As filed with the Securities and Exchange Commission on April 21, 2021
Registration No. 333-
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-11
FOR REGISTRATION
STATEMENT Under The Securities Act of 1933
of securities of certain real estate companies
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Belpointe PREP, LLC | |||||||
(Exact name of registrant as specified in governing instruments) | |||||||
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255 Glenville Road
Greenwich, Connecticut 06831 (203) 883-1944 |
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(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices) |
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Brandon E. Lacoff
Chief Executive Officer Belpointe PREP, LLC 255 Glenville Road Greenwich, Connecticut 06831 (203) 883-1944 |
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(Name, address, including zip code, and telephone number, including area code, of agent for service) | |||||||
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with a copy to:
Vanessa J. Schoenthaler Sugar Felsenthal Grais & Helsinger LLP 230 Park Avenue, 9th Floor New York, New York 10169 (212) 899-9780 |
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Approximate date of commencement of proposed sale to the public: As soon as practicable after this registration statement becomes effective.
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box: [X]
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
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 statement number of the earlier effective registration statement for the same offering. [ ]
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 statement number of the earlier effective registration statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer | [ ] | Accelerated filer | [ ] | |
Non-accelerated filer | [ ] | Smaller reporting company | [X] | |
Emerging growth company | [X] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act. [ ]
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Calculation of Registration Fee
Title of Securities
to be Registered |
Proposed Maximum Aggregate
Offering Price |
Amount of Registration Fee (1) | ||||
Class A units representing limited liability company interests | $ | 750,000,000 | $ | 81,825 | ||
(1) |
Calculated in accordance with Rule 457(o) of the Securities Act of 1933, as amended. | |||||
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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 Commission, acting pursuant to said Section 8(a), may determine. | ||||||
The information in this preliminary 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. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
Subject to completion
Preliminary Prospectus Dated April 21, 2021
Belpointe PREP,
LLC
Up to $750,000,000 of Class A units
Belpointe PREP, LLC is a Delaware limited liability company that is initially focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within “qualified opportunity zones.” At least 90% of our assets consist of qualified opportunity zone property. We will qualify as a “qualified opportunity fund” beginning with our taxable year ended December 31, 2020. Because we are a qualified opportunity fund, certain of our investors are eligible for favorable capital gains tax treatment on their investments. Our initial investments consist of and are expected to continue to consist of properties located in qualified opportunity zones for the development or redevelopment of multifamily, student housing, senior living, healthcare, industrial, self-storage, hospitality, office, mixed-use, data centers and solar projects (collectively, the “qualified opportunity zone investments”) located throughout the United States and its territories. We also anticipate identifying, acquiring, developing or redeveloping and managing a wide range of commercial real estate assets located throughout the United States and its territories, including, but not limited to, real estate-related assets, such as commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as making private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, with the goal of increasing distributions and capital appreciation. As of the date of this prospectus, we have made three qualified opportunity zone investments. We are not a mutual fund and do not intend to register as an investment company under the Investment Company Act of 1940, as amended.
We are offering on a continuous basis up to $750,000,000 of our Class A units (the “Class A units”) in this primary offering at an initial price equal to $100.00 per Class A unit. We intend to offer our Class A units directly to investors and not through any underwriters, dealer-managers or other agents who would be paid commissions by us or any of our affiliates. In the future, however, we may engage the services of one or more underwriters, dealer-managers or other agents to participate in this offering. The amount of selling commissions or dealer-manager fees that we or our investors would pay to such underwriters, dealer-managers or other agents will depend on the terms of their engagement. This is a “best efforts” offering. There is no minimum offering amount of Class A units that we must sell in this offering prior to conducing an initial closing. We plan to undertake closings on a rolling basis on the last business day of each calendar quarter, we may, however, in our sole discretion, choose to conduct more frequent closings. Upon closings we will immediately use the net offering proceeds for the purposes described in this prospectus. See “Plan of Distribution” and “Estimated Use of Proceeds.”
From the effective date of the registration statement of which this prospectus forms a part through no later than the first quarter following the December 31, 2022 year end, the net asset value (“NAV”) of our Class A units will be equal to $100.00 per Class A unit. Thereafter, we plan to calculate our NAV on a quarterly basis within approximately 60 days of the last day of each quarter (the “Determination Date”). If our NAV increases above or decreases below the price per Class A unit as stated in this prospectus, we will adjust the offering price effective as of the first business day following its public announcement. The adjusted offering price will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date. Our board of directors, taking into consideration factors such as the investments we hold and the timing of our ability to generate cash flows, may determine that it is appropriate for us to begin calculating NAV on a quarterly basis prior to the first quarter following the December 31, 2022 year end. We will file a prospectus supplement with the SEC if we determine to calculate NAV prior to the first quarter following the December 31, 2022 year end and prospectus supplements disclosing our calculation of NAV per Class A unit for each quarter thereafter.
Currently, our Class A units are not traded on any public market. We have applied to have our Class A units listed on the NYSE American (“NYSE”) under the symbol “OZ.” As a result, Belpointe PREP will be the first qualified opportunity fund listed on a national securities exchange.
We are an “emerging growth company” under the federal securities laws and will be subject to reduced reporting requirements. Investing in our Class A units involves a high degree of risk. You should purchase our Class A units only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 23. These risks include, among others:
· | We have a limited operating history, and the prior performance of our Sponsor or other real estate investment opportunities sponsored by our Sponsor may not predict our future results. |
· | This is a “best efforts” offering. If we are unable to raise substantial funds in this offering, we may not be able to invest in a diverse portfolio of commercial real estate, real estate related and private equity assets and investments, and the value of your Class A units may fluctuate more widely with the performance of specific assets. |
· | You will receive a Schedule K-1 to IRS Form 1065, which could increase the complexity of your tax circumstances. |
· | If we fail to qualify as a partnership for U.S. federal income tax purposes and no relief provisions apply, we would be subject to entity level U.S. federal income tax and, as a result, our cash available for distributions and the value of our Class A units could materially decrease. |
· | If the IRS contests the U.S. federal income tax positions we take, the value our Class A units may be adversely impacted, and the cost of any IRS contest will reduce cash available for distribution to holders of our Class A units. |
· | The “qualified opportunity zone” provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), providing the favorable capital gains treatment to certain of our investors were enacted as part of the Tax Cuts and Jobs Act at the end of 2017 and are untested. |
· | There can be no assurance that we will meet the requirements for classification as a qualified opportunity fund. |
· | We depend on our Manager to select our investments and conduct our operations. We will pay fees and expenses to our Manager and its affiliates that were not determined on an arm’s length basis, and therefore we do not have the benefit of arm’s length negotiations of the type normally conducted between unrelated parties. These fees increase your risk of loss. |
· | Our Manager’s executive officers and key investment and asset management professionals are also officers, directors, managers and key professionals of our Sponsor and its affiliates. As a result, they will face conflicts of interest, including time constraints, allocation of investment opportunities and significant conflicts created by our Manager’s compensation arrangements with us and other affiliates of our Sponsor. |
· | Our Manager holds our Class M unit, which has greater voting rights than our Class A units and Class B units. Accordingly, our Manager will be able to determine the outcome of all matters on which a holder of our Class M unit has a vote. |
· | Our Sponsor currently sponsors and may in the future sponsor other companies that compete with us. |
· | We do not have an exclusive management arrangement with our Manager. |
· | We may change our investment strategy and guidelines without Member consent, which could result in investments that are different from those described in this prospectus. |
· | No later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, we plan to calculate our NAV within approximately 60 days of the last day of each quarter, using valuation methodologies that involve significant judgments, assumptions and opinions in the application of both observable and unobservable attributes that may or may not prove to be correct. As a result, our NAV may not accurately reflect the actual prices at which our assets and investments, including related liabilities, could be liquidated on any given day. |
· | We have applied to have our Class A units listed on the NYSE, however, an active, liquid and orderly market for our Class A units may not develop or be sustained. |
· | Real estate investments are subject to general industry downturns as well as downturns in specific geographic regions. We cannot predict occupancy levels for a particular property or whether any tenant or mortgage or other real estate related loan borrower will remain solvent. We also cannot predict the future value of our investments. Accordingly, we cannot guarantee that you will receive cash distributions from or appreciation of your investment in our Class A units. |
· | While our goal is to pay distributions from cash flow from operations, we may use other sources to fund distributions, including, without limitation, the sale of assets, borrowings, offering proceeds, cash advances by our Manager, cash resulting from a waiver of fees or reimbursements due to our Manager or the issuance of additional securities. We will only fund distributions by a return of capital following the sale of assets, unless otherwise determined by our Manager in its discretion. We have not established a limit on the amount of offering proceeds we may use to fund distributions. |
· | If we pay distributions from sources other than cash flow from operations, we may have less funds available for investments and your overall return may be reduced. Likewise, funding distributions from the sale of additional securities will dilute your interest in us on a percentage basis and may impact the value of your investment especially if we sell these securities at prices less than the price you paid for your Class A units. |
· | We intend to employ leverage in order to provide more funds available for investment, while leverage presents opportunities for increasing our total returns, it may increase losses as well. |
Neither the Securities and Exchange Commission nor any other state securities regulator has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.
Price to the Public (1) | Selling Commissions (2) | Proceeds to Us (before expenses) (3) | ||||||||||
Maximum Offering | $ | 100.00 | $ | — | $ | 750,000,000 |
(1) | The initial price to the public per Class A unit shown was arbitrarily determined by our Manager and will generally apply through no later than the first quarter following the December 31, 2022 year end. Thereafter, our price per Class A unit will be adjusted, within approximately 60 days of the last day of each quarter (the “Determination Date”) and will be based on our NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date. Our board of directors, taking into consideration factors such as the investments we hold and the timing of our ability to generate cash flows, may determine that it is appropriate for us to begin calculating NAV on a quarterly basis prior to the first quarter following the December 31, 2022 year end. |
(2) | Investors will not pay upfront selling commissions or dealer-manager fees in connection with the purchase of our Class A units. The Company and its officers and associated persons intend to conduct this offering in accordance with Rule 3a4-1 and, therefore, none of them is required to register as a broker-dealer. In the future the Company may engage the services of one or more underwriters, dealer-managers or other agents to participate in the offering. The amount of selling commissions or dealer-manager fees that the Company or investors would pay to such underwriters, dealer-manager or other agents will depend on the terms of the engagement. See “Plan of Distribution.” | |
(3) | We will reimburse our Manager and its affiliates, including our Sponsor, for organization and offering expenses, which are initially expected to be approximately $3,000,000. We will not be required to reimburse our Manager and its affiliates, including our Sponsor, until the first closing is held in connection with the offering. Thereafter, reimbursement payments will be made beginning on a date selected by our Manager in monthly installments without interest until paid in full. See “Management Compensation” for a description of additional fees and expenses that we will pay our Manager. |
The date of this prospectus is April 21, 2021
TABLE OF CONTENTS
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 (“SEC”), using a continuous offering process. Periodically, as we make material investments, update our quarterly net asset value (“NAV”) amount, or other material developments occur, 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 contained in our annual reports, quarterly reports and other reports and information statements that we will file periodically with the SEC. See the section entitled “Where You Can Find More Information” below for further details.
The prospectus and all supplements and reports that we have filed or will file in the future can be read at the SEC website, www.sec.gov. Our website at www.belpointeoz.com will contain additional information about our business, but the contents of the website are not incorporated by reference in or otherwise a part of this prospectus. From time to time, we may use our website as a distribution channel for material company information.
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Questions and Answers About This Offering
Q: | What is Belpointe PREP, LLC? |
A: | We are a Delaware limited liability company formed on January 24, 2020. We are initially focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within qualified opportunity zones. At least 90% of our assets consist of qualified opportunity zone property. We will qualify as a qualified opportunity fund beginning with our taxable year ended December 31, 2020. Because we are a qualified opportunity fund, certain of our investors are eligible for favorable capital gains tax treatment on their investments. We are externally managed by our Manager, Belpointe PREP Manager, LLC, a Delaware limited liability company. Our Manager is an affiliate of Belpointe, LLC, our Sponsor. |
Q: | Who is Belpointe, LLC? |
A: | Belpointe, LLC, is our Sponsor and an affiliate of our Manager. Belpointe, LLC operates a family office making private investments and oversees its businesses, such as wealth management, legal and real estate services. Belpointe, LLC’s senior executives have an aggregate of over 100 years of experience in the acquisition, development and ownership of real estate and, as of December 31, 2020, its affiliates have facilitated or originated 13 real estate assets with aggregate purchase prices and construction costs of approximately $440 million. See “Prior Performance Summary.” |
Q: | What types of assets will you acquire? |
A: | Our initial investments consist of and are expected to continue to consist of properties located in qualified opportunity zones for the development or redevelopment of multifamily, student housing, senior living, healthcare, industrial, self-storage, hospitality, office, mixed-use, data centers and solar projects (collectively, the “qualified opportunity zone investments”) located throughout the United States and its territories. We also anticipate identifying, acquiring, developing or redeveloping and managing a wide range of commercial real estate properties located throughout the United States and its territories, including, but not limited to, real estate-related assets, such as commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as making private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, with the goal of increasing distributions and capital appreciation. As of the date of this prospectus, we have made three qualified opportunity zone investments. All of our assets are and will continue to be held by, and all of our operations are and will continue to be conducted through, one or more operating companies (each an “Operating Company” and together the “Operating Companies”), either directly or indirectly through subsidiaries. As of the date of this prospectus we have two Operating Companies, Belpointe PREP OC, LLC and Belpointe PREP TN OC, LLC. |
Q: | Why should I invest in Belpointe PREP, LLC? |
A: | We believe that our innovative investment platform has the ability to disrupt the real estate investment industry through the unique combination of potential economic benefits that it offers holders of our Class A units, including: (i) multiple potential capital gains tax benefits; (ii) potential qualified business income tax benefits; (iii) zero upfront loads, sales commissions or entrance fees; (iv) significantly reduced fees payable to our Manager; (v) no capital calls; (vi) no investor servicing fees; (vii) significantly lower carried interest payable to our Manager; (viii) potential for liquidity events; and (ix) low minimum investment requirements, all of which should result in greater investment returns to holders of our Class A units than those generated by traditional private real estate funds, real estate investment trusts (“REITs”) and other traditional real estate investment platforms. |
We use multiple investment platform structures to deploy capital, which we anticipate will give us access to higher quality investment opportunities and better execution of our investment strategies than less diverse investment models. See “Investment Objectives and Strategy—Joint Venture and Other Co-Ownership Arrangements.” We also expect to greatly benefit from the resources provided by our Sponsor, its vertically integrated real estate platform and the experience of its principals.
Set forth below are some of the key benefits that we believe distinguish us from more traditional private real estate funds, REITs and other traditional real estate investment platforms:
· | Capital Gains Tax Deferral – An eligible investor may defer recognition of capital gains (short-term or long-term) resulting from the sale or exchange of capital assets by reinvesting those gains into a qualified opportunity fund within a period of 180 days of the sale or exchange (the “Deferred Capital Gains”). Deferred Capital Gains are recognized on the earlier of December 31, 2026 or the date on which an inclusion event occurs, such as the date on which the investor sells its qualified opportunity fund. |
· | Capital Gains Reduction – An eligible investor may also receive an increase in basis equal to 10% of the Deferred Capital Gains if the investor holds our Class A units for a period of five years. |
· | Capital Gains Tax Exemption – An eligible investor may elect to receive an increase in basis with respect to our Class A units equal to the fair market value of our Class A units on the date of their sale or exchange if the investor |
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holds our Class A units for a period of ten years or more, up to December 31, 2047. Thus, for U.S. federal income tax purposes, an investor will not recognize capital gains as a result of an appreciation in our Class A units.
· | No Depreciation Recapture – An eligible investor who elects to receive an increase in basis with respect to our Class A units equal to the fair market value of our Class A units on the date of their sale or exchange, if the investor has held our Class A units for a period of ten years or more, up to December 31, 2047, will not recognize depreciation recapture (excluding inventory gains) as a result of an appreciation in our Class A units. |
· | 20% Qualified Business Income Deduction – Individual investors and some trust and estate investors are entitled to a deduction of up to 20% of their allocable share of our “qualified business income” for taxable years ending on or before December 31, 2025, subject to certain limitations. See “U.S. Federal Income Tax Considerations.” |
· | No Up-Front Load, Sale Commissions or Entrance Fees – We will not charge up front loads, sale commissions or entrance fees to investors who purchase our Class A units, unlike fees commonly charged by many other real estate investment platforms which can add up to as much as 10% of invested capital. |
· | Significantly Reduced Management Fees – Our Manager is paid annual management fees of only 0.75% of our net asset value (“NAV”), which is significantly less than the management fees of 1.5%-2.1% typically charged by other traditional private real estate funds, REITs and other traditional real estate investment platforms. |
· | No Capital Calls – Investors will not be required to make capital contributions beyond the purchase price of their Class A units, unlike traditional private real estate funds and other real estate investment platforms. |
· | No Investor Servicing Fees – We will not charge investor servicing fees, typically charged for other real estate investments offered through broker dealer platforms, which can add up to as much as 0.6% of invested capital on annual basis. |
· | Significantly Lower Carried Interest – Our Manager holds 100% of our Class B units, which entitle our Manager to 5% of any gain recognized by or distributed to the Company or recognized or distributed from our Operating Companies or any subsidiary. This ownership interest will result in a “carried interest” to our Manager that is significantly lower than the carried interest of 15%-25% typically earned by external managers of traditional private real estate funds, REITs and other traditional real estate investment platforms. |
· | Ability to Use Equity as Transaction Consideration – We intend to make private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses using our equity as transaction consideration, thereby preserving cash for other investing activities. |
· | Greater Diversification – We intend to hold a larger and more diversified portfolio of real estate and real estate-related assets than most other qualified opportunity zone real estate investment platforms. Greater diversification offers investors in our Class A units the potential to achieve greater returns at a lower risk. |
· | Public Company Transparency – We are a reporting company subject to the periodic and current reporting requirements of the federal securities laws, requiring us to file, among other things, annual and quarterly reports (including financial statements, financial statement schedules and exhibits) and current reports disclosing material events. As a result, unlike private real estate investment platforms, investors in our Class A units will have access to regular updates regarding our performance. |
· | Public Market Liquidity – We have applied to have our Class A units listed on the NYSE American (“NYSE”) under the symbol “OZ.” As a result, Belpointe PREP will be the first qualified opportunity fund listed on a national securities exchange. Having our Class A units listed for trading on NYSE will provide holders of our Class A units with liquidity in respect of their investment and greater control over the timing of purchases and sales of their Class A units. |
· | Minimal Investment Requirements – We have set a minimum investment threshold of $10,000, which we expect will allow for a broader base of investors to participate in our offering than would otherwise be able to participate in more traditional private real estate funds, REITs and other traditional real estate investment platforms. |
· | Real Estate Development Expertise – Our Manager employs a highly qualified team with extensive real estate development and construction management experience, thereby providing us with knowledge, relationships and internal development expertise that we believe far exceeds what many other real estate investment platforms can offer their investors. |
· | Multiple Investment Platforms – In order to maximize our development opportunities, we anticipate entering into joint ventures in a variety of forms, including: (i) franchise platforms with affiliated development companies in specific regional markets; (ii) programmatic platforms with established regional developers with which we will have an exclusive relationship to engage in multiple regional investments; and (iii) traditional local joint venture partnerships for one-off developments. |
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Q: | What is a “qualified opportunity zone”? |
A: | The opportunity zone is a new community development program established by Congress in the Tax Cuts and Jobs Act of 2017 to encourage new long-term investments in low-income urban and rural communities nationwide. The opportunity zone program provides a tax incentive for investors to re-invest their unrealized capital gains into qualified opportunity funds dedicated to investing in “qualified opportunity zones.” Qualified opportunity zones are census tracts identified and nominated by the chief executives of every state and territory of the United States (e.g., governors) and designated by the Secretary of the Treasury. |
To be designated as a qualified opportunity zone, the nominated census tract must have either been: (i) a qualified low-income community; or (ii) a census tract that was contiguous with a nominated qualified low-income community if the median family income of the tract does not exceed 125% of that contiguous, nominated qualified low-income community.
Qualified low-income communities included census tracts that have at least one of the following criteria: (i) a poverty rate of at least 20%; (ii) a median family income below 80% of the greater of the statewide or metropolitan area median family income if located in a metropolitan area; or (iii) a median family income below 80% of the median statewide family income if located outside a metropolitan area. In addition, designated targeted populations may be treated as low-income communities.
As of December 31, 2019, there were more than 8,700 qualified opportunity zones throughout the United States and its territories.
Q: | What is a “qualified opportunity fund”? |
A: | A “qualified opportunity fund” is generally defined as an investment vehicle that is taxed as a corporation or partnership for U.S. federal income tax purposes and organized to invest in, and at least 90% of its assets consist of, qualified opportunity zone property (the “90% Asset Test”). |
A qualified opportunity fund must determine whether it meets the 90% Asset Test on each of: (i) the last day of the first six-month period of its taxable year, and (ii) the last day of its taxable year (each a “Semiannual Test Date”). A qualified opportunity fund may apply the 90% Asset Test without taking into account investments received in the 6-month period preceding the Semiannual Test Date provided those investments (i) are received (a) solely in exchange for stock by a qualified opportunity fund that is a corporation, or (b) as a contribution by a qualified opportunity fund that is a partnership, and (ii) held continuously from the fifth business day after the exchange or contribution, as applicable, through the Semiannual Test Date in cash, cash equivalents or debt instruments with a term of 18 months or less.
Subject to a one-time six-month cure period, for each month following a Semiannual Test Date in which a qualified opportunity fund fails to meet the 90% Asset Test it will incur a penalty equal to (a) the excess of 90% of the fund’s aggregate assets over the aggregate amount of qualified opportunity zone property held by the fund, multiplied by (b) the short-term federal interest rate plus 3%. However, notwithstanding a qualified opportunity fund’s failure to meet the 90% Asset Test, no penalty will be imposed if the fund demonstrates that its failure is due to reasonable cause.
Q: | What tax advantages arise from investing in a qualified opportunity fund? |
A: | An investor may defer recognition of capital gains (short-term or long-term) resulting from the sale or exchange of capital assets by reinvesting those gains into a qualified opportunity fund within a period of 180 days of the sale or exchange (the “Deferred Capital Gains”). The 180-day period generally begins on the day on which the gains would be recognized for U.S. federal income tax purposes had they not been reinvested into a qualified opportunity fund. Deferred Capital Gains are recognized on the earlier of December 31, 2026, or the date on which an inclusion event occurs, such as the date on which the investor sells its qualified opportunity fund investment. |
An investor may also receive an increase in basis equal to 10% of the Deferred Capital Gains if the investor holds its qualified opportunity fund investment for a period of five years.
Finally, an investor may elect to receive an increase in basis with respect to its qualified opportunity fund investment interest equal to the fair market value of the investment interest on the date of its sale or exchange if the investor holds the qualified opportunity fund investment for a period of ten years or more, up to December 31, 2047. Thus, an investor will not recognize capital gains for U.S. federal income tax purposes as a result of an appreciation in its qualified opportunity fund investment interest.
It is important for an investor seeking to avail itself of the Deferred Capital Gains benefits described in this prospectus to be aware that subsequent changes in the tax laws or the adoption of new regulations, as well as early dispositions of our Class A units, could cause you to lose any anticipated tax benefits. As a result, you are urged to consult with your own tax advisors regarding: (i) procedures you will need to follow to defer capital gains through investing in a qualified opportunity fund; (ii) tax consequences of purchasing, owning or disposing of our Class A units, including the federal, state and local tax consequences of investing capital gains in our Class A units; (iii) tax consequences associated with our election to qualify as a partnership for U.S. federal income tax purposes and our election to qualify as a qualified opportunity fund; and (iv) tax
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consequences associated with potential changes in the interpretation of existing tax laws or the adoption of new laws or regulations.
Q: | Which gains are eligible for deferral? |
A: | Any gains treated as capital gains (short-term or long-term) for U.S. federal income tax purposes that result from the sale or exchange of capital assets are eligible for deferral by reinvestment in a qualified opportunity fund. Accordingly, any gain that a taxpayer is required to include in its computation of capital gain, including capital gain from an actual or deemed sale or exchange, is eligible to be deferred. It is important to note, however, that any cash, other than cash derived from capital gains, that is invested into a qualified opportunity fund, either independently or in conjunction with cash derived from capital gains, will not be eligible for the qualified opportunity fund tax benefits described herein. |
Q: | Who can defer? |
A: | All individuals and entities that recognize capital gains for U.S. federal income tax purposes are eligible to elect to defer. This includes natural persons as well as entities such as corporations, regulated investment companies, REITs, partnerships and other pass-through entities (including, certain common trust funds, qualified settlement funds, and disputed ownership funds). |
Q: | How do taxpayers make deferral elections? |
A: | Taxpayers will make deferral elections on Form 8949 (Sales and Other Dispositions of Capital Assets), which will need to be attached to their U.S. federal income tax returns for the taxable year in which the capital gain would have been recognized had it not been deferred. In addition, Form 8997 (Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments) requires eligible taxpayers holding a qualified opportunity fund investment at any point during the tax year to report: (i) qualified opportunity fund investments holdings at the beginning and end of the tax year; (ii) current tax year capital gains deferred by investing in a qualified opportunity fund; and (iii) qualified opportunity fund investments disposed of during the tax year. |
Q: | Are there other tax considerations related to qualified opportunity funds? |
A: | On December 19, 2019, the U.S. Department of the Treasury and the U.S. Internal Revenue Service (the “IRS”) issued final regulations and, on April 1, 2020 and January 19, 2021, correcting amendments and additional relief, respectively (collectively the “Opportunity Zone Regulations”), to provide guidance with respect to qualified opportunity zones program requirements. |
Q: | Who will choose which investments you make? |
A: | Pursuant to our Limited Liability Company Operating Agreement, our board of directors (our “Board”), subject to certain exceptions, has delegated its obligations to Belpointe PREP Manager, LLC, our Manager, which will make all of our investment decisions, subject to the oversight of our Board. |
Q: | What competitive advantages do we achieve through our relationship with our Sponsor? |
A: | The investment and operating platforms of Belpointe, LLC, our Sponsor and an affiliate of our Manager, Belpointe PREP Manager, LLC, are well established, allowing us to realize economies of scale and other benefits including, without limitation, the following: |
· | A Highly Experienced Management Team – Our Sponsor employs a highly experienced management team. Our Sponsor’s senior executives have an aggregate of over 100 years of experience in the acquisition, development and ownership of real estate investments. These senior executives will provide stability in the management of our business and allow us to benefit from the industry knowledge and contacts that they have gained through numerous real estate investment cycles. |
· | Significant Real Estate Investment Experience – As of December 31, 2020, affiliates of our Sponsor and its affiliates have facilitated or originated 13 real estate assets in two prior and one active real estate programs, with aggregate purchase prices and construction costs of approximately $440 million. See “Prior Performance Summary.” |
· | Extensive Market Knowledge and Industry Relationships – Our Sponsor, through its active and broad participation in real estate investment markets, benefits from market information that enables it to identify attractive commercial real estate investment opportunities and to make informed decisions with regard to the relative valuation of financial assets and capital allocation. We believe that our Sponsor’s extensive industry relationships with a wide variety of commercial real estate owners and operators, brokers and other intermediaries and third party commercial real estate debt originators will provide us with a competitive advantage in sourcing attractive investment opportunities to meet our investment objectives. |
Q: | Why should I invest in commercial real estate and real estate-related assets? |
A: | Our goal is to provide a professionally managed portfolio consisting primarily of commercial real estate properties located throughout the United States and its territories to investors who have historically had very limited access to such investments. |
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We also anticipate acquiring other real estate-related assets, including, but not limited to, commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as make private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. Allocating some portion of your portfolio to a direct investment in the types of assets and investments that we intend to acquire may provide you with:
· | a reasonably predictable and stable level of current income from the investment; |
· | diversification of your portfolio, by investing in an asset class that historically has low correlation with the stock market generally; and |
· | the opportunity for capital appreciation. |
Q: | What kind of offering is this? |
A: | We are offering on a continuous basis up to $750,000,000 of our Class A units in this primary offering at an initial price equal to $100.00 per Class A unit. This is a “best efforts” offering. We intend to offer our Class A units directly to investors and not through any underwriters, dealer-managers or other agents who would be paid commissions by us or any of our affiliates. In the future, however, we may engage the services of one or more underwriters, dealer-managers or other agents to participate in this offering. The amount of selling commissions or dealer-manager fees that we or our investors would pay to such underwriters, dealer-managers or other agents will depend on the terms of their engagement. A “best efforts” offering means that we are only required to use our best efforts to sell our Class A units. When securities are offered to the public on a “best efforts” basis there is no firm commitment or obligation by any underwriter, dealer-manager or other person to purchase any of the securities offered. Therefore, we cannot guarantee that any minimum number of our Class A units will be sold. Furthermore, there is no minimum amount of Class A units that we must sell in this offering prior to conducing an initial closing. We plan to undertake closings on a rolling basis on the last business day of each calendar quarter, we may, however, in our sole discretion, choose to conduct more frequent closings. Upon closings we will immediately use the net offering proceeds for the purposes described in this prospectus. See “Plan of Distribution” and “Estimated Use of Proceeds.” |
Q: | What is the purchase price for Class A units? |
A: | We set our initial offering price at $100.00 per Class A unit. No later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, we plan to calculate our NAV within approximately 60 days of the last day of each quarter (the “Determination Date”). If our NAV increases above or decreases below the price per Class A unit as stated in this prospectus, we will adjust the offering price effective as of the first business day following its public announcement. The adjusted offering price will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date. Our Board, taking into consideration factors such as the investments we hold and the timing of our ability to generate cash flows, may determine that it is appropriate for us to begin calculating NAV on a quarterly basis prior to the first quarter following the December 31, 2022 year end. We will file a prospectus supplement with the SEC if we determine to calculate NAV prior to the first quarter following the December 31, 2022 year end and prospectus supplements disclosing quarterly determinations of our NAV per Class A unit for each fiscal quarter thereafter. Any subscriptions that we receive during a fiscal quarter will be executed at a price equal to our NAV in effect for that fiscal quarter. If a material event occurs in between quarterly updates of NAV that would cause our NAV to change by 10% or more from the most recently disclosed NAV, we will disclose the updated price and the reason for the change in prospectus supplement as promptly as reasonably practicable. See “Net Asset Value Calculations and Valuation Policies” for additional details on our quarterly adjustments to our NAV per Class A unit. |
Q: | When will the closing of the purchase of Class A units occur? |
A: | In order to maintain our status as a qualified opportunity fund, we must hold, directly or indirectly through our Operating Companies or one or more entities that are qualified opportunity zone businesses, at least 90% of our assets in qualified opportunity zone property (the “90% Asset Test”). For purposes of the 90% Asset Test our property holdings are calculated by taking the average of the percentage of qualified opportunity zone property we hold on each of (i) the last day of the first six-month period of our taxable year, and (ii) the last day of our taxable year (each a “Semiannual Test Date”). Cash and cash equivalents do not count as qualified opportunity zone property. The Opportunity Zone Regulations allow us to apply the 90% Asset Test without taking into account any investments we receive in the preceding 6-month period, provided such investments are received as a contribution and held continuously from the fifth business day after receipt through the Semiannual Test Date in cash, cash equivalents or debt instruments with a term of 18 months or less. In addition, the Opportunity Zone Regulations provide for a one-time six-month cure period if any of our investments fail to meet the definition of qualified opportunity zone property as of a Semiannual Test Date. |
We plan to undertake closings on a rolling basis on the last business day of each calendar quarter (each, a “Closing Date”), we may, however, in our sole discretion, choose to conduct more frequent closings. Subscription payments will be held in a non-interest-bearing escrow account until the applicable Closing Date. If, however, we determine that accepting all of the subscriptions submitted in a given calendar quarter would result in our being unable to meet the 90% Asset Test, we may, in our sole discretion, postpone acceptance of some or all of such subscriptions by providing prospective investors with written
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notice of postponement within 15 calendar days following the quarter’s end. We will continue to hold postponed subscription payments in escrow until we determine that we will be able to meet the 90% Asset Test following their acceptance. Each prospective investor whose subscription has been postponed will receive written notice of our acceptance of their subscription within 15 calendar days following the applicable Closing Date. We may not, however, hold any subscription payment for more than 6 months following the end of the quarter in which the applicable subscription agreement was submitted. We will provide prospective investors with written notice of the return of any subscription payment within 15 calendar days following the end of the applicable 6-month period and return any such subscription payment within 30 calendar days following the end of such 6-month period.
On each Closing Date we will generally accept subscriptions on a first-in, first-out basis up to the approximate dollar amount that we can accept while still being able to meet the 90% Asset Test. We may, however, in our sole discretion, choose to accept a subscription submitted later than other subscriptions in a given quarter if the 180-day reinvestment period with respect to such subscription would expire prior to our next anticipated Closing Date. Regardless of the subscription acceptance date, the purchase price for our Class A units will be the price in effect on the date on which an investor submits a valid subscription.
Each prospective investor whose subscription is accepted will receive written notice confirming the applicable purchase price within 15 calendar days following the Closing Date. Prospective investors will not have the right to withdraw or reconfirm their commitment prior to our accepting their subscription, nor will they have the right to a return of their subscription payment prior to the end of the 6 month period following the end of the quarter in which their subscription agreement was submitted. A prospective investor will have no rights as a Member, including voting and distribution rights, until we accept their subscription agreement.
Our Board, in its sole discretion, may modify, suspend or terminate the escrow procedure if a determination is made that it is no longer necessary or advisable in order to comply with the 90% Asset Test.
Q: | How will the NAV and NAV per Class A unit be calculated? |
A: | No later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, we plan to calculate our net asset value (“NAV”) within approximately 60 days of the Determination Date. Any adjustment to our NAV will take effect as of the first business day following its public announcement. Our adjusted NAV per Class A unit will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date. We may also engage a third party to prepare or assist with preparing the NAV of our Class A units. |
Where we determine that an independent appraisal is necessary, including, without limitation, where our Manager is unsure of its ability to accurately determine the estimated values of our assets and investments, or where third party market values for comparable assets and investments are either nonexistent or extremely inconsistent, we may engage an appraiser that has expertise in appraising the types of assets and investments that we hold to act as our independent valuation expert. The independent valuation expert will not be responsible for, prepare or assist with preparing our NAV per Class A unit.
It is important to note that the determination of our NAV will not be based on, nor is it intended to comply with, fair value standards under generally accepted accounting principles in the United States of America (“U.S. GAAP”), and our NAV may not be indicative of the price that we would receive for our assets at current market conditions. See “Net Asset Value Calculation and Valuation Policies” for additional details regarding the calculation of our NAV per Class A unit.
Q: | How exact will the calculation of the quarterly NAV be? |
A: | Our goal is to provide a reasonable estimate of the market value of our Class A units within approximately 60 days of the last day of each quarter. Our assets and investments will consist principally of commercial real estate properties located throughout the United States and its territories. We also anticipate acquiring real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as make private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. As with any asset valuation protocol, the conclusions reached by our Manager or any third-party firm that we engage to prepare or assist with preparing the NAV of our Class A units will involve significant judgments, assumptions and opinions in the application of both observable and unobservable attributes that may or may not prove to be correct. The use of different judgments or assumptions would likely result in different estimates of the value of our assets and investments and, consequently, our NAV. Moreover, although we will calculate and provide our NAV on a quarterly basis, our NAV may fluctuate daily, accordingly the NAV in effect for any given fiscal quarter may not accurately reflect the amount that might otherwise be paid for your Class A units in a market transaction. Further, for any given fiscal quarter, our published NAV may not fully reflect certain material events to the extent that they are unknown or their financial impact on our assets or investments is not immediately quantifiable. However, to the extent quantifiable, if a material event occurs in between quarterly updates of our NAV that would cause our NAV per Class A unit to change by 10% or more from the last disclosed NAV, we will disclose the updated NAV per Class A unit and the reason for the change in a prospectus supplement as promptly as reasonably practicable. |
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It is important to note that the determination of our NAV will not be based on, nor is it intended to comply with, fair value standards under U.S. GAAP, and our NAV may not be indicative of the price that we would receive for our assets at current market conditions. In addition, we do not represent, warrant or guarantee that: (i) you will be able to realize the NAV per Class A unit for your Class A units if you attempt to sell them; (ii) you will ultimately realize distributions per Class A unit equal to the NAV per Class A units you own upon liquidation of our assets and investments and settlement of our liabilities or a sale of our company; (iii) our Class A units will trade at their NAV per Class A unit on the NYSE; or (iv) a third party would offer the NAV per Class A unit in an arm’s-length transaction to purchase all or substantially all of our Class A units. See “Net Asset Value Calculation and Valuation Policies” for additional details regarding the calculation of our NAV per Class A unit.
Q: | Will I be charged upfront selling commissions or dealer-manager fees? |
A: | No, we intend to offer our Class A units directly to investors and not through any underwriters, dealer-managers or other agents who would be paid commissions by us or any of our affiliates. As such, investors will not pay upfront selling commissions or dealer-manager fees as part of the price per Class A unit purchased in this offering. In the future, however, we may engage the services of one or more underwriters, dealer-managers or other agents to participate in the offering. The amount of selling commissions or dealer-manager fees that we or our investors would pay to such underwriters, dealer-manager or other agents will depend on the terms of their engagement. |
Q: | Who will pay your organization and offering expenses? |
A: | Our Manager or its affiliates, including our Sponsor, will pay on our behalf all expenses incurred in connection with our organization and the offering of our Class A units, which are initially expected to be approximately $3,000,000. See “Estimated Use of Proceeds” for additional details about the types of expenses that we may incur. We will not be required to reimburse our Manager and its affiliates, including our Sponsor, until the first closing is held in connection with the offering. Thereafter, reimbursement payments will be made beginning on a date selected by our Manager in monthly installments without interest until paid in full. |
Q: | What fees and expenses will you pay to your Manager or any of its affiliates? |
A: | We pay our Manager a quarterly management fee at an annualized rate of 0.75%. The management fee is based on our NAV at the end of each quarter. From the effective date of the registration statement of which this prospectus forms a part through no later than the first quarter following the December 31, 2022 year end, the NAV for our Class A units will be equal to $100.00 per Class A unit. Thereafter, no later than the first quarter following the December 31, 2022 year end, our NAV will be announced within approximately 60 days of the last day of each quarter. In addition, our Manager, or an affiliate of our Manager, will be paid an annual property management oversight fee, to be paid by the individual subsidiaries of our Operating Companies, equal to 1.5% of the revenue generated by the applicable property. |
We reimburse our Manager and its affiliates, including our Sponsor, as applicable, for all: (i) organization and offering expenses incurred on our behalf; (ii) out-of-pocket expenses incurred in connection with the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses; and (iii) out-of-pocket expenses paid to third parties in connection with the provision of services to us.
We also reimburse our Sponsor and Manager for our allocable share of the salaries, benefits, office and other overhead of personnel providing services to us. In addition, our Manager holds 100% of our Class B units, which entitle our Manager to 5% of any gain recognized by or distributed to the Company or recognized by or distributed from our Operating Companies or any subsidiary. As a result, any time we recognize an operating gain (excluding depreciation) or receive a distribution, whether from continuing operations, net sale proceeds, refinancing transactions or otherwise, our Manager is entitled to receive 5% of the aggregate amount of such gain or distribution, regardless of whether the holders of our Class A units have received a return of their capital. The allocation and distribution rights that our Manager is entitled to with respect to its Class B units may not be amended, altered or repealed, and the number of authorized Class B Units may not be increased or decreased, without the consent of our Manager. In addition, our Manager will continue to hold 100% of our Class B units even if we terminate or elect not to renew the management agreement. Accordingly, for so long as our Manager continues to hold our Class B units, it will be entitled to receive 5% of the aggregate amount of any operating gain (excluding depreciation) that we recognize or distribution that we receive. Our payment of fees and expenses and distribution of gains to our Manager pursuant to its Class B units will reduce the cash available for investments and distributions to holders of our Class A units and will directly impact our quarterly NAV.
Fees payable and expenses reimbursable to our Manager and its affiliates, including our Sponsor, may be paid, at the election of the recipient, in cash, by issuance of our Class A units at the then-current NAV, or through some combination of the foregoing. See “Management Compensation” for additional details regarding the fees and expenses that will be paid and distributions that will be made to our Manager and its affiliates.
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Q: | Will you use leverage? |
A: | Yes, we employ leverage in order to provide more funds available for investment. We believe that careful use of conservatively structured leverage will help us to achieve our diversification goals and potentially enhance the returns on our investments. Our targeted aggregate property-level leverage, excluding any debt at the Company level or on assets under development or redevelopment, after we have acquired a substantial portfolio of stabilized commercial real estate, is between 50-70% of the greater of the cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. During the period when we are acquiring, developing and redeveloping our investments, we may employ greater leverage on individual assets. An example of property-level leverage is a mortgage loan secured by an individual property or portfolio of properties incurred or assumed in connection with our acquisition of such property or portfolio of properties. An example of debt at the Company level is a line of credit obtained by us or our Operating Companies. |
Our Manager may from time to time modify our leverage policy in its discretion in light of then-current economic conditions, relative costs of debt and equity capital, market values of our assets, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. There is no limit on the amount we may borrow with respect to any individual property or portfolio. See “Investment Objectives and Strategy—Borrowing Policy.”
Q: | What is your distribution policy? |
A: | We do not expect to pay any distributions until the proceeds of this offering are invested and generating operating cash flow. Once we begin to pay distributions, we expect to pay them quarterly, in arrears, but may pay them less frequently as determined by us following consultation with our Manager. Any distributions that we do pay will be at the discretion of our Manager, subject to Board oversight, and based on, among other factors, our present and projected future earnings, cash flow, capital needs and general financial condition, as well as any requirements of applicable law. In order to participate in any distribution that we do pay you must be a holder of record of our Class A units as of the date we set as the record date for such distribution, and as of the ex-date, if applicable. We expect that we will set the rate of distributions at a level that will be reasonably consistent and sustainable over time. We have not established a minimum distribution level, and our operating agreement does not require that we pay distributions to our Members. |
Any distributions that we make will directly impact our NAV, by reducing the amount of our assets. Over the course of your investment, your distributions plus the change in NAV (either positive or negative) will produce your total return.
Q: | What will be the source of your distributions? |
A: | While our goal is to pay distributions from cash flow from operations, we may, at the discretion of our Manager, subject to Board oversight, use other sources to fund distributions, including, without limitation, the sale of assets, borrowings in anticipation of future operating cash flow, net proceeds of this offering, cash advances by our Manager, cash resulting from a waiver of fees or reimbursements due to our Manager or the issuance of additional securities. We will only fund distributions by a return of capital following the sale of assets, unless otherwise determined by our Manager in its discretion. Funding distributions from the sales of assets, borrowings, return of capital or proceeds of this offering will result in us having less funds available to acquire assets and investments, and will directly impact our NAV, by reducing the amount of our assets. As a result, the return you realize on your investment may be reduced. Doing so may also negatively impact our ability to generate cash flows. Likewise, funding distributions from the sale of additional securities will dilute your interest in us on a percentage basis and may impact the value of your investment especially if we sell these securities at prices less than the price you paid for your Class A units. We have not established a limit on the amount of offering proceeds we may use to fund distributions. We can provide no assurances that future cash flow will support payment of distributions or maintaining distributions at any particular level, if at all. We believe the likelihood that we pay distributions from sources other than cash flow from operations will be higher in the early stages of the offering. |
Q: | Will the distributions I receive be taxable as ordinary income? |
A: | Unless your investment is held in a qualified tax-exempt account or we designate certain distributions as capital gain distributions, distributions that you receive will generally be taxed as ordinary income to the extent they are from current or accumulated earnings and profits. However, in taxable years ending on or before December 31, 2025, Section 199A of the Code, referred to as the “qualified business income deduction,” generally entitles non-corporate and certain trust and estate taxpayers to deduct the lesser of (i) their combined qualified business income—up to 20% of qualified business income, plus 20% of qualified REIT dividends and “qualified publicly traded partnership income”—or (ii) 20% of the excess, if any, of taxable income over net capital gains. |
The portion of your distribution in excess of current and accumulated earnings and profits is considered a return of capital for U.S. federal income tax purposes and will reduce the tax basis of your investment, rather than result in current tax, until your basis is reduced to zero. Return of capital distributions made to you in excess of your tax basis in our Class A units will be treated as sales proceeds from the sale of Class A units for U.S. federal income tax purposes. Distributions we designate as capital gain distributions will generally be taxable at long-term capital gains rates for U.S. federal income tax purposes.
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The qualified business income deduction is subject to a series of complex definitions and limitations as to its availability. In addition, because each investor’s tax considerations will be different, particularly those investors investing capital gains, we recommend that you consult with your own tax advisor. You also should review the section of this prospectus entitled “U.S. Federal Income Tax Considerations.”
Q: | Are there any risks involved in buying your Class A units? |
A: | Investing in our Class A units involves a high degree of risk. If we are unable to effectively manage the impact of these risks, we may not meet our investment objectives, and therefore, you should purchase our Class A units only if you can afford a complete loss of your investment. See “Risk Factors” for a description of the risks relating to this offering and an investment in our Class A units. |
Q: | What is the impact of being an “emerging growth company”? |
We are an “emerging growth company,” as defined in the Jump Start Our Business Startups Act of 2012 (“JOBS Act”). As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting and disclosure requirements that are applicable to public companies that are not emerging growth companies, and we intend to take advantage of those exemptions. For so long as we remain an emerging growth company, we will not be required to:
· | have an auditor attestation report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); |
· | submit certain executive compensation matters to Member advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding Member vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding Member vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; or |
· | disclose certain executive compensation related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. |
In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. This means that an emerging growth company can delay adopting certain accounting standards until such standards are otherwise applicable to private companies. We intend to take advantage of the extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to subsequently elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.
We will remain an emerging growth company for up to five years, or until the earliest of: (i) the last date of the fiscal year during which we had total annual gross revenues of $1.07 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.07 billion in non-convertible debt; or (iii) the date on which we are deemed to be a “large accelerated filer” as defined under Rule 12b-2 under the Exchange Act.
We do not believe that being an emerging growth company will have a significant impact on our business or this offering. Also, even once we are no longer an emerging growth company, we still may not be subject to auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act unless we meet the definition of a large accelerated filer or an accelerated filer under Section 12b-2 of the Exchange Act. In addition, so long as we are externally managed by our Manager and we do not directly compensate our executive officers, or reimburse our Manager or its affiliates for the compensation paid to persons who serve as our executive officers, we do not expect to include disclosures relating to executive compensation in our periodic reports or proxy statements and, as a result, do not expect to be required to seek Member approval of executive compensation and golden parachute compensation arrangements pursuant to Sections 14A(a) and (b) of the Exchange Act.
Q: | Are there Investment Company Act considerations? |
A: | We intend to engage primarily in the business of investing in real estate and to conduct our operations such that neither we nor any of our subsidiaries are required to register as an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”). |
Under Section 3(a)(1)(A) of the Investment Company Act a company is an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. A company is an investment company under Section 3(a)(1)(C) of the Investment Company Act, if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns, or proposes to acquire, “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis (the “40% Test”). The Investment Company Act defines investment securities
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generally as all securities except U.S. government securities and securities issued by “majority-owned subsidiaries” which are not themselves investment companies and are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act. The Investment Company Act further defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding “voting securities” of which are owned by such person, or by another company which is a majority-owned subsidiary of such person, and voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company.
All of our assets are and will continue to be held by, and all of our operations are and will continue to be conducted through one or more operating companies (each an “Operating Company” and together the “Operating Companies”), either directly or indirectly through subsidiaries. To further diversify our investment portfolio, we also intend to enter into joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations with affiliates of our Sponsor and Manager, such as Belpointe SP, LLC, or its affiliates (collectively, the “Belpointe SP Group”), as well as independent developers and owners. We anticipate acquiring an interest in properties where a member of the Belpointe SP Group will act as general partner or co-general partner, manager or co-manager, developer or co-developer, or any of the foregoing. See “Investment Objectives and Strategy—Joint Venture and Other Co-Ownership Arrangements” for additional details regarding our joint ventures, partnerships, co-tenancies and other co-ownership arrangements.
Neither we nor our Operating Companies nor any of the majority-owned subsidiaries of our Operating Companies will engage primarily or be held out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, our initial investments consist of and are expected to continue to consist of commercial properties located in qualified opportunity zones, and future investments are expected to include a wide range of commercial real estate properties located throughout the United States and its territories, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. Accordingly, we believe that neither we nor our Operating Companies nor any of the majority-owned subsidiaries of our Operating Companies will be considered investment companies under Section 3(a)(1)(A) of the Investment Company Act.
Further, we intend to hold our assets and conduct our operations such that we, our Operating Companies and most, if not all, of the majority-owned subsidiaries of our Operating Companies comply with the 40% Test and we will continuously monitor our holdings to confirm such compliance. We do not expect most, if any, of the majority-owned subsidiaries of our Operating Companies to rely on the exceptions provided by either Section 3(c)(1) or 3(c)(7) of the Investment Company Act. As such, interests in these subsidiaries (which are expected to constitute a substantial majority of our assets) generally will not constitute “investment securities.” Accordingly, we believe that neither we nor our Operating Companies nor most, if not all, of the majority-owned subsidiaries of our Operating Companies will be considered investment companies under Section 3(a)(1)(C) of the Investment Company Act. See “Investment Objectives and Strategy—Investment Company Act Considerations.”
If we, our Operating Companies or any of the majority-owned subsidiaries of our Operating Companies were to ever inadvertently fall within the definition of an “investment company,” we may rely on the exception provided by Section 3(c)(5)(C) of the Investment Company Act, which is available for entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. Through a series of no-action letters the SEC has taken the position that this exception may be available if: at least 55% of an entity’s assets consist of “mortgages and other liens on and interests in real estate” and the remaining 45% of its assets consist primarily of “real estate-type interests;” with at least 80% of the entity’s total assets consisting of qualifying interests and real estate-type interests and no more than 20% of its total assets consisting of assets that have no relationship to real.
Maintaining our exclusion from registration under the Investment Company Act will limit our ability to make certain investments. In addition, although we intend to continuously monitor our holdings, there can be no assurance that we, our Operating Companies or any of the subsidiaries of our Operating Companies will be able to maintain our exclusion from registration. A change in the value of any of our assets could negatively affect our ability to maintain our exclusion from registration and we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise want 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 assets that we would otherwise want to acquire and would be important to our investment strategy.
If we are required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration, and other matters. Compliance with the Investment Company Act would, accordingly, limit our ability to make certain investments and require us to significantly restructure our business plan. If we were required to register as an investment company but failed to do so, we could be prohibited from engaging in our business, and criminal and civil actions could be brought against us. See “Risk
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Factors—Risks Related to This Offering and our Organizational Structure” for a discussion of the risks that we would face if we were required to register as an investment company under the Investment Company Act.
Q: | How does a “best efforts” offering work? |
A: | A “best efforts” offering means, we are only required to use our best efforts to sell our Class A units to the public. Neither our Manager nor any other party has a firm commitment or obligation to purchase any of our Class A units. Therefore, we cannot guarantee that any minimum number of Class A units will be sold. |
Q: | How do I buy Class A units? |
A: | You may purchase Class A units in this offering by completing a subscription agreement like the one attached to this prospectus as Appendix B for a certain investment amount and pay for the Class A units at the time you subscribe. |
Q: | Is there any minimum investment required? |
A: | Yes. There is a minimum investment of at least 100 shares or $10,000 based on the initial offering price, provided that our Manager has the discretion to accept smaller investments. There is no minimum investment requirement on additional purchases. |
Q: | May I make an investment through my IRA or other tax-deferred retirement account? |
A: | Yes. |
Q: | What will you do with the proceeds from your offering? |
A: | We expect to use substantially all of the net proceeds from this offering (after paying or reimbursing our Manager and its affiliates, including our Sponsor, for organization and offering expenses) to identify, acquire, develop or redevelop and manage a diversified portfolio of commercial real estate properties located throughout the United States and its territories in accordance with our investment objectives and strategy. We also anticipate acquiring other real estate-related assets, including, but not limited to, commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as make private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. We intend to make our investments through our wholly owned Operating Companies, either directly or indirectly through subsidiaries of our Operating Companies, some of which may have rights to receive preferred economic returns. We expect that any expenses or fees payable to our Manager for its services in connection with managing our daily affairs will be paid from cash flow from operations. If such fees and expenses are not paid from cash flow, they will reduce the cash available for investments and distributions and will directly impact our quarterly NAV. See “Management Compensation” for additional details regarding the fees that will be paid to our Manager and its affiliates. |
Q: | How long will this offering last? |
A: | We currently expect that this offering will remain open for investors until we raise the maximum amount being offered, unless terminated by us at an earlier time. We reserve the right to suspend or terminate this offering for any reason at any time. |
Q: | Will I be notified of how my investment is doing? |
A: | Yes, we will provide you with periodic updates on the performance of your investment in us, including: |
· | three quarterly reports; |
· | an annual report; |
· | current reports for specified material events; |
· | prospectus supplements if we have material information to disclose to you; and |
· | other reports that we may file or furnish to the Securities and Exchange Commission (“SEC”) from time to time. |
Depending on legal requirements, from time to time we may use our website, www.belpointeoz.com, as a distribution channel for material company information or provide this information to you via U.S. mail or other courier, electronic delivery, or some combination of the foregoing. Information about us will also be available on the SEC’s website at www.sec.gov.
Q: | When will I get my detailed tax information? |
A: | Your Schedule K-1 to IRS Form 1065, if required, will be provided as soon as practicable after the end of each taxable year. Although we currently intend to distribute Schedule K-1s on or around 90 days after the end of our fiscal year, it may require a substantial period of time after the end of our fiscal year to obtain the requisite information from all lower-tier entities to enable us to prepare and deliver Schedule K-1s. For this reason, holders of Class A units who are U.S. taxpayers should anticipate the need to file annually with the IRS (and certain states) a request for an extension past the due date of their |
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income tax return. See “Reports to Holders of our Class A units” for a discussion of the information that we will provide to the holders of our Class A units.
Q: | Who can help answer my questions about the offering? |
A: | If you have more questions about the offering, or if you would like additional copies of this prospectus, you should contact us by email at IR@belpointeoz.com or by mail at: |
Belpointe PREP, LLC
255 Glenville Road
Greenwich, CT 06831
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This prospectus summary highlights certain information contained elsewhere in this prospectus. This is only a summary and it may not contain all information that is important to you. For a more complete understanding of this offering, you should read the entire prospectus carefully, including the “Risk Factors” and the financial statements. Unless otherwise stated in this prospectus:
· | references to “we,” “us,” “our” or “Company” refer to Belpointe PREP, LLC, our Operating Companies and our Operating Companies’ subsidiaries, taken together, unless the context requires otherwise; |
· | references to “Belpointe PREP OC” refer to Belpointe PREP OC, LLC, our wholly owned subsidiary, together with its subsidiaries, unless the context requires otherwise; |
· | references to “Belpointe PREP TN OC” refer to Belpointe PREP TN OC, LLC, our wholly owned subsidiary, together with its subsidiaries, unless the context requires otherwise; |
· | references to our “Board” refer to the board of directors of Belpointe PREP, LLC; |
· | references to “Class A units” refer to units representing limited liability company interests in Belpointe PREP, LLC, that are designated as “Class A;” |
· | references to “Class B units” refer to units representing limited liability company interests in Belpointe PREP, LLC, that are designated as “Class B;” |
· | references to “Class M units” refer to units representing limited liability company interests in Belpointe PREP, LLC, that are designated as “Class M;” |
· | references to “units” refer to units representing limited liability company interests in Belpointe PREP, LLC, that may be designated as Class A units, Class B units, Class M units, preferred units or any other class or series designated by our Board; |
· | references to our “Manager” refer to Belpointe PREP Manager, LLC; |
· | references to a “Member” or our “Members” refer to holders of units representing limited liability company interests of Belpointe PREP, LLC; |
· | references to “NYSE” refer to NYSE American, LLC. |
· | references to our “Operating Company” or “Operating Companies” refer to our wholly owned subsidiaries, including Belpointe PREP OC and Belpointe PREP TN OC, together with their respective subsidiaries, unless the context requires otherwise; |
· | references to our “Sponsor” refer to Belpointe, LLC; |
· | references to “qualified opportunity fund” refer to an investment vehicle formed pursuant to the requirements of the Tax Cuts and Jobs Act of 2017 for the purpose of investing in qualified opportunity zones and which holds at least 90% of its assets in qualified opportunity zone property; |
· | references to “qualified opportunity zones” refer to low income communities designated as qualified opportunity zones throughout the United States; |
· | references to “qualified opportunity zone business” refer to a trade or business where: (i) substantially all of the tangible property owned or leased is qualified opportunity zone business property; (ii) at least 50% of the gross income is derived from and a substantial portion of the intangible property is used in the active conduct of a trade or business in a qualified opportunity zone; (iii) less than 5% of the average aggregate unadjusted bases of the property is attributable to nonqualified financial property (subject to a working capital safe harbor); and (iv) it is not engaged in a “sin business” (i.e., private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or gambling facility, the sale of alcoholic beverages for consumption off premises); |
· | references to “qualified opportunity zone business property” refer to tangible property acquired by purchase or lease by a qualified opportunity fund and substantially all of the use of which is in a qualified opportunity zone during substantially all of the fund’s holding period or lease term; |
· | references to “qualified opportunity zone partnership interests” refer to newly issued capital or profits interests acquired solely in exchange for cash from an entity classified as a domestic partnership for U.S. federal income tax purposes, where the partnership’s trade or business is a qualified opportunity zone business at the time of acquisition and during substantially all of the holding period for the interests; |
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· | references to “qualified opportunity zone property” refer to: (i) qualified opportunity zone stock; (ii) qualified opportunity zone partnership interests; and (iii) qualified opportunity zone business property; and |
· | references to “qualified opportunity zone stock” refer to newly issued stock acquired solely in exchange for cash from an entity classified as a domestic corporation for U.S. federal income tax purposes, where the corporation’s trade or business is a qualified opportunity zone business at the time of acquisition and during substantially all of the holding period for the stock. |
Except as otherwise noted or as context otherwise requires, all information in this prospectus assumes:
· | the amendment and restatement of our Limited Liability Company Operating Agreement; |
· | reclassification of all of our outstanding common units into an equivalent number of Class A units; and |
· | the issuance of 100,000 Class B units and one Class M unit to our Manager. |
Belpointe PREP, LLC
Belpointe PREP, LLC is a Delaware limited liability company formed on January 24, 2020. We were formed to originate, invest in and manage a diversified portfolio of commercial real estate properties located throughout the United States and its territories, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. All of our assets are and will continue to be held by, and all of our operations are and will continue to be conducted through, one or more operating companies (each an “Operating Company” and together the “Operating Companies”), either directly or indirectly through subsidiaries. As of the date of this prospectus we have two Operating Companies, Belpointe PREP OC, LLC and Belpointe PREP TN OC, LLC. We will be the manager of our Operating Companies. We are externally managed by our Manager, Belpointe PREP Manager, LLC, a Delaware limited liability company. Our Manager is an affiliate of Belpointe, LLC, our Sponsor.
We expect to use substantially all of the net proceeds from this offering to identify, acquire, develop or redevelop and manage a diversified portfolio of commercial real estate properties located throughout the United States and its territories in accordance with our investment objectives and strategy described below. We also anticipate acquiring other real estate-related assets, including, but not limited to, commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as make private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. We intend to make our investments through our wholly owned Operating Companies, either directly or indirectly through subsidiaries of our Operating Companies, some of which may have rights to receive preferred economic returns.
We initially intend to operate in a manner that will allow us to qualify as a partnership for U.S. federal income tax purposes. If our Manager determines that it is no longer in our best interests to continue as a partnership for U.S. federal income tax purposes, our Manager may elect to treat us as an association or as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state) income tax purposes. If we elect to be taxable as a corporation for U.S. federal (and applicable state) income tax purposes, we may also elect to qualify and be taxed as a real estate investment trust, or REIT.
Our office is located at 255 Glenville Road, Greenwich, CT 06831. Our telephone number is 203-883-1994. Information regarding our Company is also available on our website at www.belpointeoz.com. The contents of our website are not incorporated by reference in or otherwise a part of this prospectus.
Investment Objectives
Our primary investment objectives are:
· | to preserve, protect and return your capital contribution; |
· | to pay attractive and consistent cash distributions; |
· | to grow net cash from operations so that an increasing amount of cash flow is available for distributions to investors over the long term; and |
· | to realize growth in the value of our investments. |
We cannot assure you that we will achieve our investment objectives. See the “Risk Factors” section of this prospectus.
Investment Strategy
We are initially focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within qualified opportunity zones. At least 90% of our assets will consist of qualified opportunity zone property. We will qualify as a qualified opportunity fund beginning with our taxable year ended December 31, 2020. Because we are a qualified opportunity fund, certain of our investors are eligible for favorable capital gains tax treatment on their investments.
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Our initial investments consist of and are expected to continue to consist of properties located in qualified opportunity zones for the development or redevelopment of multifamily, student housing, senior living, healthcare, industrial, self-storage, hospitality, office, mixed-use, data centers and solar projects (collectively, the “qualified opportunity zone investments”) located throughout the United States and its territories. We also anticipate identifying, acquiring, developing or redeveloping and managing a wide range of commercial real estate properties located throughout the United States and its territories, including, but not limited to, real estate-related assets, such as commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as making private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, with the goal of increasing distributions and capital appreciation. We cannot assure you that we will attain these objectives or that the value of our assets will not decrease.
Our investment guidelines will delegate to our Manager discretion and authority to execute acquisitions and dispositions of investments (including the reinvestment of capital basis and gains) in commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, provided such investments are consistent with our investment objectives and strategy and our investment guidelines. Our Manager’s investment committee will also periodically review our portfolio of assets and investments, our investment objectives and strategy and our investment guidelines to determine whether they remain in the best interests of our Members and may recommend changes to our board of directors (our “Board”) as it deems appropriate. We may, at any time and without Member approval, cease to be a qualified opportunity fund and acquire assets that do not qualify as qualified opportunity zone investments. Furthermore, there are no prohibitions in our operating agreement on the amount or percentage of assets that may be invested in a single property, and we expect, at least initially, to have a limited number of properties.
Opportunity and Market Overview
We believe that our innovative investment platform has the ability to disrupt the real estate investment industry through the unique combination of potential economic benefits that it offers holders of our Class A units, including: (i) multiple potential capital gains tax benefits; (ii) potential qualified business income tax benefits; (iii) zero upfront loads, sales commissions or entrance fees; (iv) significantly reduced fees payable to our Manager; (v) no capital calls; (vi) no investor servicing fees; (vii) significantly lower carried interest payable to our Manager; (viii) the potential for liquidity events; and (ix) low minimum investment requirements, all of which should result in greater investment returns to holders of our Class A units than those generated by traditional private real estate funds, real estate investment trusts (“REITs”) and other traditional real estate investment platforms.
We use multiple investment platform structures to deploy capital, which we anticipate will give us access to higher quality investment opportunities and better execution of our investment strategies than less diverse investment models. See “Investment Objectives and Strategy—Joint Venture and Other Co-Ownership Arrangements.” We also expect to greatly benefit from the resources provided by our Sponsor, its vertically integrated real estate platform and the experience of its principals.
Set forth below are some of the key benefits that we believe distinguish us from more traditional private real estate funds, REITs and other traditional real estate investment platforms:
· | Capital Gains Tax Deferral – An eligible investor may defer recognition of capital gains (short-term or long-term) resulting from the sale or exchange of capital assets by reinvesting those gains into our Class A units within a period of 180 days of the sale or exchange (the “Deferred Capital Gains”). Deferred Capital Gains are recognized on the earlier of December 31, 2026 or the date on which an inclusion event occurs, such as the date on which the investor sells its Class A units. |
· | Capital Gains Reduction – An eligible investor may also receive an increase in basis equal to 10% of the Deferred Capital Gains if the investor holds our Class A units for a period of five years. |
· | Capital Gains Tax Exemption – An eligible investor may elect to receive an increase in basis with respect to our Class A units equal to the fair market value of our Class A units on the date of their sale or exchange if the investor holds our Class A units for a period of ten years or more, up to December 31, 2047. Thus, for U.S. federal income tax purposes, an investor will not recognize capital gains as a result of an appreciation in our Class A units. |
· | No Depreciation Recapture – An eligible investor who elects to receive an increase in basis with respect to our Class A units equal to the fair market value of our Class A units on the date of their sale or exchange, if the investor has held our Class A units for a period of ten years or more, up to December 31, 2047, will not recognize depreciation recapture (excluding inventory gains) as a result of an appreciation in our Class A units. |
· | 20% Qualified Business Income Deduction – Individual investors and some trust and estate investors are entitled to a deduction of up to 20% of their allocable share of our “qualified business income” for taxable years ending on or before December 31, 2025, subject to certain limitations. See “U.S. Federal Income Tax Considerations.” |
· | No Up-Front Load, Sale Commissions or Entrance Fees – We will not charge up front loads, sale commissions or entrance fees to investors who purchase our Class A units, unlike fees commonly charged by many other real estate investment platforms which can add up to as much as 10% of invested capital. |
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· | Significantly Reduced Management Fees – Our Manager is paid annual management fees of only 0.75% of our NAV, which is significantly less than the management fees of 1.5%-2.1% typically charged by other traditional private real estate funds, REITs and other traditional real estate investment platforms. |
· | No Capital Calls – Investors will not be required to make capital contributions beyond the purchase price of their Class A units, unlike traditional private real estate funds and other real estate investment platforms. |
· | No Investor Servicing Fees – We will not charge investor servicing fees, typically charged for other real estate investments offered through broker dealer platforms, which can add up to as much as 0.6% of invested capital on annual basis. |
· | Significantly Lower Carried Interest – Our Manager holds 100% of our Class B units, which entitle our Manager to 5% of any gain recognized by or distributed to the Company or recognized or distributed from our Operating Companies or any subsidiary. This ownership interest will result in a “carried interest” to our Manager that is significantly lower than the carried interest of 15%-25% typically earned by external managers of traditional private real estate funds, REITs and other traditional real estate investment platforms. |
· | Ability to Use Equity as Transaction Consideration – We intend to make private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses using our equity as transaction consideration, thereby preserving cash for other investing activities. |
· | Greater Diversification – We intend to hold a larger and more diversified portfolio of real estate and real estate-related assets than most other qualified opportunity zone real estate investment platforms. Greater diversification offers investors in our Class A units the potential to achieve greater returns at a lower risk. |
· | Public Company Transparency – We are a reporting company subject to the periodic and current reporting requirements of the federal securities laws, requiring us to file, among other things, annual and quarterly reports (including financial statements, financial statement schedules and exhibits) and current reports disclosing material events. As a result, unlike private real estate investment platforms, investors in our Class A units will have access to regular updates regarding our performance. |
· | Public Market Liquidity – We have applied to have our Class A units listed on the NYSE under the symbol “OZ.” As a result, Belpointe PREP will be the first qualified opportunity fund listed on a national securities exchange. Having our Class A units listed for trading on NYSE will provide holders of our Class A units with liquidity in respect of their investment and greater control over the timing of purchases and sales of their Class A units. |
· | Minimal Investment Requirements – We have set a minimum investment threshold of $10,000, which we expect will allow for a broader base of investors to participate in our offering than would otherwise be able to participate in more traditional private real estate funds, REITs and other traditional real estate investment platforms. |
· | Development Expertise – Our Manager employs a highly qualified team with extensive real estate development and construction management experience, thereby providing us with knowledge, relationships and internal development expertise that we believe far exceeds what many other real estate investment platforms can offer their investors. |
· | Multiple Investment Platforms – In order to maximize our development opportunities, we anticipate entering into joint ventures in a variety of forms, including: (i) franchise platforms with affiliated development companies in specific regional markets; (ii) programmatic platforms with established regional developers with which we will have an exclusive relationship to engage in multiple regional investments; and (iii) traditional local joint venture partnerships for one-off developments. |
We believe that we will be able to provide holders of our Class A units with compelling investment performance on a risk-adjusted basis through: (i) the application of our rigorous investment and underwriting standards; (ii) the geographic and asset class diversification of our investments; (iii) the expected tax benefits from an investment in our Company; and (iv) lower cost structure.
We are initially focused on the development or redevelopment of qualified opportunity zone investments in opportunity zones that have completed, or are engaged in, the revitalization process, which are expected to be located within 75 miles of metropolitan markets. Given the recent concentration of investment capital in increasingly larger deals in major metropolitan areas, we believe that there will be less competition for our targeted assets. Additionally, we believe that our focus on markets with favorable risk-return characteristics should enable us to achieve higher capital appreciation than would be achievable on similar deals in larger markets.
We expect to be able to manage the risks associated with developing or redeveloping and managing our investments better than other real estate investment companies due, in part, to our ability to access the resources of our Sponsor. Our Sponsor is a fully integrated, well capitalized real estate company that combines investment and asset management professionals with construction and development professionals, which we believe will enable our Manager to better evaluate and manage our investments to reduce risk and increase potential returns for holders of our Class A units.
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It is important to note, however, that real estate markets are often unpredictable and subject to change over time. Accordingly, changes may occur that could require us to modify our investment strategy in order to identify and acquire assets providing attractive risk-adjusted returns.
Our Manager
We are externally managed by our Manager, Belpointe PREP Manager, LLC, a Delaware limited liability company. Our Manager is an affiliate of Belpointe, LLC, our Sponsor.
Our Manager manages our day-to-day operations, implements our investment objectives and strategy and performs certain services for us, subject to oversight by our Board. A team of investment and asset management professionals, acting through our Manager, makes all decisions regarding the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, subject to the limitations in our operating agreement. Our Manager also provides portfolio management, marketing, investor relations, financial, accounting and other administrative services on our behalf with the goal of maximizing our operating cash flow and preserving our invested capital.
Our Management Agreement
We expect to benefit from the personnel, relationships and experience of our Manager’s management team and other personnel of our Manager. Pursuant to the terms of a management agreement between our Manager, the Company and our Operating Company, our Manager manages our day-to-day operations, implements our investment objectives and strategy and performs certain services for us, subject to oversight by our Board. Pursuant to the terms of a shared services agreement between our Sponsor, our Manager, the Company and our Operating Company, our Manager utilizes our Sponsor’s personnel, services and resources as necessary for our Manager to perform its obligations and responsibilities under the management agreement.
Pursuant to the management agreement, our Manager manages our day-to-day operations, implements our investment objectives and strategy and performs certain services for us, subject to oversight by our Board. A team of investment and asset management professionals, acting through our Manager, makes all decisions regarding the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, subject to the limitations in our operating agreement. Our Manager also provides portfolio management, marketing, investor relations, financial, accounting and other administrative services on our behalf with the goal of maximizing our operating cash flow and preserving our invested capital.
The initial term of the management agreement commenced on October 28, 2020 and will continue through December 31, 2025, with an unlimited number of automatic three-year renewal terms commencing immediately upon completion of the initial term. For a detailed description of the management agreement’s termination provisions, see “Our Manager and the Management—Our Management Agreement.”
Our Board of Directors
We operate under the direction of our Board, the members of which are accountable to us and our Members as fiduciaries. Our Board has retained our Manager to direct the management of our business and affairs, manage our day-to-day operations, and implement our investment objectives and strategy, subject to the Board’s oversight. The current members of the Board are Brandon Lacoff (whose initial term expires as of our third annual meeting of Members following the effective date of the registration statement of which this prospectus forms a part) and Martin Lacoff (whose initial term expires as of our second annual meeting of Members following the effective date of the registration statement of which this prospectus forms a part). Dean Drulias, Timothy Oberweger, Shawn Orser and Ronald Young, Jr. will be appointed to our Board and designated to a particular class of directors as of the effective date of the registration statement of which this prospectus forms a part.
Our Board is divided into three classes. Brandon Lacoff is a Class III director and Martin Lacoff is a Class II director. Each class of directors is elected for successive three-year terms ending at the annual meeting of the Members the third year after election and until his or her successor is duly elected and qualified. With respect to the election of directors, each candidate nominated for election to our Board must receive a plurality of the votes cast, in person or by proxy, in order to be elected.
Brandon Lacoff and Martin Lacoff are also executive officers of our Manager and serve on the investment committees of affiliates of our Manager, and Brandon Lacoff also serves as an executive officer and director of affiliates of our Manager and Sponsor. In order to ameliorate the risks created by conflicts of interest, our Board will create a committee comprised entirely of independent directors (the “Independent Committee”) to address any potential conflicts. An independent director is a person who is not an officer or employee of our Manager or its affiliates. The Independent Committee will act upon matters involving conflicts of interest, including transactions between the Company and our Manager. See “Conflicts of Interest.”
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Our Structure
We will be owned by the holders of our Class A units, Class B units and Class M unit. Each Class A unit and each Class B unit entitles the holder thereof to one vote per unit. The Class M unit entitles the holder thereof to that number of votes equal to the product obtained by multiplying (i) the sum of aggregate number of outstanding Class A units plus Class B units, by (ii) 10, on matters on which the holder of our Class M unit has a vote. Our Manager will hold our Class M unit for so long as it remains our manager. Accordingly, our Manager will be able to determine the outcome of all matters on which the holder of our Class M unit has a vote. Such matters include certain mergers and acquisitions, certain amendments to our operating agreement and the election of one Class III director. The Class M unit does not represent an economic interest in the Company. For a detailed description of our units, see “Description of our Units.”
The following chart shows our current ownership structure and our relationship with Belpointe PREP Manager, LLC, our Manager, as of the commencement of this offering.
(1) | Belpointe, LLC, our Sponsor, holds 100 Class A units, representing less than 1% of the Class A units upon completion of this offering. |
(2) | Belpointe PREP Manager, LLC, our Manager, holds 100% of our Class B units and our Class M unit. The Class B units entitle our Manager to 5% of any gain recognized by or distributed to the Company or recognized or distributed from our Operating Companies or any subsidiary. In addition, our Manager will continue to hold 100% of our Class B units even if we terminate or elect not to renew the management agreement. The Class M unit does not represent an economic interest in the Company; however, the Class M unit enables our Manager to determine the outcome of all matters on which the holder of our Class M unit has a vote. |
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Management Compensation
We will pay our Manager and its affiliates the fees and expense reimbursements described below in connection with performing services for us. Neither our Manager nor its affiliates will receive any selling commissions or dealer-manager fees in connection with the offer and sale of our Class A units or disposition fees in connection with our investments. Fees payable and expenses reimbursable to our Manager and its affiliates, including our Sponsor, may be paid, at the election of the recipient, in cash, by issuance of our Class A units at the then-current NAV, or through some combination of the foregoing. See “Management Compensation” for a more detailed description of the fees and expenses payable to our Manager and its affiliates.
Form of Compensation and Receipt | Determination of Amount | Estimated Amount | |||
Organization and Offering Expenses – Manager or its Affiliates | We will reimburse our Manager and its affiliates, including our Sponsor, for all expenses incurred on our behalf in connection with our organization and the offering of our Class A units, which are initially expected to be approximately $3,000,000, and up to approximately 0.004% of gross offering proceeds if we raise the maximum offering amount. Offering expenses will include, without limitation, all legal, accounting, printing, mailing and filing fees and expenses, costs in connection with preparing sales materials, design and website expenses, fees and expenses of our escrow agent and transfer agent, fees to attend retail seminars and reimbursements for customary travel, lodging, meals and entertainment expenses associated therewith, but excluding upfront selling commissions or dealer-manager fees. We will not be required to reimburse our Manager and its affiliates, including our Sponsor, until the first closing is held in connection with the offering. Thereafter, reimbursement payments will be made beginning on a date selected by our Manager in monthly installments without interest until paid in full. | The actual amount will vary depending on the number Class A units sold. Initially organizational and offering expenses are expected to be approximately $3,000,000 and may be up to approximately 0.004% of gross offering proceeds if we raise the maximum offering amount. | |||
Management Fee – Manager | We pay our Manager a quarterly management fee at an annualized rate of 0.75%. The management fee is based on our NAV at the end of each quarter. From the effective date of the registration statement of which this prospectus forms a part through no later than the first quarter following the December 31, 2022 year end, the NAV of our Class A units will be equal to $100.00 per Class A unit. Thereafter, no later than the first quarter following the December 31, 2022 year end, our NAV will be announced within approximately 60 days of the last day of each quarter. | Actual amounts are dependent upon our NAV and, therefore, cannot be determined at this time. |
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Other Operating Expenses – Manager or its Affiliates |
We reimburse our Sponsor and our Manager for our allocable share of the salaries, benefits, office and other overhead of personnel providing services to us. We also reimburse our Manager for out-of-pocket expenses paid to third parties in connection with providing services to us. In addition, we reimburse our Manager for out-of-pocket expenses incurred in connection with the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses (including expenses related to potential transactions that do not close), including, without limitation legal and accounting fees and expenses, costs of due diligence (including appraisals, surveys, engineering reports and environmental site assessments), travel and communications expenses and other closing costs and miscellaneous expenses related to the acquisition of our investments. |
Actual amounts are dependent upon actual expenses incurred and, therefore, cannot be determined at this time. | |||
Participation in Distribution – Manager | Our Manager holds 100% of our Class B units, which entitle our Manager to 5% of any gain recognized by or distributed to the Company or recognized or distributed from our Operating Companies or any subsidiary. As a result, any time we recognize operating gain (excluding depreciation) or receive a distribution, whether from continuing operations, net sale proceeds, refinancing transactions or otherwise, our Manager is entitled to receive 5% of the aggregate amount of such gain or distributions, regardless of whether the holders of our Class A units have received a return of their capital. The allocation and distribution rights that our Manager is entitled to with respect to its Class B units may not be amended, altered or repealed, and the number of authorized Class B Units may not be increased or decreased, without the consent of our Manager. In addition, our Manager will continue to hold 100% of our Class B units even if we terminate or elect not to renew the management agreement. Accordingly, for so long as our Manager continues to hold our Class B units, it will be entitled to receive 5% of the aggregate amount of any operating gain (excluding depreciation) that we recognize or distribution that we receive. | Actual amounts are dependent upon the results of our operations and, therefore, cannot be determined at this time. | |||
Acquisition Fee – Manager or its Affiliates | We will pay our Manager, Sponsor, or an affiliate of our Manager or Sponsor, an acquisition fee equal to 1.5% of the total value of any acquisition transaction, including any acquisition through merger with another entity (but excluding any transactions in which our Sponsor, or an affiliate of our Manager or Sponsor, would otherwise receive a development fee). | Actual amounts are dependent upon the results of our operations and, therefore, cannot be determined at this time. | |||
Property Management Oversight Fee – Manager or its Affiliates | In addition, our Manager, Sponsor or an affiliate of our Manager or Sponsor, will be paid an annual property management oversight fee, to be paid by the individual subsidiaries of our Operating Companies, equal to 1.5% of the revenue generated by the applicable property. | Actual amounts are dependent upon the results of our operations and, therefore, cannot be determined at this time. |
Summary of Risk Factors
Investing in our Class A units involves a high degree of risk. You should carefully review the “Risk Factors” section of this prospectus, beginning on page 28, which contains a description discussion of the material risks that you should consider before you invest in our Class A units.
Conflicts of Interest
Our Manager and its affiliates will experience conflicts of interest in connection with the management of our business. Some of the material conflicts that our Manager and its affiliates may face include the following:
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· | Our Sponsor’s investment and asset management professionals acting on behalf of our Manager must determine which investment opportunities to recommend to us and other entities affiliated with our Sponsor. Our Sponsor has previously sponsored, as of the date of this prospectus, two real estate funds and may in the future sponsor other real estate funds that may have similar investment criteria to ours. In addition, our Sponsor currently sponsors, as of the date of this prospectus, a qualified opportunity fund REIT with investment criteria similar to ours. |
· | Our Sponsor’s investment and asset management professionals acting on behalf of our Manager will have to allocate their time among us, our Sponsor’s business and other programs and activities in which they are involved. |
· | The terms of our management agreement (including our Manager’s rights and obligations and the compensation payable to our Manager and its affiliates) were not negotiated through the benefit of arm’s length negotiations of the type normally conducted between unrelated parties. |
We may in the future decide to internalize our management function and, should we elect do so, we may acquire our Manager’s or its affiliates’, including our Sponsor’s, assets and personnel. We, our Operating Company and our Manager have entered into a management agreement. The terms of the management agreement restrict us from hiring or soliciting any employee of our Manager or its affiliates, including our Sponsor, for a period of two years from termination of the management agreement. This restriction could make it difficult for us to internalize management without acquiring assets and personnel from our Manager and its affiliates, including our Sponsor, for consideration that would be negotiated at the time of any such acquisition. Such consideration could take many forms, including issuance of units or cash payments, which could result in the dilution of your interest in us or directly impact our NAV, by reducing the amount of our assets.
Distributions
We do not expect to pay any distributions until the proceeds of this offering are invested and generating operating cash flow. Once we begin to pay distributions, we expect to pay them quarterly, in arrears, but may pay them less frequently as determined by us following consultation with our Manager. Any distributions that we do pay will be at the discretion of our Manager, subject to Board oversight, and based on, among other factors, our present and projected future earnings, cash flow, capital needs and general financial condition, as well as any requirements of applicable law. In order to participate in any distribution that we do pay you must be a holder of record of our Class A units as of the date we set as the record date for such distribution, and as of the ex-date, if applicable. We expect that we will set the rate of distributions at a level that will be reasonably consistent and sustainable over time. We have not established a minimum distribution level, and our operating agreement does not require that we pay distributions to our Members.
While our goal is to pay distributions from cash flow from operations, we may, at the discretion of our Manager, subject to Board oversight, use other sources to fund distributions, including, without limitation, the sale of assets, borrowings in anticipation of future operating cash flow, net proceeds of this offering, cash advances by our Manager, cash resulting from a waiver of fees or reimbursements due to our Manager or the issuance of additional securities. We will only fund distributions by a return of capital following the sale of assets, unless otherwise determined by our Manager in its discretion. Funding distributions from the sales of assets, borrowings, return of capital or proceeds of this offering will result in us having less funds available to acquire assets and investments, and will directly impact our NAV, by reducing the amount of our assets. As a result, the return you realize on your investment may be reduced. Doing so may also negatively impact our ability to generate cash flows. Likewise, funding distributions from the sale of additional securities will dilute your interest in us on a percentage basis and may impact the value of your investment especially if we sell these securities at prices less than the price you paid for your Class A units. We have not established a limit on the amount of offering proceeds we may use to fund distributions. We can provide no assurances that future cash flow will support payment of distributions or maintaining distributions at any particular level, if at all. We believe the likelihood that we pay distributions from sources other than cash flow from operations will be higher in the early stages of the offering.
Any distributions that we make will directly impact our NAV, by reducing the amount of our assets. Over the course of your investment, your distributions plus the change in NAV (either positive or negative) will produce your total return.
Borrowing Policy
We intend to employ leverage in order to provide more funds available for investment. We believe that careful use of conservatively structured leverage will help us to achieve our diversification goals and potentially enhance the returns on our investments. Our targeted aggregate property-level leverage, excluding any debt at the Company level or on assets under development or redevelopment, after we have acquired a substantial portfolio of stabilized commercial real estate, is between 50-70% of the greater of the cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. During the period when we are acquiring, developing and redeveloping our investments, we may employ greater leverage on individual assets. An example of property-level leverage is a mortgage loan secured by an individual property or portfolio of properties incurred or assumed in connection with our acquisition of such property or portfolio of properties. An example of debt at the Company level is a line of credit obtained by us or our Operating Companies.
Our Manager may from time to time modify our leverage policy in its discretion in light of then-current economic conditions, relative costs of debt and equity capital, market values of our assets, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. There is no limit on the amount we may borrow with respect to any individual property or portfolio. See “Investment Objectives and Strategy” for additional details regarding our leverage policies.
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Valuation Policies
No later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, we plan to calculate our net asset value within approximately 60 days of the last day of each quarter (the “Determination Date”). Any adjustment to our NAV will take effect as of the first business day following its public announcement. Our adjusted NAV per Class A unit will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date. We may also engage a third party to prepare or assist with preparing the NAV of our Class A units.
Our NAV will be calculated using a process that may reflect some or all of the following components: (i) estimated values of each of our assets and investments, including related liabilities (but, in our discretion, may exclude deal-level carried interest allocations), based on: (a) market capitalization rates, comparable transaction information, interest rates, adjusted net operating income; (b) with respect to debt, default rates, discount rates and loss severity rates; (c) for commercial real estate properties that have development or value add plans, progress along such development or value add plans; and (d) in certain instances, reports of the underlying assets and investments by an independent valuation expert; (ii) the price of liquid assets for which third party market quotes are available; (iii) accruals of our periodic distributions; and (iv) estimated accruals of our operating revenues and expenses (excluding property management oversight fees).
Where we determine that an independent appraisal is necessary, including, without limitation, where our Manager is unsure of its ability to accurately determine the estimated values of our assets and investments, or where third party market values for comparable assets and investments are either nonexistent or extremely inconsistent, we may engage an appraiser that has expertise in appraising the types of assets and investments that we hold to act as our independent valuation expert. See “Net Asset Value Calculations and Valuation Policies” for additional details on our valuation policies.
Quarterly NAV Per Class A Unit Adjustments
We set our initial offering price at $100.00 per Class A unit. No later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, we plan to calculate our NAV within approximately 60 days of the last day of each quarter (the “Determination Date”). If our NAV increases above or decreases below the price per Class A unit as stated in this prospectus, we will adjust the offering price, effective as of the first business day following its public announcement. The adjusted offering price will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date. Our Board, taking into consideration factors such as the investments we hold and the timing of our ability to generate cash flows, may determine that it is appropriate for us to begin calculating NAV on a quarterly basis prior to the first quarter following the December 31, 2022 year end.
We will file a prospectus supplement with the SEC if we determine to calculate NAV prior to the first quarter following the December 31, 2022 year end and prospectus supplements disclosing quarterly determinations of our NAV per Class A unit for each fiscal quarter thereafter. See “Net Asset Value Calculations and Valuation Policies” for additional details on our quarterly adjustments to our NAV per Class A unit.
Liquidity Opportunities
We have applied to have our Class A units listed on the NYSE under the symbol “OZ.” As a result, Belpointe PREP will be the first qualified opportunity fund listed on a national securities exchange. Having our Class A units listed for trading on NYSE will provide holders of our Class A units with liquidity in respect of their investment and greater control over the timing of purchases and sales of Class A units.
Tax Information
As a partnership, our operating results, including distributions of income, gains, losses, deductions, credits and adjustments to the carrying value of our assets and investments, will be reported on Schedule K-1 to IRS Form 1065 and distributed annually to each holder of our Class A units. Your Schedule K-1 will contain information regarding your allocable share of our items of income, gain, loss, deduction, credit and adjustments to the carrying value of our assets and investments. Schedule K-1s are usually complex, and you may find that preparing your own tax returns requires additional time. You may also find it necessary or advisable to engage the services of an accountant or other tax adviser, at your own cost and expense, to assist with the preparation of your tax returns.
In addition, it is possible that your income tax liability with respect your allocable share of our income for a particular taxable year, as reflected on your Schedule K-1, could exceed the amount of cash distributions, if any, that we make to you for that taxable year, thus giving rise to an out-of-pocket tax liability. Accordingly, you should consult with your own accountant or other tax advisers concerning the tax consequences of your specific tax circumstances prior to acquiring, holding or disposing of any of our Class A units.
Although we currently intend to distribute Schedule K-1s on or around 90 days after the end of our fiscal year, it may require a substantial period of time after the end of our fiscal year to obtain the requisite information from all lower-tier entities to enable us to prepare and deliver Schedule K-1s. For this reason, holders of Class A units who are U.S. taxpayers should anticipate the need to file annually with the IRS (and certain states) a request for an extension past the due date of their income tax return.
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Investment Company Act Considerations
We intend to engage primarily in the business of investing in real estate and to conduct our operations such that neither we nor any of our subsidiaries are required to register as an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”).
Under Section 3(a)(1)(A) of the Investment Company Act a company is an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. A company is an investment company under Section 3(a)(1)(C) of the Investment Company Act, if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns, or proposes to acquire, “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis (the “40% Test”). The Investment Company Act defines investment securities generally as all securities except U.S. government securities and securities issued by “majority-owned subsidiaries” which are not themselves investment companies and are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act. The Investment Company Act further defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding “voting securities” of which are owned by such person, or by another company which is a majority-owned subsidiary of such person, and voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company.
All of our assets are and will continue to be held by, and all of our operations are and will continue to be conducted through one or more operating companies (each an “Operating Company” and together the “Operating Companies”), either directly or indirectly through subsidiaries. To further diversify our investment portfolio, we also intend to enter into joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations with affiliates of our Sponsor and Manager, such as Belpointe SP, LLC or its affiliates (collectively, the “Belpointe SP Group”), as well as independent developers and owners. We will frequently acquire an interest in a property where a member of the Belpointe SP Group will act as general partner or co-general partner, manager or co-manager, developer or co-developer, or any of the forgoing. See “Investment Objectives and Strategy—Joint Venture and Other Co-Ownership Arrangements” for additional details regarding our joint ventures, partnerships, co-tenancies and other co-ownership arrangements.
Neither we nor our Operating Companies nor any of the majority-owned subsidiaries of our Operating Companies will engage primarily or be held out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, our initial investments consist of and are expected to continue to consist of commercial properties located in qualified opportunity zones, and future investments are expected to include a wide range of commercial real estate properties located throughout the United States and its territories, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. Accordingly, we believe that neither we nor our Operating Companies nor any of the majority-owned subsidiaries of our Operating Companies will be considered investment companies under Section 3(a)(1)(A) of the Investment Company Act.
Further, we intend to hold our assets and conduct our operations such that we, our Operating Companies and most, if not all, of the majority-owned subsidiaries of our Operating Companies comply with the 40% Test and we will continuously monitor our holdings to confirm such compliance. We do not expect most, if any, of the majority-owned subsidiaries of our Operating Companies to rely on the exceptions provided by either Section 3(c)(1) or 3(c)(7) of the Investment Company Act. As such, interests in these subsidiaries (which are expected to constitute a substantial majority of our assets) generally will not constitute “investment securities.” Accordingly, we believe that neither we nor our Operating Companies nor most, if not all, of the majority-owned subsidiaries of our Operating Companies will be considered investment companies under Section 3(a)(1)(C) of the Investment Company Act. See “Investment Objectives and Strategy—Investment Company Act Considerations.”
If we, our Operating Companies or any of the majority-owned subsidiaries of our Operating Companies were to ever inadvertently fall within the definition of an “investment company,” we may rely on the exception provided by Section 3(c)(5)(C) of the Investment Company Act, which is available for entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. Through a series of no-action letters the SEC has taken the position that this exception may be available if: at least 55% of an entity’s assets consist of “mortgages and other liens on and interests in real estate” and the remaining 45% of its assets consist primarily of “real estate-type interests;” with at least 80% of the entity’s total assets consisting of qualifying interests and real estate-type interests and no more than 20% of its total assets consisting of assets that have no relationship to real.
Maintaining our exclusion from registration under the Investment Company Act will limit our ability to make certain investments. In addition, although we intend to continuously monitor our holdings, there can be no assurance that we, our Operating Companies or any of the subsidiaries of our Operating Companies will be able to maintain our exclusion from registration. A change in the value of any of our assets could negatively affect our ability to maintain our exclusion from registration and we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise want 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 assets that we would otherwise want to acquire and would be important to our investment strategy.
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If we are required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration, and other matters. Compliance with the Investment Company Act would, accordingly, limit our ability to make certain investments and require us to significantly restructure our business plan. If we were required to register as an investment company but failed to do so, we could be prohibited from engaging in our business, and criminal and civil actions could be brought against us. See “Risk Factors—Risks Related to This Offering and our Organizational Structure” for a discussion of the risks that we would face if we were required to register as an investment company under the Investment Company Act.
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An investment in our Class A units involves substantial risks. You should carefully consider the following material risks in addition to the other information contained in this prospectus before you decide to purchase our Class A units. The occurrence of any of the following risks might cause you to lose all or a significant part of your investment. The risks and uncertainties discussed below are not the only ones we face but do represent those risks and uncertainties that we believe are most significant to our business, operating results, prospects and financial condition. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section entitled “Statements Regarding Forward-Looking Information.”
Risks Related to This Offering and our Organizational Structure
We have a limited operating history, and the prior performance of our Sponsor or other real estate investment opportunities sponsored by our Sponsor may not predict our future results.
We are a recently formed company and have a limited operating history and we may not be able to achieve our investment objectives. As of the date of this prospectus, we have only made three qualified opportunity zone investments and do not have any financing from sources other than our Sponsor or its affiliates. We cannot assure you that the past experiences of Sponsor or its affiliates will be sufficient to allow us to successfully achieve our investment objectives. Our limited operating history significantly increases the risk and uncertainty you face in making an investment in our Class A units.
There can be no assurance that we will be able to successfully identify, make and realize any additional investments or generate returns for our investors (or that such returns will be commensurate with the risks associated with an investment in our Class A units). Furthermore, there can be no assurance that our investors will receive any distributions. Accordingly, an investment in our Class A units should only be undertaken by investors who can afford a loss of their entire investment.
We have only held our investments for a limited period of time, and you will not have the opportunity to evaluate our future investments before we make them, which makes your investment more speculative.
We have only held our investments for a limited period of time and are not able to provide you with any information to assist you in evaluating the merits of any specific properties or real estate-related investments that we may acquire, except for investments that may be described in one or more supplements to this prospectus. We will seek to invest substantially all of the net offering proceeds from this offering, after the payment of fees and expenses, in the acquisition of or investment in real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate companies, as well as select private equity investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. However, because you will be unable to evaluate the economic merit of our investments before we make them, you will have to rely entirely on the ability of our Manager to select suitable and successful investment opportunities. There can be no assurance that our Manager will be successful in obtaining suitable investments or that, if such investments are made, our investment objectives will be achieved. Furthermore, our Manager will have broad discretion in selecting investments, and you will not have the opportunity to evaluate potential investments. These factors increase the risk that your investment may not generate returns comparable to other investment alternatives.
We have applied to have our Class A units listed on the NYSE, however, an active, liquid and orderly market for our Class A units may not develop or be sustained.
We have applied to have our Class A units listed on the NYSE under the symbol “OZ.” Prior to listing on the NYSE, there will have been no public market for our Class A units, and an active, liquid and orderly market for our Class A units may not develop or be sustained. Further, because we are a qualified opportunity fund, eligible investors may defer recognition of capital gains (short-term or long-term) resulting from the sale or exchange of capital assets by reinvesting those gains into our Class A units within a period of 180 days of the sale or exchange (the “Deferred Capital Gains”). Deferred Capital Gains are recognized on the earlier of December 31, 2026 or the date on which an inclusion event occurs, such as the date on which investors sell their Class A units. Eligible investors may also receive an increase in basis equal to 10% of the Deferred Capital Gains if they hold our Class A units for a period of five years and may elect to receive an increase in basis with respect to our Class A units equal to their fair market value on the date of sale or exchange if they hold our Class A units for a period of ten years or more, up to December 31, 2047. Consequently, fewer Class A units may be actively traded in the public markets which would reduce the liquidity of the market for our Class A units. If an active market for our Class A units does not develop or is not sustained, you may be unable to sell your Class A units at the time you desire to sell them, at price at or above the price you paid for them, or it may result in volatility in the price of our Class A units. An inactive market may also impair the Company’s ability to raise capital by selling Class A units and may impair our ability to make opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses using our Class A units as consideration.
If we are unable to find suitable investments, we may not be able to achieve our investment objectives or pay distributions.
Our ability to achieve our investment objectives and to pay distributions depends on the ability of our Manager to select suitable and successful investment opportunities for us. If we fail to raise sufficient proceeds from the sale of Class A units in this offering, we will be unable to make any additional investments. At the same time, the more money we raise in this offering, the greater our challenge will be to invest all of the net offering proceeds in investments that meet our investment criteria. Our initial
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investments consist of and are expected to continue to consist of properties located in qualified opportunity zones for the development or redevelopment of multifamily, student housing, senior living, healthcare, industrial, self-storage, hospitality, office, mixed-use, data centers and solar projects (collectively, the “qualified opportunity zone investments”) located throughout the United States and its territories. We also anticipate identifying, acquiring, developing or redeveloping and managing a wide range of commercial real estate properties located throughout the United States and its territories, including, but not limited to, real estate-related assets, such as commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as making private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, with the goal of increasing distributions and capital appreciation. We cannot assure you that our Manager will initially be successful in locating and obtaining suitable qualified opportunity zone investments or that, if our Manager makes qualified opportunity zone investments on our behalf, our objectives will be achieved. What’s more, increased competition from other opportunity zone funds as well as any prospective legislative or regulatory changes related to qualified opportunity zone investments, may make it more difficult for our Manager to make suitable qualified opportunity zone investments. If we, through our Manager, are unable to find suitable investments promptly, we may invest in short-term, investment-grade obligations or accounts in a manner that is consistent with our intended qualification as a publicly traded partnership and qualified opportunity fund. If we would continue to be unsuccessful in locating suitable investments, we may ultimately decide to liquidate. In the event we are unable to timely locate suitable investments, we may be unable or limited in our ability to pay distributions and we may not be able to meet our investment objectives.
Our ability to deploy capital we raise in this offering may be constrained.
If we are able to quickly raise capital during this offering, we may have difficulty identifying and purchasing suitable properties on attractive terms. In addition, increased competition from other opportunity zone funds, a lack of suitable qualified opportunity zone investment opportunities or other market-related constraints, may also make it more difficult for our Manager to deploy the capital we raise in this offering. Therefore, there could be a delay between the time we receive net proceeds from the sale of our Class A units in this offering and the time we invest the net proceeds. This could cause a substantial delay in the time it takes for your investment to realize its full potential return and could adversely affect our ability to pay regular distributions of cash flow from operations to you. If we fail to timely invest the net proceeds of this offering, our results of operations and financial condition may be adversely affected.
The offering price of our Class A units was not established in reliance on a valuation of our assets and liabilities; the actual value of your investment may be substantially less than what you pay.
We have established the offering price of our Class A units on an arbitrary basis. The selling price of our Class A units bears no relationship to our book or asset values or to any other established criteria for valuing equity. From the effective date of the registration statement of which this prospectus forms a part through no later than the first quarter following the December 31, 2022 year end, the net asset value (“NAV”) of our Class A units will be equal to $100.00 per Class A unit. Thereafter, no later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, we plan to calculate the NAV of our Class A units on a quarterly basis. The per Class A unit purchase price will be adjusted within approximately 60 days of the last day of each quarter (the “Determination Date”). We will calculate our NAV as of the Determination Date (rounded to the nearest dollar) and any adjustment to our NAV will take effect as of the first business day following its public announcement. Our adjusted NAV per Class A unit will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date.
Our NAV will be calculated using a process that may reflect some or all of the following components: (i) estimated values of each of our assets and investments, including related liabilities (but may, in our discretion, exclude deal-level carried interest allocations), based on: (a) market capitalization rates, comparable transaction information, interest rates, adjusted net operating income; (b) with respect to debt, default rates, discount rates and loss severity rates; (c) for commercial real estate properties that have development or value add plans, progress along such development or value add plans; and (d) in certain instances, reports of the underlying assets and investments by an independent valuation expert; (ii) the price of liquid assets for which third party market quotes are available; (iii) accruals of our periodic distributions; and (iv) estimated accruals of our operating revenues and expenses (excluding property management oversight fees).
We may engage a third party to prepare or assist with preparing the NAV of our Class A units. In addition, where we determine that an independent appraisal is necessary, including, without limitation, where our Manager is unsure of its ability to accurately determine the estimated values of our assets and investments, or where third party market values for comparable assets and investments are either nonexistent or extremely inconsistent, we may engage an appraiser that has expertise in appraising the types of assets and investments that we hold to act as our independent valuation expert. The independent valuation expert will not be responsible for, prepare or assist with preparing our NAV per Class A unit.
As with any asset valuation protocol, the conclusions reached by our Manager or any third-party firm that we engage to prepare or assist with preparing the NAV of our Class A units will involve significant judgments, assumptions and opinions in the application of both observable and unobservable attributes that may or may not prove to be correct. The use of different judgments or assumptions would likely result in different estimates of the value of our assets and investments and, consequently, our NAV. Moreover, although we will calculate and provide our NAV on a quarterly basis, our NAV may fluctuate daily, accordingly the NAV
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in effect for any given fiscal quarter may not accurately reflect the amount that might otherwise be paid for your Class A units in a market transaction. Further, for any given fiscal quarter, our published NAV may not fully reflect certain material events to the extent that they are unknown or their financial impact on our assets or investments is not immediately quantifiable.
Our goal is to provide a reasonable estimate of the market value of our Class A units within approximately 60 days of the last day of each quarter.
It is important to note that the determination of our NAV will not be based on, nor is it intended to comply with, fair value standards under U.S. GAAP, and our NAV may not be indicative of the price that we would receive for our assets at current market conditions. In addition, we do not represent, warrant or guarantee that: (i) you will be able to realize the NAV per Class A unit for your Class A units if you attempt to sell them; (ii) you will ultimately realize distributions per Class A unit equal to the NAV per Class A units you own upon liquidation of our assets and investments and settlement of our liabilities or a sale of our company; (iii) our Class A units will trade at their NAV per Class A unit on the NYSE; or (iv) a third party would offer the NAV per Class A unit in an arm’s-length transaction to purchase all or substantially all of our Class A units. Furthermore, any distributions that we make will directly impact our NAV, by reducing the amount of our assets. See “Net Asset Value Calculations and Valuation Policies” for additional details on our quarterly adjustments to our NAV per Class A unit.
Our Sponsor does not hold a significant amount of our equity. As such our Sponsor may not be as strongly incentivized to avoid losses a sponsor who does hold significant equity in its companies, and as a result you may be more likely to sustain a loss on your investment.
Our Sponsor, Belpointe, LLC, has acquired 100 of our Class A units in connection with our formation for net proceeds to us of $10,000. Accordingly, if we are successful in raising enough offering proceeds to be able to reimburse our Sponsor for any organizational and offering expenses incurred on our behalf, our Sponsor will have very little exposure to loss in the value of our Class A units. Without this exposure, the holders of our Class A units may be at a greater risk of loss because our Sponsor does not have as much to lose from a decrease in the value of our Class A units as do those sponsors who make more significant equity investments in their companies.
Our Sponsor currently sponsors and will in the future sponsor other investment programs some of which compete with us.
Our Sponsor has previously sponsored two real estate funds and may in the future sponsor other investment programs that may have similar investment criteria to our own. In addition, our Sponsor currently sponsors a qualified opportunity fund REIT with investment criteria similar to ours. Our Sponsor and its affiliates will in the future sponsor other investment programs some of which may compete with us, and there are no limits or restrictions on the right of our Sponsor, or any of its affiliates, including our Manager, to engage in any other business or sponsor other investment programs of any kind.
Our Manager and its affiliates have little or no experience managing a portfolio of assets in the manner necessary to maintain our intended qualification as a publicly traded partnership and qualified opportunity fund or our exclusion or exemption from registration under the Investment Company Act.
In order to maintain our intended qualification as a publicly traded partnership and qualified opportunity fund and our exclusion or exemption from registration under the Investment Company Act, our assets and investment may be subject to certain restrictions that could limit our operations meaningfully. The publicly traded partnership rules and regulations and Opportunity Zone Regulations are highly technical and complex, and our failure to comply with the requirements and limitations imposed by these rules and regulations could prevent us from qualifying as a publicly traded partnership or qualified opportunity fund or could force us to pay unexpected taxes and penalties. Our Manager and its affiliates have little or no experience managing assets and investments in the manner necessary to maintain our intended qualification as a publicly traded partnership and qualified opportunity fund or our exclusion or exemption from registration under the Investment Company Act. This inexperience may hinder our ability to achieve our objectives, result in our failing to achieve or losing of our qualification as a publicly traded partnership or qualified opportunity fund or our exclusion or exemption from registration under the Investment Company Act. As a result, we cannot assure you that we will be able to successfully operate as a publicly traded partnership and qualified opportunity fund, comply with regulatory requirements applicable to publicly traded partnerships and qualified opportunity funds, maintain our exclusion or an exemption from registration under the Investment Company Act, or execute our business strategies.
Concurrently with this offering, we are conducting a tender offer to acquire control of, and ultimately, the entire equity interest in, Belpointe REIT. If the transaction closes you will experience immediate dilution.
Concurrently with this offering, we, through our wholly owned subsidiary, BREIT Merger, LLC a Delaware limited liability company (“BREIT Merger”), are conducting a tender offer pursuant to which we are offering to exchange 1.05 of our Class A units for each outstanding share of common stock of Belpointe REIT, Inc., a Maryland corporation (“Belpointe REIT”), and affiliate of our Manager and Sponsor, that is validly tendered in the offer. The purpose of the offer is for the Company to acquire control of, and ultimately, the entire equity interest in, Belpointe REIT while at the same time preserving the status of Belpointe REIT’s investments as qualified opportunity zone investments. The offer is the first step in our plan to acquire the entire equity interest in Belpointe REIT. Promptly after consummation of the offer, we will complete a sale of Belpointe REIT’s qualified opportunity zone investments for purposes of preserving their status as qualified opportunity zone investments and thereafter convert Belpointe REIT from a Maryland corporation into a Maryland limited liability company (as converted “BREIT LLC”) and merger BREIT LLC with and into BREIT
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Merger, with BREIT Merger surviving (collectively, the “Belpointe REIT Transaction”). In the merger each BREIT LLC unit will convert into the right to receive 1.05 Class A units of Belpointe PREP. If the Belpointe REIT Transaction closes you will experience immediate dilution.
Our investments were acquired with the proceeds of loans from Belpointe REIT, Inc., an affiliate of our Manager and Sponsor.
We funded the acquisition of our three qualified opportunity zone investments with proceeds of a $35,000,000 loan from Belpointe REIT (the “First Belpointe REIT Loan”). The First Belpointe REIT Loan is evidenced by a secured promissory note (the “First Secured Note”) which bears interest at a rate of 0.14%, is due and payable on June 30, 2021 (the “Maturity Date”) and is secured by all of our assets (the “Collateral”). On February16, 2021, we entered into a second loan transaction with Belpointe REIT (the “Second Belpointe REIT Loan” and, together with the First Belpointe REIT Loan, the “Belpointe REIT Loans”) whereby Belpointe REIT advanced us an additional $24,000,000. The Second Belpointe REIT Loan is evidenced by a secured promissory note (the “Second Secured Note” and, together with the First Secured Note, the “Secured Notes”) which bears interest at a rate of 0.14%, is due and payable the Maturity Date and is secured by the Collateral. In the event that the Belpointe REIT Transaction is not consummated or that we do not raise sufficient proceeds in this offering by the Maturity Date, we may not be able to repay the amounts due under the Secured Notes and Belpointe REIT may proceed against the Collateral, which would have a material adverse effect on us and the holders of our Class A units and may result in you losing some or all of your investment.
The Belpointe REIT Transaction remains subject to conditions, many of which we cannot control and there can be no assurance that it will be consummated.
The Belpointe REIT Transaction is subject to a number of conditions, many of which we cannot control and may not be fulfilled. There are no assurances that all of the conditions to the Belpointe REIT Transaction will be satisfied or that the conditions will be satisfied in the time frame expected. If the conditions to the Belpointe REIT Transaction are not met then the Belpointe REIT Transaction may not be consummated, which could have a material adverse effect on us and the holders of our Class A units and may result in you losing some or all of your investment.
