10-Q

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: September 30, 2016

¨ 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 000-53917

TALON REAL ESTATE HOLDING CORP.

(Exact Name of Registrant as Specified in its Charter)

Utah	26-1771717
(State or Other Jurisdiction of Incorporation or Organization)	(I.R.S. Employer Identification No.)

5500 Wayzata Boulevard, Suite 1070, Minneapolis, MN 55416

(Address of Principal Executive Offices, Including Zip Code)

(612) 604-4600

(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 (§229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     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.

Large Accelerated Filer	¨	Accelerated Filer	¨	Non-Accelerated Filer	¨	Smaller Reporting Company	x
			(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes   ¨     No   x

The number of shares of the registrant’s common stock, par value $0.001 per share, outstanding at November 21, 2016 was 17,607,680 shares.

TALON REAL ESTATE HOLDING CORP.

QUARTERLY REPORT ON FORM 10-Q

INDEX

PART I. FINANCIAL INFORMATION
Item 1.       Financial Statements	3
Condensed Consolidated Balance Sheets as of September 30, 2016 (unaudited) and December 31, 2015	4
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2016 and 2015 (unaudited)	5
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2016 and 2015 (unaudited)	6
Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.      Management’s Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.      Quantitative and Qualitative Disclosures About Market Risk	33
Item 4.      Controls and Procedures	33
PART II. OTHER INFORMATION
Item 1.      Legal Proceedings	35
Item 1A.   Risk Factors	36
Item 2.      Unregistered Sales of Equity Securities and Use of Proceeds	36
Item 3.      Defaults Upon Senior Securities	36
Item 4.      Mine Safety Disclosures	36
Item 5.      Other Information	36
Item 6.      Exhibits	36
Signatures	37

SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION

In this Quarterly Report on Form 10-Q, references to “Company,” “we,” “us,” “our” and words of similar import refer to Talon Real Estate Holding Corp. and its subsidiaries, unless the context requires otherwise.

This Quarterly Report on Form 10-Q contains forward-looking statements regarding us, our business prospects and our results of operations that are subject to certain risks and uncertainties posed by many factors and events that could cause our actual business, prospects and results of operations to differ materially from those that may be anticipated by such forward-looking statements.  Factors that could cause or contribute to such differences include, but are not limited to, those described under the heading “Risk Factors” included in our Annual Report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission on April 6, 2016.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report.  We undertake no obligation to revise any forward-looking statements in order to reflect events or circumstances that may subsequently arise.  Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the Commission that advise interested parties of the risks and factors that may affect our business.

2

PART I. – FINANCIAL INFORMATION

Item 1.

Financial Statements

TALON REAL ESTATE HOLDING CORP.

Minneapolis, Minnesota

FINANCIAL STATEMENTS

TABLE OF CONTENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015

	Page
Condensed Consolidated Financial Statements
Condensed Consolidated Balance Sheets	4
Condensed Consolidated Statements of Operations	5
Condensed Consolidated Statements of Cash Flows	6
Notes to Condensed Consolidated Financial Statements	7

3

TALON REAL ESTATE HOLDING CORP.

CONDENSED CONSOLIDATED BALANCE SHEETS

September 30, 2016 and December 31, 2015

	September 30, 2016		December 31, 2015
	(unaudited)
ASSETS
Land and improvements	$	8,165,000	$	8,165,000
Building and improvements		53,313,302		53,285,277
Equipment, furniture and fixtures		28,864		28,864
Total property and equipment		61,507,166		61,479,141
Less: accumulated depreciation		(7,852,526)		(5,881,183)
Net property and equipment		53,654,640		55,597,958
Cash		184,332		340,385
Rents and other receivables, net		387,696		375,351
Prepaid expenses and other assets		229,796		158,284
Restricted escrows and reserves		3,175,992		2,139,180
Deferred leasing costs, net		2,574,109		3,035,853
Intangible assets, net		6,032,527		7,742,145
TOTAL ASSETS	$	66,239,092	$	69,389,156
LIABILITIES
Notes payable	$	52,891,759	$	51,286,384
Less: unamortized deferred financing costs		(472,672)		(969,527)
Notes payable, net		52,419,087		50,316,857
Notes payable - related party		-		500,000
Accounts payable		5,915,052		5,406,648
Tenant improvement allowance		7,760,995		7,760,995
Accrued expenses and other liabilities		1,826,033		1,453,078
Tenant security deposits		157,399		166,208
Deferred rent revenue		129,752		289,034
Prepaid rent		289,893		447,773
Accrued interest		854,738		528,129
Below-market leases, net		179,536		266,228
Mandatorily redeemable Operating Partnership preferred units		3,000,000		3,000,000
Total Liabilities		72,532,485		70,134,950
COMMITMENTS AND CONTINGENCIES (NOTE 9)
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred shares outstanding at $.001 par value; authorized 10,000,000 shares; none issued or outstanding as of both September 30, 2016 and December 31, 2015	$	-	$	-
Common shares outstanding at $.001 par value; authorized 90,000,000 shares; 17,607,680 and 17,057,680 issued and outstanding as of September 30, 2016 and December 31, 2015, respectively		17,607		17,057
Additional paid in capital		2,192,550		1,850,382
Accumulated loss		(13,016,729)		(9,218,803)
Total Talon Real Estate Holding Corp. shareholders’ equity (deficit)		(10,806,572)		(7,351,364)
Noncontrolling interests – Operating Partnership; 9,200,001 common units issued and outstanding as of September 30, 2016 and December 31, 2015		6,083,241		8,109,449
Noncontrolling interests – consolidated real estate entities		(1,570,062)		(1,503,879)
TOTAL SHAREHOLDERS’ EQUITY (DEFICIT)		(6,293,393)		(745,794)
TOTAL LIABILITIES & SHAREHOLDERS’ EQUITY (DEFICIT)	$	66,239,092	$	69,389,156

See accompanying notes to condensed consolidated financial statements.

4

TALON REAL ESTATE HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the three and nine months ended September 30, 2016 and 2015

(unaudited)

	For the Three Months Ended September 30,				For the Nine Months Ended September 30,
	2016		2015		2016		2015
REVENUE
Rent	$	1,807,865	$	1,895,656	$	5,510,286	$	5,672,192
Tenant reimbursement		897,805		908,373		2,697,053		2,799,242
Other income		94,203		36,185		211,210		327,799
Total Revenue		2,799,873		2,840,214		8,418,549		8,799,233
EXPENSES
General & administrative		447,089		110,783		911,088		434,414
Salary and compensation		288,191		177,434		847,229		579,996
Professional		245,762		177,387		698,960		575,968
Property operating expenses		1,130,767		1,344,288		3,353,160		3,903,016
Real estate taxes & insurance		443,111		400,167		1,333,554		1,209,662
Depreciation and amortization		1,220,070		1,261,182		3,675,862		3,774,346
Total Expenses		3,774,990		3,471,241		10,819,853		10,477,402
Operating Loss		(975,117)		(631,027)		(2,401,304)		(1,678,169)
Interest expense		(1,237,722)		(1,207,617)		(3,489,012)		(3,404,747)
NET LOSS		(2,212,839)		(1,838,644)		(5,890,316)		(5,082,916)
Net loss attributable to noncontrolling interest - Operating Partnership		759,446		632,201		2,026,208		1,750,354
Net loss attributable to noncontrolling interests - consolidated real estate entities		12,670		34,418		66,182		90,175
NET LOSS ATTRIBUTABLE TO TALON REAL ESTATE HOLDING CORP.	$	(1,440,723)	$	(1,172,025)	$	(3,797,926)	$	(3,242,387)
Loss per common share basic and diluted	$	(0.08)	$	(0.07)	$	(0.22)	$	(0.20)

See accompanying notes to condensed consolidated financial statements.

5

TALON REAL ESTATE HOLDING CORP.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the nine months ended September 30, 2016 and 2015

(unaudited)

	Nine months ended September 30,
	2016		2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(5,890,316)	$	(5,082,916)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization		3,850,285		3,945,500
Amortization of deferred financing costs		433,475		875,285
Stock-based compensation expense		342,718		135,685
Provision for doubtful accounts		36,485		78,298
Deferred financing costs		168,253		-
Changes in operating assets and liabilities:
Rents and other receivables		(48,830)		(60,729)
Prepaid expenses and other assets		(71,512)		292,457
Deferred leasing costs		-		(76,686)
Accounts payable		1,578,988		100,983
Accrued expenses and other liabilities		584,655		268,040
Tenant security deposits		(8,809)		(12,390)
Deferred rent revenue		(159,282)		123,785
Prepaid rent		(157,880)		(5,535)
Accrued interest		459,449		150,486
Net cash flows from operating activities		1,117,679		732,263
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for acquisition or improvements of real estate assets		-		(1,007,853)
Deposits made for future acquisitions		-		(320,000)
Deposits to restricted escrows and reserves		(2,143,733)		(2,298,682)
Payments from restricted escrows and reserves		1,106,921		1,721,929
Net cash flows from investing activities		(1,036,812)		(1,904,606)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable		305,993		3,000,000
Principal payments on notes payable		(442,006)		(1,393,071)
Deposits or cash paid for financing costs		(100,907)		(424,850)
Net cash flows from financing activities		(236,920)		1,182,079
Net Change in Cash		(156,053)		9,736
CASH - BEGINNING OF PERIOD		340,385		147,157
CASH - END OF PERIOD	$	184,332	$	156,893
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Purchases of building and land improvements included in accounts payable	$	27,534	$	9,165,924
Leasing and financing fees included in accounts payable and other liabilities		9,938		2,209,343
Issuance of common stock included in financing costs		-		575,000
Accounts payable converted to notes payable		1,241,388		-
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest on mortgages and Operating Partnership preferred units	$	2,728,928	$	2,378,976

See accompanying notes to condensed consolidated financial statements.

6

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

Talon Real Estate Holding Corp. (“TREHC”) previously established an Operating Partnership (“Talon OP”) and transferred all of its assets and liabilities to the operating partnership in exchange for general partnership units.  As the sole general partner of Talon OP we have the exclusive power to manage and conduct the business and affairs for the operating partnership.  TREHC owned approximately 66% and 65% of the Operating Partnership as of September 30, 2016 and December 31, 2015, respectively.  The Operating Partnership owned 49% of 5130 Industrial Street, LLC, 100% of Talon Bren Road, LLC, 100% of Talon First Trust, LLC, and 100% of Talon RE as of September 30, 2016 and December 31, 2015.  Talon Bren Road, LLC, and Talon First Trust, LLC both limited liability companies organized under the laws of the state of Delaware, were formed on May 9, 2014 and April 21, 2014, respectively, to purchase real estate. Talon Real Estate, LLC (“Talon RE”) was incorporated in the state of Minnesota on December 20, 2012 and began operations in 2013 for the purpose of acquiring real estate properties.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X.  Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements.  In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our consolidated financial position as of September 30, 2016 and our condensed consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015, and our condensed consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015, as applicable.  These adjustments are of a normal recurring nature.

The accompanying condensed consolidated financial statements include the accounts of TREHC and its interest in the Operating Partnership. The limited partners in the Operating Partnership have a redemption option that they may exercise. Upon exercise of the redemption option by the limited partners, the Company has the choice of redeeming the limited partners' interests ("Units") for TREHC common shares of stock on a one-for-one basis, or making a cash payment to the unit holder.The redemption generally may be exercised by the limited partners at any time after the first anniversary of the date of the acquisition of the Units subject to volume restrictions.

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2015, which have previously been filed with the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted from this report on Form 10-Q pursuant to the rules and regulations of the SEC.

The results for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying condensed consolidated balance sheet as of September 30, 2016 and condensed consolidated statements of operations and condensed consolidated statements of cash flows for the three and nine months ended September 30, 2016 and 2015, as applicable, have not been audited by our independent registered public accounting firm.

NOTE 2 – INVESTMENT IN REAL ESTATE PROPERTIES AND ENTITIES

The Company acquired real estate property through its subsidiary, Talon First Trust, LLC, located at 180 5th Street East, St. Paul, MN on July 2, 2014.  The building is primarily leased to tenants for commercial and government use.  The property totals 659,577 net rentable square feet.  As of September 30, 2016, the Company had tenants occupying approximately 60% of the rentable space.  In April 2015, the Company executed a lease for a significant new tenant that would increase the occupancy by over 21% in the St. Paul building upon commencement of the lease (see Note 9).

7

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 2 – INVESTMENT IN REAL ESTATE PROPERTIES AND ENTITIES (continued)

The Company acquired real estate property through its subsidiary, Talon Bren Road, LLC, located on 20 acres of land at 10301 Bren Road West, Minnetonka, MN on May 29, 2014.  This property is primarily leased to tenants who are wholesale product sales representatives.  These leases are subject to a master lease agreement entered into between Talon Bren Road, LLC and Upper Midwest Allied Gifts Association, Inc., a Minnesota nonprofit corporation (“UMAGA”).  This property has 164,472 net rentable square feet.  As of September 30, 2016, the Company had 100% of the rentable space leased.

The Company owns and operates the following real estate properties through its subsidiary, 5130 LLC:

5130 Industrial Street, Maple Plain, MN

1350 Budd Ave, Maple Plain, MN

The properties are primarily leased to tenants for mixed commercial and industrial usage.  The properties have a combined 171,639 net rentable square feet.  As of September 30, 2016, the Company had tenants occupying approximately 85% of the rentable space.

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to use estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Significant items subject to such estimates and assumptions include determination of the useful life of property and other long-lived assets, valuation and impairment analysis of property and other long-lived assets, and valuation of the allowance for doubtful accounts. It is at least reasonably possible that these estimates could change in the near term.

Principles of Consolidation

We evaluate the need to consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation.  In determining whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions, contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity for which we are the primary beneficiary.  The accompanying condensed consolidated financial statements include the accounts of Talon Real Estate Holding Corp. (“TREHC”) and Talon OP, our Operating Partnership, and all subsidiaries in which it maintains a controlling interest.  Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to control the operating and financial decisions of 5130 LLC.  All significant intercompany balances have been eliminated in consolidation.

Cash

The Company considers short-term investments with original maturities of 90 days or less to be cash equivalents. The Company believes it is not exposed to any significant credit risk on cash.

Restricted Escrows and Reserves

The Company is required to hold cash in restricted escrow accounts for insurance, real estate taxes and a replacement reserve. The escrows are used to pay periodic charges of real estate taxes and assessments, tenant improvements, and leasing commissions. The balances in the escrow accounts were $3,175,992 and $2,139,180 as of September 30, 2016 and December 31, 2015, respectively.

8

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Rents and other Receivables

Rents receivable and deferred rent are recorded at their estimated net realizable value. The Company follows a policy of providing an allowance for doubtful accounts, which is based on a review of outstanding receivables, historical collection information, and existing economic conditions. The Company does not require collateral and accounts are considered past due if payment is not made on a timely basis in accordance with our credit terms. Accounts considered uncollectible are written off. Receivables have been reduced by an allowance for doubtful accounts of $129,330 and $93,560 as of September 30, 2016 and December 31, 2015, respectively.

Revenue Recognition

Base rental income is recognized on a straight-line basis over the terms of the related lease agreement, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rent income earned and base rent amounts due per the respective lease agreements are credited or charged to deferred rent revenue or deferred rent receivable as applicable.  When the Company enters into lease modifications or extensions with current tenants, the deferred rent at the time of the extension is amortized over the remaining term of the lease, and the revised terms are considered a new lease.

Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance and other operating expenses are billed monthly based on current year estimated operating costs for applicable expenses.  An additional billing or a refund is made to tenants in the following year after actual operating expenses are determined.

Derivative Instruments

The Company records all derivative instruments on the balance sheet at fair value.  The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting.  If the Company does not apply hedge accounting, all changes in the fair value of derivatives are recognized directly in earnings in the period of change.  Currently, the Company has not elected hedge accounting treatment and all changes in fair value of the Company’s derivatives are recognized in current period earnings.

Deferred Leasing Costs and Tenant Allowance

Direct and indirect costs, including estimated internal costs and leasing commissions, associated with the leasing of real estate investments owned by the Company are capitalized as deferred leasing costs and amortized on a straight-line basis over the term of the related lease as amortization expense.  Unamortized costs are charged to expense upon the early termination of the lease. Costs associated with unsuccessful leasing opportunities are expensed.

9

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Deferred Leasing Costs and Tenant Allowance (continued)

In leasing tenant space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance as building improvements and depreciates it over the shorter of the useful life of the leasehold improvements or the related lease term.  For tenant allowances committed at lease inception and recorded as building improvements but not yet performed or completed, the corresponding liability will be recorded as tenant improvement allowance payables.  If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, for accounting purposes, the tenant allowance is considered to be a lease incentive and is capitalized as a deferred leasing cost and is amortized over the lease term as a reduction of rental revenue on a straight-line basis. The Company had amortization expense for tenant allowances of $260,552 and $793,279 for the three and nine months ended September 30, 2016, respectively, and $272,852 and $779,461 for the three and nine months ended September 30, 2015, respectively.  The Company had accumulated amortization for tenant allowances of $2,620,180 and $1,826,901 as of September 30, 2016 and December 31, 2015, respectively.  The Company had amortization expense for deferred leasing costs of $73,320 and $220,302 for the three and nine months ended September 30, 2016, respectively, and $79,682 and $232,788 for the three and nine months ended September 30, 2015, respectively.  The Company had accumulated amortization for deferred leasing costs of $704,323 and $484,021 as of September 30, 2016 and December 31, 2015, respectively.  As of September 30, 2016, the Company had deferred leasing costs and tenant allowances recorded as building improvements of $11,532,029 that did not have amortization expense in the three and nine months ended September 30, 2016 due to lease terms that have not commenced as of that date.

Deferred Financing Costs

Costs incurred in connection with obtaining financing are netted against notes payable and are being amortized on a straight-line basis over the financing term and are included in interest expense. During the three and nine months ended September 30, 2016, the Company expensed $103,090 and $450,614, respectively, related to deferred financing costs associated with unsuccessful refinancing efforts. The Company had amortization expense of $121,094 and $433,475 for the three and nine months ended September 30, 2016, respectively, and $325,531 and $875,285 for the three and nine months ended September 30, 2015, respectively.  The Company had accumulated amortization of $1,936,370 and $1,502,895 as of September 30, 2016 and December 31, 2015, respectively.

Real Estate Property and Fixed Assets

Investment in real estate and fixed assets with a useful life of longer than one year are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction and tenant allowances and improvements. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible assets (including land, buildings and personal property) determined by valuing the property as if it were vacant, and identifiable intangibles based on their relative fair values.  Acquisitions of real estate are recorded based upon preliminary allocations of the purchase price to management’s assessment of the fair value of tangible and intangible assets and any assumed liabilities acquired which are subject to adjustment as additional information is obtained up to one year after the date of acquisition. Management’s fair value assessment includes the use of readily accepted fair value techniques such as discounted cash flow analysis and comparable sales analysis including management’s reliance on independent market analysis.

10

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Real Estate Property and Fixed Assets (continued)

Depreciation is provided using the straight-line method over the estimated useful life of the assets for buildings and land improvements, and the term of the lease for tenant improvements. The estimated useful lives being used are as follows:

Land Improvements	3-15 years
Buildings	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

Repair and maintenance costs are expensed as incurred, whereas expenditures that improve or extend the service lives of assets are capitalized. Disposal and abandonment of improvements are recognized at occurrence as a charge to depreciation.

Intangible Assets or Liabilities

Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible assets and any significant intangible assets and liabilities (such as above- and below-market leases and value of acquired in-place leases), and any assumed liabilities, and allocates the purchase price based on these fair value assessments. The Company records intangible assets and liabilities acquired at their estimated fair value apart from goodwill for acquisitions of real estate. The Company amortizes identified intangible assets and liabilities based on the period over which the assets and liabilities are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease.  Above and below-market leases are amortized as a reduction in (addition to) rent revenue.The Company amortized $45,220 and $138,709 to rent revenue for above and below-market leases for the three and nine months ended September 30, 2016, respectively, and $48,415 and $166,954 for the three and nine months ended September 30, 2015, respectively. Amortization of other intangibles is recorded in depreciation and amortization expense.

Impairment of Long-Lived Assets

Long-lived assets, such as real estate property, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable.  An impairment loss would be recognized when the estimated future cash flows from the use and eventual disposition of the asset are less than the carrying amount of that asset. The Company did not recognize any impairment losses for either of the three and nine months ended September 30, 2016 or 2015.

Income Taxes

The Company accounts for income taxes under FASB ASC 740-10-30 which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carry forwards are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.

The Company's policy of accounting for uncertain tax positions is to recognize the tax effects from an uncertain tax position in the financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement with the relevant tax authority.  The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its consolidated balance sheet.

11

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Income Taxes (continued)

The Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2012. The Company is not currently under examination by any taxing jurisdiction. In the event of any future tax assessments, the Company has elected to record the income tax penalties as general and administrative expense and any related interest as interest expense in the Company's consolidated statements of operations.

Stock-based Compensation

The Company has granted restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan. Granted shares are considered issued and outstanding as of the date of the grants. Stock-based compensation is expensed on a straight-line basis over the vesting period and is valued at the fair value on the date of the grant.  The Company has recognized $145,150 and $342,720 of compensation expense for the three and nine months ended September 30, 2016, respectively, and $38,285 and $135,685 of compensation expense for the three and nine months ended September 30, 2015, respectively.

The Company may also issue common stock in exchange for goods or services of non-employees.  These shares are either fully vested at date of grant or vest over a certain period during which services are provided.  The Company expenses the fair market value of the services over the period in which they are received.

On February 10, 2015, the Company issued 460,000 shares of common stock valued at $575,000 to an unrelated party in exchange for such party’s guaranty of a loan which was obtained in the year ended December 31, 2015.  The value of the stock issued has been included as deferred financing costs in the consolidated balance sheet as of September 30, 2016 and December 31, 2015.  Financing costs of $0 and $47,917 related to this stock issuance were amortized to interest expense for the three and nine months ended September 30, 2016, respectively, and $143,750 and $383,333 for the three and nine months ended September, 30 2015, respectively.

Noncontrolling Interest

Interests in the Operating Partnership held by limited partners are represented by partnership common units of the Operating Partnership. The Company's interest in the Operating Partnership was 66.0% and 65.0% of the common units of the Operating Partnership as of September 30, 2016 and December 31, 2015, respectively. The Operating Partnership’s income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, syndication costs, and profits and losses are allocated to non-controlling interests in accordance with the terms of the Operating Partnership agreement.

The portion of membership interests in 5130 LLC not held by Talon OP is reported as noncontrolling interest.  Capital contributions, distributions, and profits and losses are allocated to the noncontrolling interest based on membership percentages and terms of the operating agreement.

Net Income (Loss) or Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period.  Diluted earnings per share is computed by dividing net income by the weighted average common and potential dilutive common shares outstanding in accordance with the treasury stock method.

12

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Net Income (Loss) or Earnings Per Share (continued)

The following is a reconciliation of the denominator of the basic net earnings per common share computation to the denominator of the diluted net earnings per common share computation for each of the periods presented:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2016	2015	2016	2015
Weighted average common shares outstanding - basic	17,251,136	16,716,934	16,980,771	16,578,942
Plus potentially dilutive common shares:
Unvested restricted stock	178,409	5,384	194,503	57,143
Weighted average common shares outstanding - diluted	17,429,545	16,722,318	,17,175,274	16,636,085

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation.  The reclassifications had no impact on net loss or shareholders’ equity.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This new standard will eliminate all industry-specific guidance and replace all current U.S. GAAP guidance on the topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Lease contracts are specifically excluded from the new accounting guidance.  This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40).  The amendments in this Update provide guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued).The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted.  The Company currently has disclosed certain matters relative to going concern in Note 15 but presently has not yet adopted the new guidance.

In April 2015, the FASB issued ASU No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs.   The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts.  The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update.  We adopted the accounting standards update as of January 1, 2016 with retrospective application to our December 31, 2015 Consolidated Balance Sheet. The effect of the adoption was to reclassify debt issuance from deferred financing costs, net of accumulated amortization, of $969,527 to a contra account as a deduction from the related notes payable.  There was no effect on our consolidated statements of operations and cash flows.

