Exhibit 10.3

 

LIMITED RECOURSE GUARANTY

 

THIS LIMITED RECOURSE GUARANTY (this “Guaranty”), is made this 15th day of
March, 2016 by and between BLUEROCK RESIDENTIAL GROWTH REIT, INC., a Maryland
corporation (the “Guarantor”) in favor of WESTERN-SOUTHERN LIFE ASSURANCE
COMPANY, an Ohio corporation whose address is 400 Broadway, Cincinnati, Ohio
45202 (“Lender”).

 

RECITALS

 

A.Guarantor desires that Lender permit the assumption by BR HENDERSON BEACH,
LLC, a Delaware limited liability company (the “Borrower”) of secured financing
in the original principal amount of $38,500,000.00 (the “Loan”) with respect to
certain premises (including all buildings, improvements and appurtenant rights
and easements) situated in Okaloosa County, Florida, and more fully described on
attached Exhibit A (the “Property”). The Loan is evidenced by an Amended and
Restated Promissory Note originally payable by AHB APARTMENTS, LLC, a Delaware
limited liability company (“Original Borrower”) (the “Note”) dated January 3,
2013, and is secured by, among other things, an Amended and Restated Open-End
Mortgage, Security Agreement, Assignment of Rents and Leases, and Fixture Filing
dated January 3, 2013, encumbering the Property (the “Mortgage”).

 

B.Effective as of the date hereof, Borrower has assumed the Loan, as evidenced
by a Loan Assumption and Mortgage Modification Agreement among Lender, Borrower
and Original Borrower dated of even date herewith (the “Assumption”). The Note,
the Mortgage, this Guaranty, the Assumption and all other documents executed by
Borrower or a Guarantor evidencing or securing the Loan or entered into in
connection with the Loan are collectively referred to as the “Loan Documents”.

 

C.Lender will permit Borrower to assume the Loan on the condition that Guarantor
agrees to enter into this Guaranty with Lender as further security for the Loan.

 

D.Capitalized terms used herein and not otherwise defined herein will have the
meanings given such terms in the Loan Documents.

 

NOW, THEREFORE, in consideration of the Loan and for other good and valuable
consideration, the receipt and sufficiency whereof are hereby acknowledged, and
in order to induce Lender to permit the assumption of the Loan by Borrower,
Guarantor, intending to be legally bound, hereby covenants, represents, warrants
and agrees as follows:

 

 

 

 

1.GUARANTY OBLIGATION. In consideration of and as an inducement to Lender to
permit the assumption of the Loan by Borrower, and for other good and valuable
consideration, the receipt of which is acknowledged, Guarantor hereby
unconditionally agrees, to defend, indemnify and hold Lender, Lender’s agents,
shareholders, directors, principals, employees, successors and assigns harmless
from and against any and all liabilities (including strict liability), suits,
actions, claims, demands, penalties, damages (including, without limitation,
lost profits, consequential damages, interest, penalties, fines, and monetary
sanctions), losses, costs and expenses (including, without limitation,
reasonable attorneys’ fees and expenses) (collectively, “Liabilities”) that may
now or in the future be incurred or suffered by or imposed upon Lender as a
result of any of the following (each, an “Event of Default” hereunder):

 

1.1the Borrower misapplying, or, following an Event of Default, failing to remit
to Lender, any condemnation awards, casualty proceeds, or security deposits
attributable to the Property, unless such awards, proceeds or deposits are
required to be escrowed or paid to an unaffiliated third party pursuant to a
court order;

 

1.2any act of fraud or material breach of any representation or warranty of
Borrower or any member thereof, contained in the Loan Documents or any other
agreement, certificate or instrument delivered pursuant to or in connection with
the Loan Documents;

 

1.3the collection by Borrower of rents more than one (1) month in advance, or
the failure by Borrower to apply the rents toward the normal and necessary
operating expenses of the Property or the curing of any Event of Default, or in
the manner and for the purposes provided in the Mortgage or in any other Loan
Documents;

 

1.4[Reserved];

 

1.5[Reserved];

 

