NOTE 16: RELATED PARTY TRANSACTIONS

In the ordinary course of our business operations, we have ongoing relationships and have engaged in transactions with the related entities described below. All of these relationships and transactions were approved or ratified by our audit committee as being on terms comparable to those available from an unaffiliated third party or otherwise not creating a conflict of interest.

Almanac

Andrew M. Silberstein serves as a trustee on our board of trustees, as designated pursuant to the purchase agreement. Mr. Silberstein is an equity owner of Almanac and an officer of the investor and holds indirect equity interests in the investor. The transactions pursuant to the purchase agreement are described above in Note 11: Series D Preferred Shares.

IRT

As described in Note 9: Discontinued Operations, we deconsolidated IRT as of October 5, 2016. While IRT was consolidated by RAIT, IRT was not considered a related party. Subsequent to deconsolidation, IRT became a related party. RAIT’s relationships with IRT are discussed below.

Fees and Expenses Received as IRT’s External Advisor

On December 20, 2016, in connection with our management internalization, we sold IRT’s Advisor and, therefore, fees and expenses are no longer earned.

On September 25, 2015, we entered into the Second Amendment to the Second Amended and Restated Advisory Agreement. The Second Amendment amended the advisory agreement to extend its term to October 1, 2020, and to provide for compensation to us for periods subsequent to October 1, 2015, as follows:

•

Quarterly base management fee of 0.375% of IRT’s cumulative equity raised; and

•

Quarterly incentive fee equal to 20% of IRT’s core funds from operations, or Core FFO, as defined in the advisory agreement, in excess of $0.20 per share.

Prior to the Second Amendment, the Second Amended and Restated Advisory Agreement, which was effective as of May 7, 2013 through September 30, 2015, provided that we were compensated as follows:

•

Quarterly base management fee of 0.1875% of IRT’s average gross real estate assets as of the last day of such quarter. Average gross real estate assets means the average of the aggregate book value of IRT’s real estate assets before reserves for depreciation or other similar noncash reserves and excluding the book values attributable to the eight properties that IRT acquired prior to August 16, 2013. Average gross real estate assets is computed by taking the average of these book values at the end of each month during the quarter for which the fee is calculated.

•

An incentive fee based on IRT’s pre-incentive fee Core FFO. The incentive fee was computed at the end of each fiscal quarter as follows:

•

no incentive fee in any fiscal quarter in which IRT’s pre-incentive fee Core FFO does not exceed the hurdle rate of 1.75% (7% annualized) of the cumulative gross amount of equity capital IRT has obtained; and

•

20% of the amount of IRT’s pre-incentive fee Core FFO that exceeded 1.75% (7% annualized) of the cumulative gross proceeds from IRT’s issuance of equity securities.

For the years ended December 31, 2016, 2015 and 2014, we earned $7,092, $4,984, and $1,582 of asset management fees, respectively. It is noted that the quarterly asset management fee for the period ended December 31, 2016 was calculated by adjusting for the effect of the repurchase of IRT’s shares held by RAIT as well as the purchase price for IRT’s management internalization as described in Note 9: Discontinued Operations. For the years ended December 31, 2016, 2015, and 2014, we earned $350, $629, and $154 of incentive fees, respectively. For the years ended December 31, 2015 and 2014, all of these fees earned were eliminated in consolidation. For the year ended December 31, 2016, $5,584 of these fees earned were eliminated in consolidation. These fees are included within fees and other income in our consolidated statements of operations.

As of December 31, 2016 and 2015, we had receivables from IRT for asset management fees and incentive fees of $0 and $1,854, respectively. The receivable as of December 31, 2015 eliminated in consolidation.

Property Management Fees Paid to Our Property Manager

On December 20, 2016, in connection with our management internalization, we sold our multifamily property management business to IRT, which included all of the property management agreements for IRT’s properties.

We had entered into property management agreements with IRT with respect to each of IRT’s properties. Pursuant to these property management agreements, IRT paid our multifamily property manager property management and construction management fees on a monthly basis up to 4.0% of the gross revenues from a property for each month. For the years ended December 31, 2016, 2015 and 2014, we earned $4,769, $3,675, and $1,759, respectively, of property management and construction management fees. For the years ended December 31, 2015 and 2014, all of these fees earned were eliminated in consolidation. For the year ended December 31, 2016, $3,776 of these fees earned were eliminated in consolidation. These fees are included within fees and other income in our consolidated statements of operations.

As of December 31, 2016 and 2015, we had receivables from IRT for property management and leasing fees of $0 and $440, respectively. The receivable as of December 31, 2015 eliminated in consolidation.

Dividends Paid to Affiliates of Our External Advisor

On October 5, 2016, we sold all 7,269,719 shares of IRT’s common stock that we owned to IRT.

As of December 31, 2016 and 2015, RAIT owned 0.0% and 15.5% of the outstanding shares of IRT’s common stock, respectively. For the years ended December 31, 2016, 2015 and 2014, we earned and subsequently received dividends of $3,926, $5,234 and $5,126, respectively, related to shares of common stock owned by RAIT. All of these dividends were eliminated in consolidation.

Indebtedness

During the year ended December 31, 2016, IRT repaid $38,075 of mortgage indebtedness held by us with proceeds from two property dispositions. For the years ended December 31, 2016, we received $486 in exit fees pursuant to the contractual terms of the mortgage indebtedness. Also for the years ended December 31, 2016, 2015, and 2014, we received $361, $965, and $966 respectively, of interest from IRT. All of the debt, fees and interest eliminated in consolidation. There was no accrued interest receivable outstanding as of December 31, 2016.

Other Transactions with RAIT Subsequent to our Management Internalization (December 20, 2016 to December 31, 2016)

IRT paid RAIT $50 pursuant to a shared services agreement for the period ended December 31, 2016. RAIT paid IRT $23 of property management fees. IRT reimbursed RAIT $253 for compensation expense that RAIT paid to IRT employees.

Other

On December 20, 2016, Scott F. Schaeffer resigned from his position as Chief Executive Officer of RAIT and became the full-time Chief Executive Officer of IRT. On the same date, Scott F. Schaeffer entered into a one year consulting agreement with RAIT for which he will receive compensation of $375. In accordance with the Memorandum of Understanding dated September 26, 2016, which memorialized the terms of his resignation, RAIT granted to Scott F. Schaeffer 150,000 unvested shares of common stock on December 23, 2016, and made a $500 cash payment in January 2017. The shares vest 50% on the six month anniversary and 50% on the one year anniversary of the grant date.