costs of buildings for which LEED certification was
a primary goal against
construction costs for similar buildings where LEED
certification was not considered in the building design. The
author examined over 221 buildings and found that variability in
the costs for buildings was primarily the result of project or
program type rather than whether a building was green or not
green. These findings are further bolstered by the discussion of
green downtown office markets in CB Richard Ellis’s
“Green Downtown Office Markets: A Future Reality,”
which indicates that building costs at the Certified and Silver
levels of the LEED rating system are no greater than
construction costs for traditional buildings, and buildings at
the Gold and Platinum levels cost only one to five percent more
to construct. Moreover, additional construction costs associated
with green buildings are typically offset by operational savings
within one to two years of a building’s life cycle, and
according to Gregory Kats, the average total savings are over
ten times the amount of the additional costs associated with
green building.
Long-Term
Resale Gains
Green buildings possess an enhanced marketability when compared
with traditional buildings due to factors such as energy
efficiency, comfort and indoor air quality. Recent reports
reflect rental premiums of up to 3% for green properties as
compared with similar traditional properties, while commercial
properties have been sold at premiums reflecting their green
characteristics. For example, USAA Realty Company’s
La Paz Office Plaza in Orange County, California
experienced an increase in market value of $0.80 per square
foot, a $1.5 million increase, attributable to its
investments in energy efficiency measures and lower-priced power
procurements. According to real estate leaders in the November
2006 Building Design + Construction “Green Buildings and
the Bottom Line,” green buildings may increase their
relative standing within the Class A category as tenants
become more aware of the impact that buildings have on the
environment and their health.
Tax credits, zoning allowances and other benefits are regularly
granted by state and local governments for buildings that
conform to green standards, thereby increasing their resale
value. Insurance companies, investors and major lenders are also
taking note of shifts in the green building industry. In the
private sector, insurance companies have recently begun
providing incentives for policies on green properties. According
to the November 2006 Building Design + Construction “Green
Buildings and the Bottom Line,” the Fireman’s Fund
offers a discount on insurance premiums for green buildings in
the United States, while over 190 cost-advantaged insurance
policies for green buildings are now being offered from insurers
globally, half of them in the United States. Investors are also
starting to pay attention to environmental and green building
issues. In 2004, CalPERS, the United States’ biggest
pension fund manager, adopted an Energy Efficiency Plan that
mandates a 20% reduction in energy use for its core real estate
portfolio within five years, partly through green building
practices. In the November 2006 Building Design + Construction
“Green Buildings and the Bottom Line,” Kevin
Fitzpatrick, a realtor responsible for over 53 million
square feet of real estate for AIG, argued that investing in
high-performance green buildings can help to reduce such
buildings’ potential for being outmoded by competitive
properties due to changing standards in the building industry.
The lower operating and maintenance costs associated with green
buildings, cost-saving incentives for constructing, owning and
maintaining green properties and premiums associated with sales
of green properties are attractive factors that we expect will
contribute to the continued growth of the green building
industry. As both corporations and individuals become
increasingly aware of the health benefits and cost savings
associated with green properties, we expect that the appeal and
marketability of green buildings will increase. The high
performance qualities that make green properties command a
premium in the competitive real estate market will also
contribute to our ability to realize appreciation in our
portfolio during the period in which we own our properties.
To preserve, protect and return stockholders’ capital
contributions;
•
To pay regular cash distributions to stockholders; and
•
To realize capital appreciation upon the ultimate sale of our
properties.
We cannot assure you that we will attain these objectives or
that the value of our assets will not decrease. We cannot change
our investment objectives without the approval of our
stockholders.
Within our investment policies and objectives, our advisor will
have substantial discretion with respect to the selection of
specific investments and the purchase and sale of our assets,
subject to the approval of our independent directors. Our
investment committee will review our investment policies at
least annually to determine whether our investment policies
continue to be in the best interests of our stockholders.
Our charter places numerous limitations on us with respect to
the manner in which we may invest our funds. In most cases these
limitations cannot be changed unless our charter is amended,
which may require the approval of our stockholders.
C:
Investment
Strategy
Our investment strategy is to invest in a diversified portfolio
of environmentally-friendly or green real properties. We intend
to invest primarily in high quality, income-producing properties
of a variety of property types. We will seek investments that
produce current income and have the potential for future value
appreciation. Our advisor will have primary responsibility for
implementing our investment strategy and will actively monitor
and manage our overall portfolio to achieve diversification of
green building investments across multiple dimensions, including:
•
Real property sectors (such as office, retail, multifamily,
industrial, educational facilities, hotels and others);
•
Geographic markets; and
•
Diversified tenant profiles and lease terms.
The supply and demand for green buildings has expanded
dramatically over the past ten years and is expected to
accelerate as the financial and health benefits of such
buildings become more widely recognized. We believe that by
focusing on green buildings, we will be able to benefit from the
growth potential of this burgeoning sector of real estate as a
result of operational savings that can be realized through
inherent efficiencies of green properties, heightened demand by
corporate users and other occupants for green space and
opportunities for greater value growth in our investments due to
resale premiums associated with these types of properties.
We will seek a variety of green property types, including office
buildings, retail buildings, hotels, industrial buildings,
educational facilities, healthcare facilities and apartments.
Because the green building movement is gaining momentum both in
the United Stated and abroad, we believe an investment strategy
that includes properties located both in the United States and
outside the United States is a key element of diversifying our
portfolio. We anticipate that the majority of our real property
investments will be made in the United States. However, we may
also invest on a limited basis in properties located in Hong
Kong, Singapore, Canada and other countries where green
development is established or emerging.
We believe that a diversified investment portfolio may
potentially offer investors significant benefits for a given
level of risk relative to a more concentrated investment
portfolio. Most real estate markets are cyclical in nature, and
therefore we believe that a diversified investment strategy will
allow us to more effectively deploy capital into sectors and
geographies where the underlying investment fundamentals are
relatively strong
and away from sectors where fundamentals are relatively weak. In
addition, we believe that a diversified tenant base, achieved by
investing in multiple real property sectors, may mitigate the
economic impact associated with a single tenant or type of
tenant potentially defaulting under its leases. However, there
is no assurance that we will be successful in creating a
diversified portfolio or that such a portfolio will provide
greater benefits to stockholders than a portfolio that is more
concentrated in any particular property type.
Green buildings offer strong tenant retention and attraction, as
well as lower operating costs, as reported in the 2007 CB
Richard Ellis Report: “Green Downtown Office Markets: A
Future Reality.” We believe that there will be a
significant opportunity in our ability to offer services,
including design-build through our Green Advisory Council and
financing to enable our tenants to achieve tenant-improvement
(LEED for Commercial Interiors) certification. For example, we
may engage the businesses that members of our Green Advisory
Council represent to advise our tenants how to build-out their
leased space in environmentally-friendly ways, help finance
their green improvements and teach them best practices for
incorporating sustainability in their corporate environments.
Providing these services to our tenants directly or through our
affiliation with Green Advisory Council members will enable us
to generate higher rental income from our properties and will
provide greater tenant attraction and retention. Green tenant
finishes make traditional commercial spaces less of a commodity
and more closely identified with the entity that occupies the
space.
We generally intend to utilize a long-term buy and hold strategy
for properties within our portfolio, which will primarily
consist of (1) “core” or “core plus”
properties that have significant operating histories and
existing leases whereby the majority of the total investment
return is expected to be derived from current income and
(2) “value-added” opportunities that arise in
circumstances where a real property may be situationally
undervalued or where product re-positioning, capital
expenditures
and/or
improved property management may increase cash flows, and where
the total investment return is generally expected to have a
relatively larger component derived from capital appreciation.
Furthermore, we may also pursue a generally smaller number of
“opportunistic” real property investments in various
stages of development or which may have a significant portion of
the total investment return derived from capital appreciation.
We believe there will be significant opportunities to capitalize
on value-added benefits in the green building industry,
particularly where properties can be converted from non-green
buildings into green buildings. In such instances, reports have
shown that the incremental costs of employing green standards is
generally offset by operational savings within a period of only
a few years. The achievement of any such savings would lead to
potential appreciation in the property’s value for resale
and ultimately an increase the cash available for distribution
to our stockholders.
Our advisor will have substantial discretion with respect to the
selection of real property investments. In determining the
specific types of direct real property investments to make, our
advisor will utilize the following criteria:
•
Degree of conformity with applicable national or regional green
rating standards;
•
Long-term potential to generate operational savings and value
appreciation as a result of efficient design, energy
conservation, waste reduction, water conservation and other
environmental benefits;
•
Suitability for conversion to meet, or improvement of ratings
under, established green rating standards;
•
Diversification benefits relative to the rest of the real
property assets within our portfolio;
•
Broad assessment of macro and microeconomic, employment and
demographic data and trends;
•
Regional, market and property specific supply/demand dynamics;
•
Credit quality of in-place tenants and the potential for future
rent increases;
•
Physical condition and location of the property;
•
Market rents and opportunity for revenue and net operating
income growth;
•
Opportunities for capital appreciation based on product
repositioning, operating expense reductions and other
factors; and
Additional factors considered important to meeting our
investment objectives.
The board of directors intends to delegate to the investment
committee the authority to approve all real property
acquisitions and developments, including portfolio acquisitions
and developments, for a purchase price or total project cost of
up to $40,000,000, including the financing of such acquisitions
and developments. The board of directors, including a majority
of the independent directors, must approve all real property
acquisitions and developments, including portfolio acquisitions
and developments, for a purchase price or total project cost
greater than $40,000,000, including the financing of such
acquisitions and developments.
We are not specifically limited in the number or size of real
properties we may acquire, or on the percentage of the net
proceeds from this offering that we may invest in a single real
property or real property type. However, we may not invest in
excess of 10% of the aggregate cost of the real property assets
within our portfolio in unimproved land or real properties that
are not expected to produce income within two years of their
acquisition. The specific number and mix of real properties we
acquire will depend upon real estate market conditions, other
circumstances existing at the time we are acquiring our real
properties and the amount of proceeds we raise in this offering.
Neither we nor our advisor have presently identified, acquired
or contracted to acquire any real property or real estate
related investments. We will supplement this prospectus during
the offering period in connection with the acquisition of real
estate investments.
C:
Investment
Decisions and Asset Management
Our advisor’s management team believes that successful real
estate investment requires the implementation of strategies that
permit favorable purchases, effective asset management and
timely disposition of those assets. As such, our advisor has
developed a disciplined investment approach that combines the
experience of a team of real estate professionals and green
experts with a structure that emphasizes thorough market
research, stringent underwriting standards and an extensive
down-side analysis of the risks of each investment. This
approach also includes active and aggressive management of each
asset acquired. Our advisor believes that active management is
critical to creating value. Our advisor will also develop a
well-defined exit strategy for each investment we make.
Specifically, our advisor will assign a sale date to each asset
we acquire prior to its purchase as part of the original
business plan for the asset. Our advisor will then continually
re-evaluate the exit strategy of each asset in response to the
performance of the individual asset, market conditions and our
overall portfolio objectives to determine the optimal time to
sell the asset.
Our advisor’s management team, Messrs. Hannah and
Skibo, each average over 20 years of real estate
experience. Each of them has been through multiple real estate
cycles in their careers. These seasoned professionals have the
expertise gained through hands-on experience in acquisitions,
asset management, dispositions, development, leasing, property
management and portfolio management.
In an effort to both identify suitable investment opportunities
and enhance the performance of those investments, our advisor
will utilize a market-focused structure. Asset managers will
typically be responsible for investments in only a few markets,
which allows them to have in-depth knowledge of each market for
which they are responsible. This focus also allows the asset
managers to establish networks of relationships with each
market’s leasing and investment brokers and owners. We
believe that a regionally aligned organizational structure that
emphasizes local market knowledge provides better investment
selection at acquisition, quicker
lease-up of
vacant space, better investment operating performance and more
timely execution of a sale.
To execute our advisor’s disciplined investment approach, a
team of our advisor’s real estate professionals will take
responsibility for the business plan of each investment. The
following practices summarize our advisor’s investment
approach.
•
Green Advisory Council — Our advisor will
utilize the green expertise of the Green Advisory Council to
stay at the forefront of developments in the green area and to
assist our management in evaluating investments under green
building criteria. The Green Advisory Council will also provide
us with a
network of relationships with businesses focused on the
specialized green building sector, which may allow our tenants
to receive value-added services targeted to operating their
leased space to achieve the maximum benefits available
operationally.
•
National Market Research — The investment team
extensively researches the acquisition and underwriting of each
transaction, utilizing both “real time” market data
and the transactional knowledge and experience of our
advisor’s network of professionals.
•
Underwriting Discipline — Our advisor follows a
tightly controlled and managed process to examine all elements
of a potential real estate investment, including its location,
income-producing capacity, prospects for long-range
appreciation, income tax considerations and liquidity. Only
those real estate assets meeting our investment criteria will be
accepted for inclusion in our portfolio. In an effort to keep an
asset in compliance with those standards, the underwriting team
remains involved through the investment life cycle of the asset
and consults with the other professionals responsible for the
asset. This team of experts reviews and develops comprehensive
reports for each asset throughout the holding period.
•
Risk Management — Risk management is a
fundamental principle in our advisor’s construction of our
portfolio and in the management of each investment.
Diversification of our portfolio by investment type, investment
size and investment risk is critical to controlling
portfolio-level risk. Operating or performance risks arise at
the investment level and often require real estate operating
experience to cure. Our advisor’s senior management
continuously reviews the operating performance of investments
against projections and provides the oversight necessary to
detect and resolve issues as they arise.
•
Asset Management — Prior to the purchase of a
property, the asset managers work closely with the regional
president and the acquisition and underwriting teams to develop
an asset business strategy. This is a forecast of the action
items to be taken and the capital needed to achieve the
anticipated returns. Our advisor reviews asset business
strategies quarterly to anticipate changes or opportunities in
the market during a given phase of a real estate cycle. Our
advisor designed this process to allow for realistic yet
aggressive enhancement of value throughout the investment period.
Green
Advisory Council
Our advisor will utilize the expertise in the specialized green
building sector of the Green Advisory Council. The Green
Advisory Council, a board of advisors that has been assembled by
our sponsor and will be made available to our advisor, is
comprised of green industry leaders in varying fields within the
green sector, including architecture, business administration,
law, construction management, engineering, environmental
sciences, urban planning and economics. The members of the Green
Advisory Council possess experience in both commercial and
residential real estate development and have participated in
numerous facets of the green building movement, including
design, construction, landscape management, resource
conservation and statistical analysis. We anticipate that the
Green Advisory Council will offer insights to our advisor
regarding factors that drive green investing decisions and
trends in the green movement, which will help enhance our
investment performance. The Green Advisory Council will play an
active role in evaluating green properties for our portfolio, in
our conversion of properties in our portfolio to meet
established green criteria and in assisting our advisor in
managing our portfolio to ensure continued compliance with
evolving green building certification criteria. Although the
Green Advisory Council will serve a strategic, advisory function
in connection with our advisor’s evaluation of our
investments, it will not have authority to make investment
decisions or to approve our real property acquisitions and
dispositions. The authority to approve acquisitions and
dispositions will be reserved for our board of directors and its
investment committee.
We will also rely upon the expertise of members of the Green
Advisory Council to the extent that we provide services to our
tenants to assist them with meeting green standards for the use
and occupancy of their leased premises. For example, we may
engage the businesses that members of our Green Advisory Council
represent to advise our tenants how to build-out their leased
space in environmentally-friendly ways, help finance their green
improvements and teach them best practices for incorporating
sustainability in their corporate environments. Providing such
green building services to our tenants directly or through our
affiliation with Green Advisory Council members will enable us
to attract tenants and generate higher rental income from
properties because tenants will pay a premium for available
green office space that has been built to suit their preferences
in locations where they can realize savings in operating and
maintenance costs. We will also have greater success in
retaining tenants who will be more likely to renew their leases
if they have invested in a build-out of their own green space
within a building. Any fees for transactions entered into with
members of the Green Advisory Council or their affiliates will
be determined through arm’s-length negotiations.
The following individuals are the initial members of the Green
Advisory Council.
•
Holley Henderson is the founder of H2 Ecodesign, a consulting
firm that provides LEED training workshops and consulting on
green products. Prior to founding H2 Ecodesign,
Ms. Henderson, who is certified by the National Council for
Interior Design Qualification, worked for TVS Architects for ten
years and later served as Interface Carpet’s Director of
Creative Design. Ms. Henderson was also the first USGBC
LEED 2.0 Accredited Interior Designer in Georgia.
Ms. Henderson currently serves as a member of the National
LEED Steering Committee and Management Subcommittee, the
Savannah College of Art & Design Advisory Board, the
International Interior Design Association Georgia Chapter and
the Sustainable Advisory Council to Invista, a subsidiary of
Koch Industries. Ms. Henderson also serves as a faculty
member for the USGBC LEED Workshops and as the Sustainable Forum
Advisor to the International Interior Design Association.
•
Angela L. Loder is a Ph.D. candidate at the University of
Toronto in the Department of Geography and the Centre for the
Environment, where she focuses her research on the relationship
between health, well-being and perceptions of urban greening
projects. Ms. Loder also has served as a consultant helping
Environment Canada develop policy documents on integrating green
roof policy into Ontario’s Smart Growth objectives, and as
Director of Memberships at Green Roofs for Healthy Cities, a
leading North American green roof industry association.
Ms. Loder is currently a member of the local
U.S. Green Building chapter in Chicago.
•
Michelle McKay is a founding partner of Greenland Enterprises,
LLC, a consulting firm specializing in strategic sustainability
advisory services. Prior to founding Greenland Enterprises,
LLC, Ms. McKay’s work on sustainability initiatives
included her work as a Senior Fellow at Second Nature, a
consulting firm that advises higher education organizations on
sustainability issues, and her work on carbon offset projects as
a CSR & Sustainable Development Advisor for Anaconda
Carbon, a consulting firm that provides assistance in assessing
the commercial, environmental and sustainable development
viability of renewable energy and energy efficiency projects.
Ms. McKay is an advisor for the Green Schools Alliance, an
alliance of pre-kindergarten through grade 12 independent,
private and public day and boarding schools whose goal is to
take action on climate change and the environment. She is also a
volunteer for Stratleade Sustainability Education, whose purpose
is to support and promote global public education on strategic
sustainable development. In addition, Ms. McKay, as a member of
SoL, The Society for Organizational Learning, participates
actively in the SoL Sustainability Consortium’s Carbon
Commons and Women Leading Sustainability working groups.
•
Greg O’Brien is the Senior Vice President of Transwestern
Commercial Services, Atlanta, Georgia. With over 23 years
of commercial real estate experience as a landlord agent, tenant
representative broker, development principal and property
investor and as a designated LEED Accredited Professional,
Mr. O’Brien focuses his work on sustainability
initiatives related to commercial real estate. Prior to the
merger of Sustainable Office, LLC, which Mr. O’Brien
founded, into Transwestern Commercial Services,
Mr. O’Brien performed LEED Audits, Assessments and
Implementation Programs for office and industrial buildings,
hotels and educational facilities on behalf of Sustainable
Office, LLC. In addition, Mr. O’Brien was recently
named as a Founding Member of the Sustainability/Corporate
Social Responsibility Community within CoreNet Global, and
Mr. O’Brien is involved in the Urban Land Institute,
the National Association of Industrial and Office Properties and
USGBC.
•
Christopher Glenn Sawyer, Esq. is a partner at the law firm
of Alston & Bird LLP where he specializes in working
with and counseling boards of directors and senior management on
issues related to
corporate governance, strategic planning, the environment and
real estate. Having served for seven years as national chairman
of The Trust for Public Land, Mr. Sawyer currently serves
as a Trustee of the Urban Land Institute, a Director of the
Rocky Mountain Institute, a Director of BeltLine Partnership,
Inc., as Chairman of the Capital Campaign for the Chattahoochee
Nature Center, and as President of the West Hill Foundation for
Nature. He has also served on the boards of directors of
Industrial Developments International, Inc. and EDAW.
The Green Advisory Council will be compensated by our sponsor.
Such compensation shall be determined in the sole discretion of
our sponsor, except in cases where our common stock is awarded
to members of the Green Advisory Council pursuant to our
long-term incentive plan.
C:
Development
and Construction of Properties
We may invest a portion of the proceeds available for investment
in unimproved land upon which improvements are to be constructed
or completed. However, we may not invest more than 10% of the
aggregate cost of the real property assets within our portfolio
in unimproved land or real properties which are not expected to
produce income within two years of their acquisition.
Development of real properties is subject to risks relating to a
builder’s ability to control construction costs or to build
in conformity with plans, specifications and timetables. To help
ensure performance by the builders of real properties that are
under construction, we intend to require a guarantee of
completion at the price contracted either by an adequate
completion bond or performance bond. Our advisor may rely upon
the net worth of the contractor or developer or a personal
guarantee accompanied by financial statements showing a
substantial net worth provided by an affiliate of the person
entering into the construction or development contract as an
alternative to a completion bond or performance bond. Our
advisor may elect to employ one or more project managers (who
under some circumstances may be affiliated with our advisor or
our property manager) to plan, supervise and implement the
development and construction of any unimproved real properties
which we may acquire. Such persons would be compensated by us.
C:
Acquisition
of Properties from Our Affiliates
Although we currently have no intention in doing so, we are not
precluded from acquiring real properties, directly or through
joint ventures, from our affiliates. Any such acquisitions will
be approved consistent with the conflict of interest procedures
described in this prospectus. See “Conflicts of
Interest — Conflict Resolution Procedures.” Our
advisor has agreed to waive the acquisition fees for any
property we acquire from one of our affiliates.
C:
Joint
Venture Investments
We may enter into joint ventures, partnerships and other
co-ownership or participation arrangements for the purpose of
obtaining interest in real properties and other real estate
investments. We may also enter into joint ventures for the
development or improvement of properties. Joint venture
investments permit us to own interest in large properties and
other investments without unduly limiting the diversity of our
portfolio. In determining whether to recommend a particular
joint venture, our advisor will evaluate the real property that
such joint venture owns or is being formed to own under the same
criteria used for the selection of our real property investments.
Our advisor will also evaluate the potential joint venture
partner as to its financial condition, operating capabilities
and integrity. We may enter into joint ventures with Insight
Real Estate affiliates, but only provided that:
•
A majority of our directors, including a majority of the
independent directors, approve the transaction as being fair and
reasonable to us; and
•
The investment by us and such affiliate are on terms and
conditions that are no less favorable than those that would be
available to unaffiliated parties.
We have not established the specific terms we will require in
our joint venture agreements. Instead, we will establish the
terms with respect to any particular joint venture agreement on
a
case-by-case
basis after our board of directors considers all the facts that
are relevant, such as the nature and attributes of our potential
joint venture partners, the proposed structure of the joint
venture, the nature of the operations, the nature of the asset
and its operations, the liabilities and assets associated with
the proposed joint venture and the size of our interest when
compared to the interest owned by other partners in the venture.
With respect to any joint venture we enter, we expect to
consider the following types of concerns and safeguards:
•
Our ability to manage and control the joint venture. We will
consider whether we should obtain certain approval rights in
joint ventures we do not control. For proposed joint ventures in
which we are to share control with another entity, we will
consider the procedures to address decisions in the event of an
impasse.
•
Our ability to access joint venture. We will consider requiring
buy/sell rights, redemption rights or forced liquidation rights.
•
Our ability to control transfers of interests held by other
partners to the venture. We will consider requiring consent
provisions, a right of first refusal
and/or
forced redemption rights in connection with transfers.
C:
Real
Property Ownership
We will generally hold fee title or a long-term leasehold estate
in the properties we acquire. We intend to acquire such
interests either (a) directly through our operating
partnership or through wholly-owned subsidiaries of our
operating partnership, or (b) indirectly through
investments in joint ventures, partnerships, or other
co-ownership arrangements with the developers of the real
properties, Insight Real Estate affiliates or other persons. In
addition, we may purchase real properties and lease them back to
the sellers of such real properties. While we will use our best
efforts to structure any such sale-leaseback transaction such
that the lease will be characterized as a “true lease”
so that we will be treated as the owner of the property for
federal income tax purposes, we cannot assure you that the
Internal Revenue Service will not challenge such
characterization. In the event that any such recharacterization
were successful, deductions for depreciation and cost recovery
relating to such real property would be disallowed and it is
possible that under some circumstances we could fail to qualify
as a REIT as a result. See “Federal Income Tax
Considerations —
Sale-Leaseback
Transactions.”
In determining whether to purchase a particular real property,
we may, in accordance with customary practices, obtain a
purchase option on such real property. The amount paid for a
purchase option, if any, is normally surrendered if the real
property is not purchased and is normally credited against the
purchase price if the real property is purchased.
C:
Due
Diligence
Our advisor will perform a diligence review on each property
that we purchase. As part of this review, our advisor will
obtain an environmental site assessment for each proposed
acquisition, which at a minimum will include a Phase I
assessment. We will not close the purchase of any property
unless we are generally satisfied with the environmental status
of the property. We will also generally seek to condition our
obligation to close upon the delivery and verification of
certain documents from the seller or developer, including, where
appropriate:
•
Plans and specifications;
•
Environmental reports;
• Evidence of green registration or certification;
•
Surveys;
•
Evidence of marketable title subject to such liens and
encumbrances as are acceptable to our advisor;
Audited financial statements covering recent operations of real
properties having operating histories unless such statements are
not required to be filed with the SEC and delivered to
stockholders; and
• Title and liability insurance policies.
C:
Tenant
Creditworthiness
Our advisor has developed specific standards for determining the
creditworthiness of potential tenants of our real properties
depending on the type of property. We will use a number of
industry credit rating services to determine the
creditworthiness of potential tenants and any personal guarantor
or corporate guarantor of each potential tenant. The reports
produced by these services will be compared to the relevant
financial data collected from these parties before consummating
a lease transaction. Relevant financial data from potential
tenants and guarantors include income statements and balance
sheets for the current year and for prior periods, net worth or
cash flow statements of guarantors and other information we deem
relevant.
C:
Tenant
Improvements
We anticipate that tenant improvements required at the time of
our acquisition of a property will be funded from our offering
proceeds. However, at such time as a tenant at one of our real
properties does not renew its lease or otherwise vacates its
space in one of our retail, office, industrial or healthcare
buildings, it is likely that, in order to attract new tenants,
we will be required to expend substantial funds for tenant
improvements and tenant refurbishments to the vacated space.
C:
Terms
of Leases
We expect that the vast majority of the leases we enter for
office, industrial and retail properties will provide for tenant
reimbursement of operating expenses. Operating expenses
typically include real estate taxes, special assessments,
insurance, utilities, common area and maintenance and some
building repairs. In addition, we anticipate that most of our
leases for office, industrial and retail properties will be for
fixed rentals with periodic increases based on the consumer
price index or similar adjustments and that none of the rentals
under our leases for healthcare, office or multifamily
properties will be based on the income or profits of any person.
Rentals due under leases for retail properties may be based in
part on the income of the retail tenant. In such cases where the
tenant is required to pay rent based on a percentage of the
tenant’s income from its operations at the real property,
the actual rental income we receive under such a lease may be
inadequate to cover the operating expenses associated with the
real property if a tenant’s income is substantially lower
than projected. In such case, we may not have access to funds
required in the future to pay the operating expenses associated
with the real property.
We anticipate that the leases we enter for hotel properties will
require a fixed annual base rent plus a percentage rent.
Percentage rent will likely be calculated by multiplying fixed
percentages by gross room revenues and other revenues for each
hotel, with certain adjustments. Base rent and percentage rents
will be adjusted annually for changes in the consumer price
index. We also expect that lessees will pay all costs and
expenses and all utility and other charges incurred in the
operation of the hotels.
Consistent with the multi-family industry, we anticipate that
lease terms for our multi-family properties will be for one year
or less. These terms provide maximum flexibility for us to
implement rental increases when the market will bear such
increases.
Our green building leases will vary both in accordance with
building type and the certification level of a particular
building. Where appropriate, we will incorporate sustainability
requirements into our leases. Such provisions may include
requirements that tenant improvements comply with green building
guidelines or that specified recycling requirements be adopted.
However, green building lease requirements generally will be
assessed on a
case-by-case
basis.
We intend to use secured and unsecured debt as a means of
providing additional funds for the acquisition of real estate
assets. We may finance the acquisition or origination of certain
real estate-related investments with warehouse lines of credit
and repurchase agreements. Our ability to enhance our investment
returns and to increase our diversification by acquiring assets
using additional funds provided through borrowing could be
adversely impacted if banks and other lending institutions
reduce the amount of funds available for the types of loans we
seek. When debt financing is unattractive due to high interest
rates or other reasons, or when financing is otherwise
unavailable on a timely basis, we may purchase certain assets
for cash with the intention of obtaining debt financing at a
later time.
There is no limitation on the amount we may invest in any single
improved real property or real estate related investment.
However, under our charter, we have a limitation on borrowing
which precludes us from borrowing in excess of 300% of the value
of our net assets. Net assets for purposes of this calculation
are defined to be our total assets (other than intangibles),
valued at cost prior to deducting depreciation, reserves for bad
debts and other non-cash reserves, less total liabilities. The
preceding calculation is generally expected to approximate 75%
of the aggregate cost of our assets before non-cash reserves and
depreciation. However, we may temporarily borrow in excess of
these amounts if such excess is approved by a majority of the
independent directors and disclosed to stockholders in our next
quarterly report, along with an explanation for such excess. In
such event, we will review our debt levels at that time and take
action to reduce any such excess as soon as practicable. We do
not intend to exceed our charter’s leverage limit except in
the early stages of our development when the costs of our
investments are most likely to exceed our net offering proceeds.
By operating on a leveraged basis, we expect that we will have
more funds available for investments. This will generally allow
us to make more investments than would otherwise be possible,
potentially resulting in enhanced investment returns and a more
diversified portfolio. However, our use of leverage increases
the risk of default on loan payments and the resulting
foreclosure on a particular asset. In addition, lenders may have
recourse to assets other than those specifically securing the
repayment of the indebtedness.
Our advisor will use its best efforts to obtain financing on the
most favorable terms available to us and will seek to refinance
assets during the term of a loan only in limited circumstances,
such as when a decline in interest rates makes it beneficial to
prepay an existing loan, when an existing loan matures or if an
attractive investment becomes available and the proceeds from
the refinancing can be used to purchase such investment. The
benefits of any such refinancing may include an increased cash
flow resulting from reduced debt service requirements, an
increase in distributions from proceeds of the refinancing and
an increase in diversification and assets owned if all or a
portion of the refinancing proceeds are reinvested. We may, from
time to time, enter into hedging transactions with respect to
interest rate exposure on one or more of our assets or
liabilities. Any such hedging transactions could take a variety
of forms, including the use of derivative instruments such as
interest rate swap contracts, interest rate cap or floor
contracts, futures or forward contracts, and options.
Our charter restricts us from obtaining loans from any of our
directors, our advisor and any of our affiliates unless such
loan is approved by a majority of the directors (including a
majority of the independent directors) not otherwise interested
in the transaction as fair, competitive and commercially
reasonable and no less favorable to us than comparable loans
between unaffiliated parties. Our aggregate borrowings, secured
and unsecured, will be reviewed by the board of directors at
least quarterly.
C:
Real
Estate Related Investments
In addition to direct investments in green real properties, we
also may make investments in first mortgages or second
mortgages, mezzanine loans and preferred equity investments in
real estate companies, all of which we refer to as real estate
related investments. We will only invest in real estate related
investments to the extent that all or a majority in value of the
underlying properties meet the green criteria used for our
direct real estate investments. We may invest singly or in
portfolios of such real estate related investments and such
investments may be made either directly or indirectly through
investments in joint
ventures, partnerships or other entities with other third party
investors or affiliates of our advisor. Although we intend to
invest primarily in real property, we are not limited in the
number of real estate related investments we may make or the
percentage of our assets that we may invest in a particular
investment.
We may acquire, potentially at a discount to par, or originate
loans secured by first or second priority mortgages on green
properties. We may be subject to certain state-imposed licensing
regulations related to commercial mortgage lenders, with which
we intend to comply. However, because we are not currently a
bank or a federally chartered lending institution, we are not
subject to the state and federal regulatory constraints imposed
on such entities. Also, because we do not intend to securitize
our assets, we may be able to offer more flexible terms than
commercial lenders who contribute loans to securitized mortgage
pools. The first or second mortgage loans that we make or
acquire may or may not have participation features.
We may also invest at different levels of a real estate
asset’s capital structure by making mezzanine loans and
preferred equity investments. Mezzanine loans that we make will
be secured by junior liens on the property or, in appropriate
cases and provided certain REIT tax law requirements are
satisfied, secured by a first priority lien on the
borrower’s interest in a partnership or limited liability
company that owns the related property. Preferred equity
investments will be purchases of preferred equity interests in
partnerships or limited liability companies that own the related
real property. Mezzanine loans will bear an interest rate, will
be paid currently or accrued in whole or in part and generally
will have a term of up to ten years. Mezzanine loans may also
require fees to be paid to us by the borrower and prepayment
penalties to be paid in the case of early repayment and may
provide for a participation in cash flow or appreciation at
maturity of the underlying property. We expect that preferred
equity investments we would make would provide for a preferred
return to us, would be paid currently or accrued in whole or in
part and would have a mandatory redemption within ten years.
These investments may also require fees paid to us by the
primary owner of the asset, penalties for early redemption and a
participation in cash flow or appreciation upon redemption. Some
mortgage holders will not permit an owner of property secured by
their mortgages to incur junior mortgages on the property. We
expect that we will primarily make preferred equity investments
in entities that own properties with respect to which we would
make junior mortgage loans except for such prohibitions on
junior mortgages. As a result, those preferred equity
investments would have economic terms, such as those described
above, which are similar to junior mortgages. In addition, the
criteria we will use in selecting preferred equity investments
will be similar to the criteria described below that apply to
mortgages that we will make or acquire.
We will not make loans to other entities or other persons unless
secured by mortgages. We will not make or invest in mortgage
loans, including first or second mortgages or mezzanine loans,
unless we obtain an appraisal concerning the underlying property
from a certified independent appraiser except for mortgage loans
insured or guaranteed by a government or government agency. We
will maintain each appraisal in our records for at least five
years, and will make it available during normal business hours
for inspection and duplication by any stockholder at such
stockholder’s expense. In addition to the appraisal, we
will seek to obtain a customary lender’s title insurance
policy or commitment as to the priority of the mortgage or
condition of the title.
We will not make or invest in a mortgage loan on any one
property if the aggregate amount of all mortgage loans
outstanding on the property, including our borrowings, would
exceed an amount equal to 85.0% of the appraised value of the
property, unless we find substantial justification due to the
presence of other underwriting criteria. We may find such
justification in connection with the purchase of mortgage loans
in cases in which we believe there is a high probability of our
foreclosure upon the property in order to acquire the underlying
assets and in which the cost of the mortgage loan investment
does not exceed the appraised value of the underlying property.
We will also not make or invest in mortgage loans that are
subordinate to any mortgage or equity interest of any of our
directors, our advisor or any of their or our affiliates. These
restrictions on mortgage lending will apply both to mortgages on
individual properties as well as to each mortgage included in
any pool or portfolio of mortgages in which we invest.
Mortgage loans in which we invest may or may not be insured or
guaranteed by the Veteran’s Administration, the Federal
Housing Authority or another third party. We do not intend to
engage in the business of servicing or warehousing mortgages.
We intend to acquire real property assets with an expectation of
holding each asset for an extended period. The period that we
will hold our investments in real estate related assets will
vary depending on the type of asset, interest rates and other
factors. Our advisor will develop a well-defined exit strategy
for each investment we make. Specifically, our advisor will
assign a sale date to each asset we acquire prior to its
purchase as a part of the original business plan for the asset.
Our advisor will continually perform a whole-sale analysis on
each asset in order to determine the optimal time to sell the
asset and generate a strong return for stock holders. Periodic
reviews of each asset will focus on the remaining available
value enhancement opportunities for the asset and the demand for
the asset in the market place. Economic and market conditions
may influence us to hold our investments for different periods
of time. We may sell an asset before the end of the expected
holding period if we believe that market conditions and asset
positioning have maximized its value to us or the sale of the
asset would otherwise be in the best interest of our
stockholders.
C:
Investment
Limitations
Our charter places numerous limitations on us with respect to
the manner in which we may invest our funds prior to a listing
of our common stock. These limitations cannot be changed unless
our charter is amended, which may require the approval of the
holders of a majority of the shares of our common stock entitled
to vote on the matter. Unless the charter is amended, we will
not:
•
Invest in commodities or commodity futures contracts, except for
futures contracts when used solely for the purpose of hedging in
connection with our ordinary business of investing in real
property and real estate related investments;
•
Invest in real estate contracts of sale, otherwise known as land
sale contracts, unless the contract is in recordable form and is
appropriately recorded in the chain of title;
•
Make or invest in individual mortgage loans unless an appraisal
is obtained concerning the underlying property except for those
mortgage loans insured or guaranteed by a government or
government agency. In cases where a majority of our independent
directors determines, and in all cases in which the transaction
is with any of our directors or our advisor and its affiliates,
such appraisal shall be obtained from an independent appraiser.
We will maintain such appraisal in our records for at least five
years and it will be available for your inspection and
duplication. We will also obtain a mortgagee’s or
owner’s title insurance policy as to the priority of the
mortgage;
•
Make or invest in mortgage loans that are subordinate to any
lien or other indebtedness of any of our directors, our advisor
or its affiliates;
•
Invest in equity securities unless a majority of the directors
(including a majority of independent directors) not otherwise
interested in the transaction approves such investment as being
fair, competitive and commercially reasonable;
•
Invest in joint ventures with directors, our advisor, or any of
their affiliates unless a majority of the directors (including a
majority of independent directors) not otherwise interested in
the transaction, approves the transaction as being fair and
reasonable and on substantially the same terms and conditions as
those received by other joint ventures;
•
Make or invest in mortgage loans, including construction loans,
on any one real property if the aggregate amount of all mortgage
loans on such real property would exceed an amount equal to 85%
of the appraised value of such real property as determined by
appraisal, unless substantial justification exists because of
the presence of other underwriting criteria; or
•
Make investments in unimproved real property or indebtedness
secured by a deed of trust or mortgage loans on unimproved real
property in excess of 10% of our total assets.
We intend to conduct our operations so as not to be regulated as
an investment company under the Investment Company Act. We
intend to rely on the exclusion provided by
Section 3(c)(5)(C) of the Investment Company Act (and
potentially Section 3(c)(6) if, from time to time, we
engage in our real estate business through one or more majority
owned subsidiaries)
and/or any
other exclusions available to us. Section 3(c)(5)(C), as
interpreted by the staff of the SEC, requires us to invest at
least 55% of our portfolio in “mortgages and other liens on
and interests in real estate,” which we refer to as
qualifying real estate assets, and at least 80% of our assets in
qualifying real estate assets plus other real estate related
investments. The assets that we may acquire, therefore, are
limited by the provisions of the Investment Company Act and the
rules and regulations promulgated under the Investment Company
Act.
To maintain compliance with the Investment Company Act
exemption, we may be unable to sell assets we would otherwise
want to sell and may need to sell assets we would otherwise wish
to retain. In addition, we may have to acquire additional assets
that we might not otherwise have acquired or may have to forego
opportunities to acquire interest in companies that we would
otherwise want to acquire and will be important to our
investment strategy. If we fail to own a sufficient amount of
qualifying real estate assets or qualifying real estate assets
plus other real properties and real estate related investments
to satisfy the requirements of Section 3(c)(5)(C) and can
not rely on any other exemption or exclusion under the
Investment Company Act, we could be characterized as an
investment company. Our Advisor will continually review our
investment activity to attempt to ensure that we will not be
regulated as an investment company. Among other things, our
Advisor will attempt to monitor the proportion of our portfolio
that is placed in various investments.
