Exhibit 10.14

 

PROPERTY MANAGEMENT AGREEMENT

 

THIS PROPERTY MANAGEMENT AGREEMENT (the “Agreement”) made this 26th day of
March, 2015, by and between BR FOX HILLS TIC-1, LLC, a Delaware limited
liability company (“TIC-1”) and BR FOX HILLS TIC-2, LLC, a Delaware limited
liability company (“TIC-2”) (collectively, “Owner”), and BLUEROCK PROPERTY
MANAGEMENT, LLC, a Michigan limited liability company (“Property Manager”).

 

A.           WHEREAS, Owner has acquired as of the date hereof that certain
apartment complex located at 8800 Highway 290 West, Austin, Texas, and commonly
known as Fox Hill Apartments (the “Project”).

 

B.           WHEREAS, Owner desires to employ Property Manager in the management
and operation of the Project by turning over to Property Manager the operation,
direction, management and supervision of the Project, subject to and in
accordance with the terms and condition set forth in this Agreement, and
Property Manager desires to assume such duties upon the terms and conditions set
forth in this Agreement.

 

AGREEMENT

 

NOW, THEREFORE, in consideration of the premises and the mutual promises and
covenants herein contained, and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Owner and Property
Manager agree as follows:

 

Article I APPOINTMENT

 

Owner hereby grants to Property Manager, as an independent contractor, the sole
and exclusive right to manage and operate the Project, subject to the terms and
provisions of this Agreement. During the term of this Agreement, Owner shall not
participate in the day-to-day operation of the Project and shall at no time
directly order or instruct any employees or other personnel engaged in the
day-to-day management and operation of the Project. The foregoing shall not
restrict the right of Owner to direct any questions, orders or instructions
regarding operations of the Project to the Property Manager.

 

Article II TERM OF AGREEMENT

 

2.1           Term. Subject to Sections 2.2 and 2.3 hereof, the initial term of
this Agreement shall commence on March 26, 2015 and expire on March 31, 2016,
but it will be automatically renewed thereafter on a year-to-year basis (each
such renewal term expiring on March 31) unless terminated by one of the parties
(the “Term”).

 

2.2           Effect of Expiration or Termination. Any expiration or termination
of this Agreement shall in no way affect or impair any rights or obligations
which have accrued to either party pursuant to this Agreement prior to such
expiration or termination, including, without limitation, the rights of Property
Manager to receive payments provided for hereunder, without set-off, recoupment
or similar withholding of payment by Owner. In the event of any termination of
this Agreement, Property Manager shall use commercially reasonable efforts to
effect an orderly transition of the management and operation of the Project to
Owner or an agent designated by Owner and to cooperate with Owner or such agent.

 

Upon any termination or expiration of this Agreement, and provided all payments
due Property Manager have been paid in full, including the Termination Fee (as
defined below), if applicable, Property Manager shall:

 

 

 

 

(a)          account for and deliver to Owner all receipts, charges and income
from the Project (including, without limitation, tenant security deposits) and
other monies of Owner in Property Manager’s actual possession or control;

 

(b)          deliver to Owner any monies due Owner under this Agreement received
after such termination;

 

(c)          deliver to Owner, or to such other person as Owner shall designate,
all materials, supplies, equipment, keys, contracts, documents, books and
records (including, without limitation, accounts payable, financial records and
accounting records) pertaining to this Agreement and/or the Project;

 

(d)          assign any then existing contracts and permits in the name of
Property Manager, as agent for Owner, relating to the Project to Owner or to
such party as Owner shall designate;

 

(e)          within forty-five (45) days after the effective date of expiration
or termination of this Agreement, cause to be furnished to Owner a statement
similar in form and content to its monthly statement covering the period from
the date of the last such previous statement to the date of the termination of
this Agreement; and

 

(f)          Within ninety (90) days following such expiration or termination,
Property Manager shall deliver to Owner a final accounting, in writing, with
respect to the operations of the Project. Subsections 2.2(e) and 2.2(f) shall
survive the expiration or termination of this Agreement.

 

2.3           Assumption of Obligations. Upon the expiration or termination of
this Agreement, Owner shall assume the obligations of any contract executed, and
the responsibility for payment of all unpaid bills incurred, by Property Manager
in accordance with this Agreement for and on behalf of Owner.

 

2.4           Termination Fee. In the event this Agreement is terminated, other
than through the expiration of the Term hereof, by the action of the Owner or
the Owner’s default hereunder, Owner shall pay to Property Manager a termination
fee in a lump-sum amount equal to the sum of (i) any Accrued Fees (as defined
below) not previously paid (or forgiven by Property Manager) and (ii) the
Management Fee that would accrue from and after the date upon which such
termination shall become effective, over the remainder of the stated Term of
this Agreement (the “Termination Fee”). For this purpose, the monthly Management
Fee for the remainder of the stated Term shall be presumed to be the same as
that of the last month prior to termination. Property Manager acknowledges that
its right to receive payment of a Termination Fee is personal to the Owner and
does not extend to any obligations Owner may have to any Lender (as hereafter
defined), and that such Termination Fee is subordinate to any obligations Owner
may have to such Lender.

 

Article III MANAGEMENT

 

3.1           General Management Duties. Subject to the availability of funds
provided under the Budget (as defined in Section 3.3 hereof) and in the
Operating Account (as defined in Section 5.1 hereof), Property Manager shall
manage and operate the Project in a manner consistent with the management and
operation of comparable properties in Austin, Texas, shall provide such services
as are customarily provided by a manager of properties of comparable class and
standing, and shall consult with Owner and keep Owner advised as to all material
or extraordinary matters and decisions affecting the Project. Specifically,
Property Manager shall perform, without limitation, the following services and
duties for Owner in a faithful, diligent and efficient manner:

 

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(a)          Maintain businesslike relations with residents of the Project whose
service requests shall be received, considered, and recorded in systematic
fashion in order to show the action taken with respect to each request.
Complaints of a serious nature shall, after thorough investigation, be reported
to Owner with appropriate recommendations for addressing such complaints;

 

(b)          Use good faith efforts to collect all rents and other sums and
charges due from residents, subresidents, licensees, and concessionaires of the
Project and all other receipts, if any, derived from the operation of the
Project;

 

(c)          Prepare or cause to be prepared for execution and filing by Owner
all forms, reports, and returns, if any, required by all federal, state, or
local laws in connection with unemployment insurance, workmen’s compensation
insurance, disability benefits, Social Security, and other similar taxes now in
effect or hereafter imposed, and also any other requirements relating to the
employment of personnel for the Property Manager; however, Property Manager
shall not be obligated to prepare any of Owner’s local, state, or federal income
tax returns;

 

(d)          Subject to the limitations of the approved Budget adopted pursuant
to Section 3.3 hereof, pay prior to delinquency all real estate taxes, personal
property taxes, and assessments levied against the Project, or any part thereof;
and

 

(e)          Subject to the limitations of the approved Budget adopted pursuant
to Section 3.3 hereof, perform such other acts as are reasonable, necessary, and
proper in the discharge of its duties under this Agreement.

