0000891804-11-002073.txt : 20110516 0000891804-11-002073.hdr.sgml : 20110516 20110513194216 ACCESSION NUMBER: 0000891804-11-002073 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20110331 FILED AS OF DATE: 20110516 DATE AS OF CHANGE: 20110513 FILER: COMPANY DATA: COMPANY CONFORMED NAME: Bluerock Enhanced Multifamily Trust, Inc. CENTRAL INDEX KEY: 0001442626 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE INVESTMENT TRUSTS [6798] IRS NUMBER: 000000000 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 333-153135 FILM NUMBER: 11843023 BUSINESS ADDRESS: STREET 1: 680 5TH AVENUE, 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 BUSINESS PHONE: (212) 843-1601 MAIL ADDRESS: STREET 1: 680 5TH AVENUE, 16TH FLOOR CITY: NEW YORK STATE: NY ZIP: 10019 FORMER COMPANY: FORMER CONFORMED NAME: Bluerock Enhanced Multifamily REIT, Inc. DATE OF NAME CHANGE: 20081028 FORMER COMPANY: FORMER CONFORMED NAME: Bluerock Enhanced Residential REIT, Inc. DATE OF NAME CHANGE: 20080811 10-Q 1 blue51690-10q.htm BLUEROCK blue51690-10q.htm
UNITED STATES
 
SECURITIES AND EXCHANGE COMMISSION
 
Washington, D. C. 20549
 
FORM 10-Q
 
                                         
(Mark One)
 
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2011
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from _____ to _____
 
Commission file number 333-153135
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
(Exact Name of Registrant as Specified in Its Charter)
 
Maryland
 
 
(State or Other Jurisdiction of  Incorporation or Organization)
  
26-3136483
 
 
(I.R.S. Employer Identification No.)
 
Heron Tower, 70 East 55th St., New York, NY
 
(Address of Principal Executive Offices)
  
 
10022
 
(Zip Code)
(212) 843-1601
 
(Registrant’s Telephone Number, Including Area Code)
 
Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
 
Large Accelerated Filer                                         ¨                                                                                                         Accelerated Filer ¨
 
Non-Accelerated Filer                                           ¨ (Do not check if a smaller reporting company)                    Smaller reporting company x
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨  No x
 
As of April 28, 2011 the Registrant had  754,381 shares of common stock outstanding.

 
 
 

BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
FORM 10-Q
 
March 31, 2011
 
 INDEX
 
     
PART I.
FINANCIAL INFORMATION
  
     
   Item 1.
Financial Statements
  
     
 
Consolidated Balance Sheets as of March 31, 2011 (unaudited) and December 31, 2010
2
     
 
Consolidated Statements of Operations for the Three Months Ended March 31, 2011 and March 31, 2010 (unaudited)
3
     
 
Consolidated Statement of Stockholders’ (Deficit) Equity for the Year Ended December 31, 2010 and the Three Months Ended March 31, 2011 (unaudited)
4
     
 
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2011 and March 31, 2010 (unaudited)
5
     
 
Notes to Consolidated Financial Statements (unaudited) 
 6
     
   Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
22
     
   Item 3.
Quantitative and Qualitative Disclosures about Market Risk
33
     
   Item 4.
Controls and Procedures
33
     
PART II
OTHER INFORMATION
33
     
   Item 1.
Legal Proceedings
33
     
   Item 1A.
Risk Factors
33
     
   Item 2.
 Unregistered Sales of Equity Securities and Use of Proceeds
33
     
   Item 3.
Defaults upon Senior Securities
34
     
   Item 4.
[Reserved]
34
     
   Item 5.
Other Information
35
     
   Item 6.
Exhibits
35
     
SIGNATURES
  
36
 
 
 

PART I. FINANCIAL INFORMATION
Item 1.  Financial Statements
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 CONSOLIDATED BALANCE SHEETS
             
   
As of
  
   
(Unaudited)
March 31, 2011
    
December 31, 2010
  
ASSETS
            
             
Investments in unconsolidated real estate joint ventures
   $ 5,953,214     $ 6,301,860  
Cash and cash equivalents
     175,120       125,237  
Due from affiliates
     -       524,248  
Other assets
     76,558       82,679  
TOTAL ASSETS
   $ 6,204,892     $ 7,034,024  
                 
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
                
                 
Notes payable to affiliates
   $ 4,984,578     $ 4,834,578  
Accounts payable
     487,478       219,686  
Other accrued liabilities
     233,329       261,495  
Due to affiliates
     1,229,080       -  
Distributions payable
     40,784       40,286  
                 
Total liabilities
     6,975,249       5,356,045  
                 
Redeemable common stock
     91,447       63,334  
                 
Stockholders' (deficit) equity
                
Preferred stock, $0.01 par value, 250,000,000 shares
                
authorized; none issued and outstanding
     -       -  
    Common stock, $0.01 par value, 749,999,000 shares authorized;
                
708,677 and 677,618 shares issued and outstanding as of
                
March 31, 2011 and December 31, 2010, respectively
     7,087       6,776  
Nonvoting convertible stock, $0.01 par value per share;
                
 1,000 shares authorized, issued and outstanding
     10       10  
Additional paid-in-capital, net of costs
     4,641,103       4,586,644  
Cumulative distributions and net losses
     (5,510,004 )     (2,978,785 )
                 
Total stockholders' (deficit) equity
     (861,804 )     1,614,645  
TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
   $ 6,204,892     $ 7,034,024  
                 
                 
See Notes to Consolidated Financial Statements
                 
                 

 
2
 
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
             
   
For the Three Months Ended March 31,
  
   
2011
    
2010
  
Expenses
            
Asset management and oversight fees to affiliates
   $ 82,292     $ 27,422  
Acquisition costs to affiliates
     -       56,525  
General and administrative
     2,162,685       74,221  
                 
Total expenses
     2,244,977       158,168  
                 
Other operating activities
                
Equity in loss of unconsolidated joint ventures (Note 4)
     (83,247 )     (269,051 )
                 
Operating loss
     (2,328,224 )     (427,219 )
                 
Other expense
                
                 
Interest expense to affiliates, net
     85,457       50,138  
                 
Net loss
   $ (2,413,681 )   $ (477,357 )
                 
Basic and diluted loss per share
   $ (3.62 )   $ (18.73 )
                 
Weighted average number of shares outstanding
     666,596       25,483  
                 
                 
See Notes to Consolidated Financial Statements


 
3
 
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' (DEFICIT) EQUITY
                                 
   
Convertible Stock
    
Common Stock
                          
   
Number of
Shares
    
Par Value
    
Number of
Shares
    
Par Value
    
Additional
Paid-in
Capital
    
Cumulative
Distributions
    
Net loss
    
Total
Stockholders'
 (Deficit) Equity
  
Balance, January 1, 2010
     1,000     $ 10       37,200     $ 372     $ 222,731     $ -     $ (438,921 )   $ (215,808 )
                                                                 
Issuance of restricted stock, net
                     7,500       75       56,800                       56,875  
Issuance of common stock, net
                     632,918       6,329       4,370,447                       4,376,776  
Transfers to redeemable common stock
                               (63,334 )                     (63,334 )
Distributions declared
                                             (232,994 )             (232,994 )
Net loss
                                                     (2,306,870 )     (2,306,870 )
Balance, December 31, 2010
     1,000       10       677,618       6,776       4,586,644       (232,994 )     (2,745,791 )     1,614,645  
                                                                 
Issuance of restricted stock, net
                                     11,250                       11,250  
Issuance of common stock, net
                     31,059       311       71,322                       71,633  
Transfers to redeemable common stock
                               (28,113 )                     (28,113 )
Distributions declared
                                             (117,538 )             (117,538 )
Net loss
                                                     (2,413,681 )     (2,413,681 )
                                                                 
Balance, March 31, 2011 (unaudited)
     1,000     $ 10       708,677     $ 7,087     $ 4,641,103     $ (350,532 )   $ (5,159,472 )   $ (861,804 )
                                                                 
                                                                 
                                                                 
See Notes to Consolidated Financial Statements

 
4
 

BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
   
For theThree Months Ended March 31,
  
   
2011
    
2010
  
Cash Flows from Operating Activities
            
Net loss
   $ (2,413,681 )   $ (477,357 )
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
          
Equity in loss of unconsolidated joint ventures
     83,247       269,050  
Distributions from unconsolidated real estate joint ventures
     301,465       115,226  
Share based compensation charge attributable to
                
   director's stock compensation plan
     11,250       23,125  
Increase in due to affiliates
     1,753,328       132,117  
Decrease in other assets
     6,121       -  
Increase in accounts payable and other accrued liabilities
     239,626       49,129  
Net cash used in operating activities
     (18,644 )     111,290  
                 
Cash Flows from Investing Activities
                
Investment in unconsolidated real estate joint venture
     (36,066 )     (569,268 )
                 
Net cash used in investing activities
     (36,066 )     (569,268 )
                 
Cash Flows from Financing Activities
                
Distributions on common stock
     (88,927 )     -  
Proceeds from notes payable
     150,000       457,978  
Issuance of common stock, net
     43,520       -  
Payment of offering costs
     -       (50,000 )
Net cash provided by financing activities
     104,593       407,978  
                 
Net increase (decrease) in cash and cash equivalents
     49,883       (50,000 )
                 
Cash and cash equivalents, beginning of period
     125,237       186,863  
                 
Cash and cash equivalents, end of period
   $ 175,120     $ 136,863  
                 
Supplemental Disclosure of Cash Flow Information:
                
Interest Paid
   $ 68,420     $ -  
                 
Supplemental Disclosure of Noncash Transactions:
                
    Distributions payable
   $ 40,784     $ -  
                 
Distributions paid to common stockholders through common stock
          
               issuances pursuant to the distribution reinvestment plan
 $ 28,113     $ -  

 
5
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 

PART I. FINANCIAL INFORMATION (CONTINUED)
 
Item 1.  Financial Statements (continued)

1.  ORGANIZATION AND NATURE OF BUSINESS
 

Bluerock Enhanced Multifamily Trust, Inc. (the “Company”) was incorporated on July 25, 2008 under the laws of the state of Maryland. If we meet the qualification requirements, we intend to elect to be treated as a real estate investment trust or REIT for Federal income tax purposes. We were incorporated to raise capital and acquire a diverse portfolio of residential real estate assets.  Our day-to-day operations are managed by Bluerock Enhanced Multifamily Advisor, LLC, or our advisor, under an advisory agreement.  The advisory agreement has a one-year term expiring October 14, 2011, and may be renewed for an unlimited number of successive one-year periods upon the mutual consent of our advisor and us. The use of the words “we,” “us” or “our” refers to Bluerock Enhanced Multifamily Trust, Inc. and its subsidiary Bluerock Enhanced Multifamily Holdings, L.P., or our operating partnership, except where the context otherwise requires.

On August 22, 2008, we filed a registration statement on Form S-11 with the Securities and Exchange Commission (the “SEC”) to offer a maximum of $1,000,000,000 in shares of our common stock in our primary offering, at an offering price of $10.00 per share, with discounts available for certain categories of purchasers and up to $285,000,000 in shares pursuant to our distribution reinvestment plan at $9.50 per share (our “Initial Public Offering”).  The SEC declared our registration statement effective on October 15, 2009 and we have retained Select Capital Corporation to serve as the dealer manager of the Initial Public Offering.  The dealer manager is responsible for marketing our shares in the Initial Public Offering.  As of May 20, 2010, we had received gross offering proceeds sufficient to satisfy the minimum offering amount for the Initial Public Offering.  Accordingly, we broke escrow with respect to subscriptions received from all states in which our shares are currently being offered.  As of March 31, 2011, we had accepted aggregate gross offering proceeds of $6,485,030.

We intend to use substantially all of the net proceeds from the Initial Public Offering to invest in a diverse portfolio of real estate and real estate-related assets.  As of March 31, 2011, we own, through joint venture partnerships, five multifamily real estate properties discussed in detail in Note 3 (Investments in Real Estate).

Our offering was suspended from November 17, 2010 until March 2, 2011 in connection with our determination to restate certain of our financial statements.  On January 19, 2011 we filed the necessary restated financials and the Financial Industry Regulatory Authority (“FINRA”) and Select, our managing broker dealer, reinstated the Initial Public Offering effective March 2, 2011. These restatements resulted in substantial unanticipated costs in the form of accounting, legal fees, and similar professional fees, in addition to the substantial diversion of time and attention of our Chief Financial Officer and members of our accounting team in preparing the restatements. Although the restatement is complete, we can give no assurances that we will not incur additional costs associated with the restatements. If upon recommencement of our offering, the rate at which we raise offering proceeds does not improve significantly, our general and administrative costs may remain higher relative to the size of our portfolio, our portfolio may not be as diversified as it would be otherwise and we may need to seek additional sources of funding to address our short and long term liquidity requirements. Moreover, we cannot predict the impact of the restatement on our ability to increase sales.  To the extent cash on hand is not sufficient to meet our short-term liquidity requirements we expect to utilize credit facilities obtained from affiliates or unaffiliated third parties. Our Sponsor has also agreed to defer payment of asset management fees, acquisition fees and operating and offering costs advanced on our behalf and current year reimbursable operating expenses through 2011 as well as to fund any remaining cash shortfall, as necessary.  In additions, as our sponsor has management control of the affiliates that are lenders to us and thus has the authority to extend the notes that have maturities in 2011, it has committed to extend such notes based on our ability to repay those obligations.
 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation
 
We operate as an umbrella partnership REIT structure in which our wholly owned subsidiary, Bluerock Enhanced Multifamily Holdings, L.P., a Delaware limited partnership, or wholly owned subsidiaries of our operating partnership, owns substantially all of the property interests acquired on our behalf.

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

 
6
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Interim Financial Information
 
The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP, have been condensed or omitted in accordance with such rules and regulations, although management believes the disclosures are adequate to prevent the information presented from being misleading.  In the opinion of management, all adjustments (consisting of normal recurring items) considered necessary for a fair presentation have been included.  Operating results for the three months ended March 31, 2011, are not indicative of the results that may be expected for the year ending December 31, 2011.

The balance sheet at December 31, 2010, has been derived from the audited financial statements at that date, but does not include all of the information and disclosures required by GAAP for complete financial statements.  For further information refer to the financial statements and notes thereto included in our audited consolidated financial statements for the year ended December 31, 2010 contained in the Annual Report on Form 10-K filed with the SEC on March 31, 2011.

Joint Ventures

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

Use of Estimates
 
The preparation of the financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.  At the property level these estimates include such items as purchase price allocation of real estate acquisitions, impairment of long-lived assets, depreciation and amortization and allowance for doubtful accounts.  Actual results could differ from those estimates.
 
Cash and Cash Equivalents
 
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents may include cash and short-term investments. Short-term investments are stated at cost, which approximates fair value.  There are no restrictions on the use of our cash as of March 31, 2011.
 

Deferred Financing Costs

Deferred financing fees, paid by us on behalf of our joint ventures, are recorded at cost within investments in unconsolidated real estate joint ventures and are amortized to equity in loss of unconsolidated joint ventures using a straight-line method that approximates the effective interest method over the life of the related joint venture debt.

 
7
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Stock-Based Compensation

We account for stock-based compensation in accordance with the provisions of the Stock Compensation Topic of the FASB ASC. This topic established a fair value based method of accounting for stock-based compensation and requires the fair value of stock-based compensation awards to amortize as an expense over the vesting period and requires any dividend equivalents earned to be treated as dividends for financial reporting purposes.  Stock-based compensation awards are valued at the fair value on the date of grant and are amortized as an expense over the vesting period.

Distribution Policy

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

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

Concentration of Credit Risk
 
We invest our cash and cash equivalents among several banking institutions and money market accounts in an attempt to minimize exposure to any one of these entities.  We regularly monitor the financial stability of these financial institutions and believe that we are not exposed to any significant credit risk in cash and cash equivalents.

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

Organization and Offering Costs
 
Our organization and offering costs (other than selling commissions and the dealer manager fee) were initially being paid by the advisor, the dealer manager or their affiliates on our behalf. These other organization and offering costs include all expenses to be paid by us in connection with our Initial Public Offering, including but not limited to (i) legal, accounting, printing, mailing and filing fees; (ii) charges of the escrow holder and transfer agent; (iii) charges of the advisor for administrative services related to the issuance of shares in the Initial Public Offering; (iv) reimbursement of the dealer manager for amounts it may pay to reimburse the bona fide diligence expenses of broker-dealers; (v) reimbursement to the advisor for costs in connection with preparing supplemental sales materials; (vi) the cost of bona fide training and education meetings held by us (primarily the travel, meal and lodging costs of registered representatives of broker-dealers); (vii) reimbursement to the dealer manager for attendance and sponsorship fees and cost reimbursements for employees of the dealer manager to attend retail seminars conducted by broker-dealers; and (viii) in special cases, reimbursement to participating broker-dealers for technology costs associated with the offering, costs and expenses related to such technology costs, and costs and expenses associated with the facilitation of the marketing of the shares in the offering and the ownership of the shares by such broker-dealers’ customers. Pursuant to the advisory agreement and the dealer manager agreement, we are obligated to reimburse the advisor, the dealer manager or their affiliates, as applicable, for organization and offering costs paid by them on our behalf, provided that the advisor is obligated to reimburse us to the extent selling commissions, the dealer manager fee and other organization and offering costs incurred by us in the offering exceed 15% of gross offering proceeds.  As of March 31, 2011and December 31, 2010, the advisor has incurred on our behalf organization and offering costs of $2,844,061 of which $507,656

 
8
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 

2.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

has been reimbursed to the advisor. We met the minimum number of shares in our Initial Public Offering on May 20, 2010 and the costs paid by the advisor on our behalf became a liability to us to the extent selling commissions, the dealer manager fee and other organization and offering costs do not exceed 15% of the gross proceeds of the Initial Public Offering.  As of March 31, 2011, we had recognized  offering costs, other than selling commissions and dealer manager fees, of $1,548,777 of which $1,041,121 was incurred directly by us and $507,656 was reimbursed to the advisor.  As of December 31, 2010, we had recognized offering costs, other than selling commissions and dealer manager fees, of $1,339,397 of which $831,741 was incurred directly by us and $507,656 was reimbursed to the advisor and $49,931 of organizational costs.  When recorded by us, organization costs were expensed and offering costs, which include selling commissions and dealer manager fees, are charged to stockholders’ equity.
 