Liquidity
Strategy
Our charter requires that our board of directors, including our
independent directors, consider a transaction providing
liquidity for our stockholders at least annually beginning on
the date that is five years following the completion of this
offering. Our board may consider a liquidity transaction at an
earlier date if it determines that it would be in our
stockholders’ best interest to do so. Moreover, our charter
does not require the board to pursue a liquidity transaction. We
expect that our board, in the exercise of its fiduciary duty to
our stockholders, will determine to pursue a liquidity
transaction when it believes that then-current market conditions
are favorable for a liquidity transaction, and that such a
transaction is in the best interests of our stockholders. A
liquidity transaction could include (1) the sale of all or
substantially all of our assets either on a portfolio basis or
individually followed by a liquidation, (2) a listing of
our shares on a national securities exchange, or (3) a
merger or another transaction approved by our board in which our
stockholders will receive cash or shares of a publicly traded
company. There can be no assurance as to when a suitable
transaction will be available.
Our share redemption program may provide a limited opportunity
for you to have your shares of common stock redeemed, subject to
certain restrictions and limitations, at a price equal to or at
a discount from the purchase price you paid for the shares being
redeemed. See “Description of Capital Stock —
Share Redemption Program” for a detailed description
of our share redemption program.
We operate under the direction of our board of directors, the
members of which are accountable to us and our stockholders as
fiduciaries. The board of directors is responsible for the
management and control of our affairs. The board of directors
has retained our advisor to manage our day-to-day affairs and to
implement our investment strategy, subject to the board’s
direction, oversight and approval.
We currently have one director on our board of directors, who is
also an officer of our advisor. Prior to the commencement of
this offering, we will have a total of six directors, four of
whom will be independent of us, our advisor and our respective
affiliates. An “independent director” is a person who
is not an officer or employee of ours, our advisor or our
affiliates and has not otherwise been affiliated with such
entities for the previous two years. We refer to our directors
who are not independent as our “affiliated directors.”
As of the date of this prospectus, our charter provides that the
number of our directors may be established by a majority of the
board but may not be fewer than three nor more than fifteen. The
charter also provides that a majority of the directors must be
independent directors. Our charter provides that at least one of
the independent directors must have at least three years of
relevant real estate experience. The independent directors will
nominate replacements for vacancies among the independent
directors.
Each director will be elected by the stockholders and will serve
for a term of one year. Although the number of directors may be
increased or decreased, a decrease shall not have the effect of
shortening the term of any incumbent director.
Any director may resign at any time and may be removed with or
without cause by the stockholders upon the affirmative vote of
at least a majority of all the votes entitled to be cast at a
meeting called for the purpose of the proposed removal. The
notice of the meeting shall indicate that the purpose, or one of
the purposes, of the meeting is to determine if the director
shall be removed.
A vacancy following the removal of a director or a vacancy
created by an increase in the number of directors or the death,
resignation, adjudicated incompetence or other incapacity of a
director shall be filled by a vote of a majority of the
remaining directors and, in the case of an independent director,
the director must also be nominated by the remaining independent
directors.
If there are no remaining independent directors, then a majority
vote of the remaining directors shall be sufficient to fill a
vacancy among the independent directors’ positions. If at
any time there are no independent or affiliated directors in
office, successor directors shall be elected by the
stockholders. Each director will be bound by our charter.
C:
Duties
of Directors
In general, a majority of the independent directors must approve
matters relating to minimum capital, duties of directors, the
advisory agreement, liability and indemnification of directors,
advisor or affiliate fees, compensation and expenses, investment
policies, leverage and borrowing policies, meetings of
stockholders, stockholders’ election of directors, and our
distribution reinvestment plan. At the first meeting of our
board of directors consisting of a majority of independent
directors, our charter and each of the above matters will be
reviewed and ratified by a vote of the directors and at least a
majority of the independent directors.
The responsibilities of the board of directors include:
•
Approving and overseeing our overall investment strategy, which
will consist of elements such as, investment selection criteria,
diversification strategies and asset disposition strategies;
•
Approving all real property acquisitions, developments and
dispositions, including real property portfolio acquisitions,
developments and dispositions for a purchase price, total
project cost or sales price greater than $40,000,000, including
the financing of such acquisitions and developments. The board
of directors intends to delegate to the investment committee the
authority to review and approve
any real property acquisition, development and disposition
(including real property portfolio acquisitions, developments
and dispositions), for a purchase price, total project cost or
sales price of up to $40,000,000;
• Approving and overseeing our debt financing strategies;
•
Approving and monitoring the relationship between our operating
partnership and our advisor;
•
Approving joint ventures, limited partnerships and other such
relationships with third parties;
•
Approving a potential liquidity event;
•
Determining our distribution policy and declaring distributions
from time to time; and
•
Approving amounts available for redemptions of shares of our
common stock.
The directors are not required to devote all of their time to
our business and are only required to devote such time to our
affairs as their duties require. The directors will meet
quarterly or more frequently as necessary.
The directors have established and will periodically review
written policies on investments and borrowings consistent with
our investment objectives and will monitor our administrative
procedures, investment operations and performance and those of
our advisor to assure that such policies are carried out. Any
change in our investment objectives must be approved by the
stockholders.
The independent directors are also responsible for reviewing our
fees and expenses on at least an annual basis and with
sufficient frequency to determine that the expenses incurred are
in the best interest of the stockholders.
In order to reduce or eliminate certain potential conflicts of
interest, our charter requires that a majority of our board of
directors (including a majority of the independent directors)
not otherwise interested in the transaction, approve all
transactions with any of our directors, our advisor or any of
their affiliates. The independent directors will also be
responsible for reviewing the performance of our advisor and
determining that the compensation to be paid to our advisor is
reasonable in relation to the nature and quality of services
performed and that the provisions of the advisory agreement are
being carried out. As part of their review of our advisor’s
compensation, the independent directors will consider factors
such as:
•
The quality and extent of the services and advice furnished by
our advisor;
•
The amount of fees paid to our advisor in relation to the size,
composition and performance of our investments;
•
The success of our advisor in generating investment
opportunities that meet our investment objectives;
•
Rates charged to other externally advised REITs and similar
investors by advisors performing similar services; and
•
Additional revenues realized by our advisor and its affiliates
through their relationships with us, whether we pay them or they
are paid by others with whom we do business.
C:
Committees
of the Board of Directors
Our board of directors may establish committees it deems
appropriate to address specific areas in more depth than may be
possible at a full board meeting, provided that the majority of
the members of each committee are independent directors. Prior
to the commencement of this offering, our board of directors
will establish an audit committee and an investment committee.
C:
Investment
Committee
Our board of directors intends to delegate to the investment
committee (a) certain responsibilities with respect to
specific real property investments proposed by our advisor and
(b) the authority to review our
investment policies and procedures on an ongoing basis and
recommend any changes to our board of directors. The investment
committee will be comprised of three directors, two of whom will
be independent directors.
With respect to real property investments, the board of
directors intends to delegate to the investment committee the
authority to approve all real property acquisitions,
developments and dispositions, including real property portfolio
acquisitions, developments and dispositions, for a purchase
price, total project cost or sales price of up to $40,000,000,
including the financing of such acquisitions and developments.
The board of directors, including a majority of the independent
directors, must approve all real property acquisitions,
developments and dispositions, including real property portfolio
acquisitions, developments and dispositions, for a purchase
price, total project cost or sales price greater than
$40,000,000, including the financing of such acquisitions and
developments.
C:
Audit
Committee
The audit committee will meet on a regular basis, at least
quarterly and more frequently as necessary. The audit
committee’s primary function will be to assist the board of
directors in fulfilling its oversight responsibilities by
reviewing the financial information to be provided to the
stockholders and others, the system of internal controls which
management has established, and the audit and financial
reporting process. The audit committee will be comprised of
three directors, all of whom are independent directors and one
of whom will be deemed a financial expert.
C:
Compensation
Committee
Our board of directors may establish a compensation committee to
administer our long-term incentive plan. The primary function of
the compensation committee would be to administer the granting
of awards to our independent directors, to our sponsor’s
advisory board members who are engaged in the analysis of our
green investments and selected employees based upon
recommendations from our advisor, and to set the terms and
conditions of such awards in accordance with our long-term
incentive plan. The compensation committee, if formed, will be
comprised entirely of independent directors.
C:
Directors
and Executive Officers
As of the date of this prospectus, our directors and executive
officers, their ages and their positions and offices are as
follows:
Name
Age
Position
Wayne R. Hannah III
40
President, Treasurer, Secretary and Director
Lawrence Skibo
56
Vice President, National Sales Director
Chief Financial Officer*
Chief Investment Officer*
Independent Director*
Independent Director*
Independent Director*
Independent Director*
*
To be named by amendment.
Wayne R. Hannah III serves as our President,
Treasurer, Secretary and Director. Mr. Hannah currently
serves as our President and Director and has served as Manager
of Insight Real Estate, LLC since September 2007.
Mr. Hannah has also served as the Chief Executive Officer
of TSG Real Estate, LLC, a wholly-owned subsidiary of Tax
Strategies Group, LLC, since its inception in June 2003 and as
President and Chief Executive Officer of Tax Strategies Group,
LLC since its inception in June 2001. Mr. Hannah is a
member of the Board of Directors and Founder of the Tenant In
Common Association and a member of the National Real Estate
Development Center, the Federation of Exchange Accommodators,
the International Council of Shopping Centers, Urban Land
Institute and the National Association of Real Estate Investment
Trusts and the President’s Council of the Real Estate
Roundtable.
Lawrence Skibo serves as our Vice President, National
Sales Director. Mr. Skibo has also served as the Vice
President, Director of National Sales for Tax Strategies Group,
LLC since January 2007. Prior to joining Tax Strategies Group,
Mr. Skibo was National Sales Director for Hartman, a
Houston-based REIT, from 2005 to December 2006. Previously, he
was the Executive Vice President/National Sales Manager for US
Allianz from 1999 to 2001 and has also served as a sales manager
for MFS Mutual Funds and ING Annuities. Mr. Skibo was the
President and CEO of Select Investment Brokerage from 2002 to
2005. He received his B.A. from Vandercook University in
Chicago, Illinois.
Our directors and executive officers will serve until their
successors are elected and qualified.
C:
Compensation
of Directors
We will pay each of our independent directors an annual retainer
of $30,000 plus $6,000 for each in-person meeting of the board
of directors attended, $5,000 for each in-person committee
meeting attended and $1,000 for each teleconference in which
such independent director participates. The audit committee
chairperson will receive an additional $10,000 annual retainer
for serving in such role. In addition, we intend to grant stock
based awards to each of our independent directors, which awards
will be granted under our independent director compensation plan
and subject to the plan’s conditions and restrictions.
Prior to the commencement of this offering, we intend to adopt
an independent directors compensation plan, which will operate
as a sub-plan of our long-term incentive plan. We intend to
grant each of our independent directors upon his or her initial
election or appointment to the board an award of
3,000 shares of restricted stock which will vest in three
equal annual installments beginning on the date of grant and
ending on the second anniversary of the date of grant. We also
intend that, on the date following an independent
director’s re-election to the board, he or she will receive
an award of 3,000 shares of restricted stock, which will
vest in three equal annual installments beginning on the date of
grant and ending on the second anniversary of the date of grant.
Notwithstanding the foregoing, the restricted stock grants will
become fully vested on the earlier occurrence of (i) the
termination of the grantee’s service as a director of the
Company due to death or disability; or (ii) the occurrence
of a change in control, if the awards are not assumed by the
surviving entity or otherwise equitably converted or substituted
in connection with the change in control in a manner approved by
the board; or (iii) the termination of the grantee’s
service as a director of the Company without cause within two
years after the effective date of a change in control, if the
awards are assumed by the surviving entity or otherwise
equitably converted or substituted in connection with a change
in control. All directors receive reimbursement of reasonable
out-of-pocket expenses incurred in connection with attending
meetings of the board. If a director is also one of our
officers, we will not pay additional compensation for services
rendered as a director.
C:
Long-term
Incentive Plan
Prior to the commencement of this offering, we intend to adopt a
long-term incentive plan, which we will use to attract and
retain qualified independent directors, employees, consultants
and advisors, including the Green Advisory Council. Our
long-term incentive plan will offer these individuals an
opportunity to participate in our growth through awards in the
form of, or based on, our common stock. The long-term incentive
plan will authorize the granting of restricted stock, stock
options, stock appreciation rights, stock units, dividend
equivalent awards and other stock-based awards to any
independent directors, employees, advisors and consultants of
ours or our advisor selected by the plan administrator for
participation in our long-term incentive plan. Any stock options
and stock appreciation rights granted under the long-term
incentive plan will have an exercise price or base price that is
not less than the fair market value of our common stock on the
date of grant. Awards granted under the long-term incentive plan
shall not exceed an amount equal to 10.0% of the outstanding
shares of our common stock on the date of grant of any such
stock awards.
Our board of directors will administer the long-term incentive
plan, with sole authority to determine all of the terms and
conditions of the awards, including whether the grant, vesting
or settlement of awards may be subject to the attainment of one
or more performance goals. As described above, the board of
directors will
also adopt a subplan to provide for regular grants of restricted
stock awards to our independent directors. No awards will be
granted under the plan if the grant or vesting of the awards
would jeopardize our status as a REIT under the Code or
otherwise violate the ownership and transfer restrictions
imposed under our charter. Unless otherwise determined by our
board of directors, no award granted under the long-term
incentive plan will be transferable except through the laws of
descent and distribution.
Prior to the commencement of this offering, we will establish an
aggregate maximum number of shares to be reserved for issuance
under the long-term incentive plan. In the event of a
transaction between our company and our stockholders that causes
the per-share value of our common stock to change (including,
without limitation, any stock dividend, stock split, spin-off,
rights offering, or large nonrecurring cash dividend), the share
authorization limits under the long-term incentive plan will be
adjusted proportionately, and the board of directors must make
such adjustments to the long-term incentive plan and awards as
it deems necessary, in its sole discretion, to prevent dilution
or enlargement of rights immediately resulting from such
transaction. In the event of a stock split, a stock dividend or
a combination or consolidation of the outstanding shares of
common stock into a lesser number of shares, the authorization
limits under the long-term incentive plan will automatically be
adjusted proportionately, and the shares then subject to each
award will automatically be adjusted proportionately without any
change in the aggregate purchase price.
Unless otherwise provided in an award certificate or any special
plan document governing an award, upon the termination of a
participant’s service due to death or disability, all of
his or her outstanding options and stock appreciation rights
will become fully exercisable, all time-based vesting
restrictions on his or her outstanding awards will lapse as of
the date of termination, and the payout opportunities attainable
under all of his or her outstanding performance-based awards
will vest based on target or actual performance (depending on
the time during the performance period in which the date of
termination occurs) and the awards will payout on a pro rata
basis, based on the time elapsed prior to the date of
termination.
Unless otherwise provided in an award certificate or any special
plan document governing an award, upon the occurrence of a
change in control of the company in which awards are not assumed
by the surviving entity or otherwise equitably converted or
substituted in connection with the change in control in a manner
approved by the board, all outstanding options and stock
appreciation rights will become fully exercisable, all
time-based vesting restrictions on outstanding awards will
lapse, and the payout opportunities attainable under all
outstanding performance-based awards will vest based on target
or actual performance (depending on the time during the
performance period in which the change in control occurs) and
the awards will payout on a pro rata basis, based on the time
elapsed prior to the change in control. With respect to awards
assumed by the surviving entity or otherwise equitably converted
or substituted in connection with a change in control, if within
two years after the effective date of the change in control, a
participant’s employment is terminated without cause or the
participant resigns for good reason, then all of that
participant’s outstanding options and stock appreciation
rights will become fully exercisable, all time-based vesting
restrictions on that participant’s outstanding awards will
lapse, and the payout opportunities attainable under all of that
participant’s outstanding performance-based awards will
vest based on target or actual performance (depending on the
time during the performance period in which the date of
termination occurs) and the awards will payout on a pro rata
basis, based on the time elapsed prior to the date of
termination.
Regardless of whether a termination of service by reason of
death or disability or a change in control has occurred, the
board may in its sole discretion at any time determine that upon
the termination of service of a participant, or the occurrence
of a change in control, all or a portion of a participant’s
options and stock appreciation rights will become fully or
partially exercisable, that all or a part of the restrictions on
all or a portion of a participant’s outstanding awards will
lapse,
and/or that
any performance-based criteria with respect to any awards will
be deemed to be wholly or partially satisfied, in each case, as
of such date as the board may, in its sole discretion, declare.
Our board may discriminate among participants or among awards in
exercising such discretion.
The long-term incentive plan will automatically expire on the
tenth anniversary of the date on which it is adopted, unless
extended or earlier terminated by our board of directors. Our
board may terminate the long-term incentive plan at any time.
The expiration or other termination of the long-term incentive
plan will have
no adverse impact on any award that is outstanding at the time
the long-term incentive plan expires or is terminated. The board
of directors may amend the long-term incentive plan at any time,
but no amendment will adversely affect any award on a
retroactive basis, and no amendment to the long-term incentive
plan will be effective without the approval of our stockholders
if such approval is required by any law, regulation or rule
applicable to the long-term incentive plan.
C:
Limited
Liability and Indemnification of Directors, Officers and
Others
Our charter limits the personal liability of our stockholders,
directors and officers for monetary damages. The Maryland
General Corporation Law, which we refer to as the MGCL, permits
a corporation to include in its charter a provision limiting the
liability of its directors and officers to the corporation and
its stockholders for money damages, except for liability
resulting from (1) actual receipt of an improper benefit or
profit in money, property or services or (2) active and
deliberate dishonesty established by a final judgment and which
is material to the cause of action. In addition, we intend to
obtain directors and officers’ liability insurance.
The MGCL allows directors and officers to be indemnified against
judgments, penalties, fines, settlements and expenses actually
incurred in a proceeding unless the following can be established:
•
An act or omission of the director or officer was material to
the cause of action adjudicated in the proceeding and was
committed in bad faith or was the result of active and
deliberate dishonesty;
•
The director or officer actually received an improper personal
benefit in money, property or services; or
•
With respect to any criminal proceeding, the director or officer
had reasonable cause to believe his act or omission was unlawful.
Notwithstanding the above provisions of the MGCL, our charter
provides that our directors and our advisor and its affiliates
will be indemnified by us for loss or liability suffered by them
or held harmless for loss or liability suffered by us only if
all of the following conditions are met:
•
Our directors and our advisor or its affiliates have determined,
in good faith, that the course of conduct that caused the loss
or liability was in our best interests;
•
Our directors and our advisor or its affiliates were acting on
our behalf or performing services for us;
•
In the case of affiliated directors and our advisor or its
affiliates, the liability or loss was not the result of
negligence or misconduct;
•
In the case of our independent directors, the liability or loss
was not the result of gross negligence or willful
misconduct; and
•
The indemnification or agreement to hold harmless is recoverable
only out of our net assets and not from our stockholders.
We have agreed to indemnify and hold harmless our advisor and
its affiliates performing services for us from specific claims
and liabilities arising out of the performance of their
obligations under the advisory agreement. As a result, we and
our stockholders may be entitled to a more limited right of
action than we would otherwise have if these indemnification
rights were not included in the advisory agreement.
The general effect to investors of any arrangement under which
any of our controlling persons, directors or officers are
insured or indemnified against liability is a potential
reduction in distributions resulting from our payment of
premiums associated with insurance or any indemnification for
which we do not have adequate insurance.
The SEC takes the position that indemnification against
liabilities arising under the Securities Act is against public
policy and unenforceable. Indemnification of our directors and
advisor or its affiliates will not
be allowed for liabilities arising from or out of a violation of
state or federal securities laws, unless one or more of the
following conditions are met:
•
There has been a successful adjudication on the merits of each
count involving alleged securities law violations;
•
Such claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction; or
•
A court of competent jurisdiction approves a settlement of the
claims against the indemnitee and finds that indemnification of
the settlement and the related costs should be made, and the
court considering the request for indemnification has been
advised of the position of the SEC and of the published position
of any state securities regulatory authority in which the
securities were offered as to indemnification for violations of
securities laws.
Indemnification will be allowed for settlements and related
expenses of lawsuits alleging securities laws violations and for
expenses incurred in successfully defending any lawsuits,
provided that a court either:
•
Approves the settlement and finds that indemnification of the
settlement and related costs should be made; or
•
Dismisses with prejudice, or there is a successful adjudication
on the merits of, each count involving alleged securities law
violations as to the particular indemnitee and a court approves
the indemnification.
We may advance funds to directors, officers, our advisor and its
affiliates for legal expenses and other costs incurred as a
result of our legal action for which indemnification is being
sought only if all of the following conditions are met:
•
The legal action relates to acts or omissions with respect to
the performance of duties or services on behalf of the REIT;
•
The party seeking indemnification has provided us with written
affirmation of his good faith belief that he has met the
standard of conduct necessary for indemnification;
•
The legal action is initiated by a third party who is not a
stockholder or the legal action is initiated by a stockholder
acting in his capacity as such and a court of competent
jurisdiction specifically approves such advancement; and
•
The party seeking indemnification undertakes to repay the
advanced funds to us, together with the applicable legal rate of
interest thereon, in cases in which he is found not to be
entitled to indemnification.
Indemnification may reduce the legal remedies available to us
and our stockholders against the indemnified individuals.
The aforementioned charter provisions do not reduce the exposure
of directors and officers to liability under federal or state
securities laws, nor do they limit a stockholder’s ability
to obtain injunctive relief or other equitable remedies for a
violation of a director’s or an officer’s duties to us
or our stockholders, although the equitable remedies may not be
an effective remedy in some circumstances.
Our
Advisor
We will rely on our advisor to manage our day-to-day activities
and to implement our investment strategy. We, our operating
partnership and our advisor are party to an advisory agreement
pursuant to which our advisor performs its duties and
responsibilities as our fiduciary.
Under the terms of the advisory agreement, our advisor will use
its best efforts, subject to the oversight, review and approval
of the board of directors, to perform the following:
•
Participate in formulating an investment strategy and asset
allocation framework consistent with achieving our investment
objectives;
Research, identify, review and recommend to our board of
directors for approval real property acquisitions and
dispositions consistent with our investment policies and
objectives;
•
Structure the terms and conditions of transactions pursuant to
which acquisitions and dispositions of real properties will be
made;
•
Actively oversee and manage our real property portfolio for
purposes of meeting our investment objectives;
•
Manage our day-to-day affairs, including financial accounting
and reporting, investor relations, marketing, informational
systems and other administrative services on our behalf;
•
Select joint venture partners, structure corresponding
agreements and oversee and monitor these relationships;
•
Arrange for financing and refinancing of our assets; and
•
Recommend various liquidity events to our board of directors
when appropriate.
The above summary is provided to illustrate the material
functions that our advisor will perform for us as an advisor and
is not intended to include all of the services that may be
provided to us by our advisor, its affiliates or third parties.
Our advisor is managed by the following individuals:
Name
Age
Position
Wayne R. Hannah III
40
President, Treasurer, Secretary and Director
Lawrence Skibo
56
Vice President, National Sales Director
Chief Financial Officer*
Chief Investment Officer*
*
To be named by amendment.
For biographical information regarding Messrs. Hannah and
Skibo, see “Management — Directors and Executive
Officers.”
C:
The
Advisory Agreement
The term of the advisory agreement is one year from the
commencement of this offering, subject to renewals upon mutual
consent of the parties for an unlimited number of successive
one-year periods. The independent directors will evaluate the
performance of our advisor before renewing the advisory
agreement. The advisory agreement may be terminated:
•
Immediately by us
and/or our
operating partnership for “cause,” or upon the
bankruptcy of our advisor;
•
Without cause by a majority of our independent directors upon
60 days’ written notice; or
•
With “good reason” by our advisor upon
60 days’ written notice.
“Good reason” is defined in the advisory agreement to
mean either any failure by us to obtain a satisfactory agreement
from any successor to assume and agree to perform our
obligations under the advisory agreement or any material breach
of the advisory agreement of any nature whatsoever by us or our
operating partnership. “Cause” is defined in the
advisory agreement to mean fraud, criminal conduct, willful
misconduct or willful or negligent breach of fiduciary duty by
our advisor or a material breach of the advisory agreement by
our advisor.
In the event of the termination of the advisory agreement, our
advisor will cooperate with us and our operating partnership and
take all reasonable steps to assist in making an orderly
transition of the advisory function. Before selecting a
successor advisor, the board of directors must determine that
any successor
advisor possesses sufficient qualifications to perform the
advisory function and to justify the compensation it would
receive from us.
Our advisor expects to engage in other business activities and,
as a result, its resources will not be dedicated exclusively to
our business. However, pursuant to the advisory agreement, the
key personnel of our advisor must devote sufficient resources to
our business operations to permit our advisor to discharge its
obligations. Our advisor may assign the advisory agreement to an
affiliate upon approval of a majority of our independent
directors. Our advisor may not make any real property
acquisitions, developments or dispositions without the prior
approval of the majority of our investment committee, or our
board of directors, as the case may be. The actual terms and
conditions of transactions involving investments in real
properties shall be determined in the sole discretion of our
advisor, subject, as applicable, to board and investment
committee approval.
We will reimburse our advisor for costs it incurs in connection
with the services it provides to us, including, but not limited
to:
•
Cumulative organizational and offering expense reimbursement in
an amount up to 3.0% of the aggregate gross proceeds from the
sale of shares of our common stock sold in the primary offering
on a best efforts basis, to reimburse legal, accounting,
printing and expenses attributable to our organization,
preparing the registration statement, qualification of the
shares of our common stock for sale in the states and filing
fees incurred by our advisor, as well as reimbursements for
marketing, salaries and direct expenses of its employees while
engaged in registering and marketing the shares of our common
stock, other than the sales commission and our dealer manager
fee. Any such reimbursements will not exceed actual expenses
incurred by the advisor. We have used $126,155 of the initial
capital contributed to us by our advisor and its affiliates to
directly pay the SEC and FINRA filing fees associated with this
offering. As a result, we will withhold from offering and
expense reimbursement payments otherwise payable to our advisor
in connection with this offering, a total amount equal to the
pre-paid offering expense. After such time as the total amount
withheld by us equals the total pre-paid offering expense, our
advisor will then be eligible to receive reimbursement payments
from us. To the extent that we have not fully recovered the
pre-paid offering expense as a result of withheld reimbursements
within one year from the date the minimum offering requirements
are met, our advisor will be obligated to pay us an amount equal
to the unrecovered portion of the pre-paid offering expense;
•
The actual cost of goods and services used by us and obtained
from entities not affiliated with our advisor, including
brokerage fees paid in connection with the purchase and sale of
our properties and securities, but excluding acquisition
expenses;
•
Expenses of managing and operating real properties owned by us,
whether payable to an affiliate or a non-affiliated party;
•
Taxes and assessments on our income or the income of our real
properties; and
•
Administrative services including related personnel costs,
provided, however, that we will not reimburse for personnel
costs in connection with services for which our advisor receives
a separate acquisition fee, asset management fee or real estate
sales commission.
We will not reimburse our advisor at the end of any fiscal
quarter for which it is determined that expenses for the four
previous consecutive fiscal quarters exceed the greater of
(1) 2% of our average invested assets, which generally
consists of the average of the aggregate book value of our
assets invested, directly or indirectly, in real estate, before
reserves for depreciation, bad debts and other non-cash
reserves, or (2) 25% of our net income, which is defined as
our total revenues less total expenses for any given period
excluding additions to reserves for depreciation, bad debts and
other non-cash reserves. Such operating expenses will be
calculated in accordance with generally accepted accounting
principles and will include, but will not be limited to, items
such as legal, accounting and auditing expenses and overhead for
which our advisor does not receive a fee, asset management fees
paid to our advisor, transfer agent costs, directors and
officers insurance, board of directors fees and related
expenses, and expenses related to compliance with the Sarbanes
Oxley Act
of 2002. Such operating expenses will not include interest
payments, taxes, non-cash expenditures such as depreciation,
amortization and bad debt reserves, or the organizational and
offering expense reimbursement or amounts payable out of capital
contributions which may be capitalized for tax or accounting
purposes such as the acquisition fees payable to our advisor. To
the extent that operating expenses payable or reimbursable by us
exceed this limit and the independent directors determine that
the excess expenses were justified based on unusual and
nonrecurring factors which they deem sufficient, our advisor may
be reimbursed in future years for the full amount of the excess
expenses, or any portion thereof, but only to the extent the
reimbursement would not cause our operating expenses to exceed
the limitation in any year. Within 60 days after the end of
any of our fiscal quarters for which total operating expenses
for the 12 months then ended exceed the limitation, there
shall be sent to the stockholders a written disclosure, together
with an explanation of the factors the independent directors
considered in arriving at the conclusion that the excess
expenses were justified.
Our advisor and its affiliates will be paid fees in connection
with services they provide to us. In the event the advisory
agreement is terminated, our advisor will be paid all accrued
and unpaid fees and expense reimbursements earned prior to the
date of termination. We will not reimburse our advisor or its
affiliates for services for which our advisor or its affiliates
are entitled to compensation in the form of a separate fee.
C:
Holdings
of Shares of Common Stock, Common Units and Special
Units
Our advisor currently owns 100 common units of our operating
partnership, for which it contributed $1,000. We are the sole
general partner of our operating partnership and currently own
100 common units for which we contributed $1,000. Insight
Management, LLC, a wholly-owned subsidiary of Insight Real
Estate, owns all of the special units, for which it contributed
$1,000. The resale of any shares by our affiliates is subject to
the provisions of Rule 144 promulgated under the Securities
Act, which rule limits the number of shares that may be sold at
any one time and the manner of such resale. See
“Description of Capital Stock” for a more detailed
description of the resale restrictions.
C:
Management
Decisions of Our Advisor
Messrs. Hannah and Skibo will have primary responsibility
for management decisions of our advisor, including the selection
of real property investments to be recommended to our board of
directors, the negotiations in connection with these investments
and the property management and leasing of real properties.
C:
Management
Compensation
Because the advisory agreement provides that our advisor will
assume principal responsibility for managing our affairs, our
officers, in their capacities as such, do not receive
compensation directly from us. However, in their capacities as
officers or employees of our advisor or its affiliates, they
will devote such portion of their time to our affairs as is
required for the performance of the duties of our advisor under
the advisory agreement. Our advisor has informed us that,
because the services performed by its officers or employees in
their capacities as such are not performed exclusively for us,
it cannot segregate and identify that portion of the
compensation awarded to, earned by or paid to our executive
officers by our advisor that relates solely to their services to
us, other than any compensation paid to them in the form of
equity interests in us.
The independent directors will determine, from time to time but
at least annually, that (1) the total fees and expenses
paid to our advisor, our property manager and our dealer
manager, as applicable, are reasonable in light of our
investment performance, net assets, net income, and the fees and
expenses of other comparable unaffiliated REITs, and
(2) the compensation paid to our advisor is reasonable in
relation to the nature and quality of services performed and
that such compensation is within the limits prescribed by this
prospectus. The independent directors will also supervise the
performance of our advisor and review the compensation we pay
our advisor to determine that the provisions of the advisory
agreement are carried out.
Certain of our real properties may be managed and leased by
Insight Property Management, LLC, our affiliated property
manager. Insight Property Management, LLC is wholly owned by
Insight Real Estate and was organized in September 2007 to lease
and manage real properties acquired by Insight Real Estate
affiliates or other third parties.
We will pay our property manager a property management fee equal
to 4.0% of the annual gross income of each of our real
properties it manages. As is customary in the industry, we may
also reimburse our property manager for property-level expenses
that it pays or incurs on our behalf such as salaries and
benefit expenses for on-site employees and other miscellaneous
expenses. In addition, we may pay our property manager a
separate market-based fee for leasing services it provides 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. The actual percentage will
be dependent upon geographic location and product type (such as
office, industrial, retail, multi family and other property
types).
Our property manager will hire, direct and establish policies
for employees who will have direct responsibility for the
operations of each real property it manages, which may include
but is not limited to
on-site
managers and building and maintenance personnel. Certain
employees of our property manager may be employed on a part-time
basis and may also be employed by our advisor, our dealer
manager or certain companies affiliated with them. Our property
manager will also direct the purchase of equipment and supplies
and will supervise all maintenance activity. The management fees
to be paid to our property manager will include, without
additional expense to us, all of our property manager’s
general overhead costs.
C:
Dealer
Manager
Our current dealer manager is
1st Worldwide
Financial.
1st Worldwide
Financial has been a licensed broker-dealer since November 2004.
1st Worldwide
Financial will provide certain sales, promotional and marketing
services to us in connection with the distribution of the shares
of common stock offered pursuant to this prospectus. We will pay
our dealer manager a sales commission equal to 7.0% of the gross
proceeds from the sale of shares of our common stock sold in the
primary offering and a dealer manager fee equal to 2.5% of the
gross proceeds from the sale of shares of our common stock sold
in the primary offering. See “Plan of Distribution.”
Other than serving as dealer manager for this offering,
1st Worldwide
Financial has no experience acting as a dealer manager for an
offering.
Our sponsor formed IRE Investments in November 2007 for the
purpose of participating in and facilitating the distribution of
securities of Insight Real Estate affiliates. IRE Investments is
in the process of applying for registration as a broker-dealer
but is not yet a member firm of FINRA. Once IRE Investments
becomes a member of FINRA and has received its broker-dealer
license and certification in all applicable jurisdictions, IRE
Investments will assume the responsibilities of
1st Worldwide
Financial to provide dealer manager services to us. Insight Real
Estate owns approximately 99.9% of the outstanding shares of IRE
Investments, and the remaining 0.1% of the outstanding shares is
owned by an affiliate of
1st Worldwide
Financial.
1st Worldwide
Financial is controlled by
1st Worldwide
Partners, LLC, which is owned by John F. Mahoney and
Donald J. Donahue, Jr.
1st Worldwide
Financial is managed by the following individuals:
Name
Age
Position
John F. Mahoney
49
Chief Executive Officer
Donald J. Donahue, Jr.
49
President
John F. Mahoney is the CEO of
1st Worldwide
Financial having founded the company with Mr. Donahue in
2004. In late 2000, Mr. Mahoney founded a financial
services management consulting firm based in Princeton, New
Jersey called M Management Group, Inc. In 2000, he was the chief
administrative officer to Patricof & Co. (Apax
Partners) a leading international private equity investment
firm. From
1998-2000,
he was
Executive Vice President and Senior Managing Director at Fuji
Futures Inc. From
1995-1998,
Mr. Mahoney was the director of global marketing for fixed
income financial futures and fixed income prime brokerage at
Credit Suisse First Boston. Prior to this, he also served in
various financial and marketing positions in the Institutional
Financial Futures and Options division at Merrill
Lynch & Co. in both London and New York.
Mr. Mahoney is also currently an adjunct professor teaching
business ethics at the Stern School at New York University.
Additionally he is the Vice-Chairmen of the Board of Rising Tide
Capital, a charity that provides micro loans to inner city
groups in New Jersey. Professional licenses include
Series 7 and 24. Mr. Mahoney holds an Executive MBA
from The Stern School at New York University and a BSBA in
Accounting from Georgetown University.
Donald J. Donahue, Jr. is the President of
1st Worldwide
Financial having founded the company with Mr. Mahoney in
2004. He is responsible for running the day-to-day management of
the company. During 2003 and 2004, Mr. Donahue acted as a
consultant to a private equity firm assisting them in developing
and executing a capital raising campaign. From
2001-2003,
Mr. Donahue was a Managing Director of Banc One Capital
Markets responsible for capital market initiatives against a
variety of industry groups. From 1987- 2001, Mr. Donahue
held a number of positions within Citigroup’s Capital
Markets areas, most recently having been Head of Capital Markets
for the Midwest at Salomon Smith Barney. He also held a number
of marketing and management positions within capital markets
including asset securitization, derivatives and emerging
markets. Professional licenses include Series 4, 7, 63, 65,
53 and 24. Mr. Donahue is also on the Board of Directors of
Securities Technologies, Inc., a privately held company that
manufactures overhead doors and cabinets for the storage
industry and specialized safes for consumers. He holds an MBA
from New York University’s Stern School of Business and an
undergraduate degree from Georgetown University.
The following table summarizes all of the compensation and fees,
including reimbursement of expenses, to be paid by us to our
advisor and its affiliates in connection with our organization,
this offering and our operations. Our advisor and our property
manager are presently each subsidiaries of Insight Real Estate
and we contemplate that one of our affiliates will eventually
serve as our dealer manager. Our independent directors will
determine, from time to time but at least annually, that
(1) the total fees and expenses paid to the advisor and its
affiliates are reasonable in light of our investment
performance, net assets, net income and the fees and expenses of
other comparable unaffiliated REITs, and (2) the
compensation paid to the advisor is reasonable in relation to
the nature and quality of services performed and that such
compensation is within the limits prescribed by this prospectus.
Our independent directors will also supervise the performance of
the advisor and review the compensation we pay the advisor to
determine that the provisions of the advisory agreement are
carried out.
Description and
Estimated Amount
Type of Fee and Recipient
Method of Computation
for Maximum Offering
Organizational and Offering Stage
Sales
Commission(1)
— Dealer Manager
7.0% of the gross offering proceeds from the sale of shares in
the primary offering (all or a portion of which may be reallowed
to participating broker- dealers).
$105,000,000
Dealer Manager
Fee(1)
— Dealer Manager
2.5% of the gross offering proceeds from the sale of shares in
the primary offering (a portion of which may be reallowed to
participating broker- dealers).
$ 37,500,000
Organizational and Offering Expense
Reimbursement(2)
— Advisor or its affiliates
Up to 3.0% of the aggregate gross offering proceeds from the
sale of shares in the primary offering to reimburse our advisor
for incurring or paying our cumulative organizational and
offering expenses.
$ 22,500,000
We expect that organizational and offering expenses will
represent a lower percentage of the gross offering proceeds as
the amount of proceeds increases. Based on our current
estimates, we estimate that these expenses will represent 1.5%
of the gross offering proceeds, or $22,500,000, if we raise the
maximum offering. However, organizational and offering expenses
would be $45,000,000 if we reimburse 3% of the maximum offering
proceeds.
Operational Stage
Acquisition
Fees(3)
—
Advisor
An amount equal to 2.0% of the cost of all real estate
investments we acquire, including acquisition expenses and any
debt attributed to such investments. With respect to investments
in and originations of mortgage, mezzanine, bridge or other
loans, we would pay an
Amount depends upon the cost of our real estate investments and
therefore cannot be determined at this time.
acquisition fee equal to 2.0% of the amount funded by us to
acquire such loans, including any third-party expenses related
to such investments and any debt we use to fund the acquisition
or origination of the loans. Our advisor has agreed to waive
the acquisition fees for any property we acquire from one of our
affiliates.
Generally, we will reimburse our advisor for administrative services; provided, however, we will not provide reimbursement for personnel costs to the extent that such personnel perform services in transactions for which our advisor receives acquisition fees.
Asset Management
Fees(4)
—
Advisor
Monthly payments in an amount equal to one-twelfth of 1% of the
sum of the cost of all real estate investments we own and of our
investments and joint ventures, including acquisition fees,
origination fees, acquisition origination expenses and any debt
attributable to such investments.
Actual amounts depend upon the cost of our real estate
investments, and therefore, cannot be determined at this time.
