0001571049-19-000013.txt : 20190926 0001571049-19-000013.hdr.sgml : 20190926 20190107200121 ACCESSION NUMBER: 0001571049-19-000013 CONFORMED SUBMISSION TYPE: DOS/A PUBLIC DOCUMENT COUNT: 12 FILED AS OF DATE: 20190108 20190926 DATE AS OF CHANGE: 20190211 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CaliberCos Inc. CENTRAL INDEX KEY: 0001627282 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 000000000 STATE OF INCORPORATION: DE FILING VALUES: FORM TYPE: DOS/A SEC ACT: 1933 Act SEC FILE NUMBER: 367-00163 FILM NUMBER: 19514471 BUSINESS ADDRESS: STREET 1: 16074 N. 78TH STREET STREET 2: SUITE B-104 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 BUSINESS PHONE: 480-295-7600 MAIL ADDRESS: STREET 1: 16074 N. 78TH STREET STREET 2: SUITE B-104 CITY: SCOTTSDALE STATE: AZ ZIP: 85260 FORMER COMPANY: FORMER CONFORMED NAME: CaliberCo Inc. DATE OF NAME CHANGE: 20141205 DOS/A 1 filename1.xml DOS/A LIVE 0001627282 XXXXXXXX false false false CaliberCos Inc. DE 2014 0001627282 6500 47-2526901 70 0 8901 E. Mountain View Rd, Ste 150 Scottsdale AZ 85258 480-295-7600 Thomas Poletti, Brian S. Korn Other 3284769.00 0.00 1360217.00 163703890.00 166038825.00 10653249.00 49537872.00 139655760.00 22542855.00 166038825.00 37027074.00 35097535.00 4391885.00 -1808842.00 -0.07 -0.07 Marcum LLP Common Stock 27346874 000000000 N/A Series A Preferred Stock 1657396 000000000 N/A None 0 000000000 N/A true true false Tier2 Audited Equity (common or preferred stock) N N Y Y N N 1 27346874 50000000.00 0.00 0.00 0.00 50000000.00 N/A 0.00 N/A 0.00 N/A 0.00 Marcum LLP 800000.00 Manatt, Phelps & Phillips, LLP 200000.00 N/A 0.00 N/A 0.00 000000000 true false AL AK AZ AR CA CO CT DE DC FL GA HI ID IL IN IA KS KY LA ME MD MA MI MN MS MO MT NE NV NH NJ NM NY NC ND OH OK OR PA RI SC SD TN TX UT VT VA WA WV WI WY A0 A1 A2 A3 A4 A5 A6 A7 A8 A9 B0 Z4 false CaliberCos Inc. Common Stock 1837697 0 3309152 CaliberCos Inc. Series A Preferred Stock 905894 0 2038262 All securities issued pursuant to safe harbor of R. 506(b) of Reg D of Sec. Act of 1933, as amended, or other available exemptions such as Section 4(a)(2) or R. 701. All investors certified "accredited investor" status through income & net worth test. PART II AND III 2 filename2.htm tv507474-dosa - block - 21.5740706s
AN OFFERING STATEMENT PURSUANT TO REGULATION A RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. The Information in this preliminary offering circular is not complete and may be changed. These securities may not be sold until the offering statement filed with the Securities and Exchange Commission is qualified. This preliminary offering circular is not an offer to sell nor does it seek an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
AS CONFIDENTIALLY SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION AND SUBJECT TO COMPLETION ON JANUARY   , 2019.
PRELIMINARY OFFERING CIRCULAR
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Up to      Shares of CaliberCos Inc. Common Stock
CaliberCos Inc., a Delaware corporation (the “Company”, “Caliber”, “us” or “we”), is a leading vertically integrated regional private equity real estate sponsor providing a full suite of traditional real estate services. We own, operate, and invest in real estate both on our own and through our investment management platform. We are offering up to      shares of our Common Stock at $     per share. There is no minimum investment in CaliberCos Inc. Common Stock (the “Caliber Common Stock”).
We intend to offer the Caliber Common Stock on a continuous basis directly through the Caliber website located at www.caliberIPO.com. This offering is being conducted on a “best-efforts” basis by the Company and its officers, which means that the parties will use commercially reasonable best efforts to offer to sell Caliber Common Stock. The Company and its officers will not receive any commission or any other remuneration for any sales of Caliber Common Stock.
The aggregate initial offering price of Caliber Common Stock will not exceed $50,000,000 in any 12-month period. We expect to offer Common Stock in this offering until the earlier of  (i) the date at which the maximum offering amount has been sold; (ii)            , 2020, the date that is twelve months from the date that this offering is qualified by the U.S. Securities and Exchange Commission (the “Commission) unless extended by us for an additional ninety (90) days, in our sole discretion, without notice to or consent from investors or (iii) the date at which the offering is earlier terminated by the Company in its sole discretion, which may occur at any time. The offering is being conducted on a best-efforts basis without any minimum aggregate investment target. The Company may undertake one or more closings on a rolling basis. After each closing, funds tendered by investors will be available to the Company.
We intend to offer and sell our Common Stock in this offering to accredited investors and non-accredited investors. The proceeds of this offering will be used primarily for general corporate purposes, including repayment of indebtedness and the cost of this offering. For more information on Caliber Common Stock being offered, please see the sections entitled “Securities Being Offered” and “Plan of Distribution” beginning on pages 67 and 71 of this offering circular, respectively.
Caliber Common Stock may be purchased by accredited investors and non-accredited investors. This offering circular does not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sales of Caliber Common Stock in any states where such offer or solicitation would be unlawful, prior to registration or qualification under the laws of any such state.
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Price Per
Share to Public
​ ​
Proceeds to
Company(1)
 ​
Per Offered Share
​ ​ ​ $ ​ ​ ​ ​ ​ $      ​ ​
Maximum Offering Amount
​ ​ ​ $ 50,000,000 ​ ​ ​ ​ $ ​ ​ ​
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(1)
Does not include expenses of the offering, including legal and accounting expenses and costs of blue sky compliance. Aggregate offering expenses payable by us are estimated to be approximately $     if all shares offered are sold. We have agreed to pay WealthForge Securities, LLC (“WealthForge”) a basic transaction fee of 0.5% of the gross proceeds of this offering for the processing of investors in the offering. See “Plan of Distribution” for further information and details regarding compensation payable to WealthForge in connection with this offering.
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We are an “emerging growth company” under applicable Securities and Exchange Commission rules and will be subject to reduced public company reporting requirements. This Offering Circular follows the disclosure format of Part I of Form S-1 pursuant to the general instructions of Part II(a)(1)(ii) of Form 1-A.
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL OF ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SOLICITATION MATERIALS. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISSION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.
GENERALLY, NO SALE MAY BE MADE TO YOU IN THIS OFFERING IF THE AGGREGATE PURCHASE PRICE YOU PAY IS MORE THAN 10% OF THE GREATER OF YOUR ANNUAL INCOME OR NET WORTH. DIFFERENT RULES APPLY TO ACCREDITED INVESTORS AND NON-NATURAL PERSONS. BEFORE MAKING ANY REPRESENTATION THAT YOUR INVESTMENT DOES NOT EXCEED APPLICABLE THRESHOLDS, WE ENCOURAGE YOU TO REVIEW RULE 251(d)(2)(i)(C) OF REGULATION A. FOR GENERAL INFORMATION ON INVESTING, WE ENCOURAGE YOU TO REFER TO www.investor.gov.
This offering is inherently risky. See “Risk Factors” on page 7.
The approximate date of the proposed sale to the accredited and non-accredited investors is as soon as practicable after the offering is qualified by the Commission.
AN OFFERING STATEMENT PURSUANT TO REGULATION A RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. INFORMATION CONTAINED IN THIS PRELIMINARY OFFERING CIRCULAR IS SUBJECT TO COMPLETION OR AMENDMENT. THESE SECURITIES MAY NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED BEFORE THE OFFERING STATEMENT FILED WITH THE COMMISSION IS QUALIFIED. THIS PRELIMINARY OFFERING CIRCULAR SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY NOR MAY THERE BE ANY SALES OF THESE SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL BEFORE REGISTRATION OR QUALIFICATION UNDER THE LAWS OF SUCH STATE. THE COMPANY MAY ELECT TO SATISFY ITS OBLIGATION TO DELIVER A FINAL OFFERING CIRCULAR BY SENDING YOU A NOTICE WITHIN TWO BUSINESS DAYS AFTER THE COMPLETION OF THE COMPANY’S SALE TO YOU THAT CONTAINS THE URL WHERE THE FINAL OFFERING CIRCULAR OR THE OFFERING STATEMENT IN WHICH SUCH FINAL OFFERING CIRCULAR WAS FILED MAY BE OBTAINED.
Table of Contents
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i
SUMMARY
This summary highlights information contained elsewhere in this offering circular and does not contain all of the information that may be important to you. You should read this entire offering circular carefully, including the sections entitled “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our historical financial statements and related notes.
Please note that Caliber is not a traditional fund or asset manager but is instead a private equity sponsor that does not render investment advice to any investors in our Caliber sponsored projects. In this offering circular, we (i) refer to our Caliber sponsored projects in this prospectus as “funds”, (ii) refer to deferred compensation that we receive from our Caliber sponsored projects as “carried interests” and (iii) refer to total project assets as “Assets Under Management” or “AUM” despite our not possessing discretionary authority over such amounts nor do we render investment advice or hold ourselves out as investment advisors.
Unless the context otherwise requires, we use the terms “Caliber”, “Company”, “we”, “us” and “our” in this offering circular to refer to CaliberCos Inc., a Delaware corporation.
General
We are a leading, vertically integrated regional private equity real estate sponsor providing a full suite of traditional real estate services. We own, operate, and invest in real estate both on our own and through our individual operating companies. We manage all aspects of the real estate investment deal continuum including fundraising, asset acquisition, construction and development, property management, asset management, brokerage services, and asset disposition.
Since inception through December 31, 2017, we have raised approximately $229 million of capital from accredited investors and purchased real estate valued at approximately $360 million. Our aggregate net capital raised has increased at an average annual growth rate of 50% (from $15 million to $107 million) over the five-year period ended December 31, 2017. Caliber’s acquisition strategy and ability to successfully raise investment capital resulted in revenue of  $64.4 million and adjusted EBITDA of  $2.3 million for the year ended December 31, 2017, a year over year increase from 2016 of 63% and 103%, respectively. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Cautionary Statement Regarding Non-GAAP Measures” for a discussion of the components of adjusted EBITDA. As of December 31, 2017, none of our sponsored programs had suffered any loss of principal or projected interest; however, there can be no assurance that such performance will continue in the future.
As of December 31, 2017, our assets under management, or AUM, consisted of  $214 million of real property, our capital under management was $107 million, and the value of our real property portfolio was approximately $279 million. The following table summarizes the growth that we have experienced over the past two years, using a roll forward of market value of assets under management.
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Year Ended
December 31,
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2017
​ ​
2016
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Consolidated Results ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Total AUM Rollforward – @ Fair Value
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Balance, Beginning
​ ​ ​ $ 204,112,874 ​ ​ ​ ​ $ 111,890,745 ​ ​
Assets Acquired
​ ​ ​ ​ 17,943,621 ​ ​ ​ ​ ​ 66,747,434 ​ ​
Construction/Renovation
​ ​ ​ ​ 25,421,170 ​ ​ ​ ​ ​ 20,132,087 ​ ​
Market Appreciation/(Depreciation)
​ ​ ​ ​ 42,339,202 ​ ​ ​ ​ ​ 8,958,908 ​ ​
Assets Sold
​ ​ ​ ​ (11,244,681) ​ ​ ​ ​ ​ (3,616,300) ​ ​
Balance, End
 ​ ​ ​ $ 278,572,186 ​ ​ ​ ​ $ 204,112,874 ​ ​
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We have experienced significant growth in our asset portfolio and we expect to see continued performance under the Caliber model. Our model puts our investors’ profit first. Unlike many other traditional asset managers, our annual fees are not influenced by the size of AUM (however, similar to traditional asset managers, we do earn a 35% carried interest on assets sold).
1
The Company’s operations are organized into eight reportable segments for management and financial reporting purposes, which are broadly separated in two categories; real estate services (Fund Management, Construction & Development, Property Management, Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified). Each segment works closely together and plays a critical role in supporting our investment strategy by providing local market intelligence and real-time data for evaluating investments, generating proprietary transaction flow and creating value through efficient implementation of asset management strategies. We primarily earn revenue from our eight segments as follows:
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Fund Management Fees.   Fund management and similar fees earned for managing a Caliber sponsored fund. This is an annual fee that is generally structured as a percentage of the capital raised into the fund.
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•
Capital Raise Fees.   A one-time fee earned from raising member interests into a Caliber sponsored fund.
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Construction and Development Fees.   Fees and other charges earned as the general contractor on construction and remodeling services provided to our funds and other third parties.
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Property Management Fees.   Revenues and fees for property management services provided by the Company for third-party-owned properties, are generally based upon percentages of the rental revenue or base gross rent generated by such properties. Property management revenue also includes fees charged to third-party property management customers for leasing commissions, which are generally a flat fee or based on the amount of the new lease executed, with a minimum flat fee.
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•
Brokerage Commissions.   We earn real estate brokerage commissions by acting as a broker for residential and commercial real estate owners and investors seeking to buy or sell properties, including investment properties, as well as primary residences. The brokerage additionally earns fees by acting as the broker of record in the acquisition and disposition of Company or fund assets.
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•
Real Estate Sales.   Sales of any of the asset types from the Company’s portfolios or funds.
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Hospitality Revenue.   Revenues generated primarily by the rental operations of the hotel properties we own or manage. This primarily consists of revenue earned from room rentals, food and beverage sales, banquet and group sales and other hotel operating activities.
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Rental Income.   Revenues generated primarily by the rental operations of the residential (multi-family and single-family), and commercial properties we own or manage.
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Investment income.   Revenues generated from distributions and returns of capital from investments.
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Miscellaneous.   Other revenues consist primarily of fees and other amounts received from third parties, earned in connection with services rendered by the Company for certain real estate transactions.
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Our revenues have grown primarily as a result of growth in our asset base and service offerings. This has resulted in increased fees from assets under management, additional fees from new services, increased investment from our existing and new investors, and increased average investment size. We anticipate that our future growth will continue to depend in part on attracting new investors to our new and existing funds. We plan to increase our sales and marketing spend to attract investors as well as continue to identify and acquire opportunistic real estate assets, using appropriate leverage. As we have invested more resources into our sales and marketing divisions and demonstrated success with previously completed deal cycles, we expect to be able to increase the velocity of investment dollars into our funds at a faster rate than in the past.
2
We have historically financed our operations primarily through a combination of operating cash flows, private offerings of our equity securities, and secured and unsecured debt. At December 31, 2017, we had approximately $7.3 million in corporate debt which carries interest rates ranging from 10.125% up to 33.0%, resulting in approximately $1.5 million in interest expense for the year. We plan on using approximately $7.3 million of the net proceeds of this offering to eliminate this debt in favor of more competitive financing which we believe will be readily available after the completion of this offering. For this reason, we believe we will be able to recognize substantial cost savings and generate increased cash flow from core operations, as well as enabling us to introduce more affordable financing from traditional sources to take advantage of market opportunities which may have previously been unavailable.
Interim Update
From January 1, 2018 through June 30, 2018, we have raised approximately $9.6 million of capital from accredited investors and purchased real estate valued at cost of  $22.9 million. At June 30, 2018, our AUM consisted of  $236.4 million of real property and our capital under management was $109.2 million. At June 30, 2018, none of our sponsored programs had suffered any loss of principal or projected interest; however, there can be no assurance that such performance will continue in the future.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of activities for our consolidated and segment operations.
Strategy and Competitive Strengths
We are focused on creating wealth for our clients by providing access to high quality real estate investments. Caliber believes that capital organized privately into structured funds offers investors an optimal balance of risk-adjusted return and investment performance. By allowing investors, who may not otherwise be able to purchase a large asset, to participate with a minimum investment as low as $35,000, Caliber provides typical real estate investors access to sophisticated strategies and assets that they may not otherwise have.
While Caliber’s business model is in part analogous to that of a financial asset manager, our model is built on a full-service approach. We have complemented traditional asset management functions with construction, property management, and deal expertise that we believe creates a competitive advantage against other traditional asset managers models. Compared to non-traded REITs that often come with high cost structures for investors, we offer reduced product origination costs and fund-level fees. By eliminating many of the fees earned at the fund level, and sizing the remaining fees to cover Company overhead, Caliber aligns its profitability with that of its investors. For example, rather than charge a fund-level acquisition fee, as many non-traded REITs do, and then further hire and pay third party real estate brokers, Caliber eliminates the fund-level fee and acts as the broker directly, earning at or below market commissions. And as opposed to charging the fund a construction management fee and then further hire a third party general contractor, Caliber acts as the general contractor, controls the project, and eliminates the double layer of fees. We believe our approach allows us to drive down the cost burden that is borne by funds under a traditional asset management model, increase returns to investors of those funds, and generate long-term sustainable cash flows.
In addition, under Caliber’s approach, we distribute cash to fund investors where there is either a) current income from the investments (rents, etc.) or b) a capital event, such as a sale of an asset or a cash-out refinance. We see substantial opportunity in ensuring distributions are paid from asset income, not investor contributions or borrowed funds. Caliber’s approach offers investors, and their wealth managers, well-structured products with a management team aligned to their success.
Our competitive strengths include:
•
Extensive relationship and sourcing network.   We leverage our real estate services businesses in order to source deals for our funds. In addition, our management has extensive relationships with major industry participants in each of the markets in which we currently operate. Their local presence and reputation in these markets have enabled them to cultivate key relationships with major holders of property inventory, in particularly financial institutions, throughout the real estate community.
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3
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Targeted market opportunities.   We focus on markets that have a long-term trend of population growth and income improvement, with a particular focus on Arizona, Colorado, Nevada and Utah, which are states with business and investment-friendly state and local governments. We generally avoid engaging in direct competition in over-regulated and saturated markets.
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•
Structuring expertise and speed of execution.   Prior real property acquisitions completed by us have taken a variety of forms, including direct property investments, joint ventures, participating loans and investments in performing and non-performing mortgages with the objective of long-term ownership. We believe we have developed a reputation of being able to quickly execute, as well as originate and creatively structure acquisitions, dispositions and financing transactions.
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•
Vertically integrated platform for operational enhancement.   We have a hands-on approach to real estate investing and possess the local expertise in property management, leasing, construction management, development and investment sales, which we believe enable us to invest successfully in selected submarkets.
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•
Focus on the middle market.   Our focus on middle market opportunities offers our investors significant alternatives to active, equity investing that provide attractive returns to investors. This focus has allowed us to offer a diversified range of real estate investment opportunities, particularly for accredited investors.
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Risk protection and investment discipline.   We underwrite our investments based upon a thorough examination of property economics and a critical understanding of market dynamics and risk management strategies. We conduct an in-depth sensitivity analysis on each of our acquisitions. This analysis applies various economic scenarios that include changes to rental rates, absorption periods, operating expenses, interest rates, exit values and holding periods. We use this analysis to develop our disciplined acquisition strategies.
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CaliberCos Inc. was originally founded as Caliber Companies, LLC, organized under the laws of Arizona, and commenced operations in January 2009. In 2015, the Company was reorganized as CaliberCos Inc. as a Nevada corporation. In June 2018, we reincorporated in the State of Delaware. Our corporate office is located at 8901 E Mountain View Rd., Ste 150, Scottsdale, Arizona 85258. Our telephone number is (480) 295-7600. Our website address is www.caliberco.com. We do not incorporate information on or accessible through our website into this offering circular, and you should not consider any information on, or that can be accessed through our website as a part of this offering circular.
4
The Offering
Securities offered by the Company
Up to $50,000,000 of Caliber Common Stock, offered by the Company and our officers on a best-efforts basis.
Caliber Common Stock
Caliber Common Stock is priced at $     per share for the duration of this offering.
Principal Amount of Caliber Common Stock
We will not issue securities hereby having gross proceeds in excess of  $50 million nor will we issue any securities under Regulation A having gross proceeds in excess of  $50 million, during any 12-month period. The securities we offer hereby will be offered on a continuous basis.
Regulation A Tier
Tier 2
Caliber Common Stock Purchasers
Accredited investors pursuant to Rule 501 and non-accredited investors. Pursuant to Rule 251(d)(2)(C), non-accredited investors who are natural persons may only invest the greater of 10% of their annual income or net worth. Non-natural non-accredited persons may invest up to 10% of the greater of their net assets or revenues for the most recently completed fiscal year.
Securities outstanding prior to this Offering Circular
27,346,874 shares of Caliber Common Stock and 1,657,396 shares of Series A Preferred Stock are issued and outstanding as of June 30, 2018(1).
Manner of Offering
See section titled “Plan of Distribution” beginning on page 71.
How to Invest
Visit https://www.caliberipo.com.
Market for Caliber Common Stock
There is no public market for the shares of Caliber Common Stock. We will covenant to use our best efforts to cause our common stock to be listed on a national securities exchange within 12 months of the completion of this offering. However, there can be no assurance that we will be able to obtain such listing, or if we do obtain it, that a market will ever develop.
Use of Proceeds
If we sell $50,000,000 of gross proceeds from the sale of our securities under this offering circular, we estimate our net proceeds, after deducting estimated expenses, will be approximately $    . The proceeds of this offering will be used primarily for general corporate purposes, including repayment of indebtedness and the cost of this offering. See “Use of Proceeds.”
Termination of the Offering
The Offering will terminate upon the earlier of  (i) such time as all of the shares of Caliber Common Stock have been sold pursuant to this offering circular; (ii)            , 2020, the date that is twelve months from the date that this offering is qualified by the U.S. Securities and Exchange Commission unless extended by us for an additional ninety (90) days, in our sole discretion, without notice to or consent from investors or (iii) the date at which the offering is earlier terminated by the Company in its sole discretion, which may occur at any time,
5
We reserve the right to terminate the Offering at any time and for any reason, without notice to or consent from any purchaser of shares of Caliber Common Stock in the Offering.
Terms of the Offering
All subscriptions are irrevocable, subject to acceptance by the Company. We may accept or reject any subscription, in whole or in part, for any reason, in our sole discretion.
Selected Risks Associated with Our Business
Our business is subject to a number of risks and uncertainties, including those highlighted in the section titled “Risk Factors” immediately following this summary. These risks include, but are not limited to, the following:
•
Our business could be harmed by an economic slowdown and downturn in real estate asset values, property sales and leasing activities.
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•
Poor performance of our funds would cause a decline in our revenue and results of operations and could adversely affect our ability to raise capital for future funds.
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•
Decreases in the performance of the properties we manage are likely to result in a decline in the amount of property management fees and leasing commissions we generate.
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•
Our business depends in large part on our ability to raise capital from investors. If we were unable to raise such capital, we would be unable to collect management fees or deploy such capital into investments, which would materially reduce our revenues and cash flow and adversely affect our financial condition.
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•
The loss of one or more of our key personnel, or our failure to attract and retain other highly qualified personnel in the future, could harm our business.
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•
The Company is controlled by its executive officers.
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•
There is no current market for any of our shares of stock.
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​
(1)
Does not give effect to the conversion of shares of Series A Preferred Stock to Caliber Common Stock, conversion of convertible debt securities issued by Caliber into Caliber Common Stock, vesting of any issued and outstanding Caliber Common Stock grants, and exercise of any warrants or stock options issued by Caliber outstanding as of December 31, 2018.
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6
RISK FACTORS
Investing in Caliber Common Stock involves a high degree of risk, and no assurance can be given that you will realize your investment objectives or that you will not lose your entire investment in our shares. You should carefully consider the following risks and uncertainties in addition to all other information included in this Offering Circular before purchasing shares of Caliber Common Stock. There are numerous and varied risks that may prevent us from achieving our goals. If any of these risks actually occurs, our business, financial condition or results of operations may be materially adversely affected. You should invest in Caliber Common Stock only if you can afford to lose your entire investment.
You should carefully review this section for a discussion of the risks and uncertainties that we believe are material to our business, operating results, prospects and financial condition. Except as otherwise required by federal securities laws, we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. YOU SHOULD CONSULT WITH YOUR ATTORNEY OR FINANCIAL ADVISOR PRIOR TO MAKING AN INVESTMENT.
Risks Related to Our Business
The success of our business is significantly related to general economic conditions and the real estate industry, and, accordingly, our business could be harmed by an economic slowdown and downturn in real estate asset values, property sales and leasing activities.
Our business is significantly related to general economic conditions in the real estate industry. The real estate markets in which we operate are cyclical and depend on national and local economic conditions. Many factors that are beyond our control affect the real estate market and could affect our ability to sell properties and other investments for the price, on the terms or within the time frame desired. These factors include general economic conditions, the availability of financing, interest rates and other factors, including supply and demand. In addition, the economic condition of each local market where we operate may depend on one or more key industries within that market, which, in turn, makes our business sensitive to the performance of those industries.
We have in the past and expect in the future to be negatively impacted by, periods of economic slowdown or recession, and corresponding declines in the demand for real estate and related services, within the markets in which we operate. The previous recession and the downturn in the real estate market resulted in and may in the future result in:
•
a decline in actual and projected sale prices of real estate properties
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•
higher interest rates, higher loan costs, less desirable loan terms and a reduction in the availability of mortgage loans;
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•
a decrease in the availability of lines of credit and other sources of capital used to purchase real estate investments; and
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•
a general decline in rents due to defaulting tenants or less favorable terms for renewed or new leases.
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We could lose part or all of our investments in real estate assets, which could have a material adverse effect on our financial condition and results of operations.
There is the inherent possibility in all of our real estate investments that we could lose all or part of our investment. Real estate investments are generally illiquid, which may affect our ability to change our asset mix in response to changes in economic and other conditions. The value of our investments can also be diminished by:
•
civil unrest, acts of war and terrorism and acts of God, including earthquakes, hurricanes and other natural disasters (which may result in uninsured or underinsured losses);
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7
•
the impact of present or future legislation (including environmental regulation, changes in laws concerning foreign ownership of property, changes in tax rates, changes in zoning laws and laws requiring upgrades to accommodate disabled persons) and the cost of compliance with these types of legislation; and
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•
liabilities relating to claims, to the extent insurance is not available or is inadequate
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The historical returns attributable to our funds should not be considered as indicative of the future results of our funds or of our future results or of any returns expected on an investment in our common stock.
An investment in our common stock is not an investment in any of our funds. You should not conclude that positive performance of our funds will necessarily result in positive returns on an investment in our common stock. The historical performance of our funds is relevant to us primarily insofar as it is indicative of management fees we have earned in the past and may earn in the future and our reputation and ability to raise new funds.
In addition, the historical returns of our funds may not be indicative of any future returns of these or from any future funds we may raise due for a number of factors including:
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market conditions during previous periods may have been more favorable for generating positive performance than the market conditions we may experience in the future; and
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our funds’ returns may have previously benefited from investment opportunities and general market conditions that may not recur, and we may not be able to achieve the same returns or profitable investment opportunities or deploy capital as quickly.
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We incur risks with respect to each segment of our business. The decline of any single segment could impact our business.
We derive revenues in substantial part from:
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construction and development fees, which are based on the work completed on our fund assets or other third-party projects
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capital raising fees, which are based generally on the amount of capital raised into or invested in our funds;
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fund management fees, which are based generally on the amount of capital committed to or invested in our funds;
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property management fees are derived from overseeing the day to day operation of properties we acquire and sell; and
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brokerage commissions derived from the purchase and sale of properties for our funds and others.
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The reduction of slowdown in investment and development activities in any of these segments could have a material adverse effect on our business and results of operations.
Risks Related to Fund Management
Poor performance of our funds would cause a decline in our revenue and results of operations and could adversely affect our ability to raise capital for future funds.
If a fund performs poorly, we risk receiving little or no fund management fees with regards to the fund and little income or possibly losses from such fund. In addition, poor fund performance may deter future investment in our funds, thereby decreasing the capital invested in our funds and thus, our management fee income. Alternatively, in the event of poor fund performance, investors could demand lower fees or fee concessions for existing or future funds which would likewise decrease our revenue.
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A portion of our revenue, net income and cash flow is variable, which may make it difficult for us to achieve steady earnings growth on a quarterly basis.
A portion of our revenue, net income and cash flow is variable, as the completion of the sale of assets and earning of any carried interest that we receive from our funds can vary from quarter to quarter and year to year. In addition, investment income that we may earn from our funds are volatile.
The timing and amount of asset sales and the earning of any carried interest are uncertain and contribute to the volatility of our results. It takes a substantial period of time to identify attractive investment opportunities, to raise funds needed to make an investment and then to realize the cash value or other proceeds of an investment through a sale, recapitalization or other exit. Even if an investment proves to be profitable, it may be several years before any profits can be realized in cash or other proceeds. We cannot predict when, or if, any realization of a return on investments will occur. If we were to have a realization event in a particular quarter or year, it may have a significant impact on our results for that particular quarter or year that may not be replicated in subsequent periods. We recognize revenue on investments in our funds only when earned or realized.
With respect to our funds that generate carried interest, the timing and receipt of such carried interest varies with the life cycle of our funds and/or achieving certain minimum cash flow hurdles. We receive carried interest payments only upon realization of achieving certain minimum investment returns by the relevant fund, which contributes to the volatility of our cash flow.
We may be subject to litigation risks and may face liabilities and damage to our professional reputation as a result.
We make investment decisions on behalf of investors in our funds that could result in substantial losses. This may subject us to the risk of legal liabilities or actions alleging negligent misconduct, breach of fiduciary duty or breach of contract. Further, we may be subject to third-party litigation arising from allegations that we improperly exercised control or influence over portfolio investments.
Legal liability could have a material adverse effect on our businesses, financial condition or results of operations or cause reputational harm to us, which could harm our businesses. We depend, to a large extent, on our business relationships and our reputation for integrity and professional services to attract and retain investors and to pursue investment opportunities for our funds. As a result, allegations of improper conduct by private litigants or regulators, whether the ultimate outcome is favorable or unfavorable to us, as well as negative publicity and press speculation about us, our investment activities or the investment industry in general, whether or not valid, may harm our reputation, which may be damaging to our businesses.
Risks Related to Property Management and the Maintenance and Development of Real Estate Assets.
Decreases in the performance of the properties we manage are likely to result in a decline in the amount of property management fees and leasing commissions we generate.
Our property management fees are generally structured as a percentage of the revenues generated by the properties that we manage and our leasing commissions typically are based on the value of the lease commitments. As a result, our revenues are adversely affected by decreases in the performance of the properties we manage and declines in rental value. Property performance depends upon, among other things, our ability to control operating expenses (some of which are beyond our control) and financial conditions generally and in the specific areas where properties are located and the condition of the real estate market generally. If the performance or rental values of the properties we manage decline, our management fees and leasing commissions from such properties could be materially adversely affected.
The concentration of our funds’ investments in a limited number of regions and sectors may make our funds’ business vulnerable to adverse conditions in such regions and to a downturn or slowdown in the sectors. As a result, our funds’ investments may lose value and they may experience losses.
We invest primarily in real estate assets located in a limited number of geographic locations, specifically, in the Phoenix and Tucson, Arizona marketplaces. Investing in a limited number of regions carries the risks associated with significant geographical concentration. Geographic concentration of
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properties exposes our projects to adverse conditions in the areas where the properties are located, including general economic downturns, increased competition, real estate conditions, terrorist attacks, potential impacts from labor disputes, and natural disasters occurring in such markets. Such major, localized events in our primary investment areas could adversely affect our business and revenues, which would adversely affect our results of operations and financial condition.
Our property portfolios are comprised primarily of hospitality, commercial, and multifamily and single-family rental properties and development projects. As a result, we are subject to risks inherent in investments in such types of property. The potential effects on our revenue and profits resulting from a downturn or slowdown in these sectors could be more pronounced than if we had more fully diversified our investments.
We may be unsuccessful in developing or renovating the properties we acquire, resulting in investment losses.
Part of our investment strategy is to locate and acquire real estate assets that are yet undeveloped or which we believe are undervalued and to improve them to increase their resale value. Acquiring properties that are not yet developed or in need of substantial renovation or redevelopment is subject to the uncertainties associated with the development and construction of real property, including those related to re-zoning land for development, environment concerns and our builder’s ability to build in conformity with plans, specifications, budgeted costs and timetables. In addition, there is a risk that we overestimate the value of the property or that the cost or time to complete the renovation or redevelopment will exceed the budgeted amount. Such delays or cost overruns may arise from:
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shortages of materials or skilled labor
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a change in the scope of the original project
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difficulty in obtaining necessary zoning, land-use, environmental, building, occupancy and other governmental permits and authorizations;
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the discovery of structural or other latent defects in the property after we acquire the property; and
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delays in obtaining tenants
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Any failure to complete a development or renovation project in a timely manner and within budget or to sell or lease the project after completion could have a material adverse effect upon our business, results of operation and financial condition. In addition, we hire and supervise third-party contractors to provide construction and engineering services for our properties. While our role is limited to that of a supervisor, we may be subjected to claims for construction defects or other similar actions. Adverse outcomes from litigation could have a material adverse effect on our business, financial condition and results of operations.
We may be subject to potential environmental liability.
Under various federal, state and local laws, ordinances and regulations, a current or previous owner or operator of real estate may be liable for the clean-up of hazardous or toxic substances and may be liable to a governmental entity or to third parties for property damage and for investigation and clean-up costs incurred by governmental entities or third parties in connection with the contamination. Such laws typically impose liability without regard to whether the owner or operator knew of, or was responsible for, the presence of the hazardous or toxic substances, even when the contaminants were associated with previous owners or operators. The costs of investigation, remediation or removal of hazardous or toxic substances may be substantial, and the presence of those substances, or the failure to properly remediate those substances, may adversely affect the owner’s or operator’s ability to sell or rent the affected property or to borrow using the property as collateral. The presence of contamination at a property can impair the value of the property even if the contamination is migrating onto the property from an adjoining property. Additionally, the owner of a site may be subject to claims by parties who have no relation to the property based on damages and costs resulting from environmental contamination emanating from the site.
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In connection with the direct or indirect ownership, operation, management and development of real properties, we may be considered an owner or operator of those properties or as having arranged for the disposal or treatment of hazardous or toxic substances. Therefore, we may be potentially liable for removal or remediation costs.
Before consummating the acquisition of a particular piece of real property, it is our policy to retain independent environmental consultants to conduct an environmental review of the real property, including performing a Phase I environmental review. These assessments typically include, among other things, a visual inspection of the real properties and the surrounding area and a review of relevant federal, state and historical documents. It is possible that the assessments we commission do not reveal all environmental liabilities or that there are material environmental liabilities of which we are currently unaware. Future laws, ordinances or regulations may impose material environmental liability and the current environmental condition of our properties may be affected by tenants, by the condition of land or operations in the vicinity of those properties, or by unrelated third parties. Federal, state, and local agencies or private plaintiffs may bring actions against us in the future, and those actions, if adversely resolved, may have a material adverse effect on our business, financial condition and results of operations.
Actions of any joint venture partners that we may have could reduce the returns on joint venture investments.
At times we enter into joint ventures or partnerships to acquire and develop properties. Such investments may involve risks not otherwise present with other methods of investment, including:
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that our co-venturer, or partner in an investment could become insolvent or bankrupt;
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that such co-venturer, or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals;
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that such co-venturer, or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; or
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that disputes between us and our co-venturer, or partner may result in litigation or arbitration that would increase expenses.
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Any of the above might subject a property to liabilities in excess of those contemplated and thus reduce our returns on that investment.
Our leasing activities depend on various factors, including tenant occupancy and rental rates, which, if adversely affected, could cause our operating results to suffer.
A significant portion of our property management business involves facilitating the leasing of commercial and residential space. Our revenues may be adversely affected if we fail to promptly find tenants for substantial amounts of vacant space, if rental rates on new or renewal leases are significantly lower than expected, or if reserves for costs of re-leasing prove inadequate. A default or termination by a commercial tenant or a large number of residential tenants on their lease payments would cause us to lose the revenue associated with such leases and require us to find an alternative source of revenue to meet mortgage payments, if any, and prevent a foreclosure. In the event of a significant tenant default we may experience delays in enforcing our rights as a landlord and may incur substantial costs in protecting our investment and re-leasing such property. If significant tenants default on or terminate a lease, we may be unable to release the property for the rent previously received or sell the property without incurring a loss.
Our reliance on third-parties to operate certain of our properties may harm our business.
In some instances, we rely on third-party property managers and hotel operators to manage our properties. These third parties are directly responsible for the day-to-day operation of our properties with limited supervision by us, and they often have potentially significant decision-making authority with respect to those properties. These third parties may fail to manage our properties effectively or in accordance with their agreements with us, may be negligent in their performance and may engage in criminal or fraudulent activity. If any of these events occur, we could incur losses or face liabilities from the loss or injury to our property or to persons at our properties. In addition, disputes may arise between us and these third-party
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managers and operators, and we may incur significant expenses to resolve those disputes or terminate the relevant agreement with these third parties and locate and engage competent and cost-effective service providers to operate and manage the relevant properties.
We are also parties to hotel management agreements under which unaffiliated third-party property managers manage our hotel properties. If any of these events occur, our relationships with any franchisors may be damaged, we may be in breach of our franchise agreement, and we could incur liabilities resulting from loss or injury to our property or to persons at our properties. In addition, from time to time, disputes may arise between us and our third-party managers regarding their performance or compliance with the terms of the hotel management agreements, which in turn could adversely affect us. If we are unable to resolve such disputes through discussions and negotiations, we may choose to terminate our management agreement, litigate the dispute or submit the matter to third-party dispute resolution, the expense of which may be material and the outcome of which may harm our business, operating results or prospects.
Competition with third parties in acquiring and leasing properties and other real estate investments may reduce our profitability.
We face significant competition with respect to the acquisition of properties, including REITs, insurance companies, commercial banks, private investment funds, hedge funds, specialty finance companies, online investment platforms and other investors, many of which have greater resources than us. We may not be able to compete successfully for investments. In addition, the number of entities and the amount of funds competing for suitable investments may increase. If we acquire properties at higher prices, our funds’ returns will be lower and the value of their assets may not increase or may decrease significantly below the amount paid for such assets.
Any apartment communities we may acquire competes with numerous housing alternatives in attracting residents, including single-family homes, as well as owner occupied single- and multifamily homes available to rent. Competitive housing in a particular area and the increasing affordability of owner occupied single- and multifamily homes available to rent or buy caused by declining mortgage interest rates and government programs to promote home ownership could adversely affect our ability to attract or retain residents, or increase or maintain rents.
We could lose part or all of our investments in real estate assets, which could have a material adverse effect on our financial condition and results of operations.
Real estate investments are generally illiquid, which may affect our ability to change our portfolio in response to changes in economic and other conditions. Moreover, we may not be able to unilaterally decide the timing of the disposition of an investment, and as a result, we may not control when and whether any gain will be realized or loss avoided. The value of our investments can also be diminished by:
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civil unrest, acts of war and terrorism and acts of God, including earthquakes, hurricanes and other natural disasters (which may result in uninsured or underinsured losses);
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the impact of present or future legislation including environmental regulation, changes in laws concerning foreign ownership of property, changes in tax rates, changes in zoning laws and laws requiring upgrades to accommodate disabled persons) and the cost of compliance with these types of legislation; and
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liabilities relating to claims, to the extent insurance is not available or is inadequate.
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In the event that we underestimate the risks relative to the price we pay for a particular investment, we may experience losses with respect to such investment.
Risks Related to our Real Estate and Securities Brokerage Services
If we fail to comply with laws and regulations applicable to us in our role as a real estate or securities broker, property/facility manager or developer, we may incur significant financial penalties.
We are subject to numerous federal, state, local and foreign laws and regulations specific to the services we perform in our brokerage business, as well as laws of broader applicability, such as tax, securities and employment laws. Brokerage of real estate sales and leasing transactions require us to maintain applicable
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licenses in each state in which we perform these services. If we fail to maintain our licenses or conduct these activities without a license, or violate any of the regulations covering our licenses, we may be required to pay fines, return commissions received or have our licenses suspended or revoked.
As a licensed real estate broker, we and our licensed employees are subject to certain statutory due diligence, disclosure and standard-of-care obligations. Failure to fulfill these obligations could subject us or our employees to litigation from parties who purchased, sold or leased properties that we brokered or managed. In addition, we may become subject to claims by participants in real estate sales claiming that we did not fulfill our statutory obligations as a broker.
Risks Related to Our Company
Extensive regulation of our businesses affects our activities and creates the potential for significant liabilities and penalties. The possibility of increased regulatory focus could result in additional burdens on our business. Changes in tax law and other legislative or regulatory changes could adversely affect us.
Our fund management, property management and brokerage businesses are subject to extensive regulation. We are subject to regulation, including periodic examinations, by governmental and self-regulatory organizations in the jurisdictions in which we operate. Many of these regulators are empowered to conduct investigations and administrative proceedings that can result in fines, suspensions of personnel or other sanctions, including censure, the issuance of cease-and-desist orders or the suspension or expulsion of a broker-dealer or investment adviser from registration or memberships. Even if an investigation or proceeding did not result in a sanction or the sanction imposed against us or our personnel by a regulator were small in monetary amount, the adverse publicity relating to the investigation, proceeding or imposition of these sanctions could harm our reputation and cause us to lose existing clients or fail to gain new fund management or financial advisory clients. In addition, we regularly rely on exemptions from various requirements of the U.S. Securities Act of 1933, as amended, or the Securities Act, the Exchange Act, the U.S. Investment Company Act of 1940, as amended, or the Investment Company Act, and the U.S. Employee Retirement Income Security Act of 1974, as amended, in conducting our fund management activities. These exemptions are sometimes highly complex and may in certain circumstances depend on compliance by third parties whom we do not control. If for any reason these exemptions were to become unavailable to us, we could become subject to regulatory action or third-party claims and our business could be materially and adversely affected. If we were deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to continue our business as conducted and could have a material adverse effect on our business.
In addition, we may be adversely affected as a result of new or revised legislation or regulations imposed by governmental regulatory authorities or self-regulatory organizations that supervise the financial markets. We also may be adversely affected by changes in the interpretation or enforcement of existing laws and rules by these governmental authorities and self-regulatory organizations. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any of the proposals will become law. Compliance with any new laws or regulations could make compliance more difficult and expensive and affect the manner in which we conduct business.
If we were deemed to be an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to continue our businesses as conducted and could have a material adverse effect on our businesses.
An entity will generally be deemed to be an “investment company” for purposes of the Investment Company Act if:
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it is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or
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absent an applicable exemption, it owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
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We believe that we are engaged primarily in the business of providing investment management services for real estate assets and not primarily in the business of investing, reinvesting or trading in securities. We hold ourselves out as a vertically integrated investment firm and do not propose to engage primarily in the business of investing, reinvesting or trading in securities. Accordingly, we do not believe that we are, or following this offering will be, an “orthodox” investment company as defined in section 3(a)(1)(A) of the Investment Company Act and described in the first bullet point above. Furthermore, following this offering, we will have no material assets other than interests in certain wholly owned subsidiaries (within the meaning of the Investment Company Act), which in turn will have either direct interests in real estate assets or LLC member/LP partnership interests in affiliated funds. We do not believe that, based on current rules and interpretations, the equity interests in our wholly owned subsidiaries or the LLC member interests consolidated or unconsolidated affiliated funds qualify as investment securities under the Investment Company Act.
The Investment Company Act and the rules thereunder contain detailed parameters for the organization and operation of investment companies. Among other things, the Investment Company Act and the rules thereunder limit or prohibit transactions with affiliates, impose limitations on the issuance of debt and equity securities, generally prohibit the issuance of options and impose certain governance requirements. We intend to conduct our operations so that we will not be deemed to be an investment company under the Investment Company Act. If anything were to happen that would cause us to be deemed to be an investment company under the Investment Company Act, requirements imposed by the Investment Company Act, including limitations on capital structure, the ability to transact business with affiliates and the ability to compensate senior employees, could make it impractical for us to continue our businesses as currently conducted, impair the agreements and arrangements between and among us, our funds and our senior management, or any combination thereof, and have a material adverse effect on our businesses, financial condition and results of operations. In addition, we may be required to limit the amount of investments that we make as a principal or otherwise conduct our businesses in a manner that does not subject us to the registration and other requirements of the Investment Company Act.
We may not be successful in competing with companies in the real estate services and investment industry, some of which may have substantially greater resources than we do.
Real estate investment and services businesses are highly competitive. Many of our competitors have greater financial resources and a broader market presence than we do. We compete with respect to:
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Diversification of our revenue stream across the deal continuum, including brokerage fees on buying and selling assets, construction fees on repositioning assets, and property management fees on certain multi- and single-family assets; and
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Competitive fee structures on our fund management services
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Our business depends in large part on our ability to raise capital from investors. If we were unable to raise such capital, we would be unable to collect management fees or deploy such capital into investments, which would materially reduce our revenues and cash flow and adversely affect our financial condition.
We depend on the capital markets to grow our balance sheet along with third-party equity and debt financings to acquire properties. We intend to continue to raise a significant amount of third-party equity and debt to acquire real estate assets in the ordinary course of our business. We depend on debt financing from a combination of seller financing, the assumption of existing loans, government agencies and financial institutions. We depend on equity financing from equity partners, which may include public/private companies, pension funds, family offices, financial institutions, endowments and money managers. Our access to capital funding is uncertain. Our inability to raise additional capital on terms reasonably acceptable to us could jeopardize the future growth of our business.
Our ability to raise capital from investors depends on a number of factors, including many that are outside our control. Investors may downsize their investment allocations to alternative managers, including private funds and hedge funds, to rebalance a disproportionate weighting of their overall investment portfolio among asset classes. Poor performance of our funds could also make it more difficult for us to raise new capital. Our investors and potential investors continually assess our funds’ performance
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independently and relative to market benchmarks and our competitors, and our ability to raise capital for existing and future funds depends on our funds’ performance. If economic and market conditions deteriorate, we may be unable to raise sufficient amounts of capital to support the investment activities of future funds. If we were unable to successfully raise capital, our revenue and cash flow would be reduced, and our financial condition would be adversely affected.
We depend on our founders, senior professionals and other key personnel, and our ability to retain them and attract additional qualified personnel is critical to our success and our growth prospects.
We depend on the diligence, skill, judgment, business contacts and personal reputations of our founders, senior professionals and other key personnel. Our future success will depend upon our ability to attract and retain senior professionals and other personnel. Our executives have built highly regarded reputations in the real estate industry. Our executives attract business opportunities and assist both in negotiations with lenders and potential joint venture partners and in the representation of large and institutional clients. If we lost their services, our relationships with lenders, joint ventures and clients would diminish significantly.
In addition, certain of our officers have strong regional reputations, and they aid in attracting and identifying opportunities and negotiating for us and on behalf of our clients. As we continue to grow, our success will largely depend on our ability to attract and retain qualified personnel in all areas of business. We may be unable to continue to hire and retain a sufficient number of qualified personnel to support or keep pace with our planned growth.
We have in the past incurred and may continue in the future to incur significant amounts of debt to finance acquisitions, which could negatively affect our cash flows and subject our properties or other assets to the risk of foreclosure.
We have historically financed new acquisitions with cash derived from secured and unsecured loans and lines of credit. For instance, we typically purchase real property with loans secured by a mortgage on the property acquired. We could become more highly leveraged, resulting in an increase in debt service costs that could adversely affect our results of operations and increase the risk of default on debt. We may incur additional debt from time to time to finance strategic acquisitions, investments, joint ventures or for other purposes. If we incur additional debt, the risks associated with our leverage, including our ability to service our debt, would increase. Our governing documents do not contain any limitations on the amount of debt we may incur and we do not have a formal policy limiting the amount of debt we may incur in the future. Subject to the restrictions set forth in our debt agreements, our board of directors may establish and change our leverage policy at any time without shareholder approval.
Some of our debt bears interest at variable rates. As a result, we are subject to fluctuating interest rates that may impact, adversely or otherwise, results of operations and cash flows. We may be subject to risks normally associated with debt financing, including the risks that:
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cash flow may be insufficient to make required payments of principal and interest;
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existing indebtedness on our properties may not be refinanced and our leverage could increase our vulnerability to general economic downturns and adverse competitive and industry conditions, placing us at a disadvantage compared to those of our competitors that are less leveraged;
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our debt service obligations could limit our flexibility in planning for, or reacting to, changes in our business and in the commercial real estate services industry;
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our failure to comply with the restrictive covenants in the documents governing our indebtedness could result in an event of default that, if not cured or waived, results in foreclosure on substantially all of our assets; and
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the terms of available new financing may not be as favorable as the terms of existing indebtedness
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If we are unable to satisfy the obligations owed to any lender with a lien on one of our properties, the lender could foreclose on the real property or other assets securing the loan and we would lose that property or asset. The loss of any property or asset to foreclosure could have a material adverse effect on our business, financial condition and results of operations.
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Rapid growth of our businesses may be difficult to sustain and may place significant demands on our administrative, operational and financial resources.
Our assets under management have grown significantly in the past, and we are pursuing further growth in the near future, both organic and through acquisitions. Our rapid growth has placed, and planned growth, if successful, will continue to place, significant demands on our legal, accounting and operational infrastructure, and has increased expenses. The complexity of these demands, and the expense required to address them, is a function not simply of the amount by which our assets under management has grown, but of the growth in the variety and complexity of, as well as the differences in strategy between, our different funds. In addition, we are required to continuously develop our systems and infrastructure in response to the increasing sophistication of the investment management market and legal, accounting, regulatory and tax developments.
Our future growth will depend in part on our ability to maintain an operating platform and management system sufficient to address our growth and will require us to incur significant additional expenses and to commit additional senior management and operational resources.
We may enter into new lines of business and expand into new investment strategies, geographic markets and businesses, each of which may result in additional risks and uncertainties in our businesses.
We intend, if market conditions warrant, to grow our businesses by increasing assets under management in existing businesses and expanding into new investment strategies, geographic markets and businesses. We may pursue growth through acquisitions of critical business partners or other strategic initiatives, which may include entering into new lines of business.
Attempts to expand our businesses involve a number of special risks, including some or all of the following:
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the required investment of capital and other resources;
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the diversion of management’s attention from our core businesses;
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the assumption of liabilities in any acquired business;
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the disruption of our ongoing businesses;
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entry into markets or lines of business in which we may have limited or no experience;
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increasing demands on our operational and management systems and controls;
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compliance with additional regulatory requirements;
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potential increase in investor concentration; and
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the broadening of our geographic footprint, increasing the risks associated with conducting operations in certain jurisdictions where we currently have no presence.
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Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which we are currently exempt, and may lead to increased litigation and regulatory risk. If a new business does not generate sufficient revenues or if we are unable to efficiently manage our expanded operations, our results of operations will be adversely affected. Our strategic initiatives may include joint ventures, in which case we will be subject to additional risks and uncertainties in that we may be dependent upon, and subject to liability, losses or reputational damage relating to systems, controls and personnel that are not under our control. Because we have not yet identified these potential new investment strategies, geographic markets or lines of business, we cannot identify all of the specific risks we may face and the potential adverse consequences on us and their investment that may result from any attempted expansion.
If we are unable to maintain and protect our intellectual property, or if third parties assert that we infringe their intellectual property rights, our business could suffer.
Our business depends, in part, on our ability to identify and protect proprietary information and other intellectual property such as our, client lists and information and business methods. We rely on a combination of trade secrets, confidentiality policies, non-disclosure and other contractual arrangements
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and copyright and trademark laws to protect our intellectual property rights. However, we may not adequately protect these rights, and their disclosure to, or use by, third parties may harm our competitive position. Our inability to detect unauthorized use of, or to take appropriate or timely steps to enforce, our intellectual property rights may harm our business.
Also, third parties may claim that our business operations infringe on their intellectual property rights. These claims may harm our reputation, cost us money to defend, distract the attention of our management and prevent us from offering some services.
Confidential intellectual property is increasingly stored or carried on mobile devices, such as laptop computers, which increases the risk of inadvertent disclosure where the mobile devices are lost or stolen and the information has not been adequately safeguarded or encrypted. This also makes it easier for someone with access to our systems, or someone who gains unauthorized access, to steal information and use it to our disadvantage. Advances in technology, which permit increasingly large amounts of information to be stored on mobile devices or on third-party “cloud” servers, may exacerbate these risks.
The consolidation of investment funds or operating businesses of our portfolio companies could make it more difficult to understand the operating performance of the Company and could create operational risks for the Company.
Under applicable US GAAP standards, we may be required to consolidate certain of our funds, limited liability companies, partnerships or operating businesses if we determine that these entities are VIEs and that the Company is the primary beneficiary of the VIE. The consolidation of such entities could make it difficult for an investor to differentiate the assets, liabilities, and results of operations of the Company apart from the assets, liabilities, and results of operations of the consolidated VIEs. The assets of the consolidated VIEs are not available to meet our liquidity requirements. As of June 30, 2018 and December 31, 2017 and 2016, the total assets of our consolidated VIEs reflected in our consolidated balance sheets were $160.6 million, $137.1 million and $131.1 million, respectively, and as of June 30, 2018 and December 31, 2017 and 2016, the total liabilities of our consolidated VIEs reflected in our consolidated balance sheets were $122.6 million, $104.1 million and $99.3 million, respectively.
Insiders will exercise significant control over our company and all corporate matters.
Our directors and executive officers beneficially owned, in the aggregate, approximately   % of our outstanding capital stock as of November 30, 2018. Upon the completion of this offering, and assuming they do not purchase shares in this offering, it is expected that this same group will continue to hold a majority of our outstanding capital stock. As a result, if they act together, these shareholders will be able to exercise significant influence over all matters submitted to our shareholders for approval, including the election of directors and approval of significant corporate transactions, such as (i) making changes to our articles of incorporation whether to issue additional common stock and preferred stock, (ii) employment decisions, including compensation arrangements; and (iii) whether to enter into material transactions with related parties.. This concentration of ownership may also have the effect of delaying or preventing a third party from acquiring control of our company which could adversely affect the price of our common stock.
Conflicts of interest exist between our company and related parties.
Conflicts of interest exist and may arise in the future as a result of the relationships between our company and our officers, directors and owners, on the one hand, and our funds and its investors, on the other hand. We earn fees from our funds, including our carried interest which value is a direct result from the performance of our funds. There may be instances where the interests of our funds and the investors in such funds diverge from those of our company which could result in conflicts of interest. In resolving these conflicts, our board of directors and executive officers have a fiduciary duty to our shareholders. In addition, as we operate as a Fund Manager through a wholly-owned subsidiary, our company has a fiduciary duty to investors in the funds we manage. Unless the resolution of a conflict is specifically provided for in the operating agreements of such funds, our board of directors may consider any factors they determine in good faith to consider when resolving a conflict. An independent third party is not required to evaluate the resolution. As a result of the foregoing, there may be instances where any such conflicts are resolved in a manner which favors the interests of our funds and their investors over our shareholders.
17
Our Bylaws have an exclusive forum for adjudication of disputes provision which limits the forum to the Delaware Court of Chancery for certain actions against the Company.
Section 4 of Article VII of our Bylaws dictates that the Delaware Court of Chancery is the sole and exclusive forum for certain actions including derivative action or proceeding brought on behalf of the Company; an action asserting a breach of fiduciary duty owed by an officer, director, employee or to the shareholders of the Company; any claim arising under Delaware corporate law; and any action asserting a claim governed by the internal affairs doctrine. We also intend this exclusive forum provision to apply to claims under the federal securities laws. While management believes limiting the forum is a benefit, shareholders could be inconvenienced by not being able to bring an action in another forum they find favorable. Note that there is uncertainty as to whether a court would enforce this provision as it relates to claims under the federal securities laws and that shareholders will not be deemed to have waived the company’s compliance with federal securities laws and the rules and regulations thereunder.
A Delaware corporation is allowed to mandate in its corporate governance documents a chosen forum for the resolution of state law based shareholder class actions, derivative suits and other intra-corporate disputes. The Company’s management believes limiting state law based claims to Delaware will provide the most appropriate outcomes as the risk of another forum misapplying Delaware law is avoided, Delaware courts have a well-developed body of case law and limiting the forum will preclude costly and duplicative litigation and avoids the risk of inconsistent outcomes. Additionally, Delaware Chancery Courts can typically resolve disputes on an accelerated schedule when compared to other forums.
Our business could be adversely affected by security breaches through cyber-attacks, cyber intrusions or otherwise.
We face risks associated with security breaches, whether through cyber-attacks or cyber intrusions over the internet, malware, computer viruses, attachments to e-mails, persons inside our organization or persons with access to systems inside our organization, and other significant disruptions of our information technology networks and related systems. These risks include operational interruption, private data exposure and damage to our relationship with our customers, among others. A security breach involving our networks and related systems could disrupt our operations in numerous ways that could ultimately have an adverse effect on our financial condition and results of operations.
Risks Related to the Offering
An investment in our shares is a speculative investment and, therefore no assurance can be given that you will realize your investment objectives.
No assurance can be given that investors will realize a return on their investments in us or that they will not lose their entire investment in our shares. For this reason, each prospective investor of our shares should carefully read this Offering Circular. ALL SUCH PERSONS OR ENTITIES SHOULD CONSULT WITH THEIR ATTORNEY OR FINANCIAL ADVISOR PRIOR TO MAKING AN INVESTMENT.
There has been no active public market for our common stock prior to this offering, and an active trading market may not be developed or sustained following this offering, which may adversely impact the market for shares of our Common Stock and make it difficult to sell your shares.
Prior to this offering, there was no active market for our common stock. We do not know the extent to which investor interest will lead to the development and maintenance of a liquid trading market, if at all. We intend to list our common stock on a national securities exchange in the future; however, any such listing may not occur until months or years after the termination of this offering, if at all. As a result, investors should view our common stock as an illiquid investment. Further, if we do list our shares on a national securities exchange, or another trading market develops, no assurance can be given that the market price of shares of our common stock will not fluctuate or decline significantly in the future or that stockholders will be able to sell their shares when desired on favorable terms, or at all.
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This is a fixed price offering and the Offering Price may not accurately represent the current value of us or our assets at any particular time. Therefore, the Offering Price may not be supported by the value of our assets at the time of your purchase.
This is a fixed price offering, which means that the Offering Price is fixed and will not vary based on the underlying value of our assets at any time. Our Board has determined the Offering Price in its sole discretion. The Offering Price has been based on an internal valuation analysis of our Company as a whole. Although we believe the valuation to be fair as of the date it was determined, the fixed offering price established for our shares may not be supported by the current value of our Company or our assets at any particular time.
If investors successfully seek rescission, we would face severe financial demands that we may not be able to meet.
Our Shares have not been registered under the Securities Act of 1933, or the Securities Act, and are being offered in reliance upon the exemption provided by Section 3(b) of the Securities Act and Regulation A promulgated thereunder. We represent that this Offering Circular does not contain any untrue statements of material fact or omit to state any material fact necessary to make the statements made, in light of all the circumstances under which they are made, not misleading. However, if this representation is inaccurate with respect to a material fact, if this offering fails to qualify for exemption from registration under the federal securities laws pursuant to Regulation A, or if we fail to register the Shares or find an exemption under the securities laws of each state in which we offer the Shares, each investor may have the right to rescind his, her or its purchase of the shares sold hereunder and to receive back from our Company his, her or its purchase price with interest. Such investors, however, may be unable to collect on any judgment, and the cost of obtaining such judgment may outweigh the benefits. If investors successfully seek rescission, we would face severe financial demands we may not be able to meet and it may adversely affect any non-rescinding investors.
We do not intend to pay dividends in the foreseeable future.
We have the authority to retain all of our earnings for the future operation and expansion of our business. While we are obligated to pay dividends on our outstanding shares of Series A Preferred Stock, we do not intend to make any cash distributions to holders of our common stock in the foreseeable future. Investors should not expect to receive income on an ongoing basis from an investment in us.
Risks Related to Benefit Plan Investors
Fiduciaries investing the assets of a trust or pension or profit sharing plan must carefully assess an investment in our Company to ensure compliance with ERISA.
In considering an investment in our Company of a portion of the assets of a trust or a pension or profit-sharing plan qualified under Section 401(a) of the Code and exempt from tax under Section 501(a), a fiduciary should consider (i) whether the investment satisfies the diversification requirements of Section 404 of ERISA; (ii) whether the investment is prudent, since the shares sold hereunder are not freely transferable and there may not be a market created in which the shares sold hereunder may be sold or otherwise disposed; and (iii) whether interests in our Company or the underlying assets owned by our Company constitute “Plan Assets” under ERISA. See “Erisa Considerations.”
YOU SHOULD CONSULT WITH YOUR OWN ATTORNEYS, ACCOUNTANTS AND OTHER PROFESSIONAL ADVISORS AS TO THE LEGAL, TAX, ACCOUNTING AND OTHER CONSEQUENCES OF AN INVESTMENT IN CALIBER COMMON STOCK.
19
PURSUANT TO INTERNAL REVENUE SERVICE CIRCULAR NO. 230, BE ADVISED THAT ANY FEDERAL TAX ADVICE IN THIS COMMUNICATION, INCLUDING ANY ATTACHMENTS OR ENCLOSURES, WAS NOT INTENDED OR WRITTEN TO BE USED, AND IT CANNOT BE USED BY ANY PERSON OR ENTITY TAXPAYER, FOR THE PURPOSE OF AVOIDING ANY INTERNAL REVENUE CODE PENALTIES THAT MAY BE IMPOSED ON SUCH PERSON OR ENTITY. SUCH ADVICE WAS WRITTEN TO SUPPORT THE PROMOTION OR MARKETING OF THE TRANSACTION(S) OR MATTER(S) ADDRESSED BY THE WRITTEN ADVICE. EACH PERSON OR ENTITY SHOULD SEEK ADVICE BASED ON ITS PARTICULAR CIRCUMSTANCES FROM AN INDEPENDENT TAX ADVISOR.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This offering circular contains forward-looking statements that are based on our beliefs and assumptions and on information currently available to us. The forward-looking statements are contained principally in “Offering Circular Summary,” “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and “Description of Our Business.” Forward-looking statements include information concerning our possible or assumed future results of operations and expenses, business strategies and plans, competitive position, business environment, and potential growth opportunities. Forward-looking statements include all statements that are not historical facts. In some cases, forward-looking statements can be identified by terms such as “anticipates,” “believes,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “projects,” “seeks,” “should,” “will,” “would,” or similar expressions and the negatives of those terms.
Forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by the forward-looking statements. Those risks include those described in “Risk Factors” and elsewhere in this offering circular. Given these uncertainties, you should not place undue reliance on any forward-looking statements in this offering circular. Also, forward-looking statements represent our beliefs and assumptions only as of the date of this offering circular. You should read this offering circular and the documents that we have filed as exhibits to the Form 1-A of which this offering circular is a part, completely and with the understanding that our actual future results may be materially different from what we expect.
Any forward-looking statement made by us in this offering circular speaks only as of the date on which it is made. Except as required by law, we disclaim any obligation to update these forward-looking statements publicly, or to update the reasons actual results could differ materially from those anticipated in these forward- looking statements, even if new information becomes available in the future. All forward-looking statements are expressly qualified in their entirety by the foregoing cautionary statements.
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USE OF PROCEEDS
There is no minimum amount of shares necessary to be sold hereunder. Because the offering is a “best efforts” offering without a minimum offering amount, we may close the offering without sufficient funds for all the intended purposes set out below.
The net proceeds of a fully subscribed offering, after total offering expenses, will be approximately $46.0 million. Caliber plans to use these proceeds as follows:
•
Approximately $25.0 million towards the acquisition and redevelopment of similar strategic real estate projects.
​
•
Approximately $6.4 million to repay high interest rate debt in favor of more competitive financing which we believe will be readily available after the completion of this offering. This outstanding debt to be repaid consists of unsecured promissory notes with outstanding principal balances ranging from $10,750 to $950,000, and interest rates ranging from 8.25% to 33.0% and maturity dates ranging from July 2018 to December 2018. The unsecured promissory notes are held by approximately 60 individuals which generally have a 12-month term and are extended on an annual basis; the notes have been extended through December 2019. There are no penalties or fees related to the extension of notes or failure to repay when due. The proceeds of the notes were used for working capital. For additional information, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Unsecured Corporate Debt.”
​
•
Approximately $5.5 million will be used for infrastructure enhancements to our operating and controls systems.
​
•
Approximately $8.0 million will be used for general corporate purposes.
​
If the offering size were to be $25.0 million, then we estimate that the net proceeds to Caliber would be approximately $23.0 million. In such an event, Caliber would still be able to use the proceeds as outlined above, albeit certain initiatives would be reduced or scaled back. For example, Caliber would adjust its use of proceeds by limiting in size and scope acquisition and redevelopment real estate projects. If the offering size were to be $5.0 million, we estimate that the net proceeds to Caliber would be approximately $4.6 million. In such an event, Caliber would be in a position to and intends to repay approximately $3.0 million of its outstanding debt as set forth above.
We do not have agreements or commitments for any redevelopment projects at this time. Other than the payment of the Company’s officers’ and directors’ salaries, none of the proceeds of this offering will be used to compensate or otherwise make payments to our subsidiaries’ officers or directors. General corporate purposes may include, but are not limited to, the costs of this offering, including our outside legal and accounting expenses, employee payroll, rent and real estate expenses, utilities, computer hardware and software and promotion and marketing. Our management has sole discretion regarding the use of proceeds from the sale of Caliber Common Stock. We reserve the right to change the use of proceeds as business demands dictate.
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DILUTION
If you invest in Caliber Common Stock, your interest will be diluted to the extent of the difference between the $     offering price per share (the “Offering Price”) of Caliber Common Stock and the pro forma net tangible book value per share of Caliber Common Stock immediately after this offering. Dilution results from the fact that the Offering Price is substantially in excess of the pro forma net tangible book value per share attributable to the existing equity holders.
Our pro forma net tangible book value per share as of June 30, 2018 was approximately $    , or approximately $     per share of Caliber Common Stock on a fully diluted basis. Pro forma net tangible book value represents the amount of total tangible assets less total liabilities. Pro forma net tangible book value per share represents pro forma net tangible book value divided by the number of shares of Caliber Common Stock outstanding on a fully diluted basis.
The following table illustrates the substantial and immediate dilution per share of Caliber Common Stock to a purchaser in this offering, assuming issuance of all shares of Caliber Common Stock in this offering:
On Basis of Full Conversion of Issued Instruments
​ ​
$50 Million
Raise
​
Price per share
​ ​ ​ $      ​ ​
Shares issued
​ ​
    ​
 ​
Capital raised
​ ​ ​ $      ​ ​
Less: Estimated offering costs
​ ​ ​ $ (    ) ​ ​
Net Offering Proceeds
​ ​ ​ $      ​ ​
Net tangible book value pre-offering(1)
 ​ ​ ​ $      ​ ​
Net tangible book value post-offering
​ ​ ​ $      ​ ​
Shares issued and outstanding pre-offering assuming full conversion(2)
 ​ ​
    ​
 ​
Post-offering shares issued and outstanding
​ ​
    ​
 ​
Net tangible book value per share prior to offering(1)(2)
 ​ ​ ​ $      ​ ​
Increase/(Decrease) per share attributable to new investors
​ ​ ​ $      ​ ​
Net tangible book value per share after offering
​ ​ ​ $      ​ ​
Dilution per share to new investors ($)
​ ​ ​ $      ​ ​
Dilution per share to new investors (%)
​ ​ ​ ​     % ​ ​
​
(1)
Net tangible book value is based on the net tangible equity attributable to equity holders of the Company as of June 30, 2018.
​
(2)
Assumes conversion of all issued shares of Series A Preferred Stock to Caliber Common Stock, vesting of all issued and outstanding Caliber Common Stock grants, and exercise of all warrants issued by Caliber.
​
​ ​ ​
Shares Purchased
​ ​
Total Consideration
​ ​
Average
Price Per
Share
​
Assuming Maximum Number of Shares Sold:
​ ​
Number
​ ​
Percentage
​ ​
Amount
​ ​
Percentage
​
Existing Caliber Stockholders(1)
 ​ ​ ​ ​ 27,346,874 ​ ​ ​ ​ ​ 100.0% ​ ​ ​ ​ $ 11,235,444 ​ ​ ​ ​ ​ 100.0% ​ ​ ​ ​ $ 0.37 ​ ​
New Caliber Common Stockholders(2)
 ​ ​
    ​
 ​ ​ ​ ​     % ​ ​ ​ ​ $      ​ ​ ​ ​ ​     % ​ ​ ​ ​ $      ​ ​
Total
 ​ ​
    ​
 ​ ​ ​
​
100.0%
 ​ ​ ​ ​ $      ​ ​ ​ ​ ​     % ​ ​ ​ ​ ​ ​ ​ ​
​
(1)
Does not give effect to the conversion of shares of Series A Preferred Stock to Caliber Common Stock, conversion of convertible debt securities issued by Caliber to Caliber Common Stock, vesting of any issued and outstanding Caliber Common Stock grants, and exercise of any warrants issued by Caliber outstanding as of December 31, 2018 or the repurchase of shares by the Company from a founder. See “Interest of Management and Others in Certain Transactions.”
​
(2)
Assumes the issuance of all shares of Caliber Common Stock in this offering.
​
​
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BUSINESS
We are focused on creating wealth for our clients by providing access to high quality real estate investments. Caliber believes that capital organized privately into structured funds offers investors an optimal balance of risk-adjusted return and investment performance. By allowing investors who may not otherwise be able to purchase a large asset, to participate with a minimum investment as low as $35,000, Caliber provides typical real estate investors access to sophisticated strategies and assets that they may not otherwise have.
While Caliber’s business model is in part analogous to that of a financial asset manager, our model is built on a full-service approach. We have complemented traditional asset management functions with construction, property management, and deal expertise that we believe creates a competitive advantage against other traditional asset manager models. Compared to non-traded REITs that often come with high cost structures for investors, we offer reduced product origination costs and fund-level fees. By eliminating many of the fees earned at the fund level, and sizing the remaining fees to cover Company overhead, Caliber aligns its profitability with that of its investors. We believe our approach allows us to drive down the cost burden that is borne by funds under a traditional asset management model, increase returns to investors of those funds, and generate long-term sustainable cash flows. Caliber is organized as follows:
[MISSING IMAGE: tv501322_chrt-flow.jpg]
The Company’s operations are organized into eight reportable segments for management and financial reporting purposes, which are broadly separated in two categories; real estate services (Fund/Asset Management, Construction & Development, Property Management, Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified). Each segment works closely together and plays a critical role in supporting our investment strategy by providing local market intelligence and real-time data for evaluating investments, generating proprietary transaction flow and creating value through efficient implementation of asset management strategies.
Fund Management
Fund Management represents the Company’s fund management activities along with back office and corporate support functions including accounting and human resources. It also includes the activities associated with Caliber Securities, LLC, which generates fees from capital raising. We act as an asset manager of our private equity real estate funds, or Funds, which have diversified investment objectives. Generally, Caliber Services, LLC, and its subsidiaries, or Caliber Services, act as manager of the Funds. As of December 31, 2017, our assets under management consisted of  $214 million and the value of our real property portfolio was approximately $279 million. Approximately $275 million of the assets under
24
management are managed directly by Caliber Services, LLC, or indirectly through one of its subsidiaries. Since inception through December 31, 2017, we have raised over $229 million from accredited investors. For the years ended December 31, 2017 and 2016, we generated approximately $3.5 million and $2.3 million of revenue from our fund management activities, respectively, of which approximately $1.8 million and $1.3 million, respectively are eliminated in consolidation. On an unconsolidated basis, Caliber’s fund management fees represented approximately 13% of corporate entity’s total unconsolidated revenues for the years ended December 31, 2017 and 2016.
We earn fund management fees for services rendered to each of the Funds by Caliber Services. Below is an overview of the fees we earn:
•
Set-Up Fee.   We charge an initial one-time fee related to the initial formation, administration and set-up of the applicable Fund.
​
•
Management Fee.   We receive an annual management fee in an amount equal to 1.50% of the non-affiliate capital contributions to each of the Funds.
​
•
Carried Interest.   We receive 20%-35% of all cash distributions from (i) the operating cash flow of each Fund, after payment to the related Fund investors of any accumulated and unpaid priority preferred returns and repayment of preferred capital contributions; and (ii) the cash flow resulting from the sale or refinance of any real estate assets held by each Fund, after payment to the related Fund investors of any accumulated and unpaid priority preferred returns and repayment of preferred capital contributions. Our Funds’ preferred returns range from 6% to 12%.
​
The amounts that Caliber is entitled to receive from each Fund are governed by the terms of the Fund operating agreements. Generally, once investors receive distributions equal to their preferred return, Caliber receives 35% of operating cash flows from each Fund. With respect to the Caliber Residential Advantage Fund, L.P. (“CRAF”), investors are entitled to 80% of cash flows and Caliber is entitled to 20% of cash flows.
Through our wholly owned Arizona registered issuer-dealer, Caliber Securities, LLC, we earn fees from raising capital into our Funds. Our contracts with our funds are typically fixed fee arrangements which approximate no more than 3.50% on the dollars raised for any one project. For the years ended December 31, 2017 and 2016, we generated approximately $0.5 million and $0.8 million, respectively of which approximately $0.1 million and $0.7 million, respectively are eliminated in consolidation. On an unconsolidated basis, Caliber Securities represented approximately 2% and 5% of Corporate entity’s total unconsolidated earnings for the years ended December 31, 2017 and 2016, respectively.
Construction and Development
Our Construction and Development segment represents the Company’s activities associated with asset remodeling and refurbishment and ground up construction. The majority of the revenues generated by this segment are earned from work completed on assets held in our funds. Caliber Development, LLC, or Caliber Development, a wholly owned subsidiary of Caliber Services, LLC, acts as the general contractor on our projects. Our strategy for this segment is to complete high-quality work while maintaining competitive margins so that the benefits are passed along to the investors of the related funds. For the years ended December 31, 2017 and 2016, we generated approximately $20.5 million and $11.7 million, respectively of which approximately $16 million and $6.7 million, respectively are eliminated in consolidation. On an unconsolidated basis, Caliber Development represented approximately 76% and 64% of Corporate entity’s total unconsolidated earnings for the years ended December 31, 2017 and 2016, respectively.
Property Management
Keeping our single family and multi-family properties rented is the primary focus of our Property Management division. Through our wholly-owned subsidiary Caliber Realty, LLC, or Caliber Realty, we execute our property management strategy using the ‘Drive to 95’ concept: 95% occupancy, at 95% of market rates. We provide property management services to both our funds and third-party property owners. In some instances, we may engage an external service provider to assist in increasing occupancy for specific
25
and niche assets. Revenues in this segment are driven by property management fees, which are generally based upon percentages of the rental revenue or gross rent generated by such properties. Property management revenue also includes fees charged to property management customers for leasing commissions, which are generally based on the amount of the new lease executed with a minimum flat fee. For the years ended December 31, 2017 and 2016, we generated approximately $0.7 million and $0.6 million, respectively of which approximately $0.2 million and $0.2 million, respectively are eliminated in consolidation. On an unconsolidated basis, Property Management represented approximately 3% of Corporate entity’s total unconsolidated earnings for the years ended December 31, 2017 and 2016.
Real Estate Brokerage
Whenever Caliber is involved in a transaction involving real estate acquisition or sale, we collect fees for brokering the arrangement, through Caliber Realty. For the years ended December 31, 2017 and 2016, we generated approximately $1.9 million and $2.7 million, respectively of which approximately $1.6 million and $2.4 million, respectively are eliminated in consolidation. On an unconsolidated basis, real estate brokerage represented approximately 7% and 15% of Corporate entity’s total unconsolidated earnings for the years ended December 31, 2017 and 2016, respectively.
Our Fund Portfolio
The following discussion relates to the activities of our various consolidated and unconsolidated Funds which are generally structured as separate limited liability companies or partnerships. For each Fund, Caliber owns 100% of a separate class equity interest (or equivalent to the manager or general partner interest) or serves as the manager or general partner, which entitles Caliber to receive its 20%-35% carried interest. Caliber’s direct membership or partnership interests generally do not exceed 1% of the total capital raised into the Fund. Investors in Caliber should understand that the majority of the profit and/or loss of any of these Funds or rights and obligations to its related assets and liabilities, respectively, is limited or in some cases unavailable.
The following chart presents the name (acronym), total contributed net capital, total investments at cost, and total investments at fair value of the funds in our hospitality, residential, and commercial segments, as of December 31, 2017.
​ ​ ​ ​ ​ ​
As of December 31, 2017
​
Fund Name
​ ​
Fund Inception
Date
​ ​
Contributed
Capital, Net(1)
 ​ ​
Investments, at
Cost(2)
 ​ ​
Investments, at
Fair Value(3)
 ​
Hospitality: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
CHPH, LLC (“CHPH”)
​ ​ October 2012 ​ ​ ​ $ 10,439,740 ​ ​ ​ ​ $ 23,450,624 ​ ​ ​ ​ $ 28,500,000 ​ ​
Indian Bend Hotel Group, LLC (“IBHG”)
 ​ ​ September 2014 ​ ​ ​ ​ 4,225,842 ​ ​ ​ ​ ​ 11,292,069 ​ ​ ​ ​ ​ 15,500,000 ​ ​
44th & McDowell Hotel Group, LLC (“44th”)
​ ​ May 2015 ​ ​ ​ ​ 8,644,646 ​ ​ ​ ​ ​ 22,141,065 ​ ​ ​ ​ ​ 25,000,000 ​ ​
Tucson East, LLC (“Tucson East”)
​ ​ May 2016 ​ ​ ​ ​ 8,453,175 ​ ​ ​ ​ ​ 19,358,021 ​ ​ ​ ​ ​ 23,000,000 ​ ​
47th Street Phoenix Fund, LLC (“47th Street”)
​ ​ October 2016 ​ ​ ​ ​ 12,370,223 ​ ​ ​ ​ ​ 36,084,876 ​ ​ ​ ​ ​ 44,600,000 ​ ​
SF Alaska, LP (“Salmon Falls”)
​ ​ August 2015 ​ ​ ​ ​ 5,026,658 ​ ​ ​ ​ ​ 10,216,132 ​ ​ ​ ​ ​ 10,300,000 ​ ​
Edgewater Hotel Group, LLC (“Edgewater”)
​ ​ October 2015 ​ ​ ​ ​ 1,754,727 ​ ​ ​ ​ ​ 2,786,722 ​ ​ ​ ​ ​ 2,800,000 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ 50,915,011 ​ ​ ​ ​ ​ 125,329,509 ​ ​ ​ ​ ​ 149,700,000 ​ ​
Residential: ​ ​ ​ ​ ​ ​ ​
GC Square, LLC (“GC Square”)
​ ​ September 2015 ​ ​ ​ ​ 6,242,570 ​ ​ ​ ​ ​ 10,265,038 ​ ​ ​ ​ ​ 16,480,000 ​ ​
Palms Weekly Portfolio, LP (“Palms”)
​ ​ July 2016 ​ ​ ​ ​ 6,451,000 ​ ​ ​ ​ ​ 14,998,484 ​ ​ ​ ​ ​ 16,000,000 ​ ​
South Mountain Square, LLC (“SMS”)
​ ​ June 2012 ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,362,800 ​ ​ ​ ​ ​ 8,000,000 ​ ​
Circle Lofts, LLC (“Eclipse”)
​ ​ November 2016 ​ ​ ​ ​ 2,122,600 ​ ​ ​ ​ ​ 4,596,927 ​ ​ ​ ​ ​ 8,200,000 ​ ​
The Roosevelt I, LLC (“Roosevelt”)
​ ​ January 2016 ​ ​ ​ ​ 2,293,832 ​ ​ ​ ​ ​ 4,184,150 ​ ​ ​ ​ ​ 4,724,000 ​ ​
CDIF Sunrise, LLC (“Treehouse”)
​ ​ April 2014 ​ ​ ​ ​ 7,727,619 ​ ​ ​ ​ ​ 12,703,228 ​ ​ ​ ​ ​ 14,100,000 ​ ​
MV Square, LLC (“Mountain View”)
​ ​ September 2013 ​ ​ ​ ​ 1,342,163 ​ ​ ​ ​ ​ 2,443,901 ​ ​ ​ ​ ​ 3,600,000 ​ ​
Caliber Residential Advantage Fund, LP (“CRAF”)
​ ​ August 2016 ​ ​ ​ ​ 2,528,040 ​ ​ ​ ​ ​ 2,371,764 ​ ​ ​ ​ ​ 3,035,000 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ 28,707,825 ​ ​ ​ ​ ​ 55,926,292 ​ ​ ​ ​ ​ 74,139,000 ​ ​
​
26
​ ​ ​ ​ ​ ​
As of December 31, 2017
​ ​ ​ ​
Fund Name
​ ​
Fund Inception
Date
​ ​
Contributed
Capital, Net(1)
 ​ ​
Investments, at
Cost(2)
 ​ ​
Investments, at
Fair Value(3)
 ​ ​ ​ ​
Commercial: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
SIP Coffee & Beer Kitchen, LLC (“Sip”)
​ ​ February 2017 ​ ​ ​ ​ 394,286 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 394,286 ​ ​ ​ ​ ​
AZ24HR Storage Kingman, LLC (“Kingman”)
​ ​ December 2016 ​ ​ ​ ​ 46,025 ​ ​ ​ ​ ​ 527,397 ​ ​ ​ ​ ​ 675,000 ​ ​ ​ ​ ​
1040 N VIP Blvd, LLC (“VIP”)
​ ​ December 2015 ​ ​ ​ ​ 1,796,505 ​ ​ ​ ​ ​ 1,632,004 ​ ​ ​ ​ ​ 1,700,000 ​ ​ ​ ​ ​
1601 Athol Ave, LLC (“Athol”)
​ ​ December 2015 ​ ​ ​ ​ 691,000 ​ ​ ​ ​ ​ 1,235,024 ​ ​ ​ ​ ​ 1,250,000 ​ ​ ​ ​ ​
Logan Airport Storage, LLC (“Logan”)
​ ​ February 2016 ​ ​ ​ ​ 100,000 ​ ​ ​ ​ ​ 1,810,253 ​ ​ ​ ​ ​ 1,821,000 ​ ​ ​ ​ ​
CDIF Baywood, LLC (“Baywood”)
​ ​ December 2013 ​ ​ ​ ​ 173,062 ​ ​ ​ ​ ​ 173,062 ​ ​ ​ ​ ​ 935,000 ​ ​ ​ ​ ​
CH Mesa Holdings, LLC (“Mesa”)
​ ​ July 2017 ​ ​ ​ ​ 3,067,671 ​ ​ ​ ​ ​ 8,132,407 ​ ​ ​ ​ ​ 10,989,000 ​ ​ ​ ​ ​
J-25 Johnstown Holdings, LLC (“J-25”)
​ ​ May 2017 ​ ​ ​ ​ 2,263,708 ​ ​ ​ ​ ​ 3,637,629 ​ ​ ​ ​ ​ 15,000,000 ​ ​ ​ ​ ​
Fiesta Tech Owners, LLC (“Fiesta Tech”)
​ ​ March 2016 ​ ​ ​ ​ 1,776,000 ​ ​ ​ ​ ​ 4,860,928 ​ ​ ​ ​ ​ 5,800,000 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ ​ ​ ​ 10,308,258 ​ ​ ​ ​ ​ 22,008,704 ​ ​ ​ ​ ​ 38,564,286 ​ ​ ​ ​ ​
Total Funds
​ ​ ​ ​ ​ ​ $ 89,931,094 ​ ​ ​ ​ $ 203,264,505 ​ ​ ​ ​ $ 262,403,286 ​ ​ ​ ​ ​
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Non-Fund Assets
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Residential: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Caliber Auction Homes, LLC
​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,900,736 ​ ​ ​ ​ ​ 12,668,900 ​ ​ ​
Saddleback Ranch, LLC (“Saddleback”)
​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,014,424 ​ ​ ​ ​ ​ 3,500,000 ​ ​ ​ ​ ​
Total Assets Under Management
​ ​ ​ ​ ​ ​ $ 89,931,094 ​ ​ ​ ​ $ 214,179,665 ​ ​ ​ ​ $ 278,572,186 ​ ​ ​
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(1)
Capital contributions since the inception of the Fund, net of any redemptions (i.e. returns of original capital invested).
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(2)
Carrying value of real estate assets owned by the Fund.
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(3)
Estimated fair value of assets owned by the Fund; estimated based on recent appraisals, discounted cash flow analysis, and other valuation techniques as deemed appropriate.
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Our diversified segment is presented below. The Funds included in this segment are invested in the assets included in the table above, and therefore are presented separately to avoid double counting.
​ ​ ​ ​ ​ ​
As of December 31, 2017
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Fund Name
​ ​
Fund Inception
Date
​ ​
Contributed
Capital, Net(1)
 ​ ​
Investments, at
Cost(2)
 ​ ​
Investments, at
Fair Value(3)
 ​
Diversified: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
CDIF, LLC (“CDIF”)
​ ​ May 2013 ​ ​ ​ ​ 26,161,745 ​ ​ ​ ​ ​ 36,403,419 ​ ​ ​ ​ ​ 70,230,000 ​ ​
Caliber Diversified Opportunity Fund II, LP (“CDOF II”)
​ ​ June 2017 ​ ​ ​ ​ 8,579,222 ​ ​ ​ ​ ​ 8,329,569 ​ ​ ​ ​ ​ 10,480,000 ​ ​
Caliber Fixed Income Fund, LLC (“CFIF”)(4)
 ​ ​ March 2014 ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Caliber Fixed Income Fund II, LLC (“CFIF II”)
​ ​ April 2015 ​ ​ ​ ​ 11,228,321 ​ ​ ​ ​ ​ 11,171,784 ​ ​ ​ ​ ​ 11,170,000 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ 45,969,288 ​ ​ ​ ​ ​ 55,904,772 ​ ​ ​ ​ ​ 91,880,000 ​ ​
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(4)
CFIF was the Company’s first private lending Fund, which closed and was liquidated in May 2016. Total capital contributed to the Fund was $10.7 million, and the fund produced an annual return of 10% on the contributed capital through its existence.
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We focus our offerings on middle market accredited investors. To meet our investors’ changing needs and demand for quality real asset opportunities, we manage investments in an increasingly wide range of Funds across a line of complementary strategies. We have demonstrated an ability to consistently generate attractive and differentiated investment returns across these investment strategies and through various market environments. We believe the scope of our product offering, our expertise in various investment strategies and our proficiency in attracting and satisfying our investor base has enabled, and will continue to enable, us to increase our assets under management across each of our investment groups in a balanced manner. Our Open and Evergreen Funds currently consist of the following:
•
Caliber Fixed Income Fund III, LLC.   Caliber Fixed Income Fund III, LLC, a Delaware limited liability company, or CFIF III, was formed in April 2018. CFIF III’s investment objective is to generate annual returns to investors of 8.25% – 9.25% and targets first and second position loans on real estate assets.
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•
Caliber Diversified Opportunity Fund II, LP.   Caliber Diversified Opportunity Fund II, LLC, a Delaware limited partnership, or CDOF II, was formed in June 2017. CDOF II’s investment objective is to acquire or originate a portfolio of commercial, multi-family, hospitality and self-storage real estate investments in primary, secondary and select tertiary markets.
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•
Caliber Residential Advantage Fund, LP.   Caliber Residential Advantage Fund, LP, a Delaware limited partnership, or CRAF, was formed in August 2016. CRAF’s investment objective is to acquire a portfolio of residential real estate in primary, secondary and select tertiary markets.
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•
Elliot 10 Fund, LLC.   The Elliot 10 Fund, LLC, a Delaware limited liability company, or Elliot 10, was formed in September 2017. Elliott 10’s investment objective is to acquire, own, and operate a 169-guest room, full service Four Points by Sheraton branded hotel located in Phoenix, Arizona.
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•
47th Street Phoenix Fund, LLC.   The 47th Street Phoenix Fund, LLC, a Delaware limited liability company, or 47th Street, was formed in October 2016. 47th Street’s investment objective is to acquire, own, and operate a 259-guest room, full service Hilton branded hotel in Phoenix, Arizona.
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•
CH Ocotillo Inv Fund, LLC.   The CH Ocotillo Inv Fund, LLC, a Delaware limited liability company or CH Ocotillo, was formed in June 2018. CH Ocotillo’s investment objective is to acquire, own, and operate a 106-guest room, full service Holiday Inn branded hotel in Chandler, Arizona.
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We intend to form future funds to target additional real estate objectives and opportunities. These may include Funds which take advantage of certain tax incentive programs, such as the Opportunity Zone Program introduced by the recently enacted Investment in Opportunity Act, a bill with a goal to encourage private capital investment in economically distressed areas.
Fund Portfolio Interim Update
From June 30, 2018 through the issuance date of our June 30, 2018 financial statements, we have opened the following Fund:
•
Caliber Tax Advantaged Opportunity Zone Fund, LP.   Caliber Tax Advantaged Opportunity Zone Fund, LP, a Delaware limited partnership, of CTAF, was formed in August 2018. CTAF’s investment objective is to raise capital from investors who are looking to obtain federal income tax benefits from Sections 1400Z-1 and 1400Z-2 (the “Opportunity Zone Provisions”) of the Internal Revenue Code; and deploy that capital in investments within certain designated Opportunity Zones that have been identified by Treasury of the United States.
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Hospitality
Our Hospitality segment represents one of Caliber’s largest fund segments accounting for 53.7% and 60.3% of our total assets under management at December 31, 2017 and 2016, respectively. Through the Funds we manage, we acquire hotels in certain opportunistic situations in which we are able to purchase at a discount to replacement cost or can implement our value-add investment approach. As of December 31, 2017, we have a total of 8 hotels under management, located in Tucson, Phoenix, and Scottsdale, Arizona and Ketchikan, Alaska. Our portfolio of hotels represents over 1,200 rooms under management across multiple brands including Hampton Inn, Holiday Inn, and Hilton.
We earn property operating revenue from our hospitality operations consisting of revenues generated primarily by the hotel properties we own. This includes revenue from room rentals, food and beverage sales, banquet and group sales and other hotel operating activities. For the years ended December 31, 2017 and 2016, we generated hospitality revenues of approximately $46 million and $30 million, respectively.
Residential
Our Residential segment includes single-family homes owned by our wholly-owned subsidiary, Caliber Auction Homes, LLC, and single and multi-family properties held by our funds. We pursue single-family acquisition opportunities as part of our Caliber Residential Advantage Fund investment strategy where we acquire undervalued homes and transform them through major or minor remodeling. Currently, all our
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single-family properties are located in Arizona. As of December 31, 2017, we have a total of 52 single-family properties under management.
We pursue multi-family acquisition opportunities where we believe we can unlock value through a myriad of strategies, including asset rehabilitation, repositioning and creative recapitalization. We focus primarily on apartments in supply-constrained, in-filled markets. As of December 31, 2017, we have purchased over 774 units across 6 separate apartment complexes.
Our residential segment represents approximately 32.4% and 34.4% of total assets under management at December 31, 2017 and 2016, respectively.
Commercial
Our Commercial segment includes properties representing both traditional office space and self-storage facilities. As of December 31, 2017, we are involved in 8 different commercial properties, located in Gilbert, Mesa, Kingman, and Casa Grande, Arizona, Henderson, Nevada, Johnstown Colorado, Logan, and Utah.
Our Commercial segment represents approximately 13.8% and 5.3% of total assets under management at December 31, 2017 and 2016, respectively.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Segment Analysis” for a discussion of activities by segment for the six months ended June 30, 2018.
Competition
The investment management industry is intensely competitive, and we expect it to remain so. We compete primarily on a regional, industry and asset basis.
We face competition both in the pursuit of fund investors and investment opportunities. Generally, our competition varies across business lines, geographies and financial markets. We compete for outside investors based on a variety of factors, including investment performance, investor perception of investment managers’ drive, focus and alignment of interest, quality of service provided to and duration of relationship with investors, business reputation and the level of fees and expenses charged for services. We compete for investment opportunities based on a variety of factors, including breadth of market coverage and relationships, access to capital, transaction execution skills, the range of products and services offered, innovation and price.
We compete with real estate funds, specialized funds, hedge fund sponsors, financial institutions, private equity funds, corporate buyers and other parties. Many of these competitors in some of our businesses are substantially larger and have considerably greater financial, technical and marketing resources than are available to us. Many of these competitors have similar investment objectives to us, which may create additional competition for investment opportunities. Some of these competitors may also have a lower cost of capital and access to funding sources that are not available to us, which may create competitive disadvantages for us with respect to investment opportunities. In addition, some of these competitors may have higher risk tolerances, different risk assessments or lower return thresholds, which could allow them to consider a wider variety of investments and to bid more aggressively than us for investments that we want to make. Corporate buyers may be able to achieve synergistic cost savings with regard to an investment that may provide them with a competitive advantage in bidding for an investment. Lastly, institutional and individual investors are allocating increasing amounts of capital to alternative investment strategies. Several large institutional investors have announced a desire to consolidate their investments in a more limited number of managers. We expect that this will cause competition in our industry to intensify and could lead to a reduction in the size and duration of pricing inefficiencies that our funds seek to exploit.
Regulatory and Compliance Matters
Our businesses, as well as the financial services industry generally, are subject to extensive regulation, including periodic examinations, by governmental agencies and self-regulatory organizations or exchanges in the jurisdictions in which we operate relating to, among other things, anti-money laundering laws, and privacy laws with respect to client information, and some of our funds invest in businesses that operate in
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highly regulated industries. Each of the regulatory bodies with jurisdiction over us has regulatory powers dealing with many aspects of financial services, including the authority to grant, and in specific circumstances to cancel, permissions to carry on particular activities. Any failure to comply with these rules and regulations could expose us to liability and/or reputational damage. In addition, additional legislation, increasing regulatory oversight of fundraising activities, changes in rules promulgated by self-regulatory organizations or exchanges or changes in the interpretation or enforcement of existing laws and rules may directly affect our mode of operation and profitability.
We intend to continue to conduct our operations so that neither we nor any subsidiaries we own nor ones we may establish will be required to register as an investment company under the Investment Company Act of 1940, as amended (“Investment Company Act”). The loss of our exclusion from regulation pursuant to the Investment Company Act could require us to restructure our operations, sell certain of our assets, or abstain from the purchase of certain assets, which could have an adverse effect on our financial condition and results of operations. See “Risk Factors — Risks Related to Our Company — If we were deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to continue our business as conducted and could have a material adverse effect on our business” and “Investment Company Act Considerations”.
Corporate Office
Our corporate office is located at 8901 E. Mountain View Rd., Suite 150, Scottsdale, Arizona, 85258, which we lease. We believe that we our current space is suitable and adequate for conducting our business, however, we may need to relocate offices in the future in the event that we hire additional employees.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our financial condition and results of operations together with our consolidated financial statements and the related notes and other financial information included elsewhere in this Offering Circular. Some of the information contained in this discussion and analysis, including information with respect to our plans and strategy for our business, includes forward-looking statements that involve risks and uncertainties. You should review the “Risk Factors” section of this Offering Circular for a discussion of important factors that could cause actual results to differ materially from the results described in or implied by the forward-looking statements contained in the following discussion and analysis.
Overview
Our business is focused on creating wealth for our clients by providing access to high quality real estate investments. While Caliber’s business model may seem analogous to that of a financial asset manager, we have complemented that responsibility with construction, property management, and deal expertise that creates a competitive advantage against other traditional asset managers models. We believe our approach allows us to drive down the cost burden that is borne by funds under a traditional asset management model, increase returns to investors of those funds, and generate long-term sustainable cash flows to Caliber that are largely resistant to economic cyclicality.
The Company’s operations are organized into eight reportable segments for management and financial reporting purposes, which are broadly separated in two categories; real estate services (Fund Management, Construction & Development, Property Management, Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified).
Real Estate Services
Fund Management — Our Fund Management segment represents our sponsorship and project management activities with respect to our 15 funds, each of which has differing investment objectives, sizes, and growth opportunities. This segment also includes our Caliber Securities, LLC, the issuer dealer who raises capital exclusively for our funds. Caliber Securities, LLC generates fees of up to 3.5% on the capital raised.
Construction and development — Our Construction and development segment operates as a general contractor on all of Caliber’s construction projects from ground up builds, remodels and repairs and maintenance. As of June 30, 2018 and December 31, 2017, approximately 95.1% and 98.2%, respectively, of the segment’s revenues were derived from projects performed on the assets held by our funds and had approximately $28.2 million and $36.4 million, respectively, of projects in various stages of completion.
Property management — Our property management segment manages the single family and multi-family assets of our fund portfolio and other similar assets held and owned by third parties. As of June 30, 2018 and December 31, 2017, approximately 73.8% and 73.5%, respectively, of the segment’s revenues were derived from assets held by our funds.
Real estate brokerage — Our real estate brokerage segment is involved in executing the buying and selling of all our fund assets and completing the buy and sell transactions of other properties for third parties. For the six months ended June 30, 2018 and year ended December 31, 2017 our brokerage segment completed approximately $33.3 million and $62.0 million, respectively, in transactions generating approximately $1.0 million and $1.9 million, respectively, of brokerage fees.
Real Estate Operations
Hospitality — Our hospitality segment manages our 8 hotel funds with operations in Phoenix, Scottsdale, and Tucson, Arizona and Ketchikan, Alaska. As of December 31, 2017, our hospitality segment had approximately $147 million of assets under management.
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Residential — Our residential segment manages our 3 multi-family assets and our single-family asset portfolio held in the Caliber Residential Advantage Fund and Caliber Auction Homes, LLC. As of December 31, 2017, our residential segment had approximately $90 million of assets under management.
Commercial — Our commercial segment manages our 2 office buildings and 3 self-storage facilities. As of December 31, 2017, our commercial segment had approximately $38 million of assets under management.
Diversified — Our diversified segment manages our diversified fund portfolio (CDIF and CDOF II), and CFIF II our lending fund. As of December 31, 2017, our diversified segment had approximately $92 million of assets under management.
Each segment works closely together and plays a critical role in supporting our investment strategy by providing local market intelligence and real-time data for evaluating investments, generating proprietary transaction flow and creating value through efficient implementation of fund management strategies. We earn management fees pursuant to contractual arrangements with Caliber funds and allocate certain direct and indirect costs related to overhead and marketing. We also earn a performance-based fee from our funds which is typically in the form of a special residual allocation of income known as carried interest, but only to the extent that certain minimum investment results are achieved by the related fund. Under US GAAP we are required to consolidate some of the investment funds that we manage. However, for segment reporting purposes, we present revenues and expenses on a basis that deconsolidates these funds and includes our other funds that are not consolidated.
Trends Affecting Our Business
In December 2017, the President signed the Tax Cuts and Jobs Act, or TCJA, providing a significant overhaul to the U.S. federal tax code. We expect the TCJA to be a net positive impact to the U.S. economy, at least in the short term. Since all of our Funds are structured as tax exempt entities, we do not expect significant impacts to our Funds as a result of this enactment. By contrast, we believe that the impact of TCJA broadly reducing tax rates and increasing deductions will have a beneficial impact to us in future years where we begin to generate positive income and we will continue to evaluate the provisions of the TCJA for any further potential impact.
Our success at raising new capital into our funds is impacted by the extent to which new investors see alternative assets as a viable option for capital appreciation and/or income generation. We have experienced increased volatility in the stock market throughout Q1-2018 with the Cboe Volatility index increasing as much as 46.6% month over month. As the markets continue to demonstrate unpredictable trends, we believe the increasing appetite for stable real assets will be a continuing trend. Since our inception we have continued to successfully raise capital into our funds with our total capital raised through June 30, 2018 exceeding $200 million. We expect that our fundraising capabilities will continue through 2018 and into 2019. While we have had historical successes, there can be no assurance that fundraises for our new and existing funds will experience similar success. See “Risk Factors — Risks Related to Our Company”. Our business depends in large part on our ability to raise capital from investors. If we were unable to raise such capital, we would be unable to collect management fees or deploy such capital into investments, which would materially reduce our revenues and cash flow and adversely affect our financial condition.
We remain confident about our ability to find, identify, and source new investment opportunities that meet the requirements and return profile of our investment funds despite headwinds associated with increased asset valuations, competition and increased overall cost of credit. We continue to identify strategic acquisitions on off-market terms and anticipate that this trend will continue as we begin to branch outside of Arizona. We are at a point in our deal cycle where some of our funds have begun to exit significant parts of their portfolios while other are approaching a potential harvesting phase. We have complemented these cycles with other newer funds that will maintain management fees while providing continued sources of activity for our construction and development segment. We expect this trend to continue through in 2018 and into 2019, and therefore expect management fees and construction fees to increase year over year.
Acquiring new assets includes being able to negotiate favorable loans on both a short and long-term basis. We forecast and project our returns using assumptions about, among other things, the types of loans that we can expect the market to extend for a particular type of asset. This becomes more complex when the
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asset also requires construction financing. We may also need to refinance existing loans that are due to mature. Factors that affect these arrangements include the interest rate and economic environment, the estimated fair value of the real property, and the profitability of the asset’s historical operations.
The demand from investors is dependent upon the type of asset, the type of return it will generate (current cash flow, long term capital gains, or both) and the actual return earned by our Fund investors relative to other comparable or substitute products. General economic factors and conditions, including the general interest rate environment and unemployment rates, may affect an investor’s ability and desire to invest in real estate. For example, a significant interest rate increase could cause a projected rate of return to be insufficient after considering other risk exposures. Additionally, if weakness in the economy emerges and actual or expected default rates increase, investors in our Funds may delay or reduce their investments. However, we believe our approach to investing and the capabilities that Caliber manages throughout the deal cycle will continue to offer an attractive value proposition to investors.
Stock-Based Compensation
Stock-based compensation includes the expense related to restricted stock grants made to our employees. All stock-based awards made to employees are recognized in the consolidated financial statements based on their estimated fair value on the date of grant. As of each of June 30, 2018 and December 31, 2017, the fair value of the shares granted had been established by our board of directors primarily based upon a Section 409A valuation provided by an independent third-party valuation firm.
Stock-based compensation expense is recognized on a straight-line basis over the requisite service period of the awards, which is generally the vesting term of 4 years.
Share awards issued to non-employees are recorded at their fair value on the awards’ grant date, which is estimated using the same methodology described above.
Key Financial Measures
Our key financial measures are discussed in the following pages. Additional information regarding these key financial measures and our other significant accounting policies can be found in Note 2 to the consolidated financial statements included herein.
Total Revenue
We generate the majority of our revenue from (i) construction and development income, (ii) fund management fees, (iii) brokerage commissions, (iv) hospitality income, (v) real estate sales, and (vi) rental income.
Construction and Development Income.   We earn construction and development income for providing construction management and general contractor services to third-party clients and our Funds. Construction and development income is recognized at the time services are performed. We measure the progress toward completion of the project to determine the amount of revenue and profit to be recognized in each reporting period. Profit is recorded based upon the product of estimated contract profit-at-completion times the current percentage-complete for the contract. Our progress estimates are based upon estimates of the total cost to complete the project, which considers, among other things, the current project schedule and anticipated completion date, as well as estimates of the extent of progress toward completion. While progress is generally based upon costs incurred in relation to total estimated costs at completion, we also use alternative methods including physical progress, labor hours incurred to total estimated labor hours at completion or others depending on the type of project.
Fund Management Fees.   Fund management fees include management fees and performance fees. We earn management fees for sponsorship and project management activities with respect to Caliber funds in which we hold a general partner interest. Fund management fees exclude the reimbursement of any company expenses paid by the Company on behalf of the Funds pursuant to the respective fund operating agreements, including professional fees, expenses associated with the acquisition, and other fund administrative expenses. Performance fees are comprised of either annual incentive fees which are earned
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when the related fund has achieved a minimum stated annual rate of return or performance-based capital allocation from fund limited partners/members to us, commonly known as carried interest. Caliber recognizes carried interest revenue when its earned and our carry is deemed collectible.
Brokerage Commissions.   We earn real estate brokerage commissions by acting as a broker for real estate owners seeking to sell or investors seeking to buy properties. We also earn these fees on transactions that are consummated for each of our funds. Revenues from real estate brokerage commissions are typically recognized at the close of escrow. Real estate brokerage commissions are typically based upon the value of the property.
Hospitality Income.   We recognize hospitality income based on activities generated by our consolidated hotel assets which include room rentals, food and beverage sales, and other sales.
Real Estate Sales.   Real estate sales are recognized generally when the sale of an asset has been completed, cash has been received, and the risks and rewards of ownership have transferred to the buyer.
Rental Income.   Rental income includes periodic rent collected from each of our single-family, multi-family, and commercial assets. Revenue is recognized when earned and collectability is reasonably assured.
Total Expenses
Total expenses include cost of sales associated with each of hospitality, construction, real estate, and brokerage, operating costs, general and administrative, marketing and advertising, franchise fees, management fees, and depreciation.
Cost of Sales — Hospitality.   These costs of sales include salaries and materials incurred to generate revenue for room rentals and food and beverage sales at our hotels.
Cost of Sales — Construction/Development.   These represent the materials, labor and overhead applied to each of the construction projects the Company was involved in.
Cost of Sales — Real Estate.   These costs represent the historical basis of the properties that were sold in the period.
Cost of Sales — Brokerage.   These costs represent the commissions paid by the Company to its brokers who were involved in closing the associated real estate transaction.
Operating Costs.   Operating costs include payroll related to our operating properties, repairs and maintenance costs, insurance, property taxes, utilities, and ground leases amortization.
General and administrative.   General and administrative expenses include corporate level payroll, professional fees, travel and related expenses and communications and information services. We expect that general and administrative expenses will vary due to infrequent or unusual items such as expenses associated with litigation and contingencies. Also, in periods of significant fund raising, our general and administrative expenses will increase accordingly.
Marketing and advertising.   The majority of our marketing and advertising spend is done by our hotel operations to help increase room stays and promote corporate events. This category also contains the costs spent directly by Caliber to hold Caliber Summit monthly and annual events. These events raise awareness in the investment community about Caliber’s newest funds and is an important part of Caliber’s ability to raise capital for new projects.
Franchise fees.   These fees are paid by the hotels to maintain their brand each year and are based on a percentage of the revenue generated by each hotel respectively.
Management fees.   These costs represent fees paid to third-party service providers. All management fees paid to Caliber by a consolidated fund, are eliminated in consolidation.
Depreciation.   Depreciation is recorded using the straight-line method over the estimated useful lives of the related property, plant, and equipment and ranges from 3 to 40 years depending on the asset type.
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Other (Income) Expenses
Other (Income) expenses include interest expense, (gains)/losses from disposal, income taxes, and non-controlling interest in consolidated entities.
Cautionary Statement Regarding Non-GAAP Measures
We present assets under management or “AUM”, EBITDA, and Adjusted EBITDA in this Offering Circular, which are not recognized financial measures under accounting principles generally accepted in the United States of America (“GAAP”), as supplemental disclosures because we regularly review the metrics to evaluate our funds, measure our performance, identify trends, formulate financial projections and make strategic decisions.
Assets under management.   AUM refers to the assets we manage or advise. We monitor two types of AUM:
(i)
Capital AUM — This is the total debt and equity capital raised from accredited investors in our Funds at any point in time. We use this information to monitor, among other things, the amount of  ‘preferred return’ that would be paid at the time of a distribution. Our asset management fees are based on a percentage of capital raised so we monitor Capital AUM to understand and predict our earnings. We earn asset management fees on the equity capital raised into our Funds, and do not earn fees on debt capital or any capital raised directly in CaliberCos Inc.
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(ii)
Fair Value (“FV”) AUM — This is the aggregate fair value of the real estate assets we manage or advise. We value our operating assets annually to help make sale and hold decisions and to evaluate whether an existing asset would benefit from refinancing or recapitalization. This also gives us insight into our carried interest.
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EBITDA.   EBITDA represents earnings before net interest expense, income taxes, depreciation, and amortization.
Adjusted EBITDA.   Adjusted EBITDA represents earnings before net interest expense, income taxes, depreciation, amortization, impairment expense, loss on extinguishment of debt, severance payments, founders income tax reimbursement, and certain cash and non-cash charges related to legal and accounting costs associated with getting the Company prepared for filing this Offering Circular.
Our calculation of Capital AUM and FV AUM may differ from our competitors, thereby making these metrics non-comparable to our competitors. Our AUM calculations are not based on any definition of AUM that is set forth in the respective operating agreements governing the funds we manage or advise.
When analyzing our operating performance, investors should use these measures in addition to, and not as an alternative for, their most directly comparable financial measure calculated and presented in accordance with GAAP. We generally use these non-GAAP financial measures to evaluate operating performance and for other discretionary purposes. We believe that these measures provide a more complete understanding of ongoing operations, enhance comparability of current results to prior periods and may be useful for investors to analyze our financial performance because they eliminate the impact of selected charges that may obscure trends in the underlying performance of our business. Because not all companies use identical calculations, our presentation of EBITDA and adjusted EBITDA may not be comparable to similarly identified measures of other companies.
EBITDA and adjusted EBITDA are not intended to be measures of free cash flow for our discretionary use because they do not consider certain cash requirements such as tax and debt service payments. These measures may also differ from the amounts calculated under similarly titled definitions in our debt instruments, which amounts are further adjusted to reflect certain other cash and non-cash charges and are used by us to determine compliance with financial covenants therein and our ability to engage in certain activities, such as incurring additional debt and making certain restricted payments.
Consolidation of Certain Caliber Funds
The Company consolidates all entities that it controls either through majority voting interest or as the primary beneficiary of variable interest entities. On January 1, 2016, the Company adopted ASU 2015-2, Consolidation (Topic 810): Amendments to the Consolidation Analysis, which provides a revised
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consolidation model for all reporting entities to use in evaluating whether to consolidate certain types of legal entities. Certain of Caliber’s funds are consolidated by Caliber even though Caliber has only a minority economic interest in those funds. Caliber’s financial statements reflect the assets, liabilities, revenues, expenses, and cash flows of the Consolidated Funds, on a gross basis. The majority of the economic interest in the Consolidated Funds, which are held by fund investors or other third parties, are attributed to noncontrolling interests in our consolidated financial statements. All of our management fees, construction revenues, and certain other amounts earned by Caliber from those funds are eliminated in consolidation. Further information on our consolidation policy can be found in Note 2 to the consolidated financial statements included in this Form 1-A.
As of December 31, 2017, our Consolidated Funds represent approximately 63.6% of our AUM and 33.8%, respectively, of our management fees.
Consolidated Results of Operations
Comparison of six months ended June 30, 2018 and 2017
The following table and discussion provides insight into our consolidated results of operations for the six months ended June 30, 2018 and 2017.
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Six Months Ended June 30,
 ​ ​ ​
​ ​ ​
2018
​ ​
2017
​ ​
Change
​ ​
Change
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Total revenues
 ​ ​ ​ $ 37,027,074 ​ ​ ​ ​ $ 36,054,818 ​ ​ ​ ​ $ 972,256 ​ ​ ​ ​ ​ 2.7% ​ ​
Total expenses
 ​ ​ ​ ​ 35,097,535 ​ ​ ​ ​ ​ 32,976,560 ​ ​ ​ ​ ​ 2,120,975 ​ ​ ​ ​ ​ 6.4% ​ ​
Operating Income
 ​ ​ ​ ​ 1,929,539 ​ ​ ​ ​ ​ 3,078,258 ​ ​ ​ ​ ​ (1,148,719) ​ ​ ​ ​ ​ -37.3% ​ ​
Total other expenses, net
​ ​ ​ ​ 5,821,669 ​ ​ ​ ​ ​ 5,268,662 ​ ​ ​ ​ ​ 553,007 ​ ​ ​ ​ ​ 10.5% ​ ​
Net Loss Before Income Taxes
 ​ ​ ​ ​ (3,892,130) ​ ​ ​ ​ ​ (2,190,404) ​ ​ ​ ​ ​ (1,701,726) ​ ​ ​ ​ ​ 77.7% ​ ​
Provision for (benefit from) income taxes
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 0.0% ​ ​
Net Loss
 ​ ​ ​ ​ (3,892,130) ​ ​ ​ ​ ​ (2,190,404) ​ ​ ​ ​ ​ (1,701,726) ​ ​ ​ ​ ​ 77.7% ​ ​
Net (loss) income attributable to noncontrolling interests
 ​ ​ ​ ​ (2,083,288) ​ ​ ​ ​ ​ 1,697,467 ​ ​ ​ ​ ​ (3,780,755) ​ ​ ​ ​ ​ -222.7% ​ ​
Net Loss Attributable to CaliberCos, Inc.
 ​ ​ ​ $ (1,808,842) ​ ​ ​ ​ $ (3,887,871) ​ ​ ​ ​ $ 2,079,029 ​ ​ ​ ​ ​ -53.5% ​ ​
​
For the six months ended June 30, 2018 and 2017, total revenues were $37.0 million and $36.1 million, respectively, representing a period over period increase of  $0.9 million or 2.7%. This increase was largely due to an increase in our asset management and related fees which resulted from the growth in our capital under management and the introduction of two new Fund products.
For the six months ended June 30, 2018 and 2017, total expenses were $35.1 million and $33.0 million, respectively, representing a period over period increase of  $2.1 million or 6.4%. Management awarded stock-based compensation to employees at June 30, 2018 which resulted in approximately $1.0 million of non-cash expense in the period. We also incurred an additional $0.7 million in cost of sales on our on-going construction at our Roosevelt project. Finally, our depreciation expense increased by $0.4 million due to the completion of our remodel of GC Square, LLC and Tucson East, LLC (Hilton Tucson).
For the six months ended June 30, 2018 and 2017, total other expenses, net were $5.8 million and $5.3 million, respectively, representing a period over period increase of  $0.5 million or 10.5%. We incurred an additional $1.4 million in interest expense related to our refinancing activities which includes exit costs and increased loan amounts. Total debt, net increased by approximately $10 million since December 31, 2017 through June 30, 2018. This increase in expense was offset by the collection of  $0.9 million in insurance proceeds on our GC Square, LLC asset relating to property damage we experienced in 2016.
36
Comparison of Years Ended December 31, 2017 and 2016
The following table and discussion provides insight into our consolidated results of operations for the years ended December 31, 2017 and 2016.
​ ​ ​
2017
​ ​
2016
​ ​
Change
​ ​
Change
​
Total revenues
 ​ ​ ​ $ 64,419,136 ​ ​ ​ ​ $ 39,653,640 ​ ​ ​ ​ $ 24,765,496 ​ ​ ​ ​ ​ 62.5% ​ ​
Total expenses
 ​ ​ ​ ​ 62,870,311 ​ ​ ​ ​ ​ 41,162,248 ​ ​ ​ ​ ​ 21,708,063 ​ ​ ​ ​ ​ 52.7% ​ ​
Operating Income
 ​ ​ ​ ​ 1,548,825 ​ ​ ​ ​ ​ (1,508,608) ​ ​ ​ ​ ​ 3,057,433 ​ ​ ​ ​ ​ -202.7% ​ ​
Total other expenses, net
​ ​ ​ ​ 10,054,409 ​ ​ ​ ​ ​ 8,844,098 ​ ​ ​ ​ ​ 1,210,311 ​ ​ ​ ​ ​ 13.7% ​ ​
Net Loss Before Income Taxes
 ​ ​ ​ ​ (8,505,584) ​ ​ ​ ​ ​ (10,352,706) ​ ​ ​ ​ ​ 1,847,122 ​ ​ ​ ​ ​ -17.8% ​ ​
Provision for (benefit from) income taxes
 ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 0.0% ​ ​
Net Loss
 ​ ​ ​ ​ (8,505,584) ​ ​ ​ ​ ​ (10,352,706) ​ ​ ​ ​ ​ 1,847,122 ​ ​ ​ ​ ​ -17.8% ​ ​
Net loss attributable to noncontrolling interests
 ​ ​ ​ ​ (5,802,121) ​ ​ ​ ​ ​ (7,441,601) ​ ​ ​ ​ ​ 1,639,480 ​ ​ ​ ​ ​ -22.0% ​ ​
Net Loss Attributable to CaliberCos, Inc.
 ​ ​ ​ $ (2,703,463) ​ ​ ​ ​ $ (2,911,105) ​ ​ ​ ​ $ 207,642 ​ ​ ​ ​ ​ -7.1% ​ ​
​
For the years ended December 31, 2017 and 2016, total revenue was $64.4 million and $39.7 million, respectively, representing a year-over-year increase of  $24.7 million or 62.5%. Of the increase in revenue, $16.3 million is due to two of our hotels, acquired in 2016, earning a full year of revenue. $5.4 million relates to an increase in the sale of our single-family home portfolio. $2.4 million of the increase relates to a multi-family apartment, acquired in 2016, earning a full year of revenue.
For the years ended December 31, 2017 and 2016, total expenses were $62.8 million and $41.2 million, respectively, representing a year-over-year increase of  $21.7 million or 52.7%. The increase relates to a full year of performance for two of our hotels, acquired in 2016. The full year of performance drove a $6.2 million increase in cost of goods sold, $4.2 million increase of operating costs, $2.8 million increase in general and administrative costs, $1.1 million increase in marketing and advertising, $1.1 million increase in franchise fees, and $1.6 million increase in depreciation expense. This was complemented by an increase of $4.4 million in our cost of sales — real estate due to sales of our single-family home portfolio.
For the years ended December 31, 2017 and 2016, total other expenses were $10.1 million and $8.8 million, respectively, representing a year-over-year increase of  $1.3 million or 13.7%. The increase relates to higher interest expense of approximately $4.0 million generated by the two hotels and multi-family apartment acquired in 2016 (i.e. a full year of operations and debt outstanding) and approximately $0.6 million in other expenses. The increase was offset by $3.4 million due to a) a one-time loss from damage recognized against one of our other multi-family apartments in 2016 and b) a gain on the sale of Uptown Apartment Complex in 2017. In addition, we have historically financed our operations primarily through a combination of operating cash flows, private offerings of our equity securities, and secured and unsecured debt. At December 31, 2017, we had approximately $7.3 million in corporate debt which carries interest rates ranging from 10.13% up to 33.00%, resulting in approximately $1.5 million in interest expense for the year. We plan on using approximately $7.3 million of the net proceeds of the Offering to eliminate this debt in favor of more competitive financing which we believe will be readily available after the completion of this offering. For this reason, we believe we will be able to recognize substantial cost savings and generate increased cash flow from core operations, as well as enabling us to introduce more affordable financing from traditional sources to take advantage of market opportunities which may have previously been unavailable.
Segment Analysis
The following discussion is specific to our various segments for the periods presented. Our segment information is presented in a format consistent with the information senior management uses to make operating decisions, assess performance and allocate resources.
For segment reporting purposes, revenues and expenses are presented on a basis that deconsolidates our Consolidated Funds. As a result, segment revenues from construction and development income, fund management fees, and brokerage income are different than those presented on a consolidated US GAAP
37
basis because these fees are eliminated in consolidation when they are derived from a consolidated fund. Furthermore, segment expenses are also different than those presented on a consolidated US GAAP basis due to the exclusion of fund expenses that are paid by the consolidated funds.
Comparison of six months ended June 30, 2018 and 2017
Fund Management
The following table presents our results of operations for our Fund Management segment:
​ ​ ​
Six Months Ended June 30,
​ ​ ​
​ ​ ​
2018
​ ​
2017
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Fund management
​ ​ ​ $ 2,562,866 ​ ​ ​ ​ $ 1,017,978 ​ ​ ​ ​ $ 1,544,888 ​ ​ ​ ​ ​ 151.8% ​ ​
Other
​ ​ ​ ​ — ​ ​ ​ ​ ​ 3 ​ ​ ​ ​ ​ (3) ​ ​ ​ ​ ​ -100.0% ​ ​
Total revenues
​ ​ ​ ​ 2,562,866 ​ ​ ​ ​ ​ 1,017,981 ​ ​ ​ ​ ​ 1,544,885 ​ ​ ​ ​ ​ 151.8% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Operating costs
​ ​ ​ ​ 2,966,636 ​ ​ ​ ​ ​ 1,521,107 ​ ​ ​ ​ ​ 1,445,529 ​ ​ ​ ​ ​ 95.0% ​ ​
General and administrative
​ ​ ​ ​ 990,065 ​ ​ ​ ​ ​ 921,132 ​ ​ ​ ​ ​ 68,933 ​ ​ ​ ​ ​ 7.5% ​ ​
Marketing and advertising
​ ​ ​ ​ 265,561 ​ ​ ​ ​ ​ 161,363 ​ ​ ​ ​ ​ 104,198 ​ ​ ​ ​ ​ 64.6% ​ ​
Depreciation
​ ​ ​ ​ 53,006 ​ ​ ​ ​ ​ 53,943 ​ ​ ​ ​ ​ (937) ​ ​ ​ ​ ​ -1.7% ​ ​
Total expenses
​ ​ ​ ​ 4,275,268 ​ ​ ​ ​ ​ 2,657,545 ​ ​ ​ ​ ​ 1,617,723 ​ ​ ​ ​ ​ 60.9% ​ ​
Operating Loss
 ​ ​ ​ ​ (1,712,402) ​ ​ ​ ​ ​ (1,639,564) ​ ​ ​ ​ ​ (72,838) ​ ​ ​ ​ ​ 4.4% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ (53,450) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (53,450) ​ ​ ​ ​ ​ 100.0% ​ ​
Interest income
​ ​ ​ ​ — ​ ​ ​ ​ ​ (3,106) ​ ​ ​ ​ ​ 3,106 ​ ​ ​ ​ ​ -100.0% ​ ​
Interest expense
​ ​ ​ ​ 499,646 ​ ​ ​ ​ ​ 744,818 ​ ​ ​ ​ ​ (245,172) ​ ​ ​ ​ ​ -32.9% ​ ​
Total other expenses, net
​ ​ ​ ​ 446,196 ​ ​ ​ ​ ​ 741,712 ​ ​ ​ ​ ​ (295,516) ​ ​ ​ ​ ​ -39.8% ​ ​
Net Loss
 ​ ​ ​ $ (2,158,598) ​ ​ ​ ​ $ (2,381,276) ​ ​ ​ ​ $ 222,678 ​ ​ ​ ​ ​ -9.4% ​ ​
​
Fund management revenue increased by $1.5 million during the six months ended June 30, 2018 as compared to the same period in 2017. Approximately $0.6 million of this increase relates to management and accounting fees. We generally earn about 1.5% on the total capital managed for each Fund and successfully raised approximately $35.0 million in between 2017 and 2018, thereby increasing our asset management fee by $0.3 million. In addition, we also increased our accounting fee allocation by approximately $0.3 million over the same period to consider the increased overhead costs of our accounting functions. We also experienced an increase in fee income of  $0.6 million in 2018, due largely to organization and set up fees earned upon the creation of the Caliber Fixed Income Fund III, LP in May 2018. Finally, we generated approximately $0.3 million of additional revenue from raising approximately $14.0 million of investor capital for the period ended June 30, 2018 compared to $3.5 million of investor capital raised for the period ended June 30, 2017.
Operating costs increased $1.4 million during the six months ended June 30, 2018 as compared to the same period in 2017. Caliber recorded a non-cash charge of  $1.0 million associated with stock options awarded to Caliber employees. The remaining increase relates to increases in head count across all departments as we continued to scale up our activities.
Interest expense decreased by $0.2 million during the six months ended June 30, 2018 as compared to the same period in 2017 largely attributable to our focus on de-levering our corporate debt obligations. Corporate debt obligations decreased from $9.4 million at June 30, 2017 to $6.6 million at June 30, 2018.
38
Construction and Development
The following table presents our results of operations for our Construction and Development segment:
​ ​ ​
Six Months Ended June 30,
​ ​ ​
​ ​ ​
2018
​ ​
2017
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Construction and development
​ ​ ​ $ 6,886,173 ​ ​ ​ ​ $ 6,391,566 ​ ​ ​ ​ $ 494,607 ​ ​ ​ ​ ​ 7.7% ​ ​
Other
​ ​ ​ ​ 6,747 ​ ​ ​ ​ ​ 1,868 ​ ​ ​ ​ ​ 4,879 ​ ​ ​ ​ ​ 261.2% ​ ​
Total revenues
​ ​ ​ ​ 6,892,920 ​ ​ ​ ​ ​ 6,393,434 ​ ​ ​ ​ ​ 499,486 ​ ​ ​ ​ ​ 7.8% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – construction/development
 ​ ​ ​ ​ 6,468,121 ​ ​ ​ ​ ​ 6,056,243 ​ ​ ​ ​ ​ 411,878 ​ ​ ​ ​ ​ 6.8% ​ ​
Operating costs
​ ​ ​ ​ 285,453 ​ ​ ​ ​ ​ 458,725 ​ ​ ​ ​ ​ (173,272) ​ ​ ​ ​ ​ -37.8% ​ ​
General and administrative
​ ​ ​ ​ 14,268 ​ ​ ​ ​ ​ 23,134 ​ ​ ​ ​ ​ (8,866) ​ ​ ​ ​ ​ -38.3% ​ ​
Marketing and advertising
​ ​ ​ ​ 7,523 ​ ​ ​ ​ ​ 1,027 ​ ​ ​ ​ ​ 6,496 ​ ​ ​ ​ ​ 632.5% ​ ​
Depreciation
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 100.0% ​ ​
Total expenses
​ ​ ​ ​ 6,775,365 ​ ​ ​ ​ ​ 6,539,129 ​ ​ ​ ​ ​ 236,236 ​ ​ ​ ​ ​ 3.6% ​ ​
Net Income (Loss)
 ​ ​ ​ $ 117,555 ​ ​ ​ ​ $ (145,695) ​ ​ ​ ​ $ 263,250 ​ ​ ​ ​ ​ -180.7% ​ ​
​
Construction and development revenues increased by $0.5 million during the six months ended June 30, 2018 as compared to the same period in 2017. We increased the amount of work on our GC Square project in 2018, to finish the building in preparation for lease up for the beginning of the fall semester at Grand Canyon University. This resulted in an additional $2.2 million in the first half of 2018 compared to the same period in 2017. This was offset by a reduction in revenue of  $1.7 million related to our Hilton Tucson property. We completed the final phase of the $8.0 million remodel of our Hilton Tucson, LLC property in January 2018. This contributed approximately $1.2 million in the current period compared to $2.9 million earned in the prior period when the project was first getting started.
Cost of sales increased consistently with revenues, as management has focused on improving margins on our construction work. Generally, we experience higher margins on our third-party projects, which are typically smaller in scope compared to work we complete on our Caliber funds, which are generally larger in scope and complexity and generate lower margins. We reduced operating costs by eliminating the overhead associated with our repair and maintenance activities which was determined to be a non-essential and non-value add activity.
Property Management
The following table presents our results of operations for our Property Management segment:
​ ​ ​
Six Months Ended June 30,
​ ​ ​
​ ​ ​
2018
​ ​
2017
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Rental income
 ​ ​ ​ $ — ​ ​ ​ ​ $ 4,453 ​ ​ ​ ​ $ (4,453) ​ ​ ​ ​ ​ -100.0% ​ ​
Property management
 ​ ​ ​ ​ 250,409 ​ ​ ​ ​ ​ 289,003 ​ ​ ​ ​ ​ (38,594) ​ ​ ​ ​ ​ -13.4% ​ ​
Other
​ ​ ​ ​ 43,519 ​ ​ ​ ​ ​ 60,015 ​ ​ ​ ​ ​ (16,496) ​ ​ ​ ​ ​ -27.5% ​ ​
Total revenues
​ ​ ​ ​ 293,928 ​ ​ ​ ​ ​ 353,471 ​ ​ ​ ​ ​ (59,543) ​ ​ ​ ​ ​ -16.8% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Operating costs
​ ​ ​ ​ 137,094 ​ ​ ​ ​ ​ 251,378 ​ ​ ​ ​ ​ (114,284) ​ ​ ​ ​ ​ -45.5% ​ ​
General and administrative
​ ​ ​ ​ 23,404 ​ ​ ​ ​ ​ 62,846 ​ ​ ​ ​ ​ (39,442) ​ ​ ​ ​ ​ -62.8% ​ ​
Marketing and advertising
​ ​ ​ ​ 11,668 ​ ​ ​ ​ ​ 2,252 ​ ​ ​ ​ ​ 9,416 ​ ​ ​ ​ ​ 418.1% ​ ​
Management fees
 ​ ​ ​ ​ 925 ​ ​ ​ ​ ​ 575 ​ ​ ​ ​ ​ 350 ​ ​ ​ ​ ​ 60.9% ​ ​
Total expenses
​ ​ ​ ​ 173,091 ​ ​ ​ ​ ​ 317,051 ​ ​ ​ ​ ​ (143,960) ​ ​ ​ ​ ​ -45.4% ​ ​
Net Income
 ​ ​ ​ $ 120,837 ​ ​ ​ ​ $ 36,420 ​ ​ ​ ​ $ 84,417 ​ ​ ​ ​ ​ 231.8% ​ ​
​
39
Property management income and expenses remained relatively consistent period over period despite selling off our Uptown Square, LLC apartment asset and outsourcing the management of some of our apartment assets. These actions resulted in a slight reduction to our segment overhead as we eliminated certain non-essential roles and realigned certain internal functions.
Real Estate Brokerage
The following table presents our results of operations for our Real Estate Brokerage segment:
​ ​ ​
Six Months Ended June 30,
​ ​ ​
​ ​ ​
2018
​ ​
2017
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Brokerage
 ​ ​ ​ $ 1,000,492 ​ ​ ​ ​ $ 1,037,100 ​ ​ ​ ​ $ (36,608) ​ ​ ​ ​ ​ -3.5% ​ ​
Total revenues
​ ​ ​ ​ 1,000,492 ​ ​ ​ ​ ​ 1,037,100 ​ ​ ​ ​ ​ (36,608) ​ ​ ​ ​ ​ -3.5% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – brokerage
 ​ ​ ​ ​ 591,453 ​ ​ ​ ​ ​ 768,776 ​ ​ ​ ​ ​ (177,323) ​ ​ ​ ​ ​ -23.1% ​ ​
Operating costs
​ ​ ​ ​ 46,789 ​ ​ ​ ​ ​ 73,767 ​ ​ ​ ​ ​ (26,978) ​ ​ ​ ​ ​ -36.6% ​ ​
General and administrative
​ ​ ​ ​ 40,686 ​ ​ ​ ​ ​ 93,121 ​ ​ ​ ​ ​ (52,435) ​ ​ ​ ​ ​ -56.3% ​ ​
Marketing and advertising
​ ​ ​ ​ 27,377 ​ ​ ​ ​ ​ 32,091 ​ ​ ​ ​ ​ (4,714) ​ ​ ​ ​ ​ -14.7% ​ ​
Total expenses
​ ​ ​ ​ 706,305 ​ ​ ​ ​ ​ 967,755 ​ ​ ​ ​ ​ (261,450) ​ ​ ​ ​ ​ -27.0% ​ ​
Operating Income
 ​ ​ ​ ​ 294,187 ​ ​ ​ ​ ​ 69,345 ​ ​ ​ ​ ​ 224,842 ​ ​ ​ ​ ​ 324.2% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest expense
​ ​ ​ ​ 903 ​ ​ ​ ​ ​ 329 ​ ​ ​ ​ ​ 574 ​ ​ ​ ​ ​ 174.5% ​ ​
Total other expenses, net
​ ​ ​ ​ 903 ​ ​ ​ ​ ​ 329 ​ ​ ​ ​ ​ 574 ​ ​ ​ ​ ​ 174.5% ​ ​
Net Income
 ​ ​ ​ $ 293,284 ​ ​ ​ ​ $ 69,016 ​ ​ ​ ​ $ 224,268 ​ ​ ​ ​ ​ 325.0% ​ ​
​
Real estate brokerage income and expenses remained relatively consistent period over period. However, cost of sales — brokerage decreased by $0.2 million for the six months ended June 30, 2018 compared to the same period for 2017. This was due to completing transactions that did not require to pay commissions to a third party for assisting with closing on a real estate transaction.
40
Hospitality
The following table presents our results of operations for our Hospitality segment:
​ ​ ​
Six Months Ended June 30,
​ ​ ​
​ ​ ​
2018
​ ​
2017
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Hospitality
 ​ ​ ​ $ 27,050,571 ​ ​ ​ ​ $ 27,037,524 ​ ​ ​ ​ $ 13,047 ​ ​ ​ ​ ​ 0.0% ​ ​
Total revenues
​ ​ ​ ​ 27,050,571 ​ ​ ​ ​ ​ 27,037,524 ​ ​ ​ ​ ​ 13,047 ​ ​ ​ ​ ​ 0.0% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – hospitality
​ ​ ​ ​ 9,494,557 ​ ​ ​ ​ ​ 9,499,602 ​ ​ ​ ​ ​ (5,045) ​ ​ ​ ​ ​ -0.1% ​ ​
Operating costs
​ ​ ​ ​ 4,620,209 ​ ​ ​ ​ ​ 4,899,483 ​ ​ ​ ​ ​ (279,274) ​ ​ ​ ​ ​ -5.7% ​ ​
General and administrative
​ ​ ​ ​ 1,700,673 ​ ​ ​ ​ ​ 1,482,190 ​ ​ ​ ​ ​ 218,483 ​ ​ ​ ​ ​ 14.7% ​ ​
Marketing and advertising
​ ​ ​ ​ 1,852,500 ​ ​ ​ ​ ​ 1,828,219 ​ ​ ​ ​ ​ 24,281 ​ ​ ​ ​ ​ 1.3% ​ ​
Franchise fees
 ​ ​ ​ ​ 1,962,388 ​ ​ ​ ​ ​ 1,909,386 ​ ​ ​ ​ ​ 53,002 ​ ​ ​ ​ ​ 2.8% ​ ​
Management fees
 ​ ​ ​ ​ 936,878 ​ ​ ​ ​ ​ 978,099 ​ ​ ​ ​ ​ (41,221) ​ ​ ​ ​ ​ -4.2% ​ ​
Total expenses
​ ​ ​ ​ 23,810,365 ​ ​ ​ ​ ​ 23,112,663 ​ ​ ​ ​ ​ 697,702 ​ ​ ​ ​ ​ 3.0% ​ ​
Operating Income
 ​ ​ ​ ​ 3,240,206 ​ ​ ​ ​ ​ 3,924,861 ​ ​ ​ ​ ​ (684,655) ​ ​ ​ ​ ​ -17.4% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ 1,163,655 ​ ​ ​ ​ ​ 646,251 ​ ​ ​ ​ ​ 517,404 ​ ​ ​ ​ ​ 80.1% ​ ​
Interest income
​ ​ ​ ​ (39,868) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (39,868) ​ ​ ​ ​ ​ 100.0% ​ ​
Interest expense
​ ​ ​ ​ 4,910,859 ​ ​ ​ ​ ​ 3,377,140 ​ ​ ​ ​ ​ 1,533,719 ​ ​ ​ ​ ​ 45.4% ​ ​
Total other expenses, net
​ ​ ​ ​ 6,034,646 ​ ​ ​ ​ ​ 4,023,391 ​ ​ ​ ​ ​ 2,011,255 ​ ​ ​ ​ ​ 50.0% ​ ​
Net Loss
 ​ ​ ​ $ (2,794,440) ​ ​ ​ ​ $ (98,530) ​ ​ ​ ​ $ (2,695,910) ​ ​ ​ ​ ​ 2736.1% ​ ​
​
Operating cost and general and administrative expense combined decreased by approximately $0.1 million during the six months ended June 30, 2018 as compared to the same period in 2017. Certain sub accounts were reclassified from operating costs to general and administrative expenses. The overall decrease was driven largely by the reduction of insurance premiums charged to the individual properties.
Depreciation expense increased by $0.7 million during the six months ended June 30, 2018 as compared to the same period in 2017 due to the completion of our remodel of the Hilton Tucson in January 2018. The completion triggered the hotel to start being depreciated.
Other (income) expense, net increased by $0.5 million during the six months ended June 30, 2018 as compared to the same period in 2017 due to increases in asset management fees and costs incurred to complete the acquisition of Sheraton Four Points in Phoenix, Arizona (Elliot & 51st St, LLC).
Interest expense increased by $1.5 million during the six months ended June 30, 2018 as compared to the same period in 2017. The increase is from Hilton Tucson East debt issuance amortization of $0.5 million and Hilton Phoenix Airport’s increasing rates and shorter debt issuance amortization period.
41
Residential
The following table presents our results of operations for our Residential segment:
​ ​ ​
Six Months Ended June 30,
​ ​ ​
​ ​ ​
2018
​ ​
2017
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Real estate sales
 ​ ​ ​ $ 3,714,200 ​ ​ ​ ​ $ 4,115,970 ​ ​ ​ ​ $ (401,770) ​ ​ ​ ​ ​ -9.8% ​ ​
Rental income
 ​ ​ ​ ​ 3,927,555 ​ ​ ​ ​ ​ 3,591,588 ​ ​ ​ ​ ​ 335,967 ​ ​ ​ ​ ​ 9.4% ​ ​
Property management
​ ​ ​ ​ 23,845 ​ ​ ​ ​ ​ 5,611 ​ ​ ​ ​ ​ 18,234 ​ ​ ​ ​ ​ 325.0% ​ ​
Other
​ ​ ​ ​ 13,671 ​ ​ ​ ​ ​ 21,674 ​ ​ ​ ​ ​ (8,003) ​ ​ ​ ​ ​ -36.9% ​ ​
Total revenues
​ ​ ​ ​ 7,679,271 ​ ​ ​ ​ ​ 7,734,843 ​ ​ ​ ​ ​ (55,572) ​ ​ ​ ​ ​ -0.7% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – real estate
​ ​ ​ ​ 3,344,740 ​ ​ ​ ​ ​ 3,872,524 ​ ​ ​ ​ ​ (527,784) ​ ​ ​ ​ ​ -13.6% ​ ​
Operating costs
​ ​ ​ ​ 2,051,054 ​ ​ ​ ​ ​ 1,998,941 ​ ​ ​ ​ ​ 52,113 ​ ​ ​ ​ ​ 2.6% ​ ​
General and administrative
​ ​ ​ ​ 244,566 ​ ​ ​ ​ ​ 178,201 ​ ​ ​ ​ ​ 66,365 ​ ​ ​ ​ ​ 37.2% ​ ​
Marketing and advertising
​ ​ ​ ​ 132,780 ​ ​ ​ ​ ​ 58,539 ​ ​ ​ ​ ​ 74,241 ​ ​ ​ ​ ​ 126.8% ​ ​
Management fees
 ​ ​ ​ ​ 190,132 ​ ​ ​ ​ ​ 169,272 ​ ​ ​ ​ ​ 20,860 ​ ​ ​ ​ ​ 12.3% ​ ​
Depreciation
​ ​ ​ ​ 1,012,472 ​ ​ ​ ​ ​ 914,323 ​ ​ ​ ​ ​ 98,149 ​ ​ ​ ​ ​ 10.7% ​ ​
Total expenses
​ ​ ​ ​ 6,975,744 ​ ​ ​ ​ ​ 7,191,800 ​ ​ ​ ​ ​ (216,056) ​ ​ ​ ​ ​ -3.0% ​ ​
Operating Income
 ​ ​ ​ ​ 703,527 ​ ​ ​ ​ ​ 543,043 ​ ​ ​ ​ ​ 160,484 ​ ​ ​ ​ ​ 29.6% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ (694,550) ​ ​ ​ ​ ​ 109,301 ​ ​ ​ ​ ​ (803,851) ​ ​ ​ ​ ​ -735.4% ​ ​
Interest income
​ ​ ​ ​ (19,115) ​ ​ ​ ​ ​ (19,449) ​ ​ ​ ​ ​ 334 ​ ​ ​ ​ ​ -1.7% ​ ​
Impairment
 ​ ​ ​ ​ 38,125 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 38,125 ​ ​ ​ ​ ​ 100.0% ​ ​
Interest expense
​ ​ ​ ​ 1,480,700 ​ ​ ​ ​ ​ 1,370,227 ​ ​ ​ ​ ​ 110,473 ​ ​ ​ ​ ​ 8.1% ​ ​
Total other expenses, net
​ ​ ​ ​ 805,160 ​ ​ ​ ​ ​ 1,460,079 ​ ​ ​ ​ ​ (654,919) ​ ​ ​ ​ ​ -44.9% ​ ​
Net Loss
 ​ ​ ​ $ (101,633) ​ ​ ​ ​ $ (917,036) ​ ​ ​ ​ $ 815,403 ​ ​ ​ ​ ​ -88.9% ​ ​
​
Real estate sales and the corresponding cost of sales – real estate decreased by $0.4 million and $0.5 million, respectively, during the six months ended June 30, 2018 as compared to the same period in 2017. The decrease is due to 15 houses being sold for the period in 2018 compared to 22 houses sold for the same period in 2017.
Rental income increased by $0.3 million during the six months ended June 30, 2018 as compared to the same period in 2017. The increase is due to the success of our programs focused on increasing rate and occupancy levels at Treehouse and Palms properties. This was slightly offset by the sale of our Uptown property in December 2017.
Other (income) expense, net increased by $0.8 million during the six months ended June 30, 2018 as compared to the same period in 2017 due to the collection of insurance proceeds related to our GC Square, LLC property.
Interest expense increased by $0.1 million during the six months ended June 30, 2018 as compared to the same period in 2017 due to the refinancing of our Treehouse property which increased the loan amount from approximately $6.0 million to $8.9 million.
42
Commercial
The following table presents our results of operations for our Commercial segment:
​ ​ ​
Six Months Ended June 30,
​ ​ ​
​ ​ ​
2018
​ ​
2017
​ ​
Change
​ ​
Change
​
Revenues
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Rental income
 ​ ​ ​ ​ 500,904 ​ ​ ​ ​ ​ 491,863 ​ ​ ​ ​ ​ 9,041 ​ ​ ​ ​ ​ 1.8% ​ ​
Other
​ ​ ​ ​ 6 ​ ​ ​ ​ ​ 19,794 ​ ​ ​ ​ ​ (19,788) ​ ​ ​ ​ ​ -100.0% ​ ​
Total revenues
​ ​ ​ ​ 500,910 ​ ​ ​ ​ ​ 511,657 ​ ​ ​ ​ ​ (10,747) ​ ​ ​ ​ ​ -2.1% ​ ​
Expenses
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Operating costs
​ ​ ​ ​ 285,100 ​ ​ ​ ​ ​ 172,626 ​ ​ ​ ​ ​ 112,474 ​ ​ ​ ​ ​ 65.2% ​ ​
General and administrative
​ ​ ​ ​ 141,973 ​ ​ ​ ​ ​ 174,827 ​ ​ ​ ​ ​ (32,854) ​ ​ ​ ​ ​ -18.8% ​ ​
Marketing and advertising
​ ​ ​ ​ 11,406 ​ ​ ​ ​ ​ 40,073 ​ ​ ​ ​ ​ (28,667) ​ ​ ​ ​ ​ -71.5% ​ ​
Management fees
 ​ ​ ​ ​ 87,870 ​ ​ ​ ​ ​ 83,612 ​ ​ ​ ​ ​ 4,258 ​ ​ ​ ​ ​ 5.1% ​ ​
Depreciation
​ ​ ​ ​ 121,710 ​ ​ ​ ​ ​ 66,212 ​ ​ ​ ​ ​ 55,498 ​ ​ ​ ​ ​ 83.8% ​ ​
Total expenses
​ ​ ​ ​ 648,059 ​ ​ ​ ​ ​ 537,350 ​ ​ ​ ​ ​ 110,709 ​ ​ ​ ​ ​ 20.6% ​ ​
Operating Income
 ​ ​ ​ ​ (147,149) ​ ​ ​ ​ ​ (25,693) ​ ​ ​ ​ ​ (121,456) ​ ​ ​ ​ ​ 472.7% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ 27,450 ​ ​ ​ ​ ​ 37,504 ​ ​ ​ ​ ​ (10,054) ​ ​ ​ ​ ​ -26.8% ​ ​
Interest expense
​ ​ ​ ​ 639,501 ​ ​ ​ ​ ​ 242,437 ​ ​ ​ ​ ​ 397,064 ​ ​ ​ ​ ​ 163.8% ​ ​
Gain on disposition of real estate
​ ​ ​ ​ (726,977) ​ ​ ​ ​ ​ (272,631) ​ ​ ​ ​ ​ (454,346) ​ ​ ​ ​ ​ 166.7% ​ ​
Total other expenses, net
​ ​ ​ ​ (60,026) ​ ​ ​ ​ ​ 7,310 ​ ​ ​ ​ ​ (67,336) ​ ​ ​ ​ ​ -921.1% ​ ​
Net Loss
 ​ ​ ​ $ (87,123) ​ ​ ​ ​ $ (33,003) ​ ​ ​ ​ $ (54,120) ​ ​ ​ ​ ​ 164.0% ​ ​
​
Total expenses increased by approximately $0.1 million during the six months ended June 30, 2018 as compared to the same period in 2017 due to the effect of our operations of CH Mesa Holdings, LLC which represents a building portfolio in downtown Mesa acquired in October of 2017.
Interest expense increased by approximately $0.4 million during the six months ended June 30, 2018 as compared to the same period in 2017 due to the additional $5.0 million loan obtained to finance the acquisition of the CH Mesa Holdings, LLC portfolio.
Gain on disposition of real estate increased by $0.5 million during the six months ended June 30, 2018 as compared to the same period in 2017. The increase is due to the completion of the sale of a small land parcel related to our Johnstown project.
43
Diversified
The following table presents our results of operations for our Diversified segment:
​ ​ ​
Six Months Ended June 30,
​ ​ ​
​ ​ ​
2018
​ ​
2017
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Fund management
​ ​ ​ $ — ​ ​ ​ ​ $ 30,000 ​ ​ ​ ​ $ (30,000) ​ ​ ​ ​ ​ -100.0% ​ ​
Total revenues
​ ​ ​ ​ — ​ ​ ​ ​ ​ 30,000 ​ ​ ​ ​ ​ (30,000) ​ ​ ​ ​ ​ -100.0% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Operating costs
​ ​ ​ ​ 620,795 ​ ​ ​ ​ ​ 7,649 ​ ​ ​ ​ ​ 613,146 ​ ​ ​ ​ ​ 8016.0% ​ ​
General and administrative
​ ​ ​ ​ 292,413 ​ ​ ​ ​ ​ 75,649 ​ ​ ​ ​ ​ 216,764 ​ ​ ​ ​ ​ 286.5% ​ ​
Marketing and advertising
​ ​ ​ ​ 25,698 ​ ​ ​ ​ ​ 7,279 ​ ​ ​ ​ ​ 18,419 ​ ​ ​ ​ ​ 253.0% ​ ​
Management fees
 ​ ​ ​ ​ 345,559 ​ ​ ​ ​ ​ 288,547 ​ ​ ​ ​ ​ 57,012 ​ ​ ​ ​ ​ 19.8% ​ ​
Total expenses
​ ​ ​ ​ 1,284,465 ​ ​ ​ ​ ​ 379,124 ​ ​ ​ ​ ​ 905,341 ​ ​ ​ ​ ​ 238.8% ​ ​
Operating Loss
 ​ ​ ​ ​ (1,284,465) ​ ​ ​ ​ ​ (349,124) ​ ​ ​ ​ ​ (935,341) ​ ​ ​ ​ ​ 267.9% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Income from investments
 ​ ​ ​ ​ (588,034) ​ ​ ​ ​ ​ (312,777) ​ ​ ​ ​ ​ (275,257) ​ ​ ​ ​ ​ 88.0% ​ ​
Interest income
​ ​ ​ ​ (1,128,710) ​ ​ ​ ​ ​ (728,746) ​ ​ ​ ​ ​ (399,964) ​ ​ ​ ​ ​ 54.9% ​ ​
Interest expense
​ ​ ​ ​ 1,187,189 ​ ​ ​ ​ ​ 1,289,739 ​ ​ ​ ​ ​ (102,550) ​ ​ ​ ​ ​ -8.0% ​ ​
Total other expenses, net
​ ​ ​ ​ (529,555) ​ ​ ​ ​ ​ 248,216 ​ ​ ​ ​ ​ (777,771) ​ ​ ​ ​ ​ -313.3% ​ ​
Net Loss
 ​ ​ ​ $ (754,910) ​ ​ ​ ​ $ (597,340) ​ ​ ​ ​ $ (157,570) ​ ​ ​ ​ ​ 26.4% ​ ​
​
Operating costs and general and administrative expenses increased by $0.6 million and $0.2 million, respectively, during the six months ended June 30, 2018 as compared to the same period in 2017. The increase is driven by operation of our Caliber Fixed Income Fund III, LLC (CFIFIII) for the six months ended 2018. Operations commenced in the first quarter of 2018 and include certain fund startup costs.
Income from investments increased by approximately $0.3 million during the six months ended June 30, 2018 as compared to the same period in 2017 due to increased distributions from our fund’s investments in the Palms Weekly Portfolio, LP, 47th Street Phoenix Airport, LLC, CDIF Baywood, LLC, and CDIF Sunrise, LLC.
Interest income increased $0.4 million and interest expense decreased $0.1 million during the six months ended June 30, 2018 as compared to the same period in 2017. The change from the prior period is attributed to gradual liquidation of the Caliber Fixed Income Fund II, LLC (CFIFII) which involves collecting on matured loans and redeeming investors in the Fund. This was complemented by the introduction of CFIFIII which has raised approximately $3.7 million through June 30, 2018.
44
Comparison of Years Ended December 31, 2017 and 2016
Fund Management
The following table presents our results of operations for our Fund Management segment:
​ ​ ​
2017
​ ​
2016
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Fund management
​ ​ ​ $ 3,453,453 ​ ​ ​ ​ $ 2,285,399 ​ ​ ​ ​ $ 1,168,054 ​ ​ ​ ​ ​ 51.1% ​ ​
Capital raise fees
​ ​ ​ ​ 544,312 ​ ​ ​ ​ ​ 831,685 ​ ​ ​ ​ ​ (287,373) ​ ​ ​ ​ ​ -34.6% ​ ​
Other
​ ​ ​ ​ — ​ ​ ​ ​ ​ 104,000 ​ ​ ​ ​ ​ (104,000) ​ ​ ​ ​ ​ -100.0% ​ ​
Total revenues
​ ​ ​ ​ 3,997,765 ​ ​ ​ ​ ​ 3,221,084 ​ ​ ​ ​ ​ 776,681 ​ ​ ​ ​ ​ 24.1% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Operating costs
​ ​ ​ ​ 453,396 ​ ​ ​ ​ ​ 237,564 ​ ​ ​ ​ ​ 215,832 ​ ​ ​ ​ ​ 90.9% ​ ​
General and administrative
​ ​ ​ ​ 5,058,814 ​ ​ ​ ​ ​ 4,447,216 ​ ​ ​ ​ ​ 611,598 ​ ​ ​ ​ ​ 13.8% ​ ​
Marketing and advertising
​ ​ ​ ​ 272,402 ​ ​ ​ ​ ​ 368,756 ​ ​ ​ ​ ​ (96,354) ​ ​ ​ ​ ​ -26.1% ​ ​
Depreciation
​ ​ ​ ​ 98,365 ​ ​ ​ ​ ​ 106,989 ​ ​ ​ ​ ​ (8,624) ​ ​ ​ ​ ​ -8.1% ​ ​
Total expenses
​ ​ ​ ​ 5,882,977 ​ ​ ​ ​ ​ 5,160,525 ​ ​ ​ ​ ​ 722,452 ​ ​ ​ ​ ​ 14.0% ​ ​
Operating Loss
 ​ ​ ​ ​ (1,885,212) ​ ​ ​ ​ ​ (1,939,441) ​ ​ ​ ​ ​ 54,229 ​ ​ ​ ​ ​ -2.8% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ 152,498 ​ ​ ​ ​ ​ (615) ​ ​ ​ ​ ​ 153,113 ​ ​ ​ ​ ​ -24896.4% ​ ​
Interest income
​ ​ ​ ​ (856) ​ ​ ​ ​ ​ (34,841) ​ ​ ​ ​ ​ 33,985 ​ ​ ​ ​ ​ -97.5% ​ ​
Interest expense
​ ​ ​ ​ 1,463,763 ​ ​ ​ ​ ​ 1,317,158 ​ ​ ​ ​ ​ 146,605 ​ ​ ​ ​ ​ 11.1% ​ ​
Total other expenses, net
​ ​ ​ ​ 1,615,405 ​ ​ ​ ​ ​ 1,281,702 ​ ​ ​ ​ ​ 333,703 ​ ​ ​ ​ ​ 26.0% ​ ​
Net Loss
 ​ ​ ​ $ (3,500,617) ​ ​ ​ ​ $ (3,221,143) ​ ​ ​ ​ $ (279,474) ​ ​ ​ ​ ​ 8.7% ​ ​
​
Fund management fees increased by $1.2 million from 2016 to 2017. Approximately $0.5 million of this increase relates to management fees. We generally earn about 1.5% on the total capital managed for each fund and successfully raised $34.7 million in 2017. In addition, fee income increased by $0.6 million from 2016 to 2017, due largely to organization and set up fees earned upon the creation of the Caliber Diversified Opportunity Fund II, LP in June 2017.
Capital raise fees represent the income generated by Caliber Securities, LLC on raising capital into our funds. The fees earned are fixed in nature but are structured to be 3.5% or less of the total capital raised into any one Fund. Earnings decreased by $0.4 million from 2016 to 2017. Total capital raised by Caliber Securities in 2017 was $17.5 million compared to $20.3 million in 2016. In addition, the fees generated in 2016 include $0.1 million relating to the sale of Golden West, our property management portfolio in Tucson.
Operating costs increased from 2016 to 2017 by approximately $0.2 million largely due to reclassifying accounts in 2017 between operating costs and general and administrative expenses. This resulted in a $0.1 million of the year over year increase. We also engaged in an executive and leadership training program which was executed in November 2017.
General and administrative costs increased year over year by approximately $0.6 million. In addition to the reclassification of costs between this category and operating costs in 2017, payroll increased by $0.6 million in 2017 as we increased the capabilities of the accounting and finance and human resource departments. In addition, we also spent an additional $0.1 million in professional fees specifically in legal and audit as part of preparing for this offering.
Other (income) expense increased by approximately $0.2 million from 2016 to 2017 due to the write off of unamortized intangible asset (customer list) that was not transferred in the sale of our Golden West portfolio and the additional costs, borne by Caliber as the manager of 47th Street Phoenix Fund, LLC, relating to obtaining short term acquisition bridge financing.
45
Construction and Development
The following table presents our results of operations for our Construction and Development segment:
​ ​ ​
2017
​ ​
2016
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Construction and development
​ ​ ​ $ 20,565,534 ​ ​ ​ ​ $ 11,647,019 ​ ​ ​ ​ $ 8,918,515 ​ ​ ​ ​ ​ 76.6% ​ ​
Total revenues
​ ​ ​ ​ 20,565,534 ​ ​ ​ ​ ​ 11,647,019 ​ ​ ​ ​ ​ 8,918,515 ​ ​ ​ ​ ​ 76.6% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – construction/development
​ ​ ​ ​ 18,622,858 ​ ​ ​ ​ ​ 9,851,862 ​ ​ ​ ​ ​ 8,770,996 ​ ​ ​ ​ ​ 89.0% ​ ​
Operating costs
​ ​ ​ ​ 543,337 ​ ​ ​ ​ ​ 922,858 ​ ​ ​ ​ ​ (379,521) ​ ​ ​ ​ ​ -41.1% ​ ​
General and administrative
​ ​ ​ ​ 35,609 ​ ​ ​ ​ ​ 15,794 ​ ​ ​ ​ ​ 19,815 ​ ​ ​ ​ ​ 125.5% ​ ​
Marketing and advertising
​ ​ ​ ​ 8,904 ​ ​ ​ ​ ​ 400 ​ ​ ​ ​ ​ 8,504 ​ ​ ​ ​ ​ 2126.0% ​ ​
Depreciation
​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,621 ​ ​ ​ ​ ​ (1,621) ​ ​ ​ ​ ​ -100.0% ​ ​
Total expenses
​ ​ ​ ​ 19,210,708 ​ ​ ​ ​ ​ 10,792,535 ​ ​ ​ ​ ​ 8,418,173 ​ ​ ​ ​ ​ 78.0% ​ ​
Operating Income
 ​ ​ ​ ​ 1,354,826 ​ ​ ​ ​ ​ 854,484 ​ ​ ​ ​ ​ 500,342 ​ ​ ​ ​ ​ 58.6% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ 9,718 ​ ​ ​ ​ ​ (1,619) ​ ​ ​ ​ ​ 11,337 ​ ​ ​ ​ ​ -700.2% ​ ​
Total other expenses, net
​ ​ ​ ​ 9,718 ​ ​ ​ ​ ​ (1,619) ​ ​ ​ ​ ​ 11,337 ​ ​ ​ ​ ​ -700.2% ​ ​
Net Income
 ​ ​ ​ $ 1,345,108 ​ ​ ​ ​ $ 856,103 ​ ​ ​ ​ $ 489,005 ​ ​ ​ ​ ​ 57.1% ​ ​
​
Construction and development revenues increased to $20.6 million from $11.6 million for the fiscal years ended December 31, 2017 and 2016, respectively. The $8.9 million increase in revenue was a result of more expansive construction projects being completed in 2017. In particular our Hilton hotel located in Tucson was undergoing a full remodel whose total project cost was estimated to be approximately $8.5 million. In addition, we began the rebuild of our student housing project in GC Square, LLC. This project was estimated to be approximately $5.5 million.
Cost of sales and operating costs increased consistently with revenues, as management increased headcount to contemplate the anticipated increased project scope in 2017. We have focused on maintaining margins between 8% and 15% on our construction work. The higher margins are derived on third-party projects. The lower margins are charged on work completed on Caliber Funds.
Property Management
The following table presents our results of operations for our Property Management segment:
​ ​ ​
2017
​ ​
2016
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Property management
​ ​ ​ $ 700,870 ​ ​ ​ ​ $ 609,551 ​ ​ ​ ​ $ 91,319 ​ ​ ​ ​ ​ 15.0% ​ ​
Total revenues
​ ​ ​ ​ 700,870 ​ ​ ​ ​ ​ 609,551 ​ ​ ​ ​ ​ 91,319 ​ ​ ​ ​ ​ 15.0% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Operating costs
​ ​ ​ ​ 677,813 ​ ​ ​ ​ ​ 629,430 ​ ​ ​ ​ ​ 48,383 ​ ​ ​ ​ ​ 7.7% ​ ​
General and administrative
​ ​ ​ ​ 87,483 ​ ​ ​ ​ ​ 24,987 ​ ​ ​ ​ ​ 62,496 ​ ​ ​ ​ ​ 250.1% ​ ​
Marketing and advertising
​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,137 ​ ​ ​ ​ ​ (3,137) ​ ​ ​ ​ ​ -100.0% ​ ​
Management fees
​ ​ ​ ​ 880 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 880 ​ ​ ​ ​ ​ 100.0% ​ ​
Total expenses
​ ​ ​ ​ 766,176 ​ ​ ​ ​ ​ 657,554 ​ ​ ​ ​ ​ 108,622 ​ ​ ​ ​ ​ 16.5% ​ ​
Operating Loss
 ​ ​ ​ ​ (65,306) ​ ​ ​ ​ ​ (48,003) ​ ​ ​ ​ ​ (17,303) ​ ​ ​ ​ ​ 36.0% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ — ​ ​ ​ ​ ​ 449 ​ ​ ​ ​ ​ (449) ​ ​ ​ ​ ​ -100.0% ​ ​
Total other expenses, net
​ ​ ​ ​ — ​ ​ ​ ​ ​ 449 ​ ​ ​ ​ ​ (449) ​ ​ ​ ​ ​ -100.0% ​ ​
Net Loss
 ​ ​ ​ $ (65,306) ​ ​ ​ ​ $ (48,452) ​ ​ ​ ​ $ (16,854) ​ ​ ​ ​ ​ 34.8% ​ ​
​
46
Property management income and expenses increased year over year due to our operation of the Palms Apartment portfolio for a full year in 2017. The asset was acquired in July 2016 and our property management segment earned approximately $0.1 million in management fees. In 2017, after a full year of management the segment earned approximately $0.2 million.
Real Estate Brokerage
The following table presents our results of operations for our Real Estate Brokerage segment:
​ ​ ​
2017
​ ​
2016
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Brokerage
​ ​ ​ $ 1,860,411 ​ ​ ​ ​ $ 2,725,377 ​ ​ ​ ​ $ (864,966) ​ ​ ​ ​ ​ -31.7% ​ ​
Total revenues
​ ​ ​ ​ 1,860,411 ​ ​ ​ ​ ​ 2,725,377 ​ ​ ​ ​ ​ (864,966) ​ ​ ​ ​ ​ -31.7% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – brokerage
​ ​ ​ ​ 1,445,458 ​ ​ ​ ​ ​ 1,272,185 ​ ​ ​ ​ ​ 173,273 ​ ​ ​ ​ ​ 13.6% ​ ​
Operating costs
​ ​ ​ ​ 15,748 ​ ​ ​ ​ ​ 34,116 ​ ​ ​ ​ ​ (18,368) ​ ​ ​ ​ ​ -53.8% ​ ​
General and administrative
​ ​ ​ ​ 124,385 ​ ​ ​ ​ ​ 35,000 ​ ​ ​ ​ ​ 89,385 ​ ​ ​ ​ ​ 255.4% ​ ​
Marketing and advertising
​ ​ ​ ​ 60,003 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 60,003 ​ ​ ​ ​ ​ 100.0% ​ ​
Total expenses
​ ​ ​ ​ 1,645,594 ​ ​ ​ ​ ​ 1,341,301 ​ ​ ​ ​ ​ 304,293 ​ ​ ​ ​ ​ 22.7% ​ ​
Operating Income
 ​ ​ ​ ​ 214,817 ​ ​ ​ ​ ​ 1,384,076 ​ ​ ​ ​ ​ (1,169,259) ​ ​ ​ ​ ​ -84.5% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Interest expense
​ ​ ​ ​ 3,478 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,478 ​ ​ ​ ​ ​ 100.0% ​ ​
Total other expenses, net
​ ​ ​ ​ 3,478 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,478 ​ ​ ​ ​ ​ 100.0% ​ ​
Net Income
 ​ ​ ​ $ 211,339 ​ ​ ​ ​ $ 1,384,076 ​ ​ ​ ​ $ (1,172,737) ​ ​ ​ ​ ​ -84.7% ​ ​
​
Our real estate brokerage income decreased by approximately $0.9 million from 2016 to 2017. In 2016, we acquired two large hotels (Hiltons branded hotels located in Phoenix and Tucson) and the Palms Apartment portfolio. The combined purchase price of these three assets was approximately $60.0 million. Brokerage income from the sale of residential properties remained flat over the same period.
Our brokerage cost of sales increased by approximately $0.2 million from 2016 to 2017, mainly because a larger portion of our sales were completed by independent brokers in 2017. In 2017, 80.0% of our brokerage sales were completed by independent brokers, compared to 46.0% in 2016.
47
Hospitality
The following table presents our results of operations for our Hospitality segment:
​ ​ ​
2017
​ ​
2016
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Hospitality
​ ​ ​ $ 46,283,522 ​ ​ ​ ​ $ 29,747,361 ​ ​ ​ ​ $ 16,536,161 ​ ​ ​ ​ ​ 55.6% ​ ​
Total revenues
​ ​ ​ ​ 46,283,522 ​ ​ ​ ​ ​ 29,747,361 ​ ​ ​ ​ ​ 16,536,161 ​ ​ ​ ​ ​ 55.6% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – hospitality
​ ​ ​ ​ 18,185,547 ​ ​ ​ ​ ​ 12,068,190 ​ ​ ​ ​ ​ 6,117,357 ​ ​ ​ ​ ​ 50.7% ​ ​
Operating costs
​ ​ ​ ​ 7,545,355 ​ ​ ​ ​ ​ 5,572,973 ​ ​ ​ ​ ​ 1,972,382 ​ ​ ​ ​ ​ 35.4% ​ ​
General and administrative
​ ​ ​ ​ 5,110,525 ​ ​ ​ ​ ​ 3,520,652 ​ ​ ​ ​ ​ 1,589,873 ​ ​ ​ ​ ​ 45.2% ​ ​
Marketing and advertising
​ ​ ​ ​ 3,398,913 ​ ​ ​ ​ ​ 2,373,757 ​ ​ ​ ​ ​ 1,025,156 ​ ​ ​ ​ ​ 43.2% ​ ​
Franchise fees
​ ​ ​ ​ 3,067,828 ​ ​ ​ ​ ​ 1,886,930 ​ ​ ​ ​ ​ 1,180,898 ​ ​ ​ ​ ​ 62.6% ​ ​
Management fees
​ ​ ​ ​ 2,498,623 ​ ​ ​ ​ ​ 1,970,662 ​ ​ ​ ​ ​ 527,961 ​ ​ ​ ​ ​ 26.8% ​ ​
Depreciation
​ ​ ​ ​ 5,518,624 ​ ​ ​ ​ ​ 3,598,640 ​ ​ ​ ​ ​ 1,919,984 ​ ​ ​ ​ ​ 53.4% ​ ​
Total expenses
​ ​ ​ ​ 45,325,415 ​ ​ ​ ​ ​ 30,991,804 ​ ​ ​ ​ ​ 14,333,611 ​ ​ ​ ​ ​ 46.2% ​ ​
Operating Income (Loss)
 ​ ​ ​ ​ 958,107 ​ ​ ​ ​ ​ (1,244,443) ​ ​ ​ ​ ​ 2,202,550 ​ ​ ​ ​ ​ -177.0% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ 532,391 ​ ​ ​ ​ ​ 362,548 ​ ​ ​ ​ ​ 169,843 ​ ​ ​ ​ ​ 46.8% ​ ​
Interest income
​ ​ ​ ​ — ​ ​ ​ ​ ​ (13,622) ​ ​ ​ ​ ​ 13,622 ​ ​ ​ ​ ​ -100.0% ​ ​
(Gain) loss from disposal/damage, net
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ (220) ​ ​ ​ ​ ​ 220 ​ ​ ​ ​ ​ -100.0% ​ ​
Interest expense
​ ​ ​ ​ 7,786,175 ​ ​ ​ ​ ​ 4,262,497 ​ ​ ​ ​ ​ 3,523,678 ​ ​ ​ ​ ​ 82.7% ​ ​
Total other expenses, net
​ ​ ​ ​ 8,318,566 ​ ​ ​ ​ ​ 4,611,203 ​ ​ ​ ​ ​ 3,707,363 ​ ​ ​ ​ ​ 80.4% ​ ​
Net Loss
 ​ ​ ​ $ (7,360,459) ​ ​ ​ ​ $ (5,855,646) ​ ​ ​ ​ $ (1,504,813) ​ ​ ​ ​ ​ 25.7% ​ ​
​
Hospitality revenues increased by approximately $16.5 million from 2016 to 2017. This was due in large part to two Hilton acquisitions completed in 2016, which earned approximately $20.4 million in 2017 (representing a full year of revenue) compared to $5.0 million for the portion of the year owned in 2016. In addition, our hotel operations were successful at driving up rate and occupancy at all of our hotel assets. This resulted in approximately $1.2 million of additional revenues from 2016 to 2017. Our average rate and occupancy increased at our properties by 3.3% and 2.8%, respectively from 2016 to 2017.
Hospitality expenses increased from 2016 to 2017 by approximately $14.3 million due to there being a full year’s worth of operational activity being recorded in 2017 for the two Hilton branded hotels that were acquired in 2016.
48
Residential
The following table presents our results of operations for our Residential segment:
​ ​ ​
2017
​ ​
2016
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Real estate sales
​ ​ ​ $ 7,877,470 ​ ​ ​ ​ $ 3,102,800 ​ ​ ​ ​ $ 4,774,670 ​ ​ ​ ​ ​ 153.9% ​ ​
Rental income
​ ​ ​ ​ 7,613,774 ​ ​ ​ ​ ​ 4,090,164 ​ ​ ​ ​ ​ 3,523,610 ​ ​ ​ ​ ​ 86.1% ​ ​
Total revenues
​ ​ ​ ​ 15,491,244 ​ ​ ​ ​ ​ 7,192,964 ​ ​ ​ ​ ​ 8,298,280 ​ ​ ​ ​ ​ 115.4% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – real estate
​ ​ ​ ​ 7,085,829 ​ ​ ​ ​ ​ 3,198,400 ​ ​ ​ ​ ​ 3,887,429 ​ ​ ​ ​ ​ 121.5% ​ ​
Operating costs
​ ​ ​ ​ 4,218,934 ​ ​ ​ ​ ​ 2,801,741 ​ ​ ​ ​ ​ 1,417,193 ​ ​ ​ ​ ​ 50.6% ​ ​
General and administrative
​ ​ ​ ​ 609,122 ​ ​ ​ ​ ​ 243,867 ​ ​ ​ ​ ​ 365,255 ​ ​ ​ ​ ​ 149.8% ​ ​
Marketing and advertising
​ ​ ​ ​ 158,075 ​ ​ ​ ​ ​ 63,334 ​ ​ ​ ​ ​ 94,741 ​ ​ ​ ​ ​ 149.6% ​ ​
Management fees
​ ​ ​ ​ 728,129 ​ ​ ​ ​ ​ 375,900 ​ ​ ​ ​ ​ 352,229 ​ ​ ​ ​ ​ 93.7% ​ ​
Depreciation
​ ​ ​ ​ 2,157,223 ​ ​ ​ ​ ​ 1,892,159 ​ ​ ​ ​ ​ 265,064 ​ ​ ​ ​ ​ 14.0% ​ ​
Total expenses
​ ​ ​ ​ 14,957,312 ​ ​ ​ ​ ​ 8,575,401 ​ ​ ​ ​ ​ 6,381,911 ​ ​ ​ ​ ​ 74.4% ​ ​
Operating Income (Loss)
 ​ ​ ​ ​ 533,932 ​ ​ ​ ​ ​ (1,382,437) ​ ​ ​ ​ ​ 1,916,369 ​ ​ ​ ​ ​ -138.6% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ 264,641 ​ ​ ​ ​ ​ 150,620 ​ ​ ​ ​ ​ 114,021 ​ ​ ​ ​ ​ 75.7% ​ ​
Interest income
​ ​ ​ ​ (23,571) ​ ​ ​ ​ ​ (2,648) ​ ​ ​ ​ ​ (20,923) ​ ​ ​ ​ ​ 790.1% ​ ​
Impairment
​ ​ ​ ​ 460,906 ​ ​ ​ ​ ​ 348,286 ​ ​ ​ ​ ​ 112,620 ​ ​ ​ ​ ​ 32.3% ​ ​
(Gain) loss from disposal/damage, net
​ ​ ​ ​ (1,478,865) ​ ​ ​ ​ ​ 1,871,335 ​ ​ ​ ​ ​ (3,350,200) ​ ​ ​ ​ ​ -179.0% ​ ​
Interest expense
​ ​ ​ ​ 2,598,563 ​ ​ ​ ​ ​ 1,988,265 ​ ​ ​ ​ ​ 610,298 ​ ​ ​ ​ ​ 30.7% ​ ​
Total other expenses, net
​ ​ ​ ​ 1,821,674 ​ ​ ​ ​ ​ 4,355,858 ​ ​ ​ ​ ​ (2,534,184) ​ ​ ​ ​ ​ -58.2% ​ ​
Net Loss
 ​ ​ ​ $ (1,287,742) ​ ​ ​ ​ $ (5,738,295) ​ ​ ​ ​ $ 4,450,553 ​ ​ ​ ​ ​ -77.6% ​ ​
​
Sales in our Residential segment increased by approximately $4.7 million from 2016 to 2017. In 2017 we sold 35 homes compared to 6 in 2016 for total proceeds of approximately $7.9 million. These transactions also had a similar effect on cost of sales increasing it by $3.9 million year over year.
Rental incomes increased by approximately $3.5 million from 2016 to 2017 due to the success of our programs focused on increasing occupancy at three of our apartments (Treehouse, Mountain View, and South Mountain Square). In addition, we realized a full year of operations of the Palms Apartment portfolio which generated approximately $4.1 million and $1.4 million of rental income in 2017 and 2016, respectively.
Expenses, net of cost of sales, increased by approximately $2.5 million due to the full year of operation of the Palms apartment portfolio. In addition, the Treehouse apartments were not fully operational throughout 2016 having just completed its full renovations. The renovations were completed in Q1 2016 and operations were being brought back online gradually over the remaining period in anticipation for the start of the academic year in September. 2017 represents a full year of full operations.
Other (income) expenses, net decreased by approximately $2.5 million due to an increase of $0.6 million in interest expense driven by the renovations at the Palms Apartments which was offset by $3.4 million due to a) a one-time loss from damage recognized against GC Square apartments in 2016 and b) a gain on the sale of Uptown Apartment Complex in 2017.
49
Commercial
The following table presents our results of operations for our Commercial segment:
​ ​ ​
2017
​ ​
2016
​ ​
Change
​ ​
Change
​
Revenues
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Rental income
​ ​ ​ $ 964,115 ​ ​ ​ ​ $ 589,108 ​ ​ ​ ​ $ 375,007 ​ ​ ​ ​ ​ 63.7% ​ ​
Total revenues
​ ​ ​ ​ 964,115 ​ ​ ​ ​ ​ 589,108 ​ ​ ​ ​ ​ 920,249 ​ ​ ​ ​ ​ 88.6% ​ ​
Expenses
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Operating costs
​ ​ ​ ​ 744,332 ​ ​ ​ ​ ​ 611,156 ​ ​ ​ ​ ​ 133,176 ​ ​ ​ ​ ​ 21.8% ​ ​
General and administrative
​ ​ ​ ​ 30,448 ​ ​ ​ ​ ​ 282,344 ​ ​ ​ ​ ​ (251,896) ​ ​ ​ ​ ​ -89.2% ​ ​
Marketing and advertising
​ ​ ​ ​ 60,895 ​ ​ ​ ​ ​ 54,399 ​ ​ ​ ​ ​ 6,496 ​ ​ ​ ​ ​ 11.9% ​ ​
Management fees
​ ​ ​ ​ 264,604 ​ ​ ​ ​ ​ 198,002 ​ ​ ​ ​ ​ 66,602 ​ ​ ​ ​ ​ 33.6% ​ ​
Depreciation
​ ​ ​ ​ 440,375 ​ ​ ​ ​ ​ 414,316 ​ ​ ​ ​ ​ 26,059 ​ ​ ​ ​ ​ 6.3% ​ ​
Total expenses
​ ​ ​ ​ 1,540,654 ​ ​ ​ ​ ​ 1,560,217 ​ ​ ​ ​ ​ (19,563) ​ ​ ​ ​ ​ -1.3% ​ ​
Operating Loss
 ​ ​ ​ ​ (576,539) ​ ​ ​ ​ ​ (971,109) ​ ​ ​ ​ ​ 394,570 ​ ​ ​ ​ ​ -40.6% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ 17,501 ​ ​ ​ ​ ​ 3,196 ​ ​ ​ ​ ​ 14,305 ​ ​ ​ ​ ​ 447.6% ​ ​
Interest expense
​ ​ ​ ​ 640,343 ​ ​ ​ ​ ​ 283,327 ​ ​ ​ ​ ​ 357,016 ​ ​ ​ ​ ​ 126.0% ​ ​
Gain on disposition of real estate
​ ​ ​ ​ (492,362) ​ ​ ​ ​ ​ (184,291) ​ ​ ​ ​ ​ (308,071) ​ ​ ​ ​ ​ -167.2% ​ ​
Total other expenses, net
​ ​ ​ ​ 165,482 ​ ​ ​ ​ ​ 102,232 ​ ​ ​ ​ ​ 63,250 ​ ​ ​ ​ ​ 61.9% ​ ​
Net Loss
 ​ ​ ​ $ (742,021) ​ ​ ​ ​ $ (1,073,341) ​ ​ ​ ​ $ 331,320 ​ ​ ​ ​ ​ -30.9% ​ ​
​
Rental income grew by 63.7% from 2016 to 2017, largely due to an increase in our self-storage portfolio including properties in Logan, Utah and Kingman, Arizona which translated into approximately $0.4 million of additional income. In addition, we acquired a portfolio of properties in downtown Mesa which includes the acquisition of 8 separate buildings and will undergo a full revitalization of the downtown neighborhood.
Other (income) expense increased slightly primarily due to an increase in interest expense which was offset by an increase of gain on disposition of real estate. Interest expense increased $0.4 million from December 31, 2016 to December 31, 2017. The increase was due to the addition debt acquired to facilitate the growth the portfolio. The increase of  $0.3 million from December 31, 2016 to December 31, 2017 is from a single sale of a parcel of land from one property.
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Diversified
The following table presents our results of operations for our Diversified segment:
​ ​ ​
2017
​ ​
2016
​ ​
Change
​ ​
Change
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Fund management
​ ​ ​ $ 30,000 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 30,000 ​ ​ ​ ​ ​ 100.0% ​ ​
Other
​ ​ ​ ​ — ​ ​ ​ ​ ​ 50,950 ​ ​ ​ ​ ​ (50,950) ​ ​ ​ ​ ​ -100.0% ​ ​
Total revenues
​ ​ ​ ​ 30,000 ​ ​ ​ ​ ​ 50,950 ​ ​ ​ ​ ​ (20,950) ​ ​ ​ ​ ​ -41.1% ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Operating costs
​ ​ ​ ​ 36,086 ​ ​ ​ ​ ​ 51,092 ​ ​ ​ ​ ​ (15,006) ​ ​ ​ ​ ​ -29.4% ​ ​
General and administrative
​ ​ ​ ​ 796,882 ​ ​ ​ ​ ​ 140,719 ​ ​ ​ ​ ​ 656,163 ​ ​ ​ ​ ​ 466.3% ​ ​
Marketing and advertising
​ ​ ​ ​ 70,006 ​ ​ ​ ​ ​ 27,073 ​ ​ ​ ​ ​ 42,933 ​ ​ ​ ​ ​ 158.6% ​ ​
Management fees
​ ​ ​ ​ 771,718 ​ ​ ​ ​ ​ 611,648 ​ ​ ​ ​ ​ 160,070 ​ ​ ​ ​ ​ 26.2% ​ ​
Total expenses
​ ​ ​ ​ 1,674,692 ​ ​ ​ ​ ​ 830,532 ​ ​ ​ ​ ​ 844,160 ​ ​ ​ ​ ​ 101.6% ​ ​
Operating Loss
 ​ ​ ​ ​ (1,644,692) ​ ​ ​ ​ ​ (779,582) ​ ​ ​ ​ ​ (865,110) ​ ​ ​ ​ ​ 111.0% ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ (1,217) ​ ​ ​ ​ ​ 22,101 ​ ​ ​ ​ ​ (23,318) ​ ​ ​ ​ ​ -105.5% ​ ​
Income from investments
​ ​ ​ ​ (3,807,830) ​ ​ ​ ​ ​ (494,613) ​ ​ ​ ​ ​ (3,313,217) ​ ​ ​ ​ ​ 669.9% ​ ​
Interest income
​ ​ ​ ​ (1,414,847) ​ ​ ​ ​ ​ (1,447,205) ​ ​ ​ ​ ​ 32,358 ​ ​ ​ ​ ​ -2.2% ​ ​
Interest expense
​ ​ ​ ​ 2,649,432 ​ ​ ​ ​ ​ 1,633,413 ​ ​ ​ ​ ​ 1,016,019 ​ ​ ​ ​ ​ 62.2% ​ ​
Total other expenses, net
​ ​ ​ ​ (2,574,462) ​ ​ ​ ​ ​ (286,304) ​ ​ ​ ​ ​ (2,288,158) ​ ​ ​ ​ ​ 799.2% ​ ​
Net Income (Loss)
 ​ ​ ​ $ 929,770 ​ ​ ​ ​ $ (493,278) ​ ​ ​ ​ $ 1,423,048 ​ ​ ​ ​ ​ -288.5% ​ ​
​
Our Diversified segment experienced growth in 2017 due to an increase in the distributions received from investments made by CDIF, LLC and the introduction of CDOF II, LLC which opened in June 2017. We raised approximately $8.6 million into CDOF II, LLC in 2017. The opening of CDOF II, LLC resulted in approximately $0.8 million of additional expenses due to origination and fund set up fees, marketing costs, and management fees.
For the years ended December 31, 2017 and 2016, CDIF, LLC generated a total of approximately $3.8 million and $0.5 million, respectively of investment income. The increase year over year was attributable to $2.9 million from the refinancing of the Treehouse apartments, $0.3 million from continued cash flow from Baywood and approximately $0.1 million from our new investments in the Hilton Phoenix and Palms apartments.
Interest expense increased by approximately $1.0 million from December 31, 2016, to December 31, 2017. This is due to the increased size of CFIFII over that same period. Total capital raised by this fund grew by approximately $5.7 million over the same period.
Investment Valuations
The investments that are held by our Funds are generally considered to be illiquid and have no readily ascertainable market prices. We value these investments based on our estimate of their fair value as of the date of determination. We estimate the fair value of our Fund’s investments based on a number of inputs built within forecasting models which are either developed by a third party or by our internal finance team. The models generally rely on discounted cash flow analysis and other techniques and may include independently sourced market parameters. The material estimates and assumptions used in these models include the timing and expected amounts of cash flows, income and expenses for the property, the appropriateness of discount rates used, overall capitalization rate, and, in some cases, the ability to execute, estimated proceeds and timing of expected sales and financings. The majority of our assets utilize the income approach to value the property. The overall capitalization rate for the Hospitality, Residential, and
51
Commercial segment range from 7.75% – 8.50%, 6.00% – 6.50%, and 7.25% – 7.50%, respectively. Where appropriate, management may obtain additional supporting evidence of values from methods generally utilized in the real estate investment industry, such as appraisal reports and broker price opinion (BPO) reports.
With respect to the underlying factors that led to the significant market appreciation in the current year, we identify assets that are undervalued and/or underperforming at the time of acquisition. Such assets generally undergo some form of repositioning soon after our acquisition in order to help drive increased appreciation and operating performance. Once the repositioning is complete, we focus on increasing the asset’s net operating income, thereby further increasing the value of the asset. Making below-market acquisitions, adding value through development activities, and increasing free cash flow with proper management all represent a material component to our core business model and have contributed to the significant market appreciation in the current year.
Assets under Management
The following table presents Capital AUM and FV AUM by segment as of December 31, 2017 and 2016.
Capital AUM
​ ​ ​
2017
​ ​
2016
​
Hospitality
​ ​ ​ $ 32,716,015 ​ ​ ​ ​ $ 30,035,245 ​ ​
Residential
​ ​ ​ ​ 16,776,624 ​ ​ ​ ​ ​ 12,886,496 ​ ​
Commercial
​ ​ ​ ​ 1,615,000 ​ ​ ​ ​ ​ 1,615,000 ​ ​
Diversified
​ ​ ​ ​ 56,128,969 ​ ​ ​ ​ ​ 47,523,893 ​ ​
​ ​ ​ ​ $ 107,236,608 ​ ​ ​ ​ $ 92,060,634 ​ ​
​
FV AUM
​ ​ ​
2017
​ ​
2016
​
Hospitality
​ ​ ​ $ 149,699,999 ​ ​ ​ ​ $ 122,999,999 ​ ​
Residential
​ ​ ​ ​ 90,307,900 ​ ​ ​ ​ ​ 70,307,875 ​ ​
Commercial
​ ​ ​ ​ 38,564,287 ​ ​ ​ ​ ​ 10,805,000 ​ ​
​ ​ ​ ​ $ 278,572,186 ​ ​ ​ ​ $ 204,112,874 ​ ​
​
The table below represents the change in appreciation on portfolio investments of our funds. See “— Segment Analysis’ above for a detailed discussion by segment of the activity affecting total FV AUM for each of the periods presented.
Capital AUM
​ ​ ​
2017
​ ​
2016
​
Beginning of year
​ ​ ​ $ 92,060,634 ​ ​ ​ ​ $ 60,091,859 ​ ​
Originations
​ ​ ​ ​ 27,696,552 ​ ​ ​ ​ ​ 49,925,621 ​ ​
Redemptions
​ ​ ​ ​ (12,520,577) ​ ​ ​ ​ ​ (17,956,847) ​ ​
End of year
​ ​ ​ $ 107,236,609 ​ ​ ​ ​ $ 92,060,634 ​ ​
​
FV AUM
​ ​ ​
2017
​ ​
2016
​
Beginning of year
​ ​ ​ $ 204,112,872 ​ ​ ​ ​ $ 111,890,745 ​ ​
Assets acquired
​ ​ ​ ​ 17,943,621 ​ ​ ​ ​ ​ 66,747,434 ​ ​
Construction/Renovation
​ ​ ​ ​ 25,421,170 ​ ​ ​ ​ ​ 20,132,087 ​ ​
Market appreciation/depreciation, net
​ ​ ​ ​ 42,339,205 ​ ​ ​ ​ ​ 8,958,908 ​ ​
Asset sold
​ ​ ​ ​ (11,244,681) ​ ​ ​ ​ ​ (3,616,300) ​ ​
End of year
​ ​ ​ $ 278,572,186 ​ ​ ​ ​ $ 204,112,874 ​ ​
​
52
The investments that are held by our Funds are generally considered to be illiquid and have no readily ascertainable market prices. We value these investments based on our estimate of their fair value as of the date of determination. We estimate the fair value of our Fund’s investments based on a number of inputs built within forecasting models which are either developed by a third party or by our internal finance team. The models generally rely on discounted cash flow analysis and other techniques and may include independently sourced market parameters. The material estimates and assumptions used in these models include the timing and expected amounts of cash flows, the appropriateness of discount rates used, and, in some cases, the ability to execute, estimated proceeds and timing of expected sales and financings. Where appropriate, management may obtain additional supporting evidence of values from methods generally utilized in the real estate investment industry, such as appraisal reports and broker price opinion (BPO) reports.
Management’s overall strategy for identifying investment opportunities starts with the identification of assets which we believe are undervalued and/or underperforming at the time of acquisition. These assets generally undergo some form of repositioning soon after acquisition to help drive increased appreciation and operating performance. Once the repositioning is complete, our management team focuses on increasing the asset’s net operating income, thereby further increasing the value of the investment. Making below-market acquisitions, adding value through development activities, and increasing free cash flow with proper management all represent a material component to our core business model. Management expects to develop substantial market appreciation as each of these three activities is executed upon.
EBITDA and Adjusted EBITDA
The following table presents a reconciliation of net loss to EBITDA and Adjusted EBITDA for the period presented:
​ ​ ​
Year Ended December 31,
​
​ ​ ​
2017
​ ​
2016
​
Net Loss Attributable to CaliberCos Inc.
 ​ ​ ​ $ (2,703,463) ​ ​ ​ ​ $ (2,911,105) ​ ​
(1) Add: ​ ​ ​
Interest expense
​ ​ ​ ​ 2,562,393 ​ ​ ​ ​ ​ 2,419,069 ​ ​
Provision for income taxes
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Depreciation expense
​ ​ ​ ​ 518,256 ​ ​ ​ ​ ​ 499,223 ​ ​
Amortization expense
​ ​ ​ ​ 41,220 ​ ​ ​ ​ ​ 23,485 ​ ​
EBITDA
 ​ ​ ​ ​ 418,406 ​ ​ ​ ​ ​ 30,672 ​ ​
(1) Add: ​ ​ ​
Impairment expense
​ ​ ​ ​ 460,906 ​ ​ ​ ​ ​ 348,286 ​ ​
Loss on extingushment of debt
​ ​ ​ ​ 40,301 ​ ​ ​ ​ ​ — ​ ​
Severance expense
​ ​ ​ ​ 150,000 ​ ​ ​ ​ ​ 125,000 ​ ​
Founders income tax reimbursement
​ ​ ​ ​ 200,000 ​ ​ ​ ​ ​ — ​ ​
Form 1-A costs
​ ​ ​ ​ 1,039,195 ​ ​ ​ ​ ​ 634,696 ​ ​
Adjusted EBITDA
 ​ ​ ​ $ 2,308,808 ​ ​ ​ ​ $ 1,138,654 ​ ​
​
​
(1)
Includes only those amounts attributable to CaliberCos Inc.
​
We may experience ongoing losses in our business due to the lifecycle of the assets we hold. Our investment strategy often identifies distressed and opportunistic assets which often times, require some level of remodeling or repositioning projects. In order to complete these projects timely, it is often necessary to cease operations which has a negative impact on short term profitability and cash flows. Once the projects are completed, management brings the assets back online. Achieving full capacity can take between 24 to
53
36 months of operations. For the years ended December 31, 2017 and 2016 our loss experience was a result of the mixture of assets that were in various stages of their respective lifecycle and project completion time horizons. The chart below summarizes our various assets and the scale (in dollars) and timing of their rehabilitation/stabilization.
Entity/Fund
​ ​
Property
​ ​
Total
Construction
Cost
​ ​
Construction
Start Date
​ ​
Construction
Completion
Date
​ ​
2017
EBITDA
​
CHPH, LLC
​ ​ Crown Plaza Hotel Phoenix
Airport 		​ ​ ​ $ 11,700,000 ​ ​ ​
November 2013
​ ​
December 2016
​ ​ ​ $ 1,807,000 ​ ​
Indian Bend Hotel Group, LLC
​ ​ Hampton Inn & Suites
Scottsdale/Riverwalk 		​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ 1,174,000 ​ ​
44th & McDowell Hotel Group, LLC 
 ​ ​ Holiday Inn & Suites
Phoenix Airport North 		​ ​ ​ ​ 5,800,000 ​ ​ ​ August 2015 ​ ​ March 2018 ​ ​ ​ ​ 840,000 ​ ​
Tucson East, LLC
​ ​ Hilton Tucson East ​ ​ ​ ​ 9,300,000 ​ ​ ​ July 2016 ​ ​ May 2018 ​ ​ ​ ​ (283,000) ​ ​
47th Street Phoenix Fund, LLC
​ ​ Hilton Phoenix Airport ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ 3,423,000 ​ ​
Edgewater Hotel Group, LLC
​ ​ Rodeway Inn Edgewater ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ (330,000) ​ ​
SF Alaska, LP
​ ​ Salmon Falls Resort ​ ​ ​ ​ 350,000 ​ ​ ​ January 2016 ​ ​ June 2016 ​ ​ ​ ​ (582,000) ​ ​
Uptown Square, LLC 
 ​ ​ Uptown Apartments ​ ​ ​ ​ 100,000 ​ ​ ​ April 2014 ​ ​
December 2017
​ ​ ​ ​ 1,496,000 ​ ​
South Mountain Square, LLC
​ ​ South Mountain Apartments ​ ​ ​ ​ 250,000 ​ ​ ​ January 2018 ​ ​ May 2018 ​ ​ ​ ​ 389,000 ​ ​
GC Square, LLC
​ ​ GC Square Apartments ​ ​ ​ ​ 6,200,000 ​ ​ ​
December 2016
​ ​ June 2018 ​ ​ ​ ​ (363,000) ​ ​
Palms Weekly Portfolio, LP
​ ​ Palms Weekly Apartment Portfolio ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ 1,217,000 ​ ​
CDIF, LLC
​ ​ Mountain View Square Apartments ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ 70,000 ​ ​
CDIF, LLC
​ ​ Treehouse Apartments ​ ​ ​ ​ 6,900,000 ​ ​ ​ March 2014 ​ ​ June 2017 ​ ​ ​ ​ 514,000 ​ ​
CDIF, LLC
​ ​ A 24Hr Storage ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ 17,000 ​ ​
CDIF, LLC
​ ​ Baywood Square Professional Park ​ ​ ​ ​ 325,000 ​ ​ ​
September 2015
​ ​
November 2016
​ ​ ​ ​ 448,000 ​ ​
Fiesta Tech Owners, LLC
​ ​ Fiesta Tech Commercial Center ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ 234,000 ​ ​
1040 VIP, LLC
​ ​ 24X7 Automated Storage ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ (119,000) ​ ​
1601 Athol Avenue, LLC
​ ​ 24X7 Automated Storage ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ (46,000) ​ ​
Logan Airport Storage, LLC
​ ​ Logan Airport Storage ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ (209,000) ​ ​
CH Mesa Holdings, LLC
 ​ ​
Downtown Mesa Commercial Portfolio
​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ 15,000 ​ ​
J-25 Johnstown Holdings, LLC
 ​ ​ The Villages at Johnstown ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ ​ — ​ ​
The Roosevelt I, LLC 
 ​ ​ The Roosevelt ​ ​ ​ ​ 10,400,000 ​ ​ ​ October 2016 ​ ​
September 2019
​ ​ ​ ​ — ​ ​
Circle Lofts, LLC
​ ​ Eclipse ​ ​ ​ ​ 5,500,000 ​ ​ ​ January 2017 ​ ​ March 2019 ​ ​ ​ ​ — ​ ​
Saddleback Ranch, LLC
​ ​ Saddleback Ranch ​ ​ ​ ​ N/A ​ ​ ​ N/A ​ ​ N/A ​ ​ ​ $ — ​ ​
Liquidity and Capital Resources
Each of our Funds and the related assets that are acquired by those funds are established as separate legal entities with limited liability. Therefore, the cash flows generated by these entities, whether through operations or financing, are unavailable for general corporate purposes.
We have historically financed our operations primarily through a combination of operating cash flows, private offerings of our equity securities, and secured and unsecured debt.
We hold our excess unrestricted cash in bank accounts with several high quality financial institutions. We believe that our current capital position is sufficient to meet our current liquidity needs for at least the next 12 months, however, there can be no assurance that our current capital position will meet our liquidity needs for such period.
Equity Financings
Since inception through June 30, 2018, we have raised approximately $15.0 million from the sale of common and convertible preferred stock to third parties and management. The funds received from the issuance of our stock sales have been used for operating expenditures and refinancing our higher interest debt.
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Unsecured Corporate Debt
As of June 30, 2018, we have outstanding approximately $6.5 million of unsecured promissory notes with outstanding principal balances ranging from $10,750 to $950,000, and interest rates ranging from 8.25% to 33.0% and maturity dates ranging from July 2018 to December 2018. The unsecured promissory notes are held by approximately 60 individuals which generally have a 12-month term and are extended on an annual basis; the notes had been extended through December 2019. There are no penalties or fees related to the extension of notes or failure to repay when due. This outstanding debt resulted in approximately $1.5 million in interest expense for the year ended December 31, 2017. We plan on using approximately $6.4 million of the net proceeds of the Offering to eliminate this debt in favor of more competitive financing which we believe will be readily available after the completion of this offering. For this reason, we believe we will be able to recognize substantial cost savings and generate increased cash flow from core operations, as well as enabling us to introduce more affordable financing from traditional sources to take advantage of market opportunities which may have previously been unavailable.
Secured Corporate Debt
As of June 30, 2018, we have outstanding approximately $1.0 million of debt secured by our single-family home portfolio. This debt has outstanding principal balances ranging from $35,000 to $400,000, and interest rates ranging from 9.95% to 12.13%. All had reached their initial maturity date and were due to be repaid when the related home is sold.
We do not have any additional credit facilities in place, but believe we could obtain one if desired on market terms.
Accounting Standards Codification 205-40
Accounting Standards Update 2014-15, Presentation of Financial Statements — Going Concern, which was codified as Accounting Standards Codification (ASC) 205-40, requires management to evaluate an entity’s ability to continue as a going concern within one year after the date that financial statements are issued, or in the Company’s case April 19, 2019. The standard provides examples of adverse conditions and events that may raise substantial doubt about an entity’s ability to continue as a going concern including (i) negative financials trends such as recurring operating losses, working capital deficiencies, negative cash flows from operating activities and adverse key financials ratios and (ii) other indications of possible financial difficulties such as defaults on loans or similar agreements, arrearages in dividends, denial of trade credit from suppliers, a need to restructure debt to avoid default, noncompliance with statutory capital requirements and a need to seek new sources or methods of financing or to dispose of substantial assets.
The Financial Accounting Standards Board has indicated that the prohibition on considering the potential mitigating effects of any management plans that have not been fully implemented as of the date that the financial statements are issued in its evaluation of whether substantial doubt is raised means that management cannot consider plans that it has a history of successfully implementing (such as a history of successfully obtaining financing). As a result, an entity that does not have sufficient liquidity from operations or capacity in existing credit facilities to repay its obligations as they become due within one year after the financial statements are issued must supply disclosures as set forth below.
Since inception we had generated net losses and experienced negative cash flows from operations. The Company has an accumulated deficit of  $21,223,501 and cash of  $6,106,778 as of December 31, 2017. We had significant debt obligations maturing in the twelve-month period subsequent to the date its financial statements are issued, or in our case April 19, 2019. So notwithstanding the fact that management believes that it is probable that its plans to mitigate these conditions will be effectively implemented and that it is probable that its plans will mitigate the relevant conditions and events on or before April 19, 2019 as further discussed below, we are required to disclose in compliance with ASC 205-40 that the aforementioned combination of those financial and operating factors discussed above raises substantial doubt about our ability to continue as a going concern.
Management’s plans to address these concerns, in part, by increasing the amount of revenue generated by our existing revenue sources. This is achieved by increasing our assets under management, completing additional construction related activities, earning development fees, earning brokerage fees, and continuing our program of advantageously selling our single-family assets. In addition, management is continuing to improve and develop new sources of revenue such as the fees we generate from raising capital into our managed Funds, and additional sales and marketing reimbursements.
55
Management additionally expects to materially grow revenues from the assets and investments held by us. As purchasing opportunistic real estate assets is a primary function of our company, the first 12 – 24 months of most investments are considered to be a rehabilitation, construction, or stabilization period. Thereafter, management seeks to produce additional revenues from each asset purchased through increased occupancy, increased rents, sale of the assets, or a combination of these strategies. As such, management generally expects investments in real estate occurring in late 2016 – 2017 to produce additional revenue gains in 2018 with optimized revenue and net income expected in 2019. There can be no assurance as to these results or expectations.
Historically, as we had sought to grow and scale its business, management has funded working capital through a combination of sale of our stock and short-term borrowings. Management has active capital and debt raising programs designed to lower our cost of capital. These programs include, not only executing agreements with new lenders but also, the option to extend the terms of the existing debt or to offer conversions of our debt into Caliber equity. There can be no assurance as to these results or expectations.
Management believes that these actions will enable us to continue as a going concern within one year after the date its financial statements were issued, or in our case April 19, 2019. Management believes that the success of these plans is probable, and as a result, believes that the conditions that raise substantial doubt about our ability to continue as a going concern are mitigated.
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MANAGEMENT
Name
​ ​
Position
​ ​
Age
​
John C. “Chris” Loeffler II ​ ​ Chief Executive Officer and Chairman of the Board ​ ​
34
​
Jennifer Schrader ​ ​ President & Chief Operating Officer and Director ​ ​
36
​
Jade Leung ​ ​ Chief Financial Officer ​ ​
44
​
Roy Bade ​ ​ Executive Vice President Construction and Development ​ ​
56
 ​
All of our executive officers and significant employees work full-time for us. There are no family relationships between any director, executive officer, or significant employee. During the past five years, none of the persons identified above has been involved in any bankruptcy or insolvency proceeding or convicted in a criminal; proceeding, excluding traffic violations and other minor offenses.
John C. “Chris” Loeffler, II, Chief Executive Officer
Chris is a co-founder of Caliber and currently serves as the Company’s Chief Executive Officer. In this role, Chris develops overall company strategy in concert with his co-founders and the Company’s Executive Committee and ensures that strategy is communicated to the Caliber team and the general market. Chris leads the growth of the Company’s investment services including acting as the fund manager for Caliber’s private investment funds. Chris seeks out opportunities and strategic relationships to grow the Company’s investment base — both in investment capital and opportunistic projects. Prior to serving as the Company’s CEO, Chris utilized knowledge and skillsets acquired as an auditor for PricewaterhouseCoopers, LLP to develop the Company’s business systems. Mr. Loeffler has a Bachelor of Arts from the California Polytechnic State University.
Jennifer Schrader, President & Chief Operating Officer
Jennifer Schrader is President, Chief Operating Officer and Co-Founder of Caliber. Ms. Schrader has management responsibility over the day to day operations of the company’s four segments and the investments strategies of our fund portfolios. Ms. Schrader previously served as Designated Broker of Caliber Realty, overseeing the sale of over $50,000,000 in investment properties. She is an active member of the National Association of Realtors as well as the Scottsdale Area and Arizona Association of Realtors. Ms. Schrader is the recipient of the Arizona Commercial Real Estate (AZRE) lists of  “Most Influential Women in Arizona” and “Influential Millennial”, as well as being named one of Real Estate Forum’s “50 under 40”.
Jade Leung, Chief Financial Officer
Jade Leung is Chief Financial Officer and Corporate Treasurer of Caliber. Mr. Leung leads corporate financial planning, reporting, operational analysis and optimization, and treasury/risk management across Caliber’s four segments and our fund portfolios. Mr. Leung previously served as Caliber’s Vice President of Finance and led the execution and oversight of the company’s new financial reporting infrastructure, managed the complex external audit process and implemented best practices instrumental for achieving the company’s strategic growth plan. Preceding his time with Caliber, Mr. Leung served in a broad range of management roles during his 14-year tenure with PricewaterhouseCoopers (PwC), where he led audit and accounting advisory engagements for some of the firm’s top 50 global public and private companies. During that time, he managed domestic and foreign Initial and Secondary Public Offerings helping companies raise over $2 billion in capital and debt. He completed his accounting and business finance at Ryerson University, and holds a Bachelor of Arts in Psychology from the University of British Columbia. Mr. Leung maintains his status as a Certified Public Accountant.
Roy Bade, Executive Vice President — Construction and Development
Roy is the Director of Commercial Projects and co-manager of the Caliber Distressed Income Fund “CDIF”. Roy plays a critical role in analyzing potential properties, maximizing returns on existing properties and overseeing all aspects of construction at Caliber. He has over 30 years’ experience in Arizona as a principal, operating construction and development companies that have completed over $200,000,000
57
in developed real estate. He has successfully developed dozens of projects including multi-family, custom home, retail centers, mini-storage, industrial complexes, office building and medical complexes. In addition to ground up development, Roy has completed several hundred tenant improvements from a standard office build out to medical surgery centers. A graduate of Washington State University in 1984 with a degree in Business Computer Systems, Roy received his Commercial General Contractor’s license in 1986 and his AZ Real Estate Broker’s license in 1988. Roy has worked actively with many cities’ development departments and was recently Chairman for Peoria’s Design Standards Advisor Board as well as their construction Board of Appeals.
58
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
Compensation of our Executive officers for the fiscal year ended December 31, 2017 was as follows:
Name
​ ​
Position
​ ​
Salary
($)
​ ​
Bonus
($)(a)
 ​ ​
All Other
Compensation
($)(b)
 ​ ​
Total
($)
​
Chris Loeffler ​ ​ Chief Executive Officer/Co Founder ​ ​ ​ ​ 179,700 ​ ​ ​ ​ ​ 25,500 ​ ​ ​ ​ ​ 84,822 ​ ​ ​ ​ ​ 290,022 ​ ​
Jennifer Schrader
​ ​ President and Chief Operating Officer/​Co Founder ​ ​ ​ ​ 179,700 ​ ​ ​ ​ ​ 30,622 ​ ​ ​ ​ ​ 91,747 ​ ​ ​ ​ ​ 302,069 ​ ​
Jade Leung ​ ​ Chief Financial Officer ​ ​ ​ ​ 153,162 ​ ​ ​ ​ ​ 10,000 ​ ​ ​ ​ ​ 3,688 ​ ​ ​ ​ ​ 166,850 ​ ​
Roy Bade ​ ​ Executive Vice President Construction and Development ​ ​ ​ ​ 157,200 ​ ​ ​ ​ ​ 55,000 ​ ​ ​ ​ ​ 10,746 ​ ​ ​ ​ ​ 222,947 ​ ​
Leland Harty ​ ​ Former Chief Financial Officer ​ ​ ​ ​ 44,867 ​ ​ ​ ​ ​ 5,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 49,867 ​ ​
​
(a)
The amounts reported in this column reflect the annual cash bonus payments made for performance.
​
(b)
Amounts reported in this column reflect employer 401(k) contributions, gym and club memberships, and auto. Other forms of compensation are as follows: with respect to Chris Loeffler and Jennifer Schrader, tax payments totaling $52,864 and $72,609 respectively in consideration for the conversion of their member interests in Caliber Companies, LLC into the equivalent number of shares of common stock of CaliberCos, Inc.
​
2017 Incentive Stock Plan
We have adopted a 2017 Omnibus Incentive Stock Plan (the “Plan”). An aggregate of 5,000,000 shares of our common stock is reserved for issuance and available for awards under the Plan, including incentive stock options granted under the Plan. The Plan administrator may grant awards to any employee, director, consultant or other person providing services to us or our affiliates. As of June 30, 2018 and December 31, 2017, options representing 3,031,096 and zero shares have been granted under the Plan, respectively.
The Plan shall be initially administered by the Board. The Plan administrator has the authority to determine, within the limits of the express provisions of the Plan, the individuals to whom awards will be granted, the nature, amount and terms of such awards and the objectives and conditions for earning such awards. The Board may at any time amend or terminate the Plan, provided that no such action may be taken that adversely affects any rights or obligations with respect to any awards previously made under the Plan without the consent of the recipient. No awards may be made under the Plan after the tenth anniversary of its effective date.
Awards under the Plan may include incentive stock options, nonqualified stock options, restricted shares of common stock and restricted stock units.
Stock Options.   The Plan administrator may grant to a participant options to purchase our common stock that qualify as incentive stock options for purposes of Section 422 of the Internal Revenue Code (“incentive stock options”), options that do not qualify as incentive stock options (“non-qualified stock options”) or a combination thereof. The terms and conditions of stock option grants, including the quantity, price, vesting periods, and other conditions on exercise will be determined by the Plan administrator. The exercise price for stock options will be determined by the Plan administrator in its discretion, but non-qualified stock options and incentive stock options may not be less than 100% of the fair market value of one share of our company’s common stock on the date when the stock option is granted. Additionally, in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of our stock on the date of grant, the exercise price may not be less than 110% of the fair market value of one share of common stock on the date the stock option is granted. Stock options must be exercised within a period fixed by the Plan administrator that may not exceed ten years from the date of grant, except that in the case of incentive stock options granted to a holder of more than 10% of the total combined voting power of all classes of our stock on the date of grant, the exercise period may not exceed five years. At the Plan administrator’s discretion, payment for
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shares of common stock on the exercise of stock options may be made in cash, shares of our common stock held by the participant or in any other form of consideration acceptable to the Plan administrator (including one or more forms of  “cashless” or “net” exercise).
Restricted Shares and Restricted Units.   The Plan administrator may award to a participant shares of common stock subject to specified restrictions (“restricted shares”). Restricted shares are subject to forfeiture if the participant does not meet certain conditions such as continued employment over a specified forfeiture period and/or the attainment of specified performance targets over the forfeiture period.
Grants of Plan-Based Awards in 2018
The following table provides information concerning stock options awards granted in 2018, to our executive officers:
Name
​ ​
Grant
Date
​ ​
Units
Granted
​ ​
Grant Date
Fair Value
Jade Leung
​ ​ ​ ​ 6/30/2018 ​ ​ ​ ​ ​ 650,000* ​ ​ ​ ​ $ 476,450
Roy Bade
​ ​ ​ ​ 6/30/2018 ​ ​ ​ ​ ​ 750,000* ​ ​ ​ ​ $ 549,750
​
*
75% of such stock options vested as of December 31, 2018.
​
Key Man Insurance
We own key man life insurance policies in the amounts of  $5 million for Mr. Loeffler and $2 million for Ms. Schrader.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN STOCKHOLDERS
The following table sets forth those executive officers, directors and other stockholders holding 10% or a greater percentage of any class of shares of the Company, as of December 31, 2018.
​ ​ ​
Common Stock
​
Name of Beneficial Owner
​ ​
Total Beneficially
Owned Shares
​ ​
% of
Class
​
Jennifer Schrader(2)
 ​ ​ ​ ​ 6,239,846 ​ ​ ​ ​ ​ 22.83% ​ ​
John C. Loeffler II
​ ​ ​ ​ 6,234,846 ​ ​ ​ ​ ​ 22.81% ​ ​
Donnie Schrader(2)(3)
​ ​ ​ ​ 6,221,846 ​ ​ ​ ​ ​ 22.76% ​ ​
Roy Bade
​ ​ ​ ​ 593,750(4) ​ ​ ​ ​ ​ 2.13% ​ ​
Jade Leung
​ ​ ​ ​ 514,583(4) ​ ​ ​ ​ ​ 1.85% ​ ​
Directors and Executive Officers as a Group (5 Persons)(1)(5)
​ ​ ​ ​ 19,804,871 ​ ​ ​ ​ ​ 69.64% ​ ​
​
(1)
Based upon 27,328,874 shares of Caliber Common Stock outstanding as of December 31, 2018. Does not give effect to the conversion of shares of Series A Preferred Stock to Caliber Common Stock, conversion of convertible debt securities issued by Caliber into Caliber Common Stock, vesting of any issued and outstanding Caliber Common Stock grants, and exercise of any warrants or stock options issued by Caliber outstanding as of December 31, 2018.
​
(2)
Jennifer and Donnie Schrader are married and each disclaims beneficial ownership over the other’s stockholdings.
​
(3)
In September 2018, the Company agreed to repurchase all 6,221,846 shares (“Buyback Program”) owned by Donnie Schrader for $2.70 per share of common stock in exchange for an amendment to his shareholder voting rights and other company protections. Among other things, the Buyback Program is terminated when the Company completes an initial public offering and is listed on a national exchange. The shares are being reacquired at various amounts ranging from 6,000 to 10,000 units on a monthly basis until such time as the Company has satisfied the termination conditions or until all of the shares have been reacquired, which could be in 2075. As of December 31, 2018, an aggregate of 18,000 shares had been repurchased by the Company.
​
(4)
Represents vested stock options and options exercisable within 60 days of December 31, 2019.
​
(5)
Includes 1,108,333 stock options vested as of and exercisable within 60 days of December 31, 2019.
​
​
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INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Affiliated Transactions; Affiliated Ownership or Control of Managed Properties
CDIF
In April 2016, the Company assumed an unsecured promissory note payable by CDIF, an affiliated entity which is managed by the Company, to a third party in exchange for issuing 170,940 shares of common stock and 85,470 shares of preferred stock to the third party. At the time of the transaction the outstanding principal balance of the promissory note was $500,000. The note accrued interest at a rate of 18% for the first 90 days after origination and 15% thereafter. The note required monthly interest only payments until maturity. The original term of the note was 12 months and it matured in October 2016; however, the maturity date was extended to June 2017 upon mutual agreement between the parties. During the years ended December 31, 2017 and 2016, the Company earned $856 and $26,666 of interest in connection with the note, respectively. Interest due to the Company of  $1,080 was outstanding at December 31, 2016. At December 31, 2016, the outstanding principal balance of the loan was $108,000. The note was paid in full in June 2017.
SF Alaska, LP
In August 2016, the Company entered into an unsecured $50,250 promissory note with SF Alaska, LP, an affiliated entity, which is managed by the Company. The note matures in August 2020 and had an interest rate of 12.0% per annum. No payments were required prior to the maturity of the note. During the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, the Company earned $1,665, $5,583 and $2,280, respectively, of interest in connection with the note, respectively. Interest due to the Company of  $2,226, $561 and $2,280, was outstanding at June 30, 2018 and at December 31, 2017 and 2016, respectively. At June 30, 2018 and at December 31, 2017 and 2016, the outstanding principal balance of the loan was $27,978, $27,978 and $50,250, respectively.
CDOF II
In June 2017, the Company entered into an unsecured $250,000 promissory note with Caliber Diversified Opportunity Fund II, LP (“CDOF II”), an affiliated entity, which is managed by the Company. The note matures in June 2019 and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. During the six months ended June 30, 2018 and year ended December 31, 2017, the Company earned $14,877 and $15,205, respectively, of interest in connection with the note. Interest due to the Company of  $30,082 and $15,205 was outstanding at June 30, 2018 and December 31, 2017, respectively. At June 30, 2018 and December 31, 2017, the outstanding principal balance of the loan was $250,000 and $250,000, respectively.
Fund Management
The Company manages multiple private equity real estate funds. We earn management and other fees for the services provided and enter into an agreement with each private equity real estate fund outlining the terms and fees to be earned. In general:
•
We charge an initial one-time fee related to the initial formation, administration, and set up of the fund (“Set Up Fees”). For the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, we earned $0, $750,000 and $175,000, respectively, of Set Up Fees in connection with newly opened funds.
​
•
We are entitled to receive reimbursement for certain expenses incurred or paid on behalf of the fund, which may include an allocation of certain administrative and overhead costs. We also receive an annual management fee equal to 1.5% of the non-affiliate capital contributions related to the on-going management of the assets owned by the fund and the overall fund administration (collectively, “Fund Management Fees”). For the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, the Company earned $1,130,179, $837,983 and $640,941, respectively, of Fund Management Fees.
​
​
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•
We are entitled to 20% – 35% of all cash distributions from the operating cash flows of the fund, after the payment of all priority preferred returns, and the repayment of any preferred capital contributions. We are also entitled to 20% – 35% of all cash distributions from the cash flows resulting from the sale or refinance of the assets of the fund, after the payment of all priority preferred returns, and the repayment of all capital contributions (collectively, “Carried Interest”). For the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, the Company earned $20,047, $73,843 and $91,318, respectively, of Carried Interest.
​
As of June 30, 2018 and as of December 31, 2017 and 2016, amounts due to the Company from related parties for fund management services totaled $946,752, $815,048 and $190,141, respectively.
Property Management
The Company provides property management services and oversees the day-to-day operations of multiple residential and commercial assets owned by the funds managed by the Company. In general, the initial terms of each property management agreement are 12 months, however, the agreement automatically renews every 12 months for an additional 12 months. Per the terms of each agreement, the Company generally earns a fixed monthly fee, plus additional variable fees related to leasing, marketing, maintenance, and administrative activities (collectively, “Property Management Fees”). For the six months ended June 30, 2018 and the years ended December 31, 2017, and 2016, the Company earned $61,383, $149,556 and $85,715, respectively, of Property Management Fees from related parties. As of June 30, 2018 and as of December 31, 2017 and 2016, amounts due to the Company from related parties for Property Management Fees totaled $5,129, $6,312 and $9,437, respectively.
Selling Agent Agreements
The Company entered into multiple agreements with affiliated entities in which we receive fees for services primarily relating to the marketing, offering, registering, and selling of equity and debt instruments of the affiliates (collectively, “Capital Raise Fees”). For the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, the Company earned $296,608, $428,567 and $100,231, respectively, of Capital Raise Fees from related parties. As of June 30, 2018 and as of December 31, 2017 and 2016, amounts due to the Company from related parties for Capital Raise Fees totaled $420,542, $399,126 and $100,231, respectively.
Construction and Development
The Company regularly provides development, construction, and maintenance services to its affiliates, including the private equity real estate funds it manages. The fee arrangement with each affiliate entity varies; however, the arrangements are generally structured as cost incurred, plus a market rate of profit margin. For the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, the Company recognized $2,480,191, $4,237,274 and $3,621,823, respectively, of construction and development revenue from related parties. As of June 30, 2018 and as of December 31, 2017 and 2016, amounts due to the Company from related parties for construction, development, and maintenance services totaled $1,535,360, $833,292 and $564,629, respectively.
Home Sales
Since 2016, the Company has sold multiple single-family homes to Caliber Residential Advantage Fund, LP and its subsidiary (“CRAF”), a private equity real estate fund managed by the Company. During the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, the Company recognized real estate sales revenue of  $933,101, $2,146,570 and $68,500, respectively. In connection with each sale, the loan on the property, which was held by CFIF II, a separate affiliated entity was repaid in full.
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Real Estate Brokerage
The Company earns commissions in exchange for providing real estate brokerage services related to the purchase and sale of residential and commercial assets owned by the funds managed by the Company. The amount of commission earned varies based on the size and complexity of each transaction, as well as other factors. For the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, the Company recognized $23,265, $173,636 and $154,740, respectively, of brokerage commission revenue from related parties.
CFIF
From April 2014 through May 2016, the Company entered into multiple promissory notes with Caliber Fixed Income Fund, LLC (“CFIF”), an affiliated entity, which is managed by the Company, for the purpose of financing the purchase, development, and renovation of residential properties. The notes had an interest rate of 11% per annum and required monthly interest-only payments until maturity. The notes generally had a term of 12 months and were required to be repaid at the earlier of i) the sale of the related property, or ii) the stated maturity date. The notes could be prepaid at any time prior to maturity without penalty, and the maturity date could be extended upon the mutual agreement of the parties. During the year ended December 31, 2016, the Company incurred $332,576 of interest expense in connection with the notes. In May 2016, all outstanding notes due to CFIF, with an aggregate outstanding principal balance of $8,227,862, were refinanced and transferred to Caliber Fixed Income Fund II, LLC (“CFIF II”), an affiliated entity, which is managed by the Company. As of December 31, 2016, all amounts due to CFIF had been repaid in full.
CFIF II
Beginning in July 2015, the Company entered into multiple promissory notes with CFIF II, a related party, for the purpose of financing the purchase, development, and renovation of residential and commercial properties. The notes have an interest rate of 11% per annum and require monthly interest-only payments until maturity. The notes generally have a term of 12 months and are required to be repaid at the earlier of i) the sale of the related property, or ii) the stated maturity date. The notes can be prepaid at any time prior to maturity without penalty and the maturity date can be extended upon the mutual agreement of the parties. During the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, the Company incurred $399,692, $1,151,123 and $1,114,830, respectively, of interest expense in connection with the notes. The interest payable as of June 30, 2018 and as of December 31, 2017 and 2016, was $1,165,943, $1,163,166 and $327,348, respectively. At June 30, 2018 and at December 31, 2017 and 2016, the total outstanding principal balance of the notes was $6,198,000, $8,687,000 and $13,043,000, respectively.
CDIF
In January 2016, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with CDIF, which allows the fund to borrow up to $2,000,000. The note matures in January 2018 and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. In June 2016, $500,000 of the principal outstanding in connection with the note was converted to an equity investment in the fund. During the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, the Company incurred $5,354, $23,421 and $45,928 of interest expense in connection with the note, respectively. The interest payable as of June 30, 2018 and as of December 31, 2017 and 2016, was $5,354, $0 and $45,928, respectively. At June 30, 2018 and at December 31, 2017 and 2016, the outstanding principal balance of the note was $89,978, $89,978 and $210,629, respectively.
In April 2016, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with CDIF, which allowed the Company to borrow up to $3,000,000. The note had a stated maturity of April 2018 and had an interest rate of 12.0% per annum. No payments were required prior to the maturity of the note. In November 2016, $1,500,000 of the principal outstanding in connection with the note was converted to an equity investment in the fund. An additional $400,000 of outstanding principal was settled through the issuance of Class C member interest to an affiliate of CDIF.
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During the years ended December 31, 2017 and 2016, the Company incurred $23,721 and $81,437 of interest expense in connection with the note, respectively. The interest payable as of December 31, 2016, was $81,437. At December 31, 2016, the outstanding principal balance of the note was $353,241. The note and all interest due was paid in full in September 2017.
In June 2017, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with CDIF, which allowed the Company to borrow up to $800,000. The note matures in June 2019 and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. During the six months ended June 30, 2018, the Company incurred $25,479 of interest expense in connection with the note. The interest payable at June 30, 2018 was $28,590. At June 30, 2018, the outstanding principal balance of the note was $431,818.
CDOF II
In August 2017, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with CDOF II, which allows the fund to borrow up to $165,000. The note matures in August 2018 and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. During the six months ended June 30, 2018 and the year ended December 31, 2017, the Company incurred $4,882 and $7,920, respectively, of interest expense in connection with the note. The interest payable as of December 31, 2017, was $7,920. At December 31, 2017, the outstanding principal balance of the note was $165,000. The balance and all accrued interest was paid in full in March 2018.
In March 2013, the Company entered into a promissory note in the amount of  $185,000 with Jeff Fagin, a former member of executive management. The unpaid principal balance accrues interest at a rate of 0.87% per annum. The note matures on December 31, 2018; however, the maturity date may be extended until December 31, 2023, at the Company’s option. Per the terms of the note, no payment is due until maturity and the note may be prepaid at any time without penalty. At June 30, 2018 and at December 31, 2017 and 2016 the outstanding principal balance due related to the note was $185,000. During the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, the Company incurred $798 and $1,610 of interest expense, respectively in connection with the note. The interest outstanding as of June 30, 2018 and as of December 31, 2017 and 2016, was 8,528, $7,730 and $6,121, respectively.
In February 2015, the Company entered into a promissory note in the amount of  $75,000 with Roy Bade, a member of executive management. The note has an interest rate of 15.0% per annum and requires monthly interest-only payments until maturity. The note may be prepaid in whole, or in part, without penalty. During the years ended December 31, 2017 and 2016, the Company incurred and paid $4,938 and $11,250 of interest expense in connection with the note, respectively. The note had an original maturity date of August 2015; however, the maturity was extended until April 2017 upon the mutual agreement of the parties. The note was paid in full in April 2017.
The Company has entered into multiple agreements with Heavlin Management Company, LLC (“HMC”), an affiliated entity through common ownership of certain of the Company’s consolidated subsidiaries, to operate each of the Company’s hotel properties. The term of the agreements is generally 10 years and may be extended for an additional 10 years upon mutual consent of the Company and HMC. HMC oversees the day-to-day operations and management responsibilities of each hotel property. Per the terms of the agreements, HMC receives a monthly fee equal to 3-4% of gross revenue, and may also receive an annual incentive fee, not to exceed 1% of gross operating revenues, by exceeding owner approved budgets for revenue and profits (collectively, Hotel Management Fees”). Hotel Management Fees for the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, totaled $872,310, $1,446,414 and $868,290, respectively. For the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, Hotel Management Fees did not include any incentive fees. Pursuant to one of the hotel management arrangements, HMC also earn an annual fixed fee of  $100,000. In addition to the Hotel Management Fees, HMC also charges the Company for certain shared services including sales and marketing, information technology, and human resources. Expenses for shared services for the six months ended June 30, 2018 and the years ended December 31, 2017 and 2016, totaled $550,554, $892,191 and $470,875. The Company also reimburses HMC for expenses incurred or paid on its behalf. At June 30, 2018 and at December 31, 2017
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and 2016, amounts due to HMC totaled $153,711, $283,110 and $506,025, respectively. HMC utilizes the Company’s payroll service provider and reimburses the Company for payroll and other costs paid on their behalf. At June 30, 2018 and at December 31, 2017 and 2016, $73,859, $88,450 and $151,048 of reimbursement was due to the Company from HMC, respectively.
Withdrawal Agreement
In November 2014, the Company entered into an agreement with Corey Schwartz, a former co-manager and member of one of the Company’s consolidated subsidiaries which outlined the terms of his resignation as co-manager and assignment of his member interest. In consideration for his resignation as co-manager and assignment of his member interest, the Company agreed to issue 55,556 shares of its common stock to the individual or his designee, provide the individual with $35,000 of construction services at no cost to the individual, and pay the individual or his designee up to $540,000 in cash, as outlined in the agreement. As of June 30, 2018 and as of December 31, 2017 and 2016, $434,331, $481,672 and $544,792, respectively, was due to Mr. Schwartz pursuant to the terms of such agreement.
Buyback Program
In September 2018, the Company agreed to repurchase all 6,221,846 shares (“Buyback Program”) owned by Donnie Schrader for $2.70 per share of common stock in exchange for an amendment to his shareholder voting rights and other Company protections. Among other things, the Buyback Program is terminated when the Company completes an initial public offering and is listed on a national exchange. The shares are being reacquired at various amounts ranging from 6,000 to 10,000 units on a monthly basis until such time as the Company has satisfied the termination conditions or until all of the shares have been reacquired, which could be in 2075.
Other
In the normal course of business, the Company has various amounts due from related parties, including affiliate entities and individuals, for various expenses paid for by the Company on their behalf and other charges. These amounts are generally unsecured, interest-free, and due on demand. As of June 30, 2018 and as of December 31, 2017 and 2016, other amounts due from related parties were $1,493,770, $863,551 and $136,428, respectively.
In the normal course of business, the Company has various amounts due to related parties, including affiliate entities and individuals, for various expenses paid for by the affiliates on the Company’s behalf and other short-term payment advances. These amounts are generally unsecured, interest-free, and due on demand. As of June 30, 2018 and as of December 31, 2017 and 2016, other amounts due to related parties were $911,557, $73,437 and $16,331, respectively.
Certain of our real estate holdings that have been financed through third-party lending arrangements are guaranteed by individual affiliates of the Company.
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SECURITIES BEING OFFERED
General
The Company is offering up to      shares of Common Stock.
The following description summarizes the most important terms of the Company’s capital stock. This summary does not purport to be complete and is qualified in its entirety by the provisions of Caliber’s certificate of incorporation and bylaws, copies of which have been filed as exhibits to the Offering Statement of which this Offering Circular is a part. For a complete description of Caliber’s capital stock, you should refer to the amended and restated certificate of incorporation and bylaws and to the applicable provisions of Delaware law.
The Company is authorized to issue up to 100,000,000 shares of capital stock, of which (i) 90,000,000 shares are Common Stock with a par value $0.001 per share and (ii) 10,000,000 shares are Preferred Stock with a par value of  $0.001 per share.
Common Stock
As of June 30, 2018, 27,346,874 shares of Common Stock were issued and outstanding.
Voting.   The holders of the Common Stock are entitled to one vote for each share of Common Stock held at all meetings of stockholders (and written actions in lieu of meetings). The Caliber Common Stock is not subject to cumulative voting.
Dividends.   Holders of the Common Stock are entitled to receive dividends when and if declared by the Company’s board of directors out of funds legally available therefor, subject to any statutory or contractual restrictions on the payment of dividends and to any restrictions on the payment of dividends imposed by the terms of any outstanding preferred stock.
Series A Preferred Stock
As of June 30, 2018, 1,657,396 shares of Series A Stock were issued and outstanding.
Voting.   Our Series A Stock votes together with the Common Stock and not as a separate class except as otherwise required by law. Each share of Series A Stock has a number of votes equal to the number of shares of Common Stock then issuable upon conversion of such share of Series A Stock.
Dividends.   The Series A Stock carries an annual 12.0% non-cumulative dividend, payable quarterly on a pro-rata basis, when and if declared by the Board of Directors and upon a liquidation, prior in preference and payment to dividends on the holders of Common Stock.
Liquidation.   In the event of a Liquidation Event, the holders of the Series A Stock are entitled to receive, prior and in preference to the holders of the Common Stock, an amount per share equal to the Series A Stock original issue price of  $2.25 per share, plus any declared but unpaid dividends on such shares of Series A Stock.
Conversion.   The holders of each share of Series A Stock have the right, at any time to convert each share of Series A Stock into one and one-quarter shares of Common Stock. The Series A Stock shall be automatically converted into Common Stock (one share of Series A Stock converting into one and one-quarter shares of Common Stock) upon the Common Stock publicly trading at a per share price on a weighted average over 20 trading days at a market capitalization of at least $100 million. The conversion rate of the Series A Stock will be adjusted for stock dividends, stock splits and similar issuances.
Redemption.   The Series A Stock includes a mandatory redemption feature whereby the Company must redeem four years from the date of issuance at $2.25 per share plus any accrued and unpaid dividends. The Company has the option to redeem the Series A stock after three years from the date of issuance at $2.3625 per share if called before the end of year four. The Company is obligated to maintain an interest reserve/sinking fund for a redemption of the Series A Stock.
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Anti-Takeover Provisions
Certificate of Incorporation and Bylaws
Because our stockholders do not have cumulative voting rights, our stockholders holding a majority of the outstanding shares of common stock outstanding will be able to elect all of our directors.
The foregoing provisions will make it more difficult for our existing stockholders to replace our board of directors as well as for another party to obtain control of us by replacing our board of directors. Since our board of directors has the power to retain and discharge our officers, these provisions could also make it more difficult for existing stockholders or another party to effect a change in management. In addition, the authorization of undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change our control.
These provisions are intended to enhance the likelihood of continued stability in the composition of our board of directors and its policies and to discourage certain types of transactions that may involve an actual or threatened acquisition of us. These provisions are also designed to reduce our vulnerability to an unsolicited acquisition proposal and to discourage certain tactics that may be used in proxy fights. However, such provisions could have the effect of discouraging others from making tender offers for our shares and may have the effect of deterring hostile takeovers or delaying changes in our control or management.
Section 203 of the Delaware General Corporation Law
We are subject to Section 203 of the Delaware General Corporation Law, which prohibits a Delaware corporation from engaging in any business combination with any interested stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:
•
before such date, the board of directors of the corporation approved either the business combination or the transaction that resulted in the stockholder becoming an interested stockholder;
​
•
upon closing of the transaction that resulted in the stockholder becoming an interested stockholder, the interested stockholder owned at least 85% of the voting stock of the corporation outstanding at the time the transaction began, excluding for purposes of determining the voting stock outstanding (but not the outstanding voting stock owned by the interested stockholder) those shares owned by (i) persons who are directors and also officers and (ii) employee stock plans in which employee participants do not have the right to determine confidentially whether shares held subject to the plan will be tendered in a tender or exchange offer; or
​
•
on or after such date, the business combination is approved by the board of directors and authorized at an annual or special meeting of the stockholders, and not by written consent, by the affirmative vote of at least 662∕3% of the outstanding voting stock that is not owned by the interested stockholder.
​
In general, Section 203 defines business combination to include the following:
•
any merger or consolidation involving the corporation and the interested stockholder;
​
•
any sale, transfer, pledge or other disposition of 10% or more of the assets of the corporation involving the interested stockholder;
​
•
subject to certain exceptions, any transaction that results in the issuance or transfer by the corporation of any stock of the corporation to the interested stockholder;
​
•
any transaction involving the corporation that has the effect of increasing the proportionate share of the stock or any class or series of the corporation beneficially owned by the interested stockholder; or
​
•
the receipt by the interested stockholder of the benefit of any loss, advances, guarantees, pledges or other financial benefits by or through the corporation.
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In general, Section 203 defines an “interested stockholder” as an entity or person who, together with the person’s affiliates and associates, beneficially owns, or within three years prior to the time of determination of interested stockholder status did own, 15% or more of the outstanding voting stock of the corporation.
Exclusive forum for adjudication of disputes provision which limits the forum to the Delaware Court of Chancery for certain actions against the Company.
Section 4 of Article VII of our Bylaws dictates that the Delaware Court of Chancery is the sole and exclusive forum for certain actions including derivative action or proceeding brought on behalf of the Company; an action asserting a breach of fiduciary duty owed by an officer, director, employee or to the shareholders of the Company; any claim arising under Delaware corporate law; and any action asserting a claim governed by the internal affairs doctrine. We also intend this exclusive forum provision to apply to claims under the federal securities laws. While management believes limiting the forum is a benefit, shareholders could be inconvenienced by not being able to bring an action in another forum they find favorable. Note that there is uncertainty as to whether a court would enforce this provision as it relates to claims under the federal securities laws and that shareholders will not be deemed to have waived the company’s compliance with federal securities laws and the rules and regulations thereunder.
A Delaware corporation is allowed to mandate in its corporate governance documents a chosen forum for the resolution of state law based shareholder class actions, derivative suits and other intra-corporate disputes. The Company’s management believes limiting state law based claims to Delaware will provide the most appropriate outcomes as the risk of another forum misapplying Delaware law is avoided, Delaware courts have a well-developed body of case law and limiting the forum will preclude costly and duplicative litigation and avoids the risk of inconsistent outcomes. Additionally, Delaware Chancery Courts can typically resolve disputes on an accelerated schedule when compared to other forums.
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ADDITIONAL REQUIREMENTS AND RESTRICTIONS
Restrictions Imposed by the USA PATRIOT Act and Related Acts
In accordance with the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001, or the USA PATRIOT Act, the securities offered hereby may not be offered, sold, transferred or delivered, directly or indirectly, to any “unacceptable investor,” which means anyone who is:
•
a “designated national,” “specially designated national,” “specially designated terrorist,” “specially designated global terrorist,” “foreign terrorist organization,” or “blocked person” within the definitions provided under the Foreign Assets Control Regulations of the United States, or U.S., Treasury Department;
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acting on behalf of, or an entity owned or controlled by, any government against whom the U.S. maintains economic sanctions or embargoes under the Regulations of the U.S. Treasury Department;
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within the scope of Executive Order 13224 — Blocking Property and Prohibiting Transactions with Persons who Commit, Threaten to Commit, or Support Terrorism, effective September 24, 2001;
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a person or entity subject to additional restrictions imposed by any of the following statutes or regulations and executive orders issued thereunder: the Trading with the Enemy Act, the National Emergencies Act, the Antiterrorism and Effective Death Penalty Act of 1996, the International Emergency Economic Powers Act, the United Nations Participation Act, the International Security and Development Cooperation Act, the Nuclear Proliferation Prevention Act of 1994, the Foreign Narcotics Kingpin Designation Act, the Iran and Libya Sanctions Act of 1996, the Cuban Democracy Act, the Cuban Liberty and Democratic Solidarity Act and the Foreign Operations, Export Financing and Related Programs Appropriations Act or any other law of similar import as to any non-U.S. country, as each such act or law has been or may be amended, adjusted, modified or reviewed from time to time; or
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designated or blocked, associated or involved in terrorism, or subject to restrictions under laws, regulations, or executive orders as may apply in the future similar to any of those described above.
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PLAN OF DISTRIBUTION
The aggregate initial offering price of Caliber Common Stock will not exceed $50,000,000 in any 12-month period. We expect to offer Common Stock in this offering until the earlier of  (i) the date at which the maximum offering amount has been sold; (ii)            , 2020, the date that is twelve months from the date that this offering is qualified by the U.S. Securities and Exchange Commission (the “Commission) or (iii) the date at which the offering is earlier terminated by the Company in its sole discretion, which may occur at any time. The offering is being conducted on a best-efforts basis without any minimum aggregate investment target. The Company may undertake one or more closings on a rolling basis. After each closing, funds tendered by investors will be available to the Company.
We are offering the shares hereunder on a “best efforts” basis. Our officers and directors may participate in the sales process for the offering. We will not pay any commission or remuneration to our Company’s directors or officers for any sales efforts they may make. In directly sourcing investors, our officers and directors will rely on Rule 3a4-1 of the Securities Exchange Act of 1934, “Associated Persons of an Issuer Deemed not to be Brokers.” The applicable portions of the rule state that associated persons of an issuer, which include natural persons who are officers, directors, partners or employees of the issuer and its affiliates, shall not be deemed brokers if such persons a) perform substantial duties at the end of the offering for the issuer; b) are not broker-dealers; and c) do not participate in selling securities more than once every 12 months, except for any of the following activities: i) preparing written communication, but no oral solicitation; or ii) responding to inquiries provided that the content is contained in the applicable registration statement; or iii) performing clerical work in effecting any transaction.
There is no public market for the shares of Caliber Common Stock.
We have engaged WealthForge, a broker-dealer registered with the Securities and Exchange Commission and a member of FINRA, to perform the following functions in connection with this offering:
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qualify investors, including, but not limited to, conducting Know Your Customer, OFAC checks and AML compliance;
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gather additional information or clarification from prospective investors, working as necessary with us and/or our agents;
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provide us with prompt notice for subscriptions that cannot be accepted; and
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transmit the subscription information data to our transfer agent.
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As compensation for the services listed above, we have agreed to pay WealthForge a basic transaction fee of 0.5% of the gross proceeds of this offering to support the offering once the offering statement is qualified and the offering commences.
WealthForge is not participating as an underwriter of the offering and under no circumstance will it, as part of this offering, solicit any investment in the company, recommend the company’s securities or provide investment advice to any prospective investor. Rather, WealthForge’s involvement in the offering is limited to acting as an accommodating broker-dealer. WealthForge does not expressly or impliedly affirm the completeness or accuracy of this Offering Circular. All inquiries regarding this offering or services provided by WealthForge and its affiliates should be made directly to us.
Investment Limitations
Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons (i.e. companies). Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)I of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.
How much can you invest if you are a non-accredited investor?
If you do not meet any of the categories listed below, you are a non-accredited investor in this Offering. Non-accredited investors may invest in this offering no more than: (a) 10% of the greater of annual income or net worth (for natural persons); or (b) 10% of the greater of annual revenue or net assets at fiscal year-end (for non-natural persons).
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How much can you invest if you are an accredited investor?
If you meet any of the following categories, you are an accredited investor as defined under Rule 501 of Regulation D. Accredited investors are exempt from the above limitation*. If you meet one of the following tests you should qualify as an accredited investor:
(i)
You are a natural person who has had individual income in excess of  $200,000 in each of the two most recent years, or joint income with your spouse in excess of  $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year;
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(ii)
You are a natural person and your individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time you purchase shares (please see below on how to calculate your net worth);
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(iii)
You are an executive officer or general partner of the issuer or a manager or executive officer of the general partner of the issuer;
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(iv)
You are an organization described in Section 501I(3) of the Internal Revenue Code of 1986, as amended, or the Code, a corporation, a Massachusetts or similar business trust or a partnership, not formed for the specific purpose of acquiring the shares, with total assets in excess of $5,000,000;
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(v)
You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940, as amended, or the Investment Company Act, or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958 or a private business development company as defined in the Investment Advisers Act of 1940;
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(vi)
You are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor;
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(vii)
You are a trust with total assets in excess of  $5,000,000, your purchase of shares is directed by a person who either alone or with their purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you were not formed for the specific purpose of investing in the shares; or
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(viii)
You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of  $5,000,000.
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How to Invest
Subscription Agreement
All investors will be required to complete and execute a subscription agreement in the form filed as an exhibit to the Offering Statement of which this offering circular is a part concurrently with payment in full via wire transfer, electronic funds transfer via ACH, or check deposit with your subscription purchase price in accordance with the instructions in the subscription agreement.
The offering is being conducted on a best-efforts basis without any minimum aggregate investment target. The Company may undertake one or more closings on a rolling basis. After each closing, funds tendered by investors will be available to the Company.
You will be required to represent and warrant in your subscription agreement that you are an accredited investor as defined under Rule 501 of Regulation D or that your investment in the Securities does not exceed 10% of your net worth or annual income, whichever is greater, if you are a natural person,
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or 10% of your revenues or net assets, whichever is greater, calculated as of your most recent fiscal year if you are a non-natural person. By completing and executing your subscription agreement you will also acknowledge and represent that you have received a copy of this Offering Circular, you are purchasing the shares for your own account.
Right to Reject Subscriptions.   After we receive your complete, executed subscription agreement and the funds required under the subscription agreement have been received, we have the right to review and accept or reject your subscription in whole or in part, for any reason or for no reason. We will return all monies from rejected subscriptions immediately to you, generally without interest and without deduction.
Acceptance of Subscriptions.   Upon our acceptance of a subscription agreement, we will countersign the subscription agreement and issue the shares subscribed at closing. Once you submit the subscription agreement and it is accepted, you may not revoke or change your subscription or request your subscription funds. All accepted subscription agreements are irrevocable.
Investment in the offering made by employees of our Company does not guaranty continued employment with our Company. Investment in the offering made by vendors of our Company does not guaranty continued business with our Company.
Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).
NOTE: For the purposes of calculating your net worth, or Net Worth, it is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the fiduciary directly or indirectly provides funds for the purchase of the shares.
In order to purchase shares and prior to the acceptance of any funds from an investor, an investor will be required to represent, to our Company’s satisfaction, that he is either an accredited investor or is in compliance with the 10% of net worth or annual income limitation on investment in this offering.
Book-Entry, Delivery and Form
The shares may be issued to investors in book-entry only format and may be represented by global certificates deposited with a nominee holder or (ii) reflected on the books of the transfer agent. We anticipate that such nominee holder will be the Depository Trust Company, or DTC, or its nominee Cede & Co. The shares may also be direct registered under the name of the stockholder.
So long as nominees as described above are the registered owners of the certificates representing the shares, such nominees will be considered the sole owners and holders of the shares for all purposes of the shares, with respect to the shares. Beneficial Owners of shares will not be entitled to have certificates representing the same registered in their names, will not receive or be entitled to receive physical delivery of the shares in definitive form and will not be considered the owners or holders under the Indenture, including for purposes of receiving any reports delivered by us or the trustee pursuant to the Indenture, or by us. Accordingly, each person owning a beneficial interest in shares registered to DTC or its nominee must rely on either the procedures of DTC or its nominee in order to exercise any rights of a stockholder.
The Depository Trust Company
We have obtained the information in this section concerning DTC and its book-entry systems and procedures from sources that we believe to be reliable. The description of the clearing system in this section reflects our understanding of the rules and procedures of DTC as they are currently in effect. DTC could change its rules and procedures at any time.
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DTC will act as securities depositary for the shares registered in the name of its nominee, Cede & Co. DTC is:
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a limited-purpose trust company organized under the New York Banking Law;
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a “banking organization” under the New York Banking Law;
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a member of the Federal Reserve System;
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a “clearing corporation” under the New York Uniform Commercial Code; and
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a “clearing agency” registered under the provisions of Section 17A of the Exchange Act.
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DTC holds securities that its direct participants deposit with DTC. DTC facilitates the settlement among direct participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in direct participants’ accounts, thereby eliminating the need for physical movement of securities certificates.
Direct participants of DTC include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its direct participants. Indirect participants of DTC, such as securities brokers and dealers, banks and trust companies, can also access the DTC system if they maintain a custodial relationship with a direct participant.
Purchases of shares under DTC’s system must be made by or through direct participants, which will receive a credit for the shares on DTC’s records. The ownership interest of each beneficial owner is in turn to be recorded on the records of direct participants and indirect participants. Beneficial owners will not receive written confirmation from DTC of their purchase, but beneficial owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the direct participants or indirect participants through which such beneficial owners entered into the transaction. Transfers of shares are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests.
Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants and by direct participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
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ERISA CONSIDERATIONS
An investment in us by an employee benefit plan is subject to additional considerations. This is because investments by employee benefit plans are subject to ERISA’s fiduciary responsibility and prohibited transaction provisions and to restrictions imposed by Code Section 4975. The term “employee benefit plan” includes without limitation qualified pension, profit-sharing and stock bonus plans, Keogh plans, simplified employee pension plans and tax deferred annuities or IRAs established or maintained by an employer or employee organization. Among other things, consideration should be given to:
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whether the investment is prudent under Section 404(a)(1)(B) of ERISA;
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whether in making the investment, the investing plan will satisfy the diversification requirements of Section 404(a)(1)(C) of ERISA; and
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whether the investment will result in recognition of unrelated business taxable income by the plan and, if so, the potential after-tax investment returns.
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The Employee Retirement Income Security Act of 1974, as amended, or ERISA, is a broad statutory framework that governs most U.S. retirement and other U.S. employee benefit plans. ERISA and the rules and regulations of the Department of Labor, or the DOL, under ERISA contain provisions that should be considered by fiduciaries of employee benefit plans subject to the provisions of Title I of ERISA, or ERISA Plans, and their legal advisors. The person having investment discretion concerning assets of an employee benefit plan is generally referred to as a “fiduciary”. Such person should determine whether an investment in us is authorized by the applicable governing plan instrument and whether it is a proper investment for the plan.
ERISA Section 406 and Code Section 4975 prohibit employee benefit plans from engaging in specified transactions involving “plan assets” with parties that are “parties in interest” under ERISA or “disqualified persons” under the Code with respect to the plan.
In addition to considering whether the purchase of shares is a prohibited transaction, a fiduciary of an employee benefit plan should consider whether the plan will, by investing in us, be deemed to own an undivided interest in our assets, with the result that our operations would be subject to the regulatory restrictions of ERISA, including its prohibited transaction rules, as well as the prohibited transaction rules of the Code.
The Department of Labor regulations provide guidance concerning whether assets of an entity in which employee benefit plans acquire equity interests would be deemed “plan assets” under certain circumstances. Under these regulations, an entity’s assets would not be considered to be “plan assets” if, among other things:
(1)
equity interests acquired by employee benefit plans are publicly offered securities — for example, the equity interests are widely held by 100 or more investors independent of the issuer and each other, freely transferable and registered under some provisions of the federal securities laws;
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(2)
the entity is an “operating company” — for example, it is primarily engaged in the production or sale of a product or service other than the investment of capital either directly or through a majority-owned subsidiary or subsidiaries; or
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(3)
there is no significant investment by benefit plan investors, which is defined to mean that less than 25% of the value of each class of equity interest is held by the employee benefit plans referred to above.
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We do not intend to limit investment by benefit plan investors in us because we believe that we qualify as an “operating company”. If the Department of Labor were to ever take the position that we are not an operating company and we had significant investment by benefit plans, then we may become subject to the regulatory restrictions of ERISA which would likely have a material adverse effect on our business and the value of Caliber Common Stock.
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Plan fiduciaries contemplating a purchase of shares offered hereunder are highly encouraged to consult with their own counsel regarding the consequences under ERISA and the Code in light of the serious penalties imposed on persons who engage in prohibited transactions or other violations.
ACCEPTANCE OF ORDERS ON BEHALF OF PLANS IS IN NO RESPECT A REPRESENTATION BY OUR BOARD OF DIRECTORS OR ANY OTHER PARTY RELATED TO US THAT THIS INVESTMENT MEETS THE RELEVANT LEGAL REQUIREMENTS REGARDING INVESTMENTS BY ANY PARTICULAR PLAN OR THAT AN INVESTMENT WITH US IS APPROPRIATE FOR ANY PARTICULAR TYPE OF PLAN. THE PERSON WITH INVESTMENT DISCRETION SHOULD CONSULT THEIR ATTORNEY AND FINANCIAL ADVISORS AS TO THE APPROPRIATENESS OF AN INVESTMENT IN US BASED ON CIRCUMSTANCES OF THE PARTICULAR PLAN.
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INVESTMENT COMPANY ACT CONSIDERATIONS
We intend to continue to conduct our operations so that neither we nor any subsidiaries we own nor ones we may establish will be required to register as an investment company under the Investment Company Act. A person will generally be deemed to be an “investment company” for purposes of the Investment Company Act if, absent an available exception or exemption, it (i) is or holds itself out as being engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; or (ii) owns or proposes to acquire investment securities having a value exceeding 40% of the value of its total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis.
We rely on an exclusion from the definition of investment company provided by either Section 3(c)(5)(C) or Section 3(c)(6) of the Investment Company Act. Section 3(c)(5)(C) of the Investment Company Act, as interpreted by SEC staff, that requires us to invest at least 55% of our assets in “mortgages and other liens on and interests in real estate,” or Qualifying Real Estate Assets, and at least 80% of our assets in Qualifying Real Estate Assets plus real estate-related assets.
We will continue to invest in and manage a diversified portfolio of commercial real estate investments. We expect to use a significant majority of the net proceeds from this offering to invest and hold at least 55% of our total assets in commercial real estate loans (including senior mortgage loans, subordinated mortgage loans, mezzanine debt and participations (also referred to as B-Notes) that meet certain criteria outlined by the staff of the SEC), each of which are Qualifying Real Estate Assets. In addition, we hold at least 80% of our total assets in a combination of Qualifying Real Estate Assets and real estate-related assets. These real estate-related assets may include assets such as equity interests in companies that own commercial real estate and preferred equity in commercial real estate debt securities such as CMBSs and CDOs. We will monitor our holdings under the 55% test and the 80% test in an effort to comply with Section 3(c)(5)(C) and related guidance.
Based on these holdings, we believe that we are not considered an investment company for purposes of Section 3(c)(5)(C) of the Investment Company Act. Consequently, we expect to continue to conduct our operations such that we will not be required to register as an investment company under the Investment Company Act.
Section 3(c)(6) of the Investment Company Act excludes from the definition of  “investment company” any company primarily engaged, directly or through majority-owned subsidiaries, in a business, among others, described in Section 3(c)(5)(C) of the Investment Company Act. The SEC has indicated that Section 3(c)(6) requires a company to hold at least 55% of its assets in, and derive 55% of its income from, a Section 3(c)(5)(C) business. The staff of the SEC has issued little additional interpretive guidance with respect to Section 3(c)(6).
To the extent we hold our real estate investments through subsidiaries, we rely on Section 3(c)(6) of the Investment Company Act rather than Section 3(c)(5)(C). In such a case, more than 55% of our assets are held in, and more than 55% of our income are derived from, a combination of our interests in our majority-owned subsidiaries and Qualifying Real Estate Assets. Our majority-owned subsidiaries rely on Section 3(c)(5)(C), described above. Based on these holdings, we believe that we are not considered an investment company for purposes of Section 3(c)(6) of the Investment Company Act. Consequently, we expect we will continue to conduct our operations such that we would not be required to register as an investment company under the Investment Company Act.
If the staff of the SEC were to disagree with our approach to our compliance with Section 3(c)(6) and obtained a favorable ruling to that effect that we cannot or decide not to appeal, we would need to adjust our investment strategy. Any such adjustment in our strategy could have a material adverse effect on us.
Under the Investment Company Act, a majority-owned subsidiary of a person is defined as a company 50% or more of the outstanding voting securities of which are owned by such person, or by another company which is a majority-owned subsidiary of such person. For purposes of Section 3(c)(6), we intend to treat companies in which we own at least a majority of the outstanding voting securities as majority-owned subsidiaries. Currently we and our wholly owned subsidiary Caliber Companies, LLC, own 50% or more of subsidiaries that include: Caliber Services, LLC, Caliber Development, LLC, Caliber Auction Homes, LLC (which also includes wholly owned single purpose real estate holding companies),
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CHPH Manager, LLC, Caliber Lending, LLC, Caliber Hospitality, LLC, Caliber Realty Group, LLC, Caliber Securities, LLC, HI Hotel Manager, LLC, GC Square Manager, LLC, Roosevelt Tempe Manager, LLC, Fiesta Tech Manager, LLC, 47th St Phoenix Airport Manager, LLC, Tucson East Manager, LLC, Palms Weekly Portfolio GP, LLC, Circle Lofts Manager, LLC, and CRA Manager, LLC.
The determination of whether an entity is a majority-owned subsidiary of the Company is made by us. We have not asked SEC staff for concurrence with this analysis, and it is possible that SEC staff could disagree with any of our determinations. If SEC staff were to disagree with our treatment of one or more companies as majority-owned subsidiaries, we would need to adjust our investment strategy. Any such adjustment in our strategy could have a material adverse effect on us.
The assets we and our subsidiaries may acquire are limited by the provisions of the Investment Company Act, the rules and regulations promulgated under the Investment Company Act, and interpretative guidance from the SEC and its staff. These limitations may adversely affect our performance. In addition, to the extent SEC staff provides different or more specific guidance regarding any of the matters bearing upon such exclusions, we may be required to adjust our strategy accordingly. Any additional guidance from the SEC or its staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the strategies we have chosen. The loss of our exclusion from regulation pursuant to the Investment Company Act could require us to restructure our operations, sell certain of our assets, or abstain from the purchase of certain assets, which could have an adverse effect on our financial condition and results of operations. See “Risk Factors — Risks Related to Our Company — If we were deemed an “investment company” under the Investment Company Act, applicable restrictions could make it impractical for us to continue our business as conducted and could have a material adverse effect on our business”.
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REPORTS
We will furnish the following reports, statements, and tax information to each stockholder:
Reporting Requirements under Tier II of Regulation A.   Following this Tier II, Regulation A offering, we will be required to comply with certain ongoing disclosure requirements under Rule 257 of Regulation A. We will be required to file: (i) an annual report with the SEC on Form 1-K; (ii) a semi-annual report with the SEC on Form 1-SA; (iii) current reports with the SEC on Form 1-U; and (iv) a notice under cover of Form 1-Z. The necessity to file current reports will be triggered by certain corporate events, similar to the ongoing reporting obligation faced by issuers under the Exchange Act, however the requirement to file a Form 1-U is expected to be triggered by significantly fewer corporate events than that of the Form 8-K. Parts I & II of Form 1-Z will be filed by us if and when we decide to and are no longer obligated to file and provide annual reports pursuant to the requirements of Regulation A.
Annual Reports.   As soon as practicable, but in no event later than one hundred twenty (120) days after the close of our fiscal year, ending December 31, our board of directors will cause to be mailed or made available, by any reasonable means, to each Stockholder as of a date selected by the board of directors, an annual report containing financial statements of the Company for such fiscal year, presented in accordance with GAAP, including a balance sheet and statements of operations, company equity and cash flows, with such statements having been audited by an accountant selected by the board of directors. The board of directors shall be deemed to have made a report available to each Stockholder as required if it has either (i) filed such report with the SEC via its Electronic Data Gathering, Analysis and Retrieval, or EDGAR, system and such report is publicly available on such system or (ii) made such report available on any website maintained by the Company and available for viewing by the Stockholders.
Tax Information.   On or before January 31st of the year immediately following our fiscal year, which is currently January 1st through December 31st, we will send to each Stockholder such tax information as shall be reasonably required for federal and state income tax reporting purposes.
Stock Certificates.   We do not anticipate issuing stock certificates representing shares purchased in this offering to the Common Stockholders. However, we are permitted to issue stock certificates and may do so at the request of our transfer agent. The number of shares held by each Common Stockholder, will be maintained by us or our transfer agent in our company register.
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LEGAL MATTERS
Certain legal matters regarding the securities being offered by this offering circular will be passed upon for us by Manatt, Phelps & Phillips, LLP, Costa Mesa, California.
EXPERTS
Our historical consolidated financial statements as of and for the fiscal years ended December 31, 2017 and 2016 have been audited by Marcum LLP, an independent registered public accounting firm, as set forth in their report. We have included our financial statements in this registration statement in reliance on Marcum LLP’s report, given on the authority of such firm as experts in accounting and auditing.
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CALIBERCOS, INC. AND SUBSIDIARIES
 
