Real Estate Capital Markets:

How do they work and how do they impact

liquidity and value
Introduction

Presented by
Constantine “Tino” Korologos MAI, CRE, MRICS
tkorologos@thinkbrg.com (646) 912-2400
Agenda
• Introduction
• Capital Markets Overview
– The Four Quadrants (Public Debt/Public Equity/Private Debt/Private Equity)
• Public Debt
– CMBS /CDO’s (CLO’s)
• How large is the market? Brief History – Liquidity found, lost found, lost again…
• How does the market work? How are CMBS Bonds Structured? What’s the Process?
• Rating Agencies - What do they do in the process? How do they use appraisal reports?
– Mortgage REITS
– Case Study - CMBS – 245 Park Avenue - NYC
• Public Equity
– REITS (Traded and Non-traded)
– Case Study – Vornado-JBG Smith Properties Spin-merger
• Private Debt and Equity Markets
– Non-Bank balance sheet lenders
– Private Equity
– Institutional equity / Separate Accounts
– Eb5 Financing
– Crowdfunding
• Recap – Bringing it together
• Addenda
Capital Markets Regulation
Capital Markets Overview

THE FOUR QUADRANTS

What are the Capital Markets?

• Capital markets are markets for buying and selling equity

and debt instruments.
• Capital markets channel savings and investment between
suppliers of capital such as retail
investors and institutional investors, and users of capital
like businesses, government and individuals.
• Capital markets are vital to the functioning of an economy,
since capital is a critical component for generating
economic output.
• Capital markets include primary markets, where
new stock and bond issues are sold to investors,
and secondary markets, which trade existing securities.
Classic Approach –
Four Quadrants of Capital

A classical approach to the real estate capital markets considers a

simple “debt” and “equity” construct “4 quadrants of capital”

Credit ratings are a very important part of the credit markets and are
used by investors; issuers; commercial banks; investment
banks/broker-dealers; government agencies.

Public Private
Debt Debt

Public Private
Equity Equity
Capital Markets: Commercial Real Estate
Public Debt & Public Equity: Private Debt & Private Equity:
Commercial Mortgage-Backed  Whole Loans
Securities (CMBS)  Mezzanine Loans
Collateralized Debt  B-Notes (Subordinate to I-grade
Obligations (CDOs) portion of mortgage debt)
Real Estate Investment Trusts  Limited Partnerships
(REITs)  Private REITs
Mutual Funds  Separate Accounts

Advantages Disadvantages Advantages Disadvantages

> High liquidity > High volatility > More "leveragable" > Low liquidity
> High transparency > Less leverage > Customizable Investment > Requires greater initial capital
> High Diversification > High Diversification Strategies investment
> High degree of current income > Difficult to project CF with > Low volatility > Investment periods are longer
> Investors can "select" risk CMBS (prepayments & defaults > More difficult to customize
diversified portfolios
Cyclical linkage between sectors

• In order to successfully navigate the CRE markets, we

need to understand the dynamic between sectors (“funds
flow”)
• All news matters…because it influences investor
sentiment… so does technology

Macro Economy

Real Estate Property

Markets

Real Estate Capital Markets

What Drives Capital to CRE?
What influences capital or “funds flow” (aka “the pricing and availability of
capital”)?
– Return on Alternative Investments
– Inflation Expectations
Why do real estate investors/capital providers care about inflation?
– What is inflation?
A rise in the general level of prices. Equivalent to
a fall in the value or purchasing power of money
– What causes inflation?
Higher prices (costs) of “inputs”
– How does inflation impact commercial real estate?
Treasuries yields and debt costs Interest Rates
Capitalization rates / valuation
Equity yield requirements
Operating costs Inflation Real Estate
Demand for space; tenant credit
Public Debt

CMBS AND MORTGAGE REITS

What is a CMBS Bond?

