The company suspended its DRIP in the fourth quarter of The offering was declared effective in February and terminated its distribution reinvestment plan in February Click here to visit The DI Wire directory sponsor page. Thursday, November 26, Contact Click here to subscribe to our Daily News Updates. The DI Wire. The DI Wire is the definitive news source for the illiquid alternative investment industry.
During the first quarter of , the Company disposed of 11 multifamily properties, including the contribution of eight properties to a joint venture with Blackstone Real Estate Investment Trust, Inc. See the reconciliation of NOI to net income loss and accompanying notes contained within this release for additional information on how the Company calculates NOI.
See the reconciliation of FFO to net income loss and accompanying notes contained within this release for additional information on how the Company calculates FFO. This release contains certain forward-looking statements. Because such statements include risks, uncertainties and contingencies, actual results may differ materially from those expressed or implied by such forward-looking statements and you should not place undue reliance on any such statements.
A number of important factors could cause actual results to differ materially from the forward-looking statements contained in this release. Forward-looking statements in this document speak only as of the date on which such statements were made, and the company undertakes no obligation to update any such statements that may become untrue because of subsequent events.
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Acquires first acquisition in Indianapolis and declares monthly cash distributions. You may download a copy of the prospectus via the following link: download prospectus. We are offering up to 10 million shares to existing stockholders pursuant to our distribution reinvestment plan.
Some of the significant features of our distribution reinvestment plan are as follows:. There is no public trading market for our shares of common stock, and there can be no assurance that a market will develop in the future. Investing in shares of our common stock involves a high degree of risk. You should purchase shares only if you can afford a complete loss of your investment. The underlying assumptions and any forward-looking statements herein may not be accurate, and your performance may vary significantly.
Colorado Springs. Oklahoma City. South Carolina. Living Here. Who We Are. Property portfolio. Stockholders who elect to participate in our distribution reinvestment plan may choose to invest their cash distributions in shares of our common stock. Our board of directors may change this price from time to time based on future determinations of our estimated value per share and other factors our board of directors deems relevant.
Saturday, November 28, Contact Click here to subscribe to our Daily News Updates. The DI Wire. The DI Wire is the definitive news source for the illiquid alternative investment industry. The only media site dedicated exclusively to the coverage of non-traded REITs, business development companies, interval funds, closed-end funds, DSTs and the full range of private placement offerings, The DI Wire has grown to become the most trusted news source for the community of sponsors, broker-dealers and wealth advisors who provide these investment offerings to millions of American retail investors.
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Steadfast Income REIT invests primarily on the multifamily sector, including stable, income-producing and value-added properties. For more Steadfast related news, visit their directory page here. Thursday, November 26, Contact Click here to subscribe to our Daily News Updates. The DI Wire. All three phases boast concrete block construction, unique for the Tampa Bay market, allowing for acquisition of the community well below replacement costs.
Community residents have access to a unique amenity package including two clubhouses, three swimming pools, a state-of-the-art fitness center, lighted tennis court, a sand volleyball court, picnic areas with charcoal grills, interactive fountains, and a pet playground. Bluerock intends to leverage and build off of its experience at Enders Place another fractured condominium community owned by us in order to maximize the value of this transaction.
Although the foregoing acquisition is subject to a joint venture agreement with affiliates of Bluerock, the joint venture has not yet acquired the property. We have not completed our diligence process nor do we have definitive investment agreements, and several other conditions must be met in order for us to invest in this project, including approval by our investment committee.
Bluerock believes that as financial buyers enter their disposition periods, the next phase of recovery provides opportunity for real estate-centric buyers i. In addition, Bluerock believes that as the economy continues its recovery, private purchasers with greater capital constraints who have needed significant leverage to fund acquisitions will become less competitive in an environment of more traditional i.
We expect to capitalize on this change in the competitive landscape to acquire apartment communities from owners who do not have sufficient capital resources to execute their business plans. As a result, we believe that our target markets provide the opportunity to source investments at cap rates that are at significant premiums to gateway markets, and which have the potential to provide not only significant current income, but also capital appreciation.
Bluerock additionally believes that select demographically attractive growth markets are underserved by newer institutional-quality Class A apartment properties, especially as the wave of Echo Boomers moves into its prime rental years over the upcoming decade. The challenges to investing successfully across multiple markets and across multiple investment strategies include both cost and logistical factors, requiring an investor to cost-efficiently monitor, source, invest in, and as appropriate, divest of properties in such markets based on their investment attractiveness throughout the cycle, and to cost-efficiently manage the associated logistical burdens.