We have limited operating capital and limited revenue from operations.
Even if we consummate the Belpointe REIT Transaction we still need to raise additional capital through sale of our Class A unit and there can be no assurance that we will be able to do so in the amounts required, in a timely manner or at all. We have limited operating capital and limited revenue and for the foreseeable future will be dependent upon our ability to finance our operations through the remaining proceeds of the Belpointe REIT Loans, advances from our Manager, Sponsor, or an affiliate of our Manager or Sponsor, from the sale of our Class A units in this offering or through other financing alternatives. There can be no assurance that our Manager, Sponsor, or an affiliate of our Manager or Sponsor, will continue to advance us funds, and they are not obligated to do so. There can also be no assurance that we will be able to successfully raise operating capital in this offering or that we will have access to other financing alternatives. Our failure to successfully obtain operating capital could result in our bankruptcy or other events which would have a material adverse effect on us and the holders of our Class A units and may result in your losing some or all of your investment.
Any adverse changes in our Sponsor’s financial health, or our Sponsor’s or our relationship with our Manager or its affiliates could hinder our operating performance and the return on your investment.
We, our Operating Company and our Manager have entered into a management agreement pursuant to which our Manager manages our day-to-day operations, implements our investment objectives and strategy and performs certain services for us, subject to oversight by our Board.
We, our Operating Company, our Sponsor and our Manager have also entered into a shared services agreement pursuant to which our Manager is provided with access to, among other things, our Sponsor’s and its affiliates’ portfolio management, asset valuation, risk management and asset management professionals and services as well as administration professionals and services addressing legal, compliance, investor relations and information technologies necessary for the performance by our Manager of its duties under the management agreement.
This team of investment, asset management and other professionals, acting through our Manager, makes all decisions regarding the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, subject to the limitations in our operating agreement. Our Manager also provides portfolio management, marketing, investor relations, financial, accounting and other administrative services on our behalf with the goal of maximizing our operating cash flow and preserving our invested capital. As such, our ability to achieve our investment objectives and to pay distributions to the holders of our Class A units is dependent in part on our Sponsor’s financial condition and our Sponsor’s and our relationship with our Manager. Any adverse changes in our Sponsor’s financial condition or our Sponsor’s or our relationship with our Manager could hinder our ability to successfully manage our operations and our portfolio of assets and investments.
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In addition, our Manager and our Sponsor only have limited assets and our recourse against our Manager or our Sponsor if our Manager does not fulfill its obligations under the management agreement will be limited to our termination of the management agreement.
If our Sponsor fails to retain its key personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.
Our future depends, in part, on our Sponsor’s ability to attract and retain key personnel. Our future also depends on the continued contributions of the executive officers and other key personnel of our Sponsor acting through our Manager, each of whom would be difficult to replace. In particular, each of Brandon Lacoff and Martin Lacoff is critical to the management of our business and operations and the development of our strategic direction. The loss of the services of Brandon Lacoff, Martin Lacoff or other executive officers or key personnel of our Sponsor and the process to replace any of our Sponsor’s key personnel would involve substantial time and expense and may significantly delay or prevent the achievement of our business objectives.
The management agreement with our Manager was not negotiated with an unaffiliated third party on an arm’s length basis and may not be as favorable to us as if it had been negotiated with an unaffiliated third party.
Our management agreement with our Manager was negotiated between related parties and its terms, including fees payable, may not be as favorable to us as if it had been negotiated with an unaffiliated third party. We will pay our Manager a management fee regardless of the performance of our investments. Our Manager’s entitlement to a management fee, which is not based upon performance metrics or goals, might reduce its incentive to devote its time and effort to seeking investments that provide attractive risk-adjusted returns for our portfolio. This in turn could hurt both our ability to pay distributions to holders of our Class A units and the market price of our Class A units.
We do not have an exclusive management arrangement with our Manager.
We do not have an exclusive management arrangement with our Manager. Accordingly, our Manager and its affiliates, including our Sponsor, can and will engage in other activities, including, without limitation, managing other investment programs sponsored or organized by our Sponsor and its affiliates. Further, nothing in our management agreement limits or restricts the right of any manager, director, officer, employee or equityholder of our Manager, or any of its affiliates, including our Sponsor, to engage in any other business or to render services of any kind to any other person or entity.
Terminating the management agreement for unsatisfactory performance by our Manager or electing not to renew the management agreement may be difficult, and, even if we elect not to renew or terminate the management agreement, our Manager will continue to hold our Class B units.
Terminating the management agreement for unsatisfactory performance by our Manager is difficult and potentially costly. The initial term of the management agreement commenced on October 28, 2020 and will continue through December 31, 2025. We may only terminate the management agreement (i) for “cause,” (ii) upon the bankruptcy of our Manager, or (iii) upon a material breach of the management agreement by our Manager. “Cause” is defined in the management agreement to mean fraud or willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case that has or could reasonably be expected to have a material adverse effect on us. Following the initial term, the management agreement will automatically renew for an unlimited number of three-year terms unless we elect not to renew or terminate it by providing our Manager with 180 days’ prior notice. We will review and evaluate our Manager’s performance under the management agreement at least 180 days prior to each renewal term.
Upon any termination or non-renewal of the management agreement by us or any termination of the management agreement by our Manager for our breach of the management agreement, our Manager will be entitled to receive its prorated management fee through the expiration or termination date and will be paid a termination fee equal to six times the annual management fee earned by our Manager during the 12-month period ended as of the last day of the quarter immediately preceding the termination date (the “termination fee”); however, if less than 12 months have elapsed as of the termination date, the termination fee will be calculated by annualizing the management fee earned during the most recently completed quarter prior to the termination date.
In addition, upon any termination or non-renewal of the management agreement, our Manager will continue to hold 100% of our Class B units, which entitle our Manager to 5% of any gain recognized by or distributed to the Company or recognized by or distributed from the Operating Companies or any subsidiary. As a result, any time we recognize operating gain (excluding depreciation) or receive a distribution, whether from continuing operations, net sale proceeds, refinancing transactions or otherwise, our Manager is entitled to receive 5% of the aggregate amount of such gain or distribution, regardless of whether the holders of our Class A units have received a return of their capital. The allocation and distribution rights that our Manager is entitled to with respect to its Class B units may not be amended, altered or repealed, and the number of authorized Class B Units may not be increased or decreased, without the consent of our Manager. Accordingly, for so long as our Manager continues to hold our Class B units, it will be entitled to receive 5% of the aggregate amount of any operating gain (excluding depreciation) that we recognize or distribution that we receive.
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If we pay distributions from sources other than our cash flow from operations, we will have less funds available for investments and your overall return may be reduced. Likewise, funding distributions from the sale of additional securities will dilute your interest in us on a percentage basis and may impact the value of your investment especially if we sell these securities at prices less than the price you paid for your Class A units.
While our goal is to pay distributions from cash flow from operations, we may, at the discretion of our Manager, subject to Board oversight, use other sources to fund distributions, including, without limitation, the sale of assets, borrowings in anticipation of future operating cash flow, net proceeds of this offering, cash advances by our Manager, cash resulting from a waiver of fees or reimbursements due to our Manager or the issuance of additional securities. We will only fund distributions by a return of capital following the sale of assets, unless otherwise determined by our Manager in its discretion. Funding distributions from the sales of assets, borrowings, return of capital or proceeds of this offering will result in us having less funds available to make investments. As a result, the return you realize on your investment may be reduced. Doing so may also negatively impact our ability to generate cash flows. Likewise, funding distributions from the sale of additional securities will dilute your interest in us on a percentage basis and may impact the value of your investment especially if we sell these securities at prices less than the price you paid for your Class A units. We have not established a limit on the amount of offering proceeds we may use to fund distributions. We can provide no assurances that future cash flow will support payment of distributions or maintaining distributions at any particular level, if at all. We believe the likelihood that we pay distributions from sources other than cash flow from operations will be higher in the early stages of the offering.
Your interest in us will be diluted if we issue additional units, which could reduce the overall value of your investment.
Under our operating agreement, we have authority to issue an unlimited number of additional units and options, rights, warrants and appreciation rights relating to such units. In particular, our Board is authorized to provide for the issuance of an unlimited amount of one or more classes or series of units and to fix the number of units, the relative powers, preferences and rights, and the qualifications, limitations or restrictions applicable to each class or series thereof by resolution authorizing the issuance of such class or series, without member approval. We may elect to issue and sell additional units in this or future private or public offerings or issue units to our Manager or its affiliates, including our Sponsor, in payment of outstanding fees and expenses. We may also seek opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses using our equity as transaction consideration. Holders of our Class A units will not have preemptive rights to any units we issue in the future. To the extent we issue additional equity interests after your purchase in this offering your percentage ownership interest in us would be diluted, which could reduce the overall value of your investment.
Our investment guidelines delegate broad discretion to our Manager and our Board will not approve each investment and financing decision made by our Manager.
Our investment guidelines delegate to our Manager discretion and authority to execute acquisitions and dispositions of investments (including the reinvestment of capital basis and gains) in commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, provided such investments are consistent with our investment objectives and strategy and our investment guidelines. Our Manager’s investment committee will periodically review our portfolio of assets and investments, our investment objectives and strategy and our investment guidelines to determine whether they remain in the best interests of our Members and may recommend changes to our Board as it deems appropriate. Our Board will not, and will not be required to, review all of our proposed investments. Our Manager may use complex strategies or enter into costly transactions that are difficult or impossible to unwind by the time they are reviewed by our Board, which could result in investment returns that are below expectations or that result in losses, and which would materially and adversely affect our business operations and results.
We may change our investment strategy and guidelines without Member consent, which could result in investments that are different from those described in this prospectus.
Our investment guidelines delegate to our Manager discretion and authority to execute acquisitions and dispositions of investments (including the reinvestment of capital basis and gains) in commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, provided such investments are consistent with our investment objectives and strategy and our investment guidelines. Our Manager’s investment committee will also periodically review our portfolio of commercial real estate assets, our investment objectives and strategy and our investment guidelines to determine whether they remain in the best interests of our Members and may recommend changes to our Board as it deems appropriate. We may, at any time and without Member approval, change our investment strategy and guidelines or cease to be a qualified opportunity fund and acquire assets that do not qualify as qualified opportunity zone investments, which could result in investments that are different from those described in this prospectus.
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Our operating agreement contains provisions that substantially limit remedies available to holders of our units for actions that might otherwise result in liability for our officers, directors or Manager.
While our operating agreement provides that our officers and directors have fiduciary duties equivalent to those applicable to officers and directors of a Delaware corporation under the Delaware General Corporation Law (“DGCL”), our operating agreement also provides that our officers and directors are liable to us or holders of our units for an act or omission only if such act or omission constitutes a breach of the duties owed to us or the holders of our units, as applicable, by any such officer or director and such breach is the result of (i) willful malfeasance, gross negligence, the commission of a felony or a material violation of law, in each case that has or could reasonably be expected to have a material adverse effect on us or (ii) fraud. Moreover, in addition to the indemnity that exists in our operating agreement, we will enter into separate indemnification agreements with each of our directors and officers, that will indemnify them, to the fullest extent permitted by applicable law, against all expenses and liabilities (including judgments, fines, penalties, interest and amounts paid in settlement) incurred by them in connection with any proceeding in which any of them are made a party to or any claim, issue or matter, except to the extent that it shall have been determined in a final non-appealable judgment by a court of competent jurisdiction that such expenses and liabilities arose primarily from acts or omissions that that violated the standard set forth in the preceding sentence. Furthermore, our operating agreement provides that our Sponsor will not have any liability to us or any holder of our units for any act or omission and is indemnified in connection therewith.
Under our operating agreement, we, our Board and our Manager are each entitled to take actions or make decisions in our “sole discretion” or “discretion” or that we each deem “necessary or appropriate” or “necessary or advisable.” In those circumstances, we, our Board and our Manager are entitled to consider only such interests and factors as we each desire, including our own interests, and we have no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of or factors affecting any others of us or any holder of the Company’s units, and neither we, our Board nor our Manager will be subject to any different standards imposed by our operating agreement, the Delaware Limited Liability Company Act or under any other law, rule or regulation or in equity, except that we each must act in good faith at all times. These modifications of fiduciary duties are expressly permitted by Delaware law. These modifications restrict the remedies available to the holders of our units for actions that, without such modifications, may constitute breaches of duty (including fiduciary duty).
Certain claims that may be brought against the Company or our Sponsor, Manager, directors, officers or other agents must be resolved by final and binding arbitration, which follows a different set of procedures and may be more restrictive than litigation.
Our operating agreement provides that all claims, controversies or disputes brought by or on behalf of one or more of our Members, record holders or beneficial owners of our units against the Company or our Sponsor, Manager or any of our directors, officers or other agents must be resolved by final and binding arbitration. As a result, we and our Members, record holders and beneficial owners of our units will not be able to pursue litigation in federal or state court against the Company or our Sponsor, Manager or any of our directors, officers or other agents, and instead will be required to pursue such claims through a final and binding arbitration proceeding.
Our operating agreement provides that such arbitration proceedings would generally be conducted in accordance with the rules and policies of the American Arbitration Association. These rules and policies may provide significantly more limited rights than litigation in a federal or state court. In addition, our operating agreement provides that all arbitration proceedings will be closed to the public and confidential, that discovery will be limited to matters directly relevant to issues in the proceeding, and that the parties waive the right to a jury. Our operating agreement also generally provides that each party to an arbitration proceeding is required to bear its own expenses, including attorneys’ fees, that the arbitrator may not render an award that includes shifting of costs or expenses or, in a derivative case, award any portion of the Company’s award to any other party or other party’s attorneys and that all arbitrations must take place on an individual basis. The mandatory arbitration provisions of our operating agreement may discourage our Members, record holders or beneficial owners of our units from bringing, and attorneys from agreeing to represent such parties in, claims against the Company or our Sponsor, Manager or any of our directors, officers or other agents. Any person or entity purchasing or otherwise acquiring or holding any interest in our units shall be deemed to have notice of and to have consented to our mandatory arbitration provisions.
The mandatory arbitration provisions of our operating agreement do not relieve us of our duties to comply with, and our Members, record holders and beneficial owners of our units cannot waive our compliance with, the federal securities laws and the rules and regulations thereunder. We believe that the mandatory arbitration provisions in our operating agreement are enforceable under both federal and state law, including with respect to federal securities law claims, however, there is uncertainty as to their enforceability and it is possible that they may ultimately be determined to be unenforceable.
Our operating agreement designates the United States District Court for the Southern District of New York or, if that court does not have jurisdiction, the state courts of New York located in the borough of Manhattan, City of New York, as the sole and exclusive forum for certain claims precluded from resolution pursuant to the mandatory arbitration provision of our operating agreement.
Our operating agreement provides that all claims, controversies or disputes brought by or on behalf of one or more of our Members, record holders or beneficial owners of our units against the Company or our Sponsor, Manager or any of our directors, officers or other agents that are precluded from resolution by mandatory arbitration, must be brought before the United States District Court for the Southern District of New York or, if that court does not have jurisdiction, the state courts of New York located in the borough of Manhattan, City of New York, as the sole and exclusive forum for such preclude claim.
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The portion of our exclusive forum selection provision designating the state courts of New York located in the borough of Manhattan, City of New York, as the exclusive forum for certain claims precluded from arbitration would not apply to claims brought to enforce a duty or liability created by the Exchange Act, as such claims fall under the exclusive jurisdiction of the federal courts, however the portion of our forum selection provision designating the United States District Court for the Southern District of New York would apply to any such claims. Our exclusive forum selection provision would apply to claims brought to enforce a duty or liability created by the Securities Act. The exclusive forum selection provision in our operating agreement may discourage our Members, record holders or beneficial owners of our units from bringing, and attorneys from agreeing to represent such parties in, claims against the Company or our Sponsor, Manager or any of our directors, officers or other agents. Any person or entity purchasing or otherwise acquiring or holding any interest in our units shall be deemed to have notice of and to have consented to our exclusive forum selection provision.
The exclusive forum selection provision of our operating agreement does not relieve us of our duties to comply with, and our Members, record holders and beneficial owners of our units cannot waive our compliance with, the federal securities laws and the rules and regulations thereunder. We believe that the exclusive forum selection provision in our operating agreement is enforceable under both federal and state law, including with respect to federal securities law claims, however, there is uncertainty as to its enforceability and it is possible that it may ultimately be determined to be unenforceable.
Holders of our Class A units will have limited voting rights and may be bound by a majority or supermajority vote or by a vote of the holder of our Class M unit, as applicable.
We are owned by the holders of our Class A units, Class B units and Class M unit. Each Class A unit and each Class B unit entitles the holder thereof to one vote per unit. The Class M unit entitles the holder thereof to that number of votes equal to the product obtained by multiplying (i) the sum of aggregate number of outstanding Class A units plus Class B units, by (ii) 10, on matters on which the holder of our Class M unit has a vote.
The holders of our Class A units and Class B units will have voting rights only with respect to certain matters, primarily relating to amendments to our operating agreement that would adversely change the rights of the Class A units or Class B units, as applicable, election of our directors (other than the Class M Director (as hereinafter)), removal of our directors for “cause” (other than the Class M Director), and our dissolution. Generally, matters to be voted on by the holders of our Class A units must be approved by a majority of the votes cast by all Class A units and Class B units, voting together as a single class, that are present in person or represented by proxy, although the vote to remove a director for “cause” requires a super-majority, four-fifths vote. If any vote occurs, you will be bound by the majority or supermajority vote, as applicable, even if you did not vote with the majority or supermajority.
Our Manager will hold our Class M unit for so long as it remains our manager. Accordingly, our Manager will be able to determine the outcome of all matters on which a holder of our Class M unit has a vote. Such matters include certain mergers and acquisitions, certain amendments to our operating agreement and the election of one Class III director (the “Class M Director”). The Class M unit does not represent an economic interest in the Company.
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.
We are externally managed by our Manager, Belpointe PREP Manager, LLC, a Delaware limited liability company. Our Manager is an affiliate of Belpointe, LLC, our Sponsor. We may in the future decide to internalize our management function and, should we elect do so, we may acquire our Manager’s or its affiliates’, including our Sponsor’s, assets and personnel. We, our Operating Company and our Manager have entered into a management agreement. The terms of the management agreement restrict us from hiring or soliciting any employee of our Manager or its affiliates, including our Sponsor, for a period of two years from termination of the management agreement. In addition, upon any termination or non-renewal of the management agreement by us our Manager will be entitled to receive its prorated management fee through the expiration or termination date and will be paid a termination fee equal to six times the annual management fee earned by our Manager during the 12-month period ended as of the last day of the quarter immediately preceding the termination date (the “termination fee”); however, if less than 12 months have elapsed as of the termination date, the termination fee will be calculated by annualizing the management fee earned during the most recently completed quarter prior to the termination date. These provisions could make it costly or difficult for us to internalize management without incurring termination fees or acquiring assets and personnel from our Manager and its affiliates, including our Sponsor, for consideration that would be negotiated at the time of any such acquisition. Any termination fees we incur would be paid in cash and any consideration we pay for acquiring assets and personnel could take many forms, including issuance of units or cash payments, which could directly impact our NAV, by reducing the amount of our assets, or result in the dilution of your interest in us. If we internalize management, we will no longer pay management fees to our Manager, however, our direct expenses, such as the compensation and benefits costs and expenses associated with having officers and other employees and consultants, would increase. In addition, we may issue equity awards to officers, employees and consultants, which awards would decrease our net income and funds from operations and may further dilute your investment.
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We will incur increased costs and expenses associated with qualifying and maintaining our status as a publicly traded partnership and operating as an Exchange Act reporting company.
We have no history of qualifying and maintain our status as a publicly traded partnership or operating as an Exchange Act reporting company. Once the registration statement of which this prospectus forms a part becomes effective, we will incur additional costs and expenses associated qualifying and maintaining our status as a publicly traded partnership and operating as an Exchange Act reporting company, including, without limitation, costs and expenses associated with the preparation and filing of annual and quarterly reports, federal and state tax returns, Schedule K-1 preparation and distribution, investor relations, registrar and transfer agent fees, director compensation, accounting and audit fees and incremental insurance costs, including director and officer liability insurance. It is possible that actual costs and expenses associated with qualifying and maintain our status as a publicly traded partnership and operating as an Exchange Act reporting company will be higher than we currently estimate and we may require additional capital or future earnings to cover these costs and expenses, which could materially and adversely affect our business, results of operations, financial condition and cash flows.
We will not be required to comply with certain reporting and disclosure requirements that are applicable to other public companies.
We are an “emerging growth company,” as defined in the Jump Start Our Business Startups Act of 2012 (“JOBS Act”). As an emerging growth company, we intend to take advantage of certain exemptions from various reporting and disclosure requirements that are applicable to public companies that are not emerging growth companies. For so long as we remain an emerging growth company, we will not be required to:
· | have an auditor attestation report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); |
· | submit certain executive compensation matters to Member advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding Member vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding Member vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”); or |
· | disclose certain executive compensation related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. |
In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. This means that an emerging growth company can delay adopting certain accounting standards until such standards are otherwise applicable to private companies. We intend to take advantage of the extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to subsequently elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.
We will remain an emerging growth company for up to five years, or until the earliest of (i) the last date of the fiscal year during which we had total annual gross revenues of $1.07 billion or more, (ii) the date on which we have, during the previous three-year period, issued more than $1.07 billion in non-convertible debt, or (iii) the date on which we are deemed to be a “large accelerated filer” as defined under Rule 12b-2 under the Exchange Act.
Also, even once we are no longer an emerging growth company, we still may not be subject to auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act unless we meet the definition of a large accelerated filer or an accelerated filer under Section 12b-2 of the Exchange Act. In addition, so long as we are externally managed by our Manager and we do not directly compensate our executive officers, or reimburse our Manager or its affiliates for the compensation paid to persons who serve as our executive officers, we do not expect to include disclosures relating to executive compensation in our periodic reports or proxy statements and, as a result, do not expect to be required to seek Member approval of executive compensation and golden parachute compensation arrangements pursuant to Sections 14A(a) and (b) of the Exchange Act. See “Plan of Operation—Emerging Growth Company.”
There can be no assurance that prospective investors will not find our Class A units less attractive because we are an emerging growth company or because we have chosen to rely on the exemptions discussed above.
Your investment returns may be reduced if we are required to register as an investment company under the Investment Company Act.
We intend to engage primarily in the business of investing in real estate and to conduct our operations such that neither we nor any of our subsidiaries are required to register as an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”). See “Questions and Answers About This Offering—Are there Investment Company Act considerations?”
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Maintaining our exclusion from registration under the Investment Company Act will limit our ability to make certain investments. In addition, although we intend to continuously monitor our holdings, there can be no assurance that we, our Operating Companies or any of the subsidiaries of our Operating Companies will be able to maintain our exclusion from registration. A change in the value of any of our assets could negatively affect our ability to maintain our exclusion from registration and we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise want 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 assets that we would otherwise want to acquire and would be important to our investment strategy.
If we are required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration, and other matters. Compliance with the Investment Company Act would, accordingly, limit our ability to make certain investments and require us to significantly restructure our business plan. If we were required to register as an investment company but failed to do so, we could be prohibited from engaging in our business, and criminal and civil actions could be brought against us.
We intend to enter into joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations with affiliates of our Sponsor and Manager, including Belpointe SP, LLC.
All of our assets are and will continue to be held by, and all of our operations are and will continue to be conducted through one or more operating companies (each an “Operating Company” and together the “Operating Companies”), either directly or indirectly through subsidiaries. To further diversify our investment portfolio, we also intend to enter into joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations with affiliates of our Sponsor and Manager, such as Belpointe SP, LLC (“Belpointe SP”), or its affiliates (together with Belpointe SP, the “Belpointe SP Group”), as well as independent developers and owners.
We anticipate acquiring an interest in properties where a member of the Belpointe SP Group will act as general partner or co-general partner, manager or co-manager, developer or co-developer, or any of the foregoing, substantially all of which will be structured in one of the following formats:
· | A member of the Belpointe SP Group will act as the general partner, manager or managing member of a joint venture in which our Operating Companies, directly or indirectly through subsidiaries, will participate as limited partners or non-managing members, and a member of the Belpointe SP Group will act as the developer of the projects owned by the joint venture. |
· | A member of the Belpointe SP Group will act as the general partner, manager or managing member of joint ventures in which subsidiaries of our Operating Companies will participate as limited partners or non-managing members. A member of the Belpointe SP Group will partner with local developers to create satellite offices, which will act as the developer for multiple joint venture projects with our Operating Companies, directly or indirectly through subsidiaries, within specific regions of the United States and its territories. |
· | Our Manager or a member of Belpointe SP Group will set up exclusive programmatic joint ventures with experienced regional developers to co-invest and co-develop in one or more projects within specific regions of the United States and its territories. A member of the Belpointe SP Group will act as the general partner, manager or managing member of the programmatic joint ventures with subsidiaries of our Operating Companies participating limited partners or non-managing members. |
· | Our Manager or a member of the Belpointe SP Group will enter into joint ventures with experienced local developers to co-invest and co-develop projects on a deal-by-deal basis. A member of the Belpointe SP Group will act as the general partner, manager or managing member of the joint ventures with subsidiaries of our Operating Companies participating as limited partners or non-managing members. A member of the Belpointe SP Group will act as the co-developer of projects with the joint venture partners and developers. |
· | Our Manager or a member of the Belpointe SP Group will enter into joint ventures with independent third-party experienced local developers to co-invest and co-develop on our behalf. Typically, the joint venture partners and developers will act as the general partner or managing member for the joint ventures with subsidiaries of our Operating Companies participating as limited partners or non-managing members. |
We do not anticipate members of the Belpointe SP Group making any capital commitments to, or cash investments in, any of our joint venture investments. In addition, any membership interests that members of the Belpointe SP Group hold in our joint venture investments in their capacity as a general partner, manager or managing member will be exempt from paying any promotes.
Under these joint venture arrangements, members of the Belpointe SP Group, their development affiliates and co-development partners will be entitled to receive project level fees, reimbursement by the joint ventures for fees and expenses, their promoted interest on a deal-by-deal basis and other fees. If a joint venture includes third party limited partners or non-managing members, in addition to a directly or indirectly owned subsidiary of one of our Operating Companies, the general partner, manager or
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managing member of that joint venture, including members of the Belpointe SP Group, will receive a promoted interest on capital invested by all limited partners or non-managing members, however the promoted interest on third-party limited partners’ or non-managing members’ capital may be different from the promoted interest on our capital. For a detailed description of our anticipated joint venture, partnerships, co-tenancies and other co-ownership arrangements, see “Investment Objectives and Strategies—Opportunity and Market Overview—Joint Venture and Other Co-Ownership Arrangements” for additional details regarding our joint ventures, partnerships, co-tenancies and other co-ownership arrangements.
We may make a substantial amount of joint venture investments, including with affiliates of our Manager and Sponsor, such as members of the Belpointe SP Group. Joint venture investments could be adversely affected by our lack of sole decision-making authority, our reliance on the financial condition of our joint venture partners and disputes between us and our joint venture partners.
We may co-invest in joint ventures with affiliates of our Manager and Sponsor, including members of the Belpointe SP Group, or third parties in partnerships or other entities that own real estate properties. We may acquire non-controlling interests in joint ventures. Even if we have some control in a joint venture, we would not be in a position to exercise sole decision-making authority regarding the joint venture. Investments in joint ventures may, under certain circumstances, involve risks not present were another party not involved, including the possibility that joint venture partners might become bankrupt or fail to fund their required capital contributions. Joint venture partners may have economic or other business interests or goals that are inconsistent with our business interests or goals and may be in a position to take actions contrary to our policies or objectives. Such investments may also have the potential risk of impasses on decisions, such as a sale, because neither we nor the joint venture partner would have full control over the joint venture. Disputes between us and joint venture partners may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business. Consequently, actions by or disputes with joint venture partners might result in subjecting properties owned by the joint venture to additional risk. In addition, we may in certain circumstances be liable for the actions of our joint venture partners.
If we have a right of first refusal to buy out a joint venture partner, we may be unable to finance such a buy-out if it becomes exercisable or we are required to purchase such interest at a time when it would not otherwise be in our best interest to do so. If our interest is subject to a buy/sell right, we may not have sufficient cash, available borrowing capacity or other capital resources to allow us to elect to purchase an interest of a joint venture partner subject to the buy/sell right, in which case we may be forced to sell our interest as the result of the exercise of such right when we would otherwise prefer to keep our interest. In some joint ventures we may be obligated to buy all or a portion of our joint venture partner’s interest in connection with a crystallization event, and we may be unable to finance such a buy-out when such crystallization event occurs, which may result in interest or other penalties accruing on the purchase price. If we buy our joint venture partner’s interest, we will have increased exposure in the underlying investment. The price we use to buy our joint venture partner’s interest or sell our interest is typically determined by negotiations between us and our joint venture partner and there is no assurance that such price will be representative of the value of the underlying property or equal to our then-current valuation of our interest in the joint venture that is used to calculate our NAV. Finally, we may not be able to sell our interest in a joint venture if we desire to exit the venture for any reason or if our interest is likewise subject to a right of first refusal of our joint venture partner, our ability to sell such interest may be adversely impacted by such right. Joint ownership arrangements with affiliates of our Manager and Sponsor, including members of the Belpointe SP Group, may also entail further conflicts of interest. Some additional risks and conflicts related to our joint venture investments (including joint venture investments with our Manager, Sponsor and members of the Belpointe SP Group) include:
· | the joint venture partner may have economic or other interests that are inconsistent with our interests, including interests relating to the financing, management, operation, leasing or sale of the assets purchased by such joint venture; |
· | tax, Investment Company Act and other regulatory requirements applicable to the joint venture partner may cause it to want to take actions contrary to our interests; |
· | the joint venture partner may have joint control of the joint venture even in cases where its economic stake in the joint venture is significantly less than ours; |
· | under the joint venture arrangement, neither we nor the joint venture partner will be in a position to unilaterally control the joint venture, and deadlocks may occur. Such deadlocks could adversely impact the operations and profitability of the joint venture, including as a result of the inability of the joint venture to act quickly in connection with a potential acquisition or disposition. In addition, depending on the governance structure of such joint venture partner, decisions of such vehicle may be subject to approval by individuals who are independent of us; |
· | under the joint venture arrangement, we and the joint venture partner may have a buy/sell right and, as a result of an impasse that triggers the exercise of such right, we may be forced to sell our investment in the joint venture, or buy the joint venture partner’s share of the joint venture at a time when it would not otherwise be in our best interest to do so; and |
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· | our participation in investments in which a joint venture partner participates will be less than what our participation would have been had such other vehicle not participated, and because there may be no limit on the amount of capital that such joint venture partner can raise, the degree of our participation in such investments may decrease over time. |
Furthermore, we may have conflicting fiduciary obligations if we acquire properties with our affiliates or other related entities; 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.
Operational risks may disrupt our business, result in losses or limit our growth.
We rely heavily on our Sponsor’s financial, accounting, communications and other data processing systems. Such systems may fail to operate properly or become disabled as a result of tampering or a breach of the network security systems or otherwise. In addition, such systems are from time to time subject to cyberattacks. Breaches of our Sponsor’s network security systems could involve attacks that are intended to obtain unauthorized access to our proprietary information or personal identifying information of holders of our Class A units, destroy data or disable, degrade or sabotage our systems, often through the introduction of computer viruses, cyberattacks and other means and could originate from a wide variety of sources, including unknown third parties outside of our Sponsor Although our Sponsor takes various measures to ensure the integrity of such systems, there can be no assurance that these measures will provide protection. If such systems are compromised, do not operate properly or are disabled, we could suffer financial loss, a disruption of our businesses, liability to investors, regulatory intervention or reputational damage.
In addition, we rely on third-party service providers for certain aspects of our business, including for certain information systems, technology and administration. Any interruption or deterioration in the performance of these third parties or failures of their information systems and technology could impair the quality of our operations and could affect our reputation and hence adversely affect our business.
If our techniques for managing risk are ineffective, we may be exposed to unanticipated losses.
In order to manage the significant risks inherent in our business, we must maintain effective policies, procedures and systems that enable us to identify, monitor and control our exposure to market, operational, legal and reputational risks. Our risk management methods may prove to be ineffective due to their design or implementation or as a result of the lack of adequate, accurate or timely information. If our risk management efforts are ineffective, we could suffer losses or face litigation and sanctions or fines from regulators.
Our techniques for managing risks may not fully mitigate the risk exposure in all economic or market environments, or against all types of risk, including risks that we might fail to identify or anticipate. Any failures in our risk management techniques and strategies to accurately quantify such risk exposure could limit our ability to manage risks or to seek positive, risk-adjusted returns. In addition, any risk management failures could cause fund losses to be significantly greater than historical measures predict.
Risks Related our Assets and Investments
Our success is dependent on general market and economic conditions.
Our activities and investments may be adversely affected by changes in market, economic, political or regulatory conditions, such as interest rates, availability of credit, credit defaults, inflation rates, economic uncertainty, changes in laws (including laws relating to taxation of us or of our investments), and national and international political, environmental and socioeconomic circumstances (including disease outbreaks, wars, terrorist acts or security operations), as well as by numerous other factors outside the control of our Manager. These factors may impair our profitability or result in losses. In addition, general fluctuations in real estate market prices and interest rates may affect our investment opportunities and the value of our investments. These factors are outside of our control.
The outbreak of COVID-19, first identified in Wuhan, China in December 2019, has spread globally. Government efforts to contain the spread of the virus through lockdowns of cities, business closures, restrictions on travel and emergency quarantines, among others, and responses by businesses and individuals to reduce the risk of exposure to infection, including reduced travel, cancellation of meetings and events, and implementation of work-at-home policies, among others, have caused significant disruptions to the global economy and normal business operations across a growing list of sectors and countries. The foregoing events are likely to adversely affect business confidence, and have been, and may continue to be, accompanied by significant volatility in financial and commodity markets. The spread of COVID-19 also may have broader macro-economic implications, including further reduced levels of economic growth and possibly a deepening global recession, the effects of which could be felt well beyond the time the spread of infection is contained. Our financial condition may also be adversely affected by economic downturn, related to COVID-19 or otherwise.
A recession, slowdown or sustained downturn in the U.S. or global economy (or any particular segment thereof) or weakening of credit markets could adversely affect the value of our assets and our profitability, impede our ability to perform under or refinance our existing obligations, and impair our ability to effectively deploy our capital or effectively exit or realize upon investments on favorable terms. Moreover, we may be subject to legal, regulatory, reputational and other unforeseen risks that could have a material adverse effect on our business and operations. Any of the foregoing events could result in substantial or total losses to us in respect of certain investments, which losses may be exacerbated by our use of leverage.
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The market in which we participate is competitive and, if we do not compete effectively, our operating results could be harmed.
We face competition from various entities for investment opportunities, including other qualified opportunity funds, REITs, pension funds, insurance companies, private equity and other alternative investment funds and companies, partnerships and developers. In addition to third-party competitors, other programs sponsored by our Sponsor and its affiliates, especially those with investment strategies that are similar to our own, may compete with us for investment opportunities.
Most of our current or potential competitors have significantly more financial, technical, marketing and other resources than we do. Larger competitors may also enjoy significant advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. In addition, the number of entities and the amount of funds competing for suitable investments may increase over time. Any such increase would result in greater demand for investment opportunities and could result in our acquiring assets and investments at higher prices or using less-than-ideal capital structures. If we pay higher prices for our assets and investments, our returns could be lower and the value of our assets and investments may not appreciate or may decrease significantly below the prices paid, and you may experience a lower than anticipated return on your investment.
Our performance is subject to risks associated with the real estate industry.
The real estate industry is cyclical in nature, and a deterioration of real estate fundamentals generally, and in the areas where our properties are located in particular, will have an adverse effect on the performance of our investments. The value of real estate assets and real estate-related investments can fluctuate for various reasons. The following factors, among others, may adversely affect the real estate industry, including our properties, and could therefore adversely impact our financial condition and results of operations:
· | interest rate fluctuations and lack of availability of financing; |
· | changes in national, regional or local economic, demographic or capital market conditions; |
· | a lack of appropriate real estate investment opportunities, including appropriate qualified opportunity zone investment opportunities; |
· | disease outbreaks; |
· | acts of war or terrorism; |
· | bank liquidity; |
· | increases in borrowing rates; |
· | changes in environmental and zoning laws; |
· | fluctuations in energy costs; |
· | overbuilding and increased competition for properties targeted by our investment strategy; |
· | future adverse national real estate trends, including increasing vacancy rates, declining rental rates and general deterioration of market conditions; |
· | changes in supply and demand fundamentals; |
· | limitations, reductions or eliminations of tax benefits; |
· | casualty or condemnation losses; |
· | bankruptcy, financial difficulty or lease default of a major tenant; |
· | regulatory limitations on rent; |
· | increased mortgage defaults and the availability of mortgage funds which may render the sale or refinancing of properties difficult or impracticable; |
· | changes in laws, regulations and fiscal policies, including increases in property taxes and limitations on rental rates; |
· | wars, natural disasters, severe weather patterns, terrorist attacks and similar events. |
· | declines in consumer confidence and spending; and |
· | public perception that any of the above events may occur. |
All of these factors are beyond our control. Moreover, certain significant expenditures associated with real estate (such as real estate taxes, maintenance costs and, where applicable, mortgage payments) have no relationship with, and thus do not diminish in proportion to, a reduction in income from the property. Any negative changes in these factors could impair our ability to meet our
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obligations and make distributions to holders of our Class A units and could adversely impact our ability to effectively achieve our investment objectives and reduce the overall returns on our investments.
Real estate investments are subject to general industry downturns as well as downturns in specific geographic regions. We cannot predict occupancy levels for a particular property or whether any tenant or mortgage or other real estate related loan borrower will remain solvent. We also cannot predict the future value of our investments. Accordingly, we cannot guarantee that you will receive cash distributions from or an appreciation of your investment in our Class A units.
Real estate investments are subject to general downturns in the industry as well as downturns in specific geographic regions. For example, as of the date of this prospectus, all of our investments are located in Florida. Historically Florida has been at greater risk of acts of nature such as hurricanes and tropical storms and has been subject to more pronounced real estate downturns than other regions. Accordingly, our business, financial condition and results of operations may be particularly susceptible to downturns or changes in the local Florida economies where we operate. Moreover, we cannot predict occupancy levels for a particular property or whether any tenant or mortgage or other real estate related loan borrower will remain solvent. We also cannot predict the future value of our investments. Accordingly, we cannot guarantee that you will receive cash distributions from or an appreciation of your investment in our Class A units.
There are significant risks associated with the development or redevelopment of our real estate investments that may prevent their completion on budget and on schedule and which may adversely affect our financial condition and results of operations.
We may engage in extensive development or redevelopment activities with respect to our real estate investments, including, without limitation, grading and installing roads, sidewalks, gutters, utility improvements (such as storm drains, water, gas, sewer, power and communications), landscaping and shared amenities (such as community buildings, neighborhood parks, trails and open spaces). Such development and redevelopment activities entail risks that could adversely impact our financial condition and results of operations, including:
· | construction costs, which may exceed our original estimates due to increases in materials, labor or other costs, which could make the project less profitable; |
· | permitting or construction delays, which may result in increased debt service expense and increased project costs, as well as deferred revenue; |
· | unavailability of raw materials when needed, which may result in project delays, stoppages or interruptions, which could make the project less profitable; |
· | federal, state and local grants to complete certain highways, interchange, bridge projects or other public improvements may not be available, which could increase costs and make the project less profitable; |
· | availability and timely receipt of zoning and other regulatory approvals to develop or redevelop our properties for a particular use or with respect to a particular improvement; |
· | claims for warranty, product liability and construction defects after a property has been built; |
· | claims for injuries that occur in the course of construction activities; |
· | poor performance or nonperformance by, or disputes with, any of our contractors, subcontractors or other third parties on whom we will rely; |
· | health and safety incidents and site accidents; |
· | unforeseen engineering, environmental or geological problems, which may result in delays or increased costs; |
· | labor stoppages, slowdowns or interruptions; |
· | compliance with environmental planning and protection regulations and related legal proceedings; |
· | liabilities, expenses or project delays, stoppages or interruptions as a result of challenges by third parties in legal proceedings; |
· | delay or inability to acquire property, rights of way or easements that may result in delays or increased costs; |
· | acts of war or terrorism; and |
· | weather-related and geological interference, including landslides, earthquakes, floods, drought, wildfires and other events, which may result in delays or increased costs. |
We cannot assure you that projects will be completed on schedule or that construction costs will not exceed budgeted amounts. Failure to complete development or redevelopment activities on budget or on schedule may adversely affect our financial condition and results of operations.
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Our Manager’s due diligence may not reveal all factors or risks affecting an investment.
There can be no assurance that our Manager’s due diligence processes will uncover all relevant facts that would be material to an investment decision. Before making an investment, our Manager will assess the strength of the underlying asset and any other factors that it believes are material to the performance of the investment. In making the assessment and otherwise conducting customary due diligence, our Manager will rely on the resources available to it and, in some cases, investigations by third parties.
Actual rents we receive may be less than estimated, operating expenses may be higher than anticipated and we may experience a decline in rental rates from time to time, any of which could adversely affect our financial condition, results of operations and cash flow.
As a result of potential factors, including competitive pricing pressure in our markets, a general economic downturn and the desirability of our properties compared to other properties in our markets, we may be unable to realize our estimated market rents across the properties in our portfolio or operating expenses at properties in our portfolio may be higher than anticipated. In addition, depending on market rental rates at any given time as compared to expiring leases on properties in our portfolio, from time to time rental rates for expiring leases may be higher than starting rental rates for new leases. If we are unable to obtain sufficient rental rates across our portfolio, or operating expenses are higher than anticipated, our ability to generate cash flow growth will be negatively impacted.
Properties that have significant vacancies could be difficult to sell, which could diminish the return on these properties.
A property may incur vacancies either by the expiration of tenant leases or the continued default of tenants under their leases. If vacancies continue for a long period of time, we may suffer reduced revenues resulting in less cash available for distribution to holders of our Class A units. In addition, the resale value of the property could be diminished because the market value of our properties will depend principally upon the value of the cash flow generated by the leases associated with that property. Such a reduction in the resale value of a property could also reduce the value of your investment.
Further, a decline in general economic conditions in the markets in which our investments are located or in the U.S. generally could lead to an increase in tenant defaults, lower rental rates and less demand for commercial real estate space in those markets. As a result of these trends, we may be more inclined to provide leasing incentives to our tenants in order to compete in a more competitive leasing environment. Such trends may result in reduced revenue and lower resale value of properties, which may reduce your return.
We may enter into long-term leases with tenants in certain properties, which may not result in fair market rental rates over time.
We may enter into long-term leases with tenants of certain of our properties or include renewal options that specify a maximum rate increase. These leases often provide for rent to increase over time; however, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that, even after contractual rent increases, the rent under our long-term leases is less than then-current market rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our cash available for distribution could be lower than if we did not enter into long-term leases.
Certain properties that we acquire may not have efficient alternative uses and we may have difficulty leasing them to new tenants or have to make significant capital expenditures to get them to do so.
Certain properties that we acquire may be difficult to lease to new tenants, should the current tenant terminate or choose not to renew its lease. These properties will generally have received significant tenant-specific improvements and only very specific tenants may be able to use such improvements, making the properties very difficult to re-lease in their current condition. Additionally, an interested tenant may demand that, as a condition of executing a lease for the property, we finance and construct significant improvements so that the tenant could use the property. This expense may decrease cash available for distribution, as we likely would have to (i) pay for the improvements up-front or (ii) finance the improvements at potentially unattractive terms.
We will depend on tenants for our revenue, and lease defaults or terminations could reduce our net income and limit our ability to pay distributions holders of our Class A units.
The success of our investments materially depends on the financial stability of our tenants. A default or termination by a tenant on its lease payments to us would cause us to lose the revenue associated with such lease and require us to find an alternative source of revenue to meet mortgage payments and prevent a foreclosure if the property is subject to a mortgage. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-leasing our property. If a tenant defaults on or terminates a lease, we may be unable to lease the property for the rent previously received or sell the property without incurring a loss. These events could cause us to reduce the amount of distributions to you.
If any of our significant tenants were adversely affected by a material business downturn or were to become bankrupt or insolvent, our results of operations could be adversely affected.
General and regional economic conditions may adversely affect our major tenants and potential tenants in our markets. Our major tenants may experience a material business downturn, which could potentially result in a failure to make timely rental payments or a default under their leases. In many cases, through tenant improvement allowances and other concessions, we will have made
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substantial up-front investments in the applicable leases that we may not be able to recover. In the event of a tenant default, we may experience delays in enforcing our rights and may also incur substantial costs to protect our investments.
The bankruptcy or insolvency of a major tenant or lease guarantor may adversely affect the income produced by our properties and may delay our efforts to collect past due balances under the relevant leases and could ultimately preclude collection of these sums altogether. If a lease is rejected by a tenant in bankruptcy, we would have only a general unsecured claim for damages that is limited in amount and which may only be paid to the extent that funds are available and in the same percentage as is paid to all other holders of unsecured claims.
If any of our significant tenants were to become bankrupt or insolvent, suffer a downturn in their business, default under their leases, fail to renew their leases or renew on terms less favorable to us than their current terms, our results of operations and cash flow could be adversely affected.
We expect to acquire primarily qualified opportunity zone investments, with a focus on markets with favorable risk-return characteristics. If our investments in these geographic areas experience adverse economic conditions, our investments may lose value and we may experience losses.
Our initial investments consist of and are expected to continue to consist of properties located in qualified opportunity zones for the development or redevelopment of multifamily, student housing, senior living, healthcare, industrial, self-storage, hospitality, office, mixed-use, data centers and solar projects (collectively, the “qualified opportunity zone investments”) located throughout the United States and its territories. These qualified opportunity zone investments will carry the risks associated with certain markets where we acquire properties. Consequently, we may experience losses as a result of being overly concentrated in certain geographic areas. A worsening of economic conditions in U.S. markets and, in particular, the markets where we end up acquiring properties, could have an adverse effect on our business and could impair the value of our collateral.
Actions of any joint venture partners that we may have in the future could reduce the returns on joint venture investments and decrease your overall investment return.
We intend to enter into joint ventures to acquire properties and other assets and investments. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements. Such investments may involve risks not otherwise present with other methods of investment, including, for example, the following risks:
· | that our co-venturer, co-tenant or partner in an investment could become insolvent or bankrupt; |
· | that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals; |
· | that such co-venturer, co-tenant or partner may be delegated certain “day-to-day” property operating procedures; |
· | that such co-venturer, co-tenant or partner may be in a position to act contrary to our instructions or requests or contrary to our policies or objectives; or |
· | that disputes between us and our co-venturer, co-tenant or partner may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our operations. |
Any of the above might subject an investment to liabilities in excess of those contemplated and thus reduce our returns on that investment and the value of your investment.
We may seek opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses.
We may seek opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses using our equity as transaction consideration. These acquisitions will involve significant challenges and risks, including, without limitation, regulatory complexities associated with integrating other qualified opportunity funds and qualified opportunity zone businesses into our organizational structure in a manner that is consistent with our intended qualification as a publicly traded partnership and qualified opportunity fund, new regulatory requirements and compliance risks that we may become subject to as a result of acquisitions, unforeseen or hidden liabilities or costs that may adversely affect our NAV following such acquisitions, and the risk that any of our proposed acquisitions do not close. Any of these challenges could disrupt our ongoing operations, increase our expenses and adversely affect our results of operations and financial condition.
Costs imposed pursuant to governmental laws and regulations may reduce our net income and the cash available for distributions to holders of our Class A units.
Real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to protection of the environment and human health. We could be subject to liability in the form of fines, penalties or damages for noncompliance with these laws and regulations. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, the remediation of contamination associated with the release or disposal of solid and hazardous materials, the presence of toxic building materials and other health and safety-related concerns.
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Some of these laws and regulations may impose joint and several liability on the tenants, owners or operators of real property for the costs to investigate or remediate contaminated properties, regardless of fault, whether the contamination occurred prior to purchase, or whether the acts causing the contamination were legal. Activities of our tenants, the condition of properties at the time we buy them, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties.
The presence of hazardous substances, or the failure to properly manage, insure, bond over, or remediate these substances, may hinder our ability to sell, rent or pledge such property as collateral for future borrowings. Any material expenditures, fines, penalties or damages we must pay will reduce our ability to make distributions and may reduce the value of your investment.
The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property or of paying personal injury or other damage claims could reduce the amounts available for distribution to holders of our Class A units.
Under various federal, state and local environmental laws, ordinances and regulations, a current or previous real property owner or operator may be liable for the cost of removing or remediating hazardous or toxic substances on, under or in such property. These costs could be substantial. 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. Environmental laws also may impose liens on property or restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials and lead-based paint. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances and governments may seek recovery for natural resource damage. The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury, property damage or natural resource damage claims could reduce the amounts available for distribution to you.
We expect that all of our properties will be subject to Phase I environmental assessments at the time they are acquired; however, such assessments may not provide complete environmental histories due, for example, to limited available information about prior operations at the properties or other gaps in information at the time we acquire the property. A Phase I environmental assessment is an initial environmental investigation to identify potential environmental liabilities associated with the current and past uses of a given property. If any of our properties were found to contain hazardous or toxic substances after our acquisition, the value of our investment could decrease below the amount paid for such investment.
Costs associated with complying with the Americans with Disabilities Act may decrease cash available for distributions.
Our properties may be subject to the Americans with Disabilities Act of 1990, as amended (the “ADA”). Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA 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 ADA’s requirements could require removal of access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. Any funds used for ADA compliance will reduce our net income and the amount of cash available for distributions to you.
Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce our cash flows and the return on your investment.
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. Insurance risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders in some cases insist that commercial property owners purchase coverage against terrorism as a condition for providing mortgage loans. Such insurance policies may not be available at reasonable costs, if at all, which could inhibit our ability to finance or refinance our properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. We may not have adequate coverage for such losses. If any of our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured or under insured loss, which may reduce the value of your investment. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured or under insured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions to you.
Many of our investments are illiquid and we may not be able to vary our portfolio in response to changes in economic and other conditions.
Many factors that are beyond our control affect the market for commercial real estate, real estate-related assets and private equity investments and could affect our ability to sell assets and investments for the price, on the terms or within the time frame that we desire. These factors include general economic conditions, the availability of financing, interest rates and other factors, including
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supply and demand. Because commercial real estate, real estate-related assets and private equity investments are relatively illiquid, we have a limited ability to vary our portfolio in response to changes in economic or other conditions. Further, before we can sell an investment on the terms we want, it may be necessary to expend funds to improve our investments. However, we can give no assurance that we will have the funds available make such improvements. As a result, we expect many of our investments will be illiquid, and if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments and our ability to vary our portfolio in response to changes in economic and other conditions may be relatively limited, which could adversely affect our results of operations and financial condition.
Declines in the market values of our investments may adversely affect results of operations and credit availability, which may reduce earnings and, in turn, cash available for distribution to holders of our Class A units.
Some of our assets will be classified for accounting purposes as “available-for-sale.” These investments are carried at estimated fair value and temporary changes in the market values of those assets will be directly charged or credited to unitholders’ capital without impacting net income on the income statement. Moreover, if we determine that a decline in the estimated fair value of an available-for-sale asset falls below its amortized value and is not temporary, we will recognize a loss on that asset on the income statement, which will reduce our earnings in the period recognized.
A decline in the market value of our assets may adversely affect us particularly in instances where we have borrowed money based on the market value of those assets. If the market value of those assets decline, the lender may require us to post additional collateral to support the loan. If we were unable to post the additional collateral, we may have to sell assets at a time when we might not otherwise choose to do so. A reduction in credit available may reduce our earnings and, in turn, cash available for distribution to holders of our Class A units.
Further, credit facility providers may require us to maintain a certain amount of cash reserves or to set aside unlevered assets sufficient to maintain a specified liquidity position, which would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on equity. In the event that we are unable to meet these contractual obligations, our financial condition could deteriorate rapidly.
Market values of our investments may decline for a number of reasons, such as changes in prevailing market capitalization rates, increases in market vacancy, or decreases in market rents.
If we sell a property by providing financing to the purchaser, we will bear the risk of default by the purchaser, which could delay or reduce the distributions available to holders of our Class A units.
If we decide to sell any of our properties, we intend to use our best efforts to sell them for cash; however, in some instances, we may sell our properties by providing financing to purchasers. When we provide financing to a purchaser, we will bear the risk that the purchaser may default, which could reduce our cash distributions to holders of our Class A units. Even in the absence of a purchaser default, the distribution of the proceeds of the sale to holders of our Class A units, or the reinvestment of the proceeds in other assets, will be delayed until the promissory note or other property we may accept upon a sale are actually paid, sold, refinanced or otherwise disposed.
Risks Related to Conflicts of Interest
There are conflicts of interest between us, our Manager and its affiliates.
Our executive officers, Brandon Lacoff and Martin Lacoff, are executive officers of our Manager and its affiliates, including our Sponsor. Prevailing market rates are determined by our Manager based on industry standards and expectations of what our Manager would be able to negotiate with a third party on an arm’s length basis. All of the agreements and arrangements between us and our Manager or its affiliates, including those relating to compensation, are not the result of arm’s length negotiations with an unaffiliated third party. Some of the conflicts inherent in our transactions with our Manager and its affiliates, and the limitations on our Manager and its affiliates adopted to address these conflicts, are described below. We, our Manager and its affiliates will try to balance our interests with their own. However, to the extent that our Manager and its affiliates take actions that are more favorable to other entities than us, these actions could have a negative impact on our financial performance and, consequently, on distributions to the holders of our Class A units and the NAV of our Class A units.
The interests of our Manager, and its affiliates may conflict with your interests.
The management agreement provides our Manager with broad powers and authority which may result in one or more conflicts of interest between your interests and those of our Manager and its affiliates. This risk is increased by our Sponsor and our Manager being controlled by Brandon Lacoff and Martin Lacoff, who currently participate, and are expected to sponsor and participate, directly or indirectly, in other offerings by our Sponsor and its affiliates. Potential conflicts of interest include, but are not limited to, the following:
· | our Sponsor, Manager, and their affiliates may continue to offer other real estate, real estate-related and private equity investment opportunities, including additional offerings similar to this offering, and may make investments in assets for their own respective accounts, whether or not competitive with our business; |
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· | our Sponsor, Manager, and their affiliates will not be required to disgorge any profits, fees or other compensation they may receive from any other business they own or operate separately from us, and you will not be entitled to receive or share in any of the profits, returns, fees or other compensation from any other business owned or operated by our Sponsor, Manager or their affiliates; |
· | we may engage our Sponsor, Manager or their affiliates to perform services at prevailing market rates. Prevailing market rates are determined by our Manager based on industry standards and expectations of what our Sponsor and our Manager would be able to negotiate with a third party on an arm’s length basis; and |
· | our Sponsor, Manager and their affiliates are not required to devote all of their time and efforts to our business and affairs. |
Holders of our Class A units will have no right to enforce the obligations of our Sponsor, Manager or any of their or our affiliates under the terms of any agreements with the Company.
Any agreements between the Company, on one hand, and our Sponsor, Manager or any of their or our affiliates, on the other, will not grant to the holders of our Class A units, separate and apart from the Company, the right to enforce the terms of such agreements or any obligations of our Sponsor, Manager or their or our affiliates in favor of the Company.
The management fee our Manager receives will be based on our NAV and our Manager is ultimately responsible for calculating our NAV.
We pay our Manager a quarterly management fee at an annualized rate of 0.75%. The management fee is based on our NAV, as calculated by our Manager at the end of each quarter. From the effective date of the registration statement of which this prospectus forms a part through no later than the first quarter following the December 31, 2022 year end, the NAV of our Class A units will be equal to $100.00 per Class A unit. Thereafter, no later than the first quarter following the December 31, 2022 year end, our NAV will be announced within approximately 60 days of the last day of each quarter. Our NAV will be calculated using a process designed to produce a fair and accurate estimate of the price that would be received for our assets and investments in an arm’s-length transaction between a willing buyer and a willing seller in possession of all material information about our assets and investments. As with any asset valuation protocol, the conclusions reached by our Manager or any third-party firm that we engage to prepare or assist with preparing the NAV of our Class A units will involve significant judgments, assumptions and opinions in the application of both observable and unobservable attributes that may or may not prove to be correct. It is important to note that the determination of our NAV will not be based on, nor is it intended to comply with, fair value standards under U.S. GAAP, and our NAV may not be indicative of the price that we would receive for our assets at current market conditions. There can be no assurance that the judgments, assumptions and opinions used by our Manager to calculate our NAV, or the resulting NAV, will be the same as those judgments, assumptions and opinions that would be used, or the NAV that would be calculated, by an independent third-party firm. In addition, our Manager may benefit by us retaining ownership of our assets and investments in order to avoid a reduction in our NAV at times when the holders of our Class A units may be better served by the sale or disposition of our assets or investments. If our NAV is calculated in a way that is not reflective of our actual NAV, then the purchase price of shares of our Class A units may not accurately reflect the value of our assets and investments, and your Class A units may be worth less than the purchase price paid.
Risks Related to Sources of Financing and Hedging
We may incur significant debt, which may subject us to increased risk of loss and may reduce cash available for distributions to the holders of our Class A units.
Subject to market conditions and availability, we may incur significant debt through bank credit facilities (including term loans and revolving facilities), repurchase agreements, warehouse facilities and structured financing arrangements, public and private debt issuances and derivative instruments, in addition to transaction or asset specific funding arrangements. The percentage of leverage we employ will vary depending on our available capital, our ability to obtain and access financing arrangements with lenders, debt restrictions contained in those financing arrangements and the lenders’ and rating agencies’ estimate of the stability of our investment portfolio’s cash flow. Our targeted aggregate property-level leverage, excluding any debt at the REIT level or on assets under development or renovation, after we have acquired a substantial portfolio of stabilized properties, is between 50-70% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. Our targeted aggregate property-level leverage, excluding any debt at the Company level or on assets under development or redevelopment, after we have acquired a substantial portfolio of stabilized commercial real estate, is between 50-70% of the greater of the cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. During the period when we are acquiring, developing and redeveloping our investments, we may employ greater leverage on individual assets. Our Manager may from time to time modify our leverage policy in its discretion. Incurring substantial debt could subject us to many risks that, if realized, would materially and adversely affect us, including the risk that:
· | our cash flow from operations may be insufficient to make required payments of principal of and interest on the debt or we may fail to comply with all of the other covenants contained in the debt, which is likely to result in (i) acceleration of such debt (and any other debt containing a cross-default or cross-acceleration provision) that we may be unable to repay from internal funds or to refinance on favorable terms, or at all, (ii) our inability to borrow unused amounts under our financing arrangements, even if we are current in payments on borrowings under those |
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arrangements or pay distributions of excess cash flow held in reserve by such financing sources, or (iii) the loss of some or all of our assets to foreclosure or sale;
· | our debt may increase our vulnerability to adverse economic and industry conditions with no assurance that investment yields will increase with higher financing costs; |
· | we may be required to dedicate a substantial portion of our cash flow from operations to payments on our debt, thereby reducing funds available for operations, future business opportunities, distributions to holders of our Class A units or other purposes; and |
· | we are not able to refinance debt that matures prior to the investment it was used to finance on favorable terms, or at all. |
There can be no assurance that a leveraging strategy will be successful.
Any lending facilities will likely impose restrictive covenants.
Any lending facilities which we enter into would be expected to contain customary negative covenants and other financial and operating covenants that, among other things, may affect our ability to incur additional debt, make certain investments or acquisitions, reduce liquidity below certain levels, pay distributions to holders of our Class A units, redeem debt or equity securities and impact our flexibility to determine our operating policies and investment strategies. For example, such loan documents may contain negative covenants that limit, among other things, our ability to distribute more than a certain amount of our net income or funds from operations to holders of our Class A units, employ leverage beyond certain amounts, sell assets, engage in mergers or consolidations, grant liens, and enter into transactions with affiliates (including amending the management agreement with our Manager in a material respect). If we fail to meet or satisfy any such covenants, we would likely be in default under these agreements, and the lenders could elect to declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral and enforce their interests against existing collateral. We could also become subject to cross-default and acceleration rights and, with respect to collateralized debt, the posting of additional collateral and foreclosure rights upon default.
Interest rate fluctuations could increase our financing costs and reduce our ability to generate income on our investments, each of which could lead to a significant decrease in our results of operations, cash flows and the market value of our investments.
Our primary interest rate exposures will relate to the yield on our investments and the financing cost of our debt, as well as any interest rate derivatives that we utilize for hedging purposes. Changes in interest rates will affect our net interest income, which is the difference between the income we earn on our investments and the interest expense we incur in financing these investments. Interest rate fluctuations resulting in our interest expense exceeding income would result in operating losses for us. Changes in the level of interest rates also may affect our ability to invest in investments, the value of our investments and our ability to realize gains from the disposition of assets and investments.
To the extent that our financing costs will be determined by reference to floating rates, such as LIBOR, SOFR or a Treasury index, plus a margin, the amount of such costs will depend on a variety of factors, including, without limitation, (i) for collateralized debt, the value and liquidity of the collateral, and for non-collateralized debt, our credit, (ii) the level and movement of interest rates, and (iii) general market conditions and liquidity. In a period of rising interest rates, our interest expense on floating rate debt would increase, while any income we earn may not compensate for such increase in interest expense.
Our operating results will depend, in part, on differences between the income earned on our investments, net of credit losses, and our financing costs. For any period during which our investments are not match-funded, the income earned on such investments may respond more slowly to interest rate fluctuations than the cost of our borrowings. Consequently, changes in interest rates, particularly short-term interest rates, may immediately and significantly decrease our results of operations and cash flows and the market value of our investments.
Hedging against interest rate exposure may adversely affect our earnings, limit our gains or result in losses, which could adversely affect cash available for distribution to holders of our Class A units.
We may enter into interest rate swap agreements or pursue other interest rate hedging strategies. Our hedging activity will vary in scope based on the level of interest rates, the type and expected duration of portfolio investments held, and other changing market conditions. Interest rate hedging may fail to protect or could adversely affect us because, among other things:
· | interest rate hedging can be expensive, particularly during periods of rising and volatile interest rates; |
· | available interest rate hedging may not correspond directly with the interest rate risk for which protection is sought; |
· | the duration of the hedge may not match the duration of the related liability or asset; |
· | the credit quality of the party owing money on the hedge may be downgraded to such an extent that it impairs our ability to sell or assign our side of the hedging transaction; |
· | the party owing money in the hedging transaction may default on its obligation to pay; and |
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· | we may purchase a hedge that turns out not to be necessary (i.e., a hedge that is out of the money). |
Any hedging activity we engage in may adversely affect our earnings, which could adversely affect cash available for distribution to holders of our Class A units. Therefore, while we may enter into such transactions to seek to reduce interest rate risks, unanticipated changes in interest rates may result in poorer overall investment performance than if we had not engaged in any such hedging transactions. In addition, the degree of correlation between price movements of the instruments used in a hedging strategy and price movements in the portfolio positions being hedged or liabilities being hedged may vary materially. Moreover, for a variety of reasons, we may not seek to establish a perfect correlation between such hedging instruments and the portfolio holdings being hedged. Any such imperfect correlation may prevent us from achieving the intended hedge and expose us to risk of loss.
Hedging instruments are often not traded on regulated exchanges or guaranteed by an exchange or its clearing house and involve risks and costs that could result in material losses.
The cost of using hedging instruments increases as the period covered by the instrument increases and during periods of rising and volatile interest rates, we may increase our hedging activity and thus increase our hedging costs during periods when interest rates are volatile or rising and hedging costs have increased. In addition, hedging instruments involve risk since they are often not traded on regulated exchanges or guaranteed by an exchange or its clearing house. Consequently, there are no requirements with respect to record keeping, financial responsibility or segregation of customer funds and positions. Furthermore, the enforceability of agreements underlying hedging transactions may depend on compliance with applicable statutory and commodity and other regulatory requirements and, depending on the identity of the counterparty, applicable international requirements. The business failure of a hedging counterparty with whom we enter into a hedging transaction will most likely result in its default. Default by a party with whom we enter into a hedging transaction may result in the loss of unrealized profits and force us to cover our commitments, if any, at the then current market price.
Although generally we will seek to reserve the right to terminate our hedging positions, it may not always be possible to dispose of or close out a hedging position without the consent of the hedging counterparty and we may not be able to enter into an offsetting contract in order to cover our risk. We cannot assure you that a liquid secondary market will exist for hedging instruments purchased or sold, and we may be required to maintain a position until exercise or expiration, which could result in significant losses.
Any bank credit facilities and repurchase agreements that we may use in the future to finance our assets may require us to provide additional collateral or pay down debt.
We may utilize bank credit facilities, repurchase agreements (including term loans and revolving facilities) or guarantee arrangements to finance our assets if they become available on acceptable terms. Such financing arrangements, including any guarantees, would involve the risk that the market value of any investments pledged by us to the provider of the bank credit facility or repurchase agreement counterparty may decline in value, in which case the lender may require us to provide additional collateral or to repay all or a portion of the funds advanced. We may not have the funds available to repay our debt at that time, which would likely result in defaults unless we are able to raise the funds from alternative sources, which we may not be able to achieve on favorable terms or at all. Posting additional collateral would reduce our liquidity and limit our ability to leverage our assets. If we cannot meet these requirements, the lender could accelerate our indebtedness or enforce our guarantee, increase the interest rate on advanced funds and terminate our ability to borrow funds from it, which could materially and adversely affect our financial condition and ability to implement our investment strategy. In addition, if the lender files for bankruptcy or becomes insolvent, our loans and guarantees may become subject to bankruptcy or insolvency proceedings, thus depriving us, at least temporarily, of the benefit of these assets. Such an event could restrict our access to bank credit facilities and increase our cost of capital. The providers of bank credit facilities and repurchase agreement financing may also require us to maintain a certain amount of cash or set aside assets sufficient to maintain a specified liquidity position that would allow us to satisfy our collateral obligations. As a result, we may not be able to leverage our assets as fully as we would choose, which could reduce our return on assets. If we are unable to meet these collateral obligations, our financial condition and prospects could deteriorate rapidly.
We may give full or partial guarantees to lenders of mortgage debt to the entities that own our properties.
When we give a guaranty on behalf of an entity that owns one of our properties, we will be responsible to the lender for satisfaction of the debt if it is not paid by such entity. If any mortgages contain cross-collateralization or cross-default provisions, there is a risk that more than one real property may be affected by a default. If any of our properties are foreclosed upon due to a default, our ability to make distributions to the holders of our Class A units will be adversely affected. Accordingly, our approach to investing in properties utilizing leverage in order to accomplish our investment objectives may present more risks to investors than comparable real estate programs that do not utilize borrowing to the same degree.
If we enter into financing arrangements involving balloon payment obligations, it may adversely affect our ability to make distributions to the holders of our Class A units.
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 is uncertain and may depend upon our ability to obtain replacement financing or our ability to sell particular properties. 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. Such a refinancing would be dependent upon interest rates and lenders’ policies at the time of refinancing, economic conditions in general and the value of the
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underlying properties in particular. The effect of a refinancing or sale could affect the rate of return to the holders of our Class A units and the projected time of disposition of our assets.
Our access to sources of financing may be limited and thus our ability to grow our business and to maximize our returns may be adversely affected.
Subject to market conditions and availability, we may incur significant debt through bank credit facilities (including term loans and revolving facilities), repurchase agreements, warehouse facilities and structured financing arrangements, public and private debt issuances and derivative instruments, in addition to transaction or asset specific funding arrangements. We may also issue additional debt or equity securities to fund our growth.
Our access to sources of financing will depend upon a number of factors, over which we have little or no control, including:
· | general economic or market conditions; |
· | the market’s view of the quality of our assets; |
· | the market’s perception of our growth potential; and |
· | our current and potential future earnings and cash distributions. |
We will need to periodically access the capital and credit markets to raise cash to fund new investments. Unfavorable economic or market conditions may increase our funding costs, limit our access to the capital or credit markets or could result in a decision by potential lenders not to extend credit. An inability to successfully access the capital or credit markets could limit our ability to grow our business and fully execute our investment strategy and could decrease our earnings, if any. In addition, uncertainty in the capital and credit markets could adversely affect one or more private lenders and could cause one or more of our private lenders to be unwilling or unable to provide us with financing or to increase the costs of that financing. In addition, if regulatory capital requirements imposed on our private lenders change, they may be required to limit, or increase the cost of, financing they provide to us. In general, this could potentially increase our financing costs and reduce our liquidity or require us to sell assets at an inopportune time or price. No assurance can be given that we will be able to obtain any such financing on favorable terms or at all.
Risks Relating to U.S. Federal Taxation
If we fail to qualify as a partnership for U.S. federal income tax purposes and no relief provisions apply, we would be subject to entity level U.S. federal income tax and, as a result, our cash available for distributions and the value of our Class A units could materially decrease.
The anticipated after-tax economic benefit of an investment in our Class A units depends largely on our being treated as a partnership for U.S. federal income tax purposes.
Despite the fact that we are organized as a limited liability company under Delaware law, we would be treated as a corporation for federal income tax purposes unless we satisfy a “qualifying income” exception. Failing to meet the qualifying income requirement, or a change in current law could cause us to be treated as a corporation for federal income tax purposes or otherwise subject us to taxation as an entity.
If we were treated as a corporation for federal income tax purposes, we would pay federal income tax on our taxable income at the corporate tax rate. Distributions to holders of our Class A units would generally be taxed again as corporate distributions, and no income, gains, losses or deductions would flow through to holders of our Class A units. Because a tax would be imposed on us as a corporation, our cash available for distribution to holders of our Class A units would be substantially reduced. Therefore, our treatment as a corporation would result in a material reduction in cash flow and after-tax return to holders of our Class A units, likely causing a substantial reduction in the value of our Class A units. See “Material U.S. Federal Tax Considerations—Taxation of Belpointe PREP, LLC”
There can be no assurance that we will continue to meet the requirements for classification as a qualified opportunity fund.
We will qualify as a “qualified opportunity fund.” beginning with our taxable year ended December 31, 2020. We intend to manage our affairs so that we continue to meet the requirements for classification as a “qualified opportunity fund,” pursuant to Section 1400Z-2 of the Code and the related regulations issued by the U.S. Department of the Treasury and U.S. Internal Revenue Service (the “IRS”) on December 19, 2019, together with the correcting amendments issued on April 1, 2020 and additional relief issued on January 19, 2021 (collectively the “Opportunity Zone Regulations”). However, qualified opportunity funds and the Opportunity Zone Regulations are a relatively new and as yet untested, and our ability to be treated as a qualified opportunity fund and to operate in conformity with the requirements to continue to be treated as a qualified opportunity fund is subject to uncertainty. If we fail to continue to meet the requirements for classification as a qualified opportunity fund, holders of our Class A units would lose the tax benefits associated with investing a qualified opportunity fund and the value of our Class A units would likely be adversely affected.
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Investors must make appropriate timely investments and elections in order to take advantage of the benefits of investing in a qualified opportunity fund.
In order to receive the benefits of investing in a qualified opportunity fund, taxpayers must make deferral elections on Form 8949 (Sales and Other Dispositions of Capital Assets), which will need to be attached to their U.S. federal income tax returns for the taxable year in which gain treated as capital gain (short-term or long-term) that result from the sale or exchange of capital assets would have been recognized had it not been deferred. In addition, Form 8997 (Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments) requires eligible taxpayers holding a qualified opportunity fund investment at any point during the tax year to report: (i) qualified opportunity fund investments holdings at the beginning and end of the tax year; (ii) current tax year capital gains deferred by investing in a qualified opportunity fund; and (iii) qualified opportunity fund investments disposed of during the tax year.
The tax treatment of an investment in our Class A units could be subject to potential legislative, judicial or administrative changes or differing interpretations, possibly applied on a retroactive basis.
The present U.S. federal income tax treatment of an investment in our Class A units may be modified by administrative, legislative or judicial interpretation at any time. From time to time, members of Congress propose and consider substantive changes to the existing U.S. federal income tax laws that would affect us, including a prior legislative proposal that would have eliminated the “qualifying income” exception upon which we intend to rely for our treatment as a partnership for U.S. federal income tax purposes. Although there are no current legislative or administrative proposals pending with respect to the qualifying income exception or qualified opportunity funds, there can be no assurance that there will not be further changes to U.S. federal income tax laws or the Department of Treasury’s or IRS’s interpretation of the qualifying income and qualified opportunity fund rules in a manner that could impact our ability to continue to qualify as a partnership or qualified opportunity fund in the future, which could negatively impact the value of an investment in our Class A units. Any changes to the U.S. federal tax laws and interpretations thereof may be applied prospectively or retroactively and could make it more difficult or impossible for us to meet the qualifying income exception or qualified opportunity fund requirements and accordingly adversely affect the tax consequences associated with an investment in our Class A units.
If the IRS contests the U.S. federal income tax positions we take, the value our Class A units may be adversely impacted, and the cost of any IRS contest will reduce cash available for distribution to holders of our Class A units.
The IRS may adopt positions that differ from the positions we have taken or may take on tax matters. It may be necessary to resort to administrative or court proceedings to sustain some or all of the positions we take. A court may not agree with some or all of the positions we take. Any contest with the IRS may materially and adversely impact the value of our Class A units. In addition, the costs of any contest with the IRS will be borne indirectly by the holders of our Class A units because the costs will reduce our cash available for distribution.
If the IRS makes audit adjustments to our income tax returns, the IRS (and some states) may assess and collect any taxes (including any applicable penalties and interest) resulting from such audit adjustments directly from us, in which case our cash available for distribution holders of our Class A units might be substantially reduced, and current and former holders of our Class A units may be required to indemnify us for any taxes (including applicable penalties and interest) resulting from audit adjustments paid on their behalf.
Even if you do not receive any cash distributions from us, you will be required to pay taxes on your share of our taxable income.
You will be required to pay U.S. federal income taxes and, in some cases, state and local income taxes, on your share of our taxable income, whether or not you receive cash distributions from us. For example, if we sell assets and reinvest the proceeds or use proceeds to repay existing debt, you may be allocated taxable income and gain resulting from the sale and our cash available for distribution would not increase. You may not receive cash distributions from us equal to your share of our taxable income or even equal to the actual tax due from you with respect to that income.
You will likely be subject to state and local taxes and return filing requirements as a result of investing in our Class A units.
In addition to federal income taxes, holders of our Class A units likely will be subject to other taxes, such as state and local income taxes, unincorporated business taxes and estate, inheritance, or intangible taxes that are imposed by the various jurisdictions in which we do business or own property now or in the future. Holders of our Class A units will likely be required to file state and local income tax returns and pay state and local income taxes in some or all of these various jurisdictions, even if they do not live in these jurisdictions. Further, holders of our Class A units may be subject to penalties for failure to comply with those requirements. It is the responsibility of the holders of our Class A units to file all federal, state, local and foreign tax returns.
You will receive a Schedule K-1 to IRS Form 1065, which could increase the complexity of your tax circumstances.
We will prepare and deliver a Schedule K-1 to IRS Form 1065 for each holder of our Class A units. Your Schedule K-1 will contain information regarding your allocable share of our items of income, gain, loss, deduction, credit and adjustments to the carrying value of our assets and investments. Schedule K-1s are usually complex, and you may find that preparing your own tax returns requires additional time. You may also find it necessary or advisable to engage the services of an accountant or other tax adviser, at your own cost and expense, to assist with the preparation of your tax returns.
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In addition, it is possible that your income tax liability with respect your allocable share of our income for a particular taxable year, as reflected on your Schedule K-1, could exceed the amount of cash distributions, if any, that we make to you for that taxable year, thus giving rise to an out-of-pocket tax liability. Accordingly, you should consult with your own accountant or other tax advisers concerning the tax consequences of your specific tax circumstances prior to acquiring, holding or disposing of any of our Class A units.
We do not expect to be able to furnish definitive Schedule K-1s to IRS Form 1065 to each holder of our Class A units prior to the deadline for filing U.S. income tax returns, which means that holders of our Class A units who are U.S. taxpayers should anticipate the need to file annually a request for an extension of the due date of their income tax returns. In addition, it is possible that holders of our Class A units may be required to file amended income tax returns.
As a partnership, our operating results, including distributions of income, gains, losses, deductions, credits and adjustments to the carrying value of our assets and investments, will be reported on Schedule K-1 to IRS Form 1065 and distributed annually to each holder of our Class A units. Although we currently intend to distribute Schedule K-1s on or around 90 days after the end of our fiscal year, it may require a substantial period of time after the end of our fiscal year to obtain the requisite information from all lower-tier entities to enable us to prepare and deliver Schedule K-1s. For this reason, holders of Class A units who are U.S. taxpayers should anticipate the need to file annually with the IRS (and certain states) a request for an extension past the due date of their income tax return.
In addition, it is possible that a holder of our Class A units will be required to file amended income tax returns as a result of adjustments to items on the corresponding income tax returns of the Company or our Operating Companies. Any obligation of a holder of our Class A units to file amended income tax returns for the foregoing or any other reason, including any costs incurred in the preparation or filing of such returns, is the responsibility of each holder of our Class A units.
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Cautionary Note Regarding Forward-Looking Statements
We make statements in this prospectus that are forward-looking statements within the meaning of the federal securities laws. The words “believe,” “estimate,” “expect,” “anticipate,” “intend,” “plan,” “seek,” “may,” and similar expressions or statements regarding future periods are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause our actual results, performance or achievements, or industry results, to differ materially from any predictions of future results, performance or achievements that we express or imply in this prospectus or in the information incorporated by reference into this prospectus.
The forward-looking statements included in this prospectus 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; |
· | our ability to comply with the rules and regulations relating to investing in qualified opportunity zones; |
· | changes in the rules and regulations relating to Tax Cuts and Jobs Act of 2017, including the qualified opportunity zone regulations and Section 199A of the Code and the regulations adopted thereunder; |
· | risks associated with breaches of our data security; |
· | changes in economic conditions generally and the real estate and securities markets specifically; |
· | public health crises, pandemics and epidemics, such as those caused by new strains of viruses such as H5N1 (avian flu), severe acute respiratory syndrome (SARS) and, most recently, the novel coronavirus (COVID-19); |
· | limited ability to dispose of assets because of the relative illiquidity of real estate investments; |
· | intense competition in the real estate market that may limit our ability to attract or retain tenants or re-lease space; |
· | defaults on or non-renewal of leases by tenants; |
· | increased interest rates and operating costs; |
· | our failure to obtain necessary outside financing; |
· | decreased rental rates or increased vacancy rates; |
· | the risk associated with potential breach or expiration of a ground lease, if any; |
· | difficulties in identifying properties to complete, and consummating, real estate acquisitions, developments, joint ventures and dispositions; |
· | our failure to successfully operate acquired properties and operations; |
· | exposure to liability relating to environmental and health and safety matters; |
· | changes in real estate and zoning laws and increases in real property tax rates; |
· | our failure to qualify and maintain our status as a publicly traded partnership and qualified opportunity fund; |
· | failure of acquisitions to yield anticipated results; |
· | risks associated with derivatives or hedging activity; |
· | our level of debt and the terms and limitations imposed on us by our debt agreements; |
· | the need to invest additional equity in connection with debt refinancings as a result of reduced asset values; |
· | our ability to retain our executive officers and other key personnel of our Sponsor, Manager and their affiliates; |
· | expected rates of return provided to investors; |
· | the ability of our Sponsor, Manager and their affiliates to source, originate and service our investments, and the quality and performance of these investments; |
· | legislative or regulatory changes impacting our business or our investments; |
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· | changes in business conditions and the market value of our investments, including changes in interest rates, prepayment risk, operator or borrower defaults or bankruptcy, and generally the increased risk of loss if our investments fail to perform as expected; |
· | our ability to implement effective conflicts of interest policies and procedures among the various real estate investment programs sponsored by our Sponsor; |
· | our compliance with applicable local, state and federal laws, including the Investment Advisers Act of 1940, as amended, the Investment Company Act of 1940, as amended, and other laws; and |
· | changes to United States 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 strategies set forth in this prospectus will be achieved.
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The following table presents information about the net proceeds raised in this offering, assuming that we sell the maximum primary offering amount of $750,000,000. We set our initial offering price at $100.00 per Class A unit. No later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, we plan to calculate our NAV within approximately 60 days of the last day of each quarter (the “Determination Date”). If our NAV increases above or decreases below the price per Class A unit as stated in this prospectus, we will adjust the offering price, effective as of the first business day following its public announcement. The adjusted offering price will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date.
We expect to use substantially all of the net proceeds from this offering (after paying for or reimbursing our Manager and its affiliates, including our Sponsor, for organization and offering expenses) to identify, acquire, develop or redevelop and manage a diversified portfolio of commercial real estate properties located throughout the United States and its territories in accordance with our investment objectives and strategy. We also anticipate acquiring other real estate-related assets, including, but not limited to, commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as make private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. Our goal is to pay distributions from cash flow from operations. However, at the discretion of our Manager, subject to Board oversight, we may use other sources to fund distributions, including, without limitation, net proceeds of this offering. We have not established a limit on the amount of offering proceeds we may use to fund distributions.
Investors will not pay upfront selling commissions or dealer-manager fees as part of the price per Class A unit purchased in this offering. We will reimburse our Manager and its affiliates, including our Sponsor, for all expenses incurred on our behalf in connection with our organization and the offering of our Class A units, which are initially expected to be approximately $3,000,000, and up to approximately 0.004% of gross offering proceeds if we raise the maximum offering amount. Offering expenses will include, without limitation, all legal, accounting, printing, mailing and filing fees and expenses, costs in connection with preparing sales materials, design and website expenses, fees and expenses of our escrow agent and transfer agent, fees to attend retail seminars and reimbursements for customary travel, lodging, meals and entertainment expenses associated therewith, but excluding upfront selling commissions or dealer-manager fees. We will not be required to reimburse our Manager and its affiliates, including our Sponsor, until the first closing is held in connection with the offering. Thereafter, reimbursement payments will be made beginning on a date selected by our Manager in monthly installments without interest until paid in full. Fees payable and expenses reimbursable to our Manager and its affiliates, including our Sponsor, may be paid, at the election of the recipient, in cash, by issuance of our Class A units at the then-current NAV, or through some combination of the foregoing. See “Management Compensation” for a more detailed description of the fees and expenses payable to our Manager and its affiliates.
Pending the use of any net proceeds we may invest in short-term, investment-grade obligations or accounts in a manner that is consistent with our intended qualification as a publicly traded partnership and qualified opportunity fund. Such short-term investments will not earn as high of a rate of return as we expect to earn from our commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity businesses. Because amounts in this table are estimates, they may not accurately reflect the actual receipt or use of the offering proceeds.
Amount | Percent | |||||||
Gross Offering Proceeds | $ | 750,000,000 | 100.00 | % | ||||
Less: | ||||||||
Organization and Offering Expenses | 3,000,000 | (1) | 0.004 | % | ||||
Net Offering Proceeds | $ | 747,000,000 | 99.996 | % | ||||
(1) |
The actual amount will vary depending on the number Class A units sold. Initially organizational and offering expenses are expected to be approximately $3,000,000 and may be up to approximately 0.004% of gross offering proceeds if we raise the maximum offering amount. | ||||||
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Investment Objective and Strategies
Investment Objectives
Our primary investment objectives are:
· | to preserve, protect and return your capital contribution; |
· | to pay attractive and consistent cash distributions; |
· | to grow net cash from operations so that an increasing amount of cash flow is available for distributions to investors over the long term; and |
· | to realize growth in the value of our investments. |
We cannot assure you that we will achieve our investment objectives. See the “Risk Factors” section of this prospectus.
Investment Strategy
We are initially focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within qualified opportunity zones. At least 90% of our assets consist of qualified opportunity zone property. We will qualify as a qualified opportunity fund beginning with our taxable year ended December 31, 2020. Because we are a qualified opportunity fund, certain of our investors are eligible for favorable capital gains tax treatment on their investments.
Our initial investments consist of and are expected to continue to consist of properties located in qualified opportunity zones for the development or redevelopment of multifamily, student housing, senior living, healthcare, industrial, self-storage, hospitality, office, mixed-use, data centers and solar projects (collectively, the “qualified opportunity zone investments”) located throughout the United States and its territories. We also anticipate identifying, acquiring, developing or redeveloping and managing a wide range of commercial real estate properties located throughout the United States and its territories, including, but not limited to, real estate-related assets, such as commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as making private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, with the goal of increasing distributions and capital appreciation. We cannot assure you that we will attain these objectives or that the value of our assets will not decrease.
Our investment guidelines delegate to our Manager discretion and authority to execute acquisitions and dispositions of investments (including the reinvestment of capital basis and gains) in commercial real estate properties located throughout the United States and its territories, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, provided such investments are consistent with our investment objectives and strategy and our investment guidelines. Our Manager’s investment committee will periodically review our portfolio of assets and investments, our investment objectives and strategy and our investment guidelines to determine whether they remain in the best interests of our Members and may recommend changes to our Board as it deems appropriate. We may, at any time and without Member approval, cease to be a qualified opportunity fund and acquire assets that do not qualify as qualified opportunity zone investments. Furthermore, there are no prohibitions in our operating agreement on the amount or percentage of assets that may be invested in a single property, and we expect, at least initially, to have a limited number of properties.
In executing on our investment strategy, we also expect to greatly benefit from our Manager’s affiliation with our Sponsor given our Sponsor’s strong track record and extensive experience as a fund manager. These competitive advantages include, without limitation:
· | Our Sponsor’s experience and reputation as a seasoned real estate investment fund manager, which has historically provided our Sponsor with access to a large investment pipeline similar to the types of investments that we intend to target as well as to the type of key market data that we intend to use to underwrite and manage our investment portfolio; |
· | Our Sponsor’s network of relationships with financial institutions and other lenders which originate and distribute commercial real estate debt and other real estate-related products and finance the type of investments that we intend to acquire; |
· | Our Sponsor’s acquisition experience, which includes identifying, evaluating and underwriting real estate deals in multifamily and mixed-use properties in various locations throughout the United States and under a variety of market conditions; and |
· | Our Sponsor’s asset management experience, which includes actively monitoring investments through critical property management, leasing, redevelopment and disposition activities. |
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Investment Decisions and Asset Management
Within our investment strategy and guidelines, our Manager’s investment committee has discretion and authority with respect to the selection of specific investments and the acquisition and disposition of our assets. We believe that successful real estate investment requires implementation of strategies that permit favorable originations and purchases, effective asset management and timely disposition of those assets. Our Manager has developed a disciplined investment approach that combines the experience of its team of investment and asset management professionals with a structure that emphasizes thorough market research, stringent underwriting standards and an extensive down-side analysis of the risks of each investment. The approach also includes active and aggressive management of each asset acquired.
We believe that active management is critical to creating value. Our Manager will 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 or refinance the asset.
To execute our disciplined investment approach, a team of our Manager’s investment and asset management professionals will take responsibility for the business plan of each of our investments. The following practices summarize our investment approach:
· | Market Research – The investment team will complete exhaustive market diligence on demographics, employment drivers, competing properties and capital market activity. |
· | Physical Research – The investment team will engage third party property condition, environmental, zoning and code compliance, and building systems assessments to identify prospective investment deferred maintenance items and to validate capital requirement assumptions. |
· | Underwriting Discipline – Our Manager will follow a tightly controlled and managed process to examine all elements of a potential investment, including, with respect to real property, its location, income-producing capacity, prospects for appreciation, potential for principal loss, tax considerations and liquidity. Only those assets meeting our investment guidelines will be accepted for inclusion in our portfolio. In an effort to keep an asset in compliance with those standards, our Manager’s underwriting team will remain involved through the investment life cycle of the asset and consult with the other internal professionals responsible for the asset. |
· | Asset Management – Prior to the purchase of an individual asset or portfolio, our Manager’s acquisition team will work in tandem with the asset management team to develop an asset business strategy. This is a forecast of the action items to be taken and the capital needed to implement the contemplated business plan in an attempt to achieve the anticipated returns. We review asset business strategies regularly to anticipate changes or opportunities in the market during a given phase of a real estate cycle. |
Opportunity and Market Overview
We believe that our innovative investment platform has the ability to disrupt the real estate investment industry through the unique combination of potential economic benefits that it offers holders of our Class A units, including: (i) multiple potential capital gains tax benefits; (ii) potential qualified business income tax benefits; (iii) zero upfront loads, sales commissions or entrance fees; (iv) significantly reduced fees payable to our Manager; (v) no capital calls; (vi) no investor servicing fees; (vii) significantly lower carried interest payable to our Manager; (viii) potential for liquidity events; and (ix) low minimum investment requirements, all of which should result in greater investment returns to holders of our Class A units than those generated by traditional private real estate funds, real estate investment trusts (“REITs”) and other traditional real estate investment platforms.
We use multiple investment platform structures to deploy capital, which we anticipate will give us access to higher quality investment opportunities and better execution of our investment strategies than less diverse investment models. See “Investment Objectives and Strategy—Joint Venture and Other Co-Ownership Arrangements.” We also expect to greatly benefit from the resources provided by our Sponsor, its vertically integrated real estate platform and the experience of its principals.
Set forth below are some of the key benefits that we believe distinguish us from more traditional private real estate funds, REITs and other traditional real estate investment platforms:
· | Capital Gains Tax Deferral – An eligible investor may defer recognition of capital gains (short-term or long-term) resulting from the sale or exchange of capital assets by reinvesting those gains into our Class A units within a period of 180 days of the sale or exchange (the “Deferred Capital Gains”). Deferred Capital Gains are recognized on the earlier of December 31, 2026 or the date on which an inclusion event occurs, such as the date on which the investor sells its Class A units. |
· | Capital Gains Reduction – An eligible investor may also receive an increase in basis equal to 10% of the Deferred Capital Gains if the investor holds our Class A units for a period of five years. |
· | Capital Gains Tax Exemption – An eligible investor may elect to receive an increase in basis with respect to our Class A units equal to the fair market value of our Class A units on the date of their sale or exchange if the investor |
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holds our Class A units for a period of ten years or more, up to December 31, 2047. Thus, for U.S. federal income tax purposes, an investor will not recognize capital gains as a result of an appreciation in our Class A units.
· | No Depreciation Recapture – An eligible investor who elects to receive an increase in basis with respect to our Class A units equal to the fair market value of our Class A units on the date of their sale or exchange, if the investor has held our Class A units for a period of ten years or more, up to December 31, 2047, will not recognize depreciation recapture (excluding inventory gains) as a result of an appreciation in our Class A units. |
· | 20% Qualified Business Income Deduction – Individual investors and some trust and estate investors are entitled to a deduction of up to 20% of their allocable share of our “qualified business income” for taxable years ending on or before December 31, 2025, subject to certain limitations. See “U.S. Federal Income Tax Considerations.” |
· | No Up-Front Load, Sale Commissions or Entrance Fees – We will not charge up front loads, sale commissions or entrance fees to investors who purchase our Class A units, unlike fees commonly charged by many other real estate investment platforms which can add up to as much as 10% of invested capital. |
· | Significantly Reduced Management Fees – Our Manager is paid annual management fees of only 0.75% of our NAV, which is significantly less than the management fees of 1.5%-2.1% typically charged by other traditional private real estate funds, REITs and other traditional real estate investment platforms. |
· | No Capital Calls – Investors will not be required to make capital contributions beyond the purchase price of their Class A units, unlike traditional private real estate funds and other real estate investment platforms. |
· | No Investor Servicing Fees – We will not charge investor servicing fees, typically charged for other real estate investments offered through broker dealer platforms, which can add up to as much as 0.6% of invested capital on annual basis. |
· | Significantly Lower Carried Interest – Our Manager holds 100% of our Class B units, which entitle our Manager to 5% of any gain recognized by or distributed to the Company or recognized or distributed from our Operating Companies or any subsidiary. This ownership interest will result in a “carried interest” to our Manager that is significantly lower than the carried interest of 15%-25% typically earned by external managers of traditional private real estate funds, REITs and other traditional real estate investment platforms. |
· | Ability to Use Equity as Transaction Consideration – We intend to make private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses using our equity as transaction consideration, thereby preserving cash for other investing activities. |
· | Greater Diversification – We intend to hold a larger and more diversified portfolio of real estate and real estate-related assets than most other qualified opportunity zone real estate investment platforms. Greater diversification offers investors in our Class A units the potential to achieve greater returns at a lower risk. |
· | Public Company Transparency – We are a reporting company subject to the periodic and current reporting requirements of the federal securities laws, requiring us to file, among other things, annual and quarterly reports (including financial statements, financial statement schedules and exhibits) and current reports disclosing material events. As a result, unlike private real estate investment platforms, investors in our Class A units will have access to regular updates regarding our performance. |
· | Public Market Liquidity – We have applied to have our Class A units listed on the NYSE under the symbol “OZ.” As a result, Belpointe PREP will be the first qualified opportunity fund listed on a national securities exchange. Having our Class A units listed for trading on NYSE will provide holders of our Class A units with liquidity in respect of their investment and greater control over the timing of purchases and sales of their Class A units. |
· | Minimal Investment Requirements – We have set a minimum investment threshold of $10,000, which we expect will allow for a broader base of investors to participate in our offering than would otherwise be able to participate in more traditional private real estate funds, REITs and other traditional real estate investment platforms. |
· | Development Expertise – Our Manager employs a highly qualified team with extensive real estate development and construction management experience, thereby providing us with knowledge, relationships and internal development expertise that we believe far exceeds what many other real estate investment platforms can offer their investors. |
· | Multiple Investment Platforms – In order to maximize our development opportunities, we anticipate entering into joint ventures in a variety of forms, including: (i) franchise platforms with affiliated development companies in specific regional markets; (ii) programmatic platforms with established regional developers with which we will have an exclusive relationship to engage in multiple regional investments; and (iii) traditional local joint venture partnerships for one-off developments. |
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We believe that we will be able to provide holders of our Class A units with compelling investment performance on a risk-adjusted basis through: (i) the application of our rigorous investment and underwriting standards; (ii) the geographic and asset class diversification of our investments; (iii) the expected tax benefits from an investment in our Company; and (iv) lower cost structure.
We are initially focused on the development or redevelopment of qualified opportunity zone investments in opportunity zones that have completed, or are engaged in, the revitalization process, which are expected to be located within 75 miles of metropolitan markets. Given the recent concentration of investment capital in increasingly larger deals in major metropolitan areas, we believe that there will be less competition for our targeted assets. Additionally, we believe that our focus on markets with favorable risk-return characteristics should enable us to achieve higher capital appreciation than would be achievable on similar deals in larger markets.
We expect to be able to manage the risks associated with developing or redeveloping and managing our investments better than other real estate investment companies due, in part, to our ability to access the resources of our Sponsor. Our Sponsor is a fully integrated, well capitalized real estate company that combines investment and asset management professionals with construction and development professionals, which we believe will enable our Manager to better evaluate and manage our investments to reduce risk and increase potential returns for holders of our Class A units.
It is important to note, however, that real estate markets are often unpredictable and subject to change over time. Accordingly, changes may occur that could require us to modify our investment strategy in order to identify and acquire assets providing attractive risk-adjusted returns.
Targeted Investments
Prior to acquiring an asset, our Manager’s investment committee will perform an individual analysis of the asset to determine whether it meets our investment objectives and guidelines. Our Manager’s investment committee will use the information derived from the analysis in determining whether the asset is an appropriate investment for us.
We are initially focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within qualified opportunity zones. At least 90% of our assets consist of qualified opportunity zone property. We will qualify as a qualified opportunity fund beginning with our taxable year ended December 31, 2020. Because we are a qualified opportunity fund, certain of our investors are eligible for favorable capital gains tax treatment on their investments. Our initial investments consist of and are expected to continue to consist of properties located in qualified opportunity zones for the development or redevelopment of multifamily, student housing, senior living, healthcare, industrial, self-storage, hospitality, office, mixed-use, data centers and solar projects (collectively, the “qualified opportunity zone investments”) located throughout the United States and its territories.
We also anticipate identifying, acquiring, developing or redeveloping and managing a wide range of commercial real estate properties located throughout the United States and its territories, including, but not limited to, real estate-related assets, such as commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as making private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, with the goal of increasing distributions and capital appreciation. As of the date of this prospectus, we have made three qualified opportunity zone investments.
Each of our assets (including, but not limited to, investments in stabilized real estate assets) will have either affiliates of our Sponsor or Manager, such as Belpointe SP, LLC (“Belpointe SP”), or their respective affiliates (together with Belpointe SP, the “Belpointe SP Group”), or an independent third party, or any combination of the foregoing, as the sponsor or co-sponsor, general partner or co-general partner, manager or co-manager of the investment, and our role, in general, will be as a passive investor.
Qualified Opportunity Zone
The opportunity zone is a new community development program established by Congress in the Tax Cuts and Jobs Act of 2017 to encourage new long-term investments in low-income urban and rural communities nationwide. The opportunity zone program provides a tax incentive for investors to re-invest their unrealized capital gains into qualified opportunity funds dedicated to investing in “qualified opportunity zones.” Qualified opportunity zones are census tracts identified and nominated by the chief executives of every state and territory of the United States (e.g., governors) and designated by the Secretary of the Treasury.
To be designated as a qualified opportunity zone, the nominated census tract must have either been (i) a qualified low-income community, or (ii) a census tract that was contiguous with a nominated qualified low-income community if the median family income of the tract does not exceed 125% of that contiguous, nominated qualified low-income community.
Qualified low-income communities included census tracts that have at least one of the following criteria: (i) a poverty rate of at least 20%; (ii) a median family income below 80% of the greater of the statewide or metropolitan area median family income if located in a metropolitan area; or (iii) a median family income below 80% of the median statewide family income if located outside a metropolitan area. In addition, designated targeted populations may be treated as low-income communities.
As of December 31, 2019, there were more than 8,700 qualified opportunity zones throughout the United States and its territories.
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A “qualified opportunity fund” is generally defined as an investment vehicle that is taxed as a corporation or partnership for U.S. federal income tax purposes and organized to invest in, and at least 90% of its assets consist of, qualified opportunity zone property (the “90% Asset Test”).
A qualified opportunity fund must determine whether it meets the 90% Asset Test on each of: (i) the last day of the first six-month period of its taxable year, and (ii) the last day of its taxable year (each a “Semiannual Test Date”). Subject to a one-time six-month cure period, for each month following a Semiannual Test Date in which a qualified opportunity fund fails to meet the 90% Asset Test it will incur a penalty equal to: (a) the excess of 90% of the fund’s aggregate assets over the aggregate amount of qualified opportunity zone property held by the fund, multiplied by (b) the short-term federal interest rate plus 3%. However, notwithstanding a qualified opportunity fund’s failure to meet the 90% Asset Test, no penalty will be imposed if the fund demonstrates that its failure is due to reasonable cause.
An investor may defer recognition of capital gains (short-term or long-term) resulting from the sale or exchange of capital assets by reinvesting those gains into a qualified opportunity fund within a period of 180 days of the sale or exchange (the “Deferred Capital Gains”). The 180-day period generally begins on the day on which the gains would be recognized for U.S. federal income tax purposes had they not been reinvested into a qualified opportunity fund. Deferred Capital Gains are recognized on the earlier of December 31, 2026 or the date on which an inclusion event occurs, such as the date on which the investor sells its qualified opportunity fund investment.
All individuals and entities that recognize capital gains for U.S. federal income tax purposes are eligible to elect to defer. This includes natural persons as well as entities such as corporations, regulated investment companies, REITs, partnerships and other pass-through entities (including, certain common trust funds, qualified settlement funds, and disputed ownership funds). Taxpayers will make deferral elections on Form 8949 (Sales and Other Dispositions of Capital Assets), which will need to be attached to their U.S. federal income tax returns for the taxable year in which the capital gain would have been recognized had it not been deferred. In addition, Form 8997 (Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments) requires eligible taxpayers holding a qualified opportunity fund investment at any point during the tax year to report: (i) qualified opportunity fund investments holdings at the beginning and end of the tax year; (ii) current tax year capital gains deferred by investing in a qualified opportunity fund; and (iii) qualified opportunity fund investments disposed of during the tax year.
An investor may also receive an increase in basis equal to 10% of the Deferred Capital Gains if the investor holds its qualified opportunity fund investment for a period of five years.
Finally, an investor may elect to receive an increase in basis with respect to its qualified opportunity fund investment interest equal to the fair market value of the investment interest on the date of its sale or exchange if the investor holds the qualified opportunity fund investment for a period of ten years or more, up to December 31, 2047. Thus, an investor will not recognize capital gains for U.S. federal income tax purposes as a result of an appreciation in its qualified opportunity fund investment interest.
It is important for an investor seeking to avail itself of the Deferred Capital Gains benefits described in this prospectus to be aware that subsequent changes in the tax laws or the adoption of new regulations, as well as early dispositions of our Class A units, could cause you to lose any anticipated tax benefits. On December 19, 2019, the U.S. Department of the Treasury and the U.S. Internal Revenue Service (the “IRS”) issued final regulations and, on April 1, 2020 and January 19, 2021, correcting amendments and additional relief, respectively (collectively the “Opportunity Zone Regulations”), to provide guidance with respect to qualified opportunity zones program requirements. Accordingly, you are urged to consult with your own tax advisors regarding: (i) procedures you will need to follow to defer capital gains through investing in a qualified opportunity fund: (ii) tax consequences of purchasing, owning or disposing of our Class A units, including the federal, state and local tax consequences of investing capital gains in our Class A units; (iii) tax consequences associated with our election to qualify as a partnership for U.S. federal income tax purposes and our election to qualify as a qualified opportunity fund; and (iv) tax consequences associated with potential changes in the interpretation of existing tax laws or the adoption of new laws or regulations.
Investments in Properties
In executing our investment strategy with respect to investments in properties, we have and will continue to invest in multifamily, student housing, senior living, healthcare, industrial, self-storage, hospitality, office, mixed-use, data center and solar project properties located in qualified opportunity zones throughout the United States and its territories. We anticipate our future investments in properties will include a wide range of commercial real estate located throughout the United States and its territories.
Our Manager’s investment committee will identify and pursue properties that it believes will provide us with positive cash flow characteristics, asset appreciation or both. In making investment decisions, our Manager’s investment committee will consider factors such as a property’s location, income-producing capacity, prospects for long-term appreciation as well as relevant liquidity, income and tax considerations.
There are no prohibitions in our operating agreement on the amount or percentage of assets that may be invested in a single property, and we expect, at least initially, to have a limited number of properties. Furthermore, we intend to invest in markets with favorable risk-return characteristics, and, as a result, our investments may be concentrated in a limited number of geographic regions. Over time the number and mix of properties we invest in will depend on real estate and general market conditions, other circumstances existing at the time we acquire our investments and the amount of proceeds we raise in this offering.
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We generally except to hold our investments in properties through a special purpose entity as a fee title or long-term leasehold estate but may also selectively acquire properties with joint venture partners. In addition, we may purchase properties and lease them back to the sellers. We will use our best efforts to structure any such sale-leaseback transaction so that the lease is characterized as a “true lease” and we are treated as the owner of the property for U.S. federal income tax purposes, however, the IRS could challenge such characterization. In the event that any such sale-leaseback transaction is recharacterized as a financing transaction for U.S. federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed.
Our obligation to purchase any property will generally be conditioned on delivery and verification or certification to our satisfaction of certain documents and instruments, including, without limitation:
· | environmental reports; |
· | surveys; |
· | evidence of marketable title subject to liens and encumbrances that are acceptable to our Manager; and |
· | title, property, liability, and other insurance policies. |
We will not purchase any property unless we obtain a “Phase I” environmental site assessment and are satisfied with the environmental status of the property. A Phase I environmental site assessment consists primarily of a visual survey of the building and the property in an attempt to identify areas of potential environmental concerns, visually observing neighboring properties to assess surface conditions or activities that may have an adverse environmental impact on the property, surveying of the ownership history, and contacting local governmental agency personnel and performing a regulatory agency file search in an attempt to determine any known environmental concerns in the immediate vicinity of the property. A Phase I environmental site assessment does not generally include any sampling or testing of soil, groundwater or building materials from the property.
Generally, sellers engage and pay third party brokers or finders in connection with the sale of a property. Although we do not expect to do so on a regular basis, our Manager may from time to time, in its sole discretion, engage and compensate on our behalf third party brokers or finders in connection with our acquisitions. In addition, affiliates of our Sponsor may provide legal services, real estate brokerage services, equity and debt origination services and insurance brokerage services, including, but not limited to, title insurance, property and casualty insurance and other insurance products and services to us, our Operating Companies and the subsidiaries of our Operating Companies in connection with our operations and acquisitions. Any commissions or fees to be paid to the insurance broker would be borne by the insurer.
In determining whether to purchase a particular property, we may, in accordance with customary practices, obtain an option on such property. The amount paid for an option, if any, is normally surrendered if the property is not purchased and is normally credited against the purchase price if the property is purchased. In purchasing properties, we will be subject to risks generally incident to the ownership of real estate.
Multifamily and Mixed-Use Rental Properties – We expect that a majority of our initial qualified opportunity zone investments will be multifamily and mixed-use rental property development projects. We define development projects to include a range of activities from capital improvement or major redevelopment and lease-up of existing buildings to ground up construction. Specifically, we may acquire multifamily and mixed-use rental properties that may benefit from enhancement or repositioning and development. In each case, these multifamily and mixed-use rental properties will meet our investment objectives and may include conventional multifamily rental properties, such as mid-rise, high-rise, and garden-style properties, as well as student housing and age-restricted properties (typically requiring that at least one resident of each unit be 55 or older). Location, condition, design and amenities are key characteristics for multifamily and mixed-use rental properties. The terms and conditions of any apartment lease that we enter into with our residents may vary substantially; however, we expect that a majority of our leases will be standardized leases customarily used between landlords and residents for the specific type and use of the property in the geographic area in which the property is located. In the case of apartment communities, such standardized leases generally have terms of one year.
While we are initially focused on investments located in qualified opportunity zones throughout the United States and its territories, we anticipate that future investments in multifamily and mixed-use rental property development projects may include a wide range of markets and submarkets that we deem likely to benefit from ongoing population shifts or that we believe are poised for high growth potential.
Joint Venture and Other Co-Ownership Arrangements – All of our assets are and will continue to be held by, and all of our operations are and will continue to be conducted through one or more operating companies (each an “Operating Company” and together the “Operating Companies”), either directly or indirectly through subsidiaries. To further diversify our investment portfolio, we also intend to enter into joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations with the Belpointe SP Group as well as independent developers and owners.
We anticipate acquiring an interest in properties where a member of the Belpointe SP Group will act as general partner or co-general partner, manager or co-manager, developer or co-developer, or any of the foregoing, however, we do not anticipate members of the Belpointe SP Group making cash investments in all or any of our joint venture investments. Entering into joint ventures with a member of the Belpointe SP Group, or any other affiliate of our Sponsor or Manager, would align our interests with the interests of
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our co-general partner, co-manager or co-developer for the benefit of the holders of our Class A units by leveraging of our capital resources and our co-general partner’s, co-manager’s or co-developer’s extensive industry relationships and significant acquisition, development and management expertise to: (i) achieve potentially greater returns on our invested capital; (ii) diversify our access to investment opportunities; and (iii) promote our brand and potentially increase our market share. In determining whether to participate in a particular joint venture, our Manager’s investment committee will evaluate the property that such joint venture holds or is being formed to acquire using the same investment criteria described elsewhere in this prospectus.
