EXHIBIT 10.3


 


ADVISORY
AGREEMENT


 


THIS ADVISORY AGREEMENT, dated as of August 31,
2004, is between HARTMAN COMMERCIAL PROPERTIES REIT, a Maryland real estate
investment trust (the “Company”), and HARTMAN MANAGEMENT, L.P., a Texas limited
partnership (the “Advisor”).


 


W I T N E S S E T
H


 


WHEREAS, the Company has filed with the Securities and
Exchange Commission a Registration Statement on Form S-11 (no. 333-111674) (the
“Registration Statement”) covering the issuance of common shares of beneficial
interest, and the Company may subsequently issue common shares of beneficial
interest (collectively, the “Shares”);


 


WHEREAS, the Company currently qualifies as a REIT (as
defined below), and to invest its funds in investments permitted by the terms
of the Company’s Declaration of Trust and Sections 856 through 860 of the Code
(as defined below);


 


WHEREAS, the Company desires to continue to avail
itself of the experience, sources of information, advice, assistance and
certain facilities available to the Advisor and to have the Advisor undertake
the duties and responsibilities hereinafter set forth, on behalf of, and
subject to the supervision of, the Board of Trustees of the Company all as
provided herein; and


 


WHEREAS, the Advisor is willing to continue to
undertake to render such services, subject to the supervision of the Board of
Trustees, on the terms and conditions hereinafter set forth;


 


NOW, THEREFORE, in consideration of the foregoing and
of the mutual covenants and agreements contained herein, the parties hereto
agree as follows:


 


1. Definitions.
As used in this Amended and Restated Advisory
Agreement (the “Agreement”), the following terms have the definitions
hereinafter indicated:


 


Acquisition
Expenses. 
Any and all expenses incurred by the Company, the Advisor, or any
Affiliate of either in connection with the selection,
acquisition or development of any Property, whether or not acquired, including,
without limitation, legal fees and expenses, travel and communications
expenses, costs of appraisals, nonrefundable option payments on property not
acquired, accounting fees and expenses, and title insurance premiums.


 


Acquisition
Fees. 
Any and all fees and commissions, exclusive of Acquisition Expenses,
paid by any Person to any other Person (including any fees or commissions paid
by or to any Affiliate of the Company or the Advisor) in connection with
purchase, development or construction of any Property, including, without
limitation, real estate commissions, acquisition fees, finder’s fees, selection
fees, nonrecurring management fees, consulting fees, loan fees, points, or any
other fees or commissions of a similar nature.


 


Advisor.  Hartman
Management, L.P., a Texas limited partnership, any successor advisor to the
Company, or any Person(s) to which Hartman Management, L.P. or any successor
advisor subcontracts substantially all of its functions.


 





















 


Affiliate or Affiliated. 
An Affiliate of another Person includes only the following: (i) any
Person directly or indirectly controlling, controlled by, or under common
control with such other Person; (ii) any Person directly or indirectly owning,
controlling, or holding with the power to vote 10% or more of the outstanding
voting securities of such other Person; (iii) any legal entity for which such
Person acts as an executive officer, director, trustee, trust manager, or
general partner; (iv) any Person 10% or more of whose outstanding voting
securities are directly or indirectly owned, controlled, or held, with power to
vote, by such other Person; and (v) any executive officer, director, trustee,
trust manager, or general partner of such other Person. An entity shall not be
deemed to control or be under common control with an Advisor-sponsored program
unless (i) the entity owns 10% or more of the voting equity interests of such
program or (ii) a majority of the board (or equivalent governing body) of such
program is comprised of Affiliates of the entity.


 


Appraised
Value.  Value according to an appraisal made by an Independent Appraiser.


 


Declaration
of Trust. 
The Declaration of Trust of the Company under Title 2 of the
Corporations and Associations Article of the Annotated Code of Maryland, as
amended from time to time.


 


Asset
Management Fee. 
The Asset Management Fee payable to the Advisor as defined in Section 8(a).


 


Average
Invested Assets. 
For a specified period, the average of the aggregate book value of the
assets of the Company invested, directly or indirectly, in Properties and Loans
secured by real estate before reserves for depreciation or bad debts or other
similar non-cash reserves, computed by taking the average of such values at the
end of each month during such period.


 


Board
of Trustees or Board.  The persons holding such office, as of any particular time, under
the Declaration of Trust of the Company, whether they be the Trustees named
therein or additional or successor Trustees.


 


Bylaws.  The bylaws of
the Company, as the same are in effect from time to time.


 


Capped
O&O Expenses. 
All Organizational and Offering Expenses other than selling commissions
and the dealer manager fee as described under “Plan of Distribution” in the
Registration Statement.


 


Cash
from Financings.  Net cash proceeds realized by the Company from the financing of
Property or from the refinancing of any Company indebtedness.


 


Cash
from Sales. 
Net cash proceeds realized by the Company from the sale, exchange or
other disposition of any of its assets after deduction of all expenses incurred
in connection therewith. Cash from Sales shall not include Cash from
Financings.


 


Cash from
Sales and Financings. The total sum of Cash
from Sales and Cash from Financings.


 


Code.  Internal
Revenue Code of 1986, as amended from time to time, or
any successor statute thereto. Reference to any provision of the Code shall
mean such provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted
by any applicable regulations as in effect from time to time.


 


Company.  Hartman
Commercial Properties REIT, a real estate investment trust organized under the
laws of the State of Maryland.


 





















 


Competitive
Real Estate Commission.  A real estate or brokerage
commission for the purchase or sale of property which is reasonable, customary,
and competitive in light of the size, type, and location of the property.


 


Conflicts
Committee.  “Conflicts
Committee” shall have the meaning set forth in the Declaration of Trust.


 


Contract
Sales Price. 
The total consideration received by the Company for the sale of a
Property.


