UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D. C. 20549










FORM 10-K/A










(Mark One)


xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended December 31, 2009


OR


oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934




For the transition period from  _____ to _____




Commission file number: 333-153135




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.






Maryland



(State or Other Jurisdiction of  Incorporation or Organization)

26-3136483



(I.R.S. Employer Identification No.)Heron Tower, 70 East 55th Street, New York, NY

(Address of Principal Executive Offices)

10022

(Zip Code)Registrant’s Telephone Number, Including Area Code: (212) 843-1601



Securities registered pursuant to section 12(b) of the Act:

None



Securities registered pursuant to section 12(g) of the Act:

None

(Title of Class)




(Exact Name of Registrant as Specified in Its Charter)





Indicate by check mark if the Registrant is a well-known seasoned issuer (as defined in Rule 405 of the Securities Act). Yes  ̈No x




Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes  ̈No x




Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  ̈No x




Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ̈No  ̈





Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy of information statements incorporated by reference in part III of this Form 10-K or any amendment to this Form 10-K. x





Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):




Large Accelerated Filer  ̈                                                      Accelerated Filer                                 ̈            Non-Accelerated Filer                                            ̈           Smaller reporting companyx




Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ̈  No x




There is no established market for the Registrant’s shares of common stock.  The Registrant has registered an initial public offering of its shares of common stock pursuant to a Registration Statement on Form S-11, which shares are being offered at $10.00 per share, with discounts available for certain categories of purchasers.  There were no common shares held by non-affiliates as of June 30, 2009 (the last business day of the registrant’s most recently completed second fiscal quarter).




As of March 23, 2010, the Registrant had issued 37,200 shares of common stock.












BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 FORM 10-K/A
 December 31, 2009
 Explanatory Note
 
 PART I
 
 Item 1.
Business
4Item 2.
Properties
7PART IIItem 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
10Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
12Item 8.
Financial Statements and Supplementary Data
17Item 9A(T).
Controls and Procedures
17PART IIIItem 13.
Certain Relationships and Related Transaction and Director Independence
18PART IVItem 15.
Exhibits, Financial Statement Schedules
23Signatures











Explanatory Note







In conjunction with our engagement of a new registered public accounting firm on August 23, 2010, our management reviewed the accounting policies adopted under financial accounting guidance and evaluated our related agreements.  Based on its review, our management determined that certain adjustments to our accounting methods regarding business combinations and investments in unconsolidated entities are necessary.  Accordingly, this Amendment No. 1 is being filed to amend and restate Part I, Items 1 and 2, Part II, Items 7 and 9(T), Part III, Item 14, and Part IV, Item 15 of our Annual Report on Form 10-K for the year ended December 31, 2009, originally filed on March 31, 2010, which are affected by this change in accounting methods.  In addition we are amending and restating Part II, Item 5 to provide additional information regarding the use of proceeds from sales of registered securities and unregistered sales of equity securities.   Except as otherwise expressly noted herein, this Amendment does not reflect events occurring after the filing of our original Form 10-K on March 31, 2010.  Accordingly, this Amendment should be read in conjunction with our original Annual Report on Form 10-K.





Forward-Looking Statements




Certain statements in this Annual Report on Form 10-K/A constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements, include discussion and analysis of the financial condition of Bluerock Enhanced Multifamily Trust, Inc. and our subsidiaries (which may be referred to herein as the “Company,” “we,” “us” or “our”), our anticipated capital expenditures required to complete projects, amounts of anticipated cash distributions to our stockholders in the future and other matters.  These forward-looking statements are not historical facts but are the intent, belief, or current expectations of our management based on their knowledge and understanding of the business and industry.  Words such as “may,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” and variations of these words and similar expressions are intended to identify forward-looking statements.  These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. We intend for these forward-looking statements to be covered by the applicable safe harbor provisions created by Section 27A of the Securities Act and Section 21E of the Exchange Act.




Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false.  We caution investors not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Annual Report on Form 10-K.  We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.  The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of our prospectus dated October 15, 2009 as supplemented to date.




In addition, the following are some of the more significant risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:




·
We are a newly-formed entity and our limited operating history makes our future performance difficult to predict.





·
Our officers and non-independent directors have substantial conflicts of interest because they also are officers and owners of our advisor and its affiliates, including our sponsors.





·
During the early stages of our operations, until the proceeds of our public offering are invested in real estate and real estate-related investments, we expect to fund distributions from the un-invested proceeds of our public offering and borrowings. Thereafter, we may pay distributions from un-invested proceeds of our public offering, borrowings and the sale of assets to the extent distributions exceed our earnings or cash flows from operations.





·
We will rely on our advisor, an affiliate of our officers and non-independent directors, to manage our business and select and manage investments. Our advisor is a newly-formed entity. The success of our business will depend on the success of our advisor in performing these duties.





·
To the extent we sell substantially less than the maximum number of shares in our public offering, we may not have sufficient funds, after the payment of offering and related expenses, to acquire a diverse portfolio of properties.





·
We may fail to qualify as a REIT for federal income tax purposes. We would then be subject to corporate level taxation and we would not be required to pay any distributions to our stockholders.








3








Cautionary Note




The representations, warranties, and covenants made by us in any agreement filed as an exhibit to this Annual Report on Form 10-K are made solely for the benefit of the parties to the agreement, including, in some cases, for the purpose of allocating risk among the parties to the agreement, and should not be deemed to be representations, warranties, or covenants to or with any other parties.  Moreover, these representations, warranties, or covenants should not be relied upon as accurately describing or reflecting the current state of our affairs.




PART I


Item 1.  Business




Organization





Bluerock Enhanced Multifamily Trust, Inc. (the “Company”) was incorporated on July 25, 2008 under the laws of the state of Maryland. We intend to qualify as a real estate investment trust, or REIT, for federal income tax purposes.As a REIT, we generally are not subject to corporate-level income taxes.  To maintain our REIT status, we are required, among other requirements, to distribute annually at least 90% of our “REIT taxable income,” as defined by the Internal Revenue Code of 1986, as amended (the ”Code”), to our stockholders.  If we fail to qualify as a REIT in any taxable year, we would be subject to federal income tax on our taxable income at regular corporate tax rates.





On August 22, 2008, We filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a maximum of $1,000,000,000 in shares and a minimum of $2,500,000 in shares of our common stock in our primary offering, at an offering price of $10.00 per share, with discounts available for certain categories of purchasers (our “Initial Public Offering”).  We also are offering up to $285,000,000 in shares pursuant to our distribution reinvestment plan at $9.50 per share. The SEC declared our registration statement effective on October 15, 2009 and we have retained Select Capital to serve as the dealer manager of the Initial Public Offering.  The dealer manager is responsible for marketing our shares in the Initial Public Offering.  We intend to use substantially all of the net proceeds from the Initial Public Offering to invest in a diverse portfolio of real estate and real estate-related assets as described below.  As of December 31, 2009, we owned, through a joint venture partnership, one multifamily real estate property.





We have no employees and are supported by related-party service agreements. We are externally managed by Bluerock Enhanced Multifamily Advisors LP (the “Advisor”), a Delaware limited partnership organized in 2007.  The Advisor is responsible for managing our affairs on a day-to-day basis and for identifying and making real estate investments on our behalf.  Substantially all our business is conducted through our operating partnership Bluerock Enhanced Multifamily Holdings LP, a Delaware limited partnership (“Bluerock Holdings”).





The principal executive offices of our company and the Advisor are located at Heron Building, 70 East 55th Street, New York, New York 10022. Our telephone number is (877) 826-BLUE (2583).





Material Acquisition





On December 3, 2009, we acquired a multifamily community known as Springhouse at Newport News, located in Newport News, Virginia, through an unconsolidated joint venture.  We invested $2.5 million to acquire a 50% equity interest in the managing member of the joint venture.  For more information regarding our investment, see "Item 2. Properties".





Investment Objectives





We intend to acquire a diversified portfolio of real estate and real estate-related investments, with a primary focus on well-located, institutional-quality apartment properties with strong and stable cash flows. We intend to implement what we refer to as the “Enhanced Multifamily” strategy at these apartment properties, which we believe will increase rents, tenant retention and property values, and generate attractive returns for our investors. We also intend to acquire well-located residential properties that we believe present significant opportunities for short-term capital appreciation, such as those requiring repositioning, renovation or redevelopment, and properties available at opportunistic prices from distressed or time-constrained sellers. In addition, we will seek to originate or invest in real estate-related securities that we believe present the potential for high current income or total return, including but not limited to mortgage, bridge or subordinated loans, debt securities and preferred or other equity securities of other real estate companies, which we refer to as real estate-related investments, and may invest in entities that make similar investments.





We may adjust our targeted portfolio allocation based on, among other things, prevailing real estate market conditions and the availability of attractive investment opportunities. We will not forego an attractive investment because it does not fit within our targeted asset class or portfolio composition. The volume and value of properties and real estate-related investments we acquire will depend initially on the proceeds of the Initial Public Offering.






4






Enhanced Multifamily Strategy






The Advisor’s Enhanced Multifamily strategy consists of a series of initiatives that we believe can create a sustainable competitive advantage and allow us to realize long-term increases in apartment property value. This strategy seeks to transform the perception of the apartment from a purely functional one (i.e.,as solely a place to live) to a lifestyle product / community (i.e.,as a place to live, interact, and socialize) thereby creating an enhanced perception of value among residents, allowing for premium rental rates, and improving resident retention.






The initiatives consist of amenities and attributes that go beyond traditional features, and incorporate cosmetic and architectural improvements along with technology, music and activities to establish an enhanced sense of comfort and appeal to our target residents’ desire for a “sense of community” by creating places to gather, socialize and interact in a highly amenitized environment. This strategy is specifically targeted to appeal to the following two lucrative and rapidly growing segments of the multifamily market:




•
Lifestyle Rentersare generally established, adult households with multiple housing choices open to them, that choose to rent an apartment for primarily nonfinancial reasons. They include Baby Boomers (individuals born in the U.S. between 1946 and 1964), who have become empty nesters and are seeking to live a simpler lifestyle without the responsibilities of home ownership, as well as older members of the Echo Boomers (the generation born in the U.S. between 1981 and 2000).•
Middle Market Rentersare generally younger and more mobile than Lifestyle Renters, and while they can generally afford to own, they have chosen either to save their money (perhaps to purchase a larger house at a later date), to spend it on other goods and services or to invest in something other than housing, or they are in a personal or job transition. For Middle Market Renters an apartment can provide an inexpensive and maintenance-free residence.




As a further benefit, by appealing to and attracting the Lifestyle Renters and Middle Market renters, we believe the Enhanced Multifamily strategy can generate significant additional revenue-enhancing options at our properties, including the ability to provide and charge for premium units, upgrade packages and equipment rentals such as washers and dryers, flat screen televisions and premium sound systems.






Borrowing Policies






Under our charter, the maximum amount of our indebtedness may not exceed 300% of our net assets as of the date of any borrowing, which is generally expected to approximate 75% of the cost of our investments; however, we may exceed that limit if approved by a majority of our independent directors. We expect that once we have fully invested the maximum proceeds of the Initial Public Offering, our indebtedness will be approximately 50% of the sum of the value of our real properties (before deducting depreciation and other non-cash reserves) and the value of our other assets. There is no limit on the amount we may borrow for the purchase of any single property or other investment. Our board of directors must review our aggregate borrowings at least quarterly.






5




Distribution Policy






Generally, our policy will be to pay distributions from cash flow from operations.  However, we expect that some or all of our distributions will be paid from sources other than cash flow from operations, such as from the proceeds of our public offering, cash advances to us by the Advisor, cash resulting from a waiver of asset management fees and borrowings (including borrowings secured by our assets) in anticipation of future operating cash flow until such time as we have sufficient cash flow from operations to fully fund the payment of distributions there from.  Further, because we may receive income from interest or rents at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that at least during the early stages of our development and from time to time during our operational stage, we will declare distributions in anticipation of cash flow that we expect to receive during a later period, and we will pay these distributions in advance of our actual receipt of these funds. We may fund such distributions from advances from the Advisor or sponsors or from the Advisor’s deferral of its asset management fee.






To the extent that we redeem shares pursuant to our share repurchase plan or make payments or reimburse certain expenses to the Advisor pursuant to our advisory agreement, our cash flow and therefore our ability to make distributions from cash flow, as well as cash flow available for investment, will be negatively impacted. In addition, certain amounts we are required to pay to the Advisor, including the monthly asset management fee, the property management fee, the financing fee, the disposition fee and the payment made upon conversion of our convertible stock, depend on the assets acquired, gross revenues of the properties managed, indebtedness incurred, sales prices of investments sold or the value of our company at the time of conversion, respectively, and therefore cannot be quantified or reserved for until such fees have been earned.  We are required to pay these amounts to the Advisor regardless of the amount of cash we distribute to our stockholders, and therefore our ability to make distributions from cash flow, as well as cash flow available for investment, to our stockholders may be negatively impacted. In addition, to the extent we invest in development or redevelopment projects or in properties that have significant capital requirements, these properties will not immediately generate operating cash flow. Thus, our ability to make distributions may be negatively impacted, especially during our early periods of operation.






Once our board of directors has begun to authorize distributions, we expect to declare distributions on a quarterly basis and to pay distributions to our stockholders on a monthly basis. We intend to calculate these monthly distributions based on daily record dates so our investors will become eligible for distributions immediately upon the purchase of their shares. Distributions will be paid to stockholders as of the record dates selected by the directors.






We are required to make distributions sufficient to satisfy the requirements for qualification as a REIT for tax purposes. Generally, distributed income will not be taxable to us under the Code if we distribute at least 90% of our REIT taxable income.






Distributions will be authorized at the discretion of our board of directors, in accordance with our earnings, cash flow, anticipated cash flow and general financial condition. The board’s discretion will be directed, in substantial part, by its intention to cause us to comply with the REIT requirements. Because we may receive income from interest or rents at various times during our fiscal year, distributions may not reflect our income earned in that particular distribution period but may be made in anticipation of cash flow that we expect to receive during a later period and may be made in advance of actual receipt of funds in an attempt to make distributions relatively uniform. We may utilize capital, borrow money, issue new securities or sell assets in order to make distributions. In addition, from time to time, the Advisor and its affiliates may, but are not required to, agree to waive or defer all or a portion of the acquisition, asset management or other fees or other incentives due to them, enter into lease agreements for un-leased space, pay general administrative expenses or otherwise supplement investor returns in order to increase the amount of cash available to make distributions to our stockholders.






Many of the factors that can affect the availability and timing of cash distributions to stockholders are beyond our control, and a change in any one factor could adversely affect our ability to pay future distributions. There can be no assurance that future cash flow will support distributions at the rate that such distributions are paid in any particular distribution period.