13

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

Recent Accounting Pronouncements (continued)

In September 2015, the FASB issued ASU 2015–16, Simplifying the Accounting for Measurement Period Adjustments. To simplify the accounting for adjustments made to provisional amounts, ASU 2015–16 requires that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.  In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The provisions of ASU 2015–16 are effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. We adopted this ASU effective January 1, 2016.  The adoption of ASU 2015-16 had no impact on our condensed consolidated balance sheets or results of operations, or cash flows.

During February 2016, the FASB issued ASU No. 2016-02, Leases. ASU No. 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is not expected to significantly impact the accounting for leases by lessors.  ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted.  Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that ASU No. 2016-02 will have on its results of operations, financial position and cash flows.

In March 2016, the FASB issued ASU No. 2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will reduce complexity in accounting standards related to share-based payment transactions, including, among others, (1) accounting for income taxes, (2) classification of excess tax benefits on the statement of cash flow, (3) forfeitures, and (4) statutory tax withholding requirements.  The ASU is effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. The Company is currently assessing the effect that ASU No. 2016-09 will have on its consolidated financial statements.

NOTE 4 – TENANT LEASES

The Company leases various commercial and industrial space to tenants over terms ranging from month-to-month to twelve years. Some of the leases have renewal options for additional terms. The leases expire at various dates from October 2016 to December 2027. Some leases provide for base monthly rentals and reimbursements for real estate taxes and common area maintenance.

The Company has the following future minimum base rentals on non-cancellable leases, including leases entered into subsequent to September 30, 2016:

2016	$	2,092,210
2017		8,027,637
2018		7,868,415
2019		6,997,191
2020		2,899,522
Thereafter		12,008,648
	$	39,893,623

14

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 4 – TENANT LEASES (continued)

Included in the above table are base lease payments due beginning January 1, 2018 totaling $15,627,822 for a significant tenant that has not occupied space yet but for which we have an executed lease agreement (Note 9).

NOTE 5 – NOTES PAYABLE

The following tables summarize the Company’s notes payable.

				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	September 30, 2016		December 31, 2015
Talon First Trust, LLC Mortgage (1)	Secured floating rate interest only	July 5, 2017	5.94%	$	32,000,000	$	32,000,000
Talon First Trust, LLC. – Promissory Note (2)	Unsecured fixed rate interest only	August 31, 2016	10.00%		1,008,908		481,934
Talon First Trust, LLC. – Promissory Note	Unsecured fixed rate interest only	See below (3)	10.00%		59,489		-
Talon First Trust, LLC. – Sale of Future Receivable (4)	See below (4)	See below (4)	(4)		131,467		-
Talon Bren Road, LLC Mortgage 1	Secured fixed rate	May 28, 2019	4.65%		10,926,861		11,123,773
Talon Bren Road, LLC Mortgage 2	Secured fixed rate interest only	March 1, 2017	16.00%		2,000,000		2,000,000
Talon Bren Road, LLC HVAC loan	Unsecured fixed rate	June 1, 2019	8.00%		91,508		111,797
Talon Bren Road, LLC Roof loan	Unsecured fixed rate interest only	June 1, 2019	8.00%		225,000		225,000
5130 Industrial Street, LLC Mortgage 1	Secured fixed rate	April 8, 2017	6.05%		4,000,456		4,049,859
5130 Industrial Street, LLC Mortgage 2	Secured fixed rate	April 8, 2017	12.75%		293,144		294,021
Talon OP, L.P. – Promissory Notes (5)	Unsecured fixed rate interest only	June 30, 2016	24.00%		1,000,000		1,000,000
Talon OP, L.P. – Promissory Notes	Unsecured fixed rate	July 31, 2017	3.00%		654,926		-
Talon OP, L.P. – Promissory Note             (see NOTE 6)	Unsecured fixed rate interest only	June 30, 2016	24.00%		500,000		-
				$	52,891,759	$	51,286,384
Less:  unamortized deferred financing costs					(472,672)		(969,527)
Notes payable, net				$	52,419,087	$	50,316,857

Related Party Notes Payable				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	June 30, 2016		December 31, 2015
Talon OP, L.P. Promissory Note – Related Party (see NOTE 6)	Unsecured fixed rate interest only	June 30, 2016	24.00%	$	-	$	500,000

(1)

Beginning January 2016, mechanics lien statements were filed upon the property at 180 E. Fifth Street for work completed to prepare the tenant space for a significant lease entered into on April 9, 2015.   Mechanics liens that remain undischarged of record after 60 days constitute an event of default under the loan agreements, permitting the lender to accelerate the indebtedness at its option.  On September 21, 2016 and October 20, 2016, mechanics lien holders filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligations to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.The lender is aware of this default and our refinancing efforts to cure it.  They are currently not exercising any remedies with respect to any defaults.

(2)

On November 16, 2015 the Company entered into a $481,934 unsecured promissory note with the Property Manager of Talon First Trust, LLC. The note satisfied the fees due under the Property Management Agreement for the period of March 2015 through December 2015 and had an original maturity date of December 31, 2015.  Subsequently, the Company extended the maturity date to February 15, 2016 and then to August 31, 2016 and increased the note by $471,974 for the fees incurred from January 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager (see Note 9). In July 2016, an additional $10,000 and $45,000 respectively was added to the principal balance of the note. The note bore interest at 8% annually from November 16, 2015 through June 30, 2016 and currently bears interest at 10% annually through maturity. On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded.   At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

(3)

The outstanding principal and applicable accrued interest is due in full upon sale or refinancing of the property at 180 E. Fifth Street in St. Paul.

(4)

On June 29, 2016 the Company received funds from two different sources totaling $235,993 for the sale of future receivables at the property located at 180 E. Fifth Street.  The agreements require payments totaling $352,305 over 120 days.  Per FASB ASC 470-10-25, which provides guidance on funds received from sales of future receivables, this transaction has been classified as debt and included in notes payable.  The agreements are guaranteed by a shareholder of the Company.

15

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 5 – NOTES PAYABLE (continued)

(5)

On January 12, 2015 and May 19, 2015, respectively, the Company entered into two separate $500,000 unsecured promissory notes with the same unrelated party. The notes bore interest at 14% annually and had an original maturity date of June 30, 2015 and July 18, 2015, respectively.  In 2015, the Company extended the maturity dates of both notes to December 31, 2015.  The notes bore interest of 20% annually from July 1, 2015 and July 19, 2015, respectively, through October 31, 2015.  Subsequently, the Company extended the maturity dates of both notes to the earlier of, the disposition or refinancing of the property at 180 E 5th Street in St. Paul or June 30, 2016.  The notes will bear interest at 24% annually from November 1, 2015 through June 30, 2016.  The maturity date has not been extended and the note is due and payable in full. On September 24, 2016, the unrelated party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded.  At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

The Company is required to make the following principal payments on our outstanding notes payable for each of the five succeeding fiscal years and thereafter as follows:

	Amount
2016	$	34,800,951
2017		7,231,444
2018		322,112
2019		10,537,252
	$	52,891,759

The Company is required to periodically fund and maintain escrow accounts to make future real estate tax and insurance payments, as well as to fund certain capital expenditures.

The Company’s mortgage assumed by Talon Bren Road, LLC in connection with the acquisition of the property at Bren Road includes a restrictive covenant that requires Talon Bren Road, LLC to maintain a minimum debt service coverage (“DSCR”) before distributions of 1.35:1.00 and after distributions of 1:05:1.00 as of the last day of each calendar year.  As of December 31, 2015, Talon Bren Road LLC was out of compliance with the DSCR test.  An amendment to the loan agreement as well as waiver of the DSCR default for the December 31, 2015 test date was subsequently executed.  The loan agreement was amended to include a minimum Senior Debt Service Coverage Ratio (pre-distributions) of not less than 1.50:1.00.  It also amended and restated the minimum Debt Service Coverage Ratio before distributions of not less than 1.20:1.00 as of the last day of each calendar year commencing after December 31, 2015.

The Company’s mortgage entered into by Talon First Trust, LLC in connection with the property at 180 E. Fifth Street, St. Paul, Minnesota includes a financial covenant that requires the Company to maintain a net worth that equals or exceeds $30 million and cash and marketable securities equal to or greater than $3 million as of December 31, 2015 through the remaining term of the loan. The loan agreement allows the Company 30 days following any failure in which to satisfy this financial covenant or provide an individual or entity acceptable to lender as another guarantor on the loan and of the environmental indemnity obligations. Failure to satisfy the covenant would constitute an event of default under the terms of the loan.  The Company (as well as Talon OP, L.P.) is a guarantor of the loan entered into by Talon First Trust, LLC and an indemnitor of Talon First Trust, LLC’s environmental obligations in connection with the property at 180 E. Fifth Street, St. Paul, Minnesota.  The lender has accepted Mr. Kaminski as an additional guarantor pursuant to the Joinder Agreement dated March 30, 2016.  Although Mr. Kaminski has executed a joinder agreement adding himself as an additional guarantor on the loan, the lender has reserved all rights, remedies and recourses available to it for any event of default whether arising prior or after the date of the agreement.  There is no assurance that the financial covenants will be satisfied in the future.  As such, the Company has included the full outstanding balance of the loan in the principal amounts due in 2016 in the table above.

16

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 6 – TRANSACTIONS WITH RELATED PARTIES

On August 12, 2014, the Company entered into a $500,000 unsecured promissory note with one of its directors. The note bore interest at 14% annually and had an original maturity date of February 8, 2015.  Proceeds from this note paid off additional notes entered into on December 30, 2013 and March 7, 2014, respectively, for $100,000 each, with the same party.  In 2015, the Company extended the maturity date of the note to December 31, 2015.  The note bore interest at 20% annually from July 1, 2015 through September 30, 2015.  Subsequently, in 2016 the Company extended the maturity date of the note to the earlier of, the disposition or refinancing of the property at 180 E. Fifth Street in St. Paul or June 30, 2016. The maturity date has not been extended and the note is due and payable in full.  The note will bear interest at 24% annually from November 1, 2015 through the date payment is made in full. The Company incurred $30,246 and $90,082 of interest expense for the three and nine months ended September 30, 2016, respectively, and  $25,206 and $59,918 for the three and nine months ended September 30, 2015, respectively.  Accrued interest on the note was $207,479 and $117,397 as of September 30, 2016 and December 31, 2015, respectively.  The Company did not pay any interest on the current note for the three and nine months ended September 30, 2016 and 2015, respectively.  The note agreement provides that the Company will not make any distributions, dividends or payments to any of their equity shareholders other than to preferred unit holders.  On September 16 the party terminated their affiliation with the Company and is no longer a related party. On October 18, 2016, the party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

NOTE 7 – CONCENTRATIONS

The Company has three tenants that rent approximately 31% of the Company’s total rentable space as of September 30, 2016 with base rent representing 64% and 63% of total base rent revenues for the three and nine months ended September 30, 2016, respectively.  For the same periods in 2015, the same three tenants rented approximately 31% of the space, with base rent representing 61% and 62%, respectively, of the total base rent revenues.  The largest tenant currently rents approximately 12% of the Company’s rentable space. The Company had two parties who accounted for 86% and 90% of the total rent and other receivables balance as of September 30, 2016 and December 31, 2015, respectively.

NOTE 8 – RESTRICTED ESCROWS AND RESERVES

According to the terms of the Company's notes payable agreements (Note 5), the Company is required to make monthly and quarterly deposits to various escrow and reserve accounts for the payment of real estate taxes, tenant improvements and leasing commissions. The Company had $3,175,992 and $2,139,180 in restricted escrows and reserve accounts as of September 30, 2016 and December 31, 2015, respectively.

NOTE 9 – COMMITMENTS AND CONTINGENCIES

On June 7, 2013, Talon RE, entered into a contribution agreement with the remaining interest holder of 5130 LLC pursuant to which it will acquire the remaining 51% interest in 5130 LLC in exchange for 2,820,810 shares of our common stock, subject to receiving consent to the transfer from 5130 LLC’s lender.

The Company entered into a property lease agreement relating to rental of office space. This non-cancellable lease has a remaining term of 45 months. The lease is subject to periodic adjustments for operating expenses. The future net minimum rental payments for this lease are as follows:

Years ending December 31,
2016	$	13,170
2017		53,178
2018		84,664
2019		89,187
2020		45,876
	$	286,075

17

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

The Company entered into a Contribution Agreement dated May 29, 2014 with Bren Road, LLC, the contributor of the property acquired through our subsidiary, Talon Bren Road, LLC.  The agreement provides for any deficit in achieving $1,560,000 of net operating income (“NOI”) per year for the first three years to be funded by Bren Road, LLC. The Company recognized $24,348 and $65,470 of income under this agreement for the three and nine months ended September 30, 2016, respectively, and ($22,904) and $128,068 for the three and nine months ended September 30, 2015, respectively.The Company has filed a complaint in the State of Minnesota on June 10, 2016 to enforce the Contribution Agreement.  The defendant has responded and filed a counterclaim against Talon Bren Road, LLC and Talon OP, LP on July 7, 2016 to which the Company has responded.  Amounts due but unpaid under the Contribution Agreement are included in accounts receivable.

The Company entered into a consulting agreement dated May 29, 2014 with Gerald Trooien (“Consultant”).  This agreement provides for consulting services to Talon Bren Road, LLC for $43,750 per month payable beginning August 15, 2014 and continuing for 59 months thereafter.  The agreement will terminate upon the occurrence of any of the following:

a.

redemption or conversion of all limited partnership units held by Bren Road, LLC,

b.

sale by Bren Road of any of its partnership units in Talon OP, L.P.,

c.

payment to Bren Road of any dividends in respect to Bren Road’s interest in Talon, and

d.

the Company qualifies as a real estate investment trust (REIT).

The consulting agreement provides for a reduction of the monthly consulting fees upon potential receipt of funds by the Consultant from a subsequent mortgage financing.

The Company incurred $106,820 and $393,750 of consulting expenses for the three and nine months ended September 30, 2016, respectively, $131,250 and $393,750 of expenses for the three and nine months ended September 30, 2015, respectively. The Company had amounts due of $383,750 and $45,938 as of September 30, 2016 and December 31, 2015, respectively.

The Company entered into a Property Management Agreement dated July 2, 2014 with Swervo Management Division, LLC (“Property Manager”). This agreement provides for management and other leasing duties for Talon First Trust, LLC for monthly payments of 7.5% of the monthly gross rental receipts at the property beginning July 2, 2014 and continuing for 59 months thereafter.  The agreement will terminate upon the occurrence of any of the following:

a.

the sale of property by the property owner,

b.

any non-monetary breach of any term or condition in the Property Management Agreement by either party not cured within 60 days of written notice of breach, and

c.

the date the principal and interest on the property note in aggregate principal amount of $33,000,000 by RCC Real Estate Inc, has been paid in full.

The Company incurred $143,862 and $434,555 of expenses for the three and nine months ended September 30, 2016, respectively, and $180,580 and $464,984 for the three and nine months ended September 30, 2015, respectively. The Company as of September 30, 2016 had $106,936 due and had $0 due as of December 31, 2015. On January 7, 2016, the Company entered into a $584,937 unsecured promissory note with the Property Manager in satisfaction of the fees for the period of March 2015 through January 2016 and which amends the note dated November 16, 2015 for $481,934 and extended the maturity date to February 15, 2016.  Subsequently, the Company extended the maturity date to August 31, 2016 and increased the note by $368,971 for the fees incurred from February 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager. On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded.   At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

18

TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 9 – COMMITMENTS AND CONTINGENCIES (continued)

On April 9, 2015, the Company entered into a significant lease arrangement with a new tenant.  As part of the lease agreement, the Company incurred an obligation for lease incentives up to approximately $8.2 million.  As of September 30, 2016, the Company had recorded $216,770 to building improvements and $7,760,995 to tenant improvement allowance payable related to this commitment.  On April 1, 2016, the tenant provided notice asserting a right to terminate the lease based on certain alleged defaults related to the completion and delivery of the building and tenant improvements under the lease On June 1, 2016, the tenant filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the lease and asserting certain rights to terminate the lease.  The Company has responded to the complaint to enforce the lease.  At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

On August 31, 2015, the Company amended a lease arrangement with an existing tenant.  As part of the lease agreement, the Company incurred an obligation for lease incentives up to approximately $252,000.  On June 30, 2016, the Company reversed the remaining balance of $210,300 of deferred leasing incentives and corresponding payable as the tenant cancelled the leasing incentive offered in the lease. The Company had recorded leasing incentives payable of $0 and $235,500, within accrued expenses and other liabilities related to this commitment as of September 30, 2016 and December 31, 2015, respectively.

NOTE 10 – RESTRICTED STOCK

The Company has granted restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan.  The 2013 Equity Incentive Plan dated June 7, 2013 (the “Plan”) allows up to 1,500,000 shares to be issued and granted to employees, non-employee directors, and consultants and automatically increases on January 1 of each year by three percent of the outstanding shares of common stock as of December 31 of the immediately preceding year. Employee awards granted in 2013 vest monthly over 36 months provided the recipient remains an employee or consultant of the Company.  Awards granted in 2014 vest either immediately, monthly over a three year period, or monthly over a five year period.  Awards granted in June 2016 vest either immediately or in April 2017.  The Non-Employee Director Compensation Plan allows shares of restricted common stock to be granted to board members and is included under the Plan. The 2013 board member awards vest one-third of the shares on the date of grant, one-third on January 1 of the year following the date of grant, and one-third on January 1 of the second year following the date of grant, provided the recipient remains a member of the board as of the vesting date.  The 2014 awards vested immediately in March of 2014 and the 2016 awards vested half in June 2016 with the remainder to vest in April 2017.

As of September 30, 2016, the Company had granted 807,095 shares to employees and 480,000 shares to Directors under the Plan.

The following table sets forth a summary of restricted stock for the three and nine months ended September 30, 2016:

Total Restricted Stock	Number of Restricted Shares	Weighted-average Grant Date Fair Value
Granted and not vested, June 30, 2016	545,307	$	.83
Granted	-		-
Vested	(40,497)		0.69
Forfeited or rescinded	(398,363)		1.11
Granted and not vested, September 30, 2016	106,447	$	1.03
Total Restricted Stock	Number of Restricted Shares	Weighted-average Grant Date Fair Value
Granted and not vested, December 31, 2015	287,007	$	1.20
Granted	550,000		1.00
Vested	(332,197)		1.03
Forfeited or rescinded	(398,363)		1.11
Granted and not vested, September 30, 2016	106,447	$	1.03

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TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 10 – RESTRICTED STOCK (continued)

Total unrecognized compensation expense related to the outstanding restricted stock as of September 30, 2016 was $110,059, which is expected to be recognized over a weighted average period of 19 months.  The Company recognized $145,150 and $342,720 of stock-based compensation expense for the three and nine months ended September 30, 2016, respectively, and $38,285 and $135,685 for the three and nine months ended September 30, 2015, respectively, that is included in salary and compensation expense in the consolidated statements of operations.   The Company used 0% for both the discount factor and forfeiture rate for determining the fair value of restricted stock.  The Company has limited history to determine forfeiture trends and the Company considers the discount rate to be immaterial.

2013 Equity Incentive Plan Restricted Stock	Number of Restricted Shares
Authorized but not granted or issued, December 31, 2015	1,339,715
Authorized increase in Plan shares	511,730
Granted	(550,000)
Forfeited or rescinded	398,363
Authorized but not granted or issued, September 30, 2016	1,699,808

NOTE 11 – INTANGIBLE ASSETS AND LIABILITIES

The Company's identified intangible assets and liabilities at September 30, 2016 and December 31, 2015 were as follows:

	September 30, 2016		December 31, 2015
Identified intangible assets:r0
In-place leases	$	10,078,055	$	10,078,055
Above-market leases		1,832,939		1,832,939
Accumulated amortization		(5,878,467)		(4,168,849)
Net carrying amount	$	6,032,527	$	7,742,145
	September 30, 2016		December 31, 2015
Identified intangible liabilities:
Below-market leases	$	507,746	$	507,746
Accumulated amortization		(328,210)		(241,518)
Net carrying amount	$	179,536	$	266,228

The effect of amortization of acquired intangible assets and liabilities was $539,336 and $1,622,925, respectively, for the three and nine months ended September 30, 2016 and $562,698 and $1,774,922 for the three and nine months ended September 30, 2015, respectively. Above-market leases, included in intangible assets, are amortized as a reduction of rent revenue and totaled $74,118 and $225,402 for the three and nine months ended September 30, 2016, respectively, and $83,268 and $271,512 for the three and nine months ended September 30, 2015, respectively. Below-market leases are amortized as an addition to rent revenue and totaled $28,898 and $86,693 for the three and nine months ended September 30, 2016, respectively, and $34,853 and $104,558 for the three and nine months ended September 30, 2015, respectively.  Amortization of in-place leases was $494,117 and $1,484,217 for the three and nine months ended September 30, 2016, respectively, and $514,283 and $1,607,967 for the three and nine months ended September 30, 2015, respectively.  In-place leases, and above and below-market leases had a weighted average amortization period of 4.5 years in the year acquired.

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TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 11 – INTANGIBLE ASSETS AND LIABILITIES (continued)

The estimated annual amortization of acquired intangible assets and liabilities for each of the five succeeding fiscal years is as follows:

Years ending December 31,
	Assets		Liabilities
2016 (remaining 3 months)	$	566,924	$	28,898
2017		2,247,503		113,849
2018		1,654,921		36,789
2019		1,175,159		-
2020		388,020		-
	$	6,032,527	$	179,536

NOTE 12 – HEDGING ACTIVITIES

The Company may use derivative instruments as part of its interest rate risk management strategy to minimize significant unanticipated earnings fluctuations that may arise from variable interest rates associated with existing borrowings.  On July 2, 2014, the Company entered into an interest rate cap contract for the notional amount of $33 million with a strike rate of 2.5% on one month LIBOR as a hedge for a floating rate debt entered into on that date.  The interest rate cap expired on July 5, 2016.  The interest rate cap was issued at approximate market terms and thus no fair value adjustment was recorded at inception.  The Company did not elect hedge accounting treatment for the rate cap and as such, changes in fair value are recorded directly to earnings.

NOTE 13 – MANDATORILY REDEEMABLE PREFERRED OPERATING PARTNERSHIP UNITS

On July 2, 2014, the Company issued 30,000 preferred units, at a price of $100 per unit, totaling $3,000,000.  These preferred unit holders are entitled to distributions at a rate of 6% per annum of their liquidation preference amount of $100 per unit which are cumulative from the date of issuance and are payable monthly (to the extent there are sufficient distributable proceeds).  On and after July 2, 2020, the Company shall redeem the units, in whole, at the liquidation preference price of $100 per unit, plus accrued and unpaid distributions.  There was $100,005 of preferred payments outstanding as of September 30, 2016.  The preferred units have been classified as a liability in the consolidated balance sheet as the preferred liquidation preference amount is mandatorily redeemable in specific amounts at specific dates in the future.  The liquidation preference amount totaled $3,000,000 as of September 30, 2016 and December 31, 2015.

NOTE 14 – SUBSEQUENT EVENTS

On January 28, 2016, Talon Bren Road, LLC, a subsidiary of Talon OP, L.P., which is the entity through which Talon Real Estate Holding Corp. conducts substantially all of its business, entered into a purchase and sale agreement with Timberland Partners, Inc.  Under the agreement, Talon Bren Road agreed to sell the property located at 10301 Bren Road West, Minnetonka, Minnesota to the buyer subject to a diligence period and other conditions of the purchase and sale agreement typical of a real estate transaction.  Pursuant to the agreement, in exchange for the property, the buyer paid Talon Bren Road a $100,000 initial deposit and was to pay $25,900,000 at closing, subject to adjustments as set forth in the purchase agreement.  The agreement was terminated by the buyer on November 1, 2016 following the due diligence period.