• Commercial mortgage-backed securities

(CMBS) are a type of mortgage-backed
security backed by commercial mortgages
rather than residential real estate. CMBS
tend to be more complex and volatile than
residential mortgage-backed securities due
to the unique nature of the underlying
property assets.
What is a REMIC? (US)

• A real estate mortgage investment conduit (REMIC) is

"an entity that holds a fixed pool of mortgages and issues
multiple classes of interests in itself to investors" under
U.S. Federal income tax law and is "treated like a
partnership for Federal income tax purposes with its
income passed through to its interest holders". REMICs
are used for the pooling of mortgage loans and issuance
of mortgage-backed securities and have been a key
contributor to the success of the mortgage-backed
securities market over the past several decades
 Creation of the CMBS Market
• Real estate recession in the late 1980s and early 1990s severely limited
commercial real estate lending
• Many traditional lenders exited the market due to large losses on commercial
loan portfolios
• CMBS began as vehicle to package and sell loans from failed banks and
savings institutions (RTC)
• CMBS structure and ratings stability yielded investor confidence creating a
permanent source of capital
• The CMBS market grew to over $800 billion in the US, with approximately
$230 billion issued in 2007
• Q2-Q4 2008 and Q1-Q2 2009 no new issuance; Q3-Q4 2009 issuance
limited to single borrower deals
• Issuance re-emerged in 2010 with CMBS 2.0. Industry faced with ongoing
challenges due to regulatory changes and market volatility
• Provides capital for managing balance sheet risk; can increase near term
profit
• Investors match risk, return and duration
US CMBS Issuance since 2000
Canadian CMBS Issuance
Canadian CMBS Outstanding
CMBS Historical Delinquent and
Special Servicing Rates
Simple Capital Structure

Source: Blackrock Solutions 19

CMBS Transactions Flow of Investments & Securities

Source: CREFC
Where the Money Goes
Mortgage lien and
Loan Originator /
Assignments of Rents and Leases
Loan Seller
(Lender)
Loan Proceeds

Mortgage Securities Sale

Notes Proceeds at Closing

Servicer- Trustee-
Debt Service Debt Service
Borrowers Collection Distribution
& Escrows Less Servicer Fee
Account Account
Plus Advances
Monthly
Bond Securities Sale
Coupon Proceeds at Closing
& Principal

Securities
CMBS Bonds

Investors

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What are Mortgage REITS?

Mortgage Real Estate Investment Trusts, also known as Mortgage REITs or

MREITs, are companies that, like their Equity REIT cousins, were made possible
through legislation passed by Congress in 1960 to help enable individuals from
all walks of life to gain the benefits of investment in real estate debt and equity.

Congress specifically noted that these beneficial characteristics include “greater

diversification of investment,” “expert investment counsel” and the means of
“collectively financing projects which the investors could not undertake singly.”

A key part of the original REIT legislation requires REITs to distribute most of
their income each year to their shareholders in the form of dividends. REITs are
permitted to deduct from their corporate taxable income every dollar they pay
out, while shareholders pay tax on the dividend income they receive, generally at
ordinary income tax rates. This dividend distribution requirement is fundamental
to the ability of REITs to deliver the continuing income and performance benefits
characteristic of real estate debt and equity investment.
SASB Deal – 245 Park Avenue

Property and Loan Overview

Collateral SF / Property SF: 1,723,993 SF

Trust Loan Balance: $1,200,000,000

$ 696 / SF

Total Debt Balance: $1,768,000,000

$1,026 / SF

Appraised Value: $2.2B ($1,282/SF)

Loan Purpose: Acquisition

Loan Term: 10 years IO

Coupon rate (fixed): 3.67%

245 Park Deal Summary & Structure

245 Park Avenue Trust 2017- 245P, a CMBS single-borrower (SASB)

securitization, which is secured by a $500.0 million portion of a $1.2
billion whole loan.
The $500.0 million trust collateral consists of five pari passu A notes
totaling $380.0 million and five subordinate B notes totaling $120.0
million.
The remaining portion of the whole mortgage loan, which is not trust
collateral, consists of 14 pari passu A notes totaling $700.0 million.
The non-trust A notes are expected to be securitized in multiple future
CMBS transactions.
245 Park Avenue Trust
Basic Securitization Structure
245 Park Avenue Trust
Distribution / Capital Structure
245 Park Avenue –
Tenant Information
245 Park Avenue –
Property Financials
Public Equity

TRADED AND NON-TRADED

REITS
 What is a REIT?
A REIT, or Real Estate Investment Trust, is a company that owns
or finances income-producing real estate. Modeled after mutual
funds, REITs provide investors of all types stable income streams,
diversification and long-term capital appreciation. REITs typically
pay out all of their taxable income as dividends to shareholders. In
turn, shareholders pay the income taxes on those dividends.