 

Property Manager may engage, oversee and supervise a third-party property
manager approved by Owner (and, where applicable, Lender) to directly manage the
day-to-day operations of the Project and to operate and maintain the Project in
accordance with the terms of this Agreement. Owner hereby approves Bell Partners
Inc. as an approved third-party property manager for the Project, all of whose
fees shall be paid by Property Manager, and Owner shall have no obligations or
liability with respect thereto.

 

3.2           Leasing.

 

(a)          Exclusive Agency. Property Manager shall be the sole rental agent
for the Project, and Owner may not employ any outside rental agent or broker
without the prior written consent of Property Manager. The Property Manager
shall exercise commercially reasonable efforts to obtain and keep financially
responsible tenants of the Project. All inquiries concerning any leases or
renewals or agreements for the rental of any tenant space in the Project shall
be referred to Property Manager. The Property Manager shall conduct and
coordinate the negotiation and execution and delivery of leases and renewals,
modifications, and cancellations thereof. All leases are to be prepared by
Property Manager in accordance with the standard form lease established by
Property Manager and approved by Owner. Property Manager may execute tenant
leases on behalf of Owner in the ordinary course of business on the standard
lease form approved by Owner for the Project. Leases and other agreements with
tenants shall be executed and delivered by the Property Manager as agent of
Owner. All other leases shall be subject to the prior specific written approval
of Owner.

 

(b)          Advertising; Promotion. Owner agrees that Property Manager may use
the services of any third-party rental or leasing agency, including any
apartment locator services in the area where the Project is located, and the
fees payable for such services shall be expenses of Owner, payable out of the
Operating Account for the Project. The Property Manager may also prepare and use
at Owner’s expense reasonable advertising plans and promotional material to
further rentals. Property Manager shall not use Owner’s name in any advertising
or promotional material without Owner’s prior written approval.

 

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3.3           Budget.

 

(a)          Budget Approval Process. Property Manager shall submit for approval
of Owner not later than thirty (30) days after the date of this Agreement a
proposed detailed, written estimate or projection of all receipts and
expenditures for the operation of the Project for first full or partial Fiscal
Year (as hereinafter defined), including, without limitation, all estimated
rentals and all estimated repairs, maintenance and capital projects (the
“Budget”) for such Fiscal Year. In addition, Property Manager shall submit a
Budget for each ensuing Fiscal Year for the approval of Owner not later than
thirty (30) days prior to the expiration of the Fiscal Year immediately
preceding the Fiscal Year to which such Budget relates. A “Fiscal Year” is a
calendar year, all or part of which falls within the Term of this Agreement. In
the event Owner, in Owner’s sole judgment, disapproves of any proposed Budget
submitted by Property Manager, Owner shall give Property Manager written notice
of the line items that have been disapproved, in which event Property Manager
and Owner shall work in good faith to establish mutually-acceptable amounts for
such line items. Until Owner has approved the revised Budget, Property Manager
may (i) pay the Management Fee (as hereinafter defined) and all expenses
relating to taxes, insurance and utilities, (ii) operate pursuant to those
portions of the Budget which have been approved, and (iii) with respect to line
items that have not been approved, continue to operate pursuant to the
corresponding line items in the last approved Budget. In the absence of any
written notice from Owner of disapproval within thirty (30) days after delivery
of the proposed Budget to Owner, the proposed Budget shall be deemed to have
been approved by Owner.

 

(b)          Payment of Budgeted Expenses. Property Manager shall have the right
to pay all expenses according to the approved Budget, including the Management
Fee. Notwithstanding any other provision in this Agreement, without the prior
written consent of Owner, Property Manager shall not incur or permit to be
incurred expenses under this Agreement (excluding only utility expenses, general
real estate taxes, insurance premiums, financing costs and emergency expenses)
that exceed 10% of the applicable line item in the Budget. Property Manager
shall promptly notify Owner whenever Property Manager determines that the Budget
or any line item in the Budget is insufficient to cover the expenses of
operating the Project or the applicable expense category.

 

3.4           Reimbursable Costs. All costs incurred by Property Manager in the
performance of its duties under this Agreement that are in accordance with the
approved Budget, including, but not limited to, postage, copying, courier
charges, bank charges, long distance telephone and other such costs as would
normally be incurred in the operation of the Project at both the Project and
corporate offices, shall be reimbursed by Owner, in addition to the Management
Fee and other payments due hereunder.

 

3.5           Project Personnel. Property Manager may, at Owner’s expense and in
accordance with the approved Budget, either itself or through an entity
(hereinafter referred to as the “PM Entity”) wholly owned by or affiliated with
Property Manager, hire, employ, supervise and discharge all employees required
in connection with the operation and management of the Project. Property Manager
or the PM Entity, as the case may be, shall provide and maintain, at Owner’s
expense so long as this Agreement is in force, workmen’s compensation insurance
in full compliance with all applicable state and federal laws and regulations.

 

Employees of the Property Manager or the PM Entity, as the case may be, may
include the following:

 

(a)          Property Manager. A full-time person who is experienced in the
administration and operation of apartment complexes of the size, character, and
quality of the Project;

 

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(b)          Others. Such other personnel to manage, operate and maintain the
Project, including, but not limited to, an assistant property manager, leasing
consultant, maintenance manager, administrative personnel, accounting personnel,
grounds keepers, janitorial and custodial persons, and courtesy personnel, as
Property Manager reasonably deems necessary or consistent with the level of
service provided by other similar properties. All such personnel shall, except
to the extent provided in the approved Budget, spend 100% of their work time on
the operation and maintenance of the Project.