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TALON REAL ESTATE HOLDING CORP.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

As of September 30, 2016 and for the three and nine months ended September 30, 2016 and 2015 (unaudited)

NOTE 15 – GOING CONCERN

Liquidity is a measure of our ability to meet potential cash requirements, including commitments to repay borrowings, fund and maintain our operations and assets, acquire properties, make distributions to our shareholders and other general business needs. In the short-term, we have incurred significant expenses related to completing building and tenant improvements at our properties, and pursuing our acquisition strategy creating a cash shortfall through September 30, 2016.

Our short-term liquidity requirements consist primarily of funds needed to pay for operating expenses and other expenditures directly associated with our properties, pay off maturing debt, and to pursue our strategy of near-term growth through acquisition of properties as well as general and administrative expenses operating as a public company.

We currently do not have available cash and cash flows from current operations to provide us with adequate liquidity for the foreseeable future. Our current liabilities exceed our unrestricted cash and we have very limited cash flow from current operations.  As of September 30, 2016, we had unrestricted cash of $184,332 and current liabilities including tenant improvement allowances, unsecured debt, accounts payable and accrued expenses substantially in excess of the available cash.  We therefore will require additional capital and/or increased cash flow from future operations to fund our ongoing business. The loan secured by the property at 180 E. Fifth Street may be accelerated by the lender which would require refinancing or sale of the property.  We may also be unable to borrow or obtain sufficient funds for repayment on terms acceptable to us or at all, and our ability to obtain future financing may also be impacted negatively.

There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and future operations to fund our ongoing business. If the amount of capital we are able to raise together with our income from operations is not sufficient to satisfy our capital needs, we may be required to cease our operations or alter our growth plans.  If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment.

Although we plan to aggressively pursue acquisitions to grow our business there is no assurance that we will be able to acquire additional properties in the future or obtain the necessary financing to acquire such properties.

Since our available cash and cash flows from current operations do not provide us with adequate cash to satisfy current liabilities and do not provide us with adequate liquidity for the foreseeable future, we anticipate that we will undertake future debt or equity financings or if necessary, sell certain of our property holdings in 2016 and 2017.

In the future, we may use a number of different sources to finance our liquidity needs, including cash flows from operations, issuance of debt securities or equity securities (which might be common or preferred stock), private financings (such as additional bank credit facilities, which may or may not be secured by our assets), asset sales, seller financing, property-level mortgage debt, or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured.  We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, and other costs.  Although we have successfully raised equity capital in the past, we cannot be assured that we will be able to continue to be successful in raising capital through issuance of securities.  Our ability to obtain needed financing may be impaired by such factors as the capital markets, our status as a new enterprise without significant assets or demonstrated operating history, and/or the loss of key management.  There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and proposed operations to fund our ongoing business.

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Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion should be read in conjunction with the financial statements and related notes included elsewhere in this report. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015.  Forward-looking statements speak only as of the date they are made, and we undertake no obligation to update them in light of new information or future events.

Overview

We are a real estate investment company focused on investing in office, industrial and retail properties located in the Midwest and South Central regions of the United States.  We target properties located in the area bounded by Minnesota and Texas to the north and south, and by Illinois and Colorado to the east and west, although we will consider properties outside this target area if we identify attractive opportunities. We believe these markets are currently underserved in financing and market transaction options for which we can provide advantageous solutions. We believe the size and location of opportunities in this region will be a desirable fit for our real estate portfolio and can be pursued at attractive yields.

Our Current Property Interests

We currently own an interest in four properties located in and around the Minneapolis-St. Paul metropolitan area of Minnesota.

We own a 49% interest in an entity that owns an industrial complex consisting of two buildings with approximately 171,639 square feet located in the Minneapolis-St. Paul metropolitan area. We have entered into a contribution agreement to acquire the remaining interest in this entity, subject to receiving consent to the transfer from the entity’s lender.

We also own a 227,000 square foot building situated on 20 acres of land in Minnetonka, Minnesota and a 856,223 square foot thirteen-story office tower located in downtown St. Paul, Minnesota.  As of September 30, 2016 the combined occupancy for all of the buildings in our portfolio was 71%.   In April 2015, the Company executed a lease in the St. Paul building for a significant new tenant that would increase the occupancy of our portfolio by over 14% upon occupancy.

The following table sets forth information regarding our 5 largest tenants as of September 30, 2016.

Property Location (1)	Tenant Industry	Primary Use	Lease Expiration	Approx. Total Leased Square Feet	Percentage of Company's Rentable Square Feet	Base Rent for the nine months ended Sept. 30, 2016		Percentage of Company’s Total Base Rent for the nine months ended Sept. 30, 2016
180 E 5th Street, St. Paul, MN	Health Care	Office	4/30/2018	119,490	12%	$	1,364,382	23%
180 E 5th Street, St. Paul, MN	Government	Office	5/31/2020	89,130	9%	$	1,162,903	19%
180 E 5th Street, St. Paul, MN	Retail	Office	3/31/2020	102,577	10%	$	959,232	16%
5130 Industrial St, Maple Plain, MN	Construction	Industrial	2/28/2021	61,500	6%	$	164,854	3%
1350 Budd Ave, Maple Plain, MN	Construction	Industrial	2/28/2018	29,903	3%	$	81,533	1%

(1)

The two properties located in Maple Plain, MN lease approximately 15% of the Company’s rentable space and account for approximately 6% of the Company’s total base rent revenues for both the three and nine months ended September 30, 2016 and 5% for both the three and nine months ended September 30, 2015. The property located in Minnetonka, MN leases approximately 17% of the Company’s rentable space and accounts for approximately 19% and 18% of the Company’s total base rent revenues for the three and nine months ended September 30, 2016, respectively, and 18% for both the three and nine months ended September 30, 2015.  No major tenants are located at the property in Minnetonka, MN.  The property located in St. Paul, MN leases approximately 40% of the Company’s rentable space and accounts for approximately 76% of the Company’s total base rent revenues for both the three and nine months ended September 30, 2016 and 77% for both the three and nine months ended September 30, 2015.

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The future square feet expiring for all current leases, including leases entered into subsequent to September 30, 2016:

Years ending December 31,

	5130 Industrial St	1350 Budd Ave	10301 Bren Rd	180 E 5th St
	Maple Plain, MN	Maple Plain, MN	Minnetonka, MN	St. Paul, MN		Total
2016	56,215	-	24,810	2,910		83,935
2017	-	-	-	25,554		25,554
2018	-	29,903	-	134,787		164,690
2019	-	-	139,662	708		140,370
2020	-	-	-	223,094		223,094
Thereafter	59,500	-	-	147,125	(1)	206,625
	115,715	29,903	164,472	534,178		844,268

(1)

On April 1, 2016, the Company received a notice asserting a right to terminate the lease for 141,109 square feet pursuant to certain alleged defaults related to the completion and delivery of the building and tenant improvements under the lease.  The Company is responding to the suit to enforce the lease.

Management may periodically sell certain properties including core income-producing and value-added properties for various reasons based on individual circumstances and opportunities.  Proceeds from the sale of such properties may be used to repay related property debt, pay transaction expenses, acquire or invest in other properties and for general corporate purposes including satisfying existing liabilities.

Factors That May Influence Our Operating Results

Acquisition Strategy. We plan to grow our business through the acquisition of new properties, initially targeting properties that meet the criteria described above under “Overview” and elsewhere in this report. We expect the properties we acquire will be subject to mortgage financing and other indebtedness that we will assume or refinance. Debt service on such indebtedness will have a priority over any distributions with respect to our common stock.

Rental Revenue. The amount of net rental revenue generated by our properties depends primarily on our ability to maintain the occupancy rates of currently leased space and to lease space that becomes available. As of September 30, 2016, our properties were 71% leased. We believe that the average rental rates for our properties are generally equal to the current average quoted market rates.  Negative trends in one or more of these factors such as a decrease in rental rates or a decrease in demand for our properties could adversely affect our rental revenue in future periods. Future economic downturns affecting the Minneapolis-St. Paul metropolitan area or downturns in our tenants’ businesses that impair our ability to renew leases or re-let space or the ability of our tenants to fulfill their lease commitments could adversely affect our revenues. In addition, growth in rental revenue primarily will depend on our ability to acquire additional properties that meet our investment criteria.

Conditions in Our Markets. Our current properties are located in the Minneapolis-St. Paul metropolitan area. Positive or negative changes in economic or other conditions in this area, or areas in our prospective proprieties, including employment and wage rates, natural disasters and other factors, may impact our overall performance.  Our ability to grow in our broader market throughout our region may also be impacted by these factors.

Operating Expenses. Our operating expenses primarily consist of property taxes, management fees, utilities, insurance and site maintenance costs. As of September 30, 2016, some of our leases required tenants to reimburse us for a share of our operating expenses. Increases or decreases in any unreimbursed operating expenses, either due to the nature of the expenses not requiring reimbursement from our tenants or due to a reduction in leased square footage requiring tenant reimbursement of a portion of our operating expenses, will impact our overall performance. Legal fees incurred in 2016 and 2015 were significant due to the Company’s acquisition and refinancing activities, as well as litigation expenses.  We expect an increase in legal fees associated with these activities and business matters customary to a public real estate holding company, as well as our ongoing litigation.

Interest Expense. Our interest expense will depend on the amounts we borrow as well as the interest rates charged by our lenders. Our current loan agreements are a mix of both fixed and floating rates, as well as secured and unsecured by our properties. Our aggregate interest expense may increase as we acquire properties and could fluctuate between periods based on the variable rate loan arrangements, if we do not hedge any such interest rate risk.

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Critical Accounting Policies and Estimates

Our discussion and analysis of the historical financial condition and results of our operations are based upon our financial statements which have been prepared in accordance with U.S. generally accepted accounting principles, or GAAP.

The preparation of these condensed consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions in certain circumstances that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses in the reporting period. Actual amounts may differ from these estimates and assumptions. We have provided a summary of our significant accounting policies in the notes to the consolidated financial statements of our company elsewhere in this report. We have summarized below those accounting policies that require material subjective or complex judgments and that have the most significant impact on our financial condition and results of operations. We evaluate these estimates on an ongoing basis, based upon information currently available and on various assumptions that we believe are reasonable as of the date hereof. Other companies in similar businesses may use different estimation policies and methodologies, which may impact the comparability of our results of operations and financial condition to those of other companies.  There have been no significant changes to those policies during the three and nine months ended September 30, 2016.

Investment in Real Estate and Fixed Assets

Investment in real estate and fixed assets are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction, and tenant allowances and improvements. Maintenance and repairs are expensed as incurred, and major improvements are capitalized. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible asset and identifiable intangibles based on their relative fair values. We assess fair value based on estimated cash flow projections that utilize appropriate discount and/or capitalization rates and available market information. Estimates of future cash flows are based on a number of factors including historical operating results, known and anticipated trends, and market economic conditions.

We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible assets (including land, buildings and personal property) determined by valuing the property as if it were vacant, and identifiable intangibles based on their relative fair values.  Acquisitions of real estate are recorded based upon preliminary allocations of the purchase price to management’s assessment of the fair value of tangible and intangible assets and any assumed liabilities acquired which are subject to adjustment as additional information is obtained up to one year after the date of acquisition.  Adjustments to preliminary allocations of purchase price are adjusted prospectively when all information necessary to determine the relative fair values has been received.

Depreciation is provided using the straight-line method over the estimated useful life of the assets for building, improvements, and furniture and equipment, and the term of the lease for tenant improvements. The estimated useful lives being used are as follows:

Land Improvements	3-15 years
Building	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

Intangible Assets

Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible assets and any significant intangible assets (such as above- and below-market leases and value of acquired in-place leases), and any assumed liabilities, and allocates the purchase price based on these fair value assessments. The Company amortizes identified intangible assets and liabilities based on the period over which the assets and liabilities are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease. Above and below-market leases are amortized as a reduction in (addition to) rent revenue. Amortization of other intangibles is recorded in depreciation and amortization expense.

Principles of Consolidation

We evaluate the need to consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation.  In determining whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of that entity, management considers factors

25

such as ownership interest, authority to make decisions, contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity for which we are the primary beneficiary.  The accompanying consolidated financial statements include the accounts of Talon Real Estate Holding Corp. (“TREHC”) and Talon OP, our Operating Partnership.  Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to control the operating and financial decisions of 5130 LLC.  All significant intercompany balances have been eliminated in consolidation.

Noncontrolling Interest

Interests in the Operating Partnership held by limited partners are represented by Operating Partnership units. The Company's interest in the Operating Partnership was approximately 65% of the common units of the Operating Partnership as of September 30, 2016 and December 31, 2015. The Operating Partnership’s income is allocated to holders of common units based upon the ratio of their holdings to the total units outstanding during the period. Holders of preferred units receive certain distributions based on a percentage of the liquidation preference. Capital contributions, distributions, syndication costs, and profits and losses are allocated to non-controlling interests in accordance with the terms of the Operating Partnership agreement.

The portion of membership interests in 5130 LLC not held by Talon OP is reported as noncontrolling interest.  Capital contributions, distributions, and profits and losses are allocated to the noncontrolling interest based on membership percentages and terms of the operating agreement.

Revenue Recognition

Base rental income is recognized on a straight-line basis over the terms of the related leases, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rental income earned and amounts due according to the respective lease agreements are credited or charged to deferred rent receivable, as applicable.

Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance and other operating expenses are recognized as revenue in the period the applicable expenses are incurred. Recoveries are billed monthly using estimated operating costs and an additional billing or a refund is made to tenants in the following year after actual operating expenses are determined.

Accounting Standards Applicable to Emerging Growth Companies

We qualify as an “emerging growth company” pursuant to the provisions of the JOBS Act. Section 102(b)(1) of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have elected to use the extended transition period for complying with these new or revised accounting standards. Since we will not be required to comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for other public companies, our financial statements may not be comparable to the financial statements of companies that comply with public company effective dates. If we were to elect to comply with these public company effective dates, such election would be irrevocable pursuant to Section 107 of the JOBS Act.

Significant Events and Transactions during the three months ended September 30, 2016

Summarized below are the Company’s significant transactions and events during the three months ended September 30, 2016.

On January 11, 2016, Talon OP, L.P., a Minnesota limited partnership and the entity through which Talon Real Estate Holding Corp. (the “Company”) conducts substantially all of its business, entered into an asset purchase agreement with LSOP 3 Joint Venture, LLC and LSOP 3C II, LLC.  Under the asset purchase agreement, Talon OP agreed to purchase from LSOP 3 Joint Venture and LSOP 3C II, LLC (a) the membership units in each of LSOP 3 REIT MN, LLC, LSOP 3 REIT MN 2, LLC, and LSOP 3 REIT MN 3, LLC, which own properties located at 6231-6325 Bury Drive, Eden Prairie, MN, 4600 Nathan Lane North, Plymouth, MN and 9600 54th Avenue North, Plymouth, MN, as well as (b) the properties located at 550-590 Hale Avenue North, Oakdale, MN, 7805 Hudson Road, Woodbury, MN, 7400 Flying Cloud Drive and 7660-7716 Golden Triangle Drive, Eden Prairie, MN, 5600-5610 Rowland Road, Minnetonka, MN, 2800 Campus Drive, 2905 Northwest Boulevard and 2955 Xenium Lane North, Plymouth, MN and 7550 Meridian Circle North, Maple Grove, MN for an aggregate purchase price of approximately $81 million.

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The agreement was terminated by the seller on September 7, 2016 as the transaction was not closed by September 1, 2016.  Pursuant to the agreement, Talon OP, along with its partners, previously paid a $750,000 deposit, which the seller has retained. Talon has expensed $300,000 of the total deposit, representing the amount not funded by other parties to the transaction.

On August 18, 2016, Eun Stowell, the Chief Financial Officer of Talon Real Estate Holding Corp., resigned her positions with the Company. Matthew G. Kaminski served as interim Chief Financial Officer until November 1, 2016, went Keith Gruebele was appointed as our Chief Financial Officer.

On September 16, 2016, Neil Brown and Curt Marks resigned from our board of directors.  On September 16, 2016, Marc P. Agar and Kristian G. Wyrobek were elected to our board of directors.  The new directors have been appointed to the audit committee and compensation committees of the board of directors.

On January 28, 2016, Talon Bren Road, LLC, a subsidiary of Talon OP, L.P., which is the entity through which Talon Real Estate Holding Corp. conducts substantially all of its business, entered into a purchase and sale agreement with Timberland Partners, Inc.  Under the agreement, Talon Bren Road agreed to sell the property located at 10301 Bren Road West, Minnetonka, Minnesota to the buyersubject to a diligence period and other conditions of the purchase and sale agreement typical of a real estate transaction.  Pursuant to the agreement, in exchange for the property, the buyer paid Talon Bren Road a $100,000 initial deposit and was to pay $25,900,000 at closing, subject to adjustments as set forth in the purchase agreement.  The agreement was terminated by the buyer on November 1, 2016 following the due diligence period.

Market Conditions and Outlook

Our last two acquisitions were accomplished utilizing a 721 Exchange tax deferral methodology similar to that of an “UPREIT” providing several unique advantages over a 1031 exchange or selling to cash buyers.   This strategy is advantageous for real estate owners seeking to mitigate and defer their immediate tax obligations, stay invested in real estate, diversify their holdings, and seek potential future growth and liquidity by accepting Talon OP common units which can later be converted 1:1 for Talon common stock under the ticker “TALR” and their capital gains tax obligations are deferred until then.

Our strategy is to continue offering these tax-deferred solutions to real estate owners as part of diversifying our shareholder base creating liquidity and shareholder value.  We continue to believe office and industrial properties offer the best return on equity metrics as part of our investment strategy.   Retail will also be part of our overall portfolio with an average overall target portfolio contribution of nearly 20% over the long-term.

The middle corridor of the United States continues to offer higher cap rates compared to the west and east coasts and we will continue to explore additional investment options within this region to continue our mission to provide return on equity targets of 8-15% per asset or portfolio.

Results of Operations

Our revenues and expenses have changed primarily due to increases in expenses is attributable to an increase in legal services related to our legal proceedings in 2016.  We expect our revenues, tenant reimbursements and many expenses will continue to increase on an absolute basis in the future as we seek to acquire additional properties, assume or refinance indebtedness in connection with the acquisitions and build the infrastructure necessary to grow our business.  In the near term, we expect to continue to incur higher legal and other professional fees in pursuit of potential acquisitions.

Three months ended September 30, 2016 compared to Three months ended September 30, 2015

Revenues and Expenses

Rental revenues decreased $87,791, or 4.6%, to $1,807,865 for the three months ended September 30, 2016, compared to $1,895,656 for the same period of the prior year.  The net rental revenues are relatively consistent with the same period in the prior year as the composition of our portfolio stayed the same with a slight decrease in base rents, due to some smaller tenant’s leases expiring at the Talon First Trust, LLC’s building.  

Tenant reimbursements decreased $10,568, or 1.2%, to $897,805 for the three months ended September 30, 2016 compared to $908,373 for the same period of the prior year. This difference is due to the net decrease in tenants paying operating expense reimbursements across the portfolio in 2016 compared to the same period in the prior year.

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General and administrative expenses increased $336,306, or 303.6%, to $447,089 for the three months ended September 30, 2016 compared to $110,783 for the same period of the prior year. The increase is primarily due to the expensing of a $300,000 deposit on a lost deal and expensing of previously deferred financing costs that were unsuccessful in 2016.

Salary and compensation expenses increased $110,757 or 62.4%, to $288,191 for the three months ended September 30, 2016 compared to $177,434 for the same period of the prior year. The increase in salary and compensation expense in the third quarter of 2016 is attributable to the true up of approximately $107,000 of the cost of the immediate vesting of non-cash stock compensation in the second quarter of 2016.

Professional fees increased $68,375, or 38.5%, to $245,762 for the three months ended September 30, 2016 compared to $177,387 for the same period of the prior year. The increase is primarily due to an increase in legal services related to our legal proceedings in the three months ended September 30, 2016 of approximately $89,000, offset by a decrease in consulting fees of approximately $24,000 compared to the same period of the prior year.

Property operating expenses decreased $213,521, or 15.9%, to $1,130,767 for the three months ended September 30, 2016 compared to $1,344,288 for the same period of the prior year. Approximately $83,000 of the decrease in these expenses is primarily attributable to the decrease in maintenance, security and janitorial personnel, provision for doubtful accounts decrease of approximately $69,000 and approximately $20,000 of the decrease is due to a decrease in utility costs across the portfolio for the three months in 2016 compared to the same period in 2015.

Real estate taxes and insurance increased $42,944 or 10.7%, to $443,111 for the three months ended September 30, 2016 compared to $400,167 for the same period of the prior year. The three months ending September 30, 2016 are in line with the annual increase in real estate taxes across the portfolio as the composition of our portfolio stayed the same.

Depreciation and amortization expense decrease by $41,112, or 3.3%, to $1,220,070 for the three months ended September 30, 2016 compared to $1,261,182 for the same period of the prior year. The decrease is primarily attributable to certain intangible assets expiring in correlation with the applicable leases.

Interest expense increased by $30,105, or 2.5% to $1,237,722 for the three months ended September 30, 2016 compared to $1,207,617 for the same period of the prior year. The increase is primarily attributable to an increase in interest expense of approximately $128,000 due to increased financing activity in the three-month period of 2016 compared to the same period in the prior year.  This was offset somewhat by the reduction of certain financing cost that expired in correlation with the terms of the applicable financing of approximately $225,000,

Nine months ended September 30, 2016 compared to nine months ended September 30, 2015

Revenues and Expenses

Rental revenues decreased $161,906, or 2.9%, to $5,510,286 for the nine months ended September 30, 2016, compared to $5,672,192 for the same period of the prior year.  The net rental revenues are relatively consistent with the same period in the prior year as the composition of our portfolio stayed the same with a slight decrease in base rents, due to some smaller tenant’s leases expiring at the Talon First Trust, LLC’s building.  

Tenant reimbursements decreased $102,189, or 3.7%, to $2,697,053 for the nine months ended September 30, 2016 compared to $2,799,242 for the same period of the prior year.  The net tenant reimbursements are relatively consistent with the same period in the prior year as the composition of our portfolio stayed the same with a slight decrease tenants paying operating expense reimbursements across the portfolio in 2016 compared to the same period in the prior year.

General and administrative expenses increased $476,674, or 109.7%, to $911,088 for the nine months ended September 30, 2016 compared to $434,414 for the same period of the prior year.  The increase is primarily due to the expensing of a $300,000 deposit on a lost deal and expensing of previously deferred financing costs that were unsuccessful in 2016.

Salary and compensation expenses increased $267,233, or 46.1%, to $847,229 for the nine months ended September 30, 2016 compared to $579,996 for the same period of the prior year. The increase in salary and compensation expense is attributable to the immediate vesting of non-cash stock compensation for awards granted in 2016.

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Professional fees increased $122,992, or 21.4%, to $698,960 for the nine months ended September 30, 2016 compared to $575,968 for the same period of the prior year. The increase is primarily due to an increase in legal services related to our legal proceedings in the nine months ended September 30, 2016 compared to the same period of the prior year.

Property operating expenses decreased $549,856, or 14.1%, to $3,353,160 for the nine months ended September 30, 2016 compared to $3,903,016 for the same period of the prior year. Approximately $300,000 of the decrease in these expenses is primarily attributable to the decrease in maintenance, security and janitorial personnel, provision for doubtful accounts decrease of approximately $69,000 and approximately $68,000 of the decrease is due to a decrease in utility costs across the portfolio for the first nine months in 2016 compared to the same period in 2015.  An additional $28,000 and $75,000 of the decrease is due to a non-recurring parking lot repair and non-recurring fees, respectively, recognized in the first nine months of 2015 compared to the same period in 2016.

Real estate taxes and insurance increased $123,892, or 10.2%, to $1,333,554 for the nine months ended September 30, 2016 compared to $1,209,662 for the same period of the prior year. The nine months ending September 30, 2016 are in line with the annual increase in real estate taxes across the portfolio as the composition of our portfolio stayed the same.