Generally, we will reimburse our advisor for administrative services; provided, however, we will not reimburse for personnel costs in connection with services for which our advisor receives a separate asset management fee.
Property Management and Leasing
Fees(4)
— Property Manager
A monthly amount equal to 4.0% of the gross income of each real
property for services in connection with operating and managing
our real property investments. As is customary in the industry,
we may also reimburse our property manager for property-level
expenses that it pays or incurs on our behalf such as salaries
and benefit expenses for on-site employees and other
miscellaneous expenses. In addition, we may pay our property
manager a separate market-based fee for leasing services it
provides 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. However,
Actual amounts depend upon the gross revenue of the properties
and customary leasing fees in the region in which properties are
acquired and the property types acquired, and, therefore, cannot
be determined at this time.
the actual percentage is variable and will depend on factors
such as geographic location and real property type (such as
office, industrial, retail, multi-family and other real property
types).
Liquidity Stage
Real Estate Sales
Commission(5)
— Advisor or its affiliates
If our advisor provides a substantial amount of services in
connection with the sale of a property, the lesser of (i)
one-half of a competitive real estate commission or (ii) 3.0% of
the sales price of the property, provided that such amount shall
not exceed, when added to all other real estate commissions paid
to unaffiliated parties in connection with the sale, the lesser
of a competitive real estate commission or an amount equal to
5.0% of the sales price of the property.
Actual amounts depend upon the sale price of the properties,
and, therefore, cannot be determined at this time.
Generally, we will reimburse our advisor for administrative services; however, we will not provide reimbursement for personnel costs to the extent that such personnel perform services in transactions for which our advisor real estate sales commissions.
Special Units — Insight Management, LLC
Insight Management, LLC, a subsidiary of our sponsor, is the
holder of the special units. As such, it may be entitled to
receive certain cash distributions (as further described below)
so long as the special units remain outstanding and, upon the
redemption of the special units, also may be entitled to a
potential one-time payment in the form of a promissory note.
Except as described below, the holder of the special units shall
not be entitled to receive any redemption or other payment from
us or our operating partnership, including any participation in
the quarterly distributions we intend to make to our
stockholders.
Actual amounts depend upon future liquidity events, and,
therefore cannot be determined at this time.
So long as the special units remain outstanding, the holder of
the special units will receive 15.0% of the net sales proceeds
received by our operating partnership on
dispositions of its assets and dispositions of real property
held by joint ventures or partnerships in which our operating
partnership owns an interest after the other holders of common
units, including us, have received, in the aggregate, cumulative
distributions from operating income, sales proceeds or other
sources equal to our capital contributions plus an 8.0%
cumulative non-compounded annual pre-tax return on our net
contributions.
In addition, the special units will be redeemed by our operating
partnership, resulting in a one-time payment, in the form of a
promissory note, to the holder of the special units upon the
earliest to occur of the following events:
(i)
The listing of our common stock on a national securities
exchange, which we refer to as a “listing liquidity
event.”
(ii)
The termination or non-renewal of the advisory
agreement, which we refer to as an “advisory agreement
termination event”, (a) for “cause,” as defined
in the advisory agreement, (b) in connection with a merger, sale
of assets or transaction involving us pursuant to which a
majority of our directors then in office are replaced or
removed, (c) by our advisor for “good reason,” as
defined in the advisory agreement, or (d) by us or our operating
partnership other than for “cause.”
Upon a listing liquidity event, the one-time payment to the
holder of the special units will be the amount that would have
been distributed with respect to the special units, calculated
as described above, if our operating partnership had distributed
to the holders of common units upon liquidation an amount equal
to the market value of the listed shares based upon the average
closing price or, if the average closing
price is not available, the average of bid and asked prices,
for the 30 day period beginning 150 days after such
listing liquidity event.
Upon an advisory agreement termination event (other than for “cause,” as defined in the advisory agreement), the one-time payment to the holder of the special units will be the amount that would have been distributed with respect to the special units as described above if our operating partnership sold all of its assets for their then fair market values (as determined by appraisal,
except for cash and those assets that can be readily marked to market), paid all of its liabilities and distributed any remaining amount to the holders of common units in liquidation of our operating partnership.
Upon an advisory agreement termination event for “cause,” the one-time cash payment to the holder of the special units will be $1.
Upon a listing liquidity event or an advisory agreement
termination event (other than for “cause”), the
one-time payment to the holder of the special units will be made
in the form of a non- interest bearing promissory note that will
be repaid using the entire net proceeds from each sale of our
operating partnership’s assets in connection with or
following the occurrence of the particular event. Payments may
not be made under a promissory note issued in connection with an
advisory agreement termination event until either (a) the
closing of asset sales that result in aggregate, cumulative
distributions to the holders of common units, including us, in
an amount equal to our capital contributions plus an 8.0%
cumulative non-compounded annual pre-tax return on our net
contributions or (b) a listing liquidity event, each of which we
refer to as a “subsequent liquidity event.” In
addition, the amount of the promissory note issued in connection
with an advisory
agreement termination event will be subject to reduction as of
the date of the subsequent liquidity event by an amount that
will ensure that, in connection with the subsequent liquidity
event, the holder of the promissory note does not receive in
excess of 15.0% of the distributions that are made or are deemed
to be made after holders of common units, including us, have
received or are deemed to have received aggregate, cumulative
distributions equal to our capital contributions plus an 8.0%
cumulative non-compounded annual pre-tax return on our net
contributions.
It is possible that certain of our stockholders would receive
more or less than the 8.0% cumulative non-compounded annual
pre-tax return on net contributions described above prior to the
commencement of distributions to the holder of the special units
or the redemption of the special units.
In addition, it is possible that the holder of the special units
would be entitled to receive more than one 15% distribution. For
example, multiple distributions may be made in circumstances
where there is a disposition of our operating partnership’s
assets followed by either a listing liquidity event or an
advisory agreement termination event (other than for
“cause”).
(1)
The sales commission and dealer manager fee may be reduced or
waived in connection with certain categories of sales, such as
sales for which a volume discount applies, sales through
investment advisors or banks acting as trustees or fiduciaries,
sales to our affiliates and sales under our distribution
reinvestment plan.
(2)
The organizational and offering expense reimbursement consists
of costs incurred by our advisor on our behalf for legal,
accounting, printing and other offering expenses, including for
marketing, salaries and direct expenses of its employees,
employees of its affiliates and others while engaged in
registering and marketing the shares of our common stock, which
shall include development of marketing materials and marketing
presentations, planning and participating in due diligence and
training and education meetings and generally coordinating the
marketing process for us. Any such reimbursements will not
exceed actual expenses incurred by the advisor. Our advisor will
be responsible for the payment of our cumulative organizational
and offering expenses to the extent they exceed 3.0% of the
aggregate gross proceeds from the sale of shares of our common
stock sold in the primary offering on a best efforts basis
without recourse against or reimbursement by us. We have used
$126,155 of the initial capital contributed to us by
our advisor and its affiliates to directly pay the SEC and FINRA
filing fees associated with this offering. As a result, we will
withhold from offering and expense reimbursement payments
otherwise payable to our advisor in connection with this
offering, a total amount equal to the pre-paid offering expense.
After such time as the total amount withheld by us equals the
total pre-paid offering expense, our advisor will then be
eligible to receive reimbursement payments from us. To the
extent that we have not fully recovered the pre-paid offering
expense as a result of withheld reimbursements within one year
from the date the minimum offering requirements are met, our
advisor will be obligated to pay us an amount equal to the
unrecovered portion of the pre-paid offering expense.
(3)
For purposes of the estimated amount, we have assumed no
leverage is used to acquire investments. Our charter limits our
ability to pay acquisition fees if the total of all acquisition
fees and expenses relating to the purchase would exceed 6.0% of
the contract purchase price or total development cost. Under our
charter, a majority of our Board of Directors, including a
majority of the independent directors, would have to approve any
acquisition fees (or portion thereof) which would cause the
total of all acquisition fees and expenses relating to a real
property acquisition to exceed 6.0% of the purchase price.
(4)
Our advisor must reimburse us at least annually for
reimbursements paid to our advisor in any year to the extent
that such reimbursements to our advisor cause our operating
expenses to exceed the greater of (1) 2.0% of our average
invested assets, which generally consists of the average book
value of our real properties before reserves for depreciation or
bad debts and the average book value of securities, or
(2) 25.0% of our net income, which is defined as our total
revenues less total expenses for any given period excluding
reserves for depreciation and bad debt, unless the independent
directors have determined that such excess expenses were
justified based on unusual and non-recurring factors.
“Average invested assets” means the average monthly
book value of our assets invested directly or indirectly in
equity interests and loans secured by real estate during the
12-month
period before deducting depreciation, bad debts or other
non-cash reserves. “Total operating expenses” means
all expenses paid or incurred by us, as determined under GAAP,
that are in any way related to our operation, including asset
management fees, but excluding (a) the expenses of raising
capital such as organizational and offering expenses, legal,
audit, accounting, underwriting, brokerage, registration and
other fees, printing and other such expenses and taxes incurred
in connection with the issuance, distribution, transfer and
registration of shares of our common stock; (b) interest
payments; (c) taxes; (d) non-cash expenditures such as
depreciation, amortization and bad debt reserves;
(e) reasonable incentive fees based on the gain in the sale
of our assets; and (f) acquisition fees, acquisition
expenses (including expenses relating to potential acquisitions
that we do not close), real estate commissions on the resale of
real property and other expenses connected with the acquisition,
disposition, management and ownership of real estate interests,
mortgage loans or other real property (including the costs of
foreclosure, insurance premiums, legal services, maintenance,
repair and improvement of real property).
(5)
Although we are most likely to pay real estate sales commissions
to our advisor or one of its affiliates in our liquidity stage,
these fees may also be earned during our operational stage.
We are subject to various conflicts of interest arising out of
our relationship with our advisor and other affiliates,
including (i) conflicts related to the compensation
arrangements between our advisor, certain affiliates and us,
(ii) conflicts with respect to the allocation of the time
of our advisor and its key personnel and (iii) conflicts
with respect to the allocation of investment opportunities. The
independent directors have an obligation to function on our
behalf in all situations in which a conflict of interest may
arise and will have a fiduciary obligation to act on behalf of
the stockholders. The material conflicts of interest are
discussed below.
C:
Interests
in Other Real Estate Programs
Other than performing services as our advisor, our advisor
presently has no interests in other real estate programs.
However, certain members of our advisor’s management team
are presently, and plan in the future to continue to be,
involved with a number of other real estate programs and
activities sponsored by Insight Real Estate affiliates. Present
activities of these affiliates include:
•
Making investments in the acquisition, ownership, development
and management of office, healthcare, industrial and retail
properties as well as hotels located in various markets;
•
Making investments in the acquisition, ownership, development
and management of multifamily properties; and
•
Making investments in the acquisition, ownership, development
and management of other real estate assets.
Insight Real Estate affiliates are sponsoring or have sponsored
or held for resale 19
tenant-in-common
programs, all of which are still actively raising capital or
acquiring, operating or disposing of assets. An Insight Real
Estate affiliate is also currently sponsoring an opportunity
fund. None of these programs compete directly with us.
Our advisor and other affiliates are not prohibited from
engaging, directly or indirectly, in any other business or from
possessing interests in any other business venture or ventures,
including businesses and ventures involved in the acquisition,
ownership, development, management, leasing or sale of real
property. None of the Insight Real Estate affiliates are
prohibited from raising money for another entity that makes the
same types of investments that we target, and we may co-invest
with any such entity. All such potential co-investments will be
subject to approval by our independent directors.
C:
Allocation
of Our Advisor’s Time
We rely on our advisor and its affiliates to manage our
day-to-day activities and to implement our investment strategy.
Certain of our advisor’s affiliates, including its
principals, are presently, and plan in the future to continue to
be, and our advisor plans in the future to be, involved with
real estate programs and activities which are unrelated to us.
As a result of these activities, our advisor, its employees and
certain of its affiliates will have conflicts of interest in
allocating their time between us and other activities in which
they are or may become involved. Our advisor and its employees
will devote only as much of its time to our business as our
advisor, in its judgment, determines is reasonably required,
which may be substantially less than its full time. Therefore,
our advisor and its employees may experience conflicts of
interest in allocating management time, services, and functions
among us and other Insight Real Estate affiliates and any other
business ventures in which they or any of their key personnel,
as applicable, are or may become involved. This could result in
actions that are more favorable to other Insight Real Estate
affiliates than to us. However, our advisor believes that it and
its affiliates have sufficient personnel to discharge fully
their responsibilities to all of the Insight Real Estate
affiliated activities in which they are involved.
Competition
We may compete with other Insight Real Estate affiliates for
opportunities to acquire or sell real properties in certain
geographic areas. As a result of this competition, certain
investment opportunities may
not be available to us. We and our advisor have developed
procedures to resolve potential conflicts of interest in the
allocation of investment opportunities between us and Insight
Real Estate affiliates. Our advisor will be required to provide
information to our board of directors to enable the board,
including the independent directors, to determine whether such
procedures are being fairly applied. See “Conflicts of
Interest — Conflict Resolution Procedures” for a
description of how investment opportunities will be allocated
between us and Insight Real Estate affiliates.
Certain of our advisor’s affiliates currently own
and/or
manage properties in geographic areas in which we expect to
acquire real properties. Conflicts of interest will exist to the
extent that we own and /or manage real properties in the same
geographic areas where real properties owned or managed by other
Insight Real Estate affiliates are located. In such a case, a
conflict could arise in the leasing of real properties in the
event that we and another Insight Real Estate affiliate were to
compete for the same tenants in negotiating leases, or a
conflict could arise in connection with the resale of real
properties in the event that we and another Insight Real Estate
affiliate were to attempt to sell similar real properties at the
same time. Conflicts of interest may also exist at such time as
we or our affiliates managing real property on our behalf seek
to employ developers, contractors or building managers.
C:
Affiliated
Dealer Manager
At such time as IRE Investments assumes from 1st Worldwide
Financial the position of our dealer manager, our dealer manager
will be one of our affiliates. This relationship may create
conflicts of interest in connection with the performance of due
diligence by our dealer manager. When it becomes our dealer
manager, IRE Investments will not make an independent due
diligence review and investigation of our company or this
offering of the type normally performed by an unaffiliated,
independent underwriter in connection with the offering of
securities. Accordingly, you do not have the benefit of such
independent review and investigation. IRE Investments will not
be prohibited from acting in any capacity in connection with the
offer and sale of securities offered by Insight Real Estate
affiliates that may have investment objectives similar to ours.
Affiliated
Property Manager
Our property manager will perform property management services
for us and our operating partnership. Our property manager is
affiliated with our advisor, and in the future there is
potential for a number of the members of our advisor’s
management team and our property manager to overlap. As a
result, we will not have the benefit of independent property
management to the same extent as if our advisor and our property
manager were unaffiliated and did not share any employees or
managers. In addition, given that our property manager is
affiliated with us and our advisor, our agreements with our
property manager will not be at arm’s-length. Therefore, we
will not have the benefit of arm’s-length negotiations of
the type normally conducted between unrelated parties.
C:
Lack
of Separate Representation
Alston & Bird LLP is counsel to us in connection with
this offering and serves as counsel to our operating
partnership, our advisor, our dealer manager and certain
affiliates of our advisor in connection with this offering and
may continue to do so in the future. In addition, Chris Sawyer,
a partner of Alston & Bird LLP, serves on the Green
Advisory Council. Baker & McKenzie LLP has acted as
our special U.S. federal income tax counsel in connection
with this offering and is counsel to our operating partnership,
our advisor, our dealer manager and certain affiliates of our
advisor in connection with this offering and may in the future
act as counsel for each such company. Venable LLP also serves as
our special counsel and as counsel to our advisor and certain
affiliates of our advisor in connection with this offering and
matters under Maryland law. There is a possibility that in the
future the interests of the various parties may become adverse.
In the event that a dispute were to arise between us, our
operating partnership, our advisor, or any of their affiliates,
separate counsel for such parties would be retained as and when
appropriate.
Subject to approval by our board of directors and the separate
approval of our independent directors, we may enter into joint
ventures or other arrangements with our affiliates to acquire,
develop and /or manage real properties. Our advisor and its
affiliates may have conflicts of interest in determining which
of such entities should enter into any particular joint venture
agreement. Our joint venture partners may have economic or
business interests or goals that are or that may become
inconsistent with our business interests or goals. In addition,
should any joint venture be consummated, our advisor may face a
conflict in structuring the terms of the relationship between
our interests and the interest of the affiliated joint venture
partner and in managing the joint venture. Since our advisor
will make investment decisions on our behalf, agreements and
transactions between our advisor’s affiliates and us as
joint venture partners with respect to any such joint venture
will not have the benefit of arm’s-length negotiations of
the type normally conducted between unrelated parties.
C:
Fees
and Other Compensation to Our Advisor and its
Affiliates
A transaction involving the purchase and sale of real properties
may result in the receipt of commissions, fees and other
compensation by our advisor and its affiliates and partnership
distributions to our advisor and its affiliates, including
acquisition fees, property management and leasing fees, real
estate brokerage commissions and participation in
non-liquidating net sale proceeds. None of the agreements that
provide for fees and other compensation to our advisor and its
affiliates will be the result of arm’s-length negotiations.
All such agreements, including our advisory agreement, require
approval by a majority of our board of directors, including a
majority of the independent directors, not otherwise interested
in such transactions, as being fair and reasonable to us and on
terms and conditions no less favorable than those that could be
obtained from unaffiliated entities. The timing and nature of
fees and compensation to our advisor or its affiliates could
create a conflict between the interests of our advisor or its
affiliates and those of our stockholders. However, certain fees
and distributions (but not expense reimbursements) payable to
our advisor and its affiliates relating to the sale of
properties are subordinated to the return to the stockholders or
partners of our operating partnership of their capital
contributions plus cumulative noncompounded annual returns on
such capital.
Subject to oversight by the board of directors, our advisor has
considerable discretion with respect to all decisions relating
to the terms and timing of all transactions. Therefore, our
advisor may have conflicts of interest concerning certain
actions taken on our behalf, particularly due to the fact that
fees such as the asset management fees payable to our advisor,
property management fees payable to our property manager and
acquisition fees payable to our advisor will generally be
payable regardless of the quality of the real properties or real
estate related investments acquired, the services provided to us
or whether we make distributions to our stockholders.
Each transaction we enter into with our advisor or its
affiliates is subject to an inherent conflict of interest. The
board of directors may encounter conflicts of interest in
enforcing our rights against any affiliate in the event of a
default by or disagreement with an affiliate or in invoking
powers, rights or options pursuant to any agreement between us
and any affiliate. The independent directors who are also
otherwise disinterested in the transaction must approve each
transaction between us and our advisor or any of its affiliates
as being fair and reasonable to us and on terms and conditions
no less favorable to us than those available from unaffiliated
third parties.
C:
Conflict
Resolution Procedures
We are subject to potential conflicts of interest arising out of
our relationship with our advisor and its affiliates. These
conflicts may relate to compensation arrangements, the
allocation of investment opportunities, the terms and conditions
on which various transactions might be entered into by us and
our advisor or its affiliates and other situations in which our
interests may differ from those of our advisor or its
affiliates. The procedures set forth below have been adopted by
us to address these potential conflicts of interest.
In the advisory agreement, our sponsor has agreed that we will
have the first opportunity to acquire any green property
investment identified by our sponsor or our advisor that is
stabilized and income-producing, for which we have sufficient
uninvested funds. Our sponsor and our advisor will make this
determination in good faith. Our board of directors, including
the independent directors, has a duty to ensure that the method
used by our advisor and our sponsor for the allocation of the
acquisition of properties shall be reasonable and is applied
fairly to us.
Independent
Directors
Our independent directors, acting as a group, will resolve
potential conflicts of interest whenever they determine that the
exercise of independent judgment by the board of directors or
our advisor or its affiliates could reasonably be compromised.
However, the independent directors may not take any action
which, under Maryland law, must be taken by the entire board or
which is otherwise not within their authority. The independent
directors, as a group, are authorized to retain their own legal
and financial advisors. Among the matters we expect the
independent directors to review and act upon are:
•
The continuation, renewal or enforcement of our agreements with
our advisor and its affiliates, including the advisory agreement
and the agreement with our dealer manager;
•
Transactions with affiliates, including our directors and
officers;
•
Awards under our long-term incentive plan; and
•
Pursuit of a potential liquidity event.
Those conflict of interest matters that cannot be delegated to
the independent directors, as a group, under Maryland law must
be acted upon by both the board of directors and the independent
directors.
Compensation
Involving Our Advisor and its Affiliates
The independent directors will evaluate at least annually
whether the compensation that we contract to pay to our advisor
and its affiliates is reasonable in relation to the nature and
quality of services performed and that such compensation is
within the limits prescribed by our charter. The independent
directors will supervise the performance of our advisor and its
affiliates and the compensation we pay to them to determine that
the provisions of our compensation arrangements are being
carried out. This evaluation will be based on the factors set
forth below as well as any other factors deemed relevant by the
independent directors:
•
The quality and extent of the services and advice furnished by
our advisor;
•
The amount of fees paid to our advisor in relation to the size,
composition and performance of our investments;
•
The success of our advisor in generating investment
opportunities that meet our investment objectives;
•
Rates charged to other externally advised REITs and similar
investors by advisors performing similar services; and
•
Additional revenues realized by our advisor and its affiliates
through their relationship with us, whether we pay them or they
are paid by others with whom we do business.
Acquisitions
Involving Affiliates
We will not purchase or lease real properties in which our
advisor or its affiliates or any of our directors or officers
has an interest without a determination by a majority of the
directors not otherwise interested in the transaction (including
a majority of the independent directors) that such transaction
is fair and reasonable to us and at a price to us no greater
than the cost of the property to our advisor or its affiliates
unless there is substantial justification for any amount that
exceeds such cost and such excess amount is determined to be
reasonable. In no event will we acquire any such property at an
amount in excess of its appraised value. Our
advisor has agreed to waive the acquisition fees for any
property we acquire from any of our affiliates. We will not sell
or lease real properties to our advisor or its affiliates or to
our directors unless a majority of the directors not otherwise
interested in the transactions (including a majority of the
independent directors) determine the transaction is fair and
reasonable to us.
Mortgage
Loans Involving Affiliates
Our charter prohibits us from investing in or making mortgage
loans in which the transaction is with our advisor or our
directors or officers or any of their affiliates unless an
independent expert appraises the underlying property. We must
keep the appraisal for at least five years and make it available
for inspection and duplication by any of our stockholders. In
addition, we must obtain a mortgagee’s or owner’s
title insurance policy or commitment as to the priority of the
mortgage or the condition of the title. Our charter prohibits us
from making or investing in any mortgage loans that are
subordinate to any lien or other indebtedness of our advisor,
our directors, our officers or any of their affiliates.
Issuance
of Options and Warrants to Certain Affiliates
Our charter prohibits the issuance of options or warrants to
purchase our common stock to our advisor, our directors or
officers or any of their affiliates (i) on terms more
favorable than we would offer such options or warrants to
unaffiliated third parties or (ii) in excess of an amount
equal to 10% of our outstanding common stock on the date of
grant.
Repurchase
of Shares of Common Stock
Our charter prohibits us from paying a fee to our advisor or our
directors or officers or any of their affiliates in connection
with our repurchase or redemption of our common stock.
Loans
and Expense Reimbursements Involving Affiliates
We will not make any loans to our advisor or to our directors or
officers or any of our other affiliates. In addition, we will
not borrow from these affiliates unless the independent
directors approve the transaction as being fair, competitive and
commercially reasonable, and no less favorable to us than
comparable loans between unaffiliated parties. These
restrictions on loans will only apply to advances of cash that
are commonly viewed as loans, as determined by the board of
directors. By way of example only, the prohibition on loans
would not restrict advances of cash for legal expenses or other
costs incurred as a result of any legal action for which
indemnification is being sought, nor would the prohibition limit
our ability to advance reimbursable expenses incurred by
directors or officers or our advisor or its affiliates.
In addition, our directors and officers and our advisor and its
affiliates shall be entitled to reimbursement, at cost, for
actual expenses incurred by them on behalf of us or joint
ventures in which we are a joint venture partner, subject to the
limitation on reimbursement of operating expenses to the extent
that they exceed the greater of 2% of our average invested
assets or 25% of our net income, as described in this prospectus
under the caption “Management — The Advisory
Agreement.”
The information presented in this section represents the
historical experience of real estate programs sponsored or
advised by our sponsor, Insight Real Estate, and its affiliates,
which we refer to as “prior real estate programs.” The
following summary is qualified in its entirety by reference to
the Prior Performance Tables, which may be found in
Appendix A of this prospectus. Investors in our shares of
common stock should not assume that they will experience
returns, if any, comparable to those experienced by investors in
such prior real estate programs. Investors who purchase our
shares of common stock will not thereby acquire any ownership
interest in any of the entities to which the following
information relates.
The returns to our stockholders will depend in part on the
mix of product in which we invest, the stage of investment and
our place in the capital structure for our investments. As our
portfolio is unlikely to mirror in any of these respects the
portfolios of the prior real estate programs, the returns to our
stockholders will vary from those generated by those prior real
estate programs. In addition, all of the prior real estate
programs were conducted through privately-held entities that
were not subject to either the up-front commissions, fees and
expenses associated with this offering or many of the laws and
regulations to which we will be subject. We are also the first
program sponsored by Insight Real Estate or any of its
affiliates that has investment objectives permitting the making
or acquiring of mortgage loans or mezzanine loans. Neither
Insight Real Estate nor any of its affiliates has experience
making such investments or in operating a REIT or a publicly
offered investment program. As a result, you should not assume
the past performance of the prior real estate programs will be
indicative of our future performance. See “Risk
Factors — Risks Related To Our Business — We
have no prior operating history, and there is no assurance that
we will be able to successfully achieve our investment
objectives” and the Prior Performance Tables located in
Appendix A.
C:
Prior
Investment Programs
Insight Real Estate was formed in September 2007 to sponsor
public and private real estate programs. Insight Real Estate is
majority owned and managed by Wayne R. Hannah III, who is part
of our advisor’s management team. Messrs. Hannah and
Jeffrey C. Plack own a majority of Tax Strategies Group, LLC, or
Tax Strategies Group, which is the parent company of TSG Real
Estate, LLC, or TSG Real Estate. Tax Strategies Group was
founded in 2001 and since 2002, has sponsored or held for resale
19 privately offered prior real estate programs, all of which
were
tenant-in-common
programs. Tax Strategies Group also buys and sells properties,
but we do not believe such activities constitute real estate
programs because no investors are involved. As of
December 31, 2006, such prior real estate programs have
raised approximately $137 million from 300 investors. None
of the 19
tenant-in-common
programs have investment objectives that are similar to ours.
This is the first publicly offered real estate program sponsored
by Insight Real Estate and neither of Tax Strategies Group or
TSG Real Estate has previously sponsored a publicly offered real
estate program.
The objectives of
tenant-in-common
offerings differ from those of a REIT. A
tenant-in-common
offering is designed to allow investors the ability to acquire
an undivided fractional fee simple interest in real estate and
assume a proportional share of non-recourse debt. In contrast, a
REIT offering allows investors to acquire shares in a corporate
entity. While both REITs and tenant-in-common offerings acquire
ownership interests in real estate, the nature of a REIT
stockholder’s investment is fundamentally different from an
investor acquiring a direct fee simple interest in real estate,
as occurs in a
tenant-in-common
offering. Furthermore, the goals of an investor in a REIT are
substantially different from the goals of an investor in a
tenant-in-common
transaction. A
tenant-in-common
investor, for example, frequently has as a primary investing
goal, the deferral of capital gains tax liability through the
use of a like kind exchange under Code Section 1031. This
tax deferral mechanism is not available to the REIT investor.
Furthermore, although REIT investors and
tenant-in-common
investors both share a goal of receipt of income over the life
of their investment, REIT investors are subject to more
irregular distributions in the nature of dividends related to
the uncertainty of the portfolio acquired by the blind pool
REIT, while
tenant-in-common
investors receive a fixed income stream over the life of their
investment based on a single property identified prior to the
investment. REIT investors rely heavily on the performance of
the sponsor in selecting a portfolio of real estate assets which
will cause the net asset value of their shares to increase over
the term of the investment, while
tenant-in-common
investors are concerned with the appreciation of one particular
asset due to that asset’s real estate fundamentals.
Finally, the goals of our investment strategy are focused on
environmentally-friendly or green properties; the investment
strategy of tenant-in-common programs, including those sponsored
by TSG Real Estate, is not so narrowly defined.
The following table sets forth information on the 19 programs
sponsored by Tax Strategies Group.
Name of Program
Type of Program
Launch Year
Program Status
4400 Matthew Drive
Tenant in Common
2002
Operating
Lowe’s Buffalo Square
Tenant in Common
2002
Operating
The Landings
Tenant in Common
2003
Operating
Elk Lakes
Tenant in Common
2003
Operating
Tarrant Parkway
Tenant in Common
2003
Operating
Briargate Prime Center
Tenant in Common
2004
Operating
Hidden Hills Apartments
Tenant in Common
2004
Operating
University Club at Howard
Tenant in Common
2004
Operating
Forest Park Plaza
Tenant in Common
2004
Operating
One Corporate Drive
Tenant in Common
2005
Operating
The Arboretum Apartments
Tenant in Common
2005
Operating
Townhall Industrial Building
Tenant in Common
2005
Operating
Midwest Manufacturing
Tenant in Common
2005
Operating
Iowa Logistics I
Tenant in Common
2006
Operating
211 W. Wisconsin
Tenant in Common
2005
Operating
Iowa Logistics II
Tenant in Common
2006
Operating
CarMax I — Tennessee
Tenant in Common
2006
Operating —
Partial Unsold
CarMax I — Texas
Tenant in Common
2006
Operating —
Partial Unsold
CarMax II — Florida
Tenant in Common
2006
Operating —
Partial Unsold
We intend to conduct this offering in conjunction with existing
and future offerings by other public and private real estate
entities sponsored by Insight Real Estate. In addition, Tax
Strategies Group and TSG Real Estate intend to continue to
sponsor
tenant-in-common
programs and other real estate ventures and investment programs.
To the extent that such entities have the same or similar
objectives as ours or involve similar or nearby properties, such
entities may be in competition with the properties we acquire or
seek to acquire. See “Conflicts of Interest” for
additional information.
The Prior Performance Tables included in Appendix A to this
prospectus set forth information as of the dates indicated
regarding certain prior real estate programs as to
(1) experience in raising and investing funds (Table I);
(2) compensation to the sponsor (Table II); and
(3) operating results of the prior real estate programs
(Table III).
C:
Summary
Information
Capital
Raising
The total amount of funds raised from investors in the prior
real estate programs as of December 31, 2006, was
approximately $137 million. These funds were invested in
real estate with an aggregate cost, including debt and
investments of joint venture partners, of approximately
$413 million. The total number of investors in these prior
real estate programs, collectively, is 300. See Table I and
Table II for more detailed information about Insight Real
Estate’s experience in raising and investing funds and
compensation paid to Insight Real Estate and its affiliates as
the sponsor of these programs.
The prior real estate programs had acquired 26 properties
between December 31, 2002 and December 31, 2006. The
table below gives further information about these properties:
Properties Purchased
(As a percentage of
Location
aggregate purchase price)
United States
100
%
Pacific Coast
0
%
West
19
%
Plains States
51
%
South Central
16
%
Southeast
8
%
Northeast
6
%
The following table gives a percentage breakdown of the
aggregate amount of the acquisition and development costs of the
properties purchased by the prior real estate programs,
categorized by type of property, as of September 30, 2007,
all of which were existing.
New
Existing
Construction
Commercial:
Office Buildings
0
%
23
%
0
%
Industrial Buildings
0
%
21
%
0
%
Shopping Centers
0
%
18
%
0
%
Automotive Retail
0
%
22
%
0
%
Residential:
Apartments
0
%
16
%
0
%
Hotels
0
%
0
%
0
%
Homebuilding
0
%
0
%
0
%
Land Development
0
%
0
%
0
%
Resort Residential
0
%
0
%
0
%
Total
0
%
100
%
0
%
Dispositions
As of December 31, 2006, these prior real estate programs
had not sold any of the 26 properties to third parties.
C:
Three
Year Summary of Acquisitions
From December 31, 2003 through December 31, 2006, the
prior real estate programs acquired 7 retail properties, 3
apartment properties, 3 office properties and 8 industrial
properties. The total acquisition costs of these properties were
approximately $327 million, of which $198 million, or
61%, was financed with mortgage financing. The remaining
$129 million was provided by investors. The locations of
these properties, and the number of each property in each
location, are as follows: Colorado, 1; Illinois, 1; Indiana, 2;
Michigan, 4; Iowa, 5; Wisconsin, 1; Texas, 2; Tennessee 2;
Florida, 2; and New York, 1.
Because none of the prior real estate programs have investment
objectives similar to ours, we have not included Table VI in
Part II of the registration statement of which this
prospectus is a part.
The prior real estate programs have occasionally been adversely
affected by vacancies either due to defaults of tenants under
their leases or the expiration or termination of tenant leases.
Where vacancies have continued for a long period of time, these
programs suffered reduced revenues resulting in less cash
distributed to investors. In addition, the resale value of such
properties may have diminished as the market value of a
particular property often depends principally upon the value of
the leases of such property. Of the offerings listed under
“Prior Performance Summary — Prior Investment
Programs,” our three collegiate housing facilities in
Kalamazoo, Michigan, which correspond to our Hidden Hills
Apartments, University Club at Howard and The Arboretum
Apartments programs, have suffered impairment due to significant
reductions in the enrollment at Western Michigan University and
the resulting market impact to student housing occupancy levels.
Enrollment suffered due to a number of events including
significant unemployment and economic malaise in the state of
Michigan and certain changes to the administration of Western
Michigan University.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We are a newly formed company and have no operating history. We
are dependent upon proceeds received from the offering to
conduct our proposed activities. The capital required to
purchase any real property will be obtained from the offering
and from any mortgage indebtedness that we may incur in
connection with the acquisition of any property or thereafter.
We have initially been capitalized with $1 million from the
sale of 110,497 shares to Insight Real Estate. We have no
commitments to acquire any property or to make any other
material capital expenditures. For information concerning the
anticipated use of proceeds from the offering, see
“Estimated Use of Proceeds.”
We will experience a relative increase in liquidity as
additional subscriptions for shares of our common stock are
received and a relative decrease in liquidity as offering
proceeds are used to acquire and operate real properties.
Our advisor may, but is not required to, establish working
capital reserves from offering proceeds, out of cash flow
generated by operating assets or out of proceeds from the sale
of assets. Working capital reserves are typically utilized to
fund tenant improvements, leasing commissions and major capital
expenditures. Our lenders also may require working capital
reserves.
To the extent that the working capital reserve is insufficient
to satisfy our cash requirements, additional funds may be
provided from cash generated from operations or through
short-term borrowing. In addition, subject to the limitations
described in this prospectus, we may incur indebtedness in
connection with the acquisition of any property, refinance the
debt thereon, arrange for the leveraging of any previously
unfinanced property or reinvest the proceeds of financing or
refinancing in additional properties. See “Investment
Objectives, Strategies and Policies.”
If we qualify as a REIT for federal income tax purposes, we
generally will not be subject to federal income tax on income
that we distribute to our stockholders. If we fail to qualify as
a REIT in any taxable year after the taxable year in which we
initially elect to be taxed as a REIT, we will be subject to
federal income tax on our taxable income at regular corporate
rates and will not be permitted to qualify for treatment as a
REIT for federal income tax purposes for four years following
the year in which qualification is denied. Failing to qualify as
a REIT could materially and adversely affect our net income.
C:
Liquidity
and Capital Resources
Our principal demand for funds will be to acquire real
properties, to pay operating expenses and interest on our
outstanding indebtedness and to make distributions to our
stockholders. We intend to use cash flows from operations to
fund any tenant improvements or green building initiatives;
provided, however, that if funds from operations are not
available, funds from net sale proceeds in non-liquidating sale
transactions, financing sources or any established reserves will
be used. Over time, we intend to generally fund our cash needs
for items, other than asset acquisitions, from operations. Our
cash needs for acquisitions and investments will be funded
primarily from the sale of shares of our common stock, including
those offered for sale through our distribution reinvestment
plan and through the assumption of debt. There may be a delay
between the sale of shares of our common stock and our purchase
of assets, which could result in a delay in the benefits to our
stockholders, if any, of returns generated from our investment
operations. Our advisor, subject to the oversight of the
investment committee and the board of directors, will evaluate
potential acquisitions and will engage in negotiations with
sellers and lenders on our behalf. If necessary, we may use
financings or other sources of capital in the event of
unforeseen significant capital expenditures. We have not
identified any sources for these types of financings.
We may release offering proceeds from escrow upon the sale in
this offering of $2,000,000 in shares of our common stock. As a
result, the amount of proceeds we raise in this offering may be
substantially less than the amount we would need to achieve a
broadly diversified portfolio. Our inability to raise
substantial funds would increase our fixed operating expenses as
a percentage of gross income, and our financial condition and
ability to make distributions could be adversely affected.
Additionally, if we are unable to raise substantially more than
the minimum offering amount of $2,000,000, we will make fewer
investments, resulting in less diversification in terms of the
number of investments owned, the geographic regions in which our
real property investments are located and the types of
investments that we make.
C:
Results
of Operations
As of the date of this prospectus, we are in our organizational
and development stage and have not commenced operations.
Inflation
With the exception of leases with tenants in multifamily
properties, we expect to include provisions in our tenant leases
designed to protect us from the impact of inflation. These
provisions will include reimbursement billings for operating
expense pass-through charges, real estate tax and insurance
reimbursements, or in some cases, annual reimbursement of
operating expenses above a certain allowance. Due to the
generally long-term nature of these leases, annual rent
increases may not be sufficient to cover inflation and rent may
be below market. Leases in multifamily properties generally turn
over on an annual basis and do not typically present the same
issue regarding inflation protection due to their short-term
nature. See “Risk Factors — Risks Related to Our
Business and Risk Factors — Risks Relating to Our
Organizational Structure” for additional discussion on
inflation and other economic conditions that could affect your
investment.
C:
Critical
Accounting Policies
General
Our accounting policies have been established to conform with
generally accepted accounting principles in the United States of
America, or “GAAP.” The preparation of financial
statements in conformity with GAAP requires management to use
judgment in the application of accounting policies, including
making estimates and assumptions. These judgments affect the
reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses
during the reporting periods. If management’s judgment or
interpretation of the facts and circumstances relating to
various transactions is different, it is possible that different
accounting policies will be applied or different amounts of
assets, liabilities, revenues and expenses will be recorded,
resulting in a different presentation of the financial
statements or different amounts reported in the financial
statements. Additionally, other companies may utilize different
estimates that may impact comparability of our results of
operations to those of companies in similar businesses. Below is
a discussion of the accounting policies that management
considers to be most critical once we commence significant
operations. These policies require complex judgment in their
application or estimates about matters that are inherently
uncertain.
Valuation
and Allocation of Real Property Acquisitions
Upon acquisition, the purchase price of a real property and
other costs associated with the acquisition, such as the
acquisition fee paid to our advisor, will be capitalized and
allocated to land, building, land improvements, tenant
improvements and other intangible assets and associated
liabilities as required by Statement of Financial Standards,
which we refer to as “SFAS,” No. 141
“Business Combinations.” The allocation to land,
building, land improvements and tenant improvements will be
based on management’s estimate of the real property’s
fair value on
as-if-vacant
basis based on all available information. The allocation to
intangible lease assets, as required by SFAS No. 141,
represents the value associated with the in-place leases,
including leasing commissions, legal and other related costs.