CONTENTS
​ Financial Statements ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ ​ F-2 ​ ​
​ ​ ​ ​ ​ F-3 ​ ​
​ ​ ​ ​ ​ F-4 ​ ​
​ ​ ​ ​ ​ F-5 ​ ​
​ ​ ​ ​ ​ F-6 ​ ​
​ ​ ​ ​ ​ F-8 – F-50 ​ ​
​ Financial Statements (Unaudited) ​ ​ ​ ​ ​
​ ​ ​ ​ ​ F-51
​ ​ ​ ​ ​ F-52
​ ​ ​ ​ ​ F-53
​ ​ ​ ​ ​ F-54
​ ​ ​ ​ ​ F-56 – F-84
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors of
CaliberCos, Inc. and Subsidiaries
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CaliberCos, Inc. and Subsidiaries (the “Company”) as of December 31, 2017 and 2016, the related consolidated statements of operations, stockholders’ equity and cash flows for each of the two years in the period ended December 31, 2017, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Marcum LLP
Marcum LLP
We have served as the Company’s auditor since 2016.
New York, NY
April 13, 2018
F-2
CALIBERCOS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
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December 31,
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2017
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2016
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Assets ​ ​ ​
Real estate investments
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Land and land improvements
​ ​ ​ $ 20,261,083 ​ ​ ​ ​ $ 21,459,496 ​ ​
Buildings and building improvements
​ ​ ​ ​ 91,537,069 ​ ​ ​ ​ ​ 91,439,002 ​ ​
Furniture, fixtures, and equipment
​ ​ ​ ​ 19,728,145 ​ ​ ​ ​ ​ 14,214,809 ​ ​
Real estate assets under construction
​ ​ ​ ​ 13,523,716 ​ ​ ​ ​ ​ 4,549,936 ​ ​
Real estate assets held for sale
​ ​ ​ ​ 1,424,335 ​ ​ ​ ​ ​ 5,193,187 ​ ​
Total real estate investments, at cost
​ ​ ​ ​ 146,474,348 ​ ​ ​ ​ ​ 136,856,430 ​ ​
Accumulated depreciation
​ ​ ​ ​ (13,764,437) ​ ​ ​ ​ ​ (9,247,655) ​ ​
Total real estate investments, net
​ ​ ​ ​ 132,709,911 ​ ​ ​ ​ ​ 127,608,775 ​ ​
Cash
​ ​ ​ ​ 6,106,778 ​ ​ ​ ​ ​ 3,159,333 ​ ​
Restricted cash
​ ​ ​ ​ 6,656,826 ​ ​ ​ ​ ​ 12,976,369 ​ ​
Accounts receivable, net
​ ​ ​ ​ 1,041,984 ​ ​ ​ ​ ​ 1,165,112 ​ ​
Other receivables
​ ​ ​ ​ 89,505 ​ ​ ​ ​ ​ 938,774 ​ ​
Notes receivable – related parties
​ ​ ​ ​ 277,978 ​ ​ ​ ​ ​ 158,250 ​ ​
Due from related parties
​ ​ ​ ​ 3,021,545 ​ ​ ​ ​ ​ 1,155,274 ​ ​
Prepaid and other assets
​ ​ ​ ​ 2,874,681 ​ ​ ​ ​ ​ 3,110,290 ​ ​
Total Assets
​ ​ ​ $ 152,779,208 ​ ​ ​ ​ $ 150,272,177 ​ ​
Liabilities, Mezzanine Equity, and Stockholders’ (Deficit) Equity ​ ​ ​
Note payables (net of deferred financing costs of  $1,949,834 and $2,798,239 at December 31, 2017 and 2016, respectively)
​ ​ ​ $ 100,946,351 ​ ​ ​ ​ $ 96,201,960 ​ ​
Notes payable – related parties
​ ​ ​ ​ 9,126,978 ​ ​ ​ ​ ​ 13,866,870 ​ ​
Accounts payable
​ ​ ​ ​ 4,276,388 ​ ​ ​ ​ ​ 2,013,388 ​ ​
Accrued interest
​ ​ ​ ​ 2,302,028 ​ ​ ​ ​ ​ 2,775,889 ​ ​
Accrued share-based payments
​ ​ ​ ​ 1,381,526 ​ ​ ​ ​ ​ 2,508,051 ​ ​
Accrued expenses
​ ​ ​ ​ 3,395,620 ​ ​ ​ ​ ​ 3,499,533 ​ ​
Due to related parties
​ ​ ​ ​ 2,009,115 ​ ​ ​ ​ ​ 1,527,982 ​ ​
Advance key money, net
​ ​ ​ ​ 1,275,000 ​ ​ ​ ​ ​ 1,350,000 ​ ​
Above-market ground lease, net
​ ​ ​ ​ 4,013,072 ​ ​ ​ ​ ​ 4,138,481 ​ ​
Other liabilities
​ ​ ​ ​ 1,580,550 ​ ​ ​ ​ ​ 1,039,462 ​ ​
Total Liabilities
​ ​ ​ ​ 130,306,628 ​ ​ ​ ​ ​ 128,921,616 ​ ​
Commitments and Contingencies ​ ​ ​
Mezzanine equity – Series A convertible, mandatorily redeemable preferred
stock, $0.001 par value; 2,564,103 shares authorized and 1,386,229 and
697,836 issued and outstanding at December 31, 2017 and 2016,
respectively
​ ​ ​ ​ 3,180,480 ​ ​ ​ ​ ​ 1,615,344 ​ ​
Stockholders’ (Deficit) Equity ​ ​ ​
Common stock, $0.001 par value; 90,000,000 shares authorized and 26,797,477 and 24,064,751 shares issued and outstanding at December 31, 2017 and 2016, respectively
​ ​ ​ ​ 26,797 ​ ​ ​ ​ ​ 24,065 ​ ​
Paid-in capital
​ ​ ​ ​ 10,676,358 ​ ​ ​ ​ ​ 7,018,415 ​ ​
Accumulated deficit
​ ​ ​ ​ (21,223,501) ​ ​ ​ ​ ​ (18,306,345) ​ ​
Stockholders’ deficit attributable to CaliberCos, Inc.
​ ​ ​ ​ (10,520,346) ​ ​ ​ ​ ​ (11,263,865) ​ ​
Stockholders’ equity attributable to noncontrolling interests
​ ​ ​ ​ 29,812,446 ​ ​ ​ ​ ​ 30,999,082 ​ ​
Total Stockholders’ Equity
​ ​ ​ ​ 19,292,100 ​ ​ ​ ​ ​ 19,735,217 ​ ​
Total Liabilities, Mezzanine Equity, and Stockholders’ Equity
​ ​ ​ $ 152,779,208 ​ ​ ​ ​ $ 150,272,177 ​ ​
​
The accompanying notes are an integral part of these consolidated financial statements.
F-3
CALIBERCOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
​ ​ ​
2017
​ ​
2016
​
Revenues ​ ​ ​
Hospitality
​ ​ ​ $ 44,062,107 ​ ​ ​ ​ $ 27,800,703 ​ ​
Construction and development
​ ​ ​ ​ 4,615,982 ​ ​ ​ ​ ​ 4,908,726 ​ ​
Real estate sales
​ ​ ​ ​ 7,877,470 ​ ​ ​ ​ ​ 2,444,400 ​ ​
Rental income
​ ​ ​ ​ 4,972,803 ​ ​ ​ ​ ​ 2,604,207 ​ ​
Fund management
​ ​ ​ ​ 1,661,830 ​ ​ ​ ​ ​ 976,713 ​ ​
Property management
​ ​ ​ ​ 485,730 ​ ​ ​ ​ ​ 456,472 ​ ​
Brokerage
​ ​ ​ ​ 314,647 ​ ​ ​ ​ ​ 362,188 ​ ​
Capital raise fees
​ ​ ​ ​ 428,567 ​ ​ ​ ​ ​ 100,231 ​ ​
Total revenues
​ ​ ​ ​ 64,419,136 ​ ​ ​ ​ ​ 39,653,640 ​ ​
Expenses ​ ​ ​
Cost of sales – hospitality
​ ​ ​ ​ 16,727,488 ​ ​ ​ ​ ​ 10,541,003 ​ ​
Cost of sales – construction and development
​ ​ ​ ​ 4,105,738 ​ ​ ​ ​ ​ 4,189,857 ​ ​
Cost of sales – real estate
​ ​ ​ ​ 6,930,938 ​ ​ ​ ​ ​ 2,564,243 ​ ​
Cost of sales – brokerage
​ ​ ​ ​ 54,585 ​ ​ ​ ​ ​ 104,370 ​ ​
Operating costs
​ ​ ​ ​ 11,576,076 ​ ​ ​ ​ ​ 7,414,275 ​ ​
General and administrative
​ ​ ​ ​ 9,727,124 ​ ​ ​ ​ ​ 6,960,685 ​ ​
Marketing and advertising
​ ​ ​ ​ 3,530,813 ​ ​ ​ ​ ​ 2,389,422 ​ ​
Franchise fees
​ ​ ​ ​ 3,032,198 ​ ​ ​ ​ ​ 1,886,930 ​ ​
Management fees
​ ​ ​ ​ 1,621,222 ​ ​ ​ ​ ​ 1,177,978 ​ ​
Depreciation
​ ​ ​ ​ 5,564,129 ​ ​ ​ ​ ​ 3,933,485 ​ ​
Total expenses
​ ​ ​ ​ 62,870,311 ​ ​ ​ ​ ​ 41,162,248 ​ ​
Operating Income (Loss)
​ ​ ​ ​ 1,548,825 ​ ​ ​ ​ ​ (1,508,608) ​ ​
Other (Income) Expenses ​ ​ ​
Other expenses, net
​ ​ ​ ​ 613,946 ​ ​ ​ ​ ​ 156,964 ​ ​
Impairment
​ ​ ​ ​ 460,906 ​ ​ ​ ​ ​ 348,286 ​ ​
Gain on disposition of real estate
​ ​ ​ ​ (1,478,865) ​ ​ ​ ​ ​ — ​ ​
Loss from damage of real estate assets, net
​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,871,115 ​ ​
Interest expense
​ ​ ​ ​ 10,458,422 ​ ​ ​ ​ ​ 6,467,733 ​ ​
Total other expenses, net
​ ​ ​ ​ 10,054,409 ​ ​ ​ ​ ​ 8,844,098 ​ ​
Loss Before Income Taxes
​ ​ ​ ​ (8,505,584) ​ ​ ​ ​ ​ (10,352,706) ​ ​
Provision for (benefit from) income taxes
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Net Loss
​ ​ ​ ​ (8,505,584) ​ ​ ​ ​ ​ (10,352,706) ​ ​
Net loss attributable to noncontrolling interests
​ ​ ​ ​ (5,802,121) ​ ​ ​ ​ ​ (7,441,601) ​ ​
Net Loss Attributable to CaliberCos, Inc.
​ ​ ​ $ (2,703,463) ​ ​ ​ ​ $ (2,911,105) ​ ​
Basic and diluted net loss per share attributable to common stockholders
​ ​ ​ $ (0.12) ​ ​ ​ ​ $ (0.13) ​ ​
Weighted-average basic and diluted common shares outstanding
​ ​ ​ ​ 25,299,392 ​ ​ ​ ​ ​ 23,510,271 ​ ​
​
The accompanying notes are an integral part of these consolidated financial statements.
F-4
CALIBERCOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
​ ​ ​
CaliberCos, Inc.
​ ​ ​
​ ​ ​
Common Stock
​ ​ ​ ​
​ ​ ​
Shares
​ ​
Par
Value
​ ​
Paid in
Capital
​ ​
Accumulated
Deficit
​ ​
Noncontrolling
Interests
​ ​
Total
Stockholders’
Equity
​
Balances at December 31, 2015
 ​ ​ ​ ​ 54,913,833 ​ ​ ​ ​ $ 54,914 ​ ​ ​ ​ $ 4,475,974 ​ ​ ​ ​ $ (15,280,714) ​ ​ ​ ​ $ 15,854,034 ​ ​ ​ ​ $ 5,104,208 ​ ​
Share surrender transaction
​ ​ ​ ​ (32,280,462) ​ ​ ​ ​ ​ (32,280) ​ ​ ​ ​ ​ 32,280 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Issuance of common stock
​ ​ ​ ​ 1,260,440 ​ ​ ​ ​ ​ 1,260 ​ ​ ​ ​ ​ 2,202,640 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,203,900 ​ ​
Exchange of common
stock for note receivable
– related party
​ ​ ​ ​ 170,940 ​ ​ ​ ​ ​ 171 ​ ​ ​ ​ ​ 307,521 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 307,692 ​ ​
Distributions to preferred stockholders
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (68,927) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (68,927) ​ ​
Accretion of mezzanine equity value
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (45,599) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (45,599) ​ ​
Contributions from noncontrolling interest holders
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 26,825,721 ​ ​ ​ ​ ​ 26,825,721 ​ ​
Conversion of related party
advance to
noncontrolling interest
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 250,000 ​ ​ ​ ​ ​ 250,000 ​ ​
Conversion of notes
payable – related parties
to noncontrolling
interest
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,000,000 ​ ​ ​ ​ ​ 2,000,000 ​ ​
Redemptions of noncontrolling interest
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (5,290,000) ​ ​ ​ ​ ​ (5,290,000) ​ ​
Distributions to noncontrolling interest holders
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,199,072) ​ ​ ​ ​ ​ (1,199,072) ​ ​
Net loss
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (2,911,105) ​ ​ ​ ​ ​ (7,441,601) ​ ​ ​ ​ ​ (10,352,706) ​ ​
Balances at December 31, 2016
​ ​ ​ ​ 24,064,751 ​ ​ ​ ​ ​ 24,065 ​ ​ ​ ​ ​ 7,018,415 ​ ​ ​ ​ ​ (18,306,345) ​ ​ ​ ​ ​ 30,999,082 ​ ​ ​ ​ ​ 19,735,217 ​ ​
Issuance of common stock
​ ​ ​ ​ 540,157 ​ ​ ​ ​ ​ 540 ​ ​ ​ ​ ​ 972,569 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 973,109 ​ ​
Settlement of share-based payments
​ ​ ​ ​ 1,325,324 ​ ​ ​ ​ ​ 1,325 ​ ​ ​ ​ ​ 1,125,200 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,126,525 ​ ​
Conversion of notes payable to common stock
​ ​ ​ ​ 867,245 ​ ​ ​ ​ ​ 867 ​ ​ ​ ​ ​ 1,560,174 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,561,041 ​ ​
Distributions to preferred stockholders
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (197,825) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (197,825) ​ ​
Accretion of mezzanine equity value
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (15,868) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (15,868) ​ ​
Contributions from noncontrolling interest holders
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 12,015,046 ​ ​ ​ ​ ​ 12,015,046 ​ ​
Redemptions of noncontrolling interest
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (5,715,524) ​ ​ ​ ​ ​ (5,715,524) ​ ​
Distributions to noncontrolling interest holders
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,684,037) ​ ​ ​ ​ ​ (1,684,037) ​ ​
Net loss
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (2,703,463) ​ ​ ​ ​ ​ (5,802,121) ​ ​ ​ ​ ​ (8,505,584) ​ ​
Balances at December 31, 2017
​ ​ ​ ​ 26,797,477 ​ ​ ​ ​ $ 26,797 ​ ​ ​ ​ $ 10,676,358 ​ ​ ​ ​ $ (21,223,501) ​ ​ ​ ​ $ 29,812,446 ​ ​ ​ ​ $ 19,292,100 ​ ​
​
The accompanying notes are an integral part of these consolidated financial statements.
F-5
CALIBERCOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
​ ​ ​
2017
​ ​
2016
​
Cash Flows From Operating Activities ​ ​ ​
Net loss
​ ​ ​ $ (8,505,584) ​ ​ ​ ​ $ (10,352,706) ​ ​
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
 ​ ​ ​
Depreciation
​ ​ ​ ​ 5,564,129 ​ ​ ​ ​ ​ 3,933,485 ​ ​
Amortization of deferred financing costs
​ ​ ​ ​ 2,305,174 ​ ​ ​ ​ ​ 839,169 ​ ​
Amortization of advance key money
​ ​ ​ ​ (75,000) ​ ​ ​ ​ ​ (75,000) ​ ​
Amortization of above-market ground lease
​ ​ ​ ​ (125,409) ​ ​ ​ ​ ​ (125,409) ​ ​
Impairment
​ ​ ​ ​ 460,906 ​ ​ ​ ​ ​ 348,286 ​ ​
Loss from equity method investment
​ ​ ​ ​ 67,000 ​ ​ ​ ​ ​ 65,330 ​ ​
Loss on extinguishment of debt
​ ​ ​ ​ 203,556 ​ ​ ​ ​ ​ — ​ ​
Gain on disposition of real estate
​ ​ ​ ​ (1,478,865) ​ ​ ​ ​ ​ — ​ ​
Loss from damage of real estate assets, net
​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,871,115 ​ ​
Changes in operating assets and liabilities:
 ​ ​ ​
Real estate assets held for sale
​ ​ ​ $ 5,186,228 ​ ​ ​ ​ $ 296,432 ​ ​
Restricted cash
​ ​ ​ ​ 632,739 ​ ​ ​ ​ ​ (3,017,260) ​ ​
Accounts receivable
​ ​ ​ ​ 123,128 ​ ​ ​ ​ ​ (633,474) ​ ​
Other receivables
​ ​ ​ ​ 849,269 ​ ​ ​ ​ ​ (68,134) ​ ​
Due from related parties
​ ​ ​ ​ (1,866,271) ​ ​ ​ ​ ​ (380,003) ​ ​
Prepaid and other assets
​ ​ ​ ​ 168,609 ​ ​ ​ ​ ​ (1,119,210) ​ ​
Accounts payable
​ ​ ​ ​ 222,600 ​ ​ ​ ​ ​ (965,875) ​ ​
Accrued interest
​ ​ ​ ​ (473,861) ​ ​ ​ ​ ​ 484,333 ​ ​
Accrued expenses
​ ​ ​ ​ 56,087 ​ ​ ​ ​ ​ 1,167,595 ​ ​
Due to related parties
​ ​ ​ ​ 481,133 ​ ​ ​ ​ ​ 379,829 ​ ​
Other liabilities
​ ​ ​ ​ 554,396 ​ ​ ​ ​ ​ 236,978 ​ ​
Net cash provided by (used in) operating activities
​ ​ ​ ​ 4,349,964 ​ ​ ​ ​ ​ (7,114,519) ​ ​
Cash Flows From Investing Activities ​ ​ ​
Acquisition of multi-family and hotel properties
​ ​ ​ ​ — ​ ​ ​ ​ ​ (58,521,942) ​ ​
Investments in real estate assets
​ ​ ​ ​ (15,808,134) ​ ​ ​ ​ ​ (6,953,041) ​ ​
Proceeds from disposition of real estate
​ ​ ​ ​ 3,015,000 ​ ​ ​ ​ ​ 2,250 ​ ​
Investments in unconsolidated entities
​ ​ ​ ​ — ​ ​ ​ ​ ​ (15,895) ​ ​
Distributions from unconsolidated entities
​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,087 ​ ​
Funding of notes receivable – related parties
​ ​ ​ ​ (250,000) ​ ​ ​ ​ ​ (50,250) ​ ​
Payments received on notes receivable – related parties
​ ​ ​ ​ 130,272 ​ ​ ​ ​ ​ 392,000 ​ ​
Decrease (increase) in restricted cash
​ ​ ​ ​ 5,686,804 ​ ​ ​ ​ ​ (7,737,731) ​ ​
Net cash used in investing activities
​ ​ ​ ​ (7,226,058) ​ ​ ​ ​ ​ (72,878,522) ​ ​
Cash Flows From Financing Activities ​ ​ ​
Capital lease payments
​ ​ ​ ​ (13,308) ​ ​ ​ ​ ​ (13,308) ​ ​
Payment of deferred financing costs
​ ​ ​ ​ (1,503,331) ​ ​ ​ ​ ​ (1,693,796) ​ ​
Payment of loan extinguishment fees
​ ​ ​ ​ (666,994) ​ ​ ​ ​ ​ — ​ ​
Proceeds from notes payable
​ ​ ​ ​ 43,088,783 ​ ​ ​ ​ ​ 56,063,779 ​ ​
Repayments of notes payable
​ ​ ​ ​ (36,656,105) ​ ​ ​ ​ ​ (3,952,169) ​ ​
Proceeds from notes payable – related parties
​ ​ ​ ​ 762,000 ​ ​ ​ ​ ​ 8,844,664 ​ ​
Repayments of notes payable – related parties
​ ​ ​ ​ (5,501,892) ​ ​ ​ ​ ​ (3,823,656) ​ ​
Proceeds from the issuance of preferred stock
​ ​ ​ ​ 573,617 ​ ​ ​ ​ ​ 1,377,437 ​ ​
Proceeds from the issuance of common stock
​ ​ ​ ​ 973,109 ​ ​ ​ ​ ​ 2,203,900 ​ ​
Distributions to preferred stockholders
​ ​ ​ ​ (197,825) ​ ​ ​ ​ ​ (68,927) ​ ​
Contributions from noncontrolling interest holders
​ ​ ​ ​ 12,015,046 ​ ​ ​ ​ ​ 26,825,721 ​ ​
Redemptions of noncontrolling interests
​ ​ ​ ​ (5,465,524) ​ ​ ​ ​ ​ (5,290,000) ​ ​
Distributions to noncontrolling interest holders
​ ​ ​ ​ (1,584,037) ​ ​ ​ ​ ​ (1,199,072) ​ ​
Net cash provided by financing activities
​ ​ ​ $ 5,823,539 ​ ​ ​ ​ $ 79,274,573 ​ ​
​
The accompanying notes are an integral part of these consolidated financial statements.
F-6
CALIBERCOS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016
​ ​ ​
2017
​ ​
2016
​
Net Increase (Decrease) in Cash
 ​ ​ ​ $ 2,947,445 ​ ​ ​ ​ $ (718,468) ​ ​
Cash at Beginning of Year
 ​ ​ ​ ​ 3,159,333 ​ ​ ​ ​ ​ 3,877,801 ​ ​
Cash at End of Year
 ​ ​ ​ $ 6,106,778 ​ ​ ​ ​ $ 3,159,333 ​ ​
Supplemental Disclosure of Cash Flow Information ​ ​ ​
Cash paid for interest, net of  $1,132,898, and $801,173 of capitalized interest,
for for the years ended December 31, 2017 and 2016, respectively
​ ​ ​ $ 7,908,233 ​ ​ ​ ​ $ 6,914,070 ​ ​
Cash paid for income taxes
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
Supplemental Disclosures of Non-cash Investing and Financing Activities ​ ​ ​
Cost of real estate investments included in accounts payable
​ ​ ​ $ 2,541,913 ​ ​ ​ ​ $ 501,513 ​ ​
Real estate investment reclassification to be held for sale
​ ​ ​ $ 1,417,376 ​ ​ ​ ​ $ 4,606,758 ​ ​
Deferred financing costs included in accrued expenses
​ ​ ​ $ 510,000 ​ ​ ​ ​ $ 890,980 ​ ​
Refinance of notes payable – related parties
​ ​ ​ $ — ​ ​ ​ ​ $ 8,227,862 ​ ​
Conversion of notes payable – related parties to noncontrolling interest
​ ​ ​ $ — ​ ​ ​ ​ $ 2,000,000 ​ ​
Insurance claim receivable for damage to property
​ ​ ​ $ — ​ ​ ​ ​ $ 779,389 ​ ​
Exchange of common and preferred stock for note receivable – related party
​ ​ ​ $ — ​ ​ ​ ​ $ 500,000 ​ ​
Conversion of related party advance to noncontrolling interest
​ ​ ​ $ — ​ ​ ​ ​ $ 250,000 ​ ​
Conversion of notes payable to common stock
​ ​ ​ $ 1,561,041 ​ ​ ​ ​ $ — ​ ​
Conversion of notes payable to preferred stock
​ ​ ​ $ 975,651 ​ ​ ​ ​ $ — ​ ​
Settlement of share-based payments
​ ​ ​ $ 1,126,525 ​ ​ ​ ​ $ — ​ ​
Accrued redemption of noncontrolling interest
​ ​ ​ $ 250,000 ​ ​ ​ ​ $ — ​ ​
Accrued noncontrolling interest distribution
​ ​ ​ $ 100,000 ​ ​ ​ ​ $ — ​ ​
Accretion of mezzanine equity value
​ ​ ​ $ 15,868 ​ ​ ​ ​ $ 45,599 ​ ​
​
The accompanying notes are an integral part of these consolidated financial statements.
F-7
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Basis of Presentation
Organization
CaliberCos, Inc., a Nevada corporation, and its consolidated subsidiaries (collectively, the “Company”, “Caliber”, “we”, “our”, and “us”), is an asset manager of private equity real estate funds and provider of a full suite of traditional real estate services. CaliberCos, Inc. was formed in November 2014, and originally began as Caliber Companies, LLC, an Arizona limited liability company, which commenced operations in January 2009. The real estate asset management business includes the management of private equity real estate funds and direct real estate investments in residential, commercial, and hospitality assets. We also provide capital raising services to the private equity real estate funds we manage. The Company provides real estate services for the assets it manages, as well as for third party customers, including construction, development, real estate brokerage, and property management services. In addition to providing asset management and real estate services, the Company also owns a portfolio of single-family homes which are held for rental and/or sale. Our business is organized into eight reportable segments, which we analyze in two categories; real estate services (Fund/Asset Management, Construction & Development, Property Management, Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified), and as of December 31, 2017, we had operations in Arizona, Nevada, Utah, Colorado, and Alaska.
In general, the private equity real estate funds Caliber manages are organized as operating partnerships, in which multiple unrelated passive investors own partnership interest and Caliber is designated as the manager and/or general partner of the partnership. Depending on the legal structure and arrangements between Caliber and the funds, we may or may not consolidate the partnerships for financial reporting purposes. For funds in which Caliber is determined to be the controlling party for financial reporting purposes, the fund is consolidated and the passive investors’ ownership is presented as noncontrolling interest in the accompanying consolidated financial statements. For funds in which Caliber is not determined to be the controlling party for financial reporting purposes, the fund is not consolidated and any fees earned from the fund are included in fund management revenue in the accompanying consolidated financial statements (see Note 2).
Going Concern
Since its inception the Company has generated net losses and experienced negative cash flows from operations. The Company has an accumulated deficit of  $21,223,501 and cash of  $6,106,778 as of December 31, 2017. Historically, as the Company has sought to grow and scale its business, management has funded working capital through a combination of sale of Company stock and short-term borrowings. The Company has significant debt obligations maturing in the twelve-month period subsequent to the date these financial statements are issued. The combination of these factors raises substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans to address these concerns, in part, by increasing the amount of revenue generated by our existing revenue sources. This is achieved by increasing our assets under management, completing additional construction related activities, earning development fees, earning brokerage fees, and continuing our program of advantageously selling our single-family assets. In addition, management is continuing to improve and develop new sources of revenue such as the fees we generate from raising capital into our managed Funds, and additional sales and marketing reimbursements.
Management additionally expects to materially grow revenues from the assets and investments held by the Company. As purchasing opportunistic real estate assets is a primary function of the Company, the first 12 – 24 months of most investments are considered to be a rehabilitation, construction, or stabilization period. Thereafter, management seeks to produce additional revenues from each asset purchased through increased occupancy, increased rents, sale of the assets, or a combination of these strategies. As such,
F-8
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 1 — Organization and Basis of Presentation (continued)
 