Regulations




Our investments are subject to various federal, state, local and foreign laws, ordinances and regulations, including, among other things, zoning regulations, land use controls, environmental controls relating to air and water quality, noise pollution and indirect environmental impacts such as increased motor vehicle activity. We believe that we have all permits and approvals necessary under current law to operate our investments.




Environmental




As an owner of real estate, we are subject to various environmental laws of federal, state and local governments. Compliance with existing laws has not had a material adverse effect on our financial condition or results of operations, and management does not believe it will have such an impact in the future.  However, we cannot predict the impact of unforeseen environmental contingencies or new or changed laws or regulations on properties in which we hold an interest, or on properties that may be acquired directly or indirectly in the future.






6




Industry Segment


Our current business consists of investing in and operating multifamily communities. Substantially all of our consolidated net loss is from investments in real estate properties that we own through a Co-Investment Venture which we account for under the equity method of accounting.  We internally evaluate operating performance on an individual property level and view our real estate assets as one industry segment, and, accordingly, our properties will be aggregated into one reportable segment.




Available Information




We electronically file annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the SEC. We also have filed with the SEC registration statements on Form S-11 in connection with the Initial Public Offering of our common stock.  Copies of our filings with the SEC may be obtained from the SEC’s website at www.sec.gov. Access to these filings is free of charge.




Item 2.             Properties





As of March 23, 2010, we, through a wholly owned subsidiary of our operating partnership, have acquired one investment through an unconsolidated joint venture as further described below.  The following is a summary of our investment portfolio as of March 23, 2010:




Multifamily

Community

Name/Location
Approx

Rentable

Square

Footage
Number of

Units
Date

Acquired
Property

Acquisition

Cost(1)
Joint Venture Equity Investment

Information
Approx

Annualized

Base Rent
Average

Annual

Effective

Rent Per

Unit
Approx.

%  LeasedAmount of

Our

Investment
Our Ownership

Interest in

Property

OwnerSpringhouse at Newport News/ Newport News, Virginia
310,826
432
12/03/2009
$29.25 million
$2.3 million
37.5%
4,153,000
$9,450
92%


(1)
Contract purchase price excludes acquisition fees and closing costs.




Springhouse at Newport News





On December 3, 2009, through a wholly owned subsidiary of our operating partnership, we completed an investment in a joint venture along with Bluerock Special Opportunity + Income Fund, LLC (“BEMT Co-Investor”), an affiliate of our sponsor, and Hawthorne Springhouse, LLC (“Hawthorne”), an unaffiliated entity, to acquire a 432-unit garden-style multifamily community known as Springhouse at Newport News (the “Springhouse property”), located in Newport News, Virginia, from Newport-Oxford Associates Limited Partnership, an unaffiliated entity. The material features of our investment in the joint venture, the property acquisition and related financings, and the acquired property are described below.





Joint Venture Parties and Structure





In connection with the closing of the Springhouse property acquisition, we invested $2.5 million to acquire a 50% equity interest in BR Springhouse Managing Member, LLC (the “Springhouse Managing Member JV Entity”) through a wholly owned subsidiary of our operating partnership, BEMT Springhouse, LLC (“BEMT Springhouse”). BEMT Co-Investor invested $2.5 million to acquire the remaining 50% interest in the Springhouse Managing Member JV Entity. BEMT Springhouse and BEMT Co-Investor are co-managers of the Springhouse Managing Member JV Entity.  The Springhouse Managing Member JV Entity contributed its capital to acquire a 75% equity interest in BR Hawthorne Springhouse JV, LLC (the “Springhouse JV Entity”) and acts as the manager of the Springhouse JV Entity. Hawthorne invested $1.7 million to acquire the remaining 25% interest in the Springhouse JV Entity. The Springhouse JV Entity is the sole owner of BR Springhouse, LLC (“BR Springhouse”), a special-purpose entity that holds title to the Springhouse property.





Under the terms of the operating agreement for the Springhouse Managing Member JV Entity, certain major decisions regarding the investments of the Springhouse Managing Member JV Entity require the unanimous approval of BEMT Co-Investor and us (through BEMT Springhouse). To the extent that we and BEMT Co-Investor are not able to agree on a major decision or at any time after December 3, 2012, either party may initiate a buy-sell proceeding. Additionally, any time after December 3, 2012, either party may initiate a proceeding to force the sale of the Springhouse Managing Member JV Entity’s interest in the Springhouse JV Entity to a third party, or, in the instance of the non-initiating party’s rejection of a sale, cause the non-initiating party to purchase the initiating party’s interest in the Springhouse Managing Member JV Entity. The operating agreement contains terms, conditions, representations, warranties and indemnities that are customary and standard for joint ventures in the real estate industry.








7







Under the terms of the operating agreement of the Springhouse JV Entity, major decisions with respect to the joint venture or the Springhouse property are made by the majority vote of an appointed management committee, which is controlled by the Springhouse Managing Member JV Entity. However, any decision with respect to the sale or refinancing of the Springhouse property requires the unanimous approval of the Springhouse Managing Member JV Entity and Hawthorne. Further, to the extent that the Springhouse Managing Member JV Entity and Hawthorne are not able to agree on a major decision or at any time after December 3, 2012, either party may initiate a buy-sell proceeding. Additionally, any time after December 3, 2012, either party may initiate a proceeding to force the sale of the Springhouse property to a third party, or, in the instance of the non-initiating party’s rejection of a sale, cause the non-initiating party to purchase the initiating party’s interest in the Springhouse JV Entity..





As a result of the structure described above, we and BEMT Co-Investor each hold a 37.5% indirect equity interest in the Springhouse property, and Hawthorne holds the remaining 25% indirect equity interest. We, BEMT Co-Investor and Hawthorne will each receive current distributions from the operating cash flow generated by the Springhouse property in proportion to these respective percentage equity interests.





Affiliate Loan for our Investment in the Joint Venture





In connection with our investment in the joint venture, on December 3, 2009, BEMT Springhouse entered into a loan agreement with BEMT Co-Investor pursuant to which BEMT Springhouse borrowed $2.8 million (the “BEMT Co-Investor Loan”). The BEMT Co-Investor Loan initially had a six-month term, maturing June 3, 2010, which was subsequently extended to December 3, 2010 and again to June 3, 2011.  A partial repayment in the amount of $1.1 million was made on June 23, 2010. It bears interest compounding monthly at a rate of 30-day LIBOR + 5.00%, subject to a minimum rate of 7.00%, annualized. As of March 1, 2010, the interest rate on the BEMT Co-Investor Loan was 7.00%. Interest on the loan will be paid on a current basis from cash flow distributed to us from the Springhouse Managing Member JV Entity. The BEMT Co-Investor Loan is secured by a pledge of our indirect membership interest in BEMT Springhouse and a pledge of BEMT Springhouse’s membership interest in the Springhouse Managing Member JV Entity. In accordance with the requirements of our charter, the BEMT Co-Investor Loan was reviewed and approved by a majority of our board of directors (including a majority of our independent directors) as being fair, competitive, and commercially reasonable and no less favorable to us than loans between unaffiliated parties under the same circumstances. Furthermore, due to the unique investment opportunity presented by the Springhouse property, including the opportunity to distinguish ourselves competitively from other early-stage non-traded REITs, our board of directors expressly considered and approved leverage in excess of our general charter-imposed limitations in connection with entering into the BEMT Co-Investor loan.





Property Acquisition and Senior Financing





Our sponsor, Bluerock Real Estate, LLC, entered into a purchase and sale contract dated September 24, 2009 to purchase the Springhouse property. The purchase price for the Springhouse property was $29.25 million, plus closing costs, which represents a nominal capitalization rate of 8.34% (the expected first year yield on the investment, excluding recurring capital costs). Immediately prior to the closing on December 3, Bluerock Real Estate, LLC assigned the purchase and sale agreement to BR Springhouse.





The acquisition was funded with $6.7 million of gross equity from the Springhouse JV Entity, and a $23.4 million senior mortgage loan made to BR Springhouse by CW Capital LLC and subsequently sold to the Federal Home Loan Mortgage Corporation (Freddie Mac) (the “Senior Loan”), which Senior Loan is secured by the Springhouse property. The Senior Loan has a 10-year term, maturing on January 1, 2020. The effective interest rate on the loan is fixed at 5.66% per annum, with interest-only payments for the first two years and fixed monthly payments of approximately $134,221 based on a 30-year amortization schedule thereafter.





Prepayment terms of the Senior Loan depend on whether the loan is securitized on or before January 1, 2011. If the loan is securitized, then a two-year lockout period from the date of funding applies, with BR Springhouse having the right to defease after the lockout period up to the third month prior to the maturity date, after which the loan may be prepaid in full without penalty. If the Senior Loan is not securitized on or before January 1, 2011, then yield maintenance payments will be required to the extent prepaid before the sixth month prior to the maturity date; during the period from the sixth month prior to the maturity date to the third month prior to the maturity date, a prepayment premium of 1% of the loan amount will be required, and thereafter the loan may be prepaid without penalty.





R. Ramin Kamfar and James G. Babb, III, who are our executive officers and members of our board of directors, and Edward Harrington, Samantha Davenport and Shoffner Allison, who are Hawthorne affiliates, have guaranteed all recourse liabilities of BR Springhouse under the Senior Loan, including environmental indemnities.





Description of the Springhouse Property





The Springhouse property is comprised of 432 units featuring one- and two-bedroom layouts in 24 two-story garden-style apartment buildings surrounding a central private lake on approximately 28 acres in Newport News, Virginia. The property contains approximately 310,823 rentable square feet and the average unit size is 728 square feet. As of November 2009, the property had an average market rent of $826 per unit and was 96.8% occupied. Additional property amenities include a clubhouse, fitness center, swimming pool, tennis court, volleyball court, picnic area and a private lake with gazebo.








8




The Springhouse property is located within a ten-minute drive of two major Newport News area employers, Northrop Grumman and the Fort Eustis Army Base. In addition, Cannon Virginia, a subsidiary of Cannon USA, Inc. recently opened a $640 million, 700,000-square foot manufacturing facility within a few miles of the property. The Springhouse property is situated between I-64 and Jefferson Avenue, the two main north-south thoroughfares in Newport News, within close proximity to the Newport News/Williamsburg International Airport. Several neighborhood-oriented retail centers are located within a five-minute drive of the property.





The Springhouse property is located within the Hampton Roads MSA, which is home to 18 publicly traded corporations, the world’s largest naval base, a major East Coast port, and numerous internationally known tourist attractions. According to a recent CBRE appraisal, the Hampton Roads MSA’s population has grown 5.6% on average from 2000 through 2008. As of October 2009, the MSA’s unemployment was 6.5%, which compared favorably with the national average of 9.5%. Historically, unemployment in the region has been below the national average. Traditionally, the Hampton Roads MSA has been home to the military, shipbuilding and healthcare, but over the past decade the region has attracted financial service firms, distribution companies, telemarketing and customer service operations.





Hawthorne Residential Partners, LLC, a Hawthorne affiliate, will be responsible for providing day-to-day property management services to the property. Hawthorne Residential Partners, LLC will receive an annual management fee of 4% of gross receipts generated by the Springhouse property. From this amount, 1% of gross property collections will be re-allowed to the Springhouse Managing Member JV Entity as an oversight fee, which fee will be shared equally between Bluerock Enhanced Multifamily Advisor, LLC, the Advisor, and Bluerock Property Management, LLC, an indirect wholly owned subsidiary of our sponsor. Under the property management agreement, Hawthorne Residential Partners, LLC will also be entitled to receive a construction management fee of 5% of the cost of any approved capital project exceeding $10,000 (excluding regular recurring interior capital replacements).





The investment in the Springhouse property is consistent with our geographic and sector-based strategy to acquire stabilized assets in select markets that satisfy our investment criteria for providing favorable risk-adjusted returns.






9





PART II




Item 5.  Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities




Market Information




There is no established public trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder. Pursuant to the Initial Public Offering, we are selling shares of our common stock to the public at a price of $10.00 per share and at a price of $9.50 per share pursuant to our distribution reinvestment plan. Unless and until our shares are listed on a national securities exchange, it is not expected that a public market for the shares will develop.




To facilitate Financial Industry Regulatory Authority (“FINRA”) member participation in our Initial Public Offering, we disclose in each annual report distributed to stockholders our per-share estimated value of our common stock, the method by which it was developed, and the date of the data used to develop the estimated value. In addition, we prepare annual statements of estimated share values to assist both fiduciaries of retirement plans subject to the annual reporting requirements of ERISA and custodians of individual retirement accounts (“IRAs”) in the preparation of their reports relating to an investment in our shares. For these purposes, our estimated value of a share of our common stock is $10.00 per share as of December 31, 2009.  The basis for this valuation is the fact that the current public offering price for our shares in the Initial Public Offering is $10.00 per share (ignoring purchase price discounts for certain categories of purchasers). However, this estimated value is likely to be higher than the price at which you could resell your shares because (1) our public offering involves the payment of underwriting compensation and other directed selling efforts, which payments and efforts are likely to produce a higher sales price than could otherwise be obtained, and (2) there is no public market for our shares. Moreover, this estimated value is likely to be higher than the amount you would receive per share if we were to liquidate at this time because of the up-front fees that we pay in connection with the issuance of our shares. We expect to continue to use the most recent public offering price for a share of our common stock as the estimated per share value reported in our annual reports on Form 10-K until 18 months have passed since the last sale of a share of common stock in a public offering, excluding public offerings conducted on behalf of selling stockholders or offerings related to a dividend reinvestment plan, employee benefit plan, or the redemption of interests in our operating partnership.  There can be no assurance that the valuation we have provided will satisfy the valuation requirements applicable to ERISA plans and IRAs.




After the 18-month period described above (or possibly sooner if our board so directs), we expect the estimated share values reported in our annual reports will be based on estimates of the values of our assets net of our liabilities. We do not currently anticipate that we will obtain new or updated appraisals for our properties in connection with such estimates, and accordingly, our estimated share values should not be viewed as estimates of the amount of net proceeds that would result from a sale of our properties at that time. We expect that any estimates of the value of our properties will be performed by the Advisor; however, our board of directors could direct our advisor to engage one or more third-party valuation firms in connection with such estimates.




Shareholder Information




As of March 23, 2010, we had approximately 37,200 shares of common stock outstanding held by affiliates of the Company.




Distributions




We initiated our initial public offering on October 15, 2009.  Until we have receipt and acceptance of subscriptions aggregating at least $2,500,000, all subscription proceeds will be placed in an interest bearing escrow account with UMB Bank, N.A. as escrow agent.  As of March 23, 2010, we have not yet satisfied the conditions of this escrow.