 


Cumulative
Return. 
For the period for which the calculation is being made, the percentage
resulting from dividing (A) the total Distributions paid on each Distribution
date during such period (without regard to Distributions paid out of Cash from
Sales and Financings), by (B) the product of (i) the average Invested Capital
for such period (calculated on a daily basis), and (ii) the number of days
elapsed during such period.


 


Declaration
of Trust.  The Declaration of Trust of the Company
under Title 8 of the Corporations and Associations Article of the Annotated
Code of Maryland, as amended from time to time.


 


Disposition
Fee. 
The Disposition Fee as defined in Paragraph 8(c).


 


Distributions.  Any
distributions of money or other property by the Company to owners of Shares,
including distributions that may constitute a return of capital for federal
income tax purposes.


 


Gross
Asset Value.
The amount equal to the aggregate book value of the Company’s assets (other
than investments in bank accounts, money market funds or other current assets),
before depreciation, bad debts or other similar non-cash reserves and without
reduction for any debt relating to such assets, at the date of measurement,
except that during such periods in which the Company is obtaining regular
independent valuations of the current value of its net assets for purposes of
enabling fiduciaries of employee benefit plan Shareholders to comply with
applicable Department of Labor reporting requirements, Gross Asset Value is the
greater of (i) the amount determined pursuant to the foregoing or (ii) the
Company’s assets’ aggregate valuation established by the most recent such
valuation report without reduction for depreciation, bad debts or other similar
non-cash reserves and without reduction for any debt relating to such assets.


 


Gross Proceeds.  The aggregate
purchase price of all Shares sold for the account of the Company through an
Offering, without deduction for Organization and Offering Expenses. For the
purpose of computing Gross Proceeds, the purchase price of any Share for which reduced
selling commissions or dealer manager fees are paid shall be deemed to be the
amount paid by others purchasing Shares in the Offering who paid such fees;
therefore, all purchasers of Shares in the Offering covered by the Registration
Statement shall be deemed to have paid $10.00 per Share.


 


Independent
Appraiser.  A
person or entity with no material current or prior business or personal
relationship with the Advisor or the Trustees, who is engaged to a substantial
extent in the business of rendering opinions regarding the value of assets of
the type held by the Company, and who is a qualified appraiser of real estate
as determined by the Board. Membership in a nationally recognized appraisal
society such as the American Institute of Real Estate Appraisers (“M.A.I.”) or
the Society of Real Estate Appraisers (“S.R.E.A.”) shall be conclusive evidence
of such qualification.


 


Invested
Capital. 
The amount calculated by multiplying the total number of Shares
purchased by Shareholders by the issue price, reduced by the portion of any
Distribution that is attributable to Net Sales


 





















 


Proceeds and by any
amounts paid by the Company to repurchase Shares pursuant to the Company’s plan
for redemption of Shares.


 


Joint
Venture. 
Any joint venture, limited liability company or
other Affiliate of the Company that owns, in whole or in part on behalf of the
Company, any Properties.


 


Listing.  The listing of the Shares on a national securities exchange or the
quotation of Shares on the NASDAQ National Market System.  Upon such Listing, the Shares shall be deemed
Listed.


 


NASAA
Guidelines.  The NASAA Statement of Policy Regarding Real Estate Investment
Trusts as in effect on the date hereof.


 


Net
Income. 
For any period, the total revenues applicable to such period, less the
total expenses applicable to such period excluding additions to reserves for
depreciation, bad debts or other similar non-cash reserves; provided, however,
Net Income for purposes of calculating total allowable Operating Expenses (as
defined herein) shall exclude the gain from the sale of the Company’s assets.


 


Net
Sales Proceeds. 
In the case of a transaction described in clause (i) (A) of the
definition of Sale, the proceeds of any such transaction less the amount of all
real estate commissions and closing costs paid by the Company. In the case of a
transaction described in clause (i) (B) of such definition, Net Sales Proceeds
means the proceeds of any such transaction less the amount of any legal and
other selling expenses incurred in connection with such transaction. In the
case of a transaction described in clause (i) (C) of such definition, Net Sales
Proceeds means the proceeds of any such transaction actually distributed to the
Company from the joint venture. In the case of a transaction described in
clause (ii) of the definition of Sale, Net Sales Proceeds means the proceeds of
such transaction or series of transactions less all amounts generated thereby
and reinvested in one or more Properties within 180 days thereafter and less
the amount of any real estate commissions, closing costs, and legal and other
selling expenses incurred by or allocated to the Company in connection with
such transaction or series of transactions. Net Sales Proceeds shall not
include any reserves established by the Company in its sole discretion.


 


Offering.  Any offering
of Shares that is registered with the SEC, excluding Shares offered under any
employee benefit plan.


 


Operating
Expenses. 
All costs and expenses incurred by the Company, as determined under
generally accepted accounting principles, which in any way are related to the
operation of the Company or to Company business, including fees paid to the
Advisor, but excluding (i) the expenses of raising capital such as Organization
and Offering Expenses, legal, audit, accounting, underwriting, brokerage,
listing, registration, and other fees, printing and other such expenses and tax
incurred in connection with the issuance, distribution, transfer, registration
and Listing of the Shares, (ii) interest payments, (iii) taxes, (iv) non-cash
expenditures such as depreciation, amortization and bad loan reserves, (v)
incentive fees paid in compliance with Section IV.F. of the NASAA Guidelines
and (vi) Acquisition Fees, Acquisition Expenses, real estate commissions on
resale of property, and other expenses connected with the acquisition,
disposition, and ownership of real estate interests, mortgage loans or other
property (such as the costs of foreclosure, insurance premiums, legal services,
maintenance, repair and improvement of property).