1.6any diminution in value of the Property or other collateral or security for
the Loan, arising from the active waste of the Borrower;

 

1.7any casualty or loss affecting the Property that was self-insured risk or
under-insured or deductible amount under a policy of insurance relating to the
Property, including without limitation those relating to terrorism and/or mold
coverage;

 

1.8the failure by Borrower to insure the Property as expressly set forth in any
Loan Documents executed in connection with the closing of the Loan, including
without limitation the failure to carry terrorism and/or mold coverage;

 

1.9the failure by Borrower to pay any taxes or assessments on the Property; or

 

1.10the filing of any bankruptcy or other reorganization proceeding by Borrower.

 

In addition to and notwithstanding the foregoing, Guarantor shall be fully
liable for and Lender shall have full recourse against Guarantor for all amounts
of the Indebtedness in the event there shall occur an event of default under
Section 2.2.26 of the Mortgage or as a result of a voluntary encumbrance against
the Property prohibited under Section 2.2.14 of the Mortgage. For purposes
hereof, residential leases for apartment units of the Property entered into in
the ordinary course of business shall not constitute encumbrances that would
trigger full recourse to the Guarantor hereunder.

 

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2.NATURE OF GUARANTEE, WAIVERS. This is a guarantee of payment and not of
collection. It is the intention and agreement of the parties that upon the
occurrence of an event described in Section 1 above, that Lender shall not be
required to make any expenditure for any loss or expense, and to the extent that
it becomes aware of the amount of any Liabilities, whether in whole or in part,
it will notify Guarantor thereof, and Guarantor will immediately make payment to
Lender in such amount without setoff, counterclaim, presentment, demand,
protest, and notice of demand, protest, and dishonor, which hereby are expressly
waived.

 

Subject to Section 1 above, this is an absolute, unconditional, primary, and
continuing obligation and will remain in full force and effect until the first
to occur of the following: (i) the Loan has been indefeasibly paid in full, and
Lender has terminated this Guaranty; (ii) 30 days after the date on which
written notice of revocation is actually received by Lender; or (iii) the date
on which written notice of the death of Guarantor is actually received by
Lender. No revocation (whether upon the death of Guarantor or otherwise) will
affect: (i) the then existing liabilities of the revoking Guarantor under this
Guaranty; (ii) obligations under the Loan created, contracted, assumed, acquired
or incurred prior to the effective date of such revocation; (iii) obligations
under the Loan created, contracted, assumed, acquired or incurred after the
effective date of such revocation pursuant to any agreement entered into or
commitment obtained prior to the effective date of such revocation; (iv) any
obligations of Borrower then or thereafter arising under the Loan Documents as
then in effect; (v) renewals, extensions, consolidations and refinancings of any
of the foregoing; (vi) principal, interest, charges, fees, costs or expenses of
any kind relating to any of the foregoing then existing or thereafter arising,
or (vii) any liabilities of any Guarantor other than the particular Guarantor
that issues such notice of revocation (or, in the event of the death of a
Guarantor, is the subject of such death notice).

 

Guarantor desires that Lender grant Borrower the credit described in the Loan
Documents, and Guarantor deems it to be in the best business interests of
Guarantor that Borrower obtain such credit from Lender and understands that
Lender is willing to grant such credit only on certain terms and conditions,
including, the condition that Guarantor execute this Guaranty.

 