 

3.6           Contracts and Supplies. Property Manager shall, at Owner’s
expense, at the lowest cost as in its judgment is consistent with good quality,
workmanship and service standards, enter into contracts in its own name as agent
for Owner for the furnishing to the Project of required utility services,
heating and air-conditioning services and other maintenance, pest control, and
any other services and concessions which are reasonably required in connection
with the maintenance and operation of the Project; provided, however, (i) that
any contracts entered into by Property Manager, whenever practicable, shall be
terminable at Property Manager’s or Owner’s sole discretion within thirty (30)
days by written notice unless Property Manager receives the prior written
consent of Owner to the contrary, (ii) if the amount payable monthly or for any
given month pursuant to such contract exceeds $10,000, Property Manager shall
obtain Owner’s written approval thereof prior to entering into such contract
(such approval shall be deemed granted if not disapproved in writing by Owner
within five (5) days of Property Manager’s request for approval), and (iii) if
the contract is with an affiliate the relationship must be disclosed to the
Owner and the terms must be as favorable as those that would be obtained if the
transaction were at arm’s length. Each of such contracts shall state that
Property Manager is acting as a special limited agent of Owner having only the
express powers that are delegated and authorized pursuant to this Agreement.
When taking bids, Property Manager shall use all reasonable efforts to secure
for, and credit to Owner, any discounts, commissions or rebates obtainable as a
result of such purchases or services. Property Manager shall use all reasonable
efforts to make purchases and (where necessary or desirable) let bids for
necessary labor and materials at the lowest possible cost as in its judgment is
consistent with good quality, workmanship and service standards. In addition,
Property Manager shall use reasonable efforts to purchase goods and services
through Property Manager’s or, if so directed by Owner, Owner’s national
purchasing agreements, where applicable.

 

3.7           Alterations, Repairs and Maintenance.

 

(a)          Budgeted Repairs/Emergency Repairs. Property Manager shall, at
Owner’s expense, perform or cause to be performed all necessary or desirable
repairs, maintenance, cleaning, painting and decorating, alterations,
replacements and improvements in and to the Project as are customarily made by
property managers in the operation of properties of the kind, size and quality
of the Project; provided, however, that no unbudgeted alterations, additions or
improvements involving a fundamental change in the character of the Project or
constituting a major new construction program shall be made without the prior
written approval of Owner. In addition, no unbudgeted expenditure in excess of
$25,000 per item or a total of $75,000 in any Fiscal Year shall be made for such
purposes without the prior written approval of Owner. However, emergency repairs
involving manifest danger to life or property, or immediately necessary for the
preservation or the safety of the Project, or for the safety of the residents of
the Project, or required to avoid the suspension of any necessary service to the
Project, or required by any judicial or governmental authority having
jurisdiction, may be made by the Property Manager without prior approval and
regardless of the cost limitations imposed by this Section 3.7(a). Property
Manager shall as soon as practicable give written notice to Owner of any such
emergency repairs for which prior approval is not required.

 

(b)          Capital Improvements. In accordance with the terms of the approved
Budget or upon written request and approval of Owner, Property Manager shall,
from time to time during the Term hereof, at Owner’s expense, supervise the
performance of all required capital improvements, replacements or repairs to the
Project but nothing herein shall be deemed to require Property Manager to serve
as a construction manager or general contractor for such improvements or repairs
or replacements nor shall Property Manager have any responsibility for any of
the work performed in connection with such improvements or repairs or
replacements. If Property Manager is required to perform extraordinary services
in connection with such improvements, repairs or replacements, Property Manager
shall be entitled to a capital improvement management fee in an amount to be
negotiated in good faith by the parties hereto at such time.

 

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(c)          Defects and Warranties. Property Manager shall give Owner written
notice of any material defect, casualty or a taking in the Project and all parts
thereof known to Property Manager promptly after any of the foregoing comes to
Property Manager’s attention, including, without limitation, material defects in
the roof, foundation or walls of the Project or in the sewer, water, electrical,
structural, plumbing, heating, ventilation or air conditioning systems. Property
Manager shall make periodic visual inspections of the Project consistent with
its on-site employees’ expertise.

 

3.8           Licenses and Permits. Property Manager shall, at Owner’s expense,
obtain and maintain in the name of Owner all licenses and permits required of
Owner or Property Manager in connection with the management and operation of the
Project. Owner agrees to execute and deliver any and all applications and other
documents and to otherwise cooperate with Property Manager in applying for,
obtaining and maintaining such licenses and permits.

 

3.9           Compliance with Laws. Property Manager shall comply with all
applicable laws, regulations and requirements of any federal, state or municipal
government having jurisdiction with respect to the maintenance or operation of
the Project by Property Manager in accordance with its obligations under this
Agreement.

 

3.10         Legal Proceedings. Property Manager may, to the extent permitted by
law, terminate a lease, lock out a tenant, and institute proceedings for
recovery of possession, in the ordinary course of business, without the prior
written approval of Owner. Property Manager may institute suit for rent or
damages against a tenant without the prior written approval of Owner. All such
suits or proceedings shall, to the extent permitted by law, be brought in the
name of Property Manager, as agent for Owner, and shall be handled as determined
by Property Manager. Owner shall pay all expenses incurred by Property Manager,
including, but not limited to, reasonable attorney’s fees and any liability,
fines, penalties or the like, in connection with any claim, proceeding, or suit
involving an action against a tenant or an alleged violation by the Property
Manager or Owner, or both, of any law pertaining to fair employment, fair credit
reporting, environmental protection, rent control, taxes, or fair housing,
including, but not limited to, any law prohibiting or making illegal
discrimination on the basis of race, sex, family status, creed, color, religion,
national origin, or mental or physical handicap; provided, however, that Owner
shall not be responsible to Property Manager for any such expenses in the event
Property Manager is finally adjudged to have violated any such law. Nothing
contained in this Agreement shall obligate Property Manager to employ legal
counsel to represent Owner in any such proceeding or suit. Owner shall pay
reasonable expenses incurred by Property Manager in obtaining legal advice
required in Property Manager’s reasonable discretion.

