Exhibit 10.4

    

ADVISORY AGREEMENT
between
PACIFIC OAK RESIDENTIAL TRUST II, INC.
and
PACIFIC OAK RESIDENTIAL ADVISORS, LLC

August 31, 2020

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Table of Contents

Page

ARTICLE 1 DEFINITIONS
1
ARTICLE 2 APPOINTMENT
8
ARTICLE 3 DUTIES OF THE ADVISOR
8
3.01    Organizational and Offering Services
8
3.02    Acquisition Services
9
3.03    Asset Management Services
9
ARTICLE 4 AUTHORITY OF ADVISOR
12
4.01    General
12
4.02    Powers of the Advisor
12
4.03    Approval by the Board
12
4.04    Modification or Revocation of Authority of Advisor
12
ARTICLE 5 BANK ACCOUNTS
13
ARTICLE 6 RECORDS AND FINANCIAL STATEMENTS
13
ARTICLE 7 LIMITATION ON ACTIVITIES
13
ARTICLE 8 FEES
14
8.01    Acquisition Fees
14
8.02    Asset Management Fees
14
8.03    Incentive Fees
14
8.04    Calculation of Incentive Fees
14
ARTICLE 9 EXPENSES
15
9.01    General
15
9.02    Timing of and Additional Limitations on Reimbursements
16
ARTICLE 10 VOTING AGREEMENT
16
ARTICLE 11 RELATIONSHIP OF ADVISOR AND COMPANY;
OTHER ACTIVITIES OF THE ADVISOR
17
11.01    Relationship
17
11.02    Time Commitment
17
ARTICLE 12 THE PACIFIC OAK NAME
17
ARTICLE 13 CHANGE OF CONTROL
18
13.01    Change of Control
18
ARTICLE 14 TERM AND TERMINATION OF THE AGREEMENT
18
14.01    Term
18
14.02    Termination by Either Party
18
14.03    Payments on Termination and Survival of Certain Rights and Obligations
18
ARTICLE 15 ASSIGNMENT
19
ARTICLE 16 INDEMNIFICATION AND LIMITATION OF LIABILITY
19
16.01    Indemnification
19
16.02    Limitation on Payment of Expenses
19
ARTICLE 17 MISCELLANEOUS
20
17.01    Notices
20
17.02    Modification
20

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Table of Contents
(continued)
Page

17.03    Severability
20
17.04    Construction
20
17.05    Entire Agreement
21
17.06    Waiver
21
17.07    Gender
21
17.08    Titles Not to Affect Interpretation
21
17.09    Counterparts
21

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ADVISORY AGREEMENT
This Advisory Agreement, dated as of August 31, 2020 (the “Agreement”), is
between Pacific Oak Residential Trust II, Inc., a Maryland corporation (the
“Company”), and Pacific Oak Residential Advisors, LLC, a Delaware limited
liability company (the “Advisor”).
W I T N E S S E T H
WHEREAS, the Company desires to avail itself of the knowledge, experience,
sources of information, advice, assistance and certain facilities available to
the Advisor and to have the Advisor undertake the duties and responsibilities
set forth herein; and
WHEREAS, the Advisor is willing to undertake to render these services 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:
ARTICLE 1.
DEFINITIONS
The following defined terms used in this Agreement shall have the meanings
specified below:
“Acquisition Expenses” means any and all expenses, excluding the fees payable to
the Advisor pursuant to Section 8.01, incurred by the Company, the Partnership,
the Advisor or any of their Affiliates in connection with the selection,
acquisition or development of any Property, or other Residential Asset, whether
or not acquired, as applicable, including, without limitation, legal fees and
expenses, travel and communications expenses, costs of appraisals, due
diligence, nonrefundable option payments on assets not acquired, accounting fees
and expenses, title insurance premiums and miscellaneous expenses related to the
selection, acquisition or development of any Property or other potential
investment.
“Acquisition Fees” means the fee payable to the Advisor pursuant to Section 8.01
plus all other fees and commissions, excluding Acquisition Expenses, paid by any
Person to any Person in connection with investing in Residential Assets.
Included in the computation of such fees or commissions shall be any real estate
commission, selection fee, nonrecurring management fee, loan fees or points or
any fee of a similar nature, however designated. Excluded shall be development
fees and construction fees paid to Persons not Affiliated with the Advisor in
connection with the actual development and construction of a Property. The
Advisor shall not be entitled to more than one Acquisition Fee for each
Property.
“Advisor” means (i) Pacific Oak Residential Advisors, LLC, a Delaware limited
liability company; or (ii) any successor advisor to the Company.
“Affiliate” or “Affiliated” shall have the meaning set forth in the Company’s
Charter.
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“Appraised Value” means the value according to an appraisal made by an
Independent Appraiser.
“Board of Directors” or “Board” means persons holding such office, as of any
particular time, under the Charter, whether they be the Directors named therein
or additional or successor Directors.
“Bylaws” means the bylaws of the Company, as amended from time to time.
“Cash from Financings” means the net cash proceeds realized by the Company from
the financing of Properties or other Permitted Investments or from the
refinancing of any Company indebtedness (after deduction of all expenses
incurred in connection therewith).
“Cash from Sales and Settlements” means the net cash proceeds realized by the
Company (i) from the sale, exchange or other disposition of any of its assets or
any portion thereof after deduction of all expenses incurred in connection
therewith and (ii) from the prepayment, maturity, workout, restructuring or
other settlement of any Permitted Investment or portion thereof after deduction
of all expenses incurred in connection therewith. In the case of a transaction
described in clause (C) of the definition of “Sale” and (B) of the definition of
“Settlement,” Cash from Sales and Settlements means the proceeds of any such
transaction actually distributed to the Company from the Joint Venture. Cash
from Sales and Settlements shall not include Cash from Financings.