management generally expects investments in real estate occurring in late 2016 – 2017 to produce additional revenue gains in 2018 with optimized revenue and net income expected in 2019. There can be no assurance as to these results or expectations.
Management also has active capital and debt raising programs design to lower the Company’s cost of capital. These programs include, not only executing agreements with new lenders but also, the option to extend the terms of the existing debt or to offer conversions of our debt into Caliber equity. There can be no assurance as to these results or expectations.
Management believes that these actions will enable the Company to continue as a going concern within one year after the date these financial statements are issued. Management believes that the success of these plans is probable, and as a result, believes that the conditions that raise substantial doubt about the ability of the Company to continue as a going concern are mitigated.
Basis of Presentation
The accompanying consolidated financial statements are prepared on the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The consolidated financial statements include the accounts of CaliberCos, Inc., its wholly-owned and majority-owned subsidiaries, and the consolidated entities that are considered to be variable interest entities (“VIEs”), of which the Company was determined to be the primary beneficiary. All significant intercompany balances and transactions have been eliminated in consolidation.
Note 2 — Summary of Significant Accounting Policies
Consolidation
The accompanying consolidated financial statements include our accounts and those of our consolidated subsidiaries, which are comprised of VIEs in which we are the primary beneficiary and voting interest entities (“VOEs”), in which we determined we have a controlling financial interest, under the “Consolidations” Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) (Topic 810). The equity and net income or loss attributable to noncontrolling interests in subsidiaries is shown separately in the accompanying consolidated balance sheets, statements of operations, and statements of changes in stockholders’ equity.
Variable Interest Entities
We determine if an entity is a VIE based on several factors, including whether the equity holders, as a group, lack the characteristics of a controlling financial interest. We make judgments regarding which types of activities most significantly impact the entity’s economic performance first on a qualitative analysis, then a quantitative analysis, if necessary.
We analyze any investments in VIEs to determine if we are the primary beneficiary. A reporting entity is determined to be the primary beneficiary if it holds a controlling financial interest in a VIE. Determining which reporting entity, if any, has a controlling financial interest in a VIE is primarily a qualitative analysis focused on identifying which reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgement.
We consolidate any VIE for which we are the primary beneficiary and disclose significant VIEs of which we are not the primary beneficiary, as well as disclose our maximum exposure to loss related to the VIEs that are not consolidated (see Note 4).
F-9
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 2 — Summary of Significant Accounting Policies (continued)
 