 


Organization
and Offering Expenses.  All expenses incurred by and to be paid from
the assets of the Company in connection with and in preparing the Company for
registration of and subsequently offering and distributing its Shares to the
public, which may include but are not limited to, total underwriting and
brokerage discounts and commissions (including fees of the underwriters’
attorneys); expenses for printing, engraving and mailing; salaries of employees
while engaged in sales activity;


 





















 


charges of transfer
agents, registrars, trustees, trust managers, escrow holders, depositaries and
experts; and expenses of qualification of the sale of the securities under
Federal and State laws, including taxes and fees, accountants’ and attorneys’
fees.


 


Partnership.  Hartman REIT
Operating Partnership, L.P., a Texas limited partnership formed to own and
operate properties on behalf of the Company.


 


Person.  An individual,
corporation, partnership, estate, trust (including a trust qualified under Section401(a)
or 501(c) (17) of the Code), a portion of a trust permanently set aside for or
to be used exclusively for the purposes described in Section642(c) of the Code,
association, private foundation within the meaning of Section509(a) of the
Code, joint stock company or other entity, or any government or any agency or
political subdivision thereof, and also includes a group as that term is used
for purposes of Section13(d)(3) of the Securities Exchange Act of 1934, as
amended.


 


Property
or Properties. 
Any real property or properties transferred or conveyed to the Company
or the Partnership, either directly or indirectly.


 


Property Manager. 
Any entity that has been retained to perform and carry out at one or
more of the Properties property management services, excluding persons,
entities or independent contractors retained or hired to perform facility
management or other services or tasks at a particular Property, the costs for
which are passed through to and ultimately paid by the tenant at such Property.


 


REIT.  A “real estate investment trust” under Sections 856 through 860 of
the Code.


 


Sale or
Sales. 
(i) Any transaction or series of transactions whereby: (A) the Company
or the Partnership sells, grants, transfers, conveys, or relinquishes its
ownership of any Property or portion thereof, including the lease of any
Property consisting of the building only, and including any event with respect
to any Property which gives rise to a significant amount of insurance proceeds
or condemnation awards; (B) the Company or the Partnership sells, grants,
transfers, conveys, or relinquishes its ownership of all or substantially all
of the interest of the Company or the Partnership in any joint venture in which
it is a co-venturer or partner; or (C) any joint venture in which the Company
or the Partnership as a co-venturer or partner sells, grants, transfers,
conveys, or relinquishes its ownership of any Property or portion thereof,
including any event with respect to any Property which gives rise to insurance
claims or condemnation awards, but (ii) not including any transaction or series
of transactions specified in clause (i) (A), (i) (B), or (i) (C) above in which
the proceeds of such transaction or series of transactions are reinvested in
one or more Properties within 180 days thereafter.


 


Shares.  “Shares” has
the meaning set forth in the preamble.


 


Shareholders.  The registered holders of the Shares.


 


Shareholders’
7% Return. 
As of each date, an aggregate amount equal to an
7% Cumulative Return.


 


Subordinated
Incentive Fee.  The fee payable to the Advisor under certain circumstances if the
Shares are listed on a national securities exchange or quoted on the Nasdaq
National Market System.


 


Subordinated
Performance Fee Due Upon Termination.  A fee equal to
(1) 15% of the amount, if any, by which (a) the Appraised Value of the Company’s
Properties at the Termination Date, less amounts of all indebtedness secured by
the Company’s Properties, plus total Distributions through the Termination Date
exceeds (b) the sum of Invested Capital, plus Distributions attributable to Net
Sales


 





















 


Proceeds, plus total
Distributions required to be made to the Shareholders in order to pay the
Shareholders’ 7% Return from inception through the termination date less (2)
any prior payment to the Advisor of a Subordinated Share of Net Sales Proceeds.


 


Subordinated
Share of Net Sales Proceeds.  The
Subordinated Share of Net Sales Proceeds as defined in Paragraph 8(d).


 


Termination
Date.  The date of termination of the Agreement.


 


Trustee.  A member of the Board of Trustees of the Company.


 


Vacant
Property.  A
Property that has been economically vacant for (i) the period from acquisition
until the applicable measurement date, if less than six months or (ii) at least
six months as of the applicable date of measurement.


 


2%/25%
Guidelines. 
The requirement pursuant to the NASAA Guidelines that, in any 12-month
period, total Operating Expenses not exceed the greater of 2% of the Company’s
Average Invested Assets during such 12-month period or 25% of the Company’s Net
Income over the same 12-month period.


 


2.  Appointment.  The Company hereby appoints the Advisor
to serve as its advisor and asset manager on the terms and conditions set forth
in this Agreement, and the Advisor hereby accepts such appointment.


 


3.  Duties and Authority of the Advisor.  The Advisor undertakes to use its
reasonable efforts (1) to present to the Company potential investment
opportunities to provide a continuing and suitable investment program
consistent with (i) the investment objectives and policies of the Company as
determined and adopted from time to time by the Board and (ii) the investment
allocation method described at Section11(b) of this agreement and (2) to
manage, administer, promote, maintain, and improve the Properties on an overall
portfolio basis in a diligent manner. 
The services of the Advisor are to be of scope and quality not less than
those generally performed by professional asset managers of other similar
property portfolios. The Advisor shall make available the full benefit of the
judgment, experience and advice of the members of the Advisor’s organization
and staff with respect to the duties it will perform under this Agreement. The
Advisor shall also obtain Property Managers, which may include Affiliates of
the Advisor, to manage, promote, and lease the Properties. To facilitate the
Advisor’s performance of these undertakings, but subject to the restrictions
included in Paragraphs 4 and 7 and to the continuing and exclusive authority of
the Board over the management of the Company and the Partnership, the Company
hereby delegates to the Advisor the authority to, and the Advisor hereby agrees
to, either directly or by engaging an Affiliate:


 


(a) serve as the Company’s
investment and financial advisor and provide research and economic and
statistical data in connection with the Company’s assets and investment
policies;


 