“Cause” means (a) if the Company or the Advisor materially breaches any
provision of this Agreement and the breach continues for a period of thirty days
after written notice thereof by the non-breaching party specifying the breach
and requesting that the breach be remedied in the thirty-day period or (b) a
Change of Control.
“Change of Control” means the occurrence of any of the following: (i) any
“person” (within the meaning of Section 13(d) of the Exchange Act, as enacted
and in force on the date hereof) is or becomes the “beneficial owner” (as that
term is defined in Rule 13d-3, as enacted and in force on the date hereof, under
the Exchange Act) of securities of the Company representing more than 50% of the
combined voting power of the Company’s securities then outstanding; (ii) there
occurs a merger, consolidation or other reorganization of the Company which is
not approved by the Board of Directors; (iii) there occurs a sale, exchange,
transfer or other disposition of substantially all the assets of the Company to
another Person, which disposition is not approved by the Board of Directors; or
(iv) there occurs a contested proxy solicitation of the Stockholders that
results in the contesting party electing candidates to a majority of the Board
of Directors’ positions next up for election.
“Change of Control Termination Notice” shall have the meaning set forth in
Section 13 of this Agreement.
“Charter” means the articles of incorporation of the Company under Title 2 of
the Corporations and Associations Article of the Annotated Code of Maryland, as
amended from time to time.
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“Code” means the Internal Revenue Code of 1986, as amended from time to time, or
any successor statute thereto. Reference to any provision of the Code shall mean
such provision as in effect from time to time, as the same may be amended, and
any successor provision thereto, as interpreted by any applicable regulations as
in effect from time to time.
“Common Shares” means the shares of common stock of the Company, par value $.01
per share.
“Company” means Pacific Oak Residential Trust II, Inc., a corporation organized
under the laws of the State of Maryland.
“Cost of Residential Assets” means the sum of (i) with respect to Residential
Assets wholly owned, directly or indirectly, by the Company, the amount actually
paid for the purchase of each Residential Asset, including fees and expenses
related thereto (but excluding any Acquisition Fees paid or payable to the
Advisor or its affiliates under this Agreement), plus amounts funded or budgeted
at the time of acquisition for capital expenditures for the development,
construction or improvement of Residential Assets and (ii) in the case of
Residential Assets owned by any Joint Venture in which the Company or the
Partnership is, directly or indirectly, a co-venturer for capital expenditures
the amount that is attributable to the Company’s investment in the Joint
Venture. The Cost of Residential Assets is computed without regard to whether
any portion of the cost is funded using debt financing secured by, or
attributable to, the Residential Asset.
“Dealer Manager” means (i) Arete Wealth Management, or (ii) any successor dealer
manager to the Company.
“Director” means a member of the Board of Directors of the Company.
“Distributions” means any distributions (which shall not include stock
dividends) of money or other property by the Company to owners of Common Shares,
including distributions that may constitute a return of capital for federal
income tax purposes.
“GAAP” means accounting principles generally accepted in the United States.
“Gross Investment Amount” means the amount equal to the product of the total
number of Common Shares purchased by Stockholders by the issue price, reduced
by: (1) distributions designated by our board as being funded from the proceeds
of sales, financing or refinancing of our assets; and (2) distributions of
operating cash flow to the extent such distributions of operating cash flow
provide a cumulative, non-compounded annual return in excess of the
Stockholders’ 7% Return; and (3) the total number of shares repurchased by the
Company (excluding the number of shares issued as stock dividends and
subsequently repurchased by the Company) multiplied by the repurchase price.
“Group” shall mean a group of Persons within the meaning of Section 13(d)(3) of
the Exchange Act of 1934, as amended.
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“Independent Appraiser” means an appraiser chosen by a registered appraisal
management company meeting the requirements of that term as defined within the
Financial Institutions Reform, Recovery, and Enforcement Act of 1989, as
amended, and otherwise acceptable to the Board.
“Joint Venture” means any arrangement between the Company or any Affiliate
including the Partnership on the one hand and a third party on the other hand
pursuant to which the Company and the third party invest in Residential Assets
or other Permitted Investments.
“Listed” or “Listing” shall have the meaning set forth in the Company’s Charter.
“Market Value” means: (i) in the case of a listing, the value of the outstanding
Common Shares of the Company measured by taking the average closing price or the
average of the bid and asked price, as the case may be, over a period of 30 days
during which the Common Shares are traded, with such period beginning 180 days
after listing.
“Merger” means any business combination, merger, reorganization or share
exchange involving the Company or its subsidiaries into or with another
corporation or other legal person (the “Acquiror”) and as a result of such
transaction, less than a majority of the outstanding voting securities or other
capital interests of the surviving, resulting or acquiring corporation or other
legal person are owned in the aggregate by those who were Stockholders
immediately prior to such transaction (other than the Acquiror or its Affiliates
if they owned Common Shares immediately prior to such transaction).
“Merger Consideration Amount” means: (i) in the case of a Merger in which the
consideration consists solely of cash, the total consideration to be received by
holders of Common Shares outstanding immediately prior to the closing of the
Merger; (ii) in the case of a Merger in which the consideration consists of
securities traded on a national securities exchange, the product of (x) the
number of shares of such securities received by the Stockholders at the closing
of the Merger and (y) the market value of such securities, measured by taking
the average closing price or the average of the bid and asked price, as the case
may be, over a period of 20 consecutive days during which such securities are
traded, with such 20-trading day period ending on the trading day prior to the
closing date of the Merger; (iii) in the case of a Merger in which the
consideration consist of securities that are not traded on a national securities
exchange, the value ascribed to such securities in the merger agreement; and
(iv) in the case of a Merger in which the consideration is some combination of
that described above, the sum of clauses (i) through (iii), as applicable.