Depreciation and amortization expense decreased by $98,484, or 2.6%, to $3,675,862 for the nine months ended September 30, 2016 compared to $3,774,346 for the same period of the prior year.  The decrease is primarily attributable to certain intangible assets expiring in correlation with the applicable leases.

Interest expense increased by $84,265 or 2.5% to $3,489,012 for the nine months ended September 30, 2016 compared to $3,404,747 for the same period of the prior year. The increase is primarily attributable to an increase in interest expense of approximately $443,000 due to increased financing activity and an approximately $82,000 increase in mortgage interest, offset by the net impact of certain financing costs becoming fully amortized in correlation with the terms of the applicable financing of approximately $442,000 in the nine month period of 2016 compared to the same period in the prior year.

Funds from Operations and Non-GAAP Reconciliation

The National Association of Real Estate Investment Trusts, or NAREIT, defines funds from operations, or FFO, as net income (loss) available to common shareholders and operating partnership unit holders computed in accordance with GAAP, excluding gains or losses from sales of operating real estate assets and extraordinary items, plus depreciation and amortization of operating properties, and after adjustments for unconsolidated partnerships and joint ventures. We intend to calculate FFO in a manner consistent with the NAREIT definition.

Management intends to use FFO as a supplemental measure to conduct and evaluate our business because there are certain limitations associated with using GAAP net income alone as the primary measure of our operating performance. Historical cost accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Because real estate values instead have historically risen or fallen with market conditions, management believes that the presentation of operating results for real estate companies that use historical cost accounting is insufficient by itself. In addition, securities analysts, investors, and other interested parties use FFO as the primary metric for comparing the relative performance of equity REITs. There can be no assurance that FFO presented by us is comparable to similarly titled measures used by REITs.

FFO should not be considered as an alternative to net income or other measurements under GAAP as an indicator of our operating performance or to cash flows from operating, investing or financing activities as a measure of liquidity. FFO does not reflect working capital changes, cash expenditures for capital improvements or principal payments on indebtedness.

We define adjusted funds from operations, or AFFO, as FFO excluding the non-cash effects of straight-line rent and amortization of lease inducements and deferred financing costs, depreciation of non-real estate, and excluding the effects of non-cash compensation charges. U.S. GAAP requires rental revenues related to non-contingent leases that contain specified rental increases over the life of the lease to be recognized evenly over the life of the lease. This method may result in rental income in the early years of a lease that is higher than actual cash received, creating a deferred rent receivable asset or lower income than actual cash received, creating a deferred rent revenue liability included in our consolidated balance sheet. At some point during the lease, depending on its terms, cash rent payments may exceed or be lower than the straight-line rent which results in the deferred rent receivable asset or liability, respectively, decreasing to zero over the remainder of the lease term. By excluding the non-cash portion of straight-line rental revenue and amortization of lease inducement and deferred financing costs as well as non-cash compensation expense, investors, analysts and our management can compare AFFO between periods.

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Below is the calculation of FFO and AFFO and the reconciliation to net income (loss), which we believe is the most comparable GAAP financial measure:

Reconciliation of Net Income Attributable to Talon Real Estate Holding Corp. (“TREHC”) to Funds From Operations

	Three months ended September 30,
In thousands $ (except per share)	2016					2015
	Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)		Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)
Net loss attributable to TREHC	$	(1,441)	17,251	$	(0.08)	$	(1,172)	16,717	$	(0.07)
Adjustments:
Non-controlling interest Operating Partnership		(652)	9,200				(632)	9,200
Consolidated depreciation and amortization:		1,220	-		-		1,261	-		-
adjust for non-real estate depreciation		(1)	-		-		(2)	-		-
adjust for amortization of above and below-market rents		49	-		-		53	-		-
adjust for noncontrolling real estate owned depreciation		(26)	-		-		(35)	-		-
Net adjustments		590					645
Funds from operations applicable to common shares	$	(851)	26,451	$	(0.03)	$	(527)	25,917	$	(0.02)

	Three months ended September 30,
	2016					2015
Adjusted funds from operations	Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)		Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)
FFO available to common shares	$	(851)	26,451	$	(0.03)	$	(527)	25917	$	(0.02)
Adjustments:
Straight-line rents in excess of, or less than, contract rents		(24)	-		-		(33)	-		-
Non-real estate depreciation		1	-		-		2	-		-
Amortization of deferred financing costs net of noncontrolling real estate		119	-		-		324	-		-
Non-cash stock compensation charges		145	-		-		38	-		-
AFFO available to common shares	$	(610)	26,451	$	(0.02)	$	(196)	25,917	$	(0.01)

	Nine months ended September 30,
In thousands $ (except per share)	2016					2015
	Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)		Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)
Net loss attributable to TREHC	$	(3,798)	16,981	$	(0.22)	$	(3,242)	16,579	$	(0.20)
Adjustments:
Non-controlling interest Operating Partnership		(1,919)	9,200				(1,750)	9,200
Consolidated depreciation and amortization:		3,676	-		-		3,774	-		-
adjust for non-real estate depreciation		(5)	-		-		(7)	-		-
adjust for amortization of above and below-market rents		174	-		-		171	-		-
adjust for noncontrolling real estate owned depreciation		(85)	-		-		(96)	-		-
Net adjustments		1,841					2,092
Funds from operations applicable to common shares	$	(1,957)	26,181	$	(0.07)	$	(1,150)	25,779	$	(0.04)

	Nine months ended September 30,
	2016					2015
Adjusted funds from operations	Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)		Amount		Weighted Avg Shares and Units (1)	Per Share and Unit (2)
FFO available to common shares	$	(1,957)	26,181	$	(0.07)	$	(1,150)	25,779	$	(0.04)
Adjustments:
Straight-line rents in excess of, or less than, contract rents		(159)	-		-		125	-		-
Non-real estate depreciation		5	-		-		7	-		-
Amortization of deferred financing costs net of noncontrolling real estate		428	-		-		870	-		-
Non-cash stock compensation charges		343	-		-		136	-		-
AFFO available to common shares	$	(1,340)	26,181	$	(0.05)	$	(12)	25,779	$	0.00

⁽¹⁾ Noncontrolling Units of the Operating Partnership are exchangeable for cash, or at the Company's discretion, for common shares of stock on a one-for-one basis.

⁽²⁾ Net income is calculated on a per share basis.  FFO and AFFO are calculated on a per share and unit basis.

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Liquidity and Capital Resources

Liquidity is a measure of our ability to meet potential cash requirements, including commitments to repay borrowings, fund and maintain our operations and assets, acquire properties, make distributions to our shareholders and other general business needs. We have incurred significant expenses related to operating as a public corporation, building and tenant improvements at our properties, and preparation for and execution of our acquisition strategy creating a cash shortfall from operations through September 30, 2016.

We currently do not have available cash and cash flows from current operations to provide us with adequate liquidity for the foreseeable future. Our current liabilities exceed our unrestricted cash and we have insufficient cash flow from current operations to pursue our strategy without further financing.  As of September 30, 2016, we had unrestricted cash of approximately $184,332 and current liabilities including tenant improvement allowances, unsecured debt, accounts payable and accrued expenses substantially in excess of the available cash.  We therefore will require additional capital and increased cash flow from future operations to fund our ongoing business. There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and future operations to fund our ongoing business. If the amount of capital we are able to raise together with our income from operations is not sufficient to satisfy our capital needs, we may be required to cease our operations or alter our growth plans.  If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment.

Our short-term liquidity requirements consist primarily of the need to raise additional capital to provide funding for approximately $7.8 million of tenant allowances, pay off maturing unsecured notes payable in the approximate amount of $3.7 million, and to use any remaining proceeds to apply to other existing current liabilities.  Additionally, the Company, Talon OP and Mr. Kaminski are also guarantors of a mortgage on the building located at 180 E. Fifth Street in St. Paul, Minnesota.  The mortgage includes a financial covenant requiring the guarantors to maintain a certain net worth and amount of cash and marketable securities throughout the term of the loan.  Failure to satisfy the financial covenant will constitute an event of default under the loan agreements which the lender may remedy by accelerating the debt. We are currently attempting to refinance this mortgage and will attempt to obtain financing with more traditional covenants; however, there is no guarantee that the Company will be able to refinance the mortgage with more favorable terms, if at all.  A sale of the building has also been contemplated to address the liquidity issue.  We also require cash to pursue our strategy of near-term growth through acquisition of properties as well as pay our general and administrative expenses for operating as a public company and to satisfy our existing liabilities, as well as to finance our ongoing litigation.

Our long-term liquidity requirements consist primarily of funds to pay for scheduled debt maturities, non-recurring capital expenditures that need to be made periodically and continued expansion of our business through acquisitions. Although we plan to aggressively pursue acquisitions to grow our business, there is no assurance that we will be able to acquire additional properties in the future.

Since our available cash and cash flows from current operations do not provide us with adequate cash to satisfy current liabilities and are not expected to provide us with adequate liquidity for the foreseeable future, we anticipate that we will undertake future debt or equity financings or asset sales during 2016.  Additional financing or asset sales are necessary for our company to continue as a going concern.

In the future, we anticipate using a number of different sources to finance our liquidity needs, including cash flows from operations, issuance of debt securities or equity securities (which might be common or preferred stock), private financings (such as additional bank credit facilities or cash advances, which may or may not be secured by our assets), asset sales (including sales of accounts receivable), seller financing, property-level mortgage debt, or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured. Although we have successfully raised equity capital in the past, we cannot be assured that we will be able to continue to be successful in raising capital through issuance of securities.  Our ability to obtain needed financing may be impaired by such factors as the capital markets, our status as a new enterprise without significant assets or demonstrated operating history, and/or the loss of key management.  There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and proposed operations to fund our ongoing business.  Ongoing litigation may also impact our liquidity, as cash flow may need to be used on legal and other litigation expenses.

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Outstanding Indebtedness

5130 LLC, an entity in which our Operating Partnership owns a 49% interest and that owns an industrial complex located in the Minneapolis-St. Paul metropolitan area, is party to a loan agreement secured by such industrial complex. The loan agreement provides for two term loans, the A loan and the B loan. Both loans can be accelerated under certain circumstances, including if there is an event of default under the loan agreement.

Talon Bren Road, LLC, an entity through which our Operating Partnership acquired the property located at 10301 Bren Road West, Minnetonka, MN on May 29, 2014, is party to a loan agreement secured by such property.  It is also a party to two loans the proceeds of which were used to fund certain capital improvements at the building.  This property also secures the Talon Bren Road, LLC Mortgage 2 (as defined in the table below) entered into on July 2, 2014 in connection with the acquisition of the property located at 180 E. Fifth Street St. Paul, MN.

Talon First Trust, LLC, an entity through which our Operating Partnership acquired the property located at 180 E. Fifth Street St. Paul, MN on July 2, 2014, is party to a loan agreement secured by such property.  The loan is subject to certain financial covenants as disclosed in Note 5 to the financial statements.  On March 30, 2016, the lender accepted Mr. Kaminski as an additional guarantor under the loan agreements.  Although Mr. Kaminski, the Company and Talon OP have executed a joinder agreement adding Mr. Kaminski as an additional guarantor on the loan, the lender has reserved all rights, remedies and recourses available to it for any event of default whether arising prior or after the date of the agreement.  There is no assurance that the financial covenants will be satisfied in the future.

The following table summarizes the Company’s notes payable as of September 30, 2016 and December 31, 2015:

				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	September 30, 2016		December 31, 2015
Talon First Trust, LLC Mortgage (1)	Secured floating rate interest only	July 5, 2017	5.94%	$	32,000,000	$	32,000,000
Talon First Trust, LLC. – Promissory Note (2)	Unsecured fixed rate interest only	August 31, 2016	10.00%		1,008,908		481,934
Talon First Trust, LLC. – Promissory Note	Unsecured fixed rate interest only	See below (3)	10.00%		59,489		-
Talon First Trust, LLC. – Sale of Future Receivable (4)	See below (4)	See below (4)	(4)		131,467		-
Talon Bren Road, LLC Mortgage 1	Secured fixed rate	May 28, 2019	4.65%		10,926,861		11,123,773
Talon Bren Road, LLC Mortgage 2	Secured fixed rate interest only	March 1, 2017	16.00%		2,000,000		2,000,000
Talon Bren Road, LLC HVAC loan	Unsecured fixed rate	June 1, 2019	8.00%		91,508		111,797
Talon Bren Road, LLC Roof loan	Unsecured fixed rate interest only	June 1, 2019	8.00%		225,000		225,000
5130 Industrial Street, LLC Mortgage 1	Secured fixed rate	April 8, 2017	6.05%		4,000,456		4,049,859
5130 Industrial Street, LLC Mortgage 2	Secured fixed rate	April 8, 2017	12.75%		293,144		294,021
Talon OP, L.P. – Promissory Notes (5)	Unsecured fixed rate interest only	June 30, 2016	24.00%		1,000,000		1,000,000
Talon OP, L.P. – Promissory Notes	Unsecured fixed rate interest only	July 31, 2017	3.00%		654,926		-
Talon OP, L.P. Promissory Note – Former Related Party (see note 6 to the financial statements)	Unsecured fixed rate interest only	June 30, 2016	24.00%		500,000		500,000
				$	52,891,759	$	51,786,384

(1)

Beginning January 2016, mechanics lien statements were filed upon the property at 180 E. Fifth Street for work completed to prepare the tenant space for a significant lease entered into on April 9, 2015.  Mechanics liens that remain undischarged of record after 60 days constitute an event of default under the loan agreements, permitting the lender to accelerate the indebtedness at its option.  On September 21, 2016 and October 20, 2016, mechanics lien holders filed a summons and complaint in the State of Minnesota claiming that the Company breached it’s obligations to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.The lender is aware of this default and our refinancing efforts to cure it.  They are currently not exercising any remedies with respect to any defaults.

(2)

On November 16, 2015 the Company entered into a $481,934 unsecured promissory note with the Property Manager of Talon First Trust, LLC. The note satisfied the fees due under the Property Management Agreement for the period of March 2015 through December 2015 and had an original maturity date of December 31, 2015.  Subsequently, the Company extended the maturity date to February 15, 2016 and then to August 31, 2016 and increased the note by $471,974 for the fees incurred from January 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager (see Note 9 to the financial statements).  The note bore interest at 8% annually from November 16, 2015 through June 30, 2016 and currently bears interest at 10% annually through maturity. On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded.  At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

(3)

The outstanding principal and applicable accrued interest is due in full upon sale or refinancing of the property at 180 E. Fifth Street in St. Paul.

(4)

On June 29, 2016 the Company received funds from two different sources totaling $235,993 for the sale of future receivables at the property located at 180 E. Fifth Street.  The agreements require payments totaling $352,305 over 120 days.  Per FASB ASC 470-10-25, which provides guidance on funds received from sales of future receivables, this transaction has been classified as debt and included in notes payable. The agreements are guaranteed by a shareholder of the Company.

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(5)

On January 12, 2015 and May 19, 2015, respectively, the Company entered into two separate $500,000 unsecured promissory notes with the same unrelated party. The notes bore interest at 14% annually and had an original maturity date of June 30, 2015 and July 18, 2015, respectively.  In 2015, the Company extended the maturity dates of both notes to December 31, 2015.  The notes bore interest of 20% annually from July 1, 2015 and July 19, 2015, respectively, through October 31, 2015.  Subsequently, the Company extended the maturity dates of both notes to the earlier of, the disposition or refinancing of the property at 180 E 5th Street in St. Paul or June 30, 2016.  The notes will bear interest at 24% annually from November 1, 2015 through June 30, 2016. The maturity date has not been extended and the note is due and payable in full.  On September 24, 2016, the unrelated party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded.  At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

Off Balance Sheet Arrangements

At September 30, 2016, we did not have any off-balance sheet arrangements.

Inflation

As of September 30, 2016, most of our leases required tenants to reimburse us for a share of our operating expenses. As result, we are able to pass on much of any increases to our property operating expenses that might occur due to inflation by correspondingly increasing our expense reimbursement revenues. During the nine months ended September 30, 2016, inflation did not have a material impact on our revenues or net income.

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Sensitivity Risk

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market-sensitive instruments. In pursuing our business plan, we expect that interest rate risk will be the primary market risk to which we will be exposed. As of September 30, 2016, all but one of our outstanding loans had a fixed rate.  On July 2, 2014, we secured a $33 million loan with a current interest rate of 5.75% which is indexed monthly to the one month LIBOR plus a spread of 5.50% per annum.  In conjunction with the closing of this loan, we are party to an interest rate cap transaction with an interest rate cap of 2.50% on the $33 million. We were at risk to interest rate fluctuations on $33 million up to the interest rate cap of 2.50% until expiration of the cap on July 5, 2016, after which time our interest rate risk is no longer capped.  Our interest rate risk may further increase if we increase our debt in the future or refinance our existing debt.

We may become exposed to the effects of interest rate changes as a result of floating rate debt used to maintain liquidity and fund expansion of our real estate investment portfolio and operations. Our interest rate risk management objectives will be to limit the impact of interest rate changes on earnings and cash flows and to manage overall borrowing.

Foreign Currency Exchange Risk

Our results of operations and cash flows are not materially affected by fluctuations in foreign currency exchange rates.

Item 4.

Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this Quarterly Report on Form 10-Q, our management has evaluated, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934).  Disclosure controls and procedures are designed to ensure that information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.  Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of September 30, 2016.

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Changes in Internal Control Over Financial Reporting

There were the following changes in the Company’s internal control over financial reporting that occurred during the three months ended September 30, 2016 which have the potential to have materially affected, or is reasonably likely to have materially affect, the Company’s internal control over financial reporting.

On August 18, 2016, Eun Stowell, the Chief Financial Officer of Talon Real Estate Holding Corp., resigned her positions with the Company. Matthew G. Kaminski served as interim Chief Financial Officer until November 1, 2016, when Keith Gruebele was appointed as our Chief Financial Officer.

On September 16, 2016, Neil Brown and Curt Marks resigned from our board of directors.  On September 16, 2016, Marc P. Agar and Kristian G. Wyrobek were elected to our board of directors.  The new directors have been appointed to the audit committee and compensation committees of the board of directors.

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PART II. – OTHER INFORMATION

Item 1.

Legal Proceedings

We are currently engaged in legal proceedings that may have a material impact on our financial statements.  From time to time, we may be named as a defendant in legal actions or otherwise be subject to claims arising from our normal business activities.  Any such actions, even those that lack merit, could result in the expenditure of significant financial and managerial resources.

The Company has filed a complaint in the State of Minnesota on June 10, 2016 to enforce the NOI Payment Agreement and other documents issued in conjunction with the Contribution Agreement entered into on May 29, 2014 with Bren Road, L.L.C.  The defendant has responded and filed a counterclaim and third-party complaint against Talon Bren Road, LLC and Talon OP, LP on July 7, 2016 to which the Company has responded.

On April 9, 2015, the Company entered into a significant lease arrangement with a new tenant at the property located at 180 East 5^th Street.  On June 1, 2016, the tenant filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the lease and the tenant has a right to terminate the lease.  The Company has responded to the complaint to enforce the lease.

On November 16, 2015 the Company entered into a $481,934 unsecured promissory note with the Property Manager of Talon First Trust, LLC. The note satisfied the fees due under the Property Management Agreement for the period of March 2015 through December 2015 and had an original maturity date of December 31, 2015.  Subsequently, the Company extended the maturity date to February 15, 2016 and then to August 31, 2016 and increased the note by $471,974 for the fees incurred from January 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager (see Note 9 to the financial statements).  On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded.

On January 12, 2015 and May 19, 2015, respectively, the Company entered into two separate $500,000 unsecured promissory notes with the same unrelated party. In 2015, the Company extended the maturity dates of both notes to December 31, 2015.  Subsequently, the Company extended the maturity dates of both notes to the earlier of, the disposition or refinancing of the property at 180 E 5th Street in St. Paul or June 30, 2016.  On September 24, 2016, the unrelated party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded.

Beginning January 2016, mechanics lien statements were filed upon the property at 180 E. Fifth Street for work completed to prepare the tenant space for a significant lease entered into on April 9, 2015.  On September 21, 2016 and October 20, 2016, mechanics lien holders filed a summons and complaint in the State of Minnesota claiming that the Company breached it’s obligations to which the Company has responded.

On August 12, 2014, the Company entered into a $500,000 unsecured promissory note with a related party, one of its directors. The note had an original maturity date of February 8, 2015.  Proceeds from this note paid off additional notes entered into on December 30, 2013 and March 7, 2014, respectively, for $100,000 each, with the same party.  In 2015, the Company extended the maturity date of the note to December 31, 2015.  Subsequently, in 2016 the Company extended the maturity date of the note to the earlier of, the disposition or refinancing of the property at 180 E. Fifth Street in St. Paul or June 30, 2016.  On October 18, 2016, the related party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded.

On October 20, 2016, a former employee filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under terms of the former employee’s employment with the Company to which the Company has responded.

35

Item 1A.

Risk Factors

There have been no material changes in our risk factors from those disclosed under the heading “Risk Factors” in our Current Report on Form 10-K for the year ended December 31, 2015 as filed with the Securities and Exchange Commission on April 6, 2016.

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

Not Applicable

Item 3.

Defaults Upon Senior Securities

Not Applicable.

Item 4.

Mine Safety Disclosures

Not Applicable.

Item 5.

Other Information

Not Applicable.

Item 6.

Exhibits

The exhibits filed as part of this Quarterly Report on Form 10-Q are listed in the Exhibit Index immediately following the signatures to this report.

36

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.

Dated:  November 21, 2016	TALON REAL ESTATE HOLDING CORP.
	/s/ Keith Gruebele
	Keith Gruebele
	Chief Financial Officer (principal financial and accounting officer)

37

EXHIBIT INDEX

Exhibit Number	Description
3.1	Amended and Restated Articles of Incorporation (Incorporated by reference to the exhibit of the same number in our Form 8-K dated June 7, 2013, filed on June 7, 2013 (File No. 005-87490))
3.2	Amended and Restated Bylaws (Incorporated by reference to the exhibit of the same number in our Form 8-K dated June 7, 2013, filed on June 7, 2013 (File No. 005-87490))
31.1	Certification of Principal Executive Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
31.2	Certification of Principal Financial Officer pursuant to Rules 13a-14(a) under the Securities Exchange Act of 1934, as amended (filed herewith).
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith).
101*	Interactive Data Files Pursuant to Rule 405 of Regulation S-T (filed herewith).

________________________

^* Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability under those sections.

38

EX-31

EXHIBIT 31.1

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, MG Kaminski, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Talon Real Estate Holding Corp.;

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 have:

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 disclosure 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 report 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 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.

/s/ MG Kaminski

MG Kaminski

Chief Executive Officer

(principal executive officer)

November 21, 2016

EX-31

EXHIBIT 31.2

CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT

I, Keith Gruebele, certify that:

1.

I have reviewed this Quarterly Report on Form 10-Q of Talon Real Estate Corp.;

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 have:

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 disclosure 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 report 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 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.

/s/ Keith Gruebele

Keith Gruebele

Chief Financial Officer

(principal financial and accounting officer)

November 21, 2016

EX-32

EXHIBIT 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. §1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report on Form 10-Q of Talon Real Estate Holding Corp. (the “Company”) for the period ended September 30, 2016, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, the Chief Executive Officer and the Chief Financial Officer of the Company, hereby certify, pursuant to and for purposes of 18 U.S.C. §1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

1.

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2.