REITs allow anyone to invest in portfolios of large-scale properties

the same way they invest in other industries – through the
purchase of stock. In the same way shareholders benefit by
owning stocks in other corporations, the stockholders of a REIT
earn a share of the income produced through real estate
investment – without actually having to go out and buy or finance
property.
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REIT Industry Financial Snapshot
REIT Industry Monthly Data for April 2017
Industry Size
• FTSE NAREIT All REITs equity market capitalization =
$1.073 trillion
• FTSE NAREIT All Equity REITs equity market
capitalization = $986.1 billion
• 224 REITs are in the FTSE NAREIT All REITs Index
• 191 REITs trade on the New York Stock Exchange
• NYSE listed REITs equity market capitalization = $971.1
billion
Canadian REIT Market Cap
Total market cap as of June 7, 2017 - $2.67B
How does a company qualify as a
REIT?
• Invest at least 75 percent of its total assets in real estate
• Derive at least 75 percent of its gross income from rents
from real property, interest on mortgages financing real
property or from sales of real estate
• Pay at least 90 percent of its taxable income in the form of
shareholder dividends each year
• Be an entity that is taxable as a corporation
• Be managed by a board of directors or trustees
• Have a minimum of 100 shareholders
• Have no more than 50 percent of its shares held by five or
fewer individuals
 Public Non-Listed REITs (PNLRs)
• Many REITs (whether equity or mortgage) are registered with the
Securities and Exchange Commission (SEC) and are publicly traded on a
national stock exchange. These are known as stock exchange-listed
REITs. In addition, there are REITs that are registered with the SEC, but
do not trade on major securities exchanges. These are known as publicly
registered, non-exchange traded REITs, or simply public non-listed REITs
(PNLRs).
• Like stock exchange-listed REITs, PNLRs own, operate and/or finance
real estate and are subject to the same IRS rules requiring them to
distribute all of their taxable income to shareholders so as to not pay
taxes at the corporate level. In addition, PNLRs are required to make
regular SEC disclosures, including quarterly and yearly financial reports.
All of these PNLR filings are publicly available through the SEC’s
EDGAR database.
• PNLRs do not offer the same liquidity that stock-exchange listed REITs
provide. Redemption programs for shares vary by company and are
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limited. Generally a minimum holding period for PNLR investment exists.
Traded vs. Public Non-Listed REITs

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Regulatory Changes for Non-traded REITs
On Oct. 10, 2014, the U.S. Securities and Exchange Commission (SEC) approved
amendments proposed by FINRA to promote greater transparency for shareholders of
certain non-traded investments. The amendments, known as FINRA Regulatory Notice
(RN) 15-02, modify National Association of Securities Dealers Rule 2340 regarding
customer account statements and FINRA Rule 2310 regarding direct participation
programs (DPPs). The amended rules also impact the handling of customer account
statements for publicly registered non-traded real estate investment trusts (REITs) and
other DPPs, such as non-traded business development companies (BDCs).

As mandated by FINRA, 15-02 allows for an implementation period of at least

18 months after the SEC’s approval. This means that customer account statements sent
after April 11, 2016 will be required to comply with the requirements of the amended
rules.

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 Non-Traded REITS - FINRA RN 15-02
KEY FEATURES OF 15-02
FINRA RN 15-02 calls for a modification of how the estimated per-share value of a non-
traded BDC and non-traded REIT is reported and shown on customer account
statements. This move is being undertaken to increase transparency surrounding the
costs associated with these types of investments and to improve the valuations reflected
on customer account statements.

Upon implementation, 15-02 will apply to all existing and future non-traded REITs and
non-traded BDCs. The intention of the amended rules is to reinforce investor protection
with respect to REIT and BDC non-traded securities by increasing the transparency of
estimated values on customer account statements. As a result, it is believed that
investors will be given a more accurate assessment of the investment’s estimated value.

FINRA RN 15-02 also prohibits firms from participating in a public offering of a non-
traded REIT unless the issuer has agreed to disclose a per-share estimated value in its
periodic filings that has been developed in a manner reasonably designed to ensure its
reliability.
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Net Investment & Appraised Value
Methods
FINRA RN 15-02 provides two specific methodologies firms can use to determine a per-share
estimated value that will be deemed to have been developed in a reasonable manner: the net
investment method and the appraised value method. The application of these methodologies will
increase the consistency, frequency and accuracy of valuations and estimated share values across
non-traded products.