“MGCL” means Titles 1 through 3 of the Maryland General Corporation Law, as
amended from time to time.
“Net Cash Flow” means for the applicable measuring period, the aggregate of the
Company’s Operating Cash Flow plus any Cash Flow from Financings and Cash from
Sales and Settlements, all without duplication.
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“Net Income” means, for any period, the total revenues applicable to such
period, less the total expenses applicable to such period excluding additions to
reserves for depreciation, bad debts or other similar non-cash reserves, all
calculated in accordance with GAAP; provided, however, Net Income for purposes
of calculating total allowable Operating Expenses (as defined herein) shall
exclude the gain from the sale of the Company’s assets.
“Operating Cash Flow” means Operating Revenue minus the sum of: (i) Operating
Expenses; (ii) all principal and interest payments on indebtedness and other
sums paid to lenders; (iii) the expenses of raising capital such as Organization
and Offering Expenses, legal, audit, accounting, underwriting, brokerage,
listing, registration, and other fees, printing and other such expenses and tax
incurred in connection with the issuance, distribution, transfer, registration
and Listing of the Common Shares;(iv) taxes; and (vi) Acquisition Fees,
Acquisition Expenses, real estate commissions on the resale of Property, and
other expenses connected with the acquisition, disposition, and ownership of
Residential Assets or other Permitted Investments (other than commissions on the
sale of assets other than Property), such as the costs of foreclosure, insurance
premiums, legal services, maintenance, repair and improvement of Property.
“Operating Expenses” means all costs and expenses incurred by the Company, as
determined under GAAP, that in any way are related to the operation of the
Company or to Company business, including fees paid to the Advisor, but
excluding: (i) all principal and interest payments on indebtedness and other
sums paid to lenders; (ii) the expenses of raising capital such as Organization
and Offering Expenses, legal, audit, accounting, underwriting, brokerage,
listing, registration, and other fees, printing and other such expenses and tax
incurred in connection with the issuance, distribution, transfer, registration
and Listing of the Common Shares; (iii) taxes; (iv) Acquisition Fees,
Acquisition Expenses, real estate commissions on the resale of Property, and
other expenses connected with the acquisition, disposition, and ownership of
Residential Assets or other Permitted Investments (other than commissions on the
sale of assets other than Property), such as the costs of foreclosure, insurance
premiums, legal services, maintenance, repair and improvement of Property; and
(v) non-cash expenditures such as depreciation, amortization and bad loan
reserves.
“Operating Revenue” means the Company’s cash receipts from ownership or
operation of: (i) Properties; (ii) SFH Interests; (iii) other Permitted
Investments; and (iv) the Company’s direct or indirect proportionate share of
any cash from any Joint Venture in which the Company or the Partnership is,
directly or indirectly, a co-venturer; provided that Operating Revenue shall not
include Cash from Sales and Settlements.
“Organization and Offering Expenses” means all expenses incurred by or on behalf
of the Company in connection with any offering of its Common Shares, whether
incurred before or after the date of this Agreement, which may include but are
not limited to, total underwriting or placement agent fees, brokerage discounts
and commissions (including fees of counsel to the underwriter or placement
agent); any expense allowance granted by the Company to the underwriter or
placement agent or any reimbursement of expenses of the underwriter, placement
agent, Sponsor or Advisor by the Company; expenses for printing, engraving and
mailing; charges of transfer agents, registrars, trustees, escrow holders,
depositaries and experts; and
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expenses of qualification of the sale of the securities under federal and state
laws, including taxes and fees and the fees and expenses of accountants and
attorneys.
“Partnership” means PORT II OP LP, a Delaware limited partnership formed to own
and operate investments in Residential Assets and other Permitted Investments on
behalf of the Company.
“Permitted Investments” means all investments in which the Company may acquire
an interest, either directly or indirectly, including Properties, SFH Interests
and short-term investments acquired for purposes of cash management, and
including ownership interests in a Joint Venture.
“Person” means an individual, corporation, partnership, estate, trust (including
a trust qualified under Section 401(a) or 501(c) (17) of the Code), a portion of
a trust permanently set aside for or to be used exclusively for the purposes
described in Section 642(c) of the Code, association, private foundation within
the meaning of Section 509(a) of the Code, joint stock company or other entity,
or any government or any agency or political subdivision thereof, and also
includes a group as that term is used for purposes of Section 13(d)(3) of the
Securities Exchange Act of 1934, as amended.
“Private Offering” or “Offering” means an offering of Common Shares or other
equity securities pursuant to a Private Placement Memorandum, other than a
private offering of shares under a distribution reinvestment plan.
“Private Placement Memorandum” means a confidential private placement
memorandum, as supplemented, pursuant to which the Company offers its Common
Shares or other equity securities.
“Property” or “Properties” means any real property or properties transferred or
conveyed to the Company or the Partnership, either directly or indirectly, or
any real property acquired, transferred or conveyed to a Joint Venture in which
the Company is, directly or indirectly, a co-venturer.
“Property Manager” means an entity that has been retained to perform and carry
out property-management services at one or more of the Properties.
“REIT” means a “real estate investment trust” under Sections 856 through 860 of
the Code.
“Residential Assets” means Single Family Homes, and SFH Interests.