(b) provide the daily
management of the Company and perform and supervise the various administrative
functions reasonably necessary for the management of the Company;


 


(c) maintain and preserve the books and records of the
Company, including a stock ledger reflecting a record of the Shareholders and
their ownership of the Company’s Shares and acting as transfer agent for the
Company’s Shares and maintaining the accounting and other record-keeping
functions at the Property and Company levels;


 





















 


(d) investigate, select, and, on behalf of the
Company, engage and conduct business with such Persons as the Advisor deems
necessary to the proper performance of its obligations hereunder, including but
not limited to consultants, accountants, correspondents, lenders, technical
advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow
agents, depositaries, custodians, agents for collection, insurers, insurance
agents, banks, builders, developers, property owners, mortgagors, and any and
all agents for any of the foregoing, including Affiliates of the Advisor, and
Persons acting in any other capacity deemed by the Advisor necessary or desirable
for the performance of any of the foregoing services, including but not limited
to entering into contracts in the name of the Company with any of the
foregoing;


 


(e) consult with the officers and the Board of the
Company and assist the Board in the formulation and implementation of the
Company’s financial policies, and, as necessary, furnish the Board with advice
and recommendations with respect to the making of investments consistent with
the investment objectives and policies of the Company and in connection with
any borrowings proposed to be undertaken by the Company;


 


(f) oversee the performance
by the Property Managers of their duties, including collection and proper
deposits of rental payments and payment of Property expenses and maintenance;


 


(g) conduct periodic on-site
property visits to some or all (as the Advisor deems reasonably necessary) of
the Properties to inspect the physical condition of the Properties and to
evaluate the performance of the related Property Manager of its duties;


 


(h) review, analyze and comment upon the operating
budgets, capital budgets and leasing plans prepared and submitted by each
Property Manager and aggregate these property budgets into the Company’s
overall budget;


 


(i) review and analyze
on-going financial information pertaining to each Property and the overall
portfolio of Properties;


 


(j) formulate and oversee the
implementation of strategies for the administration, promotion, management,
operation, maintenance, improvement, financing and refinancing, marketing,
leasing, and disposition of Properties on an overall portfolio basis;


 


(k) subject to the provisions of Paragraphs 3(l) and 4
hereof, (i) locate, analyze and select potential investments in Properties,
(ii) structure and negotiate the terms and conditions of transactions pursuant
to which investment in Properties will be made; (iii) make investments in
Properties on behalf of the Company or the Partnership in compliance with the
investment objectives and policies of the Company; (iv) arrange for financing
and refinancing and make other changes in the asset or capital structure of,
and dispose of, reinvest the proceeds from the sale of, or otherwise deal with
the investments in, Property; (v) enter into leases and service contracts for
Property, including oversight of Affiliated companies that perform property
management services for the Company; (vi) oversee non-affiliated property
managers and other non-affiliated Persons who perform services for the Company;
and (vii) to the extent necessary, perform all other operational functions for
the maintenance and administration of such Property;


 


(l) obtain the prior approval
of the Board for any and all investments in Properties (as well as any
financing acquired by the Company or the Partnership in connection with such
investment);


 


(m) if a transaction requires
approval by the Board of Trustees, deliver to the Board of Trustees all
documents required by them to properly evaluate the proposed investment in the
Property;


 





















 


(n) negotiate on behalf of the Company with banks or
lenders for loans to be made to the Company, and negotiate on behalf of the
Company with investment banking firms and broker-dealers or negotiate private
sales of Shares and other securities or obtain loans for the Company, but in no
event in such a way so that the Advisor shall be acting as broker-dealer or
underwriter; and provided, further, that any fees and costs payable to third
parties incurred by the Advisor in connection with the foregoing shall be the
responsibility of the Company;


 


(o) obtain reports (which may
be prepared by the Advisor or its Affiliates), where appropriate, concerning
the value of investments or contemplated investments of the Company in
Properties;


 


(p) from time to time, or at
any time reasonably requested by the Board, provide information or make reports
to the Board related to its performance of services to the Company under this
Agreement;


 


(q) from time to time, or at any time reasonably
requested by the Board, make reports to the Board of the investment opportunities
it has presented to other Advisor-sponsored programs or that it has pursued
directly or through an Affiliate;


 


(r) provide the Company with
all necessary cash management services;


 


(s) deliver to or maintain on
behalf of the Company copies of all appraisals obtained in connection with the
investments in Properties;


 


(t) notify the Board of all
proposed material transactions before they are completed; and


 


(u) do all things necessary
to assure its ability to render the services described in this Agreement.


 


4.  Modification or Revocation of Authority of Advisor.  The Board may, at any time upon the
giving of notice to the Advisor, modify or revoke the authority or approvals
set forth in Paragraph 3, provided however, that such modification or revocation
shall be effective upon receipt by the Advisor and shall not be applicable to
investment transactions to which the Advisor has committed the Company prior to
the date of receipt by the Advisor of such notification.


 


5.  Bank Accounts.  The Advisor may establish and maintain one or
more bank accounts in its own name for the account of the Company or in the
name of the Company and may collect and deposit into any such account or
accounts, and disburse from any such account or accounts, any money on behalf
of the Company, under such terms and conditions as the Board may approve,
provided that no funds shall be commingled with the funds of the Advisor; and
the Advisor shall from time to time render appropriate accountings of such
collections and payments to the Board and to the auditors of the Company.


 


6.  Records; Access.  The Advisor shall maintain appropriate
records of all its activities hereunder and make such records available for
inspection by the Board and by counsel, auditors and authorized agents of the
Company, at any time or from time to time during normal business hours. The
Advisor shall at all reasonable times have access to the books and records of
the Company.