Operating Expenses
 
We reimburse the advisor for all reasonable expenses incurred in connection with services provided to us, subject to the limitation that we will not reimburse any amount that would cause our total operating expenses at the end of the four preceding fiscal quarters to exceed the greater of 2% of our average invested assets or 25% of our net income determined (1) without  reductions for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and (2) excluding any gain from the sale of our assets for the period.  Notwithstanding the above, we may reimburse amounts in excess of the limitation if a majority of our independent directors determines such excess amount was justified based on unusual and non-recurring factors. If such excess expenses are not approved by a majority of our independent directors, our advisor must reimburse us at the end of the four fiscal quarters the amount by which the aggregate expenses during the period paid or incurred by us exceeded the limitations provided above.  We will not reimburse the advisor for personnel costs in connection with services for which the advisor receives acquisition, origination or disposition fees.  From January 1, 2009 through March 31, 2011, our advisor and its affiliates incurred $677,415 of operating expenses on our behalf, which amount has been recorded on our income statement for the period ended March 31, 2011, but has not yet been reimbursed to our advisor as of March 31, 2011 and December 31, 2010.  Due to the limitation discussed above and because operating expenses incurred directly by us exceeded the 2% threshold, the amount due to the advisor had not been recorded on our income statement as of December 31, 2010.  Further, $973,607 had been recorded as a receivable from the advisor as of December 31, 2010 for the excess operating expenses incurred directly by us over the 2% threshold.  On March 22, 2011, our Board of Directors, including all of our independent directors, reviewed our total operating expenses for the four fiscal quarters ended December 31, 2009 (and the four fiscal quarters ended each quarter after) and an estimate of our total operating expenses for the four fiscal quarters to end March 31, 2011 and unanimously determined the excess amount to be justified because of the costs of operating a public company in our early stage of operation.  Upon this approval these costs, totaling $1,646,818, were expensed and $677,415 became a liability to us, payable to our advisor and its affiliates.  As of March 31, 2011 $4,204 has been reimbursed to our advisor and our advisor has agreed to defer further repayment of these costs until a later date.
 
Selling Commissions and Dealer Manager Fees
 
We pay the dealer manager up to 7% and 2.6% of the gross offering proceeds from the primary offering as selling commissions and dealer manager fees, respectively. A reduced sales commission and dealer manager fee is paid with respect to certain volume discount sales. No sales commission or dealer manager fee is paid with respect to shares issued through the distribution reinvestment plan. The dealer manager may re-allow all or a portion of sales commissions earned to participating broker-dealers. The dealer manager may re-allow, in its sole discretion, to any participating broker-dealer a portion of its dealer manager fee as a marketing fee.  As of March 31, 2011 and December 31, 2010, we have incurred $593,429 and $565,629, respectively, of selling commissions and dealer manager fees.
 
Acquisition and Origination Fees
 
We pay the advisor an acquisition fee equal to 1.75% of the cost of investments acquired, including acquisition expenses and any debt attributable to such investments. With respect to loan purchases, we pay an origination fee equal to 1.75% of the amount funded by us to acquire or originate mortgage, mezzanine, bridge or other loans, including any expenses related to such investments and any debt we use to fund the acquisition or origination of these loans. We do not pay acquisition fees with respect to investments in loans.  For the three months ended March 31, 2011 and March 31, 2010, we have incurred $0 and $56,525, respectively, of acquisition fees.
 

 
9
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 

 
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)
 
Asset Management and Oversight Fee
 
With respect to investments in real estate, we incur a monthly asset management fee payable to the advisor equal to one-twelfth of 1% of the higher of the cost or the value of each asset.  Cost equals the amount actually paid, excluding acqui­sition fees and expenses, to purchase each asset we acquire, including any debt attributable to the asset (including debt encumbering the asset after its acquisition), provided that, with respect to any properties we develop, construct or improve, cost will include the amount expended by us for the development, con­struction or improvement.  The value of an asset is the fair market value established by the most recent independent valua­tion report, without reduction for depreciation, bad debts or other non-cash reserves. In the case of investments made through joint ventures, the asset management fee will be determined based on our proportionate share of the cost or value of the underlying investment.  For the three months ended March 31, 2011 and March 31, 2010 we had incurred $82,292 and $27,422, respectively, of asset management and oversight fees.
 
Financing Fee
 
We pay the advisor a financing fee equal to 1% of the amount, under any loan or line of credit, made available to us.  For the three months ended March 31, 2011 and March 31, 2010 we had incurred $0 and $72,308, respectively, of financing fees
 
Independent Director Compensation
 
We pay each of our independent directors an annual retainer of $25,000. In addition, the independent directors are paid for attending meetings as follows: (i) $2,500 for each board meeting attended, (ii) $2,000 for each committee meeting attended, (iii) $1,000 for each teleconference board meeting attended, and (iv) $1,000 for each teleconference committee meeting attended.  All directors also receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors. In addition 5,000 shares of restricted stock were granted upon election to the board and 2,500 shares of restricted stock will be granted annually upon re-election to the board. Director compensation is an operating expense to us that is subject to the operating expense reimbursement obligation of the advisor discussed in Note 7, “Related Party Transactions.”
 
Income Taxes
 
We intend to elect to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code of 1986, as amended, and intend to operate as such commencing with the taxable year ending December 31, 2010.  We expect to have little or no taxable income prior to electing REIT status.  To qualify as a REIT, we must meet certain organizational and operational requirements, including a requirement to distribute at least 90% of our annual REIT taxable income to stockholders (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP). As a REIT, we generally will not be subject to federal income tax to the extent we distribute qualifying dividends to our stockholders. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income.  If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate income tax rates and generally will not be permitted to qualify for treatment as a REIT for federal income tax purposes for the four taxable years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we intend to organize and operate in such a manner as to qualify for treatment as a REIT.

Net Loss Per Common Share
 
Basic net loss per common share is computed by dividing net loss attributable to common shareholders by the weighted average number of common shares outstanding for the period.  Diluted net loss per common share is computed by dividing net loss attributable to common shareholders by the sum of the weighted average number of common shares outstanding and any potential dilutive shares for the period.  Under the two-class method of computing earnings per share, net loss attributable to common shareholders is computed by adjusting net loss for the non-forfeitable dividends paid on non-vested restricted stock.
 
 
10
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 


The following table reconciles the components of basic and diluted net loss per common share:
 
   
Three Months Ended
  
   
March 31, 2011
    
March 31, 2010
  
Net loss
   $ (2,413,681 )   $ (477,357 )
Dividends on restricted stock expected to vest
     (2,540 )     -  
Basic net loss attributable to common shareholders
     (2,416,221 )     (477,357 )
Weighted average number of common shares outstanding
     666,596       25,483  
Potential dilutive shares (1)
     -       -  
Weighted average number of common shares outstanding and potential dilutive shares
     666,596       25,483  
 
(1) Excludes 14,717 and 13,133 shares related to non-vested restricted stock for the three months ended March 31, 2011 and March 31, 2010, respectively.  Also excludes any dilution related to the 1,000 shares of convertible stock as the conversion would be anti-dilutive and currently there would be no conversion into common shares.

Reportable Segment
 
Our current business consists of investing in and operating multifamily communities. Substantially all of our consolidated net loss is from investments in real estate properties that we own through Co-Investment Ventures which we account for under the equity method of accounting.  We internally evaluate operating performance on an individual property level and view our real estate assets as one industry segment, and, accordingly, our properties will be aggregated into one reportable segment.
 
Fair Value Measurements
 
Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The GAAP fair value framework uses a three-tiered approach.  Fair value measurements are classified and disclosed in one of the following three categories:
·  
Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
·  
Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and
·  
Level 3: prices or valuation techniques where little or no market data is available that requires inputs that are significant to the fair value measurement and unobservable.
 

 
11
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Share Repurchase Plan and Redeemable Common Stock
 
The Company has adopted a share repurchase plan that may enable stockholders to sell their shares to the Company in limited circumstances.
 
There are several limitations on the Company’s ability to repurchase shares under the share repurchase plan:
 
·  
We may not repurchase shares until the stockholder has held the shares for one year.
·  
During any calendar year, the share repurchase plan limits the number of shares we may repurchase to those that we could purchase with the net proceeds from the sale of shares under the distribution reinvestment plan during the previous fiscal year.
·  
During any calendar year, we may not repurchase in excess of 5% of the number of shares of common stock outstanding as of the same date in the prior calendar year.
 
Pursuant to the plan, we will initially repurchase shares at prices determined as follows:
 
·  
The lower of $9.25 or the price paid to acquire the shares from us for stockholders who have held their shares for at least one year;
 
·  
The lower of $9.50 or the price paid to acquire the shares from us for stockholders who have held their shares for at least two years;
 
·  
The lower of $9.75 or the price paid to acquire the shares from us for stockholders who have held their shares for at least three years; and
 
·  
The lower of $10.00 or the price paid to acquire the shares from us for stockholders who have held their shares for at least four years
 
Our Board of Directors may amend or modify any provision of the plan at any time in its discretion without prior notice to participants. In the event that our Board of Directors amends, suspends or terminates the share repurchase plan, however, the Company will send stockholders notice of the change(s) following the date of such amendment, suspension or modification, and will disclose the change(s) in a report filed with the SEC on either Form 8-K, Form 10-Q or Form 10-K, as appropriate. 
 
We record amounts that are redeemable under the share repurchase plan as redeemable common stock in the accompanying consolidated balance sheets because the shares are redeemable at the option of the holder and therefore their redemption is outside our control. The maximum amount redeemable under our share repurchase plan is limited to the number of shares we could repurchase with the amount of the net proceeds from the sale of shares under the distribution reinvestment plan during the prior fiscal year. However, because the amounts that can be repurchased in future periods are determinable and only contingent on an event that is likely to occur (e.g., the passage of time), we present the net proceeds from the current dividend reinvestment plan, net of current year redemptions, as redeemable common stock in the accompanying consolidated balance sheets.

We classify financial instruments that represent a mandatory obligation to us to repurchase shares as liabilities. When we determine we have a mandatory obligation to repurchase shares under the share repurchase plan we will reclassify such obligations from temporary equity to a liability based upon their respective settlement values.

We limit the dollar value of shares that may be repurchased under the program as described above.  During the three months  ended March 31, 2011, we did not repurchase any shares pursuant to our share repurchase plan because of the restriction that during each calendar year redemptions are limited to the amount of net proceeds from the sale of shares under our distribution reinvestment plan during the prior calendar year and the restriction that shareholders hold their shares for one year.  June 1, 2010 was the first month that shares were issued under the distribution reinvestment plan.

 
12
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - (Continued)

Recently Issued Accounting Standards Updates
 
In November 2010, the FASB issued an update to its existing guidance on business combinations. This guidance requires a public entity that presents comparative financial statements to present in its pro forma disclosure the revenue and earnings of the combined entity as though the business combination(s) that occurred during the current year had occurred as of the beginning of the prior annual reporting period. In addition, this guidance expands the supplemental pro forma disclosures to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly attributable to the business combination included in the reported pro forma revenue and earnings. The guidance is effective prospectively for business combinations for which the acquisition date is on or after the beginning of the first annual reporting period on or after December 15, 2010, which for us is calendar year 2011. The guidance did not have an impact on our disclosures for the quarter ended March 31, 2011.

3.  INVESTMENTS IN REAL ESTATE

As of March 31, 2011, our portfolio consists of five properties acquired through unconsolidated joint ventures.  The following table provides summary information regarding our investments ($ in thousands).

Multifamily
Community
Name/Location
Approx.
Rentable
Square
Footage
Number of
Units
Date
Acquired
Property
Acquisition
Cost(1)
Joint Venture Equity
Investment Information
Approx.
Annualized
Base Rent (2)
  
Amount of
Our
Investment
Our
Ownership
Interest in
Property
Owner
Average
Annual  
Effective
Rent Per
Unit(3)
Approx. %  
Leased
Springhouse at
Newport News/
Newport News,
Virginia
310,826
432
12/03/2009
$29,250
$1,730
37.50%
$4,230
$10
92%
The Reserve at
Creekside Village/
Chattanooga, Tennessee
211,632
192
03/31/2010
$14,250
$264
23.31%
$2,127
$10
97%
The Apartments at
Meadowmont/Chapel
Hill, North Carolina
296,240
258
04/09/2010
$36,960
$1,224
16.25%
$4,046
$16
95%
The Estates at
Perimeter/ Augusta,
Georgia
266,148
240
09/01/2010
$24,950
$1,610
25.00%
$2,920
$12
91%
Gardens at Hillsboro
Village/  Nashville,
Tennessee
187,430
201
09/30/2010
$32,394
$1,125
12.50%
$3,283
$16
97%
       
$137,804
$5,953
  
$16,606
    

 
(1)  
Property Acquisition Cost excludes acquisition fees and closing costs.
(2)  
Annualized base rent is calculated by annualizing the current, in-place monthly base rent for leases as of March 31, 2011 and does not take into account any rent concessions or prospective rent increases.
(3)  
Annual effective rent per unit includes the effect of tenant concessions over the term of the lease.


 
13
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 


4.  EQUITY METHOD INVESTMENTS

We accounted for the acquisitions of our interests in properties through managing member LLCs in accordance with the provisions of the Consolidation Topic of the FASB ASC.  Following is a summary of our ownership interest by property as of March 31, 2011.

Property
Joint Venture
interest
Managing Member
LLC interest
Indirect Equity
Interest in Property
Springhouse
75.00%
50.00%
37.50%
Creekside
69.93%
33.33%
23.31%
Meadowmont
50.00%
32.50%
16.25%
Augusta
50.00%
50.00%
25.00%
Hillsboro
37.57%
33.27%
12.50%
 
 
We analyzed our interest in the managing member LLC to determine (a) if the LLC is a VIE, and (b) if so, if we are the primary beneficiary.
 
For Springhouse, Augusta and Hillsboro our contribution into the managing member LLC was funded through a loan from an affiliate who is another investor in the managing member LLC, thus our equity investment is not at risk. Since unanimous approval is required by all members to direct the activities that most significantly impact the managing member LLC’s economic performance, the holder of the equity investment at risk lacks that power and thus we concluded that the managing member LLC entities are VIE’s.  We are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact the economic performance of the managing member LLC and would not be considered to be the investor that is most closely associated with the entity among the related party investors.  As a result, our investments are reflected as investments in unconsolidated joint ventures under the equity method of accounting.

For Creekside our initial contribution into the managing member LLC was funded through a loan from an affiliate and accounted for as discussed above, however on September 28, 2010  the loan was repaid and the managing member LLC was no longer considered a VIE.  We then analyzed the managing member LLC under a voting interest model and determined that the investment in the unconsolidated joint venture should be accounted for under the equity method as each member had an equal voting interest.

For Meadowmont our initial contribution into the managing member LLC on April 9, 2010 was funded through a loan from an affiliate who is another investor in the managing member LLC, but this was subsequently repaid on June 8, 2010. However, the voting rights of the investors are not proportional to their obligations to absorb the expected losses or their rights to receive the expected residual returns of the managing member and substantially all of the activities are done on behalf of the single related party group (all of the investors are part of a single related party group) thus this would cause the managing member LLC to be a VIE.  We are not the primary beneficiary because we do not have the power to direct the activities that most significantly impact the economic performance of the managing member LLC and would not be considered to be the investor that is most closely associated with the entity among the related party investors.  As a result our investment is reflected as an investment in unconsolidated joint ventures under the equity method of accounting.


