Review of PPM

Before making any investment decision, potential investors should carefully review the Private Placement Memorandum prepared by Sponsor (the "PPM"), including but not limited to, the Risk Factor section of the PPM and all exhibits of the PPM. The PPM contains additional risk factors and information regarding the DST that are not contained herein.  

Real Estate Investment Risk

Any investment in real estate carries certain inherent risks, and there is no guaranty as to the future occupancy of the Property or operating results.  Factors which might influence outcome include:

• Changes in national or local economic conditions
• Changes in the local market, including the entry of new competitors
• Changes in the financial condition of the major tenant or tenants
• The occurrence of casualties or natural disasters
• The enactment of unfavorable laws

1031 Risk

Although it is intended that interests will be acquired on a tax-deferred basis under Code Section 1031, each investor must satisfy a number of technical requirements to qualify for tax deferral under Section 1031. Also, no assurance can be given that investors will be able to complete a qualifying Section 1031 exchange in the future when the Property is sold.

DST Risk

IRS established seven prohibitions over the powers of the DST Trustee, which include the following:

• Once the offering is closed, there can be no future equity contribution to the DST by either current or new co-investors or beneficiaries
• The DST Trustee cannot renegotiate the terms of the existing loans, nor can it borrow any new funds from any other lender or party
• The DST Trustee cannot reinvest the proceeds from the sale of its investment real estate
• The DST Trustee is limited to making capital expenditures with respect to the property to those for a) normal repair and maintenance, (b) minor non-structural capital improvements, and (c) those required by law
• Any liquid cash held in the DST between distribution dates can only be invested in short-term debt obligations
• All cash, other than necessary reserves, must be distributed to the co-investors or beneficiaries on a current basis, and
• The Trustee cannot enter into new leases or renegotiate the current leases

Risks of Investing in Multifamily Rental Properties; Competition

The rental of multifamily residential space is a highly competitive business. Ownership of the Property could be adversely affected by competitive properties in the real estate market, which could affect the operations of the Property and the ultimate value of the Property. Success in owning the Property, therefore, will depend in part upon the ability of the Master Tenant, the Property Manager and the Property Sub-Manager (i) to retain current tenants at favorable rental rates; (ii) to attract other quality tenants upon the termination of existing leases if the existing tenants fail to renew or as otherwise needed; and (iii) to provide an attractive and convenient living environment for the tenants.

Competition from Apartment Communities in the Surrounding Geographic Area

A number of apartment communities of similar size and amenities are located in the Property’s immediate apartment sub-market. See “Market and Location Overview – Competitive Properties” in the PPM. There are a number of Class A apartment communities in the surrounding region that may be more attractive to renters. Competing apartment communities may reduce demand for the Property, increase vacancy rates, decrease rental rates and impact the value of the Property itself. There may also be additional real property available in the general vicinity of the Property that could support additional multifamily properties. An analysis of Axiometrics data as of Q2 2017 on all existing, planned, and under construction apartment communities in the Property’s submarket vicinity reveals that there are a total of seven Class A apartment communities comprising approximately 2,384 units currently in lease up and an additional three communities comprising approximately 1,000 units under construction. Further, there is one additional project comprising 401 units in the planning stages. If newer housing is built, it may siphon demand away from the Property, as newer housing tends to be more attractive to prospective tenants. It is possible that tenants from the Property will move to existing or new apartment communities in the surrounding area, which could adversely affect the financial performance of the Property. Competition from nearby apartment communities could make it more difficult to attract new tenants and ultimately sell the Property on a profitable basis. The Property could also experience competition for real property investments from individuals, corporations and other entities engaged in real estate investment activities. Other properties and real estate investments may be more attractive than the Property. There is no assurance that the Property Manager or the Property Sub-Manager will be able to attract residents to the Property given these facts.

The Property is Subject to Risks Relating to its Local Real Estate Market

Weakness or declines in the local economy and real estate market could cause vacancy rates at the Property to increase and could adversely affect the Trust’s ability to sell the Property under favorable terms. The factors which could affect economic conditions in the market generally include business layoffs, industry slowdowns, relocations of businesses, changing demographics, infrastructure quality and any oversupply of or reduced demand for real estate. Declines in the condition of the market could diminish your investment in and value of the Property.

Interest-Only Loan Period

The loan used to acquire the Property is expected to have an interest-only period for the first 60 months of the loan term, which means there will be no reduction in the principal balance during that interest-only period.

Performance of the Master Tenant Under the Master Lease

The ability of the Trust to meet its obligations is dependent upon the performance of the Master Tenant and its payment of Rent and other payments required under the Master Lease. ​

The Master Tenant Has a Limited Right to Defer Rental Payments Under the Master Lease

Under the Master Lease, if the Property’s operating cash flow is insufficient to pay all of the associated expenses of the Property (not including the Asset Management Fee), the full Base Rent, then in such event, the Master Tenant has a limited right to defer and accrue a portion of the Additional Rent and Supplemental Rent payments due under the Master Lease (but not any portion of the Base Rent required to make debt service payments due under the Loan Documents). Because the Master Tenant may accrue a portion of the Additional Rent and Supplemental Rent, it will not be required to call the demand note from Bluerock in order to make up such a shortfall. In such an instance, Purchasers may receive less or more varied distributions than they would have if the Master Tenant were required to call the demand note to fund any such Rent shortfall. Furthermore, if future cash flow from the Property or disposition proceeds are insufficient to pay the accrued Rent and Bluerock is unable to fund the demand note when called, then the Trust may never receive the full amount of any such accrued Rent, which could materially and adversely affect the returns to the Purchasers. Additionally, in the event that the Master Tenant elects to defer payment of a portion of the Rent, although the issue is not completely settled under existing law, under Section 467 of the Code, Beneficial Owners may be required to report and pay tax on rent in accordance with the rent schedule attached to the Master Lease, even though the Master Tenant may have elected to defer the payment of a portion of such rent. As a result, Beneficial Owners may be required to recognize rental income even though rent is not being fully paid, and therefore Beneficial Owners may have to use funds from other sources to pay tax on such income. See “Summary of the Master Lease.”