 

3.11         Inventory. Property Manager shall maintain a current inventory of
all equipment, supplies, furnishings, furniture and all other items of personal
property now or hereafter owned by Owner and located upon or used, or useful
for, or necessary or adapted for the operation and maintenance of the Project.

 

3.12         Signs. Owner agrees to allow Property Manager to place one or more
signs on or about the Project stating that Property Manager is the management
and leasing agent for the Project. All such signs and locations thereof shall be
subject to Owner’s prior approval, not to be unreasonably withheld.

 

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3.13         Property Manager’s Offices. Owner shall provide to Property
Manager, at Owner’s expense, an office in the Project of a size and in a
location appropriate for the conduct of Property Manager’s duties under this
Agreement.

 

3.14         Limitation of Liability. Property Manager assumes no liability
whatsoever for any acts or omissions of Owner, or any previous owners of the
Project, or any previous management or other agent of either (other than
Property Manager and affiliates of Property Manager). Property Manager assumes
no liability for any failure of, or default by, any tenant in the payment of any
rent or other charges due Owner or in the performance of any obligations owed by
any tenant to Owner pursuant to any lease or otherwise. Except to the extent
resulting from the gross negligence or willful act or omission of Property
Manager, Property Manager assumes no liability for any violations of
environmental or other regulations which may occur during the period this
Agreement is in effect. Any such regulatory violations or hazards discovered by
Property Manager shall be promptly brought to the attention of Owner in writing.

 

Article IV FEES

 

4.1           Management Fee. As consideration for the performance by Property
Manager of its services under this Agreement, Owner agrees to pay to Property
Manager for each month during the Term of this Agreement a property management
fee (the “Management Fee”) equal to four percent (4%) of Gross Receipts for such
month.

 

The term “Gross Receipts” shall mean and include all gross receipts derived from
the operation of the Project, including, without limitation, all rent and other
sums and charges received from all prospective tenants, tenants and lessees and
payments made in consideration of the cancellation of any tenant leases or
damages by reason of any default, security deposits to the extent applied to
rent, tenant application fees, the proceeds from rental interruption insurance,
receipts from vending machines, concessions and other commercial operations
conducted on the Project, and income derived from interest on investments.
“Gross Receipts” shall not include sums which, under normal accounting practice,
are attributable to capital, proceeds of claims on account of insurance policies
other than rental interruption or similar insurance, the abatement of taxes,
awards arising out of taking by eminent domain, discounts and dividends on
insurance policies, or any sums received by Property Manager as reimbursement or
recovery of items of expense charged to the Owner, such as court costs paid by
defaulting tenants, utility rebates, security deposits (to the extent applied to
damage) and the like, all of which shall be applied as offsets against the
corresponding items of expense. The Owner hereby acknowledges that the
Management Fee is fair and reasonable for the services to be performed by
Property Manager under this Agreement.

 

4.2           Payment of Management Fee. Provided that Property Manager is not
in default under this Agreement, Property Manager shall be entitled to pay
itself the monthly Management Fee from the bank accounts referred to in Section
5.1 hereof. However, in the event of a default under that certain Loan Agreement
with the Owner’s secured lender (“Lender”) and any other documents entered into
in connection with the Loan Agreement (together with the Loan Agreement, the
“Loan Documents”), Lender may have the right to compel the Owner to suspend
payment of the Management Fee. If such suspension of payments occurs, the
Property Manager shall have the right to immediately terminate this Agreement,
subject to any contrary provisions of the Loan Documents. Property Manager shall
use reasonable efforts to comply with any terms and conditions of any Loan
Documents and all governmental requirements relating to the performance of its
duties hereunder and to cause the Project to comply with same.

 

4.3           Accrual of Management Fee. Notwithstanding anything herein to the
contrary, Property Manager may elect (but shall not be required to do so), upon
request by Owner, to allow Owner to forego making the monthly Management Fee
payments owing hereunder for a mutually-agreeable period, without same
constituting a default by Owner hereunder. Any Management Fees not paid when
owing under such circumstances shall accrue as an obligation of Owner hereunder
(collectively, the “Accrued Fees”) unless Property Manager elects in writing to
allow same to not accrue but rather to be forgiven.

 

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4.4           Additional Compensation. In addition to the compensation provided
to the Property Manager in this Section 4, Property Manager shall be entitled to
compensation for such specific additional services as may be agreed upon,
including, without limitation, adjustment of fire claims, condemnation claims
and construction services beyond the normal course of business.

 

4.5           Disposition Fee. If following the date hereof the Project is sold,
then the Property Manager shall receive a disposition fee (herein, the
“Disposition Fee”) at the closing of such sale, in cash, in an amount equal to
three percent (3%) of the gross purchase price paid in connection with such
sale; provided, however, that no such Disposition Fee (or other fee) shall be
owing in the event of any foreclosure sale, any acquisition of the Project by
the Lender (or any designee of Lender) or any subsequent sale after such
foreclosure sale or acquisition by Lender (or Lender’s designee). If there is a
broker fee paid to a third-party broker in connection with a sale, exchange or
other disposition of the Project, the payment to the third-party broker will be
paid in addition to the Disposition Fee paid to the Property Manager, but in no
event may the aggregate of such third-party brokerage fee and the Disposition
Fee exceed 4.5% of the gross purchase price paid in connection with such sale.
At the completion of such sale, exchange or other disposition, this Agreement
shall automatically terminate. Notwithstanding the foregoing, the sale by TIC-1
of its ownership interest in the Project to TIC-2, or vice versa, shall not
result in any Disposition Fee owing to Property Manager hereunder.

 

Article V PROCEDURE FOR
HANDLING RECEIPTS

 

5.1           Receipts and Disbursements. All monies received by Property
Manager for or on behalf of Owner in connection with the operation or management
of the Project shall be promptly deposited by Property Manager in a bank account
or accounts established by Property Manager (collectively, the “Operating
Account”). Property Manager shall withdraw and pay from the Operating Account
such amounts at such times as the same are required in connection with the
management and operation of the Project in accordance with the provisions of
this Agreement. All monies in the Operating Account are the property of Owner,
to be held by Property Manager in trust for Owner in an account designated as
“Agent for Owner” and disbursed in accordance with this Agreement. A separate
account for tenant security deposits shall be established if required by
applicable law or Owner.