Until we generate sufficient cash flow from operations or funds from operations (“FFO”) to fully fund the payment of distributions, some or all of our distributions will be paid from other sources.  We may generate cash to pay distributions from financing activities, components of which may include borrowings (including borrowings secured by our assets) in anticipation of future operating cash flow and proceeds of this offering.  In addition, from time to time, the Advisor and its affiliates may agree to waive or defer all, or a portion, of the acquisition, asset management or other fees or other incentives due to them, enter into lease agreements for unleased space, pay general administrative expenses or otherwise supplement investor returns in order to increase the amount of cash available to make distributions to our stockholders.  In addition, to the extent we invest in development or redevelopment projects or in properties that have significant capital requirements, these properties may not immediately generate cash flow from operations or FFO. Thus, our ability to make distributions may be negatively impacted, especially during our early periods of operation.




We expect our board of directors to declare distributions on a quarterly basis and to pay distributions to our stockholders on a monthly basis.  We intend to calculate these monthly distributions based on daily record dates so our investors will become eligible for distributions immediately upon purchasing shares.  Distributions will be paid to stockholders as of the record dates selected by the directors.  As of March 23, 2010, all of our outstanding shares of common stock are owned by the Advisor and our independent directors. Although we acquired an interest in a property in December 2009, we have not yet declared or paid any distributions on our outstanding shares of common stock through March 23, 2010.






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Use of Proceeds from Sales of Registered Securities and Unregistered Sales of Equity Securities




On October 15, 2009, our Registration Statement on Form S-11 (File No. 333-153135), covering a public offering of up to 130 million shares of common stock, was declared effective under the Securities Act of 1933.  We commenced our initial public offering on October 15, 2009, upon retaining Select Capital Corporation as the dealer manager for our offering.  We are offering 100 million shares of common stock in our primary offering at an aggregate offering price of up to $1 billion, or $10 per share with discount available to certain categories of purchasers.  The 30 million shares offered under our distribution reinvestment plan are initially being offered at an aggregate offering price of $285 million, or $9.50 per share.  We expect to sell the shares registered in our primary offering over a two-year period.  Under rules promulgated by the SEC, in some instances we may extend the primary offering beyond that date.  We may sell shares under the distribution reinvestment plan beyond the termination of the primary offering until we have sold all shares under the plan.




We may not sell any shares in our offering until we break escrow.  As of March 23, 2010, we had not yet reached the minimum offering amount and accordingly had not sold any shares in our public offering.  In addition, our organization and offering costs are initially being paid by the Advisor on our behalf and will not become a liability to us until we reach the minimum offering and break escrow in our public offering.  Once we sell the minimum number of shares such costs will only become a liability to us to the extent selling commissions, the dealer manager fee and other organization and offering costs do not exceed 15% of the gross proceeds of the offering





During the fiscal year ended December 31, 2009, upon effectiveness of our initial public offering on October 15, 2009, each of our non-employee directors received an automatic grant of 5,000 shares of restricted common stock pursuant to the Bluerock Enhanced Multifamily REIT, Inc. Independent Directors Compensation Plan.   All such shares were issued pursuant to an exemption from registration under Section 4(2) of the Securities Act of 1933.





Share Repurchase Plan




We have adopted a share repurchase program that may enable stockholders to sell their shares to us in limited circumstances.  We amended and restated our share repurchase program on February 12, 2010.  The effect of the amendment was to change the price at which we will redeem the shares.  As amended, prior to establishing the estimated value of our shares, the prices at which we will initially repurchase shares are as follows:





·
The lower of $9.25 or the price paid to acquire the shares from us for stockholders who have held their shares for at least one year;


·
The lower of $9.50 or the price paid to acquire the shares from us for stockholders who have held their shares for at least two years;


·
The lower of $9.75 or the price paid to acquire the shares from us for stockholders who have held their shares for at least three years; and


·
The lower of $10.00 or the price paid to acquire the shares from us for stockholders who have held their shares for at least four years.





As of March 23, 2010, we had not repurchased any shares under our share redemption program because we had not yet sold any shares in our public offering.




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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations





The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Bluerock Enhanced Multifamily Trust, Inc., and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Bluerock Enhanced Multifamily Trust, Inc., a Maryland corporation, and, as required by context, Bluerock Enhanced Multifamily Holdings, L.P. , a Delaware limited partnership, which we refer to as our “operating partnership,” and to their subsidiaries. Also see “Forward-Looking Statements” preceding Part I.




Overview




We are a recently formed Maryland corporation that intends to qualify as a REIT beginning with the taxable year ended December 31, 2010.





Subscription proceeds may be released to us after the minimum offering is achieved and will be applied to investment in properties and the payment or reimbursement of selling commissions and other fees and expenses. We will experience a relative increase in liquidity as we receive additional subscriptions for shares and a relative decrease in liquidity as we spend net offering proceeds in connection with the acquisition, development and operation of our assets.




We intend to make reserve allocations as necessary to aid our objective of preserving capital for our investors by supporting the maintenance and viability of properties we acquire. If reserves and any other available income become insufficient to cover our operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investment in one or more properties. There is no assurance that such funds will be available or, if available, that the terms will be acceptable to us.






We intend to make an election to be taxed as a REIT under Section 856(c) of the Internal Revenue Code. In order to qualify as a REIT, we must distribute to our stockholders each calendar year at least 90% of our taxable income (excluding net capital gains). If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify as a REIT for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and results of operations.




Our Investment Strategy





We intend to achieve our investment objectives by acquiring a diverse portfolio of real estate and real estate-related investments. We plan to diversify our portfolio by investment type, size, property location and risk with the goal of attaining a portfolio that will generate attractive returns for our investors, with the potential for capital appreciation. Our targeted portfolio allocation is as follows:





•Enhanced Multifamily. We intend to allocate approximately 50% of our portfolio to investments in well-located, institutional quality apartment properties that we believe demonstrate strong and stable cash flows, typically located in supply constrained sub-markets with relatively high expectations of rent growth. As appropriate, we intend to implement our advisor’s Enhanced Multifamily strategy (as described in the prospectus relating to our ongoing public offering) at these properties, which we anticipate will create sustainable long-term increases in property value and lead to increased returns to our investors by, among other benefits, generating higher rental revenue and reducing resident turnover.





•Value-Added Residential. We intend to allocate approximately 30% of our portfolio to investments in well-located, residential properties that offer a significant potential for short-term capital appreciation through repositioning, renovation or redevelopment. In addition, we will seek to acquire properties available at opportunistic prices from distressed or time-constrained sellers in need of liquidity. As appropriate, we intend to implement our advisor’s Enhanced Multifamily strategy at these properties as well.





•Real Estate-Related Investments. We intend to allocate approximately 20% of our portfolio in other real estate-related investments with the potential for high current income or significant total returns. These investments could include first and second mortgages, subordinated, bridge and other loans, debt and other securities related to or secured by real estate assets, and common and preferred equity, which may include securities of other REITs and real estate companies. Subject to the provisions of our charter, some of these investments may be made in connection with programs sponsored, managed or advised by our affiliates or those of our advisor.





Although the above outlines our target portfolio, we may make adjustments based on, among other things, prevailing real estate market conditions and the availability of attractive investment opportunities. We will not forego an attractive investment because it does not fit within our targeted asset class or portfolio composition. We may use the proceeds of this offering to purchase or invest in any type of real estate or real estate-related investment which we determine is in the best interest of our stockholders, subject to the provisions of our charter which limit certain types of investments.








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Results of Operations





Our results of operations as of December 31, 2009 are not indicative of those expected in future periods as we are in our organizational and development stage and had not commenced business operations until the purchase of our first asset on December 3, 2009.  During the period from inception (July 25, 2008) to December 31, 2008, we had been formed but had not yet commenced operations, as we had not yet begun our best efforts initial public offering.





The SEC declared the registration statement for our best efforts initial public offering effective on October 15, 2009, and we retained Select Capital Corporation to serve as our dealer manager for the offering.  We began our operations on December 3, 2009 with our acquisition of our 37.5% indirect equity interest in the Springhouse property.  Our management is not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting our targeted portfolio, the apartment housing industry and real estate generally, which may be reasonably anticipated to have a material impact on either capital resources or the revenues or incomes to be derived from the operation of our assets.





Our organization and offering costs are initially being paid by the Advisor, the dealer manager and their affiliates on our behalf. These organization and offering costs include all expenses (other than selling commissions and the dealer manager fee) to be paid by us in connection with our initial public offering, including but not limited to (i) legal, accounting, printing, mailing and filing fees; (ii) charges of the escrow holder; (iii) reimbursement of the dealer manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; (iv) reimbursement to the advisor for the salaries of its employees and other costs in connection with preparing supplemental sales materials; (v) the cost of educational conferences held by us (including the travel, meal and lodging costs of registered representatives of broker-dealers); and (vi) reimbursement to the dealer manager for travel, meals, lodging and attendance fees incurred by employees of the dealer manager to attend retail seminars conducted by broker-dealers. The Advisor and its affiliates have incurred on our behalf organization and offering costs of approximately $2.4 through December 31, 2009. These costs are not recorded in our consolidated financial statements because such costs are not a liability to us until we sell the minimum number of shares, and once we sell the minimum number of shares such costs will only become a liability to us to the extent selling commissions, the dealer manager fee and other organization and offering costs do not exceed 15% of the gross proceeds of the offering.







We accounted for the acquisition of our interest in the Springhouse property in accordance with the provisions of the Consolidation Topic of the Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”.)  We have a 50% interest in a managing member LLC which has a 75% interest in the joint venture that purchased the Springhouse property resulting in our 37.5% indirect equity interest in the Springhouse property.  We first analyzed the managing member LLC’s interest in the joint venture to determine if a variable interest entity ("VIE") exists.  The managing member has sufficient equity at risk, is able to direct the activities of the joint venture and, is obligated to absorb losses and has the right to receive returns in proportion to their equity ownership.  In comparison to its equity interest, the managing member has disproportionately fewer voting rights.  However, since substantially all of the activities are not conducted on behalf of the managing member or the joint venture party we concluded that the joint venture entity is not a VIE.





Next, we analyzed our interest in the managing member LLC to determine if a VIE exists.  Our initial contribution into the managing member was funded through a loan from an affiliate who is another investor in the managing member, thus our equity investment is not at risk. Since unanimous approval is required by all members to direct the activities that most significantly impact the managing member’s economic performance and, the holder of the equity investment at risk lacks the power to direct the activities of the managing member we concluded that the Springhouse Managing Member Entity is a VIE.  We are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact the economic performance of the managing member and would not be considered to be the investor that is most closely associated with the entity among the related party investors.  As a result our investment is reflected as an investment in unconsolidated joint venture under the equity method of reporting.





The results of operations represent the consolidated results from December 3, 2009, the date of acquisition, through December 31, 2009.





Management fees were approximately $9,140 and represent the asset management fee due but not yet paid to the Advisor.





Acquisition costs were approximately $192,000 as a result of the Springhouse purchase.





General and administrative expenseswere approximately $30,000 and include allowable operating expenses up to the 2% of average invested assets threshold.





Interest expensewas approximately $15,300 and was related to an affiliate loan to fund our interest in  the Springhouse property.





Equity in loss of unconsolidated joint venturewas approximately $177,000 andrepresents our ownership share of net loss from our investment in the Springhouse Managing Member JV Entity.






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Liquidity and Capital Resources




We are offering a maximum of $1,000,000,000 in shares and a minimum of $2,500,000 in shares of our common stock in our primary offering, at an offering price of $10.00 per share, with discounts available for certain categories of purchasers.  We also are offering up to $285,000,000 in shares pursuant to our distribution reinvestment plan at $9.50 per share.  We commenced our offering on October 15, 2009 and as of March 23, 2010 we had not yet reached the minimum offering amount and broken escrow in our public offering.





Our principal demands for cash will be for acquisition costs, including the purchase price of any properties, loans or securities we acquire, and construction and development costs and the payment of our operating and administrative expenses, continuing debt service obligations and distributions to our stockholders. Generally, we will fund our acquisitions from the net proceeds of our public offering. We intend to acquire our assets with cash and mortgage or other debt, but we may acquire assets free and clear of permanent mortgage or other indebtedness by paying the entire purchase price for the asset in cash or in units of limited partnership interest in our operating partnership. Due to the delay between the sale of our shares and our acquisitions, there may be a delay in the benefits to our stockholders, if any, of returns generated from our investments.





We generally expect to meet our short-term liquidity requirements, such as our operating and administrative expenses, continuing debt service obligations and the payment of distributions, through net cash provided by operations and net proceeds raised in our public offering.  Operating cash flow is expected to increase as additional investments are added to our portfolio; however our public offering is currently suspended until we have included revised financial statements in a post-effective amendment that has been declared effective by the SEC and we have not raised proceeds in our public offering since November 17, 2010.  To the extent cash on hand is not sufficient to meet our short-term liquidity requirements, we expect to utilize credit facilities obtained from affiliates or unaffiliated third parties.





In addition, our policy is generally to pay distributions from cash flow from operations. However, some or all of our distributions to date have been paid from proceeds from our public offering and may in the future be paid from additional sources, such as from borrowings, advances from our advisor, and our advisor’s deferral of its fees and expense reimbursements.  We expect to meet our long-term liquidity requirements, such as scheduled debt maturities and repayment of short-term financing of future property acquisitions, through long-term secured and unsecured borrowings.


.





Potential future sources of capital include secured or unsecured financings from banks or other lenders, establishing additional lines of credit, proceeds from the sale of properties and undistributed cash flow.





Our charter prohibits us from incurring debt that would cause our borrowings to exceed 75% of the cost of our assets unless a majority of our independent directors approves the borrowing. Our charter also requires that we disclose the justification for any borrowings in excess of the 75% leverage guideline in the next quarterly report. Our independent directors approved the borrowing of approximately $2.8 million (discussed below) to purchase our interest in the Springhouse property and the resulting leverage ratio in excess of the 75% guideline. The independent directors determined that the excess leverage was justified for the following reasons:





• the loans enabled us to purchase the property and earn rental income more quickly;





• the property acquisition is likely to increase the net offering proceeds from our initial public offering, thereby improving our ability to meet our goal of acquiring a diversified portfolio of properties to generate current income for investors and preserve investor capital;





• the loans are non-recourse to us;





• the prospectus for our initial public offering disclosed the likelihood that we would exceed the charter’s leverage guidelines during the early stages of the offering.