Voting Interest Entities
For VOEs, we consolidate the entity if we have a controlling financial interest in the entity. We have a controlling financial interest in a VOE if  (1) for legal entities other than partnerships, we own a majority voting interest in the VOE or, for limited partnerships and similar entities, we own a majority of the entity’s kick-out rights through voting limited partnership interests and (2) non-controlling shareholders or partners do not hold substantive participating rights, and no other conditions exist that would indicate that we do not control the entity.
Use of Accounting Estimates
The preparation of the consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The Company makes significant estimates regarding the useful lives of depreciable assets, real estate and other investment impairment, the allocation of purchase price for business combinations and asset acquisitions, income taxes, and the consolidation of equity investments and VIEs.
Investments in Unconsolidated Entities
Our investments in unconsolidated entities in which we have the ability to exercise significant influence over operating and financial policies, but do not control, are accounted for under the equity method of accounting. We eliminate transactions with such equity method subsidiaries to the extent of our ownership in such entities. Accordingly, our share of the earnings or loss from these entities, in which our investment is accounted for under the equity method basis, is included in consolidated net income or loss. All other investments held on a long-term basis are valued at cost less any impairments. As of December 31, 2017 and 2016, the balance of our investments in unconsolidated entities was $174,895 and $238,143, respectively, which is included in prepaid and other assets on the accompanying consolidated balance sheets. In certain situations, the Company has invested only a nominal amount of cash, or no cash at all, into a venture. However, as the manager of the venture, we are entitled to 35 – 25% of the residual cash flow (“carried interest”) produced by the venture after the payment of any priority returns.
Under both the equity and cost method, impairment losses are recognized upon evidence of other-than-temporary losses of value. When evaluating investments that are not actively traded on a public market for impairment, we generally use a discounted cash flow approach to estimate the fair value of our investments and/or look to comparable activities in the marketplace. Management’s judgment is required in developing the assumptions for the discounted cash flow approach. These assumptions include net asset values, internal rates of return, discount and capitalization rates, interest rates and financing terms, rental rates, timing of leasing activity, estimates of lease terms and related concessions, and other factors. When determining if impairment is other-than-temporary, we also look to the length of time and the extent to which fair value has been less than cost as well as the financial condition and near-term prospects of each investment. None of our recorded investments were considered to be impaired at December 31, 2017 or 2016.
Acquisition of Real Estate Assets
Upon the acquisition of real estate properties, a determination is made as to whether the acquisition meets the criteria to be accounted for as an asset acquisition or a business combination. The determination is primarily based on whether the assets acquired and liabilities assumed meet the definition of a business. The determination of whether the assets acquired and liabilities assumed meet the definition of a business includes a single or similar asset threshold. In applying the single or similar asset threshold, if substantially
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Note 2 — Summary of Significant Accounting Policies (continued)
 