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ MG Kaminski

MG Kaminski

Chief Executive Officer

/s/ Keith Gruebele

Keith Gruebele

Chief Financial Officer

November 21, 2016

XML

Document and Entity Information - shares	9 Months Ended
	Sep. 30, 2016	Nov. 21, 2016
Document And Entity Information
Entity Registrant Name	TALON REAL ESTATE HOLDING CORP.
Entity Central Index Key	0001426011
Document Type	10-Q
Document Period End Date	Sep. 30, 2016
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		17,607,680
Document Fiscal Period Focus	Q3
Document Fiscal Year Focus	2016

XML

Condensed Consolidated Balance Sheets (Unaudited) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
ASSETS
Land and improvements	$ 8,165,000	$ 8,165,000
Building and improvements	53,313,302	53,285,277
Equipment, furniture and fixtures	28,864	28,864
Total property and equipment	61,507,166	61,479,141
Less: accumulated depreciation	(7,852,526)	(5,881,183)
Net property and equipment	53,654,640	55,597,958
Cash	184,332	340,385
Rents and other receivables, net	387,696	375,351
Prepaid expenses and other assets	229,796	158,284
Restricted escrows and reserves	3,175,992	2,139,180
Deferred leasing costs, net	2,574,109	3,035,853
Intangible assets, net	6,032,527	7,742,145
TOTAL ASSETS	66,239,092	69,389,156
LIABILITIES
Notes payable	52,891,759	51,286,384
Less: unamortized deferred financing costs	(472,672)	(969,527)
Notes payable, net	52,419,087	50,316,857
Notes payable - related party	0	500,000
Accounts payable	5,915,052	5,406,648
Tenant improvement allowance	7,760,995	7,760,995
Accrued expenses and other liabilities	1,826,033	1,453,078
Tenant security deposits	157,399	166,208
Deferred rent revenue	129,752	289,034
Prepaid rent	289,893	447,773
Accrued interest	854,738	528,129
Below-market leases, net	179,536	266,228
Mandatorily redeemable Operating Partnership preferred units	3,000,000	3,000,000
Total Liabilities	72,532,485	70,134,950
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT)
Preferred shares	0	0
Common shares	17,607	17,057
Additional paid in capital	2,192,550	1,850,382
Accumulated loss	(13,016,729)	(9,218,803)
Total Talon Real Estate Holding Corp. shareholders' equity (deficit)	(10,806,572)	(7,351,364)
Noncontrolling interests - Operating Partnership	6,083,241	8,109,449
Noncontrolling interest - consolidated real estate entities	(1,570,062)	(1,503,879)
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)	(6,293,393)	(745,794)
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY (DEFICIT)	$ 66,239,092	$ 69,389,156

XML

Condensed Consolidated Balance Sheets (Parenthetical) - $ / shares	Sep. 30, 2016	Dec. 31, 2015
Statement of Financial Position [Abstract]
Operating partnership units outstanding	9,200,001	9,200,001
Preferred stock, par value per share in dollars	$ 0.001	$ 0.001
Preferred stock, shares authorized	10,000,000	10,000,000
Preferred stock, shares issued	0	0
Preferred stock, shares outstanding	0	0
Common stock, par value in dollars	$ 0.001	$ 0.001
Common stock, shares authorized	90,000,000	90,000,000
Common stock, shares issued	17,607,680	17,057,680
Common stock, shares outstanding	17,607,680	17,057,680

XML

Condensed Consolidated Statements of Operations (Unaudited) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
REVENUE
Rent	$ 1,807,865	$ 1,895,656	$ 5,510,286	$ 5,672,192
Tenant reimbursement	897,805	908,373	2,697,053	2,799,242
Other income	94,203	36,185	211,210	327,799
Total Revenue	2,799,873	2,840,214	8,418,549	8,799,233
EXPENSES
General & administrative	447,089	110,783	911,088	434,414
Salary and compensation	288,191	177,434	847,229	579,996
Professional	245,762	177,387	698,960	575,968
Property operating expenses	1,130,767	1,344,288	3,353,160	3,903,016
Real estate taxes & insurance	443,111	400,167	1,333,554	1,209,662
Depreciation and amortization	1,220,070	1,261,182	3,675,862	3,774,346
Total Expenses	3,774,990	3,471,241	10,819,853	10,477,402
Operating Loss	(975,117)	(631,027)	(2,401,304)	(1,678,169)
Interest expense	(1,237,722)	(1,207,617)	(3,489,012)	(3,404,747)
NET LOSS	(2,212,839)	(1,838,644)	(5,890,316)	(5,082,916)
Net loss attributable to noncontolling interests - Operating Partnership	759,446	632,201	2,026,208	1,750,354
Net loss attributable to noncontolling interests - consolidated real estate entities	12,670	34,418	66,182	90,175
NET LOSS ATTRIBUTABLE TO TALON REAL ESTATE HOLDING CORP.	$ (1,440,723)	$ (1,172,025)	$ (3,797,926)	$ (3,242,387)
Loss per common share basic and diluted	$ (0.08)	$ (0.07)	$ (0.22)	$ (0.20)

XML

Condensed Consolidated Statements of Cash Flows (Unaudited) - USD ($)	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss	$ (5,890,316)	$ (5,082,916)
Adjustments to reconcile net loss to net cash flows from operating activities:
Depreciation and amortization	3,850,285	3,945,500
Amortization of deferred financing costs	433,475	875,285
Stock-based compensation expense	342,718	135,685
Provision for doubtful accounts	36,485	78,298
Deferred financing costs	168,253	0
Changes in operating assets and liabilities:
Rents and other receivables	(48,830)	(60,729)
Prepaid expenses and other assets	(71,512)	292,457
Deferred leasing costs	0	(76,686)
Accounts payable	1,578,988	100,983
Accrued expenses and other liabilities	584,655	268,040
Tenant security deposits	(8,809)	(12,390)
Deferred rent revenue	(159,282)	123,785
Prepaid rent	(157,880)	(5,535)
Accrued interest	459,449	150,486
Net cash flows from operating activities	1,117,679	732,263
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for acquisition or improvements of real estate assets	0	(1,007,853)
Deposits made for future acquistions	0	(320,000)
Deposits to restricted escrows and reserves	(2,143,733)	(2,298,682)
Payments from restricted escrows and reserves	1,106,921	1,721,929
Net cash flows from investing activities	(1,036,812)	(1,904,606)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from notes payable	305,993	3,000,000
Principal payments on notes payable	(442,006)	(1,393,071)
Deposits or cash paid for financing costs	(100,907)	(424,850)
Net cash flows from financing activities	(236,920)	1,182,079
Net Change in Cash	(156,053)	9,736
CASH - BEGINNING OF PERIOD	340,385	147,157
CASH - END OF PERIOD	184,332	156,893
SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES
Purchases of building and land improvements included in accounts payable	27,534	9,165,924
Leasing and financing fees included in accounts payable and other liabilities	9,938	2,209,343
Issuance of common stock included in financing costs	0	575,000
Accounts payable converted to notes payable	586,462	0
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the period for interest on mortgages and preferred Operating Partnership preferred units	$ 1,241,388	$ 2,378,976

XML

Organization and Basis of Presentation

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Organization and Basis of Presentation

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Organization

Talon Real Estate Holding Corp. (“TREHC”) previously established an Operating Partnership (“Talon OP”) and transferred all of its assets and liabilities to the operating partnership in exchange for general partnership units. As the sole general partner of Talon OP we have the exclusive power to manage and conduct the business and affairs for the operating partnership. TREHC owned approximately 66% and 65% of the Operating Partnership as of September 30, 2016 and December 31, 2015, respectively. The Operating Partnership owned 49% of 5130 Industrial Street, LLC, 100% of Talon Bren Road, LLC, 100% of Talon First Trust, LLC, and 100% of Talon RE as of September 30, 2016 and December 31, 2015. Talon Bren Road, LLC, and Talon First Trust, LLC both limited liability companies organized under the laws of the state of Delaware, were formed on May 9, 2014 and April 21, 2014, respectively, to purchase real estate. Talon Real Estate, LLC (“Talon RE”) was incorporated in the state of Minnesota on December 20, 2012 and began operations in 2013 for the purpose of acquiring real estate properties.

Basis of Presentation

The accompanying condensed consolidated financial statements have been prepared in accordance with United States Generally Accepted Accounting Principles (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments necessary to present fairly our consolidated financial position as of September 30, 2016 and our condensed consolidated statements of operations for the three and nine months ended September 30, 2016 and 2015, and our condensed consolidated statements of cash flows for the nine months ended September 30, 2016 and 2015, as applicable. These adjustments are of a normal recurring nature.

The accompanying condensed consolidated financial statements include the accounts of TREHC and its interest in the Operating Partnership. The limited partners in the Operating Partnership have a redemption option that they may exercise. Upon exercise of the redemption option by the limited partners, the Company has the choice of redeeming the limited partners' interests ("Units") for TREHC common shares of stock on a one-for-one basis, or making a cash payment to the unit holder. The redemption generally may be exercised by the limited partners at any time after the first anniversary of the date of the acquisition of the Units subject to volume restrictions.

The accompanying condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 31, 2015, which have previously been filed with the Securities and Exchange Commission (SEC). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) have been omitted from this report on Form 10-Q pursuant to the rules and regulations of the SEC.

The results for the interim periods shown in this report are not necessarily indicative of future financial results. The accompanying condensed consolidated balance sheet as of September 30, 2016 and condensed consolidated statements of operations and condensed consolidated statements of cash flows for the three and nine months ended September 30, 2016 and 2015, as applicable, have not been audited by our independent registered public accounting firm.

XML

Investment in Real Estate Properties and Entities

9 Months Ended

Sep. 30, 2016

Real Estate [Abstract]

Investment in Real Estate Properties and Entities

NOTE 2 – INVESTMENT IN REAL ESTATE PROPERTIES AND ENTITIES

The Company acquired real estate property through its subsidiary, Talon First Trust, LLC, located at 180 5th Street East, St. Paul, MN on July 2, 2014. The building is primarily leased to tenants for commercial and government use. The property totals 659,577 net rentable square feet. As of September 30, 2016, the Company had tenants occupying approximately 60% of the rentable space. In April 2015, the Company executed a lease for a significant new tenant that would increase the occupancy by over 21% in the St. Paul building upon commencement of the lease (see Note 9).

The Company acquired real estate property through its subsidiary, Talon Bren Road, LLC, located on 20 acres of land at 10301 Bren Road West, Minnetonka, MN on May 29, 2014. This property is primarily leased to tenants who are wholesale product sales representatives. These leases are subject to a master lease agreement entered into between Talon Bren Road, LLC and Upper Midwest Allied Gifts Association, Inc., a Minnesota nonprofit corporation (“UMAGA”). This property has 164,472 net rentable square feet. As of September 30, 2016, the Company had 100% of the rentable space leased.

The Company owns and operates the following real estate properties through its subsidiary, 5130 LLC:

5130 Industrial Street, Maple Plain, MN

1350 Budd Ave, Maple Plain, MN

The properties are primarily leased to tenants for mixed commercial and industrial usage. The properties have a combined 171,639 net rentable square feet. As of September 30, 2016, the Company had tenants occupying approximately 85% of the rentable space.

XML

Summary of Significant Accounting Policies

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Summary of Significant Accounting Policies

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Accounting Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to use estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Significant items subject to such estimates and assumptions include determination of the useful life of property and other long-lived assets, valuation and impairment analysis of property and other long-lived assets, and valuation of the allowance for doubtful accounts. It is at least reasonably possible that these estimates could change in the near term.

Principles of Consolidation

We evaluate the need to consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. In determining whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions, contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity for which we are the primary beneficiary. The accompanying condensed consolidated financial statements include the accounts of Talon Real Estate Holding Corp. (“TREHC”) and Talon OP, our Operating Partnership, and all subsidiaries in which it maintains a controlling interest. Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to control the operating and financial decisions of 5130 LLC. All significant intercompany balances have been eliminated in consolidation.

Cash

The Company considers short-term investments with original maturities of 90 days or less to be cash equivalents. The Company believes it is not exposed to any significant credit risk on cash.

Restricted Escrows and Reserves

The Company is required to hold cash in restricted escrow accounts for insurance, real estate taxes and a replacement reserve. The escrows are used to pay periodic charges of real estate taxes and assessments, tenant improvements, and leasing commissions. The balances in the escrow accounts were $3,175,992 and $2,139,180 as of September 30, 2016 and December 31, 2015, respectively.

Rents and other Receivables

Rents receivable and deferred rent are recorded at their estimated net realizable value. The Company follows a policy of providing an allowance for doubtful accounts, which is based on a review of outstanding receivables, historical collection information, and existing economic conditions. The Company does not require collateral and accounts are considered past due if payment is not made on a timely basis in accordance with our credit terms. Accounts considered uncollectible are written off. Receivables have been reduced by an allowance for doubtful accounts of $129,330 and $93,560 as of September 30, 2016 and December 31, 2015, respectively.

Revenue Recognition

Base rental income is recognized on a straight-line basis over the terms of the related lease agreement, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rent income earned and base rent amounts due per the respective lease agreements are credited or charged to deferred rent revenue or deferred rent receivable as applicable. When the Company enters into lease modifications or extensions with current tenants, the deferred rent at the time of the extension is amortized over the remaining term of the lease, and the revised terms are considered a new lease.

Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance and other operating expenses are billed monthly based on current year estimated operating costs for applicable expenses. An additional billing or a refund is made to tenants in the following year after actual operating expenses are determined.

Derivative Instruments

The Company records all derivative instruments on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. If the Company does not apply hedge accounting, all changes in the fair value of derivatives are recognized directly in earnings in the period of change. Currently, the Company has not elected hedge accounting treatment and all changes in fair value of the Company’s derivatives are recognized in current period earnings.

Deferred Leasing Costs and Tenant Allowance

Direct and indirect costs, including estimated internal costs and leasing commissions, associated with the leasing of real estate investments owned by the Company are capitalized as deferred leasing costs and amortized on a straight-line basis over the term of the related lease as amortization expense. Unamortized costs are charged to expense upon the early termination of the lease. Costs associated with unsuccessful leasing opportunities are expensed.

In leasing tenant space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance as building improvements and depreciates it over the shorter of the useful life of the leasehold improvements or the related lease term. For tenant allowances committed at lease inception and recorded as building improvements but not yet performed or completed, the corresponding liability will be recorded as tenant improvement allowance payables. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, for accounting purposes, the tenant allowance is considered to be a lease incentive and is capitalized as a deferred leasing cost and is amortized over the lease term as a reduction of rental revenue on a straight-line basis. The Company had amortization expense for tenant allowances of $260,552 and $793,279 for the three and nine months ended September 30, 2016, respectively, and $272,852 and $779,461 for the three and nine months ended September 30, 2015, respectively. The Company had accumulated amortization for tenant allowances of $2,620,180 and $1,826,901 as of September 30, 2016 and December 31, 2015, respectively. The Company had amortization expense for deferred leasing costs of $73,320 and $220,302 for the three and nine months ended September 30, 2016, respectively, and $79,682 and $232,788 for the three and nine months ended September 30, 2015, respectively. The Company had accumulated amortization for deferred leasing costs of $704,323 and $484,021 as of September 30, 2016 and December 31, 2015, respectively. As of September 30, 2016, the Company had deferred leasing costs and tenant allowances recorded as building improvements of $11,532,029 that did not have amortization expense in the three and nine months ended September 30, 2016 due to lease terms that have not commenced as of that date.

Deferred Financing Costs

Costs incurred in connection with obtaining financing are netted against notes payable and are being amortized on a straight-line basis over the financing term and are included in interest expense. During the three and nine months ended September 30, 2016, the Company expensed $103,090 and $450,614, respectively, related to deferred financing costs associated with unsuccessful refinancing efforts. The Company had amortization expense of $121,094 and $433,475 for the three and nine months ended September 30, 2016, respectively, and $325,531 and $875,285 for the three and nine months ended September 30, 2015, respectively. The Company had accumulated amortization of $1,936,370 and $1,502,895 as of September 30, 2016 and December 31, 2015, respectively.

Real Estate Property and Fixed Assets

Investment in real estate and fixed assets with a useful life of longer than one year are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction and tenant allowances and improvements. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible assets (including land, buildings and personal property) determined by valuing the property as if it were vacant, and identifiable intangibles based on their relative fair values. Acquisitions of real estate are recorded based upon preliminary allocations of the purchase price to management’s assessment of the fair value of tangible and intangible assets and any assumed liabilities acquired which are subject to adjustment as additional information is obtained up to one year after the date of acquisition. Management’s fair value assessment includes the use of readily accepted fair value techniques such as discounted cash flow analysis and comparable sales analysis including management’s reliance on independent market analysis.

Depreciation is provided using the straight-line method over the estimated useful life of the assets for buildings and land improvements, and the term of the lease for tenant improvements. The estimated useful lives being used are as follows:

Land Improvements	3-15 years
Buildings	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

Repair and maintenance costs are expensed as incurred, whereas expenditures that improve or extend the service lives of assets are capitalized. Disposal and abandonment of improvements are recognized at occurrence as a charge to depreciation.

Intangible Assets or Liabilities

Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible assets and any significant intangible assets and liabilities (such as above- and below-market leases and value of acquired in-place leases), and any assumed liabilities, and allocates the purchase price based on these fair value assessments. The Company records intangible assets and liabilities acquired at their estimated fair value apart from goodwill for acquisitions of real estate. The Company amortizes identified intangible assets and liabilities based on the period over which the assets and liabilities are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease. Above and below-market leases are amortized as a reduction in (addition to) rent revenue. The Company amortized $45,220 and $138,709 to rent revenue for above and below-market leases for the three and nine months ended September 30, 2016, respectively, and $48,415 and $166,954 for the three and nine months ended September 30, 2015, respectively. Amortization of other intangibles is recorded in depreciation and amortization expense.

Impairment of Long-Lived Assets

Long-lived assets, such as real estate property, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use and eventual disposition of the asset are less than the carrying amount of that asset. The Company did not recognize any impairment losses for either of the three and nine months ended September 30, 2016 or 2015.

Income Taxes

The Company accounts for income taxes under FASB ASC 740-10-30 which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carry forwards are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.

The Company's policy of accounting for uncertain tax positions is to recognize the tax effects from an uncertain tax position in the financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement with the relevant tax authority. The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its consolidated balance sheet.

The Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2012. The Company is not currently under examination by any taxing jurisdiction. In the event of any future tax assessments, the Company has elected to record the income tax penalties as general and administrative expense and any related interest as interest expense in the Company's consolidated statements of operations.

Stock-based Compensation

The Company has granted restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan. Granted shares are considered issued and outstanding as of the date of the grants. Stock-based compensation is expensed on a straight-line basis over the vesting period and is valued at the fair value on the date of the grant. The Company has recognized $145,150 and $342,720 of compensation expense for the three and nine months ended September 30, 2016, respectively, and $38,285 and $135,685 of compensation expense for the three and nine months ended September 30, 2015, respectively.

The Company may also issue common stock in exchange for goods or services of non-employees. These shares are either fully vested at date of grant or vest over a certain period during which services are provided. The Company expenses the fair market value of the services over the period in which they are received.

On February 10, 2015, the Company issued 460,000 shares of common stock valued at $575,000 to an unrelated party in exchange for such party’s guaranty of a loan which was obtained in the year ended December 31, 2015. The value of the stock issued has been included as deferred financing costs in the consolidated balance sheet as of September 30, 2016 and December 31, 2015. Financing costs of $0 and $47,917 related to this stock issuance were amortized to interest expense for the three and nine months ended September 30, 2016, respectively, and $143,750 and $383,333 for the three and nine months ended September, 30 2015, respectively.

Noncontrolling Interest

Interests in the Operating Partnership held by limited partners are represented by partnership common units of the Operating Partnership. The Company's interest in the Operating Partnership was 66.0% and 65.0% of the common units of the Operating Partnership as of September 30, 2016 and December 31, 2015, respectively. The Operating Partnership’s income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, syndication costs, and profits and losses are allocated to non-controlling interests in accordance with the terms of the Operating Partnership agreement.

The portion of membership interests in 5130 LLC not held by Talon OP is reported as noncontrolling interest. Capital contributions, distributions, and profits and losses are allocated to the noncontrolling interest based on membership percentages and terms of the operating agreement.

Net Income (Loss) or Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average common and potential dilutive common shares outstanding in accordance with the treasury stock method.

The following is a reconciliation of the denominator of the basic net earnings per common share computation to the denominator of the diluted net earnings per common share computation for each of the periods presented:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2016	2015	2016	2015
Weighted average common shares outstanding - basic	17,251,136	16,716,934	16,980,771	16,578,942
Plus potentially dilutive common shares:
Unvested restricted stock	178,409	5,384	194,503	57,143
Weighted average common shares outstanding - diluted	17,429,545	16,722,318	17,175,274	16,636,085

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation. The reclassifications had no impact on net loss or shareholders’ equity.

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This new standard will eliminate all industry-specific guidance and replace all current U.S. GAAP guidance on the topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Lease contracts are specifically excluded from the new accounting guidance. This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued).The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company currently has disclosed certain matters relative to going concern in Note 15 but presently has not yet adopted the new guidance.

In April 2015, the FASB issued ASU No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. We adopted the accounting standards update as of January 1, 2016 with retrospective application to our December 31, 2015 Consolidated Balance Sheet. The effect of the adoption was to reclassify debt issuance from deferred financing costs, net of accumulated amortization, of $969,527 to a contra account as a deduction from the related notes payable. There was no effect on our consolidated statements of operations and cash flows.

In September 2015, the FASB issued ASU 2015–16, Simplifying the Accounting for Measurement Period Adjustments. To simplify the accounting for adjustments made to provisional amounts, ASU 2015–16 requires that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The provisions of ASU 2015–16 are effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. We adopted this ASU effective January 1, 2016. The adoption of ASU 2015-16 had no impact on our condensed consolidated balance sheets or results of operations, or cash flows.

During February 2016, the FASB issued ASU No. 2016-02, Leases. ASU No. 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is not expected to significantly impact the accounting for leases by lessors. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that ASU No. 2016-02 will have on its results of operations, financial position and cash flows.

In March 2016, the FASB issued ASU No. 2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will reduce complexity in accounting standards related to share-based payment transactions, including, among others, (1) accounting for income taxes, (2) classification of excess tax benefits on the statement of cash flow, (3) forfeitures, and (4) statutory tax withholding requirements. The ASU is effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. The Company is currently assessing the effect that ASU No. 2016-09 will have on its consolidated financial statements.

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Tenant Leases

9 Months Ended

Sep. 30, 2016

Leases [Abstract]

Tenant Leases

NOTE 4 – TENANT LEASES

The Company leases various commercial and industrial space to tenants over terms ranging from month-to-month to twelve years. Some of the leases have renewal options for additional terms. The leases expire at various dates from October 2016 to December 2027. Some leases provide for base monthly rentals and reimbursements for real estate taxes and common area maintenance.

The Company has the following future minimum base rentals on non-cancellable leases, including leases entered into subsequent to September 30, 2016:

2016	$	2,092,210
2017		8,027,637
2018		7,868,415
2019		6,997,191
2020		2,899,522
Thereafter		12,008,648
	$	39,893,623

Included in the above table are base lease payments due beginning January 1, 2018 totaling $15,627,822 for a significant tenant that has not occupied space yet but for which we have an executed lease agreement (Note 9).

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Notes Payable

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Notes Payable

NOTE 5 – NOTES PAYABLE

The following tables summarize the Company’s notes payable.