We currently anticipate that substantially all of our joint venture investments will be structured in one of the following formats:
· | A member of the Belpointe SP Group will act as the general partner, co-general partner, manager, co-manager or as managing member of a joint venture in which our Operating Companies, directly or indirectly through subsidiaries, will participate as limited partners or non-managing members, to acquire stabilized, cash flow generating real estate assets that do not require renovation or development, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate companies, select private equity investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. |
· | A member of the Belpointe SP Group will act as the general partner, manager or managing member of a joint venture in which our Operating Companies, directly or indirectly through subsidiaries, will participate as limited partners or non-managing members, and a member of the Belpointe SP Group will act as the developer of the projects owned by the joint venture. |
· | A member of the Belpointe SP Group will act as the general partner, manager or managing member of joint ventures in which subsidiaries of our Operating Companies will participate as limited partners or non-managing members. A member of the Belpointe SP Group will partner with local developers to create satellite offices, which will act as the developer for multiple joint venture projects with our Operating Companies, directly or indirectly through subsidiaries, within specific regions of the United States and its territories. These satellite offices will enable us to increase our presence and expertise in multiple regions without having to incur the costs and expenses associated with opening offices in each region where new investment properties are located. |
· | Our Manager or a member of the Belpointe SP Group will set up exclusive programmatic joint ventures with experienced regional developers to co-invest and co-develop in one or more projects within specific regions of the United States and its territories. A member of the Belpointe SP Group will act as the general partner, manager or managing member of the programmatic joint ventures with subsidiaries of our Operating Companies participating as limited partners or non-managing members. These programmatic joint ventures will enable us to increase our presence and expertise in multiple regions without having to incur the costs and expenses associated with opening offices in each region where new investment properties are located. |
· | Our Manager or a member of the Belpointe SP Group will enter into joint ventures with experienced local developers to co-invest and co-develop projects on a deal-by-deal basis. A member of the Belpointe SP Group will act as the general partner, manager or managing member of the joint ventures with subsidiaries of our Operating Companies participating as limited partners or non-managing members. A member of the Belpointe SP Group will act as the co-developer of projects with the joint venture partners and developers. |
· | Our Manager or a member of the Belpointe SP Group will enter into joint ventures with independent third-party experienced local developers to co-invest and co-develop on our behalf. The joint venture partners and developers will typically act as the general partner or managing member for the joint ventures with subsidiaries of our Operating Companies participating as the limited partners or non-managing members. |
Under these joint venture arrangements, members of the Belpointe SP Group, their development affiliates and co-development partners will be entitled to receive the following fees, as applicable, at the project level: (i) a development fee equal to 4.75% of total project costs, of which up to 50% shall be paid up front at the property acquisition closing; (ii) a construction management fee equal to: (a) 9% of project hard costs up to $10,000,000; (b) 8% of project hard costs from $10,000,001 to $20,000,000; (c) 7% of project hard costs from $20,000,001 to $30,000,000; (d) 6% of project hard costs from $30,000,001 to $40,000,000; (e) 5% of project hard costs from $40,000,001 to $50,000,000; and (f) 4% of project hard costs in excess of $50,000,000; (iii) a construction management oversight fee equal to 1.5% of the costs of any construction, renovation or repair projects if a member of the Belpointe SP Group or its development affiliates are not acting as the construction manager for a particular project (members of the Belpointe SP Group or their development affiliates may elect to employ personnel to oversee the construction, renovation or repair projects, and the fees and expenses incurred in connection with employing such personnel will be in addition to the construction management oversight fee and the sole expense of the applicable joint venture); and (iv) with respect to all joint venture arrangements (including, but not limited to, acquisitions of stabilized real estate assets), after return of capital, a promoted interest equal to: (a) 25% after the participating Operating Company receives an 8% internal rate of return; (b) 35% after the participating Operating Company receives a 12% internal rate of return; (c) 45% after the participating Operating Company receives a 16% internal rate of return; and (d) 55% after the participating Operating Company receives a 20% internal rate of return; with a 50/50
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catch up until each of the forgoing promoted interest levels are reached. If any individual project or investment is held for longer than five years from our initial investment date, each of the foregoing promote interest levels will be reduced by 200 basis points, with retroactive effect to the initial investment date. Any membership interests that members of the Belpointe SP Group hold in our joint venture investments in their capacity as a general partner, manager or managing member will be exempt from paying any promotes. In addition, our Sponsor, its affiliates or members of the Belpointe SP Group will be reimbursed by the joint ventures for fees and expenses, such as employee compensation, overhead expenses and other fees and expenses incurred in connection with organization and operation of the joint ventures.
In addition to directly investing in joint ventures, we may also guarantee construction performance or repayment of indebtedness by the joint ventures that we invest in. Members of the Belpointe SP Group will have the right, but not the obligation, to invest funds in any joint venture, provided that any distribution made to a member of the Belpointe SP Group in respect of its capital contribution will be distributed 100% to such member of Belpointe SP Group and will not be subject to the distribution allocations described in the preceding paragraph.
If our Manager or the joint venture general partner, manager or managing member determines that a joint venture should include third party limited partners or non-managing members, in addition to a directly or indirectly-owned subsidiary of our Operating Companies, the general partner, manager or managing member of that joint venture, including members of the Belpointe SP Group, will receive a promoted interest on capital invested by all limited partners or non-managing members, however the promoted interest on the third-party limited partners’ or non-managing members’ capital may be different from the promoted interest on our capital. Neither we nor our Operating Companies will receive any portion of the promoted interest payable by the joint venture to the general partner, manager or managing member.
Any time the existing indebtedness on a joint venture investment is proposed to be refinanced or the fair market value of an investment is determined by an independent appraiser, regardless of whether the refinancing occurs or the investment is sold for the appraised value, if the proceeds from such proposed refinancing or sale would have been sufficient to provide the limited partners or members with an internal rate of return equal to one of the thresholds described in clause (iv) of the paragraph above, then any subsequent cash distributions made by that joint venture will be distributed in accordance with the applicable split described in such clause. The general partner, manager or managing member of any joint venture agreement we enter into will typically have the right to compel us to buy out their interest, generally for its pro rata portion of the appraised value of the particular investment. If we do not have sufficient funds, borrowing capacity or other resources to acquire the interest, we may need to crystallize the general partner’s, manager’s or managing member’s interest or sell the investment owned by the joint venture even if market conditions are not advantageous for a sale at that time.
If one of our Operating Companies, or one of their subsidiaries, provide senior debt, mezzanine debt or preferred equity to any investment or joint venture and the interest rate or dividend rate, as the case may be, payable by the investment or joint venture is in excess of 7% per annum, then such Operating Company, or its subsidiary, and the general partner, manager or managing member of the joint venture (which will include members of the Belpointe SP Group) will receive 50% of the amount any interest or dividend payment in excess of 7%. In addition, all origination or exit fees or points payable by the issuer of the senior debt, mezzanine debt or preferred equity will be split equally (50/50) between such Operating Company, or its subsidiary, and members of the Belpointe SP Group.
Any material terms not otherwise disclosed in this prospectus, including any increase in the fees or promoted interest, will require approval of the Independent Committee.
Insurance
We will purchase insurance policies covering our joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations, as well as their general partners, co-general partners, managers, co-managers, developers, co-developers, construction managers, property managers, our Sponsor, our Manager or any of the foregoing or their respective affiliates. We will purchase deal level insurance policies for individual investments or blanket policies covering multiple investments and participants and their respective affiliates. We will directly pay for any such policies or allocate premiums to or among our investments and their participants and respective affiliates on an estimated basis.
Investments in Commercial Real Estate Loans
We anticipate acquiring commercial real estate loans and mortgages related to our targeted investments by directly originating loans or purchasing them from third party sellers. Although we generally prefer the benefits of direct origination, current market conditions have created situations where holders of commercial real estate debt may be in distress and therefore willing to sell at prices that compensate purchasers for the lack of control typically associated with directly structured investments. The experience of our Manager’s management team in making distressed investments greatly augments our capabilities in this area.
Our primary focus will be to originate and invest in the following types of commercial real estate loans and mortgages:
Senior Mortgage Loans. We intend to invest in senior mortgage loans that are predominantly three to five-year term loans of either fixed or floating rates providing capital for the acquisition, refinancing or repositioning of commercial real estate and development projects and that immediately provide us with current income, which we refer to as “current-pay loans.” We expect that
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our senior mortgage loans will have low loan-to-value ratios and will be primarily backed by properties located in the United States. We may selectively syndicate portions of these loans, including senior or junior participations that will effectively provide permanent financing or optimize returns which may include interest-only portions.
Senior mortgage loans provide for a higher recovery rate and lower defaults than other debt positions due to the lender’s favorable control features which at times means control of the entire capital structure. As a result of these attributes, senior mortgage loans receive favorable treatment from third party rating agencies and financing sources, which should increase the liquidity of our senior mortgage loan investments.
Subordinated Mortgage Loans, or B-Notes. We may also invest in structurally subordinated first mortgage loans and junior participations in first mortgage loans or participations in these types of assets, commonly referred to as B-Notes, secured by commercial real estate and development projects primarily located in the United States and its territories. We may create subordinated mortgage loans by creating participations of our directly originated senior mortgage loans generally through syndications of senior interests or co-origination with a senior lender or we may buy such assets directly from third party originators. Further, we expect that the re-emergence of the commercial mortgage-backed securities (“CMBS”) market will allow us to originate senior mortgage loans to commercial real estate owners with near-term liquidity issues and will allow us to contribute the senior AAA rated proceeds of the origination for inclusion in securitizations while retaining the subordinate debt at attractive returns. Due to the current credit market weakness and resulting dearth of capital available in this part of the capital structure, we believe that the opportunities to both directly originate and to buy subordinated mortgage investments from third parties on favorable terms will continue to be attractive.
Investors in subordinated mortgage loans are compensated for their increased risk from a pricing perspective but still benefit from a lien on the underlying property. Investors typically receive principal and interest payments at the same time as senior debt unless a default occurs, in which case payments are made only after any senior debt is paid in full. Investors’ rights are typically governed by participation and other agreements that, subject to certain limitations, provide investors with the ability to cure certain defaults and control certain decisions of senior debt secured by the same properties (or otherwise exercise the right to purchase the senior debt), thereby providing investors with additional downside protection and higher recoveries.
Mezzanine Loans. We may acquire or originate mezzanine loans backed by commercial real estate and development projects that fit our investment objectives and strategy. Mezzanine loans are secured by one or more direct or indirect ownership interests in an entity that directly or indirectly owns commercial real estate. Mezzanine loans may be short or long term loans of either fixed or floating rates that are predominantly current-pay loans (although a portion of the interest may accrue if cash flow generated by the underlying real estate is insufficient to meet current interest payments) and may provide for participation in the value or cash flow appreciation of the underlying real estate in the form of an equity kicker. We may hold mezzanine loans directly or we may hold a participation or a sub-participation in a mezzanine loan. We believe that opportunities to both directly originate and to buy mezzanine loans from third parties on favorable terms will continue to be attractive. In the current market mezzanine loans play an indispensable role in bridging the gap between senior debt and borrower equity in a refinance or acquisition. Accordingly, we expect to achieve favorable terms—both economic and structural—on our mezzanine loan investments.
Investors in mezzanine loans are compensated for their increased risk from a pricing perspective but still benefit from the right to foreclose on the underlying property, often more efficiently than senior debt. Investors’ rights are typically governed by intercreditor or interlender agreements that, subject to certain limitations, provide investors with the right to cure certain defaults and control certain decisions of senior debt secured by the same properties (or otherwise exercise the right to purchase the senior debt), thereby providing investors with additional downside protection and higher recoveries. Mezzanine loan investments still involve a higher degree of risk relative to senior debt. If investors are unable to cure senior debt defaults the investments may become unsecured as a result of foreclosure by the senior debt. Furthermore, in the event of a bankruptcy of the entity pledging its ownership interests as security, investors may not have full recourse to the assets of the pledging entity, or the assets of the entity may not be sufficient to satisfy the mezzanine loan. If a borrower defaults on mezzanine loans or debt senior to mezzanine loans, or in the event of a borrower bankruptcy, mezzanine loans will be satisfied only after senior debt has been repaid.
Equity Participations or Equity Kickers. Subject to our ability to satisfy the requirements in connection with our intended qualification as a publicly traded partnership and qualified opportunity fund, we may elect to receive equity participation opportunities in connection with our commercial real estate loans and mortgages. Equity participations or equity kickers are typically payable in the form of additional interest, exit fees, a percentage of sharing in refinance or resale proceeds or options or purchase warrants in the borrower. Equity participation can also take the form of a conversion feature, allowing us to convert all or a portion of our loan or preferred equity investment into equity in the borrower at a negotiated premium. We may generate additional revenue from these equity participations as a result of excess cash flows being distributed or as appreciated properties are sold or refinanced.
Investments in Debt and Equity Securities Issued by Other Real Estate-Related Companies
Subject to our ability to satisfy the requirements in connection with our intended qualification as a publicly traded partnership and qualified opportunity fund, we also may acquire equity interests in entities that own, operate or control commercial real property, equity securities issued by real-estate related public companies and debt securities, such as senior unsecured debt and investment grade, non-investment grade or unrated structured products.
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Other Possible Investments
Although our initial investments consist of and we anticipate that they will continue to consist of qualified opportunity zone investments, we may make other investments, for example in alternative commercial properties such as data centers and solar projects. In fact, we may invest in any type of commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as make private equity acquisitions and investment, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses that we believe to be in our best interest, subject to certain limitations set forth in our conflicts of interest policy related to investments involving our Manager, our Sponsor and their affiliates. See “Conflicts of Interest.”
Lack of Allocation Requirements
There are no restrictions or limitations on the percentage of our investments that must be in a given geographic area, of a particular type of real estate, or acquired utilizing a particular method of financing. Our Manager, subject to Board oversight, may change our targeted investments and investment strategy and guidelines without specific restrictions or limitations related to geographic location, diversification, or otherwise.
Investment Process
We, our Operating Company and our Manager have entered into a management agreement pursuant to which our Manager’s investment committee has discretion and authority to execute acquisitions and dispositions of investments (including the reinvestment of capital basis and gains) in commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses on our behalf, provided such investments are consistent with our investment objectives and strategy and our investment guidelines. Our Manager’s investment committee will also periodically review our portfolio of assets and investments, our investment objectives and strategy and our investment guidelines to determine whether they remain in the best interests of our Members and may recommend changes to our Board as it deems appropriate.
Our Manager will focus on sourcing, analyzing and managing our investments and making decisions related to the acquisition, management, financing and disposition of our portfolio of assets in accordance with our investment objectives and strategy and investment guidelines. In selecting investments, our Manager’s underwriting team will follow a tightly controlled and managed process to examine all elements of a potential investment, including, with respect to real property:
· | location, prospects for appreciation and other market factors that may influence valuations; |
· | a fundamental analysis of the property, including tenant rosters, lease terms, zoning, operating costs and its overall competitive position in its market; |
· | real estate and market conditions affecting the property; |
· | income-producing capacity, including cash flow in place and projected cash flow over the anticipated hold period; |
· | appropriateness of estimated costs and timing associated with capital improvements; |
· | third-party reports, including property condition, title, zoning and environmental reports; |
· | potential for principal loss and downside risk; |
· | physical inspections of the property and analysis of markets; and |
· | the overall investment structure, including tax and liquidity considerations, and rights in the transaction documentation. |
If a potential investment meets the criteria of our Manager’s underwriting team, our Manager will review the proposed transaction structure, including, with respect to joint ventures, distribution and waterfall criteria, governance and control rights, buy-sell provisions, crystallization rights and recourse provisions. Our Manager will evaluate our position within the overall capital structure and our rights in relation to potential joint venture partners. Our Manager will analyze each potential investment’s risk-return profile and review financing sources, if applicable, to ensure that the investment fits within the parameters of financing facilities and to ensure performance of the investment. Only those potential investments meeting our investment guidelines will be accepted for inclusion in our portfolio. In addition, in an effort to keep investments in compliance with our standards, our Manager’s underwriting team will remain involved throughout the investment life cycle and will consult with the other internal professionals responsible for the investment as needed.
We will not enter into any transaction in which our officers, directors, Manager, Sponsor or any of their respective affiliates has a prior interest without a determination by our Independent Committee that the terms of the transaction, including the price, are fair and reasonable.
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Borrowing Policy
We intend to employ leverage in order to provide more funds available for investment. Leverage will allow us to make more investments than would otherwise be possible, resulting in a broader portfolio. We believe that careful use of conservatively structured leverage will help us to achieve our diversification goals and potentially enhance the returns on our investments. We also believe that our Sponsor’s ability to obtain both competitive financings and its relationships with top tier financial institutions will allow our Manager to access and successfully employ competitively priced borrowing.
Our targeted aggregate property-level leverage, excluding any debt at the Company level or on assets under development or redevelopment, after we have acquired a substantial portfolio of stabilized commercial real estate, is between 50-70% of the greater of the cost (before deducting depreciation or other non-cash reserves) or the fair market value of our assets. During the period when we are acquiring, developing and redeveloping our investments, we may employ greater leverage on individual assets. An example of property-level leverage is a mortgage loan secured by an individual property or portfolio of properties incurred or assumed in connection with our acquisition of such property or portfolio of properties. An example of debt at the Company level is a line of credit obtained by us or our Operating Companies.
Our Manager may from time to time modify our leverage policy in its discretion in light of then-current economic conditions, relative costs of debt and equity capital, market values of our assets, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. There is no limit on the amount we may borrow with respect to any individual property or portfolio.
Operating Policies
Hedging Activities. We may use derivative financial instruments to hedge our exposure to changes in interest rates on loans secured by our assets and investments. Derivative financial instruments may include interest rate swaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives and other instruments. Subject to maintaining our intended qualification as a publicly traded partnership and qualified opportunity fund and to compliance with any applicable exemption from being regulated as a commodity pool operator, we may use these instruments to hedge as much of the interest rate risk as we determine is in the best interest of the holders of our Class A units given the cost of such hedges. Our Manager makes decisions regarding the use of derivative financial instruments based on facts and circumstances existing at the time we enter into a transaction, as a result, actual hedging activities may differ from our currently anticipated strategy. In addition, we may elect to bear a level of interest rate risk that could otherwise be hedged if our Manager believes, based on all relevant facts and circumstances, that bearing such risk is advisable or economically unavoidable.
Equity Capital Policies. Under our operating agreement, we have authority to issue an unlimited number of additional units and options, rights, warrants and appreciation rights relating to such units. In particular, our Board is authorized to provide for the issuance of an unlimited amount of one or more classes or series of units and to fix the number of units, the relative powers, preferences and rights, and the qualifications, limitations or restrictions applicable to each class or series thereof by resolution authorizing the issuance of such class or series, without member approval. We may elect to issue and sell additional units in this or future private or public offerings or issue units to our Manager or its affiliates, including our Sponsor, in payment of outstanding fees and expenses.
Disposition Policies
The period that we will hold our investments will vary depending on a number of factors, including the type of investment, interest rates and economic and market conditions. Our Manager’s investment committee will develop a well-defined exit strategy for each investment we make and will periodically perform a hold-sell analysis to determine the optimal holding period for generating strong returns. As each of our investments reach what we believe to be its maximum value we will consider disposing of the investment and may do so for the purpose of either distributing the net sale proceeds to holders of our Class A units or investing the proceeds in other investments that we believe may produce a higher overall future return. However, we may sell any or all of our investments before or after their anticipated holding period if, in the judgment of our Manager’s investment committee, selling the investment is in our best interest.
The determination of when a particular investment should be sold or otherwise disposed of will be made after consideration of all relevant factors, including prevailing and projected economic and market conditions, whether the value of the investment is anticipated to change substantially, whether we could apply the proceeds from the sale to make other investments consistent with our investment objectives and strategy, whether disposition of the investment would allow us to increase cash flow, and whether the sale of the investment would impact our intended qualification as a publicly traded partnership and qualified opportunity fund.
Investment Company Act Considerations
We intend to engage primarily in the business of investing in real estate and to conduct our operations such that neither we nor any of our subsidiaries are required to register as an “investment company” under the Investment Company Act of 1940, as amended (the “Investment Company Act”).
Under Section 3(a)(1)(A) of the Investment Company Act a company is an investment company if it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities. A company
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is an investment company under Section 3(a)(1)(C) of the Investment Company Act, if it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns, or proposes to acquire, “investment securities” having a value exceeding 40% of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis (the “40% Test”). The Investment Company Act defines investment securities generally as all securities except U.S. government securities and securities issued by “majority-owned subsidiaries” which are not themselves investment companies and are not relying on the exceptions from the definition of investment company provided by Section 3(c)(1) or 3(c)(7) of the Investment Company Act. The Investment Company Act further defines a majority-owned subsidiary of a person as a company 50% or more of the outstanding “voting securities” of which are owned by such person, or by another company which is a majority-owned subsidiary of such person, and voting securities as any security presently entitling the owner or holder thereof to vote for the election of directors of a company.
All of our assets are and will continue to be held by, and all of our operations are and will continue to be conducted through one or more operating companies (each an “Operating Company” and together the “Operating Companies”), either directly or indirectly through subsidiaries. To further diversify our investment portfolio, we also intend to enter into joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations with affiliates of our Sponsor and Manager, such as Belpointe SP, LLC, or its affiliates (collectively, the “Belpointe SP Group”), as well as independent developers and owners. We will frequently acquire an interest in a property where a member of the Belpointe SP Group will act as general partner or co-general partner, manager or co-manager, developer or co-developer, or any of the foregoing. See “Investment Objectives and Strategy—Joint Venture and Other Co-Ownership Arrangements” for additional details regarding our joint ventures, partnerships, co-tenancies and other co-ownership arrangements.
Neither we nor our Operating Companies nor any of the majority-owned subsidiaries of our Operating Companies will engage primarily or be held out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, our initial investments consist of and are expected to continue to consist of commercial properties located in qualified opportunity zones, and future investments are expected to include a wide range of commercial real estate properties located throughout the United States and its territories, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. Accordingly, we believe that neither we nor our Operating Companies nor any of the majority-owned subsidiaries of our Operating Companies will be considered investment companies under Section 3(a)(1)(A) of the Investment Company Act.
Further, we intend to hold our assets and conduct our operations such that we, our Operating Companies and most, if not all, of the majority-owned subsidiaries of our Operating Companies comply with the 40% Test and we will continuously monitor our holdings to confirm such compliance. We do not expect most, if any, of the majority-owned subsidiaries of our Operating Companies to rely on the exceptions provided by either Section 3(c)(1) or 3(c)(7) of the Investment Company Act. As such, interests in these subsidiaries (which are expected to constitute a substantial majority of our assets) generally will not constitute “investment securities.” Accordingly, we believe that neither we nor our Operating Companies nor most, if not all, of the majority-owned subsidiaries of our Operating Companies will be considered investment companies under Section 3(a)(1)(C) of the Investment Company Act.
We will treat entities in which our Operating Companies owns at least 50% of the outstanding voting securities as majority-owned subsidiaries of our Operating Companies for purposes of the 40% Test. If, however, the SEC were to disagree with our treatment of one or more entities as majority-owned subsidiaries of our Operating Companies, we would need to adjust our strategy and our assets in order to continue to comply with the 40% Test. Any such adjustment in our strategy could have a material adverse effect on us.
If any of the majority-owned subsidiaries of our Operating Companies rely on the exceptions provided by either Section 3(c)(1) or 3(c)(7) of the Investment Company Act, we intend to limit the amount of assets held by such subsidiaries to the extent necessary to ensure that we, our Operating Companies and our Operating Companies’ other subsidiaries remain exempt from the Investment Company Act. This may require us to forego opportunities to acquire traded securities or certain other assets that we would otherwise want to acquire or to sell such assets when we would otherwise want to retain them.
If we, our Operating Companies or any of the majority-owned subsidiaries of our Operating Companies were to ever inadvertently fall within the definition of an “investment company,” we may rely on the exception provided by Section 3(c)(5)(C) of the Investment Company Act, which is available for entities primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate. Through a series of no-action letters the SEC has taken the position that this exception may be available if: at least 55% of an entity’s assets consist of “mortgages and other liens on and interests in real estate” (“qualifying interests”) and the remaining 45% of its assets consist primarily of “real estate-type interests;” with at least 80% of the entity’s total assets consisting of qualifying interests and real estate-type interests and no more than 20% of its total assets consisting of assets that have no relationship to real estate (“miscellaneous assets”) (taken together, the “Asset Composition Test”).
For purposes of relying on the Section 3(c)(5)(C) exception, we will classify our assets as qualifying interests, real estate-type interests or miscellaneous interests based on the interpretive positions taken by the SEC in this series of no-action letters, however, these no-action letters have been issued over a period of more than twenty years and are based on facts and circumstances that may substantially differ from the facts and circumstances that we face. Unless we ourselves seek no-action relief, there can be no assurance that the SEC will concur with how we classify our assets. In addition, the SEC may, in the future, issue further guidance that could
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require us to reclassify our assets for purposes of the Investment Company Act. If we are required to reclassify our assets, we may no longer be in compliance with the exception provided by Section 3(c)(5)(C) of the Investment Company Act.
For purposes of determining whether we satisfy the Asset Composition Test, we will rely on the interpretive positions taken by the SEC in its no-action letters and other guidance, we intend to classify fee interests in real property held by our Operating Companies or the majority-owned subsidiaries of our Operating Companies, as qualifying assets. We intend to classify investments in any joint ventures or other co-ownership arrangements that invest in qualifying assets, such as real property, as qualifying assets, but only if we are active in the management and operation of the joint venture or other co-ownership arrangement and have the right to approve major decisions; otherwise, we intend to classify such investments as real estate-type interests. We will not participate in joint ventures or other co-ownership arrangements to the extent that we believe such participation would potentially subject us to registration under the Investment Company Act.
We also intend to treat as qualifying assets senior mortgage loans and certain mezzanine loans that satisfy the interpretive positions taken by the SEC in its no-action letters and other guidance, as well as other assets that the SEC in various no-action letters and other guidance has determined are the functional equivalent of senior mortgage loans. We will treat as real estate-related assets mezzanine loans that do not satisfy the conditions set forth by the SEC in its no-action letters and other guidance, and debt and equity securities of companies primarily engaged in real estate businesses. Unless a relevant SEC no-action letter or other guidance applies, we expect to treat preferred equity interests as real estate-related assets.
Maintaining our exclusion from registration under the Investment Company Act will limit our ability to make certain investments. In addition, although we intend to continuously monitor our holdings, there can be no assurance that we, our Operating Companies or any of the subsidiaries of our Operating Companies will be able to maintain our exclusion from registration. A change in the value of any of our assets could negatively affect our ability to maintain our exclusion from registration and we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise want 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 assets that we would otherwise want to acquire and would be important to our investment strategy.
To the extent that the SEC provides more specific guidance regarding any of the matters bearing upon the definition of investment company and the exclusions from that definition, we may be required to adjust our investment strategy accordingly. For example, on August 31, 2011, the SEC issued a concept release and request for comments regarding the Section 3(c)(5)(C) exclusion (Release No. IC-29778) in which it contemplated the possibility of issuing new rules or providing new interpretations of the exclusion that might, among other things, define the phrase “liens on and other interests in real estate” or consider sources of income in determining a company’s “primary business.” Any additional guidance from the SEC could provide additional flexibility to us, or it could further inhibit our ability to pursue the investment strategies we have chosen.
If we are required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), and portfolio composition, including disclosure requirements and restrictions with respect to diversification and industry concentration, and other matters. Compliance with the Investment Company Act would, accordingly, limit our ability to make certain investments and require us to significantly restructure our business plan. If we were required to register as an investment company but failed to do so, we could be prohibited from engaging in our business, and criminal and civil actions could be brought against us. See “Risk Factors—Risks Related to This Offering and our Organizational Structure” for a discussion of the risks that we would face if we were required to register as an investment company under the Investment Company Act.
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Some statements in this prospectus, including statements in the following discussion and analysis of our financial condition and results of operations, constitute forward-looking statements. Please refer to the section entitled “Statements Regarding Forward-Looking Information.”
Overview
We are a Delaware limited liability company formed to invest in and manage a portfolio consisting primarily of commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, and private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. We expect to use substantially all of the net proceeds from this offering (after paying or reimbursing our Manager and its affiliates for organization and offering expenses) to identify, acquire, develop or redevelop and manage a diversified portfolio of commercial real estate properties in accordance with our investment objectives and strategy.
We are focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within qualified opportunity zones. At least 90% of our assets consist of qualified opportunity zone property. We will qualify as a qualified opportunity fund beginning with our taxable year ended December 31, 2020. Because we are a qualified opportunity fund, certain of our investors are eligible for favorable capital gains tax treatment on their investments. We also anticipate identifying, acquiring, developing or redeveloping and managing a wide range of commercial real estate properties located throughout the United States and its territories, including, but not limited to, real estate-related assets, such as commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as making private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, with the goal of increasing distributions and capital appreciation.
Our Manager manages our day-to-day operations. A team of investment and asset management professionals, acting through our Manager, makes all decisions regarding the selection, negotiation, financing and disposition of our investments, subject to the limitations in our operating agreement. Our Manager also provides asset management, marketing, investor relations and other administrative services on our behalf with the goal of maximizing our operating cash flow and preserving our invested capital.
We initially intend to operate in a manner that will allow us to qualify as a partnership for U.S. federal income tax purposes. If our Manager determines that it is no longer in our best interests to continue as a partnership for U.S. federal income tax purposes, our Manager may elect to treat us as an association or as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state) income tax purposes. If we elect to be taxable as a corporation for U.S. federal (and applicable state) income tax purposes, we may also elect to qualify and be taxed as a real estate investment trust, or REIT.
COVID-19
The recent outbreak of COVID-19 and efforts by governmental and other authorities to contain the spread of the virus through lockdowns of cities, business closures, restrictions on travel and emergency quarantines, among others, and responses by businesses and individuals to reduce the risk of exposure to infection, including reduced travel, cancellation of meetings and events, and implementation of work-at-home policies, among others, have resulted in significant disruptions to global economic and market conditions and triggered a period of global economic slowdown.
The COVID-19 outbreak presents material uncertainty and risk with respect to our future performance and future financial results, such as the potential to negatively impact our costs of operations, the value of any investments we make and laws, regulations and governmental and regulatory policies applicable to us. Given the evolving nature of the COVID-19 outbreak, the extent to which it may impact our future performance and future financial results will depend on future developments, including the duration and severity of the pandemic, the uneven impact on certain industries, advances in testing, treatment, vaccination and prevention, the macroeconomic impact of government measures to contain the spread of the virus and related government stimulus measures, among others, all of which remain highly uncertain at this time and as a result we are unable to estimate the impact that the COVID-19 outbreak may have on our future financial results at this time. Our Manager continuously reviews our investment and financing strategies for optimization and to reduce our risk in the face of the rapid development and fluidity of this situation.
Properties
1700 Main Street – Sarasota, Florida
On October 30, 2020, BPOZ 1700 Main, LLC, a Delaware limited liability company, and BPOZ 1718 Main, LLC, a Delaware limited liability company, each an indirect majority-owned subsidiary of our Operating Company, Belpointe PREP OC, LLC, a Delaware limited liability company (“Belpointe PREP OC”), completed the acquisition of a 1.3-acre site, consisting of a former gas station, a three-story office building with parking lot with a one-story retail building, located in Sarasota, Florida (“1700 Main”), for an aggregate purchase price of approximately $6,909,000, inclusive of transaction costs.
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We funded the acquisition costs with proceeds of a $35,000,000 loan from Belpointe REIT, Inc., a Maryland corporation (“Belpointe REIT”), an affiliate of our Manager and Sponsor (the “First Belpointe REIT Loan”) and anticipate funding the redevelopment costs with a mix of equity investments by joint venture partners and construction loans. The First Belpointe REIT Loan is evidenced by a secured promissory note (the “First Secured Note”) which bears interest at a rate of 0.14%, is due and payable on June 30, 2021 and is secured by all of our assets.
We currently anticipate that 1700 Main will be redeveloped into a 168-apartment home community consisting of one-bedroom, two-bedroom and three-bedroom apartments, with approximately 7,000 square feet of retail space located on the first two levels. We anticipate that 1700 Main will consist of a 10-story podium style building with 3-story, 360-space garage, the building will have a clubroom, fitness center, courtyards with a swimming pool and rooftop terraces as well as a leasing office.
U.S. News & World Report ranks Sarasota as the 18th best place to live in the United States for 2019 and the 2nd best place to retire. Sarasota was included in Forbes annual list of America’s fastest-growing cities for 2018 and is headquarters to a diverse group of large companies, such as Boar’s Head Provisions, CAE Healthcare, PGT Innovations, Tervis, Sun Hydraulics and Voalte. The Sarasota area also has a large number of universities including USF, Florida State’s College of Medicine campus, Ringling College, SOF, Keiser College and New College of Florida. According to JLL, the housing demand for the Northport-Sarasota-Bradenton MSA is 5,700 new units between 2018 – 2021, but only 2,175 housing units will be delivered in that timeframe causing a short fall of 3,525 units by the completion of construction.
1700 Main is located within the historic downtown Sarasota area along Main Street, has a walkable score of 96 according to JLL, and it is located in a high foot traffic area next to a number of popular retail establishments.
1701-1710 Ringling Boulevard – Sarasota, Florida
On October 30, 2020, BPOZ 1701 Ringling Main, LLC, a Delaware limited liability company and BPOZ 1710 Ringling Main, LLC, a Delaware limited liability company, each an indirect majority -owned subsidiary of Belpointe PREP OC, completed the acquisition of a 1.62-acre site, consisting of a six-story office building with parking lot, located in Sarasota, Florida (“1701-1710 Ringling”), for an aggregate purchase price of approximately $6,735,000, inclusive of transaction costs.
We funded the acquisition costs with proceeds from the First Belpointe REIT Loan and anticipate funding the redevelopment costs with a mix of equity investments by joint venture partners and construction loans.
We currently anticipate that 1701-1710 Ringling will be renovated into a fully functioning office building, consisting of approximately 80,000 square feet of rentable space and approximately 128 parking spaces, with an existing tenant leasing back approximately 42,000 square feet for 20 years with several lease extensions.
U.S. News & World Report ranks Sarasota as the 18th best place to live in the United States for 2019 and the 2nd best place to retire. Sarasota was included in Forbes annual list of America’s fastest-growing cities for 2018. Prior to COVID-19, the vacancy rate in the Sarasota office market was well below the historical long-term average and annual rent growth rates were increasing year-over-year. Additionally, Sarasota was essentially at full employment in early 2020, with an extremely tight labor market and an unemployment rate far below the national average. Following the COVID-19 outbreak the overall market has experienced a relative cooldown with demand weakening and softening office-using employment, nevertheless asking rents in the Sarasota market continue to grow at more than twice the historical average, vacancies remain consistently tight by historical norms, and there is limited construction underway, lessening the likelihood of supply side pressure on rents going forward. We believe the Sarasota office market will bounce back to stabilization over the next two years, as Sarasota has historically been an attractive place to live and work.
1701-1710 Ringling is located within the historic downtown Sarasota area along Ringling Boulevard, a major two-way arterial road, with good access to the surrounding Sarasota market, as well as fairly good access to Interstate 75 and therefore the greater Tampa-St Petersburgh area. 1701-1710 Ringling has a walkable score of 89 according to JLL, and it is located in a high foot traffic area near to a number of popular restaurants and retail establishments. Overall, the neighborhood is in the stable to growth trend stage of its life cycle.
902-1020 First Avenue North – St. Petersburg, Florida
On October 30, 2020, BPOZ 1000 First, LLC, a Delaware limited liability company, an indirect majority-owned subsidiary of Belpointe PREP OC, completed the acquisition of several parcels, comprising 1.6-acres of land, located in St. Petersburg, Florida (“902-1020 First”), for a purchase price of approximately $12,060,000, inclusive of transaction costs.
On March 21, 2021, BPOZ 900 First, LLC, a Delaware limited liability company, an indirect majority-owned subsidiary of Belpointe PREP OC, completed the acquisition of an additional parcel, located in St. Petersburg, Florida (“900 First”), for a purchase price of approximately $2,405,000, inclusive of transaction costs.
We funded the land acquisition costs with proceeds from the First Belpointe REIT Loan and anticipate funding the development costs with a mix of equity investments by joint venture partners and land and construction loans.
We currently anticipate that 902-1020 First will be developed into a high-rise apartment featuring approximately 220-apartment homes consisting of one-bedroom, two-bedroom and three-bedroom apartments, with approximately 26,000 square feet of
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retail space located on the first level and a four-level parking garage. We anticipate that 902-1020 First will consist of two high-rise buildings of 14-stories and 11-stories, respectively, and will have a clubroom, fitness center, courtyard with a swimming pool, shared working space and a game room as well as a leasing office. 902-1020 First is located in the downtown district of St. Petersburg, one mile west of Tampa Bay and the downtown waterfront district and features direct access to downtown amenities such as public parking, restaurants, museums and cultural sites.
We currently anticipate that 900 First will remain a two-tenant retail building and that we will take the additional entitlements and add it to 902-1020 First.
In 2017 St. Petersburg was ranked the number one best place to live by Southern Living Magazine, and in 2019 the Tampa-St. Petersburg-Clearwater MSA was ranked among the best in the nation amid 515 cities rated by personal finance site WalletHub. St. Petersburg is the 5th largest city in Florida and the 76th largest city in the United States and is currently growing at a rate of approximately 1.26% annually. Downtown St. Petersburg is one of the fastest growing neighborhoods in the MSA and has experienced increased demand in recent years because of proximity to the water, sporting events, shopping, bars and restaurants in the neighborhood. The Tampa-St. Petersburg-Clearwater MSA is headquarters to a diverse group of companies, including more than 20 corporate headquarters, seven of which are Fortune 1,000 companies. The St. Petersburg area also includes a branch of St. Petersburg College and the University of South Florida St. Petersburg and is home to two professional sports teams, the Tampa Bay Rays and the Tampa Bay Rowdies.
1900 Fruitville Road – Sarasota Florida
On November 20, 2020, Belpointe PREP Acquisitions, LLC, a Connecticut limited liability company (“PREP Acquisitions”), and our wholly owned subsidiary, entered into a purchase and sale agreement for the acquisition of a 1.205-acre site, consisting of a fully leased retail building and parking lot located in Sarasota, Florida (“1900 Fruitville Road”), for an aggregate purchase price of approximately $4,650,000, exclusive of transaction costs. On March 19, 2021, PREP Acquisition assigned the purchase and sale agreement for 1900 Fruitville Road to BPOZ 1900 Fruitville, LLC, a Delaware limited liability company, an indirect majority-owned subsidiary of Belpointe PREP OC.
We funded pre-acquisition costs and the purchase price deposit with proceeds from the First Belpointe REIT Loan and anticipate funding entitlements and acquisition costs with proceeds from the Belpointe REIT Loans. We currently anticipate closing on 1900 Fruitville Road in the second quarter of 2021.
900 8th Avenue South – Nashville, Tennessee
On February 24, 2021, 900 Eighth, LP, a Tennessee limited partnership, and indirect majority-owned subsidiary of our Operating Company, Belpointe PREP TN OC, LLC, a Delaware limited liability company (“Belpointe PREP TN OC”), entered into an agreement for the acquisition of a 3.17-acre land assemblage, consisting of a few small buildings, parking lots and open lots, located in Nashville, Tennessee (together, “900 8th Avenue South”), for an aggregate purchase price of approximately $20,000,000, inclusive of transaction costs.
We funded pre-acquisition costs with proceeds from the First Belpointe REIT Loan and anticipate funding entitlements and acquisition costs with a mix of equity investments by a joint venture partner and proceeds from the Belpointe REIT Loans.
We currently anticipate that 900 8th Avenue South will be redeveloped into an approximately 260-apartment home community consisting of one-bedroom, two-bedroom and three-bedroom apartments, with approximately 17,000 square feet of retail space located on the first level. We anticipate that 900 8th Avenue South will consist of an 8-story building with a 2-story approximately 500-space garage, the building will have a fitness center, courtyard with a swimming pool and rooftop terraces as well as a leasing office.
A July 2020 report published by real estate investing platform Roofstock found the Nashville-Davidson-Murfreesboro-Franklin metropolitan statistical area to be the 10th most affordable and fastest growing metro in the United States. Nashville is headquarters to a diverse group of Fortune 1000 companies, such as HCA Healthcare, Dollar General, Community Healthy Systems, Delek, Tractor Supply, Brookdale Senior Living, Acadia Healthcare, Cracker Barrel, Louisiana-Pacific and Genesco. It is also home to a number of colleges and universities, such as Tennessee State University, Vanderbilt University, Belmont University, Fisk University, Trevecca Nazarene University and Lipscomb University. Nashville is the largest apartment market in the state of Tennessee, and during the previous 10 years the Nashville apartment market has had an over 93% occupancy rate. While COVID-19 is disrupting economic growth trends in Nashville, the metro has seen job growth return over the past several months coinciding with the phased reopening of the local economy. Additionally, given the strength of Nashville’s economy and multifamily market prior to the pandemic, we believe the metro will recover at a faster rate than the nation as a whole.
900 8th Avenue South is located in central Nashville at the north end of the 8th Avenue south district, has a walkable score of 80 according to Redfin, and it is located within walking distance of a number of popular retail, dining and nightlife establishments.
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Results of Operations
Revenue
We commenced operations on October 28, 2020. For the period ended December 31, 2020, revenue totaled approximately $101,000, primarily from lease revenues.
Expenses
Property Expenses
For the period ended December 31, 2020, property expenses totaled approximately $48,000, and consisted of property expenses, real estate taxes, utilities and insurance expenses incurred in relation to our acquired Sarasota investments.
General and Administrative
For the period ended December 31, 2020, general and administrative expenses totaled approximately $113,000 and was primarily comprised of employee cost sharing expenses (pursuant to the management agreement with our Manager) and professional fees of approximately $77,000 and $36,000, respectively. Our professional fees are primarily comprised of accounting and legal fees.
Depreciation Expense
For the period ended December 31, 2020, depreciation expense totaled approximately $43,000 and was related to depreciation incurred on our acquired Sarasota investments.
Interest Expense
For the year period December 31, 2020, interest expense on the first secured note totaled approximately $9,000.
Cash Flows
On February 11, 2020, we were capitalized with a $10,000 investment by our Sponsor. For the period ended December 31, 2020, we have financed our operations primarily through proceeds from the First Belpointe REIT Loan. For the period ended December 31, 2020, we did not declare or pay any distributions.
Off-Balance Sheet Arrangements
We currently have no off-balance sheet arrangements that are reasonably likely to have a material current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Liquidity and Capital Resources
We are offering on a continuous basis up to $750,000,000 of our Class A units in this primary offering at an initial price equal to $100.00 per unit. We intend to offer our Class A units directly to investors and not through any underwriters, dealer-managers or other agents who would be paid commissions by us or any of our affiliates. In the future, however, we may engage the services of one or more underwriters, dealer-managers or other agents to participate in this offering. The amount of selling commissions or dealer-manager fees that we or our investors would pay to such underwriters, dealer-managers or other agents will depend on the terms of their engagement. This is a “best efforts” offering. A “best efforts” offering means that we are only required to use our best efforts to sell our Class A units. When securities are offered to the public on a “best efforts” basis there is no firm commitment or obligation by any underwriter, dealer-manager or other person to purchase any of the securities offered. Therefore, we cannot guarantee that any minimum number of our Class A units will be sold. Furthermore, there is no minimum amount of Class A units that we must sell in this offering prior to conducing an initial closing. We plan to undertake closings on a rolling basis on the last business day of each calendar quarter, we may, however, in our sole discretion, choose to conduct more frequent closings. Upon closings we will immediately use the net offering proceeds for the purposes described in this prospectus.
We are dependent on the net proceeds from this offering to fund our operations. We expect to obtain the liquidity and capital resources required to pay our offering and operating fees and expenses, fund our investments, make distributions to holders of our units and pay interest on any outstanding indebtedness that we incur, from the proceeds of this offering and any future offerings we may conduct, from the advancement of reimbursable expenses by our Manager and its affiliates, including our Sponsor, from secured or unsecured financings from banks and other lenders and from any undistributed funds from our operations.
In addition to making investments in accordance with our investment objectives and strategy, we expect our offering and operating fees and expenses will include, among other things, the management fee that we will pay to our Manager, legal, audit and valuation fees and expenses, federal and state filing fees, printing expenses, administrative fees, transfer agent fees, marketing and distribution fees, and expenses related to acquiring, financing, appraising and managing our commercial real estate properties. We do not have any office or personnel expenses as we do not have any employees. We will reimburse our Manager and its affiliates, including our Sponsor, for certain out-of-pocket expenses incurred in connection with our organization and operations. Fees payable and expenses reimbursable to our Manager and its affiliates, including our Sponsor, may be paid, at the election of the recipient, in
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cash, by issuance of our Class A units at the then-current NAV, or through some combination of the foregoing. See “Management Compensation.”
If we are unable to raise substantial offering proceeds, we will make fewer investments resulting in less diversification in terms of the type, number and size of investments we make and the value of an investment in us will fluctuate with the performance of the specific assets we acquire. Further, we will have certain fixed operating expenses, including certain expenses associated with our intended qualification as a publicly traded partnership, regardless of whether we are able to raise substantial funds in this offering. Our inability to raise substantial funds would increase our fixed operating expenses as a percentage of gross income, reducing our net income and limiting our ability to make investments and distributions.
Our Manager and its affiliates, including our Sponsor, have funded our liquidity and capital resources on a short-term basis by advancing us substantially all of our organization and offering expenses which we will reimburse to our Manager and its affiliates, including our Sponsor, pursuant to the terms of the management agreement and shared services agreement. As of December 31, 2020, our Manager and its affiliates, including our Sponsor, have incurred organization and offering expenses of approximately $320,000 on our behalf. We expect our Manager and its affiliates, including our Sponsor, to continue to fund our short-term liquidity and capital resource needs through advancement of reimbursable expenses until such time as we have sufficient capital resources to pay such expenses on our own behalf. See “Management Compensation.”
Concurrently with this offering, we, through our wholly owned subsidiary, BREIT Merger, LLC a Delaware limited liability company (“BREIT Merger”), are conducting a tender offer pursuant to which we are offering to exchange 1.05 of our Class A units for each outstanding share of common stock of Belpointe REIT, Inc., a Maryland corporation (“Belpointe REIT”), and affiliate of our Manager and Sponsor, that is validly tendered in the offer. The purpose of the offer is for the Company to acquire control of, and ultimately, the entire equity interest in, Belpointe REIT while at the same time preserving the status of Belpointe REIT’s investments as qualified opportunity zone investments. Promptly after consummation of the offer, we will complete a sale of Belpointe REIT’s qualified opportunity zone investments for purposes of preserving their status as qualified opportunity zone investments and thereafter convert Belpointe REIT from a Maryland corporation into a Maryland limited liability company (as converted “BREIT LLC”) and merger BREIT LLC with and into BREIT Merger, with BREIT Merger surviving (collectively, the “Belpointe REIT Transaction”). In the merger each BREIT LLC unit will convert into the right to receive 1.05 Class A units of Belpointe PREP.
We funded the acquisition of our three qualified opportunity zone investments with proceeds of a $35,000,000 loan from Belpointe REIT (the “First Belpointe REIT Loan”). The First Belpointe REIT Loan is evidenced by a secured promissory note (the “First Secured Note”) which bears interest at a rate of 0.14%, is due and payable on June 30, 2021 (the “Maturity Date”) and is secured by all of our assets (the “Collateral”). On February 16, 2021, we entered into a second loan transaction with Belpointe REIT (the “Second Belpointe REIT Loan” and, together with the First Belpointe REIT Loan, the “Belpointe REIT Loans”) whereby Belpointe REIT advanced us an additional $24,000,000. The Second Belpointe REIT Loan is evidenced by a secured promissory note (the “Second Secured Note” and, together with the First Secured Note, the “Secured Notes”) which bears interest at a rate of 0.14%, is due and payable the Maturity Date and is secured by the Collateral. In the event that the Belpointe REIT Transaction is not consummated or that we do not raise sufficient proceeds in this offering by the Maturity Date, we may not be able to repay the amounts due under the Secured Notes and Belpointe REIT may proceed against the Collateral.
Other than the Belpointe REIT Loans, we currently have no outstanding debt (other than reimbursable expenses payable to our Manager and its affiliates, including our Sponsor) and have not received a commitment from any lender to provide us with financing. Our targeted aggregate property-level leverage, excluding any debt at the Company level or on assets under development or redevelopment, after we have acquired a substantial portfolio of stabilized commercial real estate, is between 50-70% of the greater of the cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. During the period when we are acquiring, developing and redeveloping our investments, we may employ greater leverage on individual assets. An example of property-level leverage is a mortgage loan secured by an individual property or portfolio of properties incurred or assumed in connection with our acquisition of such property or portfolio of properties. An example of debt at the Company level is a line of credit obtained by us or our Operating Companies.
Our Manager may from time to time modify our leverage policy in its discretion in light of then-current economic conditions, relative costs of debt and equity capital, market values of our assets, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. There is no limit on the amount we may borrow with respect to any individual property or portfolio. See “Investment Objectives and Strategy—Borrowing Policy,”
We intend to make reserve allocations as necessary to aid our objective of preserving capital for our investors by supporting the maintenance and viability of property we acquire in the future. If reserves and any other available income become insufficient to cover our operating expenses and liabilities, it may become necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investment in one or more properties. There is no assurance that such funds will be available or, if available, that the terms will be acceptable to us.
Trend Information
The outbreak of COVID-19 and efforts by governmental and other authorities to contain the spread of the virus through lockdowns of cities, business closures, restrictions on travel and emergency quarantines, among others, and responses by businesses
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and individuals to reduce the risk of exposure to infection, including reduced travel, cancellation of meetings and events, and implementation of work-at-home policies, among others, have resulted in significant disruptions to global economic and market conditions and triggered a period of global economic slowdown.
The COVID-19 outbreak presents material uncertainty and risk with respect to our future performance and future financial results, such as the potential to negatively impact occupancy at our properties, our financing arrangements, our costs of operations, the value of our investments and laws, regulations and governmental and regulatory policies applicable to us. Given the evolving nature of the COVID-19 outbreak, the extent to which it may impact our future performance and future financial results will depend on future developments, including the duration and severity of the pandemic, the uneven impact to certain industries, advances in testing, treatment and prevention, the effectiveness and efficiency of distribution of vaccines, the recovery time of the disrupted supply chains and industries, the impact of labor market interruptions, the macroeconomic impact of government measures to contain the spread of the virus and related government stimulus measures, among others, all of which remain highly uncertain at this time and as a result we are unable to estimate the impact that the COVID-19 outbreak may have on our future financial results at this time. Management continuously reviews our investment and financing strategies to optimize our portfolio and reduce our risk in the face of the rapid development and fluidity of this situation.
Over the short term, we remain cautiously optimistic about the opportunity to acquire investments offering attractive risk-adjusted returns in our targeted investment markets. However, we recognize disruptions in financial markets can occur at any time. By targeting qualified opportunity zone investments, we believe we will remain well positioned, as compared to our competitors, in the event current market dynamics deteriorate.
Emerging Growth Company
We are an “emerging growth company,” as defined in the Jump Start Our Business Startups Act of 2012 (“JOBS Act”). As an emerging growth company, we are eligible to take advantage of certain exemptions from various reporting and disclosure requirements that are applicable to public companies that are not emerging growth companies, and we intend to take advantage of those exemptions. For so long as we remain an emerging growth company, we will not be required to:
· | have an auditor attestation report on our internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”); |
· | submit certain executive compensation matters to Member advisory votes pursuant to the “say on frequency” and “say on pay” provisions (requiring a non-binding Member vote to approve compensation of certain executive officers) and the “say on golden parachute” provisions (requiring a non-binding Member vote to approve golden parachute arrangements for certain executive officers in connection with mergers and certain other business combinations) of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; or |
· | disclose certain executive compensation related items, such as the correlation between executive compensation and performance and comparisons of the chief executive officer’s compensation to median employee compensation. |
In addition, the JOBS Act provides that an emerging growth company may take advantage of an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. This means that an emerging growth company can delay adopting certain accounting standards until such standards are otherwise applicable to private companies. We intend to take advantage of the extended transition period. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to subsequently elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.
We will remain an emerging growth company for up to five years, or until the earliest of: (i) the last date of the fiscal year during which we had total annual gross revenues of $1.07 billion or more; (ii) the date on which we have, during the previous three-year period, issued more than $1.07 billion in non-convertible debt; or (iii) the date on which we are deemed to be a “large accelerated filer” as defined under Rule 12b-2 under the Exchange Act.
We do not believe that being an emerging growth company will have a significant impact on our business or this offering. Also, even once we are no longer an emerging growth company, we still may not be subject to auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act unless we meet the definition of a large accelerated filer or an accelerated filer under Section 12b-2 of the Exchange Act. In addition, so long as we are externally managed by our Manager and we do not directly compensate our executive officers, or reimburse our Manager or its affiliates for the compensation paid to persons who serve as our executive officers, we do not expect to include disclosures relating to executive compensation in our periodic reports or proxy statements and, as a result, do not expect to be required to seek Member approval of executive compensation and golden parachute compensation arrangements pursuant to Sections 14A(a) and (b) of the Exchange Act.
Critical Accounting Policies
Below is a discussion of the accounting policies that management believes are critical. We consider these policies critical because they involve significant judgments and assumptions and require estimates about matters that are inherently uncertain and
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because they are important for understanding and evaluating our reported financial results. Our accounting policies have been established to conform with generally accepted accounting principles in the United States of America (“U.S. GAAP”).
Use of Estimates
The preparation of financial statements in accordance with U.S. GAAP requires management to use judgments in the application of such policies. These judgments will affect our reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.
Basis of Consolidation
We will evaluate our economic interest in entities to determine if they are deemed to be variable interest entities (a “VIE”) and whether the entities should be consolidated. An entity is a VIE if it has any one of the following characteristics: (i) the entity does not have enough equity at risk to finance its activities without additional subordinated financial support; (ii) the at risk equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. The distinction between a VIE and other entities is based on the nature and amount of the equity investment and the rights and obligations of the equity investors. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered VIEs unless the limited partners hold substantive kick-out rights or participation rights. Significant judgment is required to determine whether a VIE should be consolidated. We review all agreements and contractual arrangements to determine whether (a) we or another party have any variable interests in an entity, (b) the entity is considered a VIE and (c) which variable interest holder, if any, is the primary beneficiary of the VIE. Determination of the primary beneficiary is based on whether the entity (1) has the power to direct the activities that most significantly impact the economic performance of the VIE and (2) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.
Allocation of Purchase Price of Acquired Assets
Upon the acquisition of real estate properties, we will determine whether a transaction is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, we will account for the transaction as an asset acquisition. We will capitalize acquisition-related costs and fees associated with our asset acquisitions and expense acquisition-related costs and fees associated with business combinations.
It is our policy to allocate the purchase price of properties to acquired tangible assets, consisting of land, building, fixtures and improvements, and identified intangible lease assets and liabilities, consisting of the value of above-market and below-market leases, as applicable, other value of in-place leases, certain development rights and value of tenant relationships, based in each case on their fair values. The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, which value is then allocated to land, buildings and improvements based on management’s determination of the fair values of these assets. We will measure the aggregate value of other intangible assets acquired based on the difference between (i) the property valued with existing in-place leases adjusted to market rental rates, and (ii) the property valued as if vacant. Other factors we will consider include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.
We will consider information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, we will include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. We will estimate costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction. In connection with the purchase of real property for development use, development rights are often transferred from one party to another to provide additional density. This transfer of rights allows an entity to permit, construct and develop additional dwelling units. Accordingly, we will allocate a portion of the purchase price to these development right intangible assets based on the value ascertained to the land of which we do not hold title to but are provided density transfer rights over. These rights will be amortized to amortization expense over the useful life based on the respective contract. If the rights are transferred in perpetuity and there are no legal, regulatory, contractual, competitive, economic or other factors that limit its useful life, we will consider the intangible asset indefinite-lived and therefore will not amortize.
The total amount of other intangible assets acquired will be further allocated to in-place lease values and customer relationship intangible values based on management’s evaluation of the specific characteristics of each customer’s lease and our overall relationship with that respective customer. We will consider the nature and extent of our existing business relationships with a customer, growth prospects for developing new business with the customer, the customer’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors. We will amortize the value of in-place leases to depreciation and amortization expense over the initial term of the respective leases. The value of customer relationship intangibles will be amortized to expense over the initial term in the respective leases, but in no event will the amortization periods for
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the intangible assets exceed the remaining depreciable life of the building. Should a customer terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.
The values of acquired above-market and below-market leases will be determined based on the Company’s experience and the relevant facts and circumstances that exist at the time of the acquisitions and will be recorded based on the present values (using discount rates which reflect the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the leases negotiated and in place at the time of acquisition of the properties, and (ii) our estimate of fair market lease rates for the property or equivalent property. Such valuations include consideration of the non-cancellable terms of the respective leases (as well as any applicable below market renewal options). The values of above and below-market leases associated with the original non-cancelable lease term will be amortized to rental income over the terms of the respective non-cancelable lease periods. The portion of the values of the leases associated with below-market renewal options, that are likely to be exercised, will be amortized to rental income over the respective renewal periods.
The determination of the fair value of the assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables.
Real Estate
Real estate investments will be carried at cost, less accumulated depreciation, and will consist of land, building and improvements and construction in process (costs incurred during development). Expenditures which improve or extend the useful life of the properties will be capitalized, while expenditures for maintenance and repairs, which do not extend lives of the assets, will be charged to expense.
Deprecation will be calculated using the straight-line method based on the estimated useful lives of the respective assets (not to exceed 40 years).
Project costs directly related to the construction and development of real estate projects (including but not limited to interest and related loan fees, property taxes, insurance and legal costs) will be capitalized as a cost of the project. Indirect project costs that relate to several projects will be capitalized and allocated to the projects to which they relate. Pertaining to assets under development, capitalization will begin when both direct and indirect project costs have been made and it is probable that development of the future asset is probable. Capitalization of project costs will cease when the project is considered substantially completed and occupied, or ready for its intended use (but no later than one year from cessation of major construction activity). Upon substantial completion, depreciation of these assets will commence. If discrete portions of a project are substantially completed and occupied and other portions have not yet reached that stage, the substantially completed portions will be accounted for separately. We will allocate costs incurred between the portions under construction and the portions substantially completed and only capitalize those costs associated with the portion under construction.
Abandoned Pursuit Costs
Pre-development costs incurred in pursuit of new development opportunities which we deem to be probable will be capitalized in other assets. If the development opportunity is not probable or the status of the project changes such that it is deemed no longer probable, construction costs incurred will be expensed.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash held in major financial institutions, cash on hand and liquid investments with original maturities of three months or less. Cash balances may at times exceed federally insurable limits per institution, however, we deposit our cash and cash equivalents with high credit-quality institutions to minimize credit risk exposure.
Organization, Offering and Related Costs
Our Manager and its affiliates, including our Sponsor, have paid various costs and expenses on our behalf, including all costs incurred in connection with our organization and the registration and offering of our Class A units. Offering expenses include, without limitation, legal, accounting, printing, mailing and filing fees and expenses, costs in connection with preparing sales materials, design and website expenses, fees and expenses of our escrow agent and transfer agent, fees to attend retail seminars and reimbursements for customary travel, lodging, meals and entertainment expenses associated therewith.
We will expense organization costs incurred. Offering costs, when incurred, will be charged to unitholders’ equity against the gross proceeds of our offering. We will be liable to reimburse our Manager and its affiliates, including our Sponsor, once the first closing is held in connection with our offering.
Fees payable and expenses reimbursable to our Manager and its affiliates, including our Sponsor, may be paid, at the election of the recipient, in cash, by issuance of our Class A units at the then-current NAV, or through some combination of the foregoing.
Revenue Recognition
Revenue will be recognized in accordance with the transfer of goods and services to customers at an amount that reflects the consideration that we expect to be entitled to for those goods and services.
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Income Taxes
We initially intend to operate in a manner that will allow us to qualify as a partnership for U.S. federal income tax purposes. Generally, an entity that is treated as a partnership for U.S. federal income tax purposes is not a taxable entity and incurs no U.S. federal income tax liability. Accordingly, no provision for U.S. federal income taxes has been made in the consolidated financial statement of the Company. If we fail to qualify as a partnership for U.S. federal income tax purposes in any taxable year, and if we are not entitled to relief under the Code for an inadvertent termination of our partnership status, we will be subject to federal and state income tax on our taxable income at regular corporate income tax rates. See “Material U.S. Federal Tax Considerations.”
Valuation of Financial Instruments and Private Equity Investments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date under current market conditions (i.e., the exit price).
We will categorize our financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities reported in our financial statements will be categorized based on the inputs to the valuation techniques as follows:
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs).
Level 3 – Valuation generated from model-based techniques that use inputs that are significant and unobservable in the market. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow methodologies or similar techniques, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, Leases, which is codified in Accounting Standards Codification (“ASC”) 842, Leases, and supersedes current lease guidance in ASC 840, Leases. The update amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. As an emerging growth company, we are permitted, and have elected, to use an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. For private companies, ASC 842 will be effective for annual reporting periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The adoption of this standard is not expected to have a material impact on our financial statements.
Quantitative and Qualitative Disclosures about Market Risk
We may be exposed to interest rate changes 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 on the availability of real estate financing or higher interest rates for real estate loans could adversely affect 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 our exposure to changes in interest rates on loans secured by our assets and investments. Derivative financial instruments may include interest rate swaps, the purchase or sale of interest rate collars, caps or floors, options, mortgage derivatives and other instruments. If we use derivative financial instruments to hedge against interest rate fluctuations, we will be exposed to both credit risk and market risk. See “Investment Objectives and Strategies—Operating Policies—Hedging Activities” for additional details about our hedging activities.
Credit risk includes the risk of loss arising from the inability or failure of a counterparty to perform its obligations to us according to the terms of a derivative contract. If the fair value of a 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 includes the risk of loss arising from adverse changes in the value of a financial instrument resulting from fluctuating interest rates. The market risk associated with interest-rate contracts is managed by establishing and monitoring parameters
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that limit the types and degree of market risk that may be undertaken. With respect to variable rate debt, we 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 Manager will establish and 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. This hedging strategy will be designed to minimize the impact of interest rate fluctuations on our net income and cash flow from operations, however, it may also have the effect of reducing overall investment returns to holders of our Class A units.
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Board of Directors
We operate under the direction of our Board, the members of which are accountable to the Company and our Members as fiduciaries. Our Board has retained the services of our Manager to manage our day-to-day operations, implement our investment objectives and strategy and perform certain services for us, subject to the Board’s supervision. A team of investment and asset management professionals, acting through our Manager, makes all decisions regarding the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, subject to the limitations in our operating agreement. Our Manager also provides portfolio management, marketing, investor relations, financial, accounting and other administrative services on our behalf with the goal of maximizing our operating cash flow and preserving our invested capital.
Our current Board members are Brandon Lacoff and Martin Lacoff. Dean Drulias, Timothy Oberweger, Shawn Orser and Ronald Young, Jr. will be appointed to our Board and designated to a particular class of directors as of the effective date of the registration statement of which this prospectus forms a part. Our Chief Executive Officer is Brandon Lacoff and our Chief Strategic Officer and Principal Financial Officer is Martin Lacoff.
Our operating agreement divides our Board into three classes, designated Class I, Class II and Class III. Martin Lacoff is a Class II director and Brandon Lacoff is a Class III director. The initial term of Class I directors will expire at our first annual meeting of Members following the effective date of the registration statement of which this prospectus forms a part, the initial term of Class II directors will expire at our second annual meeting of Members following the effective date of the registration statement of which this prospectus forms a part and the initial term of Class III directors will expire at our third annual meeting of Members following the effective date of the registration statement of which this prospectus forms a part. At each successive annual meeting of Members beginning with the first annual meeting, successors to the class of directors whose term expires at such annual meeting will be elected. The holder of our Class M unit, voting separately as a class, is entitled to elect one Class III director (the “Class M Director”) all other directors will be elected by the vote of a plurality of our outstanding Class A units and Class B units, voting together as a single class, to serve for a three-year term and until their successors are duly elected or appointed and qualified.
The number of directorships on our Board may be increased or decreased at any time by the Board, however, a decrease may not shorten the term of any incumbent director. Directors may only be removed from the Board for cause by the affirmative vote of at least 80% of the holders of Class A units and Class B units, voting together as a single class, however, the Class M Director may only be removed for cause by the affirmative vote of the holder of the Class M unit, voting separately as a class. A director serving on any committee of the Board may be removed from such committee at any time by the Board. A vacancy resulting from an increase in the number of directorships of any class or from the resignation, removal, incapacity or death of a director may be filled by a majority of the directors then in office. Any director appointed to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred.
Our directors are only required to devote such time to our business as their duties may require and may have business interests and engage in business activities similar to, in addition to or in competition with ours. Consequently, in the exercise of their fiduciary responsibilities, our directors will rely heavily on our Manager and on information provided by our Manager. Our directors have a fiduciary duty to our Members to supervise the relationship between the Company and our Manager.
Our current directors are also executive officers of our Manager, executive officers and directors of affiliates of our Manager and Sponsor and serve on the investment committees of affiliates of our Manager. In order to ameliorate the risks created by conflicts of interest, our Board will create a committee comprised entirely of independent directors (the “Independent Committee”) to address any potential conflicts. An independent director is a person who is not an officer or employee of our Manager or its affiliates. The Independent Committee will act upon matters involving conflicts of interest, including transactions between the Company and our Manager. See “Conflicts of Interest” for additional details.
Our general policies on investments and borrowings are set forth in this prospectus. Our Manager’s investment committee will periodically review our policies to determine whether they remain in the best interests of our Members and may recommend changes to our Board as it deems appropriate. Unless modified by our Board, we will follow the policies on investments and borrowings set forth in this prospectus.
Directors and Executive Officers
Our directors and executive officers are set forth below.
Name | Age | Position | ||||
Brandon E. Lacoff | 46 | Chairman of the Board and Chief Executive Officer | ||||
Martin Lacoff | 73 | Director, Chief Strategic Officer and Principal Financial Officer | ||||
Dean Drulias | 74 | Independent Director (1) | ||||
Timothy Oberweger | 46 | Independent Director (1) | ||||
Shawn Orser | 45 | Independent Director (1) | ||||
Ronald Young Jr. | 46 | Independent Director (1) | ||||
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(1) |
Will be appointed to our Board and designated to a particular class of directors as of the effective date of the registration statement of which this prospectus forms a part. | ||||
Brandon Lacoff, Esq. has been our Chairman of the Board and Chief Executive Officer since our founding in January 2020. He is also the Founder of Belpointe REIT, Inc., a qualified opportunity fund and affiliate of our Manager and Sponsor, and has been Chairman of the Board of Directors, Chief Executive Officer and President since its founding in June 2018. Mr. Lacoff is the Founder of Belpointe, a private equity investment firm, and has been Belpointe’s Chief Executive Officer since its founding in 2011. From 2004 to 2011, Mr. Lacoff was a Managing Director and the Co-Founder of Belray Capital, a Greenwich, Connecticut based real estate and investment firm, which was acquired by Belpointe in 2011. Belpointe is known for such developments as its luxury residential developments in Greenwich (Beacon Hill of Greenwich) to its class A apartments in Norwalk, Connecticut (The Waypointe District) and Stamford, Connecticut (Baypointe). Belpointe owns several operating businesses throughout the region, including Belpointe Asset Management LLC, a financial asset management firm that manages over $2 billion in tradable securities. Mr. Lacoff and his executive team bring financial strength, operational expertise and investing discipline to its portfolio of investments. Mr. Lacoff currently serves as the Chairman of the Board of Directors for Belpointe Multifamily Development Fund I, LP, a real estate private equity fund. Mr. Lacoff holds a Juris Doctor degree and a Master of Business Administration from Hofstra University and a bachelor’s degree in Finance from Syracuse University. Mr. Lacoff was selected as a director because of his ability to lead our company and his detailed knowledge of our strategic opportunities, challenges, competition, financial position and business.
Martin Lacoff has been a member of our Board, Chief Strategic Officer and Principal Financial Officer since our founding in January 2020. Mr. Lacoff is an entrepreneur with over 45 years’ experience in successfully starting, developing and operating businesses within the securities, real estate, and natural resources industries. He is also, and has been since its founding in June 2018, the Vice Chairman of the Board of Directors and Chief Strategic Officer of Belpointe REIT, Inc., a qualified opportunity fund REIT and affiliate of our Manager and Sponsor. His considerable professional experience includes former Vice-Chairman and Co-Founder of Walker Energy Partners, one of first publicly traded Master Limited Partnership (MLP) that he brought public; and former Chairman, Founder and General Securities Principal of LaClare Securities, Inc., a NASD broker dealer. Mr. Lacoff was also formerly Vice President of institutional equities at Mitchell Hutchins and later Paine Webber. Mr. Lacoff previously served as a Director of Fortune Natural Resources Corporation, a public company that was listed on the American Stock Exchange and is currently on the Board of Directors of the Lion’s Foundation of Greenwich, a charitable organization dedicated to helping the blind and visually impaired. Since 2012, Mr. Lacoff has served as a Board of Director for Belpointe Multifamily Development Fund I, LP, where he helps in real estate investment decisions. Mr. Lacoff is an engineer by training, having graduated from Rensselaer Polytechnic Institute and has a Master of Business Administration in Finance from the Simon Business School at University of Rochester. Mr. Lacoff was selected to serve as a director because of his extensive investment and financial experience and detailed knowledge of our acquisition and operational opportunities and challenges.
Dean Drulias, Esq. has been practicing private law in Westlake Village, California, since 2002. He is also a member of the Board of Directors of Belpointe REIT, Inc., a qualified opportunity fund REIT, an affiliate of our Manager and Sponsor. Mr. Drulias formerly served as Director, Corporate Secretary and General Counsel of Fortune Natural Resources Corporation, a public oil and gas exploration and production services company that was listed on the American Stock Exchange. Mr. Drulias was also a stockholder and a practicing attorney at the law firm of Burris, Drulias & Gartenberg, where he specialized in the areas of energy, environmental and real property law. Mr. Drulias received his undergraduate degree from the University of California Berkley and has a Juris Doctor degree from Loyola Law School. Mr. Drulias is a member of the California and Texas State Bars. Mr. Drulias was selected as a director because of his senior executive officer and board service experience.
Timothy Oberweger has been a Vice President and Senior Business Development Officer at Stewart Title Commercial Services, a title insurance and settlement company providing services to the real estate and mortgage industries since October 2017. He has over 15 years of experience in the title insurance industry. Previously, from November 2015 to September 2017, Mr. Oberweger served as Managing Director & Counsel of First American Title Insurance Company. From September 2009 to November 2015, Mr. Oberweger served as Vice President & Counsel of Fidelity National Title Insurance Company and, from September 2005 to August 2009, as Counsel of First American Title Insurance Company. Mr. Oberweger served as chair of the Young Mortgage Bankers Association from August 2015 to December 2017, and since May 2010 has served on the Executive Board of Brooklyn Law School’s Alumni Association. From May 1995 to May 1996, he served on the Alumni Board of Macalester College. Mr. Oberweger is currently and has been since March 2018 a member of National Multifamily Housing Council and, since January 2020, a member of Urban Land Institute, ULI and National Association for Industrial and Office Parks. Mr. Oberweger has also previously been a member of the Mortgage Bankers Association, MBA of New York, The International Council of Shopping Centers and served as an elected member of the Representative Town Meeting in Greenwich, Connecticut from September 2011 to December 2017. Mr. Oberweger holds a Juris Doctor from Brooklyn Law School and a Bachelor of Arts from Macalester College.
Shawn Orser has been the President of Seaside Financial & Insurance Services, a San Diego, California based investment advisory firm since 2009. He is also a member of the Board of Directors of Belpointe REIT, Inc., a qualified opportunity fund REIT,
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an affiliate of our Manager and Sponsor. Mr. Orser began his career in finance supporting an Index Arbitrage desk at RBC Dominion Securities, then moved to Merrill Lynch where he worked on the trading desk for the Equity Linked Products Group. Thereafter, he then joined Titan Capital, a New York City based hedge fund where he traded equity derivatives, then worked as a proprietary trader for Remsemberg Capital trading equity and option strategies. Afterwards, he moved to the retail side of the investment management business with Northwestern Mutual, then later joined Seaside Financial & Insurance Services. Mr. Orser earned his bachelor’s degree in Finance from Syracuse University. Mr. Orser was selected as a director because of his extensive investment and finance experience.
Ronald Young, Jr. has been the President and Co-founder of Tri-State LED, a subsidiary of Revolution Lighting Technologies (NASDAQ: RVLT), which provides LED solutions to commercial, industrial and municipal organizations since 2010. He is also a member of the Board of Directors of Belpointe REIT, Inc., a qualified opportunity fund REIT, an affiliate of our Manager and Sponsor. Prior to 2010, Mr. Young was a managing director and co-founder of Belray Capital, a Greenwich, Connecticut based real estate and investment firm, which was later acquired by Belpointe. Mr. Young has also held several positions in the investment and financial industry with MAC Pension Inc., Strategies for Wealth Strategies (an agency of The Guardian Life Insurance Company of America), and AG Edwards & Sons Inc. (now Wells Fargo Advisors). Ron earned his undergraduate degree from the University of Connecticut. Mr. Young was selected as a director because of his extensive investment and real estate development experience.
Executive Advisory Board
Our Board has established an Executive Advisory Board to provide both it and our Manager with advice regarding, among other things, potential investment opportunities, general market conditions and debt and equity financing opportunities. The Executive Advisory Board will initially consist of Sarah Broderick, Patrick Brogan, Donald Cogsville, Stephen Soler and Fredrick Stoleru. The members of the Executive Advisory Board will not participate in meetings of our Board unless specifically invited to attend. The Executive Advisory Board will meet at such times as requested by our Board or our Manager. The members of the Executive Advisory Board can be appointed and removed and the number of members of the Executive Advisory Board may be increased or decreased by our Manager from time to time for any reason. The appointment and removal of members of the Executive Advisory Board do not require approval of our Members. The members of our Executive Advisory Board as of the effective date of the registration statement of which this prospectus forms a part are set forth below.
Sarah Broderick is the Founder of The FEAT, formed in November 2018, which delivers products and services aimed at bringing professionals that have left traditional roles in corporate America back into the economy. Ms. Broderick is also currently and has been since November 2020, the executive-in-residence at the UConn Werth Institute for Entrepreneurship and Innovation and also has served on the Werth Institute’s Advisory Board since January 2021. Prior to founding The FEAT, Ms. Broderick served as the COO/CFO and member of the Board of Directors of VICE Media from March 2016 to November 2018. Earlier in her career, Ms. Broderick held senior roles across a range of organizations, including oversight of the SEC reporting and the global accounting operations for General Electric from June 2012 to September 2014, and leadership positions at Endeavor from September 2014 to March 2016, NBC Universal from July 2009 to June 2012 and Deloitte from July 2000 to July 2009. Ms. Broderick serves on the Board of Directors of the Girl Scouts of Connecticut, a position which she has held since May2008 and has been involved in fundraising for the UConn Foundation since November 2019. Ms. Broderick holds a Master of Science in Accounting and a Bachelor of Science in Accounting from the University of Connecticut, where she was also a four-year member and captain of the UConn softball team.
Patrick Brogan is the President of BB Land Holdings, a private real estate investment company, and an Officer of the Black-Brogan Foundation, a family foundation focused on empowerment through education. He is also a member of the Executive Board of Belpointe REIT, Inc., a qualified opportunity fund REIT, an affiliate of our Manager and Sponsor. Mr. Brogan’s has extensive background in data networking, as he was an early employee at Breakaway Solutions, Blade Logic, Egenera, and Fuze. Over the years Mr. Brogan’s role ranged from Engineering to Sales, to Investor, and ultimately Board of Directors. Mr. Brogan’s extensive business background made him into an expert investor and advisor to early-stage businesses. Mr. Brogan holds a bachelor’s degree from Boston College.
Donald P. Cogsville is the Chief Executive Officer of The Cogsville Group, a New York-based private equity real estate investment firm founded in 2007. Since its inception, the firm has invested in $3 billion of commercial and residential real estate, representing over 4,000 assets in 49 states. Mr. Cogsville began his career as an attorney in the Structured Finance Group at Skadden, Arps, Slate, Meagher & Flom LLP. He then joined the Leveraged Finance Group at Merrill Lynch as an investment banker, and left Merrill Lynch to found RCM Saratoga Capital LLC, a boutique investment banking firm focused on generating value in the urban marketplace. Mr. Cogsville is Of Counsel with Akerman LLP, where his practice focuses on real estate development (specifically urban redevelopments, including opportunity zone projects), real estate financing, and real estate asset management. Additionally, Mr. Cogsville serves or has served on the Board of Marchex, Inc., the Board of Visitors of the University of North Carolina, The New York Urban League, Jazz at Lincoln Center, The Amsterdam News Editorial Board and founded the non-partisan voter registration initiative, Citizen Change. Mr. Cogsville holds a B.A. from the University of North Carolina at Chapel Hill and a J.D. from Rutgers University.
Stephen Soler is the Managing Director of Stockbridge Realty Advisors, LLC, where he oversees underwriting, financing, and project management for real estate investments, including assisting Societe Generale with various real estate related matters including developing risk management protocols. Over the past 30 years, Mr. Soler has held senior positions at both real estate
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investment companies as well as commercial banks focused on commercial real estate financing, where he has overseen more than $15 Billion of commercial real estate transactions covering all asset classes and real estate sectors. Prior to Stockbridge Realty Advisors, LLC, Mr. Soler held the position of Managing Director at Societe Generale and was part of the credit assessment team focused on risk management. Mr. Soler is an Adjunct Professor at the NYU Schack Institute of Real Estate where he has taught for more than fifteen years in the Master of Real Estate Program with a focus on Entrepreneurship and Sustainable Development. Mr. Soler graduated from the University of Massachusetts at Amherst with a degree in economics, and he attended the Harvard Graduate School of Design. He has served as a member of the Economics Department Advisory Board at the University of Massachusetts, the Board of the YMCA of Greenwich, and on several Town of Greenwich Boards and Advisory Committees.
Fredrick Stoleru is a Principal with Blackburn Point Realty, the real estate affiliate of Hepco Capital Management, LLC, a private investment firm that seeks to make controlled investments in diverse business sectors, particularly real estate, middle market private operating companies, and energy and financial companies. Prior to Blackburn, Mr. Stoleru was the President and Chief Executive Officer of Atlas Resources LLC and Vice President of the general partner of Atlas Growth Partners, L.P., which owns and operates natural gas drilling partnerships. In addition to experience at Atlas, Mr. Stoleru has a considerable professional experience that includes serving as Vice President of Business Development at Resource Financial Institutions Group, Inc., a Principal of NPV/Direct Invest, an Associate at the Capital Transactions Group of the Shorenstein Company, and an Investment Banking Associate with JP Morgan Investment Management. Mr. Stoleru received a Master of Business Administration degree from Georgetown University and a Bachelor of Science degree in business from the University of Delaware.
Director Independence
We have applied to have our Class A units listed on the NYSE American (“NYSE”) under the symbol “OZ.” Pursuant to NYSE’s corporate governance requirements, a majority of a listed company’s board of directors must be made up of independent directors. Under the NYSE corporate governance requirements, a director is “independent” if the director is not an executive officer or employee of the company and the company’s board of directors affirmatively determines that the director does not have a relationship that would interfere with the exercise of independent judgment in carrying out the responsibilities of a director. Our Board has determined that Dean Drulias, Timothy Oberweger, Shawn Orser and Ronald Young, Jr. are independent directors under the NYSE corporate governance requirements.
Committees of the Board of Directors
Our Board may delegate many of its powers to one or more committees. As of the date of this prospectus, our Board has established an audit committee, a nominating and corporate governance committee and a conflicts committee. Each of these committees is comprised exclusively of independent directors. The principal functions and composition of each committee are briefly described below. Members serve on these committees until their resignation or until otherwise determined by our Board. Additionally, our Board may from time to time establish certain other committees to facilitate the management of our company.
Audit Committee
The audit committee was established in accordance with Rule 10A-3 under the Securities Exchange Act of 1934 and the NYSE corporate governance requirements. The responsibilities of our audit committee are to, among other things:
· | determine the appointment, compensation, retention and oversight of the work of our independent registered public accounting firm; |
· | review and approve in advance all permitted non-audit engagements and relationships between us and our independent registered public accounting firm; |
· | evaluate our independent registered public accounting firm’s qualifications, independence and performance; |
· | obtain and review a report from our independent registered public accounting firm describing its internal quality-control procedures, any material issues raised by the most recent review and all relationships between us and our independent registered public accounting firm; |
· | review and discuss with our independent registered public accounting firm their audit plan, including the timing and scope of audit activities; |
· | review our consolidated financial statements; |
· | review our critical accounting policies and practices; |
· | review the adequacy and effectiveness of our accounting and internal control policies and procedures; |
· | oversee the performance of our internal audit function; |
· | review with our management all significant deficiencies and material weaknesses in the design and operation of our internal controls; |
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· | review with our management any fraud that involves management or other employees who have a significant role in our internal controls; |
· | establish procedures for the receipt, retention and treatment of complaints regarding internal accounting controls or auditing matters and the confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters; |
· | prepare the reports required by the rules of the SEC to be included in our annual proxy statement; |
· | discuss with our management and our independent registered public accounting firm the results of our annual audit and the review of our quarterly consolidated financial statements; and |
· | oversee our compliance with legal, ethical and regulatory requirements. |
The audit committee has the power to investigate any matter brought to its attention within the scope of its duties. It also has the authority to retain counsel and advisors to fulfill its responsibilities and duties. The audit committee operates under a written audit committee charter and is comprised of individuals who meet the independence requirements of the SEC and the NYSE. Each member of the audit committee is financially literate in accordance with the NYSE requirements. The audit committee also has at least one member who qualifies as an “audit committee financial expert” under SEC rules and regulations. The members of the audit committee are Dean Drulias, Shawn Orser, who is its chair, and Ronald Young, Jr.
Nominating and Corporate Governance Committee
The responsibilities of our nominating and corporate governance committee are to, among other things:
· | assist in identifying, recruiting and evaluating individuals qualified to become members of our Board, consistent with criteria approved by our Board and the nominating and corporate governance committee; |
· | recommend to our Board individuals qualified to serve as directors and on committees of our Board; |
· | advise our Board with respect to Board composition, procedures and committees; and |
· | recommend to our Board certain corporate governance matters and practices. |
The nominating and corporate governance committee is comprised of individuals who meet the independence requirements set forth by the SEC and the NYSE and operates under a written nominating and corporate governance committee charter. The current members of the nominating and corporate governance committee are Timothy Oberweger, Shawn Orser and Ronald Young, Jr., who is its chair.
Conflicts Committee
The responsibilities of our conflicts committee are to, among other things:
· | establish and oversee policies and procedures governing conflicts of interest that may arise through related person transactions; |
· | periodically review and update as appropriate these policies and procedures; |
· | review and approve or ratify any related party transaction and other matters which may pose conflicts of interest, other than related party transactions that are pre-approved as described under “Conflicts of Interests;” and |
· | advise, upon request, our Board or any other committee of our Board on actions or matters involving conflicts of interest. |
Our conflicts committee is comprised of individuals who meet the independence requirements set forth by the SEC and the NYSE and operates under a written conflicts committee charter. The current members of the conflicts committee are Dean Drulias, who is its chair, Timothy Oberweger, Shawn Orser.
Code of Business Conduct and Ethics
Our Board has established a code of business conduct and ethics that applies to all of our officers, directors and employees, including those officers responsible for financial reporting. Among other matters, our code of business conduct and ethics is designed to deter wrongdoing and to promote:
· | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
· | full, fair, accurate, timely and understandable disclosure in our SEC reports and other public communications; |
· | compliance with laws, rules and regulations; |
· | prompt internal reporting of violations of the code to appropriate persons identified in the code; and |
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· | accountability for adherence to the code of business conduct and ethics. |
Our code of business conduct and ethics also provides that our non-employee directors are not obligated to limit their interests or activities in their non-director capacities or to notify us of any opportunities that may arise in connection therewith, even if the opportunities are complementary to, or in competition with, our businesses.
Any waiver of the code of business conduct and ethics for our directors or officers may be made only by our Board or one of our Board committees and will be promptly disclosed as required by law or the NYSE corporate governance requirements. A copy of our code of business conduct and ethics will be available on our website at www.belpointeoz.com. Our website and the information contained therein or connected thereto is not incorporated, or deemed to be incorporated, into this prospectus or the registration statement of which it forms a part.
Compensation of Directors
Our Board is empowered to, or to delegate to our Manager the power to, fix the compensation of all officers and approve the payment of compensation to directors for services rendered to us. Prior to this offering, the members of our Board received no compensation for their service as directors. A member of our Board who is also an employee of our Manager or our Sponsor is referred to as an employee director. Employee directors will not receive compensation for serving on our Board. Following the commencement of this offering, we intend to establish a policy to compensate each of our non-employee directors and each member of our Executive Advisory Board. In the sole discretion of our Board or Manager, as applicable, compensation paid to members of our board of directors and members of our Executive Advisory Board may be in the form of cash or equity, or a combination of both cash and equity. Annual retainers will be paid in quarterly installments in arrears. We will also reimburse each of our directors and members of our Executive Advisory Board for reasonable out-of-pocket expenses incurred in attending board and committee meetings (including, but not limited to, airfare, hotel and food). Our Board or our Manager, as applicable, will periodically review and may adjust the compensation of both the members of our board of directors and the members of our Executive Advisory Board.
Executive Compensation
We will be externally managed and currently have no employees or intention of hiring any employees. Our executive officers also serve as officers of our Manager and Sponsor or one or more of their affiliates. Our management agreement provides that our Manager will be responsible for managing our day-to-day operations and investment activities, as such our executive officers do not receive compensation from us or any of our subsidiaries for serving as our executive officers but, rather, receive compensation from our Manager. We will not reimburse our Manager for any compensation paid to our executive officers. Our management agreement does not require our executive officers to dedicate a specific amount of time to the conduct of our business and affairs or prohibit our executive officers from engaging in other activities or providing services to other persons, including affiliates of our Manager and Sponsor. Accordingly, our Manager has informed us that it cannot identify the portion of compensation it will award to our executive officers that relates solely to such executives’ services to us, as our Manager does not compensate its employees specifically for such services. Furthermore, we do not have employment agreements with our executive officers, we do not provide pension or retirement benefits, perquisites or other personal benefits to our executive officers, our executive officers have not received any nonqualified deferred compensation and we do not have arrangements to make payments to our executive officers upon their termination or in the event of a change in control of us.
Our Manager
While our Board will at all times have ultimate oversight and policy-making authority, including responsibility for our governance, financial controls, compliance and disclosure, we will be externally managed by our Manager, Belpointe PREP Manager, LLC, a Delaware limited liability company. Our Manager is an affiliate of Belpointe, LLC, our Sponsor. Belpointe, LLC operates a family office making private investments and oversees its businesses, such as wealth management, legal and real estate services. Belpointe, LLC’s senior executives have an aggregate of over 100 years of experience in the acquisition, development and ownership of real estate and, as of December 31, 2020, its affiliates have facilitated or originated 13 real estate assets with aggregate purchase prices and construction costs of approximately $440 million. See “Prior Performance Summary.”
The executive offices of our Manager are located at 255 Glenville Road, Greenwich, CT 06831, and the telephone number of our Manager’s executive offices is (203) 883-1994. Set forth below is biographical information for the executive officers of our Manager.
Officer | Age | Position Held with Our Manager | ||||
Brandon E. Lacoff | 46 | Chief Executive Officer and President | ||||
Martin Lacoff | 73 | Chief Strategic Officer |
For information concerning the background of Brandon E. Lacoff and Martin Lacoff see “Management—Directors and Executive Officers” above.
Our Management Agreement
We, our Operating Company and our Manager have entered into a management agreement pursuant to which our Manager manages our day-to-day operations, implements our investment objectives and strategy and performs certain services for us, subject to
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oversight by our Board. A team of investment and asset management professionals, acting through our Manager, makes all decisions regarding the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, subject to the limitations in our operating agreement. Our Manager also provides portfolio management, marketing, investor relations, financial, accounting and other administrative services on our behalf with the goal of maximizing our operating cash flow and preserving our invested capital.
Pursuant to the terms of the management agreement, our Manager is responsible for, among other services:
Investment Advisory and Acquisition Services
· | approving and overseeing our overall investment strategy, which will consist of elements such as investment selection criteria, diversification strategies and asset disposition strategies; |
· | serving as our investment and financial manager with respect to originating, sourcing, underwriting, acquiring, financing, servicing, investing in and managing a diversified portfolio of commercial real estate properties, other real estate-related assets, including, but not limited to, commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses; |
· | periodically reviewing our investment objectives and strategy and our investment guidelines to determine whether they remain in the best interests of our Members and making recommended changes to our Board as appropriate; |
· | structuring the terms and conditions of our acquisitions, sales and joint ventures; |
· | entering into leases and service contracts for our commercial real estate properties and other investments; |
· | approving and overseeing our debt financing strategies; |
· | approving joint ventures, limited liability companies and other such relationships with third parties; |
· | approving any potential liquidity transaction; |
· | obtaining market research and economic and statistical data in connection with our investments and investment objectives and policies; |
· | overseeing and conducting the due diligence process related to prospective investments; |
· | preparing reports regarding prospective investments which include recommendations and supporting documentation necessary for our Manager’s investment committee to evaluate the prospective investments; and |
· | negotiating and executing approved investments and other transactions. |
Disposition Services
· | evaluating and approving potential asset dispositions, sales or liquidity transactions; and |
· | structuring and negotiating the terms and conditions of transactions pursuant to which our assets may be sold. |
Pursuant to the terms of the management agreement, our Manager may retain, for and on our behalf, at our sole cost and expense, among other services:
Offering Services
· | development of this offering, including the determination of its specific terms; |
· | preparation and approval of all marketing materials to be used by us relating to this offering; |
· | negotiating and coordinating the receipt, collection, processing and acceptance of subscription agreements and other administrative support functions; |
· | creating and implementing various technology and electronic communications related to this offering; and |
· | all other services related to this offering. |
Asset Management Services
· | investigating, selecting, and, on our behalf, engaging and conducting business with such persons as our Manager deems necessary to the proper performance of its obligations under the management agreement, including but not limited to consultants, accountants, lenders, technical advisors, attorneys, brokers, placement agents, underwriters, |
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corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, developers, property managers, leasing and investment sale brokers, construction companies and any and all persons acting in any other capacity deemed by our Manager necessary or desirable for the performance of any of the services under the management agreement;
· | monitoring applicable markets and obtaining reports (which may be prepared by our Manager or its affiliates) where appropriate, concerning the value of our investments; |
· | monitoring and evaluating the performance of our investments, providing management services to us and performing and supervising the various management and operational functions related to our investments; |
· | formulating and overseeing the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing and disposition of investments on an overall portfolio basis; |
· | coordinating and managing relationships between us and any joint venture partners; |
· | assisting us in calculating and publishing our NAV. |
Accounting and Other Administrative Services
· | managing and performing the various administrative functions necessary for our day-to-day operations; |
· | providing or arranging for administrative services, legal services, office space, office furnishings, personnel and other overhead items necessary and incidental to our business and operations; |
· | providing financial and operational planning services and portfolio management functions; |
· | maintaining or arranging for the maintenance of accounting data and any other information concerning our activities as will be required to prepare and to file all periodic financial reports and returns required to be filed with the SEC and any other regulatory agency, including quarterly and annual financial statements; |
· | maintaining or arranging for the maintenance of all appropriate company books and records; |
· | overseeing tax and compliance services and risk management services and coordinating with appropriate third parties, including independent accountants and other consultants, on related tax matters; |
· | supervising the performance of such ministerial and administrative functions as may be necessary in connection with our daily operations; |
· | providing us with all necessary cash management services; |
· | managing and coordinating with our transfer agent, if any, the process of making distributions and payments to holders of our units; |
· | evaluating and obtaining adequate insurance coverage based upon risk management determinations; |
· | providing timely updates related to the overall regulatory environment affecting us, as well as managing compliance with regulatory matters; |
· | evaluating our corporate governance structure and appropriate policies and procedures related thereto; and |
· | overseeing all reporting, record keeping, internal controls and similar matters in a manner to allow us to comply with applicable law. |
Member Services
· | determining our distribution policy; and |
· | managing communications with holders of our units, including answering phone calls, preparing and sending written and electronic reports and other communications. |
Financing Services
· | identifying and evaluating potential financing and refinancing sources, engaging a third-party broker if necessary; |
· | negotiating terms of, arranging and executing financing agreements; |
· | managing relationships between us and our lenders, if any; and |
· | monitoring and overseeing the service of our debt facilities and other financings, if any. |
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Additional Services
Our Manager may retain, for and on our behalf, at our sole cost and expense, such additional services, including property management, leasing, development and construction services, of persons and firms as our Manager deems necessary or advisable in connection with our management and operations, which may include our Sponsor, or affiliates of our Manager or Sponsor; provided, that any such additional services may only be supplied by affiliates of our Manager, including our Sponsor, to the extent provided, on arm’s length terms and at competitive market rates, comparable to those terms and rates that are customary for the provision of such additional services to companies that have assets similar in type, quality and value to ours.
Management Team
Pursuant to the management agreement, our Manager is required to provide us with a portion of our management team, including our Chief Executive Officer and such other positions as requested by our Board, along with appropriate support personnel, to provide the management services to be provided by our Manager to us. None of the officers or employees of our Sponsor will be dedicated exclusively to us. Members of our management team will be required to devote such time as is necessary and appropriate commensurate with the level of our activity.
Management Compensation and Expense Reimbursements
We do not expect to maintain an office or directly employ personnel. Instead, we rely on the facilities and resources of our Manager to manage our day-to-day operations.
Our Manager and its affiliates, including our Sponsor, will receive fees and expense reimbursements for services relating to this offering and the investment and management of our assets, including a quarterly management fee. See “Management Compensation” for a detailed description of the fees and expenses payable to our Manager and its affiliates. Neither our Manager nor its affiliates will receive any selling commissions or dealer-manager fees in connection with the offer and sale of our Class A units.
Term and Termination
The initial term of the management agreement commenced on October 28, 2020 and will continue through December 31, 2025. We may only terminate the management agreement (i) for “cause,” (ii) upon the bankruptcy of our Manager, or (iii) upon a material breach of the management agreement by our Manager. “Cause” is defined in the management agreement to mean fraud or willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case that has or could reasonably be expected to have a material adverse effect on us. Following the initial term, the management agreement will automatically renew for an unlimited number of three-year terms unless we elect not to renew it by providing our Manager with 180 days’ prior notice. We will review and evaluate our Manager’s performance under the management agreement at least 180 days prior to each renewal term.
Upon any termination or non-renewal of the management agreement by us or any termination of the management agreement by our Manager for our breach of the management agreement, our Manager will be entitled to receive its prorated management fee through the expiration or termination date and will be paid a termination fee equal to six times the annual management fee earned by our Manager during the 12-month period ended as of the last day of the quarter immediately preceding the termination date (the “termination fee”); however, if less than 12 months have elapsed as of the termination date, the termination fee will be calculated by annualizing the management fee earned during the most recently completed quarter prior to the termination date.
In addition, upon any termination or non-renewal of the management agreement, our Manager will continue to hold 100% of our Class B units, which entitle our Manager to 5% of any gain recognized by or distributed to the Company or recognized or distributed from the Operating Companies or any subsidiary. Upon termination or non-renewal of the management agreement, our Manager will cooperate with us and take all reasonable steps requested by us to assist our Board in making an orderly transition of the management function.
Limitations on Liability and Indemnification of our Directors, Officers, Manager and Other Agents
Our operating agreement provides that our directors, officers and Manager will be liable to us or the holders of our Class A units for an act or omission only if such act or omission constitutes a breach of the duties owed to us or the holders of our Class A, as applicable, by any such director, officer or our Manager and such breach is the result of (i) willful malfeasance, gross negligence, the commission of a felony or a material violation of law, in each case that has or could reasonably be expected to have a material adverse effect on us or (ii) fraud and that our Sponsor will not be liable to us or holders of our units for its actions.
Moreover, in our operating agreement we have agreed to indemnify our directors, officers, Manager and Sponsor, to the fullest extent permitted by law, from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, settlements or other amounts arising from any and all threatened, pending or completed claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals, in which any indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of being or having been one of our directors or officers or our Manager, except for any expenses or liabilities that have been finally judicially determined to have arisen primarily from acts or omissions that violated the standard set forth in the preceding paragraph.
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The indemnification rights that we provide to our directors and officers are more expansive than those provided to directors and officers under Delaware law.
In addition to the indemnity that exists in our operating agreement, we will enter into separate indemnification agreements with each of our directors and executive officers, that will indemnify them, to the fullest extent permitted by applicable law, against all expenses and liabilities (including judgments, fines, penalties, interest and amounts paid in settlement) incurred by them in connection with any proceeding in which any of them are made a party to or any claim, issue or matter, except to the extent that it shall have been determined in a final non-appealable judgment by a court of competent jurisdiction that such expenses and liabilities arose primarily from acts or omissions that constituted a breach of their duties and such breach was the result of (i) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case that has or could reasonably be expected to have a material adverse effect on us or (ii) fraud. Such indemnification agreements will continue until and terminate upon the later of (x) 20 years after the indemnitee has ceased to occupy any positions or have any relationships with us or any of our affiliates, (y) the final termination of all proceedings pending or threatened during such period to which any indemnitee may be subject and (z) the expiration of the applicable statute of limitations for any possible claim or threatened, pending or completed action, suit or proceeding.
Allocation of Investment Opportunities
Our Sponsor has in the past established and sponsored private equity real estate funds, qualified opportunity funds and REIT offerings, and in the future expects to establish and sponsor additional real estate funds and REIT offerings, as well as other potential investment vehicles and businesses. Our Sponsor’s funds do, and any future investment vehicles may, have investment criteria similar to our own. If a sale, financing, investment or other business opportunity would be suitable for more than one investment vehicle, our Sponsor will allocate the opportunity according to the policies and procedures adopted by our Sponsor. Any allocation of this type may involve consideration of a number of factors that our Sponsor’s investment and asset management professionals may determine to be relevant, including the following:
· | investment objectives and criteria of the various investment vehicles; |
· | cash requirements of the various investment vehicles; |
· | effects of the investment on the diversification of the portfolios of the various investment vehicles by type of investment and risk of investment; |
· | policies of the various investment vehicles relating to leverage; |
· | anticipated cash flow of the asset to be acquired; |
· | income tax effects of the purchase on the various investment vehicles; |
· | size of the investment; and |
· | amount of funds available to the various investment vehicles. |
Shared Services Agreement
We, our Operating Company, our Sponsor and our Manager have entered into a shared services agreement. Pursuant to this agreement, our Manager is provided with access to, among other things, our Sponsor’s portfolio management, asset valuation, risk management and asset management services as well as administration services addressing legal, compliance, investor relations and information technologies necessary for the performance by our Manager of its duties under the management agreement in exchange for a fee representing our Manager’s allocable cost for these services. The fee paid by our Manager pursuant to the shared services agreement will not constitute a reimbursable expense under the management agreement. However, under the shared services agreement, our Sponsor will be entitled to receive reimbursement of expenses incurred on behalf of the Company or our Manager that we are required to pay our Manager under the management agreement.
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We will pay our Manager and its affiliates the fees and expense reimbursements described below in connection with performing services for us. Neither our Manager nor its affiliates will receive any selling commissions or dealer-manager fees in connection with the offer and sale of our Class A units or disposition fees in connection with our investments. We will, however, reimburse our Manager for out-of-pocket expenses incurred on our behalf in relation to the forgoing activities. Fees payable and expenses reimbursable to our Manager and its affiliates, including our Sponsor, may be paid, at their election, in cash, through issuance of our Class A units at the then-current NAV or some combination of the foregoing.
Form of Compensation and Receipt | Determination of Amount | Estimated Amount | ||
Organization and Offering Expenses – Manager or its Affiliates | We will reimburse our Manager and its affiliates, including our Sponsor, for all expenses incurred on our behalf in connection with our organization and the offering of our Class A units, which are initially expected to be approximately $3,000,000, and up to approximately 0.004% of gross offering proceeds if we raise the maximum offering amount. Offering expenses will include, without limitation, all legal, accounting, printing, mailing and filing fees and expenses, costs in connection with preparing sales materials, design and website expenses, fees and expenses of our escrow agent and transfer agent, fees to attend retail seminars and reimbursements for customary travel, lodging, meals and entertainment expenses associated therewith, but excluding upfront selling commissions or dealer-manager fees. We will not be required to reimburse our Manager and its affiliates, including our Sponsor, until the first closing is held in connection with the offering. Thereafter, reimbursement payments will be made beginning on a date selected by our Manager in monthly installments without interest until paid in full. | The actual amount will vary depending on the number Class A units sold. Initially organizational and offering expenses are expected to be approximately $3,000,000 and may be up to approximately 0.004% of gross offering proceeds if we raise the maximum offering amount. | ||
Management Fee – Manager | We pay our Manager a quarterly management fee at an annualized rate of 0.75%. The management fee is based on our NAV at the end of each fiscal quarter. From the effective date of the registration statement of which this prospectus forms a part through no later than the first quarter following the December 31, 2022 year end, the NAV of our Class A units will be equal to $100.00 per Class A unit. Thereafter, no later than the first quarter following the December 31, 2022 year end, our NAV will be announced within approximately 60 days of the last day of each quarter. | Actual amounts are dependent upon our NAV and, therefore, cannot be determined at this time. |
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Other Operating Expenses – Manager or its Affiliates |
We reimburse our Sponsor and Manager for our allocable share of the salaries, benefits, office and other overhead of personnel providing services to us. We also reimburse our Manager for out-of-pocket expenses paid to third parties in connection with the provision of services to us. In addition, we reimburse our Manager for out-of-pocket expenses incurred in connection with the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, debt and equity securities in other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses (including expenses related to potential transactions that do not close), including, without limitation legal and accounting fees and expenses, costs of due diligence (including appraisals, surveys, engineering reports and environmental site assessments), travel and communications expenses and other closing costs and miscellaneous expenses related to the acquisition of our investments. |
Actual amounts are dependent upon actual expenses incurred and, therefore, cannot be determined at this time. | ||
Participation in Distribution – Manager | Our Manager holds 100% of our Class B units, which entitle our Manager to 5% of any gain recognized by or distributed to the Company or recognized by or distributed from our Operating Companies or any subsidiary. As a result, any time we recognize operating gain (excluding depreciation) or receive a distribution, whether from continuing operations, net sale proceeds, refinancing transactions or otherwise, our Manager is entitled to receive 5% of the aggregate amount of such gain or distribution, regardless of whether the holders of our Class A units have received a return of their capital. The allocation and distribution rights that our Manager is entitled to with respect to its Class B units may not be amend, alter or repeal, and the number of authorized Class B Units may not be increased or decreased, without the consent of our Manager. In addition, our Manager will continue to hold 100% of our Class B units even if we terminate or elect not to renew the management agreement. Accordingly, for so long as our Manager continues to hold our Class B units, it will be entitled to receive 5% of the aggregate amount of any operating gain (excluding depreciation) that we recognize or distribution that we receive. | Actual amounts are dependent upon the results of our operations and, therefore, cannot be determined at this time. | ||
Acquisition Fee – Manager or its Affiliates | We will pay our Manager, Sponsor, or an affiliate of our Manager or Sponsor, an acquisition fee equal to 1.5% of the total value of any acquisition transaction, including any acquisition through merger with another entity (but excluding any transactions in which our Sponsor, or an affiliate of our Manager or Sponsor, would otherwise receive a development fee). | Actual amounts are dependent upon the results of our operations and, therefore, cannot be determined at this time. | ||
Property Management Oversight Fee – Manager or its Affiliates | In addition, our Manager, Sponsor, or an affiliate of our Manager or Sponsor, will be paid an annual property management oversight fee, to be paid by the individual subsidiaries of our Operating Companies, equal to 1.5% of the revenue generated by the applicable property. | Actual amounts are dependent upon the results of our operations and, therefore, cannot be determined at this time. |
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Our Manager and its affiliates will experience conflicts of interest in connection with the management of our business. Some of the material conflicts that our Manager and its affiliates may face include the following:
Our Sponsor’s investment and asset management professionals acting on behalf of our Manager must determine which investment opportunities to recommend to us and other entities affiliated with our Sponsor. Our Sponsor has previously sponsored, as of the date of this prospectus, two real estate funds and may in the future sponsor other real estate funds that may have similar investment criteria to ours. In addition, our Sponsor currently sponsors, as of the date of this prospectus, a qualified opportunity fund REIT with investment criteria similar to ours.
Our Sponsor’s investment and asset management professionals acting on behalf of our Manager will have to allocate their time among us, our Sponsor’s business and other programs and activities in which they are involved.
The terms of our management agreement (including our Manager’s rights and obligations and the compensation payable to our Manager and its affiliates) were not negotiated through the benefit of arm’s length negotiations of the type normally conducted between unrelated parties.
We may in the future decide to internalize our management function and, should we elect do so, we may acquire our Manager’s or its affiliates’, including our Sponsor’s, assets and personnel. We, our Operating Company and our Manager have entered into a management agreement. The terms of the management agreement restrict us from hiring or soliciting any employee of our Manager or its affiliates, including our Sponsor, for a period of two years from termination of the management agreement. In addition, upon any termination or non-renewal of the management agreement by us our Manager will be entitled to receive its prorated management fee through the expiration or termination date and will be paid a termination fee equal to six times the annual management fee earned by our Manager during the 12-month period ended as of the last day of the quarter immediately preceding the termination date (the “termination fee”); however, if less than 12 months have elapsed as of the termination date, the termination fee will be calculated by annualizing the management fee earned during the most recently completed quarter prior to the termination date. These provisions could make it difficult for us to internalize management without acquiring assets and personnel from our Manager and its affiliates, including our Sponsor, for consideration that would be negotiated at the time of any such acquisition. Any termination fees we incur would be paid in cash and any other consideration could take many forms, including issuance of equity or cash payments, which could directly impact our NAV, by reducing the amount of our assets, or result in the dilution of your interest in us.
In general, whenever an actual or potential conflict of interest arises between our Sponsor, Manager, one or more of our directors or their respective affiliates, on the one hand, and us, our Operating Companies, one or more of our Operating Companies’ subsidiaries or one or more Members (other than our Manager), on the other hand, any resolution or course of action taken by our Board will be deemed approved by all of Members and will not constitute a breach of our operating agreement or any legal or equitable duty (including any fiduciary duty) if the resolution or course of action in respect of the conflict of interest is:
· | on terms no less favorable to us, our Operating Companies, one or more of our Operating Companies’ subsidiaries or one or more Members (other than our Manager) than those generally being provided to or available from unrelated third parties; |
· | fair and reasonable to us taking into account the totality of the relationships among the parties involved; or |
· | approved or ratified by a vote of our disinterested directors; or |
· | approved or ratified by a vote of the Members. |
Our failure to seek the approval of our disinterested directors or Members as described above will not be deemed to indicate that a conflict of interest exists or that approval could not have been obtained. If our Board determines that any resolution or course of action satisfies the first or second standards described above, it will be presumed that our Board acted in good faith in making such determination, and a holder of our Class A units seeking to challenge our Board’s determination would bear the burden of overcoming this presumption.
Any conflicts of interest described in this prospectus will be deemed approved by our Members and each prospective investor who acquire Class A units on or after the date of this offering and will not constitute a breach of our operating agreement or any legal, equitable or other duty.