all of the fair value of the gross assets acquired is concentrated in a single identifiable asset or group of similar identifiable assets, the assets acquired and liabilities assumed are not considered a business. Most of our acquisitions meet the single or similar asset threshold, due to the fact that substantially all of the fair value of the gross assets acquired is attributable to the real estate assets acquired.
Business Combinations
If a transaction is determined to be a business combination, the assets acquired, liabilities assumed, and any identified intangibles are recorded at their estimated fair values on the transaction date, and transaction costs are expensed in the period incurred. We estimate the fair value of tangible assets such as land, building, furniture, fixtures and equipment, using a combination of internal valuation techniques that consider comparable market transactions, replacement costs and other available information and fair value estimates provided by third party valuation specialists, depending upon the circumstances of the acquisition. We determine the fair value of identified intangible assets (or liabilities), which typically relate to in-place leases, using a combination of internal valuation techniques that consider the terms of the in-place leases, current market data for comparable leases, and our experience in leasing similar communities and third-party valuations, depending upon the circumstances of the acquisition.
The intangible assets or liabilities related to in-place leases can exist as either the lessee or the lessor in the leasing arrangement and are comprised of: (a) the value of the above- and below-market leases in-place, measured over the period, including estimated lease renewals for below-market leases, that the leases are expected to remain in effect; (b) the estimated unamortized portion of avoided leasing commissions and other costs that ordinarily would be incurred to originate the in-place leases; and (c) the value associated with vacant properties during the absorption period (estimates of lost rental revenue during the expected lease-up periods based on market demand and stabilized occupancy levels at the time of acquisition).
The values of the above- and below-market leases in which we are the lessor are amortized to rental revenue over the expected remaining terms of the associated leases, which include reasonably assured renewal periods. The values of the above- and below-market leases in which we are the lessee are amortized to lease expense (as a reduction of lease expense) over the remaining terms of the associated leases, which include reasonably assured renewal periods.
Asset Acquisitions
If a transaction is determined to be an acquisition of an asset, the purchase price is allocated to the acquired assets, including any intangible assets, based on their estimated fair values, and transaction costs are capitalized and allocated to the acquired assets based on their fair values as well. We determine the fair value of tangible assets, such as land, building, furniture, fixtures and equipment, using a combination of internal valuation techniques that consider comparable market transactions, replacement costs and other available information and fair value estimates provided by third party valuation specialists, depending upon the circumstances of the acquisition. We determine the fair value of identified intangible assets (or liabilities), which typically relate to in-place leases, using a combination of internal valuation techniques that consider the terms of the in-place leases, current market data for comparable leases, and our experience in leasing similar communities and fair value estimates provided by third party valuation specialists, depending upon the circumstances of the acquisition.
The intangible assets or liabilities related to in-place leases can exist as either the lessee or the lessor in the leasing arrangement and are comprised of: (a) the value of the above- and below-market leases in-place, measured over the period, including estimated lease renewals for below-market leases, that the leases are expected to remain in effect; (b) the estimated unamortized portion of avoided leasing commissions and other costs that ordinarily would be incurred to originate the in-place leases; and (c) the value associated
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Note 2 — Summary of Significant Accounting Policies (continued)
 
with vacant properties during the absorption period (estimates of lost rental revenue during the expected lease-up periods based on market demand and stabilized occupancy levels at the time of acquisition).
The values of the above- and below-market leases in which we are the lessor are amortized to rental revenue over the expected remaining terms of the associated leases, which include reasonably assured renewal periods. The values of the above- and below-market leases in which we are the lessee are amortized to lease expense over the remaining terms of the associated leases, which include reasonably assured renewal periods.
Cost Capitalization and Depreciation
We capitalize costs, including certain indirect costs, incurred in connection with our construction and development activities. Included in these capitalized costs are payroll costs associated with time spent by site employees in connection with capital addition activities at the asset level. We also capitalize interest, property taxes and insurance during periods in which redevelopment, development and construction projects are in progress. We commence capitalization of costs, including certain indirect costs, incurred in connection with our capital addition activities, at the point in time when activities necessary to get the assets ready for their intended use are in progress. This includes when assets are undergoing physical construction, as well as when apartment homes are held vacant in advance of planned construction, provided that other activities such as permitting, planning and design are in progress. We cease the capitalization of costs when the assets are substantially complete and ready for their intended use, which is typically when construction has been completed and apartment homes or other properties are available for occupancy. We charge the cost of ordinary repairs, maintenance and resident turnover to operating expense, as incurred.
Depreciation for all tangible real estate assets is calculated using the straight-line method over the estimated useful lives of the assets. The estimated useful lives of our real estate assets are as follows:
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Building and building improvements
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15 – 40 years
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Furniture, fixtures, and equipment
​ ​ 3 – 7 years ​
For the years ended December 31, 2017 and 2016, depreciation expense was $5,564,129, and $3,933,485, respectively.
Impairment of Long-Lived Assets
Real estate and other long-lived assets to be held and used are stated at cost, less accumulated depreciation and amortization, unless the carrying amount of the asset is determined to not be recoverable. If events or circumstances indicate that the carrying amount of a long-lived asset may not be recoverable, we make an assessment of its recoverability by comparing the carrying amount to our estimate of the undiscounted future cash flows of the asset, excluding interest charges. If the carrying amount exceeds the aggregate undiscounted future cash flows, we recognize an impairment loss to the extent the carrying amount exceeds the estimated fair value of the asset.
For the years ended December 31, 2017 and 2016, we recorded impairment losses of  $460,906 and $348,286, respectively, related to certain single-family homes. The estimated fair value (level 3) of the single-family homes, which was based on a combination of internal valuations using available market data and third-party valuations, was determined to be less than the carrying value at the respective measurement date.
Real Estate Assets Held for Sale
An asset or asset group is classified as held for sale when certain criteria are met including management’s approval for sale, the availability of the asset or asset group to be sold in its present condition, and the likelihood of the sale occurring within the next twelve months is probable. At such time,
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Note 2 — Summary of Significant Accounting Policies (continued)
 
if the asset was being depreciated, depreciation is no longer recognized. Assets held for sale are recorded at the lower of their carrying value, or estimated net realizable value, less costs to sell. The estimates used in the determination of the net realizable value of real estate held for sale is based on known factors to the Company at the time such estimates are made and management’s expectations of future operations and economic conditions. Should the estimate or expectations used in determining net realizable value deteriorate in the future, the Company may be required to recognize impairment charges or write-offs related to these real estate assets held for sale. At December 31, 2017 and 2016, we had $1,424,335 and $5,193,187 of assets classified as held for sale which was comprised of single-family homes actively being marketed for sale which were expected to be sold within the next 12 months.
Advance Key Money
We have entered into certain arrangements in which hotel franchisors or their affiliates have provided the Company with financing as part of a franchise arrangement. The Company has been advanced funds upon entering into a franchise agreement, and is not required to repay the funds as long as the franchise agreement is not terminated prior to its scheduled maturity. The potential amount of funds that would be required to be repaid decreases with the passage of time. The Company records a liability equal to the initial amount of funds received, which is amortized over the term of the franchise agreement and recorded as a reduction of franchise fee expense, which is included in operating expenses in the accompanying consolidated statements of operations.
Cash
Cash includes cash in bank accounts. The Company deposits cash with several high quality financial institutions. These deposits are guaranteed by the Federal Deposit Insurance Company (“FDIC”) up to an insurance limit of  $250,000. At times, the Company’s cash balances may exceed federally insured levels. Although the Company bears risk on amounts in excess of those insured by the FDIC, it has not experienced and does not anticipate any losses due to the high quality of the institutions where the deposits are held.
Restricted Cash
Restricted cash consists of tenant security deposits and cash reserves required by certain loan agreements for capital improvements and repairs. As improvements and repairs are completed, related costs incurred by the Company are funded from the reserve accounts. Restricted cash also includes cash held in escrow accounts by mortgage companies on behalf of the Company for payment of property taxes, insurance, and interest.
Cash Held for Others
We manage cash in our role as an agent for certain of our property management clients. As of December 31, 2017 and 2016, we had cash held for others in the amount of  $630,885 and $524,290, respectively. These amounts are not included in the balances on our consolidated balance sheets.
Concentration of Credit Risk
Substantially all of the Company’s revenues are generated from the management, ownership and/or operations of real estate assets located in Arizona, Alaska, Colorado, Nevada, and Utah. The Company mitigates the associated risk by:
•
diversifying our investments in real estate assets across multiple asset types, including office, hospitality, single-family, multi-family, and self-storage properties;
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​
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Note 2 — Summary of Significant Accounting Policies (continued)
 
•
diversifying our investments in real estate assets across multiple geographic locations including different markets and sub-markets in Arizona, Alaska, Colorado, Nevada, and Utah; diversifying our investments in real estate assets across assets at differing points of stabilization, and in varying states of cash flow optimization; and
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•
maintaining financing relationships with a diversified mix of lenders (differing size and type), including large national banks, local community banks, private equity lenders, and insurance companies.
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Mezzanine Equity
The Company may issue one or more series of preferred stock. Preferred stock, which is subject to mandatory redemption by the Company, is presented as temporary, or mezzanine, equity, and presented separate from permanent equity on the accompanying consolidated balances sheets. The Company’s Series A preferred stock is mandatorily redeemable at a fixed price on a fixed or determinable date, and the conditions for redemption are not within the control of the Company. Accordingly, the Series A preferred stock is presented as mezzanine equity on the accompanying consolidated balance sheets. Mezzanine equity is initially recorded at fair value on the issuance date. If it is probable that the equity instrument will become redeemable, the carrying amount of the instrument is accreted up over time using the effective-interest method, such that the carrying value equals the redemption value on the redemption date.
Noncontrolling Interests in Consolidated Real Estate Partnerships
We report the unaffiliated partners’ interests in the net assets of our consolidated real estate partnerships as noncontrolling interests within consolidated stockholders’ equity. Noncontrolling interests consist primarily of equity interests held by limited partners in consolidated real estate partnerships. We generally attribute to noncontrolling interests their share of income or loss of the consolidated partnerships based on their proportionate interest in the results of operations of the partnerships, including their share of losses even if such attribution results in a deficit noncontrolling interest balance within our equity and partners’ capital accounts.
The terms of the partnership agreements generally require the partnerships to be liquidated following the sale of the underlying real estate assets. As the general partner in these partnerships, we ordinarily control the execution of real estate sales and other events that could lead to the liquidation, redemption or other settlement of noncontrolling interests. The terms of certain partnership agreements outline differing classes of equity ownership, some of which are redeemable by the partnership at the partnership manager’s discretion.
Advertising Costs
Advertising costs are expensed as incurred. For the years ended December 31, 2017 and 2016, advertising costs totaled $426,715 and $504,179, respectively.
Deferred Financing Costs
Deferred financing costs represent costs incurred in connection with obtaining long-term debt and are capitalized and amortized over the term of the related debt obligation using the straight-line method. Amounts amortized are reported as a component of interest expense in the consolidated statements of operations. U.S. GAAP requires that the effective interest method be used to recognize amortization; however, the effect of using the straight-line method is not materially different from the results that would have been obtained under the effective interest method. Capitalized deferred financings costs, net of
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 2 — Summary of Significant Accounting Policies (continued)
 
accumulated amortization, are offset against and included in notes payable on the accompanying consolidated balance sheets. For the years ended December 31, 2017 and 2016, amortization and write-offs of deferred financing costs totaled $2,407,152 and $839,169, respectively.
Inventory
The Company holds certain items in inventory in connection with its hotel operations. The inventory consists of food, beverage products and hotel gift shop items, which are carried at the lower of cost or net realizable value, determined on a first-in, first-out basis. At December 31, 2017 and 2016, the Company’s inventory balance was $178,239 and $177,289, respectively, which is included in prepaid and other assets on the accompanying consolidated balance sheets.
Revenue Recognition
Rental Income
Rental income includes the revenues generated primarily by the rental operations of the residential (multi-family and single-family) properties owned and/or managed by the Company. The Company’s revenues generated by residential properties, which primarily consist of rental income and include rents that each tenant pays in accordance with the terms of each lease, are reported on a straight-line basis over the initial noncancelable term of the lease, net of any concessions, and are recognized when earned and collectability is reasonably assured. These revenues are recorded net of any sales and occupancy taxes collected from tenants.
Hospitality
Hospitality revenues are generated by the Company’s hotel properties, and are comprised of charges for room rentals, food and beverage sales, and other hotel operating activities. These revenues are recorded net of any sales and occupancy taxes collected from guests. Revenues are recognized as earned, which is defined as the date upon which a guest occupies a room or utilizes the hotel property’s services, and the point of sale for food and beverage sales. To the extent guests or groups pre-pay for rooms or services to be provided by the hotel the amounts are recorded as deferred revenue, and are recognized as the room night occurs or service is provided.
Real Estate Sales
Real estate sales are comprised of sales proceeds from the sale of single family homes. All other real estates assets sold are recognized in other (income) expenses. Revenue from the sale of real estate is recognized when title is transferred, all consideration is exchanged, and all conditions precedent to closing are performed.
Construction and Development
The Company provides construction related services to affiliates and third parties, which include the build-out of tenant space, the renovation of hospitality, residential, and commercial real estate, and general real estate repair and maintenance services. In addition, the Company provides development services for ground-up development and repositioning of real estate assets.
Revenues related to cost-plus contracts are recognized on the basis of costs incurred during the period plus fees earned. Revenues from fixed-price contracts are recognized on the percentage-of-completion method, measured by the percentage of costs incurred to date to estimated total costs for each contract.
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Note 2 — Summary of Significant Accounting Policies (continued)
 
This method is used because management considers incurred costs to be the best available measure of progress on these contracts. Because of the inherent uncertainties in estimating costs, it is as least reasonably possible that the estimates used could change within the near term.
The asset, “Costs in excess of billings” included in prepaid and other assets on the accompanying consolidated balance sheets represents revenues recognized in excess of amounts billed. The liability, “Billings in excess of costs” included in other liabilities on the accompanying consolidated balance sheets represents billings in excess of revenues recognized. In addition, the Company generates revenue from construction and development services which is recognized when the services are rendered.
Fund Management
Fund management revenue includes fees earned for managing private equity real estate funds. We generally earn initial, one-time fees at the inception of a fund, and separate on-going, annual asset management fees. Asset management fees are generally based on 1.5% of capital contributed into a particular fund and reimbursement for costs incurred on behalf of a fund, which includes an allocation of overhead costs, and are recalculated annually. Fund management revenue also includes fees earned on certain real estate transactions and fees based on the performance of certain funds. The fees included in fund management revenue are charged and recognized in the period the related services are provided.
Property Management
Property management revenue includes fees charged for property management services. Revenues are generally based upon percentages of the rental revenue or base rent generated by the properties being managed. These fees are recognized when earned under the provisions of the related management agreements. Property management revenue also includes fees charged to property management customers for leasing commissions. These fees are generally a flat fee or based on the amount of the new lease executed and are charged at the time a tenant enters into a lease agreement for the customer’s property. These fees are recognized when earned under the provisions of the related management agreements, and generally at the time the lease is executed.
Our clients reimburse us for certain expenses incurred on their behalf. Our treatment of these reimbursements is based upon the terms of the underlying contract. We use certain indicators as to whether we record the reimbursements on a gross versus net basis, such as whether we are the primary obligor on the contracts, whether the contract is based on a fixed fee, credit risk, and our discretion in making vendor selections and establishing prices.
In certain instances, we have determined we are acting as the principal in the transaction and, accordingly, report these reimbursements as revenue on a gross basis with the total costs reflected in operating expenses. Reimbursement revenue is recognized when the underlying reimbursable costs are incurred.
Brokerage
We earn real estate brokerage commission revenue by acting as a broker for residential and commercial real estate owners and investors seeking to buy and/or sell properties, including investment properties, as well as primary residences. Revenues from real estate brokerage commissions are typically recognized at the close of escrow or transfer of title.
In certain instances, we have determined we are acting as the principal in the brokerage transaction and, accordingly, report these commissions as revenue on a gross basis with the total costs reflected in brokerage expenses. When we determine we are not acting as the principal in the transaction and are acting as an agent, we report the transaction on a net basis, presenting the brokerage commission revenue net of any related brokerage commission expenses.
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Note 2 — Summary of Significant Accounting Policies (continued)
 
Capital Raise Fees
We enter into fixed fee arrangements with our affiliates to provide certain services associated with marketing, soliciting, and selling member interests of the affiliated private equity real estate funds. All capital raise fee revenues are charged to our affiliates and recognized in the period the related services are provided.
Accounts Receivable
Accounts receivable primarily consists of amounts due from guests or groups for hotel rooms and services provided by the hotel properties. Accounts receivable also include due, but unpaid, rental payments. The Company continually reviews receivables and determines collectability by taking into consideration the history of past write-offs, collections, current credit conditions, tenant payment history, the financial condition of the tenants, business conditions in the industry in which the tenant operates and economic conditions in the area in which the property is located. In the event that the collectability of a receivable is uncertain, the Company will record an increase in the allowance for doubtful accounts. Amounts that are determined to be uncollectible with a high degree of certainty are written-off through bad debt expense, which is included in other expenses, net on the accompanying consolidated statements of operations. As of December 31, 2017 and 2016, the Company had recorded an allowance for doubtful accounts of  $0 and $19,590, respectively.
Interest Rate Caps
The Company utilizes interest rate caps, derivative financial instruments, to reduce interest rate risk. The Company does not hold or issue derivative financial instruments for trading purposes. Accounting and reporting standards for derivative instruments and hedging activities require the Company to recognize all derivatives as either assets or liabilities on the consolidated balance sheets and measure those instruments at fair value. Changes in the fair value of those instruments are reported in earnings or other comprehensive income (loss) depending on the use of the derivative and whether it qualifies for hedge accounting. The accounting for gains and losses associated with changes in the fair value of the derivative and the effect on the financial statements will depend on its hedge designation and whether the hedge is highly effective in achieving offsetting changes in the fair value of cash flows of the asset or liability hedged. As of December 31, 2017 and 2016, the Company’s interest rate caps were estimated to have fair values (level 3) equal to zero, as they were ineffective hedges (see Note 5).
Earnings Per Share
Basic earnings per share attributable to common stockholders is computed by dividing net income (loss) attributable to CaliberCos, Inc. by the weighted average number of shares outstanding during each period. The computation of diluted income (loss) per share attributable to common stockholders further assumes the potential dilutive effect of potential common shares, which includes warrants. To the extent the inclusion of potential common shares is anti-dilutive, the potential common shares are excluded from the computation of diluted income (loss) per share attributable to common stockholders.
Related Parties
In the normal course of business, the Company enters into transactions with related parties. Related parties include affiliates of the entity, entities under common control as the Company, significant stockholders and members of their immediate families, executive management and members of their immediate families, and other parties that can significantly influence the management and operating policies of the Company.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 2 — Summary of Significant Accounting Policies (continued)
 
Income Taxes
The Company accounts for income taxes under the asset and liability method in accordance with FASB ASC 740, “Accounting for Income Taxes”. Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax basis of assets and liabilities and operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured by applying enacted tax rates and laws and are released in the years in which the temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. Valuation allowances are provided against deferred tax assets when it is more-likely-than-not that some portion or all of the deferred tax assets will not be realized.
A valuation allowance is required to reduce the balance of a deferred tax asset if it is determined that it is more-likely-than-not that all or some portion of the deferred tax asset will not be realized due to the lack of sufficient taxable income or other limitation on the Company’s ability to utilize the loss carryforward.
We recognize the impact of an income tax position, if that position is more-likely-than-not of being sustained on audit, based on the technical merits of the position. Related interest and penalties are classified as income taxes in the financial statements. See Note 9 for more information regarding unrecognized income tax benefits.
Fair Value of Financial Instruments
We disclose the fair value of financial instruments in accordance with FASB ASC 825, “Financial Instruments”. We estimate the fair value of our financial instruments using available market information and established valuation methodologies. The estimates of fair value are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or valuation methodologies may have a material effect on the estimated fair value amounts.
Fair Value Measurements
The Company’s fair value measurement and disclosures consist of a three-level valuation hierarchy. The valuation hierarchy categorizes assets and liabilities measured at fair value into one of three different levels depending on the ability to observe the inputs employed in the measurement using market participant assumptions at the measurement date. An asset’s or liability’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The three levels are defined as follows:
Level 1 inputs — quoted prices in active markets for identical assets or liabilities that can be accessed at the measurement date.
Level 2 inputs — inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly or indirectly. If the asset or liability has a specified (contractual) term, a Level 2 input must be observable for substantially the full term of the asset or liability.
Level 3 inputs — unobservable inputs for the asset or liability. These unobservable inputs reflect assumptions about what market participants would use to price the asset or liability and are developed based on the best information available in the circumstances (which might include the reporting company’s own data).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 2 — Summary of Significant Accounting Policies (continued)
 
Share-based payments
The Company has granted stock to non-employees in non-capital raising transactions as compensation for services provided. For stock grants to non-employees, the fair value of the share-based payment is determined based upon the measurement date fair value. The measurement date may be either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn the equity instruments is complete. The fair value of the Company’s common stock grants is estimated using market factors, such as the current private market selling price of the Company’s common stock at the measurement date, depending on the terms of each arrangement. Non-employee share-based payment charges are recognized based on the terms of each arrangement, and share-based payment charges are generally recognized as the related service is provided.
Segment Information
The Company’s operations are organized into eight reportable segments for management and financial reporting purposes, which are divided into two categories; real estate services (Corporate & Fund/Asset Management, Construction & Development, Property Management, Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified). In accordance with ASC 280, Segment Reporting, in determining the most appropriate reportable segments, we considered the information our chief operating decision maker assesses when evaluating the operating performance of our assets, based on our share of operating income (loss), including similar economic and other characteristics, and the nature of operating or revenue producing activity.
Recent Accounting Pronouncements
In February 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-02, Leases, which will require that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than 12 months, with the result being the recognition of a right of use asset and a lease liability and the disclosure of key information about the entity’s leasing arrangements. ASU 2016-02 retains a distinction between finance leases (i.e., capital leases under current U.S. GAAP) and operating leases. The classification criteria for distinguishing between finance leases and operating leases will be substantially similar to the classification criteria for distinguishing between capital leases and operating leases under current U.S. GAAP. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective approach is required for existing leases that have not expired upon adoption. We are currently evaluating the potential impact the adoption of ASU 2016-02 will have on our consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments, which is intended to address diversity in practice related to how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in ASU 2016-15 address eight specific cash flow issues as well as application of the predominance principle (dependence on predominant source or use of receipt or payment) and are effective for public business entities for fiscal years beginning after December 15, 2017 and interim periods within those fiscal years with early adoption permitted. ASU 2016-15 requires retrospective adoption unless it is impracticable to apply, in which case it is to be applied prospectively as of the earliest date practicable. We do not believe the adoption of ASU 2016-15 will have a material impact on our consolidated financial statements.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash, which provides guidance on the presentation of restricted cash and restricted cash equivalents in the statement of cash flows. In accordance with ASU 2016-18, restricted cash and restricted cash equivalents
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CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 2 — Summary of Significant Accounting Policies (continued)
 
should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period amounts shown on the statements of cash flows. The amendments of ASU 2016-18 are effective for reporting periods beginning after December 15, 2017, with early adoption permitted. We do not believe the adoption of ASU 2016-18 will have a material impact on our consolidated financial statements.
In January 2017, the FASB issued ASU 2017-03, Accounting Changes and Error Corrections (Topic 250) and Investments — Equity Method and Joint Ventures (Topic 323). ASU 2017-03 requires registrants to disclose the effect that recently issued accounting standards will have on their financial statements when adopted in a future period. The SEC staff expects the additional qualitative disclosures to include a description of the effect of the accounting policies that the registrant expects to apply, if determined, and a comparison to the registrant’s current accounting policies. In addition, a registrant should describe the status of its process to implement the new standards and the significant implementation matters yet to be addressed. ASU 2017-03 is effective for fiscal years beginning after December 15, 2019, and interim periods within those fiscal years with early adoption permitted for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. We are currently evaluating the effect that this ASU will have on our consolidated financial statements.
In September 2017, FASB issued ASU 2017-13, Revenue from Contracts with Customers which amended FASB ASC Topic 606, Revenue from Contracts with Customers. In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers. ASU 2014-09 supersedes nearly all existing revenue recognition guidance under U.S. GAAP and requires revenue to be recognized when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. Additionally, qualitative and quantitative disclosures are required about customer contracts, significant judgments and changes in judgments, and assets recognized from the costs to obtain or fulfill a contract.
The FASB has also issued the following amendments to ASU 2014-09 to provide clarification on the guidance:
•
ASU 2015-14, Revenue from Contracts with Customers (Topic 606) — Deferral of the Effective Date
​
•
ASU 2016-08, Revenue from Contracts with Customers (Topic 606) — Principal versus Agent (Reporting Revenue Gross vs Net)
​
•
ASU 2016-10, Revenue from Contracts with Customers (Topic 606) — Identifying Performance Obligations and Licensing
​
•
ASU 2016-12, Revenue from Contracts with Customers (Topic 606) — Narrow-Scope Improvements and Practical Expedients
​
The adoption of Topic 606 is required for public entities for reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period, and is required for all other entities for reporting periods beginning after December 15, 2018, and interim reporting periods within annual reporting periods beginning after December 15, 2019. Companies may use either a full retrospective or a modified retrospective approach to adopt the new standards. We are currently evaluating the potential impacts the adoption of ASU 2014-09 and its related amendments will have on our consolidated financial statements.
F-20
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 3 — Real Estate Transactions
Acquisitions
During the year ended December 31, 2017, the Company acquired one single-family homes for $630,000. During the year ended December 31, 2016, and the Company acquired seven single-family homes for $1,046,000. The Company also acquired three multi-family properties and two hotel properties during the in 2016, which were all determined to be asset acquisitions. The assets acquired were recorded as follows:
​ ​ ​
2016
​
​ ​ ​
Property
Type
​ ​
Location
​ ​
Purchase
Price
​ ​
Transaction
Costs
​ ​
Land and
Land
Improvements
​ ​
Building and
Building
Improvements
​ ​
Furniture,
Fixtures, and
Equipment
​ ​
Intangible
Lease
Assets
​ ​
Total
Real Estate
Investment
​
Palms – Central Apartments
​ ​ ​ ​
​		 Multi-
family		 ​ ​ ​ ​ ​
​		 Phoenix,
Arizona		 ​ ​ ​ ​ $ 5,829,181 ​ ​ ​ ​ $ 88,683 ​ ​ ​ ​ $ 2,973,801 ​ ​ ​ ​ $ 2,874,674 ​ ​ ​ ​ $ 69,389 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 5,917,864 ​ ​
Palms – Northwest
Apartments
​ ​ ​ ​
​		 Multi-
family		 ​ ​ ​ ​ ​
​		 Phoenix,
Arizona		 ​ ​ ​ ​ $ 4,476,014 ​ ​ ​ ​ $ 72,041 ​ ​ ​ ​ $ 2,437,520 ​ ​ ​ ​ $ 2,051,084 ​ ​ ​ ​ $ 59,451 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 4,548,055 ​ ​
Palm – West Apartments
​ ​ ​ ​
​		 Multi-
family		 ​ ​ ​ ​ ​
​		 Phoenix,
Arizona		 ​ ​ ​ ​ $ 3,694,804 ​ ​ ​ ​ $ 62,433 ​ ​ ​ ​ $ 2,353,217 ​ ​ ​ ​ $ 1,344,696 ​ ​ ​ ​ $ 59,324 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 3,757,237 ​ ​
Hilton Tucson East
​ ​ ​ ​ Hotel ​ ​ ​ ​ ​
​		 Tucson,
Arizona		 ​ ​ ​ ​ $ 9,304,982 ​ ​ ​ ​ $ 50,544 ​ ​ ​ ​ $ 1,903,922 ​ ​ ​ ​ $ 6,864,891 ​ ​ ​ ​ $ 280,578 ​ ​ ​ ​ $ 306,134 ​ ​ ​ ​ $ 9,355,525 ​ ​
Hilton Phoenix Airport
​ ​ ​ ​ Hotel ​ ​ ​ ​ ​
​		 Phoenix,
Arizona		 ​ ​ ​ ​ $ 34,779,949 ​ ​ ​ ​ $ 163,311 ​ ​ ​ ​ $ 6,370,871 ​ ​ ​ ​ $ 26,072,305 ​ ​ ​ ​ $ 2,500,085 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 34,943,261 ​ ​
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ $ 58,521,942 ​ ​
​
Dispositions
During the year ended December 31, 2017, the Company sold 35 single-family homes for $7,877,470, resulting in a gain of  $946,532. The Company also sold a multi-family property located in Phoenix, Arizona (“Uptown Square Apartments” or “Uptown”) in 2017, for $3,015,000, resulting in a gain of  $1,478,865. Caliber has a 36.4% equity share in the consolidated entity which sold Uptown and is entitled to its proportionate share of the net sale proceeds; however, at December 31, 2017, the proceeds remained in escrow at our discretion, in anticipation of applying to proceeds to a new real estate acquisition, and are included in restricted cash on the accompanying consolidated balance sheets. During the year ended December 31, 2016, the Company sold six single-family homes for $2,444,400, resulting is a loss of $119,842.
Note 4 — VIEs
As of December 31, 2017 and 2016, the Company’s consolidated financial statements include ten entities, all of which are real estate operating entities, consolidated as VIEs. Management has determined that the equity holders in these entities (which may or may not include the Company), as a group, lack the power to direct the activities that most significantly impact the entity’s economic performance and/or have disproportionate voting rights relative to their equity; and the Company has all of the decision-making power with respect to the activities of the entity, and none of the equity holders in the entity have substantive protective or participating rights to remove the power from the Company. The Company was determined to be the primary beneficiary of each of these entities since it has the power to direct the activities of the entity and the right to absorb losses, generally in the form of guarantees of indebtedness.
Generally, the assets of the individual consolidated VIEs can be used only to settle liabilities of the each individual consolidated VIE and the liabilities of the individual consolidated VIEs are liabilities for which creditors or beneficial interest holders do not have recourse to the general credit of the Company. The Company has provided financial support to certain consolidated VIEs in the form of short term financing and guarantees of the debts of certain VIEs. In general, our maximum exposure to loss due to involvement with the consolidated VIEs is limited to the amount of capital investment in the VIE, if any, or the potential obligation to perform on the guarantee of debts.
F-21
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 4 — VIEs (continued)
 
The table below outlines the classification and carrying amounts of the assets and liabilities of the VIEs that are included in the Company’s consolidated balance sheets at December 31, 2017 and 2016.
​ ​ ​
2017
​ ​
2016
​
ASSETS ​ ​ ​
Real estate investments, net
​ ​ ​ $ 122,458,216 ​ ​ ​ ​ $ 111,764,596 ​ ​
Cash
​ ​ ​ ​ 3,828,070 ​ ​ ​ ​ ​ 2,097,664 ​ ​
Restricted cash
​ ​ ​ ​ 6,620,240 ​ ​ ​ ​ ​ 12,912,846 ​ ​
Accounts receivable, net
​ ​ ​ ​ 982,867 ​ ​ ​ ​ ​ 1,097,588 ​ ​
Other receivables
​ ​ ​ ​ — ​ ​ ​ ​ ​ 779,389 ​ ​
Notes receivable – related parties
​ ​ ​ ​ 277,978 ​ ​ ​ ​ ​ 50,250 ​ ​
Due from related parties
​ ​ ​ ​ 420,583 ​ ​ ​ ​ ​ 170,826 ​ ​
Prepaid and other assets
​ ​ ​ ​ 2,520,623 ​ ​ ​ ​ ​ 2,260,014 ​ ​
Total assets
 ​ ​ ​ $ 137,108,577 ​ ​ ​ ​ $ 131,133,173 ​ ​
LIABILITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Notes payable, net of deferred financing costs
​ ​ ​ $ 92,088,579 ​ ​ ​ ​ $ 86,977,459 ​ ​
Notes payable – related parties
​ ​ ​ ​ 254,978 ​ ​ ​ ​ ​ 563,870 ​ ​
Accounts payable
​ ​ ​ ​ 1,390,652 ​ ​ ​ ​ ​ 1,074,375 ​ ​
Accrued interest
​ ​ ​ ​ 664,322 ​ ​ ​ ​ ​ 579,548 ​ ​
Accrued expenses
​ ​ ​ ​ 2,932,359 ​ ​ ​ ​ ​ 3,112,508 ​ ​
Due to related parties
​ ​ ​ ​ 340,969 ​ ​ ​ ​ ​ 667,695 ​ ​
Advance key money, net
​ ​ ​ ​ 1,275,000 ​ ​ ​ ​ ​ 1,350,000 ​ ​
Above-market ground lease, net
​ ​ ​ ​ 4,013,072 ​ ​ ​ ​ ​ 4,138,481 ​ ​
Other liabilities
​ ​ ​ ​ 1,187,578 ​ ​ ​ ​ ​ 830,157 ​ ​
Total liabilities
 ​ ​ ​ $ 104,147,509 ​ ​ ​ ​ $ 99,294,093 ​ ​
​
See Note 10 for additional information related to the commitments and contingencies of these VIEs.
F-22
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 5 — Notes Payable
Notes payable consisted of the following as of December 31, 2017 and 2016:
​ ​ ​
2017
​ ​
2016
​ ​
Interest
Rate
​ ​
Original/​
Extended
Maturity
​
Real estate loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Crowne Plaza Phoenix Airport
​ ​ ​ ​ 11,522,148 ​ ​ ​ ​ ​ 11,737,838 ​ ​ ​
Variable
​ ​
September 2018
​
Uptown Square Apartments
​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,506,270 ​ ​ ​
4.00%
​ ​ May 2027 ​
Hilton Tucson East Hotel
​ ​ ​ ​ 12,730,000 ​ ​ ​ ​ ​ 12,730,000 ​ ​ ​
10.00%
​ ​ June 2018 ​
Hampton Inn & Suites Hotel
​ ​ ​ ​ 6,868,347 ​ ​ ​ ​ ​ 7,048,107 ​ ​ ​
4.50%
​ ​ July 2025 ​
GC Square Apartments
​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,866,725 ​ ​ ​
Variable
​ ​
November 2022
​
GC Square Apartments
​ ​ ​ ​ 8,939,000 ​ ​ ​ ​ ​ — ​ ​ ​
Variable
​ ​
November 2020
​
Holiday Inn & Suites Hotel
​ ​ ​ ​ 15,375,000 ​ ​ ​ ​ ​ 14,625,217 ​ ​ ​
Variable
​ ​ July 2018 ​
Hilton Phoenix Airport
​ ​ ​ ​ 29,000,000 ​ ​ ​ ​ ​ — ​ ​ ​
9.00%
​ ​ June 2018 ​
Hilton Phoenix Airport
​ ​ ​ ​ — ​ ​ ​ ​ ​ 27,500,000 ​ ​ ​
Variable
​ ​ December 2017 ​
Palms Apartment Portfolio
​ ​ ​ ​ 9,603,918 ​ ​ ​ ​ ​ 9,761,541 ​ ​ ​
5.28%
​ ​
September 2026
​
Single-family Home Loans
​ ​ ​ ​ 1,519,049 ​ ​ ​ ​ ​ 2,561,450 ​ ​ ​
9.95% – 12.125%
​ ​ January 2018 ​
Unsecured Borrowing
​ ​ ​ ​ 947,500 ​ ​ ​ ​ ​ 2,147,500 ​ ​ ​
33.00%
​ ​ Undefined ​
Total real estate loans
​ ​ ​ ​ 96,504,962 ​ ​ ​ ​ ​ 94,484,648 ​ ​ ​ ​ ​ ​ ​ ​
Corporate notes
​ ​ ​ ​ 6,383,273 ​ ​ ​ ​ ​ 4,474,000 ​ ​ ​
10.125% – 18.00%
​ ​ January 2018 – 
December 2018 		​
Other
​ ​ ​ ​ 7,950 ​ ​ ​ ​ ​ 41,551 ​ ​ ​
6.00%
​ ​ February 2018 – 
November 2018 		​
Total notes payable
 ​ ​ ​ ​ 102,896,185 ​ ​ ​ ​ ​ 99,000,199 ​ ​ ​ ​ ​ ​ ​ ​
Deferred financing costs, net
​ ​ ​ ​ (1,949,834) ​ ​ ​ ​ ​ (2,798,239) ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ $ 100,946,351 ​ ​ ​ ​ $ 96,201,960 ​ ​ ​ ​ ​ ​ ​ ​
​
Real Estate Loans
Crowne Plaza Phoenix Airport
Mortgage Loan
In August 2014, the Company entered into a $12,000,000 loan, which is secured by a deed of trust and assignment of the leases and rents of a hotel property in Phoenix, Arizona. The loan has a variable interest rate which is equal to 1-month LIBOR plus 6.25%, with a required minimum rate of 6.50%, resulting in a rate of 7.50% and 6.875% at December 31, 2017 and 2016, respectively. Contemporaneous with entering into the loan agreement the Company also entered into an interest rate cap agreement, which set a maximum interest rate of 8.625% until September 2016, and 9.125% thereafter. The terms of the loan required monthly interest-only payments until October 2015, at which time the required monthly payments converted to a principal plus interest payment, with a balloon payment due at maturity. The loan is guaranteed by an individual who is an affiliate of the Company. The terms of the loan agreement also require the Company to pay an exit fee equal to 1.00% of the principal amount of the loan at the time the loan is repaid in full. The exit fee of  $120,000 was accrued upon entering into the loan, and was recorded as a deferred financing cost. The loan had an original maturity of September 2017; however, the loan had an
F-23
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 5 — Notes Payable (continued)
 
extension option which would extend the maturity date for one year, and if the option is exercised there is an additional option to further extend the maturity date until July 2019. The extension options include a provision requiring the Company to meet certain financial covenants at the time of the exercise of the option.
In September 2017, the Company executed a one-year extension of the loan agreement, extending the maturity date to September 2018. All other terms of the loan remained unchanged. In connection with the loan extension, the Company also entered into a new interest rate cap agreement, which sets a maximum interest rate of 9.125% and expires September 2018.
Promissory Note
In February 2016, the Company entered into an unsecured promissory note in the amount of $250,000, with an interest rate of 18.0% per annum and a stated maturity date of August 31, 2016. The note was paid in full and extinguished upon maturity by CDIF, LLC (“CDIF”), an affiliated entity, on behalf of the Company, and simultaneous with the repayment of the note by CDIF, the Company issued membership interest to CDIF in the amount of  $250,000.
Uptown Square Apartments
In April 2015, the Company entered into a $1,550,000 loan, which was secured by a deed of trust and assignment of rents of a multi-family property in Phoenix, Arizona. The loan had a 4.00% interest rate which was fixed through May 2022. The terms of the loan required monthly principal and interest payments, with a balloon payment due at maturity. The loan had a stated maturity of May 2027. The terms of the loan allowed the Company to prepay the outstanding balance in whole at any time prior to the maturity date, subject to a prepayment premium fee. The loan was guaranteed by certain individuals who are affiliates of the Company. The loan was repaid in full in December 2017, in connection with the sale of the property (see Note 3).
Hilton Tucson East Hotel
In June 2016, the Company entered into a $12,730,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Tucson, Arizona. Upon entering into the loan, $4,330,000 of the loan proceeds were used to complete the purchase of the hotel property (the “Original Loan”), $8,000,000 of the loan proceeds were placed into a reserve account to be drawn against and pay for the renovation of the hotel property (the “Renovation Reserve”), and the remaining $400,000 of the loan proceeds were placed into a reserve account to be drawn against and pay interest on the loan (the “Interest Reserve”). At December 31, 2017 and 2016, the balance of the Renovation Reserve was $246,754 and $7,410,315, respectively, and the balance of the Interest Reserve was $0 and $192,284, respectively, both of which are included in restricted cash on the accompanying consolidated balance sheets. Interest was charged on the Original Loan and funds that were disbursed from the Renovation Reserve at a rate of 8.85% per annum, and were paid from the Interest Reserve until the reserve was depleted. Once the Interest Reserve was depleted, the loan continued to require monthly interest-only payments. The interest rate on the Original Loan and the funds disbursed from the Renovation Reserve increased to 10.0% in July 2017. Interest is charged on the undisbursed funds that remain in the Renovation Reserve at a rate of 4.425% per annum. The payment of the interest charged on the undisbursed funds was deferred until October 2017, at which time the loan began to require monthly interest-only payments of the interest charged on the undisbursed funds. The interest rate on the undisbursed funds from the Renovation Reserve also increased to 10.0% in October 2017. The loan may be prepaid in whole, but not in part, subject to certain terms and fees, at any time. The loan is guaranteed by CDIF and an individual who is an affiliate of the Company. The terms of the loan require the Company to pay an exit fee of  $330,980 at the time the loan is repaid in full. The exit fee of  $330,980 was accrued upon entering into the loan, and was recorded as a deferred
F-24
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 5 — Notes Payable (continued)
 
financing cost and is being amortized over the life of the loan. The loan matures in June 2018. The maturity date of the loan may be extended by one year subject to certain conditions and fees. If the maturity date of the loan is extended the interest rate increases to 11.0% per annum.
Hampton Inn & Suites Hotel
In July 2015, the Company entered into a $7,250,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Scottsdale, Arizona. The terms of the note require monthly principal and interest payments, with a balloon payment due at maturity. The loan has a fixed interest rate of 4.50%. The terms of the loan allow the Company to prepay the outstanding balance in part or in whole at any time prior to the maturity date, subject to a prepayment premium fee. The loan is guaranteed by an individual who is an affiliate of the Company. The loan matures in July 2025. The terms of the note include certain financial covenants and, as of December 31, 2017 and 2016, the Company was in compliance with all such covenants.
GC Square Apartments
In October 2015, the Company entered into a $4,875,000 loan, which was secured by a deed of trust and assignment of rents of a multi-family property in Phoenix, Arizona. The loan had a variable interest rate, equal to 1-month LIBOR plus 2.53%, resulting in a rate of 3.15% at December 31, 2016. Contemporaneous with entering into the loan the Company entered into an interest rate cap agreement, which set a maximum interest rate of 6.50% until November 2018. The terms of the loan required monthly interest-only payments until December 2016, at which time the required monthly payments converted to a payment of principal plus interest payment, at the variable rate, with a balloon payment due at maturity. The terms of the loan allowed the Company to prepay the loan in whole without penalty, subject to certain terms and conditions; however, partial prepayments were subject to a 1.00% prepayment penalty. The loan had a stated maturity of November 2022. The loan was guaranteed by an individual who is an affiliate of the Company. The loan was repaid in full in October 2017.
In October 2017, the Company entered into an $11,000,000 loan, which is secured by a deed of trust and assignment of rents of a multi-family property in Phoenix, Arizona. Upon entering into the loan agreement $2,061,000 of the loan proceeds were held back by the lender. The funds held back can be drawn on by the Company for future construction and development costs. The loan has a variable interest rate equal to LIBOR plus 5.25%, resulting in a rate of 6.49% at December 31, 2017. The loan requires interest-only payments until maturity. The loan matures in November 2020 and has options to extend the maturity date up to two additional years, subject to certain terms and conditions. Contemporaneous with entering into the new loan the Company entered into an interest rate cap agreement, which set a maximum interest rate of 7.00% until November 2018, and 7.75% from November 2018 through maturity.
Holiday Inn & Suites Hotel
In June 2015, the Company entered into a $15,375,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Phoenix, Arizona. At the time of entering into the loan, $11,250,000 was used to acquire the hotel property with the remaining $4,125,000 held back to be used towards the renovation of the hotel property. As of December 31, 2017, the full holdback amount $4,125,000 had been released and used to fund the renovation of the hotel property. The loan requires monthly interest-only payments until maturity. The interest rate on the loan is equal to 1-month LIBOR plus 5.30%, resulting in a rate of 6.54% and 6.00% at December 31, 2017 and 2016, respectively. Contemporaneous with entering into the loan, the Company entered into an interest rate cap agreement, which sets a maximum interest rate of 7.30% until July 2017 and 7.80% for the period from August 2017 through the maturity of the loan. The loan is guaranteed by individuals who are affiliates of the Company. The terms of the loan agreement require the Company to pay an exit fee equal to 0.75% of the principal
F-25
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 5 — Notes Payable (continued)
 
amount of the loan at the time the loan is repaid in full. The exit fee of  $115,313 was accrued upon entering into the loan, and was recorded as a deferred financing cost and is being amortized over the life of the loan. The loan matures in July 2018; however, the loan can be extended for up to two 1-year extension periods, subject to the Company meeting certain covenants. If the Company extends the maturity date, the required loan payments convert to principal plus interest payments based on a 25-year amortization schedule. The terms of the loan include certain non-financial covenants and as of December 31, 2017 and 2016, the Company was in compliance with all such covenants.
Hilton Phoenix Airport
In November 2016, the Company entered into a $4,000,000 loan, which was secured by a deed of trust and assignment of leases and rents of a hotel property in Phoenix, Arizona. The terms of the loan required monthly interest-only payments, with a balloon payment due at maturity. The loan had a variable interest rate equal to LIBOR plus 13.00%, with a required minimum rate of 13.50%, resulting in a rate of 13.65% at December 31, 2016. The loan was guaranteed by an individual who is an affiliate of the Company. The terms of the loan required the Company to pay an exit fee equal to 2.00% of the original principal amount of the loan at the time the loan was repaid in full. The exit fee of  $80,000 was accrued upon entering into the loan, and was recorded as a deferred financing cost. The loan matured in December 2017, and was paid in full.
In November 2016, the Company entered into a $24,000,000 loan, which was secured by a deed of trust and assignment of leases and rents of a hotel property located in Phoenix, Arizona. The terms of the loan required a one-time $500,000 principal payment, and monthly interest-only payments thereafter, with a balloon payment due at maturity. The loan had a variable interest rate which was equal to LIBOR plus 6.00%, with a required minimum rate of 6.50%, resulting in a rate of 6.65% at December 31, 2016. The loan was guaranteed by a related party entity and an individual who is an affiliate of the Company. The terms of the loan required the Company to pay an exit fee equal to 2.00% of the original principal amount of the loan at the time the loan was repaid in full. The exit fee of  $480,000 was accrued upon entering into the loan, and was recorded as a deferred financing cost. The loan matured in December 2017, and was paid in full.
In December 2017, the Company entered into a $29,000,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Phoenix, Arizona. At the closing of the loan, $300,000 of the loan proceeds were held back by the lender to finance future property improvements. The new loan has a fixed interest rate of 9.00%, requires monthly interest-only payments until maturity, and matures in June 2018. At the lender’s sole discretion, and provided certain conditions are met, the maturity date may be extended up to an additional nine months, to March 2019.
Palms Apartment Portfolio
In August 2016, the Company entered into a $9,800,000 loan, which is secured by the deeds of trust and assignment of rents of a portfolio of three multi-family properties located in Phoenix, Arizona. The loan has a 5.277% fixed interest rate. The terms of the loan require monthly principal and interest payments, with a balloon payment due at maturity. The terms of the loan do not allow the Company to prepay the outstanding balance in whole at any time prior to the maturity date. The loan is guaranteed by an individual who is an affiliate of the Company. The loan matures in September 2026.
Single-family Home Loans
The Company owns multiple single-family homes which are held as rental property or held with the intention of being renovated and resold. Multiple single-family homes owned by the Company at December 31, 2017 and 2016 were subject to loans held by third parties.
F-26
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 5 — Notes Payable (continued)
 
At December 31, 2017, there were 10 individual single-family home loans outstanding with outstanding principal balances ranging from $31,100 to $368,900, interest rates ranging from 9.95% to 12.125%. The loans generally require monthly or quarterly interest-only payments until maturity or the sale of the home. The loans generally have a 12-month term and may be extended upon the mutual agreement of the lender and the borrower. As of December 31, 2017, all of the loans had reached their original stated maturity and were due to be repaid when the related home is sold. During the year ended December 31, 2017, $123,077 of principal due in connection with a single-family home loan was converted to common stock and $76,923 of principal due in connection with a single-family home loan was converted to preferred stock.
At December 31, 2016, there were 18 individual single-family home loans outstanding with outstanding principal balances ranging from $35,000 to $400,000, interest rates ranging from 9.00% to 12.125%, and maturity dates ranging from January 2017 to December 2017. The loans generally require monthly or quarterly interest-only payments until maturity or the sale of the home. The loans generally have a 12-month term and may be extended upon the mutual agreement of the lender and the borrower.
Unsecured Borrowing
In July 2012, the Company entered into an arrangement with a third-party lender in which the lender advanced funds to the Company to facilitate the purchase and renovation of single-family homes. The advances generally accrued interest at rates ranging from 20.0% to 24.0%, and all amounts were due upon the sale of the home underlying each advance. In January 2016, all amounts outstanding under the arrangement were consolidated into a single loan, the interest rate was adjusted to 33.0% per annum, and the repayment terms were modified to require that the Company make monthly payments which are applied 50% to principal and 50% to interest. Under the current repayment terms the loan will be fully repaid by October 2018 (see Note 17).
Corporate Notes
The Company has entered into multiple general corporate financing arrangements with third parties. The arrangements are generally evidenced in the form of a promissory note, which are secured by the otherwise unencumbered assets of the Company, and require monthly or quarterly interest-only payments until maturity. The loans generally have a 12-month term and may be extended upon the mutual agreement of the lender and the borrower.
At December 31, 2017, there were 62 individual corporate notes outstanding, with outstanding principal balances ranging from $10,750 to $900,000, interest rates ranging from 10.125% to 18.0%, and maturity dates ranging from January 2018 to November 2018. During the year ended December 31, 2017, $1,437,964 of principal due in connection with corporate promissory notes was converted to common stock and $898,728 of principal due in connection with corporate promissory notes was converted to preferred stock.
At December 31, 2016, there were 31 individual corporate notes outstanding, with outstanding principal balances ranging from $80,000 to $900,000, interest rates ranging from 10.125% to 18.0%, and maturity dates ranging from January 2017 to December 2017.
F-27
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 5 — Notes Payable (continued)
 
Other
GoldenWest Management, Inc.
In January 2014, the Company acquired an existing property management company located in Tucson, Arizona for $300,000, and $150,000 of the purchase was financed through a seller-carryback loan. The loan had an interest rate of 6.0%, required monthly principal and interest payments, and a scheduled maturity of February 2018. The outstanding principal balance at December 31, 2016, was $23,745. The loan was repaid in full in 2017.
Desert Sand Realty, LLC
In November 2014, the Company acquired a property management company located in Phoenix, Arizona for $55,000, and $35,000 of the purchase was financed through a seller-carryback loan. The loan has an interest rate of 6.0%, requires monthly principal and interest payments, and matures in November 2018. The outstanding principal balance at December 31, 2017 and 2016, was $7,950 and $17,805, respectively.
Future Minimum Payments
As of December 31, 2017, the future aggregate principal repayments due on the Company’s notes payable for each of the years ending December 31, are as follows:
​
2018
​ ​ ​ $ 77,828,370 ​ ​
​
2019
​ ​ ​ ​ 360,824 ​ ​
​
2020
​ ​ ​ ​ 9,315,834 ​ ​
​
2021
​ ​ ​ ​ 398,151 ​ ​
​
2022
​ ​ ​ ​ 418,310 ​ ​
​
Thereafter
​ ​ ​ ​ 14,574,696 ​ ​
​ ​ ​ ​ ​ $ 102,896,185 ​ ​
​
Note 6 — Prepaid and Other Assets
Prepaid and other assets consisted of the following as of December 31, 2017 and 2016:
​ ​ ​
2017
​ ​
2016
​
Prepaid expenses
​ ​ ​ $ 1,044,609 ​ ​ ​ ​ $ 718,121 ​ ​
Deposits
​ ​ ​ ​ 716,150 ​ ​ ​ ​ ​ 586,575 ​ ​
Costs in excess of billings
​ ​ ​ ​ 46,034 ​ ​ ​ ​ ​ 494,607 ​ ​
Deferred franchise fees, net
​ ​ ​ ​ 427,952 ​ ​ ​ ​ ​ 467,540 ​ ​
Intangibles, net
​ ​ ​ ​ 286,802 ​ ​ ​ ​ ​ 345,144 ​ ​
Investments in unconsolidated entities
​ ​ ​ ​ 174,895 ​ ​ ​ ​ ​ 238,143 ​ ​
Inventory
​ ​ ​ ​ 178,239 ​ ​ ​ ​ ​ 177,289 ​ ​
Other
​ ​ ​ ​ — ​ ​ ​ ​ ​ 82,871 ​ ​
Total prepaid and other assets
​ ​ ​ $ 2,874,681 ​ ​ ​ ​ $ 3,110,290 ​ ​
​
F-28
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 7 — Other Liabilities
Other liabilities consisted of the following as of December 31, 2017 and 2016:
​ ​ ​
2017
​ ​
2016
​
Sales tax payable
​ ​ ​ $ 599,868 ​ ​ ​ ​ $ 427,999 ​ ​
Deposits
​ ​ ​ ​ 287,688 ​ ​ ​ ​ ​ 341,019 ​ ​
Redemption/distribution payable
​ ​ ​ ​ 350,000 ​ ​ ​ ​ ​ — ​ ​
Billings in excess of cost
​ ​ ​ ​ 137,292 ​ ​ ​ ​ ​ 51,099 ​ ​
Deferred revenue
​ ​ ​ ​ 41,062 ​ ​ ​ ​ ​ 53,991 ​ ​
Other
​ ​ ​ ​ 164,640 ​ ​ ​ ​ ​ 165,354 ​ ​
Total other liabilities
​ ​ ​ $ 1,580,550 ​ ​ ​ ​ $ 1,039,462 ​ ​
​
Note 8 — Related Party Transactions
Notes Receivable — Related Parties
CDIF
In April 2016, the Company assumed an unsecured promissory note payable by CDIF, an affiliated entity which is managed by the Company, to a third party in exchange for issuing common and preferred stock to the third party. At the time of the transaction the outstanding principal balance of the promissory note was $500,000. The note accrued interest at a rate of 18% for the first 90 days after origination and 15% thereafter. The note required monthly interest only payments until maturity. The original term of the note was 12 months and it matured in October 2016; however, the maturity date was extended to June 2017 upon mutual agreement between the parties. During the years ended December 31, 2017 and 2016, the Company earned $856 and $26,666 of interest in connection with the note, respectively, which are included in other (income) expense, net on the accompanying consolidated statements of operations. Interest due to the Company of  $1,080 was outstanding at December 31, 2016, and is included in due from related parties on the accompanying consolidated balance sheets. At December 31, 2016, the outstanding principal balance of the loan was $108,000, which is included in notes receivable — related parties on the accompanying consolidated balance sheets. The note was paid in full in June 2017.
SF Alaska, LP
In August 2016, the Company entered into an unsecured $50,250 promissory note with SF Alaska, LP, an affiliated entity, which is managed by the Company. The note matures in August 2018, and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. During the years ended December 31, 2017 and 2016, the Company earned $5,583 and $2,280 of interest in connection with the note, respectively, which is included in other (income) expense, net on the accompanying consolidated statements of operations. Interest due to the Company of  $561 and $2,280, was outstanding at December 31, 2017 and 2016, respectively, and is included in due from related parties on the accompanying consolidated balance sheets. At December 31, 2017 and 2016, the outstanding principal balance of the loan was $27,978 and $50,250, respectively, which are included in notes receivable — related parties on the accompanying consolidated balance sheets.
F-29
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 8 — Related Party Transactions (continued)
 
CDOF II
In June 2017, the Company entered into an unsecured $250,000 promissory note with Caliber Diversified Opportunity Fund II, LP (“CDOF II”), an affiliated entity, which is managed by the Company. The note matures in June 2019, and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. During the year ended December 31, 2017, the Company earned $15,205 of interest in connection with the note, which is included in other (income) expense, net on the accompanying consolidated statements of operations. Interest due to the Company of  $15,205 was outstanding at December 31, 2017, and is included in due from related parties on the accompanying consolidated balance sheets. At December 31, 2017, the outstanding principal balance of the loan was $250,000, which is included in notes receivable — related parties on the accompanying consolidated balance sheets.
Future Minimum Payments Receivable
As of December 31, 2017, the future aggregate principal payments due to the Company related to the notes receivable — related parties for each of the years ending December 31, are as follows:
​
2018
​ ​ ​ $ 27,978 ​ ​
​
2019
​ ​ ​ ​ 250,000 ​ ​
​ ​ ​ ​ ​ $ 277,978 ​ ​
​
Fund Management
The Company manages multiple private equity real estate funds. We earn asset management and other fees for the services provided, and enter into an agreement with each private equity real estate fund outlining the terms and fees to be earned. In general:
•
We charge an initial one-time fee related to the initial formation, administration, and set up of the fund (“Set Up Fees”). For the years ended December 31, 2017 and 2016, we earned $750,000 and $175,000, respectively, of Set Up Fees in connection with newly opened funds.
​
•
We are entitled to receive reimbursement for certain expenses incurred or paid on behalf of the fund, which may include an allocation of certain administrative and overhead costs. We also receive an annual asset management fee equal to 1.5% of the non-affiliate capital contributions related to the on-going management of the assets owned by the fund and the overall fund administration (collectively, “Asset Management Fees”). For the years ended December 31, 2017 and 2016, the Company earned $837,983 and $640,941, respectively, of Asset Management Fees.
​
•
We are entitled to 20% – 35% of all cash distributions from the operating cash flows of the fund, after the payment of all priority preferred returns, and the repayment of any preferred capital contributions. We are also entitled to 35% – 25% of all cash distributions from the cash flows resulting from the sale or refinance of the assets of the fund, after the payment of all priority preferred returns, and the repayment of all capital contributions (collectively, “Carried Interest”). For the years ended December 31, 2017 and 2016, the Company earned $73,843 and $91,318, respectively, of Carried Interest.
​
As of December 31, 2017 and 2016, amounts due to the Company from related parties for fund management services totaled $815,048 and $190,141, respectively, and are included in due from related parties on the accompanying consolidated balance sheets.
F-30
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 8 — Related Party Transactions (continued)
 
Property Management
The Company provides property management services and oversees the day-to-day operations of multiple residential and commercial assets owned by the funds managed by the Company. In general, the initial terms of each property management agreement are 12 months, however, the agreement automatically renews every 12 months for an additional 12 months. Per the terms of each agreement, the Company generally earns a fixed monthly fee, plus additional variable fees related to leasing, marketing, maintenance, and administrative activities (collectively, “Property Management Fees”). For the years ended December 31, 2017, and 2016, the Company earned $149,556 and $85,715, respectively, of Property Management Fees from related parties. As of December 31, 2017 and 2016, amounts due to the Company from related parties for Property Management Fees totaled $6,312 and $9,437, respectively, and are included in due from related parties on the accompanying consolidated balance sheets.
Selling Agent Agreements
The Company entered into multiple agreements with affiliated entities in which we receive fees for services primarily relating to the marketing, offering, registering, and selling of equity and debt instruments of the affiliates (collectively, “Capital Raise Fees”). For the years ended December 31, 2017 and 2016, the Company earned $428,567 and $100,231, respectively, of Capital Raise Fees from related parties, which are presented as capital raise fees on the accompanying consolidated statements of operations. As of December 31, 2017 and 2016, amounts due to the Company from related parties for Capital Raise Fees totaled $399,126 and $100,231, respectively, and are included in due from related parties on the accompanying consolidated balance sheets.
Construction and Development
The Company regularly provides development, construction, and maintenance services to its affiliates, including the private equity real estate funds it manages. The fee arrangement with each affiliate entity varies; however, the arrangements are generally structured as cost incurred, plus a market rate of profit margin. For the years ended December 31, 2017 and 2016, the Company recognized $4,237,274 and $3,621,823, respectively, of construction and development revenue from related parties. As of December 31, 2017 and 2016, amounts due to the Company from related parties for construction, development, and maintenance services totaled $833,292 and $564,629, respectively, and are included in due from related parties on the accompanying consolidated balance sheets.
Home Sales
Since 2016, the Company has sold multiple single-family homes to Caliber Residential Advantage Fund, LP and its subsidiary (“CRAF”), a private equity real estate fund managed by the Company. During the years ended December 31, 2017 and 2016, the Company recognized real estate sales revenue of $2,146,570 and $68,500, respectively, which is included in real estate sales revenue on the accompanying consolidated statements of operations. In connection with each sale, the loan on the property, which was held by CFIF II, a separate affiliated entity was repaid in full.
Real Estate Brokerage
The Company earns commissions in exchange for providing real estate brokerage services related to the purchase and sale of residential and commercial assets owned by the funds managed by the Company. The amount of commission earned varies based on the size and complexity of each transaction, as well as other factors. For the years ended December 31, 2017 and 2016, the Company recognized $173,636 and $154,740, respectively, of brokerage commission revenue from related parties, which is included in brokerage revenues on the accompanying consolidated statements of operations.
F-31
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 8 — Related Party Transactions (continued)
 
Notes Payable — Related Parties
CFIF
From April 2014 through May 2016, the Company entered into multiple promissory notes with Caliber Fixed Income Fund, LLC (“CFIF”), an affiliated entity, which is managed by the Company, for the purpose of financing the purchase, development, and renovation of residential properties. The notes had an interest rate of 11% per annum and required monthly interest-only payments until maturity. The notes generally had a term of 12 months, and were required to be repaid at the earlier of i) the sale of the related property, or ii) the stated maturity date. The notes could be prepaid at any time prior to maturity without penalty, and the maturity date could be extended upon the mutual agreement of the parties. During the year ended December 31, 2016, the Company incurred $332,576 of interest expense in connection with the notes. In May 2016, all outstanding notes due to CFIF, with an aggregate outstanding principal balance of $8,227,862, were refinanced and transferred to Caliber Fixed Income Fund II, LLC (“CFIF II”), an affiliated entity, which is managed by the Company. As of December 31, 2016, all amounts due to CFIF had been repaid in full.
CFIF II
Beginning in July 2015, the Company entered into multiple promissory notes with CFIF II, a related party, for the purpose of financing the purchase, development, and renovation of residential and commercial properties. The notes have an interest rate of 11% per annum and require monthly interest-only payments until maturity. The notes generally have a term of 12 months, and are required to be repaid at the earlier of i) the sale of the related property, or ii) the stated maturity date. The notes can be prepaid at any time prior to maturity without penalty and the maturity date can be extended upon the mutual agreement of the parties. During the years ended December 31, 2017 and 2016, the Company incurred $1,151,123 and $1,114,830, respectively, of interest expense in connection with the notes. The interest payable as of December 31, 2017 and 2016, was $1,163,166 and $327,348, respectively, which is included in due to related parties on the accompanying consolidated balance sheets. At December 31, 2017 and 2016, the total outstanding principal balance of the notes was $8,687,000 and $13,043,000, respectively, which is included in notes payable — related parties on the accompanying consolidated balance sheets (see Note 17).
CDIF
In January 2016, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with CDIF, which allows the fund to borrow up to $2,000,000. The note matures in January 2018, and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. In June 2016, $500,000 of the principal outstanding in connection with the note was converted to an equity investment in the fund. During the years ended December 31, 2017 and 2016, the Company incurred $23,421 and $45,928 of interest expense in connection with the note, respectively, which is included in interest expense on the accompanying consolidated statements of operations. The interest payable as of December 31, 2017 and 2016, was $0 and $45,928, respectively, which is included in due to related parties on the accompanying consolidated balance sheets. At December 31, 2017 and 2016, the outstanding principal balance of the note was $89,978 and $210,629, respectively, which is included in notes payable — related parties on the accompanying consolidated balance sheets.
In April 2016, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with CDIF, which allowed the Company to borrow up to $3,000,000. The note had a stated maturity of April 2018, and had an interest rate of 12.0% per annum. No payments were required prior to the maturity of the note. In November 2016, $1,500,000 of the principal outstanding in connection with the note was converted to an equity investment in the fund. An additional $400,000 of
F-32
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 8 — Related Party Transactions (continued)
 
outstanding principal was settled through the issuance of Class C member interest to an affiliate of CDIF. During the years ended December 31, 2017 and 2016, the Company incurred $23,721 and $81,437 of interest expense in connection with the note, respectively, which is included in interest expense on the accompanying consolidated statements of operations. The interest payable as of December 31, 2016, was $81,437, which is included in due to related parties on the accompanying consolidated balance sheets. At December 31, 2016, the outstanding principal balance of the note was $353,241, which is included in notes payable — related parties on the accompanying consolidated balance sheets. The note and all interest due was paid in full in 2017.
CDOF II
In August 2017, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with CDOF II, which allows the fund to borrow up to $165,000. The note matures in August 2018, and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. During the year ended December 31, 2017, the Company incurred $7,920 of interest expense in connection with the note, which is included in interest expense on the accompanying consolidated statements of operations. The interest payable as of December 31, 2017, was $7,920, which is included in due to related parties on the accompanying consolidated balance sheets. At December 31, 2017, the outstanding principal balance of the note was $165,000, which is included in notes payable — related parties on the accompanying consolidated balance sheets (see Note 17).
Management
In March 2013, the Company entered into a promissory note in the amount of  $185,000 with a former member of executive management. The unpaid principal balance accrues interest at a rate of 0.87% per annum. The note matures on December 31, 2018; however, the maturity date may be extended until December 31, 2023, at the Company’s option. Per the terms of the note, no payment is due until maturity and the note may be prepaid at any time without penalty. At December 31, 2017 and 2016 the outstanding principal balance due related to the note was $185,000, which is included in notes payable — related parties on the accompanying consolidated balance sheets. During the years ended December 31, 2017 and 2016, the Company incurred $1,610 of interest expense in connection with the note, which is included in interest expense on the accompanying consolidated statements of operations. The interest outstanding as of December 31, 2017 and 2016, was $7,730 and $6,121, respectively, and is included in due to related parties on the accompanying consolidated balance sheets.
In February 2015, the Company entered into a promissory note in the amount of  $75,000 with a member of executive management. The note has an interest rate of 15.0% per annum, and requires monthly interest-only payments until maturity. The note may be prepaid in whole, or in part, without penalty. During the years ended December 31, 2017 and 2016, the Company incurred and paid $4,938 and $11,250 of interest expense in connection with the note, respectively, which is included in interest expense on the accompanying consolidated statements of operations. The note had an original maturity date of August 2015; however, the maturity was extended until April 2017 upon the mutual agreement of the parties. The note was paid in full in 2017.
F-33
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 8 — Related Party Transactions (continued)
 