• The net investment method — which will likely be used by early life-cycle, non-traded REITs
— establishes the net value of an investment by deducting sales commissions and related
charges, such as organizational and offering costs. Statements will then report an account value
based on the estimated net value per share multiplied by the number of shares. Under the net
investment method, 15-02 requires firms to add additional disclosures informing investors that a
distribution will have the effect of reducing the estimated per-share value shown on the account
statement, in the event any portion of the investor’s distribution represents a return of capital.
Requiring the net value per share on customer account statements will provide greater
transparency to investors about the offering’s commissions, fees and expenses.

• Alternately, the appraised value method can be used at any time, but no later than 150 days
after the second anniversary of breaking escrow. This method — which will likely be employed
by middle and late life-cycle, non-traded REITs — requires independent third parties to
determine or provide material assistance in the process of determining the estimated NAV of a
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portfolio. While different third parties may perform appraisals in different ways, the estimated
NAV is most commonly determined by using generally accepted accounting principles (GAAP)
in the case of REITs.
 Private REITs
In addition to publicly traded REITs and non-traded REITs, there are also private
REITs. Similar to non-traded REITs, private REITs are not listed making them hard to
value and trade. Private REITs also do not regularly file disclosure reports with the SEC
possibly making it difficult for you to keep informed of your investment. Instead, private
REIT offerings are private placements and rely on an exemption from the obligation to
register with the SEC. Investors are typically limited to accredited investors.

39
Vornado Realty Trust
 Vornado Realty Co – Before & After

41
 JBG Smith Properties - Tax-Free Spin-
Merger

42
 Creating Value through focused REITs

43
 Transaction Overview

44
 Transaction Overview – by the numbers

45
 Vornado Remain Co

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The Private Side of the Balance Street

PRIVATE DEBT AND EQUITY

New Entrants – New Money
New Competition

Several New Players and alternative sources have

entered the market

• Foreign institutional money (Japanese Life Co investing

through Acore )
• Developers (Related Companies Mack Real Estate)
• Private Equity (KKR, TPG, Blackstone)
• Smaller bridge financing shops (Calmwater, Thorofare)
• Unsecured debt Bond raises on the Tel-Aviv Exchange
• E-b5
• Crowd funding
The Billion Dollar Club
Largest Institutional Investors by Current
Allocation to Real Estate

Source: Preqin Real Estate On-Line

Capital Allocated to Real Estate by
$1bn Club Investors by Investor Type
EB-5 and Crowdfunding
EB-5 Visa Program for Real Estate
EB-5 is a United States immigration program that offers citizens of other countries the
opportunity to seek permanent U.S. residency through job creation in the U.S.

The EB-5 Regional Center Program began in the early 1990’s to spur economic growth
by giving immigrants a way to obtain permanent U.S. residency through job creation.
Administered by the United States Citizenship and Immigration Services (USCIS), the
EB-5 program directs foreign investment into projects that revitalize local economies;
investors whose money creates at least 10 full-time jobs for U.S. workers become
eligible for a U.S. green card. Regional Centers, designated by the U.S. government,
promote job creation in a defined geographic area.

There are 10,000 EB-5 immigrant visas available annually, of which 3,000 EB-5 visas
are set aside for foreign nationals who invest in Regional Centers designated by USCIS
based on proposals for promoting economic growth.

For investments in areas other than "targeted employment areas," the minimum
amount of investment is $1 million. Investments in "targeted employment areas," which
include most regional center projects, can qualify with a minimum of $500,000.

52
 EB-5 Visa (Continued)
A targeted employment area is a rural area or a geographical area that has
experienced unemployment at a rate of at least 150% of the national average rate.
Individual states are authorized to designate geographical areas within the state that
qualify as targeted employment areas.

Each EB-5 investor must create 10 direct or indirect permanent jobs for U.S. workers in
order to obtain a “Green Card”.

All investments are subject to risk and Regional Center projects are not exceptions.
Under the law, the Regional Center cannot guarantee profit or the return of an
investor’s principal investment. The project has limited operating history and is subject
to financing risk. There are no assurances that a member’s petition will be granted or
that a member will be able to obtain an immigrant visa or unconditional lawful
permanent resident status. Laws, regulations and interpretations of the EB-5 Program
are subject to change at any time.

53
 Crowdfunding
Real estate is one of the fastest growing markets to take on the concept of crowdfunding and apply it
in a new way. Whether you’re participating in the real estate market in an institutional capacity or as a
solo investor, you may have been told that real estate is an investment that always appreciates. Those
who invested prior to 2008 know, unfortunately, that’s not always the case. However, what is true is
that a diversified portfolio should, if possible, potentially contain a real estate play. Why? Some say
it’s because land is one of the most precious and scarce resources. But this argument has been falling
on deaf ears, particularly amongst millennials who simply don’t feel the same pull to own things as
their parents and grandparents. As a result real estate was, and is, a prime market segment poised
for change, especially with the growth of real estate crowdfunding.

