Document:

Exhibit 10.1

 

ADAPTIVE REAL ESTATE INCOME TRUST, INC.

 

ADVISORY MANAGEMENT AGREEMENT

 

This ADVISORY MANAGEMENT AGREEMENT (this “Agreement”), is made and entered as of the       day of                        , 2013 (the “Effective Date”), by and between ADAPTIVE REAL ESTATE INCOME TRUST, INC., a Maryland corporation (the “Company”), and ADAPTIVE REAL ESTATE INCOME TRUST ADVISORS, LLC, a Texas limited liability company (the “Advisor”).

 

W I T N E S S E T H

 

WHEREAS, the Company is issuing shares of its common stock, par value $0.0001, in an initial public offering registered with the Securities and Exchange Commission;

 

WHEREAS, the Company has been formed to primarily acquire and operate a portfolio of institutional quality, income-producing commercial real estate, focused primarily on the following four asset classes:  multifamily; office; industrial; and retail;

 

WHEREAS, the Company intends to qualify as a real estate investment trust and invest its funds in investments permitted by the terms of the Company’s Articles of Incorporation and Sections 856 through 860 of the Code;

 

WHEREAS, the Company desires 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, all as provided herein; and

 

WHEREAS, the Advisor is willing to undertake to provide these services, subject to the supervision of the Board, on the terms and conditions hereinafter set forth.

 

NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the parties hereby agree as follows:

 

ARTICLE ONE

 

DEFINITIONS

 

The following defined terms used in this Agreement shall have the meanings specified below:

 

Acquisition Expenses.  The Company will pay all expenses incurred in respect of an investment in an Asset or a potential investment in an Asset, whether or not closed, including any third party expenses and any expenses paid by the Advisor, including, but not limited to, (i) Personnel Compensation Costs and Administrative Services Burden incurred by the Advisor for employees providing (a) Transactional Support Services and (b) ancillary services that may be provided by the Advisor, including without limitation accounting services related to the preparation of audits required by the Securities and Exchange Commission, property condition reports, title services, title insurance, insurance brokerage or environmental services related to the preparation of environmental assessments (referred to herein as the “Ancillary Services”); (ii) any investment-related expenses due to third parties in the case of a completed or contemplated investment, including, but not limited to, legal fees and expenses, travel and communications expenses, costs of appraisals, accounting fees and expenses, including Audit Expenses,

 

 

third-party brokerage or finder’s fees, title insurance, premium expenses and other closing costs; and (iii) any payments with respect to a completed or contemplated investment made to (a) a prospective seller of an asset, (b) an agent of a prospective seller of an asset, or (c) a party that has the right to control the sale of an asset intended for investment by the Company that are not refundable and that are not ultimately applied against the purchase price for such asset.  With respect to Assets owned or to be owned through a Joint Venture, the Acquisition Expenses shall be equal to the product of (A) the amount determined in accordance with the foregoing and (B) the Ownership Percentage.

 

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 making or investing in Mortgages or other loans or the purchase, development, construction or Improvement of an Asset, including, without limitation, real estate commissions, selection fees, investment banking fees, third party seller’s fees (to the extent the Company agrees to pay any such fees as part of an acquisition), Development Fees, Construction Fees, non-recurring management fees, loan fees, points or any other fees of a similar nature payable to the Advisor pursuant to Section 3.01(b).  Excluded shall be Development Fees and Construction Fees paid to any Person not affiliated with the Sponsor.

 

Administrative Services Burden.  Direct and indirect general and administrative costs allocated or related to Advisor Personnel that are separate and distinct from Personnel Compensation Costs paid or accrued (whether actual or estimated) without duplication, including, but not limited to, computer hardware, software and licensing costs, office supplies, postage, travel, office facilities costs (such as rent, common area charges, parking charges and utilities), network and personal communication costs (including office and personal telephones) and human resources initiatives incurred by the Advisor or its Affiliates and reasonably allocated to the Company.

 

Advisor.  Adaptive Real Estate Income Trust Advisors, LLC, a Texas limited liability company, any successor advisor to the Company, or any Person to which Adaptive Real Estate Income Trust Advisors, LLC or any successor advisor subcontracts all or substantially all of its functions.

 

Advisor Personnel.  Any person compensated by the Advisor or any Affiliate of the Advisor, whether as an employee, consultant or subcontractor, who performs services on behalf of the Advisor for or to the Company.

 

Affiliate  or  Affiliated.  As to any Person, (i) 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; (ii) 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; (iii) any Person, directly or indirectly, controlling, controlled by, or under common control with such other Person; (iv) any executive officer, director, trustee or general partner of such other Person; and (v) any legal entity for which such Person acts as an executive officer, director, trustee or general partner.

 

Applicable Debt Financing Fee.  A percentage equal to 0.5% of the Commitment Amount made available to the Company for any loan or Mortgage, or refinancing, restructuring, or modification of any existing loan or Mortgage, with a term (taking into effect all available extension options) of at least 120 days.    The Company will pay directly all expenses related to any third party arrangements, including any lender costs, broker costs, and other costs associated with the financing, such as legal expenses, title expenses, closing costs, and due diligence expenses.

 

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Articles of Incorporation.  The Articles of Incorporation of the Company filed with the Maryland State Department of Assessments and Taxation in accordance with the Maryland General Corporation Law, as amended or restated from time to time.

 

Assets.  Properties, Mortgages, loans and other direct or indirect investments (other than investments in bank accounts, money market funds or other current assets) owned by the Company, directly or indirectly through one or more of its Affiliates or Joint Ventures or through other investment interests.  By way of example, if the Company has a 45% Ownership Percentage in a Joint Venture and the Joint Venture holds 50% of the equity interests in an Asset, then the Company shall be considered to have a 22.5% Ownership Percentage in the Asset.

 

Asset Management Fee.  The fee payable to the Advisor for day-to-day professional management services in connection with the Company and its investments in Assets pursuant to Section 3.01(a) of this Agreement.

 

Audit Expenses.  Any and all costs or expenses paid or incurred by the Advisor, on behalf of the Company, in connection with financial statements prepared in accordance with Regulation S-X, including but not limited to Rules 3-01, 3-05 and 3-14 thereunder, and pro forma financial information required by Article 11 thereunder.

 

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 equity interests in and loans secured by real estate, before deducting depreciation, bad debts or other non-cash reserves, computed by taking the average of such values at the end of each month during such period.

 

Board.  The Board of Directors of the Company.

 

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

 

Change of Control.  Any (i) event (including, without limitation, issue, transfer or other disposition of Shares of capital stock of the Company or equity interests in the Operating Partnership, merger, share exchange or consolidation) after which any “person” (as that term is used in Sections 13(d) and 14(d) of the Exchange Act) is or becomes the “beneficial owner” (as defined in Rule 13d-3 of the Exchange Act), directly or indirectly, of securities of the Company or the Operating Partnership representing greater than 50% of the combined voting power of the Company’s or the Operating Partnership’s then outstanding securities, respectively; provided, that, a Change of Control shall not be deemed to occur as a result of any widely distributed public offering of the Common Shares or (ii) direct or indirect sale, transfer, conveyance or other disposition (other than pursuant to clause (i)), in one or a series of related transactions, of all or substantially all of the properties or assets of the Company or the Operating Partnership, taken as a whole, to any “person” (as that term is used in Sections 13(d) and 14(d) of the Exchange Act).

 

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 the 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.

 

Commitment Amount.  With respect to any loan or Mortgage, the maximum amount of the loan or Mortgage that the lender or lenders have made available in accordance with the terms and conditions contained in the documents governing the loan or Mortgage as those terms and conditions existed when the parties first executed and delivered the applicable governing documents, including any extension

 

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periods; provided that in the case of a revolving loan, the Commitment Amount shall not include monies that may be reborrowed as a result of principal repayments.

 

Common Shares.  Any shares of the Company’s common stock, par value $0.0001 per share.

 

Company.  Adaptive Real Estate Income Trust, Inc., a corporation organized under the laws of the State of Maryland.  Unless the context clearly indicates otherwise, references to the Company shall include its direct and indirect subsidiaries, including the Operating Partnership.

 

Competitive Real Estate Commission.  A real estate or brokerage commission paid or, if no commission is paid, the amount that customarily would be paid for the purchase or sale of a property that is reasonable, customary, and competitive in light of the size, type and location of the property (as determined by the Board, including a majority of the Independent Directors).

 

Construction Fee.  A fee or other remuneration for acting as general contractor and/or construction manager to construct improvements, supervise and coordinate projects or to provide major repairs or rehabilitation on a Property.

 

Contract Purchase Price.  The amount of monies or other consideration: (i) paid or contributed (including deemed contributions) by the Company, the Operating Partnership or the Joint Venture, as applicable, to acquire an Asset or any Incremental Interest in an Asset, including by way of exchanging a debt interest for an equity interest and including any indebtedness funded by parties other than the Company or the Joint Venture, as applicable, for money borrowed to finance the purchase or indebtedness of third parties secured by an Asset, which is assumed, refinanced or restructured in connection with the acquisition, (ii) to be funded or advanced by the Company, the Operating Partnership or the Joint Venture, as applicable, in respect of a Mortgage in connection with the acquisition of an Asset; and (iii) approved by the Board from time to time for the construction, development or Improvement of an Asset, but excluding amounts accounted for in (i) or (ii) above.  In each case, Acquisition Fees and Acquisition Expenses shall be excluded from the calculation.  With respect to Assets owned or to be owned through a Joint Venture, the Contract Purchase Price shall be equal to the product of (A) the amount determined in accordance with the foregoing and (B) the Ownership Percentage.

 

Convertible Shares.  Any shares of the Company’s convertible stock, par value $0.0001 per share.

 

Dealer Manager.  Behringer Securities LP, an Affiliate of the Advisor, or such Person selected by the Board to act as the dealer manager for an Offering.

 

Development Fee.  A fee for the packaging of an Asset, including the negotiation and approval of plans, and any assistance in obtaining zoning and necessary variances and financing for a specific development Property, either initially or at a later date.

 

Director.  A member of the Board.

 

Disposition Fee.  Disposition Fee shall have the meaning ascribed to such term in Section 3.01(d).

 

Distributions.  Any dividends or other distributions of money or other property by the Company to holders of Common Shares, including distributions that may constitute a return of capital for federal income tax purposes but excluding distributions that constitute the redemption of any Common Shares.

 

Exchange Act.  The Securities Exchange Act of 1934, as amended from time to time, or any successor statute thereto.  Reference to any provision of the Exchange Act shall mean such provision as in effect

 

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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.

 

GAAP.  Generally accepted accounting principles as in effect in the United States of America from time to time or such other accounting basis mandated by the Securities and Exchange Commission.

 

Gross Proceeds.  The aggregate amount paid for all Shares sold for the account of the Company through an Offering, without deduction for Organization and Offering Expenses.

 

Improvement.  Any monies invested or otherwise spent by the Company or the Operating Partnership, directly or indirectly to develop, construct, renovate, remodel, or refurbish an Asset, all to the extent that the monies invested or funded for each of these purposes are approved by the Board.

 

Incremental Interest.  An increase in the Ownership Percentage in an Asset, which results from an additional investment by the Company or the Operating Partnership in the Asset, whether through an additional capital contribution, the funding of additional debt or the assumption or guarantee of debt, which is not matched by a corresponding contribution or assumption by the other Joint Venture partner(s).

 

Independent Director.  A Director who has not been, within the last two years, directly or indirectly associated with the Sponsor, the Advisor or any of their Affiliates by virtue of (i) ownership of an interest in the Sponsor, the Advisor or any of their Affiliates, (ii) employment by the Company, the Sponsor, the Advisor or any of their Affiliates, (iii) service as an officer or director of the Sponsor, the Advisor or any of their Affiliates, (iv) performance of services for the Company, other than as a Director of the Company, (v) service as a director or trustee of more than three real estate investment trusts organized by the Sponsor or advised by the Advisor, or (vi) maintenance of a material business or professional relationship with the Sponsor, the Advisor or any of their Affiliates. A business or professional relationship is considered “material” if the aggregate annual gross revenue derived by the Director from the Sponsor, the Advisor and their Affiliates exceeds 5% of either the Director’s annual gross income during either of the last two calendar years or the Director’s net worth on a fair market value basis. An indirect association with the Sponsor or the Advisor shall include circumstances in which a Director’s spouse, parent, child, sibling, mother- or father-in-law, son- or daughter-in-law or brother- or sister-in-law is or has been associated with the Sponsor, the Advisor, any of their Affiliates or the Company.

 

Initial Investment.  Initial Investment shall have the meaning ascribed to such term in Section 6.13.

 

Initial Public Offering. The Company’s initial Offering.

 

Intellectual Property Rights.  All rights, titles and interests, whether foreign or domestic, in and to any and all trade secrets, confidential information rights, patents, invention rights, copyrights, service marks, trademarks, know-how, or similar intellectual property rights and all applications and rights to apply for such rights, as well as any and all moral rights, rights of privacy, publicity and similar rights and license rights of any type under the laws or regulations of any governmental, regulatory, or judicial authority, foreign or domestic and all renewals and extensions thereof.