Note Payable





In connection with our investment in the Springhouse joint venture, on December 3, 2009, BEMT Springhouse LLC, a wholly owned subsidiary of our operating partnership (“BEMT Springhouse”), borrowed $2.8 million (the “BEMT Co-Investor Loan”) from Bluerock Special Opportunity + Income Fund, LLC (“BEMT Co-Investor”), an affiliate of our advisor. ”). The BEMT Co-Investor Loan initially had a six-month term, maturing June 3, 2010, which was subsequently extended to December 3, 2010 and again to June 3, 2011.  A partial repayment in the amount of $1.1 million was made on June 23, 2010. It bears interest compounding monthly at a rate of 30-day LIBOR + 5.00%, subject to a minimum rate of 7.00%, annualized. As of March 1, 2010, the interest rate on the BEMT Co-Investor Loan was 7.00%. Interest on the loan will be paid on a current basis from cash flow distributed to us from BR Springhouse Managing Member, LLC (the “Springhouse Managing Member JV Entity”). The BEMT Co-Investor Loan is secured by a pledge of our indirect membership interest in BEMT Springhouse and a pledge of BEMT Springhouse’s membership interest in the Springhouse




14






Managing Member JV Entity.  We expect to repay the note upon maturity with the proceeds to be raised from our Initial Public Offering.  If we are unable to repay the principal amount upon maturity, we will seek to extend the loan or refinance.  If we cannot repay or refinance the note, then we will lose our interest in the Springhouse joint venture.





Distributions





We have not paid any distributions as of the date of December 31, 2009. We expect to make regular cash distributions to our stockholders, typically on a monthly basis. Our board of directors will determine the amount of distributions to be distributed to our stockholders. The board’s determination will be based on a number of factors, including funds available from operations, our capital expenditure requirements and the annual distribution requirements necessary to maintain our REIT status under the Internal Revenue Code. As a result, our distribution rate and payment frequency may vary from time to time. However, to qualify as a REIT for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income” each year. Especially during the early stages of our operations, we may declare distributions in excess of cash from operations.





Funds from Operations and Modified Funds from Operations





One of our objectives is to provide cash distributions to our stockholders from funds from operations. Funds from operations is not equivalent to our net operating income or loss as determined under GAAP. Due to certain unique operating characteristics of real estate companies, the National Association of Real Estate Investment Trusts, or NAREIT, an industry trade group, has promulgated a measure known as Funds From Operations, or FFO, which it believes more accurately reflects the operating performance of a REIT.




We consider FFO to be an appropriate supplemental measure of a REIT’s operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. The use of FFO is recommended by the REIT industry as a supplemental performance measure. We define FFO, a non-GAAP measure, consistent with the NAREIT’s definition, as net income, computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joints ventures will be calculated to reflect FFO on the same basis.  Presentation of this information is intended to assist the reader in comparing the operating performance of different REITs, although it should be noted that not all REITs calculate FFO the same way, so comparisons with other REITs may not be meaningful. Furthermore, FFO is not necessarily indicative of cash flow available to fund cash needs and should not be considered as an alternative to net income as an indication of our performance.






In addition to FFO, we use modified funds from operations ("Modified Funds from Operations" or "MFFO") which does not include acquisition expenses to further evaluate our operating performance. We believe that MFFO with this adjustment, like those already included in FFO, is helpful as a measure of operating performance because it excludes costs that management considers more reflective of investing activities or non-operating valuation changes. As explained below, management's evaluation of our operating performance excludes the items considered in the calculation based on the following economic considerations:






Acquisition expense.  In evaluating investments in real estate, including both business combinations and investments accounted for under the equity method of accounting, management's investment models and analysis differentiate costs to acquire the investment from the operations derived from the investment. Acquisition costs related to business combinations are to be expensed. We believe by excluding expensed acquisition costs, MFFO provides useful supplemental information that is comparable for each type of our real estate investments and is consistent with management's analysis of the investing and operating performance of our properties. Acquisition expenses include those incurred with the Advisor or third parties. The following table presents our calculation of FFO and MFFO for the year ended December 31, 2009:





Net loss

$
(438,921
)Add:Pro rata share of unconsolidated JV depreciation and amortization (1)


79,139FFO

$
(359,782
)Add:Pro rata  share of unconsolidated JV acquisition costs (1)


135,689Acquisition costs per income statement


191,953MFFO

$
(32,140
)
  (1)This represents our share of depreciation and amortization expense and acquisitions costs at the properties that we account for under the equity method of accounting.







15




Operating cash flow, FFO and MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs.





Critical Accounting Policies





Below is a discussion of the accounting policies that management believes are critical.  We consider these policies critical because they involve significant management judgments and assumptions, require estimates about matters that are inherently uncertain and because they are important for understanding and evaluating our reported financial results. These judgments affect the reported amounts of assets and liabilities and our disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. With different estimates or assumptions, materially different amounts could be reported in our consolidated financial statements. Additionally, other companies may utilize different estimates that may impact the comparability of our results of operations to those of companies in similar businesses.







Accounting for Joint Ventures





We analyze our investments in joint ventures to determine if the joint venture is a VIE and would require consolidation. We (a) evaluate the sufficiency of the total equity at risk, (b) review the voting rights and decision-making authority of the equity investment holders as a group, and whether there are any guaranteed returns, protection against losses, or capping of residual returns within the group and (c) establish whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this VIE determination. We would consolidate a venture that is determined to be a VIE if we were the primary beneficiary. Beginning January 1, 2010, a new accounting standard will be effective and will change the method by which the primary beneficiary of a VIE is determined to a primarily qualitative approach whereby the variable interest holder, if any, that controls a VIE’s most significant activities is the primary beneficiary. To the extent that our joint ventures do not qualify as VIEs, we further assess each partner’s substantive participating rights to determine if the venture should be consolidated.





We have a 50% equity interest in a Managing Member LLC which has a 75% interest in the Joint Venture that purchased the Springhouse property resulting in our 37.5% indirect equity interest in the Springhouse property. We did an analysis of the ownership structure to determine if a VIE exists.  Our initial contribution into the managing member was funded through a loan, thus our equity is not at risk. Since unanimous approval is required by all members to direct the activities that most significantly impact the managing member’s economic performance and, the holder of the equity investment at risk lacks the power to direct the activities of the managing member we concluded that the Springhouse Managing Member Entity is a VIE.  We are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact the economic performance of the managing member.  As a result our investment is reflected as an investment in unconsolidated joint venture under the equity method of reporting.  Under the equity method of accounting, our investment in the joint venture is included on our balance sheet; however, the assets and liabilities of the joint venture for which we use the equity method are not included on our balance sheet.


.


Principles of Consolidation





The consolidated financial statements include our accounts and the accounts of our majority-owned or controlled subsidiaries.  All significant intercompany balances and transactions have been eliminated in the consolidated financial statements.  Investments in entities that we do not control through majority voting interest or where the other owner has substantial participating rights are not consolidated and are reflected as investments in unconsolidated joint ventures under the equity method of reporting.





Real Estate Investments





Real estate investments include our indirect equity interests in unconsolidated joint ventures that own and operate rental properties.





Income Taxes


We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and intend to operate as such commencing with the taxable year in which we satisfy the minimum offering requirements.  We expect to have little or no taxable income prior to electing REIT status.  To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.  If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could






16






materially adversely affect our net income and net cash available for distribution to stockholders. However, we intend to organize and operate in such a manner as to qualify for treatment as a REIT.





Off Balance Sheet Arrangements





Investments in Unconsolidated Joint Ventures





We have a 37.5% equity interest in an unconsolidated joint venture that owns and operates a rental property.  Our unconsolidated subsidiaries are primarily engaged in the management and operations of multifamily real estate properties.  The equity method of accounting (see Critical Accounting Policies) is used for these investments in which we have the ability to exercise significant influence, but not control, over operating and financial policies. As a result, the assets and liabilities of these joint ventures are not included on our balance sheet. Total assets of our unconsolidated subsidiaries were $29.9 million as of December 31, 2009.





Subsequent Events





On March 23, 2010, our board of directors approved investments in two properties.





The Reserve at Creekside Village (“Creekside”) is a 192-unit class A garden style multifamily community located in Chattanooga, Tennessee.  The investment will be through a joint venture consisting of a wholly owned subsidiary of our operating partnership (“BEMT Creekside”), BEMT Co-Investor, an affiliate of our sponsor, Bluerock Special Opportunity + Income Fund II, LLC (“BEMT Co-Investor II”), an affiliate of our sponsor, and Hawthorne, an unaffiliated entity.  BEMT Creekside will have a 22.7% indirect equity interest.  Our equity capital investment in BEMT Creekside will be funded by an up to $1.1 million related party loan from BEMT Co-Investor. The related party loan will have a six-month term with an interest rate of 30-day LIBOR plus 5.00% subject to a 7% floor. The aggregate purchase price for the Creekside property is approximately $14.25 million, plus closing costs funded with approximately $2.4 million of gross equity from the joint venture entity and a $12.5 million HUD loan that is being assumed from the seller. The HUD loan has a ten year term with a 6% interest rate.





The second investment is The Apartments at Meadowmont (“Meadowmont”).  Meadowmont is a 258-unit class A multifamily community located in Chapel Hill, North Carolina.  The investment will be through a joint venture consisting of a wholly owned subsidiary of our operating partnership (“BEMT Meadowmont”), BEMT Co-Investor II, an affiliate of our sponsor and Bell Partners, an unaffiliated entity.  BEMT Meadowmont will have a 25% indirect equity interest in the Meadowmont property.  Our equity capital investment in BEMT Meadowmont will be funded by an up to $2.6 million related party loan from BEMT Co-Investor II. The related party loan will have a six-month term with an interest rate of 30-day LIBOR plus 5.00% subject to a 7% floor. The aggregate purchase price for the Meadowmont property is approximately $37 million, plus closing costs funded with approximately $9.65 million of gross equity from the joint venture entity and a $28.5 million senior mortgage loan made to the joint venture by CW Capital LLC to be subsequently sold to the Federal Home Loan Mortgage Corporation.  The loan has a ten year term with a 5.5% interest rate.





Status of the Offering





On November 17, 2010 we suspended our offering while we restated our audited financial statements for the year ended December 31, 2009 and our unaudited financial statements for the periods ended March 31, 2010 and June 30, 2010.  We expect to recommence this offering at such time as the post-effective amendment filed with the SEC on January 19, 2011 has been declared effective by the SEC.





Item 8.  Financial Statements and Supplementary Data





The information required by this Item 8 is hereby included in our Consolidated Financial Statements beginning on page F-1 of the Annual Report on Form 10-K/A.





Item 9A(T). Controls and Procedures





Evaluation of Disclosure Controls and Procedures





As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of December 31, 2009, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2009 due to material weakness in financial reporting discussed below, to provide reasonable assurance that information required to be disclosed by us in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to




17





management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.





Material Weakness in Disclosure Controls and Procedures




On August 23, 2010, we retained a new independent registered public accounting firm to replace our prior independent registered public accounting firm.  In conjunction with the change in accounting firms, our management reviewed our accounting policies.  Based on its review, and in consultation with both the prior and current independent registered public accounting firms, our management determined that certain adjustments to its accounting methods regarding business combinations and investments in unconsolidated entities are necessary.




On November 11, 2010, our audit committee met and, in consultation with and upon management’s recommendation, determined that the financial statements included in our previously issued Annual Report on Form 10-K for the year ended December 31, 2009 and our Quarterly Reports on Form 10-Q for the periods ended March 31, 2010 and June 30, 2010 should no longer be relied upon because of adjustments to the Companys accounting policies discussed above.  We are restating our audited financial statements for the year ended December 31, 2009 in this Annual Report on Form 10-K/A and are currently preparing amended Quarterly Reports on Form 10-Q/A to restate the unaudited interim financial statements for the periods ended March 31, 2010 and June 30, 2010 as well as amended Current Reports on Form 8-K/A to restate the pro-forma financial information filed on February 18, 2010, June 16, 2010 and June 25, 2010.





In connection with the above determination, our management has identified a material weakness in disclosure controls and procedures.  We had not maintained a sufficient complement of personnel with the extensive familiarity with accounting literature necessary to identify, research and analyze certain issues to ensure the proper selection, application and implementation of U.S. generally accepted accounting principles (“GAAP”).





Remediation Plan for Material Weaknesses




Management is responsible for establishing and maintaining adequate internal control over financial reporting.  We have implemented remedial measures to address the above weakness and will continue to review and implement further measures if and as necessary on a going-forward basis.  As an additional measure, we have hired a third-party consultant to test our internal controls and our compliance with Sarbanes Oxley.




Management has actively worked to strengthen our accounting and finance team to correct the internal control deficiency identified.  During 2010 those efforts have included the hiring of four additional members for our financial management and accounting teams, including two senior financial management personnel; both of whom are Certified Public Accountants with substantial large accounting firm experience and two accounting staff personnel, both of  whom have large accounting firm experience, and one of whom is a Certified Public Accountant.   We will continue to monitor and assess the adequacy of our accounting team and organization, both in terms of size, U.S. GAAP and systems expertise.  At this time, based on the size of our organization and the expertise level of our current accounting and finance team, we believe we have taken the steps necessary to correct the weakness in our disclosure controls and procedures noted above.





Management’s Annual Report on Internal Control over Financial Reporting





This Annual Report on Form 10-K/A does not include a report of management’s assessment regarding internal control over financial reporting or an attestation report of our registered public accounting firm due to a transition period established by rules of the Securities and Exchange Commission for newly public companies.







Item 13.  Certain Relationships And Related Transactions And Director Independence






Director Independence




Although our shares are not listed for trading on any national securities exchange, a majority of the members of our board of directors, and all of the members of the audit committee are “independent.”  An “independent” director is a person who is not one of our officers or employees or an officer or employee of our advisor or its affiliates and has not been so for the previous two years. Serving as a director of, or having an ownership interest in, another program sponsored by Bluerock will not, by itself, preclude independent director status.  The board of directors has determined that Brian D. Bailey, I. Bobby Majumder and Romano Tio each satisfy these criteria.  None of these directors has ever served as (or is related to) an employee of ours or any of our predecessors or acquired companies or received or




18








Certain Transactions with Related Persons




As described further below, we have entered into agreements with certain affiliates pursuant to which they will provide services to us.  As of March 23, 2010, we have not yet broken escrow in our initial public offering, but we have commenced operations through financing obtained from an affiliate loan transaction (described below under “Affiliate Loan for our Investment in the Springhouse Joint Venture”).  Our independent directors have reviewed the material transactions between our affiliates and us since the beginning of 2009 as well as any such currently proposed transactions.  Set forth below is a description of such transactions and the independent directors’ determination of their fairness.