According to Massolution’s crowdfunding report, money raised by individuals, budding brands and
even established companies through crowdfunding platforms exceeded $34.4 Billion in 2015. Analysts
even predict that crowdfunding will surpass VC funding this year.

Here are four emerging trends in real estate crowdfunding

Regulation Brings Crowdfunding to Maturity

The JOBS Act was signed into law by President Obama in 2012 with the intent to
encourage funding of small businesses in the U.S. by easing various securities regulations. But most
critical to the crowdfunding world, this act, or more specifically Titles II and III of the legislation, gave
the SEC the ability to adopt clear and defined rules surrounding equity crowdfunding. It legitimized the
industry and it has been growing ever since.

54
 Crowdfunding (Continued)
Foreign Investment in Real Estate Is Booming
A recent U.S. real estate study showed that Chinese investors have poured $110 billion
dollars into the U.S. market in the last 5 years (both commercial and residential). This
investment is set to double in the next 5 years.

Wealthy Millennials Are Investing Their Money Differently

In a world where we can livestream at the touch of a button and the largest real estate
company in the world doesn’t own any property (Airbnb), the on demand world has
seemingly taken the desire to own out of this generation. However, with the influx of
unicorn technology companies and the increase of millennial millionaires, the need to put
their money somewhere is still very much on their minds. Real estate crowdfunding has
the potential to help them share the wealth while staying true to their sensibilities.

Crowdfunding for Retirement

Those considering real estate investing, especially through crowdfunding platforms,
could potentially improve their rate of return with tax efficient strategies, more specifically
IRA’s. An article on BiggerPockets puts it this way: “the number one financial need in
retirement is passive income.” Real estate crowdfunding platforms allow those saving for
retirement to invest in real estate right from the golf course, with just a few clicks on their
phone or tablet.

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Source: Forbes Feb 21, 2017
Israel’s Bond Market for Capital Raises
 Israel Bond Market – Long Term
Unsecured Debt
Sophisticated, transparent and liquid, the Israeli bond market offers real
estate companies, attractive terms to raise subordinate, unsecured,
corporate debt, in the Tel Aviv Stock Exchange. The money raised in TASE
could replace a mezzanine loan or be used as equity for existing or future
projects.

Two main factors enable such a transaction:

• The credit rating arbitrage between Israel (A+) and the U.S (AA+),
provides U.S. companies with preferable rating in Israel, when certain
conditions are met.
• Israeli asset accounting shows market value, based on IFRS accounting,
vs. book value in the US GAAP method, the difference often results in
higher asset valuation.

• Non-recourse offerings are market norm

• Attractive financing costs
• Relatively simple process and short closing timeline
• Lower transaction execution and maintenance costs
57 • Issuer-friendly covenant structure
 Israel Bond Market – Debt
Characteristics
• The bonds can have a term of 5-8 years with CPI linked interest rates in the 3%-8% range
depends on the company local rating, with a possibility for a grace in the principal
payments of 2-3 years.

• Interest & Principal payments are expected to be made from the portfolio’s existing and
future cash flow.

• The bonds are unsecured and no collateral is provided.

• The proceeds from the Bond issuance can be used as equity to purchase additional
income producing real estate or develop new income producing assets (ground up) or to
refinance mezzanine or preferred equity in the existing portfolio or purchase partners righ
in the existing portfolio.

58
Israel Bond Market – Ratings Arbitrage

Credit Rating Scale global - Israel

Moody's Midroog (Local) S&P S&P Maalot (Local)

A2 Aaa BBB and higher AAA
Baa1 - A3 Aa1 BB / BBB AA
Baa2 - Baa3 Aa2 B / BB A
Ba1 - Baa3 Aa3 B BBB
Ba2 A1 CCC BB
Ba3 A2 CCC B
B1 A3 CCC CCC
B2 Baa1 CC CC
B3 Baa2 SD SD
Caa1 Baa3 D D
Caa1 - Caa3 Ba1 - Caa3
Ca Ca
C C