 


7.  Limitations on Activities.  Anything else in this Agreement to the
contrary notwithstanding, the Advisor shall refrain from taking any action
which, in its sole judgment made in good faith, would (a) adversely affect the
status of the Company as a REIT, (b) subject the Company to regulation under
the Investment Company Act of 1940, as amended, (c) violate any law, rule,
regulation or statement of policy of any governmental body or agency having
jurisdiction over the Company, its Shares or its other securities, or (d) the
Declaration of Trust or Bylaws, except if such action shall be ordered by the
Board, in which case the Advisor shall notify promptly the Board of the Advisor’s
judgment of the potential


 





















 


impact
of such action and shall refrain from taking such action until it receives
further clarification or instructions from the Board. In such event the Advisor
shall have no liability for acting in accordance with the specific instructions
of the Board so given. Notwithstanding the foregoing, the Advisor, its
directors, officers, employees and Shareholders, and Shareholders, directors
and officers of the Advisor’s Affiliates shall not be liable to the Company or
to the Board or Shareholders for any act or omission by the Advisor, its
directors, officers or employees, or Shareholders, directors or officers of the
Advisor’s Affiliates except as provided in Paragraphs 17 and 18 of this
Agreement.


 


8.  Fees.


 


(a) Asset
Management Fee.  Commencing on
the date hereof, the Advisor shall be paid for the asset management services
included in the services described in Section3 a quarterly fee (the “Asset
Management Fee”) in an amount equal to one-fourth of 0.25% of the Gross Asset
Value calculated on the last day of each preceding quarter.  The Asset Management Fee may
or may not be taken, in whole or in part as to any quarter, in the sole discretion
of the Advisor.  All or any portion of
the Asset Management Fee not taken as to any quarter shall be deferred without
interest and may be taken in such other quarter as the Advisor shall determine.


 


(b) Acquisition
Fees.  The Advisor may
receive, as compensation for services rendered in connection with the
investigation, selection and acquisition (by purchase, investment or exchange)
of Properties, Acquisition Fees in an amount equal to 2.0% of Gross Proceeds,
payable by the Company upon the Company’s receipt of Gross Proceeds; provided
that upon termination of this Agreement, the Advisor will be obligated to
reimburse the Company for any Acquisition Fee that has not been allocated to
the purchase price of Company Properties as provided for in the Declaration of
Trust.


 


(c) Disposition Fee.  If the Advisor or an Affiliate provides a
substantial amount of the services (as determined by the Conflicts Committee)
in connection with the Sale of one or more Properties, the Advisor or such
Affiliate shall receive at closing a Disposition Fee equal to 1.0% of the sales
price of such Property or Properties; provided, however, that no Disposition
Fee shall be payable to the Advisor for Property Sales if such Sales involve
the Company selling all or substantially all of its Properties in one or more
transactions designed to effectuate a business combination transaction (as
opposed to a Company liquidation, in which case the Disposition Fee would be
payable if the Advisor or an Affiliate provides a substantial amount of
services as provided above). Any Disposition Fee payable under this sectionmay
be paid in addition to real estate commissions paid to non-Affiliates, provided
that the total real estate commissions (including such Disposition Fee) paid to
all Persons by the Company for each Property shall not exceed an amount equal
to the lesser of (i) 6.0% of the aggregate Contract Sales Price of each
Property or (ii) the Competitive Real Estate Commission for each Property.


 


(d) Subordinated
Share of Net Sales Proceeds. 
The Subordinated Share of Net Sales Proceeds shall be payable to the
Advisor in an amount equal to 15% of Net Sales Proceeds remaining after the
Shareholders have received Distributions equal to the sum of the Shareholders’
7% Return and 100% of Invested Capital. Following Listing, no Subordinated
Share of Net Sales Proceeds will be paid to the Advisor.


 


(e) Subordinated
Incentive Fee.  Upon Listing,
the Advisor shall be entitled to the Subordinated Incentive Fee in an amount
equal to 15.0% of the amount by which (i) the market value of the outstanding
Shares of the Company, measured by taking the average closing price or average
of bid and asked price, as the case may be, over a period of 30 days during
which the Shares are traded, with such period beginning 180 days after Listing
(the “Market Value”), plus the total of all Distributions paid to Shareholders
from the Company’s inception until the date that Market Value is determined,
exceeds (ii) the sum of (A) 100% of Invested Capital and (B) the total
Distributions required to be paid to the


 





















 


Shareholders in order to
pay the Shareholders’ 7% Return from inception through
the date Market Value is determined. The Company shall have the option to pay
such fee in the form of cash, Shares, a promissory note or any combination of
the foregoing. The Subordinated Incentive Fee will be reduced by the amount of
any prior payment to the Advisor of a Subordinated Share of Net Sales Proceeds.
In the event the Subordinated Incentive Fee is paid to the Advisor following
Listing, no other performance fee will be paid to the Advisor.


 


(f) Changes to Fee
Structure. In the event of Listing, the Company and the Advisor
shall negotiate in good faith to establish a fee structure appropriate for a
perpetual-life entity.


 


9.  Expenses. 


 


(a) Reimbursable
Expenses. In addition to the compensation paid to the Advisor
pursuant to Paragraph 8 hereof, the Company shall pay directly or reimburse the
Advisor for all of the expenses paid or incurred by the Advisor (to the extent
not reimbursable by another party, such as the dealer manager) in connection
with the services it provides to the Company pursuant to this Agreement,
including, but not limited to:


 


(i) the Organization and Offering Expenses; provided,
however, that within 60 days after the end of the month in which an Offering
terminates, the Advisor shall reimburse the Company to the extent (i) Capped
O&O Expenses borne by the Company exceed 2.5% of the Gross Proceeds raised
in a completed offering and (ii) Organization and Offering Expenses borne by
the Company exceed 15% of the Gross Proceeds raised in a completed Offering;


 


(ii) Acquisition Fees and Acquisition Expenses payable
to unaffiliated Persons incurred in connection with the selection and
acquisition of Properties;


 