 
14
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 

4.  EQUITY METHOD INVESTMENTS – (Continued)

The carrying amount of our investments in unconsolidated joint ventures was $5,953,214 and $6,301,860 as of March 31, 2011 and December 31, 2010, respectively.  Summary unaudited financial information for the operating properties, Balance Sheets as of March 31, 2011 and December 31, 2010 and Operating Statements for the three months ended March 31, 2011 and 2010, is as follows:
 
 
Balance Sheet :
  
As of
March 31, 2011
    
As of
December 31, 2010
  
               
 
Real Estate, net of depreciation
   $ 131,682,203     $ 133,126,052  
 
Other assets
     4,050,573       4,622,311  
 
      Total assets
   $ 135,732,776     $ 137,748,363  
                   
 
Mortgage payable
   $ 105,988,271     $ 106,016,772  
 
Other current liabilities
     1,610,404       1,789,209  
 
      Total liabilities
     107,598,675       107,805,981  
                   
 
Stockholders’ equity
     28,134,101       29,942,382  
 
      Total liabilities and stockholders’ equity
   $ 135,732,776     $ 137,748,363  
                   
     
Three Months Ended
    
Three Months Ended
  
     
March 31, 2011
    
March 31, 2010
  
                   
Operating Statement:
                
 
Rental revenues
   $ 3,855,870     $ 943,328  
 
Operating expenses
     ( 1,465,905 )     (452,725 ) 
 
Income before debt service
     2,389,965       490,603  
 
Mortgage Interest
     (1,296,208 )     (331,110 )
 
Acquisition costs
     -       (183,553 )
 
Depreciation and amortization
     (1,544,806 )     (638,482 )
 
Net loss
     (451,049 )     (662,542 )
 
Net loss attributable to JV partners
     370,317       394,588  
        (80,732 )     (267,954 )
 
Amortization of deferred financing costs paid on behalf of joint ventures
     (2,515 )     (1.097 )
 
Equity in net loss of unconsolidated joint ventures
   $ (83,247 )   $ (269,051 )
 
 
 
As discussed above, the investments in Springhouse, Meadowmont, Augusta and Hillsboro are considered VIEs and we are not the primary beneficiary.  These investments are accounted for as equity method investments and are included in the caption Investments in unconsolidated real estate joint ventures on the consolidated balance sheet.  The risks and rewards associated with our interest in these entities are based primarily on our ownership percentage.  Our maximum exposure to loss is equal to our investment balance which is $5,689,319 as of March 31, 2011.

 
15
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 


5.  NOTES PAYABLE

On January 20, 2011, BEMT Meadowmont, LLC, a wholly owned subsidiary of our operating partnership (“BEMT Meadowmont”) entered into an agreement with Bluerock Special Opportunity + Income Fund II, an affiliate of our sponsor (“SOIF II”) for a line of credit represented by a promissory note (the “Note”).  Under the terms of the Note, BEMT Meadowmont may borrow, from time to time, up to $500,000, for general working capital.  The Note has a six-month term from the date of the first advance and matures on July 20, 2011.  It bears interest compounding monthly at a rate of 30-day LIBOR + 5.00%, subject to a minimum rate of 7.00%, annualized.  Interest on the loan will be paid on a current basis from cash flow distributed to us from BR Meadowmont JV Member, LLC (the “Meadowmont JV Member”).  The Note is secured by a pledge of our indirect membership interest in the Meadowmont Property and a pledge of our direct membership interest in the Meadowmont JV Member.  On January 23, 2011 we borrowed $150,000.

In connection with our investment in the Springhouse joint venture, on December 3, 2009, BEMT Springhouse LLC, a wholly owned subsidiary of our operating partnership (“BEMT Springhouse”), entered into a loan agreement with Bluerock Special Opportunity + Income Fund (“BEMT Co-Investor”) pursuant to which BEMT Springhouse borrowed $2.8 million (the “BEMT Co-Investor Springhouse Loan”). The BEMT Co-Investor Springhouse Loan initially had a six-month term, maturing June 3, 2010, which was subsequently extended to December 3, 2010 and again to June 3, 2011.  A partial repayment in the amount of $1.1 million was made on June 23, 2010. It bears interest compounding monthly at a rate of 30-day LIBOR + 5.00%, subject to a minimum rate of 7.00%, annualized. For the three month period ended March 31, 2011 and March 31, 2010, the interest rate on the BEMT Co-Investor Springhouse Loan was 7.00%. Interest on the loan will be paid on a current basis from cash flow distributed to us from BR Springhouse Managing Member, LLC (the “Springhouse Managing Member JV Entity”). The BEMT Co-Investor Springhouse Loan is secured by a pledge of our indirect membership interest in the Springhouse property and a pledge of BEMT Springhouse’s direct membership interest in the Springhouse Managing Member JV Entity.

In connection with our investment in the Augusta joint venture, on September 1, 2010, BEMT Augusta entered into a loan agreement with BEMT Co-Investor pursuant to which it borrowed $1.9 million (the “BEMT Co-Investor Augusta Loan”), in connection with the Augusta Property closing.  The BEMT Co-Investor Augusta Loan initially had a six-month term maturing February 28, 2011, which was subsequently extended to August 31, 2011.  The loan may be prepaid without penalty.  It bears interest compounding monthly at a rate of 30-day LIBOR + 5.00%, subject to a minimum rate of 7.00%, annualized.  Interest on the loan is paid on a current basis from cash flow distributed to us from the Augusta Managing Member JV Entity.  The BEMT Co-Investor Augusta Loan is secured by a pledge of our indirect membership interest in the Augusta property and a pledge of BEMT Augusta’s direct membership interest in the Augusta Managing Member JV Entity.

In connection with our investment in the Hillsboro joint venture, on September 30, 2010, BEMT Hillsboro entered into a loan agreement with BEMT Co-Investor II pursuant to which it borrowed $1.3 million (the “BEMT Co-Investor II Hillsboro Loan).  The BEMT Co-Investor II Hillsboro Loan initially had a six-month term maturing March 31, 2011, which was subsequently extended to September 30, 2011.  It bears interest compounding monthly at a rate of 30-day LIBOR + 5.00%, subject to a minimum rate of 7.00%, annualized.  Interest on the loan is paid on a current basis from cash flow distributed to us from the Hillsboro Managing Member JV Entity. The BEMT Co-Investor II Hillsboro Loan is secured by a pledge of our indirect membership interest in the Hillsboro property and a pledge of BEMT Hillsboro’s direct membership interest in the Hillsboro Managing Member JV Entity.

We expect to repay the Meadowmont, Springhouse, Augusta and Hillsboro notes upon maturity with the proceeds to be raised from the Initial Public Offering.  If we are unable to repay the principal amounts upon maturity, our sponsor, who has management control of the affiliates that are lenders to us and thus has the authority to extend the notes that have maturities in 2011, has committed to extend such notes based on our ability to repay those obligations.


 
16
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 


6.  FAIR VALUE DISCLOSURE

As of March 31, 2011, we believe the carrying values of cash and cash equivalents and receivables and payables from affiliates approximate their fair values based on their highly-liquid nature and/or short-term maturities, including prepayment options.  As of March 31, 2011 and December 31, 2010, we had no significant assets or liabilities measured at fair value on a recurring or nonrecurring basis.  We estimate fair values for financial instruments based on interest rates with similar terms and remaining maturities that management believes we could obtain.

7.  RELATED PARTY TRANSACTIONS

In connection with our investments we entered into loan agreements with BEMT Co-Investor and BEMT Co-Investor II, the terms of which are described above in Note 5 (Notes Payable).

As of March 31, 2011, $2,844,061 of organizational and offering costs have been incurred on our behalf. We are liable to reimburse these costs only to the extent selling commissions, the dealer manager fee and other organization and offering costs do not exceed 15% of the gross proceeds of the offering.  When recorded by us, organizational costs are expensed and third-party offering costs are charged to shareholders’ equity.  Organizational and offering costs will be reimbursed from the gross proceeds of the Initial Public Offering.  As of March 31, 2011, $49,931 of organizational costs were expensed in 2010 and $1,548,777 million of offering costs have been charged to shareholders equity.

The advisor performs its duties and responsibilities as our fiduciary under an advisory agreement. The advisory agreement has a one-year term expiring October 14, 2011, and may be renewed for an unlimited number of successive one-year periods upon the mutual consent of our advisor and us. The advisor conducts our operations and manages our portfolio of real estate and real estate-related investments under the terms of the advisory agreement.  Certain of our affiliates will receive fees and compensation in connection with the Initial Public Offering, and the acquisition, management and sale of our real estate investments

We pay our advisor a monthly asset management fee for the services it provides pursuant to the advisory agreement. The asset management fee  equals one-twelfth of 1.0% of the higher of the cost or the value of each asset, where (A) cost equals the amount actually paid, excluding acquisition fees and expenses, to purchase each asset it acquires, including any debt attributable to the asset (including any debt encumbering the asset after acquisition), provided that, with respect to any properties we develop, construct or improve, cost will include the amount expended by us for the development, construction or improvement, and (B) the value of an asset is the value established by the most recent independent valuation report, if available, without reduction for depreciation, bad debts or other non-cash reserves.  For these purposes, “invested capital” means the original issue price paid for the shares of our common stock reduced by prior distributions identified as special distributions from the sale of our asset.  The asset management fee will be based only on the portion of the cost or value attributable to our investment in an asset if we do not own all of an asset.

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

The advisor also receives a financing fee equal to 1% of the amount, under any loan or line of credit, made available to us. The advisor may re-allow some or all of this fee to reimburse third parties with whom it may subcontract to procure such financing for us. In addition, to the extent the advisor provides a substantial amount of services in connection with the disposition of one or more of our properties or investments (except for securities that are traded on a national securities exchange), the advisor will receive fees equal to the lesser of (A) 1.5% of the sales price of each property or other investment sold or (B) 50% of the selling commission that would have been paid to a third-party broker in connection with such a disposition. In no event may disposition fees paid to the advisor or its

 
17
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 

7.  RELATED-PARTY TRANSACTIONS – (Continued)

affiliates and unaffiliated third parties exceed in the aggregate 6% of the contract sales price. In addition to the fees payable to the advisor, we reimburse the advisor for all reasonable expenses incurred in connection with services provided to us, subject to the limitation that we will not reimburse any amount that would cause our total operating expenses at the end of the four preceding fiscal quarters to exceed the greater of 2% of our average invested assets or 25% of our net income determined (1) without  reductions for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and (2) excluding any gain from the sale of our assets for the period.  Notwithstanding the above, we may reimburse amounts in excess of the limitation if a majority of our independent directors determines such excess amount was justified based on unusual and non-recurring factors. If such excess expenses are not approved by a majority of our independent directors, our advisor must reimburse us at the end of the four fiscal quarters the amount by which the aggregate expenses during the period paid or incurred by us exceeded the limitations provided above.  We will not reimburse the advisor for personnel costs in connection with services for which the advisor receives acquisition, origination or disposition fees.  From January 1, 2009 through March 31, 2011, our advisor and its affiliates incurred $677,415 of operating expenses on our behalf, which amount has been recorded on our income statement for the period ended  March 31, 2011, but has not yet been reimbursed to our advisor March 31, 2011 and December 31, 2010.  Due to the limitation discussed above and because operating expenses incurred directly by us exceeded the 2% threshold, the amount due to the advisor had not been recorded on our income statement as of December 31, 2010.  Further, $973,607 had been recorded as a receivable from the advisor as of December 31, 2010 for the excess operating expenses incurred directly by us over the 2% threshold.  On March 22, 2011, our Board of Directors, including all of our independent directors, reviewed our total operating expenses for the four fiscal quarters ended December 31, 2009 (and the four fiscal quarters ended each quarter after) and an estimate of our total operating expenses for the four fiscal quarters to end March 31, 2011 and unanimously determined the excess amount to be justified because of the costs of operating a public company in our early stage of operation.  Upon this approval these costs, totaling $1,646,818, were expensed and $677,415 became a liability to us, payable to our advisor and its affiliates.  As of March 31, 2011 $4,204 has been reimbursed to our advisor and our advisor has agreed to defer further repayment of these costs until a later date.
 
We have issued 1,000 shares of convertible stock, par value $0.01 per share to our advisor. The convertible stock will convert to shares of common stock if and when: (A) we have made total distributions on the then outstanding shares of our common stock equal to the original issue price of those shares plus an 8% cumulative, non-compounded, annual return on the original issue price of those shares or (B) subject to specified conditions, we list our common stock for trading on a national securities exchange. A “listing” will be deemed to have occurred on the effective date of any merger of the Company in which the consideration received by the holders of our common stock is the securities of another issuer that are listed on a national securities exchange. Upon conversion, each share of convertible stock will convert into a number of shares of common stock equal to 1/1000 of the quotient of (A) 15% of the excess of (1) our “enterprise value” (as defined in our charter) plus the aggregate value of distributions paid to date on the outstanding shares of our common stock over the (2) aggregate purchase price paid by the stockholders for those shares plus an 8% cumulative, non-compounded, annual return on the original issue price of those shares, divided by (B) our enterprise value divided by the number of outstanding shares of common stock, in each case calculated as of the date of the conversion. In the event an event triggering the conversion occurs after the advisory agreement with the advisor is not renewed or terminates (other than because of a material breach by the advisor), the number of shares of common stock the advisor will receive upon conversion will be prorated to account for the period of time the advisory agreement was in force.
 
We may pay Bluerock REIT Property Management, LLC, a wholly owned subsidiary of the advisor, a property management fee equal to 4% of the monthly gross income from any properties it manages. In general, we contract property management services for certain properties directly to non-affiliated third parties, in which event we will pay the advisor an oversight fee equal to 1% of monthly gross revenues of such properties.
 
 
All of our executive officers and some of our directors are also executive officers, managers and/or holders of a direct or indirect controlling interest in the advisor and other Bluerock-affiliated entities.  As a result, they owe fiduciary duties to each of these entities, their members and limited partners and investors, which fiduciary duties may from time to time conflict with the fiduciary duties that they owe to us and our stockholders.
 
Some of the material conflicts that the advisor or its affiliates face are: 1) the determination of whether an investment opportunity should be recommended to us or another Bluerock-sponsored program or Bluerock-advised investor; 2) the allocation of the
 

 
18
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 
 
7.  RELATED-PARTY TRANSACTIONS – (Continued)
 
time of key executive officers, directors, and other real estate professionals among the Company, other Bluerock-sponsored programs and Bluerock-advised investors, and the activities in which they are involved; 3) the fees received by the advisor and its affiliates in connection with transactions involving the purchase, origination, management and sale of investments regardless of the quality of the asset acquired or the service provided us; and 4) the fees received by the advisor  and its affiliates in connection with the Initial Public Offering.

Pursuant to the terms of the advisory agreement, summarized below are the related-party costs incurred by us for the three months ended March 31, 2011, and any related amounts payable as of March 31, 2011:

   
Incurred
    
Payable as of
  
   
Three months ended
March 31, 2011
    
March 31, 2011
  
Asset Management and Oversight Fees
   $ 82,292     $ 314,868  
Acquisitions Fees
     -       81,776  
Financing Fees
     -       14,491  
Reimbursable Operating Expenses
     1,189,078       673,211  
Reimbursable Organizational Costs
     -       49,931  
Other
     112,809       94,803  
Total
   $ 1,384,179     $ 1,229,080  

In addition to the amounts incurred by the Company as shown above, our advisor has incurred on our behalf $2,286,474 of offering costs which will become payable as additional offering proceeds are raised to the extent that selling commissions, dealer manager fees and other organization and offering costs do not exceed 15% of gross offering proceeds
 
8.  STOCKHOLDERS’ EQUITY

Common Stock

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

Convertible Stock

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

Equity Compensation Plan

We have adopted the Bluerock Enhanced Multifamily Trust, Inc. Long Term Incentive Plan, which we refer to as the Incentive Plan, in order to enable us to (1) provide an incentive to our employees, officers, directors, and consultants and employees and officers of our advisor to increase the value of our common stock, (2) give such persons a stake in our future that corresponds to the stake of each of our stockholders, and (3) obtain or retain the services of these persons who are considered essential to our long-term success, by offering such persons an opportunity to participate in our growth through ownership of our common stock or through other equity-related awards. We intend to issue awards only to our independent directors under our Incentive Plan (which awards will be granted
 
 
19
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 
 
under the independent director’s compensation plan).  We have reserved and authorized an aggregate number of 2,000,000 shares of our common stock for issuance under the Incentive Plan.
 
Stock-based Compensation for Independent Directors

Our independent directors received an automatic grant of 5,000 shares of restricted stock on the effective date of the Initial Public Offering and will receive an automatic grant of 2,500 shares of restricted stock when such directors are reelected at each annual meeting of our stockholders thereafter. Each person who thereafter is elected or appointed as an independent director will receive an automatic grant of 5,000 shares of restricted stock on the date such person is first elected as an independent director and an automatic grant of 2,500 shares of restricted stock when such director is reelected at each annual meeting of our stockholders thereafter. To the extent allowed by applicable law, the independent directors will not be required to pay any purchase price for these grants of restricted stock. The restricted stock will vest 20% at the time of the grant and 20% on each anniversary thereafter over four years from the date of the grant. All restricted stock may receive distributions, whether vested or unvested. The value of the restricted stock to be granted is not determinable until the date of grant. During the three months ended March 31, 2011, no shares of restricted stock have been granted to the three independent directors.

A summary of the status of our non-vested shares as of March 31, 2011, and changes during the three months ended March 31, 2011, is presented below:
 
Non Vested shares
Shares
Weighted average grant-date fair value
Balance at January 1, 2011
13,188
$131,875
Granted
-
-
Vested
(1,125)
(11,250)
Forfeited
-
-
Balance at March 31, 2011
12,063
$120,625

 
At March 31, 2011, there was $120,625 of total unrecognized compensation cost related to unvested stock options granted under the Plan. That cost is expected to be recognized over a period of four years. The total fair value of shares vested during the three months ended March 31, 2011 was $11,250.
 
We currently use authorized and unissued shares to satisfy share award grants.

Distributions

We paid our first distribution effective June 1, 2010.  Distributions, including distributions paid by issuing shares under the distribution reinvestment plan, for the three months ended March 31, 2011 were as follows:

 
Distributions
2011
Declared
Paid
First Quarter
$117,538
$117,040
 
Distributions are calculated based on stockholders of record each day during the period at a rate of $0.00191781 per share per day and equal a daily amount that, if paid each day for a 365-day period, would equal a 7.0% annualized rate based on a purchase price of $10.00 per share.