Our Relationship with Bluerock Enhanced Multifamily Advisor, LLC (our Advisor)






R. Ramin Kamfar, our chairman of the board and chief executive officer, indirectly owns BER Holdings, LLC, the sole owner of our advisor.  Mr. Kamfar actively participates in the management and operations of the advisor. Since our inception, our advisor has provided day-to-day management of our business.  Among the services provided by our advisor under the terms of the advisory agreement are the following:






·
finding, presenting and recommending to us real estate investment opportunities consistent with our investment policies and objectives;






·
structuring the terms and conditions of our real estate investments, sales and joint ventures;






·
acquiring properties and other investments on our behalf in compliance with our investment objectives and policies;






·
sourcing and structuring our loan originations;






·
arranging for financing and refinancing of properties and our other investments;






·
entering into leases and service contracts for our properties;






·
supervising and evaluating each property manager’s performance;






·
reviewing and analyzing the properties’ operating and capital budgets;






·
assisting us in obtaining insurance;






·
generating an annual budget for us;






·
reviewing and analyzing financial information for each of our assets and the overall portfolio;






·
formulating and overseeing the implementation of strategies for the administration, promotion, management, operation, maintenance, improvement, financing and refinancing, marketing, leasing and disposition of our properties and other investments;






·
performing investor-relations services;






·
maintaining our accounting and other records and assisting us in filing all reports required to be filed with the SEC, the IRS and other regulatory agencies;






·
engaging and supervising the performance of our agents, including our registrar and transfer agent; and






·
performing any other services reasonably requested by us.




Our advisor is subject to the supervision of our board of directors and only has such authority as we may delegate to it as our agent. The advisory agreement had an initial one-year term expiring October 15, 2010, and may be renewed for an unlimited number of successive one-year periods upon the mutual consent of our advisor and us. The advisory agreement was renewed on October 15, 2010 pursuant to a board of director’s resolution and was extended to October 14, 2011.  Additionally, either party may terminate the advisory agreement without penalty upon 60 days’ written notice and, in such event, our advisor must cooperate with us and our directors in






19








Our advisor or its affiliates may pay some of our organization and offering costs (other than selling commissions and dealer manager fees) incurred in connection with our ongoing public offering, including our legal, accounting, printing, mailing and filing fees.  We will reimburse our advisor for these costs, but only to the extent that the reimbursement would not cause selling commissions, the dealer manager fee and other organization and offering expenses borne by us to exceed 15% of the gross offering proceeds of our ongoing public offering.  In addition, our advisor is obligated to reimburse us to the extent selling commissions, the dealer manager fee and other organization and offering costs incurred by us in the offering exceed 15% of gross offering proceeds. From January 1, 2009 through March 31, 2010, our advisor incurred approximately $2.75 million of our organization and offering expenses on our behalf.  As of March 23,2010, we have not yet broken escrow in our initial public offering, and therefore we have not yet reimbursed our advisor for any of these costs.




We incur acquisition fees payable to our advisor equal to 1.75% of the cost of our acquired investments, including acquisition expenses and any debt attributable to such investments. With respect to investments in and originations of loans, in lieu of an acquisition fee we pay our advisor an origination fee equal to 1.75% of the amount funded by us to acquire or originate mortgage, mezzanine, bridge or other loans, including any expenses related to such investment and any debt we use to fund the acquisition or origination of the loan.  Acquisition and origination fees relate to services provided in connection with the selection and acquisition or origination of real estate and real estate-related investments.  Acquisition fees from January 1, 2009 through March 31, 2010 totaled approximately $248,000 which were expensed when incurred.  We paid no origination fees during that period.





In addition to acquisition and origination fees, we reimburse our advisor for amounts that it pays in connection with the selection, acquisition or development of a property or the selection and acquisition or origination of a real estate-related investment, whether or not we ultimately acquire the asset. From January 1, 2009 through March 31, 2010, our advisor and its affiliates did not incur any such costs.





For asset management services, we pay our advisor a monthly fee equal to one-twelfth of 1.0% of the higher of the cost or value of each asset, where cost excludes acquisition fees and expenses but includes any debt attributable to the asset, as well as any costs we expend to develop, construct or improve an asset and where value is the fair market value established by an independent valuation report.  However, 50% of the asset management fee will not be payable until stockholders have received distribution in an amount equal to at least a 6.0% per annum cumulative, non-compounded return.  From January 1, 2009 through March 31, 2010, our asset management fees totaled approximately $37,000 and were accrued but unpaid as of December 31, 2009 and March 31, 2010.





Under our advisory agreement our advisor and its affiliates have the right to seek reimbursement from us for all costs and expenses they incur in connection with their provision of services to us, including our allocable share of our advisor’s overhead, such as rent, employee costs, utilities and information technology costs.  We do not, however, reimburse our advisor for personnel costs in connection with services for which our advisor receives acquisition, origination or disposition fees.  From January 1, 2009 through March 31, 2010, our advisor and its affiliates incurred approximately $615,000 of operating expenses on our behalf, which amount has not yet been reimbursed as of March 31, 2010.   We are limited by the provisions of our Charter as to the reimbursement of operating expenses.  Unless approved by our independent directors, we will not reimburse our advisor for any amount by which our total operating expenses (including asset management fees) exceed the greater of (A) 2% of our average invested assets, or (B) 25% of our net income.  As of December 31, 2009 approximately $466,000 of operating expenses have been incurred on our behalf.  Due to the limitations discussed above we have recorded approximately $9,100 of that amount that could be reimbursed to our advisor.





The independent directors reviewed our relationship with our advisor during 2009 and considered it to be fair.  The independent directors believe that the amounts payable to the advisor under the advisory agreement are similar to those paid by other publicly offered, unlisted, externally advised REITs and that this compensation is necessary in order for the advisor to provide the desired level of services to us and our stockholders.




Other Services Provided by Affiliates




In addition to the services described above to be provided by our advisor and its affiliates, affiliates of our advisor may provide other property-level services to our company and may receive compensation for such services, including leasing, loan servicing, property tax reduction and risk management fees. However, under no circumstances will such compensation exceed an amount that would be paid






20




to non-affiliated third parties for similar services. A majority of the independent directors must approve all compensation for such other services paid to our advisor or any of its affiliates.
  Springhouse Joint Venture with Affiliate


On December 3, 2009, through a wholly owned subsidiary of our operating partnership, we completed an investment in a joint venture along with Bluerock Special Opportunity + Income Fund, LLC (“BEMT Co-Investor”), an affiliate of our sponsor, and Hawthorne Springhouse, LLC (“Hawthorne”), an unaffiliated entity, to acquire a 432-unit garden-style multifamily community known as Springhouse at Newport News (the “Springhouse property”), located in Newport News, Virginia, from Newport-Oxford Associates Limited Partnership, an unaffiliated entity.




In connection with the closing of the Springhouse property acquisition, we invested $2.5 million to acquire a 50% equity interest in BR Springhouse Managing Member, LLC (the “Springhouse Managing Member JV Entity”) through a wholly owned subsidiary of our operating partnership, BEMT Springhouse, LLC (“BEMT Springhouse”).  BEMT Co-Investor invested $2.5 million to acquire the remaining 50% interest in the Springhouse Managing Member JV Entity.  BEMT Springhouse and BEMT Co-Investor are co-managers of the Springhouse Managing Member JV Entity.





The Springhouse Managing Member JV Entity contributed its capital to acquire a 75% equity interest in BR Hawthorne Springhouse JV, LLC (the “Springhouse JV Entity”) and acts as the manager of the Springhouse JV Entity.  Hawthorne invested $1.7 million to acquire the remaining 25% interest in the Springhouse JV Entity.  The Springhouse JV Entity is the sole owner of BR Springhouse, LLC (“BR Springhouse”), a special-purpose entity that holds title to the Springhouse property.





Under the terms of the operating agreement for the Springhouse Managing Member JV Entity, certain major decisions regarding the investments of the Springhouse Managing Member JV Entity require the unanimous approval of BEMT Co-Investor and us (through BEMT Springhouse).  To the extent that we and BEMT Co-Investor are not able to agree on a major decision or at any time after December 3, 2012, either party may initiate a buy-sell proceeding.  Additionally, any time after December 3, 2012, either party may initiate a proceeding to force the sale of the Springhouse Managing Member JV Entity’s interest in the Springhouse JV Entity to a third party, or, in the instance of the non-initiating party’s rejection of a sale, cause the non-initiating party to purchase the initiating party’s interest in the Springhouse Managing Member JV Entity.  The operating agreement contains terms, conditions, representations, warranties and indemnities that are customary and standard for joint ventures in the real estate industry.





Under the terms of the operating agreement of the Springhouse JV Entity, major decisions with respect to the joint venture or the Springhouse property are made by the majority vote of an appointed management committee, which is controlled by the Springhouse Managing Member JV Entity.  However, any decision with respect to the sale or refinancing of the Springhouse property requires the unanimous approval of the Springhouse Managing Member JV Entity and Hawthorne.  Further, to the extent that the Springhouse Managing Member JV Entity and Hawthorne are not able to agree on a major decision or at any time after December 3, 2012, either party may initiate a buy-sell proceeding.  Additionally, any time after December 3, 2012, either party may initiate a proceeding to force the sale of the Springhouse property to a third party, or, in the instance of the non-initiating party’s rejection of a sale, cause the non-initiating party to purchase the initiating party’s interest in the Springhouse JV Entity.  The operating agreement contains terms, conditions, representations, warranties and indemnities that are customary and standard for joint ventures in the real estate industry.





As a result of the structure described above, we and BEMT Co-Investor each hold a 37.5% indirect equity interest in the Springhouse property, and Hawthorne holds the remaining 25% indirect equity interest.  We, BEMT Co-Investor and Hawthorne will each receive current distributions from the operating cash flow generated by the Springhouse property in proportion to these respective percentage equity interests.





The independent directors reviewed the proposed joint venture transaction with our affiliate and considered it to be fair and reasonable to us and on substantially the same terms and conditions as those received by the other joint ventures






21




Affiliate Loan for our Investment in the Springhouse Joint Venture




In connection with our investment in the Springhouse joint venture, on December 3, 2009, BEMT Springhouse entered into a loan agreement with BEMT Co-Investor pursuant to which BEMT Springhouse borrowed $2.8 million (the “BEMT Co-Investor Loan”).  The BEMT Co-Investor Loan initially had a six-month term, maturing June 3, 2010, which was subsequently extended to December 3, 2010 and again to June 3, 2011.  A partial repayment in the amount of $1.1 million was made on June 23, 2010.  It bears interest compounding monthly at a rate of 30-day LIBOR + 5.00%, subject to a minimum rate of 7.00%, annualized.  As of March 1, 2010, the interest rate on the BEMT Co-Investor Loan was 7.00%.  Interest on the loan will be paid on a current basis from cash flow distributed to us from the Springhouse Managing Member JV Entity.  The BEMT Co-Investor Loan is secured by a pledge of our indirect membership interest in BEMT Springhouse and a pledge of BEMT Springhouse’s membership interest in the Springhouse Managing Member JV Entity.  In accordance with the requirements of our charter, the BEMT Co-Investor Loan was reviewed and approved by a majority of our board of directors (including a majority of our independent directors) as being fair, competitive, and commercially reasonable and no less favorable to us than loans between unaffiliated parties under the same circumstances.  Furthermore, due to the unique investment opportunity presented by the Springhouse property, including the opportunity to distinguish ourselves competitively from other early-stage non-traded REITs, our board of directors expressly considered and approved leverage in excess of our general charter-imposed limitations in connection with entering into the BEMT Co-Investor loan.




Currently Proposed Transactions




On March 23, 2010 the board of directors approved two investment transactions with related parties (described above under Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations - Subsequent Events.)






22







PART IV





Item 15.                                Exhibits, Financial Statement Schedules.





(a)
List of Documents Filed.




1.
Financial Statements





The list of the financial statements filed as part of this Annual Report on Form 10-K/A is set forth on page F-1 herein.








(b)
Exhibits.





The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.





(c)
Financial Statement Schedules.





All financial statement schedules, have been omitted because the required information of such schedules is not present, is not present in amounts sufficient to require a schedule or is included in the financial statements.





SIGNATURES







Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be


signed on its behalf by the undersigned, thereunto duly authorized.





BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.











DATE: January 19, 2011                                                                      /s/ R. Ramin Kamfar


R. Ramin Kamfar


Chief Executive Officer and Chairman of the Board


(Principal Executive Officer)





Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf


of the registrant and in the capacities and on the dates indicated.





BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.











DATE: January 19, 2011                                                                      /s/ R. Ramin Kamfar


R. Ramin Kamfar


Chief Executive Officer and Chairman of the Board


(Principal Executive Officer)







DATE: January 19, 2011                                                                      /s/ Jerold E. Novack


Jerold E. Novack


Chief Financial Officer


(Principal Financial Officer and Principal Accounting Officer)




23








DATE: January 19, 2011                                                                      /s/ Brian D. Bailey


Brian D. Bailey


Director





DATE: January 19, 2011                                                                      /s/ I Bobby Majumder


I Bobby Majumder


Director





DATE: January 19, 2011                                                                      /s/ Romano Tio


Romano Tio


Director








24











INDEX TO CONSOLIDATED FINANCIAL STATEMENTS




PageFinancial StatementsReport of Independent Registered Public Accounting Firm
F-2Consolidated Balance Sheets as of December 31, 2009 (restated) and 2008
F-3Consolidated Statements of Operation for the Year Ended December 31, 2009 (restated)
F-4Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2009 (restated) and 2008
F-5Consolidated Statement of Cash Flows for the Years Ended December 31, 2009 (restated)
F-6Notes to Consolidated Financial Statements
F-7







F-1










REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 
 
 The Board of Directors and Stockholders
 Bluerock Enhanced Multifamily Trust, Inc.
 
 
 
 We have audited the accompanying consolidated balance sheets of Bluerock Enhanced Multifamily Trust, Inc. as of December 31, 2009 and 2008, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended.  These financial statements are the responsibility of the Company’s management.  Our responsibility is to express an opinion on these financial statements based on our audits.
 
 
 We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).  Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.  Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audits provide a reasonable basis for our opinion.
 
 
 In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Bluerock Enhanced Multifamily Trust, Inc. as of December 31, 2009 and 2008, and the consolidated results of its operations and its cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.  Also, in our opinion, the financial statement schedule referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
 
 As discussed in Note 1A to the consolidated financial statements, the accompanying consolidated financial statements have been retrospectively adjusted for business combinations and investments in unconsolidated entities.  We previously reported on the financial statement schedule in Item 15(a), Schedule III-Real Estate Assets and Accumulated Depreciation, which is no longer required due to the restatement.
 