In addition to the provisions relating to conflicts of interest, our operating agreement contains provisions that waive or consent to conduct by us, our Manager, our directors or our affiliates that might otherwise raise issues about compliance with fiduciary duties or otherwise applicable law. For example, our operating agreement provides that when we, our Board or our Manager is permitted or required to make a decision in its “sole discretion” or “discretion” or that it deems “necessary or appropriate” or “necessary or advisable” or under a grant of similar authority or latitude, then, to the fullest extent permitted by law, we, our Board or our Manager, as the case may be, may make such decision in its sole discretion (regardless of whether there is a reference to “sole discretion” or “discretion”), and will be entitled to consider only such interests and factors as it desires, including its own interests, and will have no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of or factors affecting us or any
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holder of our Class A units, and will not be subject to any other or different standards imposed by our operating agreement, any other agreement contemplated thereby, under the Delaware Limited Liability Company Act or under any other law or in equity, but in all circumstances must exercise such discretion in good faith. These modifications of fiduciary duties are expressly permitted by Delaware law. Hence, we and the holders of our Class A units will only have recourse and be able to seek remedies against our directors if our directors breach their obligations pursuant to our operating agreement. Unless our directors breach their obligations pursuant to our operating agreement, we and the holders of our Class A units will not have any recourse even if our directors were to act in a manner that was inconsistent with traditional fiduciary duties. Furthermore, even if there has been a breach of the obligations set forth in our operating agreement, our operating agreement provides that our directors will not be liable to us or the holders of our Class A units for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that such breach is the result of (i) willful malfeasance, gross negligence, the commission of a felony or a material violation of law, in each case that has or could reasonably be expected to have a material adverse effect on us or (ii) fraud. In addition, our operating agreement provides that our Manager and our Sponsor will owe no duties to us or the holders of our Class A units and will have no liability to us or any holder of our Class A units for monetary damages or otherwise for their actions. These modifications are detrimental to the holders of our Class A units because they restrict the remedies available to holders of our Class A units for actions that without those limitations might constitute breaches of duty (including fiduciary duty).
Conflicts of interest could arise in the situations described below, among others.
Actions taken by our Board may affect the amount of cash flow from operations available for distribution to the holders of our Class A units.
The amount of cash flow from operations that is available for distribution to holders of our Class A units is affected by decisions of our Board regarding such matters as:
· | amount and timing of cash expenditures; |
· | amount and timing of investments and dispositions; |
· | levels of indebtedness; |
· | tax matters; |
· | levels of reserves; and |
· | issuance of additional equity securities, including Class A units. |
The holders of our Class A units will have no right to enforce obligations of our affiliates under agreements with us.
Any agreements between us, on the one hand, and our affiliates, on the other, will not grant to the holders of our Class A units, separate and apart from us, the right to enforce the obligations of our affiliates in our favor.
Contracts between us, on the one hand, and our affiliates, on the other, will not be the result of arm’s-length negotiations.
Neither our operating agreement nor any of the other agreements, contracts and arrangements between us, on the one hand, and our affiliates, on the other, are or will be the result of arm’s-length negotiations. Our Board will determine the terms of any of these transactions on terms that it considers are fair and reasonable to us.
The Members of our management team and our directors not required to devote all of their time and efforts to our affairs.
Members of our management team will be required to devote such time as is necessary and appropriate commensurate with the level of our activity. Our directors are only required to devote such time to our business as their duties may require and may have business interests and engage in business activities similar to, in addition to or in competition with ours.
Related Party Loans and Warehousing of Assets
If we have sufficient funds to acquire only a portion of an investment then, in order to cover the shortfall, we may obtain a related party loan from our Manager or its affiliates, including our Sponsor. Each related party loan will be an obligation of ours, that is payable solely to the extent that such related party loan remains outstanding.
As an alternative means of acquiring investments for which we do not yet have sufficient funds, our Manager or its affiliates, including our Sponsor, may close and fund an investment prior to it being acquired by us. This ability to warehouse investments will allows us the flexibility to deploy our offering proceeds as funds are raised. We may then acquire such investment at a price equal to the fair market value of such investment, provided that its fair market value is materially equal to its cost (i.e., the aggregate equity capital invested by our Manager or its affiliates, including our Sponsor, in connection with the acquisition and during the warehousing of such investments, plus assumption of debt and any costs, such as accrued property management fees and transfer taxes, incurred during or as a result of the warehousing or, with respect to debt, the principal balance plus accrued interest net of any applicable servicing fees).
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Net Asset Value Calculation and Valuation Policies
From the effective date of the registration statement of which this prospectus forms a part through no later than the first quarter following the December 31, 2022 year end, the net asset value (“NAV”) for our Class A units will be equal to $100.00 per Class A unit.
Thereafter our NAV per Class A unit will be based on the NAV of our assets and investments (such as our portfolio of commercial real estate properties, real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses) in addition to any other assets (such as cash on hand following any distributions to our Manager pursuant to its Class B units), less any liabilities, including the allocation or accrual of management fees, allocation or accrual of gains or distributions distributable to our Manager pursuant to its Class B units and expenses reimbursable to our Manager and its affiliates, including our Sponsor.
No later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, we plan to calculate our net asset value (“NAV”) within approximately 60 days of the last day of each quarter (the “Determination Date”). If our NAV increases above or decreases below the price per Class A unit as stated in this prospectus, we will adjust the offering price effective as of the first business day following its public announcement. The adjusted offering price will be equal to our adjusted NAV as of the last day of the “Determination Date divided by the number of Class A units outstanding on the Determination Date. Our board of directors, taking into consideration factors such as the investments we hold and the timing of our ability to generate cash flows, may determine that it is appropriate for us to begin calculating NAV on a quarterly basis prior to the first quarter following the December 31, 2022 year end. We will file a prospectus supplement with the SEC if we determine to calculate NAV prior to the first quarter following the December 31, 2022 year end and prospectus supplements disclosing the quarterly determinations of our NAV per Class A unit for each fiscal quarter thereafter.
General
Our NAV will be calculated using a process designed to produce a fair and accurate estimate of the price that would be received for our assets and investments in an arm’s-length transaction between a willing buyer and a willing seller in possession of all material information about our assets and investments. Our Manager will periodically review our valuation methodologies and policies to determine whether they remain in the best interests of our Members and may adjust our methodologies as it deems appropriate.
The calculation of our NAV is intended to be a computation of the fair value of our assets and investments less our outstanding liabilities and will likely differ from the book value of our equity reflected in our financial statements. As a public company, we are required to issue financial statements based on historical cost in accordance with U.S. GAAP. Because the fair value calculations of our assets and investments will involve significant professional judgment in the application of both observable and unobservable attributes, the calculated fair value of our assets and investments may differ from their actual realizable value or future fair value. While we believe our NAV calculation methodologies are consistent with standard industry practices, there is no rule or regulation that requires we calculate NAV in a certain way. As a result, other public companies holding similar assets and investments may use different methodologies or assumptions to determine their NAV. In addition, NAV is not a measure used under U.S. GAAP and the valuations of and certain adjustments made to our assets and liabilities used in the determination of NAV will differ from U.S. GAAP. You should not consider NAV to be equivalent to unitholders’ capital or any other U.S. GAAP measure.
Independent Advisors
We may engage a third party to prepare or assist with preparing the NAV of our Class A units. In addition, where we determine that an independent appraisal is necessary, including, without limitation, where our Manager is unsure of its ability to accurately determine the estimated values of our assets and investments, or where third party market values for comparable assets and investments are either nonexistent or extremely inconsistent, we may engage an appraiser that has expertise in appraising the types of assets and investments that we hold to act as our independent valuation expert. The independent valuation expert will not be responsible for, prepare or assist with preparing our NAV per Class A unit.
Valuation of our Assets and Investments
Our NAV will be calculated using a process that may reflect some or all of the following components: (i) estimated values of each of our assets and investments, including related liabilities (but may, in our discretion, exclude deal-level carried interest allocations), based on: (a) market capitalization, comparable transaction information, interest rates, adjusted net operating income; (b) with respect to debt, default rates, discount rates and loss severity rates; (c) for commercial real estate properties that have development or value add plans, progress along such development or value add plans; and (d) in certain instances, reports of the underlying assets and investments by an independent valuation expert; (ii) the price of liquid assets for which third party market quotes are available; (iii) accruals of our periodic distributions; and (iv) estimated accruals of our operating revenues and expenses (excluding property management oversight fees).
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Liabilities
We will include the fair value of our liabilities as part of our NAV calculation. We expect that these liabilities will include the management fees and expenses reimbursable to our Manager and its affiliates, including our Sponsor, gains or distributions distributable to our Manager pursuant to its Class B units, accounts payable, accrued operating expenses, property-level mortgages, any portfolio-level credit facilities and other liabilities. All liabilities will be valued using widely accepted methodologies specific to each type of liability.
Limits on the Calculation of Our NAV
Our goal is to provide a reasonable estimate of the market value of our Class A units within approximately 60 days of the last day of each quarter. Our assets and investments consist principally of commercial real estate properties located throughout the United States and its territories. We also anticipate acquiring real estate-related assets, including commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, as well as make private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses. As with any asset valuation protocol, the conclusions reached by our Manager or any third-party firm that we engage to prepare or assist with preparing the NAV of our Class A units will involve significant judgments, assumptions and opinions in the application of both observable and unobservable attributes that may or may not prove to be correct. The use of different judgments or assumptions would likely result in different estimates of the value of our assets and investments and, consequently, our NAV. Moreover, although we will calculate and provide our NAV on a quarterly basis, our NAV may fluctuate daily, accordingly the NAV in effect for any given fiscal quarter may not accurately reflect the amount that might otherwise be paid for your Class A units in a market transaction. Further, for any given fiscal quarter, our published NAV may not fully reflect certain material events to the extent that they are unknown or their financial impact on our assets or investments is not immediately quantifiable. However, to the extent quantifiable, if a material event occurs in between quarterly updates of our NAV that would cause our NAV per Class A unit to change by 10% or more from the last disclosed NAV, we will disclose the updated NAV per Class A unit and the reason for the change in a prospectus supplement as promptly as reasonably practicable.
It is important to note that the determination of our NAV will not be based on, nor is it intended to comply with, fair value standards under U.S. GAAP, and our NAV may not be indicative of the price that we would receive for our assets at current market conditions. In addition, we do not represent, warrant or guarantee that: (i) you will be able to realize the NAV per Class A unit for your Class A units if you attempt to sell them; (ii) you will ultimately realize distributions per Class A unit equal to the NAV per Class A units you own upon liquidation of our assets and investments and settlement of our liabilities or a sale of our company; (iii) our Class A units will trade at their NAV per Class A unit on the NYSE American; or (iv) a third party would offer the NAV per Class A unit in an arm’s-length transaction to purchase all or substantially all of our Class A units. Furthermore, any distributions that we make will directly impact our NAV, by reducing the amount of our assets. Over the course of your investment, your distributions plus the change in NAV (either positive or negative) will produce your total return.
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The information presented in this section represents the historical experience of real estate investment programs sponsored in the last ten years by Belpointe, LLC, our Sponsor, and its affiliates. Our structure and investment strategy (with the exception of the investment strategy of Belpointe REIT, Inc.) are different from these prior programs and our performance will depend on factors that may not be applicable to or affect the performance of these other programs. Further, all but one of the prior programs discussed in this section were conducted through privately held entities that were not subject to the fees and expenses associated with this offering, nor all of the laws and regulations that will apply to us once we qualify as a publicly traded partnership. Investors should not assume that they will experience returns, if any, that are comparable to those experienced by investors in the prior programs. The Prior Performance Tables included in this prospectus, beginning on page A-1, include further information regarding certain prior programs. References herein to Belpointe, LLC, or our Sponsor, include its affiliates.
Capital Raising
Our Sponsor has programs that invest primarily in real property.
During the ten-year period ended December 31, 2020, our Sponsor sponsored three real estate programs that invest primarily in real property. In the aggregate, during this period our Sponsor has raised approximately $443 million from approximately 800 investors. See “Appendix A: Prior Performance Tables—Table I” for additional details about fund-raising for certain prior real estate programs by our Sponsor for the three-year period ended December 31, 2020.
Real Property Investments
During the ten years ended December 31, 2020, prior real estate programs by our Sponsor made investments in 13 real estate properties with an equity invested amount of approximately $ 406 million. The table below provides details about the location and aggregate invested cost of these properties.
Property Investments | ||||||||
Location | Number |
Cost
(in thousands) |
||||||
Northeastern United State | 12 | $ | 379,151 | |||||
Southeastern United States | 1 | 26,712 | ||||||
Total | 13 | $ | 405,863 |
The following table gives a breakdown of the aggregate investments in real property (based on purchase price of investments) made by prior real estate programs by our Sponsor, categorized by property type, as of December 31 2020.
Type of Property | Total | |||
Mixed Use | 64 | % | ||
Residential (including multifamily) | 32 | |||
Office/Retail | 4 | |||
100 | % |
The following table gives a breakdown of the aggregate investments in real property (based on purchase price of investments) made by prior real estate programs by our Sponsor, categorized by property condition, as of December 31, 2020.
Condition of Property | Total | |||
Used/Renovated | 14 | % | ||
New Construction | 86 | % | ||
100 | % |
Sales and Dispositions
As of the date of this prospectus two of the prior real estate programs by our Sponsor have disposed of an aggregate of four of their properties.
Investment Objectives
We consider a program to have an investment objective similar ours if the program pursues income and long-term growth by investing primarily in core-plus real estate or value-add real estate. Our Sponsor’s prior programs are Beacon Hill II Investments, LLC (“BH”), Belpointe Multifamily Development Fund I, LP (“BMF”) and Belpointe REIT, Inc. (“BREIT”). We believe that BH and BMF each have investment objectives similar to ours, with the goal of seeking “value-add” returns through the acquisition and management of a portfolio of multifamily and mixed-use properties in inefficiently priced markets throughout the United States, both on a direct basis and with joint-venture operating partners. BREIT has nearly the same investment objectives as we do, with the goal of acquiring and managing a diversified portfolio of commercial real estate properties and real estate-related assets located in qualified opportunity zones.
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Prior Program Summary
Set forth below is a description of all prior real estate programs by our Sponsor that were in their investment and operational phases in the last ten years.
During the ten-year period ended December 31, 2020, our Sponsor sponsored three real estate programs that invest primarily in real property. Each of these programs primarily made or will make control-oriented privately negotiated investments in commercial real estate properties and real estate-related assets, both on a direct basis and with joint-venture operating partners. BH and BMF each have investment objectives similar to ours and BREIT has nearly the same investment objectives as we do, but with the majority of its initial investments in properties that are located in qualified opportunity zones.
These three prior programs are as follows:
Belpointe Multifamily Development Fund I, LP (“BMF”)
BMF commenced on August 1, 2012 and closed on December 31, 2018, raising a total of approximately $159.5 million of capital commitments, with the goal of seeking “value-add” returns primarily from new construction in inefficiently priced in markets throughout the Northeastern United States, both on a direct basis and with joint-venture operating partners. As of the period ended December 31, 2020, BMF had made 10 investments in 10 properties with an aggregate acquisition and development costs of approximately $368.6 million in four multifamily properties, four mixed-use properties and 2 office properties. Set forth below is a brief description of each of BMF’s investments:
· | The Waypointe is the first phase of The Waypointe Redevelopment District, which is located in downtown Norwalk Connecticut and contains 464 new luxury apartments and 58,000 square feet of restaurant and retail space. This property was sold in August 2020 for approximately $157 million. |
· | Quincy Lofts at Waypointe is the second phase of The Waypointe Redevelopment District, which is located in downtown Norwalk, Connecticut and contains 69 new luxury apartments in a five-story building over covered parking. |
· | The Berkley at Waypointe is the third phase of The Waypointe Redevelopment District, which is located in downtown Norwalk, Connecticut and contains 129 new luxury apartments, with 4,800 square feet of restaurant space and 7,000 square feet of medical office space. |
· | Baypointe is a class A direct waterfront apartment community consisting of 109 units located on Stamford Harbor, in downtown Stamford, Connecticut. This mill style building is 110 feet off the water’s edge and has views of the long island sound and downtown Stamford. This property was sold in June 2020 for approximately $50 million. |
· | The Pinnacle at Waypointe is the fourth phase of The Waypointe Redevelopment District, which is located in downtown Norwalk, Connecticut and will contain 331 newly constructed luxury apartments and approximately 115,000 square feet of restaurants and retail space. This property was sold in December 2019 for approximately $44 million. |
· | Highpointe is an improved apartment community development that is located in the heart of Norwalk, Connecticut and will contain up to 299 newly constructed luxury apartments and approximately 17,000 square feet of medical office and/or retail spaces. Construction is expected to commence in 2022. |
· | Dreamy Hollow, originally constructed in late 1950s on 18.78 acres, with 13 2-story brick apartment buildings, is currently undergoing major renovations. The apartment community contains a wooded setting, behind stone walls and wood fences, which is located in Norwalk, Connecticut (about one mile from the Westport-Norwalk boarder). The 13 brick buildings contain a total of 164 apartment and townhouse units, which were converted to cooperative apartments several decades ago and now have been recently converted back into traditional apartments. Renovations at Dreamy Hollow are complete. |
· | Harborview at Waypointe is expected to be the fifth and final phase of The Waypointe Redevelopment District, which is located in downtown Norwalk, Connecticut. The Harborview development is expected to contain approximately 171 newly constructed luxury apartments. Construction is expected to commence in 2022. |
· | 520 West Avenue is fully renovated medical office and retail building in The Waypointe Redevelopment District, which is located in downtown Norwalk, Connecticut. The building has approximately 28,000 square feet of leasable space which is approximately 96% leased (75% lease to the Norwalk Hospital). |
· | 605 West Avenue is fully renovated medical office and retail building in The Waypointe Redevelopment District which is located in downtown Norwalk, Connecticut. The building has approximately 32,000 square feet of leasable space, which is 100% leased (66% leased to Connecticut Community Bank). |
See “Table VI Acquisitions of Properties by Program” in Part II of the registration statement of which this prospectus forms a part for additional details about acquisitions of properties for certain prior real estate programs by our Sponsor for which offerings
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have closed during the three-year period ended December 31, 2019, or are open ended. Upon request, we will furnish prospective investors with a copy of Table VI without charge.
Beacon Hill II Investments, LLC (“BH”)
BH commenced on May 19, 2015 and closed on January 13, 2016, raising a total of $6.0 million of capital commitments, with the goal of constructing a multifamily property located in the heart of downtown Greenwich, Connecticut. The BH development consists of nine condominium units. The BH development was completed and sold in February 2020.
See “Table VI Acquisitions of Properties by Program” in Part II of the registration statement of which this prospectus forms a part for additional details about acquisitions of properties for certain prior real estate programs by our Sponsor for which offerings have closed during the three-year period ended December 31, 2019, or are open ended. Upon request, we will furnish prospective investors with a copy of Table VI without charge.
Belpointe REIT, Inc. (“BREIT”)
BREIT commenced on February 11, 2019 and is currently fundraising with approximately $83.6 million of equity raised through the period ended December 31, 2020, with the goal of acquiring and managing a diversified portfolio of commercial real estate properties and real estate-related assets located in qualified opportunity zones.
See “Table VI Acquisitions of Properties by Program” in Part II of the registration statement of which this prospectus forms a part for additional details about acquisitions of properties for certain prior real estate programs by our Sponsor for which offerings have closed during the three-year period ended December 31, 2020, or are open ended. Upon request, we will furnish prospective investors with a copy of Table VI without charge.
Material Adverse Developments on Prior Programs
As of the date of this prospectus, none the prior real estate programs by our Sponsor have, since their inception, experienced any material adverse business developments or conditions that would be material to investors in this program.
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Security Ownership of Certain Beneficial Owners and Management
The following table sets forth, as of the date of this prospectus, information regarding the number and percentage of Class A units, Class B units and the Class M unit owned by each of our directors, each of our executive officers, all of our directors and executive officers as a group, and any person known to us to be the beneficial owner of more than 5% of our outstanding units. As of the date of this prospectus, we had 100 Class A units issued and outstanding, 100,000 Class B units issued and outstanding and one Class M unit issued and outstanding. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and includes securities that a person has the right to acquire within 60 days. Unless otherwise specified, the address for each of the persons named below is c/o Belpointe PREP, LLC, 255 Glenville Road, Greenwich, Connecticut 06831.
Class A units Beneficially Owned | Class B units Beneficially Owned | Class M units Beneficially Owned | ||||||||||||||||||||||
Name of Beneficial Owner | Number | Percent | Number | Percent | Number | Percent | ||||||||||||||||||
Directors and Officers | ||||||||||||||||||||||||
Brandon E. Lacoff (1) (2) | 100 | 100 | % | 100,000 | 100 | % | 1 | 100 | % | |||||||||||||||
Martin Lacoff | — | — | % | — | — | % | — | — | % | |||||||||||||||
All directors and officers as a group | 100 | 100 | % | 100,000 | 100 | % | 1 | 100 | % | |||||||||||||||
5% Unitholders | ||||||||||||||||||||||||
Belpointe, LLC (1) | 100 | 100 | % | — | — | % | — | — | % | |||||||||||||||
Belpointe PREP Manager, LLC (2) | — | — | % | 100,000 | 100 | % | 1 | 100 | % | |||||||||||||||
(1) |
As of the date of this prospectus, Belpointe, LLC, our Sponsor, owns 100 Class A units, and Brandon E. Lacoff, the manager of our Sponsor, may be deemed to share voting and dispositive power with respect to the Class A units held by our Sponsor. | |||||||||||||||
(2) | As of the date of this prospectus, Belpointe PREP Manager, LLC, our Manager, owns 100,000 Class B units and one Class M unit, and Brandon E. Lacoff, the manager of our Manager, may be deemed to share voting and dispositive power with respect to the Class B units and Class M unit held by our Manager. | |||||||||||||||
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Certain Relationships and Related Person Transactions
Belpointe REIT, Inc. Loans
On October 28, 2020, we entered into a secured loan transaction with Belpointe REIT, Inc., a Maryland corporation (“Belpointe REIT”), and affiliate of our Manager and Sponsor, pursuant to which we borrowed $35,000,000 from Belpointe REIT (the “First Belpointe REIT Loan”) for purposes of making three qualified opportunity zone investments. The First Belpointe REIT Loan is evidenced by a secured promissory note (the “First Secured Note”) which bears interest at a rate of 0.14%, is due and payable on June 30, 2021 (the “Maturity Date”) and is secured by all of our assets (the “Collateral”). On February 16, 2021, we entered into a second loan transaction with Belpointe REIT (the “Second Belpointe REIT Loan” and, together with the First Belpointe REIT Loan, the “Belpointe REIT Loans”) whereby Belpointe REIT advanced us an additional $24,000,000. The Second Belpointe REIT Loan is evidenced by a secured promissory note (the “Second Secured Note” and, together with the First Secured Note, the “Secured Notes”) which bears interest at a rate of 0.14%, is due and payable the Maturity Date and is secured by the Collateral. In the event that the Belpointe REIT Transaction (as hereinafter defined) is not consummated or that we do not raise sufficient proceeds in this offering by the Maturity Date, we may not be able to repay the amounts due under the Secured Notes and Belpointe REIT may proceed against the Collateral, which would have a material adverse effect on us and the holders of our Class A units and may result in you losing some or all of your investment.
Belpointe REIT Transaction
Concurrently with this offering, we, through our wholly owned subsidiary, BREIT Merger, LLC a Delaware limited liability company (“BREIT Merger”), are conducting a tender offer pursuant to which we are offering to exchange 1.05 of our Class A units for each outstanding share of common stock (the “Belpointe REIT Common Stock”) of Belpointe REIT that is validly tendered in the offer. The purpose of the offer is for the Company to acquire control of, and ultimately, the entire equity interest in, Belpointe REIT while at the same time preserving the status of Belpointe REIT’s investments as qualified opportunity zone investments. Our obligation to accept the Belpointe REIT Common Stock for exchange is subject to, among other conditions, the requirement that prior to the expiration of the offer there have been tendered a sufficient number of shares of Belpointe REIT Common Stock such that, upon the consummation of the offer, we would hold at least a majority of the aggregate voting power of the Belpointe REIT Common Stock outstanding.
The offer is the first step in our plan to acquire the entire equity interest in Belpointe REIT. Promptly after consummation of the offer, we will complete a sale of all of Belpointe REIT’s qualified opportunity zone investments (the “QOZB Sale”) for purposes of preserving their status as qualified opportunity zone investments and thereafter convert Belpointe REIT from a Maryland corporation into a Maryland limited liability company (as converted “BREIT LLC”) and merger BREIT LLC with and into BREIT Merger, with BREIT Merger surviving. In the merger each BREIT LLC unit will convert into the right to receive 1.05 Class A units of the Company.
The offer, QOZB Sale, conversion of Belpointe REIT into BREIT LLC and merger of BREIT LLC with and into BREIT Merger (collectively, the “Belpointe REIT Transaction”) are being made pursuant to an Agreement and Plan of Merger, dated as of April 21, 2021, by and among the Company, BREIT Merger and Belpointe REIT.
Review and Approval of Related Person Transactions
Our Board has adopted a written statement of policy for us regarding transactions with related persons. Our related person policy covers any “related person transaction” including, but not limited to, any transaction, arrangement or relationship (including any indebtedness or guarantee of indebtedness) or series of similar transactions, arrangements or relationships that is reportable by us under Item 404(a) of Regulation S-K in which we, our Operating Companies or any subsidiary were or are to be a participant and the amount involved exceeds $120,000 and in which any “related person” (as defined in Item 404(a) of Regulation S-K) had or will have a direct or indirect material interest. With certain limited exceptions, our related person policy requires that each related person transaction, and any material amendment or modification to a related person transaction, be reviewed and approved or ratified by our conflicts committee or by a majority of the disinterested members of our Board.
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The following summary of the material terms and provisions of our units, our Limited Liability Company Operating Agreement (our “operating agreement”) and certain relevant provisions of the Delaware Limited Liability Company Act (the “Act”) each as in effect at the time of this offering, does not purport to be complete and is qualified in its entirety by reference to our operating agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part, and applicable provision of Act. See “Where You Can Find More Information.”
General
Our operating agreement authorizes our Board to issue an unlimited number of additional units and an unlimited number of preferred units (the “preferred units”) and options, rights, warrants and appreciation rights relating to such units for consideration or for no consideration and on the terms and conditions as determined by our Board in its sole discretion without the approval of any Members. These additional securities may be used for a variety of purposes, including in future offerings to raise additional capital, acquisitions and employee benefit plans. Our operating agreement currently authorizes the issuance of Class A, Class B units and Class M units. On February 11, 2020, our Sponsor acquired 100 of our Class A units in connection with our formation for net proceeds to us of $10,000. As of the effective date of the registration statement of which this prospectus forms a part, there are 100 Class A units, 100,000 Class B units and one Class M units issued and outstanding.
Class A units
Upon payment in full of the consideration payable with respect to our Class A units, as determined by our Board, the holders of such Class A units will not be liable to us to make any additional capital contributions with respect to such Class A units (except as otherwise required by Sections 18-607 and 18-804 of the Act). No holder of our Class A units will be entitled to preemptive, redemption or conversion rights.
Voting Rights
Holders of Class A units are entitled to one vote per Class A unit held of record on all matters submitted to a vote of our Members. Generally, all matters to be voted on by our Member must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by the Members present in person or represented by proxy at a meeting of Members, voting together as a single class.
Distribution Rights
Holders of Class A units will share ratably (based on the number of Class A units held) in any distribution authorized by our Board out of funds legally available therefor, subject to any statutory or contractual restrictions on distributions and to any restrictions on distributions imposed by the terms of any outstanding preferred units.
Liquidation Rights
Upon our dissolution, liquidation or winding up, after payment in full of all amounts required to be paid to creditors and to the holders of preferred units having liquidation preferences, if any, the holders of our Class A units and any other equity securities we may subsequently issue that are pari passu with our Class A units will be entitled to receive our remaining assets available for distribution in proportion to the Class A units and other equity securities held by them as of a record date determined by the liquidator.
Other Matters
Under our operating agreement, in the event that our Board determines that we should seek relief pursuant to Section 7704(e) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), to preserve our status as a partnership for federal (and applicable state) income tax purposes, we and each of our Members will be required to agree to adjustments required by the tax authorities, and we will pay such amounts as required by the tax authorities to preserve our status as a partnership.
Class B units
As of the effective date of the registration statement of which this prospectus forms a part, all of our Class B units have been issued to and are held by our Manager. No holder of Class B units is entitled to preemptive, redemption or conversion rights.
Voting Rights
Holders of Class B units are entitled to one vote per Class B unit held of record on all matters submitted to a vote of our Members. Generally, all matters to be voted on by our Member must be approved by a majority (or, in the case of election of directors, by a plurality) of the votes entitled to be cast by the Members present in person or represented by proxy at a meeting of Members, voting together as a single class.
Distribution Rights
Holders of our Class B units are entitled to 5% of any gains recognized by or distributed to the Company or recognized by or distributed from the Operating Companies or any subsidiary. As a result, any time we recognize an operating gain (excluding depreciation) or receive a distribution, whether from continuing operations, net sale proceeds, refinancing transactions or otherwise,
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our Manager is entitled to receive 5% of the aggregate amount of such gain or distribution, regardless of whether the holders of our Class A units have received a return of their capital. The allocation and distribution rights that our Manager is entitled to with respect to its Class B units may not be amended, altered or repealed, and the number of authorized Class B Units may not be increased or decreased, without the consent of our Manager. In addition, our Manager will continue to hold 100% of our Class B units even if we terminate or elect not to renew the management agreement. Accordingly, for so long as our Manager continues to hold our Class B units, it will be entitled to receive 5% of the aggregate amount of any operating gain (excluding depreciation) that we recognize or distribution that we receive. See “Management Compensation.”
Liquidation Rights
Upon our dissolution, liquidation or winding up, after payment in full of all amounts required to be paid to creditors and to the holders of preferred units having liquidation preferences, if any, the holders of our Class B units will be entitled to receive any accrual of gains or distributions otherwise distributable to our Manager pursuant to its Class B units.
Class M units
As of the effective date of the registration statement of which this prospectus forms a part, the Class M unit has been issued to and is held by our Manager. The holder of the Class M unit is not entitled to preemptive, redemption or conversion rights.
Voting Rights
The holder of the Class M unit is entitled to that number of votes equal to the product obtained by multiplying (i) the sum of the aggregate number of outstanding Class A units plus Class B units, by (ii) 10, on matters on which the holder of our Class M unit has a vote. Generally, all matters to be voted on by our Members must be approved by a majority of the votes entitled to be cast by the Members present in person or represented by proxy at a meeting of Members, voting together as a single class.
Our Manager will hold our Class M unit for so long as it remains our manager. Accordingly, our Manager will be able to determine the outcome of all matters on which a holder of our Class M unit has a vote. Such matters include certain mergers and acquisitions, certain amendments to our operating agreement and the election of one Class III director (the “Class M Director”). The Class M unit does not represent an economic interest in the Company.
Distribution Rights
The holder of our Class M unit does not have any right to receive distributions.
Liquidation Rights
Upon our liquidation, dissolution or winding up, the holder of our Class M unit does not have any right to receive distributions in respect of its Class M unit.
Preferred units
Under our operating agreement, our Board may from time to time establish and cause us to issue one or more classes or series of preferred units and set the designations, preferences, rights, powers and duties of such classes or series. Accordingly, our Board, without Member approval, may issue preferred units with voting, conversion or other rights that could adversely affect the voting and other rights of the holders of our Class A units.
We could issue a series of preferred units that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of our Class A units might believe to be in their best interests or in which holders of our Class A units might receive a premium for their Class A units over the NAV of our Class A units.
Transfer Agent and Registrar
The transfer agent and registrar for our Class A units is Securities Transfer Corporation.
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Description of our Operating Agreement
The following summary of the material terms and provisions of our units, our Limited Liability Company Operating Agreement (our “operating agreement”), and certain relevant provisions of the Delaware Limited Liability Company Act (the “Act”) does not purport to be complete and is qualified in its entirety by reference to our operating agreement, which is filed as an exhibit to the registration statement of which this prospectus forms a part, and applicable provision of Act. See “Where You Can Find More Information.”
Organization and Duration
We were formed in Delaware on January 24, 2020 in accordance with the Act and will remain in existence until dissolved in accordance with the provisions of our operating agreement and the Act.
Purpose
Under our operating agreement, we are permitted to (i) directly, or indirectly through our Operating Companies or any subsidiary, acquire, develop, redevelop, own, hold, maintain, manage, finance, refinance, pledge, hypothecate, exchange, sell and otherwise deal in and with a diversified portfolio of commercial real estate properties located throughout the United States and its territories, as well as to acquire other real estate-related assets, including, but not limited to, commercial real estate loans and mortgages, and debt and equity securities issued by other real estate-related companies, private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses, (ii) to enter into any joint ventures, partnerships, co-tenancies and other co-ownership arrangements or participations partnership, joint venture, limited liability company or other similar arrangement to engage in any of the foregoing or to acquire, hold and dispose of interests in any corporation, partnership, joint venture, limited liability company, trust or other entity engaged, directly or indirectly, in any of the foregoing, and to exercise all of the rights and powers conferred upon the Company with respect to our interests therein, and (iii) to do anything necessary or incidental to the foregoing; provided, however, that the Company initially qualifies as a “qualified opportunity fund” under §1400Z-1 and §1400Z-2 of the Code as established by the Tax Cuts and Jobs Act of 2017.
Agreement to be Bound by Our Operating Agreement; Power of Attorney
By purchasing Class A units, you will be admitted as Member of Belpointe PREP, LLC and become bound by the terms of our operating agreement. Pursuant to our operating agreement, each holder of our Class A units and each person in whose name any of our Class A units are registered on the books and records or our transfer agent (each, a “Record Holder”) grants to us, our Manager (and, if appointed, a liquidator) a power of attorney to, among other things, execute and file documents required for our qualification, continuance or dissolution. The power of attorney also grants us the authority to make certain amendments to, and to make consents and waivers under, our operating agreement and certificate of formation, in each case in accordance with our operating agreement.
Duties of Our Manager, Officers and Directors
Our operating agreement provides that our business and affairs will be managed by or under the direction of our board of directors (our “Board”), which will have the power to appoint our officers and to engage our Manager, and to delegate to our officers and Manager the power to carry out the provisions of our operating agreement and the purposes, policies and business of the Company. In addition, our operating agreement provides that, except as specifically provided therein, the duties of care and loyalty owed to us and to the holders of our units are the same as the respective duties of care and loyalty owed by officers and directors of a corporation organized under the General Corporation Law of the State of Delaware (“DGCL”) to their corporation and stockholders, respectively.
There are certain provisions in our operating agreement regarding exculpation and indemnification of our Sponsor, Manager, officers and directors that differ from the DGCL.
First, our operating agreement provides that our officers and directors will be liable to us or the holders of our units for an act or omission only if such act or omission constitutes a breach of the duties owed to us or the holders of our units, as applicable, by any such officer or director and such breach is the result of (i) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case, that has resulted in, or could reasonably be expected to result in, a material adverse effect on us, or (ii) fraud, and that our Sponsor and Manager will not be liable to us or the holders of our units for any act or omission, including any mistake of fact or error in judgment. In addition, we have agreed to indemnify our Sponsor, Manager, officers and directors to the fullest extent permitted by applicable law, against all expenses and liabilities (including judgments, fines, penalties, interest, amounts paid in settlement with our approval and counsel fees and disbursements) arising from the performance of any of their obligations or duties in connection with their service to us, including in connection with any civil, criminal, administrative, investigative or other action, suit or proceeding to which any such person may be made a party by reason of being or having been one of our officers or directors or our Manager, except for any expenses or liabilities that have been finally judicially determined to have arisen primarily from acts or omissions which violate the standard set forth in the preceding sentence. To the extent that the indemnification provisions purport to include indemnification of liabilities arising under the Securities Act, in the opinion of the Securities and Exchange Commission (“SEC”), such indemnification is contrary to public policy and therefore unenforceable. Under the DGCL, a corporation can only indemnify officers and directors for acts or omissions if any such officer or director acted in good
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faith and in a manner reasonably believed to be in or not opposed to the best interest of the corporation and, in a criminal action, if the officer or director had no reasonable cause to believe their conduct was unlawful.
Second, our operating agreement provides that, in the event of an existing or potential conflict of interest involving our Sponsor, our Manager, one or more of our directors or their respective affiliates, a resolution or course of action by our directors or their affiliates will be deemed approved by all holders of our Class A units, and will not constitute a breach of our operating agreement or any duty (including any fiduciary duty), if such resolution or course of action meets certain standards as described in “—Conflicts of Interest” below. Under the DGCL, a corporation is not permitted to automatically exempt directors from claims of breach of fiduciary duty under such circumstances. In addition, our operating agreement provides that all conflicts of interest described in this prospectus are deemed to have been specifically approved by all holders of our Class A units who acquire Class A units on or after the date of this offering.
Election of Members of Our Board of Directors
Our Board currently consists of two directors and will consist of five directors as of the effective date of the registration statement of which this prospectus forms a part. The number of directorships on our Board may be increased or decreased at any time by the Board, however, a decrease may not shorten the term of any incumbent director. Our operating agreement divides our Board into three classes, designated Class I, Class II and Class III. The initial term of Class I directors will expire at our first annual meeting of Members following the effective date of the registration statement of which this prospectus forms a part, the initial term of Class II directors will expire at our second annual meeting of Members following the effective date of the registration statement of which this prospectus forms a part and the initial term of Class III directors will expire at our third annual meeting of Members following the effective date of the registration statement of which this prospectus forms a part. At each successive annual meeting of Members beginning with the first annual meeting, successors to the class of directors whose term expires at such annual meeting will be elected. The holders of our Class M units, voting separately as a class, are entitled to elect one Class III director (the “Class M Director”) all other directors will be elected by the vote of a plurality of our outstanding Class A units and Class B units, voting together as a single class, to serve for a three-year term and until their successors are duly elected or appointed and qualified.
Removal of Members of Our Board of Directors
Directors may only be removed from the Board for cause by the affirmative vote of at least 80% of the holders of Class A units and Class B units, voting together as a single class, however, the Class M Director may only be removed for cause by the affirmative vote of at least 80% of the holders of Class M units, voting separately as a class. A director serving on any committee of the Board may be removed from such committee at any time by the Board. A vacancy resulting from an increase in the number of directorships of any class or from the resignation, removal, incapacity or death of a director may be filled by a majority of the directors then in office. Any director appointed to fill a vacancy will serve for the remainder of the full term of the directorship in which the vacancy occurred.
Limited Liability
The Act provides that a member who receives a distribution from a Delaware limited liability company and knew at the time of the distribution that the distribution was in violation of the Act will be liable to the company for three years for the amount of the distribution. Under the Act, a limited liability company may not make a distribution to a member if, after the distribution, all liabilities of the company, other than liabilities to members on account of their limited liability company interests and liabilities for which the recourse of creditors is limited to specific property of the company, would exceed the fair value of the assets of the company. For the purpose of determining the fair value of the assets of a company, the Act provides that the fair value of property subject to liability for which recourse of creditors is limited is included in the assets of the company only to the extent that the fair value of that property exceeds the nonrecourse liability. Under the Act, an assignee who becomes a substituted member of a company is liable for the obligations of the assignor to make contributions to the company, except the assignee is not obligated for liabilities unknown to the assignee at the time the assignee became a member and that could not be ascertained from our operating agreement.
Amendment of Our Operating Agreement
Amendments to our operating agreement may be proposed only by or with the consent of our Board. To adopt a proposed amendment and except as set forth below, our Board is required to seek written approval of the holders of the number of units required to approve the amendment or call a meeting of Members to consider and vote upon the proposed amendment. Except as set forth below an amendment must be approved by holders of a majority of the total combined voting power of our outstanding units, voting together as a single class, and to the extent that such amendment would have a material adverse effect on the holders of any class or series of units, by a majority of the holders of such class or series. Issuances of securities with rights superior to those of our outstanding units or having a dilutive effect on our outstanding units will not be deemed to have a material adverse effect on the holders of our outstanding units.
Prohibited Amendments
No amendment to our operating agreement may be made that would:
· | enlarge the obligations of any Member without such Member’s consent, unless the Board determines the amendment to be necessary or appropriate (i) for our qualification or continued qualification as a limited liability company under |
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the laws of any state (ii) to ensure that we will not be treated as an association taxable as corporations or otherwise taxed as an entity for federal income tax purposes, or (iii) to comply with qualified opportunity fund requirements under the Code and any related Treasury Regulations or the requirements or requests of any taxing authority; or
· | change the provision in our operating agreement that provides that we will be dissolved upon an election to dissolve us by our Board that is approved by holders of a majority of the total combined voting power of our outstanding Class A units and Class B units, voting together as a single class; |
Our operating agreement provides that we may only amend the above-described provisions upon approval of Members holding at least 80% of the total combined voting power of our outstanding units.
Amendments Not Requiring Member Approval
Our Board may, in its sole discretion and without the approval of any Member (including a Member that may be materially and adversely affected), amend our operating agreement to reflect:
· | a change in our name, the location of our principal place of business, our registered agent or our registered office; |
· | the admission, substitution, resignation or removal of Members in accordance with our operating agreement; |
· | a change that our Board determines to be necessary or appropriate for us to qualify or continue our qualification as a limited liability company under the laws of any state or to ensure that neither we nor any of our subsidiaries will be treated as an association taxable as a corporation or otherwise taxed as an entity for U.S. federal income tax purposes, unless we specifically elect to be treated otherwise; |
· | a change that our Board determines to be necessary or appropriate to ensure that we comply with the qualified opportunity fund requirements under the Code and any related Treasure Regulations or the requirements of any taxing authority, unless we specifically elect to be treated otherwise; |
· | a change that our Board determines to be necessary or appropriate to address changes in U.S. federal income tax regulations, legislation or interpretation; |
· | a change in our fiscal year or taxable year and related changes that our Board determines to be necessary, desirable or appropriate as a result of a change in our fiscal year or taxable year; |
· | an amendment that our Board determines, based upon the advice of counsel, to be necessary or appropriate to prevent us, our Manager or any director, officer or other agent from in any manner being subjected to the provisions of the Investment Company Act, the Investment Advisers Act of 1940, as amended, Title I of the U.S. Employee Retirement Income Security Act of 1974, as amended, Section 4975 of the Code or any applicable similar law; |
· | an amendment or issuance that our Board determines to be necessary or appropriate for the authorization or issuance of additional securities; |
· | any amendment expressly permitted in our operating agreement to be made by our Board acting alone; |
· | an amendment effected, necessitated or contemplated by a merger agreement that has been approved under the terms of our operating agreement; |
· | any amendment that our Board determines to be necessary or appropriate for the formation by the Company of, or our investment in, any corporation, partnership or other entity, as otherwise permitted by our operating agreement; |
· | a merger of the Company or any subsidiary into, or conveyance of all of the Company’s assets to, a newly formed entity, for the sole purpose of effecting a change in legal form into another limited liability entity; |
· | an amendment effected, necessitated or contemplated by an amendment to the operating agreement or other governing document of one of our direct subsidiaries that requires the equity holders of such subsidiary to provide a statement, certification or other proof of evidence to the subsidiary regarding whether such equity holder is subject to U.S. federal income taxation on the income generated by such subsidiary; and |
· | any other amendments substantially similar to any of the above-described provisions. |
In addition, our Board may, in its sole discretion and without the approval of any Member (including a Member that may be materially and adversely affected), amend our operating agreement to reflect a change the Board determines:
· | does not adversely affect the Members considered as a whole (or adversely affect the holders of any particular class or series of units as compared to the holders of another classes or series of units) in any material respect; |
· | is necessary or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any governmental entity or contained in any applicable law; |
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· | is necessary, desirable or appropriate to facilitate the trading of our units or to comply with any rule, regulation, guideline or requirement of any securities exchange or market on which our units are or will be listed or quoted for trading; |
· | is necessary or appropriate in connection with action taken by our Board relating to splits or combinations of units under our operating agreement; or |
· | is required to effect the intent expressed in the registration statement of which this prospectus forms a part or any other registration statement we file under the Securities Act or the intent of the provisions of our operating agreement or is otherwise contemplated by our operating agreement. |
Merger, Sale or Other Disposition of Assets
If certain conditions specified in our operating agreement are satisfied, our Board may convert or merge the Company or any of our subsidiaries into, or convey all of the Company’s assets to, a newly formed limited liability entity, in each case without any approval of our Members, if the sole purpose of the conversion, merger or conveyance is to effect a change in our legal form into another limited liability entity. All other mergers, consolidations and other business combinations require the approval of both our Board and a majority of the total combined voting power of all of our outstanding units, voting together as a single class. Holders of our Class A units are not entitled to dissenters’ rights of appraisal under our operating agreement or applicable law in the event of a merger, consolidation or other business combination, a conversion or a sale of all or substantially all of the Company’s assets or any other similar transaction or event.
Termination and Dissolution
We will continue as a limited liability company until terminated under the terms of our operating agreement. We will dissolve and our affairs will be wound up:
· | upon an election to dissolve the Company by our Board that is approved by holders of a majority of the total combined voting power of all of our outstanding Class A units and Class B units, voting together as a single class; |
· | upon the entry of a decree of judicial dissolution of the Company pursuant to the Act; or |
· | at any time that there are no Members of the Company unless the business of the Company is continued in accordance with the Act. |
Election to be Treated as a Corporation
If our Board determines, in its sole discretion, that it is no longer in our best interests to continue as a partnership for U.S. federal income tax purposes, our Board may elect to treat us as an association or as a publicly traded partnership taxable as a corporation for U.S. federal (and applicable state) income tax purposes.
Books and Reports
Our operating agreement requires that we keep appropriate books and records of our business at our principal offices. Our books will be maintained for both tax and financial reporting purposes on an accrual basis in accordance with U.S. GAAP. Our fiscal year is the calendar year ending December 31. Our Board, in its sole discretion, may change our fiscal year at any time as may be required or permitted under the Code or applicable Treasury Regulations.
Our operating agreement requires that we use reasonable efforts to furnish each Member, as soon as practicable after the end of each fiscal year, with a Schedule K-1 to IRS Form 1065 and any comparable statements required by applicable federal, state or local income tax law. However, it may require a substantial period of time after the end of our fiscal year to obtain the requisite information from all lower-tier entities to enable us to prepare and deliver Schedule K-1s. For this reason, holders of our Class A units who are U.S. taxpayers should anticipate the need to file annually with the IRS (and certain states) a request for an extension past the due date of their income tax returns. See “Material U.S. Federal Tax Considerations—Administrative Matters—Information Returns.”
Unrestricted Ability to Issue Additional Securities
Our operating agreement authorizes us to issue additional units, and options, rights, warrants and appreciation rights relating to units, including units entitled to a preference or priority over our Class A units in the right to share in our distributions, for such consideration (or for no consideration) and on such terms and conditions established by our Board without the approval of any of our Members. These additional units may be used for a variety of purposes, including future offerings to raise additional capital, acquisitions and employee benefit plans. Our ability to issue additional units and other equity securities could discourage or make an attempt to obtain control over us more difficult, including those attempts that might result in a premium over the market price for the holders of our Class A units or that a holder of our Class A units might consider to be in its best interest.
Manager’s Class B Units
In partial consideration of our Manager organizing the Company and undertaking the risk associated with this offering, our Manager has received Class B units, which entitle our Manager to 5% of any gains recognized by or distributed to the Company or
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recognized by or distributed from the Operating Companies or any subsidiary. As a result, any time we recognize an operating gain (excluding depreciation) or receive a distribution, whether from continuing operations, net sale proceeds, refinancing transactions or otherwise, our Manager is entitled to receive 5% of the aggregate amount of such gain or distribution, regardless of whether the holders of our Class A units have received a return of their capital. The allocation and distribution rights that our Manager is entitled to with respect to its Class B units may not be amended, altered or repealed, and the number of authorized Class B Units may not be increased or decreased, without the consent of our Manager. In addition, our Manager will continue to hold 100% of our Class B units even if we terminate or elect not to renew the management agreement. Accordingly, for so long as our Manager continues to hold our Class B units, it will be entitled to receive 5% of the aggregate amount of any operating gain (excluding depreciation) that we recognize or distribution that we receive. See “Management Compensation.”
Conflicts of Interest
In general, whenever an actual or potential conflict of interest arises between our Sponsor, our Manager, one or more of our directors or their respective affiliates, on the one hand, and the Company, one or more of our subsidiaries or any holder of our units other than our Sponsor or our Manager, on the other hand, any resolution or course of action taken by our Board will be deemed approved by all of our Members and will not constitute a breach of our operating agreement or any legal or equitable duty (including any fiduciary duty) if the resolution or course of action in respect of the conflict of interest is:
· | on terms no less favorable to the Company, our subsidiaries or the holders of our units than those generally being provided to or available from unrelated third parties; |
· | fair and reasonable to the Company taking into account the totality of the relationships among the parties involved; |
· | approved or ratified by a majority of our disinterested directors; or |
· | approved or ratified by holders of a majority of the total combined voting power of our outstanding Class A units and Class B units, voting together as a single class. |
Our failure to seek the approval of or ratification by the holders of our units or disinterested directors, as described above, will not be deemed to indicate that a conflict of interest exists or that approval or ratification could not have been obtained. If our Board determines that any resolution or course of action satisfies the first or second standards described above, it will be presumed that our Board acted in good faith in making such determination, and any holder or our Class A units seeking to challenge our Board’s determination would bear the burden of overcoming this presumption.
Any conflicts of interest described in or contemplated by this prospectus will be deemed approved by holders of our Class A units who acquire Class A units on or after the date of this offering and will not constitute a breach of our operating agreement or any legal, equitable or other duty.
In addition, our operating agreement contains provisions that waive or consent to conduct by the Company, our Manager, our directors or our affiliates that might otherwise raise issues about compliance with fiduciary duties or otherwise applicable law. For example, our operating agreement provides that when our Board, our Manager, the Company or our affiliates is permitted or required to make a decision in its “sole discretion” or “discretion” or that it deems “necessary or appropriate” or “necessary or advisable” or under a grant of similar authority or latitude, then, to the fullest extent permitted by law, our Board, our Manager the Company or our affiliates, as the case may be, may make such decision in its sole discretion (regardless of whether there is a reference to “sole discretion” or “discretion”), and will be entitled to consider only such interests and factors as it desires, including its own interests, and will have no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of or factors affecting the Company, any of our subsidiaries or our Members, and will not be subject to any other or different standards imposed by our operating agreement, any other agreement contemplated thereby, under the Act, or under any other law or in equity, but in all circumstances must exercise such discretion in good faith.
These modifications of fiduciary duties are expressly permitted by Delaware law. Hence, we and the holders of our Class A units will only have recourse and be able to seek remedies against our directors if our directors breach their obligations pursuant to our operating agreement. Unless our directors breach their obligations pursuant to our operating agreement, we and the holders of our Class A units will not have any recourse even if our directors were to act in a manner that was inconsistent with traditional fiduciary duties. Furthermore, even if there has been a breach of the obligations set forth in our operating agreement, our operating agreement provides that our directors will not be liable to us or holder of our Class A units for errors of judgment or for any acts or omissions unless there has been a final and non-appealable judgment by a court of competent jurisdiction determining that such breach is the result of (i) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case, that has resulted or could reasonably be expected to have a material adverse effect on the Company, or (ii) fraud. In addition, our operating agreement provides that our Sponsor and our Manager will owe no duties to the Company or holders of our Class A units and will have no liability to the Company or any holder of our Class A units for monetary damages or otherwise for their actions.
These modifications are detrimental to the holders of our Class A units because they restrict the remedies available to holders of our Class A units for actions that without those limitations might constitute breaches of duty (including fiduciary duty).
Actual or potential conflicts of interest could arise in the following circumstances, among others:
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· | The amount of cash flow from operations that is available for distribution to holders of our Class A units may be affected by decisions of our Board and our Manager regarding matters such as the (i) amount and timing of cash expenditures, (ii) amount and timing of investments and dispositions, (iii) levels of indebtedness, (iv) tax matters, (v) levels of reserves, and (vi) issuance of additional equity securities, including additional Class A units. |
· | Any agreements between the Company, on the one hand, and our Sponsor, our Manager or our affiliates, on the other, will not grant to the holders of our Class A units, separate and apart from the Company, the right to enforce the obligations of our Sponsor, our Manager or our affiliates in the Company’s favor. |
· | Neither our operating agreement nor any of the other agreements, contracts and arrangements between the Company, on the one hand, and our Sponsor, our Manager or our affiliates, on the other, are or will be the result of arm’s-length negotiations. Our Board or our Manager will determine the terms of any of these transactions on terms that it considers are fair and reasonable to us. |
Attorneys, independent accountants and others who will perform services for the Company are selected by our Board or our Manager and may perform services for the Company and our affiliates. We may retain separate counsel for the Company or holders of our Class A units in the event of a conflict of interest between our Sponsor, our Manager or our affiliates, on the one hand, and the Company or the holders of our Class A units, on the other, depending on the nature of the conflict, but are not required to do so.
See “Risk Factors—Risks Related to Conflicts of Interest” for a more detailed description of some of the material risks that we face related to conflicts of interest.
Meetings of Members; Action Without a Meeting
We are not required under our operating agreement to hold regular meetings of our Members. Special meetings may be called by a majority of our Board, the Chairman of our Board or our Chief Executive Officer. At any meeting of our Members, the presence, in person or by proxy, of holders representing one-third of the units entitled to vote on a matter is necessary to constitute a quorum. Generally, all matters to be voted on by our Members must be approved by a majority of the total combined voting power of our outstanding units entitled to be cast in person or by proxy voting at a meeting. The holder of our Class M unit, voting separately as a class, is entitled to elect one Class III director (the “Class M Director”) all other directors will be elected by a plurality of votes of our Class A units and Class B units, voting together as a single class. Directors may only be removed from the Board for cause by the affirmative vote of at least 80% of the holders of Class A units and Class B units, voting together as a single class, however, the Class M Director may only be removed for cause by the affirmative vote of the holder of Class M unit, voting separately as a class. Under our operating agreement and the Act, we may hold meetings in person or by remote communication.
Our operating agreement establishes advance notice procedures with respect to Member proposals and the nomination of persons for election as directors at annual meetings of our Members. Specifically, the Member must deliver notice to the Company secretary not earlier than the close of business on the 120th day nor later than the close of business on the 90th day prior to the anniversary date of the immediately preceding annual meeting of Members (subject to certain exceptions).
In addition, any action that may be taken at a meeting of our Members may instead be taken upon the written consent of Members representing not less than the minimum percentage of the votes entitled to be cast that would be necessary to authorize or take such action at a meeting at which all of our Members were present and voted. Actions by written consent may be taken without a meeting, without a vote and without prior notice.
Transfer Restrictions
Transfers of our Class A units may only occur in accordance with the procedures set forth in our operating agreement. Our Class A units may not be transferred in any transaction that would:
· | violate then-applicable U.S. federal or state securities laws or regulations or any governmental authority with jurisdiction over the transfer; |
· | terminate our existence or qualification under the laws of any jurisdiction; |
· | cause us to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for U.S. federal income tax purposes (to the extent that we are not already so treated or taxed); or |
· | require us to become subject to the registration requirements of the Investment Company Act. |
To the fullest extent permitted by law, a purported transfer of Class A units in violation of the restrictions set forth in our operating agreement will be null and void, and we will not be required to and will not recognize the transfer. In the event of a purported transfer prohibited by our operating agreement, we may, in our discretion, require that the purported transferor take steps to unwind, cancel or reverse the purported transaction. The purported transferee will have no rights or economic interest in the Class A units. In addition, we may, in our discretion, redeem the Class A units or cause the transfer of the Class A units to a third party and distribute the proceeds of the sale (net of any expenses) to the purported transferor.
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Description of the Operating Agreements of our Operating Companies
The following is a summary of the material terms and provisions of the Limited Liability Company Operating Agreements of our Operating Companies.
Management
All of our assets are and will continue to be held by, and all of our operations are and will continue to be conducted through, one or more operating companies (each an “Operating Company” and together the “Operating Companies”), either directly or indirectly through subsidiaries.
Belpointe PREP OC, LLC, a Delaware limited liability company (“Belpointe PREP OC”), was formed as an Operating Company on January 24, 2020 and Belpointe PREP TN OC, LLC, a Delaware limited liability company (“Belpointe PREP TN OC”), was formed as an Operating Company on February 16, 2021, each to acquire and hold assets on our behalf. Our Manager is and is expected to continue to be the manager of each of Belpointe PREP OC and Belpointe PREP TN OC. As of the date of this prospectus, we are the only member of our Operating Companies.
Pursuant to our Operating Companies’ limited liability company operating agreements (the “OC operating agreements”) and our management agreement our Manager, subject to Board oversight, has full, exclusive and complete responsibility and discretion in the management and control of our Operating Companies, including the ability to cause our Operating Companies to enter into certain major transactions such as acquisitions, dispositions and refinancings, in accordance with our investment objectives and strategy and investment guidelines, to make distributions to members, and to cause changes in our Operating Companies’ business activities. Our Board will at all times have ultimate oversight and policy-making authority, including responsibility for governance, financial controls, compliance and disclosure with respect to our Operating Companies.
The OC operating agreements requires that our Operating Companies conduct their operations in a manner that allows us to qualify as a publicly traded partnership and qualified opportunity fund for U.S. federal income tax purposes, unless we otherwise cease to qualify as a publicly traded partnership or qualified opportunity fund. Accordingly, for purposes of satisfying the 90% Asset Tests for our qualification as a qualified opportunity fund, our Operating Companies will conduct their operations in a manner that allows a membership interest in our Operating Companies to be treated as qualified opportunity zone property. See “Material U.S. Federal Income Tax Considerations.”
As the manager of Belpointe PREP OC, our Manager has the exclusive power to manage and conduct the business of our Operating Companies. None of the members of our Operating Companies may transact business for our Operating Companies, or participate in management activities or decisions, except as required by applicable law.
Any future members of our Operating Companies will expressly acknowledge that our Manager, as the manager of our Operating Companies, is acting on behalf of the Operating Companies, the Company and the holders of our units, collectively. Neither we, our Board nor our Manager is under any obligation to give priority to the separate interests of the members of our Operating Companies or the holders of our units in deciding whether to cause our Operating Companies to take or decline to take any actions. If there is a conflict between the interests of the holders of our units, on the one hand, and our Operating Companies’ members, on the other, we or our Manager will endeavor in good faith to resolve the conflict in a manner that is not adverse to either the holders of our units or our Operating Companies’ members, provided, however, that for so long as we own a controlling interest in our Operating Companies, any conflict that cannot be resolved in a manner that is not adverse to either the holders of our units or our Operating Companies’ members may be resolved in favor of the holders of our units. Neither we, our Board nor our Manager are liable under the OC operating agreements to our Operating Companies or to any of their members for monetary damages for losses sustained, liabilities incurred or benefits not derived by such members in connection with such decisions, provided that we have acted in good faith.
Capital Contributions
We intend to contribute the net proceeds from this offering, after payment of fees and expenses attributable to our offering and operations, to our Operating Companies (and any other Operating Companies that we may form) as capital contributions. However, we will be deemed to have made capital contributions in the amount of the gross offering proceeds received from investors in this offering, and our Operating Companies will be deemed to have simultaneously paid the fees, expenses and other costs associated with this offering and our operations.
If our Operating Companies require additional funds at any time in excess of capital contributions made by us, our Operating Companies may borrow funds from a financial institution or other lenders or we or any of our affiliates may provide such additional funds through loans, purchase of additional limited liability company membership interests or otherwise (which we or such affiliates will have the option, but not the obligation, of providing). In addition, our Operating Companies may admit additional members whose investments may be subject to a management fee and repurchase limitations.
Reimbursement of Expenses
our Operating Companies will reimburse us, our Manager and its affiliates, including our Sponsor, for all expenses advanced on behalf of our Operating Companies, including all expenses relating to their:
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· | formation, continuity of existence and operation; |
· | preparation and filing of any of periodic or other reports and communications under U.S. federal, state or local laws or regulations; |
· | compliance with laws, rules and regulations promulgated by any regulatory body; and |
· | other operating or administrative costs incurred in the ordinary course of business. |
Membership Interests Generally
Membership interests represent an interest as a limited liability company in our Operating Companies. Our Operating Companies may issue additional membership interests and classes of membership interests with rights different from, and superior to, those of membership interests of any class, without the consent of the members. Holders of membership interests do not have any preemptive rights with respect to the issuance of additional membership interests.
Members generally are not liable for the debts and liabilities of our Operating Companies beyond the amount of their capital contributions. The voting rights of the members of any class are generally limited to approval of specific types of amendments to the OC operating agreements.
Transferability of Interests
With certain exceptions, the members may not transfer their interests in our Operating Companies, in whole or in part, without prior written consent of the Manager.
Exculpation
Pursuant to the OC operating agreements, neither we, our Board, our Manager, our Sponsor nor our or their respective affiliates will be liable to our Operating Companies or their members for errors in judgment or other acts or omissions not amounting to willful misconduct or gross negligence. Therefore, future members of our Operating Companies have a more limited right of action than they would have absent such limitations.
Indemnification
The OC operating agreements provides for the indemnification of us, our directors, officers, Manager, Sponsor and our and their respective affiliates by our Operating Companies for liabilities we incur in dealings with third parties on behalf of our Operating Companies. To the extent that the indemnification provisions purport to include indemnification of liabilities arising under the Securities Act, in the opinion of the SEC, such indemnification is contrary to public policy and therefore unenforceable.
Tax Matters
Our Manager will act as our Operating Companies’ “partnership representative” as defined the Code and will have the authority to make tax elections under the Code on our Operating Companies’ behalf.
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Material U.S. Federal Tax Considerations
This summary discusses the material U.S. federal income tax considerations related to the purchase, ownership and disposition of our Class A units as of the date hereof. This summary is based on provisions of the U.S. Internal Revenue Code of 1986, as amended (the “Code”), on the regulations promulgated thereunder and on published administrative rulings and judicial decisions, all of which are subject to change at any time, possibly with retroactive effect. This discussion is limited to the material U.S. federal income tax considerations related to the purchase, ownership and disposition of our Class A units and does not cover all U.S. federal income tax considerations that may be applicable to a particular investor. In particular, certain categories of investors, such as banks or other financial institutions, insurance companies, persons liable for the alternative minimum tax, dealers and other investors that do not own their Class A units as capital assets, and, except to the extent discussed below, tax-exempt organizations, mutual funds and non-U.S. Holders (as hereinafter defined), may be subject to special rules not described herein. Such investors should consult with their tax advisors concerning the U.S. federal, state and local income tax consequences in their particular situations of the purchase, ownership and disposition of a Class A unit. The actual tax consequences of the purchase, ownership and disposition of Class A units will vary depending on your circumstances. This discussion, to the extent it states matters of U.S. federal tax law or legal conclusions and subject to the qualifications herein, represents the opinion of Sugar Felsenthal Grais & Helsinger LLP. Such opinion is based in part on facts described in this prospectus and on various other factual assumptions, representations and determinations, including representations contained in certificates provided to Sugar Felsenthal Grais & Helsinger LLP. Any alteration or incorrectness of such facts, assumptions, representations or determinations could adversely impact the accuracy of this summary and such opinion. Moreover, opinions of counsel are not binding on the IRS or any court, and the U.S. Internal Revenue Service (“IRS”) may challenge the conclusions herein, and a court may sustain such a challenge.
For purposes of this discussion, a “U.S. Holder” is a beneficial holder of a Class A unit that is for U.S. federal income tax purposes: (i) an individual citizen or resident of the United States; (ii) a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia; (iii) an estate, the income of which is subject to U.S. federal income taxation regardless of its source; or (iv) a trust if it (a) is subject to the primary supervision of a court within the United States and one or more U.S. persons have the authority to control all substantial decisions of the trust or (b) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person. A “non-U.S. Holder” is a beneficial holder of a Class A unit that is not a U.S. Holder.
If a partnership holds our Class A units, the tax treatment of a partner in the partnership will depend on the status of the partner and the activities of the partnership. If you are a partner of a partnership holding our Class A units, you should consult your tax advisers. This discussion does not constitute tax advice and is not intended to be a substitute for tax planning.
All prospective holders of our Class A units should consult their own tax advisers concerning the U.S. federal, state and local income tax consequences, as well as any tax consequences under the laws of any other taxing jurisdiction, in relation to their particular tax circumstances prior to acquiring, holding or disposing of any of our Class A units.
Taxation of Belpointe PREP, LLC
Generally, an entity that is treated as a partnership for U.S. federal income tax purposes is not a taxable entity and incurs no U.S. federal income tax liability. Rather, each partner is required to take into account its allocable share of items of income, gain, loss and deduction of the partnership in determining its U.S. federal income tax liability, regardless of whether cash distributions are made. Distributions of cash by a partnership to a partner are not taxable unless the amount of cash distributed to a partner is in excess of the partner’s adjusted basis in its partnership interest.
Notwithstanding the foregoing, unless an exception applies, an entity that would otherwise be classified as a partnership for U.S. federal income tax purposes may nevertheless be taxable as a corporation if it is a “publicly traded partnership” within the meaning of Section 7704 of the Code. An entity that would otherwise be classified as a partnership is a publicly traded partnership within the meaning of Section 7704 of the Code if (i) interests in the partnership are traded on an established securities market, or (ii) interests in the partnership are readily tradable on a secondary market or the substantial equivalent thereof. We have applied to have our Class A units listed on the NYSE American under the symbol “OZ.” There is, however, an exception to taxation as a corporation which is available if at least 90% of a partnership’s gross income for every taxable year consists of “qualifying income” and the partnership is not required to register under the Investment Company Act (the “Qualifying Income Exception”). Qualifying income includes certain interest income, dividends, real property rents, gains from the sale or other disposition of real property and any gain from the sale or disposition of a capital asset or other property held for the production of income that otherwise constitutes qualifying income.
We intend to manage our affairs so that we will meet the Qualifying Income Exception in each taxable year. We believe we will be treated as a partnership and not as a corporation for U.S. federal income tax purposes. It is the opinion of Sugar Felsenthal Grais & Helsinger LLP that we will be treated as a partnership and not as an association or publicly traded partnership (within the meaning of Section 7704 of the Code) subject to tax as a corporation for U.S. federal income tax purposes based on factual statements and representations made by us, including statements and representations as to the manner in which we intend to manage our affairs and the composition of our income. However, this opinion is based solely on current law and will not take into account any proposed or potential changes in law, which may be enacted with retroactive effect. Moreover, opinions of counsel are not binding upon the IRS or any court, and the IRS may challenge this conclusion and a court may sustain such a challenge.
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If we fail to meet the Qualifying Income Exception, other than for a failure that is determined by the IRS to be inadvertent and that is cured within a reasonable time after discovery, or if we are required to register under the Investment Company Act, we will be treated as if we had transferred all of our assets, subject to liabilities, to a newly formed corporation on the first day of the year in which we fail to meet the Qualifying Income Exception in return for stock in that corporation, and then distributed the stock to the holders of Class A units in liquidation of their interests in us. This contribution and liquidation should be tax-free to holders so long as we do not have liabilities in excess of the tax basis of our assets. Thereafter, we would be treated as a corporation for U.S. federal income tax purposes.
If we were to be treated as a corporation in any taxable year, either as a result of a failure to meet the Qualifying Income Exception or otherwise, items of income, gain, loss and deduction would be reflected only on our tax return rather than being passed through to holders of Class A units, and we would be subject to U.S. corporate income tax on our taxable income. Distributions made to holders of our Class A units would be treated as either (i) taxable dividend income, which may be eligible for reduced rates of taxation, to the extent of our current or accumulated earnings and profits, or (ii) in the absence of earnings and profits, as a nontaxable return of capital, to the extent of a holder’s tax basis in our Class A units, or as taxable capital gain, after a holder’s basis is reduced to zero. In addition, in the case of non-U.S. Holders, income that we receive with respect to investments may be subject to a higher rate of U.S. withholding tax if we are treated as a corporation. Accordingly, treatment as a corporation could materially reduce a holder’s after-tax return and thus could result in a substantial reduction of the value of our Class A units.
If at the end of any taxable year we fail to meet the Qualifying Income Exception, we may still qualify as a partnership if we are entitled to relief under the Code for an inadvertent termination of partnership status. This relief will be available if (i) the failure is cured within a reasonable time after discovery, (ii) the failure is determined by the IRS to be inadvertent, and (iii) we agree to make such adjustments (including adjustments with respect to our partners) or to pay such amounts as are required by the IRS. It is not possible to state whether we would be entitled to this relief in any or all circumstances. It also is not clear under the Code whether this relief is available for our first taxable year as a publicly traded partnership. If this relief provision is inapplicable to a particular set of circumstances involving us, we will not qualify as a partnership for U.S. federal income tax purposes. Even if this relief provision applies and we retain our partnership status, we or the holders of our Class A units (during the failure period) will be required to pay such amounts as are determined by the IRS.
The remainder of this summary assumes that we will be treated as a partnership for U.S. federal income tax purposes.
Taxation of our Operating Companies
All of our assets are and will continue to be held by, and all of our operations are and will continue to be conducted through, one or more operating companies (each an “Operating Company” and together the “Operating Companies”), either directly or indirectly through subsidiaries.
As of the date of this prospectus we have two Operating Companies, Belpointe PREP OC, LLC, which is a wholly owned Delaware limited liability company and Belpointe PREP TN OC, LLC, which is a wholly owned Delaware limited liability company. Each Operating Company will be treated as an entity disregarded as a separate entity from us for U.S. federal income tax purposes. Accordingly, all the assets, liabilities and items of income, deduction and credit of the Operating Companies will be treated as our assets, liabilities and items of income, deduction and credit.
Tax Treatment of Qualified Opportunity Funds
We intend to manage our affairs so that we will meet the requirements for classification as a “qualified opportunity fund,” pursuant to Section 1400Z-2 of the Code and the related regulations, correcting amendments and additional relief issued by the U.S. Department of the Treasury and IRS on each of December 19, 2019, April 1, 2020 and January 19, 2021, respectively (collectively the “Opportunity Zone Regulations”).
A qualified opportunity fund is generally defined as an investment vehicle that is taxed as a corporation or partnership for U.S. federal income tax purposes and organized to invest in, and at least 90% of its assets consist of, “qualified opportunity zone property” (the “90% Asset Test”). Qualified opportunity zone property includes (i) “qualified opportunity zone stock,” (ii) “qualified opportunity zone partnership interests,” and (iii) “qualified opportunity zone business property.”
“Qualified opportunity zone stock” includes newly issued stock acquired solely in exchange for cash from an entity classified as a domestic corporation for U.S. federal income tax purposes, where the corporation’s trade or business is a “qualified opportunity zone business” business at the time of acquisition and during substantially all of the holding period for the stock.
“Qualified opportunity zone partnership interests” include any capital or profits interests acquired solely in exchange for cash from an entity classified as a domestic partnership for U.S. federal income tax purposes, where the partnership’s trade or business is a “qualified opportunity zone business” business at the time of acquisition and during substantially all of the holding period for the interests.
“Qualified opportunity zone business property” is to tangible property acquired by purchase or lease by a qualified opportunity fund and substantially all of the use of which is in a qualified opportunity zone during substantially all of the fund’s holding period or lease term.
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In order to be a “qualified opportunity zone business,” a corporation or partnership must meet the following requirements: (i) substantially all of the tangible property owned or leased is qualified opportunity zone business property; (ii) at least 50% of the gross income is derived from and a substantial portion of the intangible property is used in the active conduct of a trade or business in a qualified opportunity zone; (iii) less than 5% of the average aggregate unadjusted bases of the property is attributable to nonqualified financial property (subject to a working capital safe harbor); and (iv) it is not engaged in a “sin business” (i.e., private or commercial golf course, country club, massage parlor, hot tub facility, suntan facility, racetrack or gambling facility, the sale of alcoholic beverages for consumption off premises).
We intend that our Operating Companies and subsidiaries will meet the requirements for an interest in our Operating Companies and subsidiaries to be treated as a qualified opportunity zone property. However, the ability for an interest in our Operating Companies and subsidiaries to be treated as a qualified opportunity zone property from the time of their formation and to operate in conformity with the requirements to continue to be treated as a qualified opportunity zone property is subject to uncertainty.
A qualified opportunity fund must determine whether it meets the 90% Asset Test on each of: (i) the last day of the first six-month period of its taxable year, and (ii) the last day of its taxable year (each a “Semiannual Test Date”). A qualified opportunity fund may apply the 90% Asset Test without taking into account investments received in the 6-month period preceding the Semiannual Test Date provided those investments are (i) received (a) solely in exchange for stock by a qualified opportunity fund that is a corporation, or (b) as a contribution by a qualified opportunity fund that is a partnership, and (ii) held continuously from the fifth business day after the exchange or contribution, as applicable, through the Semiannual Test Date in cash, cash equivalents or debt instruments with a term of 18 months or less.
Subject to a one-time six-month cure period, for each month following a Semiannual Test Date in which a qualified opportunity fund fails to meet the 90% Asset Test it will incur a penalty equal to (a) the excess of 90% of the fund’s aggregate assets over the aggregate amount of qualified opportunity zone property held by the fund, multiplied by (b) the short-term federal interest rate plus 3%. However, notwithstanding a qualified opportunity fund’s failure to meet the 90% Asset Test, no penalty will be imposed if the fund demonstrates that its failure is due to reasonable cause.
Tax Treatment of Electing Opportunity Zone Investors
An investor may defer recognition of capital gains (short-term or long-term) resulting from the sale or exchange of capital assets by reinvesting those gains into a qualified opportunity fund within a period of 180 days of the sale or exchange (the “Deferred Capital Gains”). The 180-day period generally begins on the day on which the gains would be recognized for U.S. federal income tax purposes had they not been reinvested into a qualified opportunity fund. Deferred Capital Gains are recognized on the earlier of December 31, 2026 or the date on which an inclusion event occurs, such as the date on which the investor sells its qualified opportunity fund investment. In general, a transaction is an inclusion event if, and to the extent, it reduces or terminates your qualified opportunity fund investment. Inclusion events include, among other transactions, (i) the transfer of a qualified opportunity fund investment upon the liquidation of its corporate owner, to the extent such transfer is treated as a sale for federal income tax purposes, (ii) the transfer of a qualified opportunity fund investment by gift or incident to divorce, (iii) the transfer of a qualified opportunity fund investment by an estate, trust, legatee, heir, beneficiary or surviving joint owner or other recipient who received the qualified opportunity fund investment upon the death of the holder thereof, and (iv) a change in the status of a trust holding a qualified opportunity fund investment from grantor trust status to non-grantor trust status, other than as a result of the death of the grantor (each an “Inclusion Event”).
All individuals and entities that recognize capital gains for U.S. federal income tax purposes are eligible to elect to defer. This includes natural persons as well as entities such as corporations, regulated investment companies, real estate investment trusts (“REITs”), partnerships and other pass-through entities (including, certain common trust funds, qualified settlement funds, and disputed ownership funds). Taxpayers will make deferral elections on Form 8949 (Sales and Other Dispositions of Capital Assets), which will need to be attached to their U.S. federal income tax returns for the taxable year in which the capital gain would have been recognized had it not been deferred. In addition, Form 8997 (Initial and Annual Statement of Qualified Opportunity Fund (QOF) Investments) requires eligible taxpayers holding a qualified opportunity fund investment at any point during the tax year to report: (i) qualified opportunity fund investments holdings at the beginning and end of the tax year; (ii) current tax year capital gains deferred by investing in a qualified opportunity fund; and (iii) qualified opportunity fund investments disposed of during the tax year.
An eligible investor may also receive an increase in basis equal to 10% of the Deferred Capital Gains if the investor holds its qualified opportunity fund investment for a period of five years.
Finally, an investor may elect to receive an increase in basis with respect to its qualified opportunity fund investment interest equal to the fair market value of the investment interest on the date of its sale or exchange if the investor holds the qualified opportunity fund investment for a period of ten years or more, up to December 31, 2047 (the “Fair Market Value Election”). Thus, an investor making a Fair Market Value Election will not recognize capital gains, including depreciation recapture, for U.S. federal income tax purposes as a result of an appreciation in its qualified opportunity fund investment interest.
It is important for an investor seeking to avail itself of the Deferred Capital Gains benefits described in this prospectus to be aware that subsequent changes in the tax laws or the adoption of new regulations, as well as early dispositions of our Class A units, could cause you to lose any anticipated tax benefits. Accordingly, you are urged to consult with your own tax advisors regarding: (i)
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the Opportunity Zone Regulations; (ii) procedures you will need to follow to defer capital gains through investing in a qualified opportunity fund; (iii) tax consequences of purchasing, owning or disposing of our Class A units, including the federal, state and local tax consequences of investing capital gains in our Class A units; (iv) tax consequences associated with our election to qualify as a partnership for U.S. federal income tax purposes and our election to qualify as a qualified opportunity fund; and (v) tax consequences associated with potential changes in the interpretation of existing tax laws or regulations or the adoption of new laws or regulations.
Tax Treatment of Class A Unit Ownership by U.S. Holders
The following is a summary of the material U.S. federal income tax consequences that will apply to you if you are a U.S. Holder of our Class A units.
For U.S. federal income tax purposes, your allocable share of our items of income, gain, loss, deduction or credit will be governed by our operating agreement if such allocations have “substantial economic effect” or are determined to be in accordance with your interest in us. We believe that, for U.S. federal income tax purposes, such allocations will be given effect, and we intend to prepare tax returns based on such allocations. If the IRS successfully challenged the allocations made pursuant to our operating agreement, the resulting allocations for U.S. federal income tax purposes might be less favorable than the allocations set forth in our operating agreement.
We may derive taxable income from an investment that is not matched by a corresponding distribution of cash. This could occur, for example, if we used cash to make an investment or to reduce debt instead of distributing profits. In addition, special provisions of the Code may be applicable to certain of our investments and may affect the timing of our income, requiring us to recognize taxable income before we receive cash attributable to such income. Accordingly, it is possible that the U.S. federal income tax liability of a holder with respect to its allocable share of our income for a particular taxable year could exceed the cash distribution to the holder for the year, thus giving rise to an out-of-pocket tax liability for the holder.
Basis of Class A Units
Generally, you will have an initial tax basis in your Class A units equal to the amount you paid for your Class A units plus your share, under partnership tax rules, of our liabilities, if any. However, the initial tax basis of any Class A units you acquire by reinvesting Deferred Capital Gains (the “QOF Class A units”) will be zero. The basis of all Class A units, whether QOF Class A units or otherwise, will be increased by your share of our income and by increases in your share, under partnership tax rules, of our liabilities, if any. That basis will be decreased, but not below zero, by distributions from us, by your share, under partnership tax rules, of our losses and by decreases in your share, under partnership tax rules, of our liabilities, if any. Your tax basis in any QOF Class A unit will be increased by the amount of gain recognized in respect of the QOF Class A unit on the earlier of December 31, 2026 or the date on which an Inclusion Event occurs, such as the date on which you sell the QOF Class A unit.
Generally, if you purchase Class A units in separate transactions, you must combine the basis of those Class A units and maintain a single adjusted tax basis for all Class A units. However, if some of your Class A units are QOF Class A units and some are not (a “Mixed-Fund Investment”), then you will need to track the tax basis for your QOF Class A units and your other Class A units separately. Upon a sale or other disposition of less than all of your Class A units, a portion of the tax basis must be allocated to the Class A units, and, in the case of a Mixed-Fund Investment, QOF Class A units, sold.
Treatment of Distributions
Distributions of cash, or marketable securities that are treated as cash, will not be taxable to you unless such distributions exceed the adjusted tax basis of your Class A units. Any distributions in excess of your adjusted tax basis will be considered to be gain from the sale or exchange of your Class A units, and, in the case of QOF Class A units, will constitute an Inclusion Event. Under current laws, such gain would be treated as capital gain and would be long-term capital gain if the holding period for your Class A units exceeds one year, subject to certain exceptions. However, in the case of QOF Class A units, such gain, if distributed prior to December 31, 2026, would be treated as having the same attributes (short-term or long-term) in the taxable year of the Inclusion Event as that gain would have had if it had not been a Deferred Capital Gain.
Any reduction in your allocable share of our “nonrecourse liabilities”—liabilities for which no member bears the economic risk of loss—will also be treated as a distribution of cash by us for U.S. federal income tax purposes. A decrease in your percentage interest in us because of our issuance of additional Class A units may decrease your share of our nonrecourse liabilities. For purposes of the foregoing, your share of our nonrecourse liabilities will generally be based on your share of the unrealized appreciation (or depreciation) in our assets, to the extent thereof, with any excess nonrecourse liabilities allocated based on your share of our profits.
Limitations on Deductibility of Organizational and Syndication Expenses
Neither we nor any U.S. Holder may deduct organizational or syndication expenses. An election may be made by us to amortize organizational expenses over a 15-year period. Syndication expenses must be capitalized and cannot be amortized or otherwise deducted.
Limitations on Deductibility of Losses
You may not be entitled to deduct the full amount of losses that we allocate to you because your share of our losses will be limited to the lesser of (i) the adjusted tax basis in your Class A units, and (ii) if you are an individual, estate, trust or corporation that
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is subject to the “at-risk” rules, the amount for which you are considered to be at risk with respect to our activities. You will be at-risk to the extent of the adjusted tax basis in your Class A units, reduced by (i) the portion of that basis attributable to your share of our liabilities for which you will not be personally liable, and (ii) any amount of money you borrow to acquire or hold your Class A units, if the lender of those borrowed funds owns an interest in us, is related to you or can look only to the Class A units for repayment. Your at-risk amount will increase by your allocable share of our income and gain and decrease by cash distributions to you and your allocable share of our losses and deductions. You must recapture losses deducted in previous years to the extent that distributions cause your at-risk amount to be less than zero at the end of any taxable year. Losses disallowed or recaptured as a result of these limitations will carry forward and will be allowable to the extent that your adjusted tax basis or at-risk amount, whichever is the limiting factor, subsequently increases. Upon taxable disposition of your Class A units, any gain you recognize can be offset by losses that were previously suspended by the at-risk limitation but not by losses that were previously suspended by the basis limitation. Losses in excess of any gain that you recognize upon taxable disposition of your Class A units, whether previously suspended by the at-risk or basis limitations will be lost.
In addition to the basis and at-risk limitations, the deductibility of losses incurred by individuals, estates, trusts and certain closely held and personal service corporations from “passive activities” (such as, trade or business activities in which the taxpayer does not materially participate) are limited. The passive activity loss limitations are applied separately with respect to each publicly traded partnership. As a result, any passive losses that we generate will only be available to offset passive income that we generate. Passive losses that exceed your share of passive income that we generate may be deducted in full when you dispose of all of your Class A units in a fully taxable transaction with an unrelated party. The passive activity loss limitations are applied after other applicable limitations on deductions, including the basis and at-risk limitations.
The “excess business loss” limitation further limits the deductibility of losses by noncorporate taxpayers in taxable years beginning prior to January 1, 2026. An excess business loss is the amount, if any, by which aggregate deductions (determined without regard to the excess business loss limitation) exceed aggregate gross income or gain attributable to the trades or businesses of a taxpayer, plus threshold amount of $250,000 (or $500,000 in the case of taxpayers filing a joint return). Disallowed excess business losses are treated as a net operating loss and carried forward to the next tax year. Any losses that we generate that are allocated to you and not otherwise limited by the basis, at risk or passive loss limitations will be included in the calculation of your aggregate deductions attributable to trades or businesses, and, consequently, will only be available to offset your aggregate gross income or gain attributable to trades or businesses plus the applicable threshold amount. Accordingly, except to the extent of the threshold amount, our losses that are not otherwise limited may not offset your non-trade or business income (such as salaries, fees, interest, dividends and capital gains). The excess business loss limitation is applied after other applicable limitations on deductions, including the basis, at-risk and passive activity loss limitations.
All prospective holders of our Class A units should consult their own tax advisers concerning limitations on the deductibility of losses under the applicable provisions of the Code.
Limitations on Interest Deductions
Our ability to deduct “business interest”—interest paid or accrued on indebtedness properly allocated to our trade or business during a taxable year—may be limited to the sum of our business interest income and 30% of our “adjusted taxable income.” For purposes of the business interest limitation, our adjusted taxable income is calculated without regard to any business interest or business interest income and, in the case of taxable years beginning after 2021, any deduction allowable for depreciation, amortization or depletion. The business interest limitation is applied at the partnership level and any deduction for business interest is taken into account in determining our non-separately stated taxable income or loss. At the member level, your adjusted taxable income is determined without regard to your distributive share of any of our items of income, gain, deduction or loss and is increased by your distributive share of our excess taxable income. Your distributive share of our excess taxable income is determined in the same manner as your distributive share of our non-separately stated taxable income or loss. If the business interest limitation were to apply with respect to a taxable year, it could result in an increase in the taxable income allocable to you without any corresponding increase in the cash available for distribution to you.
To the extent our deduction for business interest is not limited, we will allocate the full amount of the deduction among the holders of our Class A units in accordance with their percentage interests. To the extent our deduction for business interest is limited, we will allocate the amount of any deduction in excess of the limitation among the holders of our Class A units in accordance with their percentage interest, but the amount of any such “excess business interest” will not be currently deductible. Rather, subject to certain limitations and adjustments to your basis in our Class A units, this excess business interest may be carried forward and deducted by you in a future taxable year.
In addition to the business interest limitation, the deductibility of a non-corporate taxpayer’s “investment interest” is generally limited to the amount of that taxpayer’s “net investment income.” Investment interest includes:
· | interest on indebtedness allocable to property held for investment; |
· | interest expense allocated against portfolio income; and |
· | the portion of interest expense incurred to purchase or carry an interest in a passive activity to the extent allocable against portfolio income. |
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The calculation of your investment interest expense will take into account interest on any margin account borrowing or other loan you incur to purchase or carry a Class A unit. Net investment income includes gross income from property held for investment and amounts treated as portfolio income under the passive activity loss rules, less deductible expenses, other than interest, directly connected with the production of investment income. Net investment income generally does not include qualified dividend income (if applicable) or gains attributable to the disposition of property held for investment. Your share of a publicly traded partnership’s portfolio income and, according to the IRS, net passive income will be treated as investment income for purposes of the investment interest expense limitation.
Qualified Business Income Deduction
In taxable years ending on or before December 31, 2025, Section 199A of the Code, referred to as the “qualified business income deduction,” generally entitles non-corporate and certain trust and estate taxpayers to deduct the lesser of (i) their combined qualified business income—up to 20% of qualified business income, plus 20% of qualified REIT dividends and “qualified publicly traded partnership income”—or (ii) 20% of the excess, if any, of taxable income over net capital gains.
Our qualified publicly traded partnership income is generally equal to the sum of (i) the net amount of your allocable share of our U.S. items of income, gain, deduction and loss to the extent such items are included or allowed in the determination of our taxable income for the year, excluding, however, certain specified types of passive investment income (such as capital gains and dividends) and certain payments made to a holder of our Class A units for services rendered to us; and (ii) any gain recognized by you upon disposition of our Class A units to the extent such gain is attributable to “unrealized receivables” and “inventory items,” both as defined in Section 751 of the Code, and thus treated as ordinary income under Section 751 of the Code.
For taxable years beginning in 2026, the qualified business income deduction will be disallowed for all taxpayers, and no guarantee can be provided that this deduction will be extended or that future legislation will not repeal the qualified business income deduction as of an earlier date. In addition, certain limitations may apply to you that could reduce the amount of the qualified business income deduction.
All prospective holders of our Class A units should consult their own tax advisers regarding the application of the qualified business income deduction in relation to their particular tax circumstances prior to acquiring, holding or disposing of any of our Class A units.
Entity-Level Collections of Taxes
If we are required or elect under applicable law to pay any federal, state, local or non-U.S. tax on your behalf, our operating agreement authorizes us to treat such payment as a distribution of cash. Where a tax is payable on behalf of all holders of our Class A units or we cannot determine the specific holder of our Class A units on whose behalf a tax is payable, our operating agreement authorizes us to treat the payment as a distribution to all of the current holders of our Class A units. We are authorized to amend our operating agreement in a manner necessary to maintain uniformity of intrinsic tax characteristics of our Class A units and to adjust later distributions, so that after giving effect to such distributions, the priority and characterization of distributions otherwise applicable under our operating agreement is maintained as nearly as is practicable. Any payments by us as described above could give rise to an overpayment of tax on your behalf, in which case you may be entitled to claim a refund of the overpayment amount. All prospective holders of our Class A units should consult their own tax advisers concerning the consequences of any tax payment that we may make on their behalf.
Allocation of Income, Gain, Loss and Deduction
In general, if we have a net profit, our items of income, gain, loss and deduction will be allocated among the holders of our Class A units in accordance with their percentage interests. Specified items of our income, gain, loss and deduction will be allocated under Section 704(c) of the Code (or the principles of Section 704(c) of the Code) to account for any difference between the adjusted tax basis and fair market value of our assets at the time such assets are contributed to us and at the time of any subsequent offering of our Class A units (a “Book-Tax Disparity”). As a result, the U.S. federal income tax burden associated with any Book-Tax Disparity immediately prior to an offering will be borne by the holders of our Class A units prior to such offering. In addition, items of recapture income will be specially allocated to the extent possible (subject to the limitations described above) to the holder of our Class A units who was allocated the deduction giving rise to that recapture income in order to minimize the recognition of ordinary income by other holders of our Class A units.
An allocation of items of our income, gain, loss or deduction, other than an allocation required by the Code to eliminate a Book-Tax Disparity, will be given effect for U.S. federal income tax purposes in determining your share of an item of income, gain, loss or deduction only if the allocation has “substantial economic effect.” In any other case, your share of an item will be determined on the basis of your interest in us, which will be determined by taking into account all the facts and circumstances, including (i) your relative contributions to us, (ii) the interests of all Members in profits and losses, (iii) the interest of all Members in cash flow, and (iv) the rights of all the Members to distributions of capital upon liquidation.
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U.S. Federal Income Tax Rates
The highest marginal U.S. federal income tax rates for individuals applicable to ordinary income and long-term capital gains (generally, gains from the sale or exchange of certain investment assets held for more than one year) are currently 37% and 20%, respectively. These rates are subject to change by new legislation at any time.
In addition, a 3.8% net investment income tax applies to certain net investment income earned by individuals, estates and trusts. Net investment income generally includes your allocable share of our income and gain realized from your sale of Class A units. In the case of an individual taxpayer, the tax will be imposed on the lesser of (i) your net investment income from all investments, or (ii) the amount by which your modified adjusted gross income exceeds $250,000 (if married and filing jointly or a surviving spouse), $125,000 (if married and filing separately) or $200,000 (if unmarried or in any other case). In the case of an estate or trust, the tax will be imposed on the lesser of (i) undistributed net investment income, or (ii) the excess adjusted gross income over the dollar amount at which the highest income tax bracket applicable to an estate or trust begins.
Section 754 Election
We intend to make the election permitted by Section 754 of the Code. The election may only be revoked with the consent of the IRS. The election requires us to adjust the tax basis in our assets, or “inside basis,” attributable to a transferee of Class A units under Section 743(b) of the Code to reflect the purchase price of the Class A units paid by the transferee. However, this election does not apply to a person who purchases Class A units directly from us, including in this offering. For purposes of this discussion, a transferee’s inside basis in our assets will be considered to have two components: (i) the transferee’s share of our tax basis in our assets, or “common basis,” and (ii) the Section 743(b) adjustment to that basis (which may be positive or negative).
The calculations under Section 754 of the Code are complex, and there is little legal authority concerning the mechanics of the calculations, particularly in the context of publicly traded partnerships. To help reduce the complexity of those calculations and the resulting administrative costs to us, we will apply certain conventions in determining and allocating basis adjustments. For example, we may apply a convention in which we deem the price paid by a holder of Class A units to be the lowest quoted trading price of the Class A units during the month in which the purchase occurred, irrespective of the actual price paid. Nevertheless, the use of such conventions may result in basis adjustments that do not exactly reflect a holder of our Class A unit’s purchase price for its Class A units, including less favorable basis adjustments to a holder of our Class A unit who paid more than the lowest quoted trading price of the Class A units for the month in which the purchase occurred. It is possible that the IRS will successfully assert that the conventions we use do not satisfy the technical requirements of the Code or the Treasury Regulations and thus will require different basis adjustments to be made. If the IRS were to sustain such a position, a holder of Class A units may have adverse tax consequences. Moreover, the benefits of a Section 754 election may not be realized because we directly and indirectly invest in pass-through entities that do not have in effect a Section 754 election. You should consult your tax adviser as to the effects of the Section 754 election.
Tax Treatment of Operations
Accounting Method and Taxable Year
We use the year ending December 31 as our taxable year and the accrual method of accounting for U.S. federal income tax purposes. You will be required to include in your tax return your share of our income, gain, loss and deduction for each taxable year ending with or within your taxable year. In addition, if your taxable year ends on a date other than December 31 and you dispose of all of your Class A units following the close of our taxable year but before the close of your taxable year then you must include your share of our income, gain, loss and deduction in income for your taxable year, and as a result will be required to include in income for your taxable year your share of more than twelve months of our income, gain, loss and deduction.
Depreciation
We are allowed a first-year bonus depreciation deduction equal to 100% of the adjusted basis of certain depreciable property acquired and placed in service before January 1, 2023. For property placed in service during subsequent years, the deduction is phased down by 20% per year until December 31, 2026. This depreciation deduction applies to both new and used property. However, use of the deduction with respect to used property is subject to certain anti-abuse restrictions, including the requirement that the property be acquired from an unrelated party. We can elect to forgo the depreciation bonus and use the alternative depreciation system for any class of property for a taxable year. Under a transition rule, we can also elect to apply a 50% bonus depreciation deduction instead of the 100% deduction for our first taxable year.
Valuation and Tax Basis of Each of Our Properties
The U.S. federal income tax consequences of the ownership and disposition of Class A units will depend in part on our estimates of the relative fair market values and the tax basis of each of our assets. Although we may from time to time consult with professional appraisers regarding valuation matters, we will make many of the relative fair market value estimates ourselves. These estimates and determinations of tax basis are subject to challenge and will not be binding on the IRS or the courts. If the estimates of fair market value or tax basis are later found to be incorrect, the character and amount of items of income, gain, loss or deduction previously reported by you could change, you could be required to adjust your tax liability for prior years and incur interest and penalties with respect to those adjustments.
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Sale or Exchange of Class A Units
Recognition of Gain or Loss
You will recognize gain or loss on any sale or exchange of Class A units that do not qualify for a Fair Market Value Election, and, with respect to QOF Class A units, you may recognize gain upon an Inclusion Event occurring prior to December 31, 2026. The amount of the gain or loss that you recognize will be equal to the difference, if any, between the amount realized and your adjusted tax basis in the Class A units sold or exchanged. Your amount realized will be measured by the sum of the cash or the fair market value of other property received by you plus your share, under partnership tax rules, of our liabilities, if any.
Gain or loss recognized by you on the sale or exchange of a Class A unit will be taxable as capital gain or loss and will be long-term capital gain or loss if all of the Class A units you hold were held for more than one year on the date of such sale or exchange. However, in the case of QOF Class A units, such gain, if recognized prior to December 31, 2026, would be treated as having the same attributes (short-term or long-term) in the taxable year of the sale, exchange or other Inclusion Event as that gain would have had if it had not been a Deferred Capital Gain. Investors who purchase Class A units at different times and intend to sell all or a portion of the Class A units within a year of their most recent purchase are urged to consult their own tax advisers regarding the application of certain “split holding period” rules to them and the treatment of any gain or loss as long-term or short-term capital gain or loss.
Allocations Between Transferors and Transferees
Our taxable income and losses will be determined and apportioned among holders of our Class A units using conventions we regard as consistent with applicable law. As a result, if you transfer your Class A units, you may be allocated income, gain, loss and deduction realized by us after the date of transfer.
Although Section 706 of the Code provides guidelines for allocations of items of income and deductions between transferors and transferees, it is not clear that our allocation method complies with its requirements. If our convention were not permitted, the IRS might contend that our taxable income or losses must be reallocated among the holders of our Class A units. If such a contention were sustained, your respective tax liabilities would be adjusted to your possible detriment. Our operating agreement authorizes us to revise our method of allocation between transferors and transferees (as well as among Members whose Class A units otherwise vary during a taxable period).
Uniformity of Class A Units
We will adopt depreciation, amortization and other tax accounting positions that may not conform with all aspects of existing Treasury Regulations. A successful IRS challenge to those positions could adversely affect the amount of tax benefits available to our holders of our Class A units. It also could affect the timing of these tax benefits or the amount of gain on the sale of Class A units and could have a negative impact on the value of our Class A units or result in audits of and adjustments to the tax returns of holders of our Class A units.
Tax Treatment of Class A Unit Ownership by Tax-Exempt U.S. Holders
A holder of Class A units that is a tax-exempt organization for U.S. federal income tax purposes and therefore exempt from most U.S. federal income taxation may nevertheless be subject to unrelated business income tax to the extent, if any, that its allocable share of our income consists of “unrelated business taxable income.” A tax-exempt partner of a partnership that regularly engages in a trade or business which is unrelated to the exempt function of the tax-exempt partner must include in computing its unrelated business taxable income its pro rata share (whether or not distributed) of such partnership’s gross income derived from such unrelated trade or business. Moreover, a tax-exempt partner of a partnership could be treated as earning unrelated business taxable income to the extent that such partnership derives income from “debt-financed property,” or if the partnership interest itself is debt financed. Debt-financed property means property held to produce income with respect to which there is “acquisition indebtedness” (that is, indebtedness incurred in acquiring or holding property).
Because we are under no obligation to minimize unrelated business taxable income, tax-exempt U.S. Holders of Class A units should consult their own tax advisers regarding all aspects of unrelated business taxable income.
Tax Treatment of Class A Unit Ownership by Non-U.S. Holders of Class A Units
Non-U.S. Holders are taxed by the United States on income effectively connected with a U.S. trade or business (“effectively connected income”) and on certain types of U.S.-source non-effectively connected income (such as dividends), unless exempted or further limited by an income tax treaty. Each Non-U.S. Holder will be considered to be engaged in business in the United States because of its ownership of our Class A units. Furthermore, Non-U.S. Holders will be deemed to conduct such activities through a permanent establishment in the United States within the meaning of an applicable tax treaty. Consequently, each Non-U.S. Holder will be required to file federal tax returns to report its share of our income, gain, loss or deduction and pay U.S. federal income tax on its share of our net income or gain. Moreover, under rules applicable to publicly traded partnerships, distributions to Non-U.S. Holders are subject to withholding at the highest applicable effective tax rate. Each Non-U.S. Holder must obtain a taxpayer identification number from the IRS and submit that number to our transfer agent on a Form W-8BEN or W-8BEN-E (or other applicable or successor form) in order to obtain credit for these withholding taxes.
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In addition, if a Non-U.S. Holder is classified as a non-U.S. corporation, it will be treated as engaged in a United States trade or business and may be subject to the U.S. branch profits tax at a rate of 30%, in addition to regular U.S. federal income tax, on its share of our income and gain as adjusted for changes in the foreign corporation’s “U.S. net equity” to the extent reflected in the corporation’s earnings and profits. That tax may be reduced or eliminated by an income tax treaty between the United States and the country in which the foreign corporate unitholder is a “qualified resident.” In addition, this type of holder of our Class A units is subject to special information reporting requirements under Section 6038C of the Code.
A Non-U.S. Holder who sells or otherwise disposes of a Class A unit will be subject to U.S. federal income tax on gain realized from the sale or disposition of that Class A unit to the extent the gain is effectively connected with a U.S. trade or business of the Non-U.S. Holder. Gain realized by a Non-U.S. Holder from the sale of its interest in a partnership that is engaged in a trade or business in the United States will be considered to be “effectively connected” with a U.S. trade or business to the extent that gain that would be recognized upon a sale by the partnership of all of its assets would be “effectively connected” with a U.S. trade or business. Thus, all of a Non-U.S. Holder’s gain from the sale or other disposition of our Class A units would be treated as effectively connected with a Non-U.S. Holder’s indirect U.S. trade or business constituted by its investment in us and would be subject to U.S. federal income tax. As a result of the effectively connected income rules described above, the exclusion from U.S. taxation under the Foreign Investment in Real Property Tax Act for gain from the sale of partnership units regularly traded on an established securities market will not prevent a Non-U.S. Holder from being subject to U.S. federal income tax on gain from the sale or disposition of its Class A units to the extent such gain is effectively connected with a U.S. trade or business.
Moreover, the transferee of an interest in a partnership that is engaged in a U.S. trade or business is generally required to withhold 10% of the amount realized by the transferor unless the transferor certifies that it is not a foreign person, and we are required to deduct and withhold from the transferee amounts that should have been withheld by the transferees but were not withheld. Because the “amount realized” includes a partner’s share of the partnership’s liabilities, 10% of the amount realized could exceed the total cash purchase price for the Class A units. For this and other reasons, the IRS has suspended the application of this withholding rule to open market transfers of interest in publicly traded partnerships, pending promulgation of regulations that address the amount to be withheld, the reporting necessary to determine such amount and the appropriate party to withhold such amounts, but it is not clear if or when such regulations will be issued.
Administrative Matters
Partnership Representative
Our Manager will act as our “partnership representative” as defined the Code. As the tax matters representative, our Manager will have the authority, subject to certain restrictions, to act on our behalf in connection with any administrative or judicial review of our items of income, gain, loss, deduction or credit.
Information Returns
It may require a substantial period of time after the end of our fiscal year to obtain the requisite information from all lower-tier entities to enable us to prepare and deliver Schedule K-1s to IRS Form 1065.For this reason, holders of Class A units who are U.S. taxpayers may want to file annually with the IRS (and certain states) a request for an extension past the due date of their income tax return.
In preparing this information, we will use various accounting and reporting conventions, some of which have been mentioned in the previous discussion, to determine your share of income, gain, loss and deduction. The IRS may successfully contend that certain of these reporting conventions are impermissible, which could result in an adjustment to your income or loss.
We may be audited by the IRS. Adjustments resulting from an IRS audit may require you to adjust a prior year’s tax liability and possibly may result in an audit of your own tax return. Any audit of your tax return could result in adjustments not related to our tax returns as well as those related to our tax returns.
Nominee Reporting
Persons who hold an interest in us as a nominee for another person are required to furnish to us:
· | the name, address and taxpayer identification number of the beneficial owner and the nominee; |
· | a statement regarding whether the beneficial owner is (i) a person that is not a U.S. person, (ii) a foreign government, an international organization or any wholly owned agency or instrumentality of either of the foregoing, or (iii) a tax-exempt entity; |
· | the amount and description of Class A units held, acquired or transferred for the beneficial owner; and |
· | specific information including the dates of acquisitions and transfers, means of acquisitions and transfers and acquisition cost for purchases, as well as the amount of net proceeds from sales. |
Brokers and financial institutions are required to furnish additional information, including whether they are U.S. persons and specific information on Class A units they acquire, hold or transfer for their own account. A penalty of up to $280 per failure, up to a
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maximum of $3,392,000 per calendar year, is imposed by the Code for failure to report that information to us. The nominee is required to supply the beneficial owner of our Class A units with the information furnished to us.
State, Local, Foreign and Other Tax Considerations
In addition to U.S. federal income taxes, holders of our Class A units may be subject to other taxes, including state and local income taxes, unincorporated business taxes and estate, inheritance or intangibles taxes that may be imposed by the various jurisdictions in which we conduct business or own property now or in the future or in which the holder of our Class A units is a resident. We anticipate conducting business or owning property in many states in the United States. Some of these states may impose an income tax on individuals, corporations and other entities. Although an analysis of the various taxes is not presented here, each prospective holder of our Class A units should consider the potential impact of such taxes on its investment in us.
Holders of our Class A units may be required to file income tax returns and pay income taxes in some or all of the jurisdictions in which we do business or own property, however holders of our Class A units may not be required to file a return and pay taxes in a jurisdiction if their income from that jurisdiction falls below the jurisdiction’s filing and payment requirement. Further, holders of our Class A units may be subject to penalties for a failure to comply with any filing or payment requirement applicable to such holder. Some jurisdictions may require that we, or we may elect to, withhold a percentage of income from amounts to be distributed to a holder of our Class A units who is not a resident of the jurisdiction. Withholding, the amount of which may be greater or less than a particular holder of our Class A unit’s income tax liability to the jurisdiction, generally does not relieve a nonresident holder of our Class A units from the obligation to file an income tax return in such jurisdiction.
THE FOREGOING DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING. THE TAX MATTERS RELATING TO US AND HOLDERS OF OUR CLASS A UNITS ARE COMPLEX AND ARE SUBJECT TO VARYING INTERPRETATIONS. MOREOVER, THE EFFECT OF EXISTING INCOME TAX LAWS WILL VARY WITH THE PARTICULAR CIRCUMSTANCES OF EACH HOLDER OF OUR CLASS A UNITS AND IN REVIEWING THIS PROSPECTUS THESE MATTERS SHOULD BE CONSIDERED. IT IS THE RESPONSIBILITY OF EACH HOLDER OF OUR CLASS A UNITS TO INVESTIGATE THE LEGAL AND TAX CONSEQUENCES, UNDER THE LAWS OF PERTINENT JURISDICTIONS, OF ITS INVESTMENT IN US. WE STRONGLY RECOMMEND THAT EACH PROSPECTIVE HOLDER OF OUR CLASS A UNITS CONSULT WITH, AND DEPEND UPON, ITS OWN TAX COUNSEL OR OTHER ADVISOR WITH REGARD TO SUCH MATTERS. FURTHER, IT IS THE RESPONSIBILITY OF EACH HOLDER OF OUR CLASS A UNITS TO FILE ALL STATE, LOCAL AND NON-U.S., IF ANY, AS WELL AS U.S. FEDERAL TAX RETURNS THAT MAY BE REQUIRED OF SUCH HOLDER. SUGAR FELSENTHAL GRAIS & HELSINGER LLP HAS NOT RENDERED AN OPINION ON THE STATE, LOCAL, ALTERNATIVE MINIMUM TAX OR NON-U.S. TAX CONSEQUENCES OF AN INVESTMENT IN OUR CLASS A UNITS.
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We are offering a maximum of up to $750,000,000 of our Class A units on a “best efforts” basis. Because this is a “best efforts” offering, we are only required to use our best efforts to sell our Class A units to the public. Neither our Manager nor any other party has a firm commitment or obligation to purchase any of our Class A units. Therefore, we cannot guarantee that any minimum number of Class A units will be sold.
The minimum investment required in this offering is 100 Class A units, or $10,000 based on the initial offering price of $100.00 per Class A unit, provided that our Manager has the discretion to accept smaller investments. There is no minimum investment requirement on additional purchases.
This prospectus will be furnished to prospective investors upon their request via electronic PDF format and will be available for viewing and download on our website at www.belpointeoz.com, as well as on the SEC’s website at www.sec.gov.
In order to subscribe to purchase Class A units, a prospective investor must electronically complete, sign and deliver to us an executed subscription agreement like the one attached to this prospectus as Appendix B, and wire funds for its subscription amount in accordance with the instructions provided therein.
We reserve the right to reject any investor’s subscription in whole or in part for any reason. If the offering terminates or if any prospective investor’s subscription is rejected, all funds received from such investors will be returned without interest or deduction.