Also, SFAS No. 141 requires the creation of an
intangible asset or liability resulting from in-place leases
being above or below the market rental rates on the date of the
acquisition. This asset or liability will be amortized or
accreted over the life of the remaining in-place leases as an
adjustment of revenue. Valuation and allocation of real property
acquisitions is considered a critical accounting policy because
the determination of the value and allocation of the cost of a
real property acquisition involves a number of management’s
assumptions relating to, among other things, the ability to
lease vacant space, market rental rates, the term of new leases,
property operating expenses, depreciable lives of the various
assets and leasing commissions. All of the aforementioned
factors
will be taken as a whole by management in determining the
valuation and allocation of the costs of real estate
acquisitions. The valuation and allocation is sensitive to the
actual results of any of theses uncertain factors, either
individually or taken as a whole. Should the actual results
differ from management’s judgment, the valuation and
allocation could be negatively affected and may result in a
negative impact as to the amount of depreciation and
amortization that should have been recorded.
Properties
Real estate assets are stated at cost. Construction and
improvement costs incurred in connection with the development of
new properties or the redevelopment of existing properties are
capitalized to the extent the total carrying value of the
property does not exceed the estimated fair value of the
completed property. Real estate taxes and interest costs
incurred during construction periods are capitalized.
Capitalized interest costs are based on qualified expenditures
and interest rates in place during the construction period.
Capitalized real estate taxes and interest costs are amortized
over lives which are consistent with the constructed assets.
Pre-development costs, which generally include legal and
professional fees and other directly-related third-party costs,
are capitalized as part of the property being developed. In the
event a development is no longer deemed to be probable, the
costs previously capitalized are expensed.
Tenant improvements, either paid directly or in the form of
construction allowances paid to tenants, are capitalized and
depreciated over the applicable lease term. Maintenance and
repairs are charged to expense when incurred. Expenditures for
significant betterments and improvements are capitalized.
Depreciation or amortization expense is computed using the
straight-line method based upon the following estimated useful
lives:
Years
Buildings and improvements
40-45
Equipment and fixtures
5-10
Impairment
of Long-lived Assets
Long-lived assets to be held and used will be reviewed for
impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. We
will periodically evaluate the recoverability of long-lived
assets based on estimated future cash flows and the estimated
liquidation value of such long-lived assets, and provide for
impairment if such undiscounted cash flows are insufficient to
recover the carrying amount of the long-lived asset. If
impaired, the long-lived asset will be written down to its
estimated fair value.
Revenue
Recognition
We will recognize base rental income on a straight-line basis
over the term of each lease. The difference between rental
income earned on a straight-line basis and the cash rent due
under the provisions of the lease agreements will be recorded as
deferred rent receivable and will be included as a component of
accounts and rents receivable in the accompanying consolidated
balance sheets. We anticipate collecting these amounts over the
terms of the leases as scheduled rent payments are made.
Reimbursements from tenants for recoverable real estate tax and
operating expenses will be accrued as revenue in the period the
applicable expenses are incurred. We will make certain
assumptions and judgments in estimating the reimbursements at
the end of each reporting period. In conjunction with certain
acquisitions, we may receive payments under master lease
agreements pertaining to certain non-revenue producing spaces
either at the time of, or subsequent to, the purchase of some of
our properties. Upon receipt of the payments, the receipts will
be recorded as a reduction in the purchase price of the related
properties rather than as rental income. These master leases may
be established at the time of purchase in order to mitigate the
potential negative effects of loss of rent and expense
reimbursements. Master lease payments will be received through a
draw of funds escrowed at the time of purchase and may cover a
period from one to three years. Revenue will be recorded when
funds are drawn from escrow. These funds may be released to
either us or the seller when certain leasing conditions are met.
Restricted cash will include funds received by third party
escrow agents, from sellers, pertaining to
master lease agreements. We will record such escrows as both an
asset and a corresponding liability, until certain leasing
conditions are met. We will accrue lease termination income if
there is a signed termination letter agreement, all of the
conditions of the agreement have been met, and the tenant is no
longer occupying the property.
Allowance
for Accounts and Rents Receivable
We will take into consideration certain factors that require
judgments to be made as to the collectibility of receivables.
Collectibility factors taken into consideration are the amounts
outstanding, payment history and financial strength of the
tenant, which taken as a whole determines the allowance for
unrecoverable receivables.
C:
REIT
Compliance
In order to qualify as a REIT for tax purposes, we will be
required to distribute at least 90% of our REIT taxable income
to our stockholders. We must also meet certain asset and income
tests, as well as other requirements. We will monitor the
business and transactions that may potentially impact our REIT
status. If we fail to qualify as a REIT in any taxable year, we
will be subject to federal income tax (including any applicable
alternative minimum tax) on our taxable income at regular
corporate rates.
Distributions
We intend to make regular cash distributions to our
stockholders, typically on a monthly basis. The actual amount
and timing of distributions will be determined by our board of
directors in its discretion and typically will depend on the
amount of funds available for distribution, which is impacted by
current and projected cash requirements, tax considerations and
other factors. As a result, our distribution rate and payment
frequency may vary from time to time. However, in order to
qualify as a REIT for tax purposes, we must make distributions
equal to at least 90% of our “REIT taxable income”
each year.
C:
Quantitative
and Qualitative Disclosures about Market Risk
We may be exposed to interest rate changes primarily as a result
of long-term debt used to maintain liquidity, fund capital
expenditures and expand our investment portfolio and operations.
Market fluctuations in real estate financing may affect the
availability and cost of funds needed to expand our investment
portfolio. In addition, restrictions upon the availability of
real estate financing or high interest rates for real estate
loans could adversely affect our ability to acquire properties
at targeted financing levels and limit the number of properties
we can acquire. In addition, high interest rates and a tight
credit market may impact our ability to dispose of real estate
in the future.
We will seek to limit the impact of interest rate changes on
earnings and cash flows and to lower our overall borrowing
costs. We may use derivative financial instruments to hedge
exposures to changes in interest rates on loans secured by our
assets. Also, we will be exposed to both credit risk and market
risk. Credit risk is the failure of the counterparty to perform
under the terms of the derivative contract. If the fair value of
a derivative contract is positive, the counterparty will owe us,
which creates credit risk for us. If the fair value of a
derivative contract is negative, we will owe the counterparty
and, therefore, do not have credit risk. We will seek to
minimize the credit risk in derivative instruments by entering
into transactions with high-quality counterparties. Market risk
is the adverse effect on the value of a financial instrument
that results from a change in interest rates. The market risk
associated with interest-rate contracts is managed by
establishing and monitoring parameters that limit the types and
degree of market risk that may be undertaken. With regard to
variable rate financing, our advisor will assess our interest
rate cash flow risk by continually identifying and monitoring
changes in interest rate exposures that may adversely impact
expected future cash flows and by evaluating hedging
opportunities. Our advisor will maintain risk management control
systems to monitor interest rate cash flow risk attributable to
both our outstanding and forecasted debt obligations as well as
our potential offsetting hedge positions. While this hedging
strategy will be designed to minimize the impact on our net
income and funds from operations from changes in interest rates,
the overall returns on your investment may be reduced. Our board
of directors has not yet established policies and procedures
regarding our use of derivative financial instruments for
hedging or other purposes.
Our operating partnership was formed on October 29, 2007 to
own real property and real estate related investments that will
be acquired and actively managed by our advisor on our behalf.
We utilize an UPREIT structure generally to enable us to acquire
real property in exchange for common units from owners who
desire to defer taxable gain that would otherwise normally be
recognized by them upon the disposition of their real property
or transfer of their real property to us in exchange for shares
of our common stock or cash. In such a transaction, the property
owner’s goals are accomplished because the owner may
contribute property to our operating partnership in exchange for
common units on a tax-free basis. These owners may also desire
to achieve diversity in their investment and other benefits
afforded to owners of shares of our common stock in a REIT.
We intend to hold substantially all of our assets in our
operating partnership or in subsidiary entities in which our
operating partnership owns an interest, and we intend to make
future acquisitions of real properties using the UPREIT
structure. Further, our operating partnership is structured to
make distributions with respect to common units which are
equivalent to the distributions made to our stockholders.
Finally, a holder of common units may later exchange his common
units for shares of our common stock in a taxable transaction.
For purposes of satisfying the asset and income tests for
qualification as a REIT for federal income tax purposes, the
REIT’s proportionate share of the assets and income of our
operating partnership will be deemed to be assets and income of
the REIT. We are the sole general partner of our operating
partnership. Our advisor has contributed $1,000 to our operating
partnership in exchange for common units, and Insight
Management, LLC has invested $1,000 in exchange for special
units. Our advisor and Insight Management, LLC are currently the
only limited partners. As the sole general partner of our
operating partnership, we have the exclusive power to manage and
conduct the business of our operating partnership.
The following is a summary of certain provisions of the limited
partnership agreement of our operating partnership, which we
refer to as the “operating partnership agreement.”
This summary is qualified by the specific language in the
operating partnership agreement. For more detail, you should
refer to the actual operating partnership agreement, a copy of
which we have filed as an exhibit to the registration statement
of which this prospectus forms a part.
C:
Capital
Contributions
As we accept subscriptions for shares of our common stock, we
will transfer substantially all of the net offering proceeds to
our operating partnership in exchange for common units. However,
we will be deemed to have made capital contributions in the
amount of the gross offering proceeds received from investors,
and our operating partnership will be deemed to have
simultaneously paid the fees, commissions and other costs
associated with the offering.
If our operating partnership requires additional funds at any
time in excess of capital contributions made by us and our
advisor, we may borrow funds from a financial institution or
other lender and lend such funds to our operating partnership on
the same terms and conditions as are applicable to our borrowing
of such funds. In addition, we are authorized to cause our
operating partnership to issue common units for less than fair
market value if we conclude in good faith that such issuance is
in the best interest of our operating partnership and us.
Operations
The operating partnership agreement requires that our operating
partnership be operated in a manner that will enable us to
(1) satisfy the requirements for being classified as a REIT
for federal income tax purposes, unless we otherwise cease to
qualify as a REIT, (2) avoid any federal income or excise
tax liability, and (3) ensure that our operating
partnership will not be classified as a “Publicly Traded
Partnership” for purposes of Section 7704 of the Code,
which classification could result in our operating partnership
being taxed as a
corporation, rather than as a partnership. See “Federal
Income Tax Considerations — Federal Income Tax Aspects
of Our Operating Partnership — Classification as a
Partnership.”
The operating partnership agreement generally provides that,
except as provided below with respect to the special units, our
operating partnership will distribute cash flow from operations
and, except as provided below, net sales proceeds from
disposition of assets, to the partners of our operating
partnership in accordance with their relative percentage
interests, on at least a quarterly basis, in amounts determined
by us as general partner such that a holder of one OP Unit
will generally receive the same amount of annual cash flow
distributions from our operating partnership as the amount of
annual distributions paid to the holder of one share of our
common stock (before taking into account certain tax
withholdings some states may require with respect to the common
units).
Similarly, the operating partnership agreement provides that
income of our operating partnership from operations and, except
as provided below, income of our operating partnership from
disposition of assets, normally will be allocated to the holders
of common units in accordance with their relative percentage
interests such that a holder of one OP Unit will be
allocated income for each taxable year in an amount equal to the
amount of taxable income allocated to us in respect of a holder
of one share of our common stock, subject to compliance with the
provisions of Sections 704(b) and 704(c) of the Code and
corresponding Treasury Regulations. Losses, if any, will
generally be allocated among the partners (other than the holder
of the special units) in accordance with their respective
percentage interests in our operating partnership. Upon the
liquidation of our operating partnership, after payment of debts
and obligations, any remaining assets of our operating
partnership will be distributed in accordance with the
distribution provisions of the operating partnership agreement
to the extent of each partner’s positive capital account
balance. If we were to have a negative balance in our capital
account following a liquidation, we would be obligated to
contribute cash to the operating partnership equal to such
negative balance for distribution to other partners, if any,
having positive balances in their capital accounts.
The holders of the special units will be entitled to
distributions from our operating partnership in an amount equal
to 15% of net sales proceeds received by our operating
partnership on dispositions of its assets and dispositions of
real properties by joint ventures or partnerships in which our
operating partnership owns a partnership interest, after the
other holders of common units, including us, have received, in
the aggregate, cumulative distributions from operating income,
sales proceeds or other sources, equal to their capital
contributions plus a 8% cumulative non-compounded annual pre-tax
return thereon. There will be a corresponding allocation of
realized (or, in the case of redemption, unrealized) profits of
our operating partnership made to the owner of the special units
in connection with the amounts payable with respect to the
special units, including amounts payable upon redemption of the
special units, and those amounts will be payable only out of
realized (or, in the case of redemption, unrealized) profits of
our operating partnership. Depending on various factors,
including the date on which shares of our common stock are
purchased and the price paid for such shares of common stock, a
stockholder may receive more or less than the 8% cumulative
non-compounded annual pre-tax return on their net contributions
described above prior to the commencement of distributions to
the owner of the special units.
In addition to the administrative and operating costs and
expenses incurred by our operating partnership in acquiring and
operating real properties and in acquiring and managing real
estate related investments, our operating partnership will pay
all our administrative costs and expenses and such expenses will
be treated as expenses of our operating partnership. Such
expenses will include:
•
All expenses relating to the formation and continuity of our
existence;
•
All expenses relating to our public offering and registration of
securities;
•
All expenses associated with the preparation and filing of any
periodic reports by us under federal, state or local laws or
regulations;
•
All expenses associated with compliance by us with applicable
laws, rules and regulations; and
All our other operating or administrative costs incurred in the
ordinary course of our business on behalf of our operating
partnership.
C:
Redemption Rights
The holders of common units (other than us, our advisor and the
holder of the special units) generally have the right to cause
our operating partnership to redeem all or a portion of their
common units for, at our sole discretion, shares of our common
stock, cash or a combination of both. If we elect to redeem
common units for shares of our common stock, we will generally
deliver one share of our common stock for each OP Unit
redeemed. If we elect to redeem common units for cash, the cash
delivered will generally equal the amount the limited partner
would have received if its common units were redeemed for shares
of our common stock and then such shares were subsequently
redeemed pursuant to our share redemption program. In connection
with the exercise of these redemption rights, a limited partner
must make certain representations, including that the delivery
of shares of our common stock upon redemption would not result
in such limited partner owning shares in excess of the ownership
limits in our charter. The special units will be redeemed for a
specified amount upon the earliest of: (a) the occurrence
of certain events that result in the termination or non-renewal
of the advisory agreement, or (b) a listing liquidity
event. See “Management — Management
Compensation.”
Subject to the foregoing, holders of common units (other than
our advisor and the holders of the special units) may exercise
their redemption rights at any time after one year following the
date of issuance of their common units; provided, however, that
a holder of common units may not deliver more than two
redemption notices in a single calendar year and may not
exercise a redemption right for less than 1,000 common units,
unless such holder holds less than 1,000 common units, in which
case, it must exercise its redemption right for all of its
common units.
C:
Transferability
of Operating Partnership Interests
We may not (1) voluntarily withdraw as the general partner
of our operating partnership, (2) engage in any merger,
consolidation or other business combination, or
(3) transfer our general partnership interest in our
operating partnership (except to a wholly-owned subsidiary),
unless the transaction in which such withdrawal, business
combination or transfer occurs results in the holders of common
units receiving or having the right to receive an amount of
cash, securities or other property equal in value to the amount
they would have received if they had exercised their exchange
rights immediately prior to such transaction (or in the case of
the holder of the special units, the amount of cash, securities
or other property equal to the fair value of the special units)
or unless, in the case of a merger or other business
combination, the successor entity contributes substantially all
of its assets to our operating partnership in return for an
interest in our operating partnership and agrees to assume all
obligations of the general partner of our operating partnership.
We may also enter into a business combination or we may transfer
our general partnership interest upon the receipt of the consent
of a
majority-in-interest
of the holders of common units, other than our advisor and its
affiliates. With certain exceptions, the holders of common units
may not transfer their interests in our operating partnership,
in whole or in part, without our written consent, as general
partner. In addition, our advisor may not transfer its interest
in our operating partnership as long as it is acting as our
advisor.
The following table sets forth the beneficial ownership of our
common stock as of the date of this prospectus for each person
or group that holds more than 5% of our common stock, for each
director and executive officer and for our directors and
executive officers as a group. To our knowledge, each person
that beneficially owns our shares has sole voting and
disposition power with regard to such shares.
Unless otherwise indicated below, each person or entity has an
address in care of our principal executive offices at
120 N. LaSalle Street, 35th Floor, Chicago,
Illinois60602.
Number of Shares
Percent of All
Name of Beneficial Owner(1)
Beneficially Owned(2)
Shares
Insight Real Estate, LLC
110,497
100
%
Wayne R. Hannah III, President, Treasurer, Secretary and Director
110,497
100
%
Lawrence C. Skibo, Vice President, National Sales Director
—
—
Independent Director(3)
Independent Director(3)
Independent Director(3)
Independent Director(3)
All Directors and Executive Officers as a group
110,497
100
%
(1)
Under SEC rules, a person is deemed to be a “beneficial
owner” of a security if that person has or shares
“voting power,” which includes the power to dispose of
or to direct the disposition of such security. A person also is
deemed to be a beneficial owner of any securities which that
person has a right to acquire within 60 days. Under these
rules, more than one person may be deemed to be a beneficial
owner of the same securities and a person may be deemed to be a
beneficial owner of securities as to which he or she has no
economic or pecuniary interest.
(2)
As of the date of this prospectus, Insight Real Estate, LLC owns
all of our issued and outstanding stock. Insight Real Estate,
LLC is majority owned and controlled by Mr. Hannah.
The following is a summary of the material terms of shares of
our common stock as set forth in our charter and is qualified in
its entirety by reference to our charter. Under our charter, we
have authority to issue a total of 1,050,000,000 shares of
capital stock. Of the total number of shares of capital stock
authorized, 1,000,000,000 shares are designated as common
stock with a par value of $0.01 per share, and
50,000,000 shares are designated as preferred stock with a
par value of $0.01 per share. Our board of directors, with the
approval of a majority of the full board and without any action
by our stockholders, may amend our charter from time to time to
increase or decrease the aggregate number of shares of capital
stock or the number of shares of capital stock of any class or
series that we have authority to issue. As of the date of this
prospectus, 110,497 shares of our common stock were issued
and outstanding, and no shares of preferred stock were issued
and outstanding.
C:
Common
Stock
The holders of shares of our common stock are entitled to one
vote per share on all matters voted on by stockholders,
including election of our directors. Our charter does not
provide for cumulative voting in the election of directors.
Therefore, the holders of a majority of the outstanding shares
of our common stock can elect our full board of directors.
Subject to any preferential rights of any outstanding series of
preferred shares, the holders of shares of our common stock are
entitled to such distributions as may be authorized from time to
time by our board of directors out of legally available funds
and declared by us and, upon liquidation, are entitled to
receive all assets available for distribution to stockholders.
All shares of our common stock issued in the offering will be
fully paid and non-assessable shares of common stock. Holders of
shares of our common stock will not have preemptive rights,
which means that you will not have an automatic option to
purchase any new shares of common stock that we issue, or have
appraisal rights. Stockholders are not liable for our
company’s acts or obligations.
We will not issue certificates for shares of our common stock.
Shares of our common stock will be held in
“uncertificated” form which will eliminate the
physical handling and safekeeping responsibilities inherent in
owning transferable share certificates and eliminate the need to
return a duly executed share certificate to effect a transfer.
Wells Fargo Bank, N.A. acts as our registrar and as the transfer
agent for shares of our common stock. Transfers can be effected
simply by mailing a transfer and assignment form, which we will
provide to you at no charge, to:
Wells Fargo
Bank, N.A.
230 West Monroe, Sute 2900 Chicago, IL60603
C:
Preferred
Stock
Our charter authorizes our board of directors to classify and
reclassify any unissued shares of our common stock and preferred
stock into other classes or series of stock. Prior to issuance
of shares of each class or series, the board of directors is
required by the MGCL and by our charter to set, subject to our
charter restrictions on transfer of our stock, the terms,
preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends or other
distributions, qualifications and terms or conditions of
redemption for each class or series. Thus, the board of
directors could authorize the issuance of shares of common stock
or preferred stock with terms and conditions which could have
the effect of delaying, deferring or preventing a transaction or
change in control that might involve a premium price for holders
of our common stock or otherwise be in their best interest. No
preferred stock will be issued without the approval of a
majority of our independent directors who do not have an
interest in the transaction and who have access, at our expense,
to our legal counsel or independent legal counsel. Our board of
directors has no present plans to issue preferred stock, but may
do so at any time in the future without stockholder approval.
Meetings,
Special Voting Requirements and Access To Records
An annual meeting of the stockholders will be held in the month
of July of each year, beginning in July 2009, on a specific
date which will be at least 30 days after delivery of our
annual report. Special meetings of stockholders may be called
only upon the request of a majority of the directors, a majority
of the independent directors, the chairman, the president or
upon the written request of stockholders entitled to cast at
least 10% of the votes entitled to be cast at the meeting. The
presence either in person or by proxy of stockholders entitled
to be cast at least a majority of the votes entitled to be cast
at the meeting on any matter shall constitute a quorum.
Generally, the affirmative vote of a majority of all votes cast
is necessary to take stockholder action, except that a majority
of the votes represented in person or by proxy at a meeting at
which a quorum is present is sufficient to elect a director.
Under the MGCL and our charter, stockholders are generally
entitled to vote at a duly held meeting at which a quorum is
present on (1) the amendment of our charter, (2) our
dissolution, (3) our merger or consolidation or the sale or
other disposition of substantially all of our assets. These
matters require the affirmative vote of stockholders entitled to
cast at least a majority of the cotes entitled to be cast on the
matter.
The advisory agreement, including the selection of our advisor,
is approved annually by our directors including a majority of
the independent directors. While the stockholders do not have
the ability to vote to replace our advisor or to select a new
advisor, stockholders do have the ability, by the affirmative
vote of a majority of the shares of our common stock entitled to
vote on such matter, to remove a director from our board of
directors. Any stockholder shall be permitted access to all our
records at all reasonable times and may inspect and copy any of
them for a reasonable copying charge. Inspection of our records
by the office or agency administering the securities laws of a
jurisdiction shall be provided upon reasonable notice and during
normal business hours. An alphabetical list of the names,
addresses and telephone numbers of our stockholders, along with
the number of shares of our common stock held by each of them,
shall be maintained as part of our books and records and shall
be available for inspection by any stockholder or the
stockholder’s designated agent at our office. The
stockholder list shall be updated at least quarterly to reflect
changes in the information contained therein. A copy of the list
shall be mailed to any stockholder who requests the list within
ten days of the request. A stockholder may request a copy of the
stockholder list in connection with matters relating to voting
rights and the exercise of stockholder rights under federal
proxy laws. A stockholder requesting a list will be required to
pay reasonable costs of postage and duplication. We have the
right to request that a requesting stockholder represent to us
that the list will not be used to pursue commercial interests.
In addition to the foregoing, stockholders have rights under
Rule 14a-7
under the Exchange Act, which provides that, upon the request of
investors and the payment of the expenses of the distribution,
we are required to distribute specific materials to stockholders
in the context of the solicitation of proxies for voting on
matters presented to stockholders or, at our option, provide
requesting stockholders with a copy of the list of stockholders
so that the requesting stockholders may make the distribution of
proxies themselves. If a proper request for the stockholder list
is not honored, then the requesting stockholder shall be
entitled to recover certain costs incurred in compelling the
production of the list as well as actual damages suffered by
reason of the refusal or failure to produce the list. However, a
stockholder shall not have the right to, and we may require a
requesting stockholder to represent that it will not, secure the
stockholder list or other information for the purpose of selling
or using the list for a commercial purpose not related to the
requesting stockholder’s interest in our affairs.
C:
Restriction
On Ownership of Shares of Capital Stock
In order for us to qualify as a REIT, no more than 50% in value
of the outstanding shares of our common stock may be owned,
directly or indirectly through the application of certain
attribution rules under the Code, by any five or fewer
individuals, as defined in the Code to include specified
entities, during the last half of any taxable year. In addition,
the outstanding shares of our common stock must be owned by 100
or more persons independent of us and each other during at least
335 days of a
12-month
taxable year or during a proportionate part of a shorter taxable
year, excluding our first taxable year ending December 31,2007. In addition, we must meet requirements regarding the
nature of our gross income in order to qualify as a REIT. One of
these requirements is that at least 75% of our gross income for
each calendar year must consist of
rents from real property and income from other real property
investments. The rents received by our operating partnership
from any tenant will not qualify as rents from real property,
which could result in our loss of REIT status, if we own,
actually or constructively within the meaning of certain
provisions of the Code, 10% or more of the ownership interests
in that tenant. In order to assist us in preserving our status
as a REIT, our charter contains limitations on the ownership and
transfer of shares of common stock which prohibit: (i) any
person or entity from owning or acquiring, directly or
indirectly, more than 9.8% of the value of our then outstanding
capital stock or more than 9.8% of the value or number of
shares, whichever is more restrictive, of our then outstanding
common stock, (ii) the beneficial ownership of the
outstanding shares of our capital stock by fewer than
100 persons, and (iii) any transfer of or other event
or transaction with respect to shares of capital stock that
would result in the beneficial ownership of our outstanding
shares of capital stock by fewer than 100 persons. In
addition, our charter prohibits any transfer of, or other event
with respect to, shares of our capital stock that (a) would
result in us being “closely held” within the meaning
of Section 856(h) of the Code, (b) would cause us to
own, actually or constructively, 9.9% or more of the ownership
interests in a tenant of our real property or the real property
of our operating partnership or any direct or indirect
subsidiary of our operating partnership or (c) would
otherwise cause us to fail to qualify as a REIT.
Our charter provides that the shares of our capital stock that,
if transferred, would: (i) result in a violation of the
9.8% ownership limit, (ii) result in us being “closely
held” within the meaning of Section 856(h) of the
Code, (iii) cause us to own 9.9% or more of the ownership
interests in a tenant of our real property or the real property
of our operating partnership or any direct or indirect
subsidiary of our operating partnership or (iv) otherwise
cause us to fail to qualify as a REIT, will be transferred
automatically to a trust effective on the day before the
purported transfer of such shares of our capital stock. We will
designate a trustee of the share trust that will not be
affiliated with us or the purported transferee or record holder.
We will also name a charitable organization as beneficiary of
the share trust. The trustee will receive all distributions on
the shares of our capital stock in the same trust and will hold
such distributions or distributions in trust for the benefit of
the beneficiary. The trustee also will vote the shares of
capital stock in the same trust. The intended transferee will
acquire no rights in such shares of capital stock, unless, in
the case of a transfer that would cause a violation of the 9.8%
ownership limit, the transfer is exempted by the board of
directors from the ownership limit based upon receipt of
information (including certain representations and undertakings
from the intended transferee) that such transfer would not
violate the provisions of the Code for our qualification as a
REIT. In addition, our charter provides that any transfer of
shares of our capital stock that would result in shares of our
capital stock being owned by fewer than 100 persons will be
null and void and the intended transferee will acquire no rights
in such shares of our capital stock.
The trustee will transfer the shares of our capital stock to a
person whose ownership of shares of our capital stock will not
violate the ownership limits. The transfer shall be made no
earlier than 20 days after the later of our receipt of
notice that shares of our capital stock have been transferred to
the trust or the date we determine that a purported transfer of
shares of stock has occurred. During this
20-day
period, we will have the option of redeeming such shares of our
capital stock. Upon any such transfer or redemption, the
purported transferee or holder shall receive a per share price
equal to the lesser of (a) the price per share in the
transaction that resulted in the transfer of such shares to the
trust (or, in the case of a gift or devise, the price per share
on the date of redemption at the time of the gift or devise), or
(b) the price per share on the date of the redemption, in
the case of a purchase by us, or the price received by the
trustee net of any sales commission and expenses, in the case of
a sale by the trustee. The charitable beneficiary will receive
any excess amounts. In the case of a liquidation, holders of
such shares will receive a ratable amount of our remaining
assets available for distribution to shares of the applicable
class or series taking into account all shares of such class or
series. The trustee will distribute to the purported transferee
or holder an amount equal to the lesser of the amounts received
with respect to such shares or the price per share in the
transaction that resulted in the transfer of such shares to the
trust (or, in the case of a gift or devise, the price at the
time of the gift or devise) and shall distribute any remaining
amounts to the charitable beneficiary.
Any person who acquires or attempts to acquire shares of our
capital stock in violation of the foregoing restrictions or who
owns shares of our capital stock that were transferred to any
such trust is required to give immediate written notice to us of
such event, and any person who purports to transfer or receive
shares of our
capital stock subject to such limitations is required to give us
15 days written notice prior to such purported transaction.
In both cases, such persons shall provide to us such other
information as we may request in order to determine the effect,
if any, of such event on our status as a REIT. The foregoing
restrictions will continue to apply until the board of directors
determines it is no longer in our best interest to continue to
qualify as a REIT.
The ownership limits do not apply to a person or persons that
the directors exempt from the ownership limit upon appropriate
assurances that our qualification as a REIT is not jeopardized.
Any person who owns 5% or more (or such lower percentage
applicable under Treasury Regulations) of the outstanding shares
of our capital stock during any taxable year will be asked to
deliver a statement or affidavit setting forth the number of
shares of our capital stock beneficially owned.
Distributions
We intend to accrue and make distributions on a monthly basis
beginning no later than the first calendar month after the
quarter in which the minimum offering requirements are met, and
we expect to continue to make monthly distribution payments
following the end of each calendar month. In connection with a
distribution to our stockholders, our board of directors will
approve a monthly distribution for a certain dollar amount per
share of our common stock. We will then calculate each
stockholder’s specific distribution amount for the month
using daily record and declaration dates, and your distributions
will begin to accrue on the date we mail a confirmation of your
subscription for shares of our common stock, subject to our
acceptance of your subscription.
We are required to make distributions sufficient to satisfy the
requirements for qualification as a REIT for federal income tax
purposes. Generally, income distributed will not be taxable to
us under the Code if we distribute at least 90% of our taxable
income each year (computed without regard to the distributions
paid deduction and our net capital gain). See “Federal
Income Tax Considerations — Requirements for
Qualification as a REIT — Operational
Requirements — Annual Distribution Requirement.”
Distributions will be authorized at the discretion of the board
of directors, in accordance with our earnings, cash flow and
general financial condition. The board’s discretion will be
directed, in substantial part, by its obligation to cause us to
comply with the REIT requirements. Because we may receive income
from interest or rents at various times during our fiscal year,
distributions may not reflect our income earned in that
particular distribution period and may be made in advance of
actual receipt of funds in an attempt to make distributions
relatively uniform. We are authorized to borrow money, issue new
securities or sell assets in order to make distributions. There
are no restrictions on the ability of our operating partnership
to transfer funds to us.
We are not prohibited from distributing our own securities in
lieu of making cash distributions to stockholders, provided that
the securities distributed to stockholders are readily
marketable. The receipt of marketable securities in lieu of cash
distributions may cause stockholders to incur transaction
expenses in liquidating the securities. It is not currently
intended that the shares of our common stock will be listed on a
national securities exchange, nor is it expected that a public
market for the shares of common stock will develop.
Distribution
Reinvestment Plan
Our distribution reinvestment plan will allow you to have cash
otherwise distributable to you invested in additional shares of
our common stock at a price equal to $9.50 per share. A copy of
our distribution reinvestment plan is included as
Appendix C to this prospectus. You may elect to participate
in the distribution reinvestment plan by completing the
subscription agreement, the enrollment form or by other written
notice to the plan administrator. Participation in the plan will
begin with the next distribution made after acceptance of your
written notice. We may terminate the distribution reinvestment
plan for any reason at any time upon ten days’ prior
written notice to participants. Participation in the plan may
also be terminated with respect to any person to the extent that
a reinvestment of distributions in shares of our common stock
would cause the share ownership limitations contained in our
charter to be violated. Following any termination of the
distribution reinvestment plan, all subsequent distributions to
stockholders would be made in cash.
Participants may acquire shares of our common stock pursuant to
our distribution reinvestment plan until the earliest date upon
which (i) all the common stock registered in this or future
offerings to be offered under our distribution reinvestment plan
is issued, (ii) this offering and any future offering
pursuant to our distribution reinvestment plan terminate, and we
elect to deregister with the SEC the unsold amount of our common
stock registered to be offered under our distribution
reinvestment plan, or (iii) there is more than a de
minimis amount of trading in shares of our common stock, at
which time any registered shares of our common stock then
available under our distribution reinvestment plan will be sold
at a price equal to the fair market value of the shares of our
common stock, as determined by our board of directors by
reference to the applicable sales price with respect to the most
recent trades occurring on or prior to the relevant distribution
date. In any case, the price per share will be equal to the
then-prevailing market price, which shall equal the price on the
national securities exchange on which such shares of common
stock are listed at the date of purchase.
Holders of common units may also participate in the distribution
reinvestment plan and have cash otherwise distributable to them
by our operating partnership invested in our common stock at a
price equal to $9.50 per share.
Stockholders who elect to participate in the distribution
reinvestment plan, and who are subject to United States
federal income taxation laws, will incur a tax liability on an
amount equal to the fair value on the relevant distribution date
of the shares of our common stock purchased with reinvested
distributions, even though such stockholders have elected not to
receive the distributions used to purchase those shares of
common stock in cash. Under present law, the United States
federal income tax treatment of that amount will be as described
with respect to distributions under “Federal Income Tax
Considerations — Taxation of Taxable
U.S. Stockholders” in the case of a taxable
U.S. stockholder (as defined therein) and as described
under “Federal Income Tax Considerations —
Special Tax Considerations for
Non-U.S. Stockholders”
in the case of a
Non-U.S. Stockholder
(as defined therein). However, the tax consequences of
participating in our distribution reinvestment plan will vary
depending upon each participant’s particular circumstances,
and you are urged to consult your own tax advisor regarding the
specific tax consequences to you of participation in the
distribution reinvestment plan.
All material information regarding the distributions to
stockholders and the effect of reinvesting the distributions,
including tax consequences, will be provided to the stockholders
at least annually. Each stockholder participating in the
distribution reinvestment plan will have an opportunity to
withdraw from the plan at least annually after receiving this
information.
Share
Redemption Program
Our share redemption program may provide a limited opportunity
for you to have your shares of common stock redeemed, subject to
certain restrictions and limitations, at a price equal to or at
a discount from the purchase price you paid for the shares being
redeemed. The discount will vary based upon the length of time
that you have held the shares of our common stock subject to
redemption, as described in the following table:
Redemption Price as a
Share Purchase Anniversary
Percentage of Purchase Price
Less than 1 year
90.0
%
1 year
92.5
%
2 years
95.0
%
3 years
97.5
%
4 years and longer
100.0
%
Redemption of shares of our common stock will be made quarterly
upon written notice to us at least 15 days prior to the end
of the applicable quarter. Redemption requests will be honored
approximately 30 days following the end of the applicable
quarter, which we refer to as the “redemption date.”
Stockholders may withdraw their redemption request at any time
up to three business days prior to the redemption date.
We cannot guarantee that the funds set aside for the share
redemption program will be sufficient to accommodate all
requests made in any quarter. In the event that we do not have
sufficient funds available to redeem all of the shares of our
common stock for which redemption requests have been submitted
in any quarter, we plan to redeem the shares of our common stock
on a pro rata basis on the redemption date. In addition, if we
redeem less than all of the shares subject to a redemption
request in any quarter, with respect to any unredeemed shares,
you can (1) withdraw your request for redemption or
(2) ask that we honor your request in a future quarter, if
any, when such redemptions can be made pursuant to the
limitations of the share repurchase when sufficient funds are
available. Such pending requests will be honored on a pro rata
basis.
We are not obligated to redeem shares of our common stock under
the share redemption program. We presently intend to limit the
number of shares to be redeemed to no more than 10.0% of the
weighted-average number of shares of our common stock
outstanding during the prior calendar year. This volume
limitation will not apply to redemptions requested within two
years after the death of a stockholder. There is no fee in
connection with a redemption of shares of our common stock. The
share redemption program will terminate if our shares of common
stock are listed on a national securities exchange or if a
secondary market is otherwise established.
The board of directors may, in its sole discretion, amend,
suspend, or terminate the share redemption program at any time
if it determines that the funds available to fund the share
redemption program are needed for other business or operational
purposes or that amendment, suspension or termination of the
share redemption program is in the best interest of our
stockholders. If the board of directors decides to amend,
suspend or terminate the share redemption program, we will
provide stockholders with no less than 30 days’ prior
written notice. Therefore, you may not have the opportunity to
make a redemption request prior to any potential termination of
our share redemption program.
C:
Liquidity
Events
Our charter requires that our board of directors, including our
independent directors, consider a transaction providing
liquidity for our stockholders at least annually beginning on
the date that is five years following the completion of this
offering. Our board may consider a liquidity transaction at an
earlier date if it determines that it would be in our
stockholders’ interest to do so. Moreover, our charter does
not require the board to pursue a liquidity transaction. We
expect that our board, in the exercise of its fiduciary duty to
our stockholders, will determine to pursue a liquidity
transaction when it believes that then-current market conditions
are favorable for a liquidity transaction, and that such a
transaction is in the best interests of our stockholders. A
liquidity transaction could include (1) the sale of all or
substantially all of our assets either on a portfolio basis or
individually followed by a liquidation, (2) a listing of
our shares on a national securities exchange, or (3) a
merger or another transaction approved by our board in which our
stockholders will receive cash or shares of a publicly traded
company. There can be no assurance as to when a suitable
transaction will be available.
C:
Business
Combinations
Under the MGCL, business combinations between a Maryland
corporation and an interested stockholder or the interested
stockholder’s affiliate are prohibited for five years after
the most recent date on which the stockholder becomes an
interested stockholder. For this purpose, the term
“business combinations” includes mergers,
consolidations, share exchanges, asset transfers and issuances
or reclassifications of equity securities. An “interested
stockholder” is defined for this purpose as: (1) any
person who beneficially owns 10% or more of the voting power of
the corporation’s shares; or (2) an affiliate or
associate of the corporation who, at any time within the
two-year period prior to the date in question, was the
beneficial owner of 10% or more of the voting power of the then
outstanding voting shares of the corporation. A person is not an
interested stockholder under the MGCL if the board of directors
approved in advance the transaction by which he otherwise would
become an interested stockholder. However, in approving the
transaction, the board of directors may provide that its
approval is subject to compliance, at or after the time of
approval, with any terms and conditions determined by the board.
After the five-year prohibition, any business combination
between the corporation and an interested stockholder generally
must be recommended by the board of directors of the corporation
and approved by the affirmative vote of at least: (1) 80%
of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation and
(2) two-thirds of the votes entitled to be cast by holders
of voting stock of the corporation other than shares of stock
held by the interested stockholder or its affiliate with whom
the business combination is to be effected, or held by an
affiliate or associate of the interested stockholder, voting
together as a single voting group.
These super majority vote requirements do not apply if the
corporation’s common stockholders receive a minimum price,
as defined under the MGCL, for their shares of common stock in
the form of cash or other consideration in the same form as
previously paid by the interested stockholder for its shares of
common stock.
None of these provisions of the MGCL will apply, however, to
business combinations that are approved or exempted by the board
of directors of the corporation prior to the time that the
interested stockholder becomes an interested stockholder.