 
 /s/ Freedman & Goldberg, CPAs, PC
 
 
 Farmington Hills, MI
 
 March 31, 2010, except for note 1A as to which the date is January 19, 2011








F-2




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.CONSOLIDATED BALANCE SHEETSAs of December 31, 2009 and 2008




2009

Restated (1)


2008ASSETSInvestments in unconsolidated real estate joint venture

$
2,341,941


$
-Cash and cash equivalents


186,863



201,001Deferred financing, net


43,509



-Other assetsTOTAL ASSETS

$
2,572,313


$
201,001LIABILITIES AND STOCKHOLDERS' EQUITYNotes payable

$
2,754,520


$
-Accounts payable and accrued liabilities


15,320



--Due to affiliates


18,281



-Total liabilities


2,788,121Stockholders' equityPreferred stock, $0.01 par value, 250,000,000 sharesauthorized; none issued and outstandingCommon stock, $0.01 par value, 749,999,000 sharesauthorized; 37,200 and 22,200 shares issued andoutstanding as of December 31, 2009 and 2008, respectively


372



222Nonvoting convertible stock, $0.01 par value per share;1,000 shares authorized, issued and outstanding


10



-Additional paid-in-capital, net of costs


222,731



200,779Cumulative net loss


(438,921
)


-Total stockholders' equity


(215,808
)


201,001TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$
2,572,313


$
201,001
  (1) Amounts have been restated, see footnote 1A for additional information.See Notes to Consolidated Financial Statements






F-3






BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.CONSOLIDATED STATEMENT OF OPERATIONS - RESTATED (1)For the Year Ended December 31, 2009ExpensesAsset management fees to affiliates

$
9,140Acquisition costs to affiliates


191,953General and administrative


45,391Total expenses


246,484Other operating activities:Equity in earnings (loss) of unconsolidated joint venture


(176,752)Operating loss


(423,236)Other income (expense)Interest expense


(15,685)Net loss



(438,921)Basic and diluted loss per share

$
(17.28)Weighted average number of shares outstanding


25,405
  (1) Amounts have been restated, see footnote 1A for additional information.See Notes to Consolidated Financial Statements






F-4




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITYFor the Year Ended December 31, 2009 (Restated)(1) and 2008Convertible Stock

Common StockNumber of

Shares

Par Value

Number of

Shares

Par Value

Additional

Paid-in

Capital

Net Loss

Total Stockholders' EquityBalance, January 1, 2008









$                     -

$              -

$                       -Issuance of common stock, net





22,200

$              222

199,779



200,001Issuance of converitble stock

1,000

$           10





990



1,000Balance, December 31, 2008

1,000

10

22,200

222

200,769

-

201,001Issuance of restricted stock, net





15,000

150

36,100



36,250Deferred offering costs









(14,138)



(14,138)Net loss











(438,921)

(438,921)Balance, December 31, 2009

1,000

$           10

37,200

$              372

$           222,731

$   (438,921)

$         (215,808)
  (1) Amounts have been restated, see footnote 1A for additional information.See Notes to Consolidated Financial Statements






F-5




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.CONSOLIDATED STATEMENT OF CASH FLOWS - RESTATED (1)For the Year Ended December 31, 2009






Cash flows from operating activitiesNet loss



$              (438,921)Adjustments to reconcile net loss to net cash used in operating activities:Amortization of deferred financing costs

366Equity in loss of unconsolidated joint venture
176,752Share based compensation charge attributable todirectors stock compensation plan

36,250Due to affiliates


18,280Increase in accounts payable

15,320Net cash used in operations



(191,953)Cash Flows from investing activitiesInvestments in unconsolidated real estate joint venture
(2,518,692)Net cash used in investing activities


(2,518,692)Cash flows from financing activitiesProceeds from notes payable


2,754,520Increase in deferred financing costs

(43,875)Payment of offering costs


(14,138)Net cash provided by financing activities


2,696,507Net change in cash and cash equivalents


(14,138)Cash and cash equivalents at beginning of year

201,001Cash and cash equivalents at end of year


$                186,863
  (1) Amounts have been restated, see footnote 1A for additional information.






See Notes to Consolidated Financial Statements






F-6





BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008


1. ORGANIZATION AND NATURE OF BUSINESS




Bluerock Enhanced Multifamily Trust, Inc. (the “Company”) was incorporated on July 25, 2008 under the laws of the state of Maryland. If we meet the qualification requirements, we intend to elect to be treated as a real estate investment trust or REIT for Federal income tax purposes. We were incorporated to raise capital and acquire a diverse portfolio of residential real estate assets.  Our day-to-day operations are to be managed by Bluerock Enhanced Multifamily Advisor, LLC, or our advisor, under an advisory agreement. Our advisor is affiliated with us in that we and our advisor have common ownership and management.  The use of the words “we,” “us” or “our” refers to Bluerock Enhanced Multifamily Trust, Inc. and its subsidiary Bluerock Enhanced Multifamily Holdings, L.P., or our operating partnership, except where the context otherwise requires.





On August 22, 2008, we filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a maximum of $1,000,000,000 in shares and a minimum of $2,500,000 in shares of our common stock in our primary offering, at an offering price of $10.00 per share, with discounts available for certain categories of purchasers.  We also are offering up to $285,000,000 in shares pursuant to our distribution reinvestment plan at $9.50 per share. The SEC declared our registration statement effective on October 15, 2009 and on December 3, 2009 we acquired, through a joint venture partnership, an interest in one multifamily real estate property and commenced active operations





1A. RESTATEMENT





This amendment to our Annual Report on Form 10-K filed on March 31, 2010 is filed to reflect restatements of our Consolidated Balance Sheet as of December 31, 2009 and our Consolidated Statement of Operations, Stockholders’ Equity and Statement of Cash Flows for the year ended December 31, 2009, and the related notes thereto, as a result of management’s review of our accounting methods regarding business combinations and investments in unconsolidated joint ventures.





After consideration of the applicable financial accounting guidance and evaluation of the related agreements the following adjustments were identified:




·  We treated our first property acquisition, Springhouse Apartments, in December 2009, as a purchase of assets. As a result, we capitalized costs associated with such acquisition, which costs were then amortized. Under U.S. generally accepted accounting principles (“GAAP”) the acquisition of such property should have been treated as a Business Combination. As a result, our acquisition-related costs should have been expensed in the fourth quarter of 2009, when the property was acquired, rather than capitalized and expensed over subsequent quarters.





·  Based on the fact that we shared control of our joint venture with affiliated entities, we consolidated our joint venture properties’ real estate assets, liabilities and operations on our balance sheet and income statement on a gross basis and reduced our non-ownership interest through the non-controlling interest line item on our financial statements.  Under GAAP, notwithstanding shared control with affiliates, because the joint ventures are variable interest entities and we would not be considered the primary beneficiary of the joint venture, our ownership interest should have been accounted for using the Equity Method of accounting.







The table below presents the impact of the restatement on our Consolidated Balance Sheet, Statement of Operations and Statement of Cash Flows.






F-7




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008


Balance SheetAs of December 31, 2009As Originally Reported


RestatedASSETSReal Estate:Land

$
5,616,000


$
-Buildings and improvements


23,634,000Total real estate, cost


29,250,000



-Less accumulated depreciation and amortization


(157,937
)Total real estate, net


29,092,063



-Investment in unconsolidated real estate joint venture






2,341,941Cash and cash equivalents


666,714



186,863Rents, other receivables and prepaid expenses


125,162



-Deferred financing, net


1,102,802



43,509TOTAL ASSETS

$
30,986,741


$
2,572,313LIABILITIES AND SHAREHOLDERS' EQUITYMortgage payable

$
23,400,000


$
-Note payable


2,778,389



2,754,520Accounts payable and accrued liabilities


219,882



15,320Due to affiliates


-



18,281Total liabilities


26,398,271



2,788,121Minority interest


4,492,039



-Shareholders' equityPreferred stock, $0.01 par value, 50,000,000 sharesauthorized; none issued and outstandingCommon stock, $0.01 par value, 249,999,000 sharesauthorized; 37,200 shares issued and outstanding


372



372Nonvoting convertible stock, $0.01 par value per share;1,000 shares authorized, issued and outstanding


10



10Additional paid-in-capital, net of costs


336,481



222,731Cumulative net loss


(120,432
)


(438,921
)Total shareholder' equity


216,431



(215,808
)TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$
31,106,741


$
2,572,313








1A. RESTATEMENT (continued)






F-8




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008




Statement of OperationsFor the Year Ended December 31, 2009As Originally Reported


RestatedRevenuesRental revenue

$
303,219


$
-Tenant reimbursements and other income


8,972Total Revenues


312,190



-ExpensesProperty operating expenses


57,672Property taxes and insurance


36,558Management fees to affiliates


20,550



9,140Acquisition costs to affiliates






191,953General and administrative


30,193



45,391Depreciation and amortization


163,775Total expenses


308,748



246,484Other operating activitiesEquity in loss of unconsolidated joint venture


-



(176,752
)Operating income (loss)


3,442



(423,236
)Other income (expense)Interest expense


(123,875
)


(15,685
)Loss before minority interest allocation


(120,433
)


(438,921
)Loss allocated to minority interests


41,111



-Net loss

$
(79,322
)

$
(438,921
)Basic and diluted loss per share

$
(3.12
)

$
(17.28
)Weighted average number of shares outstanding


25,405



25,405






F-9




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008
  Statement of Cash FlowsFor the Year Ended December 31, 2009As Originally Reported


RestatedCash flows from operating activitiesNet loss

$
(79,321
)

$
(438,921
)Minority interest in net loss of consolidated entity


(41,111
)Equity in  loss of unconsolidated joint venture






176,752Depreciation and amortization


163,775



366Share based compensation charge attributable todirectors stock compensation plan






36,250Due to affiliates






18,280Increase in receivables


(125,162
)Increase in deferred financing


(1,108,640
)Increase in accounts payable


219,882



15,320Net cash flow from operations


(1,162,530
)


(191,953
)Cash Flows from Investing ActivitiesPurchase of real estate


(29,250,000
)Investment in unconsolidated reat estate joint venture






(2,518,693
)Net Cash Flows from Investing Activities


(29,250,000
)


(2,518,693
)Cash Flows from Financing ActivitiesProceeds from mortgages


23,400,000Proceeds from notes payable


2,778,389



2,754,520Minority interest contributions


4,492,039Deferred financing costs






(43,874
)Issuance of common stock, net


15,862Payment of offering costs






(14,138
)Net Cash Flows from Financing Activities


30,686,290



2,696,508Net change in cash and cash equivalents


273,760



(14,138
)Cash and cash equivalents at beginning of year


201,001



201,001Cash and cash equivalents at end of year

$
474,761


$
186,863






F-10






BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES




Principles of Consolidation and Basis of Presentation




We intend to operate in an umbrella partnership REIT structure in which our wholly owned subsidiary, Bluerock Enhanced Multifamily Holdings, L.P., a Delaware limited partnership, or wholly owned subsidiaries of our operating partnership, owns substantially all of the properties or investments in joint ventures acquired on our behalf.





In June 2009, the Financial Accounting Standards Board (“FASB”) issued its final Statement of Financial Accounting Standards – The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles. This Statement made the FASB Accounting Standards Codification (the “ASC”) the single source of U.S. Generally Accepted Accounting Principles (“GAAP”) used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the SEC under authority of federal securities laws. The ASC supersedes all existing non-SEC accounting and reporting standards and was effective for the interim and annual periods ending after September 15, 2009.  We have prepared our consolidated financial statements in conformity with the ASC using the plain English approach encouraged by the FASB in the FASB Accounting Standards Codification Notice to Constituents (v.3.0) release.





Because we are the sole general partner of our operating partnership and have unilateral control over its management and major operating decisions (even if additional limited partners are admitted to our operating partnership), the accounts of our operating partnership are consolidated in our company’s consolidated financial statements. All significant intercompany accounts and transactions are eliminated in consolidation.  We will consider future majority owned and controlled joint ventures for consolidation in accordance with the provisions required by the Consolidation Topic of the FASB ASC.





Joint Ventures





We analyze our investments in joint ventures to determine if the joint venture is a variable interest entity (a “VIE”) and would require consolidation. We (a) evaluate the sufficiency of the total equity at risk, (b) review the voting rights and decision-making authority of the equity investment holders as a group, and whether there are any guaranteed returns, protection against losses, or capping of residual returns within the group and (c) establish whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this VIE determination. We would consolidate a venture that is determined to be a VIE if we were the primary beneficiary. Beginning January 1, 2010, a new accounting standard will be effective and will change the method by which the primary beneficiary of a VIE is determined to a primarily qualitative approach whereby the variable interest holder, if any, that has the power to direct the VIE’s most significant activities is the primary beneficiary. To the extent that our joint ventures do not qualify as VIEs, we further assess the existence of a controlling financial interest under a voting interest model to determine whether the venture should be consolidated.





Use of Estimates




The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  At the property these estimates include such items as purchase price allocation of real estate acquisitions, impairment of long-lived assets, depreciation and amortization and allowance for doubtful accounts.  Actual results could differ from those estimates.




Cash and Cash Equivalents




We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value.  There are no restrictions on the use of our cash as of December 31, 2009.







Deferred Financing Fees





Deferred financing fees are recorded at cost and are amortized to interest expense using a straight-line method that approximates the effective interest method over the life of the related debt.






F-11




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008




2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





Stock-Based Compensation





We account for stock-based compensation in accordance with the provisions of the Stock Compensation Topic of the FASB ASC. This topic established a fair value based method of accounting for stock-based compensation and requires the fair value of stock-based compensation awards to amortize as an expense over the vesting period and requires any dividend equivalents earned to be treated as dividends for financial reporting purposes.  Stock-based compensation awards are valued at the fair value on the date of grant and amortized as an expense over the vesting period.  For the year ended December 31, 2009, 5,000 shares of common stock were awarded to each of the three independent directors upon effectiveness of our initial public offering on October 15, 2009.





Distribution Policy




We intend to elect to be taxed as a REIT and to operate as a REIT beginning with our taxable year ending December 31, 2010. To maintain our qualification as a REIT, We intend to make distributions each taxable year equal to at least 90% of our REIT annual taxable income (excluding net capital gains and income from operations or sales through a taxable REIT subsidiary, or TRS). We expect to authorize and declare daily distributions that will be paid on a monthly basis.