The number of Class A units we have registered pursuant to the registration statement of which this prospectus forms a part is the number that we reasonably expect to be offered and sold within two years from the initial effective date of the registration statement. Under applicable SEC rules, we may extend this offering one additional year if all of the Class A units we have registered are not yet sold within two years. With the filing of a registration statement for a subsequent offering, we may also be able to extend this offering beyond three years until the follow-on registration statement is declared effective. Pursuant to this prospectus, we are offering to the public all of the Class A units that we have registered. Although we have registered a fixed dollar amount of our Class A units, we intend effectively to conduct a continuous offering of an unlimited number of Class A units over an unlimited time period by filing a new registration statement prior to the end of the three-year period described in Rule 415. In certain states, the registration of our offering may continue for only one year following the initial clearance by applicable state authorities, after which we will renew the offering period for additional one-year periods (or longer, if permitted by the laws of each particular state).
We reserve the right to suspend or terminate this offering at any time and to extend our offering term to the extent permissible under applicable law.
Purchase Price
We are offering on a continuous basis up to $750,000,000 of our Class A units in this primary offering at an initial price equal to $100.00 per Class A unit. No later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, we plan to calculate our net asset value (“NAV”) within approximately 60 days of the last day of each quarter (the “Determination Date”). If our NAV increases above or decreases below the price per Class A unit as stated in this prospectus, we will adjust the offering price effective as of the first business day following its public announcement. The adjusted offering price will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date. Our board of directors, taking into consideration factors such as the investments we hold and the timing of our ability to generate cash flows, may determine that it is appropriate for us to begin calculating NAV on a quarterly basis prior to the first quarter following the December 31, 2022 year end. We will file a prospectus supplement with the SEC if we determine to calculate NAV prior to December 31, 2022 and prospectus supplements disclosing the quarterly determinations of our NAV per Class A unit for each fiscal quarter thereafter.
The minimum investment required in this offering is 100 Class A units, or $10,000 based on the initial offering price of $100.00 per Class A unit, provided that our Manager has the discretion to accept smaller investments. There is no minimum investment requirement on additional purchases.
Transferability of Class A Units
Our Class A units are generally freely transferable subject to (i) any restrictions imposed by applicable federal and state securities laws, rules or regulations of the SEC or any state securities commission or any other governmental entity with jurisdiction over the transfer, and (ii) compliance with the applicable transfer provisions of our operating agreement.
Currently, our Class A units are not traded on any public market. We have applied to have our Class A units listed on the NYSE American under the symbol “OZ.” As a result, Belpointe PREP will be the first qualified opportunity fund listed on a national securities exchange.
Closings
In order to maintain our status as a qualified opportunity fund, we must hold, directly or indirectly through our Operating Companies or one or more entities that are qualified opportunity zone businesses, at least 90% of our assets in qualified opportunity
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zone property (the “90% Asset Test”). For purposes of the 90% Asset Test our property holdings are calculated by taking the average of the percentage of qualified opportunity zone property we hold on each of (i) the last day of the first six-month period of our taxable year, and (ii) the last day of our taxable year (each a “Semiannual Test Date”). Cash and cash equivalents do not count as qualified opportunity zone property. The Opportunity Zone Regulations allow us to apply the 90% Asset Test without taking into account any investments we receive in the preceding 6-month period, provided such investments are received as a contribution and held continuously from the fifth business day after receipt through the Semiannual Test Date in cash, cash equivalents or debt instruments with a term of 18 months or less. In addition, the Opportunity Zone Regulations provide for a one-time six-month cure period if any of our investments fail to meet the definition of qualified opportunity zone property as of a Semiannual Test Date.
We plan to undertake closings on a rolling basis on the last business day of each calendar quarter (each, a “Closing Date”), we may, however, in our sole discretion, choose to conduct more frequent closings. Subscription payments will be held in a non-interest-bearing escrow account until the applicable Closing Date. If, however, we determine that accepting all of the subscriptions submitted in a given calendar quarter would result in our being unable to meet the 90% Asset Test, we may, in our sole discretion, postpone acceptance of some or all of such subscriptions by providing prospective investors with written notice of postponement within 15 calendar days following the quarter’s end. We will continue to hold postponed subscription payments in escrow until we determine that we will be able to meet the 90% Asset Test following their acceptance. Each prospective investor whose subscription has been postponed will receive written notice of our acceptance of their subscription within 15 calendar days following the applicable Closing Date. We may not, however, hold any subscription payment for more than 6 months following the end of the quarter in which the applicable subscription agreement was submitted. We will provide prospective investors with written notice of the return of any subscription payment within 15 calendar days following the end of the applicable 6-month period and return any such subscription payment within 30 calendar days following the end of such 6-month period.
On each Closing Date we will generally accept subscriptions on a first-in, first-out basis up to the approximate dollar amount that we can accept while still being able to meet the 90% Asset Test. We may, however, in our sole discretion, choose to accept a subscription submitted later than other subscriptions in a given quarter if the 180-day reinvestment period with respect to such subscription would expire prior to our next anticipated Closing Date. Regardless of the subscription acceptance date, the purchase price for our Class A units will be the price in effect on the date on which an investor submits a valid subscription.
Each prospective investor whose subscription is accepted will receive written notice confirming the applicable purchase price within 15 calendar days following the Closing Date. Prospective investors will not have the right to withdraw or reconfirm their commitment prior to our accepting their subscription, nor will they have the right to a return of their subscription payment prior to the end of the 6 month period following the end of the quarter in which their subscription agreement was submitted. A prospective investor will have no rights as a Member, including voting and distribution rights, until we accept their subscription agreement.
Our Board, in its sole discretion, may modify, suspend or terminate the escrow procedure if a determination is made that it is no longer necessary or advisable in order to comply with the 90% Asset Test.
Sales Through Underwriters, Dealer-Managers or Agents
We intend to offer our Class A units directly to investors and not through any underwriters, dealer-managers or other agents who would be paid commissions by us or any of our affiliates. In the future, however, we may engage the services of one or more underwriters, dealer-managers or other agents to participate in this offering. The amount of selling commissions or dealer-manager fees that we or our investors would pay to such underwriters, dealer-managers or other agents will depend on the terms of their engagement. If we engage the services of one or more underwriters, dealer-managers or other agents to participate in this offering, we will file a prospectus supplement with the SEC disclosing the names of the underwriters, dealer-managers or other agents and the terms of the transaction, including selling commissions, dealer-manager fees and any other compensation, if any.
Certificates Will Not be Issued
We will not issue stock certificates. Instead, our Class A units will be recorded and maintained on a unitholder register that we or our transfer agent will maintain.
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Reports to Holders of our Class A Units
We will cause to be prepared and made available to each holder of our Class A units, as of a record date after the end of the fiscal year, as soon as practicable after the end of the fiscal year to which it relates, an annual report for each fiscal year containing financial statements that are prepared in accordance with U.S. GAAP and are audited by our independent registered public accounting firm.
If and for so long as we are required to file quarterly reports with the SEC, we will cause to be prepared and made available to each holder of our Class A units, as of a record date after the end of the fiscal year, as soon as practicable after the end of the fiscal quarter to which it relates, a quarterly report for each fiscal quarter containing unaudited financial statements and such other information as may be required by applicable law or regulation or as our Board determines to be necessary or appropriate.
We will make available to you on our website, www.belpointeoz.com, or, at our discretion, via email, our quarterly and annual reports, proxy statements and other reports and documents concerning your investment. To the extent required by applicable law or regulation, or, in our discretion, we may also make certain of this information available to you via U.S. mail or another courier. You may always receive a paper copy upon request.
As a partnership, our operating results, including distributions of income, gains, losses, deductions, credits and adjustments to the carrying value of our assets and investments, will be reported on Schedule K-1 to IRS Form 1065 and distributed annually to each holder of our Class A units. Although we currently intend to distribute Schedule K-1s on or around 90 days after the end of our fiscal year, it may require a substantial period of time after the end of our fiscal year to obtain the requisite information from all lower-tier entities to enable us to prepare and deliver Schedule K-1s. For this reason, holders of Class A units who are U.S. taxpayers should anticipate the need to file annually with the IRS (and certain states) a request for an extension past the due date of their income tax return. Our fiscal year is the calendar year.
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Investors seeking to purchase our Class A units must proceed as follows:
· | Read this entire prospectus and any appendices and supplements accompanying this prospectus. |
· | Electronically complete and execute a copy of the subscription agreement. A specimen copy of the subscription agreement, including instructions for completing it, is included as Appendix B. |
· | Electronically provide ACH instructions to us for the full purchase price of the Class A units being subscribed for. |
· | By executing the subscription agreement and paying the total purchase price for the Class A units subscribed for, each investor agrees to be bound by all of the subscription agreement’s terms. |
Subscriptions will be effective only upon our acceptance and we reserve the right to reject any subscription in whole or in part. We will attempt to accept or reject subscriptions within 60 days of receipt by us. If we accept your subscription, we will email you a confirmation.
An approved trustee must process through, and forward to, us subscriptions made through individual retirement accounts (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.
Minimum Investment Requirement
You must initially purchase at least 100 Class A units in this offering, or $10,000 based on the current per Class A unit price, provided that our Manager has the discretion to accept smaller investments. In order to satisfy this minimum investment requirement, unless otherwise prohibited by state law, a husband and wife may jointly contribute funds from their separate IRAs. You should note that an investment in Class A units 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 Code.
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In addition to this prospectus, we will use sales material in connection with the offering of Class A units, although only when accompanied by or preceded by the delivery of this prospectus. Some or all of the sales material may not be available in certain jurisdictions. This sales 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 and qualified opportunity zones. In addition, the sales material may contain quotes from various publications without obtaining the consent of the author or the publication for use of the quoted material in the sales material.
We are offering Class A units only by means of this prospectus. Although the information contained in the sales material will not conflict with any of the information contained in this prospectus, the sales material does not purport to be complete and should not be considered as 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 the registration statement, or as forming the basis of the offering of our Class A units.
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Sugar Felsenthal Grais & Helsinger, LLP, New York, New York, will pass upon the validity of the Class A units being offered hereby and review and pass upon the accuracy of the statements relating to certain U.S. federal income tax matters that are likely to be material to U.S. holders of our Class A units under the caption “Material U.S. Federal Income Tax Considerations.”
The financial statements of Belpointe PREP, LLC as of December 31, 2020 and for the period beginning January 24, 2020 (formation) to December 31, 2020 have been included herein and in the registration statement and prospectus in reliance upon the report of Citrin Cooperman & Company, LLP, independent registered public accounting firm, appearing elsewhere herein, and upon the authority of said firm as experts in accounting and auditing.
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Where You Can Find More Information
We have filed a registration statement on Form S-11 with the SEC with respect to the Class A units to be issued in this offering. This prospectus is a part of that registration statement and, as permitted by SEC rules, does not include all of the information you can find in the registration statement or the exhibits to the registration statement. For additional information relating to us, we refer you to the registration statement and the exhibits to the registration statement. Statements contained in this prospectus as to the contents of any contract or document are necessarily summaries of such contract or document and in each instance, if we have filed the contract or document as an exhibit to the registration statement, we refer you to the copy of the contract or document filed as an exhibit to the registration statement.
We will file annual, quarterly and current reports, proxy statements and other information with the SEC. The registration statement is, and any of these future filings with the SEC will be, available to the public over the internet at the SEC’s website at www.sec.gov. You may read and copy any filed document at the SEC’s public reference room in Washington, D.C. at 100 F Street, N.E., Room 1580, Washington, D.C. 20549. Call the SEC at (800)-SEC-0330 for further information about the public reference room.
Website Disclosure
Our website at www.belpointeoz.com will contain additional information about our business, but the contents of the website are not incorporated by reference in or otherwise a part of this prospectus. From time to time, we may use our website as a distribution channel for material company information.
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Index to Consolidated Balance Sheet
F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Member and the Board of Directors of Belpointe PREP, LLC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Belpointe PREP, LLC (the “Company”) as of December 31, 2020, and the related consolidated statements of operations, changes in member’s capital, and cash flows for the period beginning January 24, 2020 (formation) through December 31, 2020, and the related notes to the consolidated financial statements (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, and the results of its operations and its cash flows for the period beginning January 24, 2020 (formation) through December 31, 2020, in accordance with accounting principles generally accepted in the United States of America.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit we are required to obtain an understanding of internal control over financial reporting 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.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Citrin Cooperman & Company, LLP
We have served as the Company’s auditor since 2020.
New York, New York
April 19, 2021
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F-2 |
Belpointe
PREP, LLC.
Consolidated Balance Sheet
(in thousands, except unit and per unit data)
December 31, 2020 | ||||
Assets | ||||
Real estate | ||||
Land | $ | 9,547 | ||
Building and improvements | 3,639 | |||
Intangible assets | 2,008 | |||
Real estate under construction | 15,101 | |||
Total Real estate | 30,295 | |||
Accumulated depreciation and amortization | (43 | ) | ||
Real estate, net | 30,252 | |||
Cash and cash equivalents | 6,578 | |||
Other assets | 452 | |||
Total assets | $ | 37,282 | ||
Liabilities | ||||
Short-term loan from affiliate | $ | 35,000 | ||
Due to affiliates | 492 | |||
Accounts payable, accrued expenses and other liabilities | 1,892 | |||
Total liabilities | 37,384 | |||
Commitments and contingencies | ||||
Member’s Capital | ||||
Class A units, no par value, unlimited units authorized, 100 units issued and outstanding | 10 | |||
Accumulated deficit | (112 | ) | ||
Total member’s capital | (102 | ) | ||
Total liabilities and member’s capital | $ | 37,282 | ||
See accompanying notes to consolidated financial statements.
F-3 |
Belpointe
PREP, LLC
Consolidated Statements of Operations
(in thousands, except unit and per unit data)
For the Period Beginning January 24, 2020 (formation) to December 31, 2020 |
||||
Revenue | ||||
Rental and other income |
$ |
101 | ||
Total revenue | 101 | |||
Expenses | ||||
Property expenses | 48 | |||
General and administrative | 113 | |||
Depreciation and amortization expense | 43 | |||
Total expenses | 204 | |||
Other expense | ||||
Interest expense | (9 | ) | ||
Total other expense | (9 | ) | ||
Net loss attributable to Belpointe PREP, LLC | $ | (112 | ) | |
Loss per Class A unit (basic and diluted) | ||||
Net loss per unit | $ | (1,120 | ) | |
Weighted-average units outstanding | 100 | |||
See accompanying notes to consolidated financial statements.
F-4 |
Belpointe
PREP, LLC
Consolidated Statement of Changes in Member’s Capital
(in thousands, except unit and per unit data)
Retained | ||||||||||||||||||||
Earnings | ||||||||||||||||||||
Class A units | Paid-in | (Accumulated | ||||||||||||||||||
Units | Amount | Capital | Deficit) | Total | ||||||||||||||||
Balance at January 24, 2020 (formation) | — | $ | — | $ | — | $ | — | $ | — | |||||||||||
Activity from formation to December 31, 2020 | ||||||||||||||||||||
Issuance of units | 100 | 10 | — | — | 10 | |||||||||||||||
Net loss | — | — | — | (112 | ) | (112 | ) | |||||||||||||
Balance at December 31, 2020 | 100 | $ | 10 | $ | — | $ | (112 | ) | $ | (102 | ) | |||||||||
See accompanying notes to consolidated financial statements.
F-5 |
Belpointe
PREP, LLC
Consolidated Statement of Cash Flows
(in thousands, except unit and per unit data)
For the Period Beginning January 24, 2020 (formation) to December 31, 2020 | ||||
Cash flows from operating activities | ||||
Net loss | $ | (112 | ) | |
Adjustments to net loss | ||||
Depreciation and amortization | 43 | |||
Amortization of rent-related intangibles and deferred rental revenue | (7 | ) | ||
Increase in due to affiliates | 77 | |||
Increase in other assets | (75 | ) | ||
Increase in accounts payable, accrued expenses and other liabilities | 62 | |||
Net cash used in operating activities | (12 | ) | ||
Cash flows from investing activities | ||||
Acquisitions of real estate | (25,720 | ) | ||
Development of real estate | (2,700 | ) | ||
Net cash used in investing activities | (28,420 | ) | ||
Cash flows from financing activities | ||||
Short-term loan from affiliate | 35,000 | |||
Proceeds from units issued | 10 | |||
Net cash provided by financing activities | 35,010 | |||
Change in cash and cash equivalents during the period | ||||
Net increase in cash and cash equivalents | 6,578 | |||
Cash and cash equivalents, beginning of period | — | |||
Cash and cash equivalents, end of period | $ | 6,578 | ||
Cash paid during the year for interest, net of amount capitalized | $ | — | ||
Supplemental disclosure of non-cash investing and financing activities | ||||
Development of real estate (Note 5) | $ | (576 | ) | |
See accompanying notes to consolidated financial statements.
F-6 |
Note 1 – Organization and Business Purpose
Belpointe PREP, LLC (together with its subsidiaries, the “Company,” “we,” “us,” or “our”) was formed on January 24, 2020 as a Delaware limited liability company. We initially intend to operate in a manner that will allow us to qualify as a partnership for U.S. federal income tax purposes. We are initially focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within “qualified opportunity zones.” At least 90% of our assets will initially consist of qualified opportunity zone property, which will enable us to be classified as a “qualified opportunity fund” as defined in the U.S. Internal Revenue Code of 1986, as amended (the “Code”).
We commenced principal operations on October 28, 2020. All of our assets are held by, and all of our operations are conducted through, one or more operating companies (each an “Operating Company” and together, the “Operating Companies”), either directly or through their subsidiaries. We are externally managed by Belpointe PREP Manager, LLC (the “Manager”), an affiliate of Belpointe, LLC (our “Sponsor”). Subject to certain restrictions and limitations, the Manager will be responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company.
Note 2 – Capitalization
As of February 11, 2020, we were capitalized with a $10,000 investment by our Sponsor. We intend to register with the Securities and Exchange Commission a primary offering of up to $750,000,000 in our Class A units (the “Class A units”) at an initial price equal to $100.00 per Class A unit (the “Offering”). We intend to offer our Class A units directly to investors and not through any underwriters, dealer-managers or other agents who would be paid commissions by us or any of our affiliates. In the future, however, we may engage the services of one or more underwriters, dealer-managers or other agents to participate in this offering. The amount of selling commissions or dealer-manager fees that we or our investors would pay to such underwriters, dealer-managers or other agents will depend on the terms of their engagement. The Offering is a “best efforts” offering. There is no minimum offering amount of Class A units that we must sell in the Offering prior to conducting an initial closing. We plan to undertake closings on a rolling basis on the last business day of each calendar quarter, we may, however, in our sole discretion, choose to conduct more frequent closings.
We set our initial Offering price at $100.00 per Class A unit. No later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, we plan to calculate our net asset value (“NAV”) within approximately 60 days of the last day of each quarter (the “Determination Date”). If our NAV increases above or decreases below the price per Class A unit as stated in our prospectus, we will adjust the Offering price, effective as of the first business day following its public announcement. The adjusted Offering price will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date.
Note 3 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying consolidated financial statements have been prepared on the accrual basis of accounting and conform to accounting principles generally accepted in the United States of America (“GAAP”) and Article 8 of Regulation S-X of the rules and regulations of the SEC. In the opinion of management, all adjustments considered necessary for a fair presentation of the Company’s financial position, results of operations and cash flows have been included and are of a normal and recurring nature.
Basis of Consolidation
The accompanying consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated.
We have evaluated our economic interest in entities to determine if they are deemed to be variable interest entities (a “VIE”) and whether the entities should be consolidated. An entity is a VIE if it has any one of the following characteristics: (i) the entity does not have enough equity at risk to finance its activities without additional subordinated financial support; (ii) the at risk equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. The distinction between a VIE and other entities is based on the nature and amount of the equity investment and the rights and obligations of the equity investors. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered VIEs unless the limited partners hold substantive kick-out rights or participation rights.
Significant judgment is required to determine whether a VIE should be consolidated. We review all agreements and contractual arrangements to determine whether (i) we or another party have any variable interests in an entity, (ii) the entity is considered a VIE, and (iii) which variable interest holder, if any, is the primary beneficiary of the VIE. Determination of the primary beneficiary is based on whether a party (a) has the power to direct the activities that most significantly impact the economic
F-7 |
performance of the VIE, and (b) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.
As of December 31, 2020 we considered one entity to be a VIE, which is consolidated, as we are considered the primary beneficiary. The following table presents the financial data in the consolidated balance sheet as of December 31, 2020 (amounts in thousands):
December 31, 2020 | ||||
Land | $ | — | ||
Real estate under construction | 14,895 | |||
Cash and cash equivalents | 506 | |||
Other assets | 1 | |||
Total assets | $ | 15,402 | ||
Liabilities | ||||
Due to affiliates | 357 | |||
Accounts payable, accrued expenses and other liabilities | 55 | |||
Total liabilities | $ | 412 |
An interest in a VIE requires reconsideration when an event occurs that was not originally contemplated. Each reporting period we will reassess whether there are any reconsideration events that require us to reconsider our determination of whether an entity is a VIE and whether it should be consolidated.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jump Start Our Business Startups Act of 2012 (“JOBS Act”). Under Section 107 of the JOBS Act, emerging growth companies are permitted to use an extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended (the “Securities Act”), for complying with new or revised accounting standards that have different effective dates for public and private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company, or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, this consolidated financial statement may not be comparable to the consolidated financial statements of companies that comply with public company effective dates.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and the accompanying notes. Actual results could materially differ from those estimates.
Allocation of Purchase Price of Acquired Assets
Upon the acquisition of real estate properties, we determine whether a transaction is a business combination, which requires that the assets acquired and liabilities assumed constitute a business. If the assets acquired are not a business, we account for the transaction as an asset acquisition. We capitalize acquisition-related costs and fees associated with our asset acquisitions, and expense acquisition-related costs and fees associated with business combinations.
It is our policy to allocate the purchase price of properties to acquired tangible assets, consisting of land, buildings, fixtures and improvements, and identified intangible lease assets and liabilities, consisting of the value of above-market and below-market leases, as applicable, the other value of in-place leases, certain development rights and the value of tenant relationships, based in each case on their fair values. The fair value of the tangible assets of an acquired property is determined by valuing the property as if it were vacant, which value is then allocated to land, buildings and improvements based on management’s determination of the fair values of these assets. We measure the aggregate value of other intangible assets acquired based on the difference between the property valued (i) with existing in-place leases, adjusted to market rental rates, and (ii) as if vacant. Other factors considered include an estimate of carrying costs during hypothetical expected lease-up periods considering current market conditions and costs to execute similar leases.
We consider information obtained about each property as a result of its pre-acquisition due diligence, marketing and leasing activities in estimating the fair value of the tangible and intangible assets acquired. In estimating carrying costs, we include real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods. We estimate costs to execute similar leases including leasing commissions and legal and other related expenses to the extent that such costs have not already been incurred in connection with a new lease origination as part of the transaction. In connection with the purchase of real property for development use, development rights are often transferred from one party to another to provide additional density. This transfer of rights allows an entity to permit, construct and develop additional dwelling units. Accordingly, we
F-8 |
allocate a portion of the purchase price to these development right intangible assets based on the value attributed to the land of which we do not hold title to but are provided density transfer rights over. These rights are amortized to amortization expense over the useful life based on the respective contract. If the rights are transferred in perpetuity and there are no legal, regulatory, contractual, competitive, economic or other factors that limit its useful life, we consider the intangible asset indefinite-lived and therefore do not amortize.
The total amount of other intangible assets acquired are further allocated to in-place lease values and customer relationship intangible values based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. We consider the nature and extent of our existing business relationships with the tenant, growth prospects for developing new business with the tenant, the tenant’s credit quality and expectations of lease renewals (including those existing under the terms of the lease agreement), among other factors. We amortize the value of in-place leases to depreciation and amortization expense over the initial term of the respective leases. The value of customer relationship intangibles will be amortized to expense over the initial term in the respective leases, but in no event will the amortization periods for the intangible assets exceed the remaining depreciable life of the building. Should a tenant terminate its lease, the unamortized portion of the in-place lease value and customer relationship intangibles would be charged to expense in that period.
The values of acquired above-market and below-market leases are determined based on the Company’s experience and the relevant facts and circumstances that existed at the time of the acquisitions and are recorded based on the present values (using discount rates which reflect the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the leases negotiated and in place at the time of acquisition of the properties, and (ii) our estimate of fair market lease rates for the property or equivalent property. Such valuations include consideration of the non-cancellable terms of the respective leases (as well as any applicable below market renewal options). The values of above and below-market leases associated with the original non-cancelable lease term are amortized to rental income over the terms of the respective non-cancelable lease periods. The portion of the values of the leases associated with below-market renewal options, that are likely to be exercised, are amortized to rental income over the respective renewal periods.
The determination of the fair value of the assets and liabilities acquired requires the use of significant assumptions with regard to current market rental rates, discount rates and other variables.
Real Estate
Real estate is carried at cost, less accumulated depreciation. Expenditures which improve or extend the useful life of the assets are capitalized, while expenditures for maintenance and repairs, which do not extend lives of the assets, are charged to expense.
Deprecation is calculated using the straight-line method based on the estimated useful lives of the respective assets (not to exceed 40 years).
Project costs directly related to the construction and development of real estate projects (including but not limited to interest and related loan fees, property taxes, insurance and legal costs) are capitalized as a cost of the project. Indirect project costs that relate to projects are capitalized and allocated to the projects to which they relate. Pertaining to assets under development, capitalization begins when both direct and indirect project costs have been made and it is probable that development of the future asset is probable. Capitalization of project costs will cease when the project is considered substantially completed and occupied, or ready for its intended use (but no later than one year from cessation of major construction activity). Upon substantial completion, depreciation of these assets will commence. If discrete portions of a project are substantially completed and occupied and other portions have not yet reached that stage, the substantially completed portions are accounted for separately. We allocate costs incurred between the portions under construction and the portions substantially completed and only capitalize those costs associated with the portion under construction.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash held in major financial institutions, cash on hand and liquid investments with original maturities of three months or less. Cash balances may at times exceed federally insurable limits per institution, however, the Company deposits its cash and cash equivalents with high credit-quality institutions to minimize credit risk exposure. The Company did not hold cash equivalents as of December 31, 2020.
Other Assets and Liabilities
Other assets in the consolidated financial statements include our transaction costs pertaining to our deal pursuits, property deposits, prepaid expenses, and accounts receivable. We include prepaid rent, security deposits payable and intangible liabilities in accounts payable, accrued expenses and other liabilities in the consolidated financial statements.
Organization, Offering and Related Costs
Our Manager and its affiliates, including our Sponsor, have agreed to advance costs and expenses on behalf of the Company, including all expenses incurred in connection with our organization and the registration and offering of our Class A units. Offering expenses include, without limitation, legal, accounting, printing, mailing and filing fees and expenses, costs in connection with
F-9 |
preparing sales materials, design and website expenses, fees and expenses of our escrow agent and transfer agent, fees to attend retail seminars and reimbursements for customary travel, lodging, meals and entertainment expenses associated therewith, but excluding upfront selling commissions or dealer manager fees. The Company will not be required to reimburse our Manager and its affiliates, including our Sponsor, until the first closing is held in connection with the Offering. Thereafter, reimbursement payments will be made, at the election of the recipient, in cash, by issuance of our Class A units at the then-current NAV, or through some combination of the foregoing, beginning on a date selected by the Manager in monthly installments without interest until paid in full.
As of December 31, 2020, the Manager and its affiliates, including our Sponsor, have incurred organization and Offering expenses of approximately $320,000 on behalf of the Company. These organization and Offering expenses are not recorded in the accompanying consolidated balance sheet of the Company as of December 31, 2020, because such expenses are not a liability of the Company until the first closing is held in connection with the Offering. When recorded by the Company, organization costs and offering expenses will be expensed and charged to Member’s capital as incurred. Such amounts may be reimbursed to the Manager or its affiliates, including our Sponsor, from the gross proceeds of the Offering. Any amount due to the Manager or its affiliates, including our Sponsor, but not paid will be recognized as a liability on the consolidated balance sheet.
Leases
All of our leases are deemed operating leases of which we recognize future minimum rents on a straight-line basis over the non-cancellable lease term. For our operating leases that contain arrangements involving reimbursements for costs such as common area maintenance, real estate taxes and insurance costs, we present these amounts within Rental and other income in our consolidated statement of operations in the period in which the applicable expenses are incurred.
Income Taxes
We initially intend to operate in a manner that will allow us to qualify as a partnership for U.S. federal income tax purposes. Generally, an entity that is treated as a partnership for U.S. federal income tax purposes is not a taxable entity and incurs no U.S. federal income tax liability. Accordingly, no provision for U.S. federal income taxes has been made in the consolidated financial statement of the Company. If we fail to qualify as a partnership for U.S. federal income tax purposes in any taxable year, and if we are not entitled to relief under the Code for an inadvertent termination of our partnership status, we will be subject to federal and state income tax on our taxable income at regular corporate income tax rates.
Loss per Unit
Our outstanding units are limited to Class A units. Loss per unit represents both basic and dilutive per-unit amounts for the period presented in the consolidated financial statements. Basic and diluted loss per unit is calculated by dividing Net loss attributable to the Company by the weighted-average number of Class A units outstanding during the year.
Valuation of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date under current market conditions (i.e., the exit price).
We categorize our financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities recorded on the consolidated balance sheet are categorized based on the inputs to the valuation techniques as follows:
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs).
Level 3 – Valuation generated from model-based techniques that use inputs that are significant and unobservable in the market. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow methodologies or similar techniques, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.
Recent Accounting Pronouncements
In February 2016, the Financial Accounting Standards Board issued Accounting Standards Update 2016-02, Leases, which is codified in ASC 842, Leases, and supersedes current lease guidance in ASC 840, Leases. The update amends the existing accounting standards for lease accounting, including requiring lessees to recognize most leases on their balance sheets and making targeted
F-10 |
changes to lessor accounting. The standard requires a modified retrospective transition approach for all leases existing at, or entered into after, the date of initial application, with an option to use certain transition relief. As an emerging growth company, we are permitted, and have elected, to use an extended transition period for complying with new or revised accounting standards that have different effective dates for public and private companies. For private companies, ASC 842 will be effective for annual reporting periods beginning after December 15, 2021 and interim periods within fiscal years beginning after December 15, 2022. The adoption of this standard is not expected to have a material impact on our consolidated financial statements.
Risks and Uncertainties
The spread of COVID-19 has caused significant disruptions to the global economy and normal business operations worldwide, and the duration and severity of the effects are currently unknown. The rapid development and fluidity of the COVID-19 situation precludes any forecast as to its ultimate impact. Nevertheless, COVID-19 presents material uncertainty and risk with respect to the Company’s performance and financial results, such as the potential to negatively impact to financing arrangements, increase costs of operations, change laws or regulations, and add uncertainty regarding government and regulatory policy. We are closely monitoring the potential impact of COVID-19 on all aspects of our business.
Note 4 – Related Party Arrangements
On October 28, 2020, Belpointe REIT, Inc., (“Belpointe REIT”) a Maryland corporation and affiliate of our Sponsor, lent the Company $35,000,000 pursuant to the terms of a secured promissory note (the “First Secured Note”). We used the proceeds from the First Secured Note to make certain qualified opportunity zone investments, as discussed below in Note 5. The First Secured Note bears interest at a rate of 0.14%, is due and payable on June 30, 2021 and is secured by all of the assets of the Company. During the period ended December 31, 2020, interest expense incurred on the First Secured Note was approximately $9,000.
The Manager and its affiliates, including our Sponsor, will receive fees or reimbursements in connection with our Offering and the management of our investments.
The following table presents a summary of fees paid and expenses reimbursed to the Manager and its affiliates in accordance with the terms of the relevant agreements (amounts in thousands):
For the Period Beginning January 24, 2021 (Formation) to December 31, 2020 |
||||
Amounts Included in the Consolidated Statements of Operations | ||||
Costs incurred by the Manager and its affiliates (1) | $ | 81 | ||
Other capitalized costs | ||||
Development fee and reimbursements (1) | $ | 2,611 | ||
(1) |
Includes wage, overhead and other reimbursements to the Manager and its affiliates. | |||
The following table presents a summary of amounts included in Due to affiliates in the consolidated financial statements (amounts in thousands):
December 31, 2020 | ||||
Amounts Due to affiliates | ||||
First Secured Note, including accrued interest, to Belpointe REIT | $ | 35,009 | ||
Development fees (1) | 357 | |||
Employee Cost Sharing and reimbursements (1) | 126 | |||
$ | 35,492 | |||
(1) |
Includes wage, overhead and other reimbursements to the Manager and its affiliates. | |||
Organization Offering and Offering Expenses
The Manager and its affiliates, including our Sponsor, will be reimbursed for organization and offering expenses incurred in conjunction with our organization and Offering. See Note 3 – Summary of Significant Accounting Policies – Organization, Offering and Related Costs. As of December 31, 2020, the Manager and its affiliates, including our Sponsor, have incurred organization and offering expenses of approximately $320,000 on behalf of the Company. These organization and offering expenses are not recorded in the accompanying consolidated balance sheet of the Company as of December 31, 2020, because such expenses are not a liability of the Company until the first closing is held in connection with the Offering.
Other Operating Expenses
We will reimburse the Manager and its affiliates for actual expenses incurred on behalf of the Company in connection with the selection, acquisition or origination of an investment, whether or not the Company ultimately acquires or originates the
F-11 |
investment. We will reimburse the Manager for out-of-pocket expenses paid to third parties in connection with providing services to the Company. We will reimburse our Sponsor and Manager for expenses incurred for our allocable share of the salaries, benefits and overhead of personnel providing services to us pursuant to the shared services agreement between the Company, the Manager and the Sponsor. The expenses shall be payable, at the election of the recipient, in cash, by issuance of our Class A units at the then-current NAV, or through some combination of the foregoing.
Asset Management Fee
Subject to the oversight of our Board, the Manager is responsible for managing the Company’s affairs on a day-to-day basis and for the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including but not limited to commercial real estate loans, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses.
We will pay the Manager a quarterly asset management fee of one-fourth of 0.75%. The asset management fee will be based on our NAV at the end of each quarter, which, no later than the first quarter following the December 31, 2022 year end, and every quarter thereafter, will be announced within approximately 60 of the last day of each quarter.
Property Management Oversight Fee
Our Manager, Sponsor or an affiliate of our Manager or Sponsor, will be paid an annual property management oversight fee, to be paid by the individual subsidiaries of our Operating Company, equal to 1.5% of the revenue generated by the applicable property.
Development Fee
Affiliates of our Sponsor are entitled to receive (i) development fees on each project in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project, and (ii) reimbursements for its expenses, such as employee compensation and other overhead expenses incurred in connection with the project.
In relation to our acquisition of 902-1020 First in St. Petersburg, Florida, as defined and described in more detail in Note 5 below, a development fee of 4.5% of total project costs will be charged throughout the course of the project, of which one half was due at the close of the acquisition and is included in real estate under construction in our consolidated balance sheet as of December 31, 2020. During the year ended December 31, 2020, we incurred employee reimbursement expenditures to the development manager of approximately $26,000, of which approximately $17,000 is included in real estate under construction in our consolidated balance sheet and approximately $9,000 is included in general and administrative expenses in our consolidated statement of operations. As of December 31, 2020, approximately $330,000 and $27,000 remained due and payable to our affiliates for the upfront development fees and employee reimbursement expenditures, respectively, related to 902-1020 First.
Acquisition Fee
We will pay our Manager, Sponsor, or an affiliate of our Manager or Sponsor, an acquisition fee equal to 1.5% of the total value of any acquisition transaction, including any acquisition through merger with another entity (but excluding any transactions in which our Sponsor, or an affiliate of our Manager or Sponsor, would otherwise receive a development fee). As of December 31, 2020, we have not incurred any acquisition fees since all investments owned as of December 31, 2020 have, or will, receive a development fee.
Economic Dependency
Under various agreements, the Company has engaged the Manager and its affiliates, including in certain cases the Sponsor, to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition decisions, the sale of the Company’s Class A units available for issue, as well as other administrative responsibilities for the Company, including accounting services and investor relations. As a result of these relationships, the Company is dependent upon the Manager and its affiliates, including the Sponsor. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.
Note 5 – Real Estate, Net
Acquisitions of real estate
On October 30, 2020, BPOZ 1700 Main, LLC, a Delaware limited liability company, and BPOZ 1718 Main, LLC, a Delaware limited liability company, each an indirect majority-owned subsidiary of our Operating Company, Belpointe PREP OC, LLC, a Delaware limited liability company (“Belpointe PREP OC”), completed the acquisition of a 1.3-acre site, consisting of a former gas station, a three-story office building with parking lot with a one-story retail building, located in Sarasota, Florida (together “1700 Main”), for an aggregate purchase price of approximately $6,909,000, inclusive of transaction costs. We funded the acquisition with proceeds from the First Secured Note and anticipate funding the redevelopment costs with a mix of equity investments by joint venture partners and construction loans. This acquisition was deemed to be an asset acquisition and all transaction costs were
F-12 |
capitalized. The purchase price was allocated to land and building of approximately $4,805,000 and $2,104,000, respectively. All related assets were recorded at their relative fair values based on the purchase price and acquisition costs incurred.
On October 30, 2020, BPOZ 1000 First, LLC, a Delaware limited liability company, an indirect majority-owned subsidiary of Belpointe PREP OC, completed the acquisition of several parcels, comprising 1.6-acres of land, located in St. Petersburg, Florida (together “902-1020 First”), for a purchase price of approximately $12,060,000, inclusive of transaction costs. We funded the land acquisition costs with proceeds from the First Secured Note and anticipate funding the development costs with a mix of equity investments by joint venture partners and land and construction loans. This acquisition was deemed to be an asset acquisition and all transaction costs were capitalized and recorded at their relative fair values based on the purchase price and acquisition costs incurred.
On October 30, 2020, BPOZ 1701 Ringling Main, LLC, a Delaware limited liability company and BPOZ 1710 Ringling Main, LLC, a Delaware limited liability company, each an indirect majority-owned subsidiary of Belpointe PREP OC, completed the acquisition of a 1.62-acre site, consisting of a six-story office building with parking lot, located in Sarasota, Florida (together “1701-1710 Ringling”), for an aggregate purchase price of approximately $6,735,000, inclusive of transaction costs. We funded the acquisition costs with proceeds from the First Secured Note and anticipate funding the redevelopment costs with a mix of equity investments by joint venture partners and construction loans. This acquisition was deemed to be an asset acquisition and all transaction costs were capitalized. The purchase price was allocated to land, building and improvements, in-place lease intangible asset and below-market lease liability for approximately $4,739,000, $1,535,000, $2,008,000, and ($1,508,000), respectively.
On November 20, 2020, Belpointe PREP Acquisitions, LLC, a Connecticut limited liability company (“PREP Acquisitions”), and our wholly owned subsidiary, entered into a purchase and sale agreement for the acquisition of a 1.205-acre site, consisting of a fully leased retail building and parking lot located in Sarasota, Florida (“1900 Fruitville Road”), for an aggregate purchase price of approximately $4,650,000, exclusive of transaction costs.
We funded pre-acquisition costs and the purchase price deposit with proceeds from the First Belpointe REIT Loan and anticipate funding entitlements and acquisition costs with proceeds from the Belpointe REIT Loans.
Depreciation expense for the period ended December 31, 2020 was approximately $26,000.
In-place lease intangible asset recorded at acquisition, noted above, are included in Intangible asset on the consolidated balance sheet. The below-market lease liability recorded at acquisition, noted above, is included in accounts payable, accrued expenses and other liabilities on the consolidated balance sheet. Both in-place lease intangible asset and below-market lease liability will be amortized over the remaining lease term of 20 years. During the period ended December 31, 2020, the amortization of in-place lease intangible asset is approximately $17,000 and is included in depreciation and amortization expense on the consolidated statement of operations. During the period ended December 31, 2020, the amortization of below-market lease liability is approximately $13,000 and is included in rental and other income on the consolidated statement of operations.
Real Estate Under Construction
The following table provides the activity of our Real Estate Under Construction (amounts in thousands):
December 31, 2020 | ||||
Beginning balance | $ | — | ||
Land held for development | 12,060 | |||
Capitalized funds (1) | 3,041 | |||
$ | 15,101 | |||
(1) |
Includes direct and indirect project costs incurred for the period beginning January 24, 2020 (formation) to December 31, 2020 of approximately $35,000 as well as development fees and employee reimbursement expenditures incurred of approximately $2,611,000 for the period beginning January 24, 2020 (formation) to December 31, 2020. | ||
Note 6 – Fair Value of Financial Instruments
As of December 31, 2020, the Company did not have any significant financial instruments. We estimated that our other financial assets and liabilities had fair values that approximated their carrying values as of December 31, 2020 .
Note 7 – Loss Per Unit
Basic and Diluted Loss Per Unit
During the period beginning January 24, 2020 (formation) to December 31, 2020, the basic and diluted weighted-average units outstanding was 100. During the period beginning January 24, 2020 (formation) to December 31, 2020, net loss attributable to Class A units was approximately ($112,000) and the loss per basic and diluted unit was ($1,120).
F-13 |
Note 8 – Commitments and Contingencies
As of December 31, 2020, the Company is not subject to any material litigation nor is the Company aware of any material litigation threatened against it.
Note 9 – Subsequent Events
Management has evaluated subsequent events to determine if events or transactions through the date the consolidated financial statements were available for issuance, require potential adjustment to or disclosure in the consolidated financial statements.
Loan
On February 16, 2021, we entered into a second loan transaction with Belpointe REIT whereby Belpointe REIT advanced us an additional $24,000,000 pursuant to the terms of a second secured promissory note (the “Second Secured Note”). The Second Secured Note bears interest at a rate of 0.14%, is due and payable on June 30, 2021 and is secured by all of the assets of the Company. We have and will continue to use the proceeds from the loan to make certain qualified opportunity zone investments.
900 8th Avenue South – Nashville, Tennessee
On February 24, 2021, 900 Eighth, LP, a Tennessee limited partnership, and indirect majority-owned subsidiary of our Operating Company, Belpointe PREP TN OC, LLC, a Delaware limited liability company (“Belpointe PREP TN OC”), entered into an agreement for the acquisition of a 3.17-acre land assemblage, consisting of a few small buildings, parking lots and open lots, located in Nashville, Tennessee (together, “900 8th Avenue South”), for an aggregate purchase price of approximately $20,000,000, inclusive of transaction costs.
We funded pre-acquisition costs with proceeds from the First Belpointe REIT Loan and anticipate funding entitlement and acquisition costs with a mix of equity investments by a joint venture partner, proceeds from the Belpointe REIT Loans.
900 First Avenue North- St. Petersburg, Florida
On March 12, 2021, BPOZ 900 First, LLC, a Delaware limited liability company, an indirect majority-owned subsidiary of Belpointe PREP OC, completed the acquisition of an additional parcel, located in St. Petersburg, Florida, for a purchase price of approximately $2,405,000, inclusive of transaction costs.
1900 Fruitville Road – Sarasota Florida
On March 19, 2021, PREP Acquisitions assigned the purchase and sale agreement for 1900 Fruitville Road to BPOZ 1900 Fruitville, LLC, a Delaware limited liability company, an indirect majority-owned subsidiary of Belpointe PREP OC. We currently anticipate closing on 1900 Fruitville Road during the second quarter of 2021 for a purchase price of approximately $4,650,000.
Management has evaluated the activity of the Company through April 19, 2021.
F-14 |
Appendix A: Prior Performance Tables
The following prior performance tables provide information relating to the real estate investment programs sponsored by Belpointe, LLC, our Sponsor, and its affiliates, collectively referred to herein as the “prior programs.” This information should be read together with the summary information included in the “Prior Performance” section of this prospectus. Our Sponsor engages in the business of investing in, developing and managing commercial real estate investments on behalf of both individual and institutional clients.
These prior programs focus on investing in real estate. Each prior program has its own specific investment objectives. The general investment objectives common to all of the prior programs include providing investors with investment returns from repositioning and capital appreciation of real estate, as well as from income producing real estate. We have presented all prior programs that have investment objectives similar to ours, as well as certain other recent programs that do not have investment objectives similar to ours, as required by applicable SEC guidance.
By purchasing Class A units in this offering, you will not acquire any ownership interest in any prior programs to which the information in this section relates and you should not assume that you will experience returns, if any, comparable to those experienced by the investors in the prior programs discussed. Further, two of the prior programs discussed herein were conducted through privately held entities that were subject neither to the fees and expenses associated with this offering, nor all of the laws and regulations that will apply to us once we qualify as a publicly traded partnership and qualified opportunity fund.
Description of the Tables
The following tables are included herein:
Table I - | Experience in Raising and Investing Funds |
Table II - | Compensation to Sponsor |
Table III - | Operating Results of Prior Programs |
Table IV - | (Omitted) Results of Completed Programs has been omitted since none of the prior Sponsor programs with similar investment objectives to ours has completed operations during the five years ended December 31, 2020. |
Table V - | Sales or Disposals of Properties |
Table VI - | Acquisitions of Properties by Programs |
A-1 |
EXPERIENCE IN RAISING AND INVESTING FUNDS
Table I provides a summary of the experience of our Sponsor, and its affiliates, in raising and investing funds in prior programs the offerings of which have closed during the three years ended December 31, 2020, or are open-ended. Belpointe Multifamily Development Fund I, LP (“BMF”) and Beacon Hill II Investments, LLC (“BH”) each have investment objectives similar to ours, with the goal of seeking development returns through the acquisition, development and management of a portfolio of multifamily and mixed-use properties, both on a direct basis and with joint-venture operating partnerships. Belpointe REIT, Inc. (“BREIT”) has nearly the same investment objectives as we do, with the goal of acquiring and managing a diversified portfolio of commercial real estate properties and other real estate-related assets located in qualified opportunity zones. Our Sponsor has no other prior programs with similar investment objectives to ours that have closed within the last five years or are open ended.
As of December 31, 2020 | ||||||||||||
($ in thousands) | BMF | BH | BREIT (1) | |||||||||
Dollar amount offered | $ | 110,396 | $ | 6,000 | $ | 88,912 | ||||||
Dollar amount raised | 110,396 | 6,000 | 83,643 | |||||||||
Less offering expenses | ||||||||||||
Selling commissions and discounts retained by affiliates | N/A | N/A | N/A | |||||||||
Organizational expenses (2) | 400 | N/A | 465 | |||||||||
Other (3) | 1,900 | N/A | 506 | |||||||||
Reserves | ||||||||||||
Percent available for investment | 1 | % | 0 | % | 29 | % | ||||||
Acquisition costs | ||||||||||||
Prepaid items and fees related to purchase of property (4) | N/A | N/A | 9,706 | |||||||||
Cash down payment (5) | 135,100 | 6,000 | 10,381 | |||||||||
Acquisition fees | N/A | N/A | N/A | |||||||||
Other (6) | 214,800 | 12,300 | 12,000 | |||||||||
Total Acquisition Cost | 354,396 | 18,300 | 32,087 | |||||||||
Percent leverage (mortgage financing divided by total acquisition cost) | 60.6 | % | 67.2 | % | 39.4 | % | ||||||
Date offering began | 8/1/2012 | 5/19/2015 | 2/11/2019 | |||||||||
Length of offering (in months) | 31 | 7 | 22 | |||||||||
Months to invest 90% of amount available for investment (7) (measured from the beginning of offering) |
52 | 1 | N/A | |||||||||
(1) |
For the period from February 11, 2019 (Commencement of Operations) through December 31, 2020. | |||||||||
(2) | Includes organizational and offering costs and abandoned pursuit costs paid from raised capital. | |||||||||
(3) | Includes management fees paid from raised capital. | |||||||||
(4) | Prepaid items and fees related to the purchase of properties consist of all other capitalized costs (excluding purchase prices and accrued costs) for acquired assets, per investment program. | |||||||||
(5) | Includes the portion of the purchase price paid for acquired assets in cash. | |||||||||
(6) | Includes the portion of the purchase price paid with financing proceeds received upon acquisition. | |||||||||
(7) | BH and BMF are both 100% invested as of December 31, 2020. | |||||||||
A-2 |
COMPENSATION TO SPONSOR
Table II provides a summary of the type and amount of compensation paid to our Sponsor and its affiliates’ prior programs for which the offerings have closed during the five year period ended December 31, 2020, or are defined as open-ended. Belpointe Multifamily Development Fund I, LP (“BMF”) and Beacon Hill II Investments, LLC (“BH”) each have investment objectives similar to ours, with the goal of seeking “development” returns through the acquisition, development and management of a portfolio of multifamily and mixed-use properties, both on a direct basis and with joint-venture partnerships. Belpointe REIT, Inc. (“BREIT”) has nearly the same investment objectives as we do, with the goal of acquiring and managing a diversified portfolio of commercial real estate properties and other real estate-related assets located in qualified opportunity zones. Our Sponsor has no other prior programs with similar investment objectives to ours which have either closed within the last five years or are open ended.
As of December 31, 2020 | ||||||||||||
($ in thousands) | BMF | BH | BREIT (1) | |||||||||
Date offering commenced | 8/1/2012 | 5/19/2015 | 2/11/2019 | |||||||||
Dollar amount raised | $ | 110,396 | $ | 6,000 | $ | 83,643 | ||||||
Amount paid to sponsor from proceeds of offering: | ||||||||||||
Underwriting fees | — | — | — | |||||||||
Acquisition fees | — | — | — | |||||||||
– real estate commissions | — | — | — | |||||||||
–advisory fees (2) | — | — | 506 | |||||||||
–other (3) | — | — | 4,409 | |||||||||
Dollar amount of cash used from operations before deducting payments to sponsor | (1,234 | ) | ||||||||||
Amount paid to sponsor from operations: | ||||||||||||
Property management fees | — | — | — | |||||||||
Management fees (4) | 2,264 | — | — | |||||||||
Reimbursements (5) | 5,100 | 200 | — | |||||||||
Leasing commissions | — | — | — | |||||||||
Other (6) | 7,089 | 1,300 | — | |||||||||
Dollar amount of property sales and refinancing before deducting payments to sponsor | ||||||||||||
– cash | — | — | — | |||||||||
– notes | — | — | 12,000 | |||||||||
Amount paid to sponsor from property sales and refinancing: | ||||||||||||
Real estate commissions | — | — | — | |||||||||
Incentive fees | — | — | — | |||||||||
Other | — | — | — | |||||||||
(1) |
For the period from February 11, 2019 (Commencement of Operations) through December 31, 2020. | ||||||||
(2) | Consists of management fees and are paid from raised capital and classified as advisory fees. | ||||||||
(3) | Consists of development fees, expenses (including reimbursements) and abandoned pursuit costs of $3.4 million, $1.0 million and $0.1 million, respectively, and are paid to our Sponsor or its affiliates from raised capital and classified as other. All expenses and abandoned pursuit costs are either third party expenses or miscellaneous travel or out-of-pocket expenses incurred by Sponsor or its affiliates in connection with abandoned investment opportunities. | ||||||||
(4) | Consists of management fees paid to our Sponsor or its affiliates. | ||||||||
(5) | Consists of expenses and abandoned pursuit costs and are either: (i) paid from raised capital and classified as other, or (ii) paid from operations and classified as Reimbursements paid to Sponsor from operations. All expenses and abandoned pursuit costs are either third party expenses or miscellaneous travel or out-of-pocket expenses incurred by Sponsor or its affiliates in connection with abandoned investment opportunities. | ||||||||
(6) | Includes development fees paid to our Sponsor or its affiliates. | ||||||||
A-3 |
OPERATING RESULTS OF PRIOR PROGRAMS
Table III provides a summary of the operating results of our Sponsor’s and its affiliates’ prior programs for which the offerings have closed during the five year period ended December 31, 2020, or defined as open-ended. Belpointe Multifamily Development Fund I, LP (“BMF”) had investment objectives similar to ours, with the goal of seeking “development” returns through the acquisition, development and management of a portfolio of multifamily and mixed-use properties, both on a direct basis and with joint-venture partnerships. Beacon Hill II Investments, LLC (“BH”) was a condominium property and did not have material operating results. Belpointe REIT, Inc. (“BREIT”) has nearly the same investment objectives as we do, with the goal of acquiring and managing a diversified portfolio of commercial real estate properties and other real estate-related assets located in qualified opportunity zones. Our Sponsor has no other prior programs with similar investment objectives to ours which have either closed within the last five years or are open ended.
A-4 |
– from operations | (2,221 | ) | (2,017 | ) | (3,172 | ) | (3,005 | ) | (1,759 | ) | 9,862 | |||||||||||||
– from recapture | — | — | — | — | — | — | ||||||||||||||||||
Capital gain (loss) | — | — | — | — | 19,307 | — | ||||||||||||||||||
Cash Distributions to Investors Source | ||||||||||||||||||||||||
– Investment income | — | — | — | — | — | — | ||||||||||||||||||
– Return of capital | — | — | — | — | 500 | 5,500 | ||||||||||||||||||
Source (on cash basis) | ||||||||||||||||||||||||
– Sales | — | — | — | — | 500 | 5,500 | ||||||||||||||||||
– Refinancing | — | — | — | — | — | — | ||||||||||||||||||
– Operations | — | — | — | — | — | — | ||||||||||||||||||
– other | — | — | — | — | — | — | ||||||||||||||||||
(1) |
Note: The BMF’s financial information is presented on an investment company basis in accordance with GAAP. | |||||||||||||||||
(2) | Taxable Income is as recorded on the program partnership tax return for the applicable operating year. Taxable Income for 2020 is not yet available. | |||||||||||||||||
BREIT | BREIT | |||||||
Period Ended (Unaudited) | Period Ended (Unaudited) | |||||||
($ in thousands) | December 31, 2019 (1) | December 31, 2020 | ||||||
Gross Revenues | $ | 70 | $ | 165 | ||||
Profit on sale of properties | ||||||||
Less: Operating expenses (2) | 524 | 2,192 | ||||||
Less: Interest expense (3) | 32 | 69 | ||||||
Plus: Equity in net income from unconsolidated joint venture and other income | — | (173 | ) | |||||
Less: Depreciation expense | 58 | 348 | ||||||
Net Income | (544 | ) | (2,271 | ) | ||||
Taxable Income | ||||||||
– from operations | (544 | ) | (2,271 | ) | ||||
– from gain on sale | — | — | ||||||
Cash used in operations | (389 | ) | (1,669 | ) | ||||
Cash generation from sales | — | — | ||||||
Cash generation from refinancing | — | — | ||||||
Cash generation from, operations, sales and refinancing | (389 | ) | (1,669 | ) | ||||
Less: Cash distributed to investors | — | — | ||||||
– from operating cash flow | — | — | ||||||
– from sales and refinancing | — | — | ||||||
– from other | — | — | ||||||
Cash deficiency after cash distributions | (389 | ) | (1,669 | ) | ||||
Less: Special items (not including sales and refinancing) | — | — | ||||||
Cash deficiency after cash distributions and special items | (389 | ) | (1,669 | ) | ||||
Tax and Distribution Data | — |
A-5 |
Federal Income Tax Results: | ||||||||
Ordinary income (loss) | ||||||||
– from operations | (544 | ) | (2,271 | ) | ||||
– from recapture | — | — | ||||||
Capital gain (loss) | — | — | ||||||
Cash Distributions to Investors Source (on GAAP basis) | ||||||||
– Investment income | — | — | ||||||
– Return of capital | — | — | ||||||
Source (on cash basis) | ||||||||
– Sales | — | — | ||||||
– Refinancing | — | — | ||||||
– Operations | — | — | ||||||
– other | — | — | ||||||
(1) |
For the period from February 11, 2019 (Commencement of Operations) to December 31, 2019. | |||||
(2) | Includes for each year (a) general and administrative expenses of $277,000 and $1,200,000, respectively, and (b) abandoned pursuit costs of $68,000 and $7,000, respectively. | |||||
(3) | Includes for each year amortization of deferred financing costs of $4,000 and $27,000, respectively, and excludes for each year interest expense capitalized to real estate under construction of $59,000 and $544,000, respectively. | |||||
A-6 |
SALES OR DISPOSALS OF PROPERTIES
(UNAUDITED)
Table III provides a summary of the operating results of our Sponsor’s, and its affiliates’, prior programs for which the offerings have closed during the six years ended December 31, 2020, or are open-ended. Beacon Hill II Investments, LLC (“BH”) and Belpointe Multifamily Development Fund I, LP (“BMF”) each have investment objectives similar to ours, with the goal of seeking “value-add” returns through the acquisition and management of a portfolio of multifamily and mixed-use properties in inefficiently priced markets throughout the United States, both on a direct basis and with joint-venture operating partners. Belpointe REIT, Inc. (“BREIT”) has nearly the same investment objectives as we do, with the goal of acquiring and managing a diversified portfolio of commercial real estate properties and other real estate-related assets located in qualified opportunity zones. Our Sponsor has no other real estate programs with similar investment objectives to ours that have closed within the last five years or are open.
($ in thousands) | |||||||||||||||||||||||||||||||||||||||||||||
Selling Price, Net of Closing Costs and GAAP Adjustments | Cost of Properties, Including Closing and Soft Costs | ||||||||||||||||||||||||||||||||||||||||||||
Property | Date of Acquisition | Date of Sale | Cash Received Net of Closing Costs (1) | Mortgage Balance Due | Purchase Money Mortgage Taken Back by Program | Adjustments Resulting from Application of GAAP | Total | Original Mortgage Financing | Total Acquisition Cost, Capital Improvement Closing and Soft Costs (2) | Total | Excess (Deficiency) of Property Operating Cash Receipts Over Cash Expenditures | ||||||||||||||||||||||||||||||||||
Baypointe Connecticut Multifamily |
7/2015 | 6/2019 | $ | 21,484 | $ | 26,470 | $ | — | $ | — | $ | 47,954 | $ | 26,700 | $ | 13,691 | $ | 40,391 | $ | 1,018 | |||||||||||||||||||||||||
Pinnacle Connecticut Multifamily |
1/2013 | 12/2019 | $ | 27,479 | $ | 19,000 | $ | — | $ | — | $ | 46,479 | $ | 14,150 | $ | 21,603 | $ | 35,753 | $ | — | |||||||||||||||||||||||||
Waypointe Connecticut Mixed-Use |
464 units/
56,000 sq. ft. Retail |
8/2020 | $ | 76,316 | $ | 80,684 | $ | — | $ | — | $ | 157,000 | $ | 92,000 | $ | 54,100 | $ | 146,100 | $ | 12,175 | |||||||||||||||||||||||||
Beacon Hill II Connecticut Multifamily- Condominium |
9 units | 2/2020 | $ | 10,467 | $ | 12,300 | $ | — | $ | — | $ | 22,767 | $ | 12,300 | $ | 6,000 | $ | 18,300 | $ | — | |||||||||||||||||||||||||
(1) |
Sales price less closing costs. |
(2) | Total costs includes acquisition transaction costs paid at closing but excludes original mortgage financing. |
A-7 |
ACQUISITIONS OF PROPERTIES BY PROGRAM
Table VI provides a summary of all property assets acquired by our Sponsor, and its affiliates’, prior programs for which the offerings have closed during the six year period ended December 31, 2020, or are open-ended. Beacon Hill II Investments, LLC (“BH”) and Belpointe Multifamily Development Fund I, LP (“BMF”) each have investment objectives similar to ours, with the goal of seeking “development” returns through the acquisition, development and management of a portfolio of multifamily and mixed-use properties, both on a direct basis and with joint-venture partnerships. BREIT has nearly the same investment objectives as we do, with the goal of acquiring and managing a diversified portfolio of commercial real estate properties and other real estate-related assets located in qualified opportunity zones. Our Sponsor has no other prior programs with similar investment objectives to ours which have closed within the last five years or are open ended.
(1) |
Acquired by BREIT. | ||||||||||||||||||||||
A-8 |
APPENDIX B:
FORM OF SUBSCRIPTION AGREEMENT
Belpointe PREP,
LLC
Subscription Agreement for Class A Units
1. | Your Investment |
Investment Amount $___________________ | [ ] Initial Purchase* |
[ ] Subsequent Purchase |
Investment Method | |||
|
|
[ ] By Mail
|
Attach a check** to this agreement. Make all checks* payable to: Belpointe PREP, LLC.
|
|
|
[ ] By Wire
|
Name: Bank Name: ABA: DDA: |
[ ] Broker-dealer/financial advisor |
* The minimum initial investment threshold is $10,0000, subject to waiver by Belpointe PREP, LLC.
** Cash, cashier’s checks/bank checks, temporary checks, foreign checks, money orders, third-party checks or traveler’s checks are not accepted.
2. | Ownership Type (Select only one) |
Non-Custodial Account Type | Third Party Custodial Account Type |
Brokerage account number: | Custodian account number: |
[ ] Individual or joint tenant with rights of survivorship |
[ ] IRA [ ] Roth IRA |
[ ] Transfer on death (optional designation. Not available for Louisiana residents. See section 3c.) |
[ ] Sep IRA [ ] Simple IRA |
[ ] Tenants in common
|
[ ] Other: _____________________
|
[ ] Community property
|
|
[ ] Uniform gift/transfer to minors State of: ______________
|
Custodian information (to be completed by custodian)
|
[ ] Pension plan (include certification of investment powers form)
|
Custodian name :
|
[ ] Trust (include certification of investment powers form)
|
Custodian Tax ID #:
|
[ ] Corporation/Partnership/Other (corporate resolution or partnership agreement required) | Custodian Phone #: |
B-1 |
Entity Name - Retirement Plan/Trust/Corporation/Partnership/Other
(Trustee(s) and/or authorized signatory(s) information MUST be provided in Sections 3A and 3B)
Entity Name
|
Tax ID Number |
Date of Trust
|
Exemptions (See Form W-9 instructions at www.irs.gov)
|
Entity Type (Select one. Required) |
[ ] Retirement Plan [ ] Trust [ ] S-Corp |
[ ] C-Corp [ ] LLC [ ] Partnership |
Exempt payee code (if any) ______________ |
[ ] Other | Jurisdiction (if Non-U.S.) ____________ | |
(Attach a completed applicable Form W-8) |
Exemption from FATCA reporting
code (if any) |
3. | Investor Information |
A. | Investor Name (Investor/Trustee/Executor/Authorized Signatory Information) |
(Residential street address MUST be provided. See Section 4 if mailing address is different than residential street address.)
First Name | (MI) | Last Name | Gender |
Social Security Number/Tax ID | Date of Birth (MM/DD/YYYY) | Daytime Phone Number | |
Residential Street Address | City | State | Zip Code |
Email Address | Branch Number | Telephone Number |
If Non-U.S. Citizen, Specify Country of Citizenship and Select One below (Required)
[ ] | Resident Alien | Country of Citizenship |
[ ] | Non-Resident Alien (Attach a completed Form W-8BEN, Rev. July 2017) |
B. | Co-Investor Name (Co-Investor/Co-Trustee/Co-Authorized Signatory Information, if applicable) |
First Name | (MI) | Last Name | Gender |
Social Security Number/Tax ID | Date of Birth (MM/DD/YYYY) | Daytime Phone Number | |
Residential Street Address | City | State | Zip Code |
Email Address | Branch Number | Telephone Number |
If Non-U.S. Citizen, Specify Country of Citizenship and Select One below (Required)
[ ] | Resident Alien | Country of Citizenship |
[ ] | Non-Resident Alien (Attach a completed Form W-8BEN, Rev. July 2017) |
C. Transfer on Death Beneficiary Information (Individual or Joint Account with rights of survivorship only.) (Not available for Louisiana residents.) (Beneficiary Date of Birth required. Whole percentages only; must equal 100%.)
First Name | (MI) | Last Name | SSN | Date of Birth (MM/DD/YYYY) |
[ ] Primary [ ] Secondary |
____ |
% |
||
First Name | (MI) | Last Name | SSN | Date of Birth (MM/DD/YYYY) |
[ ] Primary [ ] Secondary |
____ |
% |
||
First Name | (MI) | Last Name | SSN | Date of Birth (MM/DD/YYYY) |
[ ] Primary [ ] Secondary |
____ |
% |
||
First Name | (MI) | Last Name | SSN | Date of Birth (MM/DD/YYYY) |
[ ] Primary [ ] Secondary |
____ |
% |
B-2 |
4. | Contact Information (If different than provided in Section 3A) |
Email Address | ||||
Mailing Address | City | State | Zip Code | |
5. | Broker-Dealer/Financial Advisor Information (Required Information. All fields must be completed.) |
The financial advisor must sign below to complete the order. The financial advisor hereby warrants that he/she is duly licensed and may lawfully sell Class A units in the state designated as the investor’s legal residence.
Broker-Dealer | Financial Advisor Name | ||
Advisor Mailing Address | |||
City | State | Zip Code | |
Financial Advisor Number | Branch Number | Telephone Number | |
Email Address | Fax Number |
The undersigned confirm(s), which confirmation is made on behalf of the broker-dealer with respect to sales of securities made through a broker-dealer, that they (i) have reasonable grounds to believe that the information and representations concerning the investor identified herein are true, correct and complete in all respects; (ii) have discussed such investor’s prospective purchase of Class A units with such investor; (iii) have advised such investor of all pertinent facts with regard to the lack of liquidity and marketability of the Class A units; (iv) have delivered or made available a current Prospectus and all related supplements, if any, to such investor; (v) have reasonable grounds to believe that the investor is purchasing these Class A units for his or her own account; and (vi) have reasonable grounds to believe that the purchase of Class A units is a suitable investment for such investor and that such investor is in a financial position to enable such investor to realize the benefits of such an investment and to suffer any loss that may occur with respect thereto. The undersigned financial advisor further represents and certifies that, in connection with this subscription for Class A units, he or she has complied with and has followed all applicable policies and procedures under his or her firm’s existing anti-money laundering program and customer identification program.
X | X | ||||||||||
Financial Advisor Signature | Date |
Branch Manager Signature (If required by Broker-Dealer) |
Date |
6. | Electronic Delivery Form (Optional) | ||||||||||
Instead of receiving paper copies of the prospectus, prospectus supplements, annual reports, proxy statements, and other communications and reports, you may elect to receive electronic delivery of such communications from Belpointe PREP, LLC. If you would like to consent to electronic delivery, including pursuant to email, initial the box below for this election.
We encourage you to reduce printing and mailing costs and to conserve natural resources by electing to receive electronic delivery of communications and statement notifications. By consenting below to electronically receive communications, including your account-specific information, you authorize us to either (i) email communications to you directly or (ii) make them available on our website and notify you by email when and where such documents are available.
You will not receive paper copies of these electronic materials unless specifically requested, the delivery of electronic materials is prohibited or we, in our sole discretion, elect to send paper copies of the materials.
By consenting to electronic access, you will be responsible for your customary internet service provider charges and may be required to download software in connection with access to these materials.
I consent to electronic delivery:
|
||
Initials |
Email Address |
If blank, the email provided in Section 4 or Section 3A will be used.
B-3 |
7. | Subscriber Signatures |
Belpointe PREP, LLC is required by law to obtain, verify and record certain personal information from you or persons on your behalf in order to establish the account. Required information includes name, date of birth, permanent residential address and social security/taxpayer identification number. We may also ask to see other identifying documents. If you do not provide the information, Belpointe PREP, LLC may not be able to open your account. By signing the Subscription Agreement, you agree to provide this information and confirm that this information is true and correct. If we are unable to verify your identity, or that of another person(s) authorized to act on your behalf, or if we believe we have identified potentially criminal activity, we reserve the right to take action as we deem appropriate which may include closing your account.
Separately initial each of the representations below. Except in the case of fiduciary accounts, you may not grant any person a power of attorney to make the representations on your behalf.
Note: All Items Must Be Read and Initialed
In order to induce Belpointe PREP, LLC to accept this subscription, I hereby represent and warrant to you as follows:
(a) | I have received a copy of the final Prospectus. |
|
||
Initials | Initials | |||
(b) | I am purchasing the Class A units for my own account. |
|
||
Initials | Initials | |||
(c) | I have the requisite power and authority to deliver this Subscription Agreement, perform my obligations as set forth herein, and consummate the transactions contemplated hereby | |||
Initials | Initials | |||
(d) | I understand that the Class A units are a speculative investment which involves a substantial degree of risk, including the risk of loss of my entire investment, and I have read and understand the risk factors set forth in the Prospectus. | |||
Initials | Initials | |||
(e) | I understand that the transaction price per Class A unit at which my investment will be executed will be made available at www.belpointeoz.com and in a prospectus supplement filed with the SEC, available at www.sec.gov. | |||
Initials | Initials | |||
(f) | I understand that (i) once submitted, my subscription is irrevocable, (ii) my subscription may not be accepted until the last business day of a calendar quarter, however, Belpointe PREP, LLC, in its sole discretion, may elect to accept my subscription earlier, (iii) the acceptance of my subscription may be postponed by Belpointe PREP, LLC, in its sole discretion, upon written notice to me, in order to maintain its status as a qualified opportunity fund, (iv) Belpointe PREP, LLC, has the right, in its sole discretion, to reject my subscription in whole or in part for any reason. | |||
Initials | Initials |
I declare that the information supplied above is true and correct and may be relied upon by Belpointe PREP, LLC. I acknowledge that the broker-dealer/financial advisor indicated in Section 5 of this Subscription Agreement and its designated clearing agent, if any, will have full access to my account information, including the number of Class A units I own and tax information (including Schedule K-1). Investors may change the broker-dealer/financial advisor of record at any time by contacting Belpointe PREP, LLC.
CERTAIN FIRPTA CERTIFICATIONS:
Under penalties of perjury, I certify that the address shown on this Subscription Agreement is my home address (in the case of an individual) or office address (in the case of an entity) and that I am not a foreign person.
SUBSTITUTE IRS FORM W-9 CERTIFICATIONS:
Under penalties of perjury, I certify that:
(i) | The number shown on this Subscription Agreement is my correct taxpayer identification number (or I am waiting for a number to be issued to me); |
(ii) | 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; |
(iii) | I am a U.S. citizen or other U.S. person (including a resident alien) (defined in IRS Form W-9); and |
(iv) | The FATCA code(s) entered on this form (if any) indicating that I am exempt from FATCA reporting is correct. |
Certification instructions. You must cross out item (ii) 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 IRS does not require your consent to any provision of this document other than the certifications required to avoid backup withholding.
X | X | |||||||
Signature of Investor | Date | Signature of Co-Investor or Custodian (If applicable) | Date |
(MUST BE SIGNED BY CUSTODIAN OR TRUSTEE IF PLAN IS ADMINISTERED BY A THIRD PARTY)
B-4 |
8. | Miscellaneous |
If investors making subsequent purchases of Class A Units of Belpointe PREP, LLC, experience a material adverse change in their financial condition or can no longer make the representations or warranties set forth above, they are asked to promptly notify Belpointe PREP, LLC, and the broker-dealer/financial advisor in writing.
No sale of Class A Units may be completed until at least five business days after you receive the final Prospectus. To be accepted, a subscription request must be made with a completed and executed Subscription Agreement in good order and payment of the full purchase price. You will receive a written confirmation of your purchase.
All items on the Subscription Agreement must be completed in order for your subscription to be processed. Investors are encouraged to read the Prospectus in its entirety for a complete explanation of an investment in the Class A Units of Belpointe PREP, LLC.
Return to:
Belpointe PREP, LLC
Attention: Investor Relations
255 Glenville Road
Greenwich, Connecticut 06831
B-5 |
Up to $750,000,000
Class A units
Representing Limited Liability Company Interests
Belpointe PREP, LLC
_________________________________ |
PROSPECTUS |
_________________________________ |
The date of this Prospectus is April 21, 2021.
PART II
Information Not Required in the Prospectus
Item 31. Other Expenses of Issuance and Distribution.
The following table sets forth the fees and expenses payable by us in connection with the issuance and distribution of the Class A units being registered hereby. All amounts shown are estimates except the SEC registration fee.
SEC registration fee | $ | [●] | ||||||
Printing and mailing | $ | [●] | ||||||
Advertising and sales | $ | [●] | ||||||
Legal | $ | [●] | ||||||
Accounting | $ | [●] | ||||||
Transfer agent and escrow agent | $ | [●] | ||||||
Miscellaneous | $ | [●] | ||||||
Total | $ | [●] |
Item 32. Sales to Special Parties.
Not applicable.
Item 33. Recent Sales of Unregistered Securities.
On February 11, 2020, our Sponsor, Belpointe, LLC, acquired 100 of our common units in connection with our formation for net proceeds to us of $10,000. Immediately upon effectiveness of this registration statement, we (i) amend and restate of our Limited Liability Company Operating Agreement, (ii) reclassify all of our outstanding common units into an equivalent number of Class A units, and (iii) issue 100,000 Class B units and one Class M unit to our Manager, Belpointe PREP Manager, LLC. The offer and sale of common units to our Sponsor and the issuance of our Class B units and Class M unit to our Manager were and will be exempt from the registration provisions of the Securities Act of 1933, as amended, in reliance on Section 4(a)(2) thereof, as transactions by an issuer not involving any public offering.
Item 34. Indemnification of Directors and Officers.
The section of the prospectus of this registration statement entitled “Management—Limitations on Liability and Indemnification of our Directors, Officers, Manager and Other Agents” discloses that we will generally indemnify our directors, officers, Manager and Sponsor to the fullest extent permitted by the law against any and all losses, claims, damages, liabilities or similar events and is incorporated herein by this reference. Section 108 of the Delaware Limited Liability Company Act empowers us to indemnify and hold harmless any member or manager or other persons from and against all claims and demands whatsoever. The indemnification rights that we provide to our directors, officers, Manager and Sponsor are more expansive than those permitted to be provided to the directors and officers of a Delaware corporation under applicable Delaware laws.
Item 35. Treatment of Proceeds from Stock Being Registered.
Not applicable.
Item 36. Financial Statements and Exhibits.
(a) | Financial Statements. |
See page F-1 for an index of the financial statements included in the registration statement.
(b) | Exhibits. |
See the Exhibit Index on the page immediately preceding the signature page hereto for a list of exhibits filed as part of this registration statement on Form S-11, which Exhibit Index is incorporated herein by reference.
Item 37. Undertakings.
(i) | The undersigned registrant hereby undertakes: |
(a) | 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 prospectus 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. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.
(iii) | To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement. |
(b) | That, for the purpose of determining any liability under the Securities Act, each such post-effective amendment shall 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. |
(c) | To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering. |
(d) | That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of the registration statement relating to the offering, other than a registration statement relying on Rule 430B or other than a prospectus filed in reliance on Rule 430A, 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. |
(e) | That, for the purpose of determining liability of the registrant under the Securities Act to any purchaser in the initial distribution of the securities, in a primary offering of securities of the undersigned 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 registrant 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 undersigned registrant relating to the offering required to be filed pursuant to Rule 424; |
(ii) | any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant; |
(iii) | the portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and |
(iv) | any other communication that is an offer in the offering made by the undersigned registrant to the purchaser. |
(f) | To send to each holder of units, at least on an annual basis, a detailed statement of any transactions with the Manager or its affiliates, and of fees, commissions, compensation and other benefits paid or accrued to the Manager or its affiliates for the fiscal year completed, showing the amount paid or accrued to each recipient and the services performed. |
(g) | To provide to the holders of units the financial statements required by Form 10-K for the first full fiscal year of operations of the registrant. |
(h) | 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 holders of units. Each sticker supplement should disclose all compensation and fees received by the Manager 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. |
(i) | 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, to reflect each commitment (i.e., the signing of a binding purchase agreement) made after the end of the distribution period involving the use of 10% or more (on a cumulative basis) of the net proceeds of the offering and to provide the information contained in such report to the holders of units at least once each quarter after the distribution period of the offering has ended. |
(ii) | 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 SEC such indemnification is against public policy as expressed in the Securities 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 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. |
SIGNATURES
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 Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Greenwich, State of Connecticut, on April 21, 2021.
Belpointe PREP, LLC | ||
By: | /s/ Brandon E. Lacoff | |
Brandon E. Lacoff | ||
Chairman of the Board and Chief Executive Officer |
EXHIBIT INDEX
Exhibit 2.1
AGREEMENT AND PLAN OF MERGER
by and among
BELPOINTE PREP, LLC,
BREIT MERGER, LLC,
and
BELPOINTE REIT, INC.
dated as of
April 21, 2021
TABLE OF CONTENTS
AGREEMENT AND PLAN OF MERGER
This AGREEMENT AND PLAN OF MERGER (this “Agreement”), dated as of April 21, 2021, is made and entered into by and among Belpointe PREP, LLC, a Delaware limited liability company (“Belpointe PREP”), BREIT Merger, LLC, a Delaware limited liability company and a wholly owned subsidiary of Belpointe PREP (“Merger Sub”), and Belpointe REIT, Inc., a Maryland corporation (“Belpointe REIT”) (each, a “Party,” and collectively, the “Parties”). Capitalized terms shall have the meanings ascribed to them in Article I.
WHEREAS, it is proposed that Merger Sub shall commence an exchange offer (the “Offer”) to acquire any (subject to the Minimum Condition) and all of the issued and outstanding shares of common stock, par value $0.01 per share (the “Common Stock”), of Belpointe REIT in exchange for the right to receive 1.05 Class A Units (the “Consideration”), upon the terms and subject to the conditions set forth herein;
WHEREAS, it is proposed that, as soon as practicable following consummation of the Offer, Belpointe REIT shall consummate the sale of BPOZ 1991 Main, LLC, a Delaware limited liability company (“BPOZ 1991 Main”), and indirect wholly-owned subsidiary of Belpointe REIT, to Belpointe Investment Holding, LLC, a Delaware limited liability company, and affiliate of the Sponsor (as hereinafter defined) (the “QOZB Sale”), for purposes of preserving the status of BPOZ 1991 Main as qualified opportunity property;
WHEREAS, it is also proposed that, as soon as practicable following the consummation of the Offer and the QOZB Sale, the Parties wish to effect the (i) conversion of Belpointe REIT from a Maryland corporation to a Maryland limited liability company (the “Conversion”) to be named Belpointe REIT, LLC (“BREIT LLC”), and (ii) acquisition of BREIT LLC by Belpointe PREP through the merger of BREIT LLC with and into Merger Sub, with Merger Sub being the surviving entity (the “Merger”);
WHEREAS, (i) the Conversion will be governed by §3-901 of the Maryland General Corporate law (the “MGCL”), and (ii) the Merger will be governed by §4A-702 of the Maryland Limited Liability Company Act (the “MLLCA”) and §18-209 of the Delaware Limited Liability Company Act (the “DLLCA”), each upon the terms and subject to the conditions set forth herein;
WHEREAS, in connection with the Merger, each share of Common Stock converted into limited liability company interests of BREIT LLC (the “BREIT Units”) and outstanding immediately prior to the Effective Time (other than Dissenting Units) shall be automatically converted into the right to receive the Consideration upon the terms and conditions set forth in this Agreement and in accordance with the MLLCA and DLLCA;
WHEREAS, the board of directors of Belpointe REIT (the “Belpointe REIT Board”) unanimously (i) determined that the terms of this Agreement and each Transaction to which Belpointe REIT is a party as contemplated by this Agreement, including the Offer, QOZB Sale and Conversion, are fair to and in the best interests of Belpointe REIT and its stockholders (the “Belpointe REIT Stockholders”), (ii) determined that it is in the best interests of Belpointe REIT and the Belpointe REIT Stockholders and declared it advisable to enter into this Agreement, (iii) approved the execution and delivery by Belpointe REIT of this Agreement, the performance by Belpointe REIT of its covenants and agreements contained herein and the consummation of the Transactions to which Belpointe REIT is a party upon the terms and subject to the conditions contained herein, and (iv) resolved to recommend that the Belpointe REIT Stockholders accept the Offer and tender their shares of Common Stock to Merger Sub pursuant to the Offer (the “Belpointe REIT Board Recommendation”);
WHEREAS, the members and board of directors of Belpointe PREP, and Belpointe PREP as the sole member and manager of Merger Sub, have determined that the terms of this Agreement and each Transaction to which Belpointe PREP and the Merger Sub are a party as contemplated by this Agreement, including the Offer and the Merger are fair to and in the best interests of Belpointe PREP and Merger Sub and their respective members; and
WHEREAS, the Parties desire to make certain representations, warranties, covenants and agreements in connection with the Transactions to which they are Parities and also prescribe various terms of and conditions to the same.
NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties agree as follows:
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Section 1.1 Definitions. The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.
“Acceptance Time” has the meaning set forth in Section 2.1(f).
“Acquisition Agreement” has the meaning set forth in Section 6.2(a).
“Acquisition Proposal” means an inquiry, offer, proposal or indication of interest from any Person or Group (other than Belpointe PREP and its Subsidiaries, including Merger Sub) relating to any transaction or series of related transactions (other than the Transactions contemplated by this Agreement) involving any: (i) direct or indirect acquisition or purchase of 15% or more of (a) the outstanding voting securities of Belpointe REIT, or (b) any equity or voting securities of any member of the Belpointe REIT Group representing 15% or more of the consolidated assets of the Belpointe REIT Group or 15% or more of the revenues or earnings of the Belpointe REIT Group on a consolidated basis; (ii) tender offer or exchange offer that, if consummated, would result in any Person or Group beneficially owning, directly or indirectly (a) 15% or more of the outstanding voting securities of Belpointe REIT, or (b) any equity or voting securities of any member of the Belpointe REIT Group representing 15% or more of the consolidated assets of the Belpointe REIT Group or 15% or more of the revenues or earnings of the Belpointe REIT Group on a consolidated basis; (iii) any merger, consolidation, share exchange, business combination, joint venture, recapitalization, reorganization or other similar transaction involving any member of the Belpointe REIT Group, pursuant to which a Person or Group would acquire, directly or indirectly, (a) assets (including securities of the members of the Belpointe REIT Group) equal to 15% or more of the consolidated assets of the Belpointe REIT Group, or to which 15% or more of the revenues or earnings of the Belpointe REIT Group on a consolidated basis are attributable, or (b) beneficial ownership of (1) 15% or more of any voting securities of Belpointe REIT, or (2) any voting securities of the Belpointe REIT Group representing, directly or indirectly, 15% or more of the consolidated assets of the Belpointe REIT Group or 15% or more of the revenues or earnings of the Belpointe REIT Group on a consolidated basis; or (iv) direct or indirect acquisition of assets of the Belpointe REIT Group (including securities of the members of the Belpointe REIT Group) equal to 15% or more of the consolidated assets of the Belpointe REIT Group, or to which 15% or more of the revenues or earnings of the Belpointe REIT Group on a consolidated basis are attributable.
“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common ownership or control with such Person. For purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Agreement” has the meaning set forth in the preamble.
“Articles of Merger” has the meaning set forth in Section 3.3.
“Associate” means, when used to indicate a relationship with any Person, any legal entity for which such Person acts as an executive officer, director, trustee, sponsor, co-sponsor, manager, co-manager, general partner or co-general partner, or, directly or indirectly, owns, controls or holds with the power to vote 5% or more of any class of voting securities or other voting interest in such entity.
“Belpointe PREP” has the meaning set forth in the preamble.
“Belpointe PREP Governing Documents” mean Belpointe PREP’s (i) Certificate of Formation, and (ii) Amended and Restated Limited Liability Company Operating Agreement, each as in effect on the date hereof.
“Belpointe REIT” has the meaning set forth in the preamble.
“Belpointe REIT Agreements” mean the Belpointe REIT Governing Documents, the Management Agreement by and among Belpointe REIT, Belpointe REIT OP, LP, a Delaware limited partnership and the Manager, date as of April 8, 2020, the Employee and Cost Sharing Agreement by and among Belpointe REIT, Belpointe REIT OP, LP, a Delaware limited partnership and the Manager, date as of April 29, 2020.
“Belpointe REIT Board” has the meaning set forth in the recitals.
“Belpointe REIT Board Recommendation” has the meaning set forth in the recitals.
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“Belpointe REIT Governing Documents” mean, as applicable, (i) Belpointe REIT’s (a) Articles of Amendment and Restatement, and (b) amended and restated bylaws, each as in effect on the date hereof, and (ii) BREIT’s (a) Articles of Organization, and (b) Limited Liability Company Operating Agreement, each as in effect upon consummation of the Conversion.
“Belpointe REIT Stockholders” has the meaning set forth in the recitals.
“Belpointe REIT Group” means Belpointe REIT or BREIT LLC, as applicable, and each Subsidiary of Belpointe REIT or BREIT LLC and each Associate of the foregoing.
“Book-Entry Units” has the meaning set forth in Section 3.6(b).
“BREIT LLC” has the meaning set forth in the recitals.
“BERIT Units” has the meaning set forth in the recitals.
“BREIT Unitholders” has the meaning set forth in Section 3.2.
“Business Days” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which commercial banks in New York, New York are authorized or required by law, regulation or executive order to close.
“Certificate of Merger” has the meaning set forth in Section 3.3.
“Change of Recommendation” has the meaning set forth in Section 6.2(a).
“Class A Units” means Class A units representing limited liability company interests of Belpointe PREP.
“Closing” has the meaning set forth in Section 3.2.
“Closing Date” has the meaning set forth in Section 3.2.
“Code” means the Internal Revenue Code of 1986, as amended, supplemented or restated from time to time, and any successor to such statute.
“Common Stock” has the meaning set forth in the recitals.
“Consideration” has the meaning set forth in the recitals.
“Contract” means any written or oral agreement, contract, subcontract, settlement agreement, lease, sublease, instrument, permit, concession, franchise, binding understanding, note, option, bond, mortgage, indenture, trust document, loan or credit agreement, license, sublicense, insurance policy or other legally binding commitment or undertaking of any nature.
“Dissenting Units” has the meaning set forth in Section 3.5(a).
“DLLCA” has the meaning set forth in the recitals.
“Effective Time” has the meaning set forth in Section 3.3.
“Exchange Act” means the Securities Exchange Act of 1934, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules and regulations promulgated thereunder.
“Exchange Agent” has the meaning set forth in Section 3.6(a).
“Exchange Fund” has the meaning set forth in Section 3.6(a).
“Form S-4” has the meaning set forth in Section 2.1(g).
“Governmental Entity” means any federal, state or local, or foreign, international or supranational, government, court or tribunal, or administrative, executive, governmental or regulatory or self-regulatory body, agency or authority thereof.
“Group” means a “group” as defined in Section 13(d) of the Exchange Act.
“Indemnified Parties” has the meaning set forth in Section 7.4(a).
“Intervening Event” means any event, change or development first occurring or arising after the date hereof that is material to the Belpointe REIT Group (taken as a whole) and was not known by or reasonably foreseeable to
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the Belpointe REIT Board as of the date hereof; provided, however, that in no event shall the following events, changes or developments constitute an Intervening Event: (i) the receipt, existence or terms of an Acquisition Proposal or any matter relating thereto or consequence thereof; or (ii) changes in the market price or trading volume of the Common Stock, or any change in credit rating or the fact that the Belpointe REIT Group meets or exceeds internal or published estimates, projections, forecasts or predictions for any period.
“Knowledge” means the actual knowledge of Brandon E. Lacoff and Martin Lacoff.
“Lien” means any lien, pledge, hypothecation, mortgage, deed of trust, security interest, conditional or installment sale agreement, encumbrance, covenant, charge, claim, option, right of first refusal, easement, right of way, encroachment, occupancy right, preemptive right, community property interest or restriction of any nature (including any restriction on the voting of any security, any restriction on the transfer of any security or other asset, or any restriction on the possession, exercise or transfer of any other attribute of ownership of any asset), whether voluntarily incurred or arising by operation of law.
“Material Adverse Effect” means, with respect to any Person, any event, circumstance, development, change, occurrence or effect that, individually or in the aggregate, has or is reasonably likely to result in a material adverse effect on (x) the condition (financial or otherwise), business, assets, liabilities or results of operations of such Person and its Subsidiaries and Associates, taken as a whole, or (y) the ability of such Person and its Subsidiaries and Associates to timely consummate the Closing (including the Merger) on the terms set forth herein or to perform their agreements or covenants hereunder; provided, however, that in the case of clause (x) only, no event, circumstance, development, change, occurrence or effects resulting from, arising out of or relating to any of the following shall be deemed to constitute, or shall be taken into account when determining whether there has been, a Material Adverse Effect, or whether a Material Adverse Effect would be reasonably likely to occur: (i) any changes in general United States or global economic conditions, including any changes affecting financial, credit, foreign exchange or capital market conditions; (ii) any changes in general conditions in any industry or industries in which such Person and its Subsidiaries and Associates operate; (iii) any changes after the date hereof in U.S. GAAP or the interpretation thereof; (iv) any changes after the date hereof in applicable law or the interpretation thereof; (v) any failure, in and of itself, by such Person or any of its Subsidiaries or Associates to meet any internal or published projections, forecasts, estimates or predictions in respect of revenues, earnings or other financial or operating metrics for any period (it being understood and agreed that this clause (v) shall not preclude a Party from asserting that any facts or occurrences giving rise to or contributing to such failure that are not otherwise excluded from the definition of Material Adverse Effect should be deemed to constitute, or be taken into account in determining whether there has been, or would reasonably be expected to be, a Material Adverse Effect); (vi) the execution and delivery of this Agreement or the consummation of the Transactions, or the public announcement of the pendency of this Agreement or the Transactions (it being understood and agreed that this clause (vi) shall not apply with respect to any representation or warranty that is intended to address the consequences of the execution and delivery of this Agreement or the consummation of the Transactions or the public announcement of the pendency of this Agreement or the Transactions); (vii) any action taken or omission by such Person pursuant to the written request of a Party; or (viii) any acts of God, natural disasters, terrorism, armed hostilities, sabotage, war or any escalation or worsening of acts of war, epidemic, pandemic or disease outbreak (including the COVID-19 virus), except in the case of each of clauses (i), (ii), (iii), (iv) or (viii), to the extent that any such event, circumstance, development, change, occurrence or effect has a disproportionate adverse effect on the Person its Subsidiaries and Associates, taken as a whole, relative to the adverse effect such event, circumstance, development, change, occurrence or effect has on other companies operating in in any industry or industries in which such Person and its Subsidiaries and Associates materially engages.
“Merger” has the meaning set forth in the recitals.
“Merger Sub” has the meaning set forth in the preamble.
“MGCL” has the meaning set forth in the recitals.
“Minimum Condition” has the meaning set forth in Section 2.1(a)(i).
“NYSE American” means the NYSE American exchange.
“Offer” has the meaning set forth in the recitals.
“Offer to Exchange” has the meaning set forth in Section 2.1(a).
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“Outside Date” means November 30, 2021.
“Party” or “Parties” has the meaning set forth in the preamble.
“Permits” shall have the meaning set forth in Section 4.8(b).
“Permitted Liens” means any Lien (i) for Taxes or governmental assessments, charges or claims of payment not yet due or that is being contested in good faith by appropriate proceedings, (ii) which is a carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or other similar Lien arising in the ordinary course of business consistent with past practice, (iii) is specifically disclosed on the most recent consolidated balance sheet of Belpointe REIT or the notes thereto included in Belpointe REIT’s SEC Documents as of the date hereof, (iv) which, individually or in the aggregate together with all other Liens under this clause (iv), is not material in amount and would not reasonably be expected to materially interfere with the ordinary conduct of the business of a Party and its Subsidiaries and Associates, as currently conducted, or materially impair the use, occupancy, value or marketability of the applicable property, (v) which is a statutory or common law Lien to secure landlords, lessors or renters under leases or rental agreements, (vi) which is imposed on the underlying fee interest in real property subject to a real property lease, and (vii) that arises as a result of a non-exclusive license or other non-exclusive grant of rights under intellectual property to use products and services.
“Person” means an individual, corporation, limited liability company, partnership (whether general or limited), joint venture, trust, estate, unincorporated organization, association (including any group, organization, co-tenancy, plan, board, council or committee), custodian, nominee, Governmental Entity or any other individual or entity (or series thereof) in its own or any representative capacity.
“Preferred Stock” has the meaning set forth in Section 4.2(a).
“PREP Manager” means Belpointe PREP Manager, LLC, a Delaware limited liability company.
“Proceedings” means all actions, suits, claims, hearings, arbitrations, litigations, mediations, grievances, audits, investigations, examinations or other proceedings, in each case, by or before any Governmental Entity.
“QOZB Sale” has the meaning set forth in the recitals.
“REIT Manager” means Belpointe REIT Manager, LLC, a Delaware limited liability company.
“Regulation A Offering” has the meaning set forth in Section 4.2(a).
“SEC” means the U.S. Securities and Exchange Commission.
“SEC Documents” has the meaning set forth in Section 4.5(a).
“Securities Act” means the Securities Act of 1933, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules or regulations promulgated thereunder.
“Sponsor” means Belpointe, LLC, a Connecticut limited liability company.
“Subsidiary” means, with respect to any Person, any other Person in which such specified Person, directly or indirectly through one or more Affiliates or otherwise, beneficially owns more than 50% of either the ownership interest (determined by equity or economic interests) in, or the voting control of, such Person.
“Superior Proposal” means a bona fide, written Acquisition Proposal (with all references to 15% in the definition of Acquisition Proposal being deemed to be references to 50% and clauses (i)(b), (ii)(b) and (iii)(b)(2) being disregarded) by a third party, which the Belpointe REIT Board determines in good faith by a majority vote, after consultation with outside legal counsel and financial advisors and taking into account all of the terms and conditions of such Acquisition Proposal (including the identity of the Person making the Acquisition Proposal and the expected timing and likelihood of consummation, and all other financial, regulatory, legal and other aspects of such Acquisition Proposal, and any changes to the terms of this Agreement proposed by Belpointe PREP pursuant to Section 6.2), to be more favorable to the Belpointe REIT Stockholders from a financial point of view than the Transactions.
“Surviving Entity” has the meaning set forth in Section 3.1.
“Tax” or “Taxes” means any and all U.S. federal, state, local and non-U.S. taxes, assessments, levies, duties, tariffs, imposts and other similar charges and fees imposed by any Governmental Entity, including income,
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franchise, windfall or other profits, gross receipts, property, sales, use, net worth, capital stock, payroll, employment, social security, workers’ compensation, unemployment compensation, excise, withholding, ad valorem, stamp, transfer, value-added, occupation, environmental, disability, real property, personal property, registration, alternative or add-on minimum, or estimated tax, including any interest, penalty, additions to tax and any additional amounts imposed with respect thereto, whether disputed or not.
“Tax Return” means any report, return, certificate, claim for refund, election, estimated Tax filing or declaration filed or required to be filed with any Governmental Entity with respect to Taxes, including any schedule or attachment thereto, and including any amendments thereof.
“Transactions” means, as context may require, the transactions contemplated by this Agreement, including with respect to (i) Belpointe PREP, Merger Sub and Belpointe REIT, the Offer, (ii) Belpointe REIT, the QOZB Sale, and (iii) Belpointe PREP, Merger Sub and BREIT LLC, the Merger, and, in each case, any transactions related or incidental to, or in connection with, such Transactions.
“Units” has the meaning set forth in Section 5.2(a).
“U.S. GAAP” has the meaning set forth in Section 4.5(b).
“Willful Breach” means a deliberate action taken or deliberate failure to act that the breaching party intentionally takes (or fails to take) and actually knows would, or would reasonably be expected to, cause a material breach of this Agreement.
Section 1.2 Construction. The definitions in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The captions in this Agreement are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. All references herein to Articles and Sections shall be deemed to be references to Articles and Sections of this Agreement unless the context otherwise requires. All Annexes attached hereto shall be deemed incorporated herein as if set forth in full herein and, unless otherwise defined therein, all terms used in any Annexes shall have the meanings ascribed to such terms in this Agreement. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise expressly provided herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein.
(a) Terms and Conditions of the Offer. Subject to the terms and conditions of this Agreement and provided that this Agreement shall not have been terminated pursuant to Article IX and that Belpointe REIT shall have complied with its obligations under Section 2.2, as promptly as practicable after the date hereof, Merger Sub shall (and Belpointe PREP shall cause Merger Sub to) commence (within the meaning of Rule 14d-2 under the Exchange Act) the Offer. In the Offer, each share of Common Stock accepted by Merger Sub in accordance with the terms and subject to the conditions of the Offer shall be exchanged for the right to receive the Consideration, subject to the other provisions of this Article II. The Offer shall be made by means of an offer to exchange (the “Offer to Exchange”) that is disseminated to holders of Common Stock pursuant to the Exchange Act and contains the terms and conditions set forth in this Agreement (including Annex A). Each of Belpointe PREP and Merger Sub shall use its reasonable best efforts to consummate the Offer, subject to the terms and conditions hereof (including Annex A). The obligation of Merger Sub to accept for exchange (and the obligation of Belpointe PREP to cause Merger Sub to accept for exchange) shares of Common Stock validly tendered pursuant to the Offer shall be subject only to:
(i) the condition that, prior to the expiration of the Offer, there have been validly tendered in accordance with the terms of the Offer a number of shares of Common Stock that, upon the consummation of the Offer, together with the shares of Common Stock then owned by Belpointe PREP and Merger Sub (if any), would represent at least a majority of the aggregate voting power of the shares of Common Stock
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outstanding immediately after the consummation of the Offer (the “Minimum Condition”)
(ii) the condition that Belpointe REIT shall have terminated its Regulation A Offering promptly upon the written request of Belpointe PREP made at any time following commencement of the Offer; and
(iii) the other conditions set forth in Annex A.
(b) Waiver. Merger Sub expressly reserves the right to waive or modify any of the conditions to the Offer and to make any change in the terms of, or conditions to, the Offer; provided, however, that notwithstanding the foregoing or anything to the contrary set forth herein, without the prior written consent of Belpointe REIT (which may be granted or withheld in its sole discretion), Merger Sub may not (and Belpointe PREP shall not permit Merger Sub to) (i) amend, modify or waive the Minimum Condition, or waive any of the conditions set forth in clauses (b), (c) or (d) of Annex A, or (ii) make any change in the terms of or conditions to the Offer that (A) changes the form of consideration, (B) decreases the consideration in the Offer, (C) extend the Offer, other than in a manner required or permitted by the provisions of Section 2.1(e), (D) imposes conditions to the Offer other than those set forth in Annex A, (E) amends or modifies (for the avoidance of doubts, waivers shall be governed by clause (i) above) any of the conditions set forth in Annex A, or (F) amend or modify any other term of or condition to the Offer in any manner that is adverse to the holders of Common Stock.
(c) Fractional Units. In the Offer a holder of Common Stock who would be entitled to a fraction of a Belpointe PREP Class A Unit will be issued a whole Belpointe PREP Class A Unit in lieu of such fraction of a Belpointe PREP Class A Unit.
(d) Adjustments to Consideration. The Consideration shall be adjusted appropriately, without duplication, to reflect the effect of any stock split, reverse stock split, stock dividend (including any dividend or distribution of securities convertible into Common Stock or Class A Units, as applicable), reorganization, recapitalization, reclassification, combination, exchange of shares or other like change with respect to the number of shares of Common Stock or shares of Class A Units outstanding after the date hereof and prior to the Acceptance Time. Nothing in this Section 2.1(d) shall be construed to permit Belpointe REIT or Belpointe PREP to take any action with respect to its securities that is prohibited by the terms of this Agreement.
(e) Expiration and Extension of the Offer.
(i) Unless the Offer is extended pursuant to and in accordance with this Agreement, the Offer shall expire at midnight, eastern standard time, on the date that is 20 Business Days (calculated in accordance with Section 14d-1(g)(3) and Rule 14e-1(a) under the Exchange Act) after the date the Offer is first commenced. In the event that the Offer is extended pursuant to and in accordance with this Agreement, then the Offer shall expire on the date and at the time to which the Offer has been so extended.
(ii) Notwithstanding the provisions of Section 2.1(e)(i) or anything to the contrary set forth in this Agreement, unless Belpointe PREP receives the prior written consent of Belpointe REIT (which may be granted or withheld in its sole discretion):
(A) Merger Sub shall (and Belpointe PREP shall cause Merger Sub to) extend the Offer for any period required by any law, or any rule, regulation, interpretation or position of the SEC or its staff, in any such case, which is applicable to the Offer, or to the extent necessary to resolve any comments of the SEC or its staff applicable to the Offer or Form S-4;
(B) in the event that any of the conditions to the Offer (other than the Minimum Condition, and other than any such conditions that by their nature are to be satisfied at the expiration of the Offer) have not been satisfied or waived as of any then-scheduled expiration of the Offer, Merger Sub shall (and Belpointe PREP shall cause Merger Sub to) extend the Offer for successive extension periods of up to 10 Business Days each (or for such longer period as may be agreed by Belpointe PREP and Belpointe REIT) in order to permit the satisfaction or valid waiver of the conditions to the Offer (other than the Minimum Condition); and
(C) if as of any then-scheduled expiration of the Offer each condition to the Offer (other than the Minimum Condition, and other than any such conditions that by their nature are to be satisfied at the expiration of the Offer (if such conditions would be satisfied or validly waived were the expiration of the Offer to occur at such time)) has been satisfied or waived and the Minimum Condition has not been satisfied, Merger Sub may, and, at the request in writing of Belpointe REIT, Merger Sub shall (and Belpointe PREP shall
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cause Merger Sub to), extend the Offer for successive extension periods of up to 10 Business Days each (with the length of each such period being determined in good faith by Belpointe PREP) or for such longer period as may be agreed by Belpointe PREP and Belpointe REIT; provided, however, that, notwithstanding anything to the contrary in this Agreement, any such extension shall not be deemed to impair, limit or otherwise restrict in any manner the right of the Parties to terminate this Agreement pursuant to the terms of Article IX.
(iii) Neither Belpointe PREP nor Merger Sub shall extend the Offer or provide a “subsequent offering period” within the meaning of Rule 14d-11 under the Exchange Act in any manner other than in accordance with the provisions of Section 2.1(e)(ii) without the prior written consent of Belpointe REIT.
(iv) Neither Belpointe PREP nor Merger Sub shall terminate or withdraw the Offer prior to the then-scheduled expiration of the Offer unless this Agreement is validly terminated in accordance with Article IX, in which case Merger Sub shall (and Belpointe PREP shall cause Merger Sub to) irrevocably and unconditionally terminate the Offer promptly (but in no event more than one Business Day) after such termination of this Agreement.
(f) Exchange of Common Stock. On the terms of and subject to the conditions set forth in this Agreement and the Offer, Merger Sub shall (and Belpointe PREP shall cause Merger Sub to) accept for exchange, and exchange, all shares of Common Stock that are validly tendered pursuant to the Offer promptly (within the meaning of Section 14e-1(c) promulgated under the Exchange Act) after the expiration of the Offer (as it may be extended in accordance with Section 2.1(e)(ii)) (or, at Belpointe PREP’s election, concurrently with the expiration of the Offer if all conditions to the Offer have been satisfied or waived) (such time of acceptance, the “Acceptance Time”). Without limiting the generality of the foregoing, Belpointe PREP shall provide or cause to be provided to Merger Sub on a timely basis the Class A Units necessary to exchange any shares of Common Stock that Merger Sub becomes obligated to exchange pursuant to the Offer; provided, however, that without the prior written consent of Belpointe REIT, Merger Sub shall not accept for exchange, or exchange, any shares of Common Stock if, as a result, Merger Sub would acquire less than the shares of Common Stock necessary to satisfy the Minimum Condition. The Consideration in the Offer payable in respect of each share of Common Stock validly tendered pursuant to the Offer shall be delivered promptly following the Acceptance Time.
(g) Form S-4.
(i) As soon as practicable on the date the Offer is first commenced, Belpointe PREP shall file with the SEC a registration statement on Form S-4 to register under the Securities Act the offer and sale of Class A Units pursuant to the Offer and the Merger (together with all amendments, supplements and exhibits thereto, the “Form S-4”).
(ii) The Form S-4 may include a description of the determinations, approvals and recommendations of the Belpointe REIT Board set forth in Section 2.2(a) that relate to the Offer, unless the Belpointe REIT Board has effected a Change of Recommendation in accordance with Section 6.2. Each of Belpointe REIT and Belpointe PREP shall use its reasonable best efforts to (A) have the Form S-4 declared effective under the Securities Act as promptly as practicable after such filing, (B) ensure that the Form S-4 complies in all material respects with the applicable provisions of the Exchange Act and Securities Act, and (C) keep the Form S-4, if declared effective by the SEC, effective for as long as necessary to complete the Merger. Belpointe REIT shall furnish in writing to Belpointe PREP and Merger Sub all information concerning the Belpointe REIT Group that is required by applicable law to be included in the Form S-4 so as to enable Belpointe PREP and Merger Sub to comply with their obligations under this Section 2.1(g). Each of the Parties shall promptly correct any information provided by it or any of its representatives for use in the Form S-4 if and to the extent that such information shall have become false or misleading in any material respect. Belpointe PREP and Merger Sub shall take all steps necessary to cause the Form S-4, as so corrected, to be filed with the SEC and to be disseminated to the holders of Common Stock, in each case as and to the extent required by applicable law, or by the SEC or its staff. Belpointe PREP shall cause the Form S-4 to comply as to form in all material respects with requirements of applicable law. Belpointe PREP shall also take any other action required to be taken under the Securities Act, the Exchange Act, any applicable state securities laws and the rules and regulations thereunder in connection with the issuance of the Class A Units in the Offer and the Merger, and Belpointe REIT shall furnish all information concerning the Belpointe REIT Group and the holders of the Common Stock as may be reasonably requested in connection with any such actions.
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Section 2.2 Belpointe REIT Actions.
(a) Belpointe REIT Determinations, Approvals and Recommendations. Belpointe REIT hereby approves and consents to the Offer and represents and warrants to Belpointe PREP and Merger Sub that, at a meeting duly called and held prior to the date hereof, the Belpointe REIT Board has unanimously, upon the terms and subject to the conditions set forth herein (including the ability of the Belpointe REIT Board to effect a Change of Recommendation in accordance with the terms of Section 6.2):
(i) determined that the terms of the Transactions are fair to, and in the best interests of, Belpointe REIT and the Belpointe REIT Stockholders;
(ii) determined that it is in the best interests of Belpointe REIT and the Belpointe REIT Stockholders to enter into, and declared advisable, this Agreement;
(iii) approved the execution and delivery by Belpointe REIT of this Agreement, the performance by Belpointe REIT of its covenants and agreements contained herein and the consummation of the Transactions, upon the terms, and subject to the conditions, contained herein; and
(iv) resolved to make the Belpointe REIT Board Recommendation.
Section 2.3 Belpointe REIT hereby approves and consents to the inclusion of the foregoing determinations and approvals and the Belpointe REIT Board Recommendation in the Form S-4 unless the Belpointe REIT Board has effected a Change of Recommendation in accordance with the terms of Section 6.2.
(a) Belpointe REIT Information. In connection with the Offer, Belpointe REIT shall, or shall cause its transfer agent to, promptly furnish Belpointe PREP and Merger Sub with such assistance and such information as Belpointe PREP or its agents may reasonably request in order to disseminate and otherwise communicate the Offer to the record and beneficial holders of Common Stock, including a list, as of the most recent practicable date, of the Belpointe REIT Stockholders, mailing labels and any available listing or computer files containing the names and addresses of all record and beneficial holders of Common Stock, and lists of security positions of shares of Common Stock held in stock depositories (including lists of the Belpointe REIT Stockholders, mailing labels, listings or files of securities positions), and shall promptly furnish Belpointe PREP and Merger Sub with such additional information and assistance (including updated lists of the record and beneficial holders of shares of Common Stock, mailing labels and lists of security positions) as Belpointe PREP and Merger Sub or their representatives may reasonably request in order to communicate the Offer to the holders of Common Stock. Subject to applicable law, and except for such steps as are necessary to disseminate the Form S-4 and any other documents necessary to consummate the Transactions, Belpointe PREP and Merger Sub (and their respective agents) shall:
(i) hold in confidence the information contained in any such lists of stockholders, mailing labels and listings or files of securities positions;
(ii) use such information only in connection with the Transactions; and
(iii) if this Agreement is terminated in accordance with Article IX, Belpointe PREP and Merger Sub shall as promptly as reasonably practicable return to Belpointe REIT or destroy all copies of such information then in their possession or control.