 

Joint Ventures.  A legal organization formed to provide for the sharing of the risks and rewards in an enterprise co-owned and operated for mutual benefit by two or more business partners and established to acquire or hold Assets.

 

Listing or Listed.  The filing of a Form 8-A (or any successor form) to register the Common Shares on a national securities exchange and the approval of an original listing application related thereto by the

 

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applicable exchange; provided, that the Common Shares shall not be deemed to be Listed until trading in the Common Shares shall have commenced on the relevant national securities exchange.  Upon a Listing, the Common Shares shall be deemed Listed.  A Listing shall also be deemed to occur on the effective date of a merger in which the consideration received by the holders of Common Shares is securities of another issuer that are listed on a national securities exchange.

 

Mortgages.  In connection with mortgage financing provided, invested in, participated in or purchased by the Company, all of the notes, deeds of trust, security interests or other evidence of indebtedness or obligations, which are secured or collateralized by Real Property owned by the borrowers under such notes, deeds of trust, security interests or other evidence of indebtedness or obligations.

 

NASAA REIT Guidelines.  The Statement of Policy Regarding Real Estate Investment Trusts adopted by the North American Securities Administrators Association on May 7, 2007, and as in effect on the date hereof.

 

Net Income.  For any period, the Company’s total revenues applicable to that period, less the total expenses applicable to the period other than additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of the Assets.

 

Net Offering Proceeds.  The Gross Proceeds raised in an Offering net of the Organization and Offering Expenses incurred.

 

Offering.  Any public offering of Shares pursuant to an effective registration statement filed under the Securities Act, other than a public offering of Shares under a distribution reinvestment plan.

 

Operating Partnership.  Adaptive Real Estate Income Trust OP LP, a Texas limited partnership, through which the Company may own Assets.

 

Organization and Offering Expenses.  Any and all costs and expenses incurred by and to be paid by the Company in connection with an Offering, the formation of the Company, and including, to the extent applicable, the qualification, registration and regulatory filings of the Offering and the marketing and distribution of the Shares, including, without limitation:  total underwriting and brokerage discounts and commissions (including fees of the underwriters’ attorneys); expenses for printing, engraving, amending registration statements and supplementing prospectuses; mailing and distribution costs; Personnel Compensation Costs and Administrative Services Burden incurred in connection with sales, marketing and offering activity, such as preparing supplemental sales literature; telephone and other telecommunication costs; all advertising and marketing expenses, including the costs related to investor and broker-dealer meetings; charges of transfer agents, registrars, trustees, escrow holders, depositories and experts; filing, registration and qualification fees and taxes relating to the Offering under federal and state laws; accountants’ and attorneys’ fees; reimbursement of bona fide due diligence expenses of broker-dealers; promotional items provided to participating broker-dealers; the cost of training and education meetings held by the Company (including the travel, meal and lodging costs of registered representatives of broker-dealers); attendance and sponsorship fees and cost reimbursement for employees of the Advisor and its affiliates to attend conferences conducted by broker-dealers; reimbursement to 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 and the ownership of the Shares by such broker-dealers’ customers.

 

Ownership Percentage.  With respect to any Asset made through a Joint Venture, the portion of the equity contributed to such Joint Venture, directly or indirectly, and debt assumed by the Company or the

 

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Operating Partnership, compared to the aggregate equity contributed and debt assumed by all Persons to such Joint Venture.

 

Person.  An individual, corporation, association, business trust, estate, trust, partnership, limited liability company or other legal entity.

 

Personnel Compensation Costs.  All compensation and benefits paid or accrued (whether actual or estimated), without duplication, including, but not limited to base salaries, bonuses, payroll taxes,  insurance costs, 401(k) contributions, profit and incentive plans and other ancillary benefits incurred  relating to Advisor Personnel, and reasonably allocated to the Company.

 

Preferred Shares.  Any shares of the Company’s preferred stock, par value $0.0001 per share.

 

Property or Properties.  As the context requires, any, or all, respectively, of the Real Property acquired by the Company or the Operating Partnership, either directly or indirectly (whether through Joint Ventures or other investment interests, regardless of whether the Company consolidates the financial results of these entities).

 

Proprietary Property.  All modeling algorithms, tools, computer programs, know-how, methodologies, processes, technologies, ideas, concepts, skills, routines, subroutines, operating instructions and other materials and aides used in performing the duties set forth in Section 2.02 that relate to advice regarding current and potential Assets, and all modifications, enhancements and derivative works of the foregoing.

 

Prospectus.  Prospectus has the meaning set forth in Section 2(a)(10) of the Securities Act, including a preliminary prospectus, an offering circular as described in Rule 253 of the General Rules and Regulations under the Securities Act, or, in the case of an intrastate offering, any document by whatever name known, utilized for the purpose of offering and selling securities of the Company.

 

Real Property or Real Estate.  Land, rights in land (including leasehold interests), and any buildings, structures, improvements, furnishings, fixtures and equipment located on or used in connection with land and rights or interests in land.

 

REIT.  A corporation, trust, association or other legal entity (other than a real estate syndication) that is engaged primarily in investing in interests in Real Estate (including fee ownership and leasehold interests) or in loans secured by Real Estate or both in accordance with Sections 856 through 860 of the Code.

 

Sale or Sales.  Any transaction or series of transactions whereby: (A) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, and including any event with respect to any Property which results in the Company or the Operating Partnership receiving a significant amount of insurance proceeds or condemnation awards; (B) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of all or substantially all of the interest of the Company or the Operating Partnership in any Joint Venture in which it is a co-venturer or partner; (C) any Joint Venture directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, or relinquishes its ownership of any Property or portion thereof, including any event with respect to any Property which results in the Joint Venture receiving insurance claims or condemnation awards; (D) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, conveys or relinquishes its interest in any Mortgage or other loan or portion thereof (including with respect to any Mortgage or other loan, all payments thereunder or in satisfaction thereof other than regularly scheduled interest payments of

 

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amounts owed pursuant to the Mortgage or other loan) and any event with respect to a Mortgage or other loan which gives rise to a significant amount of insurance proceeds or similar awards; or (E) the Company or the Operating Partnership directly or indirectly (except as described in other subsections of this definition) sells, grants, transfers, conveys, relinquishes or otherwise disposes of its ownership of any other Asset not previously described in this definition or any portion thereof.

 

Securities Act.  The Securities Act of 1933, as amended from time to time, or any successor statute thereto.  Reference to any provision of the Securities Act shall mean the 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.

 

Selling Commissions.  Any and all commissions payable to underwriters, dealer managers or other broker-dealers in connection with the sale of Shares, including, without limitation, commissions payable to Behringer Securities LP.

 

Shares.  Shares of stock of the Company of any class or series, including Common Shares, Preferred Shares or Convertible Shares.

 

Sponsor.  Sponsor has the meaning ascribed to such term in the Articles of Incorporation.

 

Stockholders.  The record holders of the Company’s Shares as maintained in the books and records of the Company or its transfer agent.

 

Termination Date.  The date of termination of this Agreement.

 

Texas Tax Code.  The Texas Tax Code as amended by Texas H.B. 3, 79th Leg., 3rd C.S. (2006).  Reference to any provision of the Texas Tax Code shall mean the provision as in effect from time to time, as the same may be amended, and any successor provision thereto, as interpreted by any applicable administrative rules as in effect from time to time.

 

Total Operating Expenses.  All costs and expenses paid or incurred by the Company, as determined under GAAP, which are in any way related to the operation of the Company or to Company business, including advisory fees, 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 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, impairment charges and bad debt reserves, (v) incentive fees paid to the Advisor in compliance with Section 8.7 of the Articles of Incorporation (as such provision may be amended or renumbered from time to time), (vi) Acquisition Fees and Acquisition Expenses (which, for the purposes of this definition, shall include any costs associated with Advisor Personnel performing Transactional Support Services), (vii) real estate commissions on the Sale of Assets, (viii) property operating expenses incurred on an individual Property level; and (ix) other fees and expenses connected with the acquisition, financing, disposition, management and ownership of real estate interests, mortgage loans or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of property).

 

Transactional Support Services.  Services performed by Advisor Personnel relating to an acquisition, development, financing, disposition, foreclosure, tenant negotiation and other transactions on behalf of the Company, including, but not limited to, the supervision or performance of site visits, tenant interviews, review of rent rolls, verification of leases and other contracts relating to the ownership, capital structure or operations of an Asset, review of surrounding location and potential competitors, review of

 

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environmental and property conditions and supervision of third parties providing similar services.  For clarification, Transactional Support Services are separate and distinct from services performed by the Advisor for which the Advisor is paid a fee pursuant to Section 3.01.

 

ARTICLE II

 

THE ADVISOR

 

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

 

2.02         Duties of the Advisor.  The Advisor shall be deemed to be in a fiduciary relationship to the Company and its Stockholders.  The Advisor shall generally manage the Company’s day-to-day operations and perform and supervise the various general and administrative functions reasonably necessary for the management and operations of the Company. Subject to Section 2.08, the Advisor undertakes to use its commercially reasonable best efforts to present to the Company potential investment opportunities consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the Board.  Subject to the supervision of the Board and consistent with the provisions of the Company’s most recent Prospectus, the Articles of Incorporation and the Bylaws, the Advisor agrees to perform, either directly or by engaging an Affiliate of the Advisor or other Person, the following services on behalf of the Company.

 

(a)           Organizational and Offering Services.  The Advisor shall manage and supervise:

 

(i)            the structure, development and negotiation of any equity or debt offering of the Company, including the determination of the specific terms of any Shares to be offered by the Company in an Offering;

 

(ii)           the preparation of all organizational and offering related documents, and obtaining of all required regulatory approvals of such documents;

 

(iii)          along with the Dealer Manager, approval of the participating broker dealers and negotiation of the related selling agreements;

 

(iv)          coordination of the due diligence process relating to participating broker dealers and their review of the Prospectus and other Offering and Company documents;

 

(v)           preparation and approval of all marketing materials contemplated to be used by the Dealer Manager or others in an Offering;

 

(vi)          along with the Dealer Manager, negotiation and coordination with the transfer agent for the receipt, collection, processing and acceptance of subscription agreements, commissions, and other administrative support functions;

 

(vii)         creation and implementation of various technology and electronic communications related to an Offering; and

 

(viii)        all other services related to organization of the Company or the Offering, whether performed and incurred by the Advisor or its Affiliates.

 

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(b)           Acquisition, Disposition, Financing and Related Services.  The Advisor shall:

 

(i)            serve as the Company’s investment and financial advisor and provide relevant market research and economic and statistical data in connection with the Company’s Assets and investment objectives and policies;

 

(ii)           consult with the Board 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;

 

(iii)          subject to the provisions of Section 2.03 hereof, (1) locate, analyze and select potential investments in Assets, (2) structure and negotiate the terms and conditions of transactions pursuant to which an investment in Assets will be made; (3) make investments in Assets on behalf of the Company or the Operating Partnership in compliance with the investment objectives and policies of the Company; (4) structure and negotiate the terms and conditions relating to the entering into, or the restructuring of, financings, refinancings or extensions relating to loans or Mortgages; (5) 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, Assets; and (6) enter into leases of Property and service contracts for Assets with Persons and, to the extent necessary, perform all other operational functions for the maintenance and administration of the Assets, including the servicing of Mortgages;

 

(iv)          perform due diligence on prospective investments and create due diligence reports summarizing the results of such work;

 

(v)           deliver to or maintain on behalf of the Company copies of all appraisals obtained in connection with acquiring Assets or financing, refinancing, restructuring or extending any loans or Mortgages;

 

(vi)          prepare reports regarding prospective investments which include recommendations and supporting documentation necessary for the Board to evaluate the proposed investments;

 

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

 

(viii)        obtain the prior approval of the Board to acquire or dispose of an Asset; and

 

(ix)           negotiate and execute investments and other transactions approved by the Board.

 

(c)           Asset Management and Property Related Services.  The Advisor shall:

 

(i)            monitor and service the Company’s existing debt facilities and other financings;

 

(ii)           monitor applicable markets and obtain reports (which may be prepared by the Advisor or its Affiliates) where appropriate, concerning the value of investments of the Company;

 

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(iii)          monitor and evaluate the performance of investments of the Company; provide daily management services to the Company and perform and supervise the various management and operational functions related to the Company’s investments;

 

(iv)          coordinate with the Property Manager on its duties under any property management agreement and assist in obtaining all necessary approvals of major property transactions as governed by the applicable property management agreement;

 

(v)           monitor and analyze real estate taxes and coordinate with property tax consultants relating to potential reduction of real estate taxes;

 

(vi) coordinate and manage relationships between the Company and any joint venture partners;

 

(vii)         consult with the officers and Directors of the Company and provide assistance with the evaluation and approval of potential property dispositions, sales or refinancings; and

 

(viii)        provide the officers and Directors of the Company periodic reports regarding investments in Properties.