Distributions to stockholders will be determined by our board of directors of and will be dependent upon a number of factors relating to the Company, including funds available for the payment of distributions, financial condition, the timing of property acquisitions, capital expenditure requirements, and annual distribution requirements in order to maintain our status as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”) and other considerations as our board of directors may deem relevant.




Related Party Transactions




Pursuant to the Advisory Agreement, we are obligated to pay the Advisor specified fees upon the provision of certain services related to, the investment of funds in real estate and real estate-related investments, management of our investments and for other services (including, but not limited to, the disposition of investments). We are also obligated to reimburse the Advisor for organization and offering costs incurred by the Advisor on our behalf, and we are obligated to reimburse the Advisor for acquisition and origination expenses and certain operating expenses incurred on our behalf or incurred in connection with providing services to us.   We record all related party fees as incurred, subject to any limitations described in the Advisory Agreement.





Organization and Offering Costs




Organization and offering costs (other than selling commissions and the dealer manager fee) of the Company are initially being paid by the advisor, the dealer manager or their affiliates on our behalf. These other organization and offering costs include all expenses to be paid by us in connection with our public offering, including but not limited to (i) legal, accounting, printing, mailing and filing fees; (ii) charges of the escrow holder and transfer agent; (iii) charges of the advisor for administrative services related to the issuance of shares in the offering; (iv) reimbursement of the dealer manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; (v) reimbursement to the advisor for costs in connection with preparing supplemental sales materials; (vi) the cost of bona fide training and education meetings held by us (primarily the travel, meal and lodging costs of registered representatives of broker-dealers); (vii) reimbursement to the dealer manager for attendance and sponsorship fees and cost reimbursements for employees of the dealer manager to attend retail seminars conducted by broker-dealers; and (viii) in special cases, reimbursement to participating broker-dealers for technology costs associated with the offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of the shares in the offering and the ownership of the shares by such broker-dealers’ customers.





Pursuant to the Advisory Agreement and the Dealer Manager Agreement, are obligated to reimburse the advisor, the dealer manager or their affiliates, as applicable, for organization and offering costs paid by them on our behalf of, provided that the advisor is obligated to reimburse us to the extent selling commissions, the dealer manager fee and other organization and offering costs incurred by us in the offering exceed 15% of gross offering proceeds




In the event the minimum number of shares of our common stock is not sold to the public, we will terminate the offering and will have no obligation to reimburse the advisor, the dealer manager or their affiliates for any organization and offering costs. As of December 31, 2009, the advisor has incurred on our behalf organization and offering costs of approximately $2.4 million. These costs are not recorded in the consolidated financial statements of the Company as of December 31, 2009 because such costs are not a liability to us








F-12








BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008





2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)





until the minimum number of shares of our common stock is issued, and such costs will only become a liability to us to the extent selling commissions, the dealer manager fee and other organization and offering costs do not exceed 15% of the gross proceeds of the offering.


When recorded by us, organization costs will be expensed, and offering costs, which include selling commissions and dealer manager fees, will be charged as a reduction to stockholders’ equity as such amounts are reimbursed to the advisor, the dealer manager or their affiliates from the gross proceeds of the offering.




Operating Expenses
 
 We reimburse the advisor for all reasonable and incurred expenses in connection with services provided to us, subject to the limitation that we will not reimburse any amount that would cause our total operating expenses at the end of four preceding fiscal quarters to exceed the greater of 2% of our average invested assets or 25% of our net income determined (1) without  reductions for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and (2) excluding any gain from the sale of our assets for the period unless a majority of our independent directors has determined such expenses were justified based on unusual and non-recurring factors. If such excess expenses are not approved by a majority of our independent directors, our advisor must reimburse us at the end of the four fiscal quarters the amount by which the aggregate expenses during the period paid or incurred by us exceed the limitations provided above.  We will not reimburse the advisor for personnel costs in connection with services for which the advisor receives acquisition, origination or disposition fees.  As of December 31, 2009 approximately $466,000 of operating expenses have been incurred on our behalf.  Due to the limitations discussed above we have recorded approximately $9,100 of that amount that could be reimbursed to our advisor.
 Acquisition and Origination Fees




We pay the Advisor an acquisition fee equal to 1.75% of the cost of investments acquired, including acquisition expenses and any debt attributable to such investments. With respect to investments in and originations of loans, we pay an origination fee equal to 1.75% of the amount funded by us to acquire or originate mortgage, mezzanine, bridge or other loans, including any expenses related to such investments and any debt we use to fund the acquisition or origination of these loans. We do not pay an acquisition fee with respect to investments in loans.




Asset Management Fee




With respect to investments in real estate, we pay the advisor a monthly asset management fee equal to one-twelfth of 1% of the amount paid or allocated to acquire the investment excluding acquisition fees and expenses related thereto and the amount of any debt associated with or used to acquire such investment. In the case of investments made through joint ventures, the asset management fee will be determined based on our proportionate share of the underlying investment. 50% of the asset management fee will not be payable until stockholders have received distributions in an amount equal to at least a 6% per annum cumulative, non-compounded return on invested capital, at which time all amounts will become due and payable.




Financing Fee




We pay the Advisor a financing fee equal to 1% of the amount, under any loan or line of credit, made available to us.




Independent Director Compensation




We will pay each of our independent directors an annual retainer of $25,000. In addition, the independent directors will be paid for attending meetings as follows: (i) $2,500 for each board meeting attended, (ii) $2,000 for each committee meeting attended, (iii) $1,000 for each teleconference board meeting attended, and (iv) $1,000 for each teleconference committee meeting attended.  All directors also receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors. In addition 5,000 shares of restricted stock will be granted upon election to the board and 2,500 shares of restricted stock will be granted upon re-election to the board. Director compensation is an operating expense of the Company that is subject to the operating expense reimbursement obligation of the advisor discussed in Note 6, “Related -Party Transactions.”




Income Taxes




We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and intend to operate as such commencing with the taxable year in which we satisfy the minimum offering requirements.  We expect to have little or no taxable income prior to electing REIT status.  To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.  If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we intend to organize and operate in such a manner as to qualify for treatment as a REIT.






F-13




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008


2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)







Per Share Data




Loss per basic share of common stock is calculated by dividing net loss by the weighted-average number of shares of common stock outstanding during such period. Diluted loss per share of common stock equals basic loss per share of common stock as there were no potentially dilutive shares of common stock for the year ended December 31, 2009.




As of December 31, 2008 and 2009 we had 1,000 shares of convertible stock issued and outstanding.  The convertible stock is not included in the basic and dilutive loss per share calculation because the shares of convertible stock do not participate in earnings or losses and would currently not be convertible into any commons shares, if converted.




Reportable Segment




Our current business consists of investing in and operating multifamily communities. Substantially all of our consolidated net loss is from investments in real estate properties that we own through a Co-Investment Venture which we account for under the equity method of accounting.  We internally evaluate operating performance on an individual property level and view our real estate assets as one industry segment, and, accordingly, our properties will be aggregated into one reportable segment.




3.  RECENT ACCOUNTING PRONOUNCEMENTS




In April 2009, the FASB issued new provisions required under the Financial Instruments Topic of the FASB ASC, which require (i) disclosure of the fair value of all financial instruments for which it is practicable to estimate that value in interim period financial statements as well as in annual financial statements, (ii) that the fair value information be presented together with the related carrying amount of the asset or liability, and (iii) disclosure of the methods and significant assumptions used to estimate the fair value and changes, if any, to the methods and significant assumptions used during the period. The provisions are effective for interim periods ending after June 15, 2009. The adoption of this guidance did not have a material impact on our consolidated financial statements.








In May 2009, the FASB issued new provisions required under the Subsequent Events Topic of the FASB ASC, to establish general standards of accounting for and disclosure of subsequent events. The provisions rename the two types of subsequent events as recognizedsubsequent events or non-recognizedsubsequent events and modify the definition of the evaluation period for subsequent events as events or transactions that occur after the balance sheet date, but before the financial statements are issued. This will require entities to disclose the date through which they have evaluated subsequent events and the basis for that date (theissued date for public companies). The provisions are effective for interim or annual financial periods ending after June 15, 2009, and will be applied prospectively.  This disclosure is presented in Note 10.  The adoption of this guidance did not have a material impact on our consolidated financial statements.





In June 2009, the FASB issued a new accounting standard that will be effective on January 1, 2010 and introduces a more qualitative approach to evaluating VIE’s for consolidation. This accounting standard is a revision to a previous FASB interpretation and changes how a reporting entity evaluates whether an entity is a VIE and which entity is considered the primary beneficiary of a VIE and is therefore required to consolidate such VIE. This analysis identifies the primary beneficiary of a VIE as the entity that has (i) the power to direct the activities of the VIE that most significantly impact the VIE’s performance, and (ii) obligation to absorb losses or the right to receive benefits that could potentially be significant to the VIE.  In determining whether it has the power to direct the activities of the VIE that most significantly affect the VIE’s performance, the provision requires a company to assess whether it has an implicit financial responsibility to insure that a VIE operates as designed.  It also requires continuous reassessment of primary beneficiary status rather than periodic, event-driven assessments as previously required, and incorporates expanded disclosure requirements.  The adoption of this guidance did not have a material impact on our consolidated financial statements.





4.  ACQUISITIONS





On December 3, 2009, through a wholly owned subsidiary of our operating partnership, we completed an investment in a joint venture along with Bluerock Special Opportunity + Income Fund, LLC (“BEMT Co-Investor”), an affiliate of our sponsor, and Hawthorne Springhouse, LLC (“Hawthorne”), an unaffiliated entity, to acquire a 432-unit garden-style multifamily community known as Springhouse at Newport News (the “Springhouse property”), located in Newport News, Virginia, from Newport-Oxford Associates Limited Partnership, an unaffiliated entity.






F-14


BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008


The aggregate purchase price for the Springhouse property was approximately $29.25 million, plus closing costs.  The acquisition was funded with approximately $6.7 million of gross equity from the Springhouse JV Entity, and a $23.4 million senior mortgage loan to BR Springhouse, LLC.  Our equity investment in the Springhouse property is detailed below in Note 7.  Equity Method Investment.





5.  EQUITY METHOD INVESTMENTS





We invested $2.5 million to acquire a 50% equity interest in BR Springhouse Managing Member, LLC (the “Springhouse Managing Member JV Entity”) through a wholly owned subsidiary of our operating partnership, BEMT Springhouse, LLC (“BEMT Springhouse”).  BEMT Co-Investor invested $2.5 million to acquire the remaining 50% interest in the Springhouse Managing Member JV Entity.  BEMT Springhouse and BEMT Co-Investor are co-managers of the Springhouse Managing Member JV Entity.  Under the terms of the operating agreement for the Springhouse Managing Member JV Entity, certain major decisions regarding the investments of the Springhouse Managing Member JV Entity require the unanimous our approval  (through BEMT Springhouse), and BEMT Co-Investor.  To the extent that the Company and BEMT Co-Investor are not able to agree on a major decision or at any time after December 3, 2012, either party may initiate a buy-sell proceeding.  Additionally, any time after December 3, 2012, either party may initiate a proceeding to force the sale of the Springhouse Managing Member JV Entity’s interest in the Springhouse JV Entity to a third party, or, in the instance of the non-initiating party’s rejection of a sale, cause the non-initiating party to purchase the initiating party’s interest in the Springhouse Managing Member JV Entity.  The operating agreement contains terms, conditions, representations, warranties and indemnities that are customary and standard for joint venture in the real estate industry.





The Springhouse Managing Member JV Entity contributed its capital to acquire a 75% equity interest in BR Hawthorne Springhouse JV, LLC (the “Springhouse JV Entity”) and acts as the manager of the Springhouse JV Entity.  Hawthorne invested $1.7 million to acquire the remaining 25% interest in the Springhouse JV Entity.  The Springhouse JV Entity is the sole owner of BR Springhouse, LLC, a special-purpose entity that holds title to the Springhouse property (“BR Springhouse”).  Under the terms of the operating agreement of the Springhouse JV Entity, major decisions with respect to the joint venture or the Springhouse property are made by the majority vote of an appointed management committee, which is controlled by the Springhouse Managing Member JV Entity.  However, any decision with respect to the sale or refinancing of the Springhouse property requires the unanimous approval of the Springhouse Managing Member JV Entity and Hawthorne.  Further, to the extent that the Springhouse Managing Member JV and Hawthorne are not able to agree on a major decision or at any time after December 3, 2012, either party may initiate a buy-sell proceeding.  Additionally, any time after December 3, 2012, either party may initiate a proceeding to force the sale of the Property to a third party, or, in the instance of the non-initiating party’s rejection of a sale, cause the non-initiating party to purchase the initiating party’s interest in the Springhouse JV Entity.  The operating agreement contains terms, conditions, representations, warranties and indemnities that are customary and standard for joint ventures in the real estate industry.





As a result of the structure described above, the Company and BEMT Co-Investor each hold a 37.5% indirect equity interest in the Springhouse property, and Hawthorne holds the remaining 25% indirect equity interest.  The Company, BEMT Co-Investor and Hawthorne will each receive current distributions from the operating cash flow generated by the Springhouse property in proportion to these respective percentage equity interests.




We accounted for the acquisitions of our interests in Springhouse through the managing member LLCs in accordance with the provisions of the Consolidation Topic of the FASB ASC.  Following is a summary of our ownership interest as of December 31, 2009:




Property
Managing Member LLC interest
Joint Venture interest
Indirect Equity Interest in PropertySpringhouse
50.00%
75%
37.5.%




We analyzed our interest in the managing member LLC to determine (a) if the LLC is a VIE, and (b) if so, if we are the primary beneficiary.





Our contribution into the managing member LLC was funded through a loan from an affiliate who is another investor in the managing member LLC, thus our equity investment is not at risk. Since unanimous approval is required by all members to direct the activities that most significantly impact the managing member LLC’s economic performance, the holder of the equity investment at risk lacks that power and thus we concluded that the managing member LLC entities are VIE’s.  We are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact the economic performance of the managing member LLC and would not be considered to be the investor that is most closely associated with the entity among the related party investors.  As a result, our investment is reflected as an investment in unconsolidated joint venture under the equity method of accounting.