“Sale” means any transaction or series of related transactions whereby: (A) the
Company, directly or indirectly, including through the Partnership sells,
grants, transfers, conveys, or relinquishes its ownership of any Property, or
other Permitted Investment or portion thereof, including the transfer of any
Property that is the subject of a ground lease, and including any event with
respect to any Property or other Permitted Investment that gives rise to a
significant
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amount of insurance proceeds or condemnation awards, and including the issuance
by one of the Company’s subsidiaries of any asset-backed securities or
collateralized debt obligations as part of a securitization transaction; (B) the
Company, directly or indirectly, including through the Partnership, sells,
grants, transfers, conveys, or relinquishes its ownership of all or
substantially all of the interest in any Joint Venture in which it is, directly
or indirectly, a co-venturer; or (C) any Joint Venture in which the Company,
directly or indirectly, through the Partnership is, a co-venturer, sells,
grants, transfers, conveys, or relinquishes its ownership of any Property or
other Permitted Investment or portion thereof, including any event with respect
to any Property or other Permitted Investment that gives rise to insurance
claims or condemnation awards, and including the issuance by the Joint Venture
or one of its subsidiaries of any asset-backed securities or collateralized debt
obligations as part of a securitization transaction.
“SEC” means the United States Securities and Exchange Commission.
“Single Family Homes” means a residential building consisting of one to four
units.
“SFH Interest” means securities or other interests that generate cash flow
derived from Single Family Homes such as mortgages secured by Single Family
Homes, subordinated, mezzanine or bridge loans made to owners or investors in
Single Family Homes and other related structured investments.
“Sponsor” means Pacific Oak Capital Advisors, LLC, a Delaware limited liability
company.
“Stockholders” means the record holders of the Common Shares or any other series
of class of stock of the Company.
“Stockholders’ 7% Return” means, as of any date, an aggregate amount equal to a
7% cumulative, non-compounded, annual return on Gross Investment Amount
(calculated on a daily basis, decompounded assuming a three hundred sixty-five
day year, and applied assuming a three hundred sixty-five day year. For purposes
of calculating the Stockholders’ 7% Return, Gross Investment Amount shall be
determined for each day during the period for which the Stockholders’ 7% Return
is being calculated, including a daily adjustment to reflect shares repurchased
or redeemed by the Company (excluding shares issued as stock dividends and
subsequently repurchased by the Company).
“Subordinated Incentive in Net Cash Flows” means a fee payable to our Advisor
equal to 20% of the excess Net Cash Flow for the applicable period, whether from
continuing operations, net sales proceeds, net financing proceeds, or otherwise
over an amount sufficient to pay stockholders: (1) a return of their Gross
Investment Amount; and (2) the Stockholders’ 7% Return regardless of the source
used to pay the stockholders 7% Return including distributions that may
constitute a return of capital for federal income tax purposes.
“Subordinated Incentive Fee” means a fee payable to our Advisor upon a merger or
listing of the Common Shares on a national securities exchange equal to 20% of
the amount by which, in the case of a Listing, the Market Value of our
outstanding Common Shares or in the
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case of a Merger, the Merger Consideration, without any adjustment for the
incentive fee, plus the total of all distributions paid by us on the Common
Shares from inception until the date Market Value or Merger Consideration is
determined (regardless of the source used to fund the distributions and
including distributions that may constitute a return of capital for federal
income tax purposes) exceeds: (1) the Gross Investment Amount; plus (2) the
amount of distributions necessary to pay the Stockholders’ 7% return through the
date the Market Value or Merger Consideration is determined.
“Subordinated Incentive Fee Due on Termination” means a fee payable to our
Advisor if the advisory agreement is terminated (unless terminated for “cause”
by the Company), equal to: 20% of the amount, if any, by which the sum of (a)
the value of our Properties and all other assets at the termination date as
reflected on an appraisal made by an independent appraiser, less amounts of all
third-party indebtedness or any other liability secured by our Properties or
other third-party indebtedness, plus total distributions paid through the
termination date plus (b) the amount necessary to pay the Stockholders’ 7%
return through the termination date exceeds the Gross Investment Amount. No fee
shall be due and payable if the Company terminates for “cause.”
“Termination Date” means the date of termination of the Agreement determined in
accordance with Article 14 hereof.
ARTICLE 2.
APPOINTMENT
The Company hereby appoints the Advisor to serve as its advisor on the terms and
conditions set forth in this Agreement, and the Advisor hereby accepts such
appointment.
ARTICLE 3.
DUTIES OF THE ADVISOR
The Advisor is responsible for managing, operating, directing and supervising
the operations and administration of the Company and its assets. The Advisor
undertakes to use its reasonable best efforts to present the Company potential
investment opportunities, to make investment decisions on behalf of the Company
subject to the direction and oversight of the Board and Section 4.03 hereof, and
to provide the Company with a continuing and suitable investment program
consistent with the investment objectives and policies of the Company as
determined and adopted from time to time by the Board. Subject to the
limitations set forth in this Agreement, including Article 4 hereof, and the
continuing and exclusive authority of the Board over the management of the
Company, the Advisor shall, either directly or by engaging an Affiliate or third
party, perform the following duties:
a.Organizational and Offering Services
. The Advisor shall perform all services related to the organization of the
Company or any Offering, other than services that (i) are to be performed by the
Dealer Manager, (ii) the
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Company elects to perform directly or (iii) would require the Advisor to
register as a broker-dealer with the SEC or any state.
b.Acquisition Services
.
(i)Provide the Company with relevant market research and economic and
statistical data in connection with the Company’s assets and investment
objectives and policies;
(ii)Subject to Section 4 hereof and the investment objectives and policies of
the Company: (a) locate, analyze and select potential investments; (b) structure
and negotiate the terms and conditions of transactions pursuant to which
investments in Residential Assets and other Permitted Investments will be made;
(c) cause the Company to, directly or indirectly, acquire, Residential Assets
and other Permitted Investments; (d) arrange for financing and refinancing and
make other changes in the asset or capital structure of investments in
Residential Assets and other Permitted Investments; and (e) enter into leases,
service contracts and other agreements for Residential Assets and other
Permitted Investments, or to engage an approved Property Manager;
(iii)Perform due diligence on prospective investments;
(iv)Prepare reports regarding prospective investments that include
recommendations and supporting documentation necessary for the Directors to
evaluate the proposed investments;
(v)Obtain reports (which may be prepared by the Advisor or its Affiliates),
where appropriate, concerning the value of contemplated investments of the
Company; and
(vi)Deliver to or maintain on behalf of the Company copies of all appraisals
obtained in connection with the Company’s investments.
c.Asset Management Services
.