 

5.2           Authorized Signatories. Designated officers and representatives of
Property Manager shall be authorized signatories on the Operating Account and
shall have authority to make withdrawals from the Operating Account, subject to
the terms of this Agreement. Property Manager shall maintain insurance under a
policy acceptable to Owner for employee errors, omissions and fidelity coverage
(covering, without limitation, losses due to theft or embezzlement) for not less
than $1,000,000 per occurrence and crime coverage for not less than $1,000,000
per occurrence. Any changes in such insurance must be approved by Owner.

 

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Article VI ACCOUNTING

 

6.1           Books and Records. Property Manager, on behalf of Owner, shall
keep all books and accounts pertaining to the Project in accordance with
generally accepted accounting principles in the U.S. The cutoff date of the
accounting period shall be the last day of each calendar month. Property
Manager, on behalf of Owner, shall also supervise and direct the keeping of a
comprehensive system of office records, books and accounts pertaining to the
Project. Such records shall be subject to examination at the office where they
are maintained by Owner or its authorized agents, attorneys and accountant at
all reasonable business hours and upon reasonable, advance notice to Property
Manager. Capitalization and expense policy of Bluerock Real Estate, L.L.C. shall
be adhered to at all times.

 

On or about the end of each calendar quarter of each year, Property Manager
shall cause to be furnished to Owner such information as reasonably requested in
writing by Owner as is necessary for any reporting requirements of any direct or
indirect members of Owner or for any reporting requirements of any owner
(whether a direct or indirect owner) that is a REIT to determine its
qualification as a real estate investment trust and its compliance with REIT
Requirements as shall be reasonably requested by Owner. Further, Property
Manager shall cooperate in a reasonable manner at the request of Owner and any
direct or indirect member of Owner to work in good faith with any designated
accountants or auditors of such party or its Affiliates so that such party or
its Affiliate is able to comply with its public reporting, attestation,
certification and other requirements under the Securities Exchange Act of 1934,
as amended, applicable to such entity, and to work in good faith with the
designated accountants or auditors of the such party or any of its Affiliates in
connection therewith, including for purposes of testing internal controls and
procedures of such party or its Affiliates. As used herein, the term “Affiliate”
means (a) an entity that directly or indirectly controls, is controlled by or is
under common control with a party or (b) an entity at least a majority of whose
economic interest is owned by a party; and the term “control” means the power to
direct the management of such entity through voting rights, ownership or
contractual obligations.

 

6.2           Periodic Statements; Audits.

 

(a)          Monthly Statements. On or before five (5) business days following
the end of each calendar month, Property Manager shall deliver or cause to be
delivered to Owner its standard financial reports customarily provided the
owners of properties it manages, a list of which is set forth on Exhibit A. On
or before eight (8) business days following the end of each calendar month,
Property Manager shall deliver or cause to be delivered to Owner the financial
reports set forth on Exhibit B. The reports are subject to change from time to
time by Owner or Property Manager provided Property Manager shall not
substantively decrease the quality of the information provided.

 

(b)          Within fifteen (15) days after the end of such Fiscal Year,
Property Manager will deliver to the Owner, an income and expense statement as
of Fiscal Year end, and the results of operation of the Project during the
preceding Fiscal Year (anything contained herein to the contrary
notwithstanding, however, Property Manager shall not be obligated to prepare any
of Owner's state or federal income tax returns).

 

(c)          Property Manager shall also prepare and provide to Owner such
reports and information as required by Owner to prepare the reports and tax
returns required of its Limited Liability Company Agreement. Such reports and
information shall not exceed in scope or frequency as Property Manager routinely
provides other owners for which Property Manager is providing property
management services.

 

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(d)          In the event that Owner or Owner's Mortgagee(s) requires an audit,
the Property Manager shall cooperate with the auditors in a timely manner to
complete the audit engagement. Also, Property Manager shall cooperate in a
reasonable manner at the request of any indirect owner of Owner and shall work
in good faith with its designated representatives, accountants or auditors to
enable compliance with its public reporting, attestation, certification and
other requirements under applicable securities laws and regulations, including
for testing internal controls and procedures.

 

(e)          Owner may request and Property Manager shall provide when available
such monthly, quarterly and/or annual leasing and management reports that relate
to the operations of the Project as Property Manager customarily provides the
owners of properties it manages.

 

6.3           Expenses. All costs and expenses incurred in connection with the
preparation of any statements, budgets, schedules, computations and other
reports required under this Section 6, or under any other provisions of this
agreement, shall be borne by the Property Manager. Any costs and expenses
incurred in connection with the preparation of any statement or report not a
part of the Property Manager’s standard reporting package, a list of which is
set forth on Exhibit A and Exhibit B, shall be borne by Owner.

 

Article VII INSURANCE

 

7.1           Insurance and Indemnities.

 

(a)          Coverages. Property Manager shall, at its own expense, procure and
keep in effect during the Term of this Agreement, property and casualty
insurance, comprehensive general liability insurance and other insurance
coverages as required (and with limits as required) by Lender as provided in the
Loan Documents, which insurance shall be primary in all instances. Owner shall
be included as a party to be given copies of all notices under the liability
insurance policies. Owner will be covered as an additional insured in the
comprehensive general liability insurance policies maintained with respect to
the Project.

 

Property Manager will provide Owner with certificates of insurance or other
satisfactory documentation, which evidence that the insurance required under
this Agreement is in full force and effect at all times. All policies required
under this Agreement must be endorsed to provide that thirty (30) days’ advance
notice of cancellation (ten (10) days’ advance notice for non-payment of
premium) or material change will be given to Owner. All insurance required
hereunder shall: (i) be written with companies acceptable to Owner, which
companies shall be licensed to do business in the state in which the Project is
located, and (ii) include a clause providing that the insurer waives all rights
of subrogation against Owner with respect to losses payable under such policies.