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Unless otherwise expressly required by applicable law, acceptance of this
Guaranty, notice of extensions of credit to Borrower from time to time, notice
of default, diligence, presentment, protest, demand for payment, notice of
demand or protest, and any defense based upon a failure of Lender to comply with
the notice requirements of the applicable version of Uniform Commercial Code
Section 9-611, or any predecessor or successor section thereto, are hereby
waived, except for notices specifically provided for in this Guaranty or the
other Loan Documents. Lender at any time and from time to time, without the
consent of or notice to Guarantor, and without impairing or releasing,
discharging or modifying the liabilities of Guarantor hereunder, may in its sole
discretion: (i) change the manner, place or terms of payment or performance of
or interest rates on, or change or extend the time of payment or performance of,
or other terms relating to the Loan; (ii) renew, increase, substitute, modify,
amend or alter, or grant consents or waivers relating to the Loan, any other
guarantees (other than this Guaranty) or other liabilities, or any collateral
for the Loan or guarantees or other liabilities (other than those created by
this Guaranty); (iii) apply any and all payments from any source whatsoever
including any proceeds of any collateral, to any obligations of Borrower under
the Loan in any order, manner and amount; (iv) deal or refrain from dealing with
any person or entity, in its sole discretion, with respect to any obligations
under the Loan in such manner as Lender deems appropriate in its sole
discretion, and/or; (v) accept, sell, substitute, exchange, compromise, release,
surrender, offset, realize upon or otherwise deal with in any manner and in any
order the Loan, any guarantee (other than this Guaranty) or other liability
(other than those created by this Guaranty) for the Loan, or any collateral for
the Loan or for any guarantee or other liability relating to the Loan.
Irrespective of the taking of or refraining from taking any of the foregoing
actions, the obligations of Guarantor will remain in full force and effect in
accordance with the terms of this Guaranty and will not be affected, impaired,
discharged or released in any manner, except pursuant to the terms of this
Guaranty. Lender in its sole discretion may determine the reasonableness of the
period which may elapse prior to the making of demand for any payment upon
Borrower and it need not pursue any of its remedies against Borrower, any other
guarantor or other person, or any collateral before having recourse against any
Guarantor under this Guaranty.

 

3.REPRESENTATIONS, WARRANTIES AND COVENANTS. Guarantor hereby represents,
warrants and covenants as follows (which covenants survive the execution and
delivery of this Guaranty):

 

3.1This Guaranty is a legal, valid and binding obligation of Guarantor
enforceable in accordance with its terms, except as such enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws in effect from time to time and affecting the rights of creditors
generally and except as such enforceability may be subject to general principles
of equity (regardless of whether such enforceability is considered in a
proceeding in law or in equity).

 

3.2There does not now exist any default or violation by it of or under, and
neither the execution, delivery and performance of this Guaranty nor the
consummation of any of the transactions contemplated hereby will result in any
default or violation, or give rise to any right of termination, amendment,
cancellation or acceleration, of or under, any of the terms, conditions or
obligations of the articles of incorporation for Guarantor.

 

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3.3Neither the execution, delivery and performance of this Guaranty nor the
consummation of any of the transactions contemplated hereby will result in any
material default or violation, or give rise to any right of termination,
cancellation or acceleration, of or under, any of the terms, conditions or
obligations of (i) any note, bond, indenture, mortgage, deed of trust,
franchise, permit, lease or other agreement or instrument to which it is a party
or by which it or any of its assets is bound; or (ii) any law, regulation,
ruling, order, injunction, decree, condition or other requirement applicable to
or imposed upon it by any law, court or governmental agency, authority or other
body.

 

3.4There do not now exist any material defaults or violations under the
following that would individually or in the aggregate, materially adversely
affect its ability to perform the obligations set forth in this Guaranty: (i)
any note, bond, indenture, mortgage, deed of trust, franchise, permit, lease or
other agreement or instrument to which it is a party or by which it or any of
its assets is bound; or (ii) any law, regulation, ruling, order, injunction,
decree, condition or other requirement applicable to or imposed upon it by any
law, court or governmental agency, authority or other body.

 

3.5Guarantor is fully aware of the financial condition of Borrower and is
executing and delivering this Guaranty based solely upon Guarantor’s own
independent investigation of all matters pertinent hereto and is not relying in
any manner upon any representation or statement of Lender.

 

3.6Guarantor agrees that from the date of execution of this Guaranty and for so
long as this Guaranty is in full force and effect, it will comply with the
following financial covenants and requirements.