Section 3.1 The Merger. Upon the terms and subject to the satisfaction or waiver of the conditions set forth in this Agreement, and in accordance with the DLLCA and the MGCL, at the Effective Time, BREIT LLC shall be merged with and into Merger Sub, whereupon the separate existence of BREIT LLC will cease, with Merger Sub surviving the Merger (the Merger Sub, as the surviving entity in the Merger, sometimes being referred to herein as the “Surviving Entity”), such that following the Merger, the Surviving Entity will be a direct wholly owned Subsidiary of Belpointe PREP OC, LLC, a Delaware limited liability company, a direct wholly owned Subsidiary of Belpointe PREP. The Merger shall have the effects provided in this Agreement and as specified in the DLLCA and MGCL. The Merger shall be governed by §18-209 of the DLLCA and §4A-702 of the MLLCA.
Section 3.2 The Closing. The closing of the Merger (the “Closing”) shall take place at 10:00 a.m., New York City time, by exchange of documents and certificates (or by such other method as is mutually agreed upon by BREIT LLC and Belpointe PREP), as promptly as practicable following the Acceptance Time, QOZB Sale
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and Conversion, and in any case no later than the first Business Day after the satisfaction or, to the extent permitted by applicable law, waiver of the last of the conditions set forth in Section 8.1 to be satisfied or waived (other than any such conditions that by their nature are to be satisfied at the Closing, but subject to the satisfaction or, to the extent permitted by applicable law, waiver of such conditions at the Closing), unless another date or place is agreed to in writing by BREIT LLC and Belpointe PREP. The date on which the Closing actually takes place is referred to as the “Closing Date.” Subject to the terms and conditions hereof, BREIT LLC, Belpointe PREP and Merger Sub shall take all necessary and appropriate actions to cause the Merger to become effective as promptly as practicable, without a meeting of the holders of BREIT Units (the “BREIT Unitholders”).
Section 3.3 Effective Time. On the Closing Date, BREIT LLC, Belpointe PREP and Merger Sub shall cause a certificate of merger with respect to the Merger (the “Certificate of Merger”) to be duly executed and filed with the Secretary of State of the State of Delaware as provided under the DLLCA, shall cause articles of merger with respect to the Merger (“Articles of Merger”) to be duly executed and be filed with the Maryland Department of Assessments and Taxation as provided under the MLLCA and make any other filings, recordings or publications required to be made by BREIT LLC or Merger Sub under the DLLCA and the MLLCA in connection with the Merger. The Merger shall become effective at such time as the Certificate of Merger is duly filed with the Secretary of State of the State of Delaware and the Articles of Merger is duly filed with the Maryland Department of Assessments and Taxation or on such other date and time as shall be agreed to by BREIT LLC and Merger Sub and specified in the Certificate of Merger and Articles of Merger (such date and time being hereinafter referred to as the “Effective Time”).
Section 3.4 Conversion of BREIT Units. At the Effective Time, by virtue of the Merger and without any action on the part of the Parties or holders of any securities of BREIT LLC or Merger Sub, subject to Section 2.1(a), each BREIT Unit issued and outstanding immediately prior to the Effective Time (other than Dissenting Units) shall be automatically converted into the right to receive the Consideration, subject to the provisions of this Article III. From and after the Effective Time, all such BREIT Units shall no longer be outstanding and shall automatically be cancelled and shall cease to exist, and each applicable holder of such BREIT Units shall cease to have any rights with respect thereto, except the right to receive the applicable portion of Consideration therefor in accordance with Section 3.6.
Section 3.5 Dissenter’s Rights..
(a) Notwithstanding anything to the contrary set forth in this Agreement, BREIT Units issued and outstanding immediately prior to the Effective Time and held by a holder who has not tendered in the Offer and has properly exercised appraisal rights in respect of such BREIT Units in accordance with §4A-705 of the MLLCA (such BREIT Units being referred to collectively as the “Dissenting Units” until such time as such holder fails to perfect, withdraws or otherwise loses such holder’s appraisal rights under the MLLCA with respect to such BREIT Units) shall not be converted into a right to receive the Consideration but instead shall be entitled to payment for such BREIT Units determined in accordance with §4A-705 of the MLLCA; provided, however, that if, after the Effective Time, such holder fails to perfect, withdraws or otherwise loses such holder’s right to appraisal pursuant to §4A-705 of the MLLCA, or if a court of competent jurisdiction shall determine that such holder is not entitled to the relief provided by §4A-705 of the MLLCA, such BREIT Units shall be treated as if they had been converted as of the Effective Time into the right to receive the Consideration in accordance with Section 3.4 upon surrender of such certificate formerly representing such BREIT Units or transfer of such Book-Entry Units, as the case may be.
(b) BREIT LLC shall give prompt notice to Belpointe PREP of any demands received by BREIT LLC for appraisal of any BREIT Units, of any withdrawals of such demands and of any other instruments served pursuant to the MLLCA and received by BREIT LLC relating to 4A-705 of the MLLCA, and Belpointe PREP shall have the opportunity to participate in and direct all negotiations and proceedings with respect to such demands. Prior to the Effective Time, BREIT LLC shall not, without the prior written consent of Belpointe PREP, make any payment with respect to, or settle or compromise or offer to settle or compromise, any such demand, or agree to do any of the foregoing.
Section 3.6 Delivery of Consideration.
(a) Exchange Agent. Prior to the Effective Time, Belpointe PREP shall designate an exchange agent reasonably acceptable to BREIT LLC (the “Exchange Agent”) and enter into an exchange agreement with the Exchange Agent for purposes of exchanging the BREIT Units for the Consideration in connection with the Merger. At or prior to the Effective Time, Belpointe PREP shall deposit, or cause to be deposited, with the Exchange Agent, for the benefit of the holders of the BREIT Units, evidence of Class A Units in
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book-entry form representing the Class A Units issuable for exchange pursuant to this Article III (such evidence of book-entry Class A Units, the “Exchange Fund”); provided that no such deposits shall be required to be made with respect to any Dissenting Units. The Exchange Agent shall make delivery of the Consideration out of the Exchange Fund in accordance with this Agreement. The Exchange Fund shall not be used for any purpose.
(b) Procedures for Conversion. Any holder of BREIT Units represented in book-entry form (the “Book-Entry Units”) whose BREIT Units were converted pursuant to Section 3.4 into the right to receive the Consideration shall automatically upon the Effective Time be entitled to receive, and Belpointe PREP shall cause the Exchange Agent to pay and deliver as promptly as reasonably practicable after the Effective Time the applicable Consideration pursuant to the provisions of this Article III for each BREIT Unit formerly represented by such Book-Entry Units, and the Book-Entry Units so exchanged shall be forthwith cancelled. Payment of the Consideration with respect to Book-Entry Units shall only be made by notation on the Class A Unit register that the holder of Book-Entry Units now owns the applicable amount of Class A Units. The Exchange Agent shall provide notice of such conversion to the holder in whose name such Book-Entry Units were registered.
(c) No Further Ownership Rights in BREIT Units. At the Effective Time, the limited liability company interest transfer books of BREIT LLC shall be closed and thereafter there shall be no further registration of transfers of BREIT Units on the records of BREIT LLC.
(d) Termination of Exchange Fund; No Liability. Following the first anniversary of the Effective Time, the Exchange Agent shall be deemed to not hold any Class A Units, and thereafter BREIT Unitholders shall be entitled to look only to Belpointe PREP (subject to abandoned property, escheat or similar laws) as general creditors thereof with respect to the applicable Consideration for Book-Entry Units. Notwithstanding the foregoing, none of the Parties, BREIT LLC, the Surviving Entity or the Exchange Agent shall be liable to any holder of Book-Entry Units for any Consideration or other amounts delivered to a public official pursuant to any applicable abandoned property, escheat or similar law.
Section 3.7 Adjustment to Consideration. The Consideration shall be adjusted appropriately, without duplication, to reflect the effect of any unit split, reverse unit split, unit dividend (including any dividend or distribution of securities convertible into BREIT Units or Class A Units, as applicable), reorganization, recapitalization, reclassification, combination, exchange of units or other like change with respect to the number of BREIT Units or Class A Units outstanding after the date hereof and prior to the Effective Time; provided, that nothing in sentence shall be construed to permit BREIT LLC or Belpointe PREP to take any action with respect to their securities that is otherwise prohibited by the terms of this Agreement.
Section 3.8 Withholding. Each of the Belpointe PREP, Merger Sub, BREIT LLC, the Surviving Entity and the Exchange Agent shall be entitled to deduct and withhold from amounts otherwise payable pursuant to this Agreement any amounts that are required to be withheld or deducted with respect to such payment under the Code, or any other applicable Tax law. To the extent that amounts are so deducted or withheld, and timely remitted to the appropriate Governmental Entity, such amounts shall be treated for all purposes of this Agreement as having been paid to the Person in respect of which such deduction or withholding was made.
Section 3.9 Fractional Class A Units. In the Merger a BREIT Unitholders who would be entitled to a fraction of a Class A Unit will be issued a whole Class A Unit in lieu of such fraction of a Class A Unit.
Section 3.10 Further Assurances. From and after the Effective Time, the officers and directors of the Surviving Entity shall be authorized to execute and deliver, in the name and on behalf of the Belpointe REIT Group any deeds, bills of sale, assignments or assurances and to take and do, in the name and on behalf of the Belpointe REIT Group any other actions and things to vest, perfect or confirm of record or otherwise in the Surviving Entity any and all right, title and interest in, to and under any of the rights, properties or assets of BREIT LLC acquired or to be acquired by the Surviving Entity as a result of, or in connection with, the Merger.
Section 3.11 Governing Documents. At the Effective Time, the articles of organizational documents of Merger Sub shall be the governing documents of the Surviving Entity until thereafter changed or amended as provided therein or by applicable law.
Section 3.12 Officers and Directors of the Surviving Entity. The officers of BREIT LLC immediately prior to the Effective Time, from and after the Effective Time, shall continue as the officers of the Surviving Entity. The manager of Merger Sub immediately prior to the Effective Time, from and after the Effective Time, shall be the manager of the Surviving Entity.
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Article
IV
REPRESENTATIONS AND WARRANTIES OF BELPOINTE REIT
Belpointe REIT hereby represents and warrants to Belpointe PREP as follows:
Section 4.1 Qualification, Organization, Subsidiaries, etc.
(a) Each member of the Belpointe REIT Group is a legal entity duly organized, validly existing and in good standing under the laws of its respective jurisdiction of organization and has all requisite corporate or similar power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted. Each member of the Belpointe REIT Group is qualified to do business and is in good standing as a foreign entity in each jurisdiction where the ownership, leasing or operation of its assets or properties or conduct of its business requires such qualification, except where the failure to be so qualified or, where relevant, in good standing, (i) has not and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (ii) has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the ability of Belpointe REIT to consummate the Transactions prior to the Outside Date. Belpointe REIT has made available to Belpointe PREP complete and accurate copies of the Belpointe REIT Governing Documents and the organizational or governing documents of each other member of the Belpointe REIT Group. The Belpointe REIT Governing Documents, and the organizational or governing documents of each other member of the Belpointe REIT Group, are in full force and effect and no member of the Belpointe REIT Group is not in violation thereof.
(b) All of the issued and outstanding shares of capital stock of, or other equity interests in, each member of the Belpointe REIT Group have been validly issued, are fully paid, nonassessable and free and clear of all Liens, other than Permitted Liens.
(a) The authorized capital stock of Belpointe REIT consists of 1,000,000,000 shares of stock, consisting of 900,000,000 shares of Common Stock, and 100,000,000 shares of preferred stock, $0.01 par value per share (the “Preferred Stock”). As of April 19, 2021, (i)(A) 1,001,926 shares of Common Stock were issued and outstanding, all of which are held in book-entry form, (B) 188,197 additional shares of Common Stock available for future issuances pursuant to the Company’s continuous offering under Rule 251(d)(3) of Regulation A (the “Regulation A Offering”), (C) no shares of Common Stock were held in Belpointe REIT’s treasury, and (D) no shares of Common Stock were held by any other member of the Belpointe REIT Group, and (ii) no shares of Preferred Stock were issued or outstanding. All of the outstanding shares of Common Stock are duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights.
(b) Except as set forth in Section 4.2(a), no rights to acquire any capital stock or other equity interests of any member of the Belpointe REIT Group are outstanding, and there are no outstanding subscriptions, options, warrants, puts, calls, exchangeable or convertible securities or other similar rights, agreements or commitments for the issuance of, or that correspond to, capital stock or other equity interests to which any member of the Belpointe REIT Group is a party obligating such member of the Belpointe REIT Group to (i) issue, transfer or sell, or make any payment with respect to, any shares of capital stock or other equity interests of any member of the Belpointe REIT Group or securities convertible into, exchangeable for or exercisable for, or that correspond to, such shares or equity interests, (ii) grant, extend or enter into any such subscription, option, warrant, put, call, exchangeable or convertible securities or other similar right, agreement or commitment, (iii) redeem or otherwise acquire any such shares of capital stock or other equity interests, or (iv) provide any amount of funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person.
(c) No member of the Belpointe REIT Group has outstanding bonds, debentures, notes or other similar obligations, the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the Belpointe REIT Stockholders on any matter.
(d) There are no voting trusts or other agreements, commitments or understandings to which or any member of the Belpointe REIT Group (or to Belpointe REIT’s Knowledge, a Belpointe REIT Stockholder) is a party with respect to the voting of the capital stock or other equity interests of a member of the Belpointe REIT Group.
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Section 4.3 Corporate Authority.
(a) Belpointe REIT has all requisite corporate power and authority to execute and deliver this Agreement and to consummate the Transactions. The execution and delivery of this Agreement and consummation of the Transactions have been duly and validly authorized by the Belpointe REIT Board and no other corporate proceedings (pursuant to Belpointe REIT Governing Documents or otherwise) on the part of Belpointe REIT are necessary to authorize the consummation of, and to consummate, the Transactions. On or prior to the date hereof, the Belpointe REIT Board has unanimously (i) determined that the terms of the Transactions are fair to, and in the best interests of, Belpointe REIT and the Belpointe REIT Stockholders, (ii) determined that it is in the best interests of Belpointe REIT and the Belpointe REIT Stockholders, and declared it advisable, to enter into this Agreement, (iii) approved the execution and delivery by Belpointe REIT of this Agreement, the performance by Belpointe REIT of its covenants and agreements contained herein and the consummation of the Transactions upon the terms and subject to the conditions contained herein, and (iv) resolved to recommend that the Belpointe REIT Stockholders accept the Offer and tender their shares of Common Stock to Merger Sub pursuant to the Offer. None of the foregoing actions by the Belpointe REIT Board have been rescinded or modified in any way (unless such rescission or modification has been effected after the date hereof in accordance with the terms of Section 6.2).
(b) Assuming the satisfaction of the Minimum Condition, no vote of the holders of Common Stock or other capital stock of Belpointe REIT is necessary to adopt this Agreement or consummate the QOZB Sale or Conversion under applicable law and Belpointe REIT Governing Documents.
(c) This Agreement has been duly and validly executed and delivered by Belpointe REIT and, assuming this Agreement constitutes the valid and binding agreement of Belpointe PREP and Merger Sub, constitutes the valid and binding agreement of Belpointe REIT, enforceable against Belpointe REIT in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, examinership, reorganization, moratorium or other similar laws, now or hereafter in effect, relating to creditors’ rights generally, and (ii) equitable remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
Section 4.4 Governmental Consents; No Violation.
(a) Other than in connection or in compliance with (i) the MGCL, MLLCA and DLLCA, (ii) the filing of the Form S-4 with the SEC and any amendments or supplements thereto and declaration of effectiveness of the Form S-4, (iii) the Securities Act, (iv) the Exchange Act, and (v) applicable state securities, takeover and “blue sky” laws, no authorization, permit, notification to, consent or approval of, or filing with, any Governmental Entity is necessary or required, under applicable law, for the consummation by Belpointe REIT of the Transactions, except for such authorizations, permits, notifications, consents, approvals or filings that, if not obtained or made, would not reasonably be expected to have, individually or in the aggregate, (x) a Material Adverse Effect, or (y) a Material Adverse Effect on the ability of Belpointe REIT to consummate the Transactions prior to the Outside Date.
(b) The execution and delivery by Belpointe REIT of this Agreement does not, and, assuming compliance with Section 4.4(a), the consummation of the Transactions and compliance with the provisions hereof will not (i) conflict with or result in any violation or breach of, or default or change of control (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, termination, modification, cancellation, first offer, first refusal or acceleration of any obligation or to the loss of a benefit under any material Contract, or to Belpointe REIT’s Knowledge, any other Contract, binding upon any member of the Belpointe REIT Group or by or to which any of their respective properties, rights or assets are bound or subject or result in the creation of any Lien upon any of the properties, rights or assets of any member of the Belpointe REIT Group, other than Permitted Liens, (ii) conflict with or result in any violation of any provision of (A) Belpointe REIT Governing Documents, or (B) the organizational documents of any other member of the Belpointe REIT Group, or (iii) conflict with or violate any laws applicable to any member of the Belpointe REIT Group or any of their respective properties, rights or assets, other than in the case of clauses (i), (ii)(B) and (iii), any such violation, conflict, default, termination, cancellation, acceleration, right, loss or Lien that (A) has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (B) has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the ability of Belpointe REIT to consummate the Transactions prior to the Outside Date.
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Section 4.5 SEC Reports and Financial Statements.
(a) Since February 11, 2019, Belpointe REIT has timely filed or furnished all forms, statements, documents and reports required to be filed or furnished by it with the SEC (such forms, statements, documents and reports, the “SEC Documents”). As of their respective filing dates the SEC Documents (including amendments) complied in all material respects with the Securities Act and the applicable rules and regulations promulgated thereunder, and none of the SEC Documents have contained (or, with respect to the SEC Documents filed after the date hereof, will not contain) any untrue statement of a material fact or omitted to state any material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. No other member of the Belpointe REIT Group is required to file any forms, reports or other documents with the SEC.
(b) The consolidated financial statements (including all related notes and schedules) of Belpointe REIT included in the SEC Documents when filed (i) complied in all material respects with the applicable accounting requirements, (ii) complied as to form with the other published rules and regulations of the SEC with respect thereto, in each case in effect at the time of such filing, and (iii) fairly present in all material respects the consolidated financial position of the Belpointe REIT Group, as at the respective dates thereof, and the consolidated results of their operations and their consolidated cash flows for the respective periods then ended (subject, in the case of the unaudited financial statements, to normal year-end audit adjustments and to any other adjustment described therein permitted by the rules and regulations of the SEC) in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”) applied on a consistent basis during the periods involved (subject, in the case of the unaudited financial statements, to normal year-end audit adjustments and to any other adjustment described therein permitted by the rules and regulations of the SEC).
Section 4.6 No Undisclosed Liabilities. No member of the Belpointe REIT Group has any liabilities of any nature, whether or not accrued, contingent or otherwise, except (a) as expressly required or expressly contemplated by this Agreement, and (b) for liabilities which, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect
Section 4.7 Absence of Certain Changes or Events. From February 11, 2019 through the date hereof, there has not occurred any event, development, occurrence, or change that has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 4.8 Compliance with Law; Permits.
(a) Each member of the Belpointe REIT Group is and has been since the earlier of February 22, 2019 or its respective date of formation in compliance with and is not in default under or in violation of any laws applicable to such member of the Belpointe REIT Group or any of their respective properties or assets, except where such non-compliance, default or violation has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) Each member of the Belpointe REIT Group is and has been since the earlier of February 22, 2019 or its respective date of formation in possession of all franchises, grants, authorizations, business licenses, permits, easements, variances, exceptions, consents, certificates, approvals, registrations, clearances and orders of any Governmental Entity or pursuant to any applicable law (collectively, the “Permits”) necessary for such member of the Belpointe REIT Group to own, lease and operate its properties and assets or to carry on its businesses as now being conducted, except where the failure to have any of the Permits has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, all of the Permits are in full force and effect, no default (with or without notice, lapse of time or both) has occurred under any such Permits and none of members of the Belpointe REIT Group have received any written notice from any Governmental Entity threatening to suspend, revoke, withdraw or modify any such Permits.
(a) Except as would not, individually or in the aggregate, reasonably be expected to have a Material Adverse Effect, all members of the Belpointe REIT Group have timely filed (taking into account any extension of time within which to file) all Tax Returns that are required to be filed by or with respect to any of them and all such Tax Returns are true, correct and complete.
(b) Except as would not, individually or in the aggregate, reasonably be expected to have a
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Material Adverse Effect, all members of the Belpointe REIT Group have timely paid all Taxes required to be paid by any of them.
(c) Belpointe REIT has made a valid qualified opportunity fund election effective with its fiscal year ended December 31, 2019.
Section 4.10 Litigation; Orders. As of the date hereof, there are no Proceedings pending or, to Belpointe REIT’s Knowledge, threatened against any member of the Belpointe REIT Group or any of their respective properties, rights or assets by or before any Governmental Entity that would reasonably be expected to be, individually or in the aggregate, material to the Belpointe REIT Group, taken as a whole. There are no orders, judgments or decrees of or settlement agreements with any Governmental Entity that would reasonably be expected to be, individually or in the aggregate, material to the Belpointe REIT Group, taken as a whole.
Section 4.11 Information Supplied. The information relating to the Belpointe REIT Group to be contained in the Form S-4 will not, at the time the Form S-4 is filed with the SEC, is declared effective by the SEC, is first mailed to the Belpointe REIT Stockholders or on the date that the Offer is consummated, contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, at the time and in light of the circumstances under which they were made, not false or misleading. Notwithstanding the foregoing provisions of this Section 4.11, no representation or warranty is made by Belpointe REIT with respect to information or statements made in the Form S-4, which information or statements were not supplied by or on behalf of the Belpointe REIT Group.
Article
V
REPRESENTATIONS AND WARRANTIES OF BELPOINTE PREP AND THE PURCHASER
Belpointe PREP and Merger Sub represent and warrant to Belpointe REIT as set forth below.
Section 5.1 Qualification, Organization, etc.
(a)Each of Belpointe PREP and Merger Sub is a legal entity duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite limited liability company power and authority to own, lease and operate its properties and assets and to carry on its business as presently conducted. Each of Belpointe PREP and Merger Sub is qualified to do business and is in good standing as a foreign entity in each jurisdiction where the ownership, leasing or operation of its assets or properties or conduct of its business requires such qualification, except where the failure to be so qualified or, where relevant, in good standing, (i) has not and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, and (ii) has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the ability of Belpointe PREP and Merger Sub to consummate the Transactions prior to the Outside Date. Belpointe PREP has made available to Belpointe REIT complete and accurate copies of the Belpointe PREP Governing Documents and the organizational documents of Merger Sub. The Belpointe PREP Governing Documents and the organizational documents of Merger Sub are in full force and effect and neither Belpointe PREP nor Merger Sub is in violation thereof.
(b) All of the issued and outstanding limited liability company interests of Belpointe PREP and Merger Sub have been validly issued, are fully paid, nonassessable and free and clear of all Liens, other than Permitted Liens
(a) Belpointe PREP may issue any number of units in different classes or series representing limited liability company interests in Belpointe PREP (the “Units”), and options, rights, warrants and appreciation rights relating to such Units, for any purpose at any time and from time to time to such Persons for such consideration (which may be cash, property, services or any other lawful consideration) or for no consideration and on such terms and conditions as the board of directors of Belpointe PREP may determine, all without the approval of the members of Belpointe PREP. As of April 19, 2021, (i)(A) 100 shares of Class A Units were deemed to be issued and outstanding and held by the Sponsor, (B) zero Class B Units were deemed to be issued and outstanding and held by the PREP Manager, and (C) zero Class M Unit was deemed to be issued and outstanding and held by the PREP Manager. All of the outstanding Units are duly authorized, validly issued, fully paid and nonassessable and free of preemptive rights.
(b) Except for the Manager’s right to acquire 100,000 Class B Units and one Class M unit, no rights to acquire any equity interests of Belpointe PREP or Merger Sub are outstanding, and there are no outstanding subscriptions, options, warrants, puts, calls, exchangeable or convertible securities or other similar
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rights, agreements or commitments for the issuance of, or that correspond to, equity interests to which Belpointe PREP or Merger Sub is a party obligating Belpointe PREP or Merger Sub to (i) issue, transfer or sell, or make any payment with respect to, any equity interests of Belpointe PREP or Merger Sub or securities convertible into, exchangeable for or exercisable for, or that correspond to, such equity interests, (ii) grant, extend or enter into any such subscription, option, warrant, put, call, exchangeable or convertible securities or other similar right, agreement or commitment, (iii) redeem or otherwise acquire any such equity interests, or (iv) provide any amount of funds to, or make any investment (in the form of a loan, capital contribution or otherwise) in any other Person.
(c) Neither Belpointe PREP nor Merger Sub has outstanding bonds, debentures, notes or other similar obligations, the holders of which have the right to vote (or which are convertible into or exercisable for securities having the right to vote) with the members of Belpointe PREP on any matter.
(d) There are no voting trusts or other agreements, commitments or understandings to which Belpointe PREP or Merger Sub (or to Belpointe PREP’s Knowledge, a member of Belpointe PREP) is a party with respect to the voting of equity interests of Belpointe PREP or Merger Sub.
Section 5.3 Corporate Authority.
(a) Belpointe PREP and Merger Sub have all requisite limited liability company power and authority to execute and deliver this Agreement and to consummate the Transactions. The execution and delivery of this Agreement and the consummation of the Transactions have been duly and validly authorized by all necessary limited liability company action of Belpointe PREP and Merger Sub and no other limited liability company proceedings (pursuant to the Belpointe PREP Governing Documents or otherwise) on the part of Belpointe PREP or Merger Sub are necessary to authorize the consummation of, and to consummate, the Transactions, except, with respect to the Merger, for the filing of the Certificate of Merger with the Secretary of State of the State of Delaware and the filing of the Articles of Merger with the Maryland Department of Assessments and Taxation.
(b) This Agreement has been duly and validly executed and delivered by Belpointe PREP and Merger Sub and, assuming this Agreement constitutes the valid and binding agreement of Belpointe REIT, constitutes the valid and binding agreement of Belpointe PREP and Merger Sub, enforceable against Belpointe PREP and Merger Sub in accordance with its terms, except that (i) such enforcement may be subject to applicable bankruptcy, insolvency, examinership, reorganization, moratorium or other similar laws, now or hereafter in effect, relating to creditors’ rights generally, and (ii) equitable remedies of specific performance and injunctive and other forms of equitable relief may be subject to equitable defenses and to the discretion of the court before which any proceeding therefor may be brought.
Section 5.4 Governmental Consents; No Violation.
(a) Other than in connection with or in compliance with (i) the DLLCA and the MGCL, (ii) the filing of the Form S-4 with the SEC and any amendments or supplements thereto and declaration of effectiveness of the Form S-4, (iii) the Securities Act, (iv) the Exchange Act, and (v) applicable state securities, takeover and “blue sky” laws, no authorization, permit, notification to, consent or approval of, or filing with, any Governmental Entity is necessary or required, under applicable law, for the consummation by Belpointe PREP and Merger Sub of the Transactions, except for such authorizations, permits, notifications, consents, approvals or filings that, if not obtained or made, would not reasonably be expected to have, individually or in the aggregate, (x) a Material Adverse Effect, or (y) a Material Adverse Effect on the ability of Belpointe PREP or Merger Sub to consummate the Transactions prior to the Outside Date.
(b) The execution and delivery by Belpointe PREP and Merger Sub of this Agreement do not, and, except as described in Section 4.4(a), the consummation of the Transactions and compliance with the provisions hereof will not (i) conflict with or result in any violation or breach of, or default or change of control (with or without notice or lapse of time, or both) under, or give rise to a right of, or result in, termination, modification, cancellation, first offer, first refusal or acceleration of any obligation or to the loss of a benefit under any material Contract binding upon Belpointe PREP or Merger Sub or by which or to which any of their respective properties, rights or assets are bound or subject, or result in the creation of any Lien upon any of the properties, rights or assets of Belpointe PREP or Merger Sub, other than Permitted Liens, (ii) conflict with or result in any violation of any provision of (A) the Belpointe PREP Governing Documents, or (B) the organizational documents of Merger Sub, or (iii) conflict with or violate any laws applicable to Belpointe PREP or Merger Sub or any of their respective properties, rights or assets, other than in the case of clauses (i), (ii)(B) and (iii), any such violation, conflict, default, termination, cancellation, acceleration, right, loss or Lien that (A) has not had and would not
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reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect and (B) has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect on the ability of Belpointe PREP or Merger Sub to consummate the Transactions prior to the Outside Date.
Section 5.5 No Undisclosed Liabilities. Neither Belpointe PREP nor any Belpointe PREP Subsidiary has any liabilities of any nature, whether or not accrued, contingent or otherwise, except (a) as expressly required or expressly contemplated by this Agreement and (b) for liabilities which, individually or in the aggregate, have not had, and would not reasonably be expected to have, a Material Adverse Effect.
Section 5.6 Absence of Certain Changes or Events. From January 24, 2020 through the date hereof, there has not occurred any event, development, occurrence, or change that has had, or would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
Section 5.7 Compliance with Law; Permits.
(a) Belpointe PREP and Merger Sub are and have been since January 24, 2020 in compliance with and are not in default under or in violation of any laws applicable to Belpointe PREP, Merger Sub or any of their respective properties or assets, except where such non-compliance, default or violation has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.
(b) Belpointe PREP and Merger Sub are and since January 24, 2020 have been in possession of all Permits necessary for Belpointe PREP and Merger Sub to own, lease and operate their properties and assets or to carry on their businesses as they are now being conducted, except where the failure to have any of the Permits has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect. Except as has not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, all Permits are in full force and effect, no default (with or without notice, lapse of time or both) has occurred under any such Permits and neither of Belpointe PREP nor Merger Sub has received any written notice from any Governmental Entity threatening to suspend, revoke, withdraw or modify any such Permits.
Section 5.8 Litigation; Orders. As of the date hereof, there are no Proceedings pending or, to Belpointe PREP’s Knowledge, threatened against Belpointe PREP or Merger Sub or any of their respective properties, rights or assets by or before any Governmental Entity that would reasonably be expected to be, individually or in the aggregate, material to Belpointe PREP and Merger Sub, taken as a whole. There are no orders, judgments or decrees of or settlement agreements with any Governmental Entity, that would reasonably be expected to be, individually or in the aggregate, material to Belpointe PREP and Merger Sub, taken as a whole.
Section 5.9 Information Supplied. The information relating to Belpointe PREP and Merger Sub to be contained in the Form S-4 will not, at the time the Form S-4 is filed with the SEC, is declared effective by the SEC, is first mailed to the Belpointe REIT Stockholders or on the date that the Offer is consummated, contain any untrue statement of any material fact or omit to state any material fact required to be stated therein or necessary in order to make the statements therein, at the time and in light of the circumstances under which they were made, not false or misleading. The Form S-4 will comply in all material respects as to form with the requirements of both the Exchange Act and the Securities Act and the rules and regulations promulgated thereunder. Notwithstanding the foregoing provisions of this Section 5.9, no representation or warranty is made by Belpointe PREP or Merger Sub with respect to information or statements made in the Form S-4, which information or statements were not supplied by or on behalf of Belpointe PREP or Merger Sub.
Section 5.10 Valid Issuance. The Class A Units to be issued to the Belpointe REIT Stockholders and BREIT Unitholders when issued as provided in and pursuant to the terms of this Agreement will be duly authorized and validly issued, fully paid and nonassessable, and (other than restrictions under applicable securities laws, or restrictions created by such Belpointe REIT Stockholder or BREIT Unitholders) will be free of restrictions on transfer.
Section 5.11 Stock Ownership. Neither Belpointe PREP nor or Merger Sub directly or indirectly owns as of the date hereof, and at all times from the date of their formation through the date hereof, neither Belpointe PREP or any Belpointe PREP Subsidiary has owned, beneficially or otherwise, any shares of Common Stock.
Section 5.12 No Activity. Since its date of formation, Merger Sub has engaged in any activities other than in connection with this Agreement and the Transactions.
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Article
VI
COVENANTS OF BELPOINTE REIT
Section 6.1 Conduct of Business by Belpointe REIT Pending the Closing. From and after the date hereof until the earlier of the Effective Time or the date, if any, on which this Agreement is terminated pursuant to Section 9.1, except as specifically permitted or required by this Agreement, as required by applicable law or as consented to in writing by Belpointe PREP, Belpointe REIT shall, and shall cause each member of the Belpointe REIT Group to, conduct its business in all material respects in the ordinary course of business consistent with past practice and use commercially reasonable efforts to (i) preserve intact its and their present business organizations, goodwill and ongoing businesses, (ii) keep available the services of its and their present officers and other key personnel, and (iii) preserve its and their present relationships with Persons with whom it and they have material business relations.
Section 6.2 Solicitation by Belpointe REIT.
(a) From and after the date hereof until the earlier of the Acceptance Time or the date, if any, on which this Agreement is terminated pursuant to Section 9.1, Belpointe REIT agrees that it shall not, and shall cause any member of the Belpointe REIT Group and their respective representatives not to, directly or indirectly: (i) solicit, initiate or knowingly encourage or facilitate (including by way of providing information or taking any other action) any inquiry, proposal or offer or the making, submission or announcement of any inquiry, proposal or offer which constitutes or would be reasonably expected to lead to an Acquisition Proposal; (ii) participate in any negotiations regarding, or furnish to any person any nonpublic information relating to the Belpointe REIT Group in connection with an actual or potential Acquisition Proposal; (iii) adopt, approve, endorse or recommend, or publicly propose to adopt, approve, endorse or recommend, any Acquisition Proposal; (iv) withdraw, change, amend, modify or qualify, or otherwise propose to withdraw, change, amend, modify or qualify, in a manner adverse to Belpointe PREP, the Belpointe REIT Board Recommendation or commit or agree to take any such action; (v) if an Acquisition Proposal has been publicly disclosed, fail to publicly recommend against any such Acquisition Proposal within 10 Business Days after the public disclosure of such Acquisition Proposal (or subsequently withdraw, change, amend, modify or qualify, in a manner adverse to Belpointe PREP, such rejection of such Acquisition Proposal) and reaffirm the Belpointe REIT Board Recommendation within such 10 Business Day period (or, with respect to any material amendments, revisions or changes to the terms of any such previously publicly disclosed Acquisition Proposal that are publicly disclosed within the last five Business Days prior to the then-scheduled expiration of the Offer, fail to take the actions referred to in this clause (v), with references to the applicable 10 Business Day period being replaced with three Business Days); (vi) approve, or authorize, or cause or permit any member of the Belpointe REIT Group to enter into, any merger agreement, acquisition agreement, reorganization agreement, letter of intent, memorandum of understanding, agreement in principle, option agreement, joint venture agreement, partnership agreement or similar agreement or document relating to, or any other agreement or commitment providing for, any Acquisition Proposal (other than a confidentiality agreement entered into in accordance with Section 6.2(b)) (an “Acquisition Agreement”); or (vii) commit or agree to do any of the foregoing (any act described in clauses (iii), (iv), (v), (vi), (vii) and (vii) (to the extent related to the foregoing clauses (iii), (iv), (v), (vi) or (vii)), a “Change of Recommendation”).
(b) Notwithstanding the limitations set forth in Section 6.2(a), if Belpointe REIT receives, prior to the Acceptance Time, a bona fide written Acquisition Proposal that did not result from a breach of this Section 6.2, which the Belpointe REIT Board determines in good faith (i) after consultation with outside legal counsel and financial advisors constitutes a Superior Proposal or could reasonably be expected to lead to a Superior Proposal, and (ii) after consultation with outside legal counsel, that the failure to take such action would reasonably be expected to be a breach of the directors’ fiduciary duties under applicable law, then Belpointe REIT may take the following actions: (x) furnish nonpublic information with respect to the Belpointe REIT Group to the Person making such Acquisition Proposal (and its representatives), if, and only if, prior to so furnishing such information, Belpointe REIT receives from such Person an executed confidentiality agreement and Belpointe REIT also provides Belpointe PREP, prior to or substantially concurrently with the time such information is provided or made available to such Person, any non-public information furnished to such other Person that was not previously furnished to Belpointe PREP, and (y) engage in discussions or negotiations with such Person with respect to such Acquisition Proposal (and its representatives).
(c) Belpointe REIT shall promptly (and in any event within 24 hours) notify Belpointe PREP of the receipt by any member of the Belpointe REIT Group or any of their respective representatives of any Acquisition Proposal or any proposals, inquiries or requests that could reasonably be expected to lead to an Acquisition Proposal, or any inquiry or request for nonpublic information relating to the Belpointe REIT Group by
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any Person who has made or could reasonably be expected to make any Acquisition Proposal. Such notice shall indicate the identity of the Person making the Acquisition Proposal, proposal, inquiry or request, and the material terms and conditions of any such Acquisition Proposal, proposal, inquiry or request or the nature of the information requested pursuant to such inquiry or request, including unredacted copies of all Acquisition Proposals, proposals, inquiries or requests, including any proposed agreements received by the Belpointe REIT Group or, if such Acquisition Proposal is not in writing, a reasonably detailed written description of the material terms and conditions thereof.
(d) Notwithstanding anything in this Section 6.2 to the contrary, but subject to Section 6.2(e), at any time prior to the Acceptance Time, the Belpointe REIT Board may (i) make a Change of Recommendation (solely of the type contemplated by Section 6.2(a)(iv) or Section 6.2(a)(vi)) in response to an Intervening Event if the Belpointe REIT Board has determined in good faith after consultation with outside legal counsel, that the failure to take such action would reasonably be expected to be a breach of the directors’ fiduciary duties under applicable law, or (ii) make a Change of Recommendation and cause Belpointe REIT to terminate this Agreement pursuant to and in accordance with Section 9.1(g) in order to enter into a definitive agreement providing for an Acquisition Proposal (that did not result from a breach of this Section 6.2), which the Belpointe REIT Board determines in good faith after consultation with outside legal counsel and financial advisors is a Superior Proposal, but only if the Belpointe REIT Board has determined in good faith after consultation with outside legal counsel, that the failure to take such action would reasonably be expected to be a breach of the directors’ fiduciary duties under applicable law; provided that notwithstanding anything to the contrary herein, no member of the Belpointe REIT Group shall enter into any Acquisition Agreement unless this Agreement has been terminated in accordance with Section 9.1(g).
(e) Prior to any member of the Belpointe REIT Group taking any action permitted (i) under Section 6.2(d)(i), Belpointe REIT shall (a) provide Belpointe PREP with four Business Days’ prior written notice advising Belpointe PREP that the Belpointe REIT Board intends to effect a Change of Recommendation and specifying, in reasonable detail, the reasons therefor, (b) during such four Business Day period, cause its representatives to be available to negotiate in good faith any proposal by Belpointe PREP to amend the terms and conditions of this Agreement in a manner that would obviate the need to effect a Change of Recommendation, and (c) at the end of such four Business Day period, cause the Belpointe REIT Board to again make the determination under Section 6.2(d)(i) (in good faith and taking into account any amendments proposed by Belpointe PREP), or (ii) under Section 6.2(d)(ii), Belpointe REIT shall (a) provide Belpointe PREP with four Business Days’ prior written notice advising Belpointe PREP that the Belpointe REIT Board intends to take such action and specifying, in reasonable detail, the material terms and conditions of the Acquisition Proposal, including a copy of any proposed definitive documentation, (b) during such four Business Day period, cause its representatives to be available to negotiate in good faith any proposal by Belpointe PREP to amend the terms and conditions of this Agreement in a manner such that the Acquisition Proposal would no longer constitute a Superior Proposal, and (c) at the end of such four Business Day period, cause the Belpointe REIT Board to again make the determination under Section 6.2(d)(ii) (in good faith taking into account any amendments proposed by Belpointe PREP). With respect to Section 6.2(e)(ii), if there are any material amendments, revisions or changes to the terms of any such Acquisition Proposal (including any revision to the amount, form or mix of consideration the Belpointe REIT Stockholders would receive as a result of the Acquisition Proposal), Belpointe REIT shall comply again with Section 6.2(e)(ii).
(f) Nothing in this Agreement shall prohibit Belpointe REIT or the Belpointe REIT Board from disclosing to the Belpointe REIT Stockholders a position contemplated by Rule 14e-2(a) under the Exchange Act or any similar statement in response to any publicly disclosed Acquisition Proposal; provided that any such statement also includes an express reaffirmation of the Belpointe REIT Board Recommendation. For the avoidance of doubt, this Section 6.2(f) shall not permit the Belpointe REIT Board to make (or otherwise modify the definition of) a Change of Recommendation except to the extent expressly permitted by Section 6.2(d) and Section 6.2(e).
Article
VII
ADDITIONAL AGREEMENTS
Section 7.1 Access; Confidentiality; Notice of Certain Events.
(a) From and after the date hereof until the earlier of the Effective Time or the date, if any, on which this Agreement is terminated pursuant to Section 9.1, to the extent permitted by applicable law, the Belpointe REIT Group shall (i) afford Belpointe PREP and its representatives reasonable access, during normal business hours and upon reasonable advance notice, to the Belpointe REIT Group’s offices, properties, Contracts, personnel, books and records, and (ii) furnish reasonably promptly to Belpointe PREP all information (financial or
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otherwise) concerning its business, properties and personnel available to, or prepared by, any member of the Belpointe REIT Group in the normal course of its business as Belpointe PREP may reasonably request.
(b) Each of the Parties will hold, and will cause its representatives, Subsidiaries, Affiliates and Associates to hold, any nonpublic information, including any information exchanged pursuant to this Section 7.1, in confidence.
(c) Each of the Parties shall give prompt notice to the other Parties, (i) of any notice or other communication received by such Party from any Governmental Entity in connection with this Agreement, the Transactions, or from any Person alleging that the consent of such Person is or may be required in connection with the Transactions, (ii) of any legal proceeding commenced or, to such Party’s knowledge, threatened against such Party or any of its Subsidiaries, Affiliates or Associates or otherwise relating to, involving or affecting such Party or any of its Subsidiaries, Affiliates or Associates, in each case in connection with, arising out of or otherwise relating to the Transactions, and (iii) upon becoming aware of the occurrence or impending occurrence of any event or circumstance relating to it or any of its Subsidiaries, Affiliates or Associates that would reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect, or which would reasonably be expected to prevent or materially delay or impede the consummation of the Transactions; provided, however, that the delivery of any notice pursuant to this Section 7.1(c) shall not cure any breach of any representation or warranty hereunder or otherwise limit or affect the remedies available hereunder to any Party.
Section 7.2 Reasonable Best Efforts..
(a) Subject to the terms and conditions of this Agreement, each Party will use its reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under applicable law to consummate the Transactions as soon as practicable after the date hereof, including, without limitation, (i) preparing and filing or otherwise providing, in consultation with the other Party and as promptly as practicable and advisable after the date hereof, all documentation to effect all necessary applications, notices, petitions, filings and other documents and to obtain as promptly as practicable all waiting period expirations or terminations, consents, clearances, waivers, licenses, orders, registrations, approvals, permits and authorizations necessary or advisable from any third party or Governmental Entity in order to consummate the Transactions, and (ii) taking all steps as may be necessary, subject to the limitations in this Section 7.2, to obtain all such waiting period expirations or terminations, consents, clearances, waivers, licenses, registrations, permits, authorizations, orders and approvals. Notwithstanding anything to the contrary in this Agreement, no member of the Belpointe REIT Group may, without the prior written consent of Belpointe PREP, become subject to, consent to or offer or agree to, or otherwise take any action with respect to, any requirement, condition, limitation, understanding, agreement or order to (x) sell, license, assign, transfer, divest, hold separate or otherwise dispose of any assets, business or portion of business of any member of the Belpointe REIT Group, (y) conduct, restrict, operate, invest or otherwise change the assets, the business or portion of the business of any member of the Belpointe REIT Group in any manner, or (z) impose any restriction, requirement or limitation on the operation of the business or portion of the business of any member of the Belpointe REIT Group.
(b) In connection with and without limiting the foregoing, each of the Parties shall give any notices to third parties required under Contracts, and each of the Parties shall use, and cause each of their respective Subsidiaries, Affiliates and Associates to use, its reasonable best efforts to obtain any contractual third party consents that are necessary, proper or advisable to consummate the Transactions. Notwithstanding anything to the contrary herein, none of the Parties or any of their respective Subsidiaries, Affiliates or Associates shall be required to pay any consent or other similar fee, payment or consideration, make any other concession or provide any additional security (including a guaranty), to obtain such third party consents (except, in the case of Belpointe REIT, if requested by Belpointe PREP and either (i) reimbursed or indemnified for by Belpointe PREP, or (ii) conditioned upon the occurrence of the Acceptance Time).
Section 7.3 Publicity. So long as this Agreement is in effect, none of the Parties shall issue or cause the publication of any press release or other public announcement or disclosure with respect to the Transactions or this Agreement without the prior written consent of the other Party, unless such Party determines, after consultation with outside counsel, that it is required by applicable law to issue or cause the publication of such press release or other public announcement or disclosure with respect to the Transactions or this Agreement, in which event such Party shall provide a meaningful opportunity to the other Party to review and comment upon such press release or other announcement or disclosure in advance and shall give due consideration to all reasonable additions, deletions or changes suggested thereto.
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(a) For not less than six years from and after the Effective Time, Belpointe PREP shall, and shall cause the Surviving Entity to, indemnify and hold harmless all past and present directors and officers of the members of the Belpointe REIT Group, the Sponsor, the REIT Manager, and their respective Affiliates, including their respective past and present directors, officers, equity holders, partners and employees (each an “Indemnified Party” and, collectively, the “Indemnified Parties”) against any costs or expenses (including advancing attorneys’ fees and expenses prior to the final disposition of any actual or threatened claim, action, investigation, suit or proceeding to each Indemnified Party to the fullest extent permitted by applicable law and the Belpointe REIT Agreements; provided that such Indemnified Party undertakes to reimburse any funds advanced if a court of competent jurisdiction finds in a final, nonappealable judgment that such Indemnified Party was not entitled to indemnification under this Section 7.4), judgments, fines, losses, claims, damages, liabilities and amounts paid in settlement in connection with any actual or threatened claim, action, investigation, suit or proceeding in respect of acts or omissions occurring or alleged to have occurred at or prior to the Effective Time (including acts or omissions occurring in connection with the approval of this Agreement and the consummation of the Transactions), whether asserted or claimed prior to, at or after the Effective Time, in connection with such Indemnified Party’s performance of its duties to, at the request of or for the benefit of the members of the Belpointe REIT Group, to the fullest extent permitted by applicable law and the Belpointe REIT Agreements or the organizational documents of the applicable member of the Belpointe REIT Group or any other agreements with such Indemnified Parties providing for indemnification that are in existence on the date of this Agreement. The Parties agree that all rights to elimination of liability, indemnification and advancement of expenses for acts or omissions occurring or alleged to have occurred at or prior to the Effective Time, whether asserted or claimed prior to, at or after the Effective Time, now existing in favor of the Indemnified Parties as provided in the Belpointe REIT Agreements or the organizational documents of the applicable member of the Belpointe REIT Group or any other agreements with such Indemnified Parties providing for indemnification that are in existence on the date of this Agreement shall survive the Merger and shall continue in full force and effect in accordance with the terms thereof. Notwithstanding anything herein to the contrary, if any Indemnified Party notifies the Surviving Entity on or prior to the sixth anniversary of the Effective Time of a matter in respect of which such Indemnified Party intends in good faith to seek indemnification pursuant to this Section 7.4, the provisions of this Section 7.4 shall continue in effect with respect to such matter until the final disposition of all claims, actions, investigations, suits and proceedings relating thereto.
(b) In the event Belpointe PREP or the Surviving Entity or any of their respective successors or assigns (i) consolidates with or merges into any other Person and shall not be the continuing or surviving entity of such consolidation or merger, or (ii) transfers all or substantially all of its properties and assets to any Person, then, and, in each such case, proper provision shall be made so that the successors and assigns of Belpointe PREP or the Surviving Entity, as the case may be, shall assume the obligations set forth in this Section 7.4. The rights and obligations under this Section 7.4 shall survive consummation of the Offer and the Merger and shall not be terminated or amended in a manner that is adverse to any Indemnified Party without the written consent of such Indemnified Party. The Parties acknowledge and agree that the Indemnified Parties shall be third party beneficiaries of this Section 7.4, each of whom may enforce the provisions thereof.
Section 7.5 Obligations of Merger Sub. Belpointe PREP shall take all action necessary to cause Merger Sub and the Surviving Entity to perform their respective obligations under this Agreement and to consummate the Transactions upon the terms and subject to the conditions set forth in this Agreement.
Section 7.6 Stockholder Litigation. Belpointe REIT shall provide Belpointe PREP prompt notice of any litigation brought by any stockholder of Belpointe REIT against any member of the Belpointe REIT Group, the Sponsor, the REIT Manager, or any of their respective Affiliates, including their respective directors, officers, equity holders, partners and employees relating to the Transactions or this Agreement, and shall keep Belpointe PREP informed on a prompt and timely basis with respect to the status thereof. Belpointe REIT shall give Belpointe PREP the opportunity to participate (at Belpointe PREP’s expense) in the defense or settlement of any such litigation and reasonably cooperate with Belpointe PREP in conducting the defense or settlement of such litigation, and no such settlement shall be agreed without Belpointe PREP’s prior written consent, which consent shall not be unreasonably withheld or delayed, except that Belpointe PREP shall not be obligated to consent to any settlement which does not include a full release of Belpointe PREP and its Associates and Affiliates or which imposes an injunction or other equitable relief after the Effective Time upon Belpointe PREP or any of its Associates or Affiliates. In the event of, and to the extent of, any conflict or overlap between the provisions of this Section 7.6 and Section 6.1 or Section 7.2, the provisions of this Section 7.6 shall control.
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Section 7.7 Stock Exchange Listing. Belpointe PREP shall use its reasonable best efforts to cause the Class A Units to be issued in the Offer and the Merger to be approved for listing on the NYSE American.
Article
VIII
CONDITIONS TO CONSUMMATION OF THE MERGER
Section 8.1 Conditions to Obligation to Effect the Merger. The respective obligations of Belpointe PREP, Merger Sub and BREIT LLC to effect the Merger shall be subject to the satisfaction on or prior to the Closing Date of each of the following conditions, any and all of which may be waived in whole or in part by the other parties, as the case may be, to the extent permitted by applicable law:
(a) Purchase of Shares of Common Stock. Merger Sub shall have accepted for exchange all of the shares of Common Stock validly tendered pursuant to the Offer.
(b) No Legal Prohibition. No Governmental Entity of competent jurisdiction shall have (i) enacted, issued or promulgated any, or (ii) issued or granted any orders or injunctions (whether temporary, preliminary or permanent), in each case that is in effect as of immediately prior to the Effective Time and which has the effect of restraining, enjoining or otherwise prohibiting the consummation of the Merger.
(c) Effective Registration Statement. The Form S-4 shall have been declared effective under the Securities Act and no stop order suspending the effectiveness of the Form S-4 shall be in effect and no proceeding for such purpose shall be pending.
(d) Termination of Regulation A Offering. Belpointe REIT shall have terminated its offering under Regulation A of the Securities Act within one business day of having received written notice requesting such termination from Belpointe PREP.
(e) Consummation of QOZB Sale. Belpointe REIT shall have consummated the QOZB Sale.
(f) Consummation of Conversion. Belpointe REIT shall have consummated the Conversion.
Section 9.1 Termination. This Agreement may be terminated, and the Transactions may be abandoned, at any time before the Acceptance Time, as follows (with any termination by Belpointe PREP also being an effective termination by Merger Sub):
(a) by mutual written consent of Belpointe PREP and Belpointe REIT;
(b) by Belpointe REIT, in the event that (i) no member of the Belpointe REIT Group is then in material breach of this Agreement, and (ii) (A) Belpointe PREP or Merger Sub have breached, failed to perform or violated in any material respect their respective covenants or agreements under this Agreement, or (B) any of the representations and warranties of Belpointe PREP or Merger Sub set forth in this Agreement have become inaccurate, which inaccuracy would reasonably be expected to have a Material Adverse Effect on the ability of Belpointe PREP or Merger Sub to consummate the Transactions prior to the Outside Date, and in each of clauses (A) and (B) such breach, failure to perform, violation or inaccuracy is not capable of being cured by the Outside Date or, if capable of being cured by the Outside Date, is not cured by Belpointe PREP or Merger Sub, as applicable, before the earlier of (x) the Business Day immediately prior to the Outside Date, and (y) the 30th calendar day following receipt of written notice from Belpointe REIT of such breach, failure to perform, violation or inaccuracy;
(c) by Belpointe PREP, in the event that (i) neither Belpointe PREP nor Merger Sub is then in material breach of this Agreement, and (ii) (A) a member of the Belpointe REIT Group has breached, failed to perform or violated its covenants or agreements under this Agreement, or (B) any of the representations and warranties of the members of the Belpointe REIT Group set forth in this Agreement shall have become inaccurate, in either case of clauses (A) or (B) in a manner that would give rise to the right of Belpointe PREP and Merger Sub not to accept for exchange and exchange any shares of Common Stock pursuant to clause (d)(i) or (d)(ii) of Annex A (assuming the expiration of the Offer as of such time) and such breach, failure to perform, violation or inaccuracy is not capable of being cured by the Outside Date or, if capable of being cured by the Outside Date, is not cured by the Belpointe REIT Group before the earlier of (x) the Business Day immediately prior to the Outside Date, and (y) the 30th calendar day following receipt of written notice from Belpointe PREP of such breach, failure to perform,
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violation or inaccuracy;
(d) by either Belpointe PREP or Belpointe REIT (i) if the Offer shall have terminated or expired in accordance with its terms (subject to the rights and obligations of Belpointe PREP or Merger Sub to extend the Offer pursuant to Section 2.1(e)(ii)) without Merger Sub having accepted for exchange any shares of Common Stock pursuant to the Offer; provided that the right to terminate this Agreement pursuant to this Section 9.1(d)(i) shall not be available to Belpointe PREP if Belpointe PREP or Merger Sub shall have failed to comply in any material respect with its obligations under Section 2.1(e)(ii), or (ii) if the Acceptance Time has not occurred on or before the Outside Date; provided that (x) if, on the Outside Date, all of the conditions to the Offer, other than the conditions set forth in clauses (b) and (c) of Annex A and those conditions to the Offer that by their nature are to be satisfied at the expiration of the Offer (if such conditions (other than the Minimum Condition) would be satisfied or validly waived were the expiration of the Offer to occur at such time), shall have been satisfied or waived, then the Outside Date shall automatically be extended for all purposes hereunder by a period of two months, and (y) the right to terminate this Agreement pursuant to this Section 9.1(d)(ii) shall not be available to any Party whose action or failure to fulfill any obligation under this Agreement has been a proximate cause of the failure to close contemplated hereby and such action or failure to act constitutes a material breach of this Agreement;
(e) by Belpointe PREP, if, prior to the Acceptance Time, (i) the Belpointe REIT Board shall have effected a Change of Recommendation, or (ii) Belpointe REIT has materially breached Section 6.2;
(f) by either Belpointe REIT or Belpointe PREP if a Governmental Entity of competent jurisdiction shall have issued a final, non-appealable order, injunction, decree or ruling in each case permanently restraining, enjoining or otherwise prohibiting the consummation of the Transactions; or
(g) by Belpointe REIT in order to effect a Change of Recommendation and substantially concurrently enter into a definitive agreement providing for a Superior Proposal; provided that Belpointe REIT has complied in all material respects with the terms of Section 6.2(e)(ii) and the last sentence of Section 6.2(e).
Section 9.2 Effect of Termination.
In the event of the valid termination of this Agreement as provided in Section 9.1, written notice thereof shall forthwith be given to the other Party or Parties specifying the provision hereof pursuant to which such termination is made, and this Agreement shall forthwith become null and void and there shall be no liability on the part of Belpointe PREP, Merger Sub or Belpointe REIT, except that this Section 9.2, Section 10.1 and Section 10.4 through Section 10.12 shall survive such termination; provided that nothing herein shall relieve any Party from liability for fraud or Willful Breach of this Agreement prior to such termination.
Section 10.1 Notices. All notices, requests and other communications to any Party hereunder shall be in writing (including e-mail transmission, so long as a receipt of such e-mail is requested and received) and shall be given:
if to Belpointe PREP or Merger Sub, to:
Belpointe PREP, LLC
255 Glenville Road
Greenwich, Connecticut 06831
Attn: Brandon E. Lacoff, Chief Executive Officer
if to Belpointe REIT, to:
Belpointe REIT, Inc.
255 Glenville Road
Greenwich, Connecticut 06831
Attn: Brandon E. Lacoff, Chief Executive Officer
or to such other address or facsimile number as such Party may hereafter specify for the purpose by notice to the other Parties hereto. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5:00 p.m. on a Business Day. Otherwise, any such notice, request or communication shall be deemed to have been received on the next succeeding Business Day in the place of
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receipt.
Section 10.2 Survival. The representations, warranties, covenants and agreements contained in this Agreement or in any certificate, schedule, instrument or other document delivered pursuant hereto shall not survive the Effective Time, except for the covenants and agreements set forth in Article II, Article III, Section 7.4 and this Article X and any covenants or agreements of the Parties which by their terms contemplate performance after the Effective Time.
Section 10.3 Amendment and Modification; Waiver.
(a) Any provision of this Agreement may be amended or waived if, but only if, such amendment or waiver is in writing and is signed, in the case of an amendment, by each Party to this Agreement or, in the case of a waiver, by each Party against whom the waiver is to be effective.
(b) No failure or delay by any Party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right, power or privilege. The rights and remedies provided in this Agreement shall be cumulative and not exclusive of any rights or remedies provided by applicable law.
Section 10.4 Expenses. Except as otherwise expressly provided in this Agreement, all costs and expenses incurred in connection with this Agreement and the Transactions shall be paid by the Party incurring such costs and expenses, except that expenses incurred with the filing fee for and printing and mailing of the Form S-4 shall be shared equally by Belpointe PREP and Belpointe REIT.
Section 10.5 SEC Filings. The Parties agree that in no event shall any disclosure contained in any part of any document filed with or furnished to the SEC by Belpointe REIT, including, without limitation, any “Risk Factors,” “Forward-Looking Statements,” “Cautionary Statement Regarding Forward-Looking Statements” or any other disclosures that are cautionary, predictive or forward-looking in nature, be deemed to be an exception to (or a disclosure for purposes of) any of the representations and warranties of any Party contained in this Agreement.
Section 10.6 Counterparts. This Agreement may be executed in any number of counterparts, including by e-mail with .pdf attachments, each of which shall be original, with the same effect as if the signatures thereto and hereto were upon the same instrument. This Agreement shall become effective when each Party hereto shall have received a counterpart hereof signed and delivered (by e-mail or otherwise) by all of the other Parties hereto. Until and unless each Party has received a counterpart hereof signed by the other Party hereto, this Agreement shall have no effect and no Party shall have any right or obligation hereunder (whether by virtue of any other oral or written agreement or other communication).
Section 10.7 Entire Agreement. This Agreement constitute the entire agreement among the Parties with respect to the subject matter hereof and supersede all other prior agreements and understandings, both written and oral, among the Parties or any of them with respect to the subject matter hereof.
Section 10.8 Binding Effect; Third-Party Beneficiaries; Assignment.
(a) The provisions of this Agreement shall be binding upon and shall inure solely to the benefit of the Parties hereto and BREIT LLC, except for (i) following the Effective Time, the right of BREIT Unitholders to receive the applicable portion of Consideration in respect of their BREIT Units pursuant to Section 3.4, and (ii) the right of Indemnified Parties to enforce the provisions of Section 7.4.
(b) No Party may assign, delegate or otherwise transfer (by operation of law or otherwise) any of its rights or obligations under this Agreement without the prior written consent of each other Party hereto, except that (i) Belpointe REIT shall assign its rights and obligations under this Agreement to BREIT LLC upon consummation of the Conversion, (ii) Belpointe PREP may transfer or assign its rights and obligations under this Agreement, in whole or from time to time in part, to any Person after the Closing, and (iii) Merger Sub may transfer or assign its rights and obligations under this Agreement, in whole or from time to time in part, to any other Subsidiary of BREIT LLC; provided that such transfer or assignment shall not relieve Belpointe PREP or Merger Sub of its obligations hereunder or enlarge, alter or change any obligation of any other Party hereto or due to Belpointe PREP or Merger Sub. Any assignment in contravention of the preceding sentence shall be null and void ab initio.
Section 10.9 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other Governmental Entity to be invalid, void or unenforceable, the remainder of
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the terms, provisions, covenants and restrictions of this Agreement shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the Transactions are not affected in any manner materially adverse to any Party. Upon such determination, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in an acceptable manner in order that the Transactions be consummated as originally contemplated to the fullest extent possible.
Section 10.10 Governing law; Jurisdiction.
(a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, without giving effect to conflicts of laws principles that would result in the application of the law of any other state.
(b) Each of the Parties hereto hereby irrevocably and unconditionally submits, for itself and its property, to the exclusive jurisdiction of the United States District Court for the Southern District of New York, or, if (and only if) such court finds it lacks jurisdiction, the state courts of New York located in the borough of Manhattan, City of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement or the agreements delivered in connection herewith or the Transactions or matters contemplated hereby or thereby or for recognition or enforcement of any judgment relating thereto, and each of the Parties hereby irrevocably and unconditionally (i) agrees not to commence any such action or proceeding except in the United States District Court for the Southern District of New York, or, if (and only if) such court finds it lacks jurisdiction, the state courts of New York located in the borough of Manhattan, City of New York, and any appellate court from any thereof, (ii) agrees that any claim in respect of any such action or proceeding may be heard and determined in the United States District Court for the Southern District of New York, or, if (and only if) such court finds it lacks jurisdiction, the state courts of New York located in the borough of Manhattan, City of New York, and any appellate court from any thereof, (iii) waives, to the fullest extent it may legally and effectively do so, any objection that it may now or hereafter have to the laying of venue of any such action or proceeding in such courts, and (iv) waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in such courts. Each of the Parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by applicable law. Each Party to this Agreement irrevocably consents to service of process inside or outside the territorial jurisdiction of the courts referred to in this Section 10.3(b) in the manner provided for notices in Section 10.1. Nothing in this Agreement will affect the right of any Party to this Agreement to serve process in any other manner permitted by applicable law.
Section 10.11 Waiver of Jury Trial. EACH PARTY HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF OR RELATING TO THIS AGREEMENT AND ANY OF THE AGREEMENTS DELIVERED IN CONNECTION HEREWITH OR THE TRANSACTIONS OR MATTERS CONTEMPLATED HEREBY OR THEREBY. EACH PARTY CERTIFIES AND ACKNOWLEDGES THAT (a) NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE SUCH WAIVERS, (b) IT UNDERSTANDS AND HAS CONSIDERED THE IMPLICATIONS OF SUCH WAIVERS, (c) IT MAKES SUCH WAIVERS VOLUNTARILY AND (d) IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS IN THIS Section 10.11.
Section 10.12 Specific Performance. The Parties acknowledge and agree that irreparable harm would occur and that the Parties would not have any adequate remedy at law (even if monetary damages were available) (a) for any breach of the provisions of this Agreement, or (b) in the event that any of the provisions of this Agreement were not performed in accordance with their specific terms. It is accordingly agreed that, except where this Agreement is terminated in accordance with Article IX, the Parties shall be entitled to an injunction or injunctions to prevent breaches of this Agreement and to specifically enforce the terms and provisions of this Agreement in the courts referred to in Section 10.10(b), without proof of actual damages, and each Party further agrees to waive any requirement for the securing or posting of any bond in connection with such remedy. The Parties further agree that (x) by seeking the remedies provided for in this Section 10.12, a Party shall not in any respect waive its right to seek any other form of relief that may be available to a Party under this Agreement monetary damages, and (y) nothing contained in this Section 10.12 shall require any Party to institute any proceeding for (or limit any Party’s right to institute any proceeding for) specific performance under this Section 10.12 before exercising any termination right
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under Article IX or pursuing damages nor shall the commencement of any action pursuant to this Section 10.12 or anything contained in this Section 10.12 restrict or limit any Party’s right to terminate this Agreement in accordance with the terms of Article IX or pursue any other remedies under this Agreement that may be available then or thereafter. The Parties further agree not to assert that a remedy of specific enforcement is unenforceable, invalid, contrary to applicable law or inequitable for any reason, and not to assert that a remedy of monetary damages would provide an adequate remedy for any such breach or that the Parties otherwise have an adequate remedy at law.
[Intentionally left blank.
Signature page follow.]
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IN WITNESS WHEREOF, Belpointe PREP, Merger Sub and Belpointe REIT have caused this Agreement to be signed by their respective officers thereunto duly authorized as of the date first written above.
BELPOINTE PREP, LLC,
By: Belpointe PREP Manager, LLC, its manager
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
BREIT Merger, LLC,
By: Belpointe PREP, LLC, its manager
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Chief Executive Officer
BELPOINTE REIT, INC.,
By: Belpointe REIT Manager, LLC, its manager
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
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Conditions to the Offer
Notwithstanding any other provisions of the Offer, and in addition to (and not in limitation of) Belpointe PREP’s and Merger Sub’s rights to extend, amend or terminate the Offer in accordance with the provisions of the Agreement and Plan of Merger, dated as of April 21, 2021 (the “Agreement”), by and among Belpointe PREP, LLC, a Delaware limited liability company (“Belpointe PREP”), BREIT Merger, LLC, a Delaware limited liability company and a wholly owned direct subsidiary of Belpointe PREP (“Merger Sub”), and Belpointe REIT, Inc., a Maryland corporation (“Belpointe REIT”) (capitalized terms used but not otherwise defined in this Annex A shall have the respective meanings ascribed thereto in the Agreement), and applicable law, and in addition to (and not in limitation of) the obligations of Merger Sub to extend the Offer pursuant to the terms and conditions of the Agreement and applicable law, neither Belpointe PREP nor Merger Sub shall be required to accept for exchange or, subject to any applicable rules and regulations of the SEC (including Rule 14e-1(c) promulgated under the Exchange Act), exchange any shares of Common Stock that are validly tendered in the Offer prior to the expiration of the Offer in the event that, at any expiration of the Offer:
(a) the Minimum Condition has not been satisfied;
(b) any Governmental Entity of competent jurisdiction shall have (i) enacted, issued or promulgated any law that is in effect as of immediately prior to the expiration of the Offer, or (ii) issued or granted any orders or injunctions (whether temporary, preliminary or permanent) that is in effect as of immediately prior to the expiration of the Offer, in each case which has the effect of restraining, enjoining or otherwise prohibiting the consummation of the Transactions;
(c) the Form S-4 shall not have become effective under the Securities Act or shall be the subject of any stop order or proceeding seeking a stop order;
(d) the listing of the Class A Units to be issued in the Offer on the NYSE American;
(e) Belpointe REIT shall not have terminated the Regulation A Offering within one Business Day of having received written notice requesting such termination from Belpointe PREP; or
(f) any of the following shall have occurred and continue to exist as of immediately prior to the expiration of the Offer:
(i) (A) the representations and warranties of the Belpointe REIT Group set forth in Section 4.1 and Section 4.3 shall not be true and correct in all material respects as of the date hereof or shall not be true and correct in all material respects as of the expiration of the Offer as though made on and as of the expiration of the Offer (except representations and warranties that by their terms speak specifically as of another date, in which case as of such date); (B) the representations and warranties of the Belpointe REIT Group set forth in Section 4.2 shall not be true and correct other than for de minimis inaccuracies as of the date hereof or shall not be true and correct other than for de minimis inaccuracies as of the expiration of the Offer as though made on and as of the expiration of the Offer (except representations and warranties that by their terms speak specifically as of another date, in which case as of such date); or (C) the other representations and warranties of the Belpointe REIT Group set forth in this Agreement (without giving effect to any qualification as to materiality or Material Adverse Effect contained therein) shall not be true and correct as of the date hereof or shall not be true and correct as of the expiration of the Offer as though made on and as of the expiration of the Offer (except representations and warranties that by their terms speak specifically as of another date, in which case as of such date), except, with respect to this clause (C), where any failures of any such representations and warranties to be true and correct (without giving effect to any qualification as to materiality or Material Adverse Effect contained therein) have not had and would not reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect;
(ii) the members of the Belpointe REIT Group shall not have performed or complied in all material respects with the obligations, covenants and agreements required to be performed or complied with by them under the Agreement at or prior to the expiration of the Offer;
(iii) a Material Adverse Effect shall have occurred since the date of the Agreement and be continuing; or
(iv) the Agreement shall have been terminated in accordance with its terms.
Except as expressly set forth in the Agreement, the foregoing conditions are for the sole benefit of Belpointe PREP and Merger Sub, may be asserted by Belpointe PREP or Merger Sub regardless of the circumstances giving rise to any such conditions, and may be waived by Belpointe PREP or Merger Sub in whole or in part at any time and from time to time in their sole and absolute discretion (except for the Minimum Condition), in each case, subject to the terms of the Agreement and the applicable rules and regulations of the SEC. The failure by Belpointe PREP or Merger Sub at any time to exercise any of the foregoing rights shall not be deemed a waiver of any such right and each such right shall be deemed an ongoing right which may be asserted at any time and from time to time.
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§4A-705 OF THE MARYLAND LIMITED LIABILITY COMPANY ACT
§4A-705 Objector, nature of rights.
(a) Unless otherwise agreed, a member of a limited liability company objecting to a merger of the limited liability company has the same rights with respect to the member’s membership interest in the limited liability company as a stockholder of a Maryland corporation who objects to a merger of the corporation has with respect to the stockholder’s stock under Title 3, Subtitle 2 of this article.
(b) The procedures under Title 3, Subtitle 2 of this article shall be applicable to the extent practicable.
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§3-201 ET SEQ. OF THE MARYLAND GENERAL CORPORATION LAW
§3-201 Definitions
(a) In this subtitle the following words have the meanings indicated.
(b) “Affiliate” has the meaning stated in §3-601 of this title.
(c) “Associate” has the meaning stated in §3-601 of this title.
(d) “Beneficial owner,” when used with respect to any voting stock, means a person that:
(1) Individually or with any of its affiliates or associates, beneficially owns voting stock, directly or indirectly;
(2) Individually or with any of its affiliates or associates, has:
(i) The right to acquire voting stock (whether the right is exercisable immediately or within 60 days after the date on which beneficial ownership is determined), in accordance with any agreement, arrangement, or understanding, on the exercise of conversion rights, exchange rights, warrants, or options, or otherwise; or
(ii) Except solely by virtue of a revocable proxy, the right to vote voting stock in accordance with any agreement, arrangement, or understanding; or
(3) Except solely by virtue of a revocable proxy, has any agreement, arrangement, or understanding for the purpose of acquiring, holding, voting, or disposing of voting stock with any other person that beneficially owns, or the affiliates or associates of which beneficially own, directly or indirectly, the voting stock
(e) “Executive officer” means a corporation’s president, any vice president in charge of a principal business unit, division, or function, such as sales, administration, or finance, any other person who performs a policy making function for the corporation, or any executive officer of a subsidiary of the corporation who performs a policy making function for the corporation.
(f)
(1) “Successor,” except when used with respect to a share exchange, includes a corporation which amends its charter in a way which alters the contract rights, as expressly set forth in the charter, of any outstanding stock, unless the right to do so is reserved by the charter of the corporation.
(2) “Successor,” when used with respect to a share exchange, means the corporation the stock of which was acquired in the share exchange.
(g) “Voting stock” has the meaning stated in §3-601 of this title.
§3-202. Fair value, right to from successors
(a) Except as provided in subsection (c) of this section, a stockholder of a Maryland corporation has the right to demand and receive payment of the fair value of the stockholder’s stock from the successor if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholder’s stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring action under §3-105(e) of this title;
(4) The corporation amends its charter in a way which alters the contract rights, as expressly set forth in the charter, of any outstanding stock and substantially adversely affects the stockholder’s rights, unless the right to do so is reserved by the charter of the corporation;
(5) The transaction is governed by §3-602 of this title or exempted by §3-603(b) of this title; or
(6) The corporation is converted in accordance with §3-901 of this title.
(b)
(1) Fair value is determined as of the close of business:
(i) With respect to a merger under §3-106 or §3-106.1 of this title, on the day notice is given or waived under §3-106 or §3-106.1 of this title; or
(ii) With respect to any other transaction, on the day the stockholders voted on the transaction objected to
(2) Except as provided in paragraph (3) of this subsection, fair value may not include any appreciation or depreciation which directly or indirectly results from the transaction objected to or from its proposal.
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(3) In any transaction governed by §3-602 of this title or exempted by §3-603(b) of this title, fair value shall be value determined in accordance with the requirements of §3-603(b) of this title.
(c) Unless the transaction is governed by §3-602 of this title or is exempted by §3-603(b) of this title, a stockholder may not demand the fair value of the stockholder’s stock and is bound by the terms of the transaction if:
(1) Except as provided in subsection (d) of this section, any shares of the class or series of the stock are listed on a national securities exchange:
(i) With respect to a merger under §3-106 or §3-106.1 of this title, on the date notice is given or waived under §3-106 or §3-106.1 of this title; or
(ii) With respect to any other transaction, on the record date for determining stockholders entitled to vote on the transaction objected to;
(2) The stock is that of the successor in a merger, unless:
(i) The merger alters the contract rights of the stock as expressly set forth in the charter, and the charter does not reserve the right to do so; or
(ii) The stock is to be changed or converted in whole or in part in the merger into something other than either stock in the successor or cash, scrip, or other rights or interests arising out of provisions for the treatment of fractional shares of stock in the successor;
(3) The stock is not entitled, other than solely because of §3-106 or §3-106.1 of this title, to be voted on the transaction or the stockholder did not own the shares of stock on the record date for determining stockholders entitled to vote on the transaction;
(4) The charter provides that the holders of the stock are not entitled to exercise the rights of an objecting stockholder under this subtitle; or
(5) The stock is that of an open-end investment company registered with the Securities and Exchange Commission under the Investment Company Act of 1940 1 and the value placed on the stock in the transaction is its net asset value.
(d) With respect to a merger, consolidation, or share exchange, a stockholder of a Maryland corporation who otherwise would be bound by the terms of the transaction under subsection (c)(1) of this section may demand the fair value of the stockholder’s stock if:
(1) In the transaction, stock of the corporation is required to be converted into or exchanged for anything of value except:
(i) Stock of the corporation surviving or resulting from the merger, consolidation, or share exchange, stock of any other corporation, or depositary receipts for any stock described in this item;
(ii) Cash in lieu of fractional shares of stock or fractional depositary receipts described in item (i) of this item; or
(iii) Any combination of the stock, depositary receipts, and cash in lieu of fractional shares or fractional depositary receipts described in items (i) and (ii) of this item;
(2) The directors and executive officers of the corporation were the beneficial owners, in the aggregate, of 5 percent or more of the outstanding voting stock of the corporation at any time within the 1-year period ending on:
(i) The day the stockholders voted on the transaction objected to; or
(ii) With respect to a merger under §3-106 or §3-106.1 of this title, the effective date of the merger; and
(3) Unless the stock is held in accordance with a compensatory plan or arrangement approved by the board of directors of the corporation and the treatment of the stock in the transaction is approved by the board of directors of the corporation, any stock held by persons described in item (2) of this subsection, as part of or in connection with the transaction and within the 1-year period described in item (2) of this subsection, will be or was converted into or exchanged for stock of a person, or an affiliate of a person, who is a party to the transaction on terms that are not available to all holders of stock of the same class or series.
(e) If directors or executive officers of the corporation are beneficial owners of stock in accordance with §3-201(d)(2)(i) of this subtitle, the stock is considered outstanding for purposes of determining beneficial ownership by a person under subsection (d)(2) of this section.
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§3-203. Duties of objecting stockholders
(a) A stockholder of a corporation who desires to receive payment of the fair value of the stockholder’s stock under this subtitle:
(1) Shall file with the corporation a written objection to the proposed transaction:
(i) With respect to a merger under §3-106 or §3-106.1 of this title, within 30 days after notice is given or waived under §3-106 or §3-106.1 of this title; or
(ii) With respect to any other transaction, at or before the stockholders’ meeting at which the transaction will be considered or, in the case of action taken under §2-505(b) of this article, within 10 days after the corporation gives the notice required by §2-505(b) of this article;
(2) May not vote in favor of the transaction; and
(3) Shall make a written demand on the successor for payment for the stockholder’s stock, stating the number and class of shares for which the stockholder demands payment:
(i) Within 20 days after the Department accepts the articles for record; or
(ii) Within 20 days after consummation of the transfer or transaction with respect to:
1. A transfer of assets in a manner requiring stockholder approval under §3-105 of this title; or
2. A transaction that is governed by §3-603(b) of this title or exempted by §3-603(b) of this title, for which no articles are required to be filed with the Department.
(b) A stockholder who fails to comply with this section is bound by the terms of the consolidation, merger, share exchange, transfer of assets, or charter amendment.
§3-204. Effect of demand
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable to holders of record of that stock on a record date after the close of business on the day as at which fair value is to be determined under §3-202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect to that stock, except the right to receive payment of its fair value.
§3-205. Consent to demand withdrawal
A demand for payment may be withdrawn only with the consent of the successor.
§3-206. Restoration of stockholder rights
(a) The rights of a stockholder who demands payment are restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required by this subtitle;
(3) A court determines that the stockholder is not entitled to relief; or
(4) The transaction objected to is abandoned or rescinded.
(b) The restoration of a stockholder’s rights entitles him to receive the dividends, distributions, and other rights he would have received if he had not demanded payment for his stock. However, the restoration does not prejudice any corporate proceedings taken before the restoration.
§3-207. Successor’s duty, notice and offer
(a)
(1) The successor promptly shall notify each objecting stockholder in writing of the date the articles are accepted for record by the Department.
(2) The successor also may send a written offer to pay the objecting stockholder what it considers to be the fair value of his stock. Each offer shall be accompanied by the following information relating to the corporation which issued the stock:
(i) A balance sheet as of a date not more than six months before the date of the offer;
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(ii) A profit and loss statement for the 12 months ending on the date of the balance sheet; and
(iii) Any other information the successor considers pertinent.
(b) The successor shall deliver the notice and offer to each objecting stockholder personally or mail them to him by certified mail, return receipt requested, bearing a postmark from the United States Postal Service, at the address he gives the successor in writing, or, if none, at his address as it appears on the records of the corporation which issued the stock.
§3-208. Petition for appraisal
(a) Within 50 days after the Department accepts the articles for record, the successor or an objecting stockholder who has not received payment for his stock may petition a court of equity in the county where the principal office of the successor is located or, if it does not have a principal office in this State, where the resident agent of the successor is located, for an appraisal to determine the fair value of the stock.
(b)
(1) If more than one appraisal proceeding is instituted, the court shall direct the consolidation of all the proceedings on terms and conditions it considers proper.
(2) Two or more objecting stockholders may join or be joined in an appraisal proceeding.
§3-209. Submission of certificate for notation
(a) At any time after a petition for appraisal is filed, the court may require the objecting stockholders parties to the proceeding to submit their stock certificates to the clerk of the court for notation on them that the appraisal proceeding is pending. If a stockholder fails to comply with the order, the court may dismiss the proceeding as to him or grant other appropriate relief.
(b) If any stock represented by a certificate which bears a notation is subsequently transferred, the new certificate issued for the stock shall bear a similar notation and the name of the original objecting stockholder. The transferee of this stock does not acquire rights of any character with respect to the stock other than the rights of the original objecting stockholder.
§3-210. Report of appraisers
(a) If the court finds that the objecting stockholder is entitled to an appraisal of his stock, it shall appoint three disinterested appraisers to determine the fair value of the stock on terms and conditions the court considers proper. Each appraiser shall take an oath to discharge his duties honestly and faithfully.
(b) Within 60 days after their appointment, unless the court sets a longer time, the appraisers shall determine the fair value of the stock as of the appropriate date and file a report stating the conclusion of the majority as to the fair value of the stock.
(c) The report shall state the reasons for the conclusion and shall include a transcript of all testimony and exhibits offered.
(d)
(1) On the same day that the report is filed, the appraisers shall mail a copy of it to each party to the proceedings.
(2) Within 15 days after the report is filed, any party may object to it and request a hearing.
§3-211. Court order upon appraisers report
(a) The court shall consider the report and, on motion of any party to the proceeding, enter an order which:
(1) Confirms, modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
(b)
(1) If the appraisers’ report is confirmed or modified by the order, judgment shall be entered against the successor and in favor of each objecting stockholder party to the proceeding for the appraised fair value of his stock.
(2) If the appraisers’ report is rejected, the court may:
(i) Determine the fair value of the stock and enter judgment for the stockholder; or
(ii) Remit the proceedings to the same or other appraisers on terms and conditions it considers proper.
(c)
(1) Except as provided in paragraph (2) of this subsection, a judgment for the stockholder shall award the value of the stock and interest from the date as at which fair value is to be determined under §3-202 of this subtitle.
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(2) The court may not allow interest if it finds that the failure of the stockholder to accept an offer for the stock made under §3-207 of this subtitle was arbitrary and vexatious or not in good faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(d)
(1) The costs of the proceedings, including reasonable compensation and expenses of the appraisers, shall be set by the court and assessed against the successor. However, the court may direct the costs to be apportioned and assessed against any objecting stockholder if the court finds that the failure of the stockholder to accept an offer for the stock made under §3-207 of this subtitle was arbitrary and vexatious or not in good faith. In making this finding, the court shall consider:
(i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(2) Costs may not include attorney’s fees or expenses. The reasonable fees and expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under §3-207 of this subtitle; or
(ii) The value of the stock determined in the proceeding materially exceeds the amount offered by the successor.
(e) The judgment is final and conclusive on all parties and has the same force and effect as other decrees in equity. The judgment constitutes a lien on the assets of the successor with priority over any mortgage or other lien attaching on or after the effective date of the consolidation, merger, transfer, or charter amendment.
§3-212. Surrender of stock to successor
The successor is not required to pay for the stock of an objecting stockholder or to pay a judgment rendered against it in a proceeding for an appraisal unless, simultaneously with payment:
(1) The certificates representing the stock are surrendered to it, indorsed in blank, and in proper form for transfer; or
(2) Satisfactory evidence of the loss or destruction of the certificates and sufficient indemnity bond are furnished.
§3-213. Rights of successor
(a) A successor which acquires the stock of an objecting stockholder is entitled to any dividends or distributions payable to holders of record of that stock on a record date after the close of business on the day as at which fair value is to be determined under §3-202 of this subtitle.
(b) After acquiring the stock of an objecting stockholder, a successor in a transfer of assets may exercise all the rights of an owner of the stock.
(c) Unless the articles provide otherwise, stock in the successor of a consolidation, merger, or share exchange otherwise deliverable in exchange for the stock of an objecting stockholder has the status of authorized but unissued stock of the successor. However, a proceeding for reduction of the capital of the successor is not necessary to retire the stock or to reduce the capital of the successor represented by the stock.
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Exhibit 21
SUBSIDIARIES OF BELPOINTE PREP, LLC
Subsidiary | State of Incorporation |
900 Eighth, LP | Tennessee |
Belpointe PREP Acquisitions, LLC | Connecticut |
Belpointe PREP OC, LLC | Delaware |
Belpointe PREP TN OC, LLC | Delaware |
BPOZ 1000 First QOZB, LLC | Delaware |
BPOZ 1000 First, LLC | Delaware |
BPOZ 1700 Main QOZB, LLC | Delaware |
BPOZ 1700 Main, LLC | Delaware |
BPOZ 1701 Ringling QOZB, LLC | Delaware |
BPOZ 1701 Ringling, LLC | Delaware |
BPOZ 1702 Ringling, LLC | Delaware |
BPOZ 1710 Ringling, LLC | Delaware |
BPOZ 1718 Main, LLC | Delaware |
BPOZ 1900 Fruitville, LLC | Delaware |
BPOZ 1991 Main QOZB, LLC | Delaware |
BPOZ 900 Eighth QOZB, LLC | Delaware |
BPOZ 900 Eighth Common, LLC | Delaware |
BPOZ 900 Eighth Preferred, LLC | Delaware |
BPOZ 900 First, LLC | Delaware |
BREIT Merger, LLC | Delaware |
Exhibit 3.1
Exhibit 3.2
AMENDED AND RESTATED
LIMITED LIABILITY COMPANY
OPERATING AGREEMENT
OF
BELPOINTE PREP, LLC
(a Delaware limited liability company)
TABLE OF CONTENTS
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AMENDED AND RESTATED
LIMITED LIABILITY COMPANY OPERATING AGREEMENT
OF
BELPOINTE PREP, LLC
This AMENDED AND RESTATED LIMITED LIABILITY COMPANY OPERATING AGREEMENT OF BELPOINTE PREP, LLC, dated as of the [●] day of [●], 2021 (the “Effective Date”), by and among Belpointe PREP, LLC, a Delaware limited liability company (the “Company”), together with any other Persons who are or become Members in the Company or parties hereto as provided herein.
WHEREAS, the Company was formed as a limited liability company on January 24, 2020, by the filing of a Certificate of Formation with the Secretary of State of the State of Delaware pursuant to and in accordance with the Act (as hereinafter defined);
WHEREAS, the initial member (the “Initial Member”) and the Company entered into a Limited Liability Company Operating Agreement, effective as of February 11, 2020 (the “Original Operating Agreement”); and
WHEREAS, the Initial Member has authorized and approved an amendment and restatement of the Original Operating Agreement on the terms set forth herein.
NOW, THEREFORE, the Original Operating Agreement is hereby amended and restated in its entirety as follows:
Section 1.1 Definitions. The following definitions shall be for all purposes, unless otherwise clearly indicated to the contrary, applied to the terms used in this Agreement.
“AAA” has the meaning set forth in Section 12.9(a).
“Act” means the Delaware Limited Liability Company Act, 6 Del. C. §§18-101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.
“Additional Member” means a Person admitted as a Member of the Company in accordance with Article III as a result of an issuance of Units to such Person by the Company.
“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common ownership or control with such Person. For purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Agreement” means this Amended and Restated Limited Liability Company Operating Agreement of Belpointe PREP, LLC, and, as the context so requires, any Unit Designation, as each may be amended, supplemented or restated from time to time.
“Appellate Rules” has the meaning set forth in Section 12.9(c).
“Arbitrator” has the meaning set forth in Section 12.9(b).
“Associate” means, when used to indicate a relationship with any Person, any legal entity for which such Person acts as an executive officer, director, trustee, sponsor, co-sponsor, manager, co-manager, general partner or co-general partner, or, directly or indirectly, owns, controls or holds with the power to vote five (5%) or more of any class of voting securities or other voting interest in such entity.
“Audit Rules” means §6221 through §6241 of the Code, together with any guidance issued thereunder and any similar provision of state or local tax laws.
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“Belpointe PREP Manager” means Belpointe PREP Manager, LLC, a Delaware limited liability company.
“Board” has the meaning set forth in Section 5.1(a).
“Business Day” means any day, other than a Saturday or Sunday, that is neither a legal holiday nor a day on which commercial banks in New York, New York are authorized or required by law, regulation or executive order to close.
“Capital Account” has the meaning set forth in Section 4.1.
“Capital Contribution” means, with respect to any Member, the amount of any cash, cash equivalents, promissory obligations or the fair market value of other property that such Member contributes (or is deemed to contribute) to the Company.
“Capital Event” means any transaction or event not occurring in the ordinary course of business of any member of the Company Group or their respective Affiliates or Associates pursuant to which the Company recognizes or receives any items of gain, gross profit, gross income or consideration (other than Capital Contributions), including, without limitation, any prepayment penalties, recoveries of damage awards and insurance proceeds not used to repair, rebuild or replace an asset.
“Carrying Value” means, with respect to any asset of the Company, the asset’s adjusted basis for U.S. federal income tax purposes, except that the initial Carrying Value of any asset contributed to the Company shall be the gross fair market value of such asset as of the date of contribution as determined by the Company, and the Carrying Values of all Company assets shall be adjusted to equal their respective fair market values, in accordance with the rules set forth in Treasury Regulation §1.704-1(b)(2)(iv)(f), except as otherwise provided herein, as of: (a) the date of the acquisition of any additional Unit by any new or existing Member in exchange for more than a de minimis Capital Contribution; (b) the date of the distribution of more than a de minimis amount of Company assets to a Member; (c) the date a Unit is relinquished to the Company; or (d) any other date specified in the Treasury Regulations; provided, however, that adjustments pursuant to clauses (a), (b), (c) and (d) above shall be made only if such adjustments are deemed necessary or appropriate by the Company to reflect the relative economic interests of the Members. In the case of any asset that has a Carrying Value that differs from its adjusted tax basis, Carrying Value shall be adjusted by the amount of depreciation calculated for purposes of the definition of “Net Income (Loss)” rather than the amount of depreciation determined for U.S. federal income tax purposes, and depreciation shall be calculated by reference to Carrying Value rather than tax basis once Carrying Value differs from tax basis.
“Cause” means a finding by a court, arbitrator or governmental authority of competent jurisdiction in a final, non-appealable judgment (other than in the context of a temporary, preliminary or similar injunction), or an admission by a Director in settlement of any lawsuit, that the Director has committed (a) a criminal offence or violation under the laws of the United States or any state or political subdivision thereof constituting a felony (other than a felony involving a traffic violation), (b) a material breach of his or her duties under the terms of this Agreement, (c) a material violation of the federal securities laws of the United States, or (d) fraud, misappropriation or embezzlement of funds or property of any member of the Company Group or their respective Affiliates; provided that in the case of an event described in clause (b) or (c), the event has a material adverse effect on the business of the Company or the ability of the Director to perform his or her duties under the terms of this Agreement.
“Certificate” means a certificate in such form as may be adopted by the Board and issued by the Company, evidencing ownership of one or more Units.
“Certificate of Formation” means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware.
“Claim” means all claims, controversies or disputes brought by or on behalf of any Person who is or was Member, Record Holder or beneficial owner (whether through a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing or otherwise) of Units or Unit Equivalents, other than Class B Units or Class M Units, either on such Person’s own behalf, on behalf of any member of the Company Group or their respective Affiliates or on behalf of any series or class of Units of the Company, other than Class B Units or Class M Units, against any of the Covered Persons, including any claims, controversies or disputes arising under or in any
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way connected with, any Investments or Securities held by any member of the Company Group or their respective Affiliates, any member of the Company Groups’ or their respective Affiliates’ organizational documents, this Agreement (including any claims, controversies or disputes to interpret, apply or enforce the provisions of this Agreement), the Units or any Transaction Document, whether sounding in contract, tort, fraud or otherwise or based on common law, statutory, equitable, legal or other grounds.
“Class A Units” means a Unit in the Company that is designated as a “Class A Unit.”
“Class B Directors” has the meaning set forth in Section 4.4(e).
“Class B Distribution Date” means a date which is within approximately 60 days following the last day of each Fiscal Quarter.
“Class B Units” means a Unit in the Company that is designated as a “Class B Unit.”
“Class M Director” has the meaning set forth in Section 5.2(b).
“Class M Units” means a Unit in the Company that is designated as a “Class M Unit.”
“Code” means the Internal Revenue Code of 1986, as amended, supplemented or restated from time to time, and any successor to such statute.
“Commission” means the United States Securities and Exchange Commission.
“Common Units” means the Class A Units, the Class B Units, Class M Units and any other Units that are not Preferred Units.
“Company” means Belpointe PREP, LLC, a Delaware limited liability company, and any successors thereto.
“Company Group” means the Company, each Subsidiary of the Company and each of their respective Associates.
“Covered Persons” means (a) the Sponsor, (b) any Person who is or was the Manager or an Affiliate of the Manager, (c) any Person who is or was a member, partner, partnership representative (as defined in the Code), officer, director, employee, agent, fiduciary or trustee of any member of the Company Group or their respective Affiliates, the Sponsor, the Manager, the Liquidator or any of their respective Affiliates, (d) any Person who is or was serving at the request of the Company or the Manager as a member, partner, partnership representative (as defined in the Code), officer, director, employee, agent, fiduciary or trustee of another Person (including any member of the Company Group or their respective Affiliates); provided, that a Person shall not be a Covered Person by reason of providing, on a fee-for-services basis, trustee, fiduciary or custodial services, and (e) any Person the Board designates as an “Covered Person” for purposes of this Agreement.
“DGCL” means the General Corporation Law of the State of Delaware, 8 Del. C. §§101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.
“Director” means a member of the Board.
“Effective Date” has the meaning set forth in the preamble.
“Electronic Transmission” means any form of communication not directly involving the physical transmission of paper that creates a record that may be retained, retrieved and reviewed by a recipient thereof and that may be directly reproduced in paper form by such a recipient through an automated process.
“Exchange” means any national securities exchange or inter-dealer quotation system on which the Company’s Units are listed or quoted.
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“Exchange Act” means the Securities Exchange Act of 1934, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules and regulations promulgated thereunder.
“Fiscal Quarter” means each fiscal quarter of the Company, ending on the last day of each of March, June, September and December of any Fiscal Year unless otherwise required by the Code or as otherwise determined by the Board. Each Fiscal Quarter shall commence on the day immediately following the last day of the immediately preceding Fiscal Quarter.
“Fiscal Year” has the meaning set forth in Section 6.2.
“GAAP” means generally accepted accounting principles as in effect in the United States from time to time and consistently applied.
“Gain Recognized” means, on an Investment-by-Investment basis, the amount of any cash recognized by or distributed to the Company from any source whatsoever, including, without limitation, from any Investment, any member of the Company Group or any of their respective Affiliates or Associates, that constitutes (a) cash flow from operations, including, without limitation, net income from operations (after payment of any regularly scheduled debt payments of principal and interest, but excluding depreciation, amortization and entity taxes), (b) gross proceeds (after return of capital) from a sale, liquidation, disposition or like-kind exchange, or (c) gross proceeds from a financing, refinancing, restructuring or any other Capital Event.
“Governmental Entity” means any federal, state or local, or foreign, international or supranational, government, court or tribunal, or administrative, executive, governmental or regulatory or self-regulatory body, agency or authority thereof.
“Indemnitee” means (a) the Sponsor, (b) any Person who is or was the Manager or an Affiliate of the Manager, (c) any Person who is or was a member, partner, partnership representative (as defined in the Code), officer, director, employee, agent, fiduciary or trustee of any member of the Company Group, the Sponsor, the Manager or any of their respective Affiliates, (d) any Person who is or was serving at the request of the Company or the Manager as a member, partner, partnership representative (as defined in the Code), officer, director, employee, agent, fiduciary or trustee of another Person (including any member of the Company Group or their respective Affiliates); provided, that a Person shall not be an Indemnitee by reason of providing, on a fee-for-services basis, trustee, fiduciary or custodial services, and (e) any Person the Board designates as an “Indemnitee” for purposes of this Agreement.
“Independent Accountant” has the meaning set forth in Section 4.3(e).
“Initial Member” has the meaning set forth in the preamble.
“Investment” means, as to any member of the Company Group or their respective Affiliates, any direct or indirect acquisitions or investments (in one transaction or a series of transactions) by such member of the Company Group or their respective Affiliate, whether by means of (a) the purchase or other acquisition of, or of a beneficial interest in, any Securities of another Person (including by way of merger or consolidation), (b) a loan, advance or capital contribution to, guarantee or assumption of indebtedness of, or purchase or other acquisition of any other debt in, another Person, (c) the making of, or investment in, any Mortgage, or (d) the purchase or other acquisition of any part of the property, assets or business of another Person or assets constituting a business unit, line of business or division of such Person, or (e) any other transaction or series of transactions that otherwise causes another Person to become a member of the Company Group.
“Investment Company Act” means the Investment Company Act of 1940, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules or regulations promulgated thereunder.
“Liquidator” means one or more Persons selected by the Board to perform the functions described in Section 8.2 as liquidating trustee of the Company within the meaning of the Act.
“Major Class B Holder” has the meaning set forth in Section 4.3(b).
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“Majority Vote” means, with respect to any matter, the affirmative vote or written consent of a majority of the total votes cast by Record Holders of all Voting Units Outstanding and entitled to vote on such matter, and if reference is made to a class of Voting Units, then the affirmative vote affirmative vote or written consent of a majority of the total votes cast by Record Holders of that class of Voting Units Outstanding and entitled to vote on such matter.
“Manager” means Belpointe PREP Manager, or any successor manager engaged by the Board and responsible for directing or performing the day-to-day business, affairs and management of the Company.
“Member” means each member of the Company, including, unless context otherwise requires, each Additional Member and Substitute Member.
“Mortgage” means, in connection with any mortgage financing that a member of the Company Group makes or invests in, all of the notes, deeds of trust, security interests or other evidences of indebtedness or obligations, which are secured or collateralized by the land, rights in land (including leasehold interests) and any buildings, structures, improvements, furnishings, fixtures and equipment located on or used in connection with land and rights or interests in land owned by the borrowers under such notes, deeds of trust, security interests or other evidences of indebtedness or obligation.
“Net Income (Loss)” means for any fiscal period the taxable income or loss of the Company for such period as determined in accordance with the accounting method used by the Company for U.S. federal income tax purposes with the following adjustments: (a) any income of the Company that is exempt from U.S. federal income taxation and not otherwise taken into account in computing Net Income (Loss) shall be added to such taxable income or loss; (b) if the Carrying Value of any asset differs from its adjusted tax basis for U.S. federal income tax purposes, any depreciation, amortization or gain resulting from a disposition of such asset shall be calculated with reference to such Carrying Value; (c) upon an adjustment to the Carrying Value of any asset, pursuant to the definition of Carrying Value, the amount of the adjustment shall be included as gain or loss in computing such taxable income or loss; and (d) any expenditures of the Company not deductible in computing taxable income or loss, not properly capitalizable and not otherwise taken into account in computing Net Income (Loss) pursuant to this definition shall be treated as deductible items.
“Nonpayment Event” has the meaning set forth in Section 4.4(e).
“Nonrecourse Deductions” has the meaning set forth in §1.704-2(b)(1) of the Treasury Regulations.
“Notice of Meeting” has the meaning set forth in Section 11.4(a).
“Original Operating Agreement” have the meaning set forth in the preamble.
“Outstanding” means, with respect to Units, all Units that are issued by the Company and reflected as outstanding on the books and records of the Company as of the date of determination.
“Partnership Representative” has the meaning set forth in Section 7.3.
“Percentage Interest” means, as of any date of determination, as to any Record Holder of (a) Class A Units in its capacity as such, the product obtained by multiplying (i) one hundred percent (100%) less the percentage applicable to the Units referred to in clause (d) by (ii) the quotient obtained by dividing (w) the number of Class A Units held by such Record Holder by (x) the total number of all Outstanding Class A Units; provided, however, that when such term is used to only apply to Record Holders of Class A Units, “Percentage Interest” shall mean, with respect to any Record Holder of Class A Units in its capacity as such, the ratio (expressed as a percentage) of the number of Class A Units held by such Record Holder on such date relative to the aggregate number of Class A Units Outstanding as of such date, (b) Class B Units in its capacity as such, the product obtained by multiplying (i) zero percent (0%) by (ii) the quotient obtained by dividing (y) the number of Class B Units held by such Record Holder by (z) the total number of all Outstanding Class B Units; provided, however, that when such term is used to only apply to Record Holders of Class B Units, “Percentage Interest” shall mean, with respect to any Record Holder of Class B Units in its capacity as such as of any date, the ratio (expressed as a percentage) of the number of Class B Units held by such Record Holder on such date relative to the aggregate number of Class B Units Outstanding as of
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such date, (c) the Class M Unit in its capacity as such, with respect to such Class M Unit, zero percent (0%), and (d) other Units in its capacity as such, with respect to such other Units, the percentage established for such other Units by the Board as a part of the issuance of such other Units.
“Person” means an individual, corporation, limited liability company, partnership (whether general or limited), joint venture, trust, estate, unincorporated organization, association (including any group, organization, co-tenancy, plan, board, council or committee), custodian, nominee, Governmental Entity or any other individual or entity (or series thereof) in its own or any representative capacity.
“Precluded Claim” has the meaning Section 12.10.
“Preferred Units” means a class of Units designated as “Preferred Units,” which entitle the Record Holders thereof to a preference or priority over the Record Holders of any other class of Units.
“Public Disclosure” means disclosure on the Company’s internet website, in a press release reported by a national news service or in a document publicly filed with the Commission pursuant to the Exchange Act.
“QOF” has the meaning set forth in Section 2.4.
“QOZ Program” means Subchapter Z of the Code, as amended, supplemented or restated from time to time, and any successor to such statute.
“Quarterly Statement” has the meaning set forth in Section 4.3(a).
“Record Date” means the date established by the Company for determining the identity of Record Holders entitled to (a) notice of, or to vote at, any meeting of Members or entitled to exercise rights in respect of any action of Members, or (b) receive any report or distribution or to participate in any offer.
“Record Holder” means (a) with respect to any class of Units for which a Transfer Agent has been appointed, the Person in whose name a Unit of such class is registered on the books of the Transfer Agent as of the close of business on a particular Business Day, or (b) with respect to other classes of Units, the Person in whose name any such other Unit is registered on the books that the Company has caused to be kept as of the close of business on such Business Day.
“Registration Statements” means the Company’s Registration Statements on (a) Form S-11 (Registration No. 333-[●]), filed with the Commission under the Securities Act to register the initial public offering and sale of the Company’s Class A Units, and (b) Form S-4 (Registration No. 333-[●]), filed with the Commission under the Securities Act to register the Company’s Class A Units for exchange in connection with the transactions described therein, each as may be amended or supplemented from time to time.
“Review Period” has the meaning set forth in Section 4.3(b).
“Rules” has the meaning set forth in Section 12.9(a).
“Securities Act” means the Securities Act of 1933, as amended, supplemented or restated from time to time, and any successor to such statute, and the rules or regulations promulgated thereunder.
“Security” or “Securities” means any stock, shares, membership interests, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreements or arrangements, options, warrants, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
“Sponsor” means Belpointe, LLC, a Connecticut limited liability company, and its Affiliates.
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“Subsidiary” means, with respect to any Person, any other Person in which such specified Person, directly or indirectly through one or more Affiliates or otherwise, beneficially owns more than fifty percent (50%) of either the ownership interest (determined by equity or economic interests) in, or the voting control of, such Person.
“Substitute Member” means a Person who is admitted as a Member of the Company pursuant to Section 3.11(e) as a result of a Transfer of Units to such Person.
“Super Majority Vote” means, with respect to any matter, the affirmative vote or written consent of at least eighty percent (80%) of the total votes cast by Record Holders of all Voting Units Outstanding and entitled to vote on such matter, and if reference is made to a class of Voting Units, then the affirmative vote affirmative vote or written consent of at least eighty percent (80%) of the total votes cast by Record Holders of that class of Voting Units Outstanding and entitled to vote on such matter.
“Tax Distribution Date” has the meaning set forth in Section 4.4(b).
“Taxing Authority” means any Governmental Entity, or any quasi-governmental or private body having jurisdiction over the assessment, determination, collection or other imposition of taxes.
“Transaction Document” means any securities purchase agreement, subscription agreement, contribution agreement, employment agreement, or any other agreement, document or instrument evidencing or effecting the issuance or other Transfer of any Units or Unit Equivalents or otherwise governing the terms and conditions with respect to any Units or Unit Equivalents, together with all other agreements referred to therein, and each other agreement or instrument entered into in connection therewith or contemplated thereby, in each case as the same may be amended, supplemented, restated or otherwise modified from time to time.
“Transfer” means, with respect to a Unit, a transaction by which the Record Holder of a Unit assigns such Unit to another Person, and includes a sale, assignment, gift, exchange or any other disposition by law or otherwise, excluding a pledge, encumbrance, hypothecation or mortgage but including any transfer upon foreclosure of any pledge, encumbrance, hypothecation or mortgage. “Transferrable,” “Transferring,” and “Transferred” have correlative meanings.
“Transfer Agent” means, with respect to any class of Units, such bank, trust company or other Person (including the Company or one of its Affiliates) as shall be appointed from time to time by the Company to act as registrar and transfer agent for such class of Units; provided that if no Transfer Agent is specifically designated for such class of Units, the Company shall act in such capacity.
“Treasury Regulations” means the proposed, temporary and final regulations promulgated under the Code and the corresponding sections of any regulations subsequently issued that amend or supersede such regulations.
“Unit” means a unit issued by the Company representing a limited liability company interest in the Company, including the right of the Record Holder of such Unit to any and all benefits to which a Record Holder may be entitled as provided in this Agreement, together with the obligation of such Record Holder to comply with all the terms and provisions of this Agreement. Units may be common units or Preferred Units and may be issued in different classes or series.
“Unit Designation” has the meaning set forth in Section 3.4.
“Unit Equivalents” means any security or obligation that is by its terms, directly or indirectly, convertible into, exchangeable or exercisable for Units, and any option, warrant or other right to subscribe for, purchase or acquire, or any appreciation rights relating to, Units.
“Updated Statement” has the meaning set forth in Section 4.3(g).
“Voting Units” mean Class A Units, Class B Unit and Class M Units, as applicable, and any other class or series of Units that are designated by the Company as entitling the Record Holder thereof the right to vote on any matter submitted for consent or approval of the Members under the terms of this Agreement.
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Section 1.2 Construction. The definitions in this Agreement shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The captions in this Agreement are included for convenience of reference only and shall be ignored in the construction or interpretation hereof. All references herein to Articles, Sections, Exhibits and Schedules shall be deemed to be references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context otherwise requires. All Exhibits and Schedules attached hereto shall be deemed incorporated herein as if set forth in full herein and, unless otherwise defined therein, all terms used in any Exhibit and Schedule shall have the meanings ascribed to such terms in this Agreement. The words “include,” “includes” and “including” shall be deemed to be followed by the phrase “without limitation.” The words “hereof,” “herein” and “hereunder” and words of similar import when used in this Agreement shall refer to this Agreement as a whole and not to any particular provision of this Agreement. Unless otherwise expressly provided herein, any agreement, instrument or statute defined or referred to herein or in any agreement or instrument that is referred to herein means such agreement, instrument or statute as from time to time amended, modified or supplemented, including (in the case of agreements or instruments) by waiver or consent and (in the case of statutes) by succession of comparable successor statutes and references to all attachments thereto and instruments incorporated therein.
Article
II
ORGANIZATIONAL MATTERS
Section 2.1 Formation. The Company is a limited liability company formed pursuant to the provisions of the Act and upon the terms and subject to the conditions set forth in this Agreement. Except as expressly provided herein to the contrary, the rights and obligations of the Members and the administration and termination of the Company shall be governed by the Act. All Units shall constitute personal property of the owner thereof for all purposes and a Member has no interest in specific Company property.
Section 2.2 Name. The name of the Company shall be “Belpointe PREP, LLC.” The Board may change the name of the Company at any time and from time to time. The Company’s business may be conducted under its name or any other name or names deemed advisable by the Board.
Section 2.3 Registered Office and Agent; Principal Office. The registered office of the Company in the State of Delaware is located at 8 The Green, Suite B, Dover, Delaware 19901, and the registered agent for service of process on the Company in the State of Delaware at such registered office is Northwest Registered Agent Service, Inc. The principal office of the Company is located at 125 Greenwich Avenue, Greenwich, Connecticut 06830. The Board in its sole discretion may from time to time designate in the manner provided by applicable law another registered agent or another location for the registered office or principal office. The Company may maintain offices at such other place or places within or outside the State of Delaware as the Board deems advisable.