 

(d)           Accounting, SEC Compliance, Tax and Other Administrative Services.  The Advisor shall:

 

(i)            coordinate with the Company’s independent accountants and auditors to prepare and deliver to the Board an annual report covering the Advisor’s compliance with certain material aspects of this Agreement;

 

(ii)           maintain accounting systems, records and data and any other information requested concerning the activities of the Company as shall be required to prepare and to file all periodic financial reports and returns required to be filed with the SEC and any other regulatory agency, including annual financial statements;

 

(iii)          assist the Company in preparing all reports and returns required by the Securities and Exchange Commission, Internal Revenue Service and other state or federal governmental agencies;

 

(iv)          coordinate tax and compliance services and coordinate with appropriate third parties, including independent accountants and other consultants, on related tax matters;

 

(v)           maintain all appropriate books and records of the Company;

 

(vi)          provide the officers of the Company and the Board with timely updates related to the overall regulatory environment affecting the Company, as well as managing compliance with such matters, including but not limited to compliance with the Sarbanes-Oxley Act of 2002;

 

(vii)         consult with the officers of the Company and the Board relating to the corporate governance structure and appropriate policies and procedures related thereto;

 

(viii)        perform all reporting, record keeping, internal controls and similar matters in a manner to allow the Company to comply with applicable law, including the Sarbanes-Oxley Act of 2002;

 

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(ix)           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, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection, insurers, insurance agents, banks, builders, developers, property owners, mortgagers, construction companies and any and all Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services;

 

(x)            supervise the performance of such ministerial and administrative functions as may be necessary in connection with the daily operations of the Assets;

 

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

 

(xii)          consult with the officers of the Company and the Board and assist the Board in evaluating and obtaining adequate insurance coverage based upon risk management determinations;

 

(xiii)         manage and perform the various administrative functions necessary for the management of the day-to-day operations of the Company;

 

(xiv)        provide or arrange for administrative services and items, legal and other services, office space, office furnishings, personnel and other overhead items necessary and incidental to the Company’s business and operations;

 

(xv)         provide financial and operational planning services and portfolio management functions; and

 

(xvi)        from time-to-time, or at any time reasonably requested by the Board, make reports to the Board on the Advisor’s performance of services to the Company under this Agreement.

 

(e)           Stockholder Services.  The Advisor shall maintain and preserve the books and records of the Company, including stock books and records reflecting a record of the Stockholders and their ownership of the Company’s Shares, and perform the following Stockholder services:

 

(i)            manage services for and communications with Stockholders, including answering phone calls, preparing and sending written and electronic reports and other communications;

 

(ii)           retain a transfer agent on behalf of the Company to perform all necessary transfer agent functions;

 

(iii)          oversee the performance of the Company’s transfer agent and registrar;

 

(iv)          manage and coordinate with the transfer agent the quarterly distribution process and payments to stockholders;

 

(v)           establish technology infrastructure to assist in providing Stockholder support and service; and

 

(vi)          perform the various subscription processing services reasonably necessary for the admission of new Stockholders in connection with an Offering.

 

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2.03         Authority of Advisor.

 

(a)           General.  All rights and powers to manage and control the day-to-day business and affairs of the Company shall be vested in the Advisor. The Advisor shall have the power to delegate all or any part of its rights and powers to manage and control the business and affairs of the Company to such officers, employees, Affiliates, agents and representatives of the Advisor or the Company as it may from time to time deem appropriate. Any authority delegated by the Advisor to any other Person shall be subject to the limitations on the rights and powers of the Advisor specifically set forth in this Agreement, the Articles of Incorporation and the Bylaws.

 

(b)           Powers of the Advisor.  Subject to the express limitations set forth in this Agreement and subject to the supervision of the Board, the power to direct the management, operation and policies of the Company shall be vested in the Advisor, which shall have the power by itself and shall be authorized and empowered on behalf and in the name of the Company to carry out any and all of the objectives and purposes of the Company and to perform all acts and enter into and perform all contracts and other undertakings that it may in its sole discretion deem necessary, advisable or incidental thereto to perform its obligations under this Agreement.

 

(c)           Approval by Directors.  Notwithstanding the foregoing, any investment in Properties, including any acquisition of a Property by the Company or any investment by the Company in a Joint Venture, limited partnership or similar entity owning real properties, will require the prior approval of the Board or a committee of the Board constituting a majority of the Board. The prior approval of a majority of the Independent Directors and a majority of the Board, in each case, not otherwise interested in the transaction will be required for each transaction between the Company and the Advisor or its Affiliates. The Advisor will deliver to the Board of Directors all documents required by it to properly evaluate the proposed investment.

 

(d)           Modification or Revocation of Authority.  The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority set forth in this Section 2.03.  If and to the extent the Board so modifies or revokes the authority contained herein, the Advisor shall henceforth submit to the Board for approval all items requiring Board approval as a result of the modification and revocation of authority, provided however, that the modification or revocation shall be effective only 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 the notification.

 

2.04         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 account or accounts, and disburse from any account or accounts, any money on behalf of the Company, under the terms and conditions as the Board may approve, provided that no funds of the Company or the Operating Partnership shall be commingled nor shall any of such funds be commingled with the funds of the Advisor; and the Advisor shall from time to time render accountings of the collections and payments to the Board, its audit committee and the auditors of the Company.

 

2.05         Records; Access.  The Advisor shall maintain records of all its activities hereunder and make the 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.

 

2.06         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, would (a) adversely affect the

 

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status of the Company as a REIT, (b) subject the Company to regulation under the Investment Company Act of 1940, as amended, or (c) violate any law, rule, regulation or statement of policy of any governmental body or agency having jurisdiction over the Company, the Shares or any of the Company’s securities, or otherwise not be permitted by the Articles of Incorporation or Bylaws, except if the 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 the action and shall refrain from taking the 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.  The Advisor, its directors, officers, employees and stockholders, and the directors, officers, employees and stockholders of the Advisor’s Affiliates, shall not be liable to the Company or to the Board or Stockholders for any act or omission by the Advisor, its directors, officers, employees or stockholders, or for any act or omission of any Affiliate of the Advisor, its directors, officers or employees or stockholders except as provided in Section 5.02 of this Agreement.

 

2.07         Relationship with Directors.  Directors, officers and employees of the Advisor or an Affiliate of the Advisor may serve as Directors, officers or employees of the Company, except that no director, officer or employee of the Advisor or its Affiliates who also is a Director shall receive any compensation from the Company for serving as a Director other than reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board.

 

2.08         Other Activities of the Advisor.  Nothing herein contained shall prevent the Advisor or its Affiliates 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 stockholder of the Advisor or its Affiliates to engage in any other business or to render services of any kind to any other Person; nor shall this Agreement limit or restrict the right of any director, officer, employee, or stockholder of the Advisor or its Affiliates to engage in any other activity as described in the Prospectus.  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 Person.  The Advisor or its Affiliates shall promptly disclose to the Board knowledge of such condition or circumstance.

 

ARTICLE III

 

COMPENSATION AND REIMBURSEMENT OF SPECIFIED COSTS

 

3.01         Fees.

 

(a)           Asset Management Fee.  The Company shall pay the Advisor a monthly Asset Management Fee for each month in an amount equal to 1/12th of 0.75% of the aggregate book value of the Assets of the Company invested, directly or indirectly, in equity interests in and loans secured by real estate, before deducting depreciation, bad debts or other non-cash reserves at the end of each such month.  The Advisor, in its sole discretion, may waive, reduce or defer all or any portion of the Asset Management Fee to which it would otherwise be entitled.  The Asset Management Fee will be due on the 15th day following the end of the month for which it applies.

 

(b)           Acquisition Fee.  The Company shall pay the Advisor an Acquisition Fee in an amount equal to 2.0% of the (i) Contract Purchase Price of each Asset acquired by the Company,

 

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including any debt attributable to the Asset, (ii) funds approved by the Board from time to time for the Improvement of an Asset, including any debt attributable to the Asset, and (iii) funds advanced in respect of a loan, Mortgage or other investment.  Acquisition Fees shall be paid as follows: (1) for Property (excluding properties where development, construction, or Improvements are expected), at the time of acquisition; (2) for Property where development, construction or Improvements are expected, at the time the budget is approved by the Board; and (3) in the case of a loan or Mortgage investment, at the time money is funded or advanced.  The Advisor, in its sole discretion, may waive, reduce or defer all or any portion of the Acquisition Fees to which it would otherwise be entitled.  The Company will pay all Acquisition Fees and any Acquisition Expenses.  The total of all Acquisition Fees and any Acquisition Expenses shall be limited in accordance with the Articles of Incorporation.

 

(c)           Debt Financing Fee.  The Company shall pay to the Advisor a debt financing fee in an amount equal to the Applicable Debt Financing Fee; provided that no debt financing fee shall be due in connection with any loan or Mortgage (including any extension(s)) that has a maturity date of less than 120 days from the date of the loan or Mortgage, or in the case of an extension(s), 120 days from the original maturity date, and provided further that no debt financing fee shall be due in connection with any loan or Mortgage, or refinancing, restructuring, or modification of any existing loan or Mortgage if such loan or Mortgage, or refinancing, restructuring, or modification of any existing loan or Mortgage was approved by the Board in connection with an acquisition and was consummated within 12 months of the closing of such acquisition.  The debt financing fee shall be paid concurrent with, or subsequent to, the parties executing and delivering definitive documents governing the loan or Mortgage.  The Advisor, in its sole discretion, may waive, reduce or defer all or any portion of the debt financing fee to which it would otherwise be entitled.  The Company will pay directly all expenses related to any third party arrangements, including any lender costs, broker costs, and other costs associated with the financing, such as legal expenses, title expenses, closing costs, and due diligence expenses.

 

With respect to any loan or Mortgage secured by an asset owned through a Joint Venture, the Advisor shall be entitled to a debt financing fee if the Advisor obtains the loan or performs more than ministerial services in connection with the Joint Venture obtaining the loan, the allocable portion of such debt financing fee attributable to the Company will be equal to the product of the amount of the debt financing fee, as calculated in accordance with this Section 3.01(c), and the Ownership Percentage; provided, however, this allocation shall not prohibit the Advisor from receiving 100% of the debt financing fee from the Joint Venture in instances in which the Advisor provides a substantial amount of the work on behalf of the Joint Venture in connection with the financing transaction.

 

(d)           Disposition Fee.  If the Advisor or an Affiliate provides a substantial amount of the services (as determined by a majority of the Directors, including a majority of the Independent Directors) in connection with the Sale of one or more Assets, the Advisor or such Affiliate shall receive at closing a disposition fee (the “Disposition Fee”) in an amount equal to the lesser of (i) 1.0% of the sales price or other consideration received in such Sale, or (ii) 50% of the Competitive Real Estate Commission. With respect to Assets owned through a Joint Venture, the Disposition Fee shall be equal to the product of (A) the amount determined in accordance with the foregoing and (B) the Ownership Percentage; provided, however, this allocation shall not prohibit the Advisor from receiving 100% of the Disposition Fee from the Joint Venture in instances in which the Advisor provides a substantial amount of the work on behalf of the Joint Venture in connection with the Sale transaction.  Any Disposition Fee payable under this Section 3.01(d) when added to all other real estate commissions paid to unaffiliated parties in connection with the Sale shall not exceed the lesser of the Competitive Real Estate Commission or an amount

 

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equal to 6% of the sales price of the Asset.  The Company will pay the Disposition Fee for an Asset at the time the Asset is sold.  The Advisor, in its sole discretion, may waive, reduce or defer all or any portion of the Disposition Fee to which it would be entitled.

 

(e)           Convertible Shares.  The Company has issued 1,000 Convertible Shares to the Advisor.  The Convertible Shares will convert into common stock under certain circumstances as set forth in the Articles of Incorporation.

 

3.02         Expenses.

 

(a)           In addition to the compensation paid to the Advisor pursuant to Section 3.01 hereof, the Company shall pay directly or reimburse the Advisor or its Affiliates for all of the costs and expenses paid or incurred by the Advisor or its Affiliates that are in any way related to the operations of the Company or the business of the Company or the services the Advisor provides to the Company pursuant to this Agreement, including, but not limited to:

 

(i)            Organization and Offering Expenses, subject to the following limitations.  The Company will not be required to pay or reimburse Organization and Offering Expenses unless and until it breaks escrow in its Initial Public Offering, although at such point it will be responsible for such expenses incurred prior to its breaking escrow.  After the Company commences an Initial Public Offering, the Company will pay directly, or reimburse the Advisor or its Affiliates for, all Organization and Offering Expenses. However, within 60 days after the end of the month in which the primary portion of an Offering terminates, the Advisor shall reimburse the Company to the extent necessary to limit the total amount spent by the Company on such Organization and Offering Expenses to no more than 15% of the Gross Proceeds raised in the completed Offering;

 

(ii)           Acquisition Expenses;

 

(iii)          the  cost of goods, services and materials used by the Company and obtained from Persons not affiliated with the Advisor, including brokerage fees paid in connection with the purchase and sale of Shares or other securities;

 

(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, operating and disposing of Assets owned by the Company, whether payable to an Affiliate of the Advisor or a non-Affiliated Person;

 

(viii)        all expenses in connection with payments to the Board for attendance at meetings of the Board and Stockholders;

 

(ix)           except as otherwise limited by the Articles of Incorporation, expenses associated with Listing or with the issuance and distribution of Shares and other securities of the

 

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Company, such as Selling Commissions and fees, advertising expenses, taxes, legal and accounting fees and 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 Stockholders;

 

(xi)           expenses of organizing, reorganizing, liquidating or dissolving the Company and the expenses of filing or amending the Articles of Incorporation;

 

(xii)          expenses of any third party transfer agent for the Shares and of maintaining communications with Stockholders, including the cost of preparation, printing, and mailing annual reports and other Stockholder reports, proxy statements and other reports required by governmental entities;

 

(xiii)         Personnel Compensation Costs and Administrative Services Burden incurred by the Advisor or its Affiliates in performing the services described herein; provided, that  (A) no reimbursement shall be made for the Personnel Compensation Costs of Advisor Personnel who perform services for which the Advisor receives a separate fee other than in connection with the Advisor directly providing the Ancillary Services, and (B) no reimbursement shall be made for the Personnel Compensation Costs of Advisor Personnel  who are executive officers of the Company if the executive officers of the Company are also executive officers of the Sponsor;

 

(xiv)     Transactional Support Services; and

 

(xv)         audit, accounting and legal fees, and other fees for professional services relating to the operations of the Company and all such fees incurred at the request of, or on behalf of, the Independent Directors or any committee of the Board.