F-15







BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008


5.  EQUITY METHOD INVESTMENTS (Continued)





The carrying amount of the investment in the Springhouse Managing Member Entity was $2.3 million at December 31, 2009.  Summary unaudited financial information for the operating property as of and for the year ended December 31, 2009 is as follows:





Financial Position:Real Estate, net of depreciation

$
29,039,600Other assets


841,140Total assets

$
29,880,740Mortgage payable

$
23,400,000Other current liabilities


215,540Total liabilities

$
23,615,540Stockholders’ equity


6,265,200Total liabilities and stockholders’ equity

$
29,880,740Results of operationsRental revenues

$
309,040Operating expenses


100,810Net operating income


208,230Acquisition fees


(361,800
)Depreciation and amortization


(211,030
)Mortgage Interest


(106,700
)Net loss


(471,300
)


As discussed above, the investments in Springhouse is considered a VIE and we are not the primary beneficiary.  The investment is accounted for as an equity method investment and is in the caption Investment in unconsolidated real estate joint venture on the consolidated balance sheet.The risks and rewards associated with our interest in this entity is based primarily on our ownership percentage.  Our maximum exposure to loss is equal to our investment balance which is $2.3 million as of December 31, 2009





6.  NOTE PAYABLE




The note payable in the amount of $2,754,520 relates to the acquisition of the Springhouse property.  We entered into a loan agreement with BEMT Co-Investor pursuant to which BEMT Springhouse borrowed $2.8 million (the “BEMT Co-Investor Loan”). The BEMT Co-Investor Loan initially had a six-month term, maturing June 3, 2010, which was subsequently extended to June 3, 2011.  A partial repayment in the amount of $1.1 million was made on June 23, 2010. It bears interest compounding monthly at a rate of 30-day LIBOR + 5.00%, subject to a minimum rate of 7.00%, annualized. As of March 1, 2010, the interest rate on the BEMT Co-Investor Loan was 7.00%. Interest on the loan will be paid on a current basis from cash flow distributed to us from the Springhouse Managing Member JV Entity. The BEMT Co-Investor Loan is secured by a pledge of our indirect membership interest in BEMT Springhouse and a pledge of BEMT Springhouse’s membership interest in the Springhouse Managing Member JV Entity. In accordance with the requirements of our charter, the BEMT Co-Investor Loan was reviewed and approved by a majority of our board of directors (including a majority of our independent directors) as being fair, competitive, and commercially reasonable and no less favorable to us than loans between unaffiliated parties under the same circumstances.





During the year ended December 31, 2009 we incurred $15,320 of interest expense.





7.  FAIR VALUE DISCLOSURE





As of December 31, 2009, we believe the carrying values of cash and cash equivalents and receivables and payables from affiliates approximate their fair values based on their highly-liquid nature and/or short-term maturities, including prepayment options.  As of December 31, 2009 and 2008, we had no significant assets or liabilities measured at fair value on a recurring or nonrecurring basis.  We estimate fair values for financial instruments based on interest rates with similar terms and remaining maturities that management believes we could obtain




F-16




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008


8.  RELATED-PARTY TRANSACTIONS





As of December 31, 2009, approximately $2.4 million of organizational and offering costs have been incurred on our behalf. These costs are not recorded in our consolidated financial statements because such costs are not our liability until the subscriptions for the minimum number of shares are received and accepted by us. When recorded by us, organizational and offering costs will be expensed and third-party offering costs will be charged to shareholders’ equity as such amounts are reimbursed to the advisor or its affiliates from the gross proceeds of the offering.





In connection with our investment in the Springhouse property, on December 3, 2009, we entered into a loan agreement with BEMT Co-Investor, the terms of which are described above in Note 6.   Note Payable.




The advisor performs its duties and responsibilities as our fiduciary under an advisory agreement. The term of the current advisory agreement ends October 14, 2011, subject to renewals by our board of directors for an unlimited number of successive one-year periods. The advisor will conduct our operations and manage our portfolio of real estate and real estate-related investments under the terms of the advisory agreement.





Certain of our affiliates will receive fees and compensation in connection with our public offering, and the acquisition, management and sale of our real estate investments





We will pay our advisor a monthly asset management fee for the services it provides pursuant to the advisory agreement. The asset management fee will be equal to one-twelfth of 1.0% of the higher of the cost or the value of each asset, where (A)cost equals the amount actually paid, excluding acquisition fees and expenses, to purchase each asset it acquires, including any debt attributable to the asset (including any debt encumbering the asset after acquisition), provided that, with respect to any properties we develop, construct or improve, cost will include the amount expended by us for the development, construction or improvement, and (B) the value of an asset is the value established by the most recent independent valuation report, if available, without reduction for depreciation, bad debts or other non-cash reserves; provided, however, that 50% of the advisor’s asset management fee will not be payable until stockholders have received distributions in an amount equal to at least a 6.0% per annum cumulative, non-compounded return on invested capital, at which time all such amounts will become immediately due and payable. For these purposes, “invested capital” means the original issue price paid for the shares of our common stock reduced by prior distributions identified as special distributions from the sale of our asset. The asset management fee will be based only on the portion of the cost or value attributable to our investment in an asset if we do not own all of an asset. We will also pay the advisor a financing fee equal to 1% of the amount available under any loan or line of credit made available to us. The advisor may re-allow some or all of this fee to reimburse third parties with whom it may subcontract to procure such financing.





The advisor will receive 1.75% of the purchase price of a property or investment for its services in connection with the investigation, selection, sourcing, due diligence and acquisition of that property or investment. The purchase price of a property or investment will equal the amount paid or allocated to the purchase, development, construction or improvement of a property, inclusive of expenses related thereto, and the amount of debt associated with such real property or investment. The purchase price allocable for joint venture investments will equal the product of (1) the purchase price of the underlying property and (2) our ownership percentage in the joint venture. We will pay the advisor an origination fee in lieu of an acquisition fee for services in connection with the investigation, selection, sourcing, due diligence, and acquisition of mortgage, subordinated, bridge or other loans of 1.75% of the principal amount of the borrower’s loan obligation or of the purchase price of any loan we purchase including third- party expenses.




The advisor will also receive a financing fee equal to 1% of the amount, under any loan or line of credit, made available to us. The advisor may re-allow some or all of this fee to reimburse third parties with whom it may subcontract to procure such financing for us. In addition, to the extent the advisor provides a substantial amount of services in connection with the disposition of one or more of our properties or investments (except for securities that are traded on a national securities exchange), the advisor will receive fees equal to the lesser of (A) 1.5% of the sales price of each property or other investment sold or (B) 50% of the selling commission that would have been paid to a third-party broker in connection with such a disposition. In no event may disposition fees paid to the advisor or its affiliates and unaffiliated third parties exceed in the aggregate 6% of the contract sales price.  In addition to the fees payable to the advisor, we will reimburse the advisor for all reasonable and incurred expenses in connection with services provided to us, subject to the limitation that we will not reimburse any amount that would cause our total operating expenses at the end of four preceding fiscal quarters to exceed the greater of 2% of our average invested assets or 25% of our net income determined (1) without  reductions for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and (2) excluding any gain from the sale of our assets for the period unless a




F-17




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008
 8.  RELATED-PARTY TRANSACTIONS – (Continued)




majority of our independent directors has determined such expenses were justified based on unusual and non-recurring factors. If such excess expenses are not approved by a majority of our independent directors, our advisor must reimburse us at the end of the four fiscal quarters the amount by which the aggregate expenses during the period paid or incurred by us exceed the limitations provided above.  We will not reimburse the advisor for personnel costs in connection with services for which the advisor receives acquisition, origination or disposition fees.  As of December 31, 2009 approximately $466,000 of operating expenses have been incurred on our behalf.  Due to the limitations discussed above we have recorded approximately $9,100 of that amount that could be reimbursed to our advisor.





We have issued 1,000 shares of convertible stock, par value $0.01 per share to our advisor. The convertible stock will convert to shares of common stock if and when: (A) we have made total distributions on the then outstanding shares of our common stock equal to the original issue price of those shares plus an 8% cumulative, non-compounded, annual return on the original issue price of those shares or (B) subject to specified conditions, we list our common stock for trading on a national securities exchange. A “listing” will be deemed to have occurred on the effective date of any merger of the Company in which the consideration received by the holders of our common stock is the securities of another issuer that are listed on a national securities exchange. Upon conversion, each share of convertible stock will convert into a number of shares of common stock equal to 1/1000 of the quotient of (A) 15% of the excess of (1) our “enterprise value” (as defined in our charter) plus the aggregate value of distributions paid to date on the outstanding shares of our common stock over the (2) aggregate purchase price paid by the stockholders for those shares plus an 8% cumulative, non-compounded, annual return on the original issue price of those shares, divided by (B) our enterprise value divided by the number of outstanding shares of common stock, in each case calculated as of the date of the conversion. In the event an event triggering the conversion occurs after the advisory agreement with the advisor is not renewed or terminates (other than because of a material breach by the advisor), the number of shares of common stock the advisor will receive upon conversion will be prorated to account for the period of time the advisory agreement was in force.




We pay Bluerock REIT Property Management, LLC, a wholly owned subsidiary of the advisor, a property management fee equal to 4% of the monthly gross income from any properties it manages. Alternatively, we may contract property management services for certain properties directly to non-affiliated third parties, in which event we will pay the advisor an oversight fee equal to 1% of monthly gross revenues of such properties.





All of our executive officers and some of our directors are also executive officers, managers and/or holders of a direct or indirect controlling interest in the advisor and other Bluerock-affiliated entities.  As a result, they owe fiduciary duties to each of these entities, their members and limited partners and investors, which fiduciary duties may from time to time conflict with the fiduciary duties that they owe to the Company and its stockholders.





Some of the material conflicts that the advisor or its affiliates face are: 1) the determination of whether an investment opportunity should be recommended to us or another Bluerock-sponsored program or Bluerock-advised investor; 2) the allocation of the time of key executive officers, directors, and other real estate professionals among us, other Bluerock-sponsored programs and Bluerock-advised investors, and the activities in which they are involved; 3) the fees received by the advisor and its affiliates in connection with transactions involving the purchase, origination, management and sale of investments regardless of the quality of the asset acquired or the service provided to us; and 4) the fees received by the advisor and its affiliates in connection with our public offering of equity securities.






F-18




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008
 9.  STOCKHOLDERS’ EQUITY




Common Stock


We are offering and selling to the public up to 100,000,000 shares of our $.01 par value common stock for $10.00 per share, with discounts available for certain categories of purchasers. We are also offering up to 30,000,000 shares of our $.01 par value common stock to be issued pursuant to our distribution reinvestment plan at $9.50 per share.





Convertible Stock





The Company has issued to its advisor 1,000 shares of its convertible stock for an aggregate purchase price of $1,000. Upon certain conditions, the convertible stock will convert to shares of common stock with a value equal to 15% of the excess of (i) the Company’s enterprise value (as defined in its charter) plus the aggregate value of distributions paid to stockholders over (ii) the aggregate purchase price paid by stockholders for the Company’s shares plus a 8% cumulative, non-compounded, annual return on the original issue price paid for those outstanding shares..





Share Repurchase Plan





Our board of directors has approved a share repurchase plan. The share repurchase plan allows for share repurchases by us when certain criteria are met.'


Stock-based Compensation for Independent Directors





Our independent directors received an automatic grant of 5,000 shares of restricted stock on the effective date of the initial public offering and will receive an automatic grant of 2,500 shares of restricted stock at each annual meeting of our stockholders thereafter. Each person who thereafter is elected or appointed as an independent director will receive an automatic grant of 5,000 shares of restricted stock on the date such person is first elected as an independent director and an automatic grant of 2,500 shares of restricted stock at each annual meeting of our stockholders thereafter. To the extent allowed by applicable law, the independent directors will not be required to pay any purchase price for these grants of restricted stock. The restricted stock will vest 20% at the time of the grant and 20% on each anniversary thereafter over four years from the date of the grant. All restricted stock may receive distributions, whether vested or unvested. The value of the restricted stock to be granted is not determinable until the date of grant.





A summary of the status of our non-vested shares as of December 31, 2009, and changes during the year ended December 31, 2009, is presented below:




Weightedaveragegrant-dateNonvested shares

Shares

fair valueBalance at January 1, 2009

—
$
—Granted




15,000

150,000Vested




(3,625)

(36,250)Forfeited



—

—Balance at December 31, 2009

11,375
$
113,750




At December 31, 2009, there was $113,750 of total unrecognized compensation cost related to unvested stock options granted under the Plan. That cost is expected to be recognized over a period of four years. The total fair value of shares vested during the year ended December 31, 2009 was $36,250.  There were no director stock grants in 2008.




The Company currently uses authorized and unissued shares to satisfy share award exercises.






F-19




BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.NOTES TO CONSOLIDATED FINANCIAL STATEMENTSAS OF DECEMBER 31, 2009 and DECEMBER 31, 2008


10.  ECONOMIC DEPENDENCY





The Company is dependent on the advisor for certain services that are essential to the Company, including the identification, evaluation, negotiation, purchase and disposition of properties and other investments; management of the daily operations of the Company’s real estate portfolio; and other general and administrative responsibilities. In the event that these companies are unable to provide the respective services, the Company will be required to obtain such services from other sources.





11.  SUBSEQUENT EVENTS





We evaluate subsequent events up until the date the consolidated financial statements are issued.





On March 15, 2010, the Company’s three independent directors received an automatic grant of 2,500 shares each of restricted stock after their re-election to the board of directors at our annual meeting.





On May 20, 2010 we had raised the initial minimum offering amount of $2,500,000 sufficient to break escrow, and all investors to date had been admitted as stockholders.





On March 31, 2010, through a wholly owned subsidiary of our operating partnership, we completed an investment in a joint venture to acquire a 22.67% indirect equity interest in a 192-unit class A garden style multifamily community known as The Reserve at Creekside Village located in Chattanooga, Tennessee for approximately $14.25 million, plus closing costs.





On April 9, 2010, through a wholly owned subsidiary of our operating partnership, we completed an investment in a joint venture to acquire a 16.25% indirect equity interest in 258-unit class A multifamily community located in Chapel Hill, North Carolina for approximately $37 million, plus closing costs.





On September 1, 2010, through a wholly owned subsidiary of our operating partnership, we completed an investment in a joint venture to acquire a 25% indirect equity interest in a 240-unit multifamily community known as St. Andrews Apartments located in Augusta, Georgia for approximately $24.95 million, plus closing costs.





On September 30, 2010, through a wholly owned subsidiary of our operating partnership, we completed an investment in a joint to acquire a 12.5% indirect equity interest in a 201 unit multifamily community known as The Gardens at Hillsboro Village located in Nashville, Tennessee for approximately $31.6 million, plus closing costs.





On November 17, 2010 we suspended our offering while we restated our audited financial statements for the year ended December 31, 2009 and our unaudited financial statements for the periods ended March 31, 2010 and June 30, 2010.  We expect to recommence this offering at such time as the post-effective amendment filed with the SEC on January 19, 2011 has been declared effective by the SEC




F-20


EXHIBIT INDEX




Exhibit Number






31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002




31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002




32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002