Future Minimum Payments
As of December 31, 2017, the future aggregate principal payments due to related parties from the Company related to the notes payable — related parties for each of the years ending December 31, are as follows:
​
2018
​ ​ ​ ​ 9,126,978 ​ ​
​ ​ ​ ​ ​ $ 9,126,978 ​ ​
​
Hotel Management
The Company has entered into multiple agreements with Heavlin Management Company, LLC (“HMC”), an affiliated entity through common ownership of certain of the Company’s consolidated subsidiaries, to operate each of the Company’s hotel properties. The term of the agreements is generally 10 years, and may be extended for an additional 10 years upon mutual consent of the Company and HMC. HMC oversees the day-to-day operations and management responsibilities of each hotel property. Per the terms of the agreements, HMC receives a monthly fee equal to 3 – 4% of gross revenue, and may also receive an annual incentive fee, not to exceed 1% of gross operating revenues, by exceeding owner approved budgets for revenue and profits (collectively, Hotel Management Fees”). Hotel Management Fees for the years ended December 31, 2017 and 2016, totaled $1,446,414 and $868,290, respectively, which are included in management fees on the accompanying consolidated statements of operations. For the years ended December 31, 2017 and 2016, Hotel Management Fees did not include any incentive fees. Pursuant to one of the hotel management arrangements, HMC also earn an annual fixed fee of  $100,000, which is included in management fees on the accompanying consolidated statements of operations. In addition to the Hotel Management Fees, HMC also charges the Company for certain shared services including sales and marketing, information technology, and human resources. Expenses for shared services for the years ended December 31, 2017 and 2016, totaled $892,191 and $470,875, respectively, which are included in general and administrative expenses and marketing and advertising expenses on the accompanying consolidated statements of operations, as applicable. The Company also reimburses HMC for expenses incurred or paid on its behalf. At December 31, 2017 and 2016, amounts due to HMC totaled $283,110 and $506,025, respectively, and are included in due to related parties on the accompanying consolidated balance sheets. HMC utilizes the Company’s payroll service provider and reimburses the Company for payroll and other costs paid on their behalf. At December 31, 2017 and 2016, $88,450 and $151,048 of reimbursement was due to the Company from HMC, respectively, and is included in due from related parties on the accompanying balance sheet.
Withdrawal Agreement
In November 2014, the Company entered into an agreement with a former co-manager and member of one of the Company’s consolidated subsidiaries which outlined the terms of his resignation as co-manager and assignment of his member interest. In consideration for his resignation as co-manager and assignment of his member interest, the Company agreed to issue 55,556 shares of its common stock to the individual or his designee, provide the individual with $35,000 of construction services at no cost to the individual, and pay the individual or his designee up to $540,000 in cash, as outlined in the agreement. As of December 31, 2017 and 2016, $481,672 and $544,792, respectively, was included in due to related parties on the accompanying consolidated balance sheets related to this agreement.
F-34
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 8 — Related Party Transactions (continued)
 
Other
In the normal course of business, the Company has various amounts due from related parties, including affiliate entities and individuals, for various expenses paid for by the Company on their behalf and other charges. These amounts are generally unsecured, interest-free, and due on demand. As of December 31, 2017 and 2016, other amounts due from related parties were $863,551 and $136,428, respectively.
In the normal course of business, the Company has various amounts due to related parties, including affiliate entities and individuals, for various expenses paid for by the affiliates on the Company’s behalf and other short-term payment advances. These amounts are generally unsecured, interest-free, and due on demand. As of December 31, 2017 and 2016, other amounts due to related parties were $73,437 and $16,331, respectively.
Note 9 — Income Taxes
In December 2017, the Tax Cut and Jobs Act was signed into law, which enacts significant changes to U.S. tax and related laws. Some of the provisions of the new tax law affecting corporations include, but are not limited to a reduction of the federal corporate income tax rate from 35% to 21%, limiting the interest expense deduction, expensing of cost of acquired qualified property and elimination of the domestic production activities deduction. We have adjusted our net deferred federal income tax assets as of the year ended December 31, 2017, as a result of the income tax rate reduction.
The following table shows the components of the income tax (provision) benefit from total operations for the years ended December 31, 2017 and 2016:
​ ​ ​
2017
​ ​
2016
​
Current income tax (provision) benefit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Federal
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
State
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Total
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Deferred income tax (provision) benefit ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Federal
​ ​ ​ ​ 912,114 ​ ​ ​ ​ ​ 1,818,258 ​ ​
State
​ ​ ​ ​ (220,823) ​ ​ ​ ​ ​ 169,419 ​ ​
Total
​ ​ ​ ​ 691,291 ​ ​ ​ ​ ​ 1,987,677 ​ ​
Adjustment to valuation allowance
​ ​ ​ ​ (691,291) ​ ​ ​ ​ ​ (1,987,677) ​ ​
Total income tax (provision) benefit
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
​
F-35
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 9 — Income Taxes (continued)
 
The following table reconciles the U.S. Federal statutory tax rate to the effective income tax rate for the years ended December 31, 2017 and 2016:
​ ​ ​
2017
​ ​
2016
​
U.S. federal statutory tax rate
​ ​ ​ ​ 34.0% ​ ​ ​ ​ ​ 34.0% ​ ​
Impact of U.S. tax reform
​ ​ ​ ​ (23.2) ​ ​ ​ ​ ​ — ​ ​
Income passed through to noncontrolling interest, federal tax
​ ​ ​ ​ (11.4) ​ ​ ​ ​ ​ (16.4) ​ ​
Income passed through to noncontrolling interest, state tax
​ ​ ​ ​ (1.1) ​ ​ ​ ​ ​ (1.5) ​ ​
Permanent differences, VIEs
​ ​ ​ ​ (9.6) ​ ​ ​ ​ ​ (8.8) ​ ​
State taxes, net of federal benefit
​ ​ ​ ​ 3.2 ​ ​ ​ ​ ​ 3.1 ​ ​
Prior period tax return true-up in current year
​ ​ ​ ​ 0.1 ​ ​ ​ ​ ​ 9.0 ​ ​
Nondeductible expenses
​ ​ ​ ​ (0.1) ​ ​ ​ ​ ​ (0.2) ​ ​
Change in valuation allowance
​ ​ ​ ​ 8.1 ​ ​ ​ ​ ​ (19.2) ​ ​
Effective income tax rate
​ ​ ​ ​ 0.0% ​ ​ ​ ​ ​ 0.0% ​ ​
​
The following table summarizes the components of the Company’s deferred tax assets and liabilities as of December 31, 2017 and 2016:
​ ​ ​
2017
​ ​
2016
​
Deferred tax assets: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net operating loss carryforwards
​ ​ ​ $ 2,621,856 ​ ​ ​ ​ $ 2,665,098 ​ ​
Section 362 step-up in basis
​ ​ ​ ​ 959,854 ​ ​ ​ ​ ​ 1,434,436 ​ ​
Deferred share-based compensation
​ ​ ​ ​ 343,599 ​ ​ ​ ​ ​ 932,192 ​ ​
Other
​ ​ ​ ​ 205,395 ​ ​ ​ ​ ​ 100,019 ​ ​
Total
​ ​ ​ ​ 4,130,704 ​ ​ ​ ​ ​ 5,131,745 ​ ​
Deferred tax liabilties: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Passthrough loss from partnerships
​ ​ ​ ​ (157,538) ​ ​ ​ ​ ​ (467,288) ​ ​
Total
​ ​ ​ ​ (157,538) ​ ​ ​ ​ ​ (467,288) ​ ​
Valuation allowance
​ ​ ​ ​ (3,973,166) ​ ​ ​ ​ ​ (4,664,457) ​ ​
Net deferred tax assets
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
​
As of December 31, 2017 and 2016, the Company had $10,541,818 and $7,170,409 of federal and state net operating losses (“NOL”), respectively, available to offset future taxable income. The federal and state NOLs, if not utilized, begin expiring in the year 2035. In accordance with Section 382 of the Internal Revenue Code, deductibility of the Company’s Federal NOL carryovers may be limited in the event of a change in control of ownership.
In assessing the need for a valuation allowance against its net deferred tax assets, the Company considers both positive and negative evidence related to the likelihood of realization of the deferred tax assets to determine, based on the weight of available evidence, whether it is more-likely-than-not that some or all of the deferred tax assets will not be realized. In evaluating the need for a valuation allowance, the Company considered cumulative losses as a significant piece of negative evidence and established a full valuation allowance of  $3,973,166 and $4,664,457 against the Company’s net deferred tax assets as of December 31, 2017 and 2016, respectively.
F-36
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 9 — Income Taxes (continued)
 
The changes to the Company’s valuation allowance during the year ended December 31, 2017 and 2016 were as follows:
​ ​ ​
2017
​ ​
2016
​
Valuation allowance at the beginning of the year
​ ​ ​ $ 4,664,457 ​ ​ ​ ​ $ 2,676,780 ​ ​
Changes in valuation allowance recorded during the year
​ ​ ​ ​ (691,291) ​ ​ ​ ​ ​ 1,987,677 ​ ​
Valuation allowance at the end of the year
​ ​ ​ $ 3,973,166 ​ ​ ​ ​ $ 4,664,457 ​ ​
​
The Company and its subsidiaries are subject to the following significant taxing jurisdictions: U.S., Arizona, Alaska, Utah, Colorado, and Nevada. The Company is currently not under income tax examination in any tax jurisdiction.
Although we believe our tax returns are correct, the final determination of tax examinations and any related litigation could be different from what was reported on the tax returns. We are currently open to audit under the statute of limitations by the IRS as well as state taxing authorities for the past four years.
We apply the generally accepted accounting principal related to accounting for uncertainty in income taxes, which prescribes a recognition threshold that a tax position is required to meet before recognition in the financial statements and provides guidance on derecognition, measurement, classification, interest and penalties, accounting in interim periods, disclosure and transition issues. We do not believe that there are any positions taken by the Company which would require recognition or disclosure in these financial statements for the years ended December 31, 2017 and 2016.
Note 10 — Commitments and Contingencies
Legal Matters
Periodically, the Company is contingently liable with respect to claims incidental to the ordinary course of its operations. There is no current litigation, claims or assessments outstanding and, accordingly, no provision has been made in the accompanying financial statements.
Construction Contracts
In connection with our development, redevelopment and capital improvement activities, we have entered into various construction related contracts and we have made commitments to complete certain projects, pursuant to financing or other arrangements. As of December 31, 2017 and 2016, our commitments related to these activities totaled $9,772,255 and $11,462,274, respectively.
Franchise Agreements and Advance Key Money
Intercontinental Hotel Group
In August 2013, the Company entered into a 20-year franchise agreement with Holiday Hospitality Franchising, LLC (“InterContinental Hotels Group” or “IHG”). Pursuant to the terms of the franchise agreement, the Company pays the following fees on a monthly basis:
•
Royalty Fee of 5% of gross room revenue
​
•
Service Contribution Fee of 3% of gross room revenue
​
•
Technology Fee of  $12.75 per room
​
•
Marketing Fee of  $3.00 per room
​
​
F-37
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 10 — Commitments and Contingencies (continued)
 
As a part of the franchise agreement, Six Continents, Inc., an affiliate of IHG, advanced $1,500,000 (“advance key money”) to the Company to retain IHG as the franchisor on the Hotel property for 20 years. Based on the term of the franchise agreement, each year, beginning in August 2015, the Company recognizes $75,000 of the previously deferred advance key money, which is included as a reduction of franchise fees in the accompanying consolidated statements of operations for each of the years ended December 31, 2017 and 2016. The Company is not required to repay any part of the advance key money unless the franchise agreement is cancelled before the termination date of August 2033.
In June 2015, the Company entered into a separate 10-year franchise agreement with IHG, which expires in June 2025. The Company paid an initial fee of  $114,000 in connection with the franchise agreement, which is being amortized over the term of the agreement. The amortization of the initial franchise fee is included in franchise fees on the accompanying consolidated statements of operations, and totaled $11,400 for the years ended December 31, 2017 and 2016. Per the terms of the agreement, the Company pays the following fees on a monthly basis:
•
Royalty Fee of 5% of gross room revenue
​
•
Service Contribution Fee of 3% of gross room revenue
​
•
Technology Fee of  $13.26 per room
​
•
All fees due for marketing
​
Hampton Inns
In October 2014, the Company entered into a franchise agreement with Hampton Inns Franchise, LLC, which expires in November 2030. The Company paid an initial fee of  $150,000 in connection with the agreement, which is being amortized over the term of the agreement. The amortization of the initial franchise fee is included in franchise fees on the accompanying consolidated statements of operations, and totaled $9,278 for the years ended December 31, 2017 and 2016. Per the terms of the franchise agreement, the Company pays the following fees on a monthly basis:
•
Program Fee of 4% of gross room revenue
​
•
Royalty Fee of 6% of gross room revenue
​
Hilton Worldwide
In June 2016 and November 2016, the Company entered into two 10-year franchise agreements with Hilton Franchise Holdings, LLC, an affiliate of Hilton Worldwide. The Company paid an initial fee of $125,000 in connection with each agreement, which is being amortized over the term of the agreements. The amortization of the initial franchise fees is included in franchise fees on the accompanying consolidated statement of operations, and totaled $25,000 for the years ended December 31, 2017 and 2016. Per the terms of the franchise agreements, the Company pays the following fees on a monthly basis:
•
Program Fee of 4% of gross room revenue
​
•
Royalty Fee of 5% of gross room revenue
​
•
Food and Beverage Fee of 1 – 3% of gross food and beverage revenue
​
The food and beverage fee is equal to 1% of gross food and beverage revenue during the first year of the Franchise Agreement, 2% during the second year of the Franchise Agreement, and 3% thereafter.
The Company recognized total aggregate franchise fees of  $3,032,198 and $1,886,930 for the years ended December 31, 2017 and 2016, respectively.
F-38
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 10 — Commitments and Contingencies (continued)
 
Insurance Claims
In July 2016, the Company experienced significant damage to one of our multi-family properties resulting from severe weather. The Company recognized a loss of  $1,871,336 in connection with the damage to the property, which is included in loss from damage of real estate assets, net on the accompanying consolidated statements of operations. The Company submitted an initial insurance claim to its insurer, which was denied. We subsequently engaged legal counsel to pursue the claim and attempt to collect the proceeds the Company believed it was entitled to. As of December 31, 2017, the ultimate outcome and amount of any insurance proceeds could not be determined (see Note 17).
In July 2016, the Company experienced significant damage to one of our hotel properties resulting from severe weather. The Company’s insurance claim for the loss in the amount of  $779,389 was approved by the insurer during 2016, and received by the Company during 2017. As of December 31, 2016, the amount of the insurance proceeds has been recorded against the loss incurred during the period in full and the amount due from the insurer is included in other receivables on the accompanying consolidated balance sheets as of December 31, 2016.
Contractual Lease Obligations
Equipment Lease
In December 2014, the Company entered into a lease agreement for certain telecommunication equipment. The lease has a 60-month term, requires monthly lease payments, and has a bargain purchase option at maturity. The recorded lease liability at December 31, 2017 and 2016, was $28,834 and $42,142, respectively, and is included in other liabilities on the accompanying consolidated balance sheets. As of December 31, 2017, the future required payments, for each of the years ending December 31, were as follows:
​
2018
​ ​ ​ $ 13,308 ​ ​
​
2019
​ ​ ​ ​ 15,526 ​ ​
​ ​ ​ ​ ​ $ 28,834 ​ ​
​
Ground Leases
In November 2012, we acquired a hotel property in Phoenix, Arizona, which is subject to a ground lease and requires monthly lease payments of approximately $72,000, subject to annual adjustments through December 2049, at which time the ground lease expires. The ground lease required a deposit of $325,000, which is included in other assets on the accompanying consolidated balance sheets as of December 31, 2017 and 2016. At the time of acquisition, it was determined that the lease rate of the ground lease was at a rate which management estimated was above the fair market lease rate. Accordingly, we recorded a liability in the amount of the estimated fair value (level 3) of the above-market lease. The above-market lease is amortized as a reduction to lease expense over the term of the lease. Accumulated amortization of the above-market lease intangible as of December 31, 2017 and 2016, was $647,944 and $522,536, respectively.
In October 2014, we acquired a hotel property residing on land which is subject to a ground lease and is subleased to the Company. The sublease requires monthly lease payments of approximately $14,000 which consist of base rent, taxes, and other charges, and are subject to annual adjustments. The amount of the base rent increases over time. The original sublease expires in May 2056; however, the sublease includes two 5-year extension options and a third extension option for an additional 27 months.
F-39
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 10 — Commitments and Contingencies (continued)
 
As of December 31, 2017, the estimated future minimum lease payments on the ground leases and the future amortization of the related above-market lease intangible were as follows:
​ ​ ​
Lease
Payments
 ​ ​
Intangible
Amortization
 ​ ​
Net Lease
Expense
 ​
2018
​ ​ ​ $ 1,028,672 ​ ​ ​ ​ $ (125,409) ​ ​ ​ ​ $ 903,263 ​ ​
2019
​ ​ ​ ​ 1,028,672 ​ ​ ​ ​ ​ (125,409) ​ ​ ​ ​ ​ 903,263 ​ ​
2020
​ ​ ​ ​ 1,028,672 ​ ​ ​ ​ ​ (125,409) ​ ​ ​ ​ ​ 903,263 ​ ​
2021
​ ​ ​ ​ 1,028,672 ​ ​ ​ ​ ​ (125,409) ​ ​ ​ ​ ​ 903,263 ​ ​
2022
​ ​ ​ ​ 1,028,672 ​ ​ ​ ​ ​ (125,409) ​ ​ ​ ​ ​ 903,263 ​ ​
Thereafter
​ ​ ​ ​ 30,515,688 ​ ​ ​ ​ ​ (3,386,027) ​ ​ ​ ​ ​ 27,129,661 ​ ​
​ ​ ​ ​ $ 35,659,048 ​ ​ ​ ​ $ (4,013,072) ​ ​ ​ ​ $ 31,645,976 ​ ​
​
Rent expense totaled $1,210,590 and $1,175,392 for the years ended December 31, 2017 and 2016, respectively, which includes rent expense related to operating leases for office space, equipment, and ground leases. In addition to the arrangements outlined above, the Company regularly enters into short-term equipment and other rentals. Rent expense is included within operating expenses or general and administrative expense in the accompanying consolidated statements of operations, depending on the nature of the individual rental arrangement.
Environmental Matters
In connection with the ownership and operation of real estate assets, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect on the results of operations.
Note 11 — Stockholders’ Equity and Share-Based Payments
CaliberCos, Inc. is authorized to issue 100,000,0000 shares of stock, consisting of 90,000,000 shares of common stock and 10,000,000 shares of preferred stock.
Common Stock
Subject to the rights of holders of any preferred stock having preference as to dividends, the holders of common stock shall be entitled to receive dividends when, as, and if declared by the board of directors. The holders of the issued and outstanding shares of common stock shall be entitled to one vote for each share of common stock. No holder of shares of common stock shall have the right to cumulate votes. In the event of liquidation, subject to the prior rights of holders of preferred stock to share ratably in the Company’s assets, the holders of common stock and holders of any shares of preferred stock which are not entitled to any preference in liquidation shall share equally and ratably in the Company’s assets available for distribution after giving effect to any liquidation preference of shares of preferred stock. The holders of common stock shall not have any conversion, redemption, or other preemptive rights. The Company has sold shares of common stock in three tranches.
Tranche 1
From inception through March 2015 shares of common stock were sold in units equivalent to 5,882 shares of common stock per unit. Each unit also included a warrant to purchase up to an additional 1,177 shares of common stock at any time within 30 months from the date the unit was initially purchased, which was subsequently extended for an additional 12 months. The warrants have an exercise price of
F-40
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 11 — Stockholders’ Equity and Share-Based Payments (continued)
 
$1.70 per share. The Company issued a total of 433 units, or 2,547,059 shares, of common stock under the terms of the Tranche 1 stock issuance. As of December 31, 2017, 17,655 shares of common stock had been issued in connection with the exercise of warrants issued in connection with Tranche 1 stock sales.
Tranche 2
During the period from March 2015 through December 2015, shares of common stock were sold in units equivalent to 2 shares of common stock per unit. Each unit also included a warrant to purchase an additional 1 share of common stock at any time within 24 months from the date the unit was initially purchased, which was subsequently extended for an additional 12 months. The warrants have an exercise price of  $2.00 per share. The Company issued a total of 683,464 units, or 1,366,928 shares, of common stock under the terms of the Tranche 2 stock issuance. As of December 31, 2017, 12,962 shares of common stock had been issued in connection with the exercise of warrants issued in connection with Tranche 2 stock sales.
Tranche 3
Beginning January 2016, shares of common stock were sold in units equivalent to 2 shares of common stock and 1 share of Series A preferred stock per unit. As of December 31, 2016, the Company had issued a total of 612,195 units, or 1,224,390 shares, of common stock under the terms of the Tranche 3 stock issuance. As of December 31, 2017, the Company had issued a total of 1,386,229 units, or 2,803,074 shares, of common stock under the terms of the Tranche 3 stock issuance.
During the year ended December 31, 2016, 170,940 of the shares of common stock issued under the terms of the Tranche 3 stock issuance were issued to a third party in exchange for a note receivable from a related party, based on the then current private market selling price of the common stock.
During the year ended December 31, 2016, the Company issued a warrant in connection with a Tranche 3 stock issuance to purchase up to an additional 46,669 shares of common stock at a price of $1.80 per share, at any time from the date of issuance through May 2021.
Warrants
The table below summarizes the warrant activity for the years ended December 31, 2017 and 2016, and the number of potential shares of common stock to be issued in connection with outstanding warrants as of December 31, 2017 and 2016:
​ ​ ​
Shares
​
December 31, 2015
 ​ ​ ​ ​ 1,193,135 ​ ​
Warrants issued
​ ​ ​ ​ 46,669 ​ ​
December 31, 2016
 ​ ​ ​ ​ 1,239,804 ​ ​
Warrants exercised
​ ​ ​ ​ (30,617) ​ ​
December 31, 2017
 ​ ​ ​ ​ 1,209,187 ​ ​
​
As of December 31, 2017 and 2016, the weighted average remaining term, in months, and the weighted average exercise price of the outstanding warrants was as follows:
​ ​ ​
2017
​ ​
2016
​
Weighted-average remaining term (in months)
​ ​ ​ ​ 9.96 ​ ​ ​ ​ ​ 10.35 ​ ​
Weighted-average exercise price
​ ​ ​ $ 1.87 ​ ​ ​ ​ $ 1.87 ​ ​
F-41
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 11 — Stockholders’ Equity and Share-Based Payments (continued)
 
Preferred Stock
Preferred stock may be issued in one or more series, and the voting powers, designations, preferences, limitations, or restrictions thereof, of each series of preferred stock shall be prescribed by resolution of the board of directors.
Share Surrender
Effective January 1, 2016, the Founders surrendered 32,280,462 shares (the “Surrendered Shares”) of their common stock to the Company, thereby relinquishing to the Company all of their rights, title, and interest in the Surrendered Shares.
Non-employee Grants
In August 2014, the Company entered into a consulting agreement with Mercadyne Advisors, LLC (“Mercadyne”) and 6831614 Manitoba Ltd. (collectively, the “Consultants”). Per the agreement, the services to be provided by the Consultants were business consulting related services primarily focused on assisting the Company in accessing capital markets and designing, implementing, and completing a public offering. In exchange for the services, the agreement outlined the Consultants compensation to include a $25,000 monthly fee paid in cash and a contingently exercisable warrant to purchase a 15% equity interest in the Company for an aggregate exercise price of  $1,000, exercisable upon the completion of a public offering. The agreement was amended in February 2015, for the purposes of amending the compensation to be a grant of equity rather than a warrant to purchase a 15% equity interest in the Company on a fully diluted basis as of the date of the amendment, for a price of  $1,000, and to memorialize that all services required to be provided in connection with the agreement had been provided, although a public offering had not been completed. The agreement does not include a stated number of shares of common stock to be issued in exchange for the services provided. As of December 31, 2016, no shares had been issued to the Consultants, and a liability in the amount of  $2,508,051, was reflected on the accompanying consolidated balance sheets. The liability was calculated as the estimated fair value (level 3) as of the measurement date of the estimated shares to be issued. The fair value of the shares to be issued was estimated based on the then current private market selling price of the Company’s common stock, at the measurement date. In estimating the number of shares to be issued, the Company estimated a total of 2,950,648 shares to be issued to the two parties, based on all available information. In March 2017, the Company and Mercadyne entered into a stock subscription agreement which finalized the number of shares of common stock to be issued to Mercadyne in connection with the consulting agreement and related amendment. The final number of shares issued to Mercadyne in connection with the agreement was 1,325,324. At the time of the settlement our liability was reduced by $1,126,525, with a corresponding increase to stockholders’ equity. At December 31, 2017, the Company and 6831614 Manitoba Ltd. were in the process of negotiating the number of shares of common stock to be issued to finalize the arrangement, and the Company had a remaining liability recorded in the amount of  $1,381,526.
2017 Stock Incentive Plan
In July 2017, the Board of Directors of the Company approved the 2017 Incentive Stock Plan (the “2017 Plan”). The 2017 Plan allows the Company to: i) grant stock awards; ii) grant stock options; and iii) offer restricted stock purchases to directors, executives and selected employees, consultants, and advisors. The shares awarded under the terms of the plan will be shares of common stock, and the total number of shares to be issued under the 2017 Plan will not exceed 2,000,000. The specific terms of each award, option, or purchase will be defined at the time each such award, option, or purchase is granted or completed. No awards, options, or restricted stock purchase offers had been issued in connection with the 2017 Plan as of December 31, 2017.
F-42
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 12 — Redeemable Preferred Stock
Series A Preferred Stock
In January 2016, the Company designated 2,564,103 of the 10,000,000 authorized shares of preferred stock as Series A Preferred Stock (“Series A”). The powers, preferences, rights, and limitations of Series A are as follows:
•
Holders of Series A are entitled to receive non-cumulative dividends equal to 12.0% per annum prior to the payment of any dividends to holders of common stock.
​
•
In the event of the liquidation of the Company, holders of Series A are entitled to receive an amount equal to their original contribution plus any declared and accrued but unpaid dividends prior to any payment or distribution to common stock holders.
​
•
Shares of Series A are convertible into shares of common stock at a conversion ratio of 1.25 shares of common stock for each share of Series A, any time prior to a redemption by the Company or a mandatory conversion, at the holders’ option.
​
•
Upon the common stock of the Company publicly trading at a per share price on a weighted-average over 20 trading days at a market capitalization of at least $100,000,000, Series A will automatically be converted into shares of common stock at a conversion ratio of 1.25 shares of common stock for each share of Series A.
​
•
All outstanding shares of Series A shall be redeemed by the Company on the fourth anniversary of the issuance of such shares (the “Redemption Date”) at a price of  $2.25 per share, plus any declared and accrued but unpaid dividends. At any time during the one year period immediately preceding the Redemption Date, the Company may redeem shares of Series A at a price equal to $2.3625 per share.
​
•
Holders of Series A and holders of common stock shall vote together and not as separate classes, and shall be entitled to vote with common stockholders as if their shares were converted into shares of common stock.
​
In January 2016, the Company began selling shares of common stock and Series A in units equivalent to 2 shares of common stock and 1 share of Series A per unit, at a cost of  $5.85 per unit ($1.80 per share of common stock and $2.25 per share of Series A preferred stock). During the year ended December 31, 2017, the Company had issued a total of 688,392 units, or 688,392 shares, of Series A preferred stock. During the year ended December 31, 2016, the Company had issued a total of 697,836 units, or 697,836 shares, of Series A preferred stock.
During the year ended December 31, 2016, 85,470 of the shares of Series A preferred stock issued were issued to a third party in exchange for a note receivable from a related party, based on the then current private market selling price of the common stock.
As of December 31, 2017, the future mandatory redemptions for each year ended December 31, were as follows:
​
2018
​ ​ ​ $ — ​ ​
​
2019
​ ​ ​ ​ — ​ ​
​
2020
​ ​ ​ ​ 1,615,344 ​ ​
​
2021
​ ​ ​ ​ 1,565,136 ​ ​
​ ​ ​ ​ ​ $ 3,180,480 ​ ​
​
F-43
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 12 — Redeemable Preferred Stock (continued)
 
One year following the issuance of Series A Preferred Stock, the Company is required to establish, and contribute to a reserve of funds on a quarterly basis, an amount that shall cumulatively be sufficient to pay any amounts due for the redemption of Series A Preferred Stock. The quarterly contributions to the reserve are required to be at least one-twelfth (1/12) of the total amount needed to pay for the redemption of all of the Series A Preferred Stock then outstanding. At December 31, 2017 and 2016, the required reserve was $384,594 and $0, respectively.
During the years ended December 31, 2017 and 2016, the Company paid dividends to preferred stockholders in the amounts of  $197,825, or $0.25 per share, and $68,927, or $0.16 per share, respectively. At December 31, 2017 and 2016, preferred dividends in arrears were $61,467, or $0.04 per share, and $43,475, or $0.06 per share, respectively.
Note 13 — Net Loss Per Share
Basic and diluted net loss per share attributable to common stockholders for the years ended December 31, 2017 and 2016, was calculated as follows:
​ ​ ​
2017
​ ​
2016
​
Net loss attibutable to CaliberCos, Inc.
​ ​ ​ $ (2,703,463) ​ ​ ​ ​ $ (2,911,105) ​ ​
Preferred stock dividends
​ ​ ​ ​ (197,825) ​ ​ ​ ​ ​ (68,927) ​ ​
Accretion of mezzanine equity value
​ ​ ​ ​ (15,868) ​ ​ ​ ​ ​ (45,599) ​ ​
Net loss attibutable to common stockholders of CaliberCos, Inc.
​ ​ ​ $ (2,917,156) ​ ​ ​ ​ $ (3,025,631) ​ ​
Waighted-average common shares outstanding
​ ​ ​ ​ 25,299,392 ​ ​ ​ ​ ​ 23,486,893 ​ ​
Basic and diluted net loss per share attributable to common stockholders
​ ​ ​ $ (0.12) ​ ​ ​ ​ $ (0.13) ​ ​
​
The computation of diluted loss per share attributable to common stockholders assumes the potential dilutive effect of potential common shares, which includes the exercise of warrants and converted preferred shares. However, to the extent the inclusion of potential common shares is anti-dilutive, the potential common shares are excluded from the computation of diluted income (loss) per share attributable to common stockholders. For the years ended December 31, 2017 and 2016, the inclusion of the effect of any potential exercise of warrants or conversion of preferred shares to common shares is antidilutive, and therefore have been excluded from the computation of loss per share attributable to common stockholders. Additional potential common shares related to the outstanding warrants and preferred shares at December 31, 2017 and 2016 were as follows:
​ ​ ​
2017
​ ​
2016
​
Additional common shares, if warrants were exercised
​ ​ ​ ​ 1,209,187 ​ ​ ​ ​ ​ 1,239,804 ​ ​
Additional common shares, if preferred shares were converted
​ ​ ​ ​ 1,732,786 ​ ​ ​ ​ ​ 872,081 ​ ​
​ ​ ​ ​ ​ 2,941,973 ​ ​ ​ ​ ​ 2,111,885 ​ ​
​
Note 14 — Fair Value of Financial Instruments
The Company estimates fair values of financial instruments using available market information and established valuation methodologies. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or valuation methodologies may have a material effect on the estimated fair value amounts.
Financial instruments that approximate fair value due to the short-term nature of the instruments consist of cash, restricted cash, accounts receivable, and accounts payable. The fair values of long-term debt, advance key money, and interest rate caps have been estimated based on current rates available for
F-44
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 14 — Fair Value of Financial Instruments (continued)
 
similar instruments with similar terms, maturities, and collateral. The carrying values of the Company’s long-term debt, advance key money, and interest rate caps as of December 31, 2016, all approximated fair value, all of which were measured with Level 3 inputs. The carrying values of the Company’s long-term debt, advance key money, and interest rate caps as of December 31, 2017, approximated fair value, with the exception of the long-term debt instruments listed below, all of which were measured with Level 3 inputs. The estimated fair values for the instruments below were determined by management based on a discounted future cash-flow model.
​ ​ ​
December 31, 2017
​
​ ​ ​
Carrying Value
​ ​
Fair Value
​
Notes payable: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Hilton Tucson East Hotel
​ ​ ​ $ 12,730,000 ​ ​ ​ ​ $ 12,611,000 ​ ​
Hampton Inn & Suites Hotel
​ ​ ​ $ 6,868,347 ​ ​ ​ ​ $ 6,601,000 ​ ​
Palms Apartment Portfolio
​ ​ ​ $ 9,603,918 ​ ​ ​ ​ $ 9,012,000 ​ ​
Note 15 — Segment Reporting
The Company’s operations are organized into eight reportable segments for management and financial reporting purposes, which are broadly separated in two categories; real estate services (Fund/Asset Management, Construction & Development, Property Management, Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified). Each segment is described below.
Real Estate Services
Fund/Asset Management
This segment includes all of our corporate operations, as well as the revenue generated by the fund/​asset management services and capital raising services provided to the private equity real estate funds which the Company is affiliated with.
Construction & Development
This segment includes our construction and development operations. The Company provides a variety of construction and development services to affiliated entities as well as third parties.
Property Management
This segment includes our property management operations. The Company provides a comprehensive range of services including tenant screening, lease-up, collections, repairs and maintenance, and eviction/​removal for affiliated entities as well as third parties.
Real Estate Brokerage
This segment includes our real estate brokerage operations. The Company generates commission revenue by acting as a broker for residential and commercial real estate owners and investors seeking to buy and/or sell properties, including investment properties, as well as primary residences. The Company provides brokerage services to affiliated entities as well as third parties.
F-45
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 15 — Segment Reporting (continued)
 
Real Estate Operations
Hospitality
This segment includes all of the operating activity of the hotel properties which are affiliates of the Company.
Residential
This segment includes all of the operating activity of the single-family assets, which are owned by the Company, and multi-family assets, which are owned and/or managed by the Company. The Company is involved in both the sale and rental of residential real estate assets. This segment also includes residential property development projects in various stages of completion.
Commercial
This segment includes all of the operating activity of the commercial properties which are affiliates of the Company. The Company is involved in both the sale and rental of commercial real estate assets. This segment also includes commercial property development projects in various stages of completion.
Diversified
This segment includes the operating activities of certain entities which are involved in the financing of various affiliated real estate properties through both debt and equity investments.
Due to the diversity of our economic ownership interests across our properties, our chief executive officer, who is our chief operating decision maker (“CODM”), assesses the operating performance of our assets based on our proportionate share of operating income (loss).
The information below includes the operating results and measures of profitability for all operating entities which the Company and our CODM analyze on a regular basis, as the ultimate profitability of each entity, and value of its assets, will impact the ultimate profitability of the Company. The results of each segment are shown on a gross basis, prior to the elimination of any inter-segment transactions. Total assets of each segment are presented on a gross basis, prior to the elimination of any inter-segment balances and inter-segment transactions. The eliminations include all necessary adjustments to: i) eliminate inter-segment transactions; ii) eliminate the results of entities that are not included in our consolidated U.S. GAAP financial statements; and iii) reclassify items to our U.S. GAAP consolidated results presentation. The following tables present the revenues, operating income (loss), and net income (loss) of each of our reportable segments for the years ended December 31, 2017 and 2016, and total assets as of December 31, 2017 and 2016:
F-46
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 15 — Segment Reporting (continued)
​ ​ ​
December 31, 2017
​
​ ​ ​
Real Estate Services
​ ​
Real Estate Operations
​ ​
Eliminations
​ ​
CaliberCos, Inc.
& Subsidiaries
​
​ ​ ​
Fund/Asset
Management
​ ​
Construction &
Development
​ ​
Property
Management
​ ​
Real Estate
Brokerage
​ ​
Total
​ ​
Hospitality
​ ​
Residential
​ ​
Commercial
​ ​
Diversified
​ ​
Total
​ ​
Intercompany
​ ​
Non -
consolidated
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Hospitality
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 46,283,522 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 46,283,522 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ (2,221,415) ​ ​ ​ ​ $ 44,062,107 ​ ​
Construction and development
 ​ ​ ​ ​ — ​ ​ ​ ​ ​ 20,565,534 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 20,565,534 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (15,949,552) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,615,982 ​ ​
Real estate sales
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,877,470 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,877,470 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,877,470 ​ ​
Rental income
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,613,774 ​ ​ ​ ​ ​ 964,115 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 8,577,889 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (3,605,086) ​ ​ ​ ​ ​ 4,972,803 ​ ​
Fund management
​ ​ ​ ​ 3,453,453 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,453,453 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 30,000 ​ ​ ​ ​ ​ 30,000 ​ ​ ​ ​ ​ (1,791,623) ​ ​ ​ ​ ​ (30,000) ​ ​ ​ ​ ​ 1,661,830 ​ ​
Property management
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 700,870 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 700,870 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (215,140) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 485,730 ​ ​
Brokerage
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,860,411 ​ ​ ​ ​ ​ 1,860,411 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,545,764) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 314,647 ​ ​
Capital raise fees
​ ​ ​ ​ 544,312 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 544,312 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (115,745) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 428,567 ​ ​
Total revenues
​ ​ ​ ​ 3,997,765 ​ ​ ​ ​ ​ 20,565,534 ​ ​ ​ ​ ​ 700,870 ​ ​ ​ ​ ​ 1,860,411 ​ ​ ​ ​ ​ 27,124,580 ​ ​ ​ ​ ​ 46,283,522 ​ ​ ​ ​ ​ 15,491,244 ​ ​ ​ ​ ​ 964,115 ​ ​ ​ ​ ​ 30,000 ​ ​ ​ ​ ​ 62,768,881 ​ ​ ​ ​ ​ (19,617,824) ​ ​ ​ ​ ​ (6,851,743) ​ ​ ​ ​ ​ 64,419,136 ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – hospitality
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 18,185,547 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 18,185,547 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,458,059) ​ ​ ​ ​ ​ 16,727,488 ​ ​
Cost of sales – construction/​development
​ ​ ​ ​ — ​ ​ ​ ​ ​ 18,622,858 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 18,622,858 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (14,517,120) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,105,738 ​ ​
Cost of sales – real estate
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,085,829 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,085,829 ​ ​ ​ ​ ​ (154,891) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,930,938 ​ ​
Cost of sales – brokerage
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,445,458 ​ ​ ​ ​ ​ 1,445,458 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,390,873) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 54,585 ​ ​
Operating costs
​ ​ ​ ​ 453,396 ​ ​ ​ ​ ​ 543,337 ​ ​ ​ ​ ​ 677,813 ​ ​ ​ ​ ​ 15,748 ​ ​ ​ ​ ​ 1,690,294 ​ ​ ​ ​ ​ 7,545,355 ​ ​ ​ ​ ​ 4,218,934 ​ ​ ​ ​ ​ 744,332 ​ ​ ​ ​ ​ 36,086 ​ ​ ​ ​ ​ 12,544,707 ​ ​ ​ ​ ​ (26,136) ​ ​ ​ ​ ​ (2,632,789) ​ ​ ​ ​ ​ 11,576,076 ​ ​
General and administrative
​ ​ ​ ​ 5,058,814 ​ ​ ​ ​ ​ 35,609 ​ ​ ​ ​ ​ 87,483 ​ ​ ​ ​ ​ 124,385 ​ ​ ​ ​ ​ 5,306,291 ​ ​ ​ ​ ​ 5,110,525 ​ ​ ​ ​ ​ 609,122 ​ ​ ​ ​ ​ 30,448 ​ ​ ​ ​ ​ 796,882 ​ ​ ​ ​ ​ 6,546,977 ​ ​ ​ ​ ​ (480,998) ​ ​ ​ ​ ​ (1,645,146) ​ ​ ​ ​ ​ 9,727,124 ​ ​
Marketing and advertising
​ ​ ​ ​ 272,402 ​ ​ ​ ​ ​ 8,904 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 60,003 ​ ​ ​ ​ ​ 341,309 ​ ​ ​ ​ ​ 3,398,913 ​ ​ ​ ​ ​ 158,075 ​ ​ ​ ​ ​ 60,895 ​ ​ ​ ​ ​ 70,006 ​ ​ ​ ​ ​ 3,687,889 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (498,385) ​ ​ ​ ​ ​ 3,530,813 ​ ​
Franchise fees
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,067,828 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,067,828 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (35,630) ​ ​ ​ ​ ​ 3,032,198 ​ ​
Management fees
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 880 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 880 ​ ​ ​ ​ ​ 2,498,623 ​ ​ ​ ​ ​ 728,129 ​ ​ ​ ​ ​ 264,604 ​ ​ ​ ​ ​ 771,718 ​ ​ ​ ​ ​ 4,263,074 ​ ​ ​ ​ ​ (1,350,381) ​ ​ ​ ​ ​ (1,292,351) ​ ​ ​ ​ ​ 1,621,222 ​ ​
Depreciation
​ ​ ​ ​ 98,365 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 98,365 ​ ​ ​ ​ ​ 5,518,624 ​ ​ ​ ​ ​ 2,157,223 ​ ​ ​ ​ ​ 440,375 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 8,116,222 ​ ​ ​ ​ ​ (168,515) ​ ​ ​ ​ ​ (2,481,943) ​ ​ ​ ​ ​ 5,564,129 ​ ​
Total expenses
​ ​ ​ ​ 5,882,977 ​ ​ ​ ​ ​ 19,210,708 ​ ​ ​ ​ ​ 766,176 ​ ​ ​ ​ ​ 1,645,594 ​ ​ ​ ​ ​ 27,505,455 ​ ​ ​ ​ ​ 45,325,415 ​ ​ ​ ​ ​ 14,957,312 ​ ​ ​ ​ ​ 1,540,654 ​ ​ ​ ​ ​ 1,674,692 ​ ​ ​ ​ ​ 63,498,073 ​ ​ ​ ​ ​ (18,088,914) ​ ​ ​ ​ ​ (10,547,183) ​ ​ ​ ​ ​ 62,870,311 ​ ​
Operating Income (Loss)
 ​ ​ ​ ​ (1,885,212) ​ ​ ​ ​ ​ 1,354,826 ​ ​ ​ ​ ​ (65,306) ​ ​ ​ ​ ​ 214,817 ​ ​ ​ ​ ​ (380,875) ​ ​ ​ ​ ​ 958,107 ​ ​ ​ ​ ​ 533,932 ​ ​ ​ ​ ​ (576,539) ​ ​ ​ ​ ​ (1,644,692) ​ ​ ​ ​ ​ (236,830) ​ ​ ​ ​ ​ (1,528,910) ​ ​ ​ ​ ​ 3,695,440 ​ ​ ​ ​ ​ 1,548,825 ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ 152,498 ​ ​ ​ ​ ​ 9,718 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 162,216 ​ ​ ​ ​ ​ 532,391 ​ ​ ​ ​ ​ 264,641 ​ ​ ​ ​ ​ 17,501 ​ ​ ​ ​ ​ (1,217) ​ ​ ​ ​ ​ 813,316 ​ ​ ​ ​ ​ (21,541) ​ ​ ​ ​ ​ (340,045) ​ ​ ​ ​ ​ 613,946 ​ ​
Income from investments
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (3,807,830) ​ ​ ​ ​ ​ (3,807,830) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 3,807,830 ​ ​ ​ ​ ​ — ​ ​
Interest income
​ ​ ​ ​ (856) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (856) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (23,571) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,414,847) ​ ​ ​ ​ ​ (1,438,418) ​ ​ ​ ​ ​ 856 ​ ​ ​ ​ ​ 1,438,418 ​ ​ ​ ​ ​ — ​ ​
Impairment
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 460,906 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 460,906 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 460,906 ​ ​
Gain on disposition of real estate
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,478,865) ​ ​ ​ ​ ​ (492,362) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,478,865) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 492,362 ​ ​ ​ ​ ​ (1,478,865) ​ ​
Interest expense
​ ​ ​ ​ 1,463,763 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,478 ​ ​ ​ ​ ​ 1,467,241 ​ ​ ​ ​ ​ 7,786,175 ​ ​ ​ ​ ​ 2,598,563 ​ ​ ​ ​ ​ 640,343 ​ ​ ​ ​ ​ 2,649,432 ​ ​ ​ ​ ​ 13,674,513 ​ ​ ​ ​ ​ (124,196) ​ ​ ​ ​ ​ (4,559,136) ​ ​ ​ ​ ​ 10,458,422 ​ ​
Total other expenses, net
​ ​ ​ ​ 1,615,405 ​ ​ ​ ​ ​ 9,718 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,478 ​ ​ ​ ​ ​ 1,628,601 ​ ​ ​ ​ ​ 8,318,566 ​ ​ ​ ​ ​ 1,821,674 ​ ​ ​ ​ ​ 165,482 ​ ​ ​ ​ ​ (2,574,462) ​ ​ ​ ​ ​ 8,223,622 ​ ​ ​ ​ ​ (144,881) ​ ​ ​ ​ ​ 839,429 ​ ​ ​ ​ ​ 10,054,409 ​ ​
Net Income (Loss)
 ​ ​ ​ $ (3,500,617) ​ ​ ​ ​ $ 1,345,108 ​ ​ ​ ​ $ (65,306) ​ ​ ​ ​ $ 211,339 ​ ​ ​ ​ $ (2,009,476) ​ ​ ​ ​ $ (7,360,459) ​ ​ ​ ​ $ (1,287,742) ​ ​ ​ ​ $ (742,021) ​ ​ ​ ​ $ 929,770 ​ ​ ​ ​ $ (8,460,452) ​ ​ ​ ​ $ (1,384,029) ​ ​ ​ ​ $ 3,348,373 ​ ​ ​ ​ $ (8,505,584) ​ ​
Total real estate investments, at
cost 
 ​ ​ ​ ​ 587,277 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 587,277 ​ ​ ​ ​ ​ 125,329,509 ​ ​ ​ ​ ​ 66,841,452 ​ ​ ​ ​ ​ 22,008,704 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 214,179,665 ​ ​ ​ ​ ​ (2,618,266) ​ ​ ​ ​ ​ (65,674,328) ​ ​ ​ ​ ​ 146,474,348 ​ ​
Total Assets
​ ​ ​ $ 3,966,716 ​ ​ ​ ​ $ 4,737,557 ​ ​ ​ ​ $ 68,196 ​ ​ ​ ​ $ 138,567 ​ ​ ​ ​ $ 8,911,036 ​ ​ ​ ​ $ 124,804,080 ​ ​ ​ ​ $ 68,062,361 ​ ​ ​ ​ $ 24,075,191 ​ ​ ​ ​ $ 52,378,056 ​ ​ ​ ​ $ 269,319,688 ​ ​ ​ ​ $ (6,848,249) ​ ​ ​ ​ $ (118,603,267) ​ ​ ​ ​ $ 152,779,208 ​ ​
​
F-47
CALIBERCOS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 15 — Segment Reporting (continued)
​ ​ ​
December 31, 2016
​
​ ​ ​
Real Estate Services
​ ​
Real Estate Operations
​ ​
Eliminations
​ ​
CaliberCos, Inc.
& Subsidiaries
​
​ ​ ​
Fund/Asset
Management
​ ​
Construction &
Development
​ ​
Property
Management
​ ​
Real Estate
Brokerage
​ ​
Total
​ ​
Hospitality
​ ​
Residential
​ ​
Commercial
​ ​
Diversified
​ ​
Total
​ ​
Intercompany
​ ​
Non -
consolidated
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Hospitality
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 29,747,361 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 29,747,361 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ (1,946,658) ​ ​ ​ ​ $ 27,800,703 ​ ​
Construction and development
 ​ ​ ​ ​ — ​ ​ ​ ​ ​ 11,647,019 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 11,647,019 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (6,738,293) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,908,726 ​ ​
Real estate sales
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,102,800 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,102,800 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (658,400) ​ ​ ​ ​ ​ 2,444,400 ​ ​
Rental income
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,090,164 ​ ​ ​ ​ ​ 589,108 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,679,272 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (2,075,065) ​ ​ ​ ​ ​ 2,604,207 ​ ​
Fund management
​ ​ ​ ​ 2,285,399 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,285,399 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,308,617) ​ ​ ​ ​ ​ (69) ​ ​ ​ ​ ​ 976,713 ​ ​
Property management
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 609,551 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 609,551 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (153,079) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 456,472 ​ ​
Brokerage
​ ​ ​ ​ ​ ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,725,377 ​ ​ ​ ​ ​ 2,725,377 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (2,363,189) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 362,188 ​ ​
Capital raise fees
​ ​ ​ ​ 831,685 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 831,685 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (731,454) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 100,231 ​ ​
Other
​ ​ ​ ​ 104,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 104,000 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 50,950 ​ ​ ​ ​ ​ 50,950 ​ ​ ​ ​ ​ (104,000) ​ ​ ​ ​ ​ (50,950) ​ ​ ​ ​ ​ — ​ ​
Total revenues
​ ​ ​ ​ 3,221,084 ​ ​ ​ ​ ​ 11,647,019 ​ ​ ​ ​ ​ 609,551 ​ ​ ​ ​ ​ 2,725,377 ​ ​ ​ ​ ​ 18,203,031 ​ ​ ​ ​ ​ 29,747,361 ​ ​ ​ ​ ​ 7,192,964 ​ ​ ​ ​ ​ 589,108 ​ ​ ​ ​ ​ 50,950 ​ ​ ​ ​ ​ 37,580,383 ​ ​ ​ ​ ​ (11,398,632) ​ ​ ​ ​ ​ (4,731,142) ​ ​ ​ ​ ​ 39,653,640 ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – hospitality
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 12,068,190 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 12,068,190 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,527,187) ​ ​ ​ ​ ​ 10,541,003 ​ ​
Cost of sales – construction/​
development
​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,851,862 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,851,862 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (5,662,005) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,189,857 ​ ​
Cost of sales – real estate
 ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,198,400 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,198,400 ​ ​ ​ ​ ​ (41,794) ​ ​ ​ ​ ​ (592,363) ​ ​ ​ ​ ​ 2,564,243 ​ ​
Cost of sales – brokerage
 ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,272,185 ​ ​ ​ ​ ​ 1,272,185 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,167,815) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 104,370 ​ ​
Operating costs
​ ​ ​ ​ 237,564 ​ ​ ​ ​ ​ 922,858 ​ ​ ​ ​ ​ 629,430 ​ ​ ​ ​ ​ 34,116 ​ ​ ​ ​ ​ 1,823,968 ​ ​ ​ ​ ​ 5,572,973 ​ ​ ​ ​ ​ 2,801,741 ​ ​ ​ ​ ​ 611,156 ​ ​ ​ ​ ​ 51,092 ​ ​ ​ ​ ​ 9,036,962 ​ ​ ​ ​ ​ (1,072,802) ​ ​ ​ ​ ​ (2,373,853) ​ ​ ​ ​ ​ 7,414,275 ​ ​
General and administrative 
 ​ ​ ​ ​ 4,447,216 ​ ​ ​ ​ ​ 15,794 ​ ​ ​ ​ ​ 24,987 ​ ​ ​ ​ ​ 35,000 ​ ​ ​ ​ ​ 4,522,997 ​ ​ ​ ​ ​ 3,520,652 ​ ​ ​ ​ ​ 243,867 ​ ​ ​ ​ ​ 282,344 ​ ​ ​ ​ ​ 140,719 ​ ​ ​ ​ ​ 4,187,582 ​ ​ ​ ​ ​ (674,743) ​ ​ ​ ​ ​ (1,075,151) ​ ​ ​ ​ ​ 6,960,685 ​ ​
Marketing and advertising 
 ​ ​ ​ ​ 368,756 ​ ​ ​ ​ ​ 400 ​ ​ ​ ​ ​ 3,137 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 372,293 ​ ​ ​ ​ ​ 2,373,757 ​ ​ ​ ​ ​ 63,334 ​ ​ ​ ​ ​ 54,399 ​ ​ ​ ​ ​ 27,073 ​ ​ ​ ​ ​ 2,518,563 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (501,434) ​ ​ ​ ​ ​ 2,389,422 ​ ​
Franchise fees
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,886,930 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,886,930 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,886,930 ​ ​
Management fees
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,970,662 ​ ​ ​ ​ ​ 375,900 ​ ​ ​ ​ ​ 198,002 ​ ​ ​ ​ ​ 611,648 ​ ​ ​ ​ ​ 3,156,212 ​ ​ ​ ​ ​ (931,715) ​ ​ ​ ​ ​ (1,046,519) ​ ​ ​ ​ ​ 1,177,978 ​ ​
Depreciation
​ ​ ​ ​ 106,989 ​ ​ ​ ​ ​ 1,621 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 108,610 ​ ​ ​ ​ ​ 3,598,640 ​ ​ ​ ​ ​ 1,892,159 ​ ​ ​ ​ ​ 414,316 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,905,115 ​ ​ ​ ​ ​ (32,872) ​ ​ ​ ​ ​ (2,047,368) ​ ​ ​ ​ ​ 3,933,485 ​ ​
Total expenses
​ ​ ​ ​ 5,160,525 ​ ​ ​ ​ ​ 10,792,535 ​ ​ ​ ​ ​ 657,554 ​ ​ ​ ​ ​ 1,341,301 ​ ​ ​ ​ ​ 17,951,915 ​ ​ ​ ​ ​ 30,991,804 ​ ​ ​ ​ ​ 8,575,401 ​ ​ ​ ​ ​ 1,560,217 ​ ​ ​ ​ ​ 830,532 ​ ​ ​ ​ ​ 41,957,954 ​ ​ ​ ​ ​ (9,583,746) ​ ​ ​ ​ ​ (9,163,875) ​ ​ ​ ​ ​ 41,162,248 ​ ​
Operating Income (Loss)
 ​ ​ ​ ​ (1,939,441) ​ ​ ​ ​ ​ 854,484 ​ ​ ​ ​ ​ (48,003) ​ ​ ​ ​ ​ 1,384,076 ​ ​ ​ ​ ​ 251,116 ​ ​ ​ ​ ​ (1,244,443) ​ ​ ​ ​ ​ (1,382,437) ​ ​ ​ ​ ​ (786,818) ​ ​ ​ ​ ​ (779,582) ​ ​ ​ ​ ​ (4,377,571) ​ ​ ​ ​ ​ (1,814,886) ​ ​ ​ ​ ​ 4,432,733 ​ ​ ​ ​ ​ (1,508,608) ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
 ​ ​ ​ ​ (615) ​ ​ ​ ​ ​ (1,619) ​ ​ ​ ​ ​ 449 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,785) ​ ​ ​ ​ ​ 362,548 ​ ​ ​ ​ ​ 150,620 ​ ​ ​ ​ ​ 3,196 ​ ​ ​ ​ ​ 22,101 ​ ​ ​ ​ ​ 538,465 ​ ​ ​ ​ ​ (70,080) ​ ​ ​ ​ ​ (309,636) ​ ​ ​ ​ ​ 156,964 ​ ​
Income from investments
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (494,613) ​ ​ ​ ​ ​ (494,613) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 494,613 ​ ​ ​ ​ ​ — ​ ​
Interest income
​ ​ ​ ​ (34,841) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (34,841) ​ ​ ​ ​ ​ (13,622) ​ ​ ​ ​ ​ (2,648) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,447,205) ​ ​ ​ ​ ​ (1,463,475) ​ ​ ​ ​ ​ 51,108 ​ ​ ​ ​ ​ 1,447,208 ​ ​ ​ ​ ​ — ​ ​
Impairment
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 348,286 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 348,286 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 348,286 ​ ​
(Gain) loss from disposal/​
damage, net
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (220) ​ ​ ​ ​ ​ 1,871,335 ​ ​ ​ ​ ​ (184,291) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,686,824 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 184,291 ​ ​ ​ ​ ​ 1,871,115 ​ ​
Interest expense
​ ​ ​ ​ 1,317,158 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,317,158 ​ ​ ​ ​ ​ 4,262,497 ​ ​ ​ ​ ​ 1,988,265 ​ ​ ​ ​ ​ 283,327 ​ ​ ​ ​ ​ 1,633,413 ​ ​ ​ ​ ​ 8,167,502 ​ ​ ​ ​ ​ (115,788) ​ ​ ​ ​ ​ (2,901,139) ​ ​ ​ ​ ​ 6,467,733 ​ ​
Total other expenses, net
​ ​ ​ ​ 1,281,702 ​ ​ ​ ​ ​ (1,619) ​ ​ ​ ​ ​ 449 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,280,532 ​ ​ ​ ​ ​ 4,611,203 ​ ​ ​ ​ ​ 4,355,858 ​ ​ ​ ​ ​ 102,232 ​ ​ ​ ​ ​ (286,304) ​ ​ ​ ​ ​ 8,782,989 ​ ​ ​ ​ ​ (134,760) ​ ​ ​ ​ ​ (1,084,663) ​ ​ ​ ​ ​ 8,844,098 ​ ​
Net Income (Loss)
 ​ ​ ​ $ (3,221,143) ​ ​ ​ ​ $ 856,103 ​ ​ ​ ​ $ (48,452) ​ ​ ​ ​ $ 1,384,076 ​ ​ ​ ​ $ (1,029,416) ​ ​ ​ ​ $ (5,855,646) ​ ​ ​ ​ $ (5,738,295) ​ ​ ​ ​ $ (1,073,341) ​ ​ ​ ​ $ (493,278) ​ ​ ​ ​ $ (13,160,560) ​ ​ ​ ​ $ (1,680,126) ​ ​ ​ ​ $ 5,517,396 ​ ​ ​ ​ $ (10,352,706) ​ ​
Total real estate investments, at
cost 
 ​ ​ ​ ​ 562,732 ​ ​ ​ ​ ​ 15,842 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 578,574 ​ ​ ​ ​ ​ 111,533,386 ​ ​ ​ ​ ​ 61,261,918 ​ ​ ​ ​ ​ 8,571,228 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 181,366,532 ​ ​ ​ ​ ​ (1,211,970) ​ ​ ​ ​ ​ (43,876,706) ​ ​ ​ ​ ​ 136,856,430 ​ ​
Total Assets
​ ​ ​ $ 4,897,673 ​ ​ ​ ​ $ 2,488,398 ​ ​ ​ ​ $ 476,717 ​ ​ ​ ​ $ 95,563 ​ ​ ​ ​ $ 7,958,351 ​ ​ ​ ​ $ 121,842,882 ​ ​ ​ ​ $ 60,582,583 ​ ​ ​ ​ $ 9,162,520 ​ ​ ​ ​ $ 45,277,412 ​ ​ ​ ​ $ 236,865,397 ​ ​ ​ ​ $ (5,973,309) ​ ​ ​ ​ $ (88,578,262) ​ ​ ​ ​ $ 150,272,177 ​ ​
​
F-48
CALIBERCOS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 16 — Revision of Prior Year Consolidated Financial Statements
In the Company’s prior year consolidated financial statements the net loss attributable to noncontrolling interests did not include an allocation of the charges from CaliberCos, Inc. and its wholly-owned subsidiaries to entities that are consolidated VIEs. CaliberCos, Inc. and its wholly-owned subsidiaries charge the consolidated VIEs various fees for services including construction and development, asset management, property management, real estate brokerage, and capital raising. In the current year presentation, the prior year cost of such fees, which are eliminated in consolidation, have been allocated to the net loss attributable to noncontrolling interests. These adjustments did not effect previously reported net loss. The adjustments that have been made in the current year consolidated financial statements to the previously reported financial statements are outlined below, as of, and for the year ended December 31, 2016.
​ ​ ​
As Previously
Reported
​ ​
Adjustment
​ ​
As Adjusted
​
Consolidated Balance Sheet ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Accumulated deficit
​ ​ ​ $ (22,055,045) ​ ​ ​ ​ $ 3,748,700 ​ ​ ​ ​ $ (18,306,345) ​ ​
Stockholders’ deficit attributable to CaliberCos, Inc.
​ ​ ​ ​ (15,012,565) ​ ​ ​ ​ ​ 3,748,700 ​ ​ ​ ​ ​ (11,263,865) ​ ​
Stockholders’ equity attributable to noncontrolling interests 
 ​ ​ ​ ​ 34,747,782 ​ ​ ​ ​ ​ (3,748,700) ​ ​ ​ ​ ​ 30,999,082 ​ ​
Consolidated Statement of Operations ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net loss attributable to noncontrolling interests
​ ​ ​ ​ (5,007,352) ​ ​ ​ ​ ​ (2,434,249) ​ ​ ​ ​ ​ (7,441,601) ​ ​
Net Loss Attributable to CaliberCos, Inc.
​ ​ ​ ​ (5,345,354) ​ ​ ​ ​ ​ 2,434,249 ​ ​ ​ ​ ​ (2,911,105) ​ ​
Basic and diluted net loss per share attributable to common
stockholders
​ ​ ​ $ (0.23) ​ ​ ​ ​ $ 0.10 ​ ​ ​ ​ $ (0.13) ​ ​
Consolidated Statement of Changes in Stockholders’ Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Accumulated Deficit – December 31, 2015
​ ​ ​ $ (16,595,165) ​ ​ ​ ​ $ 1,314,451 ​ ​ ​ ​ $ (15,280,714) ​ ​
Noncontrolling Interests – December 31, 2015
​ ​ ​ ​ 17,168,485 ​ ​ ​ ​ ​ (1,314,451) ​ ​ ​ ​ ​ 15,854,034 ​ ​
Net loss attributable to noncontrolling interests
​ ​ ​ ​ (5,007,352) ​ ​ ​ ​ ​ (2,434,249) ​ ​ ​ ​ ​ (7,441,601) ​ ​
Net Loss Attributable to CaliberCos, Inc.
​ ​ ​ ​ (5,345,354) ​ ​ ​ ​ ​ 2,434,249 ​ ​ ​ ​ ​ (2,911,105) ​ ​
Accumulated Deficit – December 31, 2016
​ ​ ​ ​ (22,055,045) ​ ​ ​ ​ ​ 3,748,700 ​ ​ ​ ​ ​ (18,306,345) ​ ​
Noncontrolling Interests – December 31, 2016
​ ​ ​ ​ 34,747,782 ​ ​ ​ ​ ​ (3,748,700) ​ ​ ​ ​ ​ 30,999,082 ​ ​
Note 17 — Subsequent Events
The Company evaluated all events and transactions that occurred after December 31, 2017, through April 13, 2018, the date these consolidated financial statements were issued, and has determined that other than as disclosed below, there have been no subsequent events after December 31, 2017, for which recognition or disclosure is required.
In March 2018, the Company received insurance proceeds in the amount of  $982,714, settling its claim related to damages to one of our multi-family properties in Phoenix, Arizona, resulting from severe weather in July 2016.
In March 2018, the $165,000 note payable to CDOF II was repaid in full, in advance of its scheduled maturity date.
During the period from January 1, 2018, through April 13, 2018, the Company repaid a total of $200,000 of the principal balance outstanding on our unsecured borrowing which accrues interest at 33.0%, reducing the outstanding principal balance to $647,500.
F-49
CALIBERCOS, INC. AND SUBSIDIARIES
 
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
 
Note 17 — Subsequent Events (continued)
 