These strengths include the following:. Network of Strategic Partners. We invest primarily through controlling positions in joint ventures with our Bluerock SPs. By accessing our network of Bluerock SPs, we believe we have access to a substantial, often proprietary, transaction pipeline, along with an institutional-quality infrastructure and ability to execute, in our target markets without the cost and logistical burdens associated with maintaining our own infrastructure and pipeline in these markets.
By leveraging our network of Bluerock SPs, we are able to execute a rigorous double underwriting process, which we believe improves our ability to evaluate risk and create value in our transactions. We believe this ability to review investment opportunities with both depth in the target market and breadth across target markets improves our ability to source and execute attractive transactions. Scalable Operating Model. Our extensive network of Bluerock SPs provides us the ability to scale our operations rapidly, enabling us to allocate or reallocate capital across multiple target markets and along multiple strategies, and to rapidly invest in or divest of properties without the time delay associated with building infrastructure across multiple markets, and without burdening us with excessive operating and overhead costs.
Strong Alignment of Interests. In connection with our contribution transactions, private funds affiliated with Bluerock, including funds in which certain of our executives or their affiliates own interests, have agreed to receive units of limited partnership interest in our operating partnership, or OP Units, and shares of Class A common stock at the offering price as consideration for the contributed assets in lieu of cash.
In addition, concurrently with the completion of this offering, we will grant , LTIP units to our Manager under the Entities Plan. These LTIP units will vest ratably over a three-year period and may convert to OP Units upon reaching capital account equivalency with the OP Units held by us, and may then be settled in shares of our Class A common stock. Reduced General and Administrative Expenses. In addition, we will have access to our management team at a lower cost than associated with employing our own management team, which provides a significant benefit to our stockholders.
Finally, we retain the ability to internalize our management team at the discretion of our board of directors by terminating the Management Agreement and paying the termination fee thereunder or acquiring our Manager at an equivalent price. Our principal business objective is to generate attractive risk-adjusted investment returns by assembling a high-quality portfolio of apartment properties located in demographically attractive growth markets and by implementing our investment strategies and our BLIs to achieve sustainable long-term growth in both our funds from operations and net asset value.
Invest in Institutional-Quality Apartment Properties. We intend to continue to acquire institutional-quality apartment properties where we believe we can create long-term value for our stockholders utilizing our Core-Plus, Value-Add, Opportunistic and Invest-to-Own investment strategies. We will seek to grow our high-quality portfolio of apartment properties diversified by geography and by investment strategy in order to drive both current income and capital appreciation throughout the portfolio.
Bluerock and our Bluerock SPs enable us to diversify across multiple markets and multiple strategies efficiently, without the logistical burden and time delay of building operating infrastructure in multiple markets and across multiple investment strategies.
Focus on Demographically Attractive Growth Markets. We intend to continue to focus on demographically attractive growth markets, which we believe provide high potential for attractive risk-adjusted returns. We continuously evaluate and select our target markets through a rigorous analysis of detailed demographic data at both the market and submarket levels, which market characteristics may include projected short- and long-term employment growth; existence of robust infrastructures; diversity and growth of the economic base; the presence of a younger, more educated demographic profile with a high population of renters by choice; the existence of right to work laws; and quality of life.
Within these markets, we focus on submarkets where our Bluerock SPs have established relationships, transaction history, market knowledge and potential access to off-market investments, as well as an ability to efficiently direct property management and leasing operations.
Implement Bluerock Lifestyle Initiatives. We intend to implement our BLIs, which seek to transform the perception of the apartment from purely functional i. The BLIs are property specific, and generally consist of amenities and attributes that go beyond traditional features, including highly amenitized common areas, cosmetic and architectural improvements, technology, music and other community-oriented activities. We believe this creates an enhanced perception of value among residents, allowing for premium rental rates and improved resident retention.
Aggressively Manage Assets to Drive Value. We intend to implement an aggressive asset management strategy in order to maximize our return on investment. Initially, our Manager will work with our Bluerock SPs to create an asset-specific business plan for each acquired and Invest-to-Own property.
As part of this plan, our team will evaluate property needs along with value-creation opportunities to determine how we can best position or reposition the property to meaningfully drive rental growth and asset values. Our Manager then intends to manage our Bluerock SPs in conjunction with the plan, with the goal of driving rental growth and values.