 

Owner shall furnish whatever information is reasonably requested by Property
Manager for the purpose of establishing the placement of insurance coverages
described herein and shall aid and cooperate in every reasonable way with
respect to such insurance and any loss thereunder. Property Manager shall
include in its property and casualty insurance policy covering the Project, the
personal property, fixtures, and equipment located thereon (whether owned by
Property Manager or Owner), appropriate clauses pursuant to which the insurance
carriers shall waive the rights of subrogation with respect to losses payable
under such policies.

 

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(b)          Property Manager Indemnity. Property Manager shall indemnify,
defend (with counsel reasonably satisfactory to Owner) and save Owner harmless
from and against any and all claims arising from Property Manager’s and its
officers’, directors’, members’, managers’, shareholders’, agents’,
contractors’, representatives’ or employees’ intentional or willful acts or
gross negligence in performing its responsibilities hereunder and from and
against all costs, reasonable attorneys’ fees, expenses and liabilities incurred
in the defense of any claim or any action or proceeding brought as a result of
any such claim. Property Manager acknowledges that the Loan Documents may
include provisions for personal liability for Owner and/or affiliates/principals
of Owner on certain “nonrecourse carve-outs.” Property Manager hereby agrees
that to the extent that Owner or affiliates of Owner are required to make
payments with respect to such “non-recourse carve-outs” as a direct and sole
result of (i) the Property Manager’s fraud, willful misconduct or
misappropriation, (ii) the Property Manager’s commission of a criminal act,
(iii) the misapplication by Property Manager of any funds derived from the
Project received by Property Manager, including any failure to apply such
proceeds in accordance with the requirements of any existing Loan Documents
applicable to the Project, or (iv) damage or destruction to the Project caused
by acts of Property Manager that are grossly negligent, the Property Manager
will indemnify Owner and its affiliates under such nonrecourse carveouts for any
such liability that was caused by such actions.

 

(c)          Owner Indemnity. Property Manager agrees:

 

(i)          to notify Owner within five (5) business days after Property
Manager receives notice of any loss, damage, or injury occurring on or about the
Project;

 

(ii)         to take no action (such as admission of liability) which bars Owner
from obtaining any protection afforded by any insurance policy Owner may hold
(or under which Owner can make a claim); and

 

(iii)        that Owner shall have the exclusive right to conduct the defense to
any claim, demand, or suit within limits prescribed by such policy or policies
of insurance.

 

Provided Property Manager complies with the provisions of this paragraph (c),
Owner shall indemnify, defend and save Property Manager harmless from all loss,
damage, cost, expense (including attorneys’ fees), liability, or claims for
personal injury or property damage incurred or occurring in, on, or about the
Project, except for any losses brought about by the intentional or willful acts
or gross negligence on the part of the Property Manager, its officers,
directors, members, managers, shareholders, agents, contractors, representatives
or employees.

 

Owner does hereby agree, to the fullest extent permitted by law, to indemnify,
defend and save Property Manager harmless from and against any injuries to
person (including, without limitation, death) occurring at any time, any loss,
damage, and expense to property (including, without limitation, loss of use
thereof), and any claim, cost, penalty, fine, order of injunctive relief,
expense or liability of any nature (including, without limitation, actual
attorneys’ fees, fees of environmental consultants and laboratory fees, and any
other costs incurred in the investigation, defense and settlement of claims, and
natural resource damages) caused by, arising out of, resulting from or occurring
in connection with, wholly or in part, and whether in time prior to, after or
the date of this Agreement, the alleged exposure to or alleged presence,
disposal, release or threatened release of any Regulated Substance (as
hereinafter defined) from, at or about the Project or attributable, in whole or
in part, to Owner’s action or inaction or the action or inaction of Owner’s
employees, agents, contractors, lessees or invitees or trespassers (other than
the Property Manager) and any condition caused by or which may be attributable
to any Regulated Substance, other than those caused by the gross negligence or
willful act or omission of Property Manager, its officers, directors, members,
managers, shareholders, agents, contractors, representatives or employees.

 

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The term “Regulated Substance” as used herein means (a) any substance, material,
or waste that is regulated under any federal, state, or local statute,
regulation, ordinance, guidance, or order pertaining to environmental protection
or the protection of the public health, safety and/or welfare, including,
without limitation, the Comprehensive Environmental Response, Compensation, and
Liability Act of 1980,42 U.S.C. § 9601 et seq. the Solid Waste Disposal Act, 42
U.S.C. § 6901 et seq.; the Clean Air Act, 42 U.S.C. § 7401 et seq. the Federal
Water Pollution Control Act, 33 U.S.C. xx 125 1-1387; the Emergence Planning and
Community Right-to-Know Act, 42 U.S.C. xx 1101 et seq. the Hazardous Materials
Transportation Act, 49 U.S.C. xx 1801 et seq. the Federal Insecticide,
Fungicide, and Rodenticide Act, 7 U.S.C. xx l36-136y; and the Toxic Substances
Control Act, 15 U.S.C. xx 2601-2692; and such statute, regulation, ordinance, or
order as now amended or hereafter may be amended; and (b) any substance
whatsoever that may pose, now or hereafter, a threat of risk of harm to human
health, the environment, or the soils, geologic materials, air, surface water,
or groundwater, including, without limitation, the presence or release of radon,
noxious or nuisance gases or particles, asbestos or asbestos-containing
material, equipment or material containing or consisting of poly- or
mono-chlorinated biphenyls, fiberglass, formaldehyde, urea formaldehyde foam,
lead, petroleum and petroleum products, or natural gas or natural gas products.

 

7.2           Survival. The provisions of this Article 7 shall survive any
cancellation, termination or expiration of this Agreement and shall remain in
full force and effect until such time as the applicable statute of limitations
shall have expired for all demands, claims, actions, damages, losses,
liabilities or expenses which are the subject of the provisions of this Article
7.

 

Article VIII DEFAULT; TERMINATION

 

8.1           Default. Upon the occurrence of any default under this Agreement
by a party (“defaulting party”), and after giving notice of default and
opportunity to cure as provided below, the non-defaulting party shall be
entitled to terminate this Agreement immediately in addition to any remedy such
party may have at law or in equity. A defaulting party shall be entitled to cure
(i) a monetary default within five (5) days after receipt of written notice of
such default, or, (ii) a non-monetary default within fifteen (15) days after
receipt of written notice of such default, provided that the defaulting party
proceeds to diligently cure such default upon receipt of such notice.