Section 2.4 Purposes. The purpose of the Company is to directly, or indirectly through any member of the Company Group or any of their respective Affiliates or Associates, (a) identify, acquire, develop or redevelop, own, hold, maintain, manage, finance, refinance, pledge, hypothecate, exchange, sell and otherwise deal in and with a diversified portfolio of commercial real estate properties and “qualified opportunity zone property,” as defined in §1.1400Z2(d)-1(c) of the Treasury Regulations, located throughout the United States and its territories, as well as to acquire other real estate-related assets, including commercial real estate loans, and debt and equity securities issued by other real estate-related companies, make private equity acquisitions and investments, and opportunistic acquisitions of other “qualified opportunity funds” (each a “QOF”), as defined in §1400Z-2(d)(1) of the Code and §1.1400Z2(d)-1 of the Treasury Regulations promulgated thereunder, (b) enter into any joint ventures, partnerships, co-investments, co-tenancies and other co-ownership arrangements, participations or relationships to engage in any of the foregoing or to acquire, hold and dispose of interests in any corporation, partnership, joint venture, limited liability company, trust or other entity engaged, directly or indirectly, in any of the foregoing, and to exercise all of the rights and powers conferred upon the Company with respect to its interests therein, and (c) do anything necessary or incidental to the foregoing; provided, that the Company initially qualify and maintain its status as a QOF.
Section 2.5 Powers. The Company shall be empowered to do any and all acts and things necessary, appropriate, advisable, incidental or convenient for the furtherance and accomplishment of the purposes described in Section 2.4 and for the protection and benefit of the Company.
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Section 2.6 Power of Attorney. Each Member and each Record Holder hereby constitutes and appoints the Chief Executive Officer, the Manager and, if a Liquidator shall have been selected pursuant to Section 8.2, the Liquidator (and any successor to the Liquidator by merger, transfer, assignment, election or otherwise) and each of their authorized officers and attorneys-in-fact, as the case may be, with full power of substitution, as such Person’s true and lawful agent and attorney-in-fact, with full power and authority in such Person’s name, place and stead to:
(a) execute, swear to, seal, acknowledge, deliver, file and record in the appropriate public offices;
(i) all certificates, documents and other instruments (including this Agreement and the Certificate of Formation and all amendments or restatements hereof or thereof) that the Chief Executive Officer, the Manager or Liquidator determines to be necessary or appropriate to form, qualify or continue the existence or qualification of the Company as a limited liability company in the State of Delaware and in all other jurisdictions in which the Company may or plans to conduct business or own property;
(ii) all amendments to this Agreement adopted in accordance with the terms hereof and all certificates, documents and other instruments that the Chief Executive Officer, the Manager or Liquidator determines to be necessary or appropriate to reflect, in accordance with its terms, any amendment, change, modification or restatement of this Agreement;
(iii) all certificates, documents and other instruments (including conveyances and a certificate of cancellation) that the Chief Executive Officer, the Manager or Liquidator determines to be necessary or appropriate to reflect the dissolution, liquidation and termination of the Company pursuant to the terms of this Agreement;
(iv) all certificates, documents and other instruments (including this Agreement and the Certificate of Formation and all amendments or restatements hereof or thereof) relating to the admission, withdrawal, removal or substitution of any Member pursuant to, or other events described in, this Agreement;
(v) all certificates, documents and other instruments relating to the determination of the rights, preferences and privileges of any class or series of Units issued pursuant to Section 3.4; and
(vi) all certificates, documents and other instruments (including agreements and a certificate of merger or consolidation or similar certificate) relating to a merger, consolidation, combination or conversion of the Company pursuant to Article X or otherwise in connection with the change of jurisdiction of the Company; and
(b) execute, swear to, acknowledge, deliver, file and record all ballots, consents, approvals, waivers, certificates, documents and other instruments that the Chief Executive Officer, the Manager or Liquidator determines to be necessary or appropriate to (i) make, evidence, give, confirm or ratify any vote, consent, approval, agreement or other action which is made or given by the Members hereunder or is consistent with the terms of this Agreement, or (ii) effectuate the terms or intent of this Agreement; provided, that when required by Section 3.3, Section 9.4 or any other provision of this Agreement that establishes a percentage of the Members or of the Members of any class or series required to take any action, the Chief Executive Officer, the Manager or Liquidator may exercise the power of attorney made in this Section 2.6(b) only after the necessary vote, consent, approval, agreement or other action of the Members or of the Members of such class or series, as applicable.
Nothing contained in this Section 2.6 shall be construed as authorizing the Chief Executive Officer, the Manager or Liquidator to amend this Agreement except in accordance with Article X hereof or as may be otherwise expressly provided for in this Agreement.
(c) The foregoing power of attorney is hereby declared to be irrevocable and a power coupled with an interest, and it shall survive and, to the fullest extent permitted by applicable law, not be affected by the subsequent death, incompetency, disability, incapacity, dissolution, bankruptcy or termination of any Member or Record Holder or the Transfer of all or any portion of such Member’s or Record Holder’s Units and shall extend to such Member’s or Record Holder’s heirs, successors, assigns and personal representatives. Each such Member or
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Record Holder hereby agrees to be bound by any representation made by the Chief Executive Officer, the Manager or the Liquidator, acting in good faith pursuant to such power of attorney, and each such Member or Record Holder hereby waives any and all defenses which may be available to contest, negate or disaffirm the action of the Chief Executive Officer, the Manager or the Liquidator, taken in good faith under such power of attorney. Each Member or Record Holder shall execute and deliver to the Chief Executive Officer, the Manager or the Liquidator, within seven days after receipt of the request therefor, such further designation, powers of attorney and other instruments as the Chief Executive Officer, the Manager or the Liquidator may request in order to effectuate this Agreement and the purposes of the Company.
Section 2.7 Term. The term of the Company commenced upon the filing of the Certificate of Formation in accordance with the Act and shall continue until the dissolution of the Company in accordance with the provisions of Article VIII. The existence of the Company as a separate legal entity shall continue until the cancellation of the Certificate of Formation as provided in the Act.
Section 2.8 Title to Company Assets. Title to Company assets, whether real, personal or mixed and whether tangible or intangible, shall be deemed to be owned by the Company as an entity, and no Member, Manager, Director or officer, individually or collectively, shall have any ownership interest in such Company assets or any portion thereof. Title to any or all of the Company assets may be held in the name of any member of the Company Group, their respective Affiliates, or one or more nominees, as the Board or Manager may determine. All Company assets shall be recorded as the property of the Company in its books and records, irrespective of the name in which record title to such Company assets is held.
(a) Upon the execution of this Agreement, each Person who was a member of the Company pursuant to the Original Operating Agreement shall continue to be a member of the Company. A Person shall be admitted as a Member and shall become bound by the terms of this Agreement when such Person purchases or otherwise lawfully acquires any Unit and becomes the Record Holder of such Unit in accordance with the provisions of this Agreement, with or without execution of this Agreement. A Person may become a Record Holder without the consent or approval of any of the Members. A Person may not become a Member without acquiring a Unit.
(b) The name and mailing address of each Member shall be listed on the books and records of the Company maintained for such purpose by the Company or the Transfer Agent. The Company shall update, or shall cause the Transfer Agent to update, the books and records of the Company from time to time as necessary to reflect accurately the information contained therein.
(c) Except as otherwise provided in the Act, the debts, obligations and liabilities of the Company, whether arising in contract, tort or otherwise, shall be solely the debts, obligations and liabilities of the Company, and the Members shall not be obligated personally for any such debt, obligation or liability of the Company solely by reason of being a Member of the Company.
(d) Subject to Section 3.12 and Article X, Members may not be expelled from or removed as Members. Members shall not have any right to withdraw from the Company; provided, that when a transferee of a Member’s Units becomes a Record Holder of such Units, such transferring Member shall cease to be a member of the Company with respect to the Units so Transferred.
(e) Except to the extent expressly provided in this Agreement (including Section 4.2(a), Section 4.4 and the terms of any Unit Designation): (i) no Member shall be entitled to the withdrawal or return of any Capital Contribution, except to the extent, if any, that distributions made pursuant to this Agreement or upon dissolution of the Company may be considered as such by applicable law and then only to the extent provided for in this Agreement; (ii) no Member shall have priority over any other Member either as to the return of any Capital Contributions or as to profits, losses or distributions; (iii) no interest shall be paid by the Company on any Capital Contributions; and (iv) no Member, in its capacity as such, shall participate in the operation, management or control
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of the Company’s business, transact any business in the Company’s name or have the power to sign documents for or otherwise bind the Company by reason of being a Member.
(f) Any Member shall be entitled to and may have business interests and engage in business activities in addition to those relating to the Company, including business interests and activities in direct competition with the members of the Company Group or their respective Affiliates, and none of the same shall constitute a breach of this Agreement or any duty (including fiduciary duties) otherwise existing at law, in equity or otherwise to any member of the Company Group, their respective Affiliates or any other Member; provided, that this Section 3.1(f) shall not excuse a breach of any provision of this Agreement binding upon a Person, or limit or otherwise modify any duties (including fiduciary duties) owed by a Person at law, in equity or otherwise (including by contract) to any member of the Company Group or their respective Affiliates, in each case arising other than from such Person’s capacity as a Member. Neither the Company nor any of the other Members shall have any rights by virtue of this Agreement in any such business interests or activities of any Member.
Section 3.2 Rights of Members.
(a) Each Member shall have the right, for a purpose reasonably related, as determined by the Board, to such Member’s interest as a Member in the Company, upon reasonable written demand stating the purpose of such demand and at such Member’s own expense, to obtain:
(i) promptly after becoming available, a copy of the Company’s U.S. federal, state and local income tax returns for any of the six years preceding such Member’s written demand; provided that such Member was a Member during any part of such year; and
(ii) a copy of this Agreement and the Certificate of Formation and all amendments hereto and thereto, together with executed copies of any powers of attorney pursuant to which this Agreement, the Certificate of Formation and all amendments hereto and thereto have been executed.
(b) Subject to Section 4.3, the rights to information granted to the Members pursuant to Section 3.2(a) replace in their entirety any rights to information provided for in §18-305(a) of the Act and each of the Members and each other Person who acquires an interest in a Unit hereby agrees to the fullest extent permitted by applicable law that they do not have any rights as Members to receive any information either pursuant to §18-305(a) of the Act or otherwise, except for the information identified in Section 3.2(a).
(c) Subject to Section 4.3, the Company may keep confidential from the Members, for such period of time as the Company deems reasonable, (i) any information that the Company determines, in its sole discretion, is in the nature of confidential information or a trade secret, or (ii) other information the disclosure of which the Company determines, in its sole discretion, (A) is not in the best interests of any member of the Company Group or their respective Affiliates, (B) could damage a member of the Company Group, their respective Affiliates or businesses, or (C) that any member of the Company Group or their respective Affiliates is required by applicable law or regulation or by agreement with any third party to keep confidential (other than agreements with Affiliates of the Company the primary purpose of which is to circumvent the obligations set forth in this Section 3.2).
(d) Notwithstanding any other provision of this Agreement or §18-305 of the Act, each of the Members, each other Person who acquires an interest in a Unit and each other Person bound by this Agreement hereby agrees to the fullest extent permitted by applicable law that they do not have rights to receive information from the Company or any Indemnitee for the purpose of determining whether to pursue any arbitration or litigation or assist in any pending arbitration or litigation against any member of the Company Group, their respective Affiliates or any Indemnitee relating to the affairs of any member of the Company Group or their respective Affiliates except pursuant to the applicable rules of discovery relating to an arbitration or litigation commenced by such Person.
Section 3.3 Designation and Issuance of Units.
(a) As of the Effective Date of this Agreement, three classes of common units have been designated: Class A Units, Class B Units and Class M Units.
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(b) The Company is authorized to issue an unlimited number of Class A Units. Each Class A Unit entitles the Record Holder thereof to one vote on any and all matters submitted for the consent or approval of Members generally. As of the Effective Date of this Agreement, each common unit issued and outstanding pursuant to the Original Operating Agreement shall be and hereby is reclassified and converted into one fully paid and nonassessable Class A Unit.
(c) The Company is authorized to issue 100,000 Class B Units. Each Class B Unit entitles the Record Holder thereof to one vote on any and all matters submitted for the consent or approval of Members generally. Notwithstanding anything in this Agreement to the contrary, the number of authorized Class B Units may only be increased or decreased (but not below the number of Class B Units then Outstanding) by a Super Majority Vote of the Record Holders of the then Outstanding Class B Units voting separately as a single class.
(d) The Company is authorized to issue one Class M Unit. The Class M Unit entitles the Record Holder thereof to that number of votes equal to the product obtained by multiplying (i) the sum of the of the aggregate number of Outstanding Class A Units plus the aggregate number of Outstanding Class B Units, by (ii) 10, on any and all matters submitted for the consent or approval of Members on which the holder of the Class M Unit has a vote. The Class M Unit may only be held by Belpointe PREP Manager or an Affiliate of Belpointe PREP Manager. If Belpointe PREP Manager or an Affiliate of Belpointe PREP Manager is no longer the Manager of the Company, the Class M Unit shall automatically be forfeited, terminated and cancelled. Notwithstanding anything in this Agreement to the contrary, the number of authorized Class M Units may only be increased with the consent, either in writing without a meeting or at any meeting called for such purpose, of the Record Holder of the then Outstanding Class M Unit voting separately as a single class.
Section 3.4 Authorization to Issue Additional Units.
(a) The Company may issue any number of Units, and options, rights, warrants and appreciation rights relating to Units, for any Company purpose, including, without limitation, in connection with any Investment, at any time and from time to time to such Persons for such consideration (which may be cash, property, services or any other lawful consideration) or for no consideration and on such terms and conditions as the Board shall determine, all without the approval of any Members, except as may be required by Section 3.3(c), Section 3.3(d) and Section 3.4(e).
(b) Subject to Section 3.4(e), additional Units authorized to be issued by the Company pursuant to this Section 3.4 shall have the rights and be governed by the provisions set forth in this Agreement and, with respect to additional Units of the Company that may be issued by the Company in one or more classes or series, with such designations, preferences, rights, powers and duties (which may be junior to, equivalent to, or senior or superior to, any existing classes or series of Units of the Company), as shall be fixed by the Board and reflected in a written action or actions approved by the Board in compliance with Section 5.1 (each, a “Unit Designation”), including (i) the right to share in Company profits and losses or items thereof, (ii) the right to share in Company distributions, the dates distributions will be payable and whether distributions with respect to such class or series will be cumulative or non-cumulative, (iii) rights upon dissolution and liquidation of the Company (including any payments), (iv) whether, and the terms and conditions upon which, the Company may redeem such Units, (v) whether such Units are issued with the privilege of conversion or exchange into Units of any other class or series or any other security issued by the Company or another entity and, if so, the terms and conditions of such conversion or exchange, (vi) the terms and conditions upon which such Units will be issued, evidenced by certificates and assigned or Transferred, (vii) the method for determining the Percentage Interest, if any, applicable to such Units, and (viii) the right, if any, of the Record Holder of any such Unit to vote on Company matters, including matters relating to the relative rights, preferences and privileges of such Units.
(c) A Unit Designation (or any action of the Board amending any Unit Designation) shall be effective when a duly executed original of the same is delivered to the Secretary of the Company for inclusion among the permanent records of the Company, and shall be annexed to, and constitute part of, this Agreement. Unless otherwise provided in the applicable Unit Designation, the Board may at any time increase or decrease the amount of any class or series, but not below the number of Units of such class or series then Outstanding.
(d) The Board is hereby authorized to take all actions that it determines to be necessary or appropriate in connection with (i) each issuance of Units and options, rights, warrants and appreciation rights
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relating to Units pursuant to this this Section 3.4, including the admission of Additional Members in connection therewith and any related amendment of this Agreement, and (ii) all additional issuances of Units and options, rights, warrants and appreciation rights relating to Units. The Board of Directors shall determine in its sole discretion the relative rights, powers and duties of the holders of Units or options, rights, warrants or appreciation rights relating to Units being so issued. The Board of Directors is authorized to do all things that it determines to be necessary or appropriate in connection with any future issuance of Units or options, rights, warrants or appreciation rights relating to Units, including compliance with any statute, rule, regulation or guideline of any Governmental Entity or any Exchange on which Units or options, rights, warrants or appreciation rights relating to Units are listed or quoted for trading.
(e) Notwithstanding anything to the contrary in this Agreement, including Article X or Article XI hereof, so long as the:
(i) Class B Units remain Outstanding a Super Majority Vote of the Record Holders of the then Outstanding Class B Units voting separately as a single class shall be required to (A) amend, alter or repeal any of the provisions of this Agreement relating to the Class B Units, whether by merger, consolidation or otherwise, to affect the rights, powers and preferences of the Record Holders of the Class B Units, and (B) authorize, create or increase the authorized amount of, any class or series of Units having rights senior to the Class B Units with respect to any allocations pursuant to Section 4.2(a) or the payment of any distributions pursuant to Section 4.4 or amounts upon any liquidation pursuant to Section 8.3(c); provided that in the case of clause (A), no such vote shall be required if in connection with any such amendment, alteration or repeal, by merger, consolidation or otherwise, each Class B Unit remains Outstanding without the terms thereof being materially changed in any respect adverse to the Record Holders thereof or is converted into or exchanged for equity securities of the surviving entity having distributions, voting powers, protections and other rights substantially similar to those of the Class B Units; and
(ii) Class M Unit remains Outstanding the consent, either in writing without a meeting or at any meeting called for such purpose, of the Record Holder of the then Outstanding Class M Unit voting separately as a single class shall be required (A) to amend, alter or repeal any of the provisions of this Agreement relating to the Class M Unit, whether by merger, consolidation or otherwise, to affect the rights, powers and preferences of the Record Holder of the Class M Unit, and (B) to authorize, create or increase the authorized amount of, any class or series of Units having greater voting power than the Class M Unit; provided that in the case of clause (A), no such vote shall be required if in connection with any such amendment, alteration or repeal, by merger, consolidation or otherwise, the Class M Unit remains Outstanding without the terms thereof being materially changed in any respect adverse to the Record Holder thereof or is converted into or exchanged for equity securities of the surviving entity having voting power, protections and other rights substantially similar to those of the Class M Unit.
Section 3.5 Fully Paid and Non-Assessable Nature of Units. Units issued pursuant to, and in accordance with the requirements of, this Article III shall be fully paid and non-assessable limited liability company interests in the Company, except as such non-assessability may be affected by §§18-502, 18-607 or 18-804 of the Act or this Agreement (including any Unit Designation).
Section 3.6 Preemptive Rights. Except to the extent expressly provided in this Agreement (including in any Unit Designation), no Units shall entitle any Member to any preemptive, preferential or similar rights with respect to the issuance of Units.
Section 3.7 Treatment under the Uniform Commercial Code. The Company hereby irrevocably elects that all Units shall be securities within the meaning of, and governed by, Article 8 of the Uniform Commercial Code as in effect from time to time in the State of Delaware or analogous provisions of in the Uniform Commercial Code as in effect in any other applicable jurisdiction.
Section 3.8 Splits and Combinations.
(a) Subject to Section 3.8(d), the Company may make a pro rata distribution of a class or series of Units to all Record Holders of a class or series of Units, or may effect a subdivision or combination of a class or series of Units; provided, that after any such distribution, subdivision or combination, each Member shall
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have the same Percentage Interest in the Company as prior to such event, and any amounts calculated on a per Unit basis or stated as a number of Units are proportionately adjusted.
(b) Whenever a pro rata distribution, subdivision or combination of a class or series of Units is declared, the Board shall select a Record Date as of which the distribution, subdivision or combination shall be effective and shall provide notice thereof at least 20 days prior to such Record Date to each Person who is a Record Holder of a class or series of Units. The Board also may cause the Manager or a third-party advisor selected by it to calculate the number of Units to be held by each Record Holder after giving effect to such distribution, subdivision or combination. The Board shall be entitled to rely on any certificate provided by the Manager or such advisor as conclusive evidence of the accuracy of such calculation.
(c) If the Units are certificated, promptly following any such distribution, subdivision or combination, the Company may issue Certificates to the Record Holders of such Units as of the applicable Record Date representing the new number of Units held by such Record Holders, or the Board may adopt such other procedures that it determines to be necessary or appropriate to reflect such changes. If any combination results in a smaller total number of Units Outstanding of such class or series, the Company shall require, as a condition to the delivery to a Record Holder of any such new Certificate, the surrender of any Certificate held by such Record Holder immediately prior to such Record Date.
(d) The Company shall not issue fractional Units. If any distribution, subdivision or combination of Units under the terms of this Agreement would result in the issuance of fractional Units, each fractional Unit shall, in the sole discretion of the Board, be rounded to the nearest whole Unit (with a 0.5 Unit being rounded up to the next higher Unit) or the Company shall pay cash in lieu of the issuance of any such fractional Unit.
(a) Except as otherwise determined by the Board, in its sole discretion, Units issued hereunder shall not be certificated.
(b) Should the Board determine that some or all of any class or series of Units are to be represented by Certificates, then, upon the Company’s issuance of such Units to any Person, the Company shall issue or cause to be issued one or more Certificates in the name of such Person evidencing the number of Units being so issued. Certificates shall be executed on behalf of the Company by an officer of the Company or the Manager. No Certificate representing Units shall be valid for any purpose until it has been countersigned by the Transfer Agent. Any or all of the signatures required on the Certificate may be by facsimile or other electronic means. If any officer, Manager or Transfer Agent who shall have signed or whose facsimile or other electronic signature shall have been placed upon any such Certificate shall have ceased to be an officer, the Manager or Transfer Agent before the Certificate is issued by the Company, such Certificate may nevertheless be issued by the Company with the same effect as if such Person were an officer, the Manager or Transfer Agent at the date of issue. Certificates for each class or series of Units shall be uniquely numbered and shall be entered on the books and records of the Company as they are issued and shall exhibit the Record Holder’s name and number and type of Units. With respect to any Units that are evidenced by Certificates, the Board may determine that such Units will no longer be evidenced by Certificates and may, upon written notice to the holders of such Units and subject to applicable law, take whatever actions deemed necessary or appropriate to cause such Units to be registered in book entry form and may cause such Certificates to be cancelled or deemed cancelled.
(c) If any mutilated Certificate is surrendered to the Transfer Agent, the appropriate officers or the Manager on behalf of the Company shall execute, and the Transfer Agent shall countersign and deliver in exchange therefor, a new Certificate evidencing the same number and class or series of Units as the Certificate so surrendered. The appropriate officers or the Manager on behalf of the Company shall execute, and the Transfer Agent shall countersign and deliver, a new Certificate in place of any Certificate previously issued if the Record Holder of the Certificate (i) makes proof by affidavit, in form and substance satisfactory to the Company, that a previously issued Certificate has been lost, destroyed or stolen, (ii) requests the issuance of a new Certificate before the Company has notice that the Certificate has been acquired by a purchaser for value in good faith and without notice of an adverse claim, (iii) if requested by the Company, delivers to the Company a bond, in form and substance satisfactory to the Company, with surety or sureties and with fixed or open penalty as the Company may
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direct to indemnify the Company and the Transfer Agent against any claim that may be made on account of the alleged loss, destruction or theft of the Certificate, and (iv) satisfies any other reasonable requirements imposed by the Company. If a Member fails to notify the Transfer Agent within a reasonable time after such Member has notice of the loss, destruction or theft of a Certificate, and a Transfer of the Units represented by the Certificate is registered before the Transfer Agent receives such notification, the Member shall be precluded from making any claim against the Company or the Transfer Agent for such Transfer or for a new Certificate. As a condition to the issuance of any new Certificate under this Section 3.9(c), the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed in relation thereto and any other expenses (including the fees and expenses of the Transfer Agent) reasonably connected therewith.
Section 3.10 Record Holders. The Company shall be entitled to recognize the Record Holder as the owner of a Unit and, accordingly, shall not be bound to recognize any equitable or other claim to or interest in such Unit on the part of any other Person, regardless of whether the Company shall have actual or other notice thereof, including in connection with any distribution pursuant to Section 4.4, Section 4.5 or Section 8.3 or the exercise of any voting or other rights pursuant to Section 11.9, except as otherwise provided by applicable law or any rule, regulation, guideline or requirement of any Exchange on which the Company’s Units are listed or quoted for trading. Without limiting the foregoing, when a Person (such as a broker, dealer, bank, trust company or clearing corporation or an agent of any of the foregoing) is acting as nominee, agent or in some other representative capacity for another Person in acquiring or holding Units, as between the Company on the one hand, and such other Persons on the other, such representative Person shall be the Record Holder of such Units.
Section 3.11 Registration and Transfer of Units.
(a) No Unit shall be Transferred, in whole or in part, except in accordance with the terms and conditions set forth in this Article III. Any Transfer or purported Transfer of a Unit not made in accordance with this Article III shall be null and void, and the Company shall have no obligation to effect or recognize any such Transfer or purported Transfer.
(b) The Company shall keep or cause to be kept on its behalf a register that will provide for the registration and Transfer of Units. The Transfer Agent is hereby appointed registrar and transfer agent for the purpose of registration of the Class A Units and Transfers of such Class A Units as herein provided. In the absence of manifest error, the register kept by Transfer Agent shall be conclusive as to the identity of the Record Holders of Class A Units.
(c) Upon the receipt by the Transfer Agent of proper Transfer instructions from the Record Holder of uncertificated Class A Units, such Transfer shall be recorded in the register.
(d) The Company shall not recognize any purported Transfer of Units evidenced by Certificates until the Certificates evidencing such Units are surrendered for registration of Transfer. No charge shall be imposed by the Company for such Transfer; provided, that as a condition to the issuance of any new Certificate, the Company may require the payment of a sum sufficient to cover any tax or other governmental charge that may be imposed with respect thereto and any other expenses (including the fees and expenses of the Transfer Agent) reasonably connected therewith. Upon surrender of a Certificate for registration of Transfer of any Units evidenced by a Certificate, the appropriate officers of the Company or the Manager shall execute and deliver, and the Transfer Agent shall countersign and deliver, in the name of the Record Holder or the designated transferee or transferees, as required pursuant to the Record Holder’s instructions, one or more new Certificates evidencing the same aggregate number and type of Units as were evidenced by the Certificate so surrendered. Upon the proper surrender of a Certificate, such Transfer shall be recorded in the register.
(e) By acceptance of the Transfer of any Unit in accordance with this Article III or the issuance of any Unit in accordance with this Agreement (including in connection with any Investment or in a merger, consolidation or other business combination pursuant to Article X), each transferee of a Unit, including any nominee holder or an agent or representative acquiring such Units for the account of another Person, shall (i) become the Record Holder of the Unit so Transferred or issued, (ii) be admitted to the Company as a Substitute Member or Additional Member with respect to the Units so Transferred or issued to such transferee or other recipient when any such Transfer or admission is reflected in the register of the Company, with or without execution of this Agreement, (iii) become bound by, and be deemed to agree to be bound by, the terms of this Agreement, with
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or without execution of this Agreement, (iv) be deemed to represent that such transferee or other recipient has the capacity, power and authority to enter into this Agreement, (v) be deemed to grant powers of attorney to the Chief Executive Officer, the Manager and any Liquidator of the Company, as specified herein, and (vi) be deemed to make any consents, acknowledgments and waivers contained in this Agreement. The Transfer of any Units and the admission of any Substitute Member or Additional Member shall not constitute an amendment to this Agreement.
(f) Nothing contained in this Agreement shall be construed to prevent or limit a disposition by any stockholder, member, partner or other owner of any Member of any or all of such Person’s shares of stock, membership interests, partnership interests or other ownership interests in such Member, and the term “transfer” shall not include any such disposition.
(g) Subject to (i) the foregoing provisions of this Section 3.11, (ii) Section 3.10 and Section 3.12, (iii) with respect to any class or series of Units, the provisions of any Unit Designation or amendment to this Agreement establishing such class or series, (iv) any contractual provisions binding on any Member, and (v) provisions of applicable law, including the Securities Act, the Units shall be freely Transferable.
Section 3.12 Restrictions on Transfer.
(a) Notwithstanding any other provision of this this Article III, no Transfer of any Units shall be made if such purported Transfer would:
(i) violate applicable law, including U.S. federal or state securities laws, rules and regulations of the Commission or any state securities commission or any other Governmental Entity with jurisdiction over such Transfer;
(ii) terminate the existence or qualification of the Company under the laws of any jurisdiction;
(iii) cause the Company to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for U.S. federal income tax purposes (to the extent not already so treated or taxed); or
(iv) require the Company to be subject to the registration requirements of the Investment Company Act.
(b) The Board may impose additional restrictions on the Transfer of Units if it receives advice of counsel acceptable to the Board (who may be regular counsel to any member of the Company Group or their respective Affiliates) that such restrictions are necessary or advisable to avoid a significant risk of: (i) the Company becoming taxable as a corporation or otherwise becoming taxable as an entity for U.S. federal income tax purposes (to the extent not already so treated or taxed); or (ii) the Company being subject to the registration requirements of the Investment Company Act. The Board may impose such restrictions by amending this Agreement without the approval of the Members.
(c) To the fullest extent permitted by appliable law, any Transfer in violation of this Section 3.12 shall be null and void. In the event that any Person would otherwise become the Record Holder of a Unit through a purported Transfer in violation of this Section 3.12, the Company may, in its sole discretion, require that the purported transferor take any steps deemed appropriate by the Company or the Transfer Agent to unwind, cancel or reverse such purported transaction. With respect to the purported transferee, such Person shall have no rights or economic interest in such Unit or otherwise, including any consent rights, any rights to receive notice of, or attend, a meeting of the Members and any rights to receive distributions with respect to such Unit. In addition, the Company may, in its sole discretion, redeem Unit or cause the Transfer of such Unit to a third party in a Transfer permitted by this Agreement and, if such Unit is sold or redeemed, the Company shall distribute the proceeds of such sale (net of any costs or expenses incurred by the Company) to the purported transferor.
(d) Without prejudice to any remedies available to the Company as a result of such transactions nothing contained in this Agreement shall preclude the settlement of any transactions involving Units entered into through the facilities of any Exchange on which the Company’s Units are listed or quoted for trading.
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Article
IV
CAPITAL ACCOUNTS; ALLOCATIONS; DISTRIBUTIONS
Section 4.1 Capital Accounts. There shall be established for each Member on the books of the Company as of the date such Member becomes a Member a capital account (each being a “Capital Account”). Each Capital Contribution by any Member, if any, shall be credited to the Capital Account of such Member on the date such Capital Contribution is made to the Company. In addition, each Member’s Capital Account shall be (a) increased by (i) such Member’s allocable share of any Net Income of the Company, and (ii) the amount of any Company liabilities that are assumed by the Member or secured by any Company property distributed to the Member, (b) decreased by (i) the amount of distributions (and deemed distributions) to such Member of cash or the fair market value of other property so distributed, (ii) such Member’s allocable share of Net Loss of the Company and expenditures of the Company described or treated under Section 704(b) of the Code as described in Section 705(a)(2)(B) of the Code, and (iii) the amount of any liabilities of the Member assumed by the Company or which are secured by any property contributed by the Member to the Company, and (c) otherwise maintained in accordance with the provisions of the Code and the Treasury Regulations promulgated thereunder. Any other item which is required to be reflected in a Member’s Capital Account under Section 704(b) of the Code and the Treasury Regulations promulgated thereunder or otherwise under this Agreement shall be so reflected. The Company shall make such adjustments to Capital Accounts as it determines in its sole discretion to be appropriate to ensure allocations are made in accordance with a Member’s interest in the Company. Interest shall not be payable on Capital Account balances. The Company shall maintain the Capital Accounts of the Members in accordance with the principles and requirements set forth in Section 704(b) of the Code and the Treasury Regulations promulgated thereunder. The Capital Account of each Record Holder of Class B Units shall equal $0.00 per Class B Unit as of the date such Class B Unit is initially issued, except to the extent such Record Holder of Class B Units also holds Units other than Class B Units, and shall be adjusted as set forth in Section 4.2(a). The Capital Account of each Record Holder of Class M Units shall at all times be zero, except to the extent such Record Holder of Class M Units also holds Units other than Class M Units.
(a) Before giving effect to any other allocations set forth in this Section 4.2 or in the terms of any Unit Designation, the Capital Accounts of the Record Holders of Class B Units shall be specially allocated, pro rata in accordance with their respective Percentage Interests in such Class B Units five percent (5%) of any Gain Recognized by the Company for the taxable period. For purposes of, and prior to, making allocations under this Section 4.2(a), the Capital Account of each Record Holder of Class B Units shall (i) be decreased by the amount of distributions (and deemed distributions) to such Record Holder of cash or the fair market value of other property so distributed, and (ii) otherwise maintained in accordance with the provisions of the Code and the Treasury Regulations promulgated thereunder.
(b) Subject to Section 4.2(a) and the express terms of any Unit Designation with respect to the Units whose terms are established by such Unit Designation, Net Income (Loss) of the Company for each fiscal period shall be allocated among the Capital Accounts of the Members that held Units in a manner that as closely as possible gives economic effect to the manner in which distributions are or would be made to the Members pursuant to the provisions of Section 4.5 and Section 8.3.
(c) All items of income, gain, loss, deduction and credit of the Company shall be allocated among the Members for U.S. federal, state and local income tax purposes consistent with the manner that the corresponding constituent items of Net Income (Loss) shall be allocated among the Members pursuant to this Agreement, except as may otherwise be provided herein or by the Code. Notwithstanding the foregoing, the Company in its sole discretion shall make such allocations for tax purposes as may be needed to ensure that allocations are in accordance with the interests of the Members in the Company, within the meaning of the Code and Treasury Regulations. The Company shall determine all matters concerning allocations for tax purposes not expressly provided for herein in its sole discretion. For the proper administration of the Company and for the preservation of uniformity of Units (or any portion or class or classes thereof), the Company may (i) amend the provisions of this Agreement as appropriate (x) to reflect the proposal or promulgation of Treasury Regulations under Sections 704(b) or 704(c) of the Code, or (y) otherwise to preserve or achieve uniformity of Units (or any portion or class or classes thereof), and (ii) adopt and employ or modify such conventions and methods as the Company determines in its sole discretion to be appropriate for (A) the determination for tax purposes of items of
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income, gain, loss, deduction and credit and the allocation of such items among Members and between transferors and transferees under this Agreement and pursuant to the Code and the Treasury Regulations promulgated thereunder, (B) the determination of the identities and tax classification of Members, (C) the valuation of Company assets and the determination of tax basis, (D) the allocation of asset values and tax basis, (E) the adoption and maintenance of accounting methods, and (F) taking into account differences between the Carrying Values of Company assets and such asset adjusted tax basis pursuant to Section 704(c) of the Code and the Treasury Regulations promulgated thereunder.
(d) Allocations that would otherwise be made to a Member under the provisions of this Section 4.2 or a Unit Designation shall instead be made to the beneficial owner of Units held by a nominee in any case in which the nominee has furnished the identity of such owner to the Company in accordance with Section 6031(c) of the Code or any other method determined by the Company in its sole discretion.
Section 4.3 Calculation of Gain Recognized.
(a) Within approximately 60 days of the last day of each Fiscal Quarter, the Company shall prepare and deliver to each Record Holder of Class B Units as of the Record Date selected by the Board a written statement (each a “Quarterly Statement”) setting forth in reasonable detail the Company’s calculation of Gain Recognized for such Fiscal Quarter.
(b) For a period of 60 days following receipt of a Quarterly Statement (the “Review Period”), any Record Holder of at least 25,000 Class B Units (each a “Major Class B Holder”), or its representatives, shall have the right, upon reasonable notice and during normal business hours, to inspect the Company’s books and records for purposes of verifying the calculation of Gain Recognized as set forth in the Quarterly Statement.
(c) Prior to expiration of the Review Period, a Major Class B Holder may object to the calculation of Gain Recognized by delivering a written notice of objection (an “Objection Notice”) to the Company setting forth in reasonable detail the basis for such objection and the items and amounts in dispute.
(d) Subject to Section 4.3(g), if a Major Class B Holder fails to deliver an Objection Notice to the Company prior to the expiration of the Review Period, the calculation of Gain Recognized as set forth in the Quarterly Statement for such Fiscal Quarter shall be final and binding on all Record Holders of Class B Units.
(e) If a Major Class B Holder timely delivers an Objection Notice, the Company and Major Class B Holder shall negotiate, reasonably and in good faith, in an attempt to resolve the items and amounts in dispute and agree upon the resulting calculation of Gain Recognized for such Fiscal Quarter. If the Company and Major Class B Holder are unable to agree upon the calculation of Gain Recognized within 15 days following delivery of the Objection Notice, the items and amounts in dispute shall be promptly referred to a mutually agreed upon impartial nationally recognized accounting firm (an “Independent Accountant”). The Independent Accountant shall be directed to render a written report on and resolve the items and amounts in dispute as promptly as practicable, but in no event more than 30 days following referral of the dispute. The Company and Major Class B Holder will each furnish to the Independent Accountant such documents and information relating to the items and amounts in dispute as the Independent Accountant may reasonably request.
(f) Subject to Section 4.3(g), the Independent Accountant’s resolution of the items and amounts in dispute and calculation of Gain Recognized for such Fiscal Quarter shall be final and binding on the Company and all Record Holders of Class B Units. The fees and expenses of the Independent Accountant shall be borne by the Company and Major Class B Holder in proportion to the amounts by which their respective calculations of Gain Recognized differ from Gain Recognized as finally determined by the Independent Accountant.
(g) Notwithstanding the foregoing provisions of this Section 4.3, if at any time the Company is required to restate its financial statements or if there is a recalculation of Gain Recognized for any reason following delivery of a Quarterly Statement, the Company shall prepare and deliver to each Record Holder of Class B Units as of the Record Date selected by the Board an updated Quarterly Statement (the “Updated Statement”), which Updated Statement shall be subject to an additional Review Period and all of the rights and obligations related thereto.
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Section 4.4 Class B Unit Distributions.
(a) Record Holders of Class B Units shall be entitled to receive in accordance with their respective Percentage Interests in such Class B Units, when and as declared by the Board, or a duly authorized committee thereof, out of funds legally available therefor, quarterly cash distributions on the applicable Class B Distribution Date that corresponds to the Record Date for which the Board has declared a distribution, in an amount equal to the positive balance of their Capital Account. Declared distributions will be payable on the relevant Class B Distribution Date to Record Holders of Class B Units as they appear on the Company’s register at the close of business on the Record Date.
(b) So long as any Class B Units remain Outstanding, unless, in each case, distributions have been declared and paid or declared and set apart for payment on the Class B Units for a quarterly period, (i) no distribution, whether in cash or property, may be declared or paid or set apart for payment on any other Units for the remainder of that quarterly period, (ii) the Company shall not directly or indirectly repurchase, redeem or otherwise acquire for consideration any Units, and (iii) the Board shall make tax distributions to each Record Holder of Class B Units in an amount sufficient to allow such Record Holder to satisfy its obligation to make estimated tax payments on any Gain Recognized by the Company for the quarterly period. Tax distributions shall be made within 15 days of the deadline for estimated tax payments (without regard to any extension) (each a “Tax Distribution Date”).
(c) The Board, or a duly authorized committee thereof, may, in its sole discretion, choose to pay distributions on the Class B Units without the payment of any distributions on any other Units.
(d) When distributions or tax distributions, as applicable, are not declared and paid (or duly provided for) in full on any Class B Distribution Date or Tax Distribution Date, as the case may be, all distributions or tax distributions declared upon the Class B Units payable on such Class B Distribution Date or Tax Distribution Date, as the case may be, shall be declared pro rata among the Class B Units, and, in the case of tax distributions, the Board shall declare additional interim tax distributions as soon as cash becomes available in an amount sufficient to pay the unpaid portion of any tax distribution to which the Record Holders of Class B Units are otherwise entitled.
(e) Notwithstanding any provision in this Agreement to the contrary, if and whenever two consecutive quarterly distributions payable on the Class B Units have not been declared and paid (a “Nonpayment Event”), then (i) the number of directorships then constituting the Board shall automatically be increased by two, (ii) the Record Holders of Class B Units, voting together as a single class, shall have the right to elect two Directors (the “Class B Directors”) to such newly created directorships, and (iii) the Board shall establish a financing committee comprised of the Class B Directors and one independent Director to oversee and provide advice and guidance to the Board with respect to matters affecting distributions on the Class B Units. Upon the occurrence of a Nonpayment Event the Record Holders of Class B Units, voting together as a single class, shall elect the Class B Directors by Majority Vote, given in person or by proxy, either in writing without a meeting or at any meeting called for such purpose. The Class B Directors so elected shall hold office until the next annual meeting unless such office is earlier terminated in accordance with Section 4.4(f). The Record Holders of Class B Units, voting together as a single class, may remove any Class B Director by Majority Vote, and, if any vacancy shall occur among the Class B Directors may elect a successor Class B Director.
(f) When quarterly distributions have been declared and paid on the Class B Units on four consecutive Class B Distribution Dates following a Nonpayment Event, then (i) the right of the Record Holders of Class B Units to elect Class B Directors shall cease, (ii) the terms of office of all Class B Directors shall immediately terminate, and (iii) the number of directorships constituting the Board shall automatically be reduced by two. However, notwithstanding the forgoing, the right of the Record Holders of Class B Units to elect two Class B Directors shall again vest if and whenever another Nonpayment Event occurs.
(g) Record Holders of Class B Units shall not be entitled to any distributions, whether payable in cash or property, other than as provided in this Section 4.4 and Section 8.3 and shall not be entitled to interest, or any sum in lieu of interest, in respect of any distribution payment, including any such payment which is delayed.
(h) The Members intend that no portion of the distributions paid to the Record Holders of Class B Units pursuant to this Section 4.4 shall be treated as a “guaranteed payment” within the meaning of Section
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707(c) of the Code, and no Member shall take any position inconsistent with such intention, except if there is a change in applicable law or final determination by the Internal Revenue Service that is inconsistent with such intention.
Section 4.5 Distributions Generally.
(a) Subject to Section 4.4, the express terms of any Unit Designation, the applicable provisions of the Act and this Agreement, the Board shall have sole discretion regarding the amounts and timing of distributions to Members, including deciding to forego payment of distributions in order to provide for the payment to third parties, or the retention and establishment of reserves, of such funds as the Board deems necessary or appropriate with respect to the anticipated business needs of the Company, including, but not limited to, present and anticipated debts and obligations, capital needs and expenses, reasonable reserves for contingencies, the payment of any general, management or administrative fees and expenses or any other obligations of the Company. Subject to Section 3.12(c), Section 4.4 and the terms of any Unit Designation, distributions shall be paid to Members in accordance with their respective Percentage Interests as of the Record Date selected by the Board.
(b) Notwithstanding Section 4.4, in the event of the dissolution and liquidation of the Company, all distributions shall be made in accordance with, and subject to the terms and conditions of, Section 8.3.
(c) Each distribution in respect of any Units shall be paid by the Company, directly or through the Transfer Agent or through any other Person or agent, only to the Record Holder of such Units as of the Record Date set for such distribution. Such payment shall constitute full payment and satisfaction of the Company’s liability in respect of such payment, regardless of any claim of any Person who may have an interest in such payment by reason of an assignment or otherwise.
Article
V
MANAGEMENT AND OPERATION OF BUSINESS
Section 5.1 Board of Directors; Authority.
(a) Except as otherwise expressly provided in this Agreement, the business and affairs of the Company shall be managed by or under the direction of a board of directors (the “Board”). No Member, by virtue of its status as such, shall have any management power over the business and affairs of the Company or any actual or apparent authority to act for or bind the Company. The Board shall have full power and authority to appoint officers of the Company and to appoint, employ or otherwise engage a Manager or any other Person it determines advisable, in its sole discretion, to act or perform services for, or on behalf of, any member of the Company Group. Each Director, and each officer, the Manager and any other Person designated by the Board, shall constitute a “manager” within the meaning of the Act. The Board shall have full power and authority to do, and may direct or delegate to the Manager, any officer or any other Person such power and authority to do, all things on such terms as it deems necessary or appropriate, in its sole discretion, to carry out the provisions of this Agreement and the purposes, policies and business of the Company, including the following:
(i) making any expenditures, lending or borrowing money, assuming, guaranteeing or contracting for indebtedness (including the securing of same by deed, mortgage, deed of trust or other lien or encumbrance on any member of the Company Group’s or their respective Affiliates’ assets) and other liabilities, issuing evidences of indebtedness, including indebtedness convertible into Units, and incurring any other obligations;
(ii) acquiring, disposing of, mortgaging, pledging, encumbering, hypothecating, exchanging or effecting in any manner any or all of any member of the Company Group’s or their respective Affiliates’ assets, Investments and Securities (including exercising or granting any conversion, option, privilege or subscription right or other right available in connection with any assets, Investments and Securities at any time held by any member of the Company Group or their respective Affiliates) or merging, consolidating, reorganizing or otherwise combining any member of the Company Group or their respective Affiliates with or into another Person on such terms as the Board deems advisable;
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(iii) using the assets of the Company (including cash on hand) for any purpose consistent with the terms of this Agreement, including financing the operations of any member of the Company Group or their respective Affiliates, lending funds to or repaying the obligations of any member of the Company Group or their respective Affiliates, and making capital contributions to any member of the Company Group or their respective Affiliates;
(iv) holding, managing, investing and reinvesting cash and other assets of the Company Group or their respective Affiliates;
(v) undertaking any action in connection with the Company’s interests in any member of the Company Group or their respective Affiliates;
(vi) taking any action necessary or appropriate to comply with all tax and regulatory requirements applicable to any member of the Company Group or their respective Affiliates, including making tax, regulatory and other filings and rendering periodic or other reports to any Governmental Entity or Taxing Authority having jurisdiction over the business or assets of any member of the Company Group or their respective Affiliates;
(vii) taking any and all action necessary or appropriate to ensure that the Company Group and its respective Affiliates, as applicable, comply with the QOZ Program and any Treasury Regulations related thereto or the requirements or requests of any Taxing Authority, unless the Board determines, in its sole discretion, that it is no longer in the best interests of the Company to continue to comply with the QOZ Program;
(viii) forming, acquiring or disposing of interests in, and contributing property and making loans to, any limited or general partnership, joint venture, corporation, limited liability company or other entity or arrangement;
(ix) converting to a corporation, statutory trust, business trust, association, real estate investment trust, common law trust or any other unincorporated business or entity, including a partnership (general or limited) or a foreign limited liability company;
(x) transferring to, or domesticating or continuing in any jurisdiction, and, in connection therewith, electing to continue the Company’s existence as a limited liability company in the State of Delaware;
(xi) admitting any Person as an Additional Member or Substitute Member;
(xii) permitting a Person to continue as a Member notwithstanding the occurrence of any event described in §18-304 of the Act;
(xiii) negotiating, executing and directing the performance of any agreement, contracts, conveyances or other instruments, including agreements with Affiliates of the Company or any external manager (including the Manager) to render services to any member of the Company Group or their respective Affiliates;
(xiv) determining the compensation and other terms of any employment or engagement agreement, and creating any compensation benefit plans, programs and practices;
(xv) determining the fair market value of any member of the Company Group’s or their respective Affiliates’ assets;
(xvi) the declaration and payment of distributions of cash or other assets to Members;
(xvii) maintaining insurance for the benefit of any member of the Company Group or their respective Affiliates and the Indemnitees;
(xviii) controlling any matters affecting the rights and obligations of any member of the Company Group or their respective Affiliates, including bringing and defending actions at law or in equity and
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otherwise engaging in the conduct of litigation, arbitration or remediation, and incurring legal fees and expenses and settling claims and litigation;
(xix) enforcing any rights against any Member under the terms of this Agreement;
(xx) indemnifying any Person against liabilities and contingencies to the extent permitted by applicable law;
(xxi) registering any offer, issuance, sale or resale of Units, Unit Equivalents or other securities issued or to be issued by the Company under the Securities Act and any other applicable securities laws;
(xxii) registering any Units or Unit Equivalents under the Securities Act and Exchange Act and entering into listing agreements with any Exchange and delisting of some or all of the Units or Unit Equivalents from, or requesting that trading be suspended on, any such Exchange; and
(xxiii) issuing, selling or otherwise disposing of, and purchasing or otherwise acquiring, Units or Unit Equivalents, including to the Manager.
(b) The Board shall not be responsible for the misconduct or negligence on the part of the Manager, any officer or any other Person directed or delegated by the Board in good faith to perform any of the duties imposed upon it under this Agreement.
(a) The Board shall initially consist of two Directors. The number of Directors may thereafter be increased or decreased from time to time by a resolution adopted by a majority of the Directors then in office.
(b) The holders of Class M Units, voting separately as a class, shall be entitled to elect one Director (the “Class M Director”). Subject to Section 4.4(e) and the terms of any Unit Designation, all other Directors shall be elected by the holders of Class A Units and Class B Units, voting together as a single class, by a plurality of the votes cast for a particular position.
(c) The Directors shall be divided into three classes, designated Class I, Class II and Class III, as nearly equal in number as possible. Subject to Section 4.4(e), any increase or decrease in the number of directorships shall be apportioned among the classes so as to maintain the number of Directors in each class as nearly equal as possible. Any Director elected or appointed to fill a vacancy resulting from an increase in the number of directorships of any class or from the resignation, removal, incapacity or death of a Director shall hold office for a term that coincides with the remaining term of that class. Subject to Section 4.4(f), in no event will a decrease in the number of directorships shorten the term of any incumbent Director. The Class M Director shall be a Class III Director.
(d) The initial term of office of Directors of Class I shall expire at the Company’s first annual meeting of the Members following the Effective Date of this Agreement, the initial term of office of Directors of Class II shall expire at the Company’s second annual meeting of the Members following the Effective Date of this Agreement and the initial term of office of Directors of Class III shall expire at the Company’s third annual meeting of the Members following the Effective Date of this Agreement. Each Director shall hold office until his or her successor is elected or appointed and qualified or until his or her earlier resignation, removal, incapacity or death.
(e) At each succeeding annual meeting of Members beginning with the first annual meeting of the Members following the Effective Date of this Agreement, successors to the class of Directors whose term expires at such annual meeting shall be elected for a three-year term and until their successors are duly elected or appointed and qualified. Directors need not be Members and may be reelected to an unlimited number of succeeding terms.
(f) At each annual election, Directors chosen to succeed those whose terms expire shall be of the same class as the Directors they succeed, unless by reason of any change in the authorized number of
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directorships, the Board shall designate one or more directorships whose term then expires as directorships of another class in order to more nearly achieve equality in the number of directorships among the classes.
(g) At the time of execution of this Agreement, the initial Directors are appointed as follows:
Brandon Lacoff | Class III | (Class M Director) | ||
Martin Lacoff | Class II |
Section 5.3 Chairman of the Board. The Board may designate a Chairman of the Board (the “Chairman”). The Chairman shall be a Director but need not be an officer or employee of the Company. The Chairman, if there is one, shall preside over all meetings of the Board and the Members. Except as otherwise required by applicable law, the Chairman shall possess authority sign all contracts, certificates and other instruments of the Company that may be authorized by the Board. During the absence or disability of the Chief Executive Officer, the Chairman shall exercise all the powers and discharge all the duties of the Chief Executive Officer. The Chairman shall also perform such other duties and may exercise such other powers as may from time to time be assigned by this Agreement or by the Board.
Section 5.4 Committees. The Board may establish one or more committees, each consisting of one or more Directors, and may delegate to such committees all the powers and authority as the Board deems appropriate, in its discretion, except as prohibited by applicable. Each member of a committee must meet the requirements for membership, if any, imposed by applicable law and the rules and regulations of any Exchange on which the Company’s Units are listed or quoted for trading. The responsibilities and duties of the committees shall be set forth in the respective charters for such committees.
Section 5.5 Resignation or Removal. A Director may resign from the Board or any committee of the Board at any time by giving written notice to the Chairman of the Board or the Chief Executive Officer of the Company, with such resignation effective as of the time specified in the notice or, if no time is specified, immediately upon delivery. Subject to Section 4.4(e), a Director may only be removed from the Board for Cause by a Super Majority Vote of the Record Holders of Class A Units and Class B Units, voting together as a single class, at an annual or special meeting of the Members; provided, however, that for so long as any of the Class M Units remain Outstanding, the Class M Director may only be removed by for Cause by a Super Majority Vote of the Record Holders of Class M Units, voting separately as a class. A Director serving on any committee of the Board may be removed from such committee at any time by the Board. Any vacancy in the Board created by the resignation or removal shall be filled by the Board in accordance with Section 5.6.
Section 5.6 Vacancies. Any vacancy on the Board that results from an increase in the number of Directors may only be filled by a majority of the Board then in office, provided that a quorum is present, and any other vacancy occurring on the Board may only be filled by a majority of the Board then in office, even if less than a quorum, or by a sole remaining Director. Any Director of any class elected to fill a vacancy resulting from an increase in the number of Directors of such class shall hold office for a term that shall coincide with the remaining term of that class. Any Director elected to fill a vacancy not resulting from an increase in the number of Directors shall have the same remaining term as that of his or her predecessor.
Section 5.7 Annual and Regular Meetings. An annual meeting of the Board and any committee thereof may be held immediately after and at the same place as the annual meeting of Members, with no notice other than this Section 5.7 being necessary. Additional regular meetings of the Board or any committee thereof may be held without notice at such time and at such place as may from time to time be determined by the Board or such committee, respectively.
Section 5.8 Special Meetings. Special meetings of the Board may be called by the Chairman, if there is one, the Chief Executive Officer, or by a majority of Directors. Special meetings of any committee of the Board may be called by the chairman of such committee, if there is one, the Chief Executive Officer or any Director serving on such committee. Written notice of any special meeting stating the place, date and time of such meeting shall be given to each Director or to each member of a committee, as the case may be, by Electronic Transmission at least 48-hours prior to such meeting, or on such shorter notice as the person or persons calling such meeting may
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deem necessary or appropriate in the circumstances. A notice of a special meeting of the Board or any committee thereof need not specify the purpose of the meeting unless required by this Agreement.
Section 5.9 Place of Meetings. The Board and any committee thereof may hold meetings, both regular and special, either within or outside the State of Delaware.
Section 5.10 Waiver of Notice. Notice of any meeting need not be given to any Director who either prior to or following the meeting signs a written waiver of notice, a consent to holding the meeting, or an approval of the minutes. A waiver of notice or consent need not specify the purpose of the meeting. Notice of a meeting shall also be deemed given to any Director who attends the meeting without protesting before or at its commencement of the lack of notice to that Director.
Section 5.11 Quorum; Voting. Except as otherwise required by applicable law, this Agreement or the rules and regulations of any Exchange on which the Company’s Units are listed or quoted for trading, at all meetings of the Board or any committee thereof, a majority of the entire Board or a majority of the Directors constituting the committee, as the case may be, shall constitute a quorum for the transaction of business, and the act of a majority of the Directors present at a meeting at which a quorum is present or a majority of the Directors constituting the committee present at a meeting at which a quorum is present shall be the act of the Board or committee, as applicable. The Directors present at a duly organized meeting may continue to transact business until adjournment, notwithstanding the withdrawal of enough Directors to leave less than a quorum. If less than a majority of the entire Board or a majority of the Directors constituting any committee, as the case may be, is present at any meeting of the Board or committee, then a majority of the Directors present may adjourn the meeting from time to time without further notice other than announcement at the meeting of the time and place of the adjourned meeting, until a quorum shall be present.
Section 5.12 Action Without Meeting. Any action required or permitted to be taken at any meeting of the Board or any committee thereof, as the case may be, may be taken without a meeting if such action is consented to in writing or by Electronic Transmission by all members of the Board or of such committee and filed with the minutes of proceedings of the Board or committee.
Section 5.13 Telephone Meetings. Members of the Board, or any committee thereof, may participate in a meeting of the Board or such committee by means of conference telephone or other communications equipment through which all Persons participating in the meeting can hear each other at the same time. Participation in a meeting by these means shall constitute presence in person at the meeting.
Section 5.14 Compensation. The Board, by affirmative vote of a majority of the Directors then in office, and irrespective of any personal interest of any of its members, may establish reasonable compensation for the services and activities performed by Directors as Directors, or may delegate such authority to an appropriate committee. A Director may be reimbursed for expenses incurred, if any, in connection with his or her attendance at each annual, regular or special meeting of the Board or of any committee thereof or in connection with any other services or activities performed or engaged in as a Director, and may be paid a fixed fee, in cash, Units or some combination of cash and Units, for attendance at meetings of the Board or any committee thereof or a stated salary for service as a Director or a member of any special or standing committees. No such payment shall preclude any Director from serving the Company in any other capacity and receiving compensation therefor. The amount and form of compensation shall be determined by the Board.
(a) The Board, in its discretion, may appoint such officers as the business of the Company may require with such titles, powers and duties as the Board determines from time to time. The Board may delegate to any officer of the Company the power to appoint such other officers and to prescribe their respective duties and powers.
(b) Each officer of the Company shall hold office until such officer’s successor is elected and qualified, or until such officer’s earlier death, disability, resignation or removal. Any number of offices may be held by the same Person. The officers of the Company need not be Members.
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(c) Any officer may resign at any time upon written notice to the Company. Any officer, agent or employee of the Company may be removed by the Board with or without cause at any time. Any vacancy occurring in any office of the Company shall be filled by the Board. The Board may delegate the power of removal as to officers, agents and employees who have not been appointed by the Board. Such removal shall be without prejudice to a Person’s contractual rights, if any, but the appointment of any Person as an officer, agent or employee of the Company shall not of itself create contract rights.
(d) Whenever an officer is absent, or whenever for any reason the Board deems it advisable, the Board may delegate the powers and duties of any officer to any other officer, any Director, the Manager or any other Person it determines advisable, in its sole discretion.
(e) Unless otherwise directed by the Board, the Chairman, the Chief Executive Officer or any other officer of the Company shall have power to vote and otherwise act on behalf of the Company, in person or by proxy, at any meeting of Members of or with respect to any action of equityholders of any other entity in which the Company may hold securities and otherwise to exercise any and all rights and powers which the Company may possess by reason of its ownership of securities in such other entities.
Section 5.16 Duties of Officers and Directors. Except as otherwise expressly provided in this Agreement or required by the Act, (a) the duties and obligations owed to the Company by the officers and Directors shall be the duty of care and duty of loyalty owed to a corporation organized under DGCL by its officers and Directors, respectively, and (b) the duty of care and duty of loyalty owed to the Members by the officers and Directors shall be the same as the duty of care and duty of loyalty owed to the stockholders of a corporation under the DGCL by its officers and Directors, respectively.
Section 5.17 Outside Activities.
(a) Each Indemnitee shall have the right to engage in businesses of every type and description and other activities for profit and to engage in and possess an interest in other business ventures of any and every type or description, whether in businesses engaged in or anticipated to be engaged in by any member of the Company Group or their respective Affiliates, independently or with others, including business interests and activities in direct competition with the business and activities of any member of the Company Group or their respective Affiliates, and none of the same shall constitute a breach of this Agreement or any duty (including fiduciary duties) otherwise existing at law, in equity or otherwise to the Company, any member of the Company Group or their respective Affiliates, or any Member or Record Holder. No member of the Company Group or their respective Affiliates, Member or any other Person shall have any rights by virtue of this Agreement, or the relationship established hereby in any business ventures, interests or activities of any Indemnitee.
(b) Notwithstanding any other provision of this Agreement to the contrary or any duty (including fiduciary duties) otherwise existing at law, in equity or otherwise: (i) the engagement in competitive activities by any Indemnitee in accordance with the terms of this Section 5.17 is hereby approved by the Members and each other Person who may acquire an interest in Units hereby; (ii) it shall not be a breach of the Indemnitee’s duties or any other obligation of any type whatsoever of the Indemnitee if the Indemnitee engages in any such business interests or activities in preference to or to the exclusion of any member of the Company Group or their respective Affiliates; (iii) the Indemnities shall have no obligation hereunder or as a result of any duty otherwise existing at law, in equity or otherwise to present business opportunities to any member of the Company Group or their respective Affiliates; and (iv) the doctrine of “corporate opportunity” or other analogous doctrine shall not apply to any such Indemnitee
Section 5.18 Loans from the Manager; Loans or Contributions from the Company; Contracts with Affiliates; Certain Restrictions on the Manager.
(a) The Manager or any of its Affiliates may, but shall be under no obligation to, lend to any member of the Company Group or their respective Affiliates, and any member of the Company Group or their respective Affiliates may borrow from the Manager or any of its Affiliates, any funds needed or desired by such Person for such periods of time, in such amounts and on such terms as the Manager or any of its Affiliates may determine in good faith.
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(b) Any member of the Company Group or their respective Affiliates (including the Company) may lend or contribute to any other member of the Company Group or their respective Affiliates, and any member of the Company Group or their respective Affiliates may borrow from any other member of the Company Group or their respective Affiliates (including the Company), any funds needed or desired by such Person for such periods of time, in such amounts and on such terms as the Board shall determine in its sole discretion. The foregoing authority may be exercised by the Board in its sole discretion and shall not create any right or benefit in favor of any member of the Company Group, their respective Affiliates or any other Person.
(c) Any member of the Company Group or their respective Affiliates may transfer assets to joint ventures, other partnerships, corporations, limited liability companies or other any other Person in which it is or thereby becomes a participant upon such terms and subject to such conditions as are consistent with this Agreement and applicable law.
(d) The Manager or any of its Affiliates may sell, transfer or convey any property to, or purchase any property from, any member of the Company Group or its Affiliates, directly or indirectly, pursuant to transactions that are fair and reasonable to such Person.
(e) The Manager and its Affiliates will have no obligation to permit any member of the Company Group or any of their respective Affiliates to use any facilities or assets of the Manager or its Affiliates, except as may be provided in an agreement entered into from time to time specifically dealing with such use, nor shall there be any obligation on the part of the Manager or its Affiliates to enter into such an agreement.
Section 5.19 Resolution of Conflicts of Interest, Standards of Conduct and Modification of Duties.
(a) Unless otherwise expressly provided in this Agreement, whenever an actual or potential conflict of interest exists or arises between the Sponsor, the Manager, one or more Directors or their respective Affiliates, on the one hand, and any member of the Company Group, their respective Affiliates or any Member (other than the Sponsor or the Manager), on the other, any resolution or course of action by the Board in respect of such conflict of interest shall be permitted and deemed approved by all Members, and shall not constitute a breach of this Agreement, of any agreement contemplated herein or of any duty stated or implied by law or equity, including any fiduciary duty, if the resolution or course of action in respect of such conflict of interest is: (i) on terms no less favorable to the member of the Company Group, their Affiliate or Member (other than the Sponsor or the Manager), as applicable, than those generally being provided to or available from unrelated third parties; (ii) fair and reasonable to the member of the Company Group or their Affiliate taking into account the totality of the relationships between the parties involved (including other transactions that may be particularly favorable or advantageous to any member of the Company Group, their respective Affiliates or Member (other than the Sponsor or the Manager), as applicable); (iii) approved or ratified by a vote of disinterested Directors, or (iv) approved or ratified by a Majority Vote by the holders of Class A Units and Class B Units, voting together as a single class. For the avoidance of doubt, the Company is authorized but not required to seek the approval or ratification of the disinterested Directors or the Members pursuant to clauses (iii) and (iv) of the preceding sentence, and the Board may also adopt a resolution or course of action that has not received the approval or ratification of the disinterested Directors or the holders of Class A Units and Class B Units. Failure to seek such approval or ratification shall not be deemed to indicate that a conflict of interest exists or that such approval or ratification could not have been obtained. If the Board determines that the resolution or course of action taken with respect to a conflict of interest satisfies either of the standards set forth in clauses (i) or (ii) above, then it shall be presumed that, in making its determination, the Board acted in good faith, and in any proceeding brought by any Member or by or on behalf of such Member or any other Member challenging such determination, the Person bringing or prosecuting such proceeding shall have the burden of overcoming such presumption. Notwithstanding any other provision of this Agreement to the contrary or any duty otherwise existing at law or equity, the existence of the conflicts of interest described in or contemplated by the Company’s Registration Statements are hereby approved, and all such conflicts of interest are waived, by the Members and each other Person who may acquire an interest in Units hereby and shall not constitute a breach of this Agreement or of any duty (fiduciary or otherwise) otherwise existing at law, in equity or otherwise.
(b) Notwithstanding any other provision of this Agreement, any applicable provision of law or equity, or otherwise, whenever in this Agreement or any other agreement contemplated hereby the Board, the Manager, any member of the Company Group or any Affiliate of the foregoing is permitted or required to make a
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decision in its “sole discretion” or “discretion” or that it deems “necessary or appropriate” or “necessary or advisable” or under a grant of similar authority or latitude, then, to the fullest extent permitted by applicable law, the Board, the Manager, member of the Company Group or such Affiliate, as the case may be, may make such decision in its sole discretion (regardless of whether there is a reference to “sole discretion” or “discretion”), and shall be entitled to consider only such interests and factors as it desires, including its own interests, and shall have no duty or obligation (fiduciary or otherwise) to give any consideration to any interest of or factors affecting any member of the Company Group, their respective Affiliates or the Members, and shall not be subject to any other or different standards imposed by this Agreement, any other agreement contemplated hereby, under the Act or under any other law or in equity, but in all circumstances shall exercise such discretion in good faith. Whenever in this Agreement or any other agreement contemplated hereby or otherwise, the Board, the Manager, any member of the Company Group or any Affiliate of the foregoing is permitted to or required to make a decision in its “good faith,” then for purposes of this Agreement or otherwise, the Board, the Manager, any member of the Company Group or such Affiliate, as the case may be, shall be conclusively presumed to be acting in good faith if such Person or Persons subjectively believe that the decision made or not made is in or not opposed to the best interests of the Company.
(c) Except as expressly set forth in this Agreement, to the fullest extent permitted by applicable law, neither the Board, nor the Manager nor any other Indemnitee shall have any duties or liabilities, including fiduciary duties, to the Company, any Member or any other Person bound by this Agreement, and the provisions of this Agreement, to the extent that they restrict or otherwise modify or eliminate the duties and liabilities, including fiduciary duties, of the Company or any other Indemnitee otherwise existing at law or in equity, are agreed by the Members to replace such other duties and liabilities of the Company or such other Indemnitee.
(d) The Members expressly acknowledge that neither the Board, the Manager nor its Affiliates are under any obligation to consider the separate interests of the Members (including the tax consequences to Members) in deciding whether to cause any member of the Company Group to take (or decline to take) any actions, and that neither the Board, any Director, the Manager nor any of its Affiliates shall be liable for monetary damages for losses sustained, liabilities incurred or benefits not derived by Members in connection with such decisions. For the avoidance of doubt, neither the Board, any Director, the Manager nor any of its Affiliates is subject to any duty or standard of care or under any obligation to maximize tax benefits on behalf of any member of the Company Group or the Members under the QOZ Program in any manner whatsoever, including without limitation, with respect to any decisions related to acquiring, disposing of, mortgaging, pledging, encumbering, hypothecating, exchanging or effecting in any manner any or all of any member of the Company Group’s or their respective Affiliates’ assets, Investments or Securities.
(e) The Members hereby authorize the Board, on behalf of the Company as a partner or member of any member of the Company Group or their respective Affiliates, to approve actions by the board of directors or managing member of such member of the Company Group or its Affiliate similar to those actions permitted to be taken by the Board pursuant to this Section 5.19.
(a) Subject to other applicable provisions of this Article V, to the fullest extent permitted by applicable law:
(i) the Sponsor, the Manager and their respective Affiliates (other than a Director or officer of the Company), shall not have any liability to any member of the Company Group or their respective Affiliates, any Director, officer, Member or holder of an equity interest in any member of the Company Group or their respective Affiliates, for any act or omission, including any mistake of fact or error in judgment, taken, suffered or made;
(ii) a Director or officer shall have liability to a member of the Company Group or their respective Affiliates, any Director, officer, Member or holder of an equity interest in any member of the Company Group or their respective Affiliates, for any act or omission, including any mistake of fact or error in judgment, taken, suffered, or made only if such act or omission constitutes a breach of the duties of such Director or officer imposed pursuant to Section 5.16 and such breach is the result of (A) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case, that has resulted in, or could
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reasonably be expected to result in, a material adverse effect on the business or properties of the Company Group or its Affiliates or (B) fraud; and
(iii) all other Indemnitees shall have liability to any member of the Company Group or their respective Affiliates, any Director, officer, Member or holder of an equity interest in any member of the Company Group or their respective Affiliates, for any act or omission arising from the performance of such Indemnitee’s duties and obligations in connection with any member of the Company Group or their respective Affiliates, this Agreement or any Investment made or held by any member of the Company Group or their respective Affiliates, including with respect to any act or omission made while serving at the request of the Company or the Manager as an officer, director, member, partner, partnership representative (as defined in the Code), agent, fiduciary or trustee of another Person, including any mistake of fact or error in judgment, taken, suffered or made only if such act or omission constitutes a breach of the duties of such Indemnitee and such breach is the result of (A) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case, that has resulted in, or could reasonably be expected to result in, a material adverse effect on the business or properties of the Company Group or (B) fraud.
The provisions of this Section 5.20(a) are intended and shall be interpreted as only limiting the liability of an Indemnitee and not as in any way expanding such Indemnitee’s liability.
(b) To the fullest extent permitted by applicable law but subject to the limitations expressly provided in this Agreement, all Indemnitees shall be indemnified and held harmless by the Company on an after tax basis from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, amounts paid in settlement (with approval of the Company) or other amounts arising from any and all threatened, pending or completed claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as an Indemnitee whether arising from acts or omissions occurring on, before or after the date of this Agreement, except:
(i) with respect to a Director or officer, to the extent that it shall have been determined in a final non-appealable judgment by a court of competent jurisdiction that such expenses and liabilities arose primarily from acts or omissions taken, suffered or made, that constituted a breach of the duties of such Director or officer imposed pursuant to Section 5.16 and such breach was the result of (A) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case, that resulted in, or could reasonably be expected to result in, a material adverse effect on the business or properties of the Company or (B) fraud; and
(ii) with respect to all other Indemnitees (other than the Sponsor, the Manager and their respective Affiliates (other than a Director or officer of the Company)), to the extent that it shall have been determined in a final non-appealable judgment by a court of competent jurisdiction that such expenses and liabilities arose primarily from acts or omissions taken, suffered or made, that constituted a breach of the duties of such Indemnitee and such breach was the result of (A) willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case, that resulted in, or could reasonably be expected to result in, a material adverse effect on the business or properties of the Company or (B) fraud.
Without limitation, the foregoing indemnity shall extend to any liability of any Indemnitee, pursuant to a loan, guaranty or otherwise, for any indebtedness of any member of the Company Group or their respective Affiliates (including any indebtedness which any member of the Company Group or their respective Affiliates has assumed or taken subject to), and the Company is hereby authorized and empowered to enter into one or more indemnity agreements consistent with the provisions of this Section 5.20 in favor of any Indemnitee having or potentially having liability for any such indebtedness. It is the intention of this Section 5.20(b) that the Company indemnify each Indemnitee to the fullest extent permitted by applicable law except as specifically provided in this Section 5.20(b).
(c) The termination of any action, suit or proceeding relating to or involving an Indemnitee by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the Indemnitee breached any duty or committed (i) willful malfeasance, gross negligence,
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a felony or a material violation of applicable law that has resulted in, or could reasonably be expected to result in, a material adverse effect on the business or properties of the Company or (ii) fraud.
(d) The provisions of this Agreement, to the extent they limit or eliminate the duties and liabilities of an Indemnitee otherwise existing at law or in equity, including Section 5.16, are agreed by each Member and each other Person who may acquire an interest in Units hereby to modify such duties and liabilities of the Indemnitee to the extent permitted by applicable law.
(e) To the fullest extent permitted by applicable law, expenses (including legal fees and expenses) incurred by an Indemnitee who is indemnified pursuant to Section 5.20 in appearing at, participating in or defending any claim, demand, action, suit or proceeding, whether civil, criminal, administrative or investigative, shall, from time to time, be advanced by the Company prior to a final and non-appealable determination that the Indemnitee is not entitled to be indemnified upon receipt by the Company of an undertaking by or on behalf of the Indemnitee to repay such amount if it ultimately shall be determined that the Indemnitee is not entitled to be indemnified as authorized in this Section 5.20.
(f) The indemnification and advancement of expenses provided by or granted pursuant to this Section 5.20 shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under this Agreement or any other agreement, vote of Members or disinterested Directors or otherwise, and shall continue as to an Indemnitee who has ceased to serve in such capacity and shall inure to the benefit of the heirs, successors, assigns and administrators of the Indemnitee unless otherwise provided in a written agreement with such Indemnitee or in the writing pursuant to which such Indemnitee is indemnified. The provisions of this Section 5.20 shall not be deemed to preclude the indemnification of any Person who is not specified in Section 5.20(b) but whom the Company has the power or obligation to indemnify under the provisions of the Act.
(g) The Company may, but shall not be obligated to, purchase and maintain insurance on behalf of any Indemnitee against any liability asserted against such Indemnitee and incurred by such Indemnitee in any capacity in which such Indemnitee is entitled to indemnification hereunder, or arising out of such Indemnitee’s status as such, whether or not the Company would have the power or the obligation to indemnify such Indemnitee against such liability under the provisions of this Section 5.20.
(h) The indemnification and advancement of expenses provided by, or granted pursuant to, this Section 5.20 shall, unless otherwise provided when authorized or ratified, inure to the benefit of the heirs, executors and administrators of any Person entitled to indemnification under this Section 5.20.
(i) Each Indemnitee may, in the performance of such Indemnitee’s duties, consult with legal counsel and accountants, and any act or omission by such Indemnitee on behalf of any member of the Company Group or their respective Affiliates or any Investment held by a member of the Company Group or its Affiliates in good faith in reliance upon, and in accordance with, the advice of such legal counsel or accountants will be full justification for any such act or omission, and such Indemnitee will be fully protected for such acts and omissions, provided that such legal counsel or accountants were selected with reasonable care by or on behalf of such member of the Company Group or its Affiliates.
(j) An Indemnitee shall not be denied indemnification in whole or in part under this Section 5.20 because the Indemnitee had an interest in the transaction with respect to which the indemnification applies if the transaction was otherwise permitted by the terms of this Agreement.
(k) The Directors shall, in the performance of their duties, be fully protected in relying in good faith upon the records of the Company and on such information, opinions, reports or statements presented to the Company by any of the officers or employees of the Company or any other member of the Company Group or their respective Affiliates, or committees of the Board, or by any other Person as to matters the Directors reasonably believes are within such Person’s professional or expert competence.
(l) Any amendment, modification or repeal of this Section 5.20 or any provision hereof shall be prospective only and shall not in any way affect the limitations on the liability of any Indemnitee under this Section 5.20 as in effect immediately prior to such amendment, modification or repeal with respect to claims arising
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from or relating to matters occurring, in whole or in part, prior to such amendment, modification or repeal, regardless of when such claims may arise or be asserted and provided such Person became an Indemnitee hereunder prior to such amendment, modification or repeal.
(m) The provisions of this Section 5.20 shall survive the termination of this Agreement with respect to the acts and omissions of an Indemnitee occurring prior to such termination.
Section 5.21 Reliance by Third Parties. Notwithstanding anything to the contrary in this Agreement, any Person dealing with the Company shall be entitled to assume that the Board and any officer or Manager authorized by the Board to act on behalf of and in the name of the Company has full power and authority to encumber, sell or otherwise use in any manner any and all assets, Investments and Securities of the Company and to enter into any authorized contracts on behalf of the Company, and such Person shall be entitled to deal with the Board or any officer or Manager as if it were the Company’s sole party in interest, both legally and beneficially. Each Member hereby waives, to the fullest extent permitted by applicable law, any and all defenses or other remedies that may be available against such Person to contest, negate or disaffirm any action of the Board or any officer in connection with any such dealing. In no event shall any Person dealing with the Board or any officer or Manager or their respective representatives be obligated to ascertain that the terms of this Agreement have been complied with or to inquire into the necessity or expedience of any act or action of the Board or any officer or Manager or their respective representatives. Each and every certificate, document or other instrument executed on behalf of the Company by the Board or any officer or the Manager or their respective representatives shall be conclusive evidence in favor of any and every Person relying thereon or claiming thereunder that: (a) at the time of the execution and delivery of such certificate, document or instrument, this Agreement was in full force and effect; (b) the Person executing and delivering such certificate, document or instrument was duly authorized and empowered to do so for and on behalf of the Company; and (c) such certificate, document or instrument was duly executed and delivered in accordance with the terms and provisions of this Agreement and is binding upon the Company.
Article
VI
BOOKS, RECORDS, ACCOUNTING AND REPORTS
Section 6.1 Books and Records. The Company shall keep or cause to be kept at the principal office of the Company appropriate books and records with respect to the Company’s business, including all books and records necessary to provide to the Members any information required to be provided pursuant to this Agreement. The books of the Company shall be maintained, for tax and financial reporting purposes, on an accrual basis in accordance with GAAP.
Section 6.2 Fiscal Year. The fiscal year of the Company (the “Fiscal Year”) for tax and financial reporting purposes shall be a calendar year ending December 31. The Board, in its sole discretion, may change the Fiscal Year at any time and from time to time, in each case as may be required or permitted under the Code or applicable Treasury Regulations, and shall notify the Members of such change in the next regular communication by the Company to the Members.
(a) As soon as practicable after the close of each Fiscal Year, the Board shall cause to be made available to each Record Holder of a Unit, as of a date selected by the Board, an annual report containing financial statements of the Company for such Fiscal Year, presented in accordance with GAAP, including a balance sheet and statements of operations, equity and cash flows, such statements to be audited by a registered public accounting firm selected by the Board.
(b) If and for so long as the Company is required to file quarterly reports with the Commission, as soon as practicable after the close of each of the first three Fiscal Quarters of each Fiscal Year, the Board shall cause to be made available to each Record Holder of a Unit, as of a date selected by the Board, a report containing unaudited financial statements of the Company and such other information as may be required by applicable law, regulation or rule of any Exchange on which the Company’s Units are listed or quoted for trading, or as the Board determines to be necessary or appropriate.
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(c) For purposes of this Section 6.3, the Company shall be deemed to have made a report available to each Record Holder if such report is filed with the Commission through the Electronic Data Gathering, Analysis and Retrieval (EDGAR) system (or any successor system) or such report is made available on any website maintained by or on behalf of the Company.
Section 7.1 Tax Classification. The Company shall be classified for U.S. federal income tax purposes as a partnership and not as an association or a publicly traded partnership taxable as a corporation. Notwithstanding foregoing, if the Board determines, in its sole discretion, that it is no longer in the best interests of the Company to continue as a partnership for U.S. federal income tax purposes, the Board may elect to treat the Company as an association or as a publicly traded partnership taxable as a corporation.
Section 7.2 Tax Returns and Information. The Company shall use reasonable efforts to timely prepare or cause to be prepared and file all U.S. federal, state, local and foreign tax returns required to be filed by the Company. The Company shall use reasonable efforts to furnish each Member, as soon as practicable after the end of each Fiscal Year (subject to any delay in the Company’s receipt of necessary information from any Person in which any member of the Company Group or their respective Affiliates holds an interest), with a copy of Schedule K-1 (Internal Revenue Service Form 1065) and any comparable statements required by applicable U.S. federal, state or local income tax law as a result of the Company’s activities or Investments, with respect to such Fiscal Year.
Section 7.3 Partnership Representative. The Manager is designated the “partnership representative” as within the meaning of §6223(a) of the Code (the “Partnership Representative”). The Partnership Representative is authorized and required to represent the Company, at the Company’s expense, in the event of any examination of the Company’s affairs by a Taxing Authority, including any resulting administrative or judicial proceedings, and to expend Company funds for professional services and costs reasonably incurred in connection therewith. The Partnership Representative shall have the sole authority, subject to Board approval, to determine whether the Company (on its own behalf or on behalf of the Members) will contest or continue to contest any tax deficiencies assessed or proposed to be assessed by a Taxing Authority.
Section 7.4 Audit Rule Elections. The Partnership Representative shall have the sole discretion to make any determinations regarding elections under the Audit Rules, including, without limitation, (a) whether to elect out of the audit procedures under to Section 6221(b) of the Audit Rules, and (b) for any year in which applicable law does not permit the Company to elect out of the audit procedures, to elect an alternative procedure under the Audit Rules.
Section 7.5 Member Tax Matters. Each Member agrees that such Member shall not, except as otherwise required by applicable law, treat, on such Member’s separate income tax returns, any item of income, gain, loss, deduction or credit relating to the Member’s interest in the Company in a manner inconsistent with the treatment of such item by the Company as reflected in the Schedule K-1 or any other comparable statements furnished by the Company to such Member.
Section 7.6 Withholding. Each Member hereby authorizes the Company to withhold from or pay on behalf of or with respect to such Member any amount of U.S. federal, state, local or foreign taxes that the Board determines, in its sole discretion, that any member of the Company Group or their respective Affiliates is required to withhold or pay with respect to any amount distributable to such Member pursuant to this Agreement, including any taxes required to be withheld or paid by any member of the Company Group or their respective Affiliates pursuant to §§1441, 1442, 1445, 1446, 1471, 1472 and 3406 of the Code. The amount of any taxes withheld from or paid on behalf of such Member shall be treated as a distribution of cash pursuant to Section 4.4, Section 4.5 or Section 8.3, as applicable, in the amount of such withholding or payment.
Section 7.7 Tax Treatment. The Board shall use its reasonable best efforts to take such actions as are necessary or appropriate to preserve the status of the Company as a partnership for U.S. federal income tax purposes. If, however, the Board determines that it is no longer in the best interests of the Company to continue as a partnership for U.S. federal income tax purposes, the Board may elect to treat the Company as an association or as a publicly traded partnership taxable as a corporation for U.S. federal income tax purposes. In the event that the Board
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determines the Company should seek relief pursuant to §7704(e) of the Code to preserve its status as a partnership for U.S. federal income tax purposes, the Company and each Member shall agree to any adjustments required by any Taxing Authority, and the Company shall pay such amounts as required by such Taxing Authority, to preserve the status of the Company as a partnership for U.S. federal income tax purposes.
Article
VIII
DISSOLUTION AND LIQUIDATION
Section 8.1 Dissolution. The Company shall not be dissolved by the admission of Substitute Members or Additional Members. The Company shall dissolve, and its affairs shall be wound up:
(a) upon an election to dissolve the Company by the Board that is approved by a Majority Vote of the holders of Class A Units and Class B Units, voting together as a single class;
(b) upon the entry of a decree of judicial dissolution of the Company pursuant to the provisions of the Act; or
(c) at any time that there are no Members of the Company unless the business of the Company is continued in accordance with the Act.
Section 8.2 Liquidator. Upon dissolution of the Company, the Board shall act, or shall select one or more Persons (which may be the Manager or a Member) to act, as Liquidator. The Liquidator (if other than the Board) (i) shall be entitled to receive such compensation for its services as may be approved by the Board or a Majority Vote of the holders of Class A Units and Class B Units, voting together as a single class, (ii) shall agree not to resign at any time without 15 days’ prior written notice, and (iii) may be removed at any time, with or without cause, by notice of removal approved by a Majority Vote of the holders of Class A Units and Class B Units, voting together as a single class. Upon dissolution, death, incapacity, removal or resignation of the Liquidator, a successor and substitute Liquidator (who shall have and succeed to all rights, powers and duties of the original Liquidator) shall within 30 days thereafter be approved by a Majority Vote of the holders of Class A Units and Class B Units, voting together as a single class. The right to approve a successor or substitute Liquidator in the manner provided herein shall be deemed to refer also to any such successor or substitute Liquidator approved in the manner herein provided. Except as expressly provided in this Article VIII, the Liquidator approved in the manner provided herein shall have and may exercise, without further authorization or consent of any of the parties hereto, all of the powers conferred upon the Board under the terms of this Agreement (but subject to all of the applicable limitations, contractual and otherwise, upon the exercise of such powers) necessary or appropriate to carry out the duties and functions of the Liquidator hereunder for and during the period of time required to complete the winding up and liquidation of the Company as provided for herein.
Section 8.3 Liquidation. The Liquidator shall proceed to dispose of the assets of the Company, discharge its liabilities, and otherwise wind up its affairs in such manner and over such period as determined by the Liquidator, subject to §18-804 of the Act and the following:
(a) Subject to Section 8.3(c), the assets may be disposed of by public or private sale or by distribution in kind to one or more Members on such terms as the Liquidator may determine. The Liquidator may distribute the Company’s assets, in whole or in part, in kind if it determines that a sale would be impractical or would cause undue loss to the Members. Notwithstanding anything to the contrary contained in this Agreement, the Members understand and acknowledge that a Member may be compelled to accept a distribution of any asset in kind from the Company despite the fact that the percentage of the asset distributed to such Member exceeds the percentage of that asset which is equal to the percentage in which such Member shares in distributions from the Company. If any property is distributed in kind, the Member receiving the property shall be deemed for purposes of Section 8.3(c) to have received cash equal to its fair market value as determined by the Board or the Liquidator in its sole discretion, and contemporaneously therewith, appropriate cash distributions (to the extent any cash is available) must be made to the other Members. The Liquidator may defer liquidation or distribution of the Company’s assets for a reasonable time if it determines that an immediate sale or distribution of all or some of the Company’s assets would be impractical or would cause undue loss to the Members.
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(b) Liabilities of the Company include amounts owed to the Liquidator as compensation for serving in such capacity (subject to the terms of Section 8.2) and amounts to Members otherwise than in respect of their distribution rights under Article IV. With respect to any liability that is contingent, conditional or unmatured or is otherwise not yet due and payable, the Liquidator shall either settle such claim for such amount as it thinks appropriate or establish a reserve of cash or other assets to provide for its payment. When paid, any unused portion of the reserve shall be applied to other liabilities or distributed as additional liquidation proceeds.
(c) All property and all cash in excess of that required to discharge liabilities as provided in Section 8.3(b) shall be distributed (i) first to the Record Holders of Class B Units, pro rata, in an amount equal to the positive balance in their Capital Accounts (to the extent such positive balance is attributable to ownership of the Class B Units and after taking into account allocations to the Record Holders of Class B Units pursuant to Section 4.2(a) for the taxable year in which the liquidation occurs), and (ii) thereafter, subject to the terms of any Unit Designation, to the Record Holders of Class A Units in accordance with their respective Percentage Interests as of a Record Date selected by the Liquidator.
Section 8.4 Cancellation of Certificate of Formation. Upon the completion of the distribution of Company cash and property as provided in Section 8.3 in connection with the liquidation of the Company, the Certificate of Formation and all qualifications of the Company as a foreign limited liability company in jurisdictions other than the State of Delaware shall be canceled and such other actions as may be necessary to terminate the Company shall be taken.
Section 8.5 Return of Contributions. Neither the Manager any Director or officer shall be personally liable for or have any obligation to contribute or loan any monies or property to the Company to enable it to effectuate, the return of the Capital Contributions of the Members, or any portion thereof, it being expressly understood that any such return shall be made solely from Company assets.
Section 8.6 Waiver of Partition. To the fullest extent permitted by applicable law, each Member hereby waives any right to partition of the Company property.
Section 8.7 Capital Account Restoration. No Member shall have any obligation to restore any negative balance in its Capital Account upon liquidation of the Company.
Section 9.1 Generally. Except as provided in Section 9.3, and Section 9.4, and subject to the terms of Section 3.3 and any Unit Designation, the Board, in its sole discretion, may amend any of the terms of this Agreement in compliance with the procedures set forth in Section 9.2.
Section 9.2 Amendment Procedures. If the Board desires to amend any provision of this Agreement in a manner that would require the consent or approval of Members, then it shall first adopt a resolution setting forth the amendment proposed, declaring its advisability, and then (a) call a special meeting of the Members entitled to vote in respect thereof for the consideration of such amendment, (b) direct that the amendment proposed be considered at the next annual meeting of the Members, or (c) seek the written consent of the Members. Amendments to this Agreement may be proposed only by or with the consent of the Board. Such special or annual meeting shall be called and held upon notice in accordance with Article XI of this Agreement. The notice shall set forth such amendment in full or a brief summary of the changes to be affected thereby, as the Board shall deem advisable. At the meeting, a vote of Members entitled to vote thereon shall be taken for and against the proposed amendment. A proposed amendment shall be effective upon its approval by a Majority Vote of the Record Holders of Class A Units and Class B Units, voting together as a single class, unless otherwise required under this Agreement or applicable law.
Section 9.3 Amendments to be Adopted Solely by the Board. Subject to Section 3.3 and Section 9.1, applicable law and any rule, regulation, guideline or requirement of any Exchange on which the Company’s Units are listed or quoted for trading, each Member agrees that the Board, in its sole discretion and without the approval of any Member or any other Person, may amend any provision of this Agreement, and execute, swear to, acknowledge, deliver, file and record whatever documents may be required in connection therewith, to reflect:
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(a) a change in the name of the Company, the location of the principal place of business of the Company, the registered agent of the Company or the registered office of the Company;
(b) the admission, substitution, withdrawal or removal of Members in accordance with this Agreement;
(c) a change that the Board determines to be necessary or appropriate to qualify or continue the qualification of the Company as a limited liability company under the laws of any state or to ensure that the members of the Company Group or their respective Affiliates will not be treated as associations taxable as corporations or otherwise taxed as an entity for U.S. federal income tax purposes, unless the Company specifically elects to be treated otherwise;
(d) a change that the Board determines to be necessary or appropriate to ensure that the members of the Company Group and their respective Affiliates comply with the QOZ Program and any Treasury Regulations related thereto or the requirements or requests of any Taxing Authority, unless the Board determines, in its sole discretion, that it is no longer in the best interests of the Company to continue to comply with the QOZ Program;
(e) a change that the Board determines to be necessary or appropriate to address any changes in U.S. federal, state and local income tax regulations, legislation or interpretation;
(f) a change that the Board determines (i) does not adversely affect the Members considered as a whole (or adversely affect the holders of any particular class or series of Units as compared to the holders of another classes or series of Units) in any material respect, (ii) to be necessary, desirable or appropriate to satisfy any requirements, conditions or guidelines contained in any opinion, directive, order, ruling or regulation of any Governmental Entity, Taxing Authority or contained in any applicable law (including the Act), (iii) to be necessary, desirable or appropriate to facilitate the trading of the Units (including, without limitation, the division of any class or classes or series of Unit into different classes or series to facilitate uniformity of tax consequences within such classes or series of Units) or comply with any rule, regulation, guideline or requirement of any Exchange on which the Units are or will be listed or quoted for trading, (iv) to be necessary or appropriate in connection with action taken by the Board pursuant to Section 3.8 or (v) is required to effect the intent expressed in the Registration Statements or any other registration statement filed with the Commission under the Securities Act or the intent of the provisions of this Agreement or is otherwise contemplated by this Agreement;
(g) a change in the Fiscal Year or taxable year of the Company and any other changes that the Board determines to be necessary, desirable or appropriate as a result of a change in the Fiscal Year or taxable year of the Company;
(h) an amendment that the Board determines, based on the advice of counsel, to be necessary or appropriate to prevent the Company or any Director, officer, Manager or other agent of the Company from in any manner being subjected to the provisions of the Investment Company Act, the Investment Advisers Act of 1940 or “plan asset” regulations adopted under the Employee Retirement Income Security Act of 1974, regardless of whether such are substantially similar to plan asset regulations currently applied or proposed by the United States Department of Labor, Section 4975 of the Code or any applicable similar law;
(i) an amendment that the Board determines to be necessary or appropriate in connection with the creation, authorization or issuance of any class or series of Units or Unit Equivalents pursuant to Section 3.4 and the admission of Additional Members;
(j) any amendment expressly permitted in this Agreement to be made by the Board acting alone;
(k) an amendment effected, necessitated or contemplated by a Merger Agreement approved in accordance with Section 10.3;
(l) an amendment that the Board determines to be necessary or appropriate to reflect and account for the formation by the Company Group or its Affiliates of, or Investment by the Company Group or its
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Affiliates in, any Person, in connection with the conduct by the Company of activities permitted by the terms of Section 2.4 or Section 5.1(a);
(m) a merger, conversion or conveyance pursuant to Section 10.3(d);
(n) any amendment that the Board determines to be necessary or appropriate to cure any ambiguity, omission, mistake, defect or inconsistency; or
(o) any other amendments substantially similar to the foregoing.
Section 9.4 Amendment Requirements.
(a) Notwithstanding Section 9.1 and Section 9.3, no provision of this Agreement that establishes a percentage of Voting Units required to take any action shall be amended, altered, changed, repealed or rescinded in any respect that would have the effect of reducing such percentage of Voting Units unless the amendment is approved by an affirmative vote of holders of Voting Units whose aggregate Voting Units constitute not less than the voting percentage sought to be reduced.
(b) Notwithstanding Section 9.1 and Section 9.3, no amendment to this Agreement may (i) enlarge the obligations of any Member without such Member’s consent, unless deemed to have occurred as a result of an amendment pursuant to Section 9.3(c) or Section 9.3(d), or (ii) except as set forth in Section 8.1(a), give any Person the right to dissolve the Company.
(c) Except as provided in Section 9.3 and Section 10.3, any amendment that would have a material adverse effect on the rights or preferences of any class or series of Units in relation to other classes or series of Units must be approved by the holders of a majority of the Outstanding Units of the class or series affected. The issuance by the Company of securities having rights superior to those of Outstanding Units or of Units having a dilutive effect on Outstanding Units shall not be deemed to have a material adverse effect on the rights or preferences of any class or series of Units.
(d) Notwithstanding Section 9.2, a Super Majority Vote of the Record Holders of Class A Units and Class B Units, voting together as a single class, shall be required to alter or amend any provision of this Section 9.4.
Section 10.1 Authority. The Company may merge, consolidate or enter into another business combination with one or more corporations, limited liability companies, statutory trusts, business trusts or associations, real estate investment trusts, common law trusts or unincorporated businesses, including a partnership (whether general or limited (including a limited liability partnership or a limited liability limited partnership)) or other entity, or convert into any such entity, whether such entity is formed under the laws of the State of Delaware or any other state of the United States, pursuant to a written agreement of merger, consolidation or other business combination (a “Merger Agreement”) or a written plan of conversion (a “Plan of Conversion”), as the case may be, in accordance with this Article X.
Section 10.2 Procedure for Merger, Consolidation, Conversion or Other Business Combination. A merger, consolidation, conversion or other business combination of the Company pursuant to this Article X requires the prior consent of the Board; provided, however, that to the fullest extent permitted by applicable law, the Board shall have no duty or obligation to consent to any merger, consolidation, conversion or other business combination of the Company and, to the fullest extent permitted by applicable law, may decline to do so free of any duty (including any fiduciary duty) or obligation whatsoever to the Company, any Member or any other Person bound by this Agreement and, in declining to consent to a merger, consolidation, conversion or other business combination, shall not be required to act pursuant to any other standard imposed by this Agreement, any other agreement contemplated hereby or under the Act or any other applicable law or at equity. If the Board determines, in the exercise of its sole discretion, to consent to the merger, consolidation or other business combination, the Board shall approve the Merger Agreement or Plan of Conversion, which shall set forth:
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(a) the names and jurisdictions of formation or organization of each of the business entities proposing to merge, consolidate, convert or combine;
(b) the name and jurisdiction of formation or organization of the business entity that is to survive the proposed merger, consolidation, conversion or other business combination (the “Surviving Business Entity”);
(c) the terms and conditions of the proposed merger, consolidation, conversion or other business combination;
(d) the manner and basis of exchanging or converting the rights or securities of, or interests in, each constituent business entity for, or into, cash, property, rights, securities or obligations of, or interests in, the Surviving Business Entity; and (i) if any rights or securities of, or interests in, any constituent business entity are not to be exchanged or converted solely for, or into, cash, property, rights, securities or obligations of, or interests in, the Surviving Business Entity, the cash, property, rights, securities or obligations of, or interests in, any general or limited partnership, corporation, trust, limited liability company, unincorporated business or other entity (other than the Surviving Business Entity) which the holders of such rights, securities or interests are to receive, if any, in exchange for, or upon conversion of, their rights, securities or interests, and (ii) in the case of securities represented by certificates, upon the surrender of such certificates, which cash, property, rights, securities or obligations of, or interests in, the Surviving Business Entity or any general or limited partnership, corporation, trust, limited liability company, unincorporated business or other entity (other than the Surviving Business Entity), or evidences thereof, are to be delivered;
(e) a statement of any changes in the constituent documents or the adoption of new constituent documents (the certificate of formation, limited liability company agreement, articles or certificate of incorporation, articles of trust, declaration of trust, certificate or agreement of limited partnership or other similar charter or governing document) of the Surviving Business Entity to be effected by such merger, consolidation, conversion or other business combination;
(f) the effective time of the merger, consolidation, conversion or other business combination, which may be the date of the filing of the certificate of merger or consolidation or similar certificate pursuant to Section 10.5 or a later date specified in or determinable in accordance with the Merger Agreement or Plan of Conversion; provided, that if the effective time of such transaction is to be later than the date of the filing of the certificate, the effective time shall be fixed at a date or time certain at or prior to the time of the filing of such certificate and stated therein; and
(g) such other provisions with respect to the proposed merger, consolidation, conversion or other business combination that the Board determines, in the exercise of its sole discretion, to be necessary or appropriate.
Section 10.3 Approval by Members of Merger, Consolidation, Other Business Combination, Conversion or Sales of Substantially All of the Company’s Assets.
(a) Except as provided in Section 10.3(d), the Board, upon its approval of the Merger Agreement or Plan of Conversion, as the case may be, shall direct that the Merger Agreement or Plan of Conversion, as applicable, and the merger, consolidation, conversion or other business combination contemplated thereby be submitted to a vote of Members, whether in writing without a meeting or at an annual meeting or a special meeting called for such purpose, in any case, in accordance with the requirements of Article XI. A copy or a summary of the Merger Agreement or Plan of Conversion, as applicable, shall be included in or enclosed with the Notice of Meeting.
(b) Except as provided in Section 10.3(d), the Merger Agreement or Plan of Conversion, as applicable, and the merger, consolidation, conversion or other business combination contemplated thereby shall be approved upon a Majority Vote of the Record Holders of Common Units, voting together as a single class.
(c) Except as provided in Section 10.3(d), after such approval by vote of the Members, and at any time prior to the filing of the certificate of merger, consolidation, conversion or similar certificate pursuant to
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Section 10.5, the merger, consolidation, conversion or other business combination may be abandoned pursuant to provisions therefor, if any, set forth in the Merger Agreement or the Plan of Conversion, as the case may be.
(d) Notwithstanding anything else contained in this Article X or in this Agreement, the Board may, without Member approval, (i) convert any member of the Company Group or their respective Affiliates into a new limited liability entity, or (ii) merge any member of the Company Group or their respective Affiliates into, or convey all of a member of the Company Group’s or their respective Affiliates’ assets to, another limited liability entity, which shall be newly formed and shall have no assets, liabilities or operations at the time of such conversion, merger or conveyance other than those it receives from a member of the Company Group or its Affiliates; provided, that (A) the Board determines, based on the advice of counsel, the conversion, merger or conveyance, as the case may be, would not result in the loss of the limited liability of any Member or cause the Company to be treated as an association taxable as a corporation or otherwise to be taxed as an entity for U.S. federal income tax purposes (to the extent not previously treated as such), (B) the sole purpose of such conversion, merger or conveyance is to effect a mere change in the legal form of the Company into another limited liability entity or a change in the jurisdiction of organization of the Company, and (C) the governing instruments of the new entity provide the Members and the Board with substantially the same rights and obligations as are herein contained.
Section 10.4 No Dissenters’ Rights of Appraisal. Members are not entitled to dissenters’ rights of appraisal in the event of a merger, consolidation, other business combination or conversion pursuant to this Article X, a sale of all or substantially all of the assets of a member of the Company Group or its Affiliates, or any other similar transaction or event.
Section 10.5 Certificate of Merger or Conversion. Upon the required approval by the Board and the Members of a Merger Agreement or Plan of Conversion, as the case may be, and the merger, consolidation, conversion or business combination contemplated thereby, a certificate of merger, conversion or consolidation, as applicable, shall be executed and filed with the Secretary of State of the State of Delaware and any other applicable Governmental Entity in conformity with the requirements of the Act and any other applicable law.
Section 10.6 Amendment of Agreement. Pursuant to §18-209(f) of the Act, and notwithstanding Article IX hereof, an agreement of merger, consolidation or other business combination approved in accordance with this Article X may (a) effect any amendment to this Agreement, or (b) effect the adoption of a new limited liability company agreement for a limited liability company if it is the Surviving Business Entity. Any such amendment or adoption made pursuant to this Section 10.6 shall be effective at the effective time or date of the merger, consolidation or other business combination.
Section 11.1 Annual Meeting. An annual meeting of the Members for the election of Directors and for the transaction of any other business that may properly come before such meeting shall be held on the date and at the time and place as the Board shall specify. Failure to hold an annual meeting of the Members shall not invalidate the Company’s existence or affect any otherwise valid act of the Company.
Section 11.2 Special Meetings. Special meetings of the Members may be called at any time by the Chairman, Chief Executive Officer, a majority of the Board or any committee thereof duly authorized to call such meetings, on the date and at the time and place as the person or persons calling the meeting shall specify. No Members or group of Members, acting in their capacity as Members, shall have the right to call a special meeting of the Members.
Section 11.3 Remote Participation. If authorized by the Board, and subject to such guidelines and procedures as the Board may adopt, Members and proxyholders not physically present at a meeting of Members may by means of remote communication participate in such meeting and be deemed present in person and vote at such meeting, provided that the Company shall implement reasonable measures to verify that each Person deemed present and permitted to vote at the meeting by means of remote communication is a Member or proxyholder, to provide such Members or proxyholders a reasonable opportunity to participate in the meeting and to record the votes or other action made by such Members or proxyholders.
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Section 11.4 Notice of Meetings of Members.
(a) The Company shall deliver written notice (the “Notice of Meeting”), stating the date, time and place of any annual or special meeting, and in the case of an annual meeting, those matters that the Board intends to present for action by the Members, or in the case of a special meeting of the Members, the purpose or purposes for which the meeting is being called. The Notice of Meeting shall be delivered to the Members not less than 10 days nor more than 60 days prior to the date of the meeting, in a manner and otherwise in accordance with Section 12.1 to each Record Holder who is entitled to vote at such meeting.
(b) Further notice shall be given as may be required by applicable law and the rules and regulations of any Exchange on which the Company’s Units are listed or quoted for trading. The Notice of Meeting at which Directors are to be elected shall include the name of any nominee or nominees who, at the time of the notice, the Board intends to present for election. Only such business shall be conducted at a special meeting of Members as shall have been brought before the meeting pursuant to the Company’s Notice of Meeting.
Section 11.5 Record Date. For purposes of determining the Members entitled to notice of or to vote at a meeting of the Members, the Board may fix a Record Date. The Record Date shall not precede the date upon which the resolution fixing such Record Date is adopted and shall not be less than 10 nor more than 90 days before the date of the meeting (unless otherwise required by any rule, regulation, guideline or requirement of an Exchange on which the Company’s Units are listed or quoted for trading, in which case such Exchange rule, regulation, guideline or requirement shall govern). If no Record Date is fixed by the Board, the Record Date for determining Members entitled to notice of or to vote at a meeting of Members shall be as of the close of business on the day immediately preceding the date on which notice is given, or, if notice is waived, as of the close of business on the day immediately preceding the date on which the meeting is held. A determination of Record Holders entitled to notice of or to vote at a meeting of the Members shall apply to any adjournment or postponement of the meeting unless the Board sets a new Record Date for the adjourned or postponed meeting.
Section 11.6 Waiver of Notice; Approval of Meeting. Whenever notice to the Members is required to be given under this Agreement a written waiver signed by the Person or Persons entitled to notice, or a waiver by Electronic Transmission by the person or persons entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a Member at a meeting of the Members shall constitute a waiver of notice of such meeting, except when the Member attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any annual or special meeting of the Members need be specified in any written waiver of notice.
Section 11.7 Quorum; Adjournment. At any meeting of the Members, the holders of one-third of the Voting Units represented in person or by proxy shall constitute a quorum. Once a quorum is present at meeting duly called or held in accordance with this Agreement the Members may continue to transact business until adjournment, notwithstanding the subsequent withdrawal of enough Members to leave less than a quorum; provided that any action taken (other than adjournment) shall be approved by the required percentage of Voting Units specified in this Agreement. Any meeting of Members may be adjourned from time to time by the chairman of the meeting to another place or time, whether or not a quorum is present.
Section 11.8 Conduct of a Meeting.
(a) The Board may adopt by resolution such rules and regulations for the conduct of any meeting of the Members as it shall deem appropriate. Except to the extent inconsistent with such rules and regulations as adopted by the Board, the chairman of any meeting of the Members shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are appropriate for the proper conduct of the meeting. Such rules, regulations or procedures, whether adopted by the Board or prescribed by the chairman of the meeting, may include, without limitation, the following: (i) the establishment of an agenda or order of business for the meeting; (ii) the determination of when the polls shall open and close for any given matter to be voted on at the meeting; (iii) rules and procedures for maintaining order at the meeting and the safety of those present, including removing any person or persons who refuse to comply with meeting rules, regulations or procedures; (iv) limitations on attendance at or participation in the meeting to Record Holders of the Company, their duly authorized and constituted proxies or such other persons as the chairman of the
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meeting shall determine; (v) restrictions on entry to the meeting after the time fixed for the commencement thereof; and (vi) limitations on the time allotted to questions or comments by participants.
(b) The chairman of any meeting of Members shall have the power and duty to determine all matters relating to the conduct of the meeting, including determining whether any nomination or item of business has been properly brought before the meeting in accordance with this Agreement, and if the chairman should so determine and declare that any nomination or item of business has not been properly brought before a meeting of Members, then such business shall not be transacted or considered at such meeting and such nomination shall be disregarded.
Section 11.9 Voting. No Member shall have any voting right except with respect to those matters expressly requiring a Member vote under the Act, this Agreement or any rule, regulation, guideline or requirement of an Exchange on which the Company’s Units are listed or quoted for trading. Unless otherwise expressly provided in this Agreement all Units will vote together as a single class. All matters to be voted on by the Members shall be effective and valid if approved by a Majority Vote, unless a greater percentage is required with respect to such matter under the Act, this Agreement or any rule, regulation, guideline or requirement of an Exchange on which the Company’s Units are listed or quoted for trading.
Section 11.10 Proxies. On any matter that is to be voted on by Members, the Members may vote in person or by proxy, and such proxy may be granted in writing, by means of Electronic Transmission or as otherwise permitted by applicable law, but no such proxy shall be voted upon after three years from its effective date, unless such proxy provides for a longer period. Any such proxy shall be filed in accordance with the procedure established for the meeting. A Member may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing a revocation of the proxy or a new proxy bearing a later date in accordance with the procedure established for the meeting.
Section 11.11 Inspector of Elections. In advance of any meeting of the Members, the Board may, but need not, appoint one or more individual inspectors or one or more entities that designate individuals as inspectors to act at the meeting or any adjournment thereof. If an inspector or inspectors are not appointed, the chairman of the meeting may, but need not, appoint one or more inspectors.
Section 11.12 Action Without a Meeting. On any matter that is to be voted on, consented to or approved by Members, the Members may take such action without a meeting, without prior notice and without a vote, if a written consent, setting forth the action so taken, shall be signed by Members having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all Members entitled to vote thereon were present and voted.
Section 11.13 Advance Notice of Member Nominations and Business.