(iii) the actual cost of
goods and services used by the Company and obtained from entities not
affiliated with the Advisor;


 


(iv) interest and other costs
for borrowed money, including discounts, points and other similar fees;


 


(v) taxes and assessments on
income or Property and taxes as an expense of doing business;


 


(vi) costs associated with
insurance required in connection with the business of the Company or by the
Board;


 


(vii) expenses of managing
and operating Properties owned by the Company, whether payable to an Affiliate
of the Company or a non-affiliated Person;


 


(viii) all expenses in
connection with payments to the Board and meetings of the Board and
Shareholders;


 


(ix) expenses associated with Listing or with the
issuance and distribution of securities other than the Shares, such as selling
commissions and fees, advertising expenses, taxes, legal and accounting fees,
listing and registration fees;


 


(x) expenses connected with
payments of Distributions in cash or otherwise made or caused to be made by the
Company to the Shareholders;


 





















 


(xi) expenses of organizing,
redomesticating, merging, liquidating or dissolving the Company or of amending
the Declaration of Trust or the Bylaws;


 


(xii) expenses of maintaining communications with
Shareholders, including the cost of preparation, printing, and mailing annual
reports and other Share holder reports, proxy statements and other reports
required by governmental entities;


 


(xiii) administrative service
expenses, including all costs and expenses incurred by Advisor in fulfilling
its duties hereunder. Such costs and expenses may include reasonable wages and
salaries and other employee-related expenses of all employees of Advisor who
are engaged in the management, administration, operations, and marketing of the
Company, including taxes, insurance and benefits relating to such employees,
and legal, travel and other out-of-pocket expenses which are directly related
to their services provided hereunder; and


 


(xiv) audit, accounting and
legal fees.


 


No reimbursement shall be made for costs of personnel
of the Advisor or its Affiliates to the extent that such personnel perform
services in connection with services for which the Advisor receives the
Acquisition Fee or the Disposition Fee.


 


(b) Other Services.  Should the Board request that the Advisor or
any director, officer or employee thereof render services for the Company other
than set forth in Paragraph 3, such services shall be separately compensated at
such rates and in such amounts as are agreed by the Advisor and the Conflicts
Committee, subject to the limitations contained in the Declaration of Trust,
and shall not be deemed to be services pursuant to the terms of this Agreement.


 


(c) Timing of and
Limitations on Reimbursements.


 


(i) Expenses incurred by the Advisor on behalf of the
Company and payable pursuant to this Paragraph 9 shall be reimbursed no less
than quarterly to the Advisor. The Advisor shall prepare a statement
documenting the expenses of the Company during each quarter, and shall deliver such
statement to the Company within 45 days after the end of each quarter.


 


(ii) Notwithstanding anything else in this Section9 to
the contrary, the expenses enumerated in this Section9 shall not become
reimbursable to the Advisor unless and until the Company has raised $2,000,000
in an Offering.


 


(iii) The Company shall not reimburse the Advisor at
the end of any fiscal quarter Operating Expenses that, in the four consecutive
fiscal quarters then ended (the “Expense Year”) exceed (the “Excess Amount”)
the greater of 2% of Average Invested Assets or 25% of Net Income (the “2%/25%
Guidelines”) for such year unless the Conflicts Committee determines that such
excess was justified, based on unusual and nonrecurring factors which the
Conflicts Committee deems sufficient. If the Conflicts Committee does not
approve such excess as being so justified, any Excess Amount paid to the
Advisor during a fiscal quarter shall be repaid to the Company. If the
Conflicts Committee determines such excess was justified, then within 60 days
after the end of any fiscal quarter of the Company for which total reimbursed
Operating Expenses for the Expense Year exceed the 2%/25% Guidelines, the
Advisor, at the direction of the Conflicts Committee, shall send to the
Shareholders a written disclosure of such fact, together with an explanation of
the factors the Conflicts Committee considered in determining that such excess
expenses were justified. The Company will ensure that such determination will
be reflected in the minutes of the meetings of the Board of Trustees. The
Company will not


 





















 


reimburse the Advisor or its Affiliates for
services for which the Advisor or its Affiliates are entitled to compensation
in the form of a separate fee. All figures used in the foregoing computation shall
be determined in accordance with generally accepted accounting principles
applied on a consistent basis.


 


10.  Other Activities of the Advisor.


 


(a) General. 
Nothing herein contained shall prevent the Advisor from engaging in
other activities, including, without limitation, the rendering of advice to
other Persons (including other REITs) and the management of other programs
advised, sponsored or organized by the Advisor or its Affiliates; nor shall
this Agreement limit or restrict the right of any director, officer, employee,
or shareholder of the Advisor or its Affiliates to engage in any other business
or to render services of any kind to any other partnership, corporation, firm,
individual, trust or association. The Advisor may, with respect to any
investment in which the Company is a participant, also render advice and
service to each and every other participant therein. The Advisor shall report
to the Board the existence of any condition or circumstance, existing or
anticipated, of which it has knowledge, which creates or could create a
conflict of interest between the Advisor’s obligations to the Company and its
obligations to or its interest in any other partnership, corporation, firm,
individual, trust or association.