 

8.2           Bankruptcy, Insolvency.

 

(a)          If Owner or Property Manager shall file a petition in bankruptcy or
for a reorganization or arrangement or other relief under the United States
Bankruptcy Code or any similar statute, or if any such proceeding shall be filed
against Owner or Property Manager and is not dismissed or vacated within sixty
(60) days after its filing, or if a court having jurisdiction shall issue an
order or decree appointing a receiver, custodian or liquidator for a substantial
part of the property of either Owner or Property Manager which decree or order
remains in force undischarged and unstayed for a period of sixty (60) days, or
if either Owner or Property Manager shall make an assignment for the benefit of
creditors or shall admit in writing its inability to pay its debts as they
become due, the other party may terminate this Agreement upon five (5) days
written notice.

 

(b)          Owner and Property Manager have entered into this Agreement in
reliance upon the unique knowledge, experience and expertise of the other party
and in reliance upon the duties of loyalty and confidentiality which each party
hereby agrees to undertake. Except as otherwise expressly provided in this
Agreement, neither party shall be required to accept performance under this
Agreement from any person, including, without limitation, Owner or Property
Manager, as the case may be, should it become a debtor in possession under the
United States Bankruptcy Code, or any trustee of either appointed under the
United States Bankruptcy Code and any assignee of such party or trustee, other
than the other party hereto.

 

8.3           Sale of Project. This Agreement shall automatically terminate (i)
upon any sale of the Project to a third-party purchaser.

 

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Article IX SUBORDINATION TO MORTGAGES

 

9.1           Subordination. This Agreement and Property Manager’s interest and
rights hereunder are and shall be subject and subordinate at all times to the
lien of any mortgage, whether now existing or hereafter created on or against
the Project, and all amendments, restatements, renewals, modifications,
consolidations, refinancings, assignments and extensions thereof (“Security
Documents”) without the necessity of any further instrument or act on the part
of the Property Manager. Property Manager agrees, at the election of the holder
of any such Security Documents (the “Secured Party”), to attorn to the Secured
Party. The term “mortgage” as used herein shall be deemed to include deeds of
trust, security assignments and any other similar encumbrances, and any
reference to the “holder” of a Security Document shall be deemed to include the
beneficiary under a deed of trust. Notwithstanding the foregoing, nothing herein
shall obligate the Property Manager to continue its performance under this
Agreement unless it has been paid, and continues to be paid, in accordance with
the terms of this Agreement. As provided above, Property Manager acknowledges
and agrees, without limitation, that Lender is a Secured Party and that the Loan
Documents to which the Owner is a party constitutes one of the Security
Documents.

 

9.2           Rights after Events of Default. Upon an Event of Default (as such
term is defined in any Security Document), and provided that it continues to be
paid in accordance with the terms of this Agreement, the Property Manager shall
continue to perform its obligations under this Agreement until the earlier to
occur of (a) the termination of this Agreement with respect to the Project or
the termination of this Agreement in accordance with the terms hereof, or
(b) the Secured Party’s (or its assignee’s or nominee’s) acquisition of title to
the Project through foreclosure, a deed-in-lieu thereof, or otherwise. On and
after an Event of Default, there shall be no material changes in the terms and
conditions of this Agreement without the prior written consent of the Secured
Party.

 

Article X MISCELLANEOUS PROVISIONS

 

10.1         Notices. All notices, demands, requests or other communications
which may be or are required to be given, served or sent by either party to the
other hereunder, shall be in writing and delivered personally or by recognized
national courier service, return receipt requested or certified mail, return
receipt requested, with postage prepaid, to the Property Manager, and to the
Owner, at the addresses set forth below with copies addressed as set forth
below:

 

  if to the Owner, to: BR Fox Hills TIC-1, LLC and     BR Fox Hills TIC-2, LLC  
  c/o Bluerock Real Estate, L.L.C.     712 Fifth Avenue, 9th Floor     New York,
New York 10019     Attn: R. Ramin Kamfar and Michael L. Konig, Esq.         if
to the Property Manager, to: Bluerock Property Management, LLC     16500 North
Park Drive     Southfield, Michigan 48074     Attn: Ms. Patricia Anderson

 

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The parties may change the name and/or address provided above by written notice
given as aforesaid. Notices shall be deemed effective upon receipt (with refusal
of delivery being deemed a receipt). In emergency situations, Property Manager
shall endeavor to also fax notices to the addresses set forth above, but any
such faxed notice shall not constitute an effective notice under this Agreement.

 

10.2         Severability. If any term, covenant or condition of this Agreement
or the application thereof to any person or circumstance shall, to any extent,
be held to be invalid or unenforceable, the remainder of this Agreement, or the
application of such term, covenant or condition to persons or circumstances
other than those as to which it is held invalid or unenforceable, shall not be
affected thereby, and each term, covenant or condition of this Agreement shall
be valid and shall be enforced to the fullest extent permitted by law.

 

10.3         No Joint Venture or Partnership. Owner and Property Manager hereby
renounce the existence of any joint venture or partnership between them and
agree that nothing contained herein or in any document executed in connection
herewith shall be construed as making Property Manager and Owner joint venturers
or partners. Property Manager acknowledges and agrees that Property Manager is
engaged only as an independent contractor in the business of managing apartment
complexes.

 

10.4         Entire Agreement and Amendment. This Agreement constitutes the
entire agreement between the parties hereto with respect to the subject matter
hereof. This Agreement may be amended or modified only by a written instrument
executed by Property Manager and Owner.

 

10.5         Article and Section Headings. Article and Section headings
contained in this Agreement are for reference only and shall not be deemed to
have any substantive effect or to limit or define the provisions contained
herein.

 

10.6         Successors and Assigns. This Agreement shall be binding on the
parties hereto, and their successors and permitted assigns. Neither party may
assign or otherwise transfer its interest hereunder without the prior written
consent of the other party, which consent may be withheld in such party’s sole
discretion.