Pursuant to the business combination statute, our board of
directors has exempted any business combination involving us and
any person. Consequently, the five-year prohibition and the
super majority vote requirements will not apply to business
combinations between us and any person. As a result, any person
may be able to enter into business combinations with us that may
not be in the best interest of our stockholders, without
compliance with the super majority vote requirements and other
provisions of the statute.
Should our board of directors opt in to the business combination
statute, it may discourage others from trying to acquire control
of us and increase the difficulty of consummating any offer.
C:
Business
Combination with Our Advisor
Many REITs that are listed on a national securities exchange or
included for quotation on an over-the-counter market are
considered self-administered, which means that they employ
persons or agents to perform all significant management
functions. The costs to perform these management functions are
“internalized,” rather than external, and no third
party fees, such as advisory fees, are paid by the REIT. We will
consider becoming a self-administered REIT once our assets and
income are, in our board’s view, of sufficient size such
that internalizing some or all of the management functions
performed by our advisor is in our best interests and in the
best interests of our stockholders.
If our board should make this determination in the future, we
have agreed to pay one-half, and our advisor has agreed to pay
the other half, of the costs of an independent investment
banking firm. This firm would jointly advise us and the
principals of our advisor on the value of our advisor. After the
investment banking firm completes its analyses, we will require
it to prepare a written report and make a formal presentation to
our board of directors.
Following the presentation by the investment banking firm, our
board will form a special committee comprised entirely of
independent directors to consider a possible business
combination with our advisor. The board will, subject to
applicable law, delegate all of its decision making power and
authority to the special committee with respect to these
matters, including the power and authority to retain its own
financial advisors and legal counsel to, among other things,
negotiate with representatives of our advisor regarding a
possible business combination. In any event, before we can
complete any business combination with our advisor, the
following three conditions must be satisfied:
•
The special committee receives an opinion from a qualified
investment banking firm, separate and distinct from the firm
jointly retained by us and our advisor to provide a valuation
analysis, concluding that the consideration to be paid to
acquire our advisor is fair to our stockholders from a financial
point of view;
•
Our board determines that such business combination is advisable
and in our best interests and in the best interests of our
stockholders; and
Such business combination is approved by our stockholders
entitled to vote thereon in accordance with our charter and
bylaws.
Unless and until definitive documentation is executed, we will
not be obligated to complete a business combination with our
advisor.
C:
Control
Share Acquisitions
The MGCL provides that control shares of a Maryland corporation
acquired in a control share acquisition have no voting rights
except to the extent approved by a vote of two-thirds of the
votes entitled to be cast on the matter. Shares of common stock
owned by the acquirer, by officers or by employees who are
directors of the corporation are not entitled to vote on the
matter. “Control shares” are voting shares of stock
which, if aggregated with all other shares of stock owned by the
acquirer or with respect to which the acquirer has the right to
vote or to direct the voting of, other than solely by virtue of
revocable proxy, would entitle the acquirer to exercise voting
power in electing directors within one of the following ranges
of voting powers:
•
One-tenth or more but less than one-third;
•
One-third or more but less than a majority; or
•
A majority or more of all voting power.
Control shares do not include shares of stock the acquiring
person is then entitled to vote as a result of having previously
obtained stockholder approval. Except as otherwise specified in
the statute, a “control share acquisition” means the
acquisition of control shares. Once a person who has made or
proposes to make a control share acquisition has undertaken to
pay expenses and has satisfied other required conditions, the
person may compel the board of directors to call a special
meeting of stockholders to be held within 50 days of demand
to consider the voting rights of the shares of stock. If no
request for a meeting is made, the corporation may itself
present the question at any stockholders meeting. If voting
rights are not approved for the control shares at the meeting or
if the acquiring person does not deliver an “acquiring
person statement” for the control shares as required by the
statute, the corporation may redeem any or all of the control
shares for their fair value, except for control shares for which
voting rights have previously been approved. Fair value is to be
determined for this purpose without regard to the absence of
voting rights for the control shares, and is to be determined as
of the date of the last control share acquisition or of any
meeting of stockholders at which the voting rights for control
shares are considered and not approved.
If voting rights for control shares are approved at a
stockholders’ meeting and the acquirer becomes entitled to
vote a majority of the shares of stock entitled to vote, all
other stockholders may exercise appraisal rights. The fair value
of the shares of stock as determined for purposes of these
appraisal rights may not be less than the highest price per
share paid in the control share acquisition. Some of the
limitations and restrictions otherwise applicable to the
exercise of dissenters’ rights do not apply in the context
of a control share acquisition.
The control share acquisition statute does not apply to shares
of stock acquired in a merger or consolidation or on a stock
exchange if the corporation is a party to the transaction or to
acquisitions approved or exempted by the charter or bylaws of
the corporation. As permitted by the MGCL, we have provided in
our bylaws that the control share provisions of the MGCL will
not apply to any acquisition by any person of shares of our
stock, but the board of directors retains the discretion to
change this provision in the future.
C:
Subtitle
8
Subtitle 8 of Title 3 of the MGCL, which we refer to as
“Subtitle 8,” permits a Maryland corporation with a
class of equity securities registered under the Exchange Act and
at least three independent directors to elect to be subject, by
provision in its charter or bylaws or a resolution of its board
of directors and notwithstanding any contrary provision in its
charter or bylaws, to any or all of five provisions:
A two-thirds vote requirement for removing a director;
•
A requirement that the number of directors be fixed only by vote
of the directors;
•
A requirement that vacancies on the board be filled only by the
remaining directors and for the remainder of the full term of
the class of directors in which the vacancy occurred; and
•
A majority requirement for the calling of a special meeting of
stockholders.
Pursuant to Subtitle 8, we have elected to provide that
vacancies on our board of directors be filled only by the
remaining directors and for the remainder of the full term of
the directorship in which the vacancy occurred. Through
provisions in our charter and bylaws unrelated to Subtitle 8, we
vest in the board of directors the exclusive power to fix the
number of directorships. We have not elected to be subject to
the other provisions of Subtitle 8.
C:
Reports
to Stockholders
Our charter requires that we prepare an annual report and
deliver it to our stockholders within 120 days after the
end of each fiscal year. Among the matters that must be included
in the annual report are:
•
Financial Statements that are prepared in accordance with GAAP
and are audited by our independent registered public accounting
firm;
•
The ratio of the costs of raising capital during the year to the
capital raised;
•
The aggregate amount of asset management fees and the aggregate
amount of other fees paid to our advisor and any affiliate of
our advisor by us or third parties doing business with us during
the year;
•
Our total operating expenses for the year, stated as a
percentage of our average invested assets and as a percentage of
our net income;
•
A report from the independent directors that our policies are in
the best interests of our stockholders and the basis for such
determination; and
•
Separately stated, full disclosure of all material terms,
factors and circumstances surrounding any and all transactions
involving us and our advisor, a director or any affiliate
thereof during the year; and the independent directors are
specifically charged with a duty to examine and comment in the
report on the fairness of the transactions.
The following is a summary of the United States material federal
income tax considerations associated with an investment in our
common stock that may be relevant to you. The statements made in
this section of the prospectus are based upon current provisions
of the Code and Treasury Regulations promulgated thereunder, as
currently applicable, currently published administrative
positions of the Internal Revenue Service and judicial
decisions, all of which are subject to change, either
prospectively or retroactively. We cannot assure you that any
changes will not modify the conclusions expressed in
counsel’s opinions described herein. This summary does not
address all possible tax considerations that may be material to
an investor and does not constitute legal or tax advice.
Moreover, this summary does not deal with all tax aspects that
might be relevant to you, as a prospective stockholder, in light
of your personal circumstances, nor does it deal with particular
types of stockholders that are subject to special treatment
under the federal income tax laws, such as insurance companies,
holders whose shares are acquired through the exercise of share
options or otherwise as compensation, holders whose shares are
acquired through the distribution reinvestment plan or who
intend to sell their shares under the share redemption program,
tax-exempt organizations except as provided below, financial
institutions or broker-dealers, or foreign corporations or
persons who are not citizens or residents of the United States
except as provided below. The Code provisions governing the
federal income tax treatment of REITs and their stockholders are
highly technical and complex, and this summary is qualified in
its entirety by the express language of applicable Code
provisions, Treasury Regulations promulgated thereunder and
administrative and judicial interpretations thereof.
Baker & McKenzie LLP has acted as our special
U.S. federal income tax counsel, has reviewed this summary
and is of the opinion that it fairly summarizes the United
States federal income tax considerations that are likely to be
material to U.S. stockholders (as defined herein) of our
common stock. This opinion of Baker & McKenzie LLP
will be filed as an exhibit to the registration statement of
which this prospectus is a part. The opinion of
Baker & McKenzie LLP is based on various assumptions,
is subject to limitations and is not binding on the Internal
Revenue Service or any court.
We urge you, as a prospective stockholder, to consult your
tax advisor regarding the specific tax consequences to you of a
purchase of shares of common stock, ownership and sale of shares
of common stock and of our election to be taxed as a REIT,
including the federal, state, local, foreign and other tax
consequence of such purchase, ownership, sale and election and
of potential changes in applicable tax laws.
C:
REIT
Qualification
We intend to elect to be taxable as a REIT commencing with our
taxable year in which we satisfy the minimum offering
requirements. This section of the prospectus discusses the laws
governing the tax treatment of a REIT and its stockholders.
These laws are highly technical and complex.
In connection with this offering, Baker & McKenzie LLP
has delivered an opinion to us that, commencing with our taxable
year in which we satisfy the minimum offering requirements, we
were organized in conformity with the requirements for
qualification as a REIT under the Code, and our proposed method
of operation will enable us to meet the requirements for
qualification and taxation as a REIT.
It must be emphasized that the opinion of Baker &
McKenzie LLP is based on various assumptions relating to our
organization and operation and is conditioned upon
representations and covenants made by us regarding our
organization, assets and the past, present and future conduct of
our business operations. While we intend to operate so that we
will qualify as a REIT, given the highly complex nature of the
rules governing REITs, the ongoing importance of factual
determinations and the possibility of future changes in our
circumstances, no assurance can be given by Baker &
McKenzie LLP or by us that we will so qualify for any particular
year. Baker & McKenzie LLP will have no obligation to
advise us or the holders of our common stock of any subsequent
change in the matters stated, represented or assumed in the
opinion, or of any subsequent change in the applicable law. You
should be aware that opinions of counsel are not binding on the
Internal Revenue Service or any court, and no assurance can be
given that the Internal Revenue Service will not challenge the
conclusions set forth in such opinions.
Qualification and taxation as a REIT depends on our ability to
meet on a continuing basis, through actual operating results,
distribution levels and diversity of share ownership, various
qualification requirements imposed upon REITs by the Code, the
compliance with which will not be reviewed by Baker &
McKenzie LLP. Our ability to qualify as a REIT also requires
that we satisfy certain asset tests, some of which depend upon
the fair market values of assets directly or indirectly owned by
us. Such values may not be susceptible to a precise
determination. While we intend to continue to operate in a
manner that will allow us to qualify as a REIT, no assurance can
be given that the actual results of our operations for any
taxable year satisfy such requirements for qualification and
taxation as a REIT.
Taxation
of Green Realty Trust, Inc.
If we qualify for taxation as a REIT, we generally will not be
subject to federal corporate income taxes on that portion of our
ordinary income or capital gain that we distribute currently to
our stockholders because the REIT provisions of the Code
generally allow a REIT to deduct dividends paid to its
stockholders. This substantially eliminates the federal
“double taxation” on earnings (taxation at both the
corporate level and stockholder level) that usually results from
an investment in a corporation. Even if we qualify for taxation
as a REIT, however, we will be subject to federal income
taxation as follows:
•
We will be taxed at regular corporate rates on our undistributed
REIT taxable income, including undistributed net capital gains;
•
Under some circumstances, we may be subject to “alternative
minimum tax”;
•
If we have net income from prohibited transactions (which are,
in general, sales or other dispositions of property, other than
foreclosure property, held primarily for sale to customers in
the ordinary course of business), the income will be subject to
a 100% tax;
•
If we elect to treat property that we acquire in connection with
a foreclosure of a mortgage loan or certain leasehold
terminations as “foreclosure property,” we may avoid
the 100% tax on gain from a resale of that property (if the sale
would otherwise constitute a prohibited transaction), but the
income from the sale or operation of the property may be subject
to corporate income tax at the highest applicable rate
(currently 35%);
•
Pursuant to provisions in recently enacted legislation, if we
should fail to satisfy the asset or other requirements
applicable to REITs, as described below, yet nonetheless
maintain our qualification as a REIT because there is reasonable
cause for the failure and other applicable requirements are met,
we may be subject to an excise tax. In that case, the amount of
the tax will be at least $50,000 per failure, and, in the case
of certain asset test failures, will be determined as the amount
of net income generated by the assets in question multiplied by
the highest corporate tax rate (currently 35%) if that amount
exceeds $50,000 per failure;
•
If we fail to satisfy either of the 75% or 95% gross income
tests (discussed below) but have nonetheless maintained our
qualification as a REIT because certain conditions have been
met, we will be subject to a 100% tax on an amount based on the
magnitude of the failure adjusted to reflect the profit margin
associated with our gross income;
•
If we fail to distribute during each year at least the sum of
(i) 85% of our REIT ordinary income for the year,
(ii) 95% of our REIT capital gain net income for such year
and (iii) any undistributed taxable income from prior
periods, we will be subject to a 4% excise tax on the excess of
the required distribution over the sum of (A) the amounts
actually distributed, plus (B) retained amounts on which
corporate level tax is paid by us;
•
We may elect to retain and pay tax on our net long-term capital
gain. In that case, a United States stockholder would be taxed
on its proportionate share of our undistributed long-term
capital gain and would receive a credit or refund for its
proportionate share of the tax we paid;
If we fail certain of the REIT asset tests and do not qualify
for “de minimis” relief, we may be required to pay a
corporate level tax on the income generated by the assets that
caused us to violate the asset test. See “Requirements for
Qualification as a REIT — Operational
Requirements — Asset Tests”; and
•
If we acquire appreciated assets from a C corporation (such as a
corporation generally subject to corporate level tax) in a
transaction in which the C corporation would not normally be
required to recognize any gain or loss on disposition of the
asset and we subsequently recognize gain on the disposition of
the asset during the ten-year period beginning on the date on
which we acquired the asset, then a portion of the gain may be
subject to tax at the highest regular corporate rate, unless the
C corporation made an election to treat the asset as if it were
sold for its fair market value at the time of our acquisition.
C:
Requirements
for Qualification as a REIT
In order for us to qualify as a REIT, we must meet and continue
to meet the requirements discussed below relating to our
organization, sources of income, nature of assets and
distributions of income to our stockholders.
Organizational
Requirements
In order to qualify for taxation as a REIT under the Code, we
must meet tests regarding our income and assets described below
and:
1) Be a corporation, trust or association that would be
taxable as a domestic corporation but for the REIT provisions of
the Code;
2) Elect to be taxed as a REIT and satisfy relevant filing
and other administrative requirements for the year in which we
satisfy the minimum offering requirements;
3) Be managed by one or more trustees or directors;
4) Have our beneficial ownership evidenced by
transferable shares;
5) Not be a financial institution or an insurance company
subject to special provisions of the federal income tax laws;
6) Use a calendar year for federal income tax
purposes;
7) Have at least 100 stockholders for at least
335 days of each taxable year of 12 months or during a
proportionate part of a taxable year of less than
12 months; and
8) Not be closely held as defined for purposes of the REIT
provisions of the Code.
Though the Green Advisory Council will play an active role in
evaluating green properties for our portfolio and in assisting
our advisor in managing our portfolio to ensure continued
compliance with evolving green building certification criteria,
our advisor (and the Green Advisory Council) will provide
recommendations that must first be approved by our board of
directors. As such, we should still be treated as managed by one
or more trustees or directors as required by the Code.
We would be treated as closely held if, during the last half of
any taxable year, more than 50% in value of our outstanding
capital shares is owned, directly or indirectly through the
application of certain attribution rules, by five or fewer
individuals, as defined in the Code to include certain entities.
Items 7 and 8 above will not apply until after the first
taxable year for which we elect to be taxed as a REIT. If we
comply with Treasury Regulations that provide procedures for
ascertaining the actual ownership of our common stock for each
taxable year and we did not know, and with the exercise of
reasonable diligence could not have known, that we failed to
meet item 8 above for a taxable year, we will be treated as
having met Item 8 for that year.
We intend to elect to be taxed as a REIT commencing with our
taxable year in which we satisfy the minimum offering
requirements, and we intend to satisfy the other requirements
described in
Items 1-6
above at all times during each of our taxable years. In
addition, our charter contains restrictions regarding ownership
and transfer of shares of our common stock that are intended to
assist us in continuing to satisfy the share ownership
requirements in Items 7 and 8 above (but which should not
prevent us from qualifying under 4 above). See “Description
of Capital Stock — Restriction on Ownership of Shares
of Capital Stock.” For purposes of the requirements
described herein, any corporation that is a qualified REIT
subsidiary of ours will not be treated as a corporation separate
from us and all assets, liabilities, and items of income,
deduction and credit of our qualified REIT subsidiaries will be
treated as our assets, liabilities and items of income,
deduction and credit. A qualified REIT subsidiary is a
corporation, other than a taxable REIT subsidiary (as described
below under “Operational Requirements — Asset
Tests”), all of the capital shares of which is owned by a
REIT.
In the case of a REIT that is a partner in an entity treated as
a partnership for federal tax purposes, the REIT is treated as
owning its proportionate share of the assets of the partnership
and as earning its allocable share of the gross income of the
partnership for purposes of the requirements described herein.
In addition, the character of the assets and gross income of the
partnership will retain the same character in the hands of the
REIT for purposes of the REIT requirements, including the asset
and income tests described below. As a result, our proportionate
share of the assets, liabilities and items of income of our
operating partnership and of any other partnership, joint
venture, limited liability company or other entity treated as a
partnership for federal tax purposes in which we or our
operating partnership have an interest will be treated as our
assets, liabilities and items of income.
The Code provides relief from violations of the REIT gross
income requirements, as described below under “—
Operational Requirements — Gross Income Tests,”
in cases where a violation is due to reasonable cause and not
willful neglect, and other requirements are met, including the
payment of a penalty tax that is based upon the magnitude of the
violation. In addition, the Code includes provisions that extend
similar relief in the case of certain violations of the REIT
asset requirements (see “— Operational
Requirements — Asset Tests” below) and other REIT
requirements, again provided that the violation is due to
reasonable cause and not willful neglect, and other conditions
are met, including the payment of a penalty tax. If we fail to
satisfy any of the various REIT requirements, there can be no
assurance that these relief provisions would be available to
enable us to maintain our qualification as a REIT, and, if
available, the amount of any resultant penalty tax could be
substantial.
Operational
Requirements — Gross Income Tests
To maintain our qualification as a REIT, we must satisfy
annually two gross income requirements:
•
At least 75% of our gross income for each taxable year must be
derived directly or indirectly from investments relating to real
property or mortgages on real property and from other specified
sources, including qualified temporary investment income, as
described below. Gross income includes “rents from real
property” and, in some circumstances, interest, but
excludes gross income from dispositions of property held
primarily for sale to customers in the ordinary course of a
trade or business. These dispositions are referred to as
“prohibited transactions.” This is the 75% Income Test.
•
At least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived
from the real property investments described above and generally
from distributions and interest and gains from the sale or
disposition of shares of our common stock or securities or from
any combination of the foregoing. This is the 95% Income Test.
The rents we will receive or be deemed to receive will qualify
as “rents from real property” for purposes of
satisfying the gross income requirements for a REIT only if the
following conditions are met:
•
The amount of rent received from a customer must not be based in
whole or in part on the income or profits of any person;
however, an amount received or accrued generally will not be
excluded from the term “rents from real property”
solely by reason of being based on a fixed percentage or
percentages of gross receipts or sales;
In general, neither we nor an owner of 10% or more shares of our
common stock may directly or constructively own 10% or more of a
customer, which we refer to as a “Related Party
Customer,” or a subtenant of the customer (in which case
only rent attributable to the subtenant is disqualified);
•
Rent attributable to personal property leased in connection with
a lease of real property cannot be greater than 15% of the total
rent received under the lease, as determined based on the
average of the fair market values as of the beginning and end of
the taxable year; and
•
We normally must not operate or manage the property or furnish
or render services to customers, other than through an
“independent contractor” who is adequately compensated
and from whom we do not derive any income or through a
“taxable REIT subsidiary.” However, a REIT may provide
services with respect to its properties, and the income derived
therefrom will qualify as “rents from real property,”
if the services are “usually or customarily rendered”
in connection with the rental of space only and are not
otherwise considered “rendered to the occupant.” Even
if the services provided by us with respect to a property are
impermissible customer services, the income derived therefrom
will qualify as “rents from real property” if such
income does not exceed one percent of all amounts received or
accrued with respect to that property.
We may, from time to time, enter into hedging transactions with
respect to interest rate exposure on one or more of our assets
or liabilities. Any such hedging transactions could take a
variety of forms, including the use of derivative instruments
such as interest rate swap contracts, interest rate cap or floor
contracts, futures or forward contracts, and options. Any income
or gain derived by us from instruments that hedge certain risks,
such as the risk of changes in interest rates on our
liabilities, will be treated as qualifying income for purposes
of the 95% Income Test, provided that specified requirements are
met, but generally will constitute non-qualifying income for
purposes of the 75% Income Test. Such requirements include that
the instrument hedges risks associated with indebtedness issued
by us that is incurred to acquire or carry “real estate
assets” (as described below under “Operational
Requirements — Asset Tests”), and the hedging
instrument, along with the risk that it hedges, is properly
identified within prescribed time periods. We intend to
structure any hedging transactions in a manner that does not
jeopardize our status as a REIT.
Prior to the making of investments in real properties, we may
invest the net offering proceeds in liquid assets such as
government securities or certificates of deposit. For purposes
of the 75% Income Test, income attributable to a stock or debt
instrument purchased with the proceeds received by a REIT in
exchange for stock in the REIT (other than amounts received
pursuant to a distribution reinvestment plan) constitutes
qualified temporary investment income if such income is received
or accrued during the one-year period beginning on the date the
REIT receives such new capital. To the extent that we hold any
proceeds of the offering for longer than one year, we may invest
those amounts in less liquid investments such as mortgage backed
securities, maturing mortgage loans purchased from mortgage
lenders or shares of common stock in other REITs in order to
satisfy the 75% and 95% Income Tests and the Asset Tests
described below. We expect the bulk of the remainder of our
income to qualify under the 75% and 95% Income Tests as gains
from the sale of real property interests, interest on mortgages
on real property, and rents from real property in accordance
with the requirements described above. With regard to rental
income, we anticipate that most of our leases will be for fixed
rentals with annual “consumer price index” or similar
adjustments and that none of the rentals under our leases will
be based on the income or profits of any person. Rental leases
may provide for payments based on gross receipts, which are
generally permissible under the REIT income tests. In addition,
none of our customers are expected to be Related Party Customers
and the portion of the rent attributable to personal property is
not expected to exceed 15% of the total rent to be received
under any lease. We anticipate that all or most of the services
to be performed with respect to our real properties will be
performed by our property manager and such services are expected
to be those usually or customarily rendered in connection with
the rental of real property and not rendered to the occupant of
such real property. Finally, we anticipate that any
non-customary services will be provided by a taxable REIT
subsidiary or, alternatively, by an independent contractor that
is adequately compensated and from whom we derive no income.
However, we can give no assurance that the actual sources of our
gross income will allow us to satisfy the 75% Income and the 95%
Income Tests described above.
Notwithstanding our failure to satisfy one or both of the 75%
Income and the 95% Income Tests for any taxable year, we may
still qualify as a REIT for that year if we are eligible for
relief under specific provisions of the Code. These relief
provisions generally will be available if:
•
Our failure to meet these tests was due to reasonable cause and
not due to willful neglect;
•
We attach a schedule of our income sources to our federal income
tax return; and
•
Any incorrect information on the schedule is not due to fraud
with intent to evade tax.
It is not possible, however, to state whether, in all
circumstances, we would be entitled to the benefit of these
relief provisions. In addition, as discussed above in
“Taxation of Green Realty Trust, Inc.,” even if these
relief provisions apply, a tax would be imposed with respect to
the excess net income.
Operational
Requirements — Asset Tests
At the close of each quarter of our taxable year, starting with
the taxable year ending December 31, 2007, we also must
satisfy four tests, which we refer to as “Asset
Tests,” relating to the nature and diversification of our
assets.
•
First, at least 75% of the value of our total assets must be
represented by real estate assets, cash, cash items and
government securities. The term “real estate assets”
includes real property, mortgages on real property, shares of
common stock in other qualified REITs, property attributable to
the temporary investment of new capital as described above and a
proportionate share of any real estate assets owned by a
partnership in which we are a partner or of any qualified REIT
subsidiary of ours.
•
Second, no more than 25% of our total assets may be represented
by securities other than those in the 75% asset class.
•
Third, of the investments included in the 25% asset class, the
value of any one issuer’s securities that we own may not
exceed 5% of the value of our total assets. Additionally, we may
not own more than 10% of the voting power or value of any one
issuer’s outstanding securities, which we refer to as the
“10% Asset Test.” The 10% Asset Test does not apply to
securities of a taxable REIT subsidiary, nor does it apply to
certain “straight debt” instruments possessing certain
characteristics. The term “securities” also does not
include the equity or debt securities of a qualified REIT
subsidiary of ours or an equity interest in any entity treated
as a partnership for federal tax purposes.
•
Fourth, no more than 20% of the value of our total assets may
consist of the securities of one or more taxable REIT
subsidiaries. Subject to certain exceptions, a taxable REIT
subsidiary is any corporation, other than a REIT, in which we
directly or indirectly own stock and with respect to which a
joint election has been made by us and the corporation to treat
the corporation as a taxable REIT subsidiary of ours and also
includes any corporation, other than a REIT, in which a taxable
REIT subsidiary of ours owns, directly or indirectly, more than
35 percent of the voting power or value.
The Asset Tests must generally be met for any quarter in which
we acquire securities or other property. Upon full investment of
the net offering proceeds we expect that most of our assets will
consist of “real estate assets” and we therefore
expect to satisfy the Asset Tests.
If we meet the Asset Tests at the close of any quarter, we will
not lose our REIT status for a failure to satisfy the Asset
Tests at the end of a later quarter in which we have not
acquired any securities or other property if such failure occurs
solely because of changes in asset values. If our failure to
satisfy the Asset Tests results from an acquisition of
securities or other property during a quarter, we can cure the
failure by disposing of a sufficient amount of non-qualifying
assets within 30 days after the close of that quarter. We
intend to maintain adequate records of the value of our assets
to ensure compliance with the Asset Tests and to take other
action within 30 days after the close of any quarter as may
be required to cure any noncompliance. If that does not occur,
we may nonetheless qualify for one of the relief provisions
described below.
To the extent that we fail one or more of the asset tests, and
we do not fall within the de minimis safe harbors with respect
to the 5% and 10% asset tests, we may nevertheless be deemed to
have satisfied such requirements if (i) we take certain
corrective measures, (ii) we meet certain technical
requirements, and (iii) we pay a specified excise tax (the
greater of (a) $50,000 or (b) an amount determined by
multiplying the highest rate of corporate tax by the net income
generated by the assets causing the failure for the period
beginning on the first date of the failure and ending on the
date that we dispose of the assets (or otherwise satisfy the
asset test requirements)).
The Code contains a number of provisions applicable to REITs,
including relief provisions that make it easier for REITs to
satisfy the asset requirements, or to maintain REIT
qualification notwithstanding certain violations of the asset
and other requirements.
One such provision allows a REIT which fails one or more of the
asset requirements to nevertheless maintain its REIT
qualification if (i) it provides the IRS with a description
of each asset causing the failure, (ii) the failure is due
to reasonable cause and not willful neglect, (iii) the REIT
pays a tax equal to the greater of (a) $50,000 per failure
and (b) the product of the net income generated by the
assets that caused the failure multiplied by the highest
applicable corporate tax rate (currently 35%), and (iv) the
REIT either disposes of the assets causing the failure within
six months after the last day of the quarter in which it
identifies the failure, or otherwise satisfies the relevant
asset tests within that time frame.
A second relief provision applies to de minimis violations of
the 10% and 5% asset tests. A REIT may maintain its
qualification despite a violation of such requirements if
(i) the value of the assets causing the violation do not
exceed the lesser of 1.0% of the REIT’s total assets, and
$10,000,000, or (ii) the REIT either disposes of the assets
causing the failure within six months after the last day of the
quarter in which it identifies the failure, or the relevant
tests are otherwise satisfied within that time frame.
The Code also provides that certain securities will not cause a
violation of the 10% value test described above. Such securities
include instruments that constitute “straight debt,”
which includes securities having certain contingency features. A
security cannot qualify as “straight debt” where a
REIT (or a controlled taxable REIT subsidiary of the REIT) owns
other securities of the issuer of that security which do not
qualify as straight debt, unless the value of those other
securities constitute, in the aggregate, 1.0% or less of the
total value of that issuer’s outstanding securities. In
addition to straight debt, the Code provides that certain other
securities will not violate the 10% value test. Such securities
include (i) any loan made to an individual or an estate,
(ii) certain rental agreements in which one or more
payments are to be made in subsequent years (other than
agreements between a REIT and certain persons related to the
REIT), (iii) any obligation to pay rents from real
property, (iv) securities issued by governmental entities
that are not dependent in whole or in part on the profits of (or
payments made by) a non-governmental entity, (v) any
security issued by another REIT, and (vi) any debt
instrument issued by a partnership if the partnership’s
income is of a nature that it would satisfy the 75% gross income
test described above under “— Operational
Requirements — Gross Income Tests.” In addition,
when applying the 10% value test, a debt security issued by a
partnership is not taken into account to the extent, if any, of
the REIT’s proportionate equity interest in that
partnership.
Operational
Requirements — Annual Distribution
Requirement
In order to be taxed as a REIT, we are required to make
distributions, other than capital gain distributions, to our
stockholders each year in the amount of at least 90% of our REIT
taxable income (computed without regard to the distributions
paid deduction and our net capital gain and subject to certain
other potential adjustments) for all tax years. While we must
generally make distributions in the taxable year to which they
relate, we may also make distributions in the following taxable
year if (1) they are declared before we timely file our
federal income tax return for the taxable year in question and
(2) they are paid on or before the first regular
distribution payment date after the declaration.
Even if we satisfy the foregoing distribution requirement and,
accordingly, continue to qualify as a REIT for tax purposes, we
will still be subject to federal income tax on the excess of our
net capital gain and our REIT taxable income, as adjusted, over
the amount of distributions to stockholders.
In addition, if we fail to distribute during each calendar year
at least the sum of:
•
85% of our ordinary income for that year;
•
95% of our capital gain net income other than the capital gain
net income which we elect to retain and pay tax on for that
year; and
•
any undistributed taxable income from prior periods,
we will be subject to a 4% nondeductible excise tax on the
excess of the amount of the required distributions over the sum
of (A) the amounts actually distributed plus
(B) retained amounts on which corporate level tax is paid
by us.
We intend to make timely distributions sufficient to satisfy the
distribution requirement; however, it is possible that we may
experience timing differences between (1) the actual
receipt of income and payment of deductible expenses, and
(2) the inclusion of that income and deduction of those
expenses for purposes of computing our taxable income. It is
also possible that we may be allocated a share of net capital
gain attributable to the sale of depreciated property by our
operating partnership that exceeds our allocable share of cash
attributable to that sale. In those circumstances, we may have
less cash than is necessary to meet our annual distribution
requirement or to avoid income or excise taxation on
undistributed income. We may find it necessary in those
circumstances to arrange for financing or raise funds through
the issuance of additional shares of common stock in order to
meet our distribution requirements. If we fail to satisfy the
distribution requirement for any taxable year by reason of a
later adjustment to our taxable income made by the Internal
Revenue Service, we may be able to pay “deficiency
distributions” in a later year and include such
distributions in our deductions for distributions paid for the
earlier year. In that event, we may be able to avoid losing our
REIT status or being taxed on amounts distributed as deficiency
distributions, but we would be required to pay interest and a
penalty to the Internal Revenue Service based upon the amount of
any deduction taken for deficiency distributions for the earlier
year.
As noted above, we may also elect to retain, rather than
distribute, our net long-term capital gains. The effect of such
an election would be as follows:
•
We would be required to pay the federal income tax on these
gains;
•
Taxable U.S. stockholders, while required to include their
proportionate share of the undistributed long-term capital gains
in income, would receive a credit or refund for their share of
the tax paid by the REIT; and
•
The basis of the stockholder’s shares of common stock would
be increased by the difference between the designated amount
included in the stockholder’s long-term capital gains and
the tax deemed paid with respect to such shares of common stock.
In computing our REIT taxable income, we will use the accrual
method of accounting and intend to depreciate depreciable
property under the alternative depreciation system. We are
required to file an annual federal income tax return, which,
like other corporate returns, is subject to examination by the
Internal Revenue Service. Because the tax law requires us to
make many judgments regarding the proper treatment of a
transaction or an item of income or deduction, it is possible
that the Internal Revenue Service will challenge positions we
take in computing our REIT taxable income and our distributions.
Issues could arise, for example, with respect to the allocation
of the purchase price of real properties between depreciable or
amortizable assets and non-depreciable or
non-amortizable
assets such as land and the current deductibility of fees paid
to our advisor or its affiliates. Were the Internal Revenue
Service to successfully challenge our characterization of a
transaction or determination of our REIT taxable income, we
could be found to have failed to satisfy a requirement for
qualification as a REIT. If, as a result of a challenge, we are
determined to have failed to satisfy the distribution
requirements for a taxable year, we would be disqualified as a
REIT, unless we were permitted to pay a deficiency distribution
to our stockholders and pay interest thereon to the Internal
Revenue Service, as provided by the Code. A deficiency
distribution
cannot be used to satisfy the distribution requirement, however,
if the failure to meet the requirement is not due to a later
adjustment to our income by the Internal Revenue Service.
Operational
Requirements — Recordkeeping
We must maintain certain records as set forth in Treasury
Regulations in order to avoid the payment of monetary penalties
to the Internal Revenue Service. Such Treasury Regulations
require that we request, on an annual basis, certain information
designed to disclose the ownership of shares of our outstanding
common stock. We intend to comply with these requirements.
C:
Failure
to Qualify as a REIT
If we fail to qualify as a REIT for any reason in a taxable year
and applicable relief provisions do not apply, we will be
subject to tax (including any applicable alternative minimum
tax) on our taxable income at regular corporate rates. We will
not be able to deduct distributions paid to our stockholders in
any year in which we fail to qualify as a REIT. In this
situation, to the extent of current and accumulated earnings and
profits, all distributions to our stockholders that are
individuals will generally be taxable at capital gains rates
(through 2009), and, subject to limitations of the Code,
corporate distributees may be eligible for the distributions
received deduction. We also will be disqualified for the four
taxable years following the year during which qualification was
lost unless we are entitled to relief under specific statutory
provisions.
C:
Sale-Leaseback
Transactions
Some of our investments may be in the form of sale-leaseback
transactions. We normally intend to treat these transactions as
true leases for federal income tax purposes. However, depending
on the terms of any specific transaction, the Internal Revenue
Service might take the position that the transaction is not a
true lease but is more properly treated in some other manner. If
such recharacterization were successful, we would not be
entitled to claim the depreciation deductions available to an
owner of the property. In addition, the recharacterization of
one or more of these transactions might cause us to fail to
satisfy the Asset Tests or the Income Tests described above
based upon the asset we would be treated as holding or the
income we would be treated as having earned and such failure
could result in our failing to qualify as a REIT. Alternatively,
the amount or timing of income inclusion or the loss of
depreciation deductions resulting from the recharacterization
might cause us to fail to meet the distribution requirement
described above for one or more taxable years absent the
availability of the deficiency distribution procedure or might
result in a larger portion of our distributions being treated as
ordinary distribution income to our stockholders.
C:
Taxation
of Taxable U.S. Stockholders
Definition
In this section, the phrase “U.S. stockholder”
means a holder of our common stock that for federal income tax
purposes is:
•
a citizen or resident of the United States;
•
a corporation, partnership or other entity treated as a
corporation or partnership for U.S. federal income tax
purposes created or organized in or under the laws of the United
States or of any political subdivision thereof;
•
an estate, the income of which is subject to U.S. federal
income taxation regardless of its source; or
•
a trust, if a U.S. court is able to exercise primary
supervision over the administration of the trust and one or more
U.S. persons have the authority to control all substantial
decisions of the trust.
If a partnership, including for this purpose any entity that is
treated as a partnership for U.S. federal income tax
purposes, holds our common stock, the tax treatment of a partner
in the partnership will generally depend upon the status of the
partner and the activities of the partnership. An investor that
is a partnership and
the partners in such partnership should consult their tax
advisors about the U.S. federal income tax consequences of
the acquisition, ownership and disposition of our common stock.
For any taxable year for which we qualify for taxation as a
REIT, amounts distributed to, and gains realized by, taxable
U.S. stockholders with respect to our common stock
generally will be taxed as described below. For a summary of the
federal income tax treatment of distributions reinvested in
additional shares of common stock pursuant to our distribution
reinvestment plan, see “Description of Capital
Stock — Distribution Reinvestment Plan.” For a
summary of the federal income tax treatment of shares of common
stock redeemed by us under our share redemption program, see
“Description of Capital Stock — Share
Redemption Program.”
Distributions
Generally
Distributions to U.S. stockholders, other than capital gain
distributions discussed below, will constitute distributions up
to the amount of our current or accumulated earnings and profits
and will be taxable to the stockholders as ordinary income.
These distributions are not eligible for the dividends received
deduction generally available to corporations. In addition, with
limited exceptions, these distributions are not eligible for
taxation at the preferential income tax rates for qualified
distributions received by individuals from taxable C
corporations pursuant to the Jobs and Growth Tax Relief
Reconciliation Act of 2003. Stockholders that are individuals,
however, are taxed at the preferential rates on distributions
designated by and received from us to the extent that the
distributions are attributable to (i) income retained by us
in the prior taxable year on which we were subject to corporate
level income tax (less the amount of tax),
(ii) distributions received by us from taxable C
corporations, or (iii) income in the prior taxable year
from the sales of “built-in gain” property acquired by
us from C corporations in carryover basis transactions (less the
amount of corporate tax on such income).
To the extent that we make a distribution in excess of our
current and accumulated earnings and profits, the distribution
will be treated first as a tax-free return of capital, reducing
the tax basis in the U.S. stockholder’s shares of
common stock, and the amount of each distribution in excess of a
U.S. stockholder’s tax basis in its shares of common
stock will be taxable as gain realized from the sale of its
shares of common stock. Distributions that we declare in
October, November or December of any year payable to a
stockholder of record on a specified date in any of these months
will be treated as both paid by us and received by the
stockholder on December 31 of the year, provided that we
actually pay the distribution during January of the following
calendar year. U.S. stockholders may not include any of our
losses on their own federal income tax returns.
We will be treated as having sufficient earnings and profits to
treat as a distribution any distribution by us up to the amount
required to be distributed in order to avoid imposition of the
4% excise tax discussed above. Moreover, any “deficiency
distribution” will be treated as an ordinary or capital
gain distribution, as the case may be, regardless of our
earnings and profits. As a result, stockholders may be required
to treat as taxable some distributions that would otherwise
result in a tax-free return of capital.