During the period from January 1, 2018, through April 13, 2018, the Company repaid a total of $1,882,000 of the notes payable to CFIF II which were outstanding at December 31, 2017, reducing the outstanding principal balance to $5,955,000.
During the period from January 1, 2018, through April 13, 2018, warrants were exercised, resulting in the issuance of an additional 7,062 shares of common stock for total consideration of  $12,005.
During the period from January 1, 2018, through April 13, 2018, the Company converted $36,998 of the principal balance outstanding in connection with Corporate Notes to equity, issuing 12,469 shares of common stock and 6,324 shares of Series A preferred stock.
During the period from January 1, 2018, through April 13, 2018, the Company sold 255,622 units, or 511,244 shares of common stock and 255,622 shares of Series A preferred stock, under the terms of the Tranche 3 stock issuance, for total consideration of  $1,495,389.
As of April 13, 2018, the date these consolidated financial statements were issued, the Company had 27,328,432 shares of common stock and 1,648,175 shares of preferred stock outstanding.
F-50
CALIBERCOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
​ ​ ​
June 30,
2018
​ ​
December 31,
2017
​
​ ​ ​
(Unaudited)
 ​ ​ ​ ​ ​ ​ ​
Assets ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Real estate investments
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Land and land improvements
​ ​ ​ $ 24,916,477 ​ ​ ​ ​ $ 20,261,083 ​ ​
Buildings and building improvements
​ ​ ​ ​ 106,620,048 ​ ​ ​ ​ ​ 91,537,069 ​ ​
Furniture, fixtures, and equipment
​ ​ ​ ​ 20,832,637 ​ ​ ​ ​ ​ 19,728,145 ​ ​
Real estate assets under construction
​ ​ ​ ​ — ​ ​ ​ ​ ​ 13,523,716 ​ ​
Real estate assets held for sale
​ ​ ​ ​ 11,334,728 ​ ​ ​ ​ ​ 1,424,335 ​ ​
Total real estate investments, at cost
​ ​ ​ ​ 163,703,890 ​ ​ ​ ​ ​ 146,474,348 ​ ​
Accumulated depreciation
​ ​ ​ ​ (16,712,680) ​ ​ ​ ​ ​ (13,764,437) ​ ​
Total real estate investments, net
​ ​ ​ ​ 146,991,210 ​ ​ ​ ​ ​ 132,709,911 ​ ​
Cash
​ ​ ​ ​ 3,284,769 ​ ​ ​ ​ ​ 6,106,778 ​ ​
Restricted cash
​ ​ ​ ​ 7,049,365 ​ ​ ​ ​ ​ 6,656,826 ​ ​
Accounts receivable, net
​ ​ ​ ​ 1,082,239 ​ ​ ​ ​ ​ 1,041,984 ​ ​
Other receivables
​ ​ ​ ​ 89,034 ​ ​ ​ ​ ​ 89,505 ​ ​
Notes receivable – related parties
​ ​ ​ ​ 277,978 ​ ​ ​ ​ ​ 277,978 ​ ​
Due from related parties
​ ​ ​ ​ 4,507,720 ​ ​ ​ ​ ​ 3,021,545 ​ ​
Prepaid and other assets
​ ​ ​ ​ 2,756,510 ​ ​ ​ ​ ​ 2,874,681 ​ ​
Total Assets
 ​ ​ ​ $ 166,038,825 ​ ​ ​ ​ $ 152,779,208 ​ ​
Liabilities, Mezzanine Equity, and Stockholders’ Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Notes payable (net of deferred financing costs of  $1,046,079 and $1,949,834 at June 30, 2018 and December 31, 2017, respectively)
 ​ ​ ​ $ 113,256,735 ​ ​ ​ ​ $ 100,946,351 ​ ​
Notes payable – related parties
​ ​ ​ ​ 6,904,796 ​ ​ ​ ​ ​ 9,126,978 ​ ​
Accounts payable
​ ​ ​ ​ 3,511,578 ​ ​ ​ ​ ​ 4,276,388 ​ ​
Accrued interest
​ ​ ​ ​ 2,098,873 ​ ​ ​ ​ ​ 2,302,028 ​ ​
Accrued share-based payments
​ ​ ​ ​ 1,381,526 ​ ​ ​ ​ ​ 1,381,526 ​ ​
Accrued expenses
​ ​ ​ ​ 3,661,272 ​ ​ ​ ​ ​ 3,395,620 ​ ​
Due to related parties
​ ​ ​ ​ 2,708,014 ​ ​ ​ ​ ​ 2,009,115 ​ ​
Advance key money, net
​ ​ ​ ​ 1,237,500 ​ ​ ​ ​ ​ 1,275,000 ​ ​
Above-market ground lease, net
​ ​ ​ ​ 3,950,369 ​ ​ ​ ​ ​ 4,013,072 ​ ​
Other liabilities
​ ​ ​ ​ 945,097 ​ ​ ​ ​ ​ 1,580,550 ​ ​
Total Liabilities
 ​ ​ ​ ​ 139,655,760 ​ ​ ​ ​ ​ 130,306,628 ​ ​
Commitments and Contingencies ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Mezzanine equity – Series A convertible, mandatorily redeemable preferred
stock, $0.001 par value; 2,564,103 shares authorized and 1,657,396 and
1,386,229 issued and outstanding at June 30, 2018 and December 31,
2017, respectively
​ ​ ​ ​ 3,840,210 ​ ​ ​ ​ ​ 3,180,480 ​ ​
Stockholders’ (Deficit) Equity ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Common stock, $0.001 par value; 90,000,000 shares authorized and
27,346,874 and 26,797,477 shares issued and outstanding at June 30, 2018
and December 31, 2017, respectively
​ ​ ​ ​ 27,347 ​ ​ ​ ​ ​ 26,797 ​ ​
Paid-in capital
​ ​ ​ ​ 12,666,643 ​ ​ ​ ​ ​ 10,676,358 ​ ​
Accumulated deficit
​ ​ ​ ​ (23,248,591) ​ ​ ​ ​ ​ (21,223,501) ​ ​
Stockholders’ deficit attributable to CaliberCos, Inc.
​ ​ ​ ​ (10,554,601) ​ ​ ​ ​ ​ (10,520,346) ​ ​
Stockholders’ equity attributable to noncontrolling interests
​ ​ ​ ​ 33,097,456 ​ ​ ​ ​ ​ 29,812,446 ​ ​
Total Stockholders’ Equity
 ​ ​ ​ ​ 22,542,855 ​ ​ ​ ​ ​ 19,292,100 ​ ​
Total Liabilities, Mezzanine Equity, and Stockholders’ Equity
 ​ ​ ​ $ 166,038,825 ​ ​ ​ ​ $ 152,779,208 ​ ​
​
The accompanying notes are an integral part of these condensed consolidated finanacial statements
F-51
CALIBERCOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
​ ​ ​
Six Months Ended June 30,
​
​ ​ ​
2018
​ ​
2017
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Hospitality
​ ​ ​ $ 26,563,126 ​ ​ ​ ​ $ 26,394,530 ​ ​
Construction and development
​ ​ ​ ​ 2,658,514 ​ ​ ​ ​ ​ 2,247,787 ​ ​
Real estate sales
​ ​ ​ ​ 3,714,200 ​ ​ ​ ​ ​ 4,115,970 ​ ​
Rental income
​ ​ ​ ​ 2,338,913 ​ ​ ​ ​ ​ 2,457,163 ​ ​
Fund management
​ ​ ​ ​ 1,446,835 ​ ​ ​ ​ ​ 384,588 ​ ​
Property management
​ ​ ​ ​ 157,105 ​ ​ ​ ​ ​ 212,468 ​ ​
Brokerage
​ ​ ​ ​ 94,552 ​ ​ ​ ​ ​ 207,079 ​ ​
Other
​ ​ ​ ​ 53,829 ​ ​ ​ ​ ​ 35,233 ​ ​
Total revenues
​ ​ ​ ​ 37,027,074 ​ ​ ​ ​ ​ 36,054,818 ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – hospitality
​ ​ ​ ​ 9,023,967 ​ ​ ​ ​ ​ 8,877,335 ​ ​
Cost of sales – construction and development
​ ​ ​ ​ 2,712,427 ​ ​ ​ ​ ​ 2,027,022 ​ ​
Cost of sales – real estate
​ ​ ​ ​ 3,315,353 ​ ​ ​ ​ ​ 3,817,828 ​ ​
Cost of sales – brokerage
​ ​ ​ ​ 36,901 ​ ​ ​ ​ ​ 23,746 ​ ​
Operating costs
​ ​ ​ ​ 9,049,445 ​ ​ ​ ​ ​ 8,248,325 ​ ​
General and administrative
​ ​ ​ ​ 2,759,811 ​ ​ ​ ​ ​ 2,588,585 ​ ​
Marketing and advertising
​ ​ ​ ​ 2,130,507 ​ ​ ​ ​ ​ 1,854,951 ​ ​
Franchise fees
​ ​ ​ ​ 1,953,274 ​ ​ ​ ​ ​ 1,857,016 ​ ​
Management fees
​ ​ ​ ​ 940,235 ​ ​ ​ ​ ​ 956,028 ​ ​
Depreciation
​ ​ ​ ​ 3,175,615 ​ ​ ​ ​ ​ 2,725,724 ​ ​
Total expenses
​ ​ ​ ​ 35,097,535 ​ ​ ​ ​ ​ 32,976,560 ​ ​
Operating Income
 ​ ​ ​ ​ 1,929,539 ​ ​ ​ ​ ​ 3,078,258 ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ (441,365) ​ ​ ​ ​ ​ 403,228 ​ ​
Interest expense
​ ​ ​ ​ 6,263,034 ​ ​ ​ ​ ​ 4,865,434 ​ ​
Total other expenses, net
​ ​ ​ ​ 5,821,669 ​ ​ ​ ​ ​ 5,268,662 ​ ​
Net Loss Before Income Taxes
 ​ ​ ​ ​ (3,892,130) ​ ​ ​ ​ ​ (2,190,404) ​ ​
Provision for (benefit from) income taxes
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Net Loss
 ​ ​ ​ ​ (3,892,130) ​ ​ ​ ​ ​ (2,190,404) ​ ​
Net (loss) income attributable to noncontrolling interests
​ ​ ​ ​ (2,083,288) ​ ​ ​ ​ ​ 1,697,467 ​ ​
Net Loss Attributable to CaliberCos, Inc.
 ​ ​ ​ $ (1,808,842) ​ ​ ​ ​ $ (3,887,871) ​ ​
Basic and diluted net loss per share attributable to common stockholders
​ ​ ​ $ (0.07) ​ ​ ​ ​ $ (0.16) ​ ​
Weighted-average basic and diluted common shares outstanding
​ ​ ​ ​ 27,262,801 ​ ​ ​ ​ ​ 24,797,638 ​ ​
​
The accompanying notes are an integral part of these condensed consolidated finanacial statements
F-52
CALIBERCOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
​ ​ ​
CaliberCos, Inc.
​ ​ ​ ​ ​
​ ​ ​
Common Stock
​ ​ ​ ​ ​ ​
​ ​ ​
Shares
​ ​
Par
Value
​ ​
Paid in
Capital
​ ​
Accumulated
Deficit
​ ​
Noncontrolling
Interests
​ ​
Total
Stockholders’
Equity
​ ​ ​
Balances at December 31, 2017
 ​ ​ ​ ​ 26,797,477 ​ ​ ​ ​ $ 26,797 ​ ​ ​ ​ $ 10,676,358 ​ ​ ​ ​ $ (21,223,501) ​ ​ ​ ​ $ 29,812,446 ​ ​ ​ ​ $ 19,292,100 ​ ​ ​ ​
Issuance of common stock 
 ​ ​ ​ ​ 536,748 ​ ​ ​ ​ ​ 537 ​ ​ ​ ​ ​ 952,898 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 953,435 ​ ​ ​ ​
Conversion of notes payable to common stock
​ ​ ​ ​ 12,649 ​ ​ ​ ​ ​ 13 ​ ​ ​ ​ ​ 22,755 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 22,768 ​ ​ ​ ​
Equity based compensation
expense
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ 1,014,632 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,014,632 ​ ​ ​ ​ ​ ​ ​ ​
Distributions to preferred stockholders
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (166,645) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (166,645) ​ ​ ​ ​
Accretion of mezzanine equity
value
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (49,603) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (49,603) ​ ​ ​ ​
Contributions from
noncontrolling interest holders
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 7,740,067 ​ ​ ​ ​ ​ 7,740,067 ​ ​ ​ ​
Redemptions of
noncontrolling interest
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,100,000) ​ ​ ​ ​ ​ (1,100,000) ​ ​ ​ ​
Distributions to
noncontrolling interest holders
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,271,769) ​ ​ ​ ​ ​ (1,271,769) ​ ​ ​ ​
Net loss
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,808,842) ​ ​ ​ ​ ​ (2,083,288) ​ ​ ​ ​ ​ (3,892,130) ​ ​ ​ ​
Balances at June 30, 2018
 ​ ​ ​ ​ 27,346,874 ​ ​ ​ ​ $ 27,347 ​ ​ ​ ​ $ 12,666,643 ​ ​ ​ ​ $ (23,248,591) ​ ​ ​ ​ $ 33,097,456 ​ ​ ​ ​ $ 22,542,855 ​ ​ ​ ​
​
The accompanying notes are an integral part of these condensed consolidated finanacial statements
F-53
CALIBERCOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
​ ​ ​
Six Months Ended June 30,
​
​ ​ ​
2018
​ ​
2017
​
Cash Flows From Operating Activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Net loss
​ ​ ​ ​ (3,892,130) ​ ​ ​ ​ ​ (2,190,404) ​ ​
Adjustments to reconcile net loss to net cash provided by operating activities: ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Depreciation
​ ​ ​ ​ 3,175,615 ​ ​ ​ ​ ​ 2,725,724 ​ ​
Amortization of deferred financing costs
​ ​ ​ ​ 1,216,270 ​ ​ ​ ​ ​ 781,461 ​ ​
Amortization of advance key money
​ ​ ​ ​ (37,500) ​ ​ ​ ​ ​ (37,500) ​ ​
Amortization of above-market ground lease
​ ​ ​ ​ (62,703) ​ ​ ​ ​ ​ (62,704) ​ ​
Equity based compensation
​ ​ ​ ​ 1,014,632 ​ ​ ​ ​ ​ — ​ ​
Changes in operating assets and liabilities:
 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Real estate assets held for sale
​ ​ ​ ​ 3,714,200 ​ ​ ​ ​ ​ 4,115,970 ​ ​
Restricted cash
​ ​ ​ ​ 1,345,358 ​ ​ ​ ​ ​ (1,326,494) ​ ​
Accounts receivable, net
​ ​ ​ ​ (40,255) ​ ​ ​ ​ ​ (613,945) ​ ​
Other receivables
​ ​ ​ ​ 471 ​ ​ ​ ​ ​ 534,617 ​ ​
Due from related parties
​ ​ ​ ​ (1,486,175) ​ ​ ​ ​ ​ (885,256) ​ ​
Prepaid and other assets
​ ​ ​ ​ 118,171 ​ ​ ​ ​ ​ 275,140 ​ ​
Accounts payable
​ ​ ​ ​ 140,368 ​ ​ ​ ​ ​ 355,633 ​ ​
Accrued interest
​ ​ ​ ​ (203,155) ​ ​ ​ ​ ​ (501,281) ​ ​
Accrued expenses
​ ​ ​ ​ 265,652 ​ ​ ​ ​ ​ 1,159,378 ​ ​
Due to related parties
​ ​ ​ ​ 698,899 ​ ​ ​ ​ ​ 230,055 ​ ​
Other liabilities
​ ​ ​ ​ (635,453) ​ ​ ​ ​ ​ 213,112 ​ ​
Net cash provided by operating activities
​ ​ ​ ​ 5,332,265 ​ ​ ​ ​ ​ 4,773,506 ​ ​
Cash Flows From Investing Activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Investments in real estate assets
​ ​ ​ ​ (16,359,097) ​ ​ ​ ​ ​ — ​ ​
Other investments in real estate assets
​ ​ ​ ​ (6,699,909) ​ ​ ​ ​ ​ (5,359,792) ​ ​
Proceeds from the settlement of property-related insurance claims
​ ​ ​ ​ 982,714 ​ ​ ​ ​ ​ 314,202 ​ ​
Payments received on notes receivable – related parties
​ ​ ​ ​ — ​ ​ ​ ​ ​ 108,000 ​ ​
Decrease (increase) in restricted cash
​ ​ ​ ​ (1,737,897) ​ ​ ​ ​ ​ 2,705,367 ​ ​
Net cash used in investing activities
​ ​ ​ ​ (23,814,189) ​ ​ ​ ​ ​ (2,232,223) ​ ​
Cash Flows From Financing Activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Capital lease payments
​ ​ ​ ​ — ​ ​ ​ ​ ​ (6,654) ​ ​
Payment of deferred financing costs
​ ​ ​ ​ (312,515) ​ ​ ​ ​ ​ (191,881) ​ ​
Proceeds from notes payable
​ ​ ​ ​ 13,811,000 ​ ​ ​ ​ ​ 2,910,000 ​ ​
Repayments of notes payable
​ ​ ​ ​ (2,367,373) ​ ​ ​ ​ ​ (1,549,474) ​ ​
Proceeds from notes payable – related parties
​ ​ ​ ​ 480,695 ​ ​ ​ ​ ​ 502,000 ​ ​
Repayments of notes payable – related parties
​ ​ ​ ​ (2,702,877) ​ ​ ​ ​ ​ (2,920,000) ​ ​
Proceeds from the issuance of preferred stock
​ ​ ​ ​ 595,897 ​ ​ ​ ​ ​ 160,963 ​ ​
Proceeds from the issuance of common stock
​ ​ ​ ​ 953,435 ​ ​ ​ ​ ​ 313,478 ​ ​
Distributions to preferred stockholders
​ ​ ​ ​ (166,645) ​ ​ ​ ​ ​ (97,255) ​ ​
Contributions from noncontrolling interest holders
​ ​ ​ ​ 7,740,067 ​ ​ ​ ​ ​ 6,951,770 ​ ​
Redemptions of noncontrolling interests
​ ​ ​ ​ (1,100,000) ​ ​ ​ ​ ​ (4,033,760) ​ ​
Distributions to noncontrolling interest holders
​ ​ ​ ​ (1,271,769) ​ ​ ​ ​ ​ (1,200,946) ​ ​
Net cash provided by financing activities
​ ​ ​ ​ 15,659,915 ​ ​ ​ ​ ​ 838,241 ​ ​
​
The accompanying notes are an integral part of these condensed consolidated finanacial statements
F-54
CALIBERCOS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)
(unaudited)
​ ​ ​
Six Months Ended June 30,
​
​ ​ ​
2018
​ ​
2017
​
Net (Decrease) Increase in Cash
 ​ ​ ​ $ (2,822,009) ​ ​ ​ ​ $ 3,379,524 ​ ​
Cash at Beginning of Period
 ​ ​ ​ ​ 6,106,778 ​ ​ ​ ​ ​ 3,159,333 ​ ​
Cash at End of Period
 ​ ​ ​ $ 3,284,769 ​ ​ ​ ​ $ 6,538,857 ​ ​
Supplemental Disclosure of Cash Flow Information ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cash paid for interest, net of  $330,282, and $574,206 of capitalized interest, for the six months ended June 30, 2018 and 2017, respectively
​ ​ ​ $ 4,841,565 ​ ​ ​ ​ $ 4,563,934 ​ ​
Cash paid for income taxes
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​
Supplemental Disclosures of Non-cash Investing and Financing Activities ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of real estate investments included in accounts payable
​ ​ ​ $ 1,636,735 ​ ​ ​ ​ $ 1,333,800 ​ ​
Real estate investments reclassified to held for sale
​ ​ ​ $ 13,624,593 ​ ​ ​ ​ $ 347,118 ​ ​
Issuance of common stock to settle accrued share-based payments
​ ​ ​ $ — ​ ​ ​ ​ $ 1,126,525 ​ ​
Conversion of notes payable to preferred stock
​ ​ ​ $ 14,230 ​ ​ ​ ​ $ — ​ ​
Conversion of notes payable to common stock
​ ​ ​ $ 22,768 ​ ​ ​ ​ $ — ​ ​
Change in redemption value of preferred stock
​ ​ ​ $ 49,603 ​ ​ ​ ​ $ 4,695 ​ ​
​
The accompanying notes are an integral part of these condensed consolidated finanacial statements
F-55
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1 — Organization and Basis of Presentation
Organization
CaliberCos Inc., a Delaware corporation, and its consolidated subsidiaries (collectively, the “Company”, “Caliber”, “we”, “our”, and “us”), is an asset manager of private equity real estate funds and provider of a full suite of traditional real estate services. CaliberCos Inc. was formed in November 2014, and originally began as Caliber Companies, LLC, an Arizona limited liability company, which commenced operations in January 2009. The real estate asset management business includes the management of private equity real estate funds and direct real estate investments in residential, commercial, and hospitality assets. We also provide capital raising services to the private equity real estate funds we manage. The Company provides real estate services for the assets it manages, as well as for third party customers, including construction, development, real estate brokerage, and property management services. In addition to providing asset management and real estate services, the Company also owns a portfolio of single-family homes which are held for rental and/or sale. Our business is organized into eight reportable segments, which we analyze in two categories; real estate services (Fund/Asset Management, Construction & Development, Property Management, Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified). At June 30, 2018, we had operations in Arizona, Nevada, Utah, Colorado, and Alaska.
In June 2018, the Company changed its state of incorporation from Nevada to Delaware.
In general, the private equity real estate funds Caliber manages are organized as operating partnerships, in which multiple unrelated passive investors own partnership interest and Caliber is designated as the manager and/or general partner of the partnership. Depending on the legal structure and arrangements between Caliber and the funds, we may or may not consolidate the partnerships for financial reporting purposes. For funds in which Caliber is determined to be the controlling party for financial reporting purposes, the fund is consolidated and the passive investors’ ownership is presented as noncontrolling interest in the accompanying condensed consolidated financial statements. For funds in which Caliber is not determined to be the controlling party for financial reporting purposes, the fund is not consolidated and any fees earned from the fund are included in fund management revenue in the accompanying condensed consolidated financial statements.
Liquidity
The Company had a liquidity disclosure in its December 31, 2017 consolidated financial statements, which included certain conditions or events that raised substantial doubt about the entity’s ability to continue as a going concern notwithstanding management’s plans. Management has taken several actions to resolve these conditions including refinancing the Company’s debt and achieving positive earnings and/or cash flows from operations. Management believes that these actions will enable the Company to continue as a going concern within one year after these financial statements were issued.
Basis of Presentation
The accompanying condensed consolidated financial statements are prepared on the accrual basis of accounting and presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information. These financial statements, including notes, are unaudited, exclude some of the disclosures required for annual financial statements, and should be read in conjunction with our audited consolidated financial statements for the year ended December 31, 2017 included elsewhere herein this filing. The operating results presented for interim periods are not necessarily indicative of the results that maybe expected for any other interim period or for the entire year. The Company’s condensed consolidated financial statements reflect all adjustments (consisting only of normal recurring adjustments) necessary in the opinion of management to present fairly our interim financial position and results of operations and cash flows for the periods presented.
F-56
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 2 — Summary of Significant Accounting Policies
Consolidation
The accompanying condensed consolidated financial statements include the accounts of CaliberCos Inc., its wholly-owned and majority-owned subsidiaries, and the entities that are considered to be variable interest entities (“VIEs”) and voting interest entities (“VOEs”). The Company consolidated the VIEs in which we are the primary beneficiary and the VOEs in which we determined we have a controlling financial interest, under the “Consolidations” Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) (Topic 810). The equity and net income or loss attributable to noncontrolling interests in subsidiaries is shown separately in the accompanying condensed consolidated balance sheets, statements of operations, and statement of changes in stockholders’ equity. All significant intercompany balances and transactions have been eliminated in consolidation.
Variable Interest Entities
We determine if an entity is a VIE based on several factors, including whether the equity holders, as a group, lack the characteristics of a controlling financial interest. We make judgments regarding which types of activities most significantly impact the entity’s economic performance first on a qualitative analysis, then a quantitative analysis, if necessary.
We analyze any investments in VIEs to determine if we are the primary beneficiary. A reporting entity is determined to be the primary beneficiary if it holds a controlling financial interest in a VIE.
Determining which reporting entity, if any, has a controlling financial interest in a VIE is primarily a qualitative analysis focused on identifying which reporting entity has both (1) the power to direct the activities of a VIE that most significantly impact the entity’s economic performance and (2) the obligation to absorb losses or the right to receive benefits from such entity that could potentially be significant to such entity. Performance of that analysis requires the exercise of judgement.
We consolidate any VIE for which we are the primary beneficiary and disclose significant VIEs of which we are not the primary beneficiary, as well as disclose our maximum exposure to loss related to the VIEs that are not consolidated (see Note 4).
Voting Interest Entities
Entities that do not qualify as VIEs are generally assessed for consolidation as VOEs. For VOEs, we consolidate the entity if we have a controlling financial interest in the entity. We have a controlling financial interest in a VOE if  (1) for legal entities other than partnerships, we own a majority voting interest in the VOE or, for limited partnerships and similar entities, we own a majority of the entity’s kick-out rights through voting limited partnership interests and (2) non-controlling shareholders or partners do not hold substantive participating rights, and no other conditions exist that would indicate that we do not control the entity.
Use of Accounting Estimates
The preparation of the condensed consolidated financial statements in conformity with U.S. GAAP requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. The Company makes significant estimates regarding the useful lives of depreciable assets, real estate and other investment impairment, the allocation of purchase price for business combinations and asset acquisitions, and the consolidation of equity investments and VIEs.
F-57
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 2 — Summary of Significant Accounting Policies (continued)
 
Advertising Costs
Advertising costs are expensed as incurred. During the six months ended June 30, 2018 and 2017, advertising costs totaled $182,060 and $105,003, respectively.
Share-Based Compensation
In July 2017, the Company’s Board of Directors approved the 2017 Incentive Stock Plan (the “2017 Plan”), which was amended in June 2018 to authorize the issuance of up to 5.0 million shares of common stock. In June 2018, the Company’s Board of Directors approved and issued approximately 3.0 million employee stock options to existing employees. Of the options awarded, approximately 1.4 million were immediately vested resulting in approximately $1.0 million of additional compensation expense recognized in the period. The Company estimates the fair value of stock options using the Black-Scholes valuation model, which requires certain assumptions that can materially impact the estimation of fair value and related compensation expense. The assumptions used to estimate fair value include the price of our common stock, the expected volatility of our common stock, the risk-free interest rate, and the expected term of stock option awards. Management elected to recognize forfeitures as they occur pursuant to ASU 2016-09 Compensation — Stock Compensation. As a result, no forfeiture rate was assumed.
Recent Accounting Pronouncements
Revenue Recognition
In May 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). ASU 2014-09, and related amendments, provide comprehensive guidance for recognizing revenue from contracts with customers. Revenue is recognized when the entity transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. The guidance includes a five-step framework that requires an entity to: (i) identify the contract(s) with customers, (ii) identify the performance obligations within the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations within the contract, and (v) recognize revenue when the entity satisfies a performance obligation. ASU 2014-09 also requires additional disclosure regarding the nature and timing of the Company’s revenue transactions. We are currently evaluating the potential impact the adoption of ASU 2014-09 will have on our consolidated financial statements and below is a summary of the Company’s expected revenue recognition assessment by significant revenues.
Hospitality
The majority of payments are made by the customer when hospitality services are provided. The Company recognizes revenue from hospitality services at a point in time as the performance obligation is satisfied.
Construction and Development
The Company recognizes construction contract revenue over time, as performance obligations are satisfied, due to the continuous transfer of control to the customer. Construction contracts are generally accounted for as a single performance obligation and are not segmented between types of services. The Company recognizes revenue using the percentage-of-completion method, based primarily on contract cost incurred to date compared to total estimated contract cost.
F-58
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 2 — Summary of Significant Accounting Policies (continued)
 
Real Estate Sales
The Company recognizes real estate sales at a point in time. Each transaction is treated as a single performance obligation and revenue is recognized when the transaction is completed, when the performance obligation is satisfied.
Rental Income
Rental income is not within the scope of ASU 2014-09 and would fall under the lease guidance below.
Fund Management and Property Management
Revenues from fund management and property management are monthly fees contracts. The Company recognizes these revenue over time, as performance obligations are satisfied, due to the continuous services provided required by the contract. Each service provided is generally accounted for as a single performance obligation. The Company recognizes revenue equally throughout the term of the performance obligation.
Brokerage
The Company recognizes brokerage revenue at a point in time. Brokerage revenue is mainly commissions received from services provided during a transaction. Each transaction is treated as a single performance obligation and revenue is recognized when the transaction is completed, when the performance obligation is satisfied. The Company has determined it is acting as an agent and reports revenue on a net basis.
Equity-Based Compensation
Compensation expense relating to the issuance of equity-based awards to Caliber employees and non-employees is measured at fair market value on the grant date. In June 2018, the Company adopted Accounting Standards Update 2018-07, Compensation — Stock Compensation (Topic 718), which aligned the accounting for non-employee equity-based awards with the accounting for employee equity-based awards, retroactive to January 1, 2018. The compensation expense for awards that vest over a future service period is recognized over the relevant service period on a straight-line basis. The compensation expense for awards that do not require future service is recognized immediately. The Company recognizes equity-based award forfeitures in the period they occur as a reversal of previously recognized compensation expense. The reduction in compensation expense is determined based on the specific awards forfeited during that period.
Leases
In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases (Topic 842) (“ASU 2016-02”), which will require that a lessee recognize assets and liabilities on the balance sheet for all leases with a lease term of more than 12 months, with the result being the recognition of a right of use asset and a lease liability and the disclosure of key information about the entity’s leasing arrangements. ASU 2016-02 retains a distinction between finance leases (i.e., capital leases under current U.S. GAAP) and operating leases. The classification criteria for distinguishing between finance leases and operating leases will be substantially similar to the classification criteria for distinguishing between capital leases and operating leases under current U.S. GAAP. The amendments in ASU 2016-02 are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, with early adoption permitted. A modified retrospective approach is required for existing leases that have not expired upon adoption. We are currently evaluating the potential impact the adoption of ASU 2016-02 will have on our consolidated financial statements. We expect to utilize the practical expedients as part of our adoption of ASU 2016-02.
F-59
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 3 — Real Estate Investments
Asset Acquisitions
The Company acquired one hotel property during the six months ended June 30, 2018 for a purchase price of  $16,359,097, of which $249,097 of external acquisition-related expenses were capitalized. During the six months ended June 30, 2017, the Company did not have any acquisitions. The fair values of the assets acquired consisted of the following for the periods presented:
​ ​ ​
June 30,
2018
​
Real estate investments, at cost: ​ ​ ​ ​ ​ ​ ​
Land
​ ​ ​ $ 2,835,558 ​ ​
Building
​ ​ ​ ​ 12,576,891 ​ ​
Furniture, Fixtures & Equipment
​ ​ ​ ​ 946,648 ​ ​
Total purchase price of assets acquired
​ ​ ​ $ 16,359,097 ​ ​
​
Dispositions and Held for Sale
The Company sold 15 residential properties during the six months ended June 30, 2018 for an aggregate gross sales price of  $3,714,200. During the six months ended June 30, 2017, the Company sold 22 residential properties for an aggregate gross sales price of  $4,115,970.
At June 30, 2018 and December 31, 2017, the Company had $11,334,728 and $1,424,335, respectively, of assets classified as held for sale which included one hotel at June 30, 2018 and several single-family homes for both periods. The hotel is expected to be sold within the next 12 months as part of the Company’s management strategy. The single-family homes are actively being marketed for sale and were expected to be sold within the next 12 months. Proceeds from the sale of the single-family homes will be included in real estate sales on the accompanying condensed consolidated financial statements and the residential segment.
Note 4 — VIEs
At June 30, 2018 and December 31, 2017, the Company’s condensed consolidated financial statements included eleven and ten entities, respectively, all of which are real estate operating entities, consolidated as VIEs. Management has determined that the equity holders in these entities (which may or may not include the Company), as a group, lack the power to direct the activities that most significantly impact the entity’s economic performance and/or have disproportionate voting rights relative to their equity. In addition, the Company has all the decision-making power with respect to the activities of these entities, and none of the equity holders in the entities have substantive protective or participating rights to remove the power from the Company. The Company was determined to be the primary beneficiary of each of these entities since it has the power to direct the activities of the entities and the right to absorb losses, generally in the form of guarantees of indebtedness.
Generally, the assets of the individual consolidated VIEs can be used only to settle liabilities of each respective individual consolidated VIE and the liabilities of the individual consolidated VIEs are liabilities for which creditors or beneficial interest holders do not have recourse to the general credit of the Company. The Company has provided financial support to certain consolidated VIEs in the form of short term financing and guarantees of the debts of certain VIEs. In general, our maximum exposure to loss due to involvement with the consolidated VIEs is limited to the amount of capital investment in the VIE, if any, or the potential obligation to perform on the guarantee of debts. The table below outlines the classification and carrying amounts of the assets and liabilities of the VIEs that are included in the Company’s condensed consolidated balance sheets at June 30, 2018 and December 31, 2017.
F-60
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 4 — VIEs (continued)
 
​ ​ ​
June 30,
2018
​ ​
December 31,
2017
​
ASSETS ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Real estate investments, net
​ ​ ​ $ 142,864,785 ​ ​ ​ ​ $ 122,458,216 ​ ​
Cash
​ ​ ​ ​ 3,080,695 ​ ​ ​ ​ ​ 3,828,070 ​ ​
Restricted cash
​ ​ ​ ​ 7,038,653 ​ ​ ​ ​ ​ 6,620,240 ​ ​
Accounts receivable, net
​ ​ ​ ​ 1,522,470 ​ ​ ​ ​ ​ 982,867 ​ ​
Notes receivable – related parties
​ ​ ​ ​ 1,032,397 ​ ​ ​ ​ ​ 277,978 ​ ​
Due from related parties
​ ​ ​ ​ 1,204,135 ​ ​ ​ ​ ​ 420,583 ​ ​
Prepaid and other assets
​ ​ ​ ​ 3,905,232 ​ ​ ​ ​ ​ 2,520,623 ​ ​
Total assets
 ​ ​ ​ $ 160,648,367 ​ ​ ​ ​ $ 137,108,577 ​ ​
LIABILITIES ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Notes payable, net of deferred financing costs
​ ​ ​ $ 105,618,668 ​ ​ ​ ​ $ 92,088,579 ​ ​
Notes payable – related parties
​ ​ ​ ​ 1,276,214 ​ ​ ​ ​ ​ 254,978 ​ ​
Accounts payable
​ ​ ​ ​ 1,445,444 ​ ​ ​ ​ ​ 1,390,652 ​ ​
Accrued interest
​ ​ ​ ​ 787,079 ​ ​ ​ ​ ​ 664,322 ​ ​
Accrued expenses
​ ​ ​ ​ 3,309,793 ​ ​ ​ ​ ​ 2,932,359 ​ ​
Due to related parties
​ ​ ​ ​ 4,273,811 ​ ​ ​ ​ ​ 340,969 ​ ​
Advance key money, net
​ ​ ​ ​ 1,237,500 ​ ​ ​ ​ ​ 1,275,000 ​ ​
Above-market ground lease, net
​ ​ ​ ​ 3,950,369 ​ ​ ​ ​ ​ 4,013,072 ​ ​
Other liabilities
​ ​ ​ ​ 742,778 ​ ​ ​ ​ ​ 1,187,578 ​ ​
Total liabilities
 ​ ​ ​ $ 122,641,656 ​ ​ ​ ​ $ 104,147,509 ​ ​
​
See Note 7 for additional information related to the commitments and contingencies of these VIEs.
F-61
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 5 — Notes Payable
Notes payable consisted of the following as of June 30, 2018 and December 31, 2017:
​ ​ ​
June 30,
2018
​ ​
December 31,
2017
​ ​
Interest
Rate
​ ​
Original/​
Extended
Maturity
​
Real Estate Loans ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Crowne Plaza Hotel
​ ​ ​ $ 11,409,048 ​ ​ ​ ​ $ 11,522,148 ​ ​ ​
Variable
​ ​ September 2018 ​
Hilton Tucson East Hotel
​ ​ ​ ​ 12,730,000 ​ ​ ​ ​ ​ 12,730,000 ​ ​ ​
10.00%
​ ​ June 2018 ​
Hampton Inn & Suites Hotel
​ ​ ​ ​ 6,780,347 ​ ​ ​ ​ ​ 6,868,347 ​ ​ ​
4.50%
​ ​ July 2025 ​
GC Square Apartments
​ ​ ​ ​ 11,000,000 ​ ​ ​ ​ ​ 8,939,000 ​ ​ ​
Variable
​ ​ November 2020 ​
Holiday Inn & Suites Hotel
​ ​ ​ ​ 15,375,000 ​ ​ ​ ​ ​ 15,375,000 ​ ​ ​
Variable
​ ​ July 2018 ​
Hilton Phoenix Airport Hotel
​ ​ ​ ​ 29,000,000 ​ ​ ​ ​ ​ 29,000,000 ​ ​ ​
9.00%
​ ​ September 2019 ​
Four Points by Sheraton Hotel
​ ​ ​ ​ 11,000,000 ​ ​ ​ ​ ​ — ​ ​ ​
6.50%
​ ​ June 2021 ​
Palms Apartment Portfolio
​ ​ ​ ​ 9,521,196 ​ ​ ​ ​ ​ 9,603,918 ​ ​ ​
5.28%
​ ​ September 2026 ​
Single-family Home Loans
​ ​ ​ ​ 1,028,250 ​ ​ ​ ​ ​ 1,519,049 ​ ​ ​
9.95% – 12.13%
​ ​ July 2018 ​
Unsecured Borrowing
​ ​ ​ ​ 447,500 ​ ​ ​ ​ ​ 947,500 ​ ​ ​
33.00%
​ ​ Undefined ​
Total real estate loans
​ ​ ​ ​ 108,291,341 ​ ​ ​ ​ ​ 96,504,962 ​ ​ ​ ​ ​ ​ ​ ​
Corporate notes
​ ​ ​ ​ 6,008,273 ​ ​ ​ ​ ​ 6,383,273 ​ ​ ​
8.25% – 18.00%
​ ​ July 2018 – 
December 2018 		​
Other
​ ​ ​ ​ 3,200 ​ ​ ​ ​ ​ 7,950 ​ ​ ​
6.00%
​ ​ November 2018 ​
Total Notes Payable
​ ​ ​ ​ 114,302,814 ​ ​ ​ ​ ​ 102,896,185 ​ ​ ​ ​ ​ ​ ​ ​
Deferred financing costs, net
​ ​ ​ ​ (1,046,079) ​ ​ ​ ​ ​ (1,949,834) ​ ​ ​ ​ ​ ​ ​ ​
​ ​ ​ ​ $ 113,256,735 ​ ​ ​ ​ $ 100,946,351 ​ ​ ​ ​ ​ ​ ​ ​
​
Real Estate Loans
Crowne Plaza Hotel
In August 2014, the Company entered into a $12,000,000 loan, which is secured by a deed of trust and assignment of the leases and rents of a hotel property in Phoenix, Arizona. The loan has a variable interest rate which is equal to 1-month LIBOR plus 6.25%, with a required minimum rate of 6.50%, resulting in a rate of 8.59% and 7.50% at June 30, 2018 and December 31, 2017, respectively. Contemporaneous with entering into the loan agreement the Company also entered into an interest rate cap agreement, which set a maximum interest rate of 9.125%. The terms of the loan required monthly principal plus interest payments, with a balloon payment due at maturity. The loan is guaranteed by an individual who is an affiliate of the Company. The terms of the loan agreement also require the Company to pay an exit fee equal to 1.00% of the principal amount of the loan at the time the loan is repaid in full. The exit fee of  $120,000 was accrued upon entering into the loan, and was recorded as a deferred financing cost and is being amortized over the life of the loan. In September 2017, the Company executed a one-year extension of the loan agreement, extending the maturity date to September 2018. All other terms of the loan remained unchanged. In connection with the loan extension, the Company also entered into a new interest rate cap agreement, which sets a maximum interest rate of 9.125% and expires September 2018. The loan was refinanced in September 2018, see note 13 for additional information.
F-62
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 5 — Notes Payable (continued)
 
Hilton Tucson East Hotel
In June 2016, the Company entered into a $12,730,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Tucson, Arizona. Upon entering into the loan, $4,330,000 of the loan proceeds were used to complete the purchase of the hotel property (the “Original Loan”), $8,000,000 of the loan proceeds were placed into a reserve account to be drawn against and pay for the renovation of the hotel property (the “Renovation Reserve”), and the remaining $400,000 of the loan proceeds were placed into a reserve account to be drawn against and pay interest on the loan (the “Interest Reserve”). At June 30, 2018 and December 31, 2017, the balance of the Renovation Reserve was $0 and $246,754, respectively, which are included in restricted cash on the accompanying condensed consolidated balance sheets. Interest was charged on the Original Loan and funds that were disbursed from the Renovation Reserve at a rate of 8.85% per annum and were paid from the Interest Reserve until the reserve was depleted. Once the Interest Reserve was depleted, the loan continued to require monthly interest-only payments. The interest rate on the Original Loan and the funds disbursed from the Renovation Reserve increased to 10.0% in July 2017. Interest is charged on the undisbursed funds that remain in the Renovation Reserve at a rate of 4.425% per annum. The payment of the interest charged on the undisbursed funds was deferred until October 2017, at which time the loan began to require monthly interest-only payments of the interest charged on the undisbursed funds. The interest rate on the undisbursed funds from the Renovation Reserve also increased to 10.0% in October 2017. The loan may be prepaid in whole, but not in part, subject to certain terms and fees, at any time. The loan is guaranteed by CDIF, LLC (“CDIF”) and an individual who is an affiliate of the Company. The terms of the loan require the Company to pay an exit fee of $330,980 at the time the loan is repaid in full. The exit fee of  $330,980 was accrued upon entering into the loan and was recorded as a deferred financing cost and is being amortized over the life of the loan. The loan matured in June 2018 and was refinanced in July 2018, see note 13 for additional information.
Hampton Inn & Suites Hotel
In July 2015, the Company entered into a $7,250,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Scottsdale, Arizona. The terms of the note require monthly principal and interest payments, with a balloon payment due at maturity. The loan has a fixed interest rate of 4.50%. The terms of the loan allow the Company to prepay the outstanding balance in part or in whole at any time prior to the maturity date, subject to a prepayment premium fee. The loan is guaranteed by an individual who is an affiliate of the Company. The loan matures in July 2025. The terms of the loan include certain financial covenants and at June 30, 2018 and December 31, 2017, the Company was in compliance with all such covenants.
GC Square Apartments
In October 2017, the Company entered into an $11,000,000 loan, which is secured by a deed of trust and assignment of rents of a multi-family property in Phoenix, Arizona. Upon entering into the loan agreement $2,061,000 of the loan proceeds were held back by the lender. The funds held back can be drawn on by the Company for future construction and development costs. The loan has a variable interest rate equal to LIBOR plus 5.25%, resulting in a rate of 6.68% and 6.49% at June 30, 2018 and December 31, 2017, respectively. The loan requires interest-only payments until maturity. The loan matures in November 2020 and has options to extend the maturity date up to two additional years, subject to certain terms and conditions. Contemporaneous with entering into the new loan the Company entered into an interest rate cap agreement, which set a maximum interest rate of 7.00% until November 2018, and 7.75% from November 2018 through maturity.
F-63
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 5 — Notes Payable (continued)
 
Holiday Inn & Suites Hotel
In June 2015, the Company entered into a $15,375,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Phoenix, Arizona. At the time of entering into the loan, $11,250,000 was used to acquire the hotel property with the remaining $4,125,000 held back to be used towards the renovation of the hotel property. As of December 31, 2017, the full holdback amount of $4,125,000 had been released and used to fund the renovation of the hotel property. The loan requires monthly interest-only payments until maturity. The interest rate on the loan is equal to 1-month LIBOR plus 5.30%, resulting in a rate of 6.86% and 6.54% at June 30, 2018 and December 31, 2017, respectively. Contemporaneous with entering into the loan, the Company entered into an interest rate cap agreement, which sets a maximum interest rate of 7.30% until July 2017 and 7.80% for the period from August 2017 through the maturity of the loan. The loan is guaranteed by individuals who are affiliates of the Company. The terms of the loan agreement require the Company to pay an exit fee equal to 0.75% of the principal amount of the loan at the time the loan is repaid in full. The exit fee of  $115,313 was accrued upon entering into the loan and was recorded as a deferred financing cost and is being amortized over the life of the loan. The loan matured in July 2018 and the Company extended the loan 60 days before refinancing, see note 13 for additional information. The terms of the loan include certain non-financial covenants and at June 30, 2018 and December 31, 2017, the Company was in compliance with all such covenants.
Hilton Phoenix Airport
In December 2017, the Company entered into a $29,000,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Phoenix, Arizona. At the closing of the loan, $300,000 of the loan proceeds were held back by the lender to finance future property improvements. The loan has a fixed interest rate of 9.00%, requires monthly interest-only payments until maturity, and was to mature in June 2018. The Company extended the maturity date to September 2019 in March 2018. The loan was refinanced in September 2018, see note 13 for additional information.
Four Points by Sheraton Hotel
In June 2018, the Company entered into a $11,000,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Phoenix, Arizona. Upon entering into the loan, $750,000 of the loan proceeds were placed into a reserve account to be drawn against and pay for the conversion of hotel rooms (the “Conversion Reserve”), $350,000 of the loan proceeds were placed into a reserve account to be drawn against and pay for the property improvement plan required by the franchisor (the “PIP Reserve”), and $500,000 of the loan proceeds were placed into a reserve account to be drawn against and pay interest on the loan (the “Interest Reserve”). At June 30, 2018, the balance of the Conversion Reserve, PIP Reserve, and Interest Reserve were $750,000, $350,000, and $500,000, respectively, all of which are included in restricted cash on the accompanying consolidated balance sheets. The loan has a variable interest rate equal to the greater of 5.75% or Prime Rate plus 1.25%, resulting in a rate of 6.25% at June 30, 2018, and is paid from the Interest Reserve until the reserve is depleted. Once the Interest Reserve is depleted, the loan continues to require monthly interest-only payments. The interest rate increases to 12.0% in June 2019 and the loan terms allow, one year after inception, the Company to prepay the outstanding balance in part or in whole at any time prior to the maturity date. The loan is guaranteed by the Company and matures in December 2021. The terms of the loan include certain financial covenants and at June 30, 2018, the Company was in compliance with all such covenants.
Palms Apartment Portfolio
In August 2016, the Company entered into a $9,800,000 loan, which is secured by the deeds of trust and assignment of rents of a portfolio of three multi-family properties located in Phoenix, Arizona. The note has a 5.28% fixed interest rate. The terms of the note require monthly principal and interest payments,
F-64
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 5 — Notes Payable (continued)
 
with a balloon payment due at maturity. The terms of the note do not allow the Company to prepay the outstanding balance in whole at any time prior to the maturity date. The loan is guaranteed by an individual who is an affiliate of the Company. The note matures in September 2026.
Single-family Home Loans
The Company owns multiple single-family homes which are held as rental property or held with the intention of being renovated and resold. Multiple single-family homes owned by the Company at June 30, 2018 and December 31, 2017 were subject to loans held by third parties. At June 30, 2018, there were 9 individual single-family home loans outstanding with outstanding principal balances ranging from $80,000 to $400,000 and interest rates ranging from 9.95% to 12.13%. The loans generally require monthly or quarterly interest-only payments until maturity or the sale of the home. The loans generally have a 12-month term and may be extended upon the mutual agreement of the lender and the borrower. At June 30, 2018, all the loans had reached their original stated maturity and were due to be repaid when the related home is sold.
At December 31, 2017, there were 10 individual single-family home loans outstanding with outstanding principal balances ranging from $31,100 to $368,900, interest rates ranging from 9.95% to 12.13%. The loans generally require monthly or quarterly interest-only payments until maturity or the sale of the home. The loans generally have a 12-month term and may be extended upon the mutual agreement of the lender and the borrower. At December 31, 2017, all the loans had reached their original stated maturity and were due to be repaid when the related home is sold.
Unsecured Borrowing
In July 2012, the Company entered into an arrangement with a third-party lender in which the lender advanced funds to the Company to facilitate the purchase and renovation of single-family homes. The advances generally accrued interest at rates ranging from 20.0% to 24.0%, and all amounts were due upon the sale of the home underlying each advance. In January 2016, all amounts outstanding under the arrangement were consolidated into a single loan, the interest rate was adjusted to 33.0% per annum, and the repayment terms were modified to require that the Company make monthly payments which are applied 50% to principal and 50% to interest. Under the current repayment terms, the loan will be fully repaid by December 2018.
Corporate Notes
The Company has entered into multiple general corporate financing arrangements with third parties. The arrangements are generally evidenced in the form of a promissory note, which are secured by the otherwise unencumbered assets of the Company and require monthly or quarterly interest-only payments until maturity. The loans generally have a 12-month term and may be extended upon the mutual agreement of the lender and the borrower.
At June 30, 2018, there were 56 individual corporate notes outstanding, with outstanding principal balances ranging from $10,750 to $900,000, interest rates ranging from 8.25% to 18.0%, and maturity dates ranging from July 2018 to November 2018. During the six months ended June 30, 2018, $22,768 of principal due in connection with corporate promissory notes was converted to common stock and $14,230 of principal due in connection with corporate promissory notes was converted to preferred stock.
At December 31, 2017, there were 62 individual corporate notes outstanding, with outstanding principal balances ranging from $10,750 to $900,000, interest rates ranging from 10.13% to 18.0%, and maturity dates ranging from January 2018 to November 2018.
F-65
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 5 — Notes Payable (continued)
 
Other
Desert Sand Realty, LLC
In November 2014, the Company acquired a property management company located in Phoenix, Arizona for $55,000, and $35,000 of the purchase was financed through a seller-carryback loan. The loan has an interest rate of 6.0%, requires monthly principal and interest payments, and matures in November 2018.
Future Minimum Payments
As of June 30, 2018, the future aggregate principal repayments due on the Company’s notes payable for each of the years ending December 31, are as follows:
​
2018
​ ​ ​ $ 64,764,942 ​ ​
​
2019
​ ​ ​ ​ 11,769,872 ​ ​
​
2020
​ ​ ​ ​ 11,376,834 ​ ​
​
2021
​ ​ ​ ​ 11,398,152 ​ ​
​
2022
​ ​ ​ ​ 418,310 ​ ​
​
Thereafter
​ ​ ​ ​ 14,574,704 ​ ​
​ ​ ​ ​ ​ $ 114,302,814 ​ ​
​
Deferred Financing Costs
During the six months ended June 30, 2018 and 2017, amortization and write-offs of deferred financing costs totaled $1,216,270 and $781,461, respectively.
Note 6 — Related Party Transactions
Notes Receivable — Related Parties
CDIF
In April 2016, the Company assumed an unsecured promissory note payable by CDIF, an affiliated entity which is managed by the Company, to a third-party in exchange for issuing 170,940 shares of common stock and 85,470 shares of preferred stock to the third party. At the time of the transaction the outstanding principal balance of the promissory note was $500,000. The note accrues interest at a rate of 18% for the first 90 days after origination and 15% thereafter. The note required monthly interest only payments until maturity. The original term of the note was 12 months and it matured in October 2016; however, the maturity date was extended to June 2017 upon mutual agreement between the parties. The note was paid in full in June 2017.
SF Alaska, LP
In August 2016, the Company entered into an unsecured $50,250 promissory note with SF Alaska, LP, a related party. The note was to mature in August 2018, but the Company extended the maturity date to August 2020. The note has an interest rate of 12.0% per annum and no payments are required prior to maturity. The note may be prepaid in whole, or in part, without penalty. During the six months ended June 30, 2018 and 2017, the Company earned $1,665 and $2,990, respectively, of interest in connection with the note, which is included in other (income) expense, net on the accompanying condensed consolidated
F-66
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 6 — Related Party Transactions (continued)
 
statements of operations. Interest due to the Company of  $2,226 and $561, was outstanding at June 30, 2018 and December 31, 2017, respectively, and is included in due from related parties on the accompanying condensed consolidated balance sheets. At June 30, 2018 and December 31, 2017, the outstanding principal balance of the loan was $27,978, which are included in notes receivable — related parties on the accompanying condensed consolidated balance sheets.
CDOF II
In June 2017, the Company entered into an unsecured $250,000 promissory note with Caliber Diversified Opportunity Fund II, LP (“CDOF II”), an affiliated entity, which is managed by the Company. The note matures in June 2019 and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. During the six months ended June 30, 2018 and 2017, the Company earned $14,877 and $82, respectively, of interest in connection with the note which is included in other (income) expense, net on the accompanying condensed consolidated statements of operations. Interest due to the Company of  $30,082 and $15,205 was outstanding at June 30, 2018 and December 31, 2017, respectively, and is included in due from related parties on the accompanying condensed consolidated balance sheets. At June 30, 2018 and December 31, 2017, the outstanding principal balance of the loan was $250,000, which is included in notes receivable —  related parties on the accompanying condensed consolidated balance sheets.
Future Minimum Payments Receivable
At June 30, 2018, the future aggregate principal payments due to the Company related to the notes receivable — related parties for each of the years ending December 31, are as follows:
​
2018
​ ​ ​ $ 27,978 ​ ​
​
2019
​ ​ ​ ​ 250,000 ​ ​
​ ​ ​ ​ ​ $ 277,978 ​ ​
​
Fund Management
The Company manages multiple private equity real estate funds. We earn asset management and other fees for the services provided and enter into an agreement with each private equity real estate fund outlining the terms and fees to be earned. In general:
•
We charge an initial one-time fee related to the initial formation, administration, and set up of the fund (“Set Up Fees”). During the six months ended June 30, 2018 and 2017, the Company did not have any Set Up Fees in connection with newly opened funds.
​
•
We are entitled to receive reimbursement for certain expenses incurred or paid on behalf of the fund, which may include an allocation of certain administrative and overhead costs. We also receive an annual asset management fee equal to 1.0% – 1.5% of the non-affiliate capital contributions related to the on-going management of the assets owned by the fund and the overall fund administration (collectively, “Asset Management Fees”). During the six months ended June 30, 2018 and 2017, the Company earned $1,130,179 and $319,185, respectively, of Asset Management Fees.
​
•
We are entitled to 20% – 35% of all cash distributions from the operating cash flows of the fund, after the payment of all priority preferred returns, and the repayment of any preferred capital contributions. We are also entitled to 20% – 35% of all cash distributions from the cash flows
​
​
F-67
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 6 — Related Party Transactions (continued)
 
resulting from the sale or refinance of the assets of the fund, after the payment of all priority preferred returns, and the repayment of all capital contributions (collectively, “Carried Interest”). During the six months ended June 30, 2018 and 2017, the Company earned $20,047 and $33,366, respectively, of Carried Interest.
At June 30, 2018 and December 31, 2017, amounts due to the Company from related parties for fund management services totaled $946,752 and $815,048, respectively, and are included in due from related parties on the accompanying condensed consolidated balance sheets.
Property Management
The Company provides property management services and oversees the day-to-day operations of multiple residential and commercial assets owned by the funds managed by the Company. In general, the initial terms of each property management agreement are 12 months, however, the agreement automatically renews every 12 months for an additional 12 months. Per the terms of each agreement, the Company generally earns a fixed monthly fee, plus additional variable fees related to leasing, marketing, maintenance, and administrative activities (collectively, “Property Management Fees”). During the six months ended June 30, 2018 and 2017, the Company earned $61,383 and $74,832, respectively, of Property Management Fees from related parties. At June 30, 2018 and December 31, 2017, amounts due to the Company from related parties for Property Management Fees totaled $5,129 and $6,312, respectively, and are included in due from related parties on the accompanying condensed consolidated balance sheets.
Selling Agent Agreement
The Company entered into multiple agreements with affiliated entities in which we receive fees for services primarily relating to the marketing, offering, registering, and selling of equity and debt instruments of the affiliates (collectively, “Capital Raise Fees”). During the six months ended June 30, 2018 and 2017, the Company earned $296,608 and $35,230, respectively, of Capital Raise Fees from related parties, which are included in fund management on the accompanying condensed consolidated statements of operations. At June 30, 2018 and December 31, 2017, amounts due to the Company from related parties for Capital Raise Fees totaled $420,542 and $399,126, respectively, and are included in due from related parties on the accompanying condensed consolidated balance sheets.
Construction and Development
The Company regularly provides development, construction, and maintenance services to its affiliates, including the private equity real estate funds it manages. The fee arrangement with each affiliate entity varies; however, the arrangements are generally structured as cost incurred, plus a market rate of profit margin. During the six months ended June 30, 2018 and 2017, the Company recognized $2,480,191 and $2,114,167, respectively, of construction and development revenue from related parties. At June 30, 2018 and December 31, 2017, amounts due to the Company from related parties for construction, development, and maintenance services totaled $1,535,360 and $833,292, respectively, and are included in due from related parties on the accompanying condensed consolidated balance sheets.
Home Sales
Since 2016, the Company has sold multiple single-family homes to Caliber Residential Advantage Fund, LP and its subsidiary (“CRAF”), a private equity real estate fund managed by the Company. During the six months ended June 30, 2018 and 2017, the Company recognized real estate sales revenue of  $933,101 and $1,471,570, respectively, which is included in real estate sales revenue on the accompanying condensed consolidated statements of operations. In connection with each sale, the loan on the property, which was held by Caliber Fixed Income Fund II, LLC, a separate affiliated entity, was repaid in full.
F-68
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 6 — Related Party Transactions (continued)
 
Real Estate Brokerage
The Company earns commissions in exchange for providing real estate brokerage services related to the purchase and sale of residential and commercial assets owned by the funds managed by the Company. The amount of commission earned varies based on the size and complexity of each transaction, as well as other factors. During the six months ended June 30, 2018 and 2017, the Company recognized $23,265 and $9,123, respectively, of brokerage commission revenue from related parties, which is included in brokerage revenues on the accompanying condensed consolidated statements of operations.
Notes Payable — Related Parties
CFIF II
Beginning in July 2015, the Company entered into multiple promissory notes with CFIF II, a related party, for the purpose of financing the purchase, development, and renovation of residential and commercial properties. The notes have an interest rate of 11% per annum and require monthly interest-only payments until maturity. The notes generally have a term of 12 months and are required to be repaid at the earlier of i) the sale of the related property, or ii) the stated maturity date. The notes can be prepaid at any time prior to maturity without penalty and the maturity date can be extended upon the mutual agreement of the parties. During the six months ended June 30, 2018 and 2017, the Company incurred $399,692 and $630,611, respectively, of interest expense in connection with the notes. The interest payable at June 30, 2018 and December 31, 2017, was $1,165,943 and $1,163,166, respectively, which is included in due to related parties on the accompanying condensed consolidated balance sheets. At June 30, 2018 and December 31, 2017, the total outstanding principal balance of the notes was $6,198,000 and $8,687,000, respectively, which is included in notes payable — related parties on the accompanying condensed consolidated balance sheets.
CDIF
In January 2016, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with CDIF, which allows the fund to borrow up to $2,000,000. The note was to mature in January 2018, but the Company extended the maturity date to October 2018. The note has an interest rate of 12.0% per annum and no payments are required prior to maturity. The note may be prepaid in whole, or in part, without penalty. In June 2016, $500,000 of the principal outstanding in connection with the note was converted to an equity investment in the fund. During the six months ended June 30, 2018 and 2017, the Company incurred $5,354 and $12,534 of interest expense in connection with the note, respectively, which is included in interest expense on the accompanying condensed consolidated statements of operations. The interest payable at June 30, 2018 and December 31, 2017, was $5,354 and $0, respectively, which is included in due to related parties on the accompanying condensed consolidated balance sheets. At June 30, 2018 and December 31, 2017, the outstanding principal balance of the note was $89,978, which is included in notes payable — related parties on the accompanying condensed consolidated balance sheets.
In April 2016, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with CDIF, which allowed the Company to borrow up to $3,000,000. The note had a stated maturity of April 2018 and had an interest rate of 12.0% per annum. No payments were required prior to the maturity of the note. In November 2016, $1,500,000 of the principal outstanding in connection with the note was converted to an equity investment in the fund. An additional $400,000 of outstanding principal was settled through the issuance of Class C member interest to an affiliate of CDIF. During the six months ended June 30, 2017, the Company incurred $21,020 of interest expense in connection with the note, which is included in interest expense on the accompanying condensed consolidated statements of operations. The note and all interest due was paid in full in September 2017.
F-69
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 6 — Related Party Transactions (continued)
 
In June 2017, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with CDIF, which allowed the Company to borrow up to $800,000. The note matures in June 2019 and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. During the six months ended June 30, 2018, the Company incurred $25,479 of interest expense in connection with the note, which is included in interest expense on the accompanying condensed consolidated statements of operations. The interest payable at June 30, 2018 was $28,590, which is included in due to related parties on the accompanying condensed consolidated balance sheets. At June 30, 2018, the outstanding principal balance of the note was $431,818, which is included in notes payable — related parties on the accompanying condensed consolidated balance sheets.
CDOF II
In August 2017, the Company, through one of its consolidated private equity real estate funds, entered into an unsecured promissory note with Caliber Diversified Opportunity Fund II, LP, which allows the fund to borrow up to $165,000. The note matures in August 2018 and has an interest rate of 12.0% per annum. No payments are required prior to the maturity of the note. The note may be prepaid in whole, or in part, without penalty. During the six months ended June 30, 2018, the Company incurred $4,882 of interest expense in connection with the note, respectively, which is included in interest expense on the accompanying condensed consolidated statements of operations. The interest payable at December 31, 2017 was $7,920, which is included in due to related parties on the accompanying condensed consolidated balance sheets. The balance and all accrued interest was paid in full in March 2018. At December 31, 2017, the outstanding principal balance of the note was $165,000, which is included in notes payable — related parties on the accompanying condensed consolidated balance sheets.
Management
In March 2013, the Company entered into an unsecured promissory note in the amount of  $185,000 with a former member of executive management. The unpaid principal balance accrues interest at a rate of 0.87% per annum. The note matures on December 31, 2018; however, the maturity date may be extended until December 31, 2023, at the Company’s option. Per the terms of the note, no payment is due until maturity and the note may be prepaid at any time without penalty. At June 30, 2018 and December 31, 2017, the outstanding principal balance due related to the note was $185,000, which is included in notes payable — related parties on the accompanying condensed consolidated balance sheets. During the six months ended June 30, 2018 and 2017, the Company incurred $798 of interest expense in connection with the note, which is included in interest expense on the accompanying condensed consolidated statements of operations. The interest outstanding at June 30, 2018 and December 31, 2017, was $8,528 and $7,730, respectively, and is included in due to related parties on the accompanying condensed consolidated balance sheets.
In February 2015, the Company entered into an unsecured promissory note in the amount of  $75,000 with a member of executive management. The note has an interest rate of 15.0% per annum and requires monthly interest-only payments until maturity. The note may be prepaid in whole, or in part, without penalty. During the six months ended June 30, 2017, the Company incurred and paid $4,938 of interest expense in connection with the note, which is included in interest expense on the accompanying condensed consolidated statements of operations. The note had an original maturity date of August 2015; however, the maturity was extended until April 2017 upon the mutual agreement of the parties. The note was paid in full in April 2017.
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CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 6 — Related Party Transactions (continued)
 
Future Minimum Payments
At June 30, 2018, the future aggregate principal payments due to related parties from the Company related to the notes payable — related parties for each of the years ending December 31, are as follows:
​
2018
​ ​ ​ $ 6,472,978 ​ ​
​
2019
​ ​ ​ ​ 431,818 ​ ​
​ ​ ​ ​ ​ $ 6,904,796 ​ ​
​
Hotel Management
The Company has entered into multiple agreements with Heavlin Management Company, LLC (“HMC”), an affiliated entity through common ownership of certain of the Company’s consolidated subsidiaries, to operate each of the Company’s hotel properties. The term of the agreements is generally 10 years and may be extended for an additional 10 years upon mutual consent of the Company and HMC. HMC oversees the day-to-day operations and management responsibilities of each hotel property. Per the terms of the agreements, HMC receives a monthly fee equal to 3-4% of gross revenue, and may also receive an annual incentive fee, not to exceed 1% of gross operating revenues, by exceeding owner approved budgets for revenue and profits (collectively, “Hotel Management Fees”). Hotel Management Fees for the six months ended June 30, 2018 and 2017, totaled $872,310 and $867,728, respectively, which are included in management fees on the accompanying condensed consolidated statements of operations. During the six months ended June 30, 2018 and 2017, the Company did not incur any incentive fees related to Hotel Management Fees. Pursuant to one of the hotel management arrangements, HMC also earns an annual fixed fee of  $100,000, which is included in management fees on the accompanying condensed consolidated statements of operations. In addition to the Hotel Management Fees, HMC also charges the Company for certain shared services including sales and marketing, information technology, and human resources. Expenses for shared services for the six months ended June 30, 2018 and 2017, totaled $550,554 and $484,443, respectively, which are included in general and administrative expenses and marketing and advertising expenses on the accompanying condensed consolidated statements of operations, as applicable. The Company also reimburses HMC for expenses incurred or paid on its behalf. At June 30, 2018 and December 31, 2017, amounts due to HMC totaled $153,711 and $283,110, respectively, and are included in due to related parties on the accompanying condensed consolidated balance sheets. HMC utilizes the Company’s payroll service provider and reimburses the Company for payroll and other costs paid on their behalf. At June 30, 2018 and December 31, 2017, $73,859 and $88,450 of reimbursement was due to the Company from HMC, respectively, and is included in due from related parties on the accompanying condensed consolidated balance sheets.
Withdrawal Agreement
In November 2014, the Company entered into an agreement with a former co-manager and member of one of the Company’s consolidated subsidiaries which outlined the terms of his resignation as co-manager and assignment of his member interest. In consideration for his resignation as co-manager and assignment of his member interest, the Company agreed to issue 55,556 shares of its common stock to the individual or his designee, provide the individual with $35,000 of construction services at no cost to the individual, and pay the individual or his designee up to $540,000 in cash, as outlined in the agreement. At June 30, 2018 and December 31, 2017, $434,331 and $481,672, respectively, was included in due to related parties on the accompanying condensed consolidated balance sheets related to this agreement.
F-71
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 6 — Related Party Transactions (continued)
 
Other
In the normal course of business, the Company has various amounts due from related parties, including affiliate entities and individuals, for various expenses paid for by the Company on their behalf and other charges. These amounts are generally unsecured, interest-free, and due on demand. At June 30, 2018 and December 31, 2017, other amounts due from related parties were $1,493,770 and $863,551, respectively.
In the normal course of business, the Company has various amounts due to related parties, including affiliate entities and individuals, for various expenses paid for by the affiliates on the Company’s behalf and other short-term payment advances. These amounts are generally unsecured, interest-free, and due on demand. At June 30, 2018 and December 31, 2017, other amounts due to related parties were $911,557 and $73,437, respectively.
Note 7 — Commitments and Contingencies
Legal Matters
Periodically, the Company is contingently liable with respect to claims incidental to the ordinary course of its operations. There is no current litigation, claims or assessments outstanding and, accordingly, no provision has been made in the accompanying financial statements.
Construction Contracts
In connection with our development, redevelopment and capital improvement activities, we have entered into various construction related contracts and we have made commitments to complete certain projects, pursuant to financing or other arrangements. At June 30, 2018 and December 31, 2017, our commitments related to these activities totaled $10,303,498 and $9,772,255, respectively.
Franchise Agreements and Advance Key Money
Intercontinental Hotel Group
In August 2013, the Company entered into a 20-year franchise agreement with Holiday Hospitality Franchising, LLC (“InterContinental Hotels Group” or “IHG”). Pursuant to the terms of the franchise agreement, the Company pays the following fees on a monthly basis:
•
Royalty Fee of 5% of gross room revenue
​
•
Service Contribution Fee of 3% of gross room revenue
​
•
Technology Fee of  $12.75 per room
​
•
Marketing Fee of  $3.00 per room
​
As a part of the franchise agreement, Six Continents, Inc., an affiliate of IHG, advanced $1,500,000 (“advance key money”) to the Company to retain IHG as the franchisor on the Hotel property for 20 years. Based on the term of the franchise agreement, each year, beginning in August 2015, the Company recognizes $37,500 of the previously deferred advance key money, as a reduction of franchise fees in the accompanying condensed consolidated statements of operations for each of the six months ended June 30, 2018 and 2017. The Company is not required to repay any part of the advance key money unless the franchise agreement is cancelled before the termination date of August 2033.
F-72
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 7 — Commitments and Contingencies (continued)
 
In June 2015, the Company entered into a separate 10-year franchise agreement with IHG, which expires in June 2025. The Company paid an initial fee of  $114,000 in connection with the franchise agreement, which is being amortized over the term of the agreement. The amortization of the initial franchise fee is included in franchise fees on the accompanying condensed consolidated statements of operations and totaled $5,700 for the six months ended June 30, 2018 and 2017. Per the terms of the agreement, the Company pays the following fees on a monthly basis:
•
Royalty Fee of 5% of gross room revenue
​
•
Service Contribution Fee of 3% of gross room revenue
​
•
Technology Fee of  $13.26 per room
​
•
All fees due for marketing
​
Hampton Inns
In October 2014, the Company entered into a franchise agreement with Hampton Inns Franchise, LLC, which expires in November 2030. The Company paid an initial fee of  $150,000 in connection with the agreement, which is being amortized over the term of the agreement. The amortization of the initial franchise fee is included in franchise fees on the accompanying condensed consolidated statements of operations and totaled $4,638 for the six months ended June 30, 2018 and 2017. Per the terms of the franchise agreement, the Company pays the following fees on a monthly basis:
•
Program Fee of 4% of gross room revenue
​
•
Royalty Fee of 6% of gross room revenue
​
Hilton Worldwide
In June 2016 and November 2016, the Company entered into two 10-year franchise agreements with Hilton Franchise Holdings, LLC, an affiliate of Hilton Worldwide. The Company paid an initial fee of $125,000 in connection with each agreement, which is being amortized over the term of the agreements. The amortization of the initial franchise fees is included in franchise fees on the accompanying condensed consolidated statement of operations and totaled $12,500 for the six months ended June 30, 2018 and 2017. Per the terms of the franchise agreements, the Company pays the following fees on a monthly basis:
•
Program Fee of 4% of gross room revenue
​
•
Royalty Fee of 5% of gross room revenue
​
•
Food and Beverage Fee of 1 – 3% of gross food and beverage revenue
​
The food and beverage fee is equal to 1% of gross food and beverage revenue during the first year of the Franchise Agreement, 2% during the second year of the Franchise Agreement, and 3% thereafter.
The Company recognized total aggregate franchise fees of  $1,953,274 and $1,857,016 for the six months ended June 30, 2018 and 2017, respectively.
Insurance Claims
In July 2016, the Company experienced significant damage to one of our multi-family properties resulting from severe weather. The Company recognized a loss of  $1,871,336 in connection with the damage to the property. The Company submitted an initial insurance claim to its insurer, which was denied. We
F-73
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 7 — Commitments and Contingencies (continued)
 
subsequently engaged legal counsel to pursue the claim and the Company collected proceeds related to damages in the amount of  $982,714 in March 2018, which is included in other (income) expenses, net on the accompanying condensed consolidated statements of operations.
In July 2016, the Company experienced significant damage to one of our hotel properties resulting from severe weather. The Company’s insurance claim for the loss in the amount of  $827,646 was approved by the insurer and the full amount was recorded against the loss incurred during 2016. The Company received proceeds of  $314,202 in June 2017, $258,902 in August 2017, and $254,542 in October 2017.
Contractual Lease Obligations
Equipment Lease
In December 2014, the Company entered into a lease agreement for certain telecommunication equipment. The lease has a 60-month term, requires monthly lease payments, and has a bargain purchase option at maturity. The recorded lease liability at June 30, 2018 and December 31, 2017, was $22,180 and $28,834, respectively, and is included in other liabilities on the accompanying condensed consolidated balance sheets. At June 30, 2018, the future required payments, for each of the years ending December 31, were as follows:
​
2018
​ ​ ​ $ 6,654 ​ ​
​
2019
​ ​ ​ ​ 15,526 ​ ​
​ ​ ​ ​ ​ $ 22,180 ​ ​
​
Ground Leases
In November 2012, we acquired a hotel property in Phoenix, Arizona, which is subject to a ground lease and requires monthly lease payments of approximately $72,000, subject to annual adjustments through December 2049, at which time the ground lease expires. The ground lease required a deposit of $325,000, which is included in other assets on the accompanying condensed consolidated balance sheets as of June 30, 2018 and December 31, 2017. At the time of acquisition, it was determined that the lease rate of the ground lease was at a rate which management estimated was above the fair market lease rate. Accordingly, we recorded a liability in the amount of the estimated fair value (level 3) of the above-market lease. The above-market lease is amortized as a reduction to lease expense over the term of the lease. Accumulated amortization of the above-market lease intangible at June 30, 2018 and December 31, 2017, was $710,648 and $647,944, respectively.
In October 2014, we acquired a hotel property residing on land which is subject to a ground lease and is subleased to the Company. The sublease requires monthly lease payments of approximately $14,000 which consist of base rent, taxes, and other charges, and are subject to annual adjustments.
The amount of the base rent increases over time. The original sublease expires in May 2056; however, the sublease includes two 5-year extension options and a third extension option for an additional 27 months.
F-74
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 7 — Commitments and Contingencies (continued)
 
At June 30, 2018, the estimated future minimum lease payments on the ground leases and the future amortization of the related above-market lease intangible for each of the years ending December 31, are as follows:
​ ​ ​
Lease
Payments
​ ​
Intangible
Amortization
​ ​
Net Lease
Expense
​
2018
​ ​ ​ $ 514,336 ​ ​ ​ ​ $ (62,703) ​ ​ ​ ​ $ 451,631 ​ ​
2019
​ ​ ​ ​ 1,028,672 ​ ​ ​ ​ ​ (125,409) ​ ​ ​ ​ ​ 903,263 ​ ​
2020
​ ​ ​ ​ 1,028,672 ​ ​ ​ ​ ​ (125,409) ​ ​ ​ ​ ​ 903,263 ​ ​
2021
​ ​ ​ ​ 1,028,672 ​ ​ ​ ​ ​ (125,409) ​ ​ ​ ​ ​ 903,263 ​ ​
2022
​ ​ ​ ​ 1,028,672 ​ ​ ​ ​ ​ (125,409) ​ ​ ​ ​ ​ 903,263 ​ ​
Thereafter
​ ​ ​ ​ 30,515,688 ​ ​ ​ ​ ​ (3,386,027) ​ ​ ​ ​ ​ 27,129,661 ​ ​
​ ​ ​ ​ $ 35,144,712 ​ ​ ​ ​ $ (3,950,366) ​ ​ ​ ​ $ 31,194,344 ​ ​
​
Rent expense totaled $675,132 and $659,183 for the six months ended June 30, 2018 and 2017, respectively, which includes rent expense related to operating leases for office space, equipment, and ground leases. In addition to the arrangements outlined above, the Company regularly enters into short-term equipment and other rentals. Rent expense is included within operating expenses or general and administrative expense in the accompanying condensed consolidated statements of operations, depending on the nature of the individual rental arrangement.
Environmental Matters
In connection with the ownership and operation of real estate assets, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and is not aware of any other environmental condition, in each case, that it believes will have a material adverse effect on the results of operations.
Note 8 — Stockholders’ Equity
CaliberCos Inc. is authorized to issue 100,000,0000 shares of stock, consisting of 90,000,000 shares of common stock and 10,000,000 shares of preferred stock.
Common Stock
The Company has sold shares of common stock in three tranches.
Tranche 1
From inception through March 2015 shares of common stock were sold in units equivalent to 5,882 shares of common stock per unit. Each unit also included a warrant to purchase up to an additional 1,177 shares of common stock at any time within 30 months from the date the unit was initially purchased, which was subsequently extended for an additional 12 months. The warrants have an exercise price of  $1.70 per share. The Company issued a total of 633 units, or 3,897,100 shares, of common stock under the terms of the Tranche 1 stock issuance. Shares of common stock issued in connection with the exercise of warrants issued related to Tranche 1 stock sales totaled 24,717 and 17,655 at June 30, 2018 and December 31, 2017, respectively.
Tranche 2
During the period from March 2015 through December 2015, shares of common stock were sold in units equivalent to 2 shares of common stock per unit. Each unit also included a warrant to purchase an
F-75
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 8 — Stockholders’ Equity (continued)
 
additional 1 share of common stock at any time within 24 months from the date the unit was initially purchased, which was subsequently extended for an additional 12 months. The warrants have an exercise price of  $2.00 per share. The Company issued a total of 689,645 units, or 1,379,889 shares, of common stock under the terms of the Tranche 2 stock issuance. Shares of common stock issued in connection with the exercise of warrants issued related to Tranche 2 stock sales totaled 12,962 at June 30, 2018 and December 31, 2017, respectively.
Tranche 3
Beginning January 2016, shares of common stock were sold in units equivalent to 2 shares of common stock and 1 share of Series A preferred stock per unit. The Company had issued a total of 1,657,396 units or 3,350,347 shares and 1,386,229 units or 2,803,074 shares of common stock under the terms of the Tranche 3 stock issuance at June 30, 2018 and December 31, 2017, respectively.
The Company issued a total of 549,397 shares for the six months ended June 30, 2018, of which, 7,062 shares were exercised warrants and 12,649 shares were notes payable converted to common stock. The shares of common stock issued in connection with the exercise of warrants were issued under the terms of Tranche 1 and the remaining shares were issued under the terms of Tranche 3 for the six months ended June 30, 2018.
Preferred Stock
Preferred stock may be issued in one or more series, and the voting powers, designations, preferences, limitations, or restrictions thereof, of each series of preferred stock shall be prescribed by resolution of the board of directors.
Note 9 — Redeemable Preferred Stock
Series A Preferred Stock
In January 2016, the Company designated 2,564,103 of the 10,000,000 authorized shares of preferred stock as Series A Preferred Stock (“Series A”). The powers, preferences, rights, and limitations of Series A are as follows:
•
Holders of Series A are entitled to receive non-cumulative dividends equal to 12.0% per annum prior to the payment of any dividends to holders of common stock.
​
•
In the event of the liquidation of the Company, holders of Series A are entitled to receive an amount equal to their original contribution plus any declared and accrued but unpaid dividends prior to any payment or distribution to common stock holders.
​
•
Shares of Series A are convertible into shares of common stock at a conversion ratio of 1.25 shares of common stock for each share of Series A, any time prior to a redemption by the Company or a mandatory conversion, at the holders’ option.
​
•
Upon the common stock of the Company publicly trading at a per share price on a weighted-average over 20 trading days at a market capitalization of at least $100,000,000, Series A will automatically be converted into shares of common stock at a conversion ratio of 1.25 shares of common stock for each share of Series A.
​
​
F-76
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 9 — Redeemable Preferred Stock (continued)
 