Notwithstanding the fact that our Bluerock SPs may have an investment in the project, we intend to generally retain control with respect to the property and the right to terminate property management. Selectively Harvest and Redeploy Capital.
On an opportunistic basis and subject to compliance with certain REIT restrictions, we intend to sell properties in cases where we have successfully executed our value. In the last two years, we have sold interests in three assets, including two to affiliates at appraised value, yielding an average IRR of Below are case studies of the types of transactions we have executed in the past, which are representative of the transactions we expect to execute as a publicly-traded company.
On September 30, , we, our affiliates, and Bell Partners, Inc. Pursuant to our BLIs, Bluerock and Bell implemented a modest interior unit renovation program and modernization of the clubhouse and amenities at the property, including the fitness center. On December 3, , we, our affiliates, and Hawthorne Residential, Inc. The purchase was part of an off-market two asset portfolio purchase from a publicly traded REIT. In order to position the property for future rent increases, Bluerock and Hawthorne implemented a comprehensive marketing and re-tenanting program, which diversified our tenant base to include a more permanent and less price-conscious segment of the market.
With a more stable rent roll at the property, Bluerock and Hawthorne commenced a comprehensive unit interior value-added program in November On December 17, , we, our affiliates, and Village Green recapitalized a Class A unit high-rise apartment community with 8, square feet of ground floor retail known as the MDA City Apartments, located in the Chicago Loop submarket of downtown Chicago, Illinois in an off-market transaction.
The recapitalization allowed the existing ownership to streamline a complicated ownership structure that included historic tax credits and mezzanine financing to a more traditional senior financing and common equity ownership structure. Virgin Hotels is in the process of redeveloping the former Old Dearborn Bank Building, located immediately. The asset, built in , was a real estate owned, or REO, property and the units were being operated as a rental community at the time of purchase.
In order to reposition the property as a Class A apartment community, we worked to structure the acquisition with long-term agency financing at attractive rates. The purchase price was a Enders Place is one of several communities located within the larger Baldwin Park development. Pedestrian-friendly with two large lakes, more than 50 miles of paths and trails, and over 20 parks, Baldwin Park is a popular and award-winning, low-to medium-density planned community.
The property is a Class A, urban apartment community with highly appointed unit interiors and an abundance of lifestyle amenities. Construction is expected to be completed in mid The information presented in these case studies should not be considered indicative of our future performance and you should not rely on this information as an indication thereof.
An investment in our Class A common stock involves a number of risks. Some of the more significant risks include those set forth below. If we are unable to effectively manage the impact of these and other risks, our ability to meet our investment objectives would be substantially impaired.
In turn, the value of our Class A common stock and our ability to make distributions would be materially reduced. Upon completion of this offering, we will be externally managed and advised by our Manager. Our Manager is majority owned by Bluerock. Pursuant to the terms of the Management Agreement, which we will enter into simultaneously with the completion of this offering, our Manager will provide us with our management team and appropriate support personnel, and we will have access to the management, infrastructure, personnel and other resources of Bluerock necessary for the implementation and execution of our business and growth strategies.
Our Manager has substantial discretion with respect to the selection of specific investments consistent with our investment objectives and strategy, subject to our investment guidelines. We believe the Management Agreement will provide significant benefits to our stockholders. Our company will not be burdened by the high expenses associated with employing our own management team and infrastructure, and instead will rely on our Manager to provide these services in exchange for management fees, which we believe are lower than the costs associated with managing internally.
In addition, our Management Agreement provides us access to a team of executive, management, investment, capital markets and administrative personnel that we believe, given our size and stage of development, is likely to be more capable and diverse than we would otherwise be able to attract at this stage of our life cycle. Our board of directors would consider an internalization where our pro forma internalized general and administration expenses would be lower as compared to remaining externally managed.
Should our board of directors decide to internalize our management, it could do so by terminating the Management Agreement and paying the fee thereunder, or through the acquisition of our Manager at an equivalent price, which would require the approval of a majority of our independent directors, and the approval of our stockholders, other than our Manager and its affiliates.
Consequently, no assurance can be given that the internalization of our Manager will be achieved. Pursuant to the Management Agreement, we will pay our Manager and its affiliates fees and reimburse certain expenses for services rendered to us. Set forth below is a summary of the fees and compensation we expect to pay our Manager under the Management Agreement for managing our business and assets.