Capital
Gain Distributions
Distributions to U.S. stockholders that we properly
designate as capital gain distributions normally will be treated
as long-term capital gains to the extent they do not exceed our
actual net capital gain for the taxable year without regard to
the period for which the U.S. stockholder has held his
shares of common stock. A corporate U.S. stockholder might
be required to treat up to 20% of some capital gain
distributions as ordinary income. Long-term capital gains are
generally taxable at maximum federal rates of 15% (through 2010)
in the case of stockholders who are individuals, and 35% in the
case of stockholders that are corporations. Capital gains
attributable to the sale of depreciable real property held for
more than 12 months are subject to a 25% maximum federal
income tax rate for taxpayers who are individuals, to the extent
of previously claimed depreciation deductions. See “—
Operational Requirements — Annual Distribution
Requirement” for the treatment by U.S. stockholders of
net long-term capital gains that we elect to retain and pay tax
on.
In general, capital gains recognized by individuals upon the
sale or disposition of shares of common stock will be subject to
a maximum federal income tax rate of 15% (through 2010) if
such shares of common stock are held for more than
12 months, and will be taxed at ordinary income rates (of
up to 35% through 2010) if such shares of common stock are
held for 12 months or less. Gains recognized by
stockholders that are corporations are subject to federal income
tax at a maximum rate of 35%, whether or not classified as
long-term capital gains. Capital losses recognized by a
stockholder upon the disposition of a share of our common stock
held for more than one year at the time of disposition will be
considered long-term capital losses, and are generally available
only to offset capital gain income of the stockholder but not
ordinary income (except in the case of individuals, who may
offset up to $3,000 of ordinary income each year with such
capital losses). In addition, any loss upon a sale or exchange
of shares of common stock by a stockholder who has held such
shares of common stock for six months or less, after applying
holding period rules, will be treated as a long-term capital
loss to the extent of distributions received from us that are
required to be treated by the stockholder as long-term capital
gain.
Investments
in Real Estate Outside the United States
We may invest in real estate assets, directly or indirectly, in
jurisdictions other than the United States. Such assets may be
subject to taxes in these
non-U.S. jurisdictions
that ordinarily would give rise to foreign tax credits for
U.S. resident taxpayers. However, our anticipated
investment structure will prevent any of our
U.S. stockholders from utilizing any foreign tax credits
generated. The foreign assets we acquire will either be held by
us, an entity that intends to qualify as a REIT, or through a
taxable REIT subsidiary. Because we intend to operate as a REIT
and we are entitled to a dividends paid deduction, the foreign
tax credit limitation will prevent us from utilizing any foreign
tax credits with respect to property that we acquire directly to
offset our income. As such, we expect to only hold foreign real
estate assets in low
non-U.S. tax
jurisdictions directly. With respect to real estate assets
located in high
non-U.S. tax
jurisdictions, we expect to hold such assets through a taxable
REIT subsidiary so that such subsidiary may be able to utilize
the foreign tax credit to offset its U.S. taxable income.
In either case, foreign taxes are not passed through to our
U.S. stockholders for purposes of calculating our
U.S. stockholders’ foreign tax credit.
Information
Reporting Requirements and Backup Withholding for U.S.
Stockholders
We will report to U.S. stockholders of our common stock and
to the Internal Revenue Service the amount of distributions made
or deemed made during each calendar year and the amount of tax
withheld, if any. Under some circumstances,
U.S. stockholders may be subject to backup withholding on
payments made with respect to, or cash proceeds of a sale or
exchange of, our common stock. Backup withholding will apply
only if the stockholder:
•
Fails to furnish its taxpayer identification number (which, for
an individual, would be his Social Security number);
•
Furnishes an incorrect taxpayer identification number;
•
Is notified by the Internal Revenue Service that the stockholder
has failed properly to report payments of interest or
distributions and is subject to backup withholding; or
•
Under some circumstances, fails to certify, under penalties of
perjury, that it has furnished a correct taxpayer identification
number and has not been notified by the Internal Revenue Service
that the stockholder is subject to backup withholding for
failure to report interest and distribution payments or has been
notified by the Internal Revenue Service that the stockholder is
no longer subject to backup withholding for failure to report
those payments.
Backup withholding will not apply with respect to payments made
to some stockholders, such as corporations in certain
circumstances and tax-exempt organizations. Backup withholding
is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a U.S. stockholder
will be allowed as a credit against the
U.S. stockholder’s United States federal income tax
liability and may entitle the U.S. stockholder to a refund,
provided that the required information is furnished to the
Internal Revenue
Service. U.S. stockholders should consult their tax
advisors regarding their qualification for exemption from backup
withholding and the procedure for obtaining an exemption.
C:
Treatment
of Tax-Exempt Stockholders
Tax-exempt entities including employee pension benefit trusts
and individual retirement accounts generally are exempt from
United States federal income taxation. These entities are
subject to taxation, however, on any “unrelated business
taxable income,” which we refer to as “UBTI,” as
defined in the Code. The Internal Revenue Service has issued a
published ruling that distributions from a REIT to a tax-exempt
pension trust did not constitute UBTI. Although rulings are
merely interpretations of law by the Internal Revenue Service
and may be revoked or modified, based on this analysis,
indebtedness incurred by us or by our operating partnership in
connection with the acquisition of a property should not cause
any income derived from the property to be treated as UBTI upon
the distribution of those amounts as distributions to a
tax-exempt U.S. stockholder of our common stock. A
tax-exempt entity that incurs indebtedness to finance its
purchase of our common stock, however, will be subject to UBTI
under the debt-financed income rules. However, social clubs,
voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services
plans that are exempt from taxation under specified provisions
of the Code are subject to different UBTI rules, which generally
will require them to treat distributions from us as UBTI. These
organizations are urged to consult their own tax advisor with
respect to the treatment of our distributions to them.
In addition, tax-exempt pension and specified other tax-exempt
trusts that hold more than 10% by value of the shares of a REIT
may be required to treat a specified percentage of REIT
distributions as UBTI. This requirement applies only if our
qualification as a REIT depends upon the application of a
look-through exception to the closely-held restriction and we
are considered to be predominantly held by those tax-exempt
trusts. It is not anticipated that our qualification as a REIT
will depend upon application of the look-through exception or
that we will be predominantly held by these types of trusts;
however, we do not guarantee that this will be the case in the
future.
C:
Special
Tax Considerations for
Non-U.S.
Stockholders
The rules governing United States federal income taxation of
non-resident alien individuals, foreign corporations, foreign
partnerships and other foreign stockholders, which we refer to
collectively as
“Non-U.S. holders,”
are complex. The following discussion is intended only as a
summary of these rules.
Non-U.S. holders
should consult with their own tax advisors to determine the
impact of United States federal, state and local income tax laws
on an investment in our common stock, including any reporting
requirements as well as the tax treatment of the investment
under the tax laws of their home country.
Ordinary
Distributions
The portion of distributions received by
Non-U.S. holders
payable out of our earnings and profits which are not
attributable to our capital gains and which are not effectively
connected with a U.S. trade or business of the
Non-U.S. holder
will be subject to U.S. withholding tax at the rate of 30%,
unless reduced by treaty. In general,
Non-U.S. holders
will not be considered to be engaged in a U.S. trade or
business solely as a result of their ownership of our common
stock. In cases where the distribution income from a
Non-U.S. holder’s
investment in our common stock is, or is treated as, effectively
connected with the
Non-U.S. holder’s
conduct of a U.S. trade or business, the
Non-U.S. holder
generally will be subject to U.S. tax at graduated rates,
in the same manner as domestic stockholders are taxed with
respect to such distributions, such income must generally be
reported on a U.S. income tax return filed by or on behalf
of the
Non-U.S. holder,
and the income may also be subject to the 30% branch profits tax
in the case of a
Non-U.S. holder
that is a corporation.
Non-Dividend
Distributions
Unless our common stock constitutes a U.S. real property
interest, which we refer to as a “USRPI,”
distributions by us which are not distributions out of our
earnings and profits will not be subject to
U.S. income tax. If it cannot be determined at the time at
which a distribution is made whether or not the distribution
will exceed current and accumulated earnings and profits, the
distribution will be subject to withholding at the rate
applicable to distributions. However, the
Non-U.S. holder
may seek a refund from the Internal Revenue Service of any
amounts withheld if it is subsequently determined that the
distribution was, in fact, in excess of our current and
accumulated earnings and profits. If our common stock
constitutes a USRPI, as described below, distributions by us in
excess of the sum of our earnings and profits plus the
stockholder’s basis in shares of our common stock will be
taxed under the Foreign Investment in Real Property Tax Act of
1980, which we refer to as “FIRPTA,” at the rate of
tax, including any applicable capital gains rates, that would
apply to a domestic stockholder of the same type (e.g., an
individual or a corporation, as the case may be), and the
collection of the tax will be enforced by a refundable
withholding at a rate of 10% of the amount by which the
distribution exceeds the stockholder’s share of our
earnings and profits.
Capital
Gain Distributions
A capital gain distribution will generally not be treated as
income that is effectively connected with a U.S. trade or
business, and will instead be treated the same as an ordinary
distribution from us (see “Special Tax Considerations for
Non-U.S. Stockholders —
Ordinary Distributions”), provided that (1) the
capital gain distribution is received with respect to a class of
stock that is regularly traded on an established securities
market located in the United States, and (2) the recipient
Non-U.S. holder
does not own more than 5% of that class of stock at any time
during the taxable year in which the capital gain distribution
is received. If such requirements are not satisfied, such
distributions will be treated as income that is effectively
connected with a U.S. trade or business of the
Non-U.S. holder
without regard to whether the distribution is designated as a
capital gain distribution and, in addition, shall be subject to
a 35% withholding tax. We do not anticipate our common stock
satisfying the “regularly traded” requirement.
Distributions subject to FIRPTA may also be subject to a 30%
branch profits tax in the hands of a
Non-U.S. holder
that is a corporation. A distribution is not a USRPI capital
gain if we held the underlying asset solely as a creditor.
Capital gain distributions received by a
Non-U.S. holder
from a REIT that are not USRPI capital gains are generally not
subject to U.S. income tax, but may be subject to
withholding tax.
Dispositions
of Our Common Stock
A sale of our common stock by a
Non-U.S. holder
generally will be subject to U.S. taxation under FIRPTA.
Our common stock will not be treated as a USRPI if less than 50%
of our assets throughout a prescribed testing period consist of
interests in real property located within the United States,
excluding, for this purpose, interests in real property solely
in a capacity as a creditor. Due to the Asset Tests
requirements, and provided the “domestically
controlled” exception discussed below does not apply, we
would expect to constitute a USRPI for all taxable years.
Even if the foregoing test is not met, our common stock
nonetheless will not constitute a USRPI if we are a
“domestically controlled REIT.” A domestically
controlled REIT is a REIT in which, at all times during a
specified testing period, less than 50% in value of its shares
of common stock is held directly or indirectly by
Non-U.S. holders.
We currently anticipate that we will be a domestically
controlled REIT and, therefore, the sale of our common stock
should not be subject to taxation under FIRPTA. However, we
cannot assure you that we are or will continue to be a
domestically controlled REIT. If we were not a domestically
controlled REIT, whether a
Non-U.S. holder’s
sale of our common stock would be subject to tax under FIRPTA as
a sale of a United States real property interest would depend on
whether our common stock were “regularly traded” on an
established securities market and on the size of the selling
stockholder’s interest in us. We will not be
“regularly traded” on an established securities market
in the near future.
If the gain on the sale of shares of common stock were subject
to taxation under FIRPTA, a
Non-U.S. holder
would be subject to the same treatment as a
U.S. stockholder with respect to the gain, subject to any
applicable alternative minimum tax and a special alternative
minimum tax in the case of non-resident alien individuals. Gain
from the sale of our common stock that would not otherwise be
subject to FIRPTA will nonetheless be taxable in the United
States to a
Non-U.S. holder
in two cases: (a) if the
Non-U.S. holder’s
investment in our common stock is effectively connected with a
U.S. trade or business conducted by such
Non-U.S. holder,
the
Non-U.S. holder
will be subject to the same treatment as a U.S. stockholder
with respect to such gain, or (b) if the
Non-U.S. holder
is a nonresident alien individual who was present in the United
States for 183 days or more during the taxable year and has
a “tax home” in the United States, the nonresident
alien individual will be subject to a 30% tax on the
individual’s capital gain.
Information
Reporting Requirements and Backup Withholding for
Non-U.S.
Stockholders
Non-U.S. stockholders
should consult their tax advisors with regard to
U.S. information reporting and backup withholding
requirements under the Code.
C:
Statement
of Share Ownership
We are required to demand annual written statements from the
record holders of designated percentages of our common stock
disclosing the actual owners of the shares of common stock. Any
record stockholder who, upon our request, does not provide us
with required information concerning actual ownership of the
shares of common stock is required to include specified
information relating to his shares of common stock in his
federal income tax return. We also must maintain, within the
Internal Revenue District in which we are required to file our
federal income tax return, permanent records showing the
information we have received about the actual ownership of our
common stock and a list of those persons failing or refusing to
comply with our demand.
C:
Federal
Income Tax Aspects of Our Operating Partnership
The following discussion summarizes certain federal income tax
considerations applicable to our investment in our operating
partnership. The discussion does not cover state or local tax
laws or any federal tax laws other than income tax laws.
Classification
as a Partnership
We will be entitled to include in our income a distributive
share of our operating partnership’s income and to deduct
our distributive share of our operating partnership’s
losses only if our operating partnership is classified for
federal income tax purposes as a partnership, rather than as a
corporation or an association taxable as a corporation. Under
applicable Treasury Regulations, which we refer to as the
“Check-the-Box-Regulations,” an unincorporated
domestic entity with at least two members may elect to be
classified either as an association taxable as a corporation or
as a partnership. If the entity fails to make an election, it
generally will be treated as a partnership for federal income
tax purposes. Our operating partnership intends to be classified
as a partnership for federal income tax purposes and will not
elect to be treated as an association taxable as a corporation
under the Check-the-Box-Regulations.
Even though our operating partnership will not elect to be
treated as an association for Federal income tax purposes, it
may be taxed as a corporation if it is deemed to be a
“publicly traded partnership.” A publicly traded
partnership is a partnership whose interests are traded on an
established securities market or are readily tradable on a
secondary market or the substantial equivalent thereof. Under
applicable Treasury regulations, which we refer to as the
“PTP Regulations,” limited safe harbors from the
definition of a publicly traded partnership are provided.
Pursuant to one of those safe harbors, which we refer to as the
“Private Placement Exclusion,” interests in a
partnership will not be treated as readily tradable on a
secondary market or the substantial equivalent thereof if
(i) all interests in the partnership were issued in a
transaction (or transactions) that were not required to be
registered under the Securities Act and (ii) the
partnership does not have more than 100 partners at any time
during the partnership’s taxable year. In determining the
number of partners in a partnership, a person owning an interest
in a flow-through entity (including a partnership, grantor trust
or S corporation) that owns an interest in the partnership
is treated as a partner in such partnership only if
(a) substantially all of the value of the owner’s
interest in the flow-through entity is attributable to the
flow-through entity’s direct or indirect interest in the
partnership, and (b) a principal purpose of the use of the
flow-through entity is to permit the partnership to satisfy the
100 partner limitation. We and our operating partnership believe
and currently intend to take the position that our operating
partnership should not be
classified as a publicly traded partnership because
(i) common units are not traded on an established
securities market, and (ii) common units should not be
considered readily tradable on a secondary market or the
substantial equivalent thereof. In addition, our operating
partnership presently qualifies for the Private Placement
Exclusion.
Even if our operating partnership were considered a publicly
traded partnership under the PTP Regulations, our operating
partnership should not be treated as a corporation for Federal
income tax purposes as long as 90% or more of its gross income
consists of “qualifying income” under
section 7704(d) of the Code. In general, qualifying income
includes interest, distributions, real property rents (as
defined by section 856 of the Code) and gain from the sale
or disposition of real property. If our operating partnership
were characterized as a publicly traded partnership even if it
were not taxable as a corporation because of the qualifying
income exception, however, holders of common units would be
subject to special rules under section 469 of the Code.
Under such rules, each holder of common units would be required
to treat any loss derived from our operating partnership
separately from any income or loss derived from any other
publicly traded partnership, as well as from income or loss
derived from other passive activities. In such case, any net
losses or credits attributable to our operating partnership
which are carried forward may only be offset against future
income of our operating partnership. Moreover, unlike other
passive activity losses, suspended losses attributable to our
operating partnership would only be allowed upon the complete
disposition of the OP Unit holder’s “entire
interest” in our operating partnership.
We have not requested, and do not intend to request, a ruling
from the Internal Revenue Service that our operating partnership
will be classified as a partnership for federal income tax
purposes.
If for any reason our operating partnership were taxable as a
corporation, rather than a partnership, for federal income tax
purposes, we would not be able to qualify as a REIT, unless we
are eligible for relief from the violation pursuant to relief
provisions described above. See “Requirements for
Qualification as a REIT — Organizational
Requirements” and “Requirements for Qualification as a
REIT — Operational Requirements — Asset
Tests,” above, for discussion of the effect of the failure
to satisfy the REIT tests for a taxable year, and of the relief
provisions. In addition, any change in our operating
partnership’s status for tax purposes might be treated as a
taxable event, in which case we might incur a tax liability
without any related cash distribution. Further, items of income
and deduction of our operating partnership would not pass
through to its partners, and its partners would be treated as
stockholders for tax purposes. Our operating partnership would
be required to pay income tax at corporate tax rates on its net
income, and distributions to its partners would constitute
distributions that would not be deductible in computing our
operating partnership’s taxable income.
Income
Taxation of Our Operating Partnership and its
Partners
Partners, Not Operating Partnership, Subject to
Tax. A partnership is not a taxable entity for
federal income tax purposes. As a partner in our operating
partnership, we will be required to take into account our
allocable share of our operating partnership’s income,
gains, losses, deductions, and credits for any taxable year of
our operating partnership ending within or with our taxable
year, without regard to whether we have received or will receive
any distributions from our operating partnership.
Operating Partnership Allocations. Although a
partnership agreement generally determines the allocation of
income and losses among partners, such allocations will be
disregarded for tax purposes under section 704(b) of the
Code if they do not comply with the provisions of
section 704(b) of the Code and the Treasury Regulations
promulgated thereunder. If an allocation is not recognized for
federal income tax purposes, the item subject to the allocation
will be reallocated in accordance with the partner’s
interests in the partnership, which will be determined by taking
into account all of the facts and circumstances relating to the
economic arrangement of the partners with respect to such item.
Our operating partnership’s allocations of taxable income
and loss are intended to comply with the requirements of
section 704(b) of the Code and the Treasury Regulations
promulgated thereunder.
Tax Allocations With Respect to Contributed
Properties. Pursuant to section 704(c) of
the Code, income, gain, loss, and deduction attributable to
appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must
be allocated for federal income tax purposes in a manner
such that the contributor is charged with, or benefits from, the
unrealized gain or unrealized loss associated with the property
at the time of the contribution. The amount of unrealized gain
or unrealized loss is generally equal to the difference between
the fair market value of the contributed property at the time of
contribution and the adjusted tax basis of such property at the
time of contribution. Under applicable Treasury Regulations,
partnerships are required to use a “reasonable method”
for allocating items subject to section 704(c) of the Code,
and several reasonable allocation methods are described therein.
Under the operating partnership agreement, subject to exceptions
applicable to the special limited partnership interests,
depreciation or amortization deductions of our operating
partnership generally will be allocated among the partners in
accordance with their respective interests in our operating
partnership, except to the extent that our operating partnership
is required under section 704(c) to use a different method
for allocating depreciation deductions attributable to its
properties. In addition, gain or loss on the sale of a property
that has been contributed to our operating partnership will be
specially allocated to the contributing partner to the extent of
any built-in gain or loss with respect to the property for
federal income tax purposes. It is possible that we may
(1) be allocated lower amounts of depreciation deductions
for tax purposes with respect to contributed properties than
would be allocated to us if each such property were to have a
tax basis equal to its fair market value at the time of
contribution, and (2) be allocated taxable gain in the
event of a sale of such contributed properties in excess of the
economic profit allocated to us as a result of such sale. These
allocations may cause us to recognize taxable income in excess
of cash proceeds received by us, which might adversely affect
our ability to comply with the REIT distribution requirements,
although we do not anticipate that this event will occur. The
foregoing principles also will affect the calculation of our
earnings and profits for purposes of determining the portion of
our distributions that are taxable as a distribution. The
allocations described in this paragraph may result in a higher
portion of our distributions being taxed as a distribution than
would have occurred had we purchased such properties for cash.
Basis in Operating Partnership Interest. The
adjusted tax basis of our partnership interest in our operating
partnership generally will be equal to (1) the amount of
cash and the basis of any other property contributed to our
operating partnership by us, (2) increased by (A) our
allocable share of our operating partnership’s income and
(B) our allocable share of indebtedness of our operating
partnership, and (3) reduced, but not below zero, by
(A) our allocable share of our operating partnership’s
loss and (B) the amount of cash distributed to us,
including constructive cash distributions resulting from a
reduction in our share of indebtedness of our operating
partnership. If the allocation of our distributive share of our
operating partnership’s loss would reduce the adjusted tax
basis of our partnership interest in our operating partnership
below zero, the recognition of the loss will be deferred until
such time as the recognition of the loss would not reduce our
adjusted tax basis below zero. If a distribution from our
operating partnership or a reduction in our share of our
operating partnership’s liabilities would reduce our
adjusted tax basis below zero, that distribution, including a
constructive distribution, will constitute taxable income to us.
The gain realized by us upon the receipt of any such
distribution or constructive distribution would normally be
characterized as capital gain, and if our partnership interest
in our operating partnership has been held for longer than the
long-term capital gain holding period (currently one year), the
distribution would constitute long-term capital gain.
Depreciation Deductions Available to Our Operating
Partnership. Our operating partnership will use a
portion of contributions we make from net offering proceeds to
acquire interests in properties and securities. To the extent
that our operating partnership acquires properties or securities
for cash, our operating partnership’s initial basis in such
properties for federal income tax purposes generally will be
equal to the purchase price paid by our operating partnership.
Our operating partnership plans to depreciate each depreciable
property for federal income tax purposes under the alternative
depreciation system of depreciation, which we refer to as
“ADS.” Under ADS, our operating partnership generally
will depreciate buildings and improvements over a
40-year
recovery period using a straight-line method and a mid-month
convention and will depreciate furnishings and equipment over a
12-year
recovery period. To the extent that our operating partnership
acquires properties in exchange for units of our operating
partnership, our operating partnership’s initial basis in
each such property for federal income tax purposes should be the
same as the transferor’s basis in that property on the date
of acquisition by our operating partnership. Although the law is
not entirely clear,
our operating partnership generally intends to depreciate such
depreciable property for federal income tax purposes over the
same remaining useful lives and under the same methods used by
the transferors.
Sale of Our Operating Partnership’s
Property. Generally, any gain realized by our
operating partnership on the sale of property held for more than
one year will be long-term capital gain, except for any portion
of such gain that is treated as depreciation or cost recovery
recapture. Our share of any gain realized by our operating
partnership on the sale of any property held by our operating
partnership as inventory or other property held primarily for
sale to customers in the ordinary course of our operating
partnership’s trade or business will be treated as income
from a prohibited transaction that is subject to a 100% tax. We,
however, do not presently intend to acquire or hold or allow our
operating partnership to acquire or hold any property that
represents inventory or other property held primarily for sale
to customers in the ordinary course of our or our operating
partnership’s trade or business.
C:
Other
Tax Considerations
Legislative
or Other Actions Affecting REITs
The recently enacted American Jobs Creation Act of 2004, which
we refer to as the “2004 Act,” makes numerous changes
to REIT tax rules, including the adoption of new REIT income and
asset test relief provisions, as described above. Except as
noted above, the provisions of the 2004 Act are effective for
taxable years beginning in 2005. In addition, The Jobs and
Growth Tax Relief Reconciliation Act of 2003 reduced the maximum
tax rates at which individuals are taxed on capital gains from
20% to 15% (through 2010) and on distributions payable by
taxable C corporations from 38.6% to 15% (through 2010). While
gains from the sale of the shares of REITs are eligible for the
reduced tax rates, distributions payable by REITs are not
eligible for the reduced tax rates except in limited
circumstances. See “Federal Income Tax
Considerations — Taxation of Taxable
U.S. Stockholders — Distributions
Generally.” As a result, distributions received from REITs
generally will continue to be taxed at ordinary income rates
(now at a maximum rate of 35% through 2010). The more favorable
tax rates applicable to regular corporate distributions could
cause investors who are individuals to perceive investments in
REITs to be relatively less attractive than investments in the
shares of non-REIT corporations that make distributions, which
could adversely affect the value of the shares of REITs,
including our shares.
The rules dealing with federal income taxation are constantly
under review by persons involved in the legislative process and
by the Internal Revenue Service and the U.S. Treasury
Department. For example, the Treasury Department has been
directed by Congress to examine issues relating to the ability
of certain corporations to deduct certain excess interest
payments made to related parties. That report could result in a
legislative proposal that could further limit or completely
eliminate the ability of a taxable REIT subsidiary to deduct
interest payments made to its parent REIT. No assurance can be
given as to whether, or in what form, the proposal described
above (or any other proposals affecting REITs or their
stockholders) will be enacted. Changes to the federal tax laws
and interpretations thereof could adversely affect an investment
in shares of our common stock.
State
and Local Taxation
We and any operating subsidiaries we may form may be subject to
state and local tax in states and localities in which we or they
do business or own property. Our tax treatment, the tax
treatment of our operating partnership, any operating
subsidiaries, joint ventures or other arrangements we or our
operating partnership may form or enter into and the tax
treatment of the holders of our common stock in local
jurisdictions may differ from the federal income tax treatment
described above. Consequently, prospective stockholders should
consult their own tax advisors regarding the effect of state and
local tax laws on their investment in our common stock.
Employee benefit plans that are subject to the fiduciary
provisions of ERISA (including, without limitation, pension and
profit-sharing plans) and plans that are subject to
Section 4975 of the Code (including, without limitation,
IRAs and Keogh plans) and entities deemed to hold “plan
assets” of the foregoing (each, a “Benefit Plan
Investor”), as well as governmental plans, foreign plans
and other employee benefit plans, accounts or arrangements that
are not subject to the fiduciary provisions of ERISA or
Section 4975 of the Code and entities deemed to hold
“plan assets” of any of the foregoing (collectively,
with Benefit Plan Investors, referred to as “Benefit
Plans”), may generally invest in our company, subject to
the following considerations.
The following summary is based on the fiduciary responsibility
provisions of ERISA, relevant regulations and opinions issued by
the United States Department of Labor (the “DOL”) and
court decisions, and on the pertinent provisions of the Code,
regulations issued thereunder and published rulings and
procedures of the Internal Revenue Service as in effect on the
date of this memorandum. This summary does not purport to be
complete and is qualified in its entirety by reference to ERISA
and the Code. No assurance can be given that future regulations,
changes in administrative regulations or rulings or court
decisions will not significantly modify the requirements
summarized herein. Any such changes may be retroactive and
thereby apply to transactions entered into prior to the date of
their enactment or release. In addition, this summary does not
include all of the fiduciary investment considerations relevant
to Benefit Plan Investors, as defined below, and should not be
construed as legal advice or a legal opinion.
C:
General
Fiduciary Considerations for Investment in our Company by
Benefit Plans
The fiduciary provisions of ERISA, and the fiduciary provisions
of pension codes applicable to governmental, foreign or other
employee benefit plans or retirement arrangements that are not
subject to ERISA, may impose limitations on investment in our
company. Fiduciaries of Benefit Plans, in consultation with
their advisors, should consider, to the extent applicable, the
impact of such fiduciary rules and regulations on an investment
in our company. Among other considerations, the fiduciary of the
Benefit Plan should take into account the composition of the
Benefit Plan’s portfolio with respect to diversification;
the cash flow needs of the Benefit Plan and the effect thereon
of the illiquidity of the investment; the economic terms of the
Benefit Plan’s investment in our company; the Benefit
Plan’s funding objectives; the tax effects of the
investment; and the fact that our management will not take the
particular objectives of any investors into account.
It is intended that our assets will not be considered plan
assets of any Benefit Plan or be subject to any fiduciary or
investment restrictions that may exist under pension codes
specifically applicable to such Benefit Plans. Each Benefit Plan
will be required to acknowledge and agree in connection with its
investment in our shares to the foregoing status of our company
and that there is no rule, regulation or requirement applicable
to such investor that is inconsistent with the foregoing
description of us.
Benefit Plan fiduciaries may be required to determine and report
annually the fair market value of the assets of the Benefit
Plan. Since it is expected that there will not be any public
market for our shares, there may not be an independent basis for
the Benefit Plan fiduciary to determine the fair market value of
our shares.
C:
ERISA
Restrictions if the Company Holds Plan Assets
If we are deemed to hold plan assets of Benefit Plan Investors,
the investment in us by each such Benefit Plan Investor could
constitute an improper delegation of investment authority by the
fiduciary of such Benefit Plan Investor. In addition, any
transaction we enter into would be treated as a transaction with
each such Benefit Plan Investor and any such transaction (such
as a property lease, acquisition, sale or financing) with
certain “parties in interest” (as defined in ERISA) or
“disqualified persons” (as defined in
Section 4975 of the Code) with respect to a Benefit Plan
Investor could be a “prohibited transaction” under
ERISA or Section 4975 of the Code. If we were subject to
ERISA, certain aspects of our structure could also violate ERISA.
The DOL has published regulations relating to the definition of
“plan assets,” 29 C.F.R.
Section 2510.3-101,
as modified by ERISA Section 3(42) (the
“Regulation”). Under the Regulation, a Benefit Plan
Investor’s assets would be deemed to include an undivided
interest in each of our underlying assets unless investment us
by Benefit Plan Investors is not “significant” or we
constitute an “operating company” (each as defined
below).
Significant
Investment by Benefit Plan Investors
Investment by Benefit Plan Investors would not be
“significant” if less than 25% of the value of each
class of equity interests in our company (excluding equity
interests held by persons (other than Benefit Plan Investors)
with discretionary authority or control over our assets or that
provide investment advice for a fee (direct or indirect) with
respect to our assets, and affiliates (other than a Benefit Plan
Investor) of any of the foregoing persons) is held by Benefit
Plan Investors. Commingled vehicles that are subject to ERISA
are generally counted as Benefit Plan Investors for this purpose
only to the extent of investment in such entity by Benefit Plan
Investors.
We reserve the right to reject subscriptions in whole or in part
for any reason, including that the investor is a Benefit Plan
Investor. In the event we elect to limit investment in our
company by Benefit Plan Investors, we may have the authority to
restrict transfers of our shares and may require a full or
partial withdrawal of any Benefit Plan Investor to the extent we
deem appropriate to avoid having our assets deemed to be plan
assets of any Benefit Plan Investor.
Operating
Company Status of Company
If participation by Benefit Plan Investors in our company is
“significant” as defined above, we intend to conduct
our operations so as to qualify as an “operating
company,” including a “real estate operating
company”, or a “venture capital operating
company,” so that our assets will not be considered
“plan assets” of any Benefit Plan Investor. In order
to constitute a “venture capital operating company”
under the Regulation, an entity such as our company must, on its
initial valuation date and during each annual valuation period,
have at least 50% of its assets (valued at cost, excluding
short-term investments pending long-term commitment or
distribution) invested in operating companies with respect to
which the entity obtains direct contractual rights to
participate significantly in management decisions, and must
regularly exercise its rights in the ordinary course of its
business. In order to constitute a “real estate operating
company” under the Regulation, an entity such as our
company must, on its initial valuation date and during each
annual valuation period, have at least 50% of its assets (valued
at cost, excluding short-term investments pending long-term
commitment or distribution) invested in real estate which is
managed or developed and with respect to which such entity has
the right to substantially participate directly in the
management or development activities, and must engage directly,
in the ordinary course of its business, in real estate
management or development activities.
There is very little authority regarding the application of
ERISA and the Regulation to entities such as our company, and
there can be no assurance that the DOL or the courts would not
take a position or promulgate additional rules or regulations
that could significantly impact the “plan asset”
status of our company.
C:
Prohibited
Transaction Considerations
Fiduciaries of Benefit Plan Investors should also consider
whether an investment in our company could involve a direct or
indirect transaction with a “party in interest” or
“disqualified person” as defined in ERISA and
Section 4975 of the Code, and if so, whether such
prohibited transaction may be covered by an exemption. ERISA
contains a statutory exemption that permits a Benefit Plan
Investor to enter into a transaction with a person who is a
party in interest or a disqualified person solely by reason of
being a service provider or affiliated with a service provider
to the Benefit Plan Investor, provided that the transaction is
for “adequate consideration.” There are also a number
of statutory or regulatory exemptions or administrative
prohibited transaction class exemptions that may be available to
certain fiduciaries acting on behalf of a Benefit Plan Investor.
Fiduciaries of Benefit Plan Investors should also consider
whether investment in our
company could involve a conflict of interest. In particular, a
prohibited conflict of interest could arise if the fiduciary
acting on behalf of the Benefit Plan Investor has any interest
in or affiliation with our company.
C:
Governmental
Plans
Government sponsored plans are not subject to the fiduciary
provisions of ERISA and are also not subject to the prohibited
transaction provisions under Section 4975 of the Code.
However, federal, state or local laws or regulations governing
the investment and management of the assets of such plans may
contain fiduciary and prohibited transaction requirements
similar to those under ERISA and the Code discussed above and
may include other limitations on permissible investments.
Accordingly, fiduciaries of governmental plans, in consultation
with their advisors, should consider the requirements of their
respective pension codes with respect to investments in our
company, as well as the general fiduciary considerations
discussed above.
The fiduciary of each prospective governmental plan investor
will be required to represent and warrant that investment in our
company is permissible, complies in all respects with applicable
law and has been duly authorized.
C:
Individuals
Investing With IRA Assets
Shares sold by us may be purchased or owned by investors who are
investing assets of their IRAs. Our acceptance of an investment
by an IRA should not be considered to be a determination or
representation by us or any of our respective affiliates that
such an investment is appropriate for an IRA. In consultation
with its advisors, each prospective IRA investor should
carefully consider whether an investment in our company is
appropriate for, and permissible under, the terms of its IRA
governing documents. IRA investors should consider in particular
that our shares will be illiquid and that it is not expected
that a significant market will exist for the resale of our
shares, as well as the other general fiduciary considerations
described above.
Although IRAs are not subject to ERISA, they are subject to the
provisions of Section 4975 of the Code, prohibiting
transactions with “disqualified persons” and
investments and transactions involving fiduciary conflicts. A
prohibited transaction or conflict of interest could arise if
the fiduciary making the decision to invest has a personal
interest in or affiliation with our company or any of its
respective affiliates. In the case of an IRA, a prohibited
transaction or conflict of interest that involves the
beneficiary of the IRA could result in disqualification of the
IRA. A fiduciary for an IRA who has any personal interest in or
affiliation with our company or any of its respective
affiliates, should consult with his or her tax and legal
advisors regarding the impact such interest may have on an
investment in our shares with assets of the IRA.
Acceptance of subscriptions of any benefit plan is in no respect
a representation by us or any other party that such investment
meets the relevant legal requirements with respect to that
benefit plan or that the investment is appropriate for such
benefit plan. Each benefit plan fiduciary should consult with
his or her own legal advisors as to the propriety of an
investment in our company in light of the specific requirements
applicable to that benefit plan.
We are offering a minimum of $2,000,000 (200,000 shares)
and a maximum of $1,650,000,000 in shares of our common stock in
this offering, including $1,500,000,000 in shares of our common
stock (150,000,000 shares) initially allocated to be
offered in the primary offering and $150,000,000 in shares of
our common stock (15,789,474 shares) initially allocated to
be offered pursuant to the distribution reinvestment plan. Prior
to the conclusion of this offering, if any of the
15,789,474 shares of our common stock initially allocated
to the distribution reinvestment plan remain after meeting
anticipated obligations under the distribution reinvestment
plan, we may decide to sell some or all of such shares of common
stock to the public in this offering. Similarly, prior to the
conclusion of this offering, if the 15,789,474 shares of
our common stock initially allocated to the distribution
reinvestment plan have been purchased and we anticipate
additional demand for shares of common stock under our
distribution reinvestment plan, we may choose to reallocate some
or all of the 150,000,000 shares of our common stock
allocated to be offered in the primary offering to the
distribution reinvestment plan. Shares of our common stock in
the primary offering are being offered at $10.00 per share. Any
shares purchased pursuant to the distribution reinvestment plan
will be sold at $9.50 per share.
We are offering the shares of our common stock to the public on
a best efforts basis, which means generally that our dealer
manager and the participating broker-dealers described below
will be required to use only their best efforts to sell the
shares of our common stock, and they have no firm commitment or
obligation to purchase any shares of our common stock. Our
agreement with our dealer manager may be terminated by the
dealer manager upon 60 calendar days’ written notice
or by us upon two business days’ written notice. The
offering will commence as of the effective date of the
registration statement of which this prospectus forms a part.
C:
Minimum
Offering
Subscription proceeds will be placed in escrow with Wells Fargo
Bank, N.A., as escrow agent, until such time as subscriptions
representing $2,000,000 in shares have been received and
accepted by us. Shares purchased by our executive officers and
directors, our dealer manager and our advisor or its affiliates
will not count toward the minimum offering requirements.
Stockholder subscription payments will be deposited into an
interest-bearing escrow account at the escrow agent at or prior
to the end of the next business day following our receipt of
both a check and a completed subscription agreement.
Subscription payments held in the escrow account will be
invested in obligations of, or obligations guaranteed by, the
United States government or bank money-market accounts or
certificates of deposit of national or state banks that have
deposits insured by the Federal Deposit Insurance Corporation
which can be readily sold or otherwise disposed of for cash.
During the period in which we hold subscription payments in
escrow, interest earned thereon will be allocated among
subscribers on the basis of the respective amounts of their
subscriptions and the number of days that such amounts were on
deposit. Subscribers may not withdraw funds from the escrow
account. We will bear all the expenses of the escrow, and, as
such, the amount to be returned to any subscriber will not be
reduced for costs.
Subscriptions will be effective only upon our acceptance, and we
reserve the right to reject any subscription in whole or in
part. Subscriptions will be accepted or rejected within
30 days of receipt by us, and if rejected, all funds will
be returned to subscribers without interest and without
deduction within ten business days from the date the
subscription is rejected. We are not permitted to accept a
subscription for shares of our common stock until at least five
business days after the date you receive this prospectus.
Subject to certain exceptions described in this prospectus, you
must initially invest at least $2,000 in shares of our common
stock. After investors have satisfied the minimum purchase
requirement, minimum additional purchases must be in increments
of $500, except for purchases made pursuant to our distribution
reinvestment plan.
If we do not meet the minimum offering requirements within one
year from the date of this prospectus, (i) the escrow agent
will promptly notify us, (ii) this offering will be
terminated and (iii) the subscription payments held in the
escrow account will be returned, with interest, with respect to
those subscriptions which have been accepted, within ten
business days after the date of termination. In such event, the
escrow agent is obligated to use its best efforts to obtain an
executed Internal Revenue Service
Form W-9
or other tax form applicable from each subscriber. In the event
that a subscriber fails to remit an executed Internal Revenue
Service
Form W-9
or other applicable tax form to the escrow agent prior to the
date the escrow agent returns the subscriber’s funds, the
escrow agent may be required to deduct a
back-up
withholding tax from the earnings attributable to such
subscriber in accordance with the applicable federal tax rules.