 

(i)        Financial Covenants. Guarantor shall maintain a “Net Worth” of at
least $30,000,000.00. For purposes hereof, “Net Worth” shall mean, as of any
date, Guarantor’s total assets less total liabilities as determined in
accordance with a tax basis method of accounting

 

(ii)        Financial Statements. Furnish the Lender the Guarantor’s Financial
Statements (as defined herein) within ninety (90) days after the end of each
fiscal year. Such Financial Statements will be prepared in substantially the
same form as Guarantor’s Financial Statements provided to Lender in connection
with the Assumption or such other form acceptable to Lender and shall be
certified by a principal of Guarantor. “Financial Statements” means the
Guarantor’s consolidated balance sheets, income statements and statements of
cash flows for the year, together with year-to-date figures and comparative
figures for the corresponding period of the prior year.

 

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4.BANKRUPTCY, ETC. It is specifically understood that any modification,
limitation or discharge of the Loan arising out of or by virtue of any
bankruptcy, reorganization or similar proceeding for relief of Borrower under
federal or state law will not affect, modify, limit or discharge the liability
of Guarantor in any manner whatsoever, and this Guaranty will remain and
continue in full force and effect and will be enforceable against Guarantor to
the same extent and with the same force and effect as if any such proceeding had
not been instituted. Guarantor waives all rights and benefits that might accrue
to it by reason of any such proceeding and will be liable to the full extent
hereunder, irrespective of any modification, limitation, or discharge of the
liability of Borrower that may result from any such proceeding.

 

5.SUBROGATION AND SUBORDINATION. During the term of this Guaranty, Guarantor
waives any and all rights of subrogation, reimbursement or indemnity whatsoever
and any and all right of recourse to security, whether against Borrower or under
or out of the property of Borrower or otherwise, for the debts and obligations
of Borrower to Lender, or any successor or assign thereof, with respect to the
Loan; provided, however, that Guarantor shall be entitled to enforce or receive
payment, directly or indirectly, of any indebtedness of Borrower to Guarantor at
times when no Event of Default (as defined in the Note) by Borrower exists.
Guarantor will not be deemed a “creditor” (as defined in the U.S. Bankruptcy
Code) of Borrower with respect to the Loan. No setoff, counterclaim, reduction
or diminution of any obligation, or any defense of any kind or nature, that
Guarantor has or may have in the future against Borrower, or that Borrower has
or may have in the future against Lender, will be available hereunder to
Guarantor against Lender. Any indebtedness, liability or other obligation of
Borrower now or hereafter owed to Guarantor hereby is subordinated to the Loan;
and, unless otherwise agreed by Lender, during the continuance of any Event of
Default by Borrower, all payments or other transfers made under or on account of
any such indebtedness, liability or other obligation will be received by
Guarantor as trustee for Lender and immediately paid over to Lender on account
of the Loan but without in any manner reducing or affecting the liability of
Guarantor under this Guaranty.

 

6.COSTS. All reasonable costs or expenses incurred by Lender in protecting or
enforcing its rights under this Guaranty will be a direct and primary obligation
of Guarantor.

 

7.GENERAL.

 

7.1Notices. All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing and will be
effective upon receipt to the Lender or the Guarantor, as applicable. Such
notices and other communications may be hand-delivered, sent by facsimile
transmission with confirmation of delivery and a copy sent by first-class mail,
or sent by nationally recognized overnight courier service, to the party’s
address set forth below or to such other address the Guarantor or the Lender may
give to the other in writing for such purpose:

 

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To Lender: Western-Southern Life Assurance Company   400 Broadway   Cincinnati,
OH 45202   Attn:  General Counsel     To Guarantor: BR Henderson Beach, LLC  
Bluerock Residential Growth   REIT, Inc.   c/o Bluerock Real Estate, L.L.C.  
712 Fifth Avenue, 9th Floor   New York, NY  10019   Attn:  Michael Konig, Esq.

 

All such communications, if personally delivered, will be conclusively deemed to
have been received by a party hereto and to be effective when so delivered, or
if sent by telex, facsimile or telegraphic means, on the day on which
transmitted, or if sent by overnight courier service, on the day after deposit
thereof with such service.