The following chart shows our ownership structure following completion of this offering and our contribution transactions. Substantially concurrently with the completion of this offering, we will acquire additional real estate investments as described below, which we refer to as our contribution transactions. The real estate investments that will be contributed to us are currently owned by private partnerships that are managed directly or indirectly by Bluerock and, in some instances, partially owned by Mr.
Upon completion of the offering and consummation of our contribution transactions, Bluerock, along with our Manager, senior executives of our Manager, and our directors, along with their affiliates, will own approximately We believe this significant ownership stake in our company will help create a strong alignment of interests between our senior management and our stockholders.
Our contribution transactions are subject to customary closing conditions, including the completion of this offering. All amounts are based on the initial public offering price per share set forth on the cover page of this prospectus, and the effectiveness of an additional 1. In our contribution transactions, we will acquire:. Pursuant to the terms of the contribution agreements that we have entered into with the Bluerock Funds, the value to be received by them in exchange for their contribution of interests to us is fixed.
In connection with the contribution transactions, we have entered into a contribution agreement with each of the contributors in our contribution transactions, and each of such contributors has entered into a pledge agreement. The number of pledged shares or OP Units, as applicable, will be fixed as of the closing of this offering, and accordingly will not increase in the event the trading price of our Class A common stock drops below the initial public offering price.
The pledged collateral will be released on the six-month anniversary of the closing of this offering to the extent that claims have not been made against the outstanding collateral, after which we will require minimum net worth guarantees from the contributors for an additional six months.
If any claim for indemnification is made within the initial six-month period, all or a portion of the pledged collateral will be held until resolution of such claim, at which time any amounts not used to satisfy such claim will be returned to such contributor. Holders of shares of our Class A common stock issued in our contribution transactions will have certain registration rights covering the resale of their shares of Class A common stock.
In connection with this offering and our contribution transactions, Mr. All amounts are based on the initial public offering price per share set forth on the cover page of this prospectus. Our officers and directors, and the owners and officers of our Manager and its affiliates are involved in, and will continue to be involved in, the ownership and advising of other real estate entities and programs, including those sponsored by Bluerock and its affiliates or in which Bluerock is a manager or participant, including the Bluerock Funds and Bluerock Growth Fund, LLC, or BGF.
These pre-existing interests, and similar additional interests as may arise in the future, may give rise to conflicts of interest with respect to our business, our investments and our investment opportunities. In particular, but without limitation:. To address certain potential conflicts arising from our relationship with Bluerock and its affiliates, we have entered into an investment allocation agreement with Bluerock and our Manager whereby none of the Bluerock Funds nor any of their affiliates will acquire institutional-quality apartment properties in our target markets and within our investment strategies without providing us with the right but not the obligation to contribute, subject to our investment guidelines, our availability of capital and maintaining our qualification as a REIT for U.
Bluerock has agreed that this investment allocation agreement will apply to any fund that is formed by Bluerock at a later date. We do not have a policy that expressly restricts any of our directors, officers, stockholders or affiliates, including our Manager and its officers and employees, from having a pecuniary interest in an investment in or from conducting, for their own account, business activities of the type we conduct.
However, our code of business conduct and ethics contains a conflicts of interest policy that prohibits our directors, officers and personnel, as well as employees and officers of our Manager and its affiliates who provide services to us, from engaging in any transaction that involves an actual conflict of interest with us. Notwithstanding the prohibitions in our code of business conduct and ethics, after considering the relevant facts and circumstances of any actual conflict of interest, our board of directors may, on a case-by-case basis and in their sole discretion, waive such conflict of interest for executive officers or directors, and must be promptly disclosed to stockholders.
Waivers for other personnel may be made by our Chief Executive Officer. However, we are not subject to any limitations on the amount of leverage we may use, and accordingly, the amount of leverage we use may be significantly less or greater than we currently anticipate. We expect our leverage to decline commensurately as we execute our business plan to grow our net asset value.
Our board of directors has the authority to change our financing policies at any time and without stockholder approval. If our board of directors changes our policies regarding our use of leverage, we expect that it will consider many factors, including the lending standards of government-sponsored enterprises, such as Fannie Mae and Freddie Mac, for loans in connection with the financing of apartment properties, the leverage ratios of publicly traded REITs with similar investment strategies, the cost of leverage as compared to expected operating net revenues, and general market conditions.
By operating on a leveraged basis, we expect to have more funds available for real estate investments and other purposes than if we operated on a nonleveraged basis, which we believe will allow us to acquire more investments than would otherwise be possible, resulting in a larger and more diversified portfolio. We intend to make regular cash distributions to our stockholders out of our cash available for distribution, typically on a monthly basis.