 

(b)           Expenses incurred by the Advisor on behalf of the Company and payable pursuant to this Section 3.02 shall be reimbursed no less than quarterly to the Advisor within 60 days after the end of each quarter.  The Advisor shall prepare a statement documenting the expenses of the Company during each quarter, and shall deliver the statement to the Company within 45 days after the end of each quarter.

 

3.03         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 Section 2.02, the services shall be separately compensated at the rates and in the amounts as are agreed by the Advisor and the Independent Directors, subject to the limitations contained in the Articles of Incorporation, and shall not be deemed to be services pursuant to the terms of this Agreement.

 

3.04         Reimbursement to the Advisor.  Upon four fiscal quarters after the Company’s acquisition of its first Asset, the Company shall not reimburse the Advisor for Total Operating Expenses to the extent that Total Operating Expenses, 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 for that period of four consecutive fiscal quarters.  Any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company.  Reimbursement of all or any portion of the Total Operating Expenses that exceed the limitation set forth in the preceding sentence may, at the option of the Advisor, be deferred without interest and may be reimbursed in any subsequent Expense Year where such limitation would permit such reimbursement if the Total Operating Expense were incurred during such period. Notwithstanding the foregoing, if there is an Excess Amount in any Expense Year and the

 

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Independent Directors determine that all or a portion of such excess was justified, based on unusual and nonrecurring factors which they deem sufficient, the Excess Amount may be reimbursed to the Advisor.  If the Independent Directors determine such excess was justified, then, after the end of any fiscal quarter of the Company for which there is an Excess Amount for the 12 months then ended paid to the Advisor, the Advisor, at the direction of the Independent Directors, shall cause such fact to be disclosed in the next quarterly report of the Company or in a separate writing and sent to the Stockholders within 60 days of such quarter end, together with an explanation of the factors the Independent Directors considered in determining that such Excess Amount was justified.  Such determination shall be reflected in the minutes of the meetings of the Board.  All figures used in any computation pursuant to this Section 3.04 shall be determined in accordance with generally accepted accounting principles applied on a consistent basis.

 

ARTICLE IV

 

TERM AND TERMINATION

 

4.01         Term; Renewal.  Subject to Section 4.02 hereof, this Agreement shall continue in force until one year from the Effective Date.  Thereafter, this Agreement may be renewed for an unlimited number of successive one-year terms upon mutual consent of the parties.  It is the duty of the Board to 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.

 

4.02         Termination.  This agreement also may be terminated at the option of either party upon 60 days written notice without cause or penalty (if termination is by the Company, then the termination shall be upon the approval of a majority of the Independent Directors).  Notwithstanding the foregoing, the provisions of Section 4.03, Article V and Article VI shall continue in full force and effect and shall survive the termination or expiration of this Agreement.

 

4.03         Payments to and Duties of Advisor upon Termination.

 

(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, and the Company shall be obligated to pay, within 30 days after the effective date of the termination all unpaid reimbursements of expenses, subject to the provisions of Section 3.04 hereof, and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement.  To the extent that the Advisor is assisting in the unwinding of this Agreement after the Termination Date, this Agreement shall not be deemed terminated for those purposes and the Advisor shall be entitled to compensation for those purposes as if the Agreement had not been terminated.

 

(b)           Subject to Section 4.03(c) below, 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 the Assets, and documents of the Company then in the custody of the Advisor; and

 

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(iv)          cooperate with the Company and take all reasonable actions requested by the Company to provide an orderly management transition.

 

(c)           In the event that a Termination Date occurs after the commencement of an Offering and prior to the Advisor’s reimbursement of Organization and Offering Expenses pursuant to the provisions of Section 3.02(a)(i), the reimbursement obligations of the Advisor pursuant to such section will be determined based on the Organization and Offering Expenses and Gross Proceeds as of the date the Offering terminates, and the Advisor shall only be responsible for the lesser of (i) the amount by which Organization and Offering Expenses exceed 15% of Gross Proceeds raised in the Offering as of the Termination Date, or (ii) the amount, if any, by which Organization and Offering Expenses exceed 15% of Gross Proceeds raised in the Offering as of the date of the termination of the Offering.  The Advisor’s reimbursement obligations under this Section 4.03(c) shall be paid within 90 days after the end of the year in which such Offering terminates.

 

ARTICLE V

 

INDEMNIFICATION

 

5.01         Indemnification by the Company.

 

(a)           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, the Articles of Incorporation and the NASAA REIT Guidelines.  Notwithstanding the foregoing, the Company shall not indemnify or hold harmless the Advisor or its Affiliates, including their respective officers, directors, partners and employees, for any liability or loss suffered by the Advisor or its Affiliates, including their respective officers, directors, partners and employees, nor shall it provide that the Advisor or its Affiliates, including their respective officers, directors, partners and employees, be held harmless for any loss or liability suffered by the Company, unless all of the following conditions are met: (i) the Advisor or its Affiliates, including their respective officers, directors, partners and employees, have determined that the course of conduct which caused the loss or liability was in the best interests of the Company; (ii) the Advisor or its Affiliates, including their respective officers, directors, partners and employees, were acting on behalf of or performing services for the Company; (iii) the liability or loss was not the result of negligence or misconduct by the Advisor or its Affiliates, including their respective officers, directors, partners and employees; and (iv) the indemnification or agreement to hold harmless is recoverable only out of the Company’s net assets and not from stockholders.  Notwithstanding the foregoing, the Advisor and its Affiliates, including their respective officers, directors, partners and employees, shall not be indemnified by the Company for any losses, liability or expenses arising from or out of an alleged violation of federal or state securities laws by such party unless one or more of the following conditions are met: (i) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the particular indemnitee; (ii) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the particular indemnitee; and (iii) a court of competent jurisdiction approves a settlement of the claims against a particular indemnitee and finds that indemnification of the settlement and the related costs should be made, and the court considering the request for indemnification has been advised of the position of the Securities and 

 

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Exchange Commission and of the published position of any state securities regulatory authority in which securities of the Company were offered or sold as to indemnification for violations of securities laws.

 

(b)           The Company may advance funds to the Advisor or its Affiliates, including their respective officers, directors, partners and employees, for legal expenses and other costs incurred as a result of any legal action for which indemnification is being sought is permissible only if all of the following conditions are satisfied: (i) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company; (ii) the legal action is initiated by a third-party who is not a stockholder or the legal action is initiated by a stockholder acting in his or her capacity as such and a court of competent jurisdiction specifically approves such advancement; (iii) the Advisor or its Affiliates, including their respective officers, directors, partners and employees, undertake to repay the advanced funds to the Company together with the applicable legal rate of interest thereon, in cases in which the Advisor or its Affiliates, including their respective officers, directors, partners and employees, are found not to be entitled to indemnification.

 

(c)           Notwithstanding the provisions of this Section 5.01, the Advisor shall not be entitled to indemnification or be held harmless pursuant to this Section 5.01 for any activity which the Advisor shall be required to indemnify or hold harmless the Company pursuant to Section 5.02.

 

5.02         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 the 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, misfeasance, misconduct, gross negligence or reckless disregard of its duties, but the Advisor shall not be held responsible for any action of the Board in following or declining to follow any advice or recommendation given by the Advisor.

 

ARTICLE VI

 

MISCELLANEOUS

 

6.01         Assignment to an Affiliate.  This Agreement and any rights, duties, liabilities and obligations hereunder and the fees and compensation related thereto may be assigned by the Advisor, in whole or in part, only with the approval of a majority of the Board (including a majority of the Independent Directors).  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 the 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.  This Agreement shall be binding on successors to the Company resulting from a Change of Control or sale of all or substantially all the assets of the Company or the Operating Partnership, and shall likewise be binding upon any successor to the Advisor.

 

6.02         Non-Solicitation.  During the period commencing on the Effective Date and ending two years following the Termination Date, the Company shall not, without the Advisor’s prior written consent, directly or indirectly, (i) solicit or encourage any Advisor Personnel to leave the employment or other service of the Advisor or any of its Affiliates, or (ii) hire or pay, directly or indirectly, any compensation 

 

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to, on behalf of the Company or any other Person, any Advisor Personnel who has left the employment of, or engagement by, the Advisor or any of its Affiliates within the two-year period following the termination of that person’s employment with, or engagement by, the Advisor or any of its Affiliates.  During the period commencing on the Effective Date and ending two years following the Termination Date, the Company will not, whether for its own account or for the account of any other Person, intentionally interfere with the relationship of the Advisor or any of its Affiliates with, or endeavor to entice away from the Advisor or any of its Affiliates, any Person who during the term of this Agreement is, or during the preceding two-year period was, a tenant, co-investor, co-developer, joint venturer or other customer of the Advisor or any of its Affiliates.

 

6.03         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.

 

6.04         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 Articles of Incorporation, 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   Directors and to the Company:
    	
Adaptive   Real Estate Income Trust, Inc.
   15601 Dallas Parkway
   Suite 600
   Addison, Texas 75001
    
	
 
    	
 
    
	
To the   Advisor:
    	
Adaptive   Real Estate Income Trust Advisors, LLC
   15601 Dallas Parkway
   Suite 600
   Addison, Texas 75001
    

 

Either party shall, as soon as reasonably practicable, give notice in writing to the other party of a change in its address for the purposes of this Section 6.04.

 

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

 

6.06         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.

 

6.07         Choice of Law; Venue.  The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Texas, and venue for any action brought with respect to any claims arising out of this Agreement shall be brought exclusively in Dallas County, Texas.

 

6.08         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.  

 

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This Agreement may not be modified or amended other than by an agreement in writing signed by each of the parties hereto.

 

6.09         Waiver.  Neither the failure nor any delay on the part of a party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, remedy, power or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of the 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 the waiver.

 

6.10         Gender; Number.  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.

 

6.11         Headings.  The titles and headings of sections and subsections 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.

 

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

 

6.13         Initial Investment.  The Advisor or one of its Affiliates has contributed $200,000 (the “Initial Investment”) in exchange for Common Shares of the Company.  The Advisor or its Affiliates may not sell any of the Shares purchased with the Initial Investment while the Advisor acts in an advisory capacity to the Company.  The restrictions included above shall not apply to any Shares acquired by the Advisor or its Affiliates other than the Shares acquired through the Initial Investment.

 

6.14         Ownership of Proprietary Property.  The Advisor retains ownership of and reserves all Intellectual Property Rights in the Proprietary Property.  To the extent that the Company has or obtains any claim to any right, title or interest in the Proprietary Property, including without limitation in any suggestions, enhancements or contributions that the Company may provide regarding the Proprietary Property, the Company hereby assigns and transfers exclusively to the Advisor all right, title and interest, including without limitation all Intellectual Property Rights, free and clear of any liens, encumbrances or licenses in favor of the Company or any other party, in and to the Proprietary Property.  In addition, at the Advisor’s expense, the Company will perform any acts that may be deemed desirable by the Advisor to evidence more fully the transfer of ownership of right, title and interest in the Proprietary Property to the Advisor, including but not limited to the execution of any instruments or documents now or hereafter requested by the Advisor to perfect, defend or confirm the assignment described herein, in a form determined by the Advisor.

 

6.15           Treatment Under Texas Margin Tax.  For purposes of the Texas margin tax, the Advisor’s performance of the services specified in this Agreement will cause the Advisor to conduct part of the active trade or business of the Company, and the compensation specified in Article III includes both the payment of management fees and the reimbursement of specified costs incurred in the Advisor’s conduct of the active trade or business of the Company.  Therefore, the Advisor and the Company intend the Advisor to be, and shall treat the Advisor as, a “management company” within the meaning of Section 171.0001(11) of the Texas Tax Code.  The Company and the Advisor will apply Sections 171.1011(m-1) 

 

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and 171.1013(f)-(g) of the Texas Tax Code to the Company’s reimbursements paid to the Advisor pursuant to this Agreement of specified costs and wages and compensation.  The Advisor and the Company further recognize and intend that (i) as a result of the fiduciary relationship created by this Agreement and acknowledged in Section 2.02, reimbursements paid to the Advisor pursuant to this Agreement are “flow-through funds” that the Advisor is mandated by law or fiduciary duty to distribute, within the meaning of Section 171.1011(f) of the Texas Tax Code, and (ii) as a result of Advisor’s contractual duties under this Agreement, certain reimbursements under this Agreement are “flow-through funds” mandated by contract to be distributed within the meaning of Section 171.1011(g) of the Texas Tax Code.  The terms of this Agreement shall be interpreted in a manner consistent with the characterization of the Advisor as a “management company” as defined in Section 171.0001(11), and with the characterization of the reimbursements as “flow-through funds” within the meaning of Section 171.1011(f)-(g) of the Texas Tax Code.