				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	September 30, 2016		December 31, 2015
Talon First Trust, LLC Mortgage (1)	Secured floating rate interest only	July 5, 2017	5.94%	$	32,000,000	$	32,000,000
Talon First Trust, LLC. – Promissory Note (2)	Unsecured fixed rate interest only	August 31, 2016	10.00%		1,008,908		481,934
Talon First Trust, LLC. – Promissory Note	Unsecured fixed rate interest only	See below (3)	10.00%		59,489		-
Talon First Trust, LLC. – Sale of Future Receivable (4)	See below (4)	See below (4)	(4)		131,467		-
Talon Bren Road, LLC Mortgage 1	Secured fixed rate	May 28, 2019	4.65%		10,926,861		11,123,773
Talon Bren Road, LLC Mortgage 2	Secured fixed rate interest only	March 1, 2017	16.00%		2,000,000		2,000,000
Talon Bren Road, LLC HVAC loan	Unsecured fixed rate	June 1, 2019	8.00%		91,508		111,797
Talon Bren Road, LLC Roof loan	Unsecured fixed rate interest only	June 1, 2019	8.00%		225,000		225,000
5130 Industrial Street, LLC Mortgage 1	Secured fixed rate	April 8, 2017	6.05%		4,000,456		4,049,859
5130 Industrial Street, LLC Mortgage 2	Secured fixed rate	April 8, 2017	12.75%		293,144		294,021
Talon OP, L.P. – Promissory Notes (5)	Unsecured fixed rate interest only	June 30, 2016	24.00%		1,000,000		1,000,000
Talon OP, L.P. – Promissory Notes	Unsecured fixed rate	July 31, 2017	3.00%		654,926		-
Talon OP, L.P. – Promissory Note (see NOTE 6)	Unsecured fixed rate interest only	June 30, 2016	24.00%		500,000		-
				$	52,891,759	$	51,286,384
Less: unamortized deferred financing costs					(472,672)		(969,527)
Notes payable, net				$	52,419,087	$	50,316,857

Related Party Notes Payable				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	June 30, 2016		December 31, 2015
Talon OP, L.P. Promissory Note – Related Party (see NOTE 6)	Unsecured fixed rate interest only	June 30, 2016	24.00%	$	-	$	500,000

(1) Beginning January 2016, mechanics lien statements were filed upon the property at 180 E. Fifth Street for work completed to prepare the tenant space for a significant lease entered into on April 9, 2015. Mechanics liens that remain undischarged of record after 60 days constitute an event of default under the loan agreements, permitting the lender to accelerate the indebtedness at its option. On September 21, 2016 and October 20, 2016, mechanics lien holders filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligations to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute. The lender is aware of this default and our refinancing efforts to cure it. They are currently not exercising any remedies with respect to any defaults.

(2) On November 16, 2015 the Company entered into a $481,934 unsecured promissory note with the Property Manager of Talon First Trust, LLC. The note satisfied the fees due under the Property Management Agreement for the period of March 2015 through December 2015 and had an original maturity date of December 31, 2015. Subsequently, the Company extended the maturity date to February 15, 2016 and then to August 31, 2016 and increased the note by $471,974 for the fees incurred from January 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager (see Note 9). In July 2016, an additional $10,000 and $45,000 respectively was added to the principal balance of the note. The note bore interest at 8% annually from November 16, 2015 through June 30, 2016 and currently bears interest at 10% annually through maturity. On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

(3) The outstanding principal and applicable accrued interest is due in full upon sale or refinancing of the property at 180 E. Fifth Street in St. Paul.

(4) On June 29, 2016 the Company received funds from two different sources totaling $235,993 for the sale of future receivables at the property located at 180 E. Fifth Street. The agreements require payments totaling $352,305 over 120 days. Per FASB ASC 470-10-25, which provides guidance on funds received from sales of future receivables, this transaction has been classified as debt and included in notes payable. The agreements are guaranteed by a shareholder of the Company.

(5) On January 12, 2015 and May 19, 2015, respectively, the Company entered into two separate $500,000 unsecured promissory notes with the same unrelated party. The notes bore interest at 14% annually and had an original maturity date of June 30, 2015 and July 18, 2015, respectively. In 2015, the Company extended the maturity dates of both notes to December 31, 2015. The notes bore interest of 20% annually from July 1, 2015 and July 19, 2015, respectively, through October 31, 2015. Subsequently, the Company extended the maturity dates of both notes to the earlier of, the disposition or refinancing of the property at 180 E 5th Street in St. Paul or June 30, 2016. The notes will bear interest at 24% annually from November 1, 2015 through June 30, 2016. The maturity date has not been extended and the note is due and payable in full. On September 24, 2016, the unrelated party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

The Company is required to make the following principal payments on our outstanding notes payable for each of the five succeeding fiscal years and thereafter as follows:

	Amount
2016	$	34,800,951
2017		7,231,444
2018		322,112
2019		10,537,252
	$	52,891,759

The Company is required to periodically fund and maintain escrow accounts to make future real estate tax and insurance payments, as well as to fund certain capital expenditures.

The Company’s mortgage assumed by Talon Bren Road, LLC in connection with the acquisition of the property at Bren Road includes a restrictive covenant that requires Talon Bren Road, LLC to maintain a minimum debt service coverage (“DSCR”) before distributions of 1.35:1.00 and after distributions of 1:05:1.00 as of the last day of each calendar year. As of December 31, 2015, Talon Bren Road LLC was out of compliance with the DSCR test. An amendment to the loan agreement as well as waiver of the DSCR default for the December 31, 2015 test date was subsequently executed. The loan agreement was amended to include a minimum Senior Debt Service Coverage Ratio (pre-distributions) of not less than 1.50:1.00. It also amended and restated the minimum Debt Service Coverage Ratio before distributions of not less than 1.20:1.00 as of the last day of each calendar year commencing after December 31, 2015.

The Company’s mortgage entered into by Talon First Trust, LLC in connection with the property at 180 E. Fifth Street, St. Paul, Minnesota includes a financial covenant that requires the Company to maintain a net worth that equals or exceeds $30 million and cash and marketable securities equal to or greater than $3 million as of December 31, 2015 through the remaining term of the loan. The loan agreement allows the Company 30 days following any failure in which to satisfy this financial covenant or provide an individual or entity acceptable to lender as another guarantor on the loan and of the environmental indemnity obligations. Failure to satisfy the covenant would constitute an event of default under the terms of the loan. The Company (as well as Talon OP, L.P.) is a guarantor of the loan entered into by Talon First Trust, LLC and an indemnitor of Talon First Trust, LLC’s environmental obligations in connection with the property at 180 E. Fifth Street, St. Paul, Minnesota. The lender has accepted Mr. Kaminski as an additional guarantor pursuant to the Joinder Agreement dated March 30, 2016. Although Mr. Kaminski has executed a joinder agreement adding himself as an additional guarantor on the loan, the lender has reserved all rights, remedies and recourses available to it for any event of default whether arising prior or after the date of the agreement. There is no assurance that the financial covenants will be satisfied in the future. As such, the Company has included the full outstanding balance of the loan in the principal amounts due in 2016 in the table above.

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Transactions with Related Parties

9 Months Ended

Sep. 30, 2016

Related Party Transactions [Abstract]

Transactions with Related Parties

NOTE 6 – TRANSACTIONS WITH RELATED PARTIES

On August 12, 2014, the Company entered into a $500,000 unsecured promissory note with one of its directors. The note bore interest at 14% annually and had an original maturity date of February 8, 2015. Proceeds from this note paid off additional notes entered into on December 30, 2013 and March 7, 2014, respectively, for $100,000 each, with the same party. In 2015, the Company extended the maturity date of the note to December 31, 2015. The note bore interest at 20% annually from July 1, 2015 through September 30, 2015. Subsequently, in 2016 the Company extended the maturity date of the note to the earlier of, the disposition or refinancing of the property at 180 E. Fifth Street in St. Paul or June 30, 2016. The maturity date has not been extended and the note is due and payable in full. The note will bear interest at 24% annually from November 1, 2015 through the date payment is made in full. The Company incurred $30,246 and $90,082 of interest expense for the three and nine months ended September 30, 2016, respectively, and $25,206 and $59,918 for the three and nine months ended September 30, 2015, respectively. Accrued interest on the note was $207,479 and $117,397 as of September 30, 2016 and December 31, 2015, respectively. The Company did not pay any interest on the current note for the three and nine months ended September 30, 2016 and 2015, respectively. The note agreement provides that the Company will not make any distributions, dividends or payments to any of their equity shareholders other than to preferred unit holders. On September 16 the party terminated their affiliation with the Company and is no longer a related party. On October 18, 2016, the party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

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Concentrations

9 Months Ended

Sep. 30, 2016

Risks and Uncertainties [Abstract]

Concentrations

NOTE 7 – CONCENTRATIONS

The Company has three tenants that rent approximately 31% of the Company’s total rentable space as of September 30, 2016 with base rent representing 64% and 63% of total base rent revenues for the three and nine months ended September 30, 2016, respectively. For the same periods in 2015, the same three tenants rented approximately 31% of the space, with base rent representing 61% and 62%, respectively, of the total base rent revenues. The largest tenant currently rents approximately 12% of the Company’s rentable space. The Company had two parties who accounted for 86% and 90% of the total rent and other receivables balance as of September 30, 2016 and December 31, 2015, respectively.

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Restricted Escrows and Reserves

9 Months Ended

Sep. 30, 2016

Cash and Cash Equivalents [Abstract]

Restricted Escrows and Reserves

NOTE 8 – RESTRICTED ESCROWS AND RESERVES

According to the terms of the Company's notes payable agreements (Note 5), the Company is required to make monthly and quarterly deposits to various escrow and reserve accounts for the payment of real estate taxes, tenant improvements and leasing commissions. The Company had $3,175,992 and $2,139,180 in restricted escrows and reserve accounts as of September 30, 2016 and December 31, 2015, respectively.

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Commitments and Contingencies

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Commitments and Contingencies

NOTE 9 – COMMITMENTS AND CONTINGENCIES

On June 7, 2013, Talon RE, entered into a contribution agreement with the remaining interest holder of 5130 LLC pursuant to which it will acquire the remaining 51% interest in 5130 LLC in exchange for 2,820,810 shares of our common stock, subject to receiving consent to the transfer from 5130 LLC’s lender.

The Company entered into a property lease agreement relating to rental of office space. This non-cancellable lease has a remaining term of 45 months. The lease is subject to periodic adjustments for operating expenses. The future net minimum rental payments for this lease are as follows:

Years ending December 31,
2016	$	13,170
2017		53,178
2018		84,664
2019		89,187
2020		45,876
	$	286,075

The Company entered into a Contribution Agreement dated May 29, 2014 with Bren Road, LLC, the contributor of the property acquired through our subsidiary, Talon Bren Road, LLC. The agreement provides for any deficit in achieving $1,560,000 of net operating income (“NOI”) per year for the first three years to be funded by Bren Road, LLC. The Company recognized $24,348 and $65,470 of income under this agreement for the three and nine months ended September 30, 2016, respectively, and ($22,904) and $128,068 for the three and nine months ended September 30, 2015, respectively. The Company has filed a complaint in the State of Minnesota on June 10, 2016 to enforce the Contribution Agreement. The defendant has responded and filed a counterclaim against Talon Bren Road, LLC and Talon OP, LP on July 7, 2016 to which the Company has responded. Amounts due but unpaid under the Contribution Agreement are included in accounts receivable.

The Company entered into a consulting agreement dated May 29, 2014 with Gerald Trooien (“Consultant”). This agreement provides for consulting services to Talon Bren Road, LLC for $43,750 per month payable beginning August 15, 2014 and continuing for 59 months thereafter. The agreement will terminate upon the occurrence of any of the following:

a. redemption or conversion of all limited partnership units held by Bren Road, LLC,

b. sale by Bren Road of any of its partnership units in Talon OP, L.P.,

c. payment to Bren Road of any dividends in respect to Bren Road’s interest in Talon, and

d. the Company qualifies as a real estate investment trust (REIT).

The consulting agreement provides for a reduction of the monthly consulting fees upon potential receipt of funds by the Consultant from a subsequent mortgage financing.

The Company incurred $106,820 and $393,750 of consulting expenses for the three and nine months ended September 30, 2016, respectively, $131,250 and $393,750 of expenses for the three and nine months ended September 30, 2015, respectively. The Company had amounts due of $383,750 and $45,938 as of September 30, 2016 and December 31, 2015, respectively.

The Company entered into a Property Management Agreement dated July 2, 2014 with Swervo Management Division, LLC (“Property Manager”). This agreement provides for management and other leasing duties for Talon First Trust, LLC for monthly payments of 7.5% of the monthly gross rental receipts at the property beginning July 2, 2014 and continuing for 59 months thereafter. The agreement will terminate upon the occurrence of any of the following:

a. the sale of property by the property owner,

b. any non-monetary breach of any term or condition in the Property Management Agreement by either party not cured within 60 days of written notice of breach, and

c. the date the principal and interest on the property note in aggregate principal amount of $33,000,000 by RCC Real Estate Inc, has been paid in full.

The Company incurred $143,862 and $434,555 of expenses for the three and nine months ended September 30, 2016, respectively, and $180,580 and $464,984 for the three and nine months ended September 30, 2015, respectively. The Company as of September 30, 2016 had $106,936 due and had $0 due as of December 31, 2015. On January 7, 2016, the Company entered into a $584,937 unsecured promissory note with the Property Manager in satisfaction of the fees for the period of March 2015 through January 2016 and which amends the note dated November 16, 2015 for $481,934 and extended the maturity date to February 15, 2016. Subsequently, the Company extended the maturity date to August 31, 2016 and increased the note by $368,971 for the fees incurred from February 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager. On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

On April 9, 2015, the Company entered into a significant lease arrangement with a new tenant. As part of the lease agreement, the Company incurred an obligation for lease incentives up to approximately $8.2 million. As of September 30, 2016, the Company had recorded $216,770 to building improvements and $7,760,995 to tenant improvement allowance payable related to this commitment. On April 1, 2016, the tenant provided notice asserting a right to terminate the lease based on certain alleged defaults related to the completion and delivery of the building and tenant improvements under the lease On June 1, 2016, the tenant filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the lease and asserting certain rights to terminate the lease. The Company has responded to the complaint to enforce the lease. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

On August 31, 2015, the Company amended a lease arrangement with an existing tenant. As part of the lease agreement, the Company incurred an obligation for lease incentives up to approximately $252,000. On June 30, 2016, the Company reversed the remaining balance of $210,300 of deferred leasing incentives and corresponding payable as the tenant cancelled the leasing incentive offered in the lease. The Company had recorded leasing incentives payable of $0 and $235,500, within accrued expenses and other liabilities related to this commitment as of September 30, 2016 and December 31, 2015, respectively.

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Restricted Stock

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Restricted Stock

NOTE 10 – RESTRICTED STOCK

The Company has granted restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan. The 2013 Equity Incentive Plan dated June 7, 2013 (the “Plan”) allows up to 1,500,000 shares to be issued and granted to employees, non-employee directors, and consultants and automatically increases on January 1 of each year by three percent of the outstanding shares of common stock as of December 31 of the immediately preceding year. Employee awards granted in 2013 vest monthly over 36 months provided the recipient remains an employee or consultant of the Company. Awards granted in 2014 vest either immediately, monthly over a three year period, or monthly over a five year period. Awards granted in June 2016 vest either immediately or in April 2017. The Non-Employee Director Compensation Plan allows shares of restricted common stock to be granted to board members and is included under the Plan. The 2013 board member awards vest one-third of the shares on the date of grant, one-third on January 1 of the year following the date of grant, and one-third on January 1 of the second year following the date of grant, provided the recipient remains a member of the board as of the vesting date. The 2014 awards vested immediately in March of 2014 and the 2016 awards vested half in June 2016 with the remainder to vest in April 2017.

As of September 30, 2016, the Company had granted 807,095 shares to employees and 480,000 shares to Directors under the Plan.

The following table sets forth a summary of restricted stock for the three and nine months ended September 30, 2016:

Total Restricted Stock	Number of Restricted Shares	Weighted-average Grant Date Fair Value
Granted and not vested, June 30, 2016	545,307	$	.83
Granted	-		-
Vested	(40,497)		0.69
Forfeited or rescinded	(398,363)		1.11
Granted and not vested, September 30, 2016	106,447	$	1.03
Total Restricted Stock	Number of Restricted Shares	Weighted-average Grant Date Fair Value
Granted and not vested, December 31, 2015	287,007	$	1.20
Granted	550,000		1.00
Vested	(332,197)		1.03
Forfeited or rescinded	(398,363)		1.11
Granted and not vested, September 30, 2016	106,447	$	1.03

Total unrecognized compensation expense related to the outstanding restricted stock as of September 30, 2016 was $110,059, which is expected to be recognized over a weighted average period of 19 months. The Company recognized $145,150 and $342,720 of stock-based compensation expense for the three and nine months ended September 30, 2016, respectively, and $38,285 and $135,685 for the three and nine months ended September 30, 2015, respectively, that is included in salary and compensation expense in the consolidated statements of operations. The Company used 0% for both the discount factor and forfeiture rate for determining the fair value of restricted stock. The Company has limited history to determine forfeiture trends and the Company considers the discount rate to be immaterial.

2013 Equity Incentive Plan Restricted Stock	Number of Restricted Shares
Authorized but not granted or issued, December 31, 2015	1,339,715
Authorized increase in Plan shares	511,730
Granted	(550,000)
Forfeited or rescinded	398,363
Authorized but not granted or issued, September 30, 2016	1,699,808

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Intangible Assets and Liabilities

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Liabilities

NOTE 11 – INTANGIBLE ASSETS AND LIABILITIES

The Company's identified intangible assets and liabilities at September 30, 2016 and December 31, 2015 were as follows:

	September 30, 2016		December 31, 2015
Identified intangible assets:r0
In-place leases	$	10,078,055	$	10,078,055
Above-market leases		1,832,939		1,832,939
Accumulated amortization		(5,878,467)		(4,168,849)
Net carrying amount	$	6,032,527	$	7,742,145
	September 30, 2016		December 31, 2015
Identified intangible liabilities:
Below-market leases	$	507,746	$	507,746
Accumulated amortization		(328,210)		(241,518)
Net carrying amount	$	179,536	$	266,228

The effect of amortization of acquired intangible assets and liabilities was $539,336 and $1,622,925, respectively, for the three and nine months ended September 30, 2016 and $562,698 and $1,774,922 for the three and nine months ended September 30, 2015, respectively. Above-market leases, included in intangible assets, are amortized as a reduction of rent revenue and totaled $74,118 and $225,402 for the three and nine months ended September 30, 2016, respectively, and $83,268 and $271,512 for the three and nine months ended September 30, 2015, respectively. Below-market leases are amortized as an addition to rent revenue and totaled $28,898 and $86,693 for the three and nine months ended September 30, 2016, respectively, and $34,853 and $104,558 for the three and nine months ended September 30, 2015, respectively. Amortization of in-place leases was $494,117 and $1,484,217 for the three and nine months ended September 30, 2016, respectively, and $514,283 and $1,607,967 for the three and nine months ended September 30, 2015, respectively. In-place leases, and above and below-market leases had a weighted average amortization period of 4.5 years in the year acquired.

The estimated annual amortization of acquired intangible assets and liabilities for each of the five succeeding fiscal years is as follows:

Years ending December 31,
	Assets		Liabilities
2016 (remaining 3 months)	$	566,924	$	28,898
2017		2,247,503		113,849
2018		1,654,921		36,789
2019		1,175,159		-
2020		388,020		-
	$	6,032,527	$	179,536

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Hedging Activities

9 Months Ended

Sep. 30, 2016

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Hedging Activities

NOTE 12 – HEDGING ACTIVITIES

The Company may use derivative instruments as part of its interest rate risk management strategy to minimize significant unanticipated earnings fluctuations that may arise from variable interest rates associated with existing borrowings. On July 2, 2014, the Company entered into an interest rate cap contract for the notional amount of $33 million with a strike rate of 2.5% on one month LIBOR as a hedge for a floating rate debt entered into on that date. The interest rate cap expired on July 5, 2016. The interest rate cap was issued at approximate market terms and thus no fair value adjustment was recorded at inception. The Company did not elect hedge accounting treatment for the rate cap and as such, changes in fair value are recorded directly to earnings.

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Mandatorily Redeemable Preferred Operating Partnership Units

9 Months Ended

Sep. 30, 2016

Other Liabilities and Financial Instruments Subject to Mandatory Redemption [Abstract]

Manditorily Redeemable Preferred Operating Partnership Units

NOTE 13 – MANDATORILY REDEEMABLE PREFERRED OPERATING PARTNERSHIP UNITS

On July 2, 2014, the Company issued 30,000 preferred units, at a price of $100 per unit, totaling $3,000,000. These preferred unit holders are entitled to distributions at a rate of 6% per annum of their liquidation preference amount of $100 per unit which are cumulative from the date of issuance and are payable monthly (to the extent there are sufficient distributable proceeds). On and after July 2, 2020, the Company shall redeem the units, in whole, at the liquidation preference price of $100 per unit, plus accrued and unpaid distributions. There was $100,005 of preferred payments outstanding as of September 30, 2016. The preferred units have been classified as a liability in the consolidated balance sheet as the preferred liquidation preference amount is mandatorily redeemable in specific amounts at specific dates in the future. The liquidation preference amount totaled $3,000,000 as of September 30, 2016 and December 31, 2015.

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Subsequent Events

9 Months Ended

Sep. 30, 2016

Subsequent Events [Abstract]

Subsequent Events

NOTE 14 – SUBSEQUENT EVENTS

On January 28, 2016, Talon Bren Road, LLC, a subsidiary of Talon OP, L.P., which is the entity through which Talon Real Estate Holding Corp. conducts substantially all of its business, entered into a purchase and sale agreement with Timberland Partners, Inc. Under the agreement, Talon Bren Road agreed to sell the property located at 10301 Bren Road West, Minnetonka, Minnesota to the buyer subject to a diligence period and other conditions of the purchase and sale agreement typical of a real estate transaction. Pursuant to the agreement, in exchange for the property, the buyer paid Talon Bren Road a $100,000 initial deposit and was to pay $25,900,000 at closing, subject to adjustments as set forth in the purchase agreement. The agreement was terminated by the buyer on November 1, 2016 following the due diligence period.

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Going Concern

9 Months Ended

Sep. 30, 2016

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Going Concern

NOTE 15 – GOING CONCERN

Liquidity is a measure of our ability to meet potential cash requirements, including commitments to repay borrowings, fund and maintain our operations and assets, acquire properties, make distributions to our shareholders and other general business needs. In the short-term, we have incurred significant expenses related to completing building and tenant improvements at our properties, and pursuing our acquisition strategy creating a cash shortfall through September 30, 2016.

Our short-term liquidity requirements consist primarily of funds needed to pay for operating expenses and other expenditures directly associated with our properties, pay off maturing debt, and to pursue our strategy of near-term growth through acquisition of properties as well as general and administrative expenses operating as a public company.

We currently do not have available cash and cash flows from current operations to provide us with adequate liquidity for the foreseeable future. Our current liabilities exceed our unrestricted cash and we have very limited cash flow from current operations. As of September 30, 2016, we had unrestricted cash of $184,332 and current liabilities including tenant improvement allowances, unsecured debt, accounts payable and accrued expenses substantially in excess of the available cash. We therefore will require additional capital and/or increased cash flow from future operations to fund our ongoing business. The loan secured by the property at 180 E. Fifth Street may be accelerated by the lender which would require refinancing or sale of the property. We may also be unable to borrow or obtain sufficient funds for repayment on terms acceptable to us or at all, and our ability to obtain future financing may also be impacted negatively.

There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and future operations to fund our ongoing business. If the amount of capital we are able to raise together with our income from operations is not sufficient to satisfy our capital needs, we may be required to cease our operations or alter our growth plans. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our consolidated financial statements, and it is likely that investors will lose all or a part of their investment.

Although we plan to aggressively pursue acquisitions to grow our business there is no assurance that we will be able to acquire additional properties in the future or obtain the necessary financing to acquire such properties.

Since our available cash and cash flows from current operations do not provide us with adequate cash to satisfy current liabilities and do not provide us with adequate liquidity for the foreseeable future, we anticipate that we will undertake future debt or equity financings or if necessary, sell certain of our property holdings in 2016 and 2017.

In the future, we may use a number of different sources to finance our liquidity needs, including cash flows from operations, issuance of debt securities or equity securities (which might be common or preferred stock), private financings (such as additional bank credit facilities, which may or may not be secured by our assets), asset sales, seller financing, property-level mortgage debt, or any combination of these sources, to the extent available to us, or other sources that may become available from time to time. Any debt that we incur may be recourse or non-recourse and may be secured or unsecured. We may incur substantial costs in pursuing future capital financing, including investment banking fees, legal fees, accounting fees, and other costs. Although we have successfully raised equity capital in the past, we cannot be assured that we will be able to continue to be successful in raising capital through issuance of securities. Our ability to obtain needed financing may be impaired by such factors as the capital markets, our status as a new enterprise without significant assets or demonstrated operating history, and/or the loss of key management. There is no guarantee that we will be able to raise any required additional capital or generate sufficient cash flow from our current and proposed operations to fund our ongoing business.