We have no right to extend the period in which the minimum
offering requirements must be met. If we meet the minimum
offering requirements within one year after the date of this
prospectus, initial subscribers will be admitted as stockholders
and the funds held in escrow will be transferred to us within
ten days. Once the minimum offering requirements are met,
investors whose subscriptions are accepted will be admitted as
stockholders on the day upon which their subscriptions are
accepted. We may continue to offer shares of our common stock
until two years from the date of this prospectus, unless
extended. However, in certain states the offering may continue
for just one year unless we renew the offering period for up to
one additional year. We reserve the right to terminate this
offering at any time.
C:
Dealer
Manager and Participating Broker-Dealer Compensation and
Terms
Our dealer manager is 1st Worldwide Financial, which has
been a licensed broker-dealer since November 2004. An affiliate
of 1st Worldwide Financial has a minority ownership
interest in IRE Investments, Inc., a subsidiary of our sponsor.
IRE Investments, Inc. was organized in November 2007 for the
purpose of participating in and facilitating the distribution of
securities of Insight Real Estate affiliates. IRE Investments,
Inc. is in the process of applying for registration as a
broker-dealer but is not yet a member firm of FINRA. Once IRE
Investments, Inc. becomes a member of FINRA and has received its
broker-dealer license and certification in all applicable
jurisdictions, IRE Investments, Inc. will assume the right from
1st Worldwide Financial to provide dealer manager services
to us. Our sponsor owns approximately 99.9% of the outstanding
shares of IRE Investments, Inc., and the remaining 0.1% of the
outstanding shares is owned by an affiliate of
1st Worldwide Financial.
Except as provided below, our dealer manager will receive a
selling commission of 7.0% of the gross proceeds from the sale
of shares of our common stock in the primary offering. Our
dealer manager will also receive 2.5% of the gross proceeds from
the sale of shares in the primary offering in the form of a
dealer manager fee as compensation for acting as our dealer
manager. Our advisor will receive up to 3.0% of the aggregate
gross offering proceeds from the sale of shares in the primary
offering to reimburse our advisor for our cumulative
organization and offering expenses such as legal, accounting,
printing and other offering expenses, including marketing,
salaries and direct expenses of its employees, employees of its
affiliates and others while engaged in registering and marketing
the shares of our common stock, which shall include development
of marketing materials and marketing presentations, planning and
participating in due diligence and training and education
meetings and generally coordinating the marketing process for
us. Any such reimbursements will not exceed actual expenses
incurred by the advisor. Our advisor and its affiliates will be
responsible for the payment of our cumulative organization and
offering expenses, other than the selling commission and our
dealer manager fees, to the extent they exceed 3.0% of the
aggregate gross offering proceeds from the sale of shares in the
primary offering, without recourse against or reimbursement by
us. No selling commission or dealer manager fee will be paid for
shares sold pursuant to the distribution reinvestment plan. We
will not pay referral or similar fees to any accountants,
attorneys or other persons in connection with the distribution
of the shares of our common stock.
Our dealer manager may authorize certain additional
broker-dealers who are members of the FINRA to participate in
selling shares of our common stock to investors. Our dealer
manager may re-allow all or a portion of its selling commissions
from the sale of shares in the primary offering to such
participating broker-dealers with respect to shares of our
common stock sold by them. Our dealer manager, in its sole
discretion, may also reallow to participating broker-dealers a
portion of its dealer manager fee for reimbursement of
marketing expenses. The maximum amount of reimbursements would
be based on such factors as the number of shares sold by
participating broker-dealers, the assistance of such
participating broker-dealers in marketing the offering and due
diligence expenses incurred.
As required by the rules of the FINRA, total underwriting
compensation will not exceed 10% of our gross offering proceeds
plus a maximum of 0.5% of gross offering proceeds for
reimbursement of bona fide due diligence expenses. FINRA and
many states also limit our total organization and offering
expenses to 15% of gross offering proceeds. With our
advisor’s obligation to reimburse us to the extent the
organization and offering proceeds (other than our dealer
manager fee and the selling commissions) exceed 3.0% of the
gross offering proceeds from our primary offering, our total
organization and offering expenses are capped at 12.5% of the
gross offering proceeds of our primary offering, as shown in the
following table:
Maximum
Percent of
Gross Offering
Expense
Proceeds
Selling commissions
7.0
%
Dealer manager fee
2.5
%
All other organization and offering expenses
3.0
%
Total
12.5
%
C:
Selling
Commissions and Volume Discounts
To the extent permitted by law and our charter, we will
indemnify the participating broker-dealers, including our dealer
manager, against certain liabilities arising under the
Securities Act and certain liabilities arising from breaches of
our representations and warranties contained in our dealer
manager agreement.
Our executive officers and directors and their immediate family
members, as well as officers and employees of our advisor and
our advisor’s affiliates and their immediate family
members, and, if approved by our board of directors, joint
venture partners, consultants and other service providers may
purchase shares of our common stock in this offering and may be
charged a reduced rate for certain fees and expenses in respect
of such purchases. We expect that a limited number of shares of
our common stock will be sold to such persons. However, except
for certain share ownership and transfer restrictions contained
in our charter, there is no limit on the number of shares of our
common stock that may be sold to such persons. In addition, the
selling commission and dealer manager fee may be reduced or
waived in connection with certain categories of sales, such as
sales for which a volume discount applies, sales to our
affiliates and sales under our distribution reinvestment plan.
The amount of net proceeds to us will not be affected by
reducing or eliminating the selling commissions or the dealer
manager fee payable in connection with sales to such investors
and affiliates. Our advisor and its affiliates will be expected
to hold their shares of our common stock purchased as
stockholders for investment and not with a view towards
distribution. Shares of our common stock purchased by our
executive officers and directors, our advisor and by officers,
employees or other affiliates of our advisor shall not count
toward the minimum offering requirements.
Certain institutional investors and our affiliates may also
agree with a participating broker-dealer selling shares of our
common stock (or with our dealer manager if no participating
broker-dealer is involved in the transaction) to reduce or
eliminate the selling commission. The amount of net proceeds to
us will not be affected by reducing or eliminating commissions
payable in connection with sales to such institutional investors
and affiliates.
In connection with sales of over $250,000 or more to a
qualifying purchaser (as defined below), a participating
broker-dealer may offer such qualifying purchaser a volume
discount by reducing the amount of its selling commissions. Such
reduction would be credited to the qualifying purchaser by
reducing the total purchase price of the shares payable by the
qualifying purchaser.
Assuming a public offering price of $10.00 per share, the
following table illustrates the various discount levels that may
be offered to qualifying purchasers by participating
broker-dealers for shares purchased in the primary offering:
Commissions
on Sales per Incremental Share in Volume Discount
Range
Dealer
Percentage
Amount
Manager
Net
Dollar Volume
Purchase Price per
(Based on
per
Fee per
Proceeds
of Shares Purchased
Share to Investor
$10.00/Share)
Share
Share
per Share
$250,000 or less
$
10.00
7.0
%
$
0.70
$
0.25
$
9.05
$250,001-$500,000
$
9.90
6.0
%
$
0.60
$
0.25
$
9.05
$500,001-$1,000,000
$
9.80
5.0
%
$
0.50
$
0.25
$
9.05
$1,000,001-$2,000,000
$
9.70
4.0
%
$
0.40
$
0.25
$
9.05
$2,000,001-$3,000,000
$
9.60
3.0
%
$
0.30
$
0.25
$
9.05
$3,000,001-$5,000,000
$
9.50
2.0
%
$
0.20
$
0.25
$
9.05
Over $5,000,001
$
9.40
1.0
%
$
0.10
$
0.25
$
9.05
For example, if an investor purchases $1,250,000 of shares, he
would pay (1) $250,000 for the first 25,000 shares
($10.00 per share), (2) $249,999 for the next
25,252 shares ($9.90 per share), (3) $499,999 for the
next 51,020 shares ($9.80 per share) and (4) $250,002
for the remaining 25,773 shares ($9.70 per share). As such,
the investor would be able to purchase 127,046 shares as
opposed to 125,000 shares, the amount of shares he could
have purchased for $1,250,000 at $10.00 per share if there were
no volume discounts. The commission on the sale of such shares
would be $68,470.97 (approximately $0.54 per share) and, after
payment of our dealer manager fee of $31,761.53 ($0.25 per
share), we would receive net proceeds of $1,149,767.50 ($9.05
per share). The net proceeds to us will not be affected by
volume discounts.
Subscriptions may be combined for the purpose of determining
volume discount levels in the case of subscriptions made by any
qualifying purchaser (as defined below), provided all such
shares are purchased through the same broker-dealer. Any such
reduction in the selling commission would be prorated among the
separate investors. Requests to combine subscriptions as a
qualifying purchaser must be made in writing to our dealer
manager and any such request is subject to verification and
approval by our dealer manager.
The term “qualifying purchaser” includes:
•
An individual, his or her spouse and members of their immediate
families who purchase the shares for his, her or their own
accounts;
•
A corporation, partnership, association, joint-stock company,
trust fund or any organized group of persons, whether
incorporated or not;
•
An employees’ trust, pension, profit sharing or other
employee benefit plan qualified under Section 401(a) of the
Code; and
•
All commingled trust funds maintained by a given bank.
Notwithstanding the above, our dealer manager may, at its sole
discretion, enter into an agreement with a participating
broker-dealer, whereby such broker-dealer may aggregate
subscriptions as part of a combined order for the purposes of
offering investors reduced selling commissions to as low as
4.0%, provided that any such aggregate group of subscriptions
must be received from such broker-dealer. Additionally, our
dealer manager may, at its sole discretion, aggregate
subscriptions as part of a combined order for the purposes of
offering investors reduced selling commissions to as low as
4.0%, provided that any such aggregate group of subscriptions
must be received from our dealer manager. Any reduction in
selling commissions would be prorated among the separate
subscribers.
Investors should ask their broker-dealer about the opportunity
to receive volume discounts by either qualifying as a qualifying
purchaser or by having their subscription(s) aggregated with the
subscriptions of other investors, as described above.
In order to encourage purchases of shares of our common stock in
excess of $3,000,000, the dealer manager may, in its sole
discretion, agree with a qualifying purchaser to reduce the
dealer, manager fee with respect to all shares purchased by the
qualifying purchaser to as low as $0.05 per share (0.5% of the
primary offering price) and the sales commission with respect to
all shares purchased by the qualifying purchaser to as low as
$0.05 per share (0.5% of the primary offering price).
Additionally, our advisor may, in its sole discretion, agree
with a qualifying purchaser to reduce the organizational and
offering expense reimbursement with respect to all shares
purchased by the qualifying purchaser to as low as $0.05 per
share (0.5% of the primary offering price). Assuming a primary
offering price of $10.00 per share, if a qualifying purchaser
acquired in excess of $3,000,000 of shares, the qualifying
purchaser could pay as little as $8.90 per share purchased. The
net proceeds to us would not be affected by such fee reductions.
Investors may also agree with the participating broker-dealer
selling them shares (or with the dealer manager if no
participating broker dealer is involved in the transaction) to
reduce the amount of sales commission to zero (i) in the
event the investor has engaged the services of a registered.
investment advisor with whom the investor has agreed to pay a
fee for investment advisory services, or (ii) in the event
the investor is investing in a bank trust account with respect
to which the investor has delegated the decision-making
authority for investments made in the account to a bank trust
department. The amount of net proceeds would not be affected by
eliminating commissions payable in connection with sales to
investors purchasing through such registered investment advisors
or bank trust department. All such sales must be made through
registered broker-dealers. Neither the dealer manager nor its
affiliates will directly or indirectly compensate any person
engaged as an investment advisor or a bank trust department by a
potential investor as an inducement for such investment advisor
or bank trust department to advise favorably for an investment
in our shares of common stock.
C:
SUPPLEMENTAL
SALES MATERIAL
In addition to this prospectus, we may utilize certain sales
material in connection with the offering of shares of our common
stock, although only when accompanied by or preceded by the
delivery of this prospectus. In certain jurisdictions, some or
all of such sales material may not be available. This material
may include information relating to this offering, the past
performance of our sponsor and its affiliates, property
brochures and articles and publications concerning real estate.
In addition, the sales material may contain certain quotes from
various publications without obtaining the consent of the author
or the publication for use of the quoted material in the sales
material.
The offering of shares of our common stock is made only by means
of this prospectus. Although the information contained in such
sales material will not conflict with any of the information
contained in this prospectus, such material does not purport to
be complete, and should not be considered a part of this
prospectus or the registration statement of which this
prospectus is a part, or as incorporated by reference in this
prospectus or said registration statement or as forming the
basis of the offering of the shares of our common stock.
EXPERTS
The consolidated balance sheet as of November 9, 2007
(capitalization) included in this prospectus has been audited by
Deloitte & Touche LLP, an independent registered
public accounting firm, as stated in their report appearing
herein, and is included in reliance upon the report of such firm
given upon their authority as experts in accounting and auditing.
C:
LEGAL
MATTERS
Certain legal matters in connection with this offering will be
passed upon for us by Alston & Bird LLP in Atlanta,
Georgia. The legality of the shares of our common stock being
offered hereby and certain other matters under Maryland law have
been passed upon for us by Venable LLP in Baltimore, Maryland.
The statements relating to certain federal income tax matters
under the caption “Federal Income Tax
Considerations” have been reviewed by, and our
qualification as a REIT for federal income tax purposes and the
partnership status of our operating partnership for federal
income tax purposes has been passed upon by, Baker &
McKenzie LLP, Chicago, Illinois.
C:
ADDITIONAL
INFORMATION
We have filed with the SEC a registration statement under the
Securities Act on
Form S-11
regarding this offering. This prospectus, which is part of the
registration statement, does not contain all the information set
forth in the registration statement and the exhibits related
thereto filed with the SEC, reference to which is hereby made.
Upon the effectiveness of the registration statement, we will be
subject to the informational reporting requirements of the
Exchange Act, and under the Exchange Act, we will file reports,
proxy statements and other information with the SEC. You may
read and copy the registration statement, the related exhibits
and the reports, proxy statements and other information we file
with the SEC at the SEC’s public reference facilities
maintained by the SEC at 100 F Street, N.E.,
Washington, DC 20549. You can also request copies of those
documents, upon payment of a duplicating fee, by writing to the
SEC. Please call the SEC at
1-800-SEC-0330
for further information regarding the operation of the public
reference rooms. The SEC also maintains an internet site that
contains reports, proxy and information statements and other
information regarding issuers that file with the SEC. The
site’s Internet address is www.sec.gov.
You may also request a copy of these filings at no cost, by
writing or telephoning us at:
Within 120 days after the end of each fiscal year we will
provide to our stockholders of record an annual report. The
annual report will contain audited financial statements and
certain other financial and narrative information that we are
required to provide to stockholders.
We also maintain a website at www.greenrealtytrust.com, where
there may be additional information about our business, but the
contents of that site are not incorporated by reference in or
otherwise a part of this prospectus.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholder of
Green Realty Trust, Inc.
Chicago, Illinois
We have audited the accompanying consolidated balance sheet of
Green Realty Trust, Inc. and subsidiaries (the
“Company”) as of November 9, 2007
(capitalization). This consolidated balance sheet is the
responsibility of the Company’s management. Our
responsibility is to express an opinion on this consolidated
balance sheet based on our audit.
We conducted our audit in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audit included
consideration of internal control over financial reporting as a
basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion
on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence
supporting the amounts and disclosures in the consolidated
balance sheet, assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall balance sheet presentation. We believe that our
audit provides a reasonable basis for our opinion.
In our opinion, such consolidated balance sheet presents fairly,
in all material respects, the financial position of Green Realty
Trust, Inc. and subsidiaries as of November 9, 2007
(capitalization), in conformity with accounting principles
generally accepted in the United States of America.
Green Realty Trust, Inc. (“Green Realty”) was formed
as a Maryland corporation on October 26, 2007 (inception)
and intends to qualify as a real estate investment trust
(“REIT”). Substantially all of Green Realty’s
business is expected to be conducted through Green REIT
Operating Partnership, LP (“Green REIT OP”), a
Delaware limited partnership formed on October 29, 2007.
Insight Green REIT Advisor, LLC (the “Advisor”), and
Insight Management, LLC are the limited partners of Green REIT
OP. The Advisor has contributed $1,000 in exchange for 100
common units of Green REIT OP and Insight Management, LLC has
contributed $1,000 in exchange for 100 special units of Green
REIT OP. Green Realty is the sole general partner of Green REIT
OP and has contributed $1,000 to Green REIT OP. Neither Green
Realty nor Green REIT OP has engaged in any operations to date.
Green Realty intends to offer for sale up to $1,650,000,000 in
shares of common stock. The offer will be for $1,500,000,000 in
shares offered to investors at a price of $10.00 per share and
$150,000,000 in shares offered to stockholders pursuant to a
distribution reinvestment plan at a price of $9.50 per share
(the “Offering”). Green Realty has the right to
reallocate the shares of common stock offered between the
primary offering and the distribution reinvestment plan.
Green Realty and Green REIT OP will execute an agreement with
the Advisor prior to the effective date of the Offering. Under
this agreement, the Advisor will manage the day-to-day
activities of Green Realty and implement the investment strategy.
Green Realty expects to invest in a diversified portfolio of
environmentally-friendly or green real properties. The
investment strategy is to invest primarily in high quality,
income-producing properties of a variety of property types.
Green Realty may also make or acquire first mortgages or second
mortgages, mezzanine loans and preferred equity investments if,
in each case, all or a majority in value of the underlying real
estate meets the same criteria of the direct real estate
investments. Green properties are those which are recognized for
their efficient use of natural resources. Targeted investments
include green properties that (1) are certified under the
Leadership in Energy and Environmental Design
(LEED®)
Green Building Rating
Systemtm,
(2) satisfy criteria for energy and environmental design
under other established environmental rating systems or
(3) are properties that Green Realty intends to develop,
re-develop or renovate for subsequent certification as green
properties.
As of November 9, 2007, Green Realty and Green REIT OP have
neither purchased nor contracted to purchase any assets, nor has
the Advisor identified any assets in which there is a reasonable
probability the Green Realty and Green REIT OP will invest.
Insight Real Estate, LLC (“Insight Real Estate”) is
the sponsor of the Offering for Green Realty and the sole
stockholder of Green Realty. Insight Real Estate is majority
owned by Wayne R. Hannah III.
2. SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation and Basis of Presentation
The accompanying consolidated balance sheet includes the
accounts of Green Realty and Green REIT OP. The balance sheet of
Green REIT OP is prepared using accounting policies consistent
with Green Realty. All significant intercompany balances and
transactions are eliminated upon consolidation.
Use of
Estimates
The preparation of the consolidated balance sheet in conformity
with accounting principles generally accepted in the United
States requires management to make estimates and assumptions
that affect the amounts
reported in the consolidated balance sheet and accompanying
notes. Actual results could differ from those estimates.
Cash
and Cash Equivalents
Green Realty considers all highly liquid investments purchased
with an original maturity of three months or less to be cash
equivalents. Cash equivalents may include cash and short-term
investments. Short term investments are stated at cost, which
approximates fair value and may consist of investments in money
market accounts. There are no restrictions on the use of Green
Realty’s cash balances.
Offering
and Related Costs
Organization and offering costs of Green Realty are incurred by
the Advisor on behalf of Green Realty and, accordingly, are not
a direct liability of Green Realty. Under the terms of the
agreement to be executed with the Advisor, upon the sale of
shares of common stock to the public, Green Realty and Green
REIT OP will be obligated to reimburse the Advisor for
organization and offering costs. The amount of the reimbursement
to the Advisor for cumulative organization and offering costs is
limited to a maximum amount of up to 3% of the aggregate gross
proceeds from the sale of the shares of common stock sold. Such
costs shall include legal, accounting, printing and other
accountable offering expenses, including, but not limited to,
amounts to reimburse the Advisor for marketing, salaries and
direct expenses of its employees, employees of its affiliates
and others while engaged in registering and marketing the shares
of Green Realty’s common stock to be sold in this offering,
which shall include, but not be limited to, development of
marketing materials and marketing presentations, participating
in due diligence and marketing meetings and coordinating
generally the marketing process. On November 19, 2007, the
Securities and Exchange Commission and the Financial Industry
Regulatory Authority filing fees in the amount of $126,155 have
been paid by Green Realty from the proceeds of the initial
common stock issuance.
Stockholder’s
Note Receivable
The amounts due from Insight Real Estate under the Promissory
Note dated November 9, 2007, are non-interest bearing,
unsecured, and payable on the date that the offering is declared
effective.
Income
Taxes
Green Realty intends to elect to be taxed as a REIT under the
Internal Revenue Code of 1986, as amended (the
“Code”), commencing with the taxable year in which
Green Realty satisfies the minimum offering requirements. Green
Realty’s qualification and taxation as a REIT depends on
its ability, on a continuing basis, to meet certain
organizational and operational qualification requirements
imposed upon REITs by the Code. If Green Realty fails to qualify
as a REIT for any reason in a taxable year, it will be subject
to tax on its taxable income at regular corporate rates. Green
Realty would not be able to deduct distributions paid to
stockholders in any year in which it fails to qualify as a REIT.
Green Realty will also be disqualified for the four taxable
years following the year during which qualification was lost
unless Green Realty is entitled to relief under specific
statutory provisions.
3. STOCKHOLDER’S
EQUITY
General
As of November 9, 2007, Green Realty has issued
110,497 shares of common stock to Insight Real Estate, in
exchange for $200,000 in cash and $800,000 represented by a
promissory note. These shares were issued at a non-public price
(no selling commissions or dealer manager fees) of
$9.05 per share. The promissory note is presented in the
accompanying balance sheet as a reduction to stockholder’s
equity.
Green Realty has the authority to issue a total of
200,000 shares of common stock with a par value of $0.01
per share. The holders of shares of the common stock are
entitled to one vote per share on all matters voted on by
stockholders, including election of the Board of Directors.
Green Realty’s charter does not provide for cumulative
voting in the election of directors.
Long
Term Incentive Plan
Prior to the effective date of the Offering, Green Realty
intends to adopt a long-term incentive plan, which will be used
to attract and retain qualified independent directors,
employees, consultants and advisors. The long-term incentive
plan will offer these individuals an opportunity to participate
in the growth of Green Realty through awards in the form of, or
based on, common stock. Awards granted under the long-term
incentive plan shall not exceed an amount equal to a certain
percentage of the outstanding shares of the common stock on the
date of grant of any such restricted stock awards. The board of
directors will administer the long-term incentive plan, with
sole authority to determine all of the terms and conditions of
the awards, including whether the grant, vesting or settlement
of awards may be subject to the attainment of one or more
performance goals. No awards will be granted under the plan if
the grant or vesting of the awards would jeopardize Green
Realty’s status as a REIT under the Code or otherwise
violate the ownership and transfer restrictions imposed under
Green Realty’s charter. Unless otherwise determined by the
board of directors, no award granted under the long-term
incentive plan will be transferable except through the laws of
descent and distribution.
Distribution
Reinvestment Plan
Green Realty has adopted a distribution reinvestment plan that
will allow stockholders to have cash otherwise distributable
invested in additional shares of its common stock at a price
equal to $9.50 per share. Stockholders who elect to participate
in the distribution reinvestment plan, and who are subject to
United States federal income taxation laws, will incur a tax
liability on an amount equal to the fair value on the relevant
distribution date of the shares of Green Realty’s common
stock purchased with reinvested distributions, even though such
stockholders have elected not to receive the distributions used
to purchase those shares of common stock in cash.
Share
Redemption Program
Green Realty’s share redemption program may provide a
limited opportunity for stockholders to have shares of common
stock redeemed, subject to certain restrictions and limitations,
at a price equal to or at a discount from the purchase price
paid for the shares being redeemed. The discount will vary based
upon the length of time that the shares of Green Realty’s
common stock subject to redemption have been held, as described
in the following table:
Redemption Price as a
Share Purchase Anniversary
Percentage of Purchase Price
Less than 1 year
90.0
%
1 year
92.5
%
2 years
95.0
%
3 years
97.5
%
4 years and longer
100.0
%
Redemption of shares of common stock will be made quarterly upon
written notice received by Green Realty at least 15 days
prior to the end of the applicable quarter. Redemption requests
will be honored approximately 30 days following the end of
the applicable quarter, which is referred to as the
“redemption
date.” Stockholders may withdraw their redemption request
at any time up to three business days prior to the redemption
date.
Green Realty is not obligated to redeem shares of its common
stock under the share redemption program. The board of directors
may, in its sole discretion, amend, suspend, or terminate the
share redemption program at any time if it determines that the
funds available to fund the share redemption program are needed
for other business or operational purposes or that amendment,
suspension or termination of the share redemption program is in
the best interest of Green Realty’s stockholders. If the
board of directors decides to amend, suspend or terminate the
share redemption program, stockholders will be provided with no
less than 30 days’ written notice.
4. RELATED
PARTY TRANSACTIONS
Advisory
Agreement
Green Realty and Green REIT OP will enter into an Advisory
Agreement that will become effective on the date the
registration statement for Green Realty’s initial public
offering is declared effective. Pursuant to the Advisory
Agreement, the Advisor is entitled to specified fees for certain
services, including managing the day-to-day activities and
implementing Green Realty’s investment strategy.
Under the terms of the Advisory Agreement, Green Realty will
reimburse the Advisor for cumulative organizational and offering
costs in an amount up to 3.0% of the aggregate gross proceeds
from the sale of shares of common stock sold in the primary
offering, including legal, accounting, printing and expenses
attributable to the organization, preparing the registration
statement, qualification of the shares of common stock for sale
in the states and filing fees incurred by the Advisor, as well
as reimbursements for marketing, salaries and direct expenses of
its employees while engaged in registering and marketing the
shares of common stock, other than the sales commission and the
dealer manager fee.
Green Realty will reimburse the Advisor for the actual cost of
goods and services used by Green Realty and obtained from
entities not affiliated with the Advisor, including brokerage
fees paid in connection with the purchase and sale of Green
Realty’s properties and securities, but excluding
acquisition expenses.
The Advisor will be reimbursed for administrative services
including related personnel costs; provided, however, that
reimbursement will not be provided for personnel costs in
connection with services for which the Advisor receives a
separate acquisition fee, asset management fee or real estate
sales commission.
Property
Manager
Certain of Green Realty’s real properties may be managed
and leased by Insight Property Management, LLC, (“Property
Manager”) an affiliated property manager. Insight Property
Management, LLC is wholly owned by Insight Real Estate and was
organized in September 2007 to lease and manage real properties
acquired by Insight Real Estate affiliates or other third
parties.
The Property Manager will be paid a property management fee
equal to 4.0% of the annual gross income of each of Green
Realty’s real properties it manages. The Property Manager
may also be reimbursed for property-level expenses that it pays
or incurs on behalf of Green Realty such as salaries and benefit
expenses for on-site employees and other miscellaneous expenses.
In addition, the Property Manager may be paid a separate fee for
any leasing services it provides to Green Realty 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.
The Property Manager will hire, direct and establish policies
for employees who will have direct responsibility for the
operations of each real property it manages, which may include,
but is not limited, to
on-site
managers and building and maintenance personnel. Certain
employees of the Property Manager may be
employed on a part-time basis and may also be employed by the
Advisor, the Dealer Manager (as defined below) or certain
companies affiliated with them. The Property Manager will also
direct the purchase of equipment and supplies and will supervise
all maintenance activity.
Dealer
Manager
Green Realty’s current dealer manager is
1st Worldwide
Financial (“Dealer Manager”). The Dealer Manager has
been a licensed broker-dealer since November 2004. The Dealer
Manager will provide certain sales, promotional and marketing
services in connection with the distribution of the shares of
common stock offered. The Dealer Manager will be paid a sales
commission equal to 7.0% of the gross proceeds from the sale of
shares of the common stock sold in the primary offering and a
dealer manager fee equal to 2.5% of the gross proceeds from the
sale of shares of the common stock sold in the primary offering.
An affiliate of the Dealer Manager has a minority ownership
interest in IRE Investments Inc. (“IRE Investments”),
a subsidiary of Insight Real Estate, LLC. IRE Investments was
organized in November 2007 for the purpose of participating in
and facilitating the distribution of securities of Insight Real
Estate affiliates. IRE Investments is in the process of applying
for registration as a broker-dealer but is not yet a member firm
of FINRA. Once IRE Investments becomes a member of FINRA and has
received its broker-dealer license and certification in all
applicable jurisdictions, IRE Investments will assume the right
from the Dealer Manager to provide dealer manager services to
Green Realty. Insight Real Estate owns approximately 99.9% of
the outstanding shares of IRE Investments, and the remaining
0.1% of the outstanding shares is owned by an affiliate of the
Dealer Manager.
5. MINORITY
INTEREST
On November 9, 2007, Green REIT OP issued 100 common units
to the Advisor in exchange for $1,000. Also on November 9,2007, Green REIT OP issued 100 special units to Insight
Management, LLC, a subsidiary of Insight Real Estate, in
exchange for $1,000. The resale of any shares by affiliates is
subject to the provisions of Rule 144 promulgated under the
Securities Act, which rule limits the number of shares that may
be sold at any one time and the manner of such resale.
The Green REIT OP operating partnership agreement generally
provides that, except as provided below with respect to the
special units, the operating partnership will distribute cash
flow from operations and net sales proceeds from disposition of
assets, to the partners of Green REIT OP in accordance with
their relative percentage interests, on at least a quarterly
basis, in amounts determined by Green Realty, the general
partner, such that a holder of one common unit will generally
receive the same amount of annual cash flow distributions from
Green REIT OP as the amount of annual distributions paid to the
holder of one share of Green Realty common stock. Under certain
circumstances, the common units are convertible into shares of
Green Realty common stock on a one-for-one basis.
The holders of the special units will be entitled to
distributions from Green REIT OP in an amount equal to 15% of
net sales proceeds received by Green REIT OP on dispositions of
its assets and dispositions of real properties by joint ventures
or partnerships in which Green REIT OP owns a partnership
interest, after the holders of common units, have received, in
the aggregate, cumulative distributions from operating income,
sales proceeds or other sources, equal to their capital
contributions plus a 8% cumulative non-compounded annual pre-tax
return thereon.
6. ECONOMIC
DEPENDENCY
Green Realty will be dependent on the Advisor, or its affiliates
and the Property Manager for certain services that are essential
to Green Realty, including the sale of Green Realty’s
shares of common stock, asset acquisition and disposition
decisions, and other general and administrative
responsibilities. In the event that
The following prior performance tables provide information
relating to the real estate investment programs sponsored by
Insight Real Estate, LLC (the “Sponsor”) and its
affiliates, collectively referred to herein as the “Prior
Programs.” These programs were not prior programs of Green
Realty Trust, Inc. and none of the Prior Programs were public
offerings. Furthermore, all of the Prior Programs were
tenant-in-common,
or TIC, programs. Accordingly, none of the Prior Programs have
investment objectives similar to ours. The objectives of
tenant-in-common
offerings differ from those of a REIT. A
tenant-in-common
offering is designed to allow investors the ability to acquire
an undivided fractional fee simple interest in real estate and
assume a proportional share of non-recourse debt. In contrast, a
REIT offering allows investors to acquire shares in a corporate
entity. While both REITs and
tenant-in-common
offerings acquire ownership interests in real estate, the nature
of a REIT stockholder’s investment is fundamentally
different from an investor acquiring a direct fee simple
interest in real estate, as occurs in a
tenant-in-common
offering. Furthermore, the goals of an investor in a REIT are
substantially different from the goals of an investor in a
tenant-in-common
transaction. A
tenant-in-common
investor, for example, frequently has as primary investing goal,
the deferral of capital gains tax liability through the use of a
like kind exchange under Section 1031 of the Internal
Revenue Code of 1986, as amended. This tax deferral mechanism is
not available to the REIT investor. Furthermore, although REIT
investors and
tenant-in-common
investors both share a goal of receipt of income over the life
of their investment, REIT investors are subject to more
irregular distributions in the nature of dividends related to
the uncertainty of the portfolio acquired by the blind pool
REIT, while
tenant-in-common
investors receive a fixed income stream over the life of their
investment based on a single property identified prior to the
investment. REIT investors rely heavily on the performance of
the sponsor in selecting a portfolio of real estate assets which
will cause the net asset value of their shares to increase over
the term of the investment, while
tenant-in-common
investors are concerned with the appreciation of one particular
asset due to that asset’s real estate fundamentals.
Finally, the goals of Green Realty Trust, Inc.’s investment
strategy are focused on
environmentally-friendly
or green properties; the investment strategy of tenant-in-common
programs, including those of the Prior Programs, are not so
narrowly defined. We have included the Prior Programs because
the management is the same as for this offering. This is Green
Realty Trust, Inc.’s first public offering.
This information should be read together with the summary
information included in the “Prior Performance
Summary” section of this prospectus.
INVESTORS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES
AS IMPLYING, IN ANY MANNER, THAT WE WILL HAVE RESULTS COMPARABLE
TO THOSE REFLECTED IN SUCH TABLES. DISTRIBUTABLE CASH FLOW,
FEDERAL INCOME TAX DEDUCTIONS OR OTHER FACTORS COULD BE
SUBSTANTIALLY DIFFERENT. INVESTORS SHOULD NOTE THAT, BY
ACQUIRING OUR SHARES, THEY WILL NOT BE ACQUIRING ANY INTEREST IN
ANY PRIOR PROGRAM.
Description
of the Tables
All information contained in the Tables in this Appendix A
is as of December 31, 2006 and has been prepared based on
generally accepted accounting principles. The following is a
brief description of the tables.
Table
I — Experience in Raising and Investing Funds
(unaudited)
Table I presents information showing the experience of the
Sponsor and affiliates in raising and investing funds for the
Prior Programs, the offerings of which have closed since
December 31, 2003.
Table
II — Compensation to the Sponsor (unaudited)
Table II provides information on a total dollar basis
regarding amounts and types of compensation paid to the Sponsor
or affiliates of the Prior Programs, the offerings of which have
closed since December 31, 2003.
TABLE
I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(UNAUDITED)
Table I presents information showing the experience of the
Sponsor and affiliates in raising and investing funds for Prior
Programs not having similar investment objectives to ours.
Information is included for 11
tenant-in-common
offerings that closed since December 31, 2003. A
tenant-in-common
offering is designed to allow investors the ability to acquire
an undivided fractional fee simple interest in real estate and
assume a proportional share of non-recourse debt. In contrast, a
REIT offering allows investors to acquire shares in a corporate
entity. Because none of these
tenant-in-common
offerings have investment objectives similar to ours,
information regarding the
tenant-in-common
programs is grouped together by year.
2004
2005
2006
Dollar Amount Offered
$
37,129,712
$
27,783,683
$
32,255,641
Percentage Amount Raised
100%
100%
100%
Less Offering Expenses:
Selling Commissions
20.57%
19.64%
15.45%
Legal
2.66%
4.50%
2.65%
Mortgage Broker Fee
1.42%
1.64%
2.10%
Mezzanine Fee
2.08%
1.08%
1.39%
Other(1)
0.26%
0.00%
0.00%
Reserves
Percent available for investment
—
—
—
Acquisition Costs:
Prepaid items and fees related to purchase of property
—
—
—
Cash Down Payment and Mortgage Loan
71.25%
72.24%
78.09%
Acquisition Fees
1.76%
0.90%
0.32%
Total Acquisition Cost
Percent leverage (mortgage financing divided by total
acquisition cost)
62%
60%
56%
Number of Offerings
3
4
4
Length of Offering in Days
74
44
121
Months to invest 90 percent of amount available for
investment (measured from the beginning of offering)(2)
—
—
—
(1)
Other represents seller financed loan fees.
(2)
Investors in a
tenant-in-common
offering invest directly in the real estate. Accordingly, this
item is not applicable.
Table II provides information on a total dollar basis
regarding amounts and types of compensation paid to the Sponsor
or affiliates of Prior Programs not having similar investment
objectives to ours. Information is included for 11
tenant-in-common
offerings that closed since December 31, 2003. Information
is also included in the column labeled “Other” for
aggregate payments made to the Sponsor in the last three years
by three other tenant-in-common programs, the offerings of which
did not close in such time period. A
tenant-in-common
offering is designed to allow investors the ability to acquire
an undivided fractional fee simple interest in real estate and
assume a proportional share of non-recourse debt. In contrast, a
REIT offering allows investors to acquire shares in a corporate
entity. Because none of these
tenant-in-common
offerings have investment objectives similar to ours,
information regarding the
tenant-in-common
programs is grouped together by year.
2004
2005
2006
Other
Dollar Amount Raised
37,129,712
27,783,683
32,255,641
2,920,132
Amount Paid to Sponsor from Proceeds of Offering
Underwriting Fees
—
—
—
—
Acquisition Fees
Real Estate Commissions
—
—
—
—
Advisory Fees(1)
4,165,524
3,270,448
2,424,904
—
Amount Paid to Third Parties from Proceeds of Offering
Acquisition Fees to Third Parties
654,266
250,643
104,251
8,702
Broker Dealer Commissions
3,473,326
2,185,539
2,558,290
227,898
Mortgage Broker Fees
528,675
454,875
676,762
72,574
Mezzanine Broker Fees
770,661
300,000
448,000
—
Legal
986,706
1,251,013
854,742
33,903
Other Equity Fees(2)
97,000
—
—
—
Dollar Amount of Cash Generated from Operations before Deducting
Payments to Sponsor
—
—
—
—
Amount Paid to Sponsor from Operations:
Property Management Fees
—
—
—
—
Partnership Management Fees
—
—
—
—
Reimbursements
—
—
—
—
Leasing Commissions
—
—
—
—
Dollar amount of Property Sales and Refinancing Before Deduction
Payments to Sponsor:
Cash
—
—
—
—
Notes
—
—
—
—
Amount Paid to Sponsor from Property Sales and Refinancing:
Real Estate Commissions
—
—
—
—
Incentive Fees
—
—
—
—
Notes to Table II
(1)
Advisory fees are in the form of net profit paid to the
affiliates for services in connection with the
tenant-in-common
offerings.
(2)
Other equity fees represents seller financed loan fees.
TABLE
III
OPERATING RESULTS OF PRIOR PROGRAMS
(UNAUDITED)
Table III sets forth the operating results of Prior
Programs not having similar investment objectives to ours that
closed since December 31, 2001. Information is included for
19
tenant-in-common
offerings. A
tenant-in-common
offering is designed to allow investors the ability to acquire
an undivided fractional fee simple interest in real estate and
assume a proportional share of non-recourse debt. In contrast, a
REIT offering allows investors to acquire shares in a corporate
entity. Because none of these
tenant-in-common
offerings have investment objectives similar to ours,
information regarding the
tenant-in-common
programs is grouped together by year.