(i)Real Estate and Related Services:
(1)Investigate, select and, on behalf of the Company, engage and conduct
business with (including enter contracts with) such Persons as the Advisor deems
necessary to the proper performance of its obligations as set forth in this
Agreement, including but not limited to consultants, accountants, lenders,
technical advisors, attorneys, brokers, underwriters, corporate fiduciaries,
escrow agents, depositaries, custodians, agents for collection, insurers,
insurance agents, developers, construction companies, Property Managers and any
and all Persons acting in any other capacity deemed by the Advisor necessary or
desirable for the performance of any of the foregoing services;
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(2)Negotiate any borrowings that the Company, directly or indirectly, makes and
to cause the Company or the underlying borrower to pay any amounts due on the
borrowings;
(3)Monitor applicable markets and obtain reports (which may be prepared by the
Advisor or its Affiliates) where appropriate, concerning the value of
investments of the Company;
(4)Monitor and evaluate the performance of each asset of the Company and the
Company’s overall portfolio of assets, provide daily management services to the
Company and perform and supervise the various management and operational
functions related to the Company’s investments;
(5)Formulate and oversee the implementation of strategies for the
administration, promotion, management, operation, maintenance, improvement,
financing and refinancing, marketing, leasing and disposition of Residential
Assets and other Permitted Investments on an overall portfolio basis;
(6)Consult with the Company’s officers and the Board and assist the Board in
formulating and implementing the Company’s financial policies, and, as necessary
with respect to investment and borrowing opportunities presented to the Board,
furnish the Board with advice and recommendations with respect to the making of
investments consistent with the investment objectives and policies of the
Company and in connection with any borrowings proposed to be undertaken by the
Company;
(7)Oversee and evaluate the performance by the Property Manager(s) of their
duties, including collection and proper deposits of rental payments and payment
of Property expenses and maintenance;
(8)Conduct periodic on-site property visits to some or all (as the Advisor deems
reasonably necessary) of the Properties to inspect the physical condition of the
Properties;
(9)Review, analyze and comment upon the operating budgets, capital budgets and
leasing plans prepared and submitted by each Property Manager and aggregate
these property budgets into the Company’s overall budget;
(10)Coordinate and manage relationships between the Company and any
co-venturers; and
(11)Consult with the Company’s officers and the Board and provide assistance
with the evaluation and approval of potential asset disposition, sale and
refinancing opportunities.
(ii)Accounting and Other Administrative Services:
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(1)Provide the day-to-day management of the Company and perform and supervise
the various administrative functions reasonably necessary for the management of
the Company;
(2)From time to time, or at any time reasonably requested by the Board, make
reports to the Board on the Advisor’s performance of services to the Company
under this Agreement;
(3)Provide or arrange for any administrative services and items, legal and other
services, office space, office furnishings, personnel and other overhead items
necessary and incidental to the Company’s business and operations;
(4)Provide financial and operational planning services;
(5)Maintain accounting and other record-keeping functions at the Company and
investment levels, including information concerning the activities of the
Company as shall be required to prepare and to file all periodic financial
reports, tax returns and any other information required to be filed with the
Internal Revenue Service and any other regulatory agency;
(6)Maintain and preserve all appropriate books and records of the Company;
(7)Provide services necessary to ensure the Company’s compliance with the rules
and regulations REIT, including any asset, income and shareholder testing, and
addressing with the Board, if necessary, any actions required to maintain REIT
compliance;
(8)Provide tax and compliance services and coordinate with appropriate third
parties, including the Company’s independent auditors and other consultants, on
related tax matters;
(9)Provide the Company with all necessary cash management services;
(10)Manage and coordinate with the transfer agent payment of dividends and other
distributions to Stockholders;
(11)Consult with the Company’s officers and the Board and assist the Board in
evaluating and obtaining necessary insurance coverage based upon risk management
determinations;
(12)Provide the Company’s officers and the Board with timely updates related to
the overall regulatory environment affecting the Company, as well as managing
compliance with such matters;
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(13)Consult with the Company’s officers and the Board relating to the corporate
governance structure and appropriate policies and procedures related thereto;
(14)Perform all reporting, record keeping, internal controls and similar matters
in a manner to allow the Company to comply with applicable law;
(15)Notify the Board of all proposed material transactions before they are
completed; and
(16)Do all things necessary to assure its ability to render the services
described in this Agreement.
ARTICLE 4.
AUTHORITY OF ADVISOR
a.General
. All rights and powers to manage and control the day-to-day business and
affairs of the Company shall be vested in the Advisor. The Advisor 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 to such officers, employees,
Affiliates, agents and representatives of the Advisor or the Company as it may
deem appropriate. Any authority delegated by the Advisor to any other Person
shall be subject to the limitations on the rights and powers of the Advisor
specifically set forth in this Agreement or the Charter.
b.Powers of the Advisor
. 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, including making, financing and disposing of investments, shall be
vested in the Advisor, which shall have the power by itself and shall be
authorized and empowered on behalf and in the name of the Company to carry out
any and all of the objectives and purposes of the Company and to perform all
acts and enter into and perform all contracts and other undertakings that it may
in its sole discretion deem necessary, advisable or incidental thereto to
perform its obligations under this Agreement.
c.Approval by the Board
. Notwithstanding the foregoing, the Advisor may not take any action on behalf
of the Company without the prior approval of the Board or duly authorized
committees thereof if the Charter or the MGCL require the prior approval of the
Board. If the Board or a committee of the Board must approve a proposed
investment, financing or disposition or chooses to do so, the Advisor will
deliver to the Board or committee, as applicable, all documents required by it
to evaluate such investment, financing or disposition.
d.Modification or Revocation of Authority of Advisor
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. The Board may, at any time upon the giving of notice to the Advisor, 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 Advisor and shall not be applicable to investment
transactions to which the Advisor has committed the Company prior to the date of
receipt by the Advisor of such notification.