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

 
20
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
MARCH 31, 2011 (Unaudited)
 

10.  SUBSEQUENT EVENTS

Status of the Offering
 
For the period April 1, 2011 through April 28, 2011, we sold approximately 45,704 shares of common stock for gross proceeds of $441,717 including issuances through our distribution reinvestment plan

We are in the process of seeking regulatory approval to transfer the dealer manager duties for our Initial Public Offering from our current dealer manager, Select Capital Corporation, a third party, to Halcyon Capital Markets, LLC, our affiliate. An affiliate of our sponsor, BR Capital Markets, LLC currently owns a 90% interest in Halcyon Capital Markets, and the remaining 10% interest is owned by Halcyon Holdings, LLC. BR Capital Markets is 100% owned by R. Ramin Kamfar, a principal of our advisor. We believe that transitioning the offering from a third-party dealer manager to an affiliated dealer manager will provide us with certain benefits, that could lead to greater sales of shares; however, we can promise no assurances that the transition will increase sales in the Initial Public Offering. Halcyon Capital Markets is a Massachusetts limited liability company, headquartered at 5775 Wayzata Boulevard, Suite 960, Minneapolis, Minnesota, 55416. We expect that upon receipt of all required regulatory approvals, Halcyon Capital Markets will assume the role of dealer manager for the remainder of the offering period. We are currently negotiating the terms of the dealer manager agreement with Halcyon Capital Markets; however, we expect the terms would be substantially the same as our current dealer manager agreement with Select Capital Corporation.

Distributions Paid

Distributions Declared
Daily For Each Day
in Month Listed
Date Paid
Total Distribution
Cash Distribution
Dollar amount of Shares
Issued pursuant to
the distribution
reinvestment plan
March 2011
April 1, 2011
$40,784
$26,367
$14,417
April 2011
May 2, 2011
$42,344
$27,073
$15,271

 
21
 

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements of Bluerock Enhanced Multifamily Trust, Inc., and the notes thereto. As used herein, the terms “we,” “our” and “us” refer to Bluerock Enhanced Multifamily Trust, Inc., a Maryland corporation, and, as required by context, Bluerock Enhanced Multifamily Holdings, L.P., a Delaware limited partnership, which we refer to as our “operating partnership,” and to their subsidiaries.
 
Forward-Looking Statements
 
Certain statements included in this quarterly report on Form 10-Q are forward-looking statements. Those statements include statements regarding the intent, belief or current expectations of Bluerock Enhanced Multifamily Trust, Inc., and members of our management team, as well as the assumptions on which such statements are based, and generally are identified by the use of words such as “may,” “will,” “seeks,” “anticipates,” “believes,” “estimates,” “expects,” “plans,” “intends,” “should” or similar expressions. Actual results may differ materially from those contemplated by such forward-looking statements. Further, forward-looking statements speak only as of the date they are made, and we undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results over time, unless required by law.
 
The following are some of the risks and uncertainties, although not all risks and uncertainties, that could cause our actual results to differ materially from those presented in our forward-looking statements:
 
·  
We are a newly-formed entity and our limited operating history makes our future performance difficult to predict.

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

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

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

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

·  
We may fail to qualify as a REIT for federal income tax purposes. We would then be subject to corporate level taxation and we would not be required to pay any distributions to our stockholders.
 
·  
Our offering was suspended from November 17, 2010 until March 2, 2011 in connection with our determination to restate certain of our financial statements On January 19, 2011 we filed the necessary restated financials and the Financial Industry Regulatory Authority (“FINRA”) and Select, our managing broker dealer, reinstated the Initial Public Offering effective March 2, 2011. These restatements resulted in substantial unanticipated costs in the form of accounting, legal fees, and similar professional fees, in addition to the substantial diversion of time and attention of our Chief Financial Officer and members of our accounting team in preparing the restatements. Although the restatement is complete, we can give no assurances that we will not incur additional costs associated with the restatements. Our current corporate operating expenses exceed the cash flow received from our investments in real estate joint ventures. If the rate at which we raise offering proceeds does not improve significantly with the recommencement of our offering, our general and administrative costs will remain higher relative to the size of our portfolio. Moreover, we cannot predict the impact of the restatement on our ability to increase sales. To the extent cash on hand is not sufficient to meet our short-term liquidity requirements we expect to utilize credit facilities obtained from affiliates or unaffiliated third parties.

All forward-looking statements should be read in light of the factors identified in the “Risk Factors” section of our Registration Statement on Form S-11 (File No. 333-153135) filed with the SEC, as the same may be amended and supplemented from time to time.
 

 
22
 


Overview
 
We are a Maryland corporation organized on July 25, 2008 that intends to elect to qualify as a REIT beginning with the taxable year ended December 31, 2010.

As of May 20, 2010 we had received gross offering proceeds sufficient to satisfy the minimum offering amount. Accordingly we broke escrow with respect to subscriptions received from all states in which our shares are currently being offered.  As of April 28, 2011 we had accepted aggregate gross offering proceeds of $6,926,747.  We will experience a relative increase in liquidity as we accept additional subscriptions for shares and a relative decrease in liquidity as we spend net offering proceeds in connection with the acquisition, development and operation of our assets.
 
We intend to make reserve allocations as necessary to aid our objective of preserving capital for our investors by supporting the maintenance and viability of properties we acquire. If reserves and any other available income become insufficient to cover our operating expenses and liabilities, it may be necessary to obtain additional funds by borrowing, refinancing properties or liquidating our investment in one or more properties. There is no assurance that such funds will be available or, if available, that the terms will be acceptable to us.
 
 
We intend to make an election to be taxed as a REIT under Section 856(c) of the Internal Revenue Code. In order to qualify as a REIT, we must distribute to our stockholders each calendar year at least 90% of our taxable income (excluding net capital gains). If we qualify as a REIT for federal income tax purposes, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate rates and will not be permitted to qualify as a REIT for four years following the year in which our qualification is denied. Such an event could materially and adversely affect our net income and results of operations.
 

Results of Operations

The SEC declared the registration statement for our best efforts initial public offering effective on October 15, 2009, and we retained Select Capital Corporation to serve as our dealer manager for the offering.  Our results of operations for the three months ended March 31, 2011 are not indicative of those expected in future periods as we are still in our organizational and development stage.
 
Our management is not aware of any material trends or uncertainties, favorable or unfavorable, other than national economic conditions affecting our targeted portfolio, the apartment housing industry and real estate generally, which may be reasonably anticipated to have a material impact on the revenues or incomes to be derived from the operation of our assets.

Three months ended March 31, 2011 compared to three months ended March 31, 2010

As of March 31, 2011, we have acquired ownership interests in five joint ventures. In general, we expect that our income and expenses related to our portfolio will increase in future periods as a result of anticipated future acquisitions of real estate and real estate-related investments.

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

Under the equity method of accounting, our investments in the joint ventures are included on our balance sheet; however, the assets and liabilities of the joint ventures for which we use the equity method are not included on our balance sheet.
 
 
 
23
 


The following table highlights some of our operating results and should be read along with the consolidated financial statements and the accompanying notes included in this report.
 
    Three Months Ended March 31,        
 
              
$ (Decrease)
  
Expenses
  
2011
    
2010
    
Increase
  
      Asset management and oversight fees to affiliates
   $ 82,292     $ 27,422     $ 54,870  
      Acquisition costs to affiliates
     -       56,525       (56,525 )
      General and administrative
     2,162,685       74,221       2,088,464  
      Total expenses
     2,244,977       158,168       2,086,809  
Other operating activities
                        
      Equity in loss of unconsolidated joint ventures
     (83,247 )     (269,051 )     (185,804 )
Operating loss
     (2,328,224 )     (427,219 )     1,901,005  
                         
Interest expense, net
     85,457       50,138       35,319  
                         
Net loss
   $ (2,413,681 )   $ (477,357 )   $ 1,936,324  
 
Asset management and oversight fees to affiliates increased $54,870 from $27,422 for the three months ended March 31, 2010  period to $82,292 for the three months ended March 31, 2011.  The increase is due to the acquisitions made during 2010 and represents the asset management fee due, but unpaid, to the advisor.  We expect asset management fees to increase in future periods as a result of anticipated future acquisitions of real estate and real estate-related investments.

Acquisition costs to affiliates was zero for the three months ended March 31, 2011 as no acquisitions have occurred during the three months ended March 31, 2011.

General and administrative expenses increased $2,088,464 from $74,221 for the three months ended March 31, 2010 to $2,162,685 for the three months ended March 31, 2011. From January 1, 2009 through March 31, 2011, our advisor and its affiliates incurred $677,415 of operating expenses on our behalf.  We reimburse the advisor for all reasonable expenses incurred   in connection with services provided to us, subject to the limitation that we will not reimburse any amount that would cause our total operating expenses at the end of the four preceding fiscal quarters to exceed the greater of 2% of our average invested assets or 25% of our net income.  Because operating expenses incurred directly by us  exceeded the 2% threshold, the amount due to the advisor had not been recorded on our income statement as of December 31, 2010.  Further, $973,607 had been recorded as a receivable from the advisor for the excess operating expenses over the 2% threshold incurred directly by us as of December 31, 2010.  On March 22, 2011, our Board of Directors, including all of our independent directors, reviewed our total operating expenses for the four fiscal quarters ended December 31, 2009 (and the four fiscal quarters ended each quarter after) and an estimate of our total operating expenses for the four fiscal quarters to end March 31, 2011 and unanimously determined the excess amount to be justified because of the costs of operating a public company in our early stages of operating.   Upon this approval these costs, totaling $1,646,818, were expensed accounting for the largest component of the year over year increase.

 
24
 



Equity in loss of unconsolidated joint venture decreased by $185,804 from $269,051 in the 2010 period to $83,247 for the three months ended March 31, 2011.  This represents our ownership share of net income (loss) from our real estate investments as detailed in Note 4 (Equity Method Investments). The lower overall loss is due to acquisitions fees that were incurred during the three months ended March 31, 2010 and a full quarter of operating activity during 2011 for the properties acquired throughout 2010.
 
The table below reflects the components of the $83,247 loss:
 
   
Springhouse
    
Creekside
    
Meadowmont
    
Augusta
    
Hillsboro
    
Total
  
Property Operating Results:
                                    
Rental revenue
   $ 970,122     $ 492,834     $ 959,277     $ 646,773     $ 786,864     $ 3,855,870  
Operating expenses
     366,315       269,808       333,622       218,184       277,976       1,465,905  
      Net Operating Income (NOI)(1)
     603,807       223,026       625,655       428,589       508,888       2,389,965  
Interest Expense (2)
     (331,110 )     (148,854 )     (395,438 )     (190,696 )     (230,111 )     (1,296,209 )
Depreciation and amortization
     (260,394 )     (127,326 )     (274,049 )     (371,561 )     (511,476 )     (1,544,806 )
      Net income (loss)
     12,303       (53,154 )     (43,832 )     (133,668 )     (232,699 )     (451,050 )
Net (income) loss attributable to JV partners
     (8,039 )     38,273       36,445       100,084       203,554       370,317  
      4,264       (14,881 )     (7,387 )     (33,584 )     (29,145 )     (80,733 )
Amortization of deferred financing costs paid on behalf of joint ventures
     (1,097 )     -       (579 )     (321 )     (517 )     (2,514 )
Equity in net income (loss) of unconsolidated joint ventures
   $ 3,167     $ (14,881 )   $ (7,966 )   $ (33,905 )   $ (29,662 )   $ (83,247 )
 
                 
(1)  
We evaluate the performance of our properties based upon NOI, which is a non-Generally Accepted Accounting Principle (“GAAP”) supplemental financial measure.  We use NOI to evaluate the operating performance of our real estate and to make decisions concerning the operation of the property.  We believe that NOI is essential to the investor in understanding the value of income-producing real estate.  Net Income is the GAAP measure that is most directly comparable to NOI; however, NOI should not be considered as an alternative to net income as the primary indicator of operating performance as it excludes certain items such as depreciation and amortization, interest expense and corporate general and administrative expenses.  Additionally, NOI as defined by us may not be comparable to other REITs or companies as their definitions of NOI may differ from our definition.
 
(2)  
Aggregate debt service ratio of 1.84.

The following is a summary of our investments as of March 31, 2011.

Multifamily
Community
Date
Acquired
Number of
Units
Our
Ownership
Interest in
Property
Owner
Occupancy %
NOI (1)
(in thousands)
Debt
Service
Coverage
Ratio
Springhouse at Newport News
12/03/2009
432
37.50%
92%
$604
1.82
The Reserve at Creekside Village
03/31/2010
192
23.31%
97%
$223
1.50
The Apartments at Meadowmont
04/09/2010
258
16.25%
95%
$626
1.58
The Estates at Perimeter
09/01/2010
240
25.00%
91%
$429
2.25
Gardens at Hillsboro Village
09/30/2010
201
12.50%
97%
$509
2.21
(1)  
Please see table above for a reconciliation of our equity in net income (loss) of unconsolidated joint ventures to the NOI of our properties.
 
 
25
 
 
Interest expense increased $35,319 from $50,138 for  the three months ended March 31, 2010  to $85,457 for the three months ended March 31, 2011 and relates to the affiliate loans for the joint venture investments acquired during 2010 and the borrowing on the line of credit in 2011.

Organization and Offering Costs

Our organization and offering costs (other than selling commissions and dealer manager fees) may be paid by our advisor, the dealer manager or their affiliates on our behalf. Other offering costs include all expenses to be incurred by us in connection with our Initial Public Offering. Organization costs include all expenses incurred by us in connection with our formation, including but not limited to legal fees and other costs to incorporate. Organization costs are expensed as incurred and offering costs, which include selling commissions and dealer manager fees, are charged as incurred as a reduction to stockholders’ equity.

Pursuant to the advisory agreement and the dealer manager agreement, we are obligated to reimburse our advisor, the dealer manager or their affiliates, as applicable, for organization and other offering costs paid by them on our behalf; however, our advisor is obligated to reimburse us to the extent selling commissions, dealer manager fees and organization and other offering costs incurred by us exceed 15% of gross proceeds from our Initial Public Offering. Through March 31, 2011, including shares issued through our distribution reinvestment plan, we had sold 708,677 shares in the offering for gross offering proceeds of $6,485,030 and recorded organization costs of $49,931, other offering costs of $1,548,777 and selling commissions and dealer manager fees of $593,429. In addition  our advisor has incurred on our behalf $2,286,474 of offering costs which will become payable as additional offering proceeds are raised to the extent that selling commissions, dealer manager fees and other organization and offering costs do not exceed 15% of gross offering proceeds

Operating Expenses

Under our advisory agreement our advisor and its affiliates have the right to seek reimbursement from us for all costs and expenses they incur in connection with their provision of services to us, including our allocable share of our advisor’s overhead, such as rent, employee costs, utilities and information technology costs.  We do not, however, reimburse our advisor for personnel costs in connection with services for which our advisor receives acquisition, origination or disposition fees or for personnel costs related to the salaries of our executive officers.  From January 1, 2009 through March 31, 2011, our advisor and its affiliates incurred $677,415 of operating expenses on our behalf, which amount has not yet been reimbursed as of April 28, 2011.  Our charter limits our total operating expenses at the end of the four preceding fiscal quarters to the greater of (A) 2% of our average invested assets, or (B) 25% of our net income determined (1) without reductions for any additions to reserves for depreciations, bad debts or other similar non-cash reserves and (2) excluding any gain from the sale of our assets for the period, notwithstanding the above limitation, we may reimburse amounts in excess of the limitation if  a majority or our independent directors determines that such excess amounts were justified based on unusual and non-recurring factors.  Due to the limitations discussed above and because operating expenses incurred directly by us have exceeded the 2% threshold, the amount due to the advisor had not been recorded on our income statement as of December 31, 2010.  Further, as of December 31, 2010  $973,607 had been recorded as a receivable from the advisor for the excess operating expenses incurred directly by us over the 2% threshold.  On March 22, 2011, our Board of Directors, including all of our independent directors, reviewed our total operating expenses for the four fiscal quarters ended December 31, 2009 (and the four fiscal quarters ended each quarter after) and an estimate of our total operating expenses for the four fiscal quarters to end March 31, 2011 and unanimously determined the excess amounts to be justified because of the costs of operating a public company in our early stages of operating.  Upon this approval these costs, totaling $1,646,818, were expensed and $677,415 became a liability to us, payable to our advisor and its affiliates.  As of March 31, 2011 $4,204 has been reimbursed to our advisor and our advisor has agreed to defer further repayment of these costs until a later date.
 
Liquidity and Capital Resources

We are offering a maximum of $1,000,000,000 in shares and a minimum of $2,500,000 in shares of our common stock in our primary offering, at an offering price of $10.00 per share, with discounts available for certain categories of purchasers.  We also are offering up to $285,000,000 in shares pursuant to our distribution reinvestment plan at $9.50 per share.  

Our principal demands for cash will be for acquisition costs, including the purchase price of any properties, loans or securities we acquire, and construction and development costs and the payment of our operating and administrative expenses, continuing debt
 
 
 
26
 
 
 
service obligations and distributions to our stockholders. Generally, we will fund our acquisitions from the net proceeds of our public offering. We intend to acquire our assets with cash and mortgage or other debt, but we may acquire assets free and clear of permanent mortgage or other indebtedness by paying the entire purchase price for the asset in cash or in units of limited partnership interest in our operating partnership. Due to the delay between the sale of our shares and our acquisitions, there may be a delay in the benefits to our stockholders, if any, of returns generated from our investments.