2006
2005
2004
2003
2002
Gross Revenues(1)
$
35,803,537
$
23,883,462
$
16,638,280
$
8,947,637
$
1,428,622
Profit on Sale of Properties
—
—
—
—
—
Operations Expenses
Rent, Master Lease(2)
31,237,260
19,815,196
14,593,065
7,838,060
1,404,028
Maintenance
2,212,519
1,491,374
797,413
951,194
0
Insurance
445,684
387,591
254,083
69,586
2,103
Real Estate Taxes
3,594,150
2,587,674
1,452,721
(10,795
)
13,828
Property Management Fees
600,348
731,196
445,118
143,493
0
Utilities
738,889
473,069
348,587
95,767
0
Other(3)
314,228
544,414
289,031
42,067
0
Net Operating Income (Loss)
(3,339,541
)
(2,147,052
)
(1,541,738
)
(181,735
)
8,663
General and Administrative Expenses(4)
262,661
47,112
100,794
58,215
(767
)
Net Income (Loss)
(3,602,202
)
(2,194,164
)
(1,642,532
)
(239,950
)
9,430
Taxable Income (Loss)(5)
From Operations
131,185
(58,046
)
(141,636
)
15,464
25,430
From Gain on Sale
—
—
—
—
—
Cash Generated From Operations
11,908,216
6,962,332
6,461,433
2,754,819
690,730
Cash Generated from Sales
—
—
—
—
—
Cash Generated from Refinancing
—
—
—
—
—
Total Cash Generated
11,908,216
6,962,332
6,461,433
2,754,819
690,730
Less Cash Distributions to Investors:
From Operating Cash Flow
10,154,262
6,931,705
4,707,634
2,548,588
593,800
From Sales and Refinancing
—
—
—
—
—
Cash Generated (Deficiency) After Cash Distributions to Investors
1,753,954
30,627
1,753,799
206,231
96,930
Less Special Items:
—
—
—
—
—
Cash Generated (Deficiency) After Cash Distributions and Special
Items
Tax and Distribution Data Per $1,000 Invested Federal Income Tax
Results:
Ordinary Income (Loss)
— from operations
—
—
—
—
—
— from recapture
7.71
(1.30
)
(3.50
)
0.81
1.62
Capital Gain (loss)
—
—
—
—
—
Cash Distributions to
Investors
—
—
—
—
—
Source (on GAAP Basis)
— Operations
74.22
57.86
62.55
73.32
37.90
— Return of Capital
—
—
—
—
—
Source (on Cash Basis)
— Sales
—
—
—
—
—
— Refinancing
—
—
—
—
—
— Operations
—
—
—
—
—
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the Table
(original total acquisition cost of properties retained divided
by original acquisition costs of all properties in program)
100
%
100
%
100
%
100
%
100
%
(1)
Gross revenues represent all rents and other payments received
from tenants under subleases. Additionally, long term leases to
subtenants are accounted for on a straight-line basis.
(2)
Rent, master lease includes amounts associated with the rent or
cash distributions to the owners of the properties. Additionally
under the master lease with the owners, amounts paid by
affiliates of the Sponsor to the first mortgage lender on behalf
of the owners are included in “Rent, Master Lease.”
Amounts paid to the mortgage lender would include interest,
principal and any capital or tenant improvement reserves
required by the lender. Since the master leases are long term
leases, they also are accounted for on a straight-line basis.
This has a significant non-cash impact to the income as
reflected above. The master leases are all 29 year leases
with periodic increases in the payments to be made to the
owners. As a result there is additional rent expense recorded
but not paid for many years.
(3)
Other includes advertising, marketing and information technology
services directly related with the properties.
(4)
General and administrative expenses include legal, accounting,
personal property taxes, bank service fees and trustee fees
associated with the master lease.
(5)
The primary differences between net income (loss) and taxable
income (loss) relate to the recognition of rental income and
rent expense as follows (i) GAAP requires rents to be
recognized using a tenant’s effective monthly straight-line
basis over the entire term of the lease whereas for income tax
reporting purposes rents are generally recorded in the same
manner as the lease requires payment and (ii) GAAP
recognizes rent payments received in advance as income in the
period to which they pertain whereas they are income when
received for tax reporting purposes.
Green Realty Trust, Inc.
120 N. LaSalle Street, 35th Floor, Chicago,
Illinois60602
Attn:
Ladies and Gentlemen:
The undersigned, by signing and delivering a copy of the
attached subscription agreement signature page (“Signature
Page”), hereby tenders this subscription and applies for
the purchase of the number and amount of shares of common stock
(“Shares”) of Green Realty Trust, Inc., a Maryland
corporation (the “Company”), set forth on such
subscription agreement Signature Page. Payment for the Shares is
hereby made by check payable to “Green Realty Trust,
Inc.”
I hereby acknowledge receipt of the prospectus of the Company
dated (the
“Prospectus”). I agree that if this subscription is
accepted, it will be held, together with the accompanying
payment, on the terms described in the Prospectus. I agree that
subscriptions may be rejected in whole or in part by the Company
in its sole and absolute discretion. I understand that I will
receive a confirmation of my purchase, subject to acceptance by
the Company, within 30 days from the date my subscription
is received, and that the sale of Shares pursuant to this
subscription agreement will not be effective until at least five
business days after the date I have received a final prospectus.
I have been advised that:
a. the assignability and transferability of the Shares is
restricted and will be governed by the Company’s charter
and bylaws and all applicable laws as described in the
Prospectus.
b. prospective investors should not invest in the
Company’s common stock unless they have an adequate means
of providing for their current needs and personal contingencies
and have no need for liquidity in this investment.
c. there is no public market for the Shares and,
accordingly, it may not be possible to readily liquidate an
investment in the Company.
In no event may a subscription for Shares be accepted until at
least five business days after the date the subscriber receives
the Prospectus. Residents of the States of Maine, Massachusetts,
Minnesota, Missouri, Nebraska and Ohio who first received the
Prospectus only at the time of subscription may receive a refund
of the subscription amount upon request to the Company within
five days of the date of subscription.
REGISTRATION
OF SHARES
The following requirements have been established for the various
types of ownership in which Shares may be held and registered.
Subscription agreements must be executed and supporting material
must be provided in accordance with these requirements.
1. INDIVIDUAL OWNER: One signature
required.
2. JOINT TENANTS WITH RIGHT OF
SURVIVORSHIP: Each joint tenant must sign.
3. TENANTS IN COMMON: Each tenant in
common must sign.
4. COMMUNITY PROPERTY: Only one investor
must sign.
5. CORPORATION: An authorized officer
must sign. The subscription agreement must be accompanied by a
certified copy of the resolution of the board of directors
designating the executing officer as the person authorized to
sign on behalf of the corporation and a certified copy of the
board of directors’ resolution authorizing the investment.
6. PARTNERSHIP: Identify whether the
entity is a general or limited partnership. Each general partner
must be identified and must sign the Signature Page. In the case
of an investment by a general partnership, all partners must
sign.
7. ESTATE: The personal representative
must sign. Provide the name of the executor and a copy of the
court appointment dated within 90 days.
8. TRUST: The trustee must sign. Provide
the name of the trust, the name of the trustee and the name of
the beneficiary.
9. PENSION PLAN OR PROFIT SHARING
PLAN: The trustee must sign the Signature Page.
10. IRAS, IRA ROLLOVERS AND KEOGHS: The
officer (or other authorized signer) of the bank, trust company
or other fiduciary of the account must sign. The address of the
bank, trust company or other fiduciary must be provided in order
to receive checks and other pertinent information regarding the
investment.
11. UNIFORM GIFT TO MINORS ACT (UGMA) OR UNIFORM
TRANSFERS TO MINORS ACT (UTMA): The person named
as the custodian of the account must sign. (This may or may not
be the minor’s parent.) Only one child is permitted in each
investment under UGMA or UTMA. In addition, designate the state
under which the UGMA or UTMA has been formed.
NOTICE TO STOCKHOLDER OF ISSUANCE OF
UNCERTIFICATED SHARES OF COMMON STOCK
Containing the Information Required by
Section 2-211
of the
Maryland General Corporation Law
To: Stockholder
From: Wayne R. Hannah III, President
Shares of
Common Stock, $.01 par value per share
Green Realty Trust, Inc., a Maryland corporation (the
“Corporation”), is issuing to you, subject to
acceptance by the Corporation, the number of shares of its
common stock (the “Shares”) set forth in your
subscription agreement with the Corporation. The Shares do not
have physical certificates. Instead, the Shares are recorded on
the books and records of the Corporation, and this notice is
given to you of certain information relating to the Shares. All
capitalized terms not defined herein have the meanings set forth
in the Corporation’s Charter, as the same may be amended
from time to time, a copy of which, including the restrictions
on transfer and ownership, will be furnished to each holder of
Shares of the Corporation on request and without charge.
Requests for such a copy may be directed to the Secretary of the
Corporation at its principal office.
The Corporation has the authority to issue shares of stock of
more than one class. Upon the request of any stockholder, and
without charge, the Corporation will furnish a full statement of
the information required by
Section 2-211
of the Maryland General Corporation Law with respect to certain
restrictions on ownership and transferability, the designations
and any preferences, conversion and other rights, voting powers,
restrictions, limitations as to dividends and other
distributions, qualifications, terms and conditions of
redemption of the shares of each class of stock which the
Corporation has authority to issue, the differences in the
relative rights and preferences between the shares of each
series to the extent set, and the authority of the Board of
Directors to set such rights and preferences of subsequent
series. Such requests must be made to the Secretary of the
Corporation at its principal office.
The Shares are subject to restrictions on Beneficial Ownership
and Constructive Ownership and Transfer for the purpose, among
others, of the Corporation’s maintenance of its status as a
Real Estate Investment Trust (a “REIT”) under the
Internal Revenue Code of 1986, as amended (the
“Code”). Subject to certain further restrictions and
except as expressly provided in the Corporation’s Charter,
(i) no Person may Beneficially Own or Constructively Own
Common Shares of the Corporation in excess of 9.8% percent (in
value or number of Shares) of the outstanding Common Shares of
the Corporation unless such Person is an Excepted Holder (in
which case the Excepted Holder Limit shall be applicable);
(ii) no Person may Beneficially Own or Constructively Own
Shares of the Corporation in excess of 9.8% percent of the value
of the total outstanding Shares of the Corporation, unless such
Person is an Excepted Holder (in which case the Excepted Holder
Limit shall be applicable); (iii) no Person may
Beneficially Own or Constructively Own Shares that would result
in the Corporation being “closely held” under
Section 856(h) of the Code or otherwise cause the
Corporation to fail to qualify as a REIT (including, but not
limited to, Beneficial Ownership or Constructive Ownership that
would result in the Corporation owning (actually or
Constructively) an interest in a tenant that is described in
Section 856(d)(2)(B) of the Code if the income derived by
the Corporation from such tenant would cause the Corporation to
fail to satisfy any of the gross income requirements of
Section 856(c) of the Code); and (iv) no Person may
Transfer Shares if such Transfer would result in Shares of the
Corporation being owned by fewer than 100 Persons. Any
Person who Beneficially Owns or Constructively Owns or attempts
to Beneficially Own or Constructively Own Shares which cause or
will cause a Person to Beneficially Own or Constructively Own
Shares in excess or in violation of the above limitations must
immediately notify the Corporation. If any of the restrictions
on Transfer or ownership are violated, the Shares will be
automatically transferred to a Charitable Trust for the benefit
of one or more Charitable Beneficiaries. In addition, the
Corporation may redeem Shares upon the terms and conditions
specified by the Board of Directors in its sole discretion if
the Board of Directors determines that ownership or a Transfer
or other event may violate the restrictions described above.
Furthermore, upon the occurrence of certain events, attempted
Transfers in violation of the restrictions described above may
be void ab initio.
Please refer to the following instructions in completing the
Signature Page contained below. Failure to follow these
instructions may result in the rejection of your subscription.
1. INVESTMENT. A minimum investment of
$2,000 is required, except for residents of certain states which
require a higher minimum investment. A check for the full
purchase price of the shares subscribed for should be made
payable to “Wells Fargo Bank, N.A., as escrow agent for
Green Realty Trust, Inc.” If our dealer manager so
designates after we meet the minimum offering requirements, your
check should be made payable to “Green Realty Trust,
Inc.” Shares may be purchased only by persons meeting the
standards set forth under the Section of the Prospectus entitled
“Suitability Standards.” Please indicate the state in
which the sale was made.
2. TYPE OF OWNERSHIP. Please check the
appropriate box to indicate the type of entity or type of
individuals subscribing.
3. REGISTRATION NAME AND ADDRESS. Please
enter the exact name in which the Shares are to be held. For
joint tenants with a right of survivorship or
tenants-in-common,
include the names of both investors. In the case of partnerships
or corporations, include the name of an individual to whom
correspondence will be addressed. Trusts should include the name
of the trustee. All investors must complete the space provided
for taxpayer identification number or social security number. By
signing in Section 8, the investor is certifying that the
taxpayer or social security number is correct. Enter the mailing
address and telephone numbers of the registered owner of this
investment. In the case of a qualified plan or trust, this will
be the address of the trustee. Indicate the birth date of the
registered owner unless the registered owner is a partnership,
corporation or trust.
4. INVESTOR NAME AND ADDRESS. Complete
this Section only if the investor’s name or address is
different from the registration name or address provided in
Section 3. If the Shares are registered in the name of a
trust, enter the name, address, telephone number, social
security number, birth date and occupation of the beneficial
owner of the trust.
5. INVESTOR ACKNOWLEDGMENT. Please
separately initial each representation made by the investor
where indicated. Except in the case of fiduciary accounts, the
investor may not grant any person a power of attorney to make
such representations on such investor’s behalf.
6. SUITABILITY. Please complete this
Section so that the Company and your Broker-Dealer can assess
whether your subscription is suitable given your financial
condition and investment objectives. The investor agrees to
notify the Company and the Broker-Dealer named on the
subscription agreement Signature Page in writing if at any time
such investor fails to meet the applicable suitability standards
or is unable to make any other representations and warranties as
set forth in the Prospectus or subscription agreement.
7. DISTRIBUTION REINVESTMENT PLAN. By
electing the distribution reinvestment plan, the investor elects
to reinvest 100% of cash distributions otherwise payable to such
investor in common stock of the Company. If cash distributions
are to be sent to an address other than that provided in
Section 4 (such as a bank, brokerage firm or savings and
loan, etc.), please provide the name, account number and address.
8. BROKER-DEALER. This Section is to be
completed by the registered representative. Please complete all
Broker-Dealer information contained in Section 8, including
suitability certification.
9. SUBSCRIBER SIGNATURES. The
subscription agreement Signature Page must be signed by an
authorized representative. The subscription agreement Signature
Page, which has been delivered with the Prospectus, together
with a check for the full purchase price, should be delivered or
mailed to your Broker- Dealer. Only original, completed copies
of subscription agreements may be accepted. Photocopied or
otherwise duplicated subscription agreements cannot be accepted
by the Company.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS SUBSCRIPTION
AGREEMENT SIGNATURE PAGE, PLEASE CALL
(800) 383-4943.
The minimum investment is $2,000 ($2,500 in ME, MN, NY and NC).
Total
$ Invested
# of
Shares
State of
Sale
o
Check this box if you are purchasing shares from a registered
investment advisor or bank acting as a trustee or fiduciary in a
fee-only account. (Advisor listed in Section 8 must agree
to this election.)
Payment Instructions
o By
Mail — Attach a check made payable to Green Realty
Trust, Inc.
Please request when selecting a wire that the wire reference the
subscriber’s name in order to assure that the wire is
credited to the proper account.
o
Automatic Monthly Investment Plan — Attach a
voided check or deposit slip and complete this section.
By selecting the Automatic Monthly Investment Plan as your
investment method, you are selecting to invest the same amount
directly from your bank account into your Green Realty Trust,
Inc. account once a month, and you agree to notify Green Realty
Trust, Inc. in writing if at any time you fail to meet the
suitability standards or are unable to make the representations
in Section 5. The investment amount specified below will be
withdrawn from your bank account on the
15th
of each month, beginning the first month following receipt of
this Subscription Agreement.
Account Type —
o Checking
Please mail completed Subscription Agreement (with all
o Savings
signatures) and check(s) payable to: Green Realty Trust,
Inc.
Monthly Investment
Amount $
Wells Fargo Bank, N.A.
230 West Monroe, Suite 2900 Chicago, IL60603
2. TYPE OF OWNERSHIP — See
“Registration of Shares” in the Subscription Agreement
for a description of ownership types.
Corporation — Authorized signature required.
Include certified copies of corporate resolution designating
executive officer as the person authorized to sign on behalf of
corporation and corporate resolution authorizing the investment.
o
Partnership — Authorized signature required.
Include copy of partnership agreement.
Identify whether general or limited
partnership:
o
Estate — Personal representative signature
required.
Name of
Executor
Include a copy of the court appointment dated within
90 days.
o
Trust
Name of
Trust
Name of
Trustee
Name of
Beneficiary
Include a copy of the title and signature pages of the trust.
Trustee signature required in Section 9.
o
Qualified Pension Plan or Profit Sharing Plan
(Non-custodian)
Name of
Trustee
Include a copy of the title and signature pages of the plan.
Trustee signature required in Section 9.
o
Other (Specify)
Custodial Ownership
o Traditional
IRA — Custodian signature required in
Section 9.
o Roth
IRA — Custodian signature required in
Section 9.
o KEOGH
Plan — Custodian signature required in
Section 9.
o Simplified
Employee Pension/Trust (SEP)
o Pension
or Profit-Sharing Plan — Custodian signature
required in Section 9.
o
Uniform Gift to Minors Act — Custodian
signature required in Section 9.
State
of
Custodian
for
o
Other (Specify)
(Required for custodial ownership accounts.)
Name of Custodian, Trustee or Other Administrator
Mailing Address
City State ZIP
Custodian Information — To be completed by
Custodian listed above.
Please separately initial each of the representations below.
In the case of joint investors, each investor must initial.
Except in the case of fiduciary accounts, you may not grant any
person power of attorney to make such representations on your
behalf. In order to induce the Company to accept this
subscription, I (we) hereby represent and warrant that:
Investor
Co-Investor
(a) I (we) received a Prospectus for the Company
relating to the Shares, wherein the terms and conditions of the
offering are described.
(a)
Initials
Initials
(b) I (we) accept and agree to be bound by the terms
and conditions of the Articles of Incorporation.
(b) Initials
Initials
(c) I (we) have(i) a net worth (exclusive of
home, home furnishings and automobiles) of $250,000 or more; or
(ii) a gross annual income of at least $70,000 and a net
worth (exclusive of home, home furnishings and automobiles) of
at least $70,000.
(c) Initials
Initials
(d) I am (we are) purchasing Shares for my (our) own
account and acknowledge that the investment is not liquid.
(d) Initials
Initials
In addition to the suitability requirements described above: A
Kentucky investor’s aggregate investment in this offering
may not exceed 10% of the investor’s liquid net worth.
6.
SUITABILITY
Occupation Annual
Income
Net Worth
Investment Objective
Nature of Other Investments or Securities Holdings
7.
DISTRIBUTION REINVESTMENT PLAN
Non-Custodial Ownership
o
I prefer to participate in the Distribution Reinvestment Plan
(DRIP). In the event that the DRIP is not offered for a distribution,
your distribution will be sent by check to the
address in Section 3.
o
I prefer that my distribution be deposited directly into the
account listed on next page.
o
I prefer that my distribution be paid by check to the address in
Section 3.
Custodial Ownership
o
I prefer to participate in the Distribution Reinvestment Plan
(DRIP). In the event that the DRIP is not offered for a distribution,
your distribution will be sent to your Custodian
for deposit into your Custodial account cited in
Section 2.
I prefer that my distribution be sent to my Custodian for
deposit into my Custodial account cited in Section 2.
Name of Financial Institution
Street
Address City
State
ZIP
Name(s) on Account
ABA Number/Bank Account
Number Account
Number
o Checking o Savings (Attach
a voided check or deposit slip.)
8.
BROKER-DEALER — To be completed by the Registered
Representative.
The Broker-Dealer (B-D) or authorized representative must
sign below to complete the order. The Broker-Dealer or
authorized representative warrants that
he/she is a
duly licensed Broker-Dealer and may lawfully offer Shares in the
state designated as the investor’s address or the state in
which the sale was made, if different. The Broker-Dealer or
authorized representative warrants that
he/she has
reasonable grounds to believe this investment is suitable as
defined in Section 3(b) of the Rules of Fair Practice of
the NASD Manual and that
he/she has
informed the subscriber(s) of all aspects of liquidity and
marketability of this investment as required by Section 4
of such Rules of Fair Practice.
The undersigned confirms that the investor(s) meet the
suitability standards set forth in the Prospectus.
Name
of Registered Representative
Broker-Dealer
Name
Telephone
Number
Mailing
Address
Home
Office Mailing Address
City State ZIP
City State ZIP
Relationship to Registered
Representative
o Registered
Representative
NAV o Purchase
Volume Discount
I (we) declare that the information supplied is true and correct
and may be relied upon by the Company.
TAXPAYER IDENTIFICATION NUMBER CERTIFICATION (required)
The investor signing below, under penalties of perjury,
certifies that 1) The number shown in the Investor Social
Security/Taxpayer ID# field in Section 3 of this form is my
correct taxpayer identification number (or I am waiting for a
number to be issued to me), and 2) I am not subject to
backup withholding because: (a) I am exempt from backup
withholding, or (b) I have not been notified by the
Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no
longer subject to backup withholding, and 3) I am a U.S.
person (including a non-resident alien). NOTE: You must cross
out item 2 above if you have been notified by the IRS that
you are currently subject to backup withholding because you have
failed to report all interest and dividends on your tax
return.
The Internal Revenue Service does not require your consent to
any provision of this document other than the certifications
required to avoid backup withholding.
Signature
of Investor or Trustee
Signature
of Co-Investor or Trustee, if
applicable
This DISTRIBUTION REINVESTMENT PLAN (“Plan”) is
adopted by the Green Realty Trust, Inc., a Maryland corporation
(the “Company”), pursuant to its Charter (the
“Charter”). Unless otherwise defined herein,
capitalized terms shall have the same meaning as set forth in
the Charter.
1. Distribution Reinvestment. As
agent for the stockholders (“Stockholders”) of the
Company who (i) purchase shares of the Company’s
common stock (“Shares”) pursuant to the Company’s
initial public offering (the “Initial Offering”), or
(ii) purchase Shares pursuant to any future offering of the
Company (“Future Offering”), and who elect to
participate in the Plan (the “Participants”), the
Company will apply all distributions declared and paid in
respect of the Shares held by each Participant (the
“Distributions”), including Distributions paid with
respect to any full or fractional Shares acquired under the
Plan, to the purchase of Shares for such Participants directly,
if permitted under state securities laws and, if not, through
the Dealer Manager or Soliciting Dealers registered in the
Participant’s state of residence.
2. Effective Date. The effective
date of this Plan shall be the date that the minimum offering
requirements (as defined in the Prospectus relating to the
Initial Offering) are met in connection with the Initial
Offering.
3. Procedure for
Participation. Any Stockholder who has
received a Prospectus, as contained in the Company’s
registration statement filed with the Securities and Exchange
Commission (the “SEC”), may elect to become a
Participant by completing and executing the subscription
agreement, an enrollment form or any other appropriate
authorization form as may be available from the Company, the
Dealer Manager or Soliciting Dealer. Participation in the Plan
will begin with the next Distribution payable after acceptance
of a Participant’s subscription, enrollment or
authorization. Shares will be purchased under the Plan on the
date that Distributions are paid by the Company. The Company
intends to make Distributions on a monthly basis. Each
Participant agrees that if, at any time prior to the listing of
the Shares on a national stock exchange, such Participant fails
to meet the suitability requirements for making an investment in
the Company or cannot make the other representations or
warranties set forth in the subscription agreement, such
Participant will promptly so notify the Company in writing.
4. Purchase of
Shares. Participants will acquire Shares from
the Company under the Plan (the “Plan Shares”) at a
price equal to $9.50 per share until the earliest of
(i) all the Plan Shares registered in the Initial Offering
are issued, (ii) the Initial Offering and any Future
Offering of Plan Shares terminate and the Company elects to
deregister with the SEC the unsold Plan Shares, or
(iii) there is more than a de minimis amount of trading in
the Shares, at which time any registered Plan Shares then
available under the Plan will be sold at a price equal to the
fair market value of the Shares, as determined by the
Company’s Board of Directors by reference to the applicable
sales price in respect to the most recent trades occurring on or
prior to the relevant Distribution date. Participants in the
Plan may also purchase fractional Shares so that 100% of the
Distributions will be used to acquire Shares. However, a
Participant will not be able to acquire Plan Shares to the
extent that any such purchase would cause such Participant to
exceed the Aggregate Share Ownership Limit or the Common Share
Ownership Limit as set forth in the Charter or otherwise would
cause a violation of the Share ownership restrictions set forth
in the Charter.
Shares to be distributed by the Company in connection with the
Plan may (but are not required to) be supplied from:
(a) the Plan Shares which will be registered with the SEC
in connection with the Company’s Initial Offering,
(b) Shares to be registered with the SEC in a Future
Offering for use in the Plan (a “Future
Registration”), or (c) Shares of the Company’s
common stock purchased by the Company for the Plan in a
secondary market (if available) or on a stock exchange (if
listed) (collectively, the “Secondary Market”).
Shares purchased in any Secondary Market will be purchased at
the then-prevailing market price, which price will be utilized
for purposes of issuing Shares in the Plan. Shares acquired by
the Company in any Secondary Market or registered in a Future
Registration for use in the Plan may be at prices lower or
higher than the Share price which will be paid for the Plan
Shares pursuant to the Initial Offering.
If the Company acquires Shares in any Secondary Market for use
in the Plan, the Company shall use its reasonable efforts to
acquire Shares at the lowest price then reasonably available.
However, the Company does not in any respect guarantee or
warrant that the Shares so acquired and purchased by the
Participant in the Plan will be at the lowest possible price.
Further, irrespective of the Company’s ability to acquire
Shares in any Secondary Market or to make a Future Offering for
Shares to be used in the Plan, the Company is in no way
obligated to do either, in its sole discretion.
5. Taxes. IT IS UNDERSTOOD THAT
REINVESTMENT OF DISTRIBUTIONS DOES NOT RELIEVE A PARTICIPANT OF
ANY INCOME TAX LIABILITY WHICH MAY BE PAYABLE ON THE
DISTRIBUTIONS.
6. Share Certificates. The
ownership of the Shares purchased through the Plan will be in
book-entry form unless and until the Company issues certificates
for its outstanding common stock.
7. Reports. Within 90 days
after the end of the Company’s fiscal year, the Company
shall provide each Stockholder with an individualized report on
such Stockholder’s investment, including the purchase
date(s), purchase price and number of Shares owned, as well as
the dates of Distributions and amounts of Distributions paid
during the prior fiscal year. In addition, the Company shall
provide to each Participant an individualized quarterly report
at the time of each Distribution payment showing the number of
Shares owned prior to the current Distribution, the amount of
the current Distribution and the number of Shares owned after
the current Distribution.
8. Termination by Participant. A
Participant may terminate participation in the Plan at any time,
without penalty by delivering to the Company a written notice.
Prior to the listing of the Shares on a national stock exchange,
any transfer of Shares by a Participant to a non-Participant
will terminate participation in the Plan with respect to the
transferred Shares. If a Participant terminates Plan
participation, the Company will ensure that the terminating
Participant’s account will reflect the whole number of
shares in such Participant’s account and provide a check
for the cash value of any fractional share in such account. Upon
termination of Plan participation for any reason, Distributions
will be distributed to the Stockholder in cash.
9. Amendment or Termination of Plan by the
Company. The Board of Directors of the
Company may by majority vote (including a majority of the
Independent Directors) amend or terminate the Plan for any
reason upon ten days’ written notice to the Participants.
10. Liability of the Company. The
Company shall not be liable for any act done in good faith, or
for any good faith omission to act, including, without
limitation, any claims or liability (a) arising out of
failure to terminate a Participant’s account upon such
Participant’s death prior to receipt of notice in writing
of such death; or (b) with respect to the time and the
prices at which Shares are purchased or sold for a
Participant’s account. To the extent that indemnification
may apply to liabilities arising under the Securities Act or the
securities laws of a particular state, the Company has been
advised that, in the opinion of the SEC and certain state
securities commissioners, such indemnification is contrary to
public policy and, therefore, unenforceable.
You should rely only on the information contained in this
prospectus. No dealer, salesperson or other individual has been
authorized to give any information or to make any
representations that are not contained in this prospectus. If
any such information or statements are given or made, you should
not rely upon such information or representation. This
prospectus does not constitute an offer to sell any securities
other than those to which this prospectus relates, or an offer
to sell, or a solicitation of an offer to buy, to any person in
any jurisdiction where such an offer or solicitation would be
unlawful. This prospectus speaks as of the date set forth above.
You should not assume that the delivery of this prospectus or
that any sale made pursuant to this prospectus implies that the
information contained in this prospectus will remain fully
accurate and correct as of any time subsequent to the date of
this prospectus.
Until ,
2008 (90 days after the date of this prospectus), all
dealers that effect transactions in these securities, whether or
not participating in this offering, may be required to deliver a
prospectus. This requirement is in addition to the obligation of
dealers to deliver a prospectus when acting as soliciting
dealers.
Effective November 9, 2007, we issued 110,497 shares
of common stock at $9.05 per share to Insight Real Estate, LLC,
our sponsor, for $1,000,000, of which $200,000 was paid in cash
and $800,000 was contributed in the form of a promissory note,
reflecting that no selling commission or dealer manager fees
were paid. We relied on Section 4(2) of the Securities Act
for the exemption from the registration requirements of the
Securities Act. Insight Real Estate, LLC, by virtue of its
affiliation with us, had access to information concerning our
proposed operations and the terms and conditions of its
investment.
Effective November 9, 2007, our operating partnership
issued 100 common units at $10.00 per unit to us, for $1,000,
issued 100 common units at $10.00 per unit to our advisor for
$1,000 and issued 100 special units at $10.00 per unit to
Insight Management, LLC for $1,000. Our operating partnership
relied on Section 4(2) of the Securities Act of 1933, as
amended, for the exemption from the registration requirements of
these issuances. Our advisor and Insight Management, LLC by
virtue of their affiliation with us, had access to information
concerning our operating partnership’s proposed operations
and the terms and conditions of their investment.
Item 34.
Indemnification
of Directors and Officers.
Our charter limits the personal liability of our directors and
officers to us and our stockholders for monetary damages.
Maryland law permits a corporation to include in its charter a
provision limiting the liability of its directors and officers
to the corporation and its stockholders for money damages except
for liability resulting from (a) actual receipt of an
improper benefit or profit in money, property or services or
(b) active and deliberate dishonesty established by a final
judgment and which is material to the cause of action. Pursuant
to Maryland corporate law and our charter, we are also required
to indemnify a present or former director or officer, our
advisor, or any affiliate of our advisor and may indemnify and
hold harmless a present or former employee or agent, which we
refer to as indemnitees, against any or all losses or
liabilities reasonably incurred by the indemnitee in connection
with or by reason of any act or omission performed or omitted to
be performed on our behalf while a director, officer, advisor,
affiliate, employee or agent. However, we will not indemnify a
director, the advisor or an affiliate of the advisor for any
liability or loss suffered by such indemnitee or hold such
indemnitee harmless for any liability or loss suffered by us if:
(i) the loss or liability was the result of negligence or
misconduct if the indemnitee is an affiliated director, the
advisor or an affiliate of the advisor, or if the indemnitee is
an independent director, the loss or liability was the result of
gross negligence or willful misconduct, (ii) the indemnitee
has not determined, in good faith, that the course
of conduct that caused the loss or liability was in our best
interests, (iii) the act or omission was material to the
loss or liability and was committed in bad faith or was the
result of active and deliberate dishonesty, (iv) the
indemnitee actually received an improper personal benefit in
money, property, or services, (v) in the case of any
criminal proceeding, the indemnitee had reasonable cause to
believe that the act or omission was unlawful, or (vi) in a
proceeding by or in the right of the company, the indemnitee
shall have been adjudged to be liable to us. In addition, we
will not provide indemnification to a director, the advisor or
an affiliate of the advisor for any loss or liability arising
from an alleged violation of federal or state securities laws
unless one or more of the following conditions are met:
(i) there has been a successful adjudication on the merits
of each count involving alleged securities law violation as to
the particular indemnitee; (ii) such claims have been
dismissed with prejudice on the merits by a court of competent
jurisdiction as to the particular indemnitee or (iii) a
court of competent jurisdiction approves a settlement of the
claims against a particular indemnitee and finds that
indemnification of the settlement and the related costs should
be made, and the court considering the request of
indemnification has been advised of the position of the SEC and
of the published position of any state securities regulatory
authority in which our securities were offered or sold as to
indemnification for violation of securities laws. Pursuant to
our charter, we are required to pay or reimburse reasonable
expenses incurred by a present or former director or officer,
the advisor or an affiliate of the advisor and may pay or
reimburse reasonable expenses incurred by any other indemnitee
in advance of final disposition of a proceeding if the following
are satisfied: (i) the indemnitee was made a party to the
proceeding by reason of the performance of duties or services on
our behalf, (ii) the indemnitee provides us with written
affirmation of his good faith belief that he has met the
standard of conduct necessary for indemnification by us as
authorized by the charter, (iii) the indemnitee provides us
with a written agreement to repay the amount paid or reimbursed
by us, together with the applicable legal rate of interest
thereon if it is ultimately determined that the indemnitee did
not comply with the requisite standard of conduct, and
(iv) the legal proceeding was initiated by a third party
who is not a stockholder or, if by a stockholder acting in his
capacity as such, a court of competent jurisdiction approves
such advancement.
Any indemnification may be paid only out of our net assets, and
no portion may be recoverable from the stockholders.
Prior to the effectiveness of this registration statement, we
will have entered into indemnification agreements with each of
our officers and directors. The indemnification agreements will
require, among other things, that we indemnify our officers and
directors and advance to the officers and directors all related
expenses, subject to reimbursement if it is subsequently
determined that indemnification is not permitted. In accordance
with these agreements, we must indemnify and advance all
expenses incurred by officers and directors seeking to enforce
their rights under the indemnification agreements. We must also
cover officers and directors under our directors’ and
officers’ liability insurance.
Item 35.
Treatment
of Proceeds from Securities Being Registered.
Not applicable.
Item 36.
Financial
Statements and Exhibits.
(a) Financial Statements:
The following financial statements are included in the
prospectus:
(1) Report of Independent Registered Public Accounting Firm
(2) Consolidated Balance Sheet
(3) Notes to Consolidated Balance Sheet
(b) Exhibits:
1
.1*
Form of Dealer Manager Agreement
1
.2*
Form of Participating Broker-Dealer Agreement (included as
Appendix A to Exhibit 1.1)
Form of Opinion of Venable LLP as to the legality of the
securities being registered
8
.1
Form of Opinion of Baker & McKenzie LLP regarding
certain federal income tax considerations
10
.1*
Form of Escrow Agreement among Green Realty Trust, Inc., 1st
Worldwide Financial Partners, LLC and Wells Fargo Bank, N.A.
10
.2*
Form of Advisory Agreement among Green Realty Trust, Inc., Green
REIT Operating Partnership, LP, Insight Green REIT Advisor, LLC
and Insight Real Estate, LLC
10
.3*
Limited Partnership Agreement of Green REIT Operating
Partnership, LP
10
.4*
Form of Green Realty Trust, Inc. 2007 Incentive Plan
10
.5*
Form of Green Realty Trust, Inc. Independent Directors
Compensation Plan
(1) to file during any period in which offers or sales are
being made, a post-effective amendment to this registration
statement:
(i) to include any prospectuses required by
Section 10(a)(3) of the Securities Act;
(ii) to reflect in the prospectus any facts or events
arising after the effective date of the registration statement
(or the most recent post-effective amendment thereof) which,
individually or in the aggregate, represent a fundamental change
in the information set forth in the registration
statement; and
(iii) to include any material information with respect to
the plan of distribution not previously disclosed on the
registration statement or any material change to such
information in the registration statement;
(2) that, for the purpose of determining any liability
under the Securities Act each such post-effective amendment may
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide
offering thereof;
(3) each prospectus filed pursuant to Rule 424(b) as
part of this registration statement shall be deemed to be part
of and included in the registration statement as of the date it
is first used after effectiveness; provided, however, that no
statement made in a registration statement or prospectus that is
part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the
registration statement or prospectus that is part of the
registration statement will, as to a purchaser with a time of
contract of sale prior to such first use, supersede or modify
any statement that was made in the registration statement or
prospectus that was part of the registration statement or made
in any such document immediately prior to such date of first use;
(4) to remove from registration by means of a
post-effective amendment any of the securities being registered
that remain unsold at the termination of the offering;
(5) that all post-effective amendments will comply with the
applicable forms, rules and regulations of the SEC in effect at
the time such post-effective amendments are filed;
(6) that in a primary offering of securities of the
Registrant pursuant to this registration statement, regardless
of the underwriting method used to sell the securities to the
purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the
undersigned will be a seller to the purchaser and will be
considered to offer or sell such securities to such purchaser:
(i) any preliminary prospectus or prospectus of the
Registrant relating to the offering required to be filed
pursuant to Rule 424;
(iii) the portion of any other free writing prospectus
relating to the offering containing material information about
the Registrant or its securities provided by or on behalf of the
Registrant; and
(iv) any other communication that is an offer in the
offering made by the Registrant to the purchaser;
(7) to send to each stockholder, at least on an annual
basis, a detailed statement of any transactions with the
Registrant’s advisor or its affiliates, and of fees,
commissions, compensations and other benefits paid or accrued to
the advisor or its affiliates, for the fiscal year completed,
showing the amount paid or accrued to each recipient and the
services performed;
(8) to provide to the stockholders the financial statements
required by
Form 10-K
for the first full fiscal year of operations;
(9) to file a sticker supplement pursuant to
Rule 424(c) under the Securities Act during the
distribution period describing each property not identified in
the prospectus at such time as there arises a reasonable
probability that such property will be acquired and to
consolidate all such stickers into a post-effective amendment
filed at least once every three months, with the information
contained in such amendment provided simultaneously to the
existing stockholders. Each sticker supplement shall disclose
all compensation and fees received by the advisor and its
affiliates in connection with any such acquisition. The
post-effective amendment shall include audited financial
statements meeting the requirements of
Rule 3-14
of
Regulation S-X
only for properties acquired during the distribution period;
(10) to file, after the end of the distribution period, a
current report on
Form 8-K
containing the financial statements and any additional
information required by
Rule 3-14
of
Regulation S-X,
as appropriate based on the type of property acquired and the
type of lease to which such property will be subject, to reflect
each commitment (such as the signing of a binding purchase
agreement) made after the end of the distribution period
involving the use of 10.0% or more (on a cumulative basis) of
the net proceeds of the offering and to provide the information
contained in such report to the stockholders at least once per
quarter after the distribution period of the offering has
ended; and
(11) insofar as indemnification for liabilities arising
under the Securities Act may be permitted to directors,
officers, and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer, or controlling person of the
registrant in the successful defense of any such action, suit,
or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question
whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the
final adjudication of such issue.
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe
that it meets all of the requirements for filing on
Form S-11
and has duly caused this amended registration statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Chicago, State of Illinois, on
December 28, 2007.
Green Realty Trust, Inc.
By:
/s/ Wayne
R. Hannah III
Wayne R. Hannah III,
President
Pursuant to the requirements of the Securities Act of 1933, this
amended registration statement has been signed by the following
person in the following capacities and on December 28, 2007.
Signature
/s/ Wayne
R. Hannah III
Wayne R. Hannah III,
President, Treasurer, Secretary and Director
(Principal Executive Officer)
(Principal Financial Officer)
Form of Opinion of Venable LLP as to the legality of the
securities being registered
8
.1
Form of Opinion of Baker & McKenzie LLP regarding
certain federal income tax considerations
10
.1*
Form of Escrow Agreement among Green Realty Trust, Inc., 1st
Worldwide Financial Partners, LLC and Wells Fargo Bank, N.A
10
.2*
Form of Advisory Agreement among Green Realty Trust, Inc., Green
REIT Operating Partnership, LP, Insight Green REIT Advisor, LLC
and Insight Real Estate, LLC
10
.3*
Limited Partnership Agreement of Green REIT Operating
Partnership, LP
10
.4*
Form of Green Realty Trust, Inc. 2007 Incentive Plan
10
.5*
Form of Green Realty Trust, Inc. Independent Directors
Compensation Plan