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Accounting Policies (Policies)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Accounting Estimates

Accounting Estimates

The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to use estimates and assumptions which affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities, and the reported amounts of revenues and expenses. Significant items subject to such estimates and assumptions include determination of the useful life of property and other long-lived assets, valuation and impairment analysis of property and other long-lived assets, and valuation of the allowance for doubtful accounts. It is at least reasonably possible that these estimates could change in the near term.

Principles of Consolidation

Principles of Consolidation

We evaluate the need to consolidate affiliates based on standards set forth in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 810, Consolidation. In determining whether we have a controlling interest in an affiliate and the requirement to consolidate the accounts of that entity, management considers factors such as ownership interest, authority to make decisions, contractual and substantive participating rights of the limited partners and shareholders, as well as whether the entity is a variable interest entity for which we are the primary beneficiary. The accompanying condensed consolidated financial statements include the accounts of Talon Real Estate Holding Corp. (“TREHC”) and Talon OP, our Operating Partnership, and all subsidiaries in which it maintains a controlling interest. Talon OP also consolidates 5130 LLC, an entity in which it has a 49% ownership interest, based on its ability to control the operating and financial decisions of 5130 LLC. All significant intercompany balances have been eliminated in consolidation.

Cash

Cash

The Company considers short-term investments with original maturities of 90 days or less to be cash equivalents. The Company believes it is not exposed to any significant credit risk on cash.

Restricted Escrows and Reserves

Restricted Escrows and Reserves

The Company is required to hold cash in restricted escrow accounts for insurance, real estate taxes and a replacement reserve. The escrows are used to pay periodic charges of real estate taxes and assessments, tenant improvements, and leasing commissions.

Rents and other Receivables

Rents and other Receivables

Rents receivable and deferred rent are recorded at their estimated net realizable value. The Company follows a policy of providing an allowance for doubtful accounts, which is based on a review of outstanding receivables, historical collection information, and existing economic conditions. The Company does not require collateral and accounts are considered past due if payment is not made on a timely basis in accordance with our credit terms. Accounts considered uncollectible are written off.

Revenue Recognition

Revenue Recognition

Base rental income is recognized on a straight-line basis over the terms of the related lease agreement, inclusive of leases which provide for scheduled rent increases or rent concessions. Differences between rent income earned and base rent amounts due per the respective lease agreements are credited or charged to deferred rent revenue or deferred rent receivable as applicable. When the Company enters into lease modifications or extensions with current tenants, the deferred rent at the time of the extension is amortized over the remaining term of the lease, and the revised terms are considered a new lease.

Tenant recoveries related to reimbursement of real estate taxes, insurance, repairs and maintenance and other operating expenses are billed monthly based on current year estimated operating costs for applicable expenses. An additional billing or a refund is made to tenants in the following year after actual operating expenses are determined.

Derivative Instruments

Derivative Instruments

The Company records all derivative instruments on the balance sheet at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative, whether the Company has elected to designate a derivative in a hedging relationship and whether the hedging relationship has satisfied the criteria necessary to apply hedge accounting. If the Company does not apply hedge accounting, all changes in the fair value of derivatives are recognized directly in earnings in the period of change. Currently, the Company has not elected hedge accounting treatment and all changes in fair value of the Company’s derivatives are recognized in current period earnings.

Deferred Leasing Costs and Tenant Allowance

Deferred Leasing Costs and Tenant Allowance

Direct and indirect costs, including estimated internal costs and leasing commissions, associated with the leasing of real estate investments owned by the Company are capitalized as deferred leasing costs and amortized on a straight-line basis over the term of the related lease as amortization expense. Unamortized costs are charged to expense upon the early termination of the lease. Costs associated with unsuccessful leasing opportunities are expensed.

In leasing tenant space, the Company may provide funding to the lessee through a tenant allowance. In accounting for a tenant allowance, the Company determines whether the allowance represents funding for the construction of leasehold improvements and evaluates the ownership, for accounting purposes, of such improvements. If the Company is considered the owner of the leasehold improvements for accounting purposes, the Company capitalizes the amount of the tenant allowance as building improvements and depreciates it over the shorter of the useful life of the leasehold improvements or the related lease term. For tenant allowances committed at lease inception and recorded as building improvements but not yet performed or completed, the corresponding liability will be recorded as tenant improvement allowance payables. If the tenant allowance represents a payment for a purpose other than funding leasehold improvements, or in the event the Company is not considered the owner of the improvements, for accounting purposes, the tenant allowance is considered to be a lease incentive and is capitalized as a deferred leasing cost and is amortized over the lease term as a reduction of rental revenue on a straight-line basis.

Deferred Financing Costs

Deferred Financing Costs

Costs incurred in connection with obtaining financing are netted against notes payable and are being amortized on a straight-line basis over the financing term and are included in interest expense.

Real Estate Property and Fixed Assets

Real Estate Property and Fixed Assets

Investment in real estate and fixed assets with a useful life of longer than one year are carried at cost less accumulated depreciation and amortization. Property such as land, building and improvements includes cost of acquisitions, development, and construction and tenant allowances and improvements. We allocate the cost of an acquisition, including the assumption of liability, to the acquired tangible assets (including land, buildings and personal property) determined by valuing the property as if it were vacant, and identifiable intangibles based on their relative fair values. Acquisitions of real estate are recorded based upon preliminary allocations of the purchase price to management’s assessment of the fair value of tangible and intangible assets and any assumed liabilities acquired which are subject to adjustment as additional information is obtained up to one year after the date of acquisition. Management’s fair value assessment includes the use of readily accepted fair value techniques such as discounted cash flow analysis and comparable sales analysis including management’s reliance on independent market analysis.

Depreciation is provided using the straight-line method over the estimated useful life of the assets for buildings and land improvements, and the term of the lease for tenant improvements.

Repair and maintenance costs are expensed as incurred, whereas expenditures that improve or extend the service lives of assets are capitalized. Disposal and abandonment of improvements are recognized at occurrence as a charge to depreciation.

Intangible Assets or Liabilities

Intangible Assets or Liabilities

Upon acquisitions of real estate, the Company assesses the fair value of acquired tangible assets and any significant intangible assets and liabilities (such as above- and below-market leases and value of acquired in-place leases), and any assumed liabilities, and allocates the purchase price based on these fair value assessments. The Company records intangible assets and liabilities acquired at their estimated fair value apart from goodwill for acquisitions of real estate. The Company amortizes identified intangible assets and liabilities based on the period over which the assets and liabilities are expected to affect the future cash flows of the real estate property acquired. Lease intangibles (such as in-place or above- and below-market leases) are amortized over the term of the related lease. Above and below-market leases are amortized as a reduction in (addition to) rent revenue.

Impairment of Long-Lived Assets

Impairment of Long-Lived Assets

Long-lived assets, such as real estate property, and purchased intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable. An impairment loss would be recognized when the estimated future cash flows from the use and eventual disposition of the asset are less than the carrying amount of that asset.

Income Taxes

Income Taxes

The Company accounts for income taxes under FASB ASC 740-10-30 which results in the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the book carrying amounts and the tax basis of assets and liabilities. Deferred income tax assets and liabilities are measured using the enacted tax rates and laws that will be in effect when the temporary differences and carry forwards are expected to reverse. Accounting standards require the consideration of a valuation allowance for deferred tax assets if it is “more likely than not” that some component or all of the benefits of deferred tax assets will not be realized.

The Company's policy of accounting for uncertain tax positions is to recognize the tax effects from an uncertain tax position in the financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized, upon ultimate settlement with the relevant tax authority. The Company has examined the tax positions taken in its tax returns and determined that there are no uncertain tax positions. As a result, the Company has recorded no uncertain tax liabilities in its consolidated balance sheet.

The Company is no longer subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2012. The Company is not currently under examination by any taxing jurisdiction. In the event of any future tax assessments, the Company has elected to record the income tax penalties as general and administrative expense and any related interest as interest expense in the Company's consolidated statements of operations.

Stock-based Compensation

Stock-based Compensation

The Company has granted restricted stock to employees under an approved employee equity incentive plan and to Directors under a director compensation plan. Granted shares are considered issued and outstanding as of the date of the grants. Stock-based compensation is expensed on a straight-line basis over the vesting period and is valued at the fair value on the date of the grant.

The Company may also issue common stock in exchange for goods or services of non-employees. These shares are either fully vested at date of grant or vest over a certain period during which services are provided. The Company expenses the fair market value of the services over the period in which they are received.

Noncontrolling Interest

Noncontrolling Interest

Interests in the Operating Partnership held by limited partners are represented by partnership common units of the Operating Partnership. The Company's interest in the Operating Partnership was 66.0% and 65.0% of the common units of the Operating Partnership as of September 30, 2016 and December 31, 2015, respectively. The Operating Partnership’s income is allocated to holders of units based upon the ratio of their holdings to the total units outstanding during the period. Capital contributions, distributions, syndication costs, and profits and losses are allocated to non-controlling interests in accordance with the terms of the Operating Partnership agreement.

The portion of membership interests in 5130 LLC not held by Talon OP is reported as noncontrolling interest. Capital contributions, distributions, and profits and losses are allocated to the noncontrolling interest based on membership percentages and terms of the operating agreement.

Net Income (Loss) or Earnings Per Share

Net Income (Loss) or Earnings Per Share

Basic earnings per common share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted earnings per share is computed by dividing net income by the weighted average common and potential dilutive common shares outstanding in accordance with the treasury stock method.

Reclassifications

Reclassifications

Certain previously reported amounts have been reclassified to conform to the current financial statement presentation. The reclassifications had no impact on net loss or shareholders’ equity.

Recent Accounting Pronouncements

Recent Accounting Pronouncements

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers. This new standard will eliminate all industry-specific guidance and replace all current U.S. GAAP guidance on the topic. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. Lease contracts are specifically excluded from the new accounting guidance. This guidance will be effective for the Company beginning January 1, 2018 and can be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. We are currently assessing the impact on the Company’s consolidated financial statements.

In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going Concern (Subtopic 205-40). The amendments in this Update provide guidance in U.S. GAAP about management’s responsibility to evaluate whether there is substantial doubt about an entity’s ability to continue as a going concern and to provide related footnote disclosures. The amendments require management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued).The amendments in this Update are effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The Company currently has disclosed certain matters relative to going concern in Note 15 but presently has not yet adopted the new guidance.

In April 2015, the FASB issued ASU No. 2015-03 Interest—Imputation of Interest (Subtopic 835-30) Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this update. We adopted the accounting standards update as of January 1, 2016 with retrospective application to our December 31, 2015 Consolidated Balance Sheet. The effect of the adoption was to reclassify debt issuance from deferred financing costs, net of accumulated amortization, of $969,527 to a contra account as a deduction from the related notes payable. There was no effect on our consolidated statements of operations and cash flows.

In September 2015, the FASB issued ASU 2015–16, Simplifying the Accounting for Measurement Period Adjustments. To simplify the accounting for adjustments made to provisional amounts, ASU 2015–16 requires that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. The provisions of ASU 2015–16 are effective for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. We adopted this ASU effective January 1, 2016. The adoption of ASU 2015-16 had no impact on our condensed consolidated balance sheets or results of operations, or cash flows.

During February 2016, the FASB issued ASU No. 2016-02, Leases. ASU No. 2016-02 was issued to increase transparency and comparability among organizations by recognizing all lease transactions (with terms in excess of 12 months) on the balance sheet as a lease liability and a right-of-use asset (as defined). ASU No. 2016-02 is not expected to significantly impact the accounting for leases by lessors. ASU No. 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with earlier application permitted. Upon adoption, the lessee will apply the new standard retrospectively to all periods presented or retrospectively using a cumulative effect adjustment in the year of adoption. The Company is currently assessing the effect that ASU No. 2016-02 will have on its results of operations, financial position and cash flows.

In March 2016, the FASB issued ASU No. 2016-09, Compensation- Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting, which will reduce complexity in accounting standards related to share-based payment transactions, including, among others, (1) accounting for income taxes, (2) classification of excess tax benefits on the statement of cash flow, (3) forfeitures, and (4) statutory tax withholding requirements. The ASU is effective for annual reporting periods beginning on or after December 15, 2016, and interim periods within those annual periods. The Company is currently assessing the effect that ASU No. 2016-09 will have on its consolidated financial statements.

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Summary of Significant Accounting Policies (Tables)

9 Months Ended

Sep. 30, 2016

Accounting Policies [Abstract]

Schedule of Real Estate Property and Fixed Assets

Land Improvements	3-15 years
Buildings	25-30 years
Building Improvements	10-20 years
Tenant Improvements	1-12 years
Furniture and Equipment	3 years

Schedule of Earnings per Share Basic and Diluted

	Three Months Ended September 30,		Nine Months Ended September 30,
	2016	2015	2016	2015
Weighted average common shares outstanding - basic	17,251,136	16,716,934	16,980,771	16,578,942
Plus potentially dilutive common shares:
Unvested restricted stock	178,409	5,384	194,503	57,143
Weighted average common shares outstanding - diluted	17,429,545	16,722,318	17,175,274	16,636,085

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Tenant Leases (Tables)

9 Months Ended

Sep. 30, 2016

Leases [Abstract]

Schedule of Future Minimum Rental Payments

2016	$	2,092,210
2017		8,027,637
2018		7,868,415
2019		6,997,191
2020		2,899,522
Thereafter		12,008,648
	$	39,893,623

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Notes Payable (Tables)

9 Months Ended

Sep. 30, 2016

Debt Disclosure [Abstract]

Schedule of Notes Payable

				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	September 30, 2016		December 31, 2015
Talon First Trust, LLC Mortgage (1)	Secured floating rate interest only	July 5, 2017	5.94%	$	32,000,000	$	32,000,000
Talon First Trust, LLC. – Promissory Note (2)	Unsecured fixed rate interest only	August 31, 2016	10.00%		1,008,908		481,934
Talon First Trust, LLC. – Promissory Note	Unsecured fixed rate interest only	See below (3)	10.00%		59,489		-
Talon First Trust, LLC. – Sale of Future Receivable (4)	See below (4)	See below (4)	(4)		131,467		-
Talon Bren Road, LLC Mortgage 1	Secured fixed rate	May 28, 2019	4.65%		10,926,861		11,123,773
Talon Bren Road, LLC Mortgage 2	Secured fixed rate interest only	March 1, 2017	16.00%		2,000,000		2,000,000
Talon Bren Road, LLC HVAC loan	Unsecured fixed rate	June 1, 2019	8.00%		91,508		111,797
Talon Bren Road, LLC Roof loan	Unsecured fixed rate interest only	June 1, 2019	8.00%		225,000		225,000
5130 Industrial Street, LLC Mortgage 1	Secured fixed rate	April 8, 2017	6.05%		4,000,456		4,049,859
5130 Industrial Street, LLC Mortgage 2	Secured fixed rate	April 8, 2017	12.75%		293,144		294,021
Talon OP, L.P. – Promissory Notes (5)	Unsecured fixed rate interest only	June 30, 2016	24.00%		1,000,000		1,000,000
Talon OP, L.P. – Promissory Notes	Unsecured fixed rate	July 31, 2017	3.00%		654,926		-
Talon OP, L.P. – Promissory Note (see NOTE 6)	Unsecured fixed rate interest only	June 30, 2016	24.00%		500,000		-
				$	52,891,759	$	51,286,384
Less: unamortized deferred financing costs					(472,672)		(969,527)
Notes payable, net				$	52,419,087	$	50,316,857

Related Party Notes Payable				Principal Balance At
Loan Description	Loan Type	Maturity Date	Interest Rate	June 30, 2016		December 31, 2015
Talon OP, L.P. Promissory Note – Related Party (see NOTE 6)	Unsecured fixed rate interest only	June 30, 2016	24.00%	$	-	$	500,000

(1) Beginning January 2016, mechanics lien statements were filed upon the property at 180 E. Fifth Street for work completed to prepare the tenant space for a significant lease entered into on April 9, 2015. Mechanics liens that remain undischarged of record after 60 days constitute an event of default under the loan agreements, permitting the lender to accelerate the indebtedness at its option. On September 21, 2016 and October 20, 2016, mechanics lien holders filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligations to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute. The lender is aware of this default and our refinancing efforts to cure it. They are currently not exercising any remedies with respect to any defaults.

(2) On November 16, 2015 the Company entered into a $481,934 unsecured promissory note with the Property Manager of Talon First Trust, LLC. The note satisfied the fees due under the Property Management Agreement for the period of March 2015 through December 2015 and had an original maturity date of December 31, 2015. Subsequently, the Company extended the maturity date to February 15, 2016 and then to August 31, 2016 and increased the note by $471,974 for the fees incurred from January 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager (see Note 9). In July 2016, an additional $10,000 and $45,000 respectively was added to the principal balance of the note. The note bore interest at 8% annually from November 16, 2015 through June 30, 2016 and currently bears interest at 10% annually through maturity. On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

(3) The outstanding principal and applicable accrued interest is due in full upon sale or refinancing of the property at 180 E. Fifth Street in St. Paul.

(4) On June 29, 2016 the Company received funds from two different sources totaling $235,993 for the sale of future receivables at the property located at 180 E. Fifth Street. The agreements require payments totaling $352,305 over 120 days. Per FASB ASC 470-10-25, which provides guidance on funds received from sales of future receivables, this transaction has been classified as debt and included in notes payable. The agreements are guaranteed by a shareholder of the Company.

(5) On January 12, 2015 and May 19, 2015, respectively, the Company entered into two separate $500,000 unsecured promissory notes with the same unrelated party. The notes bore interest at 14% annually and had an original maturity date of June 30, 2015 and July 18, 2015, respectively. In 2015, the Company extended the maturity dates of both notes to December 31, 2015. The notes bore interest of 20% annually from July 1, 2015 and July 19, 2015, respectively, through October 31, 2015. Subsequently, the Company extended the maturity dates of both notes to the earlier of, the disposition or refinancing of the property at 180 E 5th Street in St. Paul or June 30, 2016. The notes will bear interest at 24% annually from November 1, 2015 through June 30, 2016. The maturity date has not been extended and the note is due and payable in full. On September 24, 2016, the unrelated party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

Schedule of Maturities of Notes Payable

	Amount
2016	$	34,800,951
2017		7,231,444
2018		322,112
2019		10,537,252
	$	52,891,759

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Commitments and Contingencies (Tables)

9 Months Ended

Sep. 30, 2016

Commitments and Contingencies Disclosure [Abstract]

Schedule of Lease Commitments

Years ending December 31,
2016	$	13,170
2017		53,178
2018		84,664
2019		89,187
2020		45,876
	$	286,075

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Restricted Stock (Tables)

9 Months Ended

Sep. 30, 2016

Disclosure of Compensation Related Costs, Share-based Payments [Abstract]

Schedule of Restricted Stock Activity

Total Restricted Stock	Number of Restricted Shares	Weighted-average Grant Date Fair Value
Granted and not vested, June 30, 2016	545,307	$	.83
Granted	-		-
Vested	(40,497)		0.69
Forfeited or rescinded	(398,363)		1.11
Granted and not vested, September 30, 2016	106,447	$	1.03
Total Restricted Stock	Number of Restricted Shares	Weighted-average Grant Date Fair Value
Granted and not vested, December 31, 2015	287,007	$	1.20
Granted	550,000		1.00
Vested	(332,197)		1.03
Forfeited or rescinded	(398,363)		1.11
Granted and not vested, September 30, 2016	106,447	$	1.03

Schedule of 2013 Equity Incentive Plan Restricted Stock

2013 Equity Incentive Plan Restricted Stock	Number of Restricted Shares
Authorized but not granted or issued, December 31, 2015	1,339,715
Authorized increase in Plan shares	511,730
Granted	(550,000)
Forfeited or rescinded	398,363
Authorized but not granted or issued, September 30, 2016	1,699,808

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Intangible Assets and Liabilities (Tables)

9 Months Ended

Sep. 30, 2016

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Intangible Assets

	September 30, 2016		December 31, 2015
Identified intangible assets:r0
In-place leases	$	10,078,055	$	10,078,055
Above-market leases		1,832,939		1,832,939
Accumulated amortization		(5,878,467)		(4,168,849)
Net carrying amount	$	6,032,527	$	7,742,145
	September 30, 2016		December 31, 2015
Identified intangible liabilities:
Below-market leases	$	507,746	$	507,746
Accumulated amortization		(328,210)		(241,518)
Net carrying amount	$	179,536	$	266,228

Schedule of Future Amortization Expense

Years ending December 31,
	Assets		Liabilities
2016 (remaining 3 months)	$	566,924	$	28,898
2017		2,247,503		113,849
2018		1,654,921		36,789
2019		1,175,159		-
2020		388,020		-
	$	6,032,527	$	179,536

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Organization and Basis of Presentation (Details Narrative)	Sep. 30, 2016	Dec. 31, 2015
Talon OP, L.P.
Parent ownership percentage, approximate	66.00%	65.00%
5130 Industrial Street, LLC
Noncontrolling ownership percentage	49.00%	49.00%
Talon Bren Road, LLC
Noncontrolling ownership percentage	100.00%	100.00%
Talon First Trust, LLC
Noncontrolling ownership percentage	100.00%	100.00%
Talon Real Estate, LLC
Noncontrolling ownership percentage	100.00%	100.00%

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Investment in Real Estate Properties and Entities (Details Narrative)	9 Months Ended
	Sep. 30, 2016 ft²
Talon First Trust, LLC
Rentable area	659,577
Rentable office space currently occupied, percent	60.00%
Talon Bren Road, LLC
Rentable area	164,472
Rentable office space currently occupied, percent	100.00%
5130 Industrial Street, LLC
Rentable area	171,639
Rentable office space currently occupied, percent	85.00%

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Summary of Significant Accounting Policies - Schedule of Property Plant and Equipment (Details)	9 Months Ended
	Sep. 30, 2016
Land Improvements
Property, Plant and Equipment [Line Items]
Property, Improvements and Equipment, estimated useful lives	3-15 years
Buildings
Property, Plant and Equipment [Line Items]
Property, Improvements and Equipment, estimated useful lives	25-30 years
Building Improvements
Property, Plant and Equipment [Line Items]
Property, Improvements and Equipment, estimated useful lives	10-20 years
Tenant Improvements
Property, Plant and Equipment [Line Items]
Property, Improvements and Equipment, estimated useful lives	1-12 years
Furniture and Equipment
Property, Plant and Equipment [Line Items]
Property, Improvements and Equipment, estimated useful lives	3 years

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Summary of Significant Accounting Policies - Schedule of Earnings per Share Basic and Diluted (Details) - shares	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Earnings Per Share
Weighted average common shares outstanding, basic	17,251,136	16,716,934	16,980,771	16,578,942
Plus potentially dilutive common shares, unvested restricted stock	178,409	5,384	194,503	57,143
Weighted average common shares outstanding, diluted	17,429,545	16,722,318	17,175,274	16,636,085

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Summary of Significant Accounting Policies (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Restricted Escrows and Reserves
Restricted escrows & reserves	$ 3,175,992		$ 3,175,992		$ 2,139,180
Rents Receivable
Allowance for doubtful accounts	129,330		129,330		93,560
Deferred Leasing Costs and Tenant Allowance
Amortization expense, tenant improvements	260,552	$ 272,852	793,279	$ 779,461
Amortization expense, deferred leasing costs	73,320	79,682	220,302	232,788
Accumulated amortization expense for tenant allowances	2,620,180		2,620,180		1,826,901
Accumulated amortization of deferred leasing costs	704,323		704,323		484,021
Deferred leasing costs	11,532,029		11,532,029
Deferred Financing Costs
Amortization expense, deferred financing costs	121,094	325,531	433,475	875,285
Accumulated amortization, deferred financing costs	1,936,370		1,936,370		1,502,895
Deferred financing costs expense associated with abandoned refinancing efforts	103,090		450,614
Unamortized deferred financing costs	(472,672)		(472,672)		$ (969,527)
Stock-Based Compensation
Stock-based compensation expense	145,150	38,285	342,720	135,685
Common stock issued for services, shares					460,000
Common stock issued for services, value					$ 575,000
Financing costs	0	143,750	47,917	383,333
Intangible Assets or Liabilities
Amortization of above and below market-leases	$ 45,220	$ 48,415	$ 138,709	$ 166,954