Our board of directors will determine the amount of distributions to be distributed to our stockholders on a quarterly basis. As a result, our distribution rate and payment frequency may vary from time to time. Generally, our policy will be to pay distributions from cash flow from operations. As long as we maintain our qualification as a REIT, we generally will not be subject to federal income or excise tax on income that we currently distribute to our stockholders.
If we fail to maintain our qualification as a REIT in any year, our income will be subject to federal income tax at regular corporate rates, regardless of our distributions to stockholders, and we may be precluded from qualifying for treatment as a REIT for the four-year period immediately following the taxable year in which such failure occurs.
Even if we qualify for treatment as a REIT, we may still be subject to state and local taxes on our income and property and to federal income and excise taxes on our undistributed income. Moreover, if we establish TRSs, such TRSs generally will be subject to federal income taxation and to various other taxes. Our charter contains a restriction on ownership of our shares that generally prevents any one person from owning more than 9.
Our charter also contains other restrictions designed to help us maintain our qualification as a REIT. We were incorporated on July 25, under the laws of the State of Maryland for the purpose of raising capital and acquiring a diverse portfolio of residential real estate assets. Our telephone number is Our internet address is www.
Our internet website and the information contained therein or connected thereto do not constitute a part of this prospectus or any amendment or supplement thereto. The summary selected balance sheet data as of December 31, and and the summary selected statement of operations data for the years ended December 31, and have been derived from the audited historical financial statements of Bluerock Residential Growth REIT, Inc.
Our unaudited selected pro forma consolidated financial statements and operating information as of and for the year ended December 31, have been adjusted to give effect to 1 the completion of this offering and our contribution transactions, 2 the application of the net proceeds from this offering, and 3 the Recapitalization each as described in the unaudited pro forma consolidated financial statements included elsewhere in this prospectus as of January 1, for the operating data and as of December 31, for the balance sheet data.
Our pro forma financial information is not necessarily indicative of what our actual financial position and results of operations would have been as of the date and for the periods indicated, nor does it purport to represent our future financial position or results of operations. All share and per share data set forth below gives effect to the Recapitalization. The purchase of shares of our Class A common stock involves a number of risks. You should carefully consider the following risk factors in conjunction with the other information contained in this prospectus before purchasing our Class A common stock.
The risks discussed in this prospectus could adversely affect our business, operating results, prospects and financial condition. The risks and uncertainties described below are not the only ones we face, but do represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us or that, as of the date of this prospectus, we deem immaterial may also harm our business.
Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. As a real estate company, we are subject to various changes in real estate conditions, and any negative trends in such real estate conditions may adversely affect our results of operations through decreased revenues or increased costs.
These conditions include:. Moreover, other factors may adversely affect our results of operations, including potential liability under environmental and other laws and other unforeseen events, many of which are discussed elsewhere in the following risk factors. Any or all of these factors could materially adversely affect our results of operations through decreased revenues or increased costs.
Our Current Portfolio of properties consists primarily of apartment communities geographically concentrated in the Southeastern United States, and our portfolio going forward may consist primarily of the same. As such, we are currently susceptible to local economic conditions and the supply of and demand for apartment units in these markets. If there is a downturn in the economy or an oversupply of or decrease in demand for apartment units in these markets, our business could be materially adversely affected to a greater extent than if we owned a real estate portfolio that was more diversified in terms of both geography and industry focus.
Our investment strategy requires us, through our Manager, to identify suitable investment opportunities compatible with our investment criteria. Our Manager may not be successful in identifying suitable opportunities that meet our criteria or in consummating investments on satisfactory terms or at all.
The failure to identify or consummate investments may impede our growth and negatively affect our cash available for distribution to our stockholders. Our operating results may be adversely affected by market and economic challenges, which may negatively affect our returns and profitability and, as a result, our ability to make distributions to our stockholders or to realize appreciation in the value of our properties.
These market and economic challenges include, but are not limited to, the following:. The length and severity of any economic slow-down or downturn cannot be predicted. Our Current Portfolio is focused predominately on apartment properties, and we expect that our portfolio going forward will focus predominately on the same.
As a result, we are subject to risks inherent in investments in a single industry, and a decrease in the demand for apartment properties would likely have a. Resident demand at apartment properties was adversely affected by the recent U.