We generally expect to meet our short-term liquidity requirements, such as our operating and administrative expenses, continuing debt service obligations and the payment of distributions, through net cash provided by operations and net proceeds raised in our public offering.  Operating cash flow is expected to increase as additional investments are added to our portfolio.  We are continuing to raise proceeds in our ongoing public offering; however, we suspended our offering on November 17, 2010 in order to restate certain of our financial statements and selling efforts did not recommence until March 2, 2011.  In order to fund general working capital while our offering was suspended, on January 20, 2011 we entered a loan agreement for a line of credit with an affiliate of our sponsor that permits us to borrow up to $500,000 and we have borrowed $150,000 as of April 25, 2011.  Our current corporate operating expenses exceed the cash flow received from our investments in real estate joint ventures.  If the rate at which we raise offering proceeds does not improve significantly, our general and administrative costs may remain higher relative to the size of our portfolio and we may be required to incur additional debt to fund our operations.  To the extent cash on hand is not sufficient to meet our short-term liquidity requirements, we expect to utilize credit facilities obtained from affiliates or unaffiliated third parties. Our sponsor has also agreed to defer payment of asset management fees, acquisition fees and operating and offering costs advanced on our behalf and current year reimbursable operating expenses through 2011 as well as to fund any remaining cash shortfall, as necessary. In addition as our sponsor has management control of the affiliates that are lenders to us and thus has the authority to extend the notes that have maturities in 2011, it has committed to extend such notes based on our ability to repay those obligations.

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

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

We are in the process of seeking regulatory approval to transfer the dealer manager duties for our Initial Public Offering from our current dealer manager, Select Capital Corporation, a third party, to Halcyon Capital Markets, LLC, our affiliate. An affiliate of our sponsor, BR Capital Markets, LLC currently owns a 90% interest in Halcyon Capital Markets, and the remaining 10% interest is owned by Halcyon Holdings, LLC. BR Capital Markets is 100% owned by R. Ramin Kamfar, a principal of our advisor. We believe that transitioning the offering from a third-party dealer manager to an affiliated dealer manager will provide us with certain benefits, that could lead to greater sales of shares; however, we can promise no assurances that the transition will increase sales in the Initial Public Offering. Halcyon Capital Markets is a Massachusetts limited liability company, headquartered at 5775 Wayzata Boulevard, Suite 960, Minneapolis, Minnesota, 55416. We expect that upon receipt of all required regulatory approvals, Halcyon Capital Markets will assume the role of dealer manager for the remainder of the offering period. We are currently negotiating the terms of the dealer manager agreement with Halcyon Capital Markets; however, we expect the terms would be substantially the same as our current dealer manager agreement with Select Capital Corporation.

 
Cash Flows From Operating Activities

As of March 31, 2011, we owned indirect equity interests in five real estate properties.  During the three months ended March 31, 2011, net cash used in operating activities was $18,644 and consisted of the following:

·  
A net loss of $2,431,681;
 
This was offset by the following which increased our cash from operations:
 
·  
Cash distributions received for our unconsolidated joint ventures of $301,465;
 
·  
Increase in accounts payable and accrued liabilities of $239,626;
 
·  
Increase in due to affiliates of $1,753,328; and
 
·  
Non cash adjustments that increase our cash flow from operations:
 
 
 
27
 
 
 
o  
loss in unconsolidated joint ventures of $83,247.  This amount includes our pro-rata share of (1) non cash adjustment for the depreciation and amortization at the property level and (2) any non-recurring acquisition costs incurred in the year we acquired our indirect equity interest in the property;
 
o  
Non cash adjustment for director’s stock compensation of $11,250
 
Cash Flows From Investing Activities

Our cash used in investing for the three months ended March 31, 2011 was $36,066 for the additional capital needs related to our indirect equity interests in the real estate properties indicated above.

Cash Flows From Financing Activities

Our cash flows from financing consist primarily of proceeds from our ongoing initial public offering (which offering we temporarily suspended from November 17, 2010 until March 2, 2011 in connection with our determination to restate certain of our financial statements) and proceeds from affiliate loans less distributions paid to our stockholders.  

For the three months ended March 31, 2011, net cash provided by financing activities was $104,593 and consisted of the following:
 
·  
$281,000 of gross offering proceeds related to our Initial Public Offering, net of (1) payments of commissions on sales of common stock and related dealer manager fees in the amount of $28,100, (2) and offering costs paid by us directly in the amount of $209,380;
 
·  
$150,000 of proceeds from affiliate loans.
 
This was offset by $88,927 of net cash distributions, after giving effect to distributions reinvested by stockholders of $28,113.
 
Funds from Operations and Modified Funds from Operations
 
Funds from operations (“FFO”) is a non-GAAP financial measure that is widely recognized as a measure of REIT operating performance.  We consider FFO to be an appropriate supplemental measure of our operating performance as it is based on a net income analysis of property portfolio performance that excludes non-cash items such as depreciation. The historical accounting convention used for real estate assets requires straight-line depreciation of buildings and improvements, which implies that the value of real estate assets diminishes predictably over time. Since real estate values historically rise and fall with market conditions, presentations of operating results for a REIT, using historical accounting for depreciation, could be less informative. We define FFO, consistent with the NAREIT’s definition, as net income, computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation and amortization of real estate assets, and after adjustments for unconsolidated partnerships and joint ventures. Adjustments for unconsolidated partnerships and joint ventures will be calculated to reflect FFO on the same basis.
 
            In addition to FFO, we use modified funds from operations ("Modified Funds from Operations" or "MFFO"), which does not include one-time acquisition expenses to further evaluate our operating performance. We believe that MFFO with this adjustment, like those already included in FFO, is helpful in assisting management, investors and analysts assess the sustainability of our operating performance, and in particular, after our offering and acquisition stages are complete because it excludes acquisition expenses that affect property operations only in the period in which the property is acquired.  Thus, MFFO provides helpful information relevant to evaluating the Company’s operating performance in periods in which there is no acquisition activity.
 
             In evaluating investments in real estate, including both business combinations and investments accounted for under the equity method of accounting, management's investment models and analysis differentiate costs to acquire the investment from the operations derived from the investment. Acquisition costs related to business combinations are to be expensed.  We believe by excluding expensed acquisition costs, MFFO provides useful supplemental information that is comparable for each type of our real estate investments and is consistent with management's analysis of the investing and operating performance of our properties.  In addition, it provides investors with information about our operating performance so they can better assess the sustainability of our operating performance after our offering and acquisition stages are completed.  Acquisition expenses include those incurred with our advisor or third parties. Table 1 presents our calculation of FFO and MFFO for the three months ended March 31, 2011and 2010.
 

 
28
 


Because we have been raising capital in our public offering since our inception, did not commence real estate operations until the end of 2009, and have made several additional equity investments in 2010, the results presented in Table 1 below are not directly comparable and should not be considered an indication of our historical operating performance.  Table 2 presents additional information about our MFFO on a property-level basis and presents our calculation of our pro-rata share of MFFO generated by our indirect equity interest in the properties for the three months ended March 31, 2011.
 
TABLE 1
            
   
March 31, 2011
    
March 31, 2010
  
Net loss(1)
   $ (2,413,681 )   $ (477,357 )
Add:
                
Pro rata share of unconsolidated JV depreciation and amortization (2)
     322,636       239,842  
FFO
     (2,091,045 )     (237,515 )
Add:
                
  Pro rata share of unconsolidated JV acquisitions costs (2)
     -       89,104  
  Acquisition costs per  statement of operations
     -       56,525  
MFFO
   $ (2,091,045 )   $ (91,886 )
 
(1)  
 
The net loss for the three months ended March 31, 2011 includes $1,646,818 of excess operating expenses approved by our Board of Directors on March 22, 2011 relating to our total operating expenses for the four fiscal quarters ended December 31, 2009 and the four fiscal quarters ended each quarter after through March 31, 2011.
 
(2)  
This represents our share of depreciation and amortization expense and acquisition costs at the properties that we account for under the equity method of accounting. 
 
Table 2
 
   
Springhouse
    
Creekside
    
Meadowmont
    
Augusta
    
Hillsboro
    
Total
  
Equity in loss of unconsolidated JV
     3,168       (14,881 )     (7,966 )     (33,905 )     (29,663 )     (83,247 )
Pro rata share of unconsolidated JV depreciation and amortization
     95,428       29,291       43,567       91,090       63,260       322,636  
      98,596       14,410       35,601       57,185       33,597       239,389  
Affiliate loan interest (1)
     (28,408 )     -       (2,014 )     (33,338 )     (21,697 )     (85,457 )
Asset Management fees
     (27,423 )     (8,303 )     (18,444 )     (17,249 )     (10,873 )     (82,292 )
Corporate operating expenses (2)
     (628,489 )     (95,868 )     (444,670 )     (584,880 )     (408,778 )     (2,162,685 )
 
                                                
ConsolidatedMFFO
     (585,724 )     (89,761 )     (429,527 )     (578,282 )     (407,751 )     (2,091,045 )
 
(1)  
Affiliate notes payable to be paid from proceeds of the equity raise.
 
(2)  
These expenses have been allocated amongst our portfolio based on the percentage of our investment in the joint venture to our total investments in joint ventures.  Corporate operating expenses include $1,646,818 of excess operating expenses approved by our Board of Directors on March 22, 2011 relating to our total operating expenses for the four fiscal quarters ended December 31, 2009 and the four fiscal quarters ended each quarter after through March 31, 2011.
  
Operating cash flow, FFO and MFFO may also be used to fund all or a portion of certain capitalizable items that are excluded from FFO and MFFO, such as tenant improvements, building improvements and deferred leasing costs.
 
 
29
 
 
Presentation of this information is intended to assist the reader in comparing the sustainability of the operating performance of different REITs, although it should be noted that not all REITs calculate FFO or MFFO the same way, so comparisons with other REITs may not be meaningful.  FFO or MFFO should not be considered as an alternative to net income (loss), as an indication of our liquidity, nor is either indicative of funds available to fund our cash needs, including our ability to make distributions.  Both FFO and MFFO should be reviewed in connection with other GAAP measurements.
 
Provided below is additional information related to selected non-cash items included in net loss above, which may be helpful in assessing our operating results.
 
·  
Directors stock compensation of $11,250 and $23,125 was recognized for the three months ended March 31, 2011 and 2010, respectively.
·  
Amortization of deferred financing costs paid on behalf of our joint ventures of approximately $2,514 and $1,097 was recognized for the three months ended March 31, 2011 and 2010, respectively.

Distributions

On January 13, 2011, our board of directors declared distributions of $0.00191781 per common share based on daily record dates for the period from January 13, 2011 through March 31, 2011. On March 22, 2011, our board of directors declared distributions of $0.00191781 per common share based on daily record dates for the period from April 1, 2011 through June 30, 2011. Distributions payable to each stockholder of record were or will be paid in cash on or before the 15th day of the following month. A portion of each distribution may constitute a return of capital for tax purposes. We intend to make regular cash distributions to our stockholders, typically on a monthly basis.  As current corporate operating expenses exceed cash flow received from our investments in real estate joint ventures we can make no assurance that our board of directors will continue to approve monthly distributions at the current rate; however the recently approved distributions and the distributions paid to date represent an amount that, if paid each month for a 12-month period, would equate to a 7.0% annualized rate based on a purchase price of $10.00 per share

Our board of directors will determine the amount of distributions to be distributed to our stockholders. The board’s determination will be based on a number of factors, including funds available from operations, our capital expenditure requirements and the annual distribution requirements necessary to maintain our REIT status under the Internal Revenue Code. As a result, our distribution rate and payment frequency may vary from time to time.  However, to qualify as a REIT for tax purposes, we must make distributions equal to at least 90% of our “REIT taxable income” each year. Especially during the early stages of our operations, we may declare distributions in excess of funds from operations.
 
Distributions declared, cash flows from operations and FFO  were as follows:
 
Distributions Declared
        
Period
Cash
Reinvested
Total
Cash Flow
from Operations
FFO
    
First Quarter 2011
$75,008
$42,530
$117,538
$(18,644)
$(2,091,046)
    

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

We analyze our investments in joint ventures to determine if the joint venture is a variable interest entity (a “VIE”) and would require consolidation. We (a) evaluate the sufficiency of the total equity at risk, (b) review the voting rights and decision-making authority of the equity investment holders as a group, and whether there are any guaranteed returns, protection against losses, or capping
 
 
 
30
 
 
of residual returns within the group and (c) establish whether activities within the venture are on behalf of an investor with disproportionately few voting rights in making this VIE determination. We would consolidate a venture that is determined to be a VIE if we were the primary beneficiary. Beginning January 1, 2010, a new accounting standard became effective and changed the method by which the primary beneficiary of a VIE is determined to a primarily qualitative approach whereby the variable interest holder, if any, that has the power to direct the VIE’s most significant activities is the primary beneficiary. To the extent that our joint ventures do not qualify as VIEs, we further assess the existence of a controlling financial interest under a voting interest model to determine whether the venture should be consolidated.

Under the equity method of accounting, our investments in the joint ventures are included on our balance sheet; however, the assets and liabilities of the joint ventures for which we use the equity method are not included on our balance sheet.

Principles of Consolidation

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

Off Balance Sheet Arrangements

Investments in Unconsolidated Joint Ventures

We have the following indirect equity interests in unconsolidated joint ventures that own and operate rental properties:

Property
Indirect Equity Interest in Property
Springhouse
37.50%
Creekside
23.31%
Meadowmont
16.25%
Augusta
25.00%
Hillsboro
12.50%

Our unconsolidated subsidiaries are primarily engaged in the management and operation of multifamily real estate properties.  The equity method of accounting (see Critical Accounting Policies) is used for these investments in which we have the ability to exercise significant influence, but not control, over operating and financial policies. As a result, the assets and liabilities of these joint ventures are not included on our balance sheet. Total assets of our unconsolidated subsidiaries were $135,732,776 as of March 31, 2011.

Subsequent Events

Status of the Offering

For the period April 1, 2011 through April 28, 2011, we sold approximately 45,704 shares of common stock for gross proceeds of $441,717 including issuances through our distribution reinvestment plan.

We are in the process of seeking regulatory approval to transfer the dealer manager duties for our Initial Public Offering from our current dealer manager, Select Capital Corporation, a third party, to Halcyon Capital Markets, LLC, our affiliate. An affiliate of our sponsor, BR Capital Markets, LLC currently owns a 90% interest in Halcyon Capital Markets, and the remaining 10% interest is owned by Halcyon Holdings, LLC. BR Capital Markets is 100% owned by R. Ramin Kamfar, a principal of our advisor. We believe  that transitioning the offering from a third-party dealer manager to an affiliated dealer manager will provide us with certain benefits that could lead to greater sales of shares, however, we can provide no assurance that the transition will increase sales in the Initial Public Offering. Halcyon Capital Markets is a Massachusetts limited liability company, headquartered at 5775 Wayzata Boulevard, Suite 960, Minneapolis, Minnesota, 55416. We expect that upon receipt of all required regulatory approvals, Halcyon Capital Markets will assume the role of dealer manager for the remainder of the offering period. We are currently negotiating the terms of the dealer manager agreement with Halcyon Capital Markets; however, we expect the terms would be substantially the same as our current dealer manager agreement with Select Capital Corporation.

 
31
 


Distributions Paid

Distributions Declared
Daily For Each Day in
Month Listed
Date Paid
Total Distribution
Cash Distribution
Dollar amount of Shares
Issued pursuant to DRIP
March 2011
April 1, 2011
$40,784
$26,367
$14,417

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

We have omitted a discussion of quantitative and qualitative disclosures about market risk because, as a smaller reporting company, we are not required to provide such information.
 
Item 4T.  Controls and Procedures
 
Disclosure Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, including our Chief Executive Officer and Chief Financial Officer, evaluated, as of March 3,1 2011, the effectiveness of our disclosure controls and procedures as defined in Exchange Act Rule 13a-15(e) and Rule 15d-15(e).  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were  effective as of March 31, 2011, to provide reasonable assurance that information required to be disclosed by us in this report filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified by the rules and forms of the Exchange Act and is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls systems are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, within a company have been detected.

Changes in Internal Control over Financial Reporting

There has been no change in internal control over financial reporting that occurred during the quarter ended March 31, 2011 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION
 
Item 1.  Legal Proceedings
 
None.
 
Item 1A.  Risk Factors
 
None.
 
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds
 
Use of Proceeds

On October 15, 2009, our Registration Statement on Form S-11 (File No. 333-153135), covering a public offering of up to 130 million shares of common stock, was declared effective under the Securities Act of 1933.  We commenced our initial public offering on October 15, 2009, upon retaining Select Capital Corporation as the dealer manager for our offering.  We are offering 100 million shares of common stock in our primary offering at an aggregate offering price of up to $1 billion, or $10 per share with discount available to certain categories of purchasers.  The 30 million shares offered under our distribution reinvestment plan are initially being offered at an aggregate offering price of $285 million, or $9.50 per share.  We expect to sell the shares registered in our primary offering over a two-year period.  Under rules promulgated by the SEC, in some instances we may extend the primary offering beyond that date.  We may sell shares under the distribution reinvestment plan beyond the termination of the primary offering until we have sold all shares under the plan.
 