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Tenant Leases - Schedule of Future Minimum Rental Payments (Details)	Sep. 30, 2016 USD ($)
Operating Leases Future Minimum Payments
Year 2016	$ 2,092,210
Year 2017	8,027,637
Year 2018	7,868,415
Year 2019	6,997,191
Year 2020	2,899,522
Thereafter	12,008,648
Total operating leases, future minimum payments	$ 39,893,623

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Tenant Leases (Details Narrative)	Sep. 30, 2016 USD ($)
Leases [Abstract]
Lease payments for significant tenant that has not occupied space yet, executed lease agreement	$ 15,627,822

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Notes Payable - Schedule of Notes Payable (Details) - USD ($)		9 Months Ended	12 Months Ended
		Sep. 30, 2016	Dec. 31, 2015	Dec. 31, 2014
Debt Instrument [Line Items]
Principal balance of notes payable		$ 52,891,759	$ 51,286,384
Less: unamortized deferred financing costs		(472,672)	(969,527)
Notes payable, net		$ 52,419,087	$ 50,316,857
Director
Debt Instrument [Line Items]
Maturity date		Jun. 30, 2016		Dec. 31, 2015
Interest rate terms			The note bore interest at 20% annually from July 1, 2015 through September 30, 2015. The note will bear interest of 24% annually from November 1, 2015 through June 30 2016.
Talon First Trust, LLC Mortgage
Debt Instrument [Line Items]
Principal balance of notes payable	[1]	$ 32,000,000	$ 32,000,000
Fixed interest rate		5.94%	5.94%
Maturity date		Jul. 05, 2017	Jul. 05, 2017
Interest rate terms		Secured floating rate interest only	Secured floating rate interest only
Talon First Trust, LLC Promissory Note
Debt Instrument [Line Items]
Principal balance of notes payable	[2]	$ 1,008,908	$ 481,934
Fixed interest rate		10.00%	10.00%
Maturity date		Aug. 31, 2016	Aug. 31, 2016
Interest rate terms		Unsecured fixed rate interest only	Unsecured fixed rate interest only
Talon First Trust, LLC Promissory Note #2
Debt Instrument [Line Items]
Principal balance of notes payable	[3]	$ 59,489	$ 0
Fixed interest rate		10.00%	10.00%
Interest rate terms		Unsecured fixed rate interest only	Unsecured fixed rate interest only
Talon First Trust LLC - Sale of Future Receivable
Debt Instrument [Line Items]
Principal balance of notes payable	[4]	$ 131,467	$ 0
Talon Bren Road LLC Mortgage #1
Debt Instrument [Line Items]
Principal balance of notes payable		$ 10,926,861	$ 11,123,773
Fixed interest rate		4.65%	4.65%
Maturity date		May 28, 2019	May 28, 2019
Interest rate terms		Secured fixed rate	Secured fixed rate
Talon Bren Road LLC Mortgage #2
Debt Instrument [Line Items]
Principal balance of notes payable		$ 2,000,000	$ 2,000,000
Fixed interest rate		16.00%	16.00%
Maturity date		Mar. 01, 2017	Mar. 01, 2017
Interest rate terms		Secured fixed rate interest only	Secured fixed rate interest only
Talon Bren Road LLC HVAC Loan
Debt Instrument [Line Items]
Principal balance of notes payable		$ 91,508	$ 111,797
Fixed interest rate		8.00%	8.00%
Maturity date		Jun. 01, 2019	Jun. 01, 2019
Interest rate terms		Unsecured fixed rate	Unsecured fixed rate
Talon Bren Road LLC Roof Loan
Debt Instrument [Line Items]
Principal balance of notes payable		$ 225,000	$ 225,000
Fixed interest rate		8.00%	8.00%
Maturity date		Jun. 01, 2019	Jun. 01, 2019
Interest rate terms		Unsecured fixed rate interest only	Unsecured fixed rate interest only
5130 Industrial Street LLC - Mortgage 1
Debt Instrument [Line Items]
Principal balance of notes payable		$ 4,000,456	$ 4,049,859
Fixed interest rate		6.05%	6.05%
Maturity date		Apr. 08, 2017	Apr. 08, 2017
Interest rate terms		Secured fixed rate	Secured fixed rate
5130 Industrial Street LLC - Mortgage 2
Debt Instrument [Line Items]
Principal balance of notes payable		$ 293,144	$ 294,021
Fixed interest rate		12.75%	12.75%
Maturity date		Apr. 08, 2017	Apr. 08, 2017
Interest rate terms		Secured fixed rate	Secured fixed rate
Talon OP, L.P. - Promissory Notes #1
Debt Instrument [Line Items]
Principal balance of notes payable	[5]	$ 1,000,000	$ 1,000,000
Fixed interest rate		24.00%	24.00%
Maturity date		Jun. 30, 2016	Jun. 30, 2016
Interest rate terms		Unsecured fixed rate interest only	Unsecured fixed rate interest only
Talon OP, L.P. - Promissory Notes #1 | Director
Debt Instrument [Line Items]
Principal balance of notes payable			$ 500,000
Fixed interest rate			24.00%
Maturity date			Jun. 30, 2016
Interest rate terms			Unsecured fixed rate interest only
Talon OP, L.P. - Promissory Notes #2
Debt Instrument [Line Items]
Principal balance of notes payable		$ 654,926	$ 0
Fixed interest rate		3.00%
Maturity date		Jul. 31, 2017
Interest rate terms		Unsecured fixed rate
Talon OP, L.P. - Promissory Notes #3
Debt Instrument [Line Items]
Principal balance of notes payable		$ 500,000	$ 0
Fixed interest rate		24.00%
Maturity date		Jun. 30, 2016
Interest rate terms		Unsecured fixed rate interest only

[1] Beginning January 2016, mechanics lien statements were filed upon the property at 180 E. Fifth Street for work completed to prepare the tenant space for a significant lease entered into on April 9, 2015. Mechanics liens that remain undischarged of record after 60 days constitute an event of default under the loan agreements, permitting the lender to accelerate the indebtedness at its option. On September 21, 2016 and October 20, 2016, mechanics lien holders filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligations to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute. The lender is aware of this default and our refinancing efforts to cure it. They are currently not exercising any remedies with respect to any defaults.

[2] On November 16, 2015 the Company entered into a $481,934 unsecured promissory note with the Property Manager of Talon First Trust, LLC. The note satisfied the fees due under the Property Management Agreement for the period of March 2015 through December 2015 and had an original maturity date of December 31, 2015. Subsequently, the Company extended the maturity date to February 15, 2016 and then to August 31, 2016 and increased the note by $471,974 for the fees incurred from January 2016 through July 2016 and interest incurred through May 31, 2016 per the terms of the promissory notes and Property Management Agreement entered into with the Property Manager (see Note 9). In July 2016, an additional $10,000 and $45,000 respectively was added to the principal balance of the note. The note bore interest at 8% annually from November 16, 2015 through June 30, 2016 and currently bears interest at 10% annually through maturity. On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

[3] The outstanding principal and applicable accrued interest is due in full upon sale or refinancing of the property at 180 E. Fifth Street in St. Paul.

[4] On June 29, 2016 the Company received funds from two different sources totaling $235,993 for the sale of future receivables at the property located at 180 E. Fifth Street. The agreements require payments totaling $352,305 over 120 days. Per FASB ASC 470-10-25, which provides guidance on funds received from sales of future receivables, this transaction has been classified as debt and included in notes payable. The agreements are guaranteed by a shareholder of the Company.

[5] On January 12, 2015 and May 19, 2015, respectively, the Company entered into two separate $500,000 unsecured promissory notes with the same unrelated party. The notes bore interest at 14% annually and had an original maturity date of June 30, 2015 and July 18, 2015, respectively. In 2015, the Company extended the maturity dates of both notes to December 31, 2015. The notes bore interest of 20% annually from July 1, 2015 and July 19, 2015, respectively, through October 31, 2015. Subsequently, the Company extended the maturity dates of both notes to the earlier of, the disposition or refinancing of the property at 180 E 5th Street in St. Paul or June 30, 2016. The notes will bear interest at 24% annually from November 1, 2015 through June 30, 2016. The maturity date has not been extended and the note is due and payable in full. On September 24, 2016, the unrelated party filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

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Notes Payable - Schedule of Maturities of Notes Payable (Details)	Sep. 30, 2016 USD ($)
Debt Disclosure [Abstract]
Year 2016	$ 34,800,951
Year 2017	7,231,444
Year 2018	322,112
Year 2019	10,537,252
Total	$ 52,891,759

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Notes Payable (Details Narrative)	9 Months Ended
	Sep. 30, 2016
Debt Disclosure [Abstract]
Note payable, restrictive covenant	The Company’s mortgage assumed by Talon Bren Road, LLC in connection with the acquisition of the property at Bren Road includes a restrictive covenant that requires Talon Bren Road, LLC to maintain a minimum debt service coverage (“DSCR”) before distributions of 1.35:1.00 and after distributions of 1:05:1.00 as of the last day of each calendar year.
Note payable, covenant compliance	As of December 31, 2015, Talon Bren Road LLC was out of compliance with the DSCR test. An amendment to the loan agreement as well as waiver of the DSCR default for the December 31, 2015 test date was subsequently executed. The loan agreement was amended to include a minimum Senior Debt Service Coverage Ratio (pre-distributions) of not less than 1.50:1.00. It also amended and restated the minimum Debt Service Coverage Ratio before distributions of not less than 1.20:1.00 as of the last day of each calendar year commencing after December 31, 2015.
Mortgage note payable covenant	The Company’s mortgage entered into by Talon First Trust, LLC in connection with the property at 180 E. Fifth Street, St. Paul, Minnesota includes a financial covenant that requires the Company to maintain a net worth that equals or exceeds $30 million and cash and marketable securities equal to or greater than $3 million as of December 31, 2015 through the remaining term of the loan. The loan agreement allows the Company 30 days following any failure in which to satisfy this financial covenant or provide an individual or entity acceptable to lender as another guarantor on the loan and of the environmental indemnity obligations. Failure to satisfy the covenant would constitute an event of default under the terms of the loan. The Company (as well as Talon OP, L.P.) is a guarantor of the loan entered into by Talon First Trust, LLC and an indemnitor of Talon First Trust, LLC’s environmental obligations in connection with the property at 180 E. Fifth Street, St. Paul, Minnesota.

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Transactions with Related Parties (Details Narrative) - Director - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015	Dec. 31, 2014
Proceeds from unsecured note payable						$ 500,000
Payments on unsecured notes payable						$ 200,000
Note payable, interest rate			24.00%		20.00%	14.00%
Note payable, Interest rate terms					The note bore interest at 20% annually from July 1, 2015 through September 30, 2015. The note will bear interest of 24% annually from November 1, 2015 through June 30 2016.
Note payable, maturity date			Jun. 30, 2016			Dec. 31, 2015
Interest expense	$ 30,246	$ 25,206	$ 90,082	$ 59,918
Accrued interest	$ 207,479		$ 207,479		$ 117,397

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Concentrations (Details Narrative)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2015
Rent Revenue | Tenant Leases
Concentration risk, description	The Company has three tenants that rent approximately 31% of the Company’s total rentable space as of September 30, 2016.		The Company has three tenants that rent approximately 31% of the Company’s total rentable space as of September 30, 2016.
Concentration Risk, percentage	64.00%	61.00%	63.00%	62.00%
Rent Revenue | Largest Tenant
Concentration risk, description			The largest tenant rents approximately 12% of the rentable space.
Rent and Other Receivables | Tenant Leases
Concentration Risk, percentage			86.00%		90.00%

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Restricted Escrows and Reserves (Details Narrative) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Cash and Cash Equivalents [Abstract]
Total restricted cash and investments	$ 3,175,992	$ 2,139,180

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Commitments and Contingencies - Schedule of Lease Commitments (Details)	Sep. 30, 2016 USD ($)
Operating Leases Future Minimum Payment Due
2016	$ 13,170
2017	53,178
2018	84,664
2019	89,187
2020	45,876
Total future minimum payments due	$ 286,075

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Commitments and Contingencies (Details Narrative) - USD ($)	3 Months Ended			9 Months Ended			12 Months Ended
	Sep. 30, 2016		Sep. 30, 2015	Sep. 30, 2016		Sep. 30, 2015	Dec. 31, 2015	Dec. 31, 2014	Dec. 31, 2013
Commitment, description									On June 7, 2013, Talon RE, entered into a contribution agreement with the remaining interest holder of 5130 LLC pursuant to which it will acquire the remaining 51% interest in 5130 LLC in exchange for 2,820,810 shares of our common stock, subject to receiving consent to the transfer from 5130 LLC's lender.
Contribution agreement								The Company entered into a Contribution Agreement dated May 29, 2014 with Bren Road, LLC, the contributor of the property acquired through our subsidiary, Talon Bren Road, LLC. The agreement provides for any deficit in achieving $1,560,000 of net operating income per year for the first three years to be funded by Bren Road, LLC.
Income recognized under Contribution Agreement	$ 24,348		$ (22,904)	$ 65,470		$ 128,068
Non-cancellable office rental lease remaining term								48 months
Lease arrangement							The Company entered into a significant lease arrangement with a new tenant. As part of the lease agreement, the Company incurred an obligation for lease incentives up to approximately $8.2 million.	The Company entered into a property lease agreement relating to rental of office space. This non-cancellable lease has a remaining term of 45 months. The lease is subject to periodic adjustments for operating expenses.
Lease incentives, approximate	0	[1]		0	[1]		$ 252,000
Lease incentives, payable	0			0			235,500
Building improvements	216,770			216,770
Tenant improvement allowance payable	7,760,995			7,760,995			7,760,995
Consultant
Consulting agreement, description								The Company entered into a consulting agreement dated May 29, 2014 with Gerald Trooien (“Consultant”). This agreement provides for consulting services to Talon Bren Road, LLC for $43,750 per month payable beginning August 15, 2014 and continuing for 59 months thereafter. The agreement will terminate upon the occurrence of any of the following: a. redemption or conversion of all limited partnership units held by Bren Road, LLC, b. sale by Bren Road of any of its partnership units in Talon OP, L.P., c. payment to Bren Road of any dividends in respect to Bren Road’s interest in Talon, and d. the Company qualifies as a real estate investment trust (REIT).
Professional and contract services expense	106,820		131,250	393,750		393,750
Consulting fees, payable	383,750			383,750			45,938
Swervo Management Division, LLC
Commitment, description								The Company entered into a Property Management Agreement dated July 2, 2014 with Swervo Management Division, LLC (“Property Manager”). This agreement provides for management and other leasing duties for Talon First Trust, LLC for monthly payments of 7.5% of the monthly gross rental receipts at the property beginning July 2, 2014 and continuing for 59 months thereafter. The agreement will terminate upon the occurrence of any of the following: a. the sale of property by the property owner, b. any non-monetary breach of any term or condition in the Property Management Agreement by either party not cured within 60 days of written notice of breach, and c. the date the principal and interest on the property note in aggregate principal amount of $33,000,000 by RCC Real Estate Inc, has been paid in full.
Professional and contract services expense	143,862		$ 180,580	434,555		$ 464,984
Prepaid fees	$ 106,936			$ 106,936			$ 0
Lease arrangement				On January 7, 2016, the Company entered into a $584,937 unsecured promissory note with the Property Manager in satisfaction of the fees for the period of March 2015 through January 2016 and which amends the note dated November 16, 2015 for $481,934 and extended the maturity date to February 15, 2016.
Lease maturity date				Aug. 31, 2016
Unsecured promissory note issued for management fees				$ 584,937
Increase in note payable				$ 368,971
Loss contingency, discription				On September 21, 2016, and subsequently as amended on September 22, 2016, the Property Manager filed a summons and complaint in the State of Minnesota claiming that the Company breached its obligation under the notes to which the Company has responded. At this time, the Company is unable to determine the outcome of, and therefore has not recorded any obligations with respect to this dispute.

[1] Subsequently, the Company reversed the remaining balance of $210.300 as the tenant cancelled the leasing incentive offered in the lease.

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Restricted Stock - Schedule of Restricted Stock Activity (Details) - $ / shares	3 Months Ended	9 Months Ended
	Sep. 30, 2016	Sep. 30, 2016
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Nonvested
Restricted stock, granted and not vested, beginning of period	545,307	287,007
Restricted stock, granted	0	550,000
Restricted stock, vested	(40,497)	(332,197)
Restricted stock, forfeited or rescinded	(398,363)	(398,363)
Restricted stock, granted and not vested, end of period	106,447	106,447
Weighted average grant date fair value, beginning of period	$ .83	$ 1.20
Weighted average grant date fair value, granted	0	1.00
Weighted average grant date fair value, vested	0.69	1.03
Weighted average grant date fair value, forfeited or rescinded	1.11	1.11
Weighted average grant date fair value, end of period	$ 1.03	$ 1.03

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Restricted Stock - Schedule of Share-Based Compensation Restricted Stock and Units Activity (Details)	9 Months Ended
	Sep. 30, 2016 shares
Disclosure of Compensation Related Costs, Share-based Payments [Abstract]
Restricted stock, authorized but not granted or issued, beginning of period	1,339,715
Restricted stock, authorized increase in Plan shares	511,730
Restricted stock, granted in Plan shares	(550,000)
Restricted stock, forfeited or recinded in Plan shares	398,363
Restricted stock, authorized but not granted or issued, end of period	1,699,808

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Restricted Stock (Details Narrative) - 2013 Equity Incentive Plan - USD ($)	3 Months Ended		9 Months Ended		12 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015	Dec. 31, 2013
Equity Incentive Plan, description					The 2013 Equity Incentive Plan dated June 7, 2013 allows up to 1,500,000 shares to be issued and granted to employees, non-employee directors, and consultants and automatically increases on January 1 of each year by three percent of the outstanding shares of common stock as of December 31 of the immediately preceding year. Non-Employee Director Compensation Plan allows shares of restricted common stock to be granted to board members and is included under the Plan.
Number of shares available for grant					1,500,000
Vesting terms					Employee awards granted in 2013 vest monthly over 36 months provided the recipient remains an employee or consultant of the Company. Awards granted in 2014 vest either immediately, monthly over a three year period, or monthly over a five year period. Awards granted in June 2016 vest either immediately or in April 2017. The Non-Employee Director Compensation Plan allows shares of restricted common stock to be granted to board members and is included under the Plan. The 2013 board member awards vest one-third of the shares on the date of grant, one-third on January 1 of the year following the date of grant, and one-third on January 1 of the second year following the date of grant, provided the recipient remains a member of the board as of the vesting date. The 2014 awards vested immediately in March of 2014 and the 2016 awards vested half in June 2016 with the remainder to vest in April 2017.
Restricted Stock
Unrecognized compensation expense	$ 110,059		$ 110,059
Compensation expense	$ 145,150	$ 38,285	$ 342,720	$ 135,685
Compensation expense expected to be recognized, weighted average period			19 months
Shares granted			807,095
Restricted Stock | Director
Shares granted			480,000

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Intangible Assets - Schedule of Intangible Assets (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets [Line Items]
Net carrying amount	$ 6,032,527	$ 7,742,145
Finite-Lived Intangible Assets
Finite-Lived Intangible Assets [Line Items]
In-place leases	10,078,055	10,078,055
Above-market leases	1,832,939	1,832,939
Accumulated amortization	(5,878,467)	(4,168,849)
Net carrying amount	6,032,527	7,742,145
Finite-Live Intangible Liabilities
Finite-Lived Intangible Assets [Line Items]
Below-market leases	507,746	507,746
Accumulated amortization	(328,210)	(241,518)
Net carrying amount	$ 179,536	$ 266,228

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Intangible Assets - Schedule of Future Amortization Expense (Details) - USD ($)	Sep. 30, 2016	Dec. 31, 2015
Finite-Lived Intangible Assets, Net, Amortization Expense
Finite-Lived Intangible Assets, Net	$ 6,032,527	$ 7,742,145
Finite-Lived Intangible Assets
Finite-Lived Intangible Assets, Net, Amortization Expense
2016 (remaining 3 months)	566,924
2017	2,247,503
2018	1,654,921
2019	1,175,159
2020	388,020
Finite-Lived Intangible Assets, Net	6,032,527	7,742,145
Finite-Live Intangible Liabilities
Finite-Lived Intangible Assets, Net, Amortization Expense
2016 (remaining 3 months)	28,898
2017	113,849
2018	36,789
2019	0
2020	0
Finite-Lived Intangible Assets, Net	$ 179,536	$ 266,228

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Intangible Assets (Details Narrative) - USD ($)	3 Months Ended		9 Months Ended
	Sep. 30, 2016	Sep. 30, 2015	Sep. 30, 2016	Sep. 30, 2015
Amortization of acquired assets and liabilities	$ 539,336	$ 562,698	$ 1,622,925	$ 1,774,922
Above Market Leases
Amortization of acquired assets and liabilities	74,118	83,268	$ 225,402	271,512
Weighted average amortization period			4 years 6 months
Below Market Lease
Amortization of acquired assets and liabilities	28,898	34,853	$ 86,693	104,558
Weighted average amortization period			4 years 6 months
In-Place Leases
Amortization of acquired assets and liabilities	$ 494,117	$ 514,283	$ 1,484,217	$ 1,607,967
Weighted average amortization period			4 years 6 months

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Hedging (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2014	Jul. 02, 2014
Derivative Instruments and Hedges, Assets [Abstract]
Derivative instrument		$ 33,000,000
Derivative, description of terms	The Company entered into an interest rate cap contract for the notional amount of $33 million with a strike rate of 2.5% on one month LIBOR as a hedge for a floating rate debt entered into on that date. The interest rate cap expired on July 5, 2016. The interest rate cap was issued at approximate market terms and thus no fair value adjustment was recorded at inception and the rate cap had no value as of June 30, 2016. The Company did not elect hedge accounting treatment for the rate cap and as such, changes in fair value are recorded directly to earnings.

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Mandatorily Redeemable Preferred Operating Partnership Units (Details Narrative) - USD ($)	12 Months Ended
	Dec. 31, 2014	Sep. 30, 2016	Dec. 31, 2015
Other Liabilities and Financial Instruments Subject to Mandatory Redemption [Abstract]
Preferred units, issued	30,000
Preferred units issued, price per unit	$ 100
Mandatorily redeemable Operating Partnership preferred units	$ 3,000,000	$ 3,000,000	$ 3,000,000
Preferred units, description	The preferred unit holders are entitled to distributions which are cumulative from the date of issuance at a rate of 6% per annum of their liquidation preference amount of $100 per unit payable monthly to the extent of distributable proceeds. On or after July 2, 2020, the Company shall redeem the units, in whole, at the liquidation preference price of $100 per unit, plus accrued and unpaid distributions.
Preferred payments, outstanding		100,005
Liquidation preference		$ 3,000,000	$ 3,000,000

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Subsequent Events (Details Narrative)	1 Months Ended
	Nov. 01, 2016
Subsequent Event | Purchase and Sale Agreement
Termination of purchase and sale agreement, description	On January 28, 2016, Talon Bren Road, LLC, a subsidiary of Talon OP, L.P., which is the entity through which Talon Real Estate Holding Corp. conducts substantially all of its business, entered into a purchase and sale agreement with Timberland Partners, Inc. Under the agreement, Talon Bren Road agreed to sell the property located at 10301 Bren Road West, Minnetonka, Minnesota to the buyer subject to a diligence period and other conditions of the purchase and sale agreement typical of a real estate transaction. Pursuant to the agreement, in exchange for the property, the buyer paid Talon Bren Road a $100,000 initial deposit and was to pay $25,900,000 at closing, subject to adjustments as set forth in the purchase agreement. The agreement was terminated by the buyer on November 1, 2016 following the due diligence period.

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Going Concern (Details Narrative)	Sep. 30, 2016 USD ($)
Organization, Consolidation and Presentation of Financial Statements [Abstract]
Cash	$ 184,332