If the economic recovery slows or stalls, these conditions could persist and we could experience downward pressure on occupancy and market rents at our apartment properties, which could cause a decrease in our rental revenue. Any such decrease could impair our ability to satisfy our substantial debt service obligations or make distributions to our stockholders.
We are currently in discussions regarding a number of apartment properties for acquisition or investment. In particular, Fund I has recently entered into a joint venture agreement with respect to UCF Publix, in which we expect to be provided the opportunity to invest pursuant to our investment allocation agreement with our Manager. If we are unable to complete the acquisition of the interests or investment in any of these properties or experience significant delays in executing any such acquisition or investment, we will have issued shares of our common stock in this offering without realizing a corresponding current or future increase in earnings and cash flow from acquiring those interests or developing those properties, which could have a material adverse impact on our financial condition and results of operations.
In addition, to the extent the uses of proceeds from this offering are designated for the acquisition of or investment in these properties, e. Costs associated with our business, such as mortgage payments, real estate taxes, insurance premiums and maintenance costs, are relatively inflexible and generally do not decrease, and may increase, when a property is not fully occupied, rental rates decrease, a tenant fails to pay rent or other circumstances cause a reduction in property revenues.
As a result, if revenues drop, we may not be able to reduce our expenses accordingly, which would adversely affect our financial condition and results of operations. We compete with numerous other persons or entities engaged in real estate investment activities, many of which have greater resources than we do. Some of these investors may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies.
Our competitors may be willing to offer space at rates below our rates, causing us to lose existing or potential tenants. The apartment property industry is highly competitive. This competition could reduce occupancy levels and revenues at our apartment properties, which would adversely affect our results of operations.
We expect to face competition for tenants from many sources. We will face competition from other. If overbuilding of apartment properties occurs at our properties it will increase the number of apartment units available and may decrease occupancy and apartment rental rates at our properties. Any apartment properties we may acquire will most likely compete with numerous housing alternatives in attracting residents, including single-family homes, as well as owner-occupied single and multifamily homes available to rent.
Competitive housing in a particular area and the increasing affordability of owner occupied single and multifamily homes available to rent or buy caused by declining mortgage interest rates and government programs to promote home ownership could adversely affect our ability to retain our residents, lease apartment units and increase or maintain rental rates. We may acquire properties in locations which experience increases in construction of properties that compete with our properties.
This increased competition and construction could:. The underlying value of our properties and the ability to make distributions to you depend upon the ability of the tenants of our properties to generate enough income to pay their rents in a timely manner, and the success of our investments depends upon the occupancy levels, rental income and operating expenses of our properties and our company.
In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord and may incur costs in protecting our investment and re-leasing our property. We may be unable to re-lease the property for the rent previously received. We may be unable to sell a property with low occupancy without incurring a loss. These events and others could cause us to reduce the amount of distributions we make to stockholders and may also cause the value of your investment to decline.
Our operating results depend, in large part, on revenues derived from leasing space in our properties. We are subject to the credit risk of our tenants, and to the extent our tenants default on their leases or fail to make rental payments we may suffer a decrease in our revenue. In addition, if a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and we may incur substantial legal costs. We are also subject to the risk that we will not be able to lease space in our value-added or opportunistic properties or that, upon the expiration of leases for space located in our properties, leases may not be renewed, the space may not be re-leased or the terms of renewal or re-leasing including the cost of required renovations or concessions to customers may be less favorable to us than current lease terms.
If vacancies continue for a long period of time, we may suffer reduced revenues resulting in decreased distributions to our stockholders. In addition, the resale value of the property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property. Further, costs associated with real estate investment, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the investment.
These events would cause a significant decrease in revenues and could cause us to reduce the amount of distributions to our stockholders. We expect that substantially all of our apartment leases will be for a term of one year or less. Because these leases generally permit the residents to leave at the end of the lease term without penalty, our rental revenues may be impacted by declines in market rents more quickly than if our leases were for longer terms.
Our company and the properties we own and expect to own are subject to various federal, state and local laws and regulations relating to environmental protection and human health and safety. Federal laws such as the National Environmental Policy Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Solid Waste Disposal Act as amended by the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act, the Federal Clean Air Act, the Toxic Substances Control Act, the Emergency Planning and Community Right to Know Act and the Hazard Communication Act and their resolutions and corresponding state and local counterparts govern such matters as wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials and the remediation of contamination associated with disposals.