As of March 31, 2011, we had sold approximately 699,053 shares of common stock in our ongoing public offering and raised gross offering proceeds of approximately $6,485,030.  From this amount, we incurred $593,429 in selling commissions and dealer manager fees payable to our dealer manager.  With the net proceeds of $4,342,545 we had invested in real estate investments held through unconsolidated joint ventures.

 
32
 
 
Unregistered Sales of Equity Securities

None.
 
Share Repurchase Plan

We have adopted a share repurchase plan that may enable stockholders to sell their shares to us in limited circumstances.The prices at which we will initially repurchase shares are as follows:

·  
The lower of $9.25 or the price paid to acquire the shares from us for stockholders who have held their shares for at least one year;
·  
The lower of $9.50 or the price paid to acquire the shares from us for stockholders who have held their shares for at least two years;
·  
The lower of $9.75 or the price paid to acquire the shares from us for stockholders who have held their shares for at least three years; and
·  
The lower of $10.00 or the price paid to acquire the shares from us for stockholders who have held their shares for at least four years.
 
During the three months ended March 31 2011, we did not repurchase any shares pursuant to our share repurchase plan  because of the restriction that during each calendar year redemptions are limited to the amount of net proceeds from the sale of shares under our distribution reinvestment plan during the prior calendar year.  June 1, 2010 was the first month that shares were issued under the distribution reinvestment plan.
 
Item 3.  Defaults upon Senior Securities
 
None.
 
Item 4.  [Reserved]
 

 
33
 

Item 5.  Other Information
 
None

Item 6.  Exhibits
 
Ex. Description
 
   
3.1
Articles of Amendment and Restatement of the Registrant (incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment No. 4 to the Company’s Registration Statement on Form S-11 (No. 333-153135)).
   
3.2
Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 to the Company’s Registration Statement on Form S-11 (No. 333-153135)).
   
4.1
Distribution Reinvestment Plan (included as Exhibit B to the Prospectus dated January 31, 2011, incorporated by reference to Exhibit B to Post-Effective Amendment No. 6 to the Company’s Registration Statement on Form S-11 (No. 333-153135)).
   
4.2
Form of Subscription Agreement (included as Exhibit A to the Prospectus dated January 31, 2011, incorporated by reference to Exhibit A to Post-Effective Amendment no. 6 to the Company’s Registration Statement on Form S-11 (No. 333-153135))
   
10.1
Promissory Note between BEMT Meadowmont, LLC and Bluerock Special Opportunity + Income Fund II, dated as of January 20, 2011, incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed on January 26, 2011.
   
10.2
Pledge and Security Agreement between BEMT Meadowmont LLC and Bluerock Special Opportunity & Income Fund II, dated as of January 20, 2011, incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed on January 26, 2011.
   
10.3
Amended and Restated Advisory Agreement between Bluerock Enhanced Multifamily Advisors LP and the Company dated March 30, 2011.
   
10.4
Letter Agreement between Bluerock Real Estate, LLC and the Company dated March 28, 2011.
   
31.1
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
31.2
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
   
32.1
Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002
 
 
34
 

SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
 
 
BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.
   
DATE: May 13, 2011
/s/ R. Ramin Kamfar                
 
Chief Executive Officer and Chairman of the Board
 
(Principal Executive Officer)
   
DATE: May 13, 2011
/s/ Jerold E. Novack                 
 
Chief Financial Officer
 
(Principal Financial Officer and Principal Accounting Officer)
 
 
35
 
 
 EX-31.1 2 ex311.htm CERTIFICATION ex311.htm
EXHIBIT 31.1
 
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
 
I, R. Ramin Kamfar, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Bluerock Enhanced Multifamily Trust, Inc.:
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and

 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 
c.
Evaluated the effectiveness of the registrant’s disclosures controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this based on such evaluation; and

 
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and

5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the  registrant’s board of directors (or persons performing the equivalent functions):

 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Date: May 13, 2011
 
 
/s/ R. Ramin Kamfar
 
R. Ramin Kamfar
 
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)
 
 
 EX-31.2 3 ex312.htm CERTIFICATION ex312.htm
EXHIBIT 31.2
 
CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER
 
I, Jerold E. Novack, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Bluerock Enhanced Multifamily Trust, Inc.;
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and
 
 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c.
Evaluated the effectiveness of the registrant’s disclosures controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this based on such evaluation; and
 
 
d.
Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
 
5.
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):
 
 
a.
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
 
b.
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 
Date: May 13, 2011
 
 
/s/ Jerold E. Novack
 
Jerold E. Novack
 
Chief Financial Officer
(Principal Financial Officer)

 
 EX-32.1 4 ex321.htm CERTIFICATION ex321.htm
 
EXHIBIT 32.1
 
CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED
PURSUANT TO SECTION 906 OF THE
SARBANES-OXLEY ACT OF 2002
 
 
Pursuant to 18 U.S.C. § 1350, as created by Section § 906 of the Sarbanes-Oxley Act of 2002, the undersigned officers of Bluerock Enhanced Multifamily Trust, Inc. (the “Company”) hereby certify, to such officers’ knowledge, that:
 
 
(i)
The accompanying Quarterly Report on Form 10-Q for the period ended March 31, 2011 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and
 
 
(ii)
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 13, 2011
 
 
/s/ R. Ramin Kamfar
 
R. Ramin Kamfar
 
Chief Executive Officer and Chairman of the Board
(Principal Executive Officer)

 
May 13, 2011
 
 
 
/s/ Jerold E. Novack
 
Jerold E. Novack
 
Chief Financial Officer
(Principal Financial Officer)

A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
 
The foregoing certification is being furnished as an exhibit to the Report pursuant to Item 601(b)(32) of Regulation S-K and Section 906 of the Sarbanes-Oxley Act of 2002 and, accordingly, is not being filed with the Securities and Exchange Commission as part of the Report and is not to be incorporated by reference into any filing of the Company under the Securities Act of 1933 or the Securities Exchange Act of 1934 (whether made before or after the date of the Report, irrespective of any general incorporation language contained in such filing).
 
 
 EX-10.3 5 ex103.htm AMENDED AND RESTATED ADVISORY AGREEMENT ex103.htm
AMENDED AND RESTATED ADVISORY AGREEMENT

AMONG

BLUEROCK ENHANCED MULTIFAMILY TRUST, INC.,
 BLUEROCK ENHANCED MULTIFAMILY HOLDINGS, LP,
 AND BLUEROCK ENHANCED MULTIFAMILY ADVISOR, LLC



 
 
   
TABLE OF CONTENTS
1. Definitions 
1 
2. Appointment 
7 
3. Duties of the Advisor 
7 
4. Authority of Advisor 
10 
5. Bank Accounts 
10 
6. Records; Access 
11 
7. Limitations on Activities 
11 
8. Relationship with Director 
11 
9. Fees 
11 
10. Expenses 
13 
11. Other Services 
14 
12. Reimbursement to the Advisor 
15 
13. Business Combination 
15 
14. Other Activities of the Advisor 
16 
15. The Bluerock Name 
16 
16. Term of Agreement 
17 
17. Termination by the Parties 
17 
18. Assignment to an Affiliate 
17 
19. Payments to and Duties of Advisor Upon Termination 
17 
20. Indemnification by the Company and the Operating Partnership 
18 
21. Indemnification by Advisor 
19 
22. Nonsolicitation 
19 
23. Notices 
19 
24. Modification 
20 
25. Severability 
20 
26. Construction 
20 
27. Entire Agreement 
20 
28. Indulgences, Not Waivers 
21 
29. Gender 
21 
30 . Titles Not to Affect Interpretation 
21 
31. Execution in Counterparts 
21 


 
1
 

 
AMENDED AND RESTATED ADVISORY AGREEMENT

     THIS AMENDED AND RESTATED ADVISORY AGREEMENT (this Agreement”), dated as of the __ day of March, 2011 (the Effective Date ”), is entered into by and among Bluerock Enhanced Multifamily Trust, Inc., a Maryland corporation (the Company ”), Bluerock Enhanced Multifamily Holdings, L.P., a Delaware limited partnership (the Operating Partnership ”), and Bluerock Enhanced Multifamily Advisor, LLC, a Delaware limited liability company (the Advisor ”). Capitalized terms used herein shall have the meanings ascribed to them in Section 1 below.

W I T N E S S E T H

    WHEREAS, the Company and the Advisor previously entered into that certain Advisory Agreement dated October 15, 2009;
 
    WHEREAS, the Company intends to qualify as a REIT, and to invest its funds in investments permitted by the terms of Sections 856 through 860 of the Code;

     WHEREAS, the Company is the general partner, and its wholly owned subsidiary, Bluerock REIT Holdings, LLC, is the sole limited partner of the Operating Partnership, and the Company intends to conduct all of its business and make all Investments through the Operating Partnership;

     WHEREAS, the Company and the Operating Partnership desire to avail themselves of the experience, sources of information, advice, assistance and certain facilities of the Advisor and to have the Advisor undertake the duties and responsibilities hereinafter set forth, on behalf of, and subject to the supervision of the Board of Directors of the Company, all as provided herein; and

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

     NOW, THEREFORE, in consideration of the foregoing and of the mutual covenants and agreements contained herein, the parties hereto, intending to be legally bound, hereby amend and restate the Advisory Agreement dated October 15, 2009 as follows:

     1. DEFINITIONS. As used in this Agreement, the following terms have the definitions hereinafter indicated:

     Acquisition Expenses. Any and all expenses, exclusive of Acquisition Fees, incurred by the Company, the Operating Partnership, the Advisor, or any of their Affiliates in connection with the selection, evaluation, acquisition, origination, making or development of any Investments, whether or not acquired, including, without limitation, legal fees and expenses, travel and communications expenses, costs of appraisals, nonrefundable option payments on property not acquired, accounting fees and expenses, title insurance premiums, and the costs of performing due diligence.

     Acquisition Fee. The term Acquisition Fee” shall mean the fees payable to the Advisor pursuant to Section 9(a).

     Advisor. Advisor shall mean Bluerock Enhanced Multifamily Advisor, LLC, a Delaware limited liability company, any successor advisor to the Company, the Operating Partnership or any Person to which Bluerock Enhanced Multifamily Advisor, LLC or any successor advisor subcontracts substantially all of its functions. Notwithstanding the foregoing, a Person hired or retained by Bluerock Enhanced Multifamily Advisor, LLC to perform property management and related services for the Company or the Operating Partnership that is not hired or retained to perform substantially all of the functions of Bluerock Enhanced Multifamily Advisor, LLC with respect to the Company or the Operating Partnership as a whole shall not be deemed to be an Advisor.

     Affiliate or Affiliated. With respect to any Person, (i) any Person directly or indirectly owning, controlling or holding, with the power to vote, ten percent (10%) or more of the outstanding voting securities of such other Person; (ii) any Person ten percent (10%) or more of whose outstanding voting securities are directly or indirectly owned, controlled or held, with the 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
 
 
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entity for which such Person acts as an executive officer, director, trustee or general partner.

     Articles of Incorporation. The Articles of Incorporation of the Company, as amended from time to time.

     Asset Management Fee. The term Asset Management Fee” shall mean the fees payable to the Advisor pursuant to Section 9(e).

     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 Investments 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 of Directors or Board. The individuals holding such office, as of any particular time, under the Articles of Incorporation, whether they be the Directors named therein or additional or successor Directors.

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

     Cause. With respect to the termination of this Agreement, fraud, criminal conduct, misconduct or negligent breach of fiduciary duty by the Advisor, or a material breach of this Agreement by the Advisor.

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


     Company. Company shall mean Bluerock Enhanced Multifamily Trust, Inc., a Maryland corporation.

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

     Contract Sales Price. The total consideration stated in an agreement for the sale of an Investment.

     Dealer Manager. Select Capital Corporation, or such other Person or entity selected by the Board to act as the dealer manager for the Offering.

     Dealer Manager Fee. 2.6% of Gross Proceeds from the sale of Shares in the Primary Offering, payable to the Dealer Manager for serving as the dealer manager of such Offering.

     Director. A member of the Board of Directors of the Company.

     Disposition Fee. The term Disposition Fee” shall mean the fees payable to the Advisor pursuant to Section 9(d).

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

     Effective Date. Effective Date shall have the meaning set forth in the preamble.

     Excess Amount. Excess Amount shall have the meaning set forth in Section 12.

     Expense Year. Expense Year shall have the meaning set forth in Section 12.

     Financing Fee. The term Financing Fee” shall mean the fees payable to the Advisor pursuant to Section 9(g).

     FINRA. The Financial Industry Regulatory Authority.

     Funds From Operations. As defined by the National Association of Real Estate Investment Trusts, Funds From Operations means net income computed in accordance with GAAP, excluding gains (or losses) from sales of property, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures in which the REIT holds an interest.

     GAAP. Generally accepted accounting principles as in effect in the United States of America from time to time.
 
 
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     Gross Proceeds. The aggregate purchase price of all Shares sold for the account of the Company through all Offerings, without deduction for any Organization and Offering Expenses or volume discounts. For the purpose of computing Gross Proceeds, the purchase price of any Share for which reduced Selling Commissions are paid to the Dealer Manager or a Participating Dealer (where net proceeds to the Company are not reduced) shall be deemed to be the full amount of the offering price per Share pursuant to the Prospectus for such Offering without reduction.
     Indemnitee. The terms Indemnitee” and Indemnitees” shall have the meaning set forth in Section 20.

     Independent Director. Independent Director shall have the meaning set forth in the Articles of Incorporation.

     Invested Capital. The original issue price paid for the Shares reduced by prior Distributions from the sale or financing of the Investments.

     Investments. Any investments by the Company or the Operating Partnership in Real Estate Assets, Real Estate-Related Loans or any other asset.

     Joint Ventures. The joint venture or partnership arrangements (other than with the Operating Partnership) in which the Company or any of its subsidiaries is a co-venturer or general partner which are established to own Investments.

     Listing. The listing of the Shares on a national securities exchange or the receipt by the Stockholders of cash and/or securities of an issuer that are listed on a national securities exchange in exchange for the Company’s common stock. Upon such Listing, the Shares shall be deemed Listed.”

     Loans. Any indebtedness or obligations in respect of borrowed money or evidenced by bonds, notes, debentures, deeds of trust, letters of credit or similar instruments, including mortgages and mezzanine loans.

     NASAA REIT Guidelines. The Statement of Policy Regarding Real Estate Investment Trusts published by the North American Securities Administrators Association on May 7, 2007, as may be amended from time to time.

     Net Income. For any period, the Company’s total revenues applicable to such period, less the total expenses applicable to such 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 Company’s assets.

     Offering. The public offering of Shares pursuant to a Prospectus.

     Operating Partnership. Operating Partnership shall mean Bluerock Enhanced Multifamily Holdings, L.P., a Delaware limited partnership.

     Operating Partnership Agreement. The Operating Partnership Agreement between the Company and Bluerock REIT Holdings, LLC.


     OP Units. Units of limited partnership interest in the Operating Partnership.

     Organization and Offering Expenses. Organization and Offering Expenses means all organization and offering expenses as defined by Rule 2810 promulgated by FINRA to be paid by the Company in connection with the Offering, including: (a) all actual, incurred issuer expenses, as defined by FINRA Rule 2810(b)(4)(C)(i), including legal, accounting, printing, mailing, technology, filing fees, charges of the escrow holder and transfer agent, charges of the Advisor or its Affiliates for administrative services related to the issuance of Shares in the Offering and amounts to reimburse costs in connection with preparing supplemental sales materials and reimbursements for actual costs incurred for travel, meals and lodging by employees of the Advisor and its Affiliates to attend retail seminars hosted by broker-dealers or  bona fide  training and education meetings hosted by the Advisor or its Affiliates; (b) and all items of underwriting compensation as defined by FINRA Rule 2310, including Selling Commissions, the Dealer Manager Fee and (i) amounts used to reimburse FINRA-registered personnel of the Dealer Manager for actual costs incurred for travel, meals and lodging to attend retail seminars sponsored by Participating Dealers; (ii) sponsorship fees for seminars sponsored by Participating Dealers, (iii) amounts used to reimburse FINRA-registered personnel of the Dealer Manager and Participating Dealers for the actual costs incurred for travel, meals and lodging in connection with attending  bona fide  training and education meetings hosted
 
 
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by the Company, the Advisor or its Affiliates, (iv) amounts used to reimburse the Dealer Manager for legal fees and expenses, and (v) customary promotional items, and (c) reimbursement of  bona fide  due diligence expenses to the Dealer Manager or a Participating Dealer that are supported by a detailed and itemized invoice.

     Origination Fee. The term Origination Fee” shall mean the fees payable to the Advisor pursuant to Section 9(b).

     Oversight Fee. The term Oversight Fee” shall mean the fees payable to the Advisor pursuant to Section 9(f).

     Participating Dealers. Securities broker-dealers who are registered with the Securities and Exchange Commission and members of FINRA, or who are exempt from broker-dealer registration, and who, in either case, have executed participating dealer or other agreements with the Dealer Manager to sell Shares.

     Person. An individual, corporation, partnership, trust, joint venture, limited liability company or other entity.

     Primary Offering. The portion of an Offering other than the Shares offered pursuant to the Company’s distribution reinvestment plan.