•
All outstanding shares of Series A shall be redeemed by the Company on the fourth anniversary of the issuance of such shares (the “Redemption Date”) at a price of  $2.25 per share, plus any declared and accrued but unpaid dividends. At any time during the one-year period immediately preceding the Redemption Date, the Company may redeem shares of Series A at a price equal to $2.3625 per share.
​
•
Holders of Series A and holders of common stock shall vote together and not as separate classes and shall be entitled to vote with common stockholders as if their shares were converted into shares of common stock.
​
In January 2016, the Company began selling shares of common stock and Series A in units equivalent to 2 shares of common stock and 1 share of Series A per unit, at a cost of  $5.85 per unit ($1.80 per share of common stock and $2.25 per share of Series A preferred stock). During the six months ended June 30, 2018, the Company issued a total of 271,167 units, or 271,167 shares, of Series A preferred stock.
At June 30, 2018, the future mandatory redemptions for each year ended December 31, were as follows:
​
2018
​ ​ ​ $ — ​ ​
​
2019
​ ​ ​ ​ — ​ ​
​
2020
​ ​ ​ ​ 1,615,344 ​ ​
​
2021
​ ​ ​ ​ 1,565,136 ​ ​
​
2022
​ ​ ​ ​ 659,730 ​ ​
​ ​ ​ ​ ​ $ 3,840,210 ​ ​
​
One year following the issuance of Series A Preferred Stock, the Company is required to establish, and contribute to a reserve of funds on a quarterly basis, an amount that shall cumulatively be sufficient to pay any amounts due for the redemption of Series A Preferred Stock. The quarterly contributions to the reserve are required to be at least one-twelfth (1/12) of the total amount needed to pay for the redemption of all the Series A Preferred Stock then outstanding. At June 30, 2018 and December 31, 2017, the required reserve was $320,018 and $384,594, respectively.
During the six months ended June 30, 2018 and 2017, the Company paid dividends to preferred stockholders in the amounts of  $166,645, or $0.10 per share, and $97,255, or $0.13 per share, respectively. At June 30, 2018 and December 31, 2017, preferred dividends in arrears were $111,070, or $0.07 per share and $61,467, or $0.04 per share, respectively.
Note 10 — Net Loss Per Share
Basic and diluted net loss per share attributable to common stockholders was calculated as follows:
​ ​ ​
Six Months Ended
​
​ ​ ​
2018
​ ​
2017
​
Net loss attributable to CaliberCos Inc.
​ ​ ​ $ (1,808,842) ​ ​ ​ ​ $ (3,887,871) ​ ​
Preferred stock dividends
​ ​ ​ ​ (166,645) ​ ​ ​ ​ ​ (73,333) ​ ​
Accretion of mezzanine equity value
​ ​ ​ ​ (49,603) ​ ​ ​ ​ ​ (23,922) ​ ​
Net loss attributable to common shareholders of CaliberCos Inc.
​ ​ ​ $ (2,025,090) ​ ​ ​ ​ $ (3,985,126) ​ ​
Weighted-average common shares outstanding
​ ​ ​ ​ 27,262,801 ​ ​ ​ ​ ​ 24,797,638 ​ ​
Basic and diluted net loss per share attributable to common shareholders
​ ​ ​ ​ (0.07) ​ ​ ​ ​ ​ (0.16) ​ ​
​
F-77
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 10 — Net Loss Per Share (continued)
 
The computation of diluted loss per share attributable to common stockholders assumes the potential dilutive effect of potential common shares, which includes the exercise of warrants and converted preferred shares. However, to the extent the inclusion of potential common shares is anti-dilutive, the potential common shares are excluded from the computation of diluted income (loss) per share attributable to common stockholders. For the six months ended June 30, 2018 and 2017, the inclusion of the effect of any potential exercise of warrants or conversion of preferred shares to common shares is antidilutive, and therefore have been excluded from the computation of loss per share attributable to common stockholders. Additional potential common shares related to the outstanding warrants and preferred shares were as follows:
​ ​ ​
Six Months Ended
​
​ ​ ​
2018
​ ​
2017
​
Additional common shares, if warrants were exercised
​ ​ ​ ​ 1,038,924 ​ ​ ​ ​ ​ 1,173,628 ​ ​
Additional common shares, if preferred shares were converted
​ ​ ​ ​ 2,071,745 ​ ​ ​ ​ ​ 961,719 ​ ​
​ ​ ​ ​ ​ 3,110,669 ​ ​ ​ ​ ​ 2,135,347 ​ ​
​
Note 11 — Fair Value of Financial Instruments
The Company estimates fair values of financial instruments using available market information and established valuation methodologies. Accordingly, the estimates presented are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments. The use of different market assumptions and/or valuation methodologies may have a material effect on the estimated fair value amounts.
Financial instruments that approximate fair value due to the short-term nature of the instruments consist of cash, restricted cash, accounts receivable, and accounts payable. The fair values of long-term debt, advance key money, and interest rate caps have been estimated based on current rates available for similar instruments with similar terms, maturities, and collateral. The carrying values of the Company’s long-term debt, advance key money, and interest rate caps at June 30, 2018 and December 31, 2017, approximated fair value, except for the long-term debt instruments listed below, all of which were measured with Level 3 inputs. The estimated fair values for the instruments below were determined by management based on a discounted future cash-flow model.
​ ​ ​
June 30, 2018
​ ​
December 31, 2017
​
​ ​ ​
Carrying Value
​ ​
Fair Value
​ ​
Carrying Value
​ ​
Fair Value
​
Notes Payable ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Hilton Tucson East Hotel
​ ​ ​ $ 12,730,000 ​ ​ ​ ​ $ 12,709,000 ​ ​ ​ ​ $ 12,730,000 ​ ​ ​ ​ $ 12,611,000 ​ ​
Hampton Inn & Suites Hotel
​ ​ ​ $ 6,780,000 ​ ​ ​ ​ $ 6,530,000 ​ ​ ​ ​ $ 6,868,347 ​ ​ ​ ​ $ 6,601,000 ​ ​
Palms Apartment Portfolio
​ ​ ​ $ 9,521,000 ​ ​ ​ ​ $ 8,960,000 ​ ​ ​ ​ $ 9,603,918 ​ ​ ​ ​ $ 9,012,000 ​ ​
Note 12 — Segment Reporting
The Company’s operations are organized into eight reportable segments for management and financial reporting purposes, which are broadly separated in two categories; real estate services (Fund/Asset Management, Construction & Development, Property Management, Real Estate Brokerage) and real estate operations (Hospitality, Residential, Commercial, and Diversified). Each segment is described below.
F-78
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 12 — Segment Reporting (continued)
 
Real Estate Services
Fund Management
This segment includes all our corporate operations, as well as the revenue generated by the fund/asset management services and capital raising services provided to the private equity real estate funds which the Company is affiliated with.
Construction & Development
This segment includes our construction and development operations. The Company provides a variety of construction and development services to affiliated entities as well as third parties.
Property Management
This segment includes our property management operations. The Company provides a comprehensive range of services including tenant screening, lease-up, collections, repairs and maintenance, and eviction/​removal for affiliated entities as well as third parties.
Real Estate Brokerage
This segment includes our real estate brokerage operations. The Company generates commission revenue by acting as a broker for residential and commercial real estate owners and investors seeking to buy and/or sell properties, including investment properties, as well as primary residences. The Company provides brokerage services to affiliated entities as well as third parties.
Real Estate Operations
Hospitality
This segment includes all the operating activity of the hotel properties which are affiliates of the Company.
Residential
This segment includes all the operating activity of the single-family assets, which are owned by the Company, and multi-family assets, which are owned and/or managed by the Company. The Company is involved in both the sale and rental of residential real estate assets. This segment also includes residential property development projects in various stages of completion.
Commercial
This segment includes all the operating activity of the commercial properties which are affiliates of the Company. The Company is involved in both the sale and rental of commercial real estate assets. This segment also includes commercial property development projects in various stages of completion.
Diversified
This segment includes the operating activities of certain entities which are involved in the financing of various affiliated real estate properties through both debt and equity investments.
Due to the diversity of our economic ownership interests across our properties, our chief executive officer, who is our chief operating decision maker (“CODM”), assesses the operating performance of our assets based on our proportionate share of net operating income (loss).
F-79
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(unaudited)
 
Note 12 — Segment Reporting (continued)
 
The information below includes the operating results and measures of profitability for all operating entities which the Company and our CODM analyze on a regular basis, as the ultimate profitability of each entity, and value of its assets, will impact the ultimate profitability of the Company. The total assets and results of each segment are presented on a gross basis, prior to any necessary adjustments to: i) eliminate inter-segment transactions ii) eliminate the results of entities that are not included in our consolidated U.S. GAAP financial statements; iii) eliminate revenue activity presented gross when U.S. GAAP requires net, and iv) reclassify items to reflect U.S. GAAP consolidated presentation. The following tables present the revenues, operating income (loss), and net income (loss) of each of our reportable segments for the six months ended June 30, 2018 and 2017, and total assets at June 30, 2018 and December 31, 2017:
F-80
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Note 12 — Segment Reporting (continued)
​ ​ ​
Six Months Ended June 30, 2018
​
​ ​ ​
Real Estate Services
​ ​
Real Estate Operations
​ ​
Eliminations
​ ​
CaliberCos, Inc.
& Subsidiaries
​
​ ​ ​
Fund 
Management
​ ​
Construction &
Development
​ ​
Property
Management
​ ​
Real Estate
Brokerage
​ ​
Total
​ ​
Hospitality
​ ​
Residential
​ ​
Commercial
​ ​
Diversified
​ ​
Total
​ ​
Non-
consolidated
​ ​
Intercompany
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Hospitality
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 27,050,571 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 27,050,571 ​ ​ ​ ​ $ (487,445) ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 26,563,126 ​ ​
Construction and development
​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,886,173 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,886,173 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (4,227,659) ​ ​ ​ ​ ​ 2,658,514 ​ ​
Real estate sales
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,714,200 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,714,200 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,714,200 ​ ​
Rental income
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,927,555 ​ ​ ​ ​ ​ 500,904 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,428,459 ​ ​ ​ ​ ​ (2,089,546) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,338,913 ​ ​
Fund management
​ ​ ​ ​ 2,562,866 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,562,866 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,116,031) ​ ​ ​ ​ ​ 1,446,835 ​ ​
Property management
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 250,409 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 250,409 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 23,845 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 23,845 ​ ​ ​ ​ ​ (15,701) ​ ​ ​ ​ ​ (101,448) ​ ​ ​ ​ ​ 157,105 ​ ​
Brokerage
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,000,492 ​ ​ ​ ​ ​ 1,000,492 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (905,940) ​ ​ ​ ​ ​ 94,552 ​ ​
Other
​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,747 ​ ​ ​ ​ ​ 43,519 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 50,266 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 13,671 ​ ​ ​ ​ ​ 6 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 13,677 ​ ​ ​ ​ ​ (10,114) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 53,829 ​ ​
Total revenues
​ ​ ​ ​ 2,562,866 ​ ​ ​ ​ ​ 6,892,920 ​ ​ ​ ​ ​ 293,928 ​ ​ ​ ​ ​ 1,000,492 ​ ​ ​ ​ ​ 10,750,206 ​ ​ ​ ​ ​ 27,050,571 ​ ​ ​ ​ ​ 7,679,271 ​ ​ ​ ​ ​ 500,910 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 35,230,752 ​ ​ ​ ​ ​ (2,602,806) ​ ​ ​ ​ ​ (6,351,078) ​ ​ ​ ​ ​ 37,027,074 ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – hospitality
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,494,557 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,494,557 ​ ​ ​ ​ ​ (470,590) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,023,967 ​ ​
Cost of sales – construction/​development
​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,468,121 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,468,121 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (3,755,694) ​ ​ ​ ​ ​ 2,712,427 ​ ​
Cost of sales – real estate
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,344,740 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,344,740 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (29,387) ​ ​ ​ ​ ​ 3,315,353 ​ ​
Cost of sales – brokerage
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 591,453 ​ ​ ​ ​ ​ 591,453 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (554,552) ​ ​ ​ ​ ​ 36,901 ​ ​
Operating costs
​ ​ ​ ​ 2,966,636 ​ ​ ​ ​ ​ 285,453 ​ ​ ​ ​ ​ 137,094 ​ ​ ​ ​ ​ 46,789 ​ ​ ​ ​ ​ 3,435,972 ​ ​ ​ ​ ​ 4,620,209 ​ ​ ​ ​ ​ 2,051,054 ​ ​ ​ ​ ​ 285,100 ​ ​ ​ ​ ​ 620,795 ​ ​ ​ ​ ​ 7,577,158 ​ ​ ​ ​ ​ (1,957,735) ​ ​ ​ ​ ​ (5,950) ​ ​ ​ ​ ​ 9,049,445 ​ ​
General and administrative
​ ​ ​ ​ 990,065 ​ ​ ​ ​ ​ 14,268 ​ ​ ​ ​ ​ 23,404 ​ ​ ​ ​ ​ 40,686 ​ ​ ​ ​ ​ 1,068,423 ​ ​ ​ ​ ​ 1,700,673 ​ ​ ​ ​ ​ 244,566 ​ ​ ​ ​ ​ 141,973 ​ ​ ​ ​ ​ 292,413 ​ ​ ​ ​ ​ 2,379,625 ​ ​ ​ ​ ​ (688,237) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,759,811 ​ ​
Marketing and advertising
​ ​ ​ ​ 265,561 ​ ​ ​ ​ ​ 7,523 ​ ​ ​ ​ ​ 11,668 ​ ​ ​ ​ ​ 27,377 ​ ​ ​ ​ ​ 312,129 ​ ​ ​ ​ ​ 1,852,500 ​ ​ ​ ​ ​ 132,780 ​ ​ ​ ​ ​ 11,406 ​ ​ ​ ​ ​ 25,698 ​ ​ ​ ​ ​ 2,022,384 ​ ​ ​ ​ ​ (204,006) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 2,130,507 ​ ​
Franchise fees
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,962,388 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,962,388 ​ ​ ​ ​ ​ (9,114) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,953,274 ​ ​
Management fees
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 925 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 925 ​ ​ ​ ​ ​ 936,878 ​ ​ ​ ​ ​ 190,132 ​ ​ ​ ​ ​ 87,870 ​ ​ ​ ​ ​ 345,559 ​ ​ ​ ​ ​ 1,560,439 ​ ​ ​ ​ ​ (519,682) ​ ​ ​ ​ ​ (101,447) ​ ​ ​ ​ ​ 940,235 ​ ​
Depreciation
​ ​ ​ ​ 53,006 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 53,006 ​ ​ ​ ​ ​ 3,243,160 ​ ​ ​ ​ ​ 1,012,472 ​ ​ ​ ​ ​ 121,710 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,377,342 ​ ​ ​ ​ ​ (1,164,113) ​ ​ ​ ​ ​ (90,620) ​ ​ ​ ​ ​ 3,175,615 ​ ​
Total expenses
​ ​ ​ ​ 4,275,268 ​ ​ ​ ​ ​ 6,775,365 ​ ​ ​ ​ ​ 173,091 ​ ​ ​ ​ ​ 706,305 ​ ​ ​ ​ ​ 11,930,029 ​ ​ ​ ​ ​ 23,810,365 ​ ​ ​ ​ ​ 6,975,744 ​ ​ ​ ​ ​ 648,059 ​ ​ ​ ​ ​ 1,284,465 ​ ​ ​ ​ ​ 32,718,633 ​ ​ ​ ​ ​ (5,013,477) ​ ​ ​ ​ ​ (4,537,650) ​ ​ ​ ​ ​ 35,097,535 ​ ​
Operating Income (Loss)
 ​ ​ ​ ​ (1,712,402) ​ ​ ​ ​ ​ 117,555 ​ ​ ​ ​ ​ 120,837 ​ ​ ​ ​ ​ 294,187 ​ ​ ​ ​ ​ (1,179,823) ​ ​ ​ ​ ​ 3,240,206 ​ ​ ​ ​ ​ 703,527 ​ ​ ​ ​ ​ (147,149) ​ ​ ​ ​ ​ (1,284,465) ​ ​ ​ ​ ​ 2,512,119 ​ ​ ​ ​ ​ 2,410,671 ​ ​ ​ ​ ​ (1,813,428) ​ ​ ​ ​ ​ 1,929,539 ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ (53,450) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (53,450) ​ ​ ​ ​ ​ 1,163,655 ​ ​ ​ ​ ​ (694,550) ​ ​ ​ ​ ​ 27,450 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 496,555 ​ ​ ​ ​ ​ (101,396) ​ ​ ​ ​ ​ (783,074) ​ ​ ​ ​ ​ (441,365) ​ ​
Income from investments
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (588,034) ​ ​ ​ ​ ​ (588,034) ​ ​ ​ ​ ​ 588,034 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Interest income
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (39,868) ​ ​ ​ ​ ​ (19,115) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (1,128,710) ​ ​ ​ ​ ​ (1,187,693) ​ ​ ​ ​ ​ 1,128,741 ​ ​ ​ ​ ​ 58,952 ​ ​ ​ ​ ​ — ​ ​
Impairment
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 38,125 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (38,125) ​ ​ ​ ​ ​ — ​ ​
Gain on disposition of real estate
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (726,977) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (726,977) ​ ​ ​ ​ ​ 726,977 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Interest expense
​ ​ ​ ​ 499,646 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 903 ​ ​ ​ ​ ​ 500,549 ​ ​ ​ ​ ​ 4,910,859 ​ ​ ​ ​ ​ 1,480,700 ​ ​ ​ ​ ​ 639,501 ​ ​ ​ ​ ​ 1,187,189 ​ ​ ​ ​ ​ 8,218,249 ​ ​ ​ ​ ​ (2,455,764) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,263,034 ​ ​
Total other expenses, net
​ ​ ​ ​ 446,196 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 903 ​ ​ ​ ​ ​ 447,099 ​ ​ ​ ​ ​ 6,034,646 ​ ​ ​ ​ ​ 805,160 ​ ​ ​ ​ ​ (60,026) ​ ​ ​ ​ ​ (529,555) ​ ​ ​ ​ ​ 6,250,225 ​ ​ ​ ​ ​ (113,408) ​ ​ ​ ​ ​ (762,247) ​ ​ ​ ​ ​ 5,821,669 ​ ​
Net Income (Loss)
 ​ ​ ​ $ (2,158,598) ​ ​ ​ ​ $ 117,555 ​ ​ ​ ​ $ 120,837 ​ ​ ​ ​ $ 293,284 ​ ​ ​ ​ $ (1,626,922) ​ ​ ​ ​ $ (2,794,440) ​ ​ ​ ​ $ (101,633) ​ ​ ​ ​ $ (87,123) ​ ​ ​ ​ $ (754,910) ​ ​ ​ ​ $ (3,738,106) ​ ​ ​ ​ $ 2,524,079 ​ ​ ​ ​ $ (1,051,181) ​ ​ ​ ​ $ (3,892,130) ​ ​
​ ​ ​
June 30, 2018
​
Total real estate investments, at cost 
 ​ ​ ​ ​ 567,015 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 567,015 ​ ​ ​ ​ ​ 143,644,717 ​ ​ ​ ​ ​ 70,490,914 ​ ​ ​ ​ ​ 22,691,576 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 236,827,207 ​ ​ ​ ​ ​ (70,488,729) ​ ​ ​ ​ ​ (3,201,603) ​ ​ ​ ​ ​ 163,703,890 ​ ​
Total Assets
 ​ ​ ​ $ 2,886,327 ​ ​ ​ ​ $ 4,358,416 ​ ​ ​ ​ $ 30,226 ​ ​ ​ ​ $ 305,675 ​ ​ ​ ​ $ 7,580,644 ​ ​ ​ ​ $ 139,337,870 ​ ​ ​ ​ $ 70,411,694 ​ ​ ​ ​ $ 24,422,834 ​ ​ ​ ​ $ 57,494,363 ​ ​ ​ ​ $ 291,666,761 ​ ​ ​ ​ $ (126,228,850) ​ ​ ​ ​ $ (6,979,730) ​ ​ ​ ​ $ 166,038,825 ​ ​
​
F-81
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 
Note 12 — Segment Reporting (continued)
​ ​ ​
Six Months Ended June 30, 2017
​
​ ​ ​
Real Estate Services
​ ​
Real Estate Operations
​ ​
Eliminations
​ ​
CaliberCos, Inc.
& Subsidiaries
​
​ ​ ​
Fund
Management
​ ​
Construction &
Development
​ ​
Property
Management
​ ​
Real Estate
Brokerage
​ ​
Total
​ ​
Hospitality
​ ​
Residential
​ ​
Commercial
​ ​
Diversified
​ ​
Total
​ ​
Non-
consolidated
​ ​
Intercompany
​
Revenues ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Hospitality
​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 27,037,524 ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ — ​ ​ ​ ​ $ 27,037,524 ​ ​ ​ ​ $ (642,784) ​ ​ ​ ​ $ (210) ​ ​ ​ ​ $ 26,394,530 ​ ​
Construction and development
​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,391,566 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,391,566 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (4,143,779) ​ ​ ​ ​ ​ 2,247,787 ​ ​
Real estate sales
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,115,970 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,115,970 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,115,970 ​ ​
Rental income
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,453 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,453 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,591,588 ​ ​ ​ ​ ​ 491,863 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 4,083,451 ​ ​ ​ ​ ​ (1,618,011) ​ ​ ​ ​ ​ (12,730) ​ ​ ​ ​ ​ 2,457,163 ​ ​
Fund management
​ ​ ​ ​ 1,017,978 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,017,978 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 30,000 ​ ​ ​ ​ ​ 30,000 ​ ​ ​ ​ ​ (30,000) ​ ​ ​ ​ ​ (633,390) ​ ​ ​ ​ ​ 384,588 ​ ​
Property management
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 289,003 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 289,003 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,611 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 5,611 ​ ​ ​ ​ ​ (6,182) ​ ​ ​ ​ ​ (75,964) ​ ​ ​ ​ ​ 212,468 ​ ​
Brokerage
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,037,100 ​ ​ ​ ​ ​ 1,037,100 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (830,021) ​ ​ ​ ​ ​ 207,079 ​ ​
Other
​ ​ ​ ​ 3 ​ ​ ​ ​ ​ 1,868 ​ ​ ​ ​ ​ 60,015 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 61,886 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 21,674 ​ ​ ​ ​ ​ 19,794 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 41,468 ​ ​ ​ ​ ​ (49,984) ​ ​ ​ ​ ​ (18,137) ​ ​ ​ ​ ​ 35,233 ​ ​
Total revenues
​ ​ ​ ​ 1,017,981 ​ ​ ​ ​ ​ 6,393,434 ​ ​ ​ ​ ​ 353,471 ​ ​ ​ ​ ​ 1,037,100 ​ ​ ​ ​ ​ 8,801,986 ​ ​ ​ ​ ​ 27,037,524 ​ ​ ​ ​ ​ 7,734,843 ​ ​ ​ ​ ​ 511,657 ​ ​ ​ ​ ​ 30,000 ​ ​ ​ ​ ​ 35,314,024 ​ ​ ​ ​ ​ (2,346,961) ​ ​ ​ ​ ​ (5,714,231) ​ ​ ​ ​ ​ 36,054,818 ​ ​
Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Cost of sales – hospitality
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,499,602 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 9,499,602 ​ ​ ​ ​ ​ (622,267) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 8,877,335 ​ ​
Cost of sales – construction/​development
​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,056,243 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 6,056,243 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (4,029,221) ​ ​ ​ ​ ​ 2,027,022 ​ ​
Cost of sales – real estate
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,872,524 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,872,524 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (54,696) ​ ​ ​ ​ ​ 3,817,828 ​ ​
Cost of sales – brokerage
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 768,776 ​ ​ ​ ​ ​ 768,776 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (745,030) ​ ​ ​ ​ ​ 23,746 ​ ​
Operating costs
​ ​ ​ ​ 1,521,107 ​ ​ ​ ​ ​ 458,725 ​ ​ ​ ​ ​ 251,378 ​ ​ ​ ​ ​ 73,767 ​ ​ ​ ​ ​ 2,304,977 ​ ​ ​ ​ ​ 4,971,483 ​ ​ ​ ​ ​ 1,998,941 ​ ​ ​ ​ ​ 172,626 ​ ​ ​ ​ ​ 7,649 ​ ​ ​ ​ ​ 7,150,699 ​ ​ ​ ​ ​ (1,036,033) ​ ​ ​ ​ ​ (171,318) ​ ​ ​ ​ ​ 8,248,325 ​ ​
General and administrative
​ ​ ​ ​ 921,132 ​ ​ ​ ​ ​ 23,134 ​ ​ ​ ​ ​ 62,846 ​ ​ ​ ​ ​ 93,121 ​ ​ ​ ​ ​ 1,100,233 ​ ​ ​ ​ ​ 1,482,190 ​ ​ ​ ​ ​ 178,201 ​ ​ ​ ​ ​ 174,827 ​ ​ ​ ​ ​ 75,649 ​ ​ ​ ​ ​ 1,910,867 ​ ​ ​ ​ ​ (600,358) ​ ​ ​ ​ ​ 177,843 ​ ​ ​ ​ ​ 2,588,585 ​ ​
Marketing and advertising
​ ​ ​ ​ 161,363 ​ ​ ​ ​ ​ 1,027 ​ ​ ​ ​ ​ 2,252 ​ ​ ​ ​ ​ 32,091 ​ ​ ​ ​ ​ 196,733 ​ ​ ​ ​ ​ 1,828,219 ​ ​ ​ ​ ​ 58,539 ​ ​ ​ ​ ​ 40,073 ​ ​ ​ ​ ​ 7,279 ​ ​ ​ ​ ​ 1,934,110 ​ ​ ​ ​ ​ (232,876) ​ ​ ​ ​ ​ (43,016) ​ ​ ​ ​ ​ 1,854,951 ​ ​
Franchise fees
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,909,386 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 1,909,386 ​ ​ ​ ​ ​ (14,870) ​ ​ ​ ​ ​ (37,500) ​ ​ ​ ​ ​ 1,857,016 ​ ​
Management fees
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 575 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 575 ​ ​ ​ ​ ​ 978,099 ​ ​ ​ ​ ​ 169,272 ​ ​ ​ ​ ​ 83,612 ​ ​ ​ ​ ​ 288,547 ​ ​ ​ ​ ​ 1,519,530 ​ ​ ​ ​ ​ (455,912) ​ ​ ​ ​ ​ (108,165) ​ ​ ​ ​ ​ 956,028 ​ ​
Depreciation
​ ​ ​ ​ 53,943 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 53,943 ​ ​ ​ ​ ​ 2,515,684 ​ ​ ​ ​ ​ 914,323 ​ ​ ​ ​ ​ 66,212 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 3,496,219 ​ ​ ​ ​ ​ (945,277) ​ ​ ​ ​ ​ 120,839 ​ ​ ​ ​ ​ 2,725,724 ​ ​
Total expenses
​ ​ ​ ​ 2,657,545 ​ ​ ​ ​ ​ 6,539,129 ​ ​ ​ ​ ​ 317,051 ​ ​ ​ ​ ​ 967,755 ​ ​ ​ ​ ​ 10,481,480 ​ ​ ​ ​ ​ 23,184,663 ​ ​ ​ ​ ​ 7,191,800 ​ ​ ​ ​ ​ 537,350 ​ ​ ​ ​ ​ 379,124 ​ ​ ​ ​ ​ 31,292,93 ​ ​ ​ ​ ​ (3,907,593) ​ ​ ​ ​ ​ (4,890,264) ​ ​ ​ ​ ​ 32,976,560 ​ ​
Operating Income (Loss)
 ​ ​ ​ ​ (1,639,564) ​ ​ ​ ​ ​ (145,695) ​ ​ ​ ​ ​ 36,420 ​ ​ ​ ​ ​ 69,345 ​ ​ ​ ​ ​ (1,679,494) ​ ​ ​ ​ ​ 3,852,861 ​ ​ ​ ​ ​ 543,043 ​ ​ ​ ​ ​ (25,693) ​ ​ ​ ​ ​ (349,124) ​ ​ ​ ​ ​ 4,021,087 ​ ​ ​ ​ ​ 1,560,632 ​ ​ ​ ​ ​ (823,967) ​ ​ ​ ​ ​ 3,078,258 ​ ​
Other (Income) Expenses ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
Other (income) expenses, net
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 646,251 ​ ​ ​ ​ ​ 109,301 ​ ​ ​ ​ ​ 37,504 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 793,056 ​ ​ ​ ​ ​ (52,743) ​ ​ ​ ​ ​ (337,085) ​ ​ ​ ​ ​ 403,228 ​ ​
Income from investments
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (312,777) ​ ​ ​ ​ ​ (312,777) ​ ​ ​ ​ ​ 312,777 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Interest income
​ ​ ​ ​ (3,106) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (3,106) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (19,449) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (728,746) ​ ​ ​ ​ ​ (748,195) ​ ​ ​ ​ ​ 728,954 ​ ​ ​ ​ ​ 22,347 ​ ​ ​ ​ ​ — ​ ​
Impairment
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Gain on disposition of real estate
​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (272,631) ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ (272,631) ​ ​ ​ ​ ​ 272,631 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​
Interest expense
​ ​ ​ ​ 744,818 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 329 ​ ​ ​ ​ ​ 745,147 ​ ​ ​ ​ ​ 3,377,140 ​ ​ ​ ​ ​ 1,370,227 ​ ​ ​ ​ ​ 242,437 ​ ​ ​ ​ ​ 1,289,739 ​ ​ ​ ​ ​ 6,279,543 ​ ​ ​ ​ ​ (2,102,593) ​ ​ ​ ​ ​ (56,663) ​ ​ ​ ​ ​ 4,865,434 ​ ​
Total other expenses, net
​ ​ ​ ​ 741,712 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 329 ​ ​ ​ ​ ​ 742,041 ​ ​ ​ ​ ​ 4,023,391 ​ ​ ​ ​ ​ 1,460,079 ​ ​ ​ ​ ​ 7,310 ​ ​ ​ ​ ​ 248,216 ​ ​ ​ ​ ​ 5,738,996 ​ ​ ​ ​ ​ (840,974) ​ ​ ​ ​ ​ (371,401) ​ ​ ​ ​ ​ 5,268,662 ​ ​
Net Income (Loss)
 ​ ​ ​ $ (2,381,276) ​ ​ ​ ​ $ (145,695) ​ ​ ​ ​ $ 36,420 ​ ​ ​ ​ $ 69,016 ​ ​ ​ ​ $ (2,421,535) ​ ​ ​ ​ $ (170,530) ​ ​ ​ ​ $ (917,036) ​ ​ ​ ​ $ (33,003) ​ ​ ​ ​ $ (597,340) ​ ​ ​ ​ $ (1,717,909) ​ ​ ​ ​ $ 2,401,606 ​ ​ ​ ​ $ (452,566) ​ ​ ​ ​ $ (2,190,404) ​ ​
​ ​ ​
December 31, 2017
​
Total real estate investments, at cost
​ ​ ​ ​ 587,277 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 587,277 ​ ​ ​ ​ ​ 125,329,509 ​ ​ ​ ​ ​ 66,841,452 ​ ​ ​ ​ ​ 22,008,704 ​ ​ ​ ​ ​ — ​ ​ ​ ​ ​ 214,179,665 ​ ​ ​ ​ ​ (65,674,328) ​ ​ ​ ​ ​ (2,618,266) ​ ​ ​ ​ ​ 146,474,348 ​ ​
Total Assets
 ​ ​ ​ $ 3,966,716 ​ ​ ​ ​ $ 4,737,557 ​ ​ ​ ​ $ 68,196 ​ ​ ​ ​ $ 138,567 ​ ​ ​ ​ $ 8,911,036 ​ ​ ​ ​ $ 124,804,080 ​ ​ ​ ​ $ 68,062,361 ​ ​ ​ ​ $ 24,075,191 ​ ​ ​ ​ $ 52,378,056 ​ ​ ​ ​ $ 269,319,688 ​ ​ ​ ​ $ (118,603,267) ​ ​ ​ ​ $ (6,848,249) ​ ​ ​ ​ $ 152,779,208 ​ ​
​
F-82
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
Note 13 — Subsequent Events
In July 2018, the Company refinanced and entered into a $14,000,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Tucson, Arizona. The loan requires interest-only payments until maturity. The loan matures in June 2020 and has an option to extend the maturity date up to six months, subject to certain terms and conditions. The loan has a fixed interest rate of 8.50%. The terms of the loan allow the Company to prepay the outstanding balance in part or in whole at any time prior to the maturity date, subject to a prepayment premium fee. The loan is guaranteed by individuals who are affiliates of the Company. The terms of the note include certain financial covenants.
In July 2018, the Company acquired a hotel for the purchase price of  $11,809,345, of which $209,345 of external acquisition-related expenses were capitalized. Upon the acquisition, the Company entered into a $9,250,000 loan, which is secured by a deed of trust and assignment of leases and rents of a hotel property in Chandler, Arizona. The new loan has a variable interest rate equal to one-month LIBOR plus 6.00% with a floor rate of 8.00%. The loan requires monthly interest-only payments until maturity and matures in August 2020. The terms of the loan allow the Company to prepay the outstanding balance in part or in whole at any time prior to the maturity date, subject to a prepayment premium fee. The loan is guaranteed by the Company and individuals who are affiliates of the Company. The terms of the note include certain financial covenants.
In July 2018, the Company entered into a new corporate office lease agreement. The lease is for a term of 7.6 years and includes a rent abatement period and tenant improvement allowance. The Company has a renewal option of up to two successive terms of five years each. Total future minimum rental payments under this lease are estimated to be approximately $3.2 million.
In August 2018, the Company launched the Caliber Tax Advantaged Opportunity Zone Fund (“CTAF”). CTAF’s investment objective is to raise capital from investors who are looking to obtain federal income tax benefits from Sections 1400Z-1 and 1400Z-2 (the “Opportunity Zone Provisions”) of the Internal Revenue Code; and deploy that capital in investments within certain designated Opportunity Zones that have been identified by Treasury of the United States.
ln September 2018, the Company repaid its existing $11,409,048 Crowne Plaza Hotel, $15,375,000 Holiday Inn & Suites Hotel, and $29,000,000 Hilton Phoenix Airport Hotel loans in full, and entered into a new $62,245,000 loan. The loan is secured by the deed of trust and assignment of leases and rents of three hotel properties in Phoenix, Arizona. The new loan has a variable interest rate equal to one-month LIBOR plus 3.75%, requires interest-only payments until maturity, matures in October 2021, and has options to extend the maturity date up to two additional years, subject to certain terms and conditions. The loan is guaranteed by the Company and individuals who are an affiliate of the Company. The terms of the note include certain financial covenants.
In September 2018, the Company filed a Form 1-A related to a Regulation A (“Reg A”) offering. Reg A is an exemption to the securities registration requirement found in the Securities Act of 1933 which allow private companies to make exempt public offerings of up to $50 million in securities, as required by the Jumpstart Our Business Startups Act.
F-83
CALIBERCOS INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
(UNAUDITED)
 
Note 13 — Subsequent Events (continued)
 
In September 2018, the Company agreed to repurchase all 6,221,846 shares (“Buyback Program”) owned by one of its non-participating founders for $2.70 per share of common stock in exchange for an amendment to such non-participating founder’s shareholder voting rights and other Company protections. Among other things, the Buyback Program is terminated when the Company completes an initial public offering and is listed on a national exchange. The shares are being reacquired at various amounts ranging from 6,000 to 10,000 units on a monthly basis until such time as the Company has satisfied the termination conditions or until all of the shares have been reacquired, which could be in 2075.
F-84
PART III
INDEX TO EXHIBITS
​
Exhibit
Number
 ​ ​
Exhibit Description
(hyperlink)
 ​ ​
Filed
Herewith
 ​ ​
Form
 ​ ​
File No
 ​ ​
Exhibit
 ​ ​
Filing Date
 ​
​  2.1 ​ ​ CaliberCos Inc. Certificate of Incorporation ​ ​ † ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​  2.2 ​ ​ CaliberCos Inc. Bylaws ​ ​ † ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​  3.1 ​ ​ Stockholders’ Agreement dated September 21, 2018, by and among
the Company, John C. Loeffler, Jennifer Schrader and Donnie Schrader		 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​  3.2 ​ ​ Stock Purchase Agreement dated September 21, 2018, by and among the Company and Donnie Schrader ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​  3.3 ​ ​ Form of Warrant, exercise price of $1.70 (Tranche 1) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​  3.4 ​ ​ Form of Warrant, exercise price of $2.00 (Tranche 2) ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​  4.1 ​ ​ Form of Subscription Agreement ​ ​ * ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​  6.1 ​ ​ Amended and Restated 2017 Stock Incentive Plan ​ ​ † ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​  6.2 ​ ​ Mortgage Note ($14,000,000)
dated June 29, 2018, payable to Cerco Capital Inc.		 ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ 6.2.1 ​ ​ Guaranty of Recourse Obligations dated June 29, 2018, by Chris Loeffler and Jennifer Schrader, in favor of Cerco Capital Inc. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​  6.3 ​ ​ Promissory Note ($62,245,000) dated September 2018, payable to RCC Real Estate, Inc. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ 6.3.1 ​ ​ Guaranty of Recourse Obligations dated September 2018, by the Company, Jennifer Schrader, John C. Loeffler, II and Frank Heavlin, for the benefit of RCC Real Estate, Inc. ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ 11.1 ​ ​ Consent of Marcum LLP ​ ​ * ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​ 12.1 ​ ​ Opinion of Manatt, Phelps & Phillips, LLP ​ ​ * ​ ​ ​ ​ ​
​ 13.1 ​ ​ “Testing the Waters” Material ​ ​ * ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​ ​
​
*
To be filed by amendment.
​
†
Previously filed.
​
​
III-1
SIGNATURES
Pursuant to the requirements of Regulation A, the issuer certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form 1-A and has duly caused this draft offering statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Scottsdale, State of Arizona, on January   , 2019.
CaliberCos Inc.
By:
/s/ John C. Loeffler, II
​
​
Name: John C. Loeffler, II
Title:   Chief Executive Officer
This offering statement has been signed by the following persons, in the capacities, and on the dates indicated.
Name and Signature
​ ​
Title
​ ​
Date
​
/s/ John C. Loeffler, II
​
John C. Loeffler, II
​ ​ Chief Executive Officer and Chairman of the Board (Principal Executive Officer) ​ ​
January   , 2019
 ​
*
​
Jennifer Schrader
​ ​ Chief Operating Officer, Secretary and Director ​ ​
January   , 2019
 ​
*
​
Jade Leung
 ​ ​ Chief Financial Officer
(Principal Financial and Accounting Officer) 		​ ​
January   , 2019
 ​
*By: 
/s/ John C. Loeffler
​
​
John C. Loeffler, Attorney-in-fact
III-2
 EX1A-3 HLDRS RTS 3 filename3.htm

 

Exhibit 3.1

 

STOCKHOLDERS’ AGREEMENT

 

THIS STOCKHOLDERS’ AGREEMENT (the "Agreement") is made this 21st day of September , 2018 by and among the persons listed on Exhibit A and such other persons who in the future become parties pursuant to the terms hereof (collectively, the "Stockholders"; individually, a "Stockholder") and CaliberCos Inc., a Delaware corporation (the "Company"), with reference to the following facts:

 

A.          Stockholders are currently owners of shares of the common stock of the Company as set forth on Exhibit A.

 

B.           Stockholders and the Company desire for their mutual benefit and protection to enter into this Agreement governing the ownership, voting and transfer of Shares held by any Stockholder.

 

C.           Capitalized terms not defined in the text shall have the meanings given to them in Schedule I.

 

NOW, THEREFORE, in consideration of the mutual promises contained herein, Stockholders and the Company hereby agree as follows:

 

1.          General Restrictions on Transfer.

 

1.1.          Conditions to Transfer. No Stockholder may Transfer all or any part of its Shares (including to any Permitted Transferee) unless all of the following conditions have been met: (a) the Company shall have received written notice of the proposed Transfer, setting forth the circumstances and details thereof; (b) the Company shall (at its option) have received an attorney's written opinion, in a form reasonably satisfactory to the Company, specifying the nature and circumstances of the proposed Transfer, and based on such facts stating that the proposed Transfer will not be in violation of any of the registration provisions of the Securities Act of 1933, as amended, or any applicable state securities laws; (c) the Company shall have received from the Transferee (and any Transferee's spouse if such spouse will receive a community property interest in the Shares) a written consent to be bound by all of the terms and conditions of this Agreement in the form of Exhibit B hereto; (d) the Transfer will not result in the loss of any license or regulatory approval or exemption which has been obtained by the Company and is materially useful in the conduct of its business as then being conducted; (e) the Board has consented to the Transfer, which consent may be given or withheld in its sole discretion; (f) the Company is reimbursed upon request for its reasonable expenses in connection with the Transfer, and (g) the Transfer is made in compliance with the provisions of this Article 1. Notwithstanding the foregoing, no party hereto shall avoid the provisions of this Agreement by making one or more Transfers to one or more Permitted Transferees and then disposing of all or any portion of such party’s interest in any such Permitted Transferee. The provisions of this Section 1.1 shall not apply to any transfer of Shares by Donnie Ray Schrader (“Schrader”) to the Company pursuant to the Stock Purchase Agreement.

 

 

 

 

1.2.          Effect of Transfers. Any Shares Transferred in accordance with this Article 1 shall continue to be subject to this Agreement and any further Transfers shall be required to comply with all terms and provisions of this Agreement. The admission of a substitute Stockholder shall not result in the release of the Stockholder who Transferred the Shares from any liability that such Stockholder may have to the Company.

 

1.3.          Invalid Sales. Any purported Transfer of Shares made without fully complying with the provisions of this Agreement shall be null and void. The Company agrees not to record any Transfer of Shares on its books and records if it believes such Transfer is not being made in accordance with this Agreement without the consent of the Board.

 

2.          Right of First Refusal.

 

2.1.          Purchase Option. Neither Donnie Schrader or any of his Affiliates (specifically excluding Jennifer Schrader) shall voluntarily Transfer any Shares (other than to a Permitted Transferee) except pursuant to a bona fide arm’s length offer and unless he or it shall have first given written notice (the “Transfer Notice”) to the Board and the other Founding Stockholders of such Stockholder’s intent to do so and such Transfer is thereafter completed in accordance with this Article 2. The Transfer Notice shall include the name and address of the proposed Transferee, the number of Shares proposed to be sold (the “Offered Shares”), the cash price or other consideration for the proposed sale and the timing of the payments to be made. Within fifteen days following receipt of the Transfer Notice, the other Founding Stockholders may, by written notice (“Exercise Notice”) to such Transferring Stockholder, elect to purchase the Offered Shares on the terms outlined in the Transfer Notice (such right to be allocated among the other Founding Stockholders pro rata based on their Percentage Interests, except that a Founding Stockholder may purchase more than his/her/its pro rata share to the extent that any other Founding Stockholder does not purchase its/her/its full pro rata share). If the consideration is anything other than cash or payments of cash, then the consideration to be paid shall be converted into its fair value in cash as provided in Section 2.2. To the extent that one or any of the other Founding Stockholders do not elect to purchase all of the Offered Shares, the Company may, by giving an Exercise Notice to such Transferring Stockholder within fifteen days following the expiration of the other Founding Stockholders’ right of first refusal, elect to purchase the remainder of the Offered Shares on the terms outlined in the Transfer Notice. If such rights of first refusal expire without exercise or the right of first refusal is exercised only as to a portion of the Offered Shares, such Transferring Stockholder may Transfer the unpurchased portion of the Offered Shares within 30 days to the named Transferee, at the price and on the terms specified in the Transfer Notice. No Transfer of the Offered Shares shall be made after the expiration of said 30 day period, nor shall any change in the terms of Transfer be made, without a new notice and compliance with the provisions of this Section 2.1.

 

 

 

 

2.2.          Consideration Other than Cash. For purposes hereof, in the event any consideration offered for the Offered Shares consists of rights, interests or property other than money, the price allocable to such rights, interests or property shall be cash equal to the fair market value of the rights, interests or property on the date the Board receives the Transfer Notice, as agreed upon within seven days after receipt thereof by the Board and the aforementioned Transferring Stockholder or, if such parties are unable to agree, as determined within 30 calendar days thereafter by such nationally recognized investment banking firm as is mutually agreeable to both parties. In the event that the parties are unable to agree upon an investment banking firm for these purposes, each party shall name (and bear the costs and expenses) of its own investment banking firm, which firms, if they are unable to agree upon the fair value, shall select a third investment banking firm to determine the value pursuant to this Section 2.2, all in such manner as to insure that the final determination of fair value is made within 30 calendar days after the Board’s receipt of the Transfer Notice. All costs and expenses of the third investment banking firm shall be borne equally by the aforementioned Transferring Stockholder and the Company, and the time periods for the delivery of any Exercise Notices shall be extended for the period during which this fair value determination is being made. The fair value of such consideration in monetary terms, as so determined, shall be included in the purchase price payable by the other Founding Stockholders and/or the Company hereunder, but the other Founding Stockholders and/or the Company need not transfer to the aforementioned Transferring Stockholder the actual rights, interests or property offered in the offer, nor afford the aforementioned Transferring Stockholder the same tax treatment which would have been available to him/it under the offer, in order to exercise the rights of first refusal granted pursuant to this Article 2.

 

2.3.          Closing of Purchase Option. The closing of any purchase of the Offered Shares pursuant to the Purchase Option shall take place at the principal offices of the Company on the fifth business day following the delivery of the last Exercise Notice or, in the discretion of the purchasing Founding Stockholders and/or the Company, at such later date as specified in the Transfer Notice and as consented to by the aforementioned Transferring Stockholder (which consent shall not be unreasonably withheld). At the closing, the aforementioned Transferring Stockholder shall deliver to the purchasing Founding Stockholders and/or the Company certificates representing the Offered Shares, duly endorsed for transfer or accompanied by duly executed stock powers with the signature of the aforementioned Transferring Stockholder guaranteed by a commercial bank, trust company or registered broker dealer, and the other Founding Stockholders and/or the Company shall deliver to the aforementioned Transferring Stockholder the purchase price to be paid as herein provided. The transfer of title to the Offered Shares at the closing shall be made without representation or warranty by the aforementioned Transferring Stockholder, except as to his/its good and marketable title to the Offered Shares and the absence of any liens, security interests or adverse claims of any kind arising by, through or under him/it.

 

 

 

 

3.          Tag-Along Sales.

 

3.1         Pro Rata Determination and Mechanics. No Founding Stockholder (or his successors or transferees) shall Transfer any Shares (other than to a Permitted Transferee or another Founding Stockholder) unless each other Stockholder is offered a 15-day opportunity to sell a pro rata share (based on Percentage Interests) of his or her Shares to the Transferee on the same terms and conditions and at the same time. Such opportunity shall be provided by delivery of a written notice (the “Tag Along Notice”) to each other Stockholder setting forth the identity of the proposed Transferee, the number of Offered Shares, the proposed consideration therefor and the expected timing of the transaction. Such notice shall not bind the Transferring Stockholder to complete any transaction or be responsible for any breach by the Transferee. Within 15 days following the receipt of the Tag Along Notice, any Stockholder may deliver a written response committing to sell his or her Percentage Interest of the Offered Shares. Such response shall be a binding commitment to execute the sale documents with the Transferee and sell his or her Percentage Interest of the Offered Shares provided the Transfer is completed within 60 days. No Transfer may be made after the expiration of said 60-day period, nor shall any change in the terms of Transfer more favorable to the Transferring Stockholder be made, without a new notice to the other Stockholders and compliance with the provisions of this Section 3.

 

3.2           “True-up” With Respect to Stock Repurchases. Notwithstanding the provision of Section 3.1, the following shall apply with respect to said Founding Stockholders: the Founding Stockholders acknowledge that Donnie Schrader is afforded certain repurchase rights of his Shares by the Company further to Article II of the Stock Purchase Agreement. To the extent that a Tag-Along Sale is effected further to Section 3.1, each of Jennifer Schrader and John C. Leoffler shall each have the ability to participate in such sale to the exclusion of Donnie Schrader up to the amount of cash proceeds received by Donnie Schrader further to Article II of the Stock Purchase Agreement with any amounts thereafter to be split between all Founding Stockholders on a pro rata basis as set forth in Section 3.1. For the sake of example only, if on the date of such Tag-Along Sale Donnie Schrader has already received $100,000 further to Article II of the Stock Purchase Agreement, each of Jennifer Schrader and John Loeffler shall have the right to sell up to $100,000 apiece further to such Tag-Along Sale to the exclusion of Donnie Schrader and any amounts in excess of such “true up” amount will then be subject to the pro rata allocation described in Section 3.1; under such example, if $1.0 million of Tag-Along proceeds would be realized further to such sale, and each of Jennifer Schrader and John Loeffler chose to participate in such Tag-Along Sale, each of Jennifer Schrader and John Loeffler would be entitled to receive the first $100,000 of proceeds from such Tag-Along Sale and the ability to participate in the balance of the Tag –Along Sale ($800,000 in this example) would be subject to the pro rata allocation referenced in Section 3.1.

 

4.          Drag Along Sales. In the event of a Drag-Along Sale, each Stockholder will (i) if requested, consent to the Drag-Along Sale, (ii) waive and agree not to pursue any dissenter’s rights or any similar rights in connection with or related to such Drag-Along Sale, and (iii) if the Drag-Along Sale is structured as a sale of securities, agree to sell its Shares (or the applicable portion thereof) on the terms and conditions of such Drag-Along Sale.

 

 

 

 

5.          Repurchase of Shares

 

5.1.          Upon Death. In the event of a Stockholder’s death, his/her/its Shares shall be subject to repurchase by the Company, at its option, for the fair market value thereof however in the case of the death of John C. Loeffler, his heirs must agree to such repurchase and shall have the right to determine how many, if any, of such Shares may be repurchased by the Company. The exercise of such option, the determination of fair market value and the closing of the sale shall follow the procedures set forth in Sections 5.3 and 5.4.

 

5.2.          Bankruptcy. In the event of the institution of any proceedings under any federal or state law for the relief of debtors, including the filing by or against such Stockholder of a voluntary or involuntary petition under the federal bankruptcy law, which such proceedings, if involuntary, are not dismissed within sixty (60) days after the filing thereof or an adjudication of such Stockholder as insolvent or bankrupt or an assignment of the property of such Stockholder for the benefit of creditors, his/her/its Shares shall be subject to repurchase by the Company, at its option, for the fair market value thereof. The exercise of such option, the determination of fair market value and the closing of the sale shall follow the procedures set forth in Sections 4.3 and 4.4.

 

5.3.          Repurchase Procedures. The Company shall exercise the repurchase rights granted in Sections 5.1 and 5.2 by delivering notice (“Repurchase Notice”) to the Stockholder’s address within 90 days of Stockholder’s death or within 30 days of actual notice of the events described in Section 5.2. Such notice shall include the Company’s determination of the fair market value of the Transferring Stockholder’s Shares to be repurchased. In the case of John C. Loeffler’s heirs, said heirs shall have 30 days from the receipt of the Repurchase Notice to notify the Company in writing of the number of Shares, if any, said heirs wish to be repurchased by the Company; if no notice is received by the Company from Mr. Loeffler’s heirs within such 30 day period, then no Shares held by such heirs shall be subject to repurchase by the Company. If the Transferring Stockholder or the Stockholder’s heirs, as the case may be, do not agree with the Company’s determination as to the fair market value of the Shares within 30 calendar days following the delivery of the Repurchase Notice, they shall within the next 30 calendar days jointly appoint one nationally recognized investment banking firm to determine the fair market value of the Shares, and such nationally recognized investment banking firm shall conduct and complete an appraisal of the fair market value of the Shares within 30 calendar days after appointment. If the Company and the Transferring Stockholder or the Stockholder’s heirs, as the case may be, are unable to agree upon the identity of the nationally recognized investment banking firm to be so jointly appointed, the Company shall promptly choose one nationally recognized investment banking firm by notice to the Transferring Stockholder or the Stockholder’s heirs, as the case may be, and the Transferring Stockholder or the Stockholder’s heirs, as the case may be, shall promptly choose one nationally recognized investment banking firm by notice to the Company. The two nationally recognized investment banking firms so selected shall then promptly appoint a third nationally recognized investment banking firm, which shall determine the fair market value of the Shares within 30 calendar days after the selection. The determination of the fair market value of the Shares as described herein shall be conclusive for all purposes and upon all parties. If either the Company or the Transferring Stockholder or the Stockholder’s heirs, as the case may be, shall fail to appoint a nationally recognized investment banking firm within 30 calendar days after the lapse of the initial 30 calendar day period referred to above, then, the nationally recognized investment banking firm appointed by the party which does appoint a nationally recognized investment banking firm shall alone determine the fair market value of the Shares, and such appraisal shall be binding.

 

 

 

 

5.4.          Closing of Sale. The Company shall have the right and option for a period ending 30 business days following the determination of the purchase price of the Shares pursuant to Section 5.3, to purchase the Shares available for purchase for cash at the price provided in Section 5.3. Unless the parties involved mutually agree otherwise, delivery to the Company and/or the Transferring Stockholders or the Stockholder’s heirs, as the case may be, of the share certificates representing the Shares to be sold pursuant to this Article 4 and payment of the purchase price therefor shall take place at a closing to be held at the principal office of the Company at 10:00 a.m. within such 30 business day period. The transfer of title to the Shares to be sold at the closing shall be made without representation or warranty by the Transferring Stockholder or the Stockholder’s heirs, as the case may be, except as to his or her or its good and marketable title to the Shares and the absence of any liens, security interests or adverse claims of any kind arising by, through or under such Transferring Stockholder. The share certificates representing the Shares to be sold shall be duly endorsed for transfer or accompanied by duly endorsed stock transfer powers, with the signature of the Transferring Stockholder guaranteed by a commercial bank, trust company or registered broker dealer.

 

6.          Voting Provisions.

 

6.1           Voting Matters. Other than John C. Loeffler or Jennifer Schrader (or their assignees), each Stockholder (and any of their assignees) agrees to vote his/her/its shares as directed by the Voting LLC at every meeting of the Stockholders of the Company called, and at every postponement or adjournment thereof, and on every action or approval by written resolution or consent of the Stockholders of the Company, including but not limited to any modification or termination of this Agreement further to its terms, or in any other circumstance in which the vote, consent or other approval of the stockholders of the Company is sought with respect to each and every one of the foregoing matters:

 

(a)any sale, assignment, transfer, license, pledge, hypothecation, or granting of a security interest by the Company of/in all or substantially all of its assets;

 

(b)any merger of the Company with another entity (excluding a merger solely to change the Company’s state of incorporation);

 

(c)any repurchase of capital stock (other than the repurchase of Common Stock issued to or held by officers, directors or employees of, or consultants to, the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements, whether now existing or hereafter entered into, providing for the right of said repurchase between the Company and such persons);

 

 

 

 

(d)any amendment or modification to the Company’s Certificate of Incorporation or Bylaws; or

 

(e)any election of officers or directors.

 

6.2           Representations. Except as contemplated by this Agreement, each Stockholder referenced in Section 6.1 has not entered into, and shall not enter into at any time while this Agreement remains in effect, any voting agreement or voting trust with respect to its Shares that would prohibit, undermine, limit or otherwise adversely affect its compliance with its obligations pursuant to this Agreement, and (b) has not granted, and shall not grant at any time while this Agreement remains in effect, a proxy or power of attorney with respect to his/her/its Shares, in either case, which is inconsistent with its obligations pursuant to this Agreement.

 

6.3           Proxy. Within ten (10) days of the execution and delivery of this Agreement, each Stockholder referenced in Section 6.1 shall execute and deliver to the Voting LLC a proxy, irrevocable to the fullest extent permitted by law, in the form attached hereto as Exhibit A solely to vote his/her/its Shares in accordance with this Article 6; provided, however, that the prior written consent of Donnie Schrader to such vote shall be required if such vote (i) would and is intended to solely specifically target and materially adversely affect the rights of Donnie Schrader as a stockholder of the Company;(ii) would specifically adversely affect the Shares held by Mr. Schrader in a different manner than those Shares held by the other Founding Stockholders; or (iii) would specifically grant greater rights to the Shares held by the other Founding Shareholders in a different manner than those Shares held by Donnie Schrader. The Company agrees to use reasonable efforts to provide Donnie Schrader with a copy of the operating agreement for the Voting LLC no later than sixty (60) days form the date hereof.

 

6.4           Expiration. This Article 6 shall expire on the earlier of three (3) years from the date of the Agreement or upon such date as the Company has over $1.0 billion of assets under management. Shares sold in the public market at such time as the Company is listed or quoted on a national securities exchange or the OTC shares not be subject to the aforementioned voting provisions in the hands of the buyer of said Shares. In addition, as to Donnie Schrader, if (i) it is determined further to Section 9.7 hereof that a breach of this Agreement by the Company (or a breach of Article 3 by either John Loeffler or Jennifer Schrader has occurred) and remained uncured for a period of fifteen (15) days beyond the date of notice of such breach by Mr. Schrader to the Company (or to John Loeffler or Jennifer Schrader if a breach of Article 3) or (ii) it is determined further Section 4.4 of the Stock Purchase Agreement that the Company breached its repurchase obligations further to Article II thereof, then this Article 6 shall have no further force and effect with respect to Shares held by Donnie Schrader or his Affiliates (specifically excluding Jennifer Schrader).

 

 

 

 

7.          Confidentiality.

 

7.1           Confidential Information. Each Stockholder occupies a position of trust and confidence with respect to the Company’s affairs and business. Each Stockholder has had and will have access to Confidential Information, which the Stockholder acknowledges is proprietary to the Company and highly sensitive in nature. While a Stockholder and for five years after ceasing to be a Stockholder, each Stockholder agrees (a) to hold all Confidential Information in strict confidence and trust for the sole benefit of the Company and not, directly or indirectly, to disclose, use, copy, publish, summarize, or remove from Company’s premises any Confidential Information (or remove from the premises any other property of the Company), except to the extent necessary in good faith to carry out Stockholder’s responsibilities as an employee or director of the Company; and (b) not to sell, license or otherwise exploit any products or services which embody in whole or in part any Confidential Information. Specifically, Donnie Schrader represents and warrants to the Company that he has not previously disclosed any Confidential Information to any third party or given any third party access to any Confidential Information.

 

7.2           Company Property. At the end of Stockholder’s employment by the Company or when Stockholder ceases to be a Stockholder, or at the request of the Company, Stockholder shall deliver to the Company all tangible materials in any way embodying the Confidential Information, including (i) any documentation, records, listings, notes, data, sketches, drawings, memoranda, models, videos, accounts, reference materials, samples and machine-readable media and equipment, (ii) any access codes, passwords, user names, sign-on data or information, user privileges, access privileges, or any other information or rights which would, might or did at one time directly or indirectly allow Stockholder or any other person access to any electronically stored information of any type or nature and (iii) any electronically stored information received, maintained, generated or issued by the Company or any currently or formerly affiliated or related party of the Company other than information to which a Stockholder is entitled pursuant to Arizona law, or which is provided to other Stockholders who are not also officers of the Company;; specifically, Donnie Schrader shall comply with the delivery requirements of this Section 7.2 as of the date hereof and shall deliver all such Confidential Information to the Company as of the date hereof. No Stockholder shall retain any copies of any of the above materials. Stockholder will provide a certificate as to his/her/its compliance with this section upon request. In addition, upon request by the Company, each Stockholder agrees to provide information to it or as it directs concerning all of his/her/its knowledge, information and/or belief about Confidential Information in the possession, custody or control of any person entity other than the Company or an Affiliate or related party of or to the Company, and any information held by any such person or entity about the Company or any Affiliate or related person or executive thereof.

 

 

 

 

7.3           Intellectual Property. Donnie Schrader acknowledges that the Company is the sole owner of all the products and proceeds of Mr. Schrader’s prior services with the Company including, without limitation, all materials, ideas, concepts, formats, suggestions, developments, and other intellectual property that Mr. Schrader acquired, obtained, developed or created in whole or in part in connection with his services, free and clear of any claims by Mr. Schrader (or anyone claiming under him) of any kind or character whatsoever. Such intellectual property includes, but is not limited to: (i) the automated sales process utilizing Company’s database, including the timing, method, and content thereof; (ii) the format of Company media and methodology used to generate investor interest; (iii) the Company’s electronic subscription process for investments; (iv) the Company’s database, all contents thereof, and the custom formatting created by Company; (v) customer lists and investor lists of any kind generated and/or compiled by the Company or compiled using the Company’s database; (vi) the Company’s legal documents and templates such as those used in conjunction with the Company’s funds and private offerings; (vii) any written content regard the Company and/or it activities such as articles, blog posts, email blasts, etc.; and (viii) websites owned by the Company.

 

Donnie Schrader shall, at the request of the Company, execute such assignments, certificates or other instruments as the Company may from time to time deem necessary or desirable to evidence, establish, maintain, perfect, protect, enforce or defend the Company’s right, title and interest in and to any such intellectual property.

 

8.          Other Understandings.

 

8.1           Legend. In addition to any other legend which may be required by applicable law, each share certificate of the Company shall have endorsed upon its face the following words:

 

"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY APPLICABLE STATE SECURITIES LAWS. SUCH SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE OFFERED FOR SALE, SOLD, DELIVERED AFTER SALE, TRANSFERRED, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT COVERING SUCH SHARES UNDER THE SECURITIES ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED.

 

SALE, TRANSFER OR HYPOTHECATION OF THE SHARES REPRESENTED BY THIS CERTIFICATE IS RESTRICTED BY THE PROVISIONS OF AN AGREEMENT BETWEEN THE CORPORATION AND ITS STOCKHOLDERS, DATED EFFECTIVE SEPTEMBER 1 , 2018, A COPY OF WHICH MAY BE INSPECTED AT THE PRINCIPAL OFFICE OF THE CORPORATION, AND ALL OF THE PROVISIONS OF WHICH ARE INCORPORATED HEREIN. THAT AGREEMENT ALSO REQUIRES THE HOLDER TO SELL THESE SHARES UNDER CERTAIN CONDITIONS."

 

 

 

 

8.2           Understanding with Respect to New Stockholders. The parties hereto understand that Shares may be acquired by persons not presently parties to this Agreement from either the Company or from Stockholders and agree that provided such persons agree in writing to receive and hold such stock subject to all the provisions of this Agreement, such persons shall be deemed to be Stockholders for all purposes under this Agreement. Upon any issuance of new Shares, the secretary of the Company may replace Exhibit A with an updated version.

 

8.3           Additional Agreements/Documents. Each party hereto agrees to execute any and all further documents and writings and to perform such other actions which may be or become necessary or expedient to effectuate and carry out this Agreement. Specifically, Donnie Schrader and his Affiliates (specifically excluding Jennifer Schrader) agrees to and John Loeffler will take all actions necessary to cause his spouse (if married at the time of execution) to cooperate with the Company and execute any and all documents reasonably requested by a lender to the Company relative to any non-recourse loan transaction, including but not limited to background and credit checks, to the extent that liability to either Mr. Schrader or the aforementioned spouse of Mr. Loeffler resulting from his/her signature is limited by customary “bad boy” language in the transaction documentation, and the language applicable to Mr. Schrader or the aforementioned spouse of Mr. Loeffler is identical to the language presented to the spouse of any “C-level” officer of the Company to execute relative to said transaction. The Company agrees to pay Donnie Schrader and/or the aforementioned spouse of Mr. Loeffler a fee in connection with any non-recourse loan transaction that he/her is required to sign off on due to the fact that his/her spouse is a personal guarantor further to such transaction; such fee shall be payable only if the Company collects a loan guarantee fee in connection with such transaction and shall be limited per transaction and per person to the lesser of $7,500 or one half of the loan guarantee fee collected by the Company in connection with such transaction. The Company will provide Donnie Schrader and/or the aforementioned spouse of Mr. Loeffler reasonable but limited access to the Company’s attorneys handling such matter solely for the purpose of discussing any personal liability either may have in connection with any such matter.

 

8.4           Litigation and Regulatory Cooperation. Donnie Schrader shall cooperate reasonably with requests from the Company, or the Company’s legal counsel, in the defense or prosecution of any claims or actions now in existence or which may be brought in the future against or on behalf of the Company which relate to events or occurrences that transpired in whole or in part while Donnie Schrader was engaged by the Company. The Company will provide Donnie Schrader reasonable but limited access to the Company’s attorneys handling such matter solely to discuss any personal liability he may have in connection with any such matter. Mr. Schrader’s cooperation in connection with such claims or actions shall include, but not be limited to, being available to meet with counsel to prepare for discovery or trial and to act as a witness on behalf of the Company at mutually convenient times. Mr. Schrader also shall cooperate fully with the Company in connection with any investigation or review of any federal, state or local regulatory authority as any such investigation or review relates to events or occurrences that transpired in whole or in part while Mr. Schrader was engaged by the Company. The Company shall reimburse Mr. Schrader for any reasonable out-of-pocket expenses incurred in connection with Mr. Schrader’s performance of obligations pursuant to this Section 8.4 in accord with its indemnification obligations to Mr. Schrader provided for by Delaware law, and if Mr. Schrader spends more than five (5) hours in any calendar month in performance of these obligations, the Company shall pay Mr. Schrader $200 per hour for each part of an hour over five (5) hours in such calendar month.

 

 

 

 

8.5           Market Standoff Agreement. Each Stockholder agrees in connection with any registration of the Company’s securities under the Securities Act or other public offering that, upon the request of the Company or the underwriters managing any registered public offering of the Company’s securities, such Stockholder will not sell or otherwise dispose of any Shares without the prior written consent of the Company or such managing underwriters, as the case may be, for a period of time (not to exceed one hundred eighty (180) days) after the effective date of such registration requested by such managing underwriters and subject to all restrictions as the Company or the managing underwriters may specify for employee-stockholders generally. In order to enforce the foregoing covenant, the Company shall have the right to place restrictive legends on the certificates representing the shares subject to this Section 8.5 and to impose stop transfer instructions with respect to the Shares held by such Stockholder until the end of such period. Each Stockholder further agrees to enter into any agreement reasonably required by the underwriters to implement the foregoing and that such underwriters are express third party beneficiaries of this Section 8.5.

 

8.6           Non-Disparagement. Each Stockholder shall not, whether separately or in concert with one or more Persons, and whether in writing or orally) defame or disparage any other Stockholder, the Company, or any Company employee, officer, Director or any other key Company personnel, or any products or services provide by the Company.

 

8.7           Right of Offset. To the extent that it is determined (i) in a final, non-appealable decision pursuant to Section 9.7 hereof that a breach of this Agreement by Donnie Schrader has occurred (and remained uncured for a period of fifteen (15) days beyond the date of notice of such breach by the Company to Mr. Schrader, it being specifically understood that there shall be no cure period with respect to a breach of Article 2, Article 4, Article 6, or Sections 7.1, 7.2, 8.5 or 8.6 herein), or (ii) (i) in a final, non-appealable decision pursuant to Section 4.4 of the Stock Purchase Agreement that a breach of Section 3.1 therein by Donnie Schrader has occurred (it being specifically understood that there shall be no cure period with respect to a breach of said Section) and (iii) that the Company has in fact incurred monetary damages as a result of any such breach , the Company and Donnie Schrader specifically agree that the Company shall have the right to offset such damages by means of the immediate and automatic cancellation of shares of common stock of the Company held by Donnie Schrader (or his Affiliates, specifically excluding Jennifer Schrader) at the per share price of $2.70. Automatic cancellation pursuant to this Section 8.7 shall be effective without any further action on the part of either the Company or Donnie Schrader and shall be effective whether or not the certificates for such shares are surrendered to the Company and, as it relates to a breach of Sections 7.1 or 7.2 herein or Section 3.1 of the Stock Purchase Agreement, Donnie Schrader shall reasonably cooperate with the Company in connection with and remedial actions the Company may be required to take as a result of any such breach.

 

 

 

 

8.8           Injunction. Donnie Schrader agrees that it would be difficult to measure any damages caused to the Company which might result from any or threatened breach by him or any of his Affiliates (excluding Jennifer Schrader) of the promises and agreements set forth herein, and that in any event money damages may be an inadequate remedy for any such breach or threatened breach. Accordingly, Donnie Schrader agrees that if he or any of his Affiliates (excluding Jennifer Schrader) breaches, or proposes to breach, any portion of this Agreement, the Company shall be entitled, in addition to all other remedies that it may have, to an injunction or other appropriate equitable relief to restrain any such breach or threatened breach without showing or proving any actual damage to the Company and without the need to post a bond or other security.

 

8.9           Termination of Agreement. Except with respect to Article 5, Article 7, and Sections 8.3, 8.4, 8.5 and 8.6 which shall survive any termination of this Agreement, this Agreement shall terminate upon the earlier to occur of the following: (a) written agreement of 50 % or more of the Shares then outstanding (which shall consent must include that of Donnie Schrader) or (b) upon the effectiveness of a public offering on behalf of the Company, as defined in the Securities Act of 1933, or the Company (or its successor) becoming subject to the reporting requirements of Section 12 of the Securities Exchange Act of 1934 or (c) upon a sale by the Company’s stockholders, in one transaction or series of related transactions, of equity securities that represent, immediately prior to such transaction or transactions, at least a majority by voting power of the equity securities of the Company pursuant to an agreement approved by the Board and entered into by the Company where, immediately following the closing of such transaction, the Company’s stockholders do not own a majority of the outstanding common stock of the acquiring entity. As to any individual Stockholder, other than as expressly set forth herein, this Agreement shall terminate at such time as he/she/it has Transferred all Shares in accordance with the terms of this Agreement.

 

9.          Miscellaneous.

 

9.1           Entire Understanding. This Agreement, the schedules and definitions attached hereto, and the other agreements referred to herein or executed contemporaneously herewith set forth the entire agreement and understanding of the parties hereto in respect to the subject matter hereof, and supersede all prior and contemporaneous agreements, arrangements and understandings and is not intended to confer upon any other Person any rights or remedies hereunder. There have been no representations or statements, oral or written, that have been relied on by any party hereto, except those expressly set forth in this Agreement. Each Stockholder has full power and authority to make, enter into and carry out its obligations pursuant to the terms and conditions under this Agreement, and (B) the execution and delivery of this Agreement