 

10.7         Attorneys’ Fees. Should either party employ attorneys to enforce
any of the provisions hereof, the party losing in any final judgment agrees to
pay the prevailing party all reasonable costs, charges and expenses, including
attorneys’ fees, expended or incurred in connection therewith.

 

10.8         Governing Law. This Agreement shall be construed in accordance with
the internal laws of the State where the Project is located.

 

10.9         Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute one and the same instrument.

 

10.10         Confidentiality. Property Manager shall maintain the
confidentiality of all matters pertaining to this Agreement and all operations
and transactions relating to the Project.

 

10.11         Time. Time is of the essence in the performance of this Agreement.

 

10.12         Corporate Authority of Property Manager. Property Manager
represents and warrants that (a) Property Manager is a limited liability company
duly organized and validly existing and is in good standing under the laws of
the State of Michigan; and (b) Property Manager has full power, authority and
legal right to execute, deliver and perform this Agreement and to perform all of
its obligations hereunder.

 

10.13         Corporate Authority of Owner. Owner represents and warrants that
(a) Owner is a limited liability company, duly organized and validly existing
and is in good standing under the laws of the State of Delaware, and (b) Owner
has full power, authority and legal right to execute, deliver and perform this
Agreement and to perform all of its obligations hereunder.

 

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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered as of
the date first above written.

 

  PROPERTY MANAGER:       BLUEROCK PROPERTY MANAGEMENT, LLC,   a Michigan
limited liability company       By: Bluerock Real Estate, L.L.C.,     a Delaware
limited liability company,     its Manager           By: /s/ Jordan Ruddy      
  Jordan Ruddy         Vice President           OWNER:       BR FOX HILLS TIC-1,
LLC,   a Delaware limited liability company         By: 23Hundred, LLC     a
Delaware limited liability company,     its sole member             By: /s/
Jordan Ruddy (SEAL)     Name: Jordan Ruddy       Title: Authorized Signatory    
          BR FOX HILLS TIC-2, LLC,   a Delaware limited liability company      
      By: Bell BR Waterford Crossing JV, LLC,     a Delaware limited liability
company,     its sole member               By: /s/ Jordan Ruddy (SEAL)     Name:
Jordan Ruddy       Title: Authorized Signatory  

 

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EXHIBIT A

MONTHLY REPORTS

 

1.Balance Sheet, including monthly comparison and comparison to year end (if
applicable).

2.Budget Comparison(1), including month-to-date and year-to-date variances.

3.Detailed Income Statement, including prior 12 months.

4.Trial Balance that includes mapping of the accounts to the financial
statements.

5.Account reconciliations for each balance sheet account within the trial
balance.

6.Detailed support for each account reconciliation including the following:

a.Detail Accounts Payable Aging Listing: 0-30 days, 31-60 days, 61-90 days and
over 90 days.

b.Detail Accounts Receivable/Delinquency Aging Report: 0-30 days, 31-60 days,
61-90 days, over 90 days and prepayments.

c.Fixed asset roll-forward and support (invoices and checks) for any new
acquisition/additions and/or support for any disposals to fixed assets.
Purchases will be accounted for using Bluerock's capitalization policy.

7.Security Deposit Activity

8.Mortgage Statement

9.Monthly Management Fee Calculation

10.Monthly Distribution Calculation

11.General Ledger, with description and balance detail

12.Monthly Check Register including copies of all checks disbursed and copies of
cancelled checks.

13.Rent Roll

14.Monthly Reporting and evidence of withdrawal, if any, of the Property
Enhancement Reserves, and any other operating reserve accounts and capital
expense reserve accounts, including, but not limited to, any calculations
evidencing shortfalls payable thereunder.

15.Within five (5) business days of the end of each quarter, Manager shall
furnish to Owner such information as requested by Owner or its Members or
affiliates as is necessary for any REIT Member of Owner (whether a direct or
indirect owner) to determine its qualification as a real estate investment trust
(a “REIT”) and its compliance with any requirements for qualifying as a REIT
(the “REIT Requirements”) as shall be requested by Owner or its Members.
Further, Manager shall cooperate in a reasonable manner at the request of any
Member to work in good faith with any designated accountants or auditors of such
Member or its Affiliates so that such Member or its Affiliate is able to comply
with its public reporting, attestation, certification and other requirements
under the Securities Exchange Act of 1934, as amended, applicable to such
entity, and to work in good faith with the designated accountants or auditors of
the Member or any of its Affiliates in connection therewith, including for
purposes of testing internal controls and procedures of such Member or its
Affiliates. The requesting Member shall bear the cost of any information or
reports provided to such Member pursuant to this Exhibit.

16.Other reasonable reporting at Owner’s expense, as requested and approved in
writing by Owner at Owner’s expense (e.g. Renovation/Rehab report).

  

(1) Budget Comparison shall include (i) an unaudited income and expense
statement showing the results of operation of the Property for the preceding
calendar month and the Fiscal Year to-date; (ii) a comparison of monthly line
item actual income and expenses with the monthly line item income and expenses
projected in the Budget. The balance sheet will show the cash balances for
reserves and operating accounts as of the cut-off date for such month.

 

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EXHIBIT B

VARIANCE REPORTS

 

1.Variance Report, including the following:

a.Cap Ex Summary and Commentary

b.Monthly Income/Expense Variance with notes

c.Yearly Income/Expense Variance with notes

d.Occupancy Commentary

e.Market/Competition Commentary

f.Rent Movement/Concessions Commentary

g.Crime Commentary

h.Staffing Commentary

i.Operating Summary, with leasing and traffic reporting

j.Other reasonable reporting, as requested (e.g. Renovation/Rehab report)

2.Budget Comparison(1), including month-to-date and year-to-date variances with
narrative for any large fluctuations compared to Budget.

3.Market Survey, including property comparison, trends, and concessions.

 

(1) Budget Comparison shall include (i) an unaudited income and expense
statement showing the results of operation of the Property for the preceding
calendar month and the Fiscal Year to-date; (ii) a comparison of monthly line
item actual income and expenses with the monthly line item income and expenses
projected in the Budget. The balance sheet will show the cash balances for
reserves and operating accounts as of the cut-off date for such month.

 

18