 


(b) Policy with
Respect to Allocation of Investment Opportunities.  Before the Advisor presents an investment
opportunity that would in its judgment be suitable for the Company to another
Advisor-sponsored program, the Advisor shall determine in its sole discretion
that the investment opportunity is more suitable for such other program than
for the Company based on factors such as the following: the investment
objectives and criteria of each program; the cash requirements and anticipated
cash flow of each program; the size of the investment opportunity; the effect
of the acquisition on diversification of each program’s investments by type of
commercial property, geographic area and tenant base; the estimated income tax
effects of the purchase on each entity; the policies of each program relating
to leverage; the funds of each entity available for investment and the length
of time such funds have been available for investment. In the event that an
investment opportunity becomes available that is, in the sole discretion of the
Advisor, equally suitable for both the Company and another Advisor-sponsored
program, then the Advisor may offer the other program the investment
opportunity if it has had the longest period of time elapse since it was
offered an investment opportunity. The Advisor will use its reasonable efforts
to fairly allocate investment opportunities in accordance with such allocation
method and will promptly disclose any material deviation from such policy or
the establishment of a new policy, which shall be allowed provided (1) the
Board is provided with notice of such policy at least 60 days prior to such
policy becoming effective and (2) such policy provides for the reasonable
allocation of investment opportunities among such programs. The Advisor shall
provide the Conflicts Committee with any information reasonably requested so
that the Conflicts Committee can insure that the allocation of investment
opportunities is applied fairly. Nothing herein shall be deemed to prevent the
Advisor or an Affiliate from pursuing an investment opportunity directly rather
than offering it to the Company or another Advisor-sponsored program so long as
the Advisor is fulfilling its obligation to present a continuing and suitable
investment program to the Company which is consistent with the investment
policies and objectives of the Company.


 


11.  Relationship of Advisor and Company.  The Company and the Advisor are not partners
or joint venturers with each other, and nothing in this Agreement shall be
construed to make them such partners or joint venturers or impose any liability
as such on either of them.


 





















 


12.  Representations and Warranties.


 


(a) Of the Company.
To induce the Advisor to enter into this Agreement, the Company hereby
represents and warrants that:


 


(i) The Company is a real estate investment trust,
duly organized, validly existing and in good standing under the laws of the
State of Maryland with all requisite corporate power and authority and all
material licenses, permits and authorizations necessary to carry out the transactions
contemplated by this Agreement.


 


(ii) The Company’s execution, delivery and performance
of this Agreement has been duly authorized. This
Agreement constitutes the valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms. The Company’s
execution and delivery of this Agreement and its fulfillment of and compliance
with the respective terms hereof do not and will not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the assets of the Company pursuant to, (iv) give any
third party the right to modify, terminate or accelerate any obligation under,
(v) result in a violation of or (vi) require any authorization, consent,
approval, exception or other action by or notice to any court or administrative
or governmental body pursuant to, the Declaration of Trust or Bylaws or any
law, statute, rule or regulation to which the Company is subject, or any
agreement, instrument, order, judgment or decree by which the Company is bound,
in any such case in a manner that would have a material adverse effect on the
ability of the Company to perform any of its obligations under this Agreement.


 


(b) Of the Advisor.
To induce Company to enter into this Agreement, the Advisor represents and
warrants that:


 


(i) The Advisor is a limited partnership, duly
organized, validly existing and in good standing under the laws of the State of
Texas with all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to carry out the transactions
contemplated by this Agreement.


 


(ii) The Advisor’s execution, delivery and performance
of this Agreement has been duly authorized. This
Agreement constitutes a valid and binding obligation of the Advisor,
enforceable against the Advisor in accordance with its terms. The Advisor’s
execution and delivery of this Agreement and its fulfillment of and compliance
with the respective terms hereof do not and will not (i) conflict with or
result in a breach of the terms, conditions or provisions of, (ii) constitute a
default under, (iii) result in the creation of any lien, security interest,
charge or encumbrance upon the Advisor’s assets pursuant to, (iv) give any
third party the right to modify, terminate or accelerate any obligation under,
(v) result in a violation of or (vi) require any authorization, consent,
approval, exemption or other action by or notice to any court or administrative
or governmental body pursuant to, the Advisor’s limited partnership agreement,
or any law, statute, rule or regulation to which the Advisor is subject, or any
agreement, instrument, order, judgment or decree by which the Advisor is bound,
in any such case in a manner that would have a material adverse effect on the
ability of the Advisor to perform any of its obligations under this Agreement.


 


(iii) The Advisor has received copies of the
Declaration of Trust, Bylaws, and the Registration Statement and of the
Partnership’s limited partnership agreement and is familiar with the terms
thereof, including without limitation the investment limitations included
therein. Advisor warrants that it will use reasonable care to avoid any act or
omission that would conflict with the terms of the Declaration of Trust,
Bylaws, the Registration Statement, or the


 





















 


Partnership’s
limited partnership agreement in the absence of the express direction of the
Conflicts Committee.


 


13.  Term; Termination of Agreement.  This Agreement shall continue in force until
the first anniversary of the date hereof, subject to an unlimited number of
successive one-year renewals upon mutual consent of the parties. The Company,
acting through the Board, will evaluate the performance of the Advisor annually
before renewing the Agreement, and each such renewal shall be for a term of no
more than one year.


 


14.  Termination by Either Party. This
Agreement may be terminated upon 60 days written notice without cause or
penalty, by either party (by majority of the independent Trustees of the
Advisor, as the case may be). The provisions of Sections 1, 6, 7, and 16
through 27 survive termination of this Agreement.


 


15.  Assignment to an Affiliate.  This Agreement may be assigned by the Advisor
to an Affiliate with the approval of a majority of the Conflicts Committee. The
Advisor may assign any rights to receive fees or other payments under this
Agreement without obtaining the approval of the Board. This Agreement shall not
be assigned by the Company without the consent of the Advisor, except in the
case of an assignment by the Company to a corporation or other organization
which is a successor to all of the assets, rights and obligations of the
Company, in which case such successor organization shall be bound hereunder and
by the terms of said assignment in the same manner as the Company is bound by
this Agreement.


 


16.  Payments to and Duties of Advisor upon Termination.  Payments to the Advisor pursuant to this Section16
shall be subject to the 2%/25% Guidelines to the extent applicable.