The properties we acquire will be subject to the Americans with Disabilities Act of which generally requires that certain types of buildings and services be made accessible and available to people with disabilities. Additionally, we must comply with the Fair Housing Amendments Act of , or the FHAA, which requires that apartment properties first occupied after March 13, be accessible to handicapped residents and visitors.
These laws may require us to make modifications to our properties. Some of these laws and regulations impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were illegal. Compliance with these laws and any new or more stringent laws or regulations may require us to incur material expenditures.
Future laws, ordinances or regulations may impose material environmental liability. In addition, there are various federal, state and local fire, health, life-safety and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance.
The presence of hazardous substances, or the failure to properly remediate these substances, may make it difficult or impossible to sell or rent such property. Any material expenditures, fines, or damages we must pay will reduce our ability to make distributions and may reduce the value of your investment. Fannie Mae and Freddie Mac are a major source of financing for the apartment real estate sector.
We and other apartment companies in the apartment real estate sector depend heavily on Fannie Mae and Freddie Mac to finance growth by purchasing or guarantying apartment loans. In February , the Obama Administration released a report to Congress which included options, among others, to gradually shrink and eventually shut down Fannie Mae and Freddie Mac. We do not know when or if Fannie Mae or Freddie Mac will restrict their support of lending to the apartment real estate industry or to us in particular.
A final decision by the government to eliminate Fannie Mae or Freddie Mac, or reduce their acquisitions or guarantees of apartment real estate mortgage loans, may adversely affect interest rates, capital availability and our ability to refinance our existing mortgage obligations as they come due and obtain additional long-term financing for the acquisition of additional apartment communities on favorable terms or at all.
Although we take a proactive approach to property preservation, utilizing a preventative maintenance plan, and selective improvements that mitigate the cost impact of maintaining exterior building features and aging building components, if we are not able to cost-effectively maximize the life of our properties, we may incur greater than anticipated capital expenditure costs which may adversely affect our ability to make distributions to our stockholders.
Our Manager will attempt to ensure adequate insurance is obtained to cover significant areas of risk to us as a company and to our properties. However, there are types of losses at the property level, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments.
We may not have adequate coverage for such losses. If any of our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would result in lower distributions to stockholders.
Real estate investments are relatively illiquid. We will have a limited ability to vary our Portfolio in response to changes in economic or other conditions. We will also have a limited ability to sell assets in order to fund working capital and similar capital needs. When we sell any of our properties, we may not realize a gain on such sale. We may not elect to distribute any proceeds from the sale of properties to our stockholders; for example, we may use such proceeds to:.
In order to ensure that we avoid such characterization, we may be required to hold our properties for the production of rental income for a minimum period of time, generally two years, and comply with certain other requirements in the Code.
In addition to the risks associated with real estate investments in general as described above, there are significant risks associated with development activities including the following:. In addition, if a project is delayed, certain residents and tenants may have the right to terminate their leases. Any one or more of these risks may cause us or the projects in which we invest to incur unexpected development costs, which would negatively affect our results of operations.
Loan provisions could materially restrict us from selling or otherwise disposing of or refinancing properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available for distributions to you. Loan provisions may prohibit us from reducing the outstanding indebtedness with respect to properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties.
Loan provisions could impair our ability to take actions that would otherwise be in the best interests of our stockholders and, therefore, may have an adverse impact on the value of our stock, relative to the value that would result if the loan provisions did not exist. In particular, loan provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our stockholders.
In general, we expect to rely on our Bluerock SPs for the day-to-day management and development of our real estate investments. Our Bluerock SPs are not fiduciaries to us, and generally will have limited capital invested in a project, if any. One or more of our Bluerock SPs may perform poorly in managing one of our project investments for a variety of reasons, including failure to properly adhere to budgets or properly consummate the property business plan.
Our Bluerock SPs may also underperform for strategic reasons related to projects or assets that a Bluerock SP is involved in with a Bluerock affiliate but not our company. If a Bluerock SP does not perform well at one of our projects, we may not be able to ameliorate the adverse effects of poor performance by terminating the Bluerock SP and finding a replacement partner to manage our projects in a timely manner.
In such an instance, the returns to our stockholders could be adversely affected. We have entered into, and in the future intend to enter into, joint ventures with affiliates and other third parties, including our Bluerock SPs, to acquire or improve properties. We may also purchase properties in partnerships, co-tenancies or other co-ownership arrangements. Such investments may involve risks not otherwise present when acquiring real estate directly, including, for example:.