 

7.2Remedies Cumulative, Etc. The terms of this Guaranty may be enforced as to
any one or more Liabilities either separately, successively, concurrently,
independently or cumulatively from time to time and as often and in such order
as Lender may deem expedient, and no single or partial exercise of any right or
remedy will preclude any further exercise thereof. No right or remedy herein
conferred upon or reserved to Lender hereunder is intended to be exclusive of
any other available right or remedy, but each and every such right or remedy
will be cumulative and will be in addition to every other right or remedy given
under this Guaranty or now or hereafter existing at law or in equity or by
statute. No delay or omission to exercise any right, remedy or power accruing
upon any Event of Default or default, omission or failure of performance
hereunder or under the Loan with respect to any Liability will impair any such
right, remedy or power or will be construed to be a waiver thereof or an
acquiescence therein, nor will it affect any subsequent Event of Default or
default of the same or a different nature.

 

7.3Joint and Several Liability. If more than one person has executed this
Guaranty as Guarantor, the liability of all persons executing this Guaranty as a
guarantor shall be joint and several as to all obligations of Guarantor
hereunder. Any reference to “Guarantor” will mean each such person or entity
individually and collectively.

 

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7.4Waivers and Modifications. No delay or failure on the part of Lender to
exercise any right, remedy or power hereunder, under any of the Loan Documents,
under the Loan or under applicable law will impair or waive any such right,
remedy or power (or any other right, remedy or power), be considered a waiver of
or an acquiescence in any breach, Default or Event of Default or affect any
other or subsequent breach, Default or Event of Default of the same or a
different nature. No waiver of any breach, Default or Event of Default, nor any
modification, waiver, discharge or termination of any provision of this Guaranty
or any of the Loan Documents, nor consent to any departure by any Guarantor
therefrom, will be established by conduct, custom or course of dealing; and no
modification, waiver, discharge, termination or consent will in any event be
effective unless the same is in writing, signed by Lender and specifically
refers to this Guaranty, and then such modification, waiver, discharge,
termination or consent will be effective only in the specific instance and for
the specific purpose for which given. No notice to or demand on any Guarantor in
any case will entitle any Guarantor to any other or further notice or demand in
the same or any similar or other circumstance.

 

7.5Binding Effect, Assignability. This Guaranty will be binding upon Guarantor
and Guarantor’s heirs, administrators, successors and assigns and inure to the
benefit of Lender and its successors and assigns; provided, however, that
Guarantor may not assign this Guaranty in whole or in part without the prior
written consent of Lender, and Lender at any time may assign this Guaranty in
whole or in part in connection with a corresponding assignment of the Loan. If
the Loan is assigned in whole or in part by Lender, this Guaranty will inure to
the benefit of Lender’s assignee, and to the benefit of any subsequent assignee,
to the extent of the assignment or assignments; provided that no assignment will
operate to relieve Guarantor from any duty to Lender hereunder with respect to
any unassigned portion of the Loan.

 

7.6Gender, Etc. Whenever used herein, the singular number will include the
plural, the plural the singular and the use of the masculine, feminine or neuter
gender will include all genders.

 

7.7Heading. The headings in this Guaranty are for convenience only and will not
limit or otherwise affect any of the terms hereof.

 

7.8Complete Agreement. This Guaranty constitutes the entire agreement among the
Guarantor and Lender and supersedes all prior oral and written negotiations,
agreements and understandings regarding the subject matter of this Guaranty.

 

7.9Counterparts. This Guaranty may be executed in one or more counterparts, each
of which will be deemed to be an original and all of which together will
constitute one and the same instrument; provided, however, that failure of any
Guarantor to sign any or all counterparts will not affect the liability of any
other Guarantor hereunder.

 

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7.10Illegality. If any provision of this Guaranty is prohibited by or invalid
under applicable law, such provision will be ineffective only to the extent of
such prohibition or invalidity without invalidating the remainder of such
provision and without invalidating any other provision herein; provided,
however, that if the provision that is the subject of such prohibition or
invalidity pertains to payment, then, at the option of Lender, the Loan will
become immediately due and payable.

 

7.11Governing Law. This Guaranty will be deemed to have been made at Cincinnati,
Ohio, and will be interpreted and the rights and liabilities of the parties
hereto determined in accordance with the laws of the State of Florida, without
regard to conflicts of law principles.