 

6.16         Savings Clause.  If any provision of this Agreement is held unenforceable, then such provision will be modified to reflect the parties’ intention.  All remaining provisions of this Agreement shall remain in full force and effect.

 

[The remainder of this page intentionally blank]

 

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

 

	
 
    	
ADAPTIVE REAL ESTATE INCOME TRUST, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    
	
 
    	
ADAPTIVE REAL ESTATE INCOME TRUST ADVISORS, LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

24Exhibit 10.2

 

ADAPTIVE REAL ESTATE INCOME TRUST, INC.

 

PROPERTY MANAGEMENT AGREEMENT

 

THIS PROPERTY MANAGEMENT AGREEMENT (this “Agreement”) is made and entered into as of the         day of                     , 2013, between ADAPTIVE REAL ESTATE INCOME TRUST, INC. (the “Company”), a Maryland corporation, ADAPTIVE REAL ESTATE INCOME TRUST OP LP (the “OP”), a Texas limited partnership, and ADAPTIVE REAL ESTATE INCOME TRUST MANAGEMENT SERVICES, LLC, a Texas limited liability company (“Manager”).

 

WHEREAS, the OP was organized to acquire, own, operate, lease and manage real estate properties on behalf of the Company;

 

WHEREAS, the Company intends to raise money from the sale of its common stock to be used, net of payment of certain offering costs and expenses, for investment in the acquisition or construction of income-producing real estate (including but not limited to multifamily, office, industrial and retail) and other real estate-related investments (including the making or purchasing of mortgage, bridge or mezzanine loans), some or all of which are to be acquired and held by Owner (as hereinafter defined) on behalf of the Company; and

 

WHEREAS, Owner intends to retain Manager to manage and coordinate the leasing of certain of the real estate properties acquired by Owner under the terms and conditions set forth in this Agreement.

 

NOW, THEREFORE, in consideration of the premises and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto, intending to be legally bound hereby, do hereby agree, as follows:

 

ARTICLE I

 

Definitions

 

Except as otherwise specified or as the context may otherwise require, the following terms have the respective meanings set forth below for all purposes of this Agreement, and the definitions of such terms are equally applicable both to the singular and plural forms thereof:

 

1.1               “Annual Business Plan” has the meaning set forth in Section 3.11(a) hereof.

 

1.2               “Capital Budget” has the meaning set forth in Section 3.11(a) hereof.

 

1.3               “Controlling Agreements” means articles of incorporation, agreements of limited partnership, joint venture agreements, operating agreements, loan agreements, deeds of trust or mortgages, each as may be amended from time to time, of Owner, as applicable.

 

1.4               “Economic Interest Percentage” means  the percentage of capital contributed directly or indirectly to the Joint Venture as compared with the total capital contributed to the Joint Venture by all of the owners of the Joint Venture as such percentage shall be calculated in good faith by the Owner.  For purposes of defining Economic Interest Percentage, any in-kind contribution shall be considered in 

 

 

the calculation and valued at the fair market value of the contribution on the date of contribution as determined by the Owner.

 

1.5               “Governmental Requirements” means applicable ordinances, regulations, rules, statutes, or laws of governmental entities having jurisdiction over a Project or the requirements of the board of fire underwriters or other similar bodies.

 

1.6               “Gross Revenues” means all amounts actually collected as rents or other charges for the use and occupancy of the Project and from concessionaires (if any) with respect to each Project, including furniture rental, parking fees, forfeited security deposits, application fees, late charges, income from coin operated machines, proceeds from rental interruption insurance, and other miscellaneous income collected at each Project; but shall exclude all other receipts, including but not limited to, income derived from interest on investments or otherwise, proceeds of claims on account of insurance policies (other than rental interruption[s] insurance), abatement of taxes, and awards arising out of eminent domain proceedings, discounts and dividends on insurance policies.

 

1.7               “Intellectual Property Rights” means all rights, titles and interests, whether foreign or domestic, in and to any and all trade secrets, confidential information rights, patents, invention rights, copyrights, service marks, trademarks, know-how, or similar intellectual property rights and all applications and rights to apply for such rights, as well as any and all moral rights, rights of privacy, publicity and similar rights and license rights of any type under the laws or regulations of any governmental, regulatory or judicial authority, foreign or domestic, and all renewals and extensions thereof.

 

1.8               “Joint Venture” means an investment in a legal organization formed to provide for the sharing of the risks and rewards in an enterprise co-owned and operated for mutual benefit by two or more business partners and established to acquire or hold properties.

 

1.9               “Losses” means any and all claims, causes of action, demands, suits, proceedings, loss, judgments, damages, awards, liens, fines, costs, attorney’s fees and expenses, of every kind and nature whatsoever.

 

1.10             “Management Fee” has the meaning set forth in Section 4.1 hereof.

 

1.11             “Manager Indemnified Parties” has the meaning set forth in Section 6.2(a) hereof.

 

1.12             “Operating Budget” has the meaning set forth in Section 3.11(a) hereof.

 

1.13             “Oversight Fee” has the meaning set forth in Section 4.1(b) hereof.

 

1.14             “Owner” means the Company, the OP and any Joint Venture, limited liability company, limited partnership or other affiliate of the Company or the OP that owns, in whole or in part, on behalf of the Company, any Projects.

 

1.15             “Owner Indemnified Parties” has the meaning set forth in Section 6.2(b) hereof.

 

1.16              “Project” means, collectively, all interests in real estate in which Owner now owns a direct or indirect equity interest or hereafter acquires a direct or indirect equity interest, containing income-producing improvements or on which Owner will construct income-producing improvements.

 

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1.17             “Proprietary Property” means all modeling algorithms, tools, computer programs, know-how, methodologies, processes, technologies, ideas, concepts, skills, routines, subroutines, operating instructions and other materials and aides used by Manager in performing its duties set forth in this Agreement that relate to management advice, services and techniques regarding current and potential Projects, and all modifications, enhancements and derivative works of the foregoing.

 

1.18             “Submanager” has the meaning set forth in Section 7.1 hereof.

 

1.19             “Texas Tax Code”  means the Texas Tax Code as amended by Texas H.B. 3, 79th Leg., 3rd C.S. (2006), and reference to any provision of the Texas Tax 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 administrative rules as in effect from time to time.

 

ARTICLE II

 

Engagement and Duties of Manager

 

2.1               Engagements.  Subject to the restrictions of this Section 2.1, Owner hereby engages Manager to manage the Project, and Manager accepts such engagement and agrees to perform the services set forth herein.  Such engagement shall not commence with respect to any particular Project until Owner, in its sole discretion, has the ability to appoint or hire the Manager.  Further, Owner may elect to exclude any Project from the terms of this Agreement upon written notice to Manager delivered by Owner within ten (10) days following the later of (i) Owner’s acquisition of a direct or indirect equity interest in such Project or (ii) the date on which Owner, in its sole discretion, has the ability to appoint or hire the Manager with respect to such Project.  Owner has the right to include any previously excluded Project ten (10) days following delivery of written notice from Owner to Manager.  Notwithstanding the foregoing, Manager shall be entitled to an Oversight Fee pursuant to Section 4.1 with respect to any Project excluded from the terms of this Agreement, but only after Owner, in its sole discretion, has the ability to appoint or hire the Manager for such Project.

 

2.2               Status of Manager; Limitation on Authority.  This Agreement shall cause Manager or its affiliates to be, at law, Owner’s agent upon the terms contained herein.  Manager shall not have the right, power or authority to enter into agreements or incur liability on behalf of Owner except as expressly authorized herein.  Any personnel hired by Manager to maintain, operate and/or lease each Project shall be the employees or independent contractors of either Manager or of Owner, in Manager’s reasonable discretion.  Manager shall use due care in the selection and supervision of such employees or independent contractors, who shall be duly qualified and licensed, as necessary.  Any action taken by Manager or its affiliates which is not expressly authorized by this Agreement shall not bind Owner.

 

2.3               Leasing of Premises.  Manager shall perform promotional, leasing and management activities required to lease and manage space in the Project in accordance with the parameters established by or otherwise approved in writing by Owner.  Throughout the term of this Agreement, Manager shall use its diligent efforts to lease available space or units in the Project.  Subject to reimbursement by Owner, Manager shall advertise the Project, or portions thereof, prepare and secure advertising signs, space plans, circular matter, marketing brochures and other forms of advertising.  Manager is authorized to advertise the Project in conjunction with general advertising campaigns and to allocate the cost of such campaigns on a pro rata basis among the Projects being advertised (to the extent authorized by the Annual Business Plan).  All inquiries for any leases or renewals or agreements for the rental of the Project or portions thereof shall be referred to Manager and all negotiations connected therewith shall be conducted solely by or under the direction of Manager in accordance with the parameters established by

 

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or otherwise approved in writing by Owner.  Manager is hereby authorized to execute, deliver and renew leases on behalf of Owner in accordance with the parameters established by or otherwise approved in writing by Owner.

 

2.4               Manager’s Standard of Care.  In performing Manager’s duties under this Agreement, Manager shall exercise the same degree of care, prudence, and skill as other professional property managers of similar properties in the area.  In no event shall Manager be liable to Owner for any Losses, unless caused by the misconduct and/or negligence of the Manager, its agents, servants, or employees.

 

2.5               Compliance With Laws; Environmental Matters.

 

(a)           Owner Representations and Warranties Regarding Compliance With Laws.

 

(i)            General.  Owner hereby warrants and represents to Manager that to the best of Owner’s knowledge each Project and any equipment thereon, when acquired by Owner, will comply with all Governmental Requirements and authorizes Manager to disclose the identity of the owner of each Project to any governmental officials.  Owner assumes all responsibility as to the compliance of the Project with all Governmental Requirements.

 

(ii)           Environmental.  Owner hereby warrants and represents to Manager that to the best of Owner’s knowledge, no Project, upon acquisition of an interest therein by Owner, nor any part thereof, will be used to treat, deposit, store, dispose of or place any hazardous substance that may subject Manager to liability or claims under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (42 U.S.C.A. Section 9607) or any constitutional provision, statute, ordinance, law, or regulation of any governmental body or of any order or ruling of any public authority or official thereof, having or claiming to have jurisdiction thereover.

 

(b)           Manager Duties Regarding Compliance With Laws.

 

(i)            Manager shall execute and file when due all forms, reports, and returns required by law relating to the employment of its personnel.  Manager shall take such action as may be reasonably necessary to comply with any Governmental Requirements applicable to Manager, including the collection and payment of all sales and other taxes (other than income taxes) which may be assessed or charged by any governmental entities in the state in which the Project is located in connection with Manager’s compensation (set forth in Article IV below).

 

(ii)           Manager shall promptly, and in no event later than seventy-two (72) hours from the time of receipt, notify Owner in writing of all notices of violation or other notices relating to the Project from any governmental authority, board of fire underwriters or insurance company, and shall make such recommendations regarding compliance with such notice as shall be appropriate.  Manager shall be responsible for notifying Owner in the event it receives notice that any improvement on the Project or any equipment therein does not comply with the requirements of any Governmental Requirements or of any public authority or official thereof having or claiming to have jurisdiction thereover. Manager shall promptly forward to Owner any complaints, warnings, notices or summonses received by it relating to such matters.

 

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(iii)          If Manager discovers the Project does not comply with any Governmental Requirements, Manager shall take such action as may be reasonably necessary to bring the Project into compliance with such Governmental Requirements, subject to the limitation contained in Section 3.5 of this Agreement regarding the making of alterations and repairs.  Manager, however, shall not take any such action as long as Owner is contesting or has affirmed its intention to contest and promptly institute proceedings contesting any such order or requirement.  If, however, failure to comply promptly with any such order or requirement would or might expose Manager to civil or criminal liability, Manager shall have the right, but not the obligation, to cause the same to be complied with.

 

(iv)          Owner acknowledges that Manager does not hold itself out to be an expert or consultant with respect to, or represent that, the Project currently complies with Governmental Requirements.

 

2.6               Treatment Under Texas Margin Tax.  For purposes of the Texas margin tax, Manager’s performance of the services specified in this Agreement will cause Manager to conduct part of the active trade or business of Owner, and Manager’s compensation includes both the payment of fees due pursuant to Section 4.1 and the reimbursement of specified costs incurred in Manager’s conduct of the active trade or business of the Owner.  Therefore, Owner and Manager intend Manager to be, and shall treat Manager as, a “management company” within the meaning of Section 171.0001(11) of the Texas Tax Code.  Owner and Manager will apply Sections 171.1011(m-1) and 171.1013(f)-(g) of the Texas Tax Code to Owner’s reimbursements paid to Manager pursuant to this Agreement of specified costs and allocable wages and compensation.  Owner and Manager further recognize and intend that as a result of the relationship created by this Agreement, reimbursements paid to Manager pursuant to this Agreement include (i) “flow-through funds” that Manager is mandated by law or fiduciary duty to distribute, within the meaning of Section 171.1011(f) of the Texas Tax Code, and (ii) “flow-through funds” that Manager is mandated by contract to distribute, within the meaning of Section 171.1011(g).  The terms of this Agreement shall be interpreted in a manner consistent with the characterization of the Manager as a “management company” as defined in Section 171.0001(11), and with the characterization of the reimbursements as “flow-through funds” within the meaning of Section 171.1011(f)-(g) of the Texas Tax Code.