ARTICLE 5.
BANK ACCOUNTS
The Advisor may establish and maintain one or more bank accounts in its own name
for the account of the Company or in the name of the Company 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, under such terms and conditions as
the Board may approve, provided that no funds shall be commingled with the funds
of the Advisor. The Advisor shall from time to time render appropriate
accountings of such collections and payments to the Board and the independent
auditors of the Company.
ARTICLE 6.
RECORDS AND FINANCIAL STATEMENTS
The Advisor, in the conduct of its responsibilities to the Company, shall
maintain adequate and separate books and records for the Company’s operations,
which shall be supported by sufficient documentation to ascertain that such
books and records are properly and accurately recorded. Such books and records
shall be the property of the Company and shall be available for inspection by
the Board and by counsel, auditors and other authorized agents of the Company or
persons with rights to inspect the books and records, at any time or from time
to time during normal business hours. Such books and records shall include all
information necessary to calculate and audit the fees paid or reimbursements
made under this Agreement. The Advisor shall utilize procedures to attempt to
ensure such control over accounting and financial transactions as is reasonably
required to protect the Company’s assets from theft, error or fraudulent
activity. All financial statements that the Advisor delivers to the Company for
distribution to Stockholders shall be prepared on an accrual basis in accordance
with GAAP, except for special financial reports that by their nature require a
deviation from GAAP. The Advisor shall liaise with the Company’s officers and
independent auditors and shall provide such officers and auditors with the
reports and other information that the Company so requests.
ARTICLE 7.
LIMITATION ON ACTIVITIES
Notwithstanding any provision in this Agreement to the contrary, the Advisor
shall not take any action that, in its sole judgment made in good faith, would
(i) adversely affect the ability of the Company to qualify or continue to
qualify as a REIT under the Code, (ii) subject the Company to regulation under
the Investment Company Act of 1940, as amended, (iii) violate any law, rule,
regulation or statement of policy of any governmental body or agency having
jurisdiction over the Company, its Common Shares or its other securities, (iv)
require the
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Advisor to register as a broker-dealer with the SEC or any state, or (v) violate
the Charter or Bylaws.
ARTICLE 8.
FEES
a.Acquisition Fees
. As compensation for the investigation, selection, sourcing and acquisition or
origination (by purchase, investment or exchange) of Residential Assets and
other Permitted Investments, the Company shall pay the Advisor an Acquisition
Fee for each such investment equal to 1.0% of the Cost of Residential Assets for
any given transaction. With respect to the acquisition of any Residential Asset
or other Permitted Investment through any Joint Venture in which the Company is,
directly or indirectly, a partner, member or stockholder the Acquisition Fee
payable to the Advisor shall equal 1.0% of each investment in the Joint Venture.
The Advisor shall submit an invoice to the Company following the closing or
closings of each investment. Generally, the Acquisition Fee payable to the
Advisor shall be paid at the closing of the transaction upon receipt of the
invoice by the Company. The Advisor may, in its discretion, waive or defer any
Acquisition Fee, in whole or in part, in its sole discretion. All or any portion
of the Acquisition Fees deferred shall not bear interest and may be paid by the
Company in the Joint Venture in such other fiscal year as the Advisor shall
determine.
b.Asset Management Fees
. As compensation for the services described in Section 3.03 the Company shall
pay the Advisor an asset management fee equal to 0.25% quarterly (1% annually)
on the carrying value of the Company’s total assets. For these purposes, the
carrying value of the Company’s total assets shall be equal to the value
reported on the Company’s balance sheet for the quarter most recently ended. The
Advisor shall submit an invoice to the Company, accompanied by a computation of
the fees for the applicable period. Generally, the Asset Management Fee payable
to the Advisor shall be paid on the last day of such month, or the first
business day following the last day of such month.
c.Incentive Fees
. Upon an event triggering the applicable fee below, and subject to the terms of
each incentive fee, the Company shall pay (without duplication) to the Advisor
the following Incentive Fees:
(i)Subordinated Incentive in Net Cash Flows;
(ii)Subordinated incentive fee; and
(iii)Subordinated Incentive Fee Due on Termination.
d.Calculation of Incentive Fees
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. In all cases above the Stockholders’ 7% Return is calculated like simple
interest on a daily basis in the manner described below. In making this
calculation, Gross Investment Amount is determined for each day during the
period for which the Stockholders’ 7% Return is being calculated, including a
daily adjustment to reflect any shares repurchased by the Company. The
Stockholders’ 7% Return is not based on the return provided to any individual
stockholder but rather is based on total distributions paid on all outstanding
shares relative to total Gross Investment Amount. Accordingly, it is not
necessary for each stockholder to have received any minimum return in order for
the Advisor to be paid any of the incentive fees described above in
8.03(i)-(iii).
ARTICLE 9.