59
 Better Pricing: Dutch Auction & Local Credit Rating

Source: Rosario Capital Ltd

60
 Israel Bond Market – Typical
Transaction Structure

61
 Israel Bond Market – Illustrative
Transaction

62
Bond raising in Israel- US Companies

BROOKLAND UPREAL Delshah All Year series III Namco Realty

Raised 120 Million NIS Raised 400 Million NIS Raised 537 Million NIS
Interest- 6.9% Raised 450 Million NIS
Interest- 6.4%
Interest – 3.95% Interest –5.9%,

THE ZARASAI GROUP GFI Spencer Equity Group Strawberry Fields

Raised 340 Million NIS, Raised 225 Million NIS Raised 291 Million NIS Raised 265 Million NIS
Interest – 4.95% Interest – 7.9% Interest –6.4%,
Interest – 6.9%

THE LESER GROUP

Raised 140 Million NIS, Interest –7.3%
Raised 67.3 Million NIS Interest –6.4%
THE LESSER GROUP
Raised 225 Million NISEXTELL
Interest – 5.45% Related Moinian Group
. Raised 945 Million NIS
Raised 950 Million NIS Raised 850 Million NIS
Raised 1.4 Billion NIS,
Interest – 4.95% Interest – 4.95% Interest –5.1% Interest –4.2%
63
 Israel Bond Market – Selected
Transactions

64
Extra Stuff

ADDENDA
 Inland Real Estate Income Trust, Inc.

66
Inland Real Estate Income Trust, Inc.

67
Where are they located?

68
Tenant composition

69
Tenancy and Debt

70
Portfolio Metrics

71
Inland’s Business
Inland Real Estate Income Trust, Inc. was incorporated on August 24, 2011 as a Maryland
corporation.

• They were formed to acquire, directly or indirectly, a diversified portfolio of commercial

real estate located throughout the United States.
• They are permitted to acquire retail properties, office buildings, multi-family properties
and industrial/distribution and warehouse facilities.
• They have focused on acquiring retail properties. They may acquire these properties
directly or through joint ventures.
• They also may invest in real estate-related equity securities as well as commercial
mortgage-backed securities.
• Their sponsor, Inland Real Estate Investment Corporation, is an indirect subsidiary of The
Inland Group, Inc. Various affiliates of their Sponsor provide services to them.
• They are externally managed and advised by IREIT Business Manager & Advisor, Inc.,
an indirect wholly owned subsidiary of their Sponsor.
• Their Business Manager is responsible for overseeing and managing day-to-day
operations.
• Their properties are managed by Inland National Real Estate Services, LLC and Inland
Commercial Real Estate Services LLC, indirect wholly owned subsidiaries of their
Sponsor.
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Inherent Conflicts of Interest
• IREIC may face a conflict of interest in allocating personnel and resources among
the various entities entities. In addition, conflicts exist to the extent that we acquire
properties in the same geographic areas where properties owned by other IREIC-
sponsored programs are located.

• A conflict may arise in the acquisition or leasing of properties if we and another IREIC-
sponsored program are competing for the same properties or tenants in
negotiating leases, or a conflict may arise in connection with the resale of properties
if we and another IREIC-sponsored program are selling similar properties at the
same time.

• The charter contains provisions setting forth our ability to engage in certain related
party transactions. Our board of directors reviews all of these transactions and, as a
general rule, any related party transactions must be approved by a majority of the
directors, including a majority of the independent directors, not otherwise interested in
the transaction. Further, we may not engage in certain transactions with entities
sponsored by, or affiliated with, IREIC unless a majority of our board of directors,
including a majority of our independent directors, finds the transaction to be fair and
reasonable and on terms no less favorable to us than those73from an unaffiliated party
under the same circumstances.
Inherent conflicts (continued)
The board has adopted a conflicts of interest policy prohibiting the REIT from engaging
in the following types of transactions with IREIC-affiliated entities:

• purchasing real estate assets from, or selling real estate assets to, any IREIC-affiliated
entities (excluding circumstances where an entity affiliated with IREIC, such as Inland
Real Estate Acquisitions, Inc. (“IREA”), from time to time may enter into a purchase
agreement to acquire a property and then assign the purchase agreement to us);

• making loans to, or borrowing money from, any IREIC-affiliated entities (this excludes
expense advancements under existing agreements and the deposit of monies in any
banking institution affiliated with IREIC); and

• investing in joint ventures with any IREIC-affiliated entities.

This policy does not impact agreements or relationships between us and IREIC and its
affiliates, including, for example, agreements with our Business Manager or Real Estate
Managers that relate to the day-to-day management of our business.