 

ARTICLE III

 

Services to be Performed by Manager

 

3.1               Expense of Owner.  All acts performed by Manager in the performance of its obligations under this Agreement shall be performed on behalf of Owner, and all obligations or expenses incurred thereby, if included in the Annual Business Plan or otherwise approved in writing by Owner, shall be for the account of, on behalf of, and at the expense of Owner, except as otherwise specifically provided in this Article III.  Owner shall not be obligated to reimburse Manager for any expense allocable to (i) time spent on projects other than the Project, or (ii) any personnel other than personnel located at the Project site and personnel spending a portion of their working hours (to be charged on a pro rata basis) at the Project site or in specifically performing Manager’s obligations hereunder, whether on or off the Project site; provided, however, that Owner shall not reimburse Manager for such expenses for personnel performing services off-site until such time as the Company completes the primary portion of an initial public offering.  Manager may use employees normally assigned to other work centers or part-time employees to properly staff the Project, whose wages and related expenses shall be reimbursed on a pro rata basis for the time actually spent at or for the Project to the extent set forth in the applicable Annual

 

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Business Plan.  Owner shall reimburse to Manager the costs and expenses incurred by Manager on Owner’s behalf including the wages and salaries and other employee-related expenses and benefits of all on-site employees of Manager or any Submanager who are engaged in the operation, management, maintenance and leasing or access control of a Project, including taxes, insurance and benefits relating to such employees, costs of technology related to the Projects, including computers, telephone systems and property management and accounting software and any upgrades or conversions thereof, and legal, travel and other out-of-pocket expenses directly related to the management of a Project, provided that such items are reflected in the Annual Business Plan.  Owner acknowledges that the following miscellaneous expenses, when incurred with respect to the performance of Manager’s obligations under this Agreement, shall be reimbursable to Manager by Owner (which list of expenses is not intended to be all-inclusive) to the extent set forth in the applicable Annual Business Plan: courier services, postage, photocopies, signage, check printing, marketing expenses, bank charges, telephone and answering service (which may be allocated on a pro rata basis among the Project and other projects managed by Manager).  All reimbursable payments made by Manager hereunder shall be reimbursed by Owner from funds deposited in an account established pursuant to Section 5.2 of this Agreement.  Manager shall not be obligated to make any advance to or for the account of Owner or to pay any sums, except out of funds held in an account maintained under Section 5.2, nor shall Manager be obligated to incur any liability or obligation for the account of Owner without assurance that the necessary funds for the discharge thereof will be provided by Owner.  All debts and liabilities to third persons incurred by Manager in the course of its operation and management of the Project shall be the debts and liabilities of the Owner only, and Manager shall not be liable for any such debt or liabilities, except to the extent Manager has exceeded its authority hereunder.  Manager may sub-contract any or all of its responsibilities hereunder, but Owner shall look to Manager for the performance of such responsibilities in accordance with this Agreement and Manager shall be solely responsible for paying the fees and expenses of any duly qualified and licensed person or entity to which it sub-contracts its responsibilities hereunder, except as otherwise agreed in writing between Owner and Manager.

 

3.2               Covenants Concerning Payment of Operating Expenses.  Owner covenants to pay all sums for operating expenses in excess of gross receipts required to operate the Project in accordance with the Annual Business Plan upon written notice and demand from Manager within ten (10) days after receipt of such written notice.  Owner further recognizes that the Project may be operated in conjunction with other properties, and costs may be allocated or shared between such other properties on a more efficient or less expensive basis.  In such regard, Owner consents to the allocation of costs and/or the sharing of any expenses in an effort to save costs or operate the Project in a more efficient manner so long as such allocation is done on an equitable basis and so long as the computations of such allocations are provided to Owner for its approval pursuant to Section 3.11 hereof.

 

3.3               Employment of Personnel.  Manager shall use its diligent efforts to investigate, hire, pay, supervise and discharge duly qualified and licensed personnel necessary to be employed by it to properly maintain, operate and lease the Project, including without limitation, a property manager or business manager at the Project.  Owner has no right of supervision or direction of agents or employees of the Manager whatsoever.  All Owner directives shall be communicated to Manager’s senior level management employees.  Manager and all personnel of Manager who handle or who are responsible for handling Owner’s monies shall be duly qualified and licensed, bonded under a fidelity bond or a crime/employee dishonesty insurance policy or equivalent in favor of Owner.  Manager shall furnish such fidelity bond/insurance policy at Manager’s sole expense and shall provide Owner Two Million Dollars ($2,000,000.00) per occurrence coverage with no more than a Ten Thousand Dollar ($10,000.00) deductible.  Manager shall execute and file when due all forms, reports, and returns required by law relating to the employment of its personnel.

 

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3.4               Utility and Service Contracts.  Manager shall make, at Owner’s expense and in Owner’s name or in Manager’s name, as an authorized representative for Owner, contracts for water, electricity, gas, fuel, oil, telephone, vermin extermination, trash removal, cable television, security protection and other services deemed by Manager to be necessary or advisable for the operation of the Project.  Manager shall also place orders in the name of Owner for such equipment, tools, appliances, materials, and supplies as are reasonable and necessary to properly maintain the Project.  Manager may make such contracts and place such orders in Owner’s name or in its own name, as Owner’s authorized representative.

 

3.5               Maintenance and Repair of a Project.  Manager shall use its diligent efforts to maintain, at Owner’s expense, the buildings, appurtenances and grounds of the Project in good condition and repair and in accordance with standards established by Owner in writing from time to time, including (a) interior and exterior cleaning; (b) painting and decorating; (c) plumbing; (d) carpentry; (e) making or supervising the repair, alterations, and decoration of the improvements, including planning and coordinating the construction of any tenant-paid improvements, subject to and in strict compliance with this Agreement and the leases, and (f) such other normal maintenance and repair work as may be reasonably desirable taking into consideration the amount allocated therefore in the Annual Business Plan. With respect to any expenditure not contemplated by the Annual Business Plan, Manager shall not incur any individual item for repair or replacement in excess of Twenty-Five Thousand Dollars ($25,000.00) unless authorized in writing by Owner, excepting, however, that emergency repairs immediately necessary for the preservation and safety of the Project or to avoid the suspension of any service to the Project or danger of injury to persons or damage to property may be made by Manager upon written notice to Owner, but without the approval of Owner.  Manager shall not be obligated by this Section 3.5 to perform any major capital improvements.

 

3.6               [Intentionally Omitted]

 

3.7               Controlling Agreements.  Manager has received copies of (and will be provided with copies of future) Controlling Agreements and is and will be familiar with the terms thereof.  Manager shall use reasonable care to avoid any act or omission that, in the performance of its duties hereunder, shall in any way conflict with the terms of Controlling Agreements.

 

3.8               Collection of Monies.  Manager shall use its diligent efforts to collect all rents and other charges due from tenants and concessionaires (if any) in respect of the Project and otherwise due Owner with respect to the Project in the ordinary course of business, provided that Manager does not guarantee the creditworthiness of any tenants or concessionaires or collectibility of accounts receivable from any of the foregoing.  Owner authorizes Manager to request, demand, collect, receive and provide a receipt for all such rent and other charges and to institute legal proceedings in the name of Owner, and at Owner’s expense, for the collection thereof, and for the dispossession of tenants and other persons from the Project or to cancel or terminate any lease, license or concession agreement for breach or default thereunder, and such expense may include the engaging of legal counsel approved by Owner in writing for any such matter.  All monies collected by Manager shall be deposited in the separate bank account referred to in Section 5.2 herein.

 

3.9               Manager Disbursements.

 

(a)           Manager shall, from the funds collected and deposited, cause to be disbursed regularly and punctually (1) Manager’s compensation, together with all sales or other taxes (other than income) which Manager is obligated, presently or in the future, to collect and pay to any applicable governmental authority, (2) the amounts reimbursable to Manager under this Agreement, (3) the amount of all real estate taxes and other impositions levied by appropriate authorities which, if not escrowed with 

 

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any mortgagee, shall be paid upon specific written direction of Owner before interest begins to accrue thereon, (4) debt service related to any mortgages of the Project, and (5) amounts otherwise due and payable as operating expenses of the Project authorized to be incurred under the terms of this Agreement. After (i) making disbursements as herein specified and (ii) establishing a cash reserve to pay taxes, insurance, and/or other costs and expenses incidental to the operation of the Project, including nonrecurring emergency repairs and capital expenditures which shall become due and payable within the succeeding calendar month and for which the cash to make such payments may not be generated by operations during such period, any balance remaining at the end of each calendar month during the term of this Agreement shall be disbursed or transferred as generally or specifically directed from time to time by Owner.

 

(b)           All costs, expenses, debts and liabilities owed to third persons that are incurred by Manager pursuant to the terms of this Agreement and in the course of managing, leasing and operating the Project shall be the responsibility of Owner and not Manager.  Owner agrees to provide sufficient working capital funds to Manager so that all amounts due and owing may be promptly paid by Manager.  Manager is not obligated to advance any funds.  As of the first day of each month of this Agreement, Manager will project the cash requirements for such month and (if it shall reasonably determine that collections will be insufficient to meet such cash requirements) request the necessary additional funds from the Owner, which funds will be deposited with the Manager in the segregated bank account referred to in Section 5.2 on or before ten (10) days following the receipt of such request.  If, at any month end, the bank balance exceeds the projected cash requirements, such excess shall be returned to the Owner within five (5) days.  If at any time there is not sufficient cash in the account with which to promptly pay the bills due and owing, the Manager will request that the necessary additional funds be deposited in an amount sufficient to create an operating reserve pursuant to Section 5.4.  Owner will deposit the additional funds requested by the Manager within five (5) days following the receipt of such request.

 

3.10             Use and Maintenance of Project.  Manager agrees that it will not knowingly permit the use of the Project for any purpose which might void any policy of insurance held by Owner or which might render any loss thereunder uncollectible, or which would be in violation of any government restriction or any covenant or restriction of any lease of the Project.  Manager shall use its good faith efforts to secure substantial compliance by the tenants with the terms and conditions of their respective leases.

 

3.11             Annual Business Plan.

 

(a)           On or before December 1 of each calendar year, or such other date agreed to by Owner and Manager, during the term of this Agreement, Manager shall prepare and submit to Owner for Owner’s approval, an “Annual Business Plan” for the Project for the promotion, leasing, operations, repair and maintenance of the Project for each calendar year during which this Agreement is in effect.  The Annual Business Plan shall include a detailed budget of projected income and expenses for the Project for such calendar year (the “Operating Budget”) and a detailed budget of projected capital improvements for the Project for such calendar year (the “Capital Budget”).  Within 30 days following the purchase of a Project by Owner, after the approval of the Annual Business Plan for such calendar year, Manager shall prepare and submit to Owner a comparable business plan for such Project and Manager and Owner must follow the procedure set forth in (b) below with respect to approving any such additional business plan.

 

(b)           Manager shall meet with Owner to discuss the proposed Annual Business Plan and Owner shall notify Manager with respect to the approval or disapproval of the proposed Annual Business Plan within 20 days following the receipt of the Annual Business Plan.  Any notice which disapproves a proposed Annual Business Plan must contain specific objections in reasonable detail.  If

 

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Owner fails to provide approval of a proposed Annual Business Plan within such 20 day period, the proposed Annual Business Plan shall be deemed to be disapproved and the Annual Business Plan in effect for the previous calendar year shall remain in effect until Owner approves a new Annual Business Plan for such Project.  Owner acknowledges that the Operating Budget is intended only to be a reasonable estimate of the Project’s income and expenses for the ensuing calendar year.  Manager shall not be deemed to have made any guarantee, warranty or representation whatsoever in connection with the Operating Budget.

 

(c)           Manager may revise the Operating Budget from time to time, as necessary, to reflect any unpredicted significant changes, variables or events or to include significant additional, unanticipated items of revenue and expense.  Any such revision shall be subject to the prior written approval of Owner.

 

(d)           Manager agrees to use diligence and to employ all reasonable efforts to ensure that the actual costs of maintaining and operating the Project shall not exceed the Operating Budget which is a part of the approved Annual Business Plan either in total or in any one accounting category.  Any expense causing or likely to cause a variance of greater than ten percent (10%) or $10,000, whichever is greater, in any one accounting category on a cumulative year-to-date basis shall be promptly explained to Owner by Manager in the next monthly report submitted by Manager to Owner under Section 3.13(a) below.  During the calendar year, Manager shall inform Owner of any major increases or decreases in costs, expenses, and income that were not reflected in the Annual Business Plan.