     Property Management Fee. The term Property Management Fee” shall mean the fees payable to the Advisor pursuant to Section 9(f).

     Prospectus. A Prospectus” under Section 2(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 to the public.

     Real Estate Assets. Any investment by the Company or the Operating Partnership in unimproved and improved Real Property (including, without limitation, fee or leasehold interests, options and leases) either directly or through a Joint Venture.

     Real Estate-Related Loans. Any investments in, or origination of, mortgage loans and other types of real estate-related debt financing, including, without limitation, mezzanine loans, bridge loans, convertible mortgages, wraparound mortgage loans, construction mortgage loans, loans on leasehold interests and participations in such loans, by the Company or the Operating Partnership.

     Real Property. Real property owned from time to time by the Company or the Operating Partnership, either directly or through joint venture arrangements or other partnerships, which consists of (i) land only, (ii) land, including the buildings located thereon, (iii) buildings only or (iv) such investments the Board and the Advisor mutually designate as Real Property to the extent such investments could be classified as Real Property.

     REIT. A real estate investment trust” under 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 Real Property, Loan or other Investment or portion thereof, including the lease of any Real Property consisting of a building only, and including any event with respect to any Real Property which gives rise to 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) in which the Company or the Operating Partnership as a co-venturer or partner sells, grants, transfers, conveys, or relinquishes its ownership of any Real Property or portion thereof, including any event with respect to any Real Property which gives rise to insurance claims or condemnation awards; or (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 Real Estate-Related Loans or portion thereof (including with respect to any Real Estate-Related Loan, all payments thereunder or in satisfaction thereof other than regularly scheduled interest payments) and any event which gives rise to a
 
 
5
 
 
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, or relinquishes its ownership of any other asset not previously described in this definition or any portion thereof, but not including any transaction or series of transactions specified in clauses (A) through (E) above in which the proceeds of such transaction or series of transactions are reinvested by the Company in one or more assets within 180 days thereafter.

     Securities Act. The Securities Act of 1933, as amended.

     Selling Commission. 7.0% of Gross Proceeds from the sale of Shares in the Primary Offering payable to the Dealer Manager and reallowable to Participating Dealers with respect to Shares sold by them.

     Shares. The shares of the Company’s capital stock, par value $0.01 per share.

     Special Committee. The term Special Committee” shall have the meaning as provided in Section 13(a).

     Sponsor. Sponsor shall mean Bluerock Real Estate, L.L.C, a Delaware limited liability company.

     Stockholders. The registered holders of the Shares.

     Termination Date. The date of termination of this Agreement.

     Total Operating Expenses. All costs and expenses paid or incurred by the Company, as determined under GAAP, that are in any way related to the operation of the Company or its business, including asset management fees and other fees paid to the Advisor, but excluding (i) the expenses of raising capital such as Organization and Offering Expenses, legal, audit, accounting, underwriting, brokerage, listing, registration, and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, registration and Listing, (ii) interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation, amortization and bad debt reserves, (v) incentive fees paid in compliance with the NASAA REIT Guidelines, (vi) Acquisition Fees, Origination Fees and Acquisition Expenses and (vii) other fees and expenses connected with the acquisition, disposition, management and ownership of real estate interests, mortgages or other property (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair, and improvement of property). The definition of Total Operating Expenses” set forth above is intended to encompass only those expenses which are required to be treated as Total Operating Expenses under the NASAA REIT Guidelines. As a result, and notwithstanding the definition set forth above, any expense of the Company which is not part of Total Operating Expenses under the NASAA REIT Guidelines shall not be treated as part of Total Operating Expenses for purposes hereof.

     2%/25% Guidelines. 2%/25% Guidelines shall have the meaning set forth in Section 12.

     2. APPOINTMENT. The Company and the Operating Partnership hereby appoint the Advisor to serve as their advisor on the terms and conditions set forth in this Agreement, and the Advisor hereby accepts such appointment.

     3. DUTIES OF THE ADVISOR. As of the Effective Date, the Advisor undertakes to use its best efforts to present to the Company and the Operating Partnership potential investment opportunities and to provide a continuing and suitable investment program consistent with the investment objectives and policies of the Company as determined and adopted from time to time by the Board. In performance of this undertaking, subject to the supervision of the Board and consistent with the provisions of the Articles of Incorporation and Bylaws of the Company and the Operating Partnership Agreement, the Advisor shall, either directly or by engaging an Affiliate:

     (a) serve as the Company’s and the Operating Partnership’s investment and financial advisor;

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

     (c) investigate, select, and, on behalf of the Company and the Operating Partnership, engage and conduct business with and supervise the performance of such Persons as the Advisor deems necessary to the proper performance of its obligations hereunder, including, but not limited to, consultants, accountants, correspondents, lenders, technical advisors, attorneys, brokers, underwriters, corporate fiduciaries, escrow agents, depositaries, custodians, agents for collection,
 
 
6
 
 
 
insurers, insurance agents, banks, builders, developers, property owners, real estate management companies, real estate operating companies, securities investment advisors, mortgagors, registrar and transfer agent and any and all agents for any of the foregoing, including Affiliates of the Advisor, and Persons acting in any other capacity deemed by the Advisor necessary or desirable for the performance of any of the foregoing services, including, but not limited to, entering into contracts in the name of the Company and the Operating Partnership with any of the foregoing;

     (d) consult with the officers and Directors of the Company and assist the Directors 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 or the Operating Partnership;

     (e) subject to the provisions of Section 4 hereof, (i) participate in formulating an investment strategy and asset allocation framework, (ii) locate, analyze and select potential Investments, (iii) structure and negotiate the terms and conditions of transactions pursuant to which acquisitions and dispositions of Investments will be made; (iv) research, identify, review and recommend acquisitions and dispositions of Investments to the Board and make Investments on behalf of the Company and the Operating Partnership in compliance with the investment objectives and policies of the Company; (v) arrange for financing and refinancing and make other changes in the asset or capital structure of, and dispose of, reinvest the proceeds from the sale of, or otherwise deal with, Investments; (vi) enter into leases and service contracts for Real Estate Assets and, to the extent necessary, perform all other operational functions for the maintenance and administration of such Real Estate Assets; (vii) actively oversee and manage Investments for purposes of meeting the Company’s investment objectives and reviewing and analyzing financial information for each of the Investments and the overall portfolio; (viii) select Joint Venture partners, structure corresponding agreements and oversee and monitor these relationships; (ix) oversee, supervise and evaluate Affiliated and non-Affiliated property managers who perform services for the Company or the Operating Partnership; (x) oversee Affiliated and non-Affiliated Persons with whom the Advisor contracts to perform certain of the services required to be performed under this Agreement; (xi) manage accounting and other record-keeping functions for the Company and the Operating Partnership, including reviewing


and analyzing the capital and operating budgets for the Real Estate Assets and generating an annual budget for the Company; (xii) recommend various liquidity events to the Board when appropriate and (xiii) source and structure Real Estate-Related Loans;

     (f) upon request, provide the Board with periodic reports regarding prospective investments;

     (g) make investments in, and dispositions of, Investments within the discretionary limits and authority as granted by the Board;

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

     (i) obtain reports (which may, but are not required to, be prepared by the Advisor or its Affiliates), where appropriate, concerning the value of Investments or contemplated investments of the Company and the Operating Partnership;

     (j) from time to time, or at any time reasonably requested by the Board, make reports to the Board of its performance of services to the Company and the Operating Partnership under this Agreement, including reports with respect to potential conflicts of interest involving the Advisor or any of its Affiliates;

     (k) provide the Company and the Operating Partnership with all necessary cash management services;

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

     (m) deliver to, or maintain on behalf of, the Company copies of all appraisals obtained in connection with the investments
 
 
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in any Real Estate Assets as may be required to be obtained by the Board;
 
      (n) notify the Board of all proposed material transactions before they are completed;

      (o) effect any private placement of OP Units, tenancy-in-common (TIC) or other interests in Investments as may be approved by the Board;

      (p) perform investor-relations and Stockholder communications functions for the Company; and
      (q) maintain the Company’s accounting and other records and assist the Company in filing all reports required to be filed by it with the Securities and Exchange Commission, the Internal Revenue Service and other regulatory agencies.

     Notwithstanding the foregoing, the Advisor may delegate any of the foregoing duties to any Person so long as the Advisor or any Affiliate remains responsible for the performance of the duties set forth in this Section 3.

4. AUTHORITY OF ADVISOR.

     (a) Pursuant to the terms of this Agreement (including the restrictions included in this Section 4 and in Section 7), and subject to the continuing and exclusive authority of the Board over the management of the Company, the Board hereby delegates to the Advisor the authority to perform the services described in Section 3.

     (b) Notwithstanding the foregoing, any investment in Real Estate Assets, including any financing thereof, will require the prior approval of the Board, any particular Directors specified by the Board or any committee of the Board, as the case may be.

     (c) If a transaction requires approval by the Independent Directors, the Advisor will deliver to the Independent Directors all documents and other information required by them to properly evaluate the proposed transaction.

     (d) The prior approval of a majority of the Independent Directors not otherwise interested in the transaction and a majority of the Board not otherwise interested in the transaction will be required for each transaction to which the Advisor or its Affiliates is a party.

     (e) The Board may, at any time upon the giving of notice to the Advisor, modify or revoke the authority set forth in this Section 4; provided, however, that such modification or revocation shall be effective upon receipt by the Advisor and shall not be applicable to investment transactions to which the Advisor has committed the Company or the Operating Partnership prior to the date of receipt by the Advisor of such notification.

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

     6. RECORDS; ACCESS. The Advisor shall maintain appropriate records of all its activities hereunder and make such records available for inspection by the Directors 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 and the Operating Partnership.

     7. LIMITATIONS ON ACTIVITIES. Anything else in this Agreement to the contrary notwithstanding, the Advisor shall refrain from taking any action which, in its sole judgment made in good faith, would (a) adversely affect the status of the Company as a REIT unless the Board has determined that REIT, qualification is not in the best interests of the Company and its Stockholders, (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
 
 
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Company or its Shares, or otherwise not be permitted by the Articles of Incorporation or Bylaws of the Company, except if such action shall be ordered by the Board, in which case the Advisor shall notify promptly the Board of the Advisor’s judgment of the potential impact of such action and shall refrain from taking such action until it receives further clarification or instructions from the Board. In such event, the Advisor shall have no liability for acting in accordance with the specific instructions of the Board so given. Notwithstanding the foregoing, the Advisor, its directors, officers, employees and members, and the partners, directors, officers, members and stockholders of the Advisor’s Affiliates shall not be liable to the Company or to the Directors or Stockholders for any act or omission by the Advisor, its directors, officers, employees, or members, and the partners, directors, officers, members or stockholders of the Advisor’s Affiliates taken or omitted to be taken in the performance of their duties under this Agreement except as provided in Section 20 of this Agreement.

     8. RELATIONSHIP WITH DIRECTORS. Subject to Section 7 of this Agreement and to restrictions advisable with respect to the qualification of the Company as a REIT, directors, officers and employees of the Advisor or an Affiliate of the Advisor or any corporate parent of an Affiliate, may serve as a Director and as officers of the Company, except that no director, officer or employee of the Advisor or its Affiliates who also is a Director or officer of the Company shall receive any compensation from the Company for serving as a Director or officer other than reasonable reimbursement for travel and related expenses incurred in attending meetings of the Board and no such Director shall be deemed an Independent Director for purposes of satisfying the Director independence requirement set forth in the Articles of Incorporation.

      9. FEES.

     (a)Acquisition Fees. The Advisor shall receive an Acquisition Fee payable by the Company as compensation for services rendered in connection with the investigation, selection, sourcing, due diligence and acquisition (by purchase, investment or exchange) of Real Estate Assets or investments. The total Acquisition Fees payable to the Advisor or its Affiliates shall equal 1.75% of the purchase price. The purchase price of an Investment shall equal the amount paid or allocated to the purchase, development, construction or improvement of a property, inclusive of expenses related thereto, and the amount of debt associated with such Real Estate Asset or investment. The purchase price allocable for a joint venture investment shall equal the product of (i) the purchase price in the underlying Real Estate Asset and (ii) the Company’s ownership percentage in the joint venture. For purposes of this section, ownership percentage” shall be the percentage of capital stock (or equivalent indicia of ownership) owned by the Company,

without regard to classification of such capital stock. With respect to investments in and originations of Real Estate-Related Loans, the Company will pay the Advisor an Origination Fee in lieu of the Acquisition Fee. The Advisor shall submit an invoice to the Company following the closing or closings of each Real Estate Asset or Investment, accompanied by a computation of the Acquisition Fee. The Company shall pay the Acquisition Fee promptly following receipt of the invoice.

     (b)Origination Fees. As compensation for the investigation, selection, sourcing, due diligence and acquisition or origination of Real Estate-Related Loans, the Company shall pay an Origination Fee to the Advisor for each such acquisition or origination equal to 1.75% of the greater of (i) the amount funded by the Company to originate the Real Estate-Related Loan or (ii) the purchase price of any Real Estate-Related Loan that the Company acquires, including third-party expenses. The Company will not pay an Acquisition Fee with respect to any such Real Estate-Related Loan. The Company will not pay an Origination Fee to the Advisor with respect to any transaction pursuant to which the Company is required to pay the Advisor an Acquisition Fee. Notwithstanding anything herein to the contrary, the payment of Origination Fees by the Company shall be subject to the limitations on Acquisition Fees contained in the Company’s Articles of Incorporation. The Advisor shall submit an invoice to the Company following the closing or closings of each Real Estate-Related Loan, accompanied by a computation of the Origination Fee. The Company shall pay the Origination Fee to the Advisor promptly following receipt of the invoice.

     (c)Limitation on Total Acquisition Fees, Origination Fees and Acquisition Expenses. Pursuant to the NASAA REIT Guidelines, the total of all Acquisition Fees, Origination Fees and Acquisition Expenses payable in connection with any Investment shall not exceed 6.0% of the contract purchase price,” as defined in the Articles of Incorporation, of the Investment acquired.

     (d)Disposition Fee. In connection with a Sale of an Investment (except for such Investments that are traded on a national securities exchange) in which the Advisor or any Affiliate of the Advisor provides a substantial amount of services,
 
 
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as determined by the Independent Directors, the Company shall pay to the Advisor or its Affiliate a Disposition Fee equal to the lesser of (i) one-half of a Competitive Real Estate Commission or (ii) 1.5% of the Contract Sales Price of such Investment. Any Disposition Fee payable under this Section 9(d) may be paid in addition to real estate commissions paid to non-Affiliates, provided that the total real estate commissions (including such Disposition Fee) paid to all Persons by the Company for the Sale of each Investment shall not exceed 6.0% of the Contract Sales Price. Substantial assistance in connection with a Sale may include the preparation of an investment package (for example, for a Sale, a package including a new investment analysis, rent rolls, tenant information regarding credit, a property title report, an environmental report, a structural report and exhibits) or other such substantial services performed in connection with a Sale.

     (e)Asset Management Fee. The Advisor shall receive the Asset Management Fee as compensation for services rendered in connection with the day-to-day management of the Company’s assets and operations. The Asset Management Fee shall be equal to a monthly fee of one-twelfth of 1%, of the higher of (A) the aggregate cost of each Investment the Company acquires, excluding Acquisition Fees and Acquisition Expenses but including any debt attributable to the asset (including debt encumbering the asset after its acquisition) and the outstanding principal amount of the Real Estate-Related Loans acquired or originated and other Investments, provided that, with respect to any Real Estate Assets developed, constructed or improved by the Company, cost for purposes herein shall include the amount expended by the company for such development, construction or improvement and (B) the fair market value of each Investment (before non-cash reserves, bad debt and depreciation) as determined by an independent valuation report, if available; provided, however, that 50% of the Asset Management Fee payable hereunder will not be paid until Stockholders have received Distributions in an amount equal to at least a 6.0% per annum cumulative, non-compounded return on Invested Capital, at which time all unpaid portions of the Asset Management Fee shall become due and payable). The Asset Management Fee will be based only on the portion of the cost or value attributable to the Company’s investment in an asset if the Company does not own all of an asset. The amount of the Asset Management Fee for each calendar month hereunder shall be calculated as of the last day of such month and shall be prorated for any partial month.

     (f)Property Management Fee. The Advisor or its Affiliate shall receive a Property Management Fee equal to 4.0% of the monthly gross revenues from any Real Property it manages, payable monthly. In the alternative, should the Company contract property management services for certain Real Properties to non-Affiliated third parties, the Advisor shall receive an Oversight Fee equal to 1.0% of monthly gross revenues of such Real Properties so managed.

     (g)Financing Fee. The Advisor shall receive a Financing Fee equal to 1.0% of the amount made available to the Company under any Loan made available to it. The Advisor may reallow some or all of this Financing Fee to reimburse third parties with whom it may subcontract to procure any such Loan.

     (h)Exclusion of Certain Transactions. In the event the Company or the Operating Partnership shall propose to enter into any transaction in which the Advisor, any Affiliate of the Advisor or any of the Advisor’s directors or officers has a direct or indirect interest, then such transaction shall be approved by a majority of the members of the Board not otherwise interested in such transaction, including a majority of the Independent Directors.