74
Risk Factors – key considerations
The amount and timing of distributions, if any, may vary. We may pay distributions from
sources other than cash flow from operations, including the proceeds of our DRP.

We may not generate sufficient cash flow from operations to fund any distributions to our
stockholders. The actual amount and timing of distributions, if any, is determined by our board of
directors in its discretion, based on its analysis of our actual and expected cash flow, capital
expenditures and investments, as well as general financial conditions. Actual cash available for
distribution may vary substantially from estimates made by our board.

If we cannot generate sufficient cash flow from operations, determined in accordance with U.S. GAAP,
to fully fund distributions during any given period, we may pay all or a substantial portion of our cash
distributions from retained cash flow, from borrowings, from cash flow from investing activities,
including the net proceeds from the sale of our assets or our DRP. We have not limited the amount of
monies from any of these sources that may be used to fund distributions except as limited by
Maryland law.

Funding distributions from the proceeds of our DRP, borrowings or asset sales will result in us having
fewer funds available to acquire properties or other real estate-related investments. As a result, the
return our stockholders realize on their 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 our stockholders interest in us on a percentage basis and may impact the value of
their investment especially if we sell these securities at prices less than the price our stockholders
paid for their shares.
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Risk Factors – key considerations
Our Business Manager is under no obligation, and may not agree, to continue to forgo or defer
its business management fee and acquisition fee.
In the past, IREIC or its affiliates have forgone or deferred a portion of the business management fee
due them from the other REITs previously sponsored by IREIC to ensure that the REIT generated
sufficient cash from operating activities to pay distributions. Through December 31, 2016, affiliates of
IREIC have forgone our business management fees and acquisition fees of $0.7 million and $4.8
million, respectively.

There is no established public trading market for our shares, and our stockholders may not be
able to sell their shares under our SRP, or otherwise.
There is no established public trading market for our shares and no assurance that one may develop.
This may inhibit the transferability of our shares. There is no assurance the board will pursue a listing
or other liquidity event at any time in the future. In addition, even if our board decides to seek a listing
of our shares of common stock, there is no assurance that we will satisfy the listing. Thus, holders of
our common stock should be prepared to hold their shares for an unlimited period of time.

The Estimated Per Share NAV of our common stock is based on a number of assumptions and
estimates that may not be accurate or complete and is also subject to a number of limitations.
On April 7, 2016, we announced an Estimated Per Share NAV of our common stock as of December
31, 2015 equal to $9.02 per share. To assist our board of directors in establishing the Estimated Per
Share NAV, we engaged a third party specializing in providing real estate financial services. As with
any methodology used to estimate value, the methodology employed by this third party was based
upon a number of estimates and assumptions that may not have been accurate or complete.
76
Risk Factors – key considerations
Our charter authorizes us to issue additional shares of stock, which may reduce
the percentage of our common stock owned by our other stockholders,
subordinate stockholders’ rights or discourage a third party from acquiring us.

Existing stockholders do not have preemptive rights to purchase any shares issued by
us in the future. Our charter authorizes us to issue up to 1,500,000,000 shares of capital
stock, of which 1,460,000,000 shares are classified as common stock and 40,000,000
shares are classified as preferred stock. We may, in the sole discretion of our board:

• sell additional shares in any future offerings including pursuant to the DRP;
• issue equity interests in a private offering of securities;
• classify or reclassify any unissued shares of common or preferred stock by setting or
changing the preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends or other distributions, qualifications, or terms or conditions of
redemption of the stock;
• amend our charter from time to time to increase or decrease the aggregate number of
shares or the number of shares of any class or series that we have authority to issue; or
• issue shares of our capital stock in exchange for properties.

77
Risk Factors – key considerations
Our charter authorizes us to issue additional shares of stock, which may reduce the
percentage of our common stock owned by our other stockholders, subordinate stockholders’
rights or discourage a third party from acquiring us.

Existing stockholders do not have preemptive rights to purchase any shares issued by us in the
future.
We may, in the sole discretion of our board:

• sell additional shares in any future offerings including pursuant to the DRP;
• issue equity interests in a private offering of securities;
• classify or reclassify any unissued shares of common or preferred stock by setting or changing the
preferences, conversion or other rights, voting powers, restrictions, limitations as to dividends or other
distributions, qualifications, or terms or conditions of redemption of the stock;
• amend our charter from time to time to increase or decrease the aggregate number of shares or the
number of shares of any class or series that we have authority to issue; or
• issue shares of our capital stock in exchange for properties.