 

3.12             Records.  Manager shall maintain all office records and books of account and shall record therein, and keep copies of, each invoice received from services, work and supplies ordered in connection with the maintenance and operation of the Project.  Such records shall be maintained on a double entry basis.  Owner and persons designated by Owner shall at all reasonable times have access to and the right to audit and make independent examinations of such records, books and accounts and all vouchers, files and all other material pertaining to the Project and this Agreement, all of which Manager agrees to keep safe, available and separate from any records not pertaining to the Project, at a place recommended by Manager and approved by Owner.

 

3.13             Financial Reports.

 

(a)           Monthly Reports.  On or before the 15th day after the end of each month during the term of this Agreement, Manager shall prepare and submit to Owner the following reports and statements:

 

(i)            monthly operating and year-to-date operating statement;

 

(ii)           copy of cash disbursements ledger entries for such period, if requested;

 

(iii)          copy of cash receipts ledger entries for such period, if requested;

 

(iv)          the original copies of all contracts entered into by Manager on behalf of Owner during such period, if requested; and

 

(v)           copy of ledger entries for such period relating to security deposits maintained by Manager, if requested.

 

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In addition to the above, Manager shall deliver to Owner such other reports and statements as are reasonably requested by Owner.

 

(b)           Returns Required by Law.  Manager shall execute and file punctually when due all forms, reports and returns required by law relating to the employment of personnel.

 

3.14             Dealings with Advisor.  Unless Owner specifically informs Manager to the contrary, Adaptive Real Estate Income Trust Advisors, LLC, or its successor as advisor to the Company, may perform any of the obligations or exercise any of the rights of Owner under this Agreement.

 

3.15             Branding.  Manager shall maintain and administer for Owner the standards of branding established by Behringer Harvard Holdings, LLC with respect to all billboards, signage and uniforms.

 

3.16             Risk Management.  Manager or its affiliates shall provide to Owner risk management services, including, but not limited to, the following: assisting and providing ways to mitigate, minimize, control, and transfer risk through the prudent use of risk management, insurance programs and recommendations of safety and loss control techniques; selecting and managing insurance brokers and service products; preparing underwriting data for use in marketing insurance programs; negotiating and placing insurance and related services; serving as liaison for insurance brokers and monitoring insurance premium invoices for accuracy; managing and settling loss control and insurance claims; consulting and coordinating insurance requirements for financing properties; reviewing and monitoring sub-contractor certificates of insurance; and consulting regarding insurance verbiage requirements for leases and contracts.

 

3.17             Real Estate Tax Management.  Manager or its affiliates shall provide to Owner tax management services with respect to the Projects, including, but not limited to, the following: coordinating payment of real estate taxes; contesting real estate taxes, as Manager deems appropriate; accounting for all bills to be processed at any given installment, and following up on missing bills; data entry of tax amounts and equalized values when available; and providing copies of documents as requested (including following up on cancelled checks, monitoring payment by third parties, communicating with interested parties and forwarding tax bills to purchasers and other parties as necessary).

 

3.18             Technology Use and Support.  Manager shall utilize the software and technology platforms that it believes are appropriate in connection with fulfilling its duties under this Agreement.  In addition, Manager shall provide technical support and maintenance with respect to any technology used in the maintenance, operation, management and leasing of properties.

 

ARTICLE IV

 

Manager’s Compensation, Term

 

4.1               Manager’s Compensation.

 

(a)           Management Fee.   Commencing on the date hereof, Owner shall pay Manager a monthly management fee (“Management Fee”) payable monthly in arrears, with respect to each Project, equal to the greater of (i) $8,500, or (ii) a fee ranging from two percent (2.0%) to five percent (5.0%) of Gross Revenues of such Project depending on the type of Project acquired as determined by Owner and Manager on a Project-by-Project basis.  If Manager subcontracts its responsibilities hereunder to another person or entity, Manager shall be solely responsible for the payment to such third party.  The

 

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Management Fee includes the reimbursement of the specified cost incurred by the Manager of engaging another person or entity to perform Manager’s responsibilities hereunder; provided, however, that Manager shall be responsible for payment of all such amounts to such third parties.  Nothing herein shall prevent Manager from entering fee-splitting arrangements with third parties with respect to the Management Fee.

 

Certain Projects may be owned by Joint Ventures.  When the Manager is not paid by the Joint Venture directly in respect of its services, the applicable Management Fee or Oversight Fee to be paid by the Owner will be calculated by multiplying the Management Fee or Oversight Fee, as applicable, by the Economic Interest Percentage  owned directly or indirectly by the Owner in such Project.

 

(b)           Oversight Fee.  In the event that Owner contracts directly with a third-party property manager not affiliated with the Manager in respect of a Project for which the Owner, in its sole discretion, has the ability to appoint or hire the Manager, Owner shall pay Manager a monthly oversight fee (“Oversight Fee”) equal to the greater of (i) one-half of one percent (0.50%) of Gross Revenues of such Project or (ii) $1,500.  In no event will Owner pay both a Management Fee and an Oversight Fee to Manager with respect to any Project.

 

(c)           Construction Supervision Fees.  Manager shall supervise construction performed by or on behalf of Owner with respect to the space in the Project, including, but not limited to, capital repairs and improvements, major building reconstruction and tenant improvements (collectively, “Construction Work”).  In the event that Manager supervises a single Construction Work project with respect to a Project with hard construction costs in excess of $50,000, Owner shall pay Manager a construction supervision fee equal to an amount not greater than five percent (5%) of all hard construction costs incurred in connection with the Construction Work.  Owner shall pay construction supervision fees at the same time it makes payments to any third party contractors in respect of any Construction Work.

 

(d)           Leasing Fees.  Owner shall pay Manager a separate fee for (i) the one-time rent-up or lease-up of newly constructed space in a Project, (ii) leasing vacant space in a Project, and (iii)  renewing or extending current leases in a Project, in an amount not to exceed the fee customarily charged in arm’s length transactions by others rendering similar leasing services in the same geographic area for similar properties, as determined by a survey of brokers and agents in such area (customarily equal to the first month’s rent).

 

(e)           Audit Adjustment.  If any audit of the records, books or accounts relating to the Project discloses an overpayment or underpayment of Management Fees, Owner or Manager shall promptly pay to the other party the amount of such overpayment or underpayment, as the case may be.  If such audit discloses an overpayment of Management Fees for any fiscal year of 5% more than the correct Management Fees for such fiscal year, Manager shall bear the cost of such audit.

 

4.2               Term.  This Agreement shall commence on the date first above written and shall continue until the fifth anniversary of that date.  Thereafter, this Agreement may be renewed for an unlimited number of successive five-year terms upon mutual consent of the parties, unless otherwise terminated as provided herein.  In the event the Company terminates its advisory management agreement with Adaptive Real Estate Income Trust Advisors, LLC, Manager, upon at least thirty (30) days prior written notice, shall have the right to terminate this Agreement.  Owner may terminate this Agreement (i) at any time upon delivery of written notice to Manager not less than thirty (30) days prior to the effective date of termination, in the event of (and only in the event of) a showing by Owner of willful misconduct, gross negligence or deliberate malfeasance of the Manager, its agents, servants or employees in the performance of Manager’s duties hereunder and (ii) immediately upon the occurrence of any of the following:

 

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(a)                                  A decree or order is rendered by a court having jurisdiction (i) adjudging Manager as bankrupt or insolvent, or (ii) approving as properly filed a petition seeking reorganization, readjustment, arrangement, composition or similar relief for Manager under the federal bankruptcy laws or any similar applicable law or practice, or (iii) appointing a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of Manager or a substantial part of the property of Manager, or for the winding up or liquidating of its affairs; or

 

(b)                                 Manager (i) institutes proceedings to be adjudicated a voluntary bankrupt or an insolvent, (ii) consents to the filing of a bankruptcy proceeding against it, (iii) files a petition or answer or consent seeking reorganization, readjustment, arrangement, composition or relief under any similar applicable law or practice, (iv) consents to the filing of any such petition, or to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency for it or for a substantial part of its property, (v) makes an assignment for the benefit of creditors, (vi) is unable to or admits in writing its inability to pay its debts generally as they become due unless such inability shall be the fault of the other party, or (vii) takes corporate or other action in furtherance of any of the aforesaid purposes; or

 

(c)                                  With respect to any particular Project, the sale of such Project.

 

4.3                                             Termination for Owner Default.  If Owner shall materially fail to perform its obligations hereunder, the following cure periods shall apply: (1) In the event of a monetary breach or a breach that can reasonably be cured within a fifteen (15) day period, Owner shall be in default under this Agreement if such failure continues for fifteen (15) days after written notice thereof from Manager to Owner of such failure; or (2) if the nature of such breach is such that the same cannot reasonably be cured within a fifteen (15) day period, Owner shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure said default as soon as reasonably practicable.  If such failure continues beyond such applicable cure periods, then Manager may terminate this Agreement by giving thirty (30) days written notice to Owner and Owner agrees to pay Manager the Management Fees due to Manager pursuant to Section 4.1 with respect to the Projects the Manager is managing as of the date of termination, where such ongoing Management Fees shall, for each Project, be based on the Gross Revenues for each Project based on the end of the month of the date of termination.

 

4.4                                             Manager’s Obligations Upon Termination.  Upon the termination of this Agreement, Manager shall have the following duties:

 

(a)                                  Manager shall deliver to Owner or its designee, all books and records with respect to the Project.

 

(b)                                 Manager shall transfer and assign to Owner, or its designee, all service contracts and personal property relating to or used in the operation and maintenance of the Project, except personal property paid for and owned by Manager.  Manager shall also, for a period of sixty (60) days immediately following the date of such termination, make itself available to consult with and advise Owner, or its designee, regarding the operation, maintenance and leasing of the Project.

 

(c)                                  Manager shall render to Owner an accounting of all funds of Owner in its possession and shall deliver to Owner a statement of all fees and reimbursements claimed to be due to Manager and shall cause funds of Owner held by Manager relating to the Project to be paid to Owner or its designee.

 

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(d)                                 Within sixty (60) days immediately following the date of such termination, Manager shall deliver to Owner the report required by Section 3.13(a) for any period not covered by such a report at the time of termination.

 

(e)                                  This Section 4.4 and all other provisions of this Agreement that require Manager to deliver items or funds to Owner shall survive any expiration or termination of this Agreement.

 

4.5                                             Owner’s Obligations Upon Termination.  Upon any termination of this Agreement by Owner, Manager shall be entitled to receive all compensation and reimbursements, if any, due to Manager through the date of termination.  Such amounts will be due Manager no later than thirty (30) days from the date of such termination.  All provisions of this Agreement that require Owner to reimburse or pay Manager shall survive any expiration or termination of this Agreement, but only to the extent such obligation accrued prior to the date of termination.

 

The parties understand and agree that Manager may withhold funds for sixty (60) days after the end of the month in which this Agreement is terminated to pay bills previously incurred but not yet invoiced and to close accounts. Should the funds withheld be insufficient to meet the obligation of Manager to pay bills previously incurred, Owner will, upon demand, advance sufficient funds to Manager to ensure fulfillment of Manager’s obligation to do so, within ten (10) days of receipt of notice and an itemization of such unpaid bills.

 

Upon the termination of this Agreement, Owner shall assume in writing all obligations under all contracts entered into by Manager on behalf of Owner of the Project.

 

ARTICLE V

 

Procedures for Handling Receipts and Operating Capital

 

5.1                                             Security Deposits.  Tenant security deposits shall be held by Manager in accordance with the laws of the jurisdiction in which the Project is located.

 

5.2                                             Separation of Owner’s Monies.  Manager or Owner, as agreed upon, shall establish and maintain, in a bank of Owner’s or Manager’s choice whose deposits are insured by the Federal Deposit Insurance Corporation, and in a manner to indicate the custodial nature thereof, a separate bank account for the deposit of all monies of Owner.  Manager or Owner, as agreed upon, shall also establish such other special bank accounts as may be reasonably required by Owner.  All monies deposited from time to time in these accounts shall be deemed trust funds and shall be and remain the property of Owner and shall be withdrawn and dispersed by Manager for the account of Owner only as expressly permitted by this Agreement for the purposes of performing the obligations of Manager hereunder.  No monies collected by Manager on Owner’s behalf shall be commingled with the funds of Manager.

 

5.3                                             Depository Accounts.  Owner and Manager agree that Manager shall have no liability for loss of funds of Owner contained in the bank accounts for the Project maintained by Manager pursuant to this Agreement due to insolvency of the bank or financial institution in which its accounts are kept, whether or not the amounts in such accounts exceed the maximum amount of federal or other deposit insurance applicable with respect to the financial institution in question.

 

5.4                                             Working Capital.  In addition to the funds derived from the operation of the Project, Owner shall furnish and maintain in the operating accounts of the Project such other funds as may be necessary to discharge financial commitments required to efficiently operate the Project and to meet all 

 

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payrolls and satisfy, before delinquency, and to discharge all accounts payable.  Manager shall have no responsibility or obligation with respect to the furnishing of any such funds.  Nevertheless, Manager shall have the right, but not the obligation, to advance funds or contribute property on behalf of Owner to satisfy obligations of Owner in connection with this Agreement and the Project.  Manager shall keep appropriate records to document all reimbursable expenses paid by Manager, which records shall be made available for inspection by Owner or its agents on request.  Owner agrees to reimburse Manager upon demand for money paid or property contributed in connection with the Project and this Agreement.