EXPENSES
a.General
. In addition to the compensation paid to the Advisor pursuant to Article 8
hereof, the Company shall pay directly or reimburse the Advisor for up to
$500,000 of Organization and Offering Expenses incurred by the Advisor or its
Affiliates in connection with the Offering of $200 million of Common Shares
commenced on August 31, 2020 and for all of the third-party expenses paid or
incurred by the Advisor or its Affiliates on behalf of the Company or in
connection with the services provided to the Company pursuant to this Agreement;
provided, however, neither the Advisor nor any of its Affiliates shall be
entitled to any reimbursement for any cost or expenses for salaries and benefits
of persons employed by the Advisor or its Affiliates who perform services for
the Company or in any way related to the overhead or operations of the Advisor
or its Affiliates. The third-party expenses for which payment or reimburse will
be allowed include, but are not limited to:
(i)Acquisition Expenses incurred in connection with the selection and
acquisition of Residential Assets and other Permitted Investments, including
expenses incurred related to assets pursued or considered but not ultimately
acquired by the Company;
(ii)The cost of goods and services used by the Company and obtained from third
parties other than the Advisor or its Affiliates;
(iii)Interest and other costs for borrowed money, including discounts, points
and other similar fees;
(iv)Taxes and assessments on income or Properties, taxes as an expense of doing
business and any other taxes otherwise imposed on the Company and its business,
assets or income;
(v)All expenses, except expenses incurred by any Property Manager affiliated
with the Advisor, of managing, improving, developing, operating and selling
Residential Assets and other Permitted Investments owned, directly or
indirectly, by the Company, as well as expenses of other transactions relating
to the Residential Assets and other Permitted Investments;
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(vi)All expenses in connection with payments to the Board and meetings of the
Board and Stockholders;
(vii)Expenses of providing services for and maintaining communications with
Stockholders, including the cost of preparing, printing, and mailing annual
reports and other Stockholder reports, proxy statements and other reports
required by governmental entities;
(viii)Out-of-pocket costs associated with insurance required in connection with
the business of the Company or by its officers and directors;
(ix)Audit, accounting and legal fees, and other fees for professional services
relating to the operations of the Company and all such fees incurred at the
request, or on behalf of, the Board or any committee of the Board;
(x)Expenses for the Company to comply with all applicable laws, regulations and
ordinances;
(xi)Expenses connected with payments of Distributions and stock dividends made
or caused to be made by the Company to the Stockholders;
(xii)Expenses of merging, liquidating or dissolving the Company or of amending
the Charter or the Bylaws; and
(xiii)All other third-party out-of-pocket costs incurred by the Advisor in
performing its duties hereunder.
b.Timing of and Additional Limitations on Reimbursements
.
(i)Expenses incurred by the Advisor on behalf of the Company and reimbursable to
the Advisor pursuant to this Article 9 shall be reimbursed upon delivery by the
Advisor to the Board of a statement documenting the reimbursable expenses for
the prior quarter; provided that the statement shall be delivered within 45 days
after the end of each quarter.
ARTICLE 10.
VOTING AGREEMENT
The Advisor agrees that, with respect to any Common Shares now or hereinafter
owned by it, the Advisor will not vote or consent on matters submitted to the
Stockholders of the Company regarding (i) the removal of the Advisor or any
Affiliate of the Advisor, (ii) any transaction between the Company and the
Advisor or any of its Affiliates, (iii) the election of directors of the Company
or (iv) the approval or termination of any contract with the Advisor or any
Affiliate of the Advisor. This voting restriction shall survive until such time
that the Advisor is both no longer serving as such and is no longer an Affiliate
of the Company.
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ARTICLE 11.
RELATIONSHIP OF ADVISOR AND COMPANY;
OTHER ACTIVITIES OF THE ADVISOR
a.Relationship
. The Company and the Advisor are not partners or joint venturers with each
other, and nothing in this Agreement shall be construed to make them partners or
joint venturers. This Agreement shall not limit or restrict the right of any
manager, director, officer, employee or equity holder of the Advisor or its
Affiliates to engage in any other business or to render services of any kind to
any other Person; provided that neither the Advisor nor its affiliates shall
render services similar to those be rendered hereunder to any person or entity
in the business of acquiring, owning and managing single family homes (which
consist of one to four unit dwellings) and other single family residential
assets including securities whose value is derived from or based on investments
in single family homes. The Advisor may, with respect to any investment in which
the Company is a participant, also render advice and service to each and every
other participant therein. The Company acknowledges that the Advisor provides
services, as sub-advisor, to Pacific Oak Residential Trust, Inc. The Advisor
shall promptly disclose to the Board the existence of any additional condition
or circumstance, existing or anticipated, of which it has knowledge that creates
or could create a conflict of interest between the Advisor’s obligations to the
Company and its obligations to or its interest in any other Person.
b.Time Commitment
. The Advisor shall, and shall cause its Affiliates and their respective
employees, officers and agents to, devote to the Company such time as shall be
reasonably necessary to conduct the business and affairs of the Company in an
appropriate manner consistent with the terms of this Agreement. The Company
acknowledges that the Advisor and its Affiliates and their respective employees,
officers and agents may also engage in activities unrelated to the Company and
may provide services to Persons other than the Company or any of its Affiliates.
ARTICLE 12.
THE PACIFIC OAK NAME
The Advisor and its Affiliates have a proprietary interest in the name “Pacific
Oak.” The Advisor hereby grants to the Company a non-transferable,
non-assignable, non-exclusive royalty-free right and license to use the name
“Pacific Oak” during the term of this Agreement. Accordingly, and in recognition
of this right, if at any time the Company ceases to retain the Advisor or one of
its Affiliates to perform advisory services for the Company, the Company will,
promptly after receipt of written request from the Advisor, cease to conduct
business under or use the name “Pacific Oak” or any derivative thereof and the
Company shall change its name and the names of any of its subsidiaries to a name
that does not contain the name “Pacific Oak” or any other word or words that
might, in the reasonable discretion of the Advisor, be susceptible of indication
of some form of relationship between the Company and the Advisor or any of its
Affiliates. At such time, the Company will also make any changes to any
trademarks, service marks or other marks necessary to remove any references to
the word “Pacific Oak.” Consistent
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with the foregoing, it is specifically recognized that the Advisor or one or
more of its Affiliates has in the past and may in the future organize, sponsor
or otherwise permit to exist other investment vehicles (including vehicles for
investment in real estate) and financial and service organizations having
“Pacific Oak” as a part of their name, all without the need for any consent (and
without the right to object thereto) by the Company.