(a) Nominations of Persons for election to the Board or proposals of other business which are appropriate matters for Member action under this Agreement and the Act may be properly brought before an annual meeting of the Members:
(i) pursuant to Notice of Meeting;
(ii) by or at the direction of the Board; or
(iii) by any holder of Voting Units who: (A) is entitled to vote at the annual meeting with respect to nominations of Persons for election to the Board or proposals of other business to be considered; (B) has complied with the notice procedures set forth in Section 11.13(b), Section 11.13(c) and Section 11.13(d), as applicable; and (C) (1) with respect to nominations of Persons for election to the Board, is a Record Holder of a sufficient number of Voting Units both at the time such notice is delivered to the Secretary of the Company and at the time of the annual meeting to elect one or more members to the Board assuming that such Record Holder cast all of the votes it is entitled to cast in such election in favor of a single candidate and such candidate received no other votes from any other holder of Voting Units, or (2) with respect to other business to be considered, is a Record Holder of Voting Units both at the time such notice is delivered to the Secretary of the Company and at the time of the annual meeting.
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(b) For nominations of Persons for election to the Board or proposals of other business which are appropriate matters for Member action under this Agreement and the Act to be properly brought before an annual meeting by a Member pursuant to Section 11.13(a)(iii), the Member must deliver written notice to the Secretary at the principal executive offices of the Company not less than 90 days nor more than 120 days prior to the anniversary of the date of the immediately preceding annual meeting of Members; provided, however, that, in the event no annual meeting was held in the previous year or the annual meeting is set for a date that is more than 30 days before or after the anniversary of the prior year’s annual meeting, the Member must deliver such notice not later than the close of business on the 10th day following the date on which Public Disclosure of the date of the annual meeting is first made. Notwithstanding the foregoing, if there is an increase in the number of directorships and there is no Public Disclosure naming all of the nominees or specifying the size of the increased Board made by the Company at least 100 days prior to the anniversary of the date of the immediately preceding annual meeting of Members, then a Member’s notice required by this Section 11.13(b) shall also be considered timely, but only with respect to nominees for any new directorships created by such increase, if delivered not later than the close of business on the 10th day following the date on which Public Disclosure is first made by the Company. In no event shall the adjournment or postponement of an annual meeting, or the public announcement of such an adjournment or postponement, commence a new time period (or extend any time period) for the giving of a Member’s notice pursuant to this Section 11.13(b).
(c) Any notice with respect to nominations of Persons for election to the Board given pursuant to Section 11.13(b) shall set forth therein:
(i) as to each Person whom the Member proposes to nominate for election or reelection as a Director, all information relating to such Person that is required to be disclosed in solicitations of proxies for election of Directors, or is otherwise required, in each case, pursuant to Regulation 14A under the Exchange Act, including such Person’s written consent to being named in the proxy statement as a nominee and to serving as a Director if elected;
(ii) as to the Member giving notice and the beneficial owner, if any, on whose behalf the nomination is made, the name and address of such Member and beneficial owner as they appear on the Company’s books, and the class or series and number of Units of the Company which are owned beneficially and of record by such Member and beneficial owner; and
(iii) whether either such Member or beneficial owner, if any, intends to deliver a proxy statement and form of proxy to holders of a sufficient number of the Company’s Voting Units to elect such nominee or nominees.
A Member or beneficial owner, if any, shall be entitled to nominate as many candidates for election to the Board as would be elected assuming such Member cast the precise number of votes necessary to elect each candidate and no more votes were cast by such Member or any other Record Holder for such candidates.
(d) Any notice with respect to proposals of other business which are appropriate matters for Member action under this Agreement and the Act given pursuant to Section 11.13(b) shall set forth therein:
(i) as to each matter of other business that the Member proposes to bring before the annual meeting, a brief description of the business desired to be brought, the reasons for conducting such business at the annual meeting, any substantial interest in such business of the Member and beneficial owner, if any, on whose behalf the proposal is to be made, and all other information relating to such proposal that is required to be disclosed in solicitations of proxies, or is otherwise required in any filing with the Commission, in each case, pursuant to Regulation 14A under the Exchange Act;
(ii) as to the Member giving notice and the beneficial owner, if any, on whose behalf the proposal is made the name and address of such Member and beneficial owner as they appear on the Company’s books, and the class or series and number of Units of the Company which are owned beneficially and of record by such Member and beneficial owner; and
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(iii) whether either such Member or beneficial owner, if any, intends to deliver a proxy statement and form of proxy to holders of a sufficient number of the Company’s Voting Units to carry the proposal.
(e) Notwithstanding the foregoing provisions of this Section 11.13, a Member shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 11.13. Nothing this Section 11.13 shall be deemed to affect any rights of Members to request inclusion of proposals in the Company’s proxy statement pursuant to Rule 14a-8 under the Exchange Act.
Article
XII
GENERAL PROVISIONS
(a) Any notice, demand, request, report, document, proxy materials, distribution or other matter required or permitted to be given or made to a Member under this Agreement shall be in writing and shall be deemed given or made when delivered in person, when sent by first class United States mail or by other means of written communication, including by email or other forms of electronic communication, to the Member at the address described in Section 12.1(b), or when made in any other manner, including by press release, permitted by applicable law.
(b) Except as otherwise provided herein, any notice, demand, request, report, document, proxy materials, distribution or other matter to be given or made to a Member hereunder shall be deemed conclusively to have been given or made, and the obligation to give such notice, report, document, proxy materials or other matter or to make such demand, request or distribution payment shall be deemed conclusively to have been fully satisfied, when delivered in person or upon sending of such notice, demand, request, report, document, proxy materials, distribution or other matter to the Record Holder of such Unit at the address shown on the records of the Transfer Agent or as otherwise shown on the records of the Company, regardless of any claim of any Person who may have an interest in such Unit by reason of any assignment or otherwise.
(c) Notwithstanding the foregoing, if (i) a Member consents to receiving notices, demands, requests, reports, documents, proxy materials or other matters via electronic mail or via the internet, or (ii) the rules of the Commission permit any report or proxy materials to be delivered electronically or made available via the internet, any such notice, demand, request, report, document, proxy materials or other matters shall be deemed given or made when delivered or made available via such mode of delivery.
(d) An affidavit or certificate of making of any notice, demand, request, report, document, proxy materials, distribution or other matter in accordance with the provisions of this Section 12.1 executed by a Director, officer, the Manager, the Transfer Agent, their agents or the mailing organization shall be prima facie evidence of the giving or making of such notice, demand, request, report, document, proxy materials, distribution or other matter. If any notice, demand, request, report, document, proxy materials, distribution or other matter given or made in accordance with the provisions of this Section 12.1 is returned marked to indicate that it was unable to be delivered, such notice, demand, request, report, document, proxy materials, distribution or other matter and, if returned by the United States Postal Service (or other physical mail delivery mail service outside the United States), any subsequent notices, demands, requests, reports, documents, proxy materials, distributions or other matters shall be deemed to have been duly given or made without further mailing (until such time as the Record Holder or another Person notifies the Transfer Agent of a change of address) or other delivery if available for the Member at the principal office of the Company for a period of one year from the date of the giving or making of such notice, demand, request, report, document, proxy materials, distribution or other matter to the other Members. Any notice to the Company shall be deemed given if received in writing by the Secretary at the designated principal office of the Company. The Company may rely and shall be protected in relying on any notice or other document from a Member or other Person if believed by it to be genuine.
Section 12.2 Further Action. The parties shall execute and deliver all documents, provide all information and take or refrain from taking action as may be necessary or appropriate to achieve the purposes of this Agreement.
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Section 12.3 Binding Effect. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their heirs, executors, administrators, successors, legal representatives and permitted assigns. The Indemnitees and their heirs, executors, administrators and successors shall be entitled to receive the benefits of this Agreement.
Section 12.4 Integration. This Agreement constitutes the entire agreement among the parties hereto pertaining to the subject matter hereof and supersedes all prior agreements and understandings pertaining thereto.
Section 12.5 Creditors. None of the provisions of this Agreement shall be for the benefit of or enforceable by any creditors of any member of the Company Group or their respective Affiliates, and no creditor who makes a loan to a member of the Company Group or their respective Affiliates may have or acquire (except pursuant to the terms of a separate agreement executed by the member of the Company Group or their respective Affiliates in favor of such creditor) at any time as a result of making such loan any direct or indirect interests in the Company’s Net Income (Loss), distributions, capital or property other than as a secured creditor. Notwithstanding the foregoing, each of the Indemnitees are intended third party beneficiaries of Section 5.20 and shall be entitled to enforce such provision (as it may be in effect from time to time).
Section 12.6 No Waiver. No failure by any party to insist upon the strict performance of any covenant, duty, agreement or condition of this Agreement or to exercise any right or remedy consequent upon a breach thereof shall constitute waiver of any such breach of any other covenant, duty, agreement or condition.
Section 12.7 Counterparts. This Agreement may be executed in any number of counterparts, all of which together shall constitute an agreement binding on all the parties hereto, notwithstanding that all such parties are not signatories to the original or the same counterpart. Each party shall become bound by this Agreement immediately upon affixing its signature hereto or, in the case of a Person acquiring a Units pursuant to Section 3.1(a), without execution hereof.
Section 12.8 Applicable Law. This Agreement shall be construed in accordance with and governed by the laws of the State of Delaware applicable to agreements made and to be performed entirely therein.
Section 12.9 Mandatory Arbitration for Claims. To the fullest extent permitted by applicable law, all Claims, including issues of arbitrability (both substantive and procedural), will be resolved by final and binding arbitration in New York, New York, as follows:
(a) Administrator. The arbitration of all Claims will be administered by the American Arbitration Association (“AAA”) in accordance with the rules and policies of the AAA (the “Rules”) then in effect; provided, however, that (i) the parties waive any right to a jury; and (ii) discovery will be limited to matters which are directly relevant to the issues in the arbitration.
(b) Selection of Arbitrator. The arbitration will take place in the office of AAA located in the borough of Manhattan, City of New York, and be conducted by a single, neutral arbitrator (“Arbitrator”) appointed pursuant to the Rules, which Arbitrator shall possess the requisite education and expertise in respect of the matters to which the Claim relates and shall have no less than five (5) years’ experience in arbitrating complex business arrangements.
(c) Appeals. Any award of the Arbitrator, including any interim award, may be appealed pursuant to the AAA’s Optional Appellate Arbitration Rules (the “Appellate Rules”). Appeals must be initiated within 30 days of receipt of an award by filing a notice of appeal. An award shall not be considered final until the time for filing a notice of appeal has expired. For the avoidance of doubt, and despite any contrary provision of the Appellate Rules, the appeal tribunal shall not render an award that would include shifting of any costs or expenses (including attorneys’ fees) of any party. Upon expiration of the time for filing a notice of appeal or conclusion of the appeal process, an Award shall be final and binding and shall be the sole and exclusive remedy between those parties relating to the Claim.
(d) Res Judicata, Collateral Estoppel and Law of the Case. A decision of the Arbitrator will have the same force and effect with respect to collateral estoppel, res judicata and the law of the case that such
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decision would have been entitled to if decided in a court of law, but in no event will such a decision be used by or against a party in a legal action brought by or against parties not otherwise subject to this Agreement.
(e) Enforcement of Award. This Section 12.9 does not prevent the parties hereto from enforcing the award of the Arbitrator in the court of any other jurisdiction, to the extent permitted by applicable law (for example, if property that is the subject of the award is located in another jurisdiction).
(f) Confidentiality. All arbitration proceedings will be closed to the public and confidential, and all records relating thereto will be permanently sealed, except to the extent reasonably necessary to obtain court confirmation of the judgment of the Arbitrator or to give effect to Section 12.9(d) (e.g., in a dispute between the parties hereto that is not a Claim), in which case all filings with any court will be sealed to the extent permitted by the court. A party hereto (including such party’s counsel or other representatives) may disclose only the fact and generic nature of a Claim that is being, or has been, arbitrated pursuant to this Agreement. Nothing in this Section 12.9(f) is intended to, or shall, preclude a party hereto from communicating with, or making disclosures to, its lawyers, tax advisors, auditors, lenders, investors, landlords, regulators and insurers, as necessary and appropriate, or from making such other disclosures as may be required by applicable law.
(g) Class Actions. Any arbitration of any Claim will take place on an individual basis without resort to any form of class or representative action. THE PARTIES HERETO, INCLUDING EACH MEMBER, RECORD HOLDER, BENEFICIAL OWNER OF UNITS AND THE MANAGER, WAIVE ANY RIGHT TO ASSERT ANY CLAIMS AGAINST ANY OTHER PARTY TO AN ARBITRATION AS A REPRESENTATIVE OR MEMBER IN ANY CLASS OR REPRESENTATIVE ACTION, EXCEPT WHERE SUCH WAIVER IS PROHIBITED BY APPLICABLE LAW AS AGAINST PUBLIC POLICY. TO THE EXTENT ANY SUCH PARTY IS PERMITTED BY APPLICABLE LAW OR ANY COURT OF LAW TO PROCEED WITH A CLASS OR REPRESENTATIVE ACTION AGAINST ANY OTHER SUCH PARTY, THE PARTIES HEREBY AGREE THAT THE PREVAILING PARTY SHALL NOT BE ENTITLED TO RECOVER ATTORNEYS’ FEES OR COSTS ASSOCIATED WITH PURSUING THE CLASS OR REPRESENTATIVE ACTION (NOT WITHSTANDING ANY OTHER PROVISION IN THIS AGREEMENT).
(h) Fees and Costs. The parties to an arbitration will share equally in the fees of the Arbitrator and the administrative costs of the arbitration, and each party shall bear the expense of its own attorneys’ and experts’ fees. The Arbitrator shall not render an award that would include shifting of any such costs or expenses (including attorneys’ fees) or, in a derivative case, award any portion of the Company’s or any other party’s award to the claimant or the claimant’s attorneys.
(i) Damages. The Arbitrator may award damages or other types of relief permitted by applicable law; provided, however, no punitive damages will be awarded on any common law or statutory Claim.
(j) Notice and Consent. Any Person purchasing or otherwise acquiring any Units or Unit Equivalents in the Company shall be deemed to have notice of and irrevocably consented to the provisions of this Section 12.9.
(k) Survival. This Section 12.9 shall survive (i) suspension, termination, revocation, closure, or amendments to this Agreement and the relationship of the parties; (ii) the bankruptcy or insolvency of any party hereto or any other party; and (iii) any Transfer of any Units to any other party.
(l) Invalidity, Illegality or Unenforceability.
(i) Severability. Whenever possible, each provision of this Section 12.9 will be interpreted in such a manner as to be effective and valid under applicable law, and to give effect, to the fullest extent possible, to the intent manifested hereby. If any provision of this Section 12.9 is deemed invalid, illegal or unenforceable, as applied to any Person or circumstance for any reason whatsoever, (A) the validity, legality and enforceability of such provisions to any other Person or in any other circumstance and of the remaining provisions of this Section 12.9 (including, without limitation, each portion of any provision of this Section 12.9 containing any such provision held to be invalid, illegal or unenforceable that is not itself held to be invalid, illegal or unenforceable) shall nevertheless remain valid and in force, and (B) this Section 12.9 shall be reformed, construed
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and enforced as if such invalid, illegal or unenforceable provision or portion of any provision had never been contained herein.
(ii) Reformation. If any provision, or any part thereof, of this Section 12.9 is found to be unenforceable, the Arbitrator shall have the power to modify such unenforceable provision in lieu of severing such unenforceable provision from this Section 12.9 in its entirety, whether by rewriting the offending provision, deleting any or all of the offending provision, adding additional language to this Section 12.9, or by making such other modifications as the Arbitrator deems warranted, but only to the extent necessary to carry out the intent and agreement of the parties as embodied herein to the fullest extent permitted by applicable law. The parties hereto expressly agree that this Section 12.9 as so modified by the Arbitrator shall be binding upon and enforceable against each of them.
Section 12.10 Procedure and Rules Applicable to Precluded Claims. If any provision of Section 12.9 is deemed invalid, illegal or unenforceable and as a result the parties are precluded from resolving a Claim pursuant to the terms of Section 12.9 (after giving effect to the terms of Section 12.9(l)) (a “Precluded Claim”), the following provisions of this this Section 12.10 shall govern with respect to such Precluded Claim:
(a) Good Faith Effort to Preserve Arbitration. Within 30 days of any ruling that any provision of Section 12.9 is invalid, illegal or unenforceable, the Company may offer an alternative agreement omitting any term that led to such ruling, and the parties shall thereafter negotiate in good faith to reach an arbitration agreement that replaces the original agreement and is the same as the original agreement, except in those respects found objectionable. In consideration of this procedure, the Company agrees that any time spent in negotiation of the replacement agreement shall not count toward the statute of limitations.
(b) Consent to Jurisdiction for Precluded Claims. Unless the Company consents in writing to the selection of an alternative forum, the United States District Court for the Southern District of New York shall be, to the fullest extent permitted by applicable law, the sole and exclusive forum for any Precluded Claim, or in the event that such court lacks jurisdiction to hear such Precluded Claim, the state courts of New York located in the borough of Manhattan, City of New York shall be the sole and exclusive forum for such Precluded Claim.
(c) Notice and Consent; Waiver of Jury Trial. Any Person purchasing or otherwise acquiring any Units or Unit Equivalents in the Company (i) shall be deemed to have notice of and irrevocably consented to the provisions of this Section 12.10, (ii) irrevocably and unconditionally waives any objection to venue whether based on the grounds of forum non conveniens or otherwise, (iii) agrees not to commence a Precluded Claim in any other forum, (iv) consents to service of process made upon such Person by service upon such Person’s counsel as agent for such Person; provided, however, that nothing herein shall affect the right of any party to serve process in any other manner permitted by applicable law, (v) waives any objection to personal jurisdiction in the venue, and (vi) to the fullest extent permitted by applicable law, waives and covenants not to assert any right to trial by jury with respect to any Precluded Claim.
Section 12.11 Invalidity of Provisions. Each provision of this Agreement shall be considered separable; and if, for any reason, any provision or provisions herein are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement which are valid.
Section 12.12 Consent of Members. Each Member hereby expressly consents and agrees that, whenever in this Agreement it is specified that an action may be taken upon the affirmative vote or consent of less than all of the Members, such action may be so taken upon the concurrence of less than all of the Members and each Member shall be bound by the results of such action.
Section 12.13 Electronic Signatures. The use of facsimile or other electronic signatures, including signatures delivered by email in portable document (.pdf) or a similar format, affixed in the name and on behalf of the Transfer Agent on Certificates, if any, representing Units is expressly permitted by this Agreement.
Section 12.14 Effectiveness of Agreement. The Original Operating Agreement is amended and restated in the form of this Agreement effective as of the Effective Date.
[Intentionally left blank.
Signature pages follows.]
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IN WITNESS WHEREOF, the parties hereto have executed this Amended and Restated Limited Liability Company Operating Agreement of Belpointe PREP, LLC, as of the date and year first above written.
MEMBERS:
BELPOINTE PREP, LLC, as attorney-in-fact for the Members of the Company
By:
Name: Brandon E. Lacoff
Title: Chief Executive Officer
MANAGER:
BELPOINTE PREP MANAGER, LLC
By:
Name: Brandon E. Lacoff
Title: Manager
45
Exhibit 10.1
MANAGEMENT AGREEMENT
This Management AGREEMENT (this “Agreement”), dated as of the 21st day of April, 2021, by and among Belpointe PREP, LLC, a Delaware limited liability (the “Company”), the Operating Companies (as hereinafter defined), and Belpointe PREP Manager, LLC, a Delaware limited liability company (the “Manager”), is effective as of the 28th day of October, 2020 (the “Effective Date”). Capitalized terms shall have the meaning set forth in Article 1.
WHEREAS, the Company intends to initially qualify as a “qualified opportunity fund” (a “QOF”) as defined in §1400Z-2(d)(1) of the Code and §1.1400Z2(d)-1 of the Treasury Regulations promulgated thereunder beginning with its fiscal year ended December 31, 2020;
WHEREAS, the Company is the managing member of the Operating Companies and intends to conduct all of its business and make all or substantially all investments through the Operating Companies and their respective Subsidiaries, Associates and Affiliates;
WHEREAS, the members of the Company Group desire to avail themselves of the knowledge, experience, sources of information, advice, assistance and certain facilities available to the Manager and to have the Manager undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of, the board of directors of the Company (the “Board”), all as provided herein; and
WHEREAS, the Manager is willing to undertake to render such services, subject to the supervision of the Board, on the terms and conditions hereinafter set forth.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
Article
1
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings specified below:
“Act” means the Delaware Limited Liability Company Act, 6 Del. C. §§18-101, et seq., as amended, supplemented or restated from time to time, and any successor to such statute.
“Acquisition Expenses” means any and all costs and expenses incurred by any member of the Company Group, the Manager, the Sponsor or any of their respective Affiliates in connection with the selection, evaluation, diligence, structuring, acquisition, origination, financing and development of any Investments, whether or not acquired or originated, as applicable, including, without limitation, legal fees and expenses, travel and communications expenses, costs of appraisals, third party reports, nonrefundable option payments on Investments not acquired, accounting fees and expenses, title insurance premiums and the costs of performing due diligence.
“Acquisition Fee” has the meaning set forth in Section 8.2.
“Affiliate” means, with respect to any Person, any other Person directly or indirectly controlling, controlled by or under common ownership or control with such Person. For purposes of this definition, “control,” when used with respect to any Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise, and the terms “controlling” and “controlled” have meanings correlative to the foregoing.
“Agreement” has the meaning set forth in the preamble.
“Associate” when used to indicate a relationship with any Person, any legal entity for which such Person acts as an executive officer, director, trustee, sponsor, co-sponsor, manager, co-manager, general partner or co-general partner, or, directly or indirectly, owns, controls or holds with the power to vote 5% or more of any class of voting securities or other voting interest in such entity.
“Belpointe PREP OC” means Belpointe PREP OC, LLC, a Delaware limited liability company.
“Belpointe PREP TN OC” means Belpointe PREP TN OC, LLC, a Delaware limited liability company.
“Board” has the meaning set forth in the recitals.
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“Cause” means, with respect to the termination of this Agreement, fraud or willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case that has or could reasonably be expected to have a material adverse effect on the Company Group taken as a whole.
“Certificate of Formation” means the Certificate of Formation of the Company filed with the Secretary of State of the State of Delaware.
“Charter Documents” means, with respect to the Company, the Certificate of Formation, Operating Agreement, and with respect to any other member of the Company Group, any articles or memorandum of association, certificate of incorporation, certificate of formation, certificate of designations, bylaws, operating agreement, partnership agreement or other constituent documents of such member of the Company Group.
“Class A Units” means a Unit in the Company that is designated as a “Class A Unit.”
“Code” means the Internal Revenue Code of 1986, as amended, supplemented or restated from time to time, and any successor to such statute.
“Company” has the meaning set forth in the preamble.
“Company Group” means the Company, Operating Companies each Subsidiary of the Company and Operating Companies, and each of their respective Associates.
“Governmental Entity” means any federal, state or local, or foreign, international or supranational, government, court or tribunal, or administrative, executive, governmental or regulatory or self-regulatory body, agency or authority thereof.
“Indemnitee” has the meaning set forth in Section 14.1(a).
“Initial Public Offering” means the Company’s initial public offering and sale of Units registered with the SEC on Form S-11 (Registration No. 333-[●]), as may be amended or supplemented from time to time.
“Initial Term” has the meaning set forth in Section 12.1.
“Investment” means, as to any member of the Company Group or their respective Affiliates, any direct or indirect acquisitions or investments (in one transaction or a series of transactions) by such member of the Company Group or their respective Affiliate, whether by means of (a) the purchase or other acquisition of, or of a beneficial interest in, any Securities of another Person (including by way of merger or consolidation), (b) a loan, advance or capital contribution to, guarantee or assumption of indebtedness of, or purchase or other acquisition of any other debt in, another Person, (c) the making of, or investment in, any Mortgage, (d) the purchase or other acquisition of any part of the property, assets or business of another Person or assets constituting a business unit, line of business or division of such Person, or (e) any other transaction or series of transactions that otherwise causes another Person to become a member of the Company Group.
“Joint Venture” means any joint venture or similar business arrangement, whether organized as a general or limited partnership, limited liability company or otherwise, in which any member of the Company Group participates with one or more Persons.
“Manager” has the meaning set forth in the preamble.
“Mortgage” means, in connection with any mortgage financing that a member of the Company Group makes or invests in, all of the notes, deeds of trust, security interests or other evidences of indebtedness or obligations, which are secured or collateralized by the land, rights in land (including leasehold interests) and any buildings, structures, improvements, furnishings, fixtures and equipment located on or used in connection with land and rights or interests in land owned by the borrowers under such notes, deeds of trust, security interests or other evidences of indebtedness or obligation.
“NAV” the Company’s net asset value.
“Offering” mean any offering of Securities for the account of the Company.
“Operating Expenses” means any and all costs and expenses incurred by the Manager, the Sponsor or their respective Affiliates on behalf of any member of the Company Group that are related to the operations of any member of the Company Group, including, without limitation, those related to (i) forming and operating members of the Company Group, (ii) office space, supplies, equipment, furniture and other agreed upon resources, (iii)
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Acquisition Expenses, (iv) the acquisition, ownership, management, financing, hedging of interest rates on financings, or sale of Investments, (v) meetings with or reporting to the holders of the Units or other securities of members of the Company Group, (vi) accounting, auditing, research, consulting, tax consulting, tax return preparation, financial reporting, and legal services, risk management services and insurance, including without limitation to protect the members of the Company Group, the Manager, the Sponsor or their respective Affiliates and the holders of the Units or other securities of members of the Company Group in connection with the performance of activities related to the Company Group, (vii) the Company Group’s indemnification pursuant to Article 14 of this Agreement, (viii) litigation, (ix) borrowings of members of the Company Group, (x) liquidating members of the Company Group, (xi) any taxes, fees or other governmental charges levied against members of the Company Group and all expenses incurred in connection with any tax audit, investigation, settlement or review of members of the Company Group, (xii) travel costs associated with investigating and evaluating Investment opportunities (whether or not consummated) or making, monitoring, managing or disposing of Investments, and (xiii) the costs of any third parties retained to provide services to members of the Company Group.
“Operating Company” or “Operating Companies” means each Subsidiary of the Company including Belpointe PREP OC and Belpointe PREP TN OC, together with each of their respective Subsidiaries and Associates.
“Operating Agreement” means the Amended and Restated Limited Liability Company Operating Agreement of Belpointe PREP, LLC, as may be amended, supplemented or restated from time to time.
“Organization and Offering Expenses” means any and all costs and expenses incurred by the Manager, the Sponsor or their respective Affiliates on behalf of any member of the Company Group in connection with the organization of any member of the Company Group, the qualification and registration of an Offering, the marketing and distribution of Units and the admission of investors in the Company, including, without limitation, all legal, accounting, printing, engraving, mailing, email and filing fees and expenses, expenses in connection with preparing sales and marketing materials, design and website expenses, advertising fees and expenses, fees and expenses of transfer agents, registrars, trustees, escrow agents, depositaries and experts, expenses for salaries of employees while engaged in sales activities, fees to attend seminars and reimbursements for customary travel, lodging, meals and entertainment expenses associated therewith, total underwriting and brokerage discounts and commissions, costs related to investor and broker-dealer sales meetings, fees and expenses of the underwriters’ attorneys and expenses of qualification of the sale of Units under federal and state laws, including taxes and fees.
“Person” means an individual, corporation, limited liability company, partnership (whether general or limited), joint venture, trust, estate, unincorporated organization, association (including any group, organization, co-tenancy, plan, board, council or committee), custodian, nominee, Governmental Entity or any other individual or entity (or series thereof) in its own or any representative capacity.
“Prospectus” means the prospectus included in the most recent effective registration statement filed by the Company with the SEC with respect to an Offering, as such prospectus may be amended or supplemented from time to time.
“QOF” has the meaning set forth in the preamble.
“Renewal Term” has the meaning set forth in Section 12.1.
“SEC” means the United States Securities and Exchange Commission.
“Securities” means any stock, shares, membership interests, partnership interests, voting trust certificates, certificates of interest or participation in any profit-sharing agreements or arrangements, derivatives, options, warrants, bonds, debentures, notes or other evidences of indebtedness, secured or unsecured, convertible, subordinated or otherwise, or in general any instruments commonly known as “securities” or any certificates of interest, shares or participations in temporary or interim certificates for the purchase or acquisition of, or any right to subscribe to, purchase or acquire, any of the foregoing.
“Sponsor” means Belpointe, LLC, a Connecticut limited liability company, and its Affiliates.
“Subsidiary” means, with respect to any Person, any other Person in which such specified Person, directly or indirectly through one or more Affiliates or otherwise, beneficially owns more than fifty percent (50%) of either the ownership interest (determined by equity or economic interests) in, or the voting control of, such Person.
“Term” has the meaning set forth in Section 12.1.
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“Termination Date” means the date of expiration or termination of this Agreement determined in accordance with Article 12 hereof.
“Termination Fee” has the meaning set forth in Section 12.1(b).
“Transaction” means the offer to exchange the Company’s Units registered with the SEC on Form S-4 (Registration No. 333-[●]), as may be amended or supplemented from time to time, and the related transactions described therein.
“Treasury Regulations” means the proposed, temporary and final regulations promulgated under the Code and the corresponding sections of any regulations subsequently issued that amend or supersede such regulations.
“Unit” means a unit issued by the Company representing a limited liability company interest in the Company. Units may be common units or preferred units and may be issued in different classes or series.
Article
2
APPOINTMENT
The Company and Operating Companies each hereby appoint the Manager to serve as their manager on the terms and conditions set forth in this Agreement, and the Manager hereby accepts such appointment. Except as otherwise provided in this Agreement, the Manager hereby agrees to use its commercially reasonable efforts to perform the duties set forth herein.
Article
3
DUTIES OF THE MANAGER
Subject to the oversight of the Board and the terms and conditions of this Agreement and consistent with the provisions of the Company’s most recent Prospectus, if any, and the Company Group’s Charter Documents, the Manager will have plenary authority with respect to the management of the business and affairs of the Company and Operating Companies and will be responsible for managing and conducting the operations of the Company Group, including implementing the investment strategy, administration of the day-to-day operations, business and affairs of the Company Group and providing employees to act as officers of the Company and Operating Companies. The Manager will perform (or cause to be performed through one or more of its Affiliates or third parties) such services and activities relating to the selection of investments and rendering advice to the Company Group as may be appropriate or otherwise mutually agreed from time to time, which may include, without limitation:
3.1 Investment Advisory and Acquisition Services. The Manager shall:
(a) implement and oversee the Company’s and Operating Companies’ overall investment strategy, which will consist of elements such as investment selection criteria, diversification strategies and asset disposition strategies;
(b) serve as the Company’s and Operating Companies’ investment and financial manager with respect to sourcing, underwriting, acquiring, financing, originating, servicing, investing in and managing a diversified portfolio of commercial properties and “qualified opportunity zone property,” as defined in §1.1400Z2(d)-1(c) of the Treasury Regulations, located throughout the United States and its territories, as well as other real estate-related assets, including commercial real estate loans, Mortgages, Securities issued by other real estate-related companies, private equity acquisitions and investments, and opportunistic acquisitions of other QOFs;
(c) periodically review the Company’s investment objectives and strategy and investment guidelines to determine whether they remain in the best interests of the Company and make recommended changes to the Company’s Board as appropriate;
(d) structure the terms and conditions of acquisitions, purchases and Joint Ventures;
(e) enter into leases, insurance contracts and other service agreements for the Company, its commercial real estate properties and other Investments;
(f) approve and oversee debt financing strategies;
(g) approve Joint Ventures, partnerships, co-investments, co-tenancies and other co-ownership arrangements, participations or relationships;
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(h) approve any potential liquidity transaction, including crystallization events in Joint Ventures and other co-investment arrangements;
(i) obtain market research and economic and statistical data in connection with Investments and the Company’s investment objectives and strategy and investment guidelines;
(j) oversee and conduct the due diligence process related to prospective Investments;
(k) prepare reports regarding prospective Investments which include recommendations and supporting documentation necessary for its investment committee to evaluate the prospective Investments; and
(l) negotiate and execute approved Investments and other transactions.
3.2 Disposition Services. The Manager shall:
(a) evaluate and approve prospective Investment dispositions, sales or other liquidity events; and
(b) structure and negotiate the terms and conditions of sales, exchanges or other disposition transactions pursuant to which Investments may be exited.
3.3 Offering Services. The Manager shall manage and supervise the:
(a) Transaction, Initial Public Offering and any subsequent Offerings approved by the Board, including the determination of the specific terms of the Securities to be offered by the Company, preparation of all Transaction documents or Offering and related documents, and obtaining all required regulatory approvals of such documents;
(b) preparation and approval of all marketing materials contemplated to be used by the Manager or others relating to the Transaction or any Offering;
(c) negotiation and coordination with the transfer agent, if any, for the receipt, collection, processing and acceptance of subscription agreements, tenders, commissions, and other administrative support functions;
(d) creation and implementation of various technology and electronic communications related to the Transaction or any Offering; and
(e) all other services related to the Transaction or an Offering, other than services that the Company elects to perform directly or that would require the Manger to register as a broker-dealer with any Governmental Entity.
3.4 Management Services. The Manager shall:
(a) investigate, select, and, on behalf of the Company and Operating Companies, engage and conduct business with such Persons as the Manager deems necessary to the proper performance of its obligations hereunder, including but not limited to consultants, accountants, lenders, technical advisors, attorneys, brokers, placement agents, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, developers, property managers, leasing and investment sale brokers, construction companies and any and all Persons acting in any other capacity deemed by the Manager necessary or desirable for the performance of any of the foregoing services;
(b) monitor applicable markets and obtain reports (which may be prepared by the Manager or its Affiliates) where appropriate, concerning the value of Investments;
(c) monitor and evaluate the performance of Investments, provide management services to any member of the Company Group and perform and supervise the various management and operational functions related to the Investments;
(d) formulate and oversee the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing and disposition of Investments on an overall portfolio basis;
(e) coordinate and manage relationships between the Company and Operating Companies and any Joint Venture, co-investment or other co-ownership partners; and
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(f) assisting the Company in calculating and publishing the its NAV.
3.5 Accounting and Other Administrative Services. The Manager shall:
(a) manage and perform the various administrative functions necessary for the management of the day-to-day operations of the Company and Operating Companies;
(b) provide or arrange for administrative services, legal services, office space, office furnishings, personnel and other overhead items necessary and incidental to the Company’s and Operating Companies’ business and operations;
(c) provide financial and operational planning services and portfolio management functions;
(d) maintain accounting data and any other information concerning the activities of the members of the Company Group as shall be required to prepare and file all periodic financial reports and returns required to be filed with the SEC and any other regulatory agency, including annual financial statements;
(e) maintain or arrange for the maintenance of all appropriate books and records of the Company and Operating Companies;
(f) oversee tax and compliance services and risk management services and coordinate with appropriate third parties, including independent accountants and other consultants, on related tax matters;
(g) supervise the performance of such ministerial and administrative functions as may be necessary in connection with the daily operations of the Company and Operating Companies;
(h) provide the Company and Operating Companies with all necessary cash management services;
(i) manage and coordinate with the transfer agent, if any, the process of making distributions and payments to holders of the Company’s Securities;
(j) evaluate and obtain adequate insurance coverage based upon risk management determinations;
(k) provide the officers of the Company and the Board with timely updates related to the overall regulatory environment affecting the Company Group, as well as managing compliance with regulatory matters;
(l) evaluate the Company’s and Operating Companies’ corporate governance structure and policies and procedures related thereto; and
(m) oversee all reporting, record keeping, internal controls and similar matters in a manner to allow the Company and Operating Companies to comply with applicable law.
3.6 Securityholder Services. The Manager shall:
(a) determine the Company’s distribution policy to holders of the Company’s Securities; and
(b) manage communications with the holders of the Company’s Securities, including answering phone calls, preparing and sending written and electronic reports and other communications.
3.7 Financing Services. The Manager shall:
(a) identify and evaluate potential financing and refinancing sources, engaging a third-party broker if necessary;
(b) negotiate terms, arrange and execute financing agreements;
(c) manage relationships between the Company and Operating Companies and their lenders; and
(d) monitor and oversee the service of the Company’s and Operating Companies’ debt facilities and other financings, if any.
3.8 Additional Services. The Manager may retain, for and on behalf of the Company or Operating Companies, at their sole cost and expense, such additional services, including property management, development,
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leasing and construction services, of Persons and firms as the Manager deems necessary or advisable in connection with the management and operation of the Company and Operating Companies, which may include the Sponsor, or Affiliates of the Manager or Sponsor; provided, that any such additional services may only be supplied by the Sponsor or Affiliates of the Manager or Sponsor, to the extent provided, on arm’s length terms and at competitive market rates, comparable to those terms and rates that are customary for the provision of such additional services to companies that have investments similar in type, quality and value as the Investments.
Article
4
AUTHORITY OF MANAGER
4.1 Powers of the Manager. Subject to the express limitations set forth in this Agreement and the continuing and exclusive authority of the Board over the management of the Company, the power to direct the management, operation and policies of the Company Group, the Board (by virtue of its approval of this Agreement and authorization of the execution hereof by the officers of the Company) hereby delegates to the Manager the authority to take, or cause to be taken, any and all actions and to execute and deliver any and all agreements, certificates, assignments, instruments or other documents and to do any and all things that, in the sole discretion of the Manager, may be necessary or advisable in connection with the Manager’s duties described in Article 3, including making, financing and disposing of Investments or the entry into and performance of all contracts and other undertakings that are consistent with the Company’s investment objectives and strategy and investment guidelines. The Manager shall have the power to delegate all or any part of its rights and powers to manage and control the business and affairs of the Company and Operating Companies to such officers, employees, Affiliates, agents and representatives of the Manager or any member of the Company Group as it may deem appropriate. Any authority delegated by the Manager to any other Person shall be subject to the limitations on the rights and powers of the Manager specifically set forth in this Agreement or as directed from time to time by the Board.
4.1 Class M Unit. In furtherance of the power and authority delegated to the Manager hereunder, immediately upon effectiveness of the registration statement registering the Company’s Initial Public Offering, the Company shall issue the Manager one Class M unit. The Class M Unit may only be held by the Manager or an Affiliate of the Manager. If the Manager or an Affiliate of the Manager is no longer the Manager of the Company, the Class M Unit shall automatically be forfeited, terminated and cancelled.
4.2 Modification or Revocation of Authority of Manager. The Board may, at any time upon the giving of notice to the Manager, modify or revoke the authority or approvals set forth in Article 3 and this Article 4 hereof; provided, however, that such modification or revocation shall be effective upon receipt by the Manager and shall not be applicable to transactions to which the Manager has committed the Company or Operating Companies to prior to the date of receipt by the Manager of such notification.
Article
5
BANK ACCOUNTS
The Manager may establish and maintain one or more bank accounts in its own name for the account of the Company or Operating Companies or in the name of the Company or the Operating Companies and may collect and deposit into any such account or accounts, and disburse from any such account or accounts, any money on behalf of the Company or Operating Companies, consistent with the Manager’s authority under this Agreement; provided that no funds shall be commingled with the funds of the Manager.
Article
6
RECORDS AND ACCESS
The Manager shall maintain and keep all books, accounts and other records of the Company and Operating Companies that relate to activities performed by the Manager hereunder and make such records available for inspection by the Board and by counsel, auditors and authorized agents of the Company, at any time or from time to time during normal business hours. The Manager shall at all reasonable times have access to the books and records of the Company and Operating Companies.
Article
7
LIMITATION ON ACTIVITIES
Notwithstanding any provision in this Agreement to the contrary, the Manager shall not take any action that, in its sole judgment made in good faith, would (a) adversely and materially affect (i) the ability of the Company to qualify or continue to qualify as a partnership or QOF under the Code, unless the Board has determined that the
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Company will not seek or maintain partnership or QOF qualification, or (ii) any member of the Company Group’s status as an entity excluded from regulation under the Investment Company Act of 1940, as amended, (b) materially violate any law, rule, regulation or statement of policy of any Governmental Entity having jurisdiction over the Company or Operating Companies or the Company’s Securities, or (c) materially violate the Certificate of Formation, Operating Agreement or Charter Documents of the Operating Companies. If the Manager is ordered to take any such action by the Board, the Manager shall promptly notify the Board if, in the Manager’s reasonable judgment, such action would adversely and materially affect such status or violate any such law, rule or regulation or the Certificate of Formation or Operating Agreement or Charter Documents of the Operating Companies. Notwithstanding the foregoing, neither the Manager nor any of its Affiliates shall be liable to the Company, the Board or the holders of the Company’s Securities for any act or omission by the Manager or any of its Affiliates, except as provided in Article 14 of this Agreement.
Article
8
FEES AND OTHER COMPENSATION
8.1 Management Fee. As compensation for the services rendered under this Agreement, the Company shall pay the Manager a quarterly management fee in arrears in an amount equal to an annualized rate of 0.75%, calculated on the basis of the Company’s NAV at the end of each quarter (the “Management Fee”). If applicable, the initial and final installments of the Management Fee shall be pro-rated based on the number of days during the initial and final quarter, respectively, that this Agreement is in effect. The Management Fee shall be payable at the election of the Manager in cash, by issuance of the Company’s Class A units at the then-current NAV, or through some combination of the foregoing. Within approximately 60 days of the last day of each quarter, the Manager shall make available to the Company the quarterly calculation of the Management Fee with respect to such calendar quarter, and the Company shall pay the Manager the Management Fee for such quarter within five business days thereafter. Each payment of the Management Fee shall be treated as a separate payment for purposes of Section 409A of the Code.
8.2 Acquisition Fee. The Company shall pay the Manager, Sponsor, or an affiliate of the Manager or Sponsor, an acquisition fee equal to 1.5% of the total value of any acquisition transaction (the “Acquisition Fee”), including any acquisition by purchase, Investment, exchange or through merger with another entity (but excluding any transactions in which the Sponsor, or an affiliate of the Manager or Sponsor, would otherwise receive a development fee). The Company shall pay the Acquisition Fee promptly upon the closing of an acquisition. The Acquisition Fee shall be payable at the election of the recipient in cash, by issuance of the Company’s Class A units at the then-current NAV, or through some combination of the foregoing. Following termination or non-renewal of this Agreement, the Manager, Sponsor, or affiliate of the Manager or Sponsor, shall be entitled to an Acquisition Fee for acquisition transaction consummated after the Termination Date which was either under negotiation, under contract or the subject of a signed letter of intent (regardless of whether the letter was binding) on a date prior to the Termination Date.
8.3 Equity Compensation. As additional compensation for the services rendered under this Agreement, immediately upon effectiveness of the registration statement registering the Company’s Initial Public Offering, the Company shall issue the Manager 100,000 Class B units. For the avoidance of doubt, the Manager will continue to hold the Class B units even upon terminate or expiration of this Agreement.
Article
9
EXPENSES
9.1 General. In addition to the compensation paid to the Manager pursuant to Article 8 hereof, the members of the Company Group shall pay directly or reimburse the Manager, the Sponsor, or their respective Affiliates, for all Operating Expenses paid or incurred by the Manager or its Affiliates on behalf of any member of the Company Group or in connection with the services provided to members of the Company Group pursuant to this Agreement, including, but not limited to:
(a) all Organization and Offering Expenses;
(b) Acquisition Expenses incurred in connection with the selection and acquisition of Investments, including, but not limited to, such expenses incurred related to assets pursued or considered but not ultimately acquired by a member of the Company Group;
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(c) the actual out-of-pocket cost of goods and services used by a member of the Company Group and obtained from entities not Affiliates of the Manager;
(d) interest and other costs for borrowed money or securitization transactions, including discounts, points and other similar fees;
(e) taxes and assessments on income or Investments, taxes as an expense of doing business and any other taxes otherwise imposed on a member of the Company Group and their business, assets or income;
(f) out-of-pocket costs associated with insurance required in connection with the business of any member of the Company Group or by its officers, directors and the Board;
(g) expenses of managing, improving, developing, operating and selling Investments owned, directly or indirectly, by a member of the Company Group, as well as expenses of other transactions relating to such Investments, including but not limited to prepayments, maturities, workouts and other settlements of loans and other Investments;
(h) all out-of-pocket expenses in connection with payments to the Board and meetings of the Board and holders of the Units or other securities of members of the Company Group;
(i) out-of-pocket expenses of providing services for and maintaining communications with the holders of the Units or other securities of members of the Company Group, including the cost of preparation, printing, and mailing annual reports and other reports, proxy statements and other reports required by any Governmental Entity;
(j) audit, accounting and legal fees, and other fees for professional services relating to the operations of members of the Company Group and all such fees incurred at the request, or on behalf of, the Board or any other committee of the Board;
(k) out-of-pocket costs for members of the Company Group to comply with all applicable laws, regulations and ordinances;
(l) expenses connected with payments of distributions made or caused to be made by members of the Company Group;
(m) expenses of organizing, redomesticating, merging, liquidating or dissolving members of the Company Group or of amending the Certificate of Formation the Operating Agreement or the organizational documents of any member of the Company Group;
(n) all out-of-pocket fees and expenses incurred by the Manager, the Sponsor or their respective Affiliates in connection with performance of the services and activities set forth in Article 3; and
(o) all other out-of-pocket costs incurred by the Manager, the Sponsor or their respective Affiliates in performing its duties hereunder.
9.2 Timing of and Additional Limitations on Reimbursements.
(a) Expenses incurred by the Manager, the Sponsor or their respective Affiliates on behalf of any member of the Company Group and reimbursable pursuant to this Article 9 shall be reimbursed no less than monthly. The Manager, the Sponsor and their respective Affiliates, as applicable, shall prepare statements documenting the expenses the members of the Company Group during each quarter and shall deliver such statement to the Company within 60 days after the end of each quarter. Expenses reimbursable shall be payable at the election of the recipient in cash, by issuance of the Company’s Class A units at the then-current NAV, or through some combination of the foregoing.
(b) Personnel and related employment costs and expenses incurred by the Manager, the Sponsor or their respective Affiliates in performing the services described in Section 3.1 and Section 3.2 hereof, including, without limitation, salaries and wages, benefits and overhead of all employees directly involved in the performance of such services, shall be paid for by the Manager and are not subject to reimbursement by the Company Group.
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Article
10
OTHER SERVICES
Should (a) a member of the Company Group request that the Manager or any manager, officer or employee thereof render services for the Company Group other than as set forth in this Agreement, or (b) there be changes to the regulatory environment in which the Manager or any member of the Company Group operates that would increase significantly the level of services performed such that the costs and expenses borne by the Manager for which the Manager is not entitled to separate reimbursement under Article 9 of this Agreement would increase significantly, then the Manager shall be separately compensated for such services at such rates and in such amounts as are agreed to by the Manager and the Board, subject to the limitations contained in the Certificate of Formation and Operating Agreement, and shall not be deemed to be services pursuant to the terms of this Agreement.
Article
11
RELATIONSHIP OF MANAGER AND BELPOINTE ENTITIES;
OTHER ACTIVITIES OF THE MANAGER
11.1 Relationship. Except as may otherwise be expressly provided for in a written agreement between the parties, the members of the Company Group and the Manager are not partners or Joint Venturers with each other, and nothing in this Agreement shall be construed to make them partners or Joint Venturers. Nothing herein contained shall prevent the Manager, the Sponsor or their respective Affiliates from engaging in other activities, including, without limitation, the rendering of advice to other Persons (including qualified opportunity funds, real estate funds or other private funds) and the management of other programs advised, sponsored or organized by the Manager, the Sponsor or their respective Affiliates. Nor shall this Agreement limit or restrict the right of any manager, director, officer, employee or equityholder of the Manager, the Sponsor or their respective Affiliates to engage in any other business or to render services of any kind to any other Person. The Manager, the Sponsor or their respective Affiliates may, with respect to any Investment in which a member of the Company Group is a participant, also render advice and service to each and every other participant therein. The Manager shall promptly disclose to the Board the existence of any condition or circumstance, existing or anticipated, of which it has knowledge and has not otherwise previously disclosed, that creates or could create a conflict of interest between the Manager’s obligations to the members of the Company Group and its obligations to or its interest in any other Person.
11.2 Time Commitment. The Manager shall, and shall cause its Affiliates and their respective employees, officers and agents to, devote to the Company Group such time as shall be reasonably necessary to conduct the business and affairs of the Company Group in an appropriate manner consistent with the terms of this Agreement. The Company Group acknowledges that the Manager and its Affiliates and their respective employees, officers and agents may also engage in activities unrelated to the Company Group and may provide services to Persons other than members of the Company Group or any of their Affiliates.
11.3 Investment Opportunities and Allocation. The Company Group acknowledges that the Manager may face various conflicts of interest, including relating to co-investments, co-developments, use of service providers, and other matters, as disclosed in the Company’s Prospectus from time to time. The Manager shall use commercially reasonable efforts to present a continuing and suitable investment program to the Company Group in a manner that is consistent with the investment policies and objectives and allocation policy described in the Prospectus, but neither the Manager nor any Affiliate of the Manager shall be obligated generally to present any particular investment opportunity to the Company Group even if the opportunity is of character that, if presented to the Company Group, could be taken by the Company Group. The Company Group acknowledges that the Manager, the Sponsor and their respective Affiliates have no obligation to allocate specific investment opportunities to the Company Group except to the extent described in the Prospectus. The Company Group shall not make any Investment unless the Manager has recommended the Investment to the Company Group.
11.4 Compensation by Manager. For the avoidance of doubt, it is understood that neither the Company Group nor the Board has the authority to determine the salary, bonus or any other compensation paid by the Manager to any director, officer, member, partner, employee, or equityholder of the Manager, the Sponsor or their respective Affiliates including any person who is also a director or officer employee of a member of the Company Group.
Article
12
TERM AND TERMINATION OF THE AGREEMENT
12.1 Term. This Agreement shall have an initial term expiring on December 31, 2025 (the “Initial Term”), and will be automatically renewed for an unlimited number of successive three-year terms thereafter (each a
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“Renewal Term” and together with the Initial Term, the “Term”) unless (a) at least 180 days’ prior the expiration of any Term, the Company provides written notice to the Manager of its intent not to renew, or (b) the Agreement is earlier terminated in accordance with Section 12.2. It is the duty of the Board to evaluate the performance of the Manager before renewing the Agreement.
12.2 Termination. This Agreement may be terminated prior to expiration of a Term at the option of (a) the Manager upon at least 60 days’ prior written notice to the Company, and (b) the Company upon (i) Cause, (ii) the bankruptcy of the Manager, or (iii) a material breach of this Agreement by the Manager, which breach (to the extent such breach is capable of cure) remains uncured for 90 days after the Company provides the Manager with written notice thereof.
12.1 Payments to and Obligations of Manager Upon Termination.
(a) Following the Termination Date, the Manager shall not be entitled to compensation for further services hereunder, except that the Manager, Sponsor, or an affiliate of the Manager or Sponsor, as applicable, shall be entitled to payment: (i) within 15 days after the Termination Date, of all unpaid reimbursements of expenses and all earned but unpaid fees payable prior to the Termination Date; and (ii) of Acquisition Fees in accordance with Section 8.2 for any acquisition transactions consummated after the Termination Date.
(b) Following termination or non-renewal of this Agreement by the Company for any reason or termination of this Agreement by the Manager for breach by the Company, the Manager shall be entitled to receive a termination fee equal to six times the annual Management Fee earned by the Manager during the 12-month period ended as of the last day of the quarter immediately preceding the Termination Date (the “Termination Fee”); provided, however, if less than 12 months have elapsed as of the Termination Date, the Termination Fee shall be calculated by annualizing the Management Fee earned by the Manager during the most recently completed quarter prior to the Termination Date.
(c) The Manager shall promptly upon termination:
(i) pay over to the Company all money collected and held for the account of the Company Group pursuant to this Agreement, if any, after deducting any accrued compensation and reimbursement for its expenses to which it is then entitled;
(ii) deliver to the Board a full accounting, including a statement showing all payments collected by it and a statement of all money held by it, covering the period following the date of the last accounting furnished to the Board;
(iii) deliver to the Board all assets and documents of the Company Group then in the custody of the Manager; and
(iv) cooperate with the Company to provide an orderly transition of management and advisory functions.
Upon any termination or non-renewal of the management agreement by us or any termination of the management agreement by our Manager for our breach of the management agreement, our Manager will be entitled to receive its prorated management fee through the expiration or termination date and will be paid a termination fee equal to six times the sum of the annual management fee earned by our Manager during the 12-month period immediately preceding the most recently completed calendar quarter prior to the termination date; however, if 12 months have not elapsed since the initial term of the management agreement at the time of termination, the annual management fee will be calculated by annualizing the most recently completed calendar quarter prior to the termination date.
Article
13
ASSIGNMENT
This Agreement may be assigned by the Manager to an Affiliate. The Manager may assign any rights to receive fees or other payments under this Agreement without obtaining the approval of the Board. This Agreement shall not be assigned by the Company Group without the consent of the Manager, except in the case of an assignment by the Company to a corporation or other organization that is a successor to all of the assets, rights and obligations of the Company Group, in which case such successor organization shall be bound hereunder and by the
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terms of said assignment in the same manner as the Company Group are bound by this Agreement. Nothing herein shall be deemed to prohibit or otherwise restrict any transfers or additional issuances of equity interests in the Manager nor shall any such transfer or issuance be deemed an assignment for purposes of this Article 13
Article
14
INDEMNIFICATION AND LIMITATION OF LIABILITY
14.1 Indemnification by Company Group.
(a) The members of the Company Group shall indemnify, defend and hold harmless the Manager, the Sponsor and their respective Affiliates, officers, directors, equityholders, partners and employees (each an “Indemnitee”), from all liabilities, claims, damages or losses arising in the performance of their duties hereunder, and related costs and expenses, including reasonable attorneys’ fees, to the extent such liabilities, claims, damages or losses and related costs expenses are not fully reimbursed by insurance.
(b) The Company Group shall pay or reimburse reasonable attorneys’ fees expenses and other costs incurred by an Indemnitee in advance of the final disposition of a proceeding only if the Indemnitee undertakes to repay the amount paid or reimbursed by the Company Group if it is ultimately determined that such Indemnitee is not entitled to indemnification.
14.2 Indemnification by Manager. The Manager, Sponsor, and their respective Affiliates and Associates, shall not have any liability to any member of the Company Group or their respective Affiliates, Associates, any director, officer, member or holder of an equity interest in any member of the Company Group or their respective Affiliates or Associates, for any act or omission, including any mistake of fact or error in judgment, taken, suffered or made.
Article
15
MISCELLANEOUS
15.1 Notices. Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon delivery, when sent by electronic mail (provided that the sending party does not receive an automated rejection or out-of-office notice); or (c) one business day after deposit with a nationally recognized overnight delivery service that provides evidence of delivery, in each case properly addressed to the party to receive the same. The addresses and email addresses for such communications shall be:
If to the Company or Operating Companies:
Belpointe PREP, LLC
255 Glenville Road
Greenwich, Connecticut 06831
Attn.: Brandon E. Lacoff, Chief Executive Officer
Email: blacoff@belpointe.com
If to the Manager:
Belpointe PREP Manger, LLC
255 Glenville Road
Greenwich, Connecticut 06831
Attn.: Brandon E. Lacoff, Managing Member
Email: blacoff@belpointe.com
With a copy (for informational purposes only) to:
Sugar Felsenthal Grais & Helsinger LLP
230 Park Avenue, 9th Floor
New York, New York 10169
Attn.: Vanessa J. Schoenthaler
Email: vschoenthaler@sfgh.com
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or such other address and email address to the attention of such other person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender’s email containing the time, date, recipient email address, or (iii) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by email or receipt from a nationally recognized overnight delivery service in accordance with clause (a), (b) or (c) above, respectively.
15.2 Modification. This Agreement shall not be changed, modified, terminated or discharged, in whole or in part, except by an instrument in writing signed by both parties hereto, or their respective successors or permitted assigns.
15.3 Severability. The provisions of this Agreement are independent of and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part.
15.4 Applicable Law; Jury Trial. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware. The parties hereby irrevocably submit to the exclusive jurisdiction of the courts of the State of New York and the Federal courts of the United States of America located in Borough of Manhattan, New York for purposes of any suit, action or other proceeding arising from this Agreement, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or thereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in such courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts. Each of the parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of any such dispute. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT.
15.5 Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. The express terms hereof control and supersede any course of performance and/or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.
15.6 Joinders. The Company shall cause each Operating Company formed after the Effective Date (each a “Joining Operating Company”) of this Agreement to execute a joinder to this Agreement in the form attached hereto as Exhibit A upon formation of such Joining Operating Company.
15.7 Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence, past, present or future. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
15.8 Gender. Words used herein regardless of the number and gender specifically used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine or neuter, as the context requires.
15.9 Titles Not to Affect Interpretation. The titles of Articles and Sections contained in this Agreement are for convenience only, and they neither form a part of this Agreement nor are they to be used in the construction or interpretation hereof.
15.10 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original as against any party whose signature appears thereon, and all of which shall together constitute one and the same instrument. This Agreement shall become binding when one or more counterparts hereof, individually or taken together, shall bear the signatures of all of the parties reflected hereon as the signatories.
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[Intentionally left blank.
Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date and year first above written.
BELPOINTE PREP, LLC
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Chief Executive Officer
BELPOINTE PREP OC, LLC
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
BELPOINTE PREP TN OC, LLC
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
BELPOINTE PREP MANAGER, LLC
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
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EXHIBIT A
MANAGEMENT AGREEMENT
This JOINDER (this “Joinder”) to the Management Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Agreement”), dated as of April 21, 2021, by and among the Company, the Operating Companies, including any Operating Company which becomes a party thereto by the execution of a joinder agreement substantially in the form of this Joinder, and the Manager. Capitalized terms used herein but not otherwise defined have the meanings set forth in the Agreement.
Pursuant to Section 15.6 of the Agreement, this Company is obligated cause each Operating Company formed after the Effective Date of the Agreement to execute this Joinder upon formation.
The Joining Operating Company hereby agrees as follows.
1. Upon execution of this Joinder, the Joining Operating Company will become a party to the Agreement and will be fully bound by, and subject to, all of the terms and conditions of the Agreement as if the undersigned were an original signatory to the Agreement as an Operating Company.
2. This Joinder shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
3. The parties may execute this Joinder in counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of this Joinder, by facsimile, electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, has the same effect as delivery of an executed original of this Joinder. Any person may rely on a copy of this Joinder.
BELPOINTE PREP MANAGER, LLC
By:
Name: Brandon E. Lacoff
Title: Manager
[●]
By:
Name: [●]
Title: [●]
Exhibit 10.2
EMPLOYEE AND COST SHARING AGREEMENT
This EMPLOYEE AND COST SHARING AGREEMENT (the “Agreement”), dated as of the 21st day of April, 2021, by and among Belpointe, LLC, a Connecticut limited liability company (together with its Subsidiaries, Associates and Affiliates “Belpointe”), Belpointe PREP, LLC, a Delaware limited liability company (the “Company”), the Operating Companies, and Belpointe PREP Manager, LLC, a Delaware limited liability company (the “Manager”), is effective as of the 28th day of October, 2020 (the “Effective Date”). Capitalized terms used but not otherwise defined herein shall have the meanings ascribed to them in the Amended and Restated Limited Liability Company Agreement of Belpointe PREP, LLC.
WHEREAS, the Manager has entered into a Management Agreement with the Company and the Operating Companies, effective as of October 28, 2020 (the “Management Agreement”), pursuant to which the Manager will provide management services to the Company and Operating Companies, as described in the Management Agreement (the “Services”);
WHEREAS, in order for the Manager to reduce expenses and enjoy greater operating efficiencies, (i) Belpointe will share certain employees (the “Shared Employees”) employed by Belpointe, and (ii) the Manager, Company or Operating Companies, as applicable, will reimburse Belpointe for certain costs associated with the Shared Employees;
WHEREAS, Belpointe and the Manager will share office space, supplies, equipment, furniture, and other resources as may be agreed to from time to time (the “Shared Resources”) and the Manager, Company or Operating Companies, as applicable, will reimburse Belpointe for the costs incurred with respect to the Shared Resources; and
WHEREAS, the parties desire to enter into this Agreement to set forth the terms under which Belpointe and the Manager will share the Shared Employees and Shared Resources, and the Manager, Company or Operating Companies, as applicable, will reimburse Belpointe in connection therewith.
NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto agree as follows:
Article
1
Shared Employees and Shared Resources
Section 1.1 Shared Employees. Belpointe agrees to make available to the Manager, and the Manager agrees to accept access to, the Shared Employees for purposes of performing the Services. Belpointe and the Manager shall use reasonable efforts to jointly resolve any work priority or performance conflicts with respect to the Shared Employees, and any conflicts that cannot be resolved jointly will be resolved by Belpointe in its reasonable discretion.
Section 1.1 Employment Status.
(a) For such time as any Shared Employees are shared under this Agreement, (A) the Shared Employees will remain employees of Belpointe and shall not be deemed to be employees of the Manager for any purpose, and (B) Belpointe shall be solely responsible for the payment and provision of all wages, including, but limited to, compensation, bonuses and commissions (collectively, the “Wages”), employee benefits, including, but not limited to, pension and welfare benefits, paid absences, health insurance and other fringe benefits, direct non-labor costs and similar expenses, reimbursement of out-of-pocket third party costs and expenses, severance benefits and workers’ compensation insurance (collectively, the “Benefits”), and the withholding and payment of applicable payroll taxes (the “Taxes”) related to such Shared Employees. The Manager shall not directly pay or provide any Wages or Benefits to the Shared Employees, but rather the Manager, Company or Operating Companies, as applicable, shall reimburse Belpointe for their allocable share of all Wages, Benefits and Taxes paid by Belpointe in accordance with Article 2 of this Agreement.
(b) Nothing contained in this Agreement shall require Belpointe to maintain the employment of any Shared Employee. If any Shared Employee is terminated or ceases for any reason to be employed by Belpointe (including the elimination of such position), then:
(i) If the Manager reasonably determines that the remaining Shared Employees will be unable to perform the activities related to performing the Services in a manner acceptable to the Manager, it will notify Belpointe, and Belpointe use commercially reasonable efforts to retain additional employees with such skills
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and qualifications as the Manager deems necessary. Such retained employees shall be treated as Shared Employees for purposes of this Agreement.
(ii) If the Manager reasonably determines that the remaining Shared Employees will be able to perform the Services in a manner acceptable to the Manager, such Shared Employees shall continue to so perform such activities.
(iii) Belpointe may designate a substitute Shared Employee, who shall, upon such designation, become a Shared Employee for purposes of this Agreement. If the Manager reasonably determines that such designated Shared Employee is inadequate for the performance of the Services, the Manager shall notify Belpointe and the provisions of Section 1.2(b)(i) shall apply.
Section 1.2 Shared Resources. In performing Services for the Manager, the Shared Employees may use the Shared Resources.
Section 1.3 Additional Services. If at any time during the term of this Agreement, the Manager, Company or Operating Companies, as applicable, becomes aware of any service the provision of which by Belpointe is necessary or advisable, which is not already being provided pursuant hereto (each, an “Additional Service”), then the parties shall, as promptly as reasonably practicable, negotiate in good faith (a) whether Belpointe will provide such Additional Service, and (b) upon Belpointe’s agreement to provide such Additional Service, the scope, terms, duration and cost and fees therefor. Once agreed, the parties shall amend this Agreement as necessary to cover such Additional Services.
Article
2
Reimbursement
Section 2.1 Reimbursement. The Manager, Company or Operating Companies, as applicable, will reimburse Belpointe for their allocable share of all:
(a) employment costs incurred by Belpointe with respect to the Shared Employees, including, but not limited to, Wages, Benefits, Taxes, overhead and operational costs (such as office rent maintenance, utilities, and supplies); and
(b) indirect costs incurred by Belpointe with respect to the Shared Employees and Shared Resources, including, but not limited to, general administrative services, human resources and employee benefits, payroll services, activities related to accounts receivable and payable, legal services, corporate, public and investor relations, information and technology services, accounting, auditing, finance and tax services, treasury activities, staffing, recruiting, training and employee development services, insurance claims management, budgeting, and activities related to corporate and government affairs.
Section 2.2 Allocations. Unless otherwise agreed, costs incurred by a party shall be allocated between the Manager, Company and Operating Companies, on the one hand, and Belpointe, on the other hand, using a reasonable allocation methodology to be mutually established by Belpointe and the Manager and reviewed on at least an annual basis.
Section 2.3 Process for and Timing of Reimbursement. Unless otherwise agreed, within 60 days following the end of each fiscal quarter, Belpointe will submit a statement to each of the Manager, Company or Operating Companies, as applicable, setting forth in reasonable detail their allocable share of the costs described in Section 2.1(a) and Section 2.1(b) for such period (each a “Statement”). Full payment of a Statement shall be made withing 10 days following its receipt. Payments may be made in cash, through issuance of equity securities, or by any other means acceptable to Belpointe, in its sole discretion. In the event of any disagreement between the Manager, Company or Operating Companies and Belpointe with respect to any Statement or any amounts owed thereunder, the parties agree to negotiate in good faith to resolve such dispute.
Section 2.4 Reimbursements not Treated as Gross Income. For the avoidance of doubt, the reimbursements described in this Article 2 shall be treated for U.S. federal income tax purposes as if the applicable costs were incurred directly by Belpointe, and the Manager, Company or Operating Companies, as applicable, shall not treat any such cost as an item of deduction, nor the reimbursed amount as an item of income.
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Article 3
Limitation of Liability; Indemnification
Section 3.1 Limitation of Liability. To the fullest extent permitted by applicable law, neither the Shared Employees, Belpointe, its members, principals, managers, officers, employees or agents, nor their respective Associates or Affiliates (the “Indemnitees”), shall have any liability to the Manager, Company, Operating Companies, any other party, or their respective Associates, Affiliates, directors, officers, equityholders, employees or agents, whether based on contract, warranty, tort, strict liability, or any other theory, for any damages, including, without out limitation, indirect, incidental, consequential or special damages, arising out of or relating to this Agreement.
Section 3.2 Indemnification. To the fullest extent permitted by applicable law, all Indemnitees shall be indemnified and held harmless by the Manager, Company and Operating Companies, jointly and severally, on an after tax basis from and against any and all losses, claims, damages, liabilities, joint or several, expenses (including legal fees and expenses), judgments, fines, penalties, interest, amounts paid in settlement (with approval of the Manager) or other amounts arising from any and all threatened, pending or completed claims, demands, actions, suits or proceedings, whether civil, criminal, administrative or investigative, and whether formal or informal and including appeals, in which any Indemnitee may be involved, or is threatened to be involved, as a party or otherwise, by reason of its status as an Indemnitee whether arising from acts or omissions occurring on, before or after the date of this Agreement, except for liability caused by an Indemnitee’s willful malfeasance or gross negligence,
Section 3.3 Survival. The indemnification obligations set forth in this Section 3.1 shall survive the termination or expiration of this Agreement.
Article
4
Confidential Information
Section 4.1 Confidential Information. As used in this Agreement, the “Confidential Information” of a party (a “Disclosing Party”) includes, but is not limited to, all information belonging to the Disclosing Party and not generally known to the public, in spoken, printed, electronic, or any other form or medium, or which was learned, discovered, developed, conceived, originated, or prepared by a Shared Employee in the scope and during course of this Agreement, relating directly or indirectly to: business processes, practices, methods, policies, plans, publications, documents, research, operations, services, strategies, techniques, agreements, contracts, terms of agreements, Investments, Securities, transactions, potential transactions, negotiations, pending negotiations, know-how, trade secrets, databases, records, articles, systems, material, sources of material, partner information, developer information, supplier information, vendor information, financial information, results, accounting information, accounting records, legal information, marketing information, advertising information, pricing information, credit information, design information, payroll information, staffing information, personnel information, employee lists, supplier lists, vendor lists, developments, reports, internal controls, security procedures, graphics, drawings, sketches, market studies, sales information, revenue, costs, notes, communications, designs, styles, models, ideas, audiovisual programs, inventions, specifications, client information, client lists, an audit pursuant to Section 4.4, or of any other person or entity that has entrusted information to the Disclosing Party in confidence. Confidential Information also includes other information that is marked or otherwise identified as confidential or proprietary, or information that would otherwise appear to a reasonable person to be confidential or proprietary in the context and circumstances in which the information is known or used.
Section 4.2 Confidentiality Obligations. Except as expressly authorized by prior written consent of the Disclosing Party, the receiving party (“Receiving Party”) shall:
(a) limit access to any Confidential Information of the Disclosing Party received by it to its and its Affiliates’, Associates’ directors, officers, employees, subcontractors, agents and representatives, including third-party vendors, who need to know in connection with this Agreement and the obligations of the parties hereunder;
(b) advise such directors, officers, employees, subcontractors, agents and representatives, including third-party vendors, having access to the Confidential Information of the Disclosing Party of the proprietary nature thereof and of the obligations set forth in this Agreement and confirm their agreement that they will be bound by such obligations;
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(c) safeguard all Confidential Information of the Disclosing Party using a reasonable degree of care, but not less than that degree of care used by the Receiving Party in safeguarding its own similar information or material;
(d) comply in all material respects with all applicable: (A) laws relating to maintaining the confidentiality of the Confidential Information of the Disclosing Party; and (B) privacy policies provided to the Receiving Party relating to Confidential Information of the Disclosing Party;
(e) not reproduce or use any Confidential Information of the Disclosing Party or disclose the Confidential Information of the Disclosing Party to any other person without the prior written consent of the Disclosing Party; and
(f) use the Confidential Information of the Disclosing Party only for the purposes and in connection with the performance of the Receiving Party’s obligations set forth in this Agreement.
Section 4.3 Exceptions. Notwithstanding the obligations set forth in Section 4.2, the obligations of confidentiality, non-use and non-disclosure imposed under this Article 4 shall not apply to any Confidential Information of the Disclosing Party that the Receiving Party can demonstrate:
(a) has been published or otherwise been made available to the general public without breach of this Agreement;
(b) has been furnished or made known to the Receiving Party without any obligation to keep it confidential by a third person under circumstances which are not known or should not have reasonably been known to the Receiving Party to involve a breach of the third person’s obligations to a party hereto; or
(c) was developed or acquired independently by an employee or agent of the Receiving Party without access to or use of Confidential Information of the Disclosing Party furnished to the Receiving Party pursuant to this Agreement.
Article
5
Books and Records; Audit Rights
Section 5.1 Maintenance of Books and Records. Each party agrees to maintain, and to cause its applicable Affiliates to maintain, books and records arising from or related to any Shared Employees, Shared Resources or Additional Services provided hereunder that are accurate and complete in all material respects during the term, and for a period of four years following the termination or expiration, of this Agreement (the “Records”).
Section 5.2 Access to Books and Records. Upon written request a party to this Agreement shall provide any other party with reasonable access to its Records and relevant personnel during the term of this Agreement (and, for a period of four years following its termination or expiration, for purposes of defending any litigation, the preparation of income and other tax returns, demonstrating to any third-party as reasonably necessary compliance with applicable laws or regulations or pursuant to the request of any applicable regulatory authority); provided, that the requesting party shall bear any expenses (including out of pocket expenses) incurred in connection therewith, such access shall be provided at a reasonable time, under the supervision of the complying party’s or its Affiliates’ personnel and in such a manner as not to interfere unreasonably with the normal operation of such complying party’s or its Affiliates’ businesses, and shall be subject to any confidentiality obligations on the part of the requesting party or its Affiliates to any third party; provided further that nothing herein shall require any party to provide a requesting party access to any information contained in any Record that does not relate to the Shared Employees, Shared Resources or Additional Services.
Section 5.3 Audit Rights.
(a) During the term of this Agreement, and for a period of one year following its termination or expiration, no more than once in any 12-month period, a representative acting on behalf of the Manager, Company and Operating Companies, as a group, which, for the avoidance of doubt, may be the Manager, Company, an Operating Company, or one of their respective Associates, Affiliates, officers, employees or agents (a “Representative”) shall have the right to audit the Records of Belpointe pertaining to the Shared Employees, Shared Resources or Additional Services provided during the preceding fiscal year (the “Audit”). Any such Representative shall be reasonably acceptable to Belpointe and shall enter into a customary confidentiality agreement with respect to the information and materials reviewed during the course of the audit.
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(b) Any Audit shall be conducted during regular business hours, at the office of Belpointe and in a manner that does not unreasonably interfere with the operations of Belpointe. Each Audit shall begin on and agreed upon date and shall be completed as soon as reasonably practicable thereafter. The Manager, Company and Operating Companies shall pay the costs of conducting such Audit.
(c) In connection with any Audit, Belpointe shall provide the Representative reasonable access to Records (and permit the Representative to examine and make copies and abstracts from such Records), facilities and management personnel and Affiliates (if applicable) with respect to the relevant Shared Employees, Shared Resources or Additional Services provided for the purpose of: (i) performing the Company’s end of fiscal quarter or end of fiscal year financial closing process, and to prepare the related financial statements and accounting reports, or to revise any financial statements and accounting reports for any prior periods; or (ii) performing audits and inspections of the relevant businesses necessary to meet regulatory requirements applicable to the Company, including Section 404 of the Sarbanes-Oxley Act of 2002, as amended.
Article
6
Term; Termination
Section 6.1 Term. This Agreement shall have an initial term expiring on December 31, 2025 (the “Initial Term”), and will be automatically renewed for an unlimited number of successive three-year terms thereafter (each a “Renewal Term” and together with the Initial Term, the “Term”), unless (a) at least 180 days’ prior the expiration of any Term, the Manager provides written notice to Belpointe of its intent not to renew, or (b) the Agreement is earlier terminated in accordance with Section 6.2.
Section 6.2 Termination. This Agreement may be terminated prior to expiration of a Term at the option of (a) Belpointe upon at least 60 days’ prior written notice to the Manager, and (b) the Manager upon (i) Cause, (ii) the bankruptcy of Belpointe, or (iii) a material breach of this Agreement by Belpointe, which breach (to the extent such breach is capable of cure) remains uncured for 90 days after the Manger provides Belpointe with written notice thereof. With respect to the termination of this Agreement, “Cause” means fraud or willful malfeasance, gross negligence, the commission of a felony or a material violation of applicable law, in each case that has or could reasonably be expected to have a material adverse effect on the Manager or Company and Operating Companies, as a group.
Section 6.3 Payments on Termination. Any termination of this Agreement shall in no way be deemed to effect a release of the Manager, Company or Operating Companies, as applicable, from their obligations to reimburse Belpointe for any costs incurred under the terms of this Agreement through the date of termination.
Article
7
Miscellaneous
Section 7.1 Notices. Any notices or other communications required or permitted to be given under the terms of this Agreement must be in writing and will be deemed to have been delivered: (a) upon receipt, when delivered personally; (b) upon delivery, when sent by electronic mail (provided that the sending party does not receive an automated rejection or out-of-office notice); or (c) one business day after deposit with a nationally recognized overnight delivery service that provides evidence of delivery, in each case properly addressed to the party to receive the same. The addresses and email addresses for such communications shall be:
If to Belpointe:
Belpointe, LLC
255 Glenville Road
Greenwich, Connecticut 06831
Attn.: Brandon E. Lacoff, Managing Member
Email: blacoff@belpointe.com
If to the Manager:
Belpointe PREP Manger, LLC
255 Glenville Road
Greenwich, Connecticut 06831
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Attn.: Brandon E. Lacoff, Managing Member
Email: blacoff@belpointe.com
If to the Company or Operating Companies:
Belpointe PREP, LLC
255 Glenville Road
Greenwich, Connecticut 06831
Attn.: Brandon E. Lacoff, Chief Executive Officer
Email: blacoff@belpointe.com
With a copy (for informational purposes only) to:
Sugar Felsenthal Grais & Helsinger LLP
230 Park Avenue, 9th Floor
New York, New York 10169
Attn.: Vanessa J. Schoenthaler
Email: vschoenthaler@sfgh.com
or such other address and email address to the attention of such other person as the recipient party has specified by written notice given to each other party five (5) days prior to the effectiveness of such change. Written confirmation of receipt (i) given by the recipient of such notice, consent, waiver or other communication, (ii) mechanically or electronically generated by the sender’s email containing the time, date, recipient email address, or (iii) provided by a courier or overnight courier service shall be rebuttable evidence of personal service, receipt by email or receipt from a nationally recognized overnight delivery service in accordance with clause (a), (b) or (c) above, respectively.
Section 7.2 Entire Agreement. This Agreement contains the entire agreement and understanding between the parties hereto with respect to the subject matter hereof, and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions, express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof.
Section 7.3 Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and documents, as any other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
Section 7.4 Severability. Each provision of this Agreement shall be considered separable; and if, for any reason, any provision or provisions herein are determined to be invalid and contrary to any existing or future law, such invalidity shall not impair the operation of or affect those portions of this Agreement which are valid.
Section 7.5 Applicable Law; Jurisdiction; Waiver of Jury Trial. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Delaware. The parties hereby irrevocably submit to the exclusive jurisdiction of the federal and state courts located in Stanford, Connecticut for purposes of any suit, action or other proceeding arising from this Agreement, and hereby waive, and agree not to assert, as a defense in any action, suit or proceeding for the interpretation or enforcement hereof or thereof, that it is not subject thereto or that such action, suit or proceeding may not be brought or is not maintainable in such courts or that the venue thereof may not be appropriate or that this Agreement or any such document may not be enforced in or by such courts. Each of the parties hereby consent to and grant any such court jurisdiction over the person of such parties and over the subject matter of any such dispute. EACH OF THE PARTIES TO THIS AGREEMENT HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT
Section 7.6 Amendments. Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived, generally or in a particular instance, and either retroactively or prospectively, only with the written consent of the parties hereto.
Section 7.7 Waiver. Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such right, remedy, power or privilege with respect to any other occurrence,
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past, present or future. No waiver shall be effective unless it is in writing and is signed by the party asserted to have granted such waiver.
Section 7.8 Binding Effect. Except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of and be binding upon the parties hereto and their respective heirs, executors, administrators, representatives, trustees, permitted assigns and successors in interest.
Section 7.9 Captions. Captions to Articles, Sections and subsections of this Agreement are included for convenience of reference only and shall not constitute a part of this Agreement for any other purpose or in any way affect the meaning or construction of any provision of this Agreement.
Section 7.10 No Partnership or Joint Venture. In performing its obligations under this Agreement, Belpointe and the Shared Employees will be an independent contractor of each of the Manager, Company and Operating Companies, as applicable, and this Agreement will not be deemed to create a partnership, joint venture, or other arrangement between the parties.
Section 7.11 Joinders. The Company shall cause each Operating Company formed after the Effective Date (each a “Joining Operating Company”) of this Agreement to execute a joinder to this Agreement in the form attached hereto as Exhibit A upon formation of such Joining Operating Company.
Section 7.12 Third-Party Beneficiaries. This Agreement is made solely for the benefit of the parties and their permitted successors and assigns and does not create, and shall not be construed as creating, any rights enforceable by any Person that is not a party hereto; provided, however, that the members, principals, managers, officers, employees and agents of Belpointe and the Manager, and their respective Associates and Affiliates, shall be third party beneficiaries of Section 3.1.
Section 7.13 Counterparts. The parties may execute this Agreement in counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of this Agreement, by facsimile, electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, has the same effect as delivery of an executed original of this Agreement.
[Intentionally left blank.
Signature page follows.]
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IN WITNESS WHEREOF, the parties hereto have executed this Employee and Cost Sharing Agreement as of the date and year first above written.
BELPOINTE, LLC
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
BELPOINTE PREP, LLC
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Chief Executive Officer
BELPOINTE PREP OC, LLC
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
BELPOINTE PREP TN OC, LLC
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
BELPOINTE PREP MANAGER, LLC
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
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EXHIBIT A
JOINDER TO EMPLOYEE AND COST SHARING AGREEMENT
This JOINDER (this “Joinder”) to the Employee and Cost Sharing Agreement (as amended, restated, supplemented or otherwise modified from time to time, the “Agreement”), dated as of April 21, 2021, by and among Belpointe, the Company, the Operating Companies, including any Operating Company which becomes a party thereto by the execution of a joinder agreement substantially in the form of this Joinder, and the Manager. Capitalized terms used herein but not otherwise defined have the meanings set forth in the Agreement.
Pursuant to Section 3.12 of the Agreement, this Company is obligated cause each Operating Company formed after the Effective Date of the Agreement to execute this Joinder upon formation.
The Joining Operating Company hereby agrees as follows.
1. Upon execution of this Joinder, the Joining Operating Company will become a party to the Agreement and will be fully bound by, and subject to, all of the terms and conditions of the Agreement as if the undersigned were an original signatory to the Agreement as an Operating Company.
2. This Joinder shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any choice or conflict of law provision or rule (whether of the State of Delaware or any other jurisdiction) that would cause the application of the laws of any jurisdiction other than the State of Delaware.
3. The parties may execute this Joinder in counterparts, each of which shall be deemed an original, and all of which taken together shall constitute one and the same instrument. Delivery of an executed counterpart of this Joinder, by facsimile, electronic mail in portable document format (.pdf), or by any other electronic means intended to preserve the original graphic and pictorial appearance of a document, has the same effect as delivery of an executed original of this Joinder. Any person may rely on a copy of this Joinder.
BELPOINTE, LLC
By:
Name: Brandon E. Lacoff
Title: Manager
[●]
By:
Name: [●]
Title: [●]
Exhibit 10.3
BELPOINTE PREP, LLC
SECURED PROMISSORY NOTE
$35,000,000 | October 28, 2020 |
Greenwich, Connecticut |
FOR VALUE RECEIVED, Belpointe PREP, LLC, a Delaware limited liability company (together with its successors, the “Company”), hereby unconditionally promises to pay to the order of Belpointe REIT, Inc., a Maryland corporation (together with its successors and permitted assigns, the “Holder”), the principal sum of Thirty Five Million Dollars ($35,000,000) together with interest thereon at the rate set forth in Section 1.
1. Interest Rate. Interest on the outstanding principal balance of this note (this “Note”) shall accrue at a rate of 0.14% per annum (the “Interest Rate”). Interest shall be calculated on the basis of a 365/366-day year and the actual number of days elapsed. Following the occurrence and during the continuation of an Event of Default (as hereinafter defined), this Note shall accrue interest at a rate that is 2% in excess of the Interest Rate (the “Default Rate”) until such time as the Event of Default is cured or waived as provided herein.
2. Maturity. The outstanding principal balance of this Note, together with all accrued and unpaid interest thereon, is due and payable on June 30, 2021 (the “Maturity Date”).
3. Prepayment. The Company may, at any time and from time to time, prepay all or any portion of the principal amount of this Note, without penalty or premium. All such prepayments shall be accompanied by the payment of all unpaid interest on the principal amount prepaid accrued to the date of prepayment.
4. Method of Payment. Payment of any amounts due hereunder (whether principal or interest) shall be made in United States Dollars by wire transfer of immediately available funds to such bank account as the Holder may from time to time designate in writing. Any payment due hereunder on a date which is not a business day shall be due and payable on the immediately following business day.
5. Events of Default. For so long as any obligations under this Note remain outstanding, each of the following shall be an “Event of Default” under this Note:
(a) the Company fails to pay any amount due under this Note when due and payable, and such failure continues for thirty (30) days after notice thereof to the Company;
(b) the Company makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts as they become due, or files a voluntary petition in bankruptcy, or is adjudicated as bankrupt or insolvent, or files any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation in the United States, or files any answer admitting or failing to deny the material allegations of a petition filed against the Company for any such relief, or seeks or consents to or acquiesces in the appointment of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, or the Company or its directors or majority equityholders take any action for the purpose of effecting any of the foregoing
(c) if, within sixty (60) days after the commencement of any proceeding against the Company seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, in the United States, such proceeding has not been dismissed or if, within sixty (60) after the appointment without the consent or acquiescence of the Company, of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment has not been vacated;
6. Remedies on Default, etc. If an Event of Default has occurred and is continuing, subject to Section 8, the Holder may (a) elect, by written notice to the Company, to declare the entire amount outstanding hereunder to be due and payable in full, whereupon the entire such amount shall be and become due and payable in full, provided, however, that no such notice shall be required in the event of occurrence of one of the events specified in clauses (b) or (c) of Section 5 and if any such event shall occur this Note and all amounts outstanding hereunder shall immediately and automatically be and become due and payable in full without notice or declaration of any kind, and (b) proceed to protect and enforce its rights by a suit or other appropriate proceeding, whether for the specific performance of any agreement contained in this Note, or for an injunction against a violation of any of the terms hereof or in aid of the exercise of any right, power or remedy granted hereby or by law, equity, statute or otherwise. No course of dealing and no delay on the part of the Holder in exercising any right, power or remedy will operate as
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a waiver thereof or otherwise prejudice the Holder’s rights, powers or remedies. No right, power or remedy conferred hereby is exclusive of any other right, power or remedy referred to herein or now or hereafter available at law, by statute or otherwise. To the extent permitted by applicable law, the Company hereby agrees to waive, and does hereby absolutely and irrevocably waive and relinquish, the benefit and advantage of any valuation, stay, appraisement, extension or redemption law now existing or which may hereafter exist, which, but for this provision, might be applicable to any sale made under the judgment, order or decree of any court, or otherwise, based on this Note or on any claim for principal of, or interest on, this Note.
7. Security Interest. As security for the payment of all amounts owed hereunder, the Company hereby assigns to Holder as security, and grants to Holder, a continuing security interest in all of the assets and property of the Company whether now or hereafter owned, existing or acquired, regardless of where located, including, without limitation, all of the Company’s: (a) Accounts; (b) Certificated Securities; (c) Chattel Paper, including Electronic Chattel Paper; (d) Commercial Tort Claims; (e) Deposit Accounts; (f) Documents; (g) Investment Property; (h) General Intangibles, including without limitation Payment Intangibles; (i) Goods (including all of its Equipment, Fixtures and Inventory), and all embedded software, accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor; (j) Instruments; (k) Intellectual Property; (l) Letter of Credit Rights and Letters of Credit; (m) money (of every jurisdiction whatsoever); (n) Security Entitlements; (o) Supporting Obligations; (p) Uncertificated Securities; (q) all books and records and recorded data relating to any of the foregoing (regardless of the medium of recording or storage); and (r) to the extent not included in the foregoing, other personal property of any kind or description, together with all tangible or intangible property relating thereto, used or useful in connection with any of the foregoing, together with additions and accessions thereto, and all Proceeds, products, offspring, rents, issues, profits and returns of and from any of the foregoing, and all insurance policies and proceeds insuring the foregoing property or any part thereof, including unearned premiums (collectively, the “Collateral”). Capitalized terms used in this Section 7 and not defined in this Note shall have the meanings ascribed to them in the Uniform Commercial Code now in effect in the State of Delaware. If an Event of Default shall have occurred and be continuing, Holder may exercise any or all of the remedies available to it under applicable law with respect to the Collateral. Upon the written request of Holder, the Company shall take any actions that Holder may reasonably request to maintain and prefect Holder’s security interest in the Collateral.
8. Amendments and Waivers. Neither this Note nor any term hereof may be amended or waived orally or in writing, except that any term of this Note may be amended and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of the Company and the Holder.
9. Captions. Any headings or captions in this Note are inserted for convenience of reference only. Such headings or captions shall not be deemed to constitute a part of this Note, nor shall they be used to construe or interpret the provisions of this Note.
10. Notices. All notices, consents, waivers and other communications required or permitted by this Note shall be in writing and shall be deemed given to a party when: (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by email with confirmation of transmission; or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses and marked to the attention of the person (by name or title) designated below (or to such other address or person as a party may designate by notice to the other parties):
11. Restrictions on Transfer. THE HOLDER MAY NOT SELL, TRANSFER, ASSIGN, ENCUMBER OR OTHERWISE PLEDGE OR DISPOSE OF THIS NOTE, INCLUDING THE UNDERLYING RIGHT TO RECEIVE PAYMENT HEREUNDER, AT ANY TIME WITHOUT OBTAINING THE PRIOR WRITTEN CONSENT OF THE COMPANY.
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12. Governing Law and Jurisdiction. This Note shall be governed by and construed according to the internal laws (and not the choice of laws) of the State of Delaware.
13. Severability. In the event any one or more of the provisions of this Note shall for any reason be held invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event any one or more of the provisions of this Note operate or would prospectively operate to invalidate this Note, then, and in either of such events, such provision or provisions only shall be deemed null and void to the minimum extent necessary, and shall not affect any other provision of this Note and the remaining provisions of this Note shall remain operative and in full force and effect.
14. Waiver of Jury Trial. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS NOTE, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR IN WRITING) OR ACTIONS OF EITHER PARTY.
[Intentionally left blank.
Signature page follows.]
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IN WITNESS WHEREOF, the Company has through it duly authorized manager executed and delivered this Note as of the date first set forth above written.
BELPOINTE PREP, LLC
By: Belpointe PREP Manager, LLC, its manager
By: /s/ Brandon
E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
Accepted and agreed as of the
date first set forth above:
BELPOINTE REIT, INC.
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: President and Chief Executive Officer
Exhibit 10.4
BELPOINTE PREP, LLC
SECURED PROMISSORY NOTE
$24,000,000 | February 16, 2021 |
Greenwich, Connecticut |
FOR VALUE RECEIVED, Belpointe PREP, LLC, a Delaware limited liability company (together with its successors, the “Company”), hereby unconditionally promises to pay to the order of Belpointe REIT, Inc., a Maryland corporation (together with its successors and permitted assigns, the “Holder”), the principal sum of Twenty Four Million Dollars ($24,000,000) together with interest thereon at the rate set forth in Section 1.
1. Interest Rate. Interest on the outstanding principal balance of this note (this “Note”) shall accrue at a rate of 0.14% per annum (the “Interest Rate”). Interest shall be calculated on the basis of a 365/366-day year and the actual number of days elapsed. Following the occurrence and during the continuation of an Event of Default (as hereinafter defined), this Note shall accrue interest at a rate that is 2% in excess of the Interest Rate (the “Default Rate”) until such time as the Event of Default is cured or waived as provided herein.
2. Maturity. The outstanding principal balance of this Note, together with all accrued and unpaid interest thereon, is due and payable on June 30, 2021 (the “Maturity Date”).
3. Prepayment. The Company may, at any time and from time to time, prepay all or any portion of the principal amount of this Note, without penalty or premium. All such prepayments shall be accompanied by the payment of all unpaid interest on the principal amount prepaid accrued to the date of prepayment.
4. Method of Payment. Payment of any amounts due hereunder (whether principal or interest) shall be made in United States Dollars by wire transfer of immediately available funds to such bank account as the Holder may from time to time designate in writing. Any payment due hereunder on a date which is not a business day shall be due and payable on the immediately following business day.
5. Events of Default. For so long as any obligations under this Note remain outstanding, each of the following shall be an “Event of Default” under this Note:
(a) the Company fails to pay any amount due under this Note when due and payable, and such failure continues for thirty (30) days after notice thereof to the Company;
(b) the Company makes an assignment for the benefit of creditors, or admits in writing its inability to pay its debts as they become due, or files a voluntary petition in bankruptcy, or is adjudicated as bankrupt or insolvent, or files any petition or answer seeking for itself any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation in the United States, or files any answer admitting or failing to deny the material allegations of a petition filed against the Company for any such relief, or seeks or consents to or acquiesces in the appointment of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, or the Company or its directors or majority equityholders take any action for the purpose of effecting any of the foregoing
(c) if, within sixty (60) days after the commencement of any proceeding against the Company seeking any reorganization, arrangement, composition, readjustment, liquidation, dissolution or similar relief under any present or future statute, law or regulation, in the United States, such proceeding has not been dismissed or if, within sixty (60) after the appointment without the consent or acquiescence of the Company, of any trustee, receiver or liquidator of the Company or of all or any substantial part of the properties of the Company, such appointment has not been vacated;
6. Remedies on Default, etc. If an Event of Default has occurred and is continuing, subject to Section 8, the Holder may (a) elect, by written notice to the Company, to declare the entire amount outstanding hereunder to be due and payable in full, whereupon the entire such amount shall be and become due and payable in full, provided, however, that no such notice shall be required in the event of occurrence of one of the events specified in clauses (b) or (c) of Section 5 and if any such event shall occur this Note and all amounts outstanding hereunder shall immediately and automatically be and become due and payable in full without notice or declaration of any kind, and (b) proceed to protect and enforce its rights by a suit or other appropriate proceeding, whether for the specific performance of any agreement contained in this Note, or for an injunction against a violation of any of the terms hereof or in aid of the exercise of any right, power or remedy granted hereby or by law, equity, statute or otherwise. No course of dealing and no delay on the part of the Holder in exercising any right, power or remedy will operate as
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a waiver thereof or otherwise prejudice the Holder’s rights, powers or remedies. No right, power or remedy conferred hereby is exclusive of any other right, power or remedy referred to herein or now or hereafter available at law, by statute or otherwise. To the extent permitted by applicable law, the Company hereby agrees to waive, and does hereby absolutely and irrevocably waive and relinquish, the benefit and advantage of any valuation, stay, appraisement, extension or redemption law now existing or which may hereafter exist, which, but for this provision, might be applicable to any sale made under the judgment, order or decree of any court, or otherwise, based on this Note or on any claim for principal of, or interest on, this Note.
7. Security Interest. As security for the payment of all amounts owed hereunder, the Company hereby assigns to Holder as security, and grants to Holder, a continuing security interest in all of the assets and property of the Company whether now or hereafter owned, existing or acquired, regardless of where located, including, without limitation, all of the Company’s: (a) Accounts; (b) Certificated Securities; (c) Chattel Paper, including Electronic Chattel Paper; (d) Commercial Tort Claims; (e) Deposit Accounts; (f) Documents; (g) Investment Property; (h) General Intangibles, including without limitation Payment Intangibles; (i) Goods (including all of its Equipment, Fixtures and Inventory), and all embedded software, accessions, additions, attachments, improvements, substitutions and replacements thereto and therefor; (j) Instruments; (k) Intellectual Property; (l) Letter of Credit Rights and Letters of Credit; (m) money (of every jurisdiction whatsoever); (n) Security Entitlements; (o) Supporting Obligations; (p) Uncertificated Securities; (q) all books and records and recorded data relating to any of the foregoing (regardless of the medium of recording or storage); and (r) to the extent not included in the foregoing, other personal property of any kind or description, together with all tangible or intangible property relating thereto, used or useful in connection with any of the foregoing, together with additions and accessions thereto, and all Proceeds, products, offspring, rents, issues, profits and returns of and from any of the foregoing, and all insurance policies and proceeds insuring the foregoing property or any part thereof, including unearned premiums (collectively, the “Collateral”). Capitalized terms used in this Section 7 and not defined in this Note shall have the meanings ascribed to them in the Uniform Commercial Code now in effect in the State of Delaware. If an Event of Default shall have occurred and be continuing, Holder may exercise any or all of the remedies available to it under applicable law with respect to the Collateral. Upon the written request of Holder, the Company shall take any actions that Holder may reasonably request to maintain and prefect Holder’s security interest in the Collateral.
8. Amendments and Waivers. Neither this Note nor any term hereof may be amended or waived orally or in writing, except that any term of this Note may be amended and the observance of any term of this Note may be waived (either generally or in a particular instance and either retroactively or prospectively) with (but only with) the written consent of the Company and the Holder.
9. Captions. Any headings or captions in this Note are inserted for convenience of reference only. Such headings or captions shall not be deemed to constitute a part of this Note, nor shall they be used to construe or interpret the provisions of this Note.
10. Notices. All notices, consents, waivers and other communications required or permitted by this Note shall be in writing and shall be deemed given to a party when: (a) delivered to the appropriate address by hand or by nationally recognized overnight courier service (costs prepaid); (b) sent by email with confirmation of transmission; or (c) received or rejected by the addressee, if sent by certified mail, return receipt requested, in each case to the following addresses and marked to the attention of the person (by name or title) designated below (or to such other address or person as a party may designate by notice to the other parties):
11. Restrictions on Transfer. THE HOLDER MAY NOT SELL, TRANSFER, ASSIGN, ENCUMBER OR OTHERWISE PLEDGE OR DISPOSE OF THIS NOTE, INCLUDING THE UNDERLYING RIGHT TO RECEIVE PAYMENT HEREUNDER, AT ANY TIME WITHOUT OBTAINING THE PRIOR WRITTEN CONSENT OF THE COMPANY.
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12. Governing Law and Jurisdiction. This Note shall be governed by and construed according to the internal laws (and not the choice of laws) of the State of Delaware.
13. Severability. In the event any one or more of the provisions of this Note shall for any reason be held invalid, illegal or unenforceable, in whole or in part or in any respect, or in the event any one or more of the provisions of this Note operate or would prospectively operate to invalidate this Note, then, and in either of such events, such provision or provisions only shall be deemed null and void to the minimum extent necessary, and shall not affect any other provision of this Note and the remaining provisions of this Note shall remain operative and in full force and effect.
14. Waiver of Jury Trial. THE PARTIES HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE THE RIGHT TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION BASED ON THIS NOTE, ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS NOTE OR ANY COURSE OF CONDUCT, COURSE OF DEALINGS, STATEMENTS (WHETHER ORAL OR IN WRITING) OR ACTIONS OF EITHER PARTY.
[Intentionally left blank.
Signature page follows.]
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IN WITNESS WHEREOF, the Company has through it duly authorized manager executed and delivered this Note as of the date first set forth above written.
BELPOINTE PREP, LLC
By: Belpointe PREP Manager, LLC, its manager
By: /s/ Brandon
E. Lacoff
Name: Brandon E. Lacoff
Title: Manager
Accepted and agreed as of the
date first set forth above:
BELPOINTE REIT, INC.
By: /s/ Brandon E. Lacoff
Name: Brandon E. Lacoff
Title: President and Chief Executive Officer
Exhibit 14.1
BELPOINTE PREP, LLC
CODE OF BUSINESS CONDUCT AND ETHICS
I. | INTRODUCTION |
The Board of Directors (the “Board”) of Belpointe PREP, LLC (the “Company,” “we,” “us” or “our”) has adopted this Code of Business Conduct and Ethics (this “Code”) to deter wrongdoing and promote:
· | honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; |
· | full, fair, accurate, timely and understandable disclosure in the public communications that we make and in the reports and documents that we file with, or submit to, the Securities and Exchange Commission (the “SEC”); |
· | compliance with applicable regulatory and governmental rules and regulations; |
· | prompt internal reporting of violations of the Code to an appropriate person or persons; and |
· | accountability for adherence to the Code. |
This Code applies to all employees (if any), officers and directors of the Company (“you” or “your”). You must acknowledge in writing that you have received a copy of this Code, have read it and understand that this Code governs our expectations regarding your conduct. You are required to report any suspected violations of this Code as described below in Section XII.
II. | STANDARDS OF CONDUCT |
Pursuant to the Code:
· | You must engage in and promote honest and ethical conduct. |
· | You must comply with the Code and all applicable governmental laws, rules and regulations of federal, state and local governments and other appropriate regulatory agencies. |
· | You must pay strict attention to actual and potential conflicts of interests, and deal with them appropriately, in accordance with Section III of the Code. |
If you have any questions about how this Code should be applied in a particular situation, you should promptly contact Belpointe PREP Manager, LLC (our “Manager”) or such other appropriate personnel designated by the Board. You must act with integrity and observe the highest ethical standards of business conduct in your dealings with our customers, suppliers, partners, service providers, competitors, employees and anyone else with whom you have contact in the course of performing services for the Company.
III. | CONFLICTS OF INTEREST; CORPORATE OPPORTUNITIES |
A “conflict of interest” occurs when an individual’s private interest interferes in any way – or even appears to interfere – with the interests of the Company. A conflict situation can arise when an executive officer takes actions or has interests that may make it difficult to perform his or her Company work objectively and effectively. Conflicts of interest also arise when an executive officer or a member of his or her family receives improper personal benefits as a result of his or her position in the Company.
Loans to, or guarantees of obligations of, such persons are of special concern. It is unlawful for the Company, directly or indirectly, including through one or more of our operating companies (collectively the “Operating Companies”) or one or more of our Operating Companies’ subsidiaries, to extend or maintain credit, or arrange for the extension of credit, or to renew an extension of credit, in the form of a personal loan to or for any directors or executive officers (as such term is defined in Rule 3b-7 of the Securities Exchange Act of 1934, as amended) of the Company.
In general, our Amended and Restated Limited Liability Company Operating Agreement (our “Operating Agreement”) provides that whenever an actual or potential conflict of interest arises between Belpointe, LLC, (our “Sponsor”), our Manager, one or more of our directors or their respective affiliates, on the one hand, and the Company, one or more of our Operating Companies, one or more of our Operating Companies’ subsidiaries or one
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or more holders of units representing our limited liability company interests (each a “Member” and, collectively, the “Members”) (other than our Manager), on the other hand, such conflict of interest may be resolved by any resolution or course of action taken by the Board; provided that the resolution or course of action in respect of such conflict of interest is:
· | on terms no less favorable to us, our Operating Companies, one or more of our Operating Companies’ subsidiaries or one or more Members (other than our Manager) than those generally being provided to or available from unrelated third parties; |
· | fair and reasonable to the Company, taking into account the totality of the relationships among the parties involved; or |
· | approved or ratified by a vote of our disinterested directors; or |
· | approved or ratified by a vote of the Members. |
If you are uncertain as to whether a real or apparent conflict exists in any particular situation between your interests or the interests of the Company, our Operating Companies, one or more of our Operating Companies’ subsidiaries or one or more Members, you should consult with the Manager or the Board immediately.
IV. | CONFIDENTIALITY |
You will have access to a variety of confidential information in connection with your service to the Company. Confidential information includes all nonpublic information that is proprietary to us, our Operating Companies, Manager, Sponsor, their respective affiliates or our other business partners that might be of use to competitors, or, if disclosed, harmful to us, our Operating Companies, Manager, Sponsor, their respective affiliates or our other business partners. You have a duty to use all reasonable efforts to safeguard nonpublic information in your possession, and you may not disclose nonpublic information, unless (i) required by law, or (ii) disclosure of the information is authorized by the Board or the Manager in accordance with Company policies. Your obligation to protect confidential information continues after your service with the Company ends. Unauthorized disclosure of confidential information could cause harm to the Company and could result in legal liability to you and the Company.
V. | FAIR DEALING |
You should endeavor to deal fairly with our customers, suppliers and business partners or any other companies or individuals with whom we do business or come into contact with. You may not intentionally take unfair advantage of anyone through manipulation, concealment, abuse of privileged information, misrepresentation of material facts or any other unfair-dealing practice. Misappropriating proprietary information, possessing trade secret information that was obtained without the owner’s consent or inducing improper disclosure of such information by past or present employees of other companies is prohibited.
VI. | GIFTS AND ENTERTAINMENT |
The purpose of business entertainment and gifts in a commercial setting is to create good will and sound working relationships, not to gain unfair advantage with clients and partners. In addition, the various branches and levels of government have different laws restricting gifts, including meals, entertainment, transportation and lodging, that may be provided to their officials and employees. The offer or acceptance of cash gifts or cash equivalents to or from a customer, supplier or any entity that does or seeks to do business with or on behalf of the Company is prohibited. No gift or entertainment should ever be offered or accepted by you or your family members unless it (i) is consistent with customary business practices, (ii) is not excessive in value, (iii) cannot be construed as a bribe or payoff, (iv) does not violate any laws or regulations and (v) does not violate any applicable Company policies regarding the offer and receipt of gifts.
VII. | PROTECTION AND PROPER USE OF ASSETS |
You should protect the Company’s assets and ensure their efficient use. Theft, carelessness and waste have a direct impact on the Company’s profitability. All Company assets should be used for legitimate business purposes.
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VIII. | COMPLIANCE WITH LAWS, RULES AND REGULATIONS |
All executive officers are expected to be familiar and comply with applicable laws and regulations in conducting the business of the Company, including the relevant securities laws and regulations applicable to their activities. In some cases, this may involve the securities laws and regulations of multiple jurisdictions.
IX. | INSIDER TRADING |
You are generally prohibited from trading in the units or other securities of the Company while in possession of material, non-public information about the Company. In addition, you are prohibited from recommending, “tipping” or suggesting that anyone else buy or sell units or other securities of the Company on the basis of material, nonpublic information. If you obtain material non-public information about another company in the course of your service with the Company, you are prohibited from trading in the stock or securities of the other company while in possession of such information or “tipping” others to trade on the basis of such information. Violation of insider trading laws can result in severe fines and criminal penalties, as well as disciplinary action by the Company.
The laws against insider trading are complex. Any questions about the materiality of information you may possess or about any dealings you have had or intend to engage in with respect to the Company’s securities should be promptly brought to the attention of the Manager or counsel for the Company. You should carefully review the Company’s policy on insider trading.
X. | ACCURATE AND TIMELY DISCLOSURE |
In reports and documents that we file with or submit to the SEC and other regulators, and in other public communications that we make, those involved in the preparation of such reports, documents and communications (including those who are involved in the preparation of financial or other reports and the information included in such reports and documents) must make disclosures that are full, fair, accurate, timely and understandable. Where applicable, you must provide accurate financial and accounting data for inclusion in such disclosures. You must not knowingly falsify information, misrepresent material facts or omit material facts necessary to avoid misleading our independent public auditors or investors. You are never permitted to take any action to coerce, manipulate, mislead or fraudulently influence our independent auditors in the performance of their audit or review of our financial statements.
XI. | WAIVERS |
Any waiver of this Code for directors or executive officers must be approved by the Board or a committee of the Board and disclosed in a Current Report on Form 8-K filed with the SEC within four business days following after the occurrence of the event.
XII. | REPORTING OF KNOWN OR SUSPECTED VIOLATIONS |
If you become aware of any violations or suspected violations of applicable laws, rules, regulations or this Code, you must promptly report them. Reports may be made openly, confidentially or anonymously, to the audit committee of the Company’s Board (the “Audit Committee”), the Manager or other members of management designated by the Audit Committee or the Manager with respect to: (i) any questionable accounting, internal accounting controls or auditing matters; (ii) non-compliance with applicable legal and regulatory requirements or this Code; or (iii) retaliation against employees and other persons who make, in good faith, allegations of (a) questionable accounting, internal accounting controls or auditing matters or (b) non-compliance with applicable legal and regulatory requirements or this Code, in each case through any avenue available.
The reports should be factual rather than speculative or conclusory and should contain as much specific information as possible to allow for proper assessment. In addition, all reports should contain sufficient corroborating information to support the commencement of an investigation, including, for example, the names of individuals suspected of violations, the relevant facts of the violations, how you became aware of the violations, any steps you have previously taken, who may be harmed or affected by the violations and, to the extent possible, an estimate of the misreporting or losses to the Company as a result of the violations. No retaliatory action of any kind will be permitted against anyone making such a report in good faith, and the Audit Committee will strictly enforce this prohibition.
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XIII. | ACCOUNTABILITY FOR VIOLATIONS |
If the Audit Committee or its designee determines that this Code has been violated, either directly, by failure to report a violation, or by withholding information related to a violation, the offender may be disciplined for non-compliance with penalties up to and including removal from office or dismissal. Such penalties may include written notices to the individual involved that a violation has been determined, a written letter of reprimand by the Audit Committee, disgorgement, demotion or re-assignment of the individual involved, suspension with or without pay or benefits and termination of employment. Violations of this Code may also constitute violations of law and may result in criminal penalties and civil liabilities for the offending person and the Company. Executive officers are required to cooperate fully and in good faith in all internal investigations of misconduct.
Last updated: [April 19, 2021]
Exhibit 23.1
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We consent to the use of our report dated April 19, 2021, relating to the consolidated financial statements of Belpointe PREP, LLC as of December 31, 2020 and for the period beginning January 24, 2021 (formation) through December 31, 2020 in this Registration Statement on Form S-11. We also consent to the use of our name as it appears under the caption "Experts".
/s/ CITRIN COOPERMAN & COMPANY, LLP
New York, New York
April 21, 2021