These events might subject us to liabilities in excess of those contemplated and thus reduce your investment returns. Finally, we may not be able to sell our interest in a joint venture if we desire to exit the venture. Neither we, nor our operating partnership, nor any of our subsidiaries intend to register as an investment company under the Investment Company Act.
In order to maintain an exemption from regulation under the Investment Company Act, we intend to engage, through our operating partnership and our wholly and majority owned subsidiaries, primarily in the business of buying real estate, and these investments must be made within a year after this offering ends. If we are unable to invest a significant portion of the proceeds of this offering in properties within one year of the termination of this offering, we may avoid being required to register as an investment company by temporarily investing any unused proceeds in government securities with low returns, which would reduce the cash available for distribution to stockholders and possibly lower your returns.
We expect that most of our assets will be held through wholly owned or majority owned subsidiaries of our operating partnership. Section 3 a 1 A of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. We are organized as a holding company that conducts its businesses primarily through the operating partnership, which in turn is a holding company conducting its business through its subsidiaries.
We will monitor our holdings to ensure continuing and ongoing compliance with this test. In addition, we believe that neither we nor the operating partnership will be considered an investment company under Section 3 a 1 A of the Investment Company Act because neither we nor the operating partnership will engage primarily or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities.
What we buy and sell is therefore limited to these criteria. How we determine to classify our assets for purposes of the Investment Company Act will be based in large measure upon no-action letters issued by the SEC staff in the past and other SEC interpretive guidance. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago.
Pursuant to this guidance, and depending on the characteristics of the specific investments, certain joint venture investments may not constitute qualifying real estate assets and therefore investments in these types of assets may be limited. No assurance can be given that the SEC will concur with our classification of our assets. Future revisions to the Investment Company Act or further guidance from the SEC may cause us to lose our exclusion from registration or force us to re-evaluate our portfolio and our investment strategy.
Such changes may prevent us from operating our business successfully. In the event that we, or our operating partnership, were to acquire assets that could make either entity fall within the definition of investment company under Section 3 a 1 of the Investment Company Act, we believe that we would still qualify for an exclusion from registration pursuant to Section 3 c 6. Section 3 c 6 excludes from the definition of investment company any company primarily engaged, directly or through majority owned subsidiaries, in one or more of certain specified businesses.
These specified businesses include the business described in Section 3 c 5 C of the Investment Company Act. It also. To ensure that neither we, nor our operating partnership nor subsidiaries are required to register as an investment company, each entity may be unable to sell assets they would otherwise want to sell and may need to sell assets they would otherwise wish to retain.
In addition, we, our operating company or our subsidiaries may be required to acquire additional income or loss-generating assets that we might not otherwise acquire or forego opportunities to acquire interests in companies that we would otherwise want to acquire. Although we, our operating partnership and our subsidiaries intend to monitor our respective portfolios periodically and prior to each acquisition or disposition, any of these entities may not be able to maintain an exclusion from registration as an investment company.
If we, our operating partnership or our subsidiaries are required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity.
In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business. Our losses can be attributed, in part, to the initial start-up costs and high corporate general and administrative expenses relative to the size of our portfolio.
In addition, acquisition costs and depreciation and amortization expenses substantially reduced our income. We cannot assure you that, in the future, we will be profitable or that we will realize growth in the value of our assets. Our current corporate general and administrative expenses exceed the cash flow received from our investments in real estate joint ventures. The primary reason for our negative operating cash flow is the amount of our corporate general and administrative expenses relative to the size of our Current Portfolio.
There can be no assurance that future operating cash flow will improve. If cash flow received from our investments does not improve and our corporate general and administrative expenses remain high relative to the size of our portfolio, this would reduce the amount of funds available for us to invest in properties or other investments. These factors could have a material adverse effect on our results of operations, financial condition and ability to pay distributions to our stockholders.
If that occurs, it would adversely affect our results of operations and our ability to make distributions to our stockholders. Our previous public equity offerings have resulted in insufficient capital raises, and we have very limited sources of capital other than the net proceeds of this offering to meet our primary liquidity requirements. As a result, we may not be able to pay our short-term debt upon maturity or other liabilities and obligations when they come due other than with the net proceeds of this offering, which may limit our ability to fully consummate our business plan and diversify our portfolio.
To date, we have relied on borrowing from affiliates to help finance our business activities. However, there are no assurances that we will be able to continue to borrow from affiliates or extend the maturity date of any existing loan due to affiliates. Further, no amounts remain available for borrowing under the loans we have with our affiliates.