 

5.5                                             Authorized Signatures.  Any persons from time to time designated by Manager shall be authorized signatories on all bank accounts established by Manager pursuant to this Agreement and shall have authority to make disbursements from such accounts.  Funds may be withdrawn from all bank accounts established by Manager, in accordance with this Article V, only upon the signature of an individual who has been granted that authority by Manager and funds may not be withdrawn from such accounts by Owner unless Manager is in default hereunder.

 

ARTICLE VI

 

Insurance and Indemnification

 

6.1                                             Insurance.

 

(a)                                  Insurance to be Carried.

 

(i)                                     Manager or Owner, as agreed upon, shall obtain and keep in full force and effect insurance on the Project against such hazards as Owner and Manager shall deem appropriate, but in any event insurance sufficient to comply with the leases and other agreements with respect to the Project and the Controlling Agreements shall be maintained.  All liability policies shall provide sufficient insurance satisfactory to both Owner and Manager and shall contain waivers of subrogation for the benefit of Manager.

 

(ii)                                  Manager or Owner, as agreed upon, shall obtain and keep in full force and effect, in accordance with the laws of the state in which such Project is located, workers’ compensation and employer’s liability insurance applicable to and covering all employees of Manager at the Project and all persons engaged in the performance of any work required hereunder, and Manager shall furnish Owner certificates of insurance evidencing that such insurance is in effect.  If any work under this Agreement is subcontracted as permitted herein, Manager shall include in each subcontract a provision that the subcontractor shall also furnish Owner with such a certificate.

 

(b)                                 Insurance Expenses.  Premiums and other expenses of such insurance, as well as any applicable payments in respect of deductibles, shall be borne by Owner.

 

(c)                                  Cooperation with Insurers.  Manager shall cooperate with and provide reasonable access to the Project to representatives of insurance companies and insurance brokers or agents with respect to insurance that is in effect or for which application has been made.  Manager shall use its best efforts to comply with all requirements of insurers.

 

(d)                                 Accidents and Claims.  Manager shall promptly investigate and shall report in detail to Owner all accidents and claims for damage relating to the ownership, operation or maintenance of the Project, and any damage or destruction to the Project and the estimated costs of repair thereof, and shall prepare for approval by Owner all reports required by an insurance company in connection with any

 

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such accident, claim, damage, or destruction.  Such reports shall be given to Owner promptly, and shall be noted in the monthly reports delivered to Owner pursuant to Section 3.13(a) above.  Manager is authorized to settle any claim against an insurance company arising out of any policy and, in connection with such claim, to execute proofs of loss and adjustments of loss and to collect and receipt for loss proceeds.

 

6.2                                             Indemnification.

 

(a)                                  Indemnification of Manager.

 

(i)                                     Owner agrees to indemnify, defend, protect, save and hold harmless Manager and its stockholders, members, officers, directors, employees, managers, successors and assigns (collectively, the “Manager Indemnified Parties”) from any and all Losses in connection with the misconduct, negligence or unlawful acts (such unlawfulness having been adjudicated by a court of proper jurisdiction) of Owner, or in any way related to the Project or this Agreement, including but not limited to:

 

1)                                     any past, current or future allegations regarding treatment, depositing, storage, disposal or placement by any duly qualified and licensed person or entity other than Manager of hazardous substances on any Project;

 

2)                                     liability for damage to the Project;

 

3)                                     injuries to or death of any person occurring on the Project;

 

4)                                     failure of the Project to comply with Governmental Requirements;

 

5)                                     Manager’s reasonable actions to cause the Project to comply with Governmental Requirements;

 

6)                                     contracts entered into by Manager, on behalf of Owner;

 

7)                                     use by Owner of the tenant security deposits that is inconsistent with the terms of the applicable lease and applicable laws.

 

(ii)                                  Limitation of Indemnification of Manager. The indemnification and exculpation set forth in Section 6.2(a)(i) above shall not extend to any such Losses to the extent arising out of the misconduct, negligence or unlawful acts (the unlawfulness having been adjudicated by a court of proper jurisdiction) of Manager, its agents, servants, or employees, or Manager’s breach of this Agreement; provided, further, that the indemnification and exculpation shall be limited to the extent that Manager recovers insurance proceeds with respect to that matter.  Notwithstanding anything to the contrary in this Agreement, any indemnification and exculpation by the Owner under this Agreement is subject to any limitations imposed under the Company’s Articles of Incorporation or any amendments thereto.

 

(iii)                               Limitation on Manager’s Liability for Error or Mistake.  Manager shall not be liable for any error of judgment or for any mistake of fact or law, or for any thing that it may do or refrain from doing, except in cases of misconduct, negligence or

 

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unlawful acts (the unlawfulness having been adjudicated by a court of proper jurisdiction).

 

(b)                                 Indemnification of Owner.  Manager agrees to indemnify, defend, protect, save and hold harmless Owner and its stockholders, members, partners, officers, directors, employees, managers, successors and assigns (collectively, the “Owner Indemnified Parties”) from any and all claims or liability for any injury or damage to any person or property whatsoever for which Manager is responsible occurring in, on, or about the Project, including, without limitation, the improvements located thereon, to the extent the injury or damage shall be caused by the misconduct, negligence or unlawful acts (the unlawfulness having been adjudicated by a court of proper jurisdiction) of Manager, its agents, servants, or employees, or Manager’s breach of this Agreement, except to the extent that Owner recovers insurance proceeds with respect to such matter.

 

(c)                                  Survival of Indemnities.  The indemnification obligations of the parties to this Agreement shall survive the termination of this Agreement to the extent of (i) any claim or cause of action based on an event occurring prior to the date of termination, and (ii) any claim or cause of action in connection with any contract entered into by Manager, on behalf of Owner.

 

(e)                                  Submanagers.  Indemnity obligations with respect to Submanagers (as defined in Section 7.1 below) shall be governed by Section 7.1.

 

ARTICLE VII

 

Miscellaneous

 

7.1                                             Assignment.  Manager may delegate partially or in full its duties and rights under this Agreement to an affiliate, but only with the prior written consent of Owner, and may assign part of its duties and rights to a Project, without the consent of Owner, to a qualified professional management company having experience in managing projects with similar uses as such Project in the metropolitan or other geographic areas of the Project or similar places with a sufficient degree of experience and the necessary licenses to perform Manager’s duties.  Owner acknowledges and agrees that any or all of the duties of Manager as contained herein may be delegated by Manager and performed by a person or entity (“Submanager”) with whom Manager contracts for the purpose of performing such duties.  Owner specifically grants Manager the authority to enter into such a contract with a Submanager; provided that, unless Owner otherwise agrees in writing with such Submanager, Owner shall have no liability or responsibility to any such Submanager for the payment of the Submanager’s fee or for reimbursement to the Submanager of its expenses or to indemnify the Submanager in any manner for any matter; and provided further that Manager shall require such Submanager to agree, in the written agreement setting forth the duties and obligations of such Submanager, to indemnify Owner for all Losses incurred by Owner as a result of the willful misconduct or gross negligence of the Submanager, except that such indemnity shall not be required to the extent that Owner recovers insurance proceeds with respect to such matter.  Any contract entered into between Manager and a Submanager pursuant to this Section 7.1 shall be consistent with the provisions of this Agreement, except to the extent Owner otherwise specifically agrees in writing.  This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors and assigns.

 

7.2                                             Non-Solicitation.  During the period commencing on the date hereof and ending two years following the termination of this Agreement, the Company and the OP shall not, without the Manager’s prior written consent, directly or indirectly, (i) solicit or encourage any person to leave the employment or other service of the Manager or any of its affiliates, or (ii) hire or pay, directly or

 

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indirectly, any compensation to, on behalf of the Company or the OP or any other person or entity, any person who has left the employment of the Manager or any of its affiliates within the two-year period following the termination of that person’s employment with the Manager or any of its affiliates.  During the period commencing on the date hereof through and ending two years following the termination of this Agreement, the Company and the OP will not, whether for its or their own account or for the account of any other person, firm, corporation or other business organization, intentionally interfere with the relationship of the Manager or any of its affiliates with, or endeavor to entice away from the Manager or any of its affiliates, any person who during the term of this Agreement is, or during the preceding two-year period was, a tenant, co-investor, co-developer, joint venturer or other customer of the Manager or any of its affiliates.

 

7.3                                             Notices.  All notices, approvals, consents and other communications hereunder shall be in writing, and, except when receipt is required to start the running of a period of time, shall be deemed given when delivered in person or on the fifth day after its mailing by either party by registered or certified United States mail, postage prepaid and return receipt requested, to the other party, at the addresses set forth after their respective name below or at such different addresses as either party shall have theretofore advised the other party in writing in accordance with this Section 7.3.

 

Owner:                            ADAPTIVE REAL ESTATE INCOME TRUST OP LP

c/o ADAPTIVE REAL ESTATE INCOME TRUST, INC.

15601 Dallas Parkway

Suite 600

Addison, Texas 75001

Attention:  President

 

Manager:               ADAPTIVE REAL ESTATE INCOME TRUST MANAGEMENT SERVICES, LLC

15601 Dallas Parkway

Suite 600

Addison, Texas 75001

Attention:  Chief Legal Officer

 

7.4                                             Entire Agreement.  This Agreement shall constitute the entire agreement between the parties hereto and no modification thereof shall be effective unless in writing executed by the parties hereto.

 

7.5                                             No Partnership.  Nothing contained in this Agreement shall constitute or be construed to be or create a partnership or joint venture between the Owner, its successors or assigns, on the one part, and Manager, its successors and assigns, on the other part.

 

7.6                                             Severability.  If any one or more of the provisions of this Agreement, or the applicability of any such provision to a specific situation shall be held invalid or unenforceable, such provision should be modified to the minimum extent necessary to make it or its application valid and enforceable, and the validity and enforceability of all other provisions of this Agreement and all other applications of such provisions shall not be affected thereby.

 

7.7                                             No Third Party Beneficiary.  Neither this Agreement nor any part hereof nor any service relationship shall inure to the benefit of any third party, to any trustee in bankruptcy, to any assignee for the benefit of creditors, to any receiver by reason of insolvency, to any other fiduciary or officer representing a bankrupt or insolvent estate of either party, or to the creditors or claimants of such an estate.  Without limiting the generality of the foregoing sentence, it is specifically understood and 

 

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agreed that insolvency or bankruptcy of either party hereto shall, at the option of the other party, void all rights of such insolvent or bankrupt party hereunder (or so many of such rights as the other party shall elect to void).

 

7.8                                             Captions, Plural Terms.  Unless the context clearly requires otherwise, the singular number herein shall include the plural, the plural number shall include the singular and any gender shall include all genders.  Titles and captions herein shall not affect the construction of this Agreement.

 

7.9                                             Attorneys’ Fees.  Should either party employ an attorney to enforce any of the provisions of this Agreement, or to recover damages for breach of this Agreement, the non-prevailing party in any action agrees to pay to the prevailing party all reasonable costs, damages and expenses, including reasonable attorneys’ fees, expended or incurred by the prevailing party in connection therewith.

 

7.10                                       Signs.  Manager shall have the right to place signs on the Project in accordance with applicable Governmental Requirements stating that Manager is the manager and leasing agent for the Project.

 

7.11                                       Ownership of Proprietary Property.  The Manager retains ownership of and reserves all Intellectual Property Rights in the Proprietary Property.  To the extent that Owner has or obtains any claim to any right, title or interest in the Proprietary Property, including without limitation in any suggestions, enhancements or contributions that Owner may provide regarding the Proprietary Property, Owner hereby assigns and transfers exclusively to the Manager all right, title and interest, including without limitation all Intellectual Property Rights, free and clear of any liens, encumbrances or licenses in favor of Owner or any other party, in and to the Proprietary Property.  In addition, at the Manager’s expense, Owner will perform any acts that may be deemed desirable by the Manager to evidence more fully the transfer of ownership of right, title and interest in the Proprietary Property to the Manager, including but not limited to the execution of any instruments or documents now or hereafter requested by the Manager to perfect, defend or confirm the assignment described herein, in a form determined by the Manager.

 

7.12                                       Governing Law, Venue.  This Agreement shall be construed under and in accordance with the laws of the State of Texas and is fully performable in Dallas County, Texas.

 

7.13                                       Counterparts.  This Agreement may be executed in two or more counterparts, each of which shall be deemed to be an original.

 

[REST OF PAGE INTENTIONALLY LEFT BLANK]

 

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IN WITNESS WHEREOF, the parties hereto have caused this instrument to be duly executed by their duly authorized representatives.

 

 

	
“OWNER”
    	
 
    	
“MANAGER”
    
	
 
    	
 
    	
 
    
	
ADAPTIVE REAL ESTATE INCOME TRUST, INC.
    	
 
    	
ADAPTIVE REAL ESTATE INCOME TRUST MANAGEMENT SERVICES, LLC
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
Robert   S. Aisner
    	
 
    	
Name:
    	
 
    
	
 
    	
President
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
ADAPTIVE REAL ESTATE INCOME TRUST OP LP
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
AREIT, Inc.,   its General Partner
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    	
 
    	
 
    

 

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