Market disruptions may adversely impact many aspects of our operating results and operating
condition.

We may suffer from delays in selecting, acquiring and developing suitable assets.

Our board of directors may change our investment policies without stockholder approval,
which could alter the nature of our stockholders’ investment. 78
About us

BERKELEY RESEARCH
GROUP, LLC
ABOUT BERKELEY RESEARCH GROUP

BRG employs over 1,000 professionals in 36 offices

Berkeley Research Group (BRG) is a leading global strategic advisory and expert consulting firm that
provides independent advice, data analytics, authoritative studies, expert testimony, investigations,
and regulatory and dispute consulting to Fortune 500 corporations, financial institutions, government
agencies, major law firms, and regulatory bodies around the world.

BRG experts and consultants combine intellectual rigor with practical, real-world experience and an
in-depth understanding of industries and markets. Their expertise spans economics and finance, data
analytics and statistics, and public policy in many of the major sectors of our economy, including
healthcare, banking, information technology, energy, construction, and real estate.

BRG is headquartered in Emeryville, California, with offices across the United States and in Asia,
Australia, Canada, Latin America, the Middle East, and the United Kingdom.

80
BRG Real Estate Advisory Services

BRG provides real estate investors with the leverage needed to execute on their
business plan. Whether its debt or equity, financial reporting, litigation or
transaction related we provide superior due diligence, experienced valuation,
capital markets, and regulatory advisory services.

Debt & Equity Diligence and Advisory Services Valuation Advisory and Financial Reporting Services
Advisors to investors, banks and financial institutions in Valuation support for asset acquisitions, loan originations
both single asset and portfolio level diligence and financial reporting
• Origination due diligence and underwriting support • Real estate portfolio valuation services for Private
for securitized and balance sheet debt Equity, Non-traded REITS, Hedge Funds and
Sovereign Wealth funds
• Large single asset and Loan portfolio underwriting
for CMBS and Balance Sheet lenders • Financial reporting valuation review support
• Lease and Loan agreement abstraction and review • Argus and Excel cash flow modeling
• CMBS B-Piece underwriting support, modeling and • Real estate valuation litigation support
third party review • Purchase price allocation work for financial
• Warehouse Finance re-underwriting, due diligence, reporting
and valuation in support of balance sheet lenders • Appraisal reviews and outsourced appraisal
financing loans secured by commercial real estate management function
• Commercial real estate stress test modeling for • Third party report reviews (Appraisals, Property
regulated institutions condition reports and Environmental reports)
• Property level due diligence and agreed upon • CMBS surveillance and re-underwriting for new and
procedures existing investments
• Asset summaries, Prospectus and Term Sheet
creation 81
BRG Real Estate Advisory Services

Our Real Estate Debt, Equity and Valuation Track Record

Our Team has Served as an asset manager for a global insurance company’s real estate investments
• Asset managed multi-tenant office, industrial and retail equity investments for a global insurance company’s general account portfolio.
Services including budgeting, capital expenditure approval, lease approval, service contract negotiation and tax
• Asset managed and valued on a quarterly basis, a portfolio of credit lease investments for a global insurance company

Our Team has been involved in the origination, underwriting, credit and distribution of over $70 Billion of CMBS

• Underwrote, inspected, managed the ratings and bond distribution of a $6+ Billion hospitality portfolio
• Underwrote, inspected, managed the ratings and bond distribution of a $1.7 Billion resort portfolio for acquisition and post renovation
refinance
• Underwrote, managed the ratings and distribution of the securitized, mezzanine and preferred equity for a $4 Billion multifamily investment
• Managed the underwriting, structuring, rating and distribution of almost two dozen large loan floating rate CMBS transactions with an
aggregate balance in excess of $15 Billion, with bonds distributed to US and European investors
• Rated more that $20 Billion of Fixed and Floating Rate CMBS transactions for a Global Credit Rating Agency
• Served as a member of the real estate credit committee for a Global Investment Bank
Our Team has Extensive Experience Supporting institutions with stress testing and asset valuation
• Team Managing Directors have advised money center, regional banks and large community banks with the design, model creation and
data collection for their commercial real estate stress test models
• Provided real estate valuation marks for private equity funds, non-traded REITs, REITs and insurance companies
• Supported the valuation and diligence for several distressed real estate loan portfolios in the US and Caribbean 82