 

8.JURISDICTION AND WAIVER OF JURY TRIAL. Guarantor hereby irrevocably agrees and
submits to the exclusive jurisdiction of any state or federal court located
within the state where the real estate that is the subject of the Loan Documents
is located, or, at the option of Lender in its sole discretion of any state or
federal court(s) located within any other county, state or jurisdiction in which
Lender at any time or from time to time chooses in its sole discretion to bring
an action or otherwise exercise a right or remedy and where Guarantor is located
or where any of its assets are located, and Guarantor waives any objection based
on forum non conveniens and any objection to venue of any such action or
proceeding. Guarantor hereby irrevocably consents that all service of process be
made by certified mail directed to Guarantor at its address set forth herein for
notices and service so made will be deemed to be completed the earlier of
Guarantor’s actual receipt thereof or five (5) Business Days after the same has
been deposited in U.S. Mails, postage prepaid. Nothing contained herein will
prevent Lender from serving process in any other manner permitted by law.
Guarantor and Lender each waive any right to trial by jury in any action or
proceeding relating to this Guaranty, the Loan Documents, the Loan, the
collateral or any actual or proposed transaction or other matter contemplated in
or relating to any of the foregoing.

 

[Signature page follows]

 

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[Signature page to Limited Recourse Guaranty]

 

 
  BLUEROCK RESIDENTIAL GROWTH REIT, INC., a Maryland corporation         By: /s/
Michael Konig         Print Name: Michael Konig         Title: Authorized
Signatory         Dated as of March 10, 2016.

 

STATE OF NEW YORK §   §SS: COUNTY OF NEW YORK §

 

This instrument was acknowledged before me on the 10th day of March, 2016, by
Michael Konig, the Authorized Signatory of BLUEROCK RESIDENTIAL GROWTH REIT,
INC., a Maryland corporation and Guarantor under the foregoing instrument, on
behalf of said corporation, and who represented to me to be said person.

 

  /s/ Dale Pozzi       [SEAL]       Notary Public, State of New York       My
Commission Expires:1/28/2017       Printed Name of Notary: Dale Pozzi

 

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EXHIBIT A

 

Legal Description of the Property

 

All that certain lot, piece or parcel of land, with the buildings and
improvements thereon erected, situate, lying and being in the City of Destin,
County of Okaloosa, State of Florida.

 

TRACT I - FEE SIMPLE:

 

Lot 2, ALEXAN HENDERSON BEACH SUBDIVISION, as recorded in Plat Book 24, page 70,
of the Public Records of Okaloosa County, Florida.

 

TOGETHER WITH THE FOLLOWING EASEMENTS:

 

EASEMENT 1:

 

Together with non-exclusive easements for drainage, landscaping and construction
of improvements contained in Drainage and Restriction Agreement by and between
HBT, LLC, a Florida limited liability company, and AHB APARTMENTS, LLC, a
Delaware limited liability company, recorded in Official Records Book 2830, page
2171, of the Public Records of Okaloosa County, Florida.

 

EASEMENT 2:

 

Together with non-exclusive easements for drainage, utilities, vehicular and
pedestrian, ingress and egress, signage and landscaping contained in Access,
Utilities and Drainage Easement Agreement by and between HBT, LLC, a Florida
limited liability company, and AHB APARTMENTS, LLC, a Delaware limited liability
company, recorded in Official Records Book 2830, page 2186, of the Public
Records of Okaloosa County, Florida.

 

EASEMENT 3:

 

Together with non-exclusive easements for vehicular and pedestrian ingress and
egress, and the installation, use, maintenance and removal of utilities
contained in Operation and Easement Agreement by and between HBT, LLC, a Florida
limited liability company, and AHB APARTMENTS, LLC, a Delaware limited liability
company, recorded in Official Records Book 2830, page 2221, of the Public
Records of Okaloosa County, Florida.

 

TRACT II - FEE SIMPLE:

 

Lot 2, ALEXAN HENDERSON BEACH PHASE 2, as recorded in Plat Book 26, page 20, of
the Public Records of Okaloosa County, Florida.

 

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