ARTICLE 13.
CHANGE OF CONTROL
a.Change of Control
. Notwithstanding any other provisions of this Agreement to the contrary, in the
event of a Change of Control of the Company, either the Company or the Advisor
shall have the right, subject to the Company’s and the Partnership’s right to
assign this Agreement in accordance with Section 15, upon sixty (60) days prior
written notice to the other (the “Change of Control Termination Notice”), to
terminate this Agreement. If the Advisor or the Company so elects to terminate
this Agreement pursuant to this Section 13, the Termination Date shall be the
date specified in the Change of Control Termination Notice, but in any event no
later than thirty (30) days after the Change of Control of the Company.
ARTICLE 14.
TERM AND TERMINATION OF THE AGREEMENT
a.Term
. This Agreement shall be effective as of August 31, 2020 (with respect to the
Company and its predecessors in interests) and shall have a term of five years
and may be renewed for two successive five-year terms upon mutual consent of the
parties. The Company will evaluate the performance of the Advisor before
renewing this Agreement, and each such renewal shall be for a term of no more
than five years. Any such renewal must be approved by the Board of Directors.
b.Termination by Either Party
. This Agreement may be terminated for Cause upon 60 days written notice by
either the Company or the Advisor. The provisions of Articles 1, 10, 12, 14, 16
and 17 shall survive termination of this Agreement.
c.Payments on Termination and Survival of Certain Rights and Obligations
.
(i)After the Termination Date, the Advisor shall not be entitled to compensation
for further services hereunder except it shall be entitled to receive from the
Company within 30 days after the effective date of such termination (a) all
unpaid reimbursements of expenses and all earned but unpaid fees payable to the
Advisor prior to termination of this Agreement and (b) any incentive fees due
under Section 8.03 hereunder Notwithstanding
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the foregoing, no incentive fee will be paid if this Agreement is terminated for
Cause by the Company in accordance with Section 14.02 following an event
described in clause (a) of the definition of Cause.
(ii)The Advisor shall promptly upon termination:
(1)pay over to the Company all monies, if any, after deducting any accrued fees
and reimbursement for its expenses to which it is then entitled;
(2)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;
(3)deliver to the Board all documents including, but not limited to those
related to the Company’s assets then in the custody of the Advisor; and
(4)cooperate with the Company to provide an orderly transition of advisory
functions.
ARTICLE 15.
ASSIGNMENT
This Agreement may be assigned by the Advisor to an Affiliate with the consent
of the Board. This Agreement shall not be assigned by the Company without the
consent of the Advisor, 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, in which case such successor organization
shall be bound hereunder and by the terms of the assignment in the same manner
as the Company is bound by this Agreement.
ARTICLE 16.
INDEMNIFICATION AND LIMITATION OF LIABILITY
a.Indemnification
. The Company shall, to the fullest extent to which the Company many indemnify
its directors under the MGCL, indemnify, defend and hold harmless the Advisor
and its Affiliates, including their respective officers, directors, partners,
agents and employees, from all liability, claims, damages or losses arising in
the performance of their duties hereunder, and related expenses, including
reasonable attorneys’ fees, incurred by these persons or entities to the extent
such liability, claims, damages or losses and related expenses are not fully
reimbursed by insurance.
b.Limitation on Payment of Expenses
. The Company shall pay or reimburse the reasonable legal expenses and other
costs incurred by the Advisor or its Affiliates in advance of the final
disposition of a proceeding subject to the limitations and requirements set
forth in the MGCL.
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ARTICLE 17.
MISCELLANEOUS
a.Notices
. Any notice, report or other communication required or permitted to be given
hereunder shall be in writing unless some other method of giving such notice,
report or other communication is required by the Charter, the Bylaws or is
accepted by the party to whom it is given, and shall be given by being delivered
by hand or by overnight mail or other overnight delivery service to the
addresses set forth herein:
To the Company or the Board:
Pacific Oak Residential Trust II, Inc.
3200 Park Center Drive
Suite 600
Costa Mesa, CA 92626
Email: mbender@pac-oak.com
Attention: Michael Bender

To the Advisor:
Pacific Oak Residential Advisors, LLC
11246 Alumni Way
Jacksonville, FL 32246
Email: jhealey@pac-oak.com; Mgough@pac-oak.com
Attention: Jeremy Healey and Michael Gough

Either party may at any time give notice in writing to the other party of a
change in its address for the purposes of this Section 17.01.
b.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.
c.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.
d.Construction
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. The provisions of this Agreement shall be construed and interpreted in
accordance with the laws of the State of Delaware.
e.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.
f.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. No
waiver shall be effective unless it is in writing and is signed by the party
asserted to have granted such waiver.
g.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.
h.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.
i.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.
[The remainder of this page is 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.

PACIFIC OAK RESIDENTIAL TRUST II, INC.By:/s/ T. Jeremiah HealeyName:T. Jeremiah
HealeyTitle:President and Chief Executive OfficerPACIFIC OAK RESIDENTIAL
ADVISORS, LLCBy:/s/ T. Jeremiah HealeyName:T. Jeremiah HealeyTitle:Authorized
Signatory

[Signature Page to Advisory Agreement]