10. EXPENSES.

     (a) In addition to the compensation paid to the Advisor pursuant to Section 9 hereof, the Company or the Operating Partnership shall pay directly or reimburse the Advisor for all of the expenses paid or incurred by the Advisor or its Affiliates in connection with the services it provides to the Company and the Operating Partnership pursuant to this Agreement, including, but not limited to:

     (i) Organization and Offering Expenses other than the Selling Commission and the Dealer Manager Fee; provided, however, that the Company shall not reimburse the Advisor to the extent such reimbursement would cause the total amount of Organization and Offering Expenses paid by the Company and the Operating Partnership to exceed 15.0% of the Gross Proceeds raised as of the date of the reimbursement;

     (ii) Acquisition Expenses incurred in connection with the selection and acquisition of Investments subject to the aggregate 6.0% cap on Acquisition Fees, Origination Fees and Acquisition Expenses set forth in Section 9(c);
 
 
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      (iii) the actual cost of goods and services used by the Company and obtained from entities not affiliated with the Advisor;
 
      (iv) interest and other costs for borrowed money, including discounts, points and other similar fees;

      (v) taxes and assessments on income of the Company or Investments;

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

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

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

      (ix) expenses associated with a Listing, if applicable, or with the issuance and distribution of Shares, such as selling commissions and fees, advertising expenses, taxes, legal and accounting fees, listing and registration fees, and other Organization and Offering Expenses;

      (x) expenses connected with payments of Distributions;

     (xi) expenses of organizing, revising, amending, converting, modifying, or terminating the Company or any subsidiary thereof or the Articles of Incorporation or governing documents of any subsidiary;

     (xii) expenses 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) administrative service expenses (including (a) personnel costs; provided, however, that no reimbursement shall be made for costs of personnel to the extent that such personnel perform services in transactions for which the Advisor receives Acquisition Fees, Origination Fees or Disposition Fees, and (b) the Company’s allocable share of other overhead of the Advisor such as rent and utilities); and

     (xiv) audit, accounting and legal fees.

     (b) Expenses incurred by the Advisor on behalf of the Company and the Operating Partnership and payable pursuant to this Section 10 shall be reimbursed no less than monthly to the Advisor.

     (c) The Advisor shall prepare a statement documenting the expenses of the Company and the Operating Partnership during each quarter, and shall deliver such statement to the Company and the Operating Partnership within 45 days after the end of each quarter.

     11. OTHER SERVICES. Should the Board request that the Advisor or any director, officer or employee thereof render services for the Company and the Operating Partnership other than set forth in Section 3, such services shall be separately compensated at such rates and in such amounts as are agreed upon by the Advisor and the Board, including a majority of 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.

     12. REIMBURSEMENT TO THE ADVISOR. The Company shall not reimburse the Advisor at the end of any fiscal quarter in which Total Operating Expenses for the four consecutive fiscal quarters then ended (the Expense Year ”) exceed (the Excess Amount ”) the greater of 2% of Average Invested Assets or 25% of Net Income (the 2%/25% Guidelines ”) for such year. Any Excess Amount paid to the Advisor during a fiscal quarter shall be repaid to the Company or, at the option of the Company, subtracted from the Total Operating Expenses reimbursed during the subsequent fiscal quarter. If there is an Excess Amount in any Expense Year and the Independent Directors determine that such excess was justified based on unusual and nonrecurring factors which they deem sufficient, then the Excess Amount may be reimbursed to the Advisor at such time as the Advisor, in its sole discretion, requests, provided that there shall be sent to the Stockholders a written disclosure of such determination, together with an explanation of the factors the Independent Directors considered in determining that such excess expenses were justified. Such determination shall be reflected in the minutes of the meetings of the Board. All figures used in the foregoing computation shall be determined in accordance with GAAP applied on a
 
 
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consistent basis.

      13. BUSINESS COMBINATION.

     (a)Business Combination with Advisor. The Company shall consider becoming a self-administered REIT once the Company’s assets and income are, in the view of the Board, of sufficient size such that internalizing the management functions performed by the Advisor is in the best interests of the Company and the Stockholders. If the Board should make this determination in the future, the Company shall pay one-half, and the Advisor shall pay the other one-half, of the cost of an independent investment banking firm, which shall jointly advise the Company and the Advisor on the value of the Advisor. After the investment banking firm completes its analyses, the Company shall require it to prepare a written report and make a formal presentation to the Board. Following the presentation by the investment banking firm, the Board shall form a special committee (the Special Committee ”) comprised entirely of Independent Directors to consider a possible business combination with the Advisor. The Board shall, subject to applicable law, delegate all of its decision-making power and authority to the Special Committee with respect to matters relating to a possible business combination with the Advisor. The Special Committee also shall be authorized to retain its own financial advisors and legal counsel to, among other things, negotiate with representatives of the Advisor regarding a possible business combination with the Advisor.

     (b)Conditions to Completion of Business Combination with Advisor. Before the Company may complete any business combination with the Advisor in accordance with this Section 13, the following conditions shall be satisfied:

         (i) the Special Committee formed in accordance with Section 13(a) hereof receives an opinion from a qualified investment banking firm, separate and distinct from the firm jointly retained by the Company and the Advisor to provide a valuation analysis in accordance with Section 13(a) hereof, concluding that the consideration to be paid to acquire the Advisor is fair to the Stockholders from a financial point of view;

         (ii) the Board determines that such business combination is advisable and in the best interests of the Company and the Stockholders; and

         (iii) such business combination is approved by the Stockholders entitled to vote thereon in accordance with the Company’s Articles of Incorporation and Bylaws.

     14. OTHER ACTIVITIES OF THE ADVISOR. Nothing herein contained shall prevent the Advisor or any of its Affiliates from engaging in or earning fees from 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, member, partner, employee, or stockholder of the Advisor or its Affiliates to engage in or earn fees from any other business or to render services of any kind to any other partnership, corporation, firm, individual, trust or association and earn fees for rendering such services; provided, however, that the Advisor must devote sufficient resources to the Company’s business to discharge its obligations to the Company under this Agreement. 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, and earn fees for rendering such advice and service. Specifically, it is contemplated that the Company may enter into joint ventures or other similar co-investment arrangements with certain Persons, and pursuant to the agreements governing such joint ventures or arrangements, the Advisor may be engaged to provide advice and service to such Persons, in which case the Advisor will earn fees for rendering such advice and service.

     The Advisor shall report to the Board the existence of any condition or circumstance, existing or anticipated, of which it has knowledge, which creates or could create a conflict of interest between the Advisor’s obligations to the Company and its obligations to or its interest in any other partnership, corporation, firm, individual, trust or association. The Advisor or its Affiliates shall promptly disclose to the Board knowledge of such condition or circumstance. If the Advisor, Director or Affiliates thereof have sponsored other investment programs with similar investment objectives which have investment funds available at the same time as the Company, the Advisor shall inform the Board of the method to be applied by the Advisor in allocating investment opportunities among the Company and competing investment entities and shall provide regular updates to the Board of the investment opportunities provided by the Advisor to competing programs in order for the Board (including the Independent Directors) to fulfill its duty to ensure that the Advisor and its Affiliates use their best efforts
 
 
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to apply such method fairly to the Company.

     15. THE BLUEROCK NAME. The Advisor and its Affiliates have a proprietary interest in the name Bluerock.” The Advisor hereby grants to the Company a non-transferable, non-assignable, non-exclusive, royalty-free right and license to use the name Bluerock” during the term of this Agreement. Accordingly, and in recognition of this right, if at any time the Company ceases to retain the Advisor or one of its Affiliates to perform advisory services for the Company, the Company will, promptly after receipt of written request from the Advisor, cease to conduct business under or use the name Bluerock” or any derivative thereof and the Company shall change its name and the names of any of its subsidiaries to a name that does not contain the name Bluerock” or any other word or words that might, in the reasonable discretion of the Advisor, be susceptible of indication of some form of relationship between the Company and the Advisor or any its Affiliates. At such time, the Company will also make any changes to any trademarks, servicemarks or other marks necessary to remove any references to the word Bluerock.” Consistent with the foregoing, it is specifically recognized that the Advisor or one or more of its Affiliates has in the past and may in the future organize, sponsor or otherwise permit to exist other investment vehicles (including vehicles for investment in real estate) and financial and service organizations having Bluerock” as a part of their name, all without the need for any consent (and without the right to object thereto) by the Company.

     16. TERM OF AGREEMENT. This Agreement shall continue in force until October 14, 2011, subject to an unlimited number of successive one-year renewals upon mutual consent of the parties.

     17. TERMINATION BY THE PARTIES. This Agreement may be terminated upon 60 days written notice without Cause and without penalty by the Independent Directors of the Company or the Advisor. The provisions of Sections 18 through 31 of this Agreement survive termination of this Agreement.

     18. ASSIGNMENT TO AN AFFILIATE. This Agreement may be assigned by the Advisor to an Affiliate with the approval of a majority of the Directors (including a majority of the Independent Directors). The Advisor may assign any rights to receive fees or other payments under this Agreement to any Person without obtaining the approval of the Directors. This Agreement shall not be assigned by the Company or the Operating Partnership without the consent of the Advisor, except in the case of an assignment by the Company or the Operating Partnership to a corporation, limited partnership or other organization which is a successor to all of the assets, rights and obligations of the Company or the Operating Partnership, in which case such successor organization shall be bound hereunder and by the terms of said assignment in the same manner as the Company and the Operating Partnership are bound by this Agreement.

      19. 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 or the Operating Partnership within 30 days after the effective date of such termination all unpaid reimbursements of expenses and all earned but unpaid fees payable to the Advisor prior to termination of this Agreement, subject to the 2%/25% Guidelines to the extent applicable.

      (b) The Advisor shall promptly upon termination:

        (i) pay over to the Company and the Operating Partnership all money collected and held for the account of the Company and the Operating Partnership 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 all Investments, and documents of the Company and the Operating Partnership then in the custody of the Advisor; and

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

     20. INDEMNIFICATION BY THE COMPANY AND THE OPERATING PARTNERSHIP. The Company and the Operating Partnership shall indemnify and hold harmless the Advisor and its Affiliates, including their respective directors (the Indemnitees ,” and each an Indemnitee ”), from all liability, claims, damages or losses arising in the performance of their
 
 
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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, and to the extent that such indemnification would not be inconsistent with the laws of the State of Maryland, the Articles of Incorporation or the provisions of Section II.G of the NASAA REIT Guidelines. Notwithstanding the foregoing, the Company and the Operating Partnership shall not provide for indemnification of an Indemnitee for any loss or liability suffered by such Indemnitee, nor shall they provide that an Indemnitee be held harmless for any loss or liability suffered by the Company and the Operating Partnership, unless all of the following conditions are met:

     (a) the Indemnitee has determined, in good faith, that the course of conduct that caused the loss or liability was in the best interest of the Company and the Operating Partnership;

     (b) the Indemnitee was acting on behalf of, or performing services for, the Company or the Operating Partnership;

     (c) such liability or loss was not the result of negligence or misconduct by the Indemnitee; and

     (d) such indemnification or agreement to hold harmless is recoverable only out of the Company’s net assets and not from the Stockholders.

     Notwithstanding the foregoing, an Indemnitee shall not be indemnified by the Company and the Operating Partnership for any losses, liabilities or expenses arising from or out of an alleged violation of federal or state securities laws by such Indemnitee unless one or more of the following conditions are met:

     (a) there has been a successful adjudication on the merits of each count involving alleged securities law violations as to the Indemnitee;
 
     (b) such claims have been dismissed with prejudice on the merits by a court of competent jurisdiction as to the Indemnitee; or

     (c) a court of competent jurisdiction approves a settlement of the claims against the 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 Exchange Commission and of the published position of any state securities regulatory authority in which securities of the Company or the Operating Partnership were offered or sold as to indemnification for violation of securities laws.

     In addition, the advancement of the Company’s or the Operating Partnership’s funds to an Indemnitee 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:

     (a) the legal action relates to acts or omissions with respect to the performance of duties or services on behalf of the Company or the Operating Partnership;

     (b) 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 such Stockholder’s capacity as such and a court of competent jurisdiction specifically approves such advancement; and

     (c) the Indemnitee undertakes to repay the advanced funds to the Company or the Operating Partnership, together with the applicable legal rate of interest thereon, in cases in which such Indemnitee is found not to be entitled to indemnification.

     21. INDEMNIFICATION BY ADVISOR. The Advisor shall indemnify and hold harmless the Company and the Operating Partnership from contract or other liability, claims, damages, taxes or losses and related expenses including attorneys’ fees, to the extent that such liability, claims, damages, taxes or losses and related expenses are not fully reimbursed by insurance and are incurred by reason of the Advisor’s bad faith, fraud, intentional misconduct, gross negligence or reckless disregard of its duties; provided, however, that 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.

     22. NON-SOLICITATION. During the period commencing on the Effective Date and ending one year following the
 
 
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Termination Date, the Company shall not, without the Advisor’s prior written consent, directly or indirectly (a) solicit or encourage any person to leave the employment or other service of the Advisor or its Affiliates; or (b) hire any person within the one year period following the termination of such person’s employment with the Advisor or its Affiliates. During the period commencing on the date hereof through and ending one year 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 its Affiliates with, or endeavor to entice away from the Advisor or its Affiliates, any person who during the term of the Agreement is, or during the preceding one-year period, was a tenant, co-investor, co-developer, joint venturer or other customer of the Advisor or its Affiliates.

     23. 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, by facsimile transmission, by courier or overnight carrier or by registered or certified mail to the addresses set forth herein:
   
To the Directors and to the Company:
Bluerock Enhanced Multifamily Trust, Inc.
 680 Fifth Avenue, 16th Floor
 New York, New York 10019
 Telephone: (212) 843-1601
 Facsimile: (646) 278-4220
 Attention: R. Ramin Kamfar, 
      Chief Executive Officer
 
To the Operating Partnership:
Bluerock Enhanced Multifamily Holdings, L.P.
 c/o Bluerock Enhanced Multifamily Trust, Inc.
 680 Fifth Avenue, 16th Floor
 New York, New York 10019
 Telephone: (212) 843-1601
 Facsimile: (646) 278-4220
 Attention: R. Ramin Kamfar, 
      Chief Executive Officer
 
To the Advisor:
Bluerock Enhanced Multifamily Advisor, LLC
 680 Fifth Avenue, 16th Floor
 New York, New York 10019
 Telephone: (212) 843-1601
 Facsimile: (646) 278-4220
 Attention: R. Ramin Kamfar, 
      Chief Executive Officer

      Any party may at any time give notice in writing to the other parties of a change in its address for the purposes of this Section 22.

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

     25. 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.

     26. CONSTRUCTION. The provisions of this Agreement shall be construed and interpreted in accordance with the laws of the State of Maryland.
 
 
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     27. 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 or usage of the trade inconsistent with any of the terms hereof. This Agreement may not be modified or amended other than by an agreement in writing.

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

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

     30. TITLES NOT TO AFFECT INTERPRETATION. The titles 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.

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

[Remainder of page intentionally left blank]
 
 
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IN WITNESS WHEREOF, the parties hereto have executed this Advisory Agreement as of the date and year first written above.
     
 
Bluerock Enhanced Multifamily Trust, Inc. 
   
 
By: 
  
 
Name: 
R. Ramin Kamfar 
 
Title: 
Chief Executive Officer 
   
 
Bluerock Enhanced Multifamily Holdings, L.P. 
   
 
By: 
Bluerock Enhanced Multifamily Trust, Inc. its 
   
General Partner 
   
 
By: 
  
 
Name:
R. Ramin Kamfar 
 
Title: 
Chief Executive Officer 
   
 
Bluerock Enhanced Multifamily Advisor, LLC 
   
 
By: 
Bluerock Real Estate, L.L.C. 
   
 
By: 
  
 
Name: 
  R. Ramin Kamfar
 
Title: 
  Chief Executive Officer
 
 
17
 
 
 
 EX-10.4 6 ex104.htm LETTER AGREEMENT ex104.htm

March 28, 2011

Bluerock Enhanced Multifamily Trust, Inc.
16500 Northpark Drive
Southfield, MI 48705

Ladies and Gentlemen:

This letter confirms that Bluerock Real Estate, LLC (or one or more of its subsidiaries) will provide financial support to Bluerock Enhanced Multifamily Trust, Inc. (the Company) sufficient for it to satisfy its obligations and debt service requirements as they come due until at least January 1, 2012, and will satisfy, on a timely basis all liabilities and obligations of the Company that the Company is unable to satisfy when due from the date of this letter, through and including January 1, 2012.  In addition, Bluerock Real Estate will defer payment of the following items:

Operating expenses of $677,000 that were incurred through 12/31/10 and approved for payment in March 2011

Offering costs totaling $2.3 million

Acquisition fees, property and asset management fees and other cost in the amount of $422,000 which have been accrued as of 12/31/10

Current year property and asset management fees expected to cost $367,000

Current year operating expenses that are allocated such as payroll and other shared costs which are estimated to cost approximately $500,000

Bluerock Real Estate, LLC is in management control of the affiliates that are lenders to the Company.  Bluerock Real Estate, LLC has the authority to extend and will extend the notes beyond December 31, 2011.
 
 
 
 

The undersigned represent that Bluerock Real Estate, LLC (or one or more of its subsidiaries) has the ability to provide the necessary financial support to the Company to the extent and when deemed necessary by the Company and that there are no restrictions on Bluerock Real Estate, LLC (or one or more of its subsidiaries) to provide such support.

Very truly yours,

/s/ R. Ramin Kamfar
R. Ramin Kamfar
Bluerock Real Estate, LLC
Chief Executive Officer