 


(a) After the Termination Date, the Advisor shall not
be entitled to compensation for further services hereunder except it shall be
entitled to receive from the Company within 30 days after the effective date of
such termination the following:


 


(i) all unpaid reimbursements of expenses and all
earned but unpaid fees payable to the Advisor prior to termination of this
Agreement; and


 


(ii) the Subordinated
Performance Fee Due Upon Termination, provided that no Subordinated Performance
Fee Due Upon Termination will be paid if the Company has paid or is obligated
to pay the Subordinated Incentive Fee.


 


(b) The Advisor shall promptly upon termination:


 


(i) pay over to the Company all money collected and
held for the account of the Company pursuant to this Agreement, after deducting
any accrued compensation and reimbursement for its expenses to which it is then
entitled;


 


(ii) deliver to the Board a full accounting, including
a statement showing all payments collected by it and a statement of all money
held by it, covering the period following the date of the last accounting
furnished to the Board;


 


(iii) deliver to the Board
all assets, including Properties, and documents of the Company then in the
custody of the Advisor; and


 


(iv) cooperate with the
Company to provide an orderly management transition.


 





















 


17.  Indemnification by the Company.  The Company shall indemnify and hold harmless
the Advisor and its Affiliates, including their respective officers, directors,
partners and employees, from all liability, claims, damages or losses arising
in the performance of their duties hereunder, and related expenses, including
reasonable attorneys’ fees, to the extent such liability, claims, damages or
losses and related expenses are not fully reimbursed by insurance, subject to
any limitations imposed by the laws of the State of Maryland or the Declaration
of Trust. Notwithstanding the foregoing, the Advisor shall not be entitled to
indemnification or be held harmless pursuant to this Paragraph 17 for any
activity which the Advisor shall be required to indemnify or hold harmless the
Company pursuant to Paragraph 18. Any indemnification of the Advisor may be
made only out of the net assets of the Company and not from Shareholders.


 


18.  Indemnification by Advisor.  The Advisor shall indemnify and hold harmless
the Company from contract or other liability, claims, damages, taxes or losses
and related expenses including attorneys’ fees, to the extent that such
liability, claims, damages, taxes or losses and related expenses are not fully
reimbursed by insurance and are incurred by reason of the Advisor’s bad faith,
fraud, willful misfeasance, misconduct, or reckless disregard of its duties.


 


19.  Notices.  Any notice, report or other communication
required or permitted to be given hereunder shall be in writing unless some
other method of giving such notice, report or other communication is required
by the Declaration of Trust, the Bylaws, or accepted by the party to whom it is
given, and shall be given by being delivered by hand or by overnight mail or
other overnight delivery service to the addresses set forth herein:


 


	
  To the Board and to the Company:

  	
   

  	
  Hartman Commercial Properties REIT

  1450 West Sam Houston Parkway, North, Suite 100

  Houston, Texas 77043

  
	
   

  	
   

  	
   

  
	
  To the Advisor:

  	
   

  	
  Hartman Management, L.P.

  1450 West Sam Houston Parkway, North, Suite 100

  Houston, Texas 77043

  



 


Either party may at any time give notice in writing to
the other party of a change in its address for the purposes of this
Paragraph19.


 


20.  Modification.  This Agreement shall not be changed,
modified, terminated, or discharged, in whole or in part, except by an
instrument in writing signed by both parties hereto, or their respective
successors or assignees.


 


21.  Severability.  The provisions of this Agreement are
independent of and severable from each other, and no provision shall be
affected or rendered invalid or unenforceable by virtue of the fact that for
any reason any other or others of them may be invalid or unenforceable in whole
or in part.


 


22.  Construction.  The provisions of this Agreement shall be
construed and interpreted in accordance with the laws of the State of Texas.


 


23.  Entire Agreement.  This Agreement contains the entire agreement
and understanding among the parties hereto with respect to the subject matter
hereof, and supersedes all prior and contemporaneous agreements,
understandings, inducements and conditions, express or implied, oral or
written, of any nature whatsoever with respect to the subject matter hereof.
The express terms hereof control and supersede any course of performance and/or
usage of the trade inconsistent with any of the terms hereof. This Agreement
may not be modified or amended other than by an agreement in writing.


 





















 


24.  Indulgences, Not Waivers.  Neither the failure nor any delay on the part
of a party to exercise any right, remedy, power or privilege under this
Agreement shall operate as a waiver thereof, nor shall any single or partial
exercise of any right, remedy, power or privilege preclude any other or further
exercise of the same or of any other right, remedy, power or privilege, nor
shall any waiver of any right, remedy, power or privilege with respect to any
occurrence be construed as a waiver of such right, remedy, power or privilege
with respect to any other occurrence. No waiver shall be effective unless it is
in writing and is signed by the party asserted to have granted such waiver.


 


25.  Gender. 
Words used herein regardless of the number and gender specifically used,
shall be deemed and construed to include any other number, singular or plural,
and any other gender, masculine, feminine or neuter, as the context requires.


 


26.  Titles Not to Affect Interpretation.  The titles of paragraphs and subparagraphs
contained in this Agreement are for convenience only, and they neither form a
part of this Agreement nor are they to be used in the construction or
interpretation hereof.


 


27.  Execution in Counterparts.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed to be an original as against any
party whose signature appears thereon, and all of which shall together
constitute one and the same instrument. This Agreement shall become binding
when the counterparts hereof, taken together, bear the signatures of all of the
parties reflected hereon as the signatories.


 


[Signatures appear
on next page.]


 





















 


IN WITNESS WHEREOF, the parties hereto have executed
this Advisory Agreement as of the date and year first above written.


 


 


	
   

  	
  HARTMAN COMMERCIAL PROPERTIES REIT

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Allen R. Hartman

  	
   

  
	
   

  	
  Name:

  	
  Allen R. Hartman

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  HARTMAN MANAGEMENT, L.P.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By: :

  	
  /s/ Allen R. Hartman

  	
   

  
	
   

  	
  Name:

  	
  Allen R. Hartman

  	
   

  
	
   

  	
  Title:

  	
  President