Conflict of Interest Risk

There are various potential conflicts of interest among the Sponsor, the Trust, the Managers, the Master Tenant, the Property Managers, and others engaged in the management and operation of the Property, one or more of whom may be affiliated with the others. 

Forward-Looking Statements

The PPM has based these forward-looking statements on its current expectations and predictions about future events. These forward-looking statements are subject to risks, uncertainties and assumptions about the Property, including, among other things, factors discussed below:

• General economic performance of the local and national economy;
• Required capital expenditures at the Property
• Competition from properties similar to and near the Property
• Adverse changes in local population trends, market conditions, neighborhood values, and local economic and social conditions
• Supply and demand for property such as the Property
• Interest rates and real estate tax rates
• Governmental rules, regulations and fiscal policies
• The enactment of unfavorable real estate, rent control, environmental, zoning or hazardous material laws
• Uninsured losses
• Anticipated market capitalization rates at the time of sale

Limited Transferability of Securities

Each Beneficial Owner will be required to represent that he is acquiring the Interests for investment and not with a view to distribution or resale, that such Beneficial Owner understands the Interests are not freely transferable and, in any event, that such Beneficial Owner must bear the economic risk of investment in the Interests for an indefinite period of time because: (i) the Interests have not been registered under the Act or applicable state “Blue Sky” or securities laws; and (ii) the Interests cannot be sold unless they are subsequently registered or an exemption from such registration is available. There will be no market for the Interests and the Beneficial Owner cannot expect to be able to liquidate their investment in case of an emergency. See “Restrictions on Transferability” in the PPM. Finally, the sale of the Interests may have adverse federal income tax consequences. See “Federal Income Tax Consequences” in the PPM.

Sale of the Property

The proceeds realized from the sale of the Property will be distributed among the Beneficial Owners, but only after satisfaction of the claims of other third-party creditors and Affiliates of the Sponsor. The ability of a Beneficial Owner to recover all or any portion of its investment, accordingly, will depend on the amount of net proceeds realized from such sale and the amount of claims to be satisfied therefrom. There can be no assurance that the Beneficial Owners will realize gains on sale of the Property.

No Representation of Beneficial Owners

Each Beneficial Owner acknowledges and agrees in the Purchase Agreement and Escrow Instructions that legal counsel representing the Trust, the Sponsor, the Manager, the Master Tenant, the Depositor and their Affiliates do not represent, and shall not be deemed under the applicable codes of professional responsibility to have represented or to be representing, any or all of the Beneficial Owners.​

Environmental Risk

Federal, state and local laws and regulations relating to the protection of the environment may require a current or previous owner or operator of real estate to investigate and clean up hazardous or toxic substances or petroleum product releases at or affecting the Property. The Property has been evaluated for environmental hazards on behalf of the Lender pursuant to a noninvasive Phase I Environmental Site Assessment Report, dated June 27, 2017 prepared by Blackstone Consulting, based on a site visit conducted in June 19, 2017. The Phase I Report revealed no evidence of recognized environmental conditions (“RECs”) in connection with the site and no further investigation was recommended.

Performance of the Master Tenant Under the Master Lease

The ability of the Trust to meet its obligations is dependent upon the performance of the Master Tenant and its payment of Rent and other payments required under the Master Lease. ​

Trustee and the Manager Have Limited Duties to Beneficial Owners

The Trustee of the Trust and the Manager will not owe any duties to the Beneficial Owners other than those duties set forth in the Trust Agreement. In performing its duties under the Trust Agreement, the Trustee will only be liable to the Beneficial Owners for its own willful misconduct, bad faith, fraud or gross negligence. Similarly, the Manager will only be liable to the Beneficial Owners for its own fraud or gross negligence.

Investor Equity Diluted 1%

The equity that will be utilized for purposes of calculating distributions is stated as $23,463,363, which is $234,634 more than the total equity contribution described in Sources & Uses. 100% of the equity required to close the transaction will be funded by investors, which will be diluted by 1% so that the Sponsor will have a 1% ownership stake for which they will make no cash contribution but will receive cash distributions.

The above is not intended to be a full discussion of all the risks of this investment. Please see the Risk Factors in the Private Placement Memorandum for a discussion of additional risks.

The above presentation is based upon information supplied by the Sponsor and others. Realty Mogul, Co., along with its respective affiliates, officers, directors or representatives (the "RM Parties") hereby advise you that none of them has independently confirmed or verified any of the information contained herein. The RM Parties further make no representations as to the accuracy or completeness of any such information and undertake no obligation now or in the future to update or correct this presentation or any information contained herein.

This content does not constitute an offer to sell or a solicitation of an offer to buy any securities. RealtyMogul.com and North Capital Private Securities are in the process of screening, performing due diligence, and verifying information for the offering. The content is presented to gauge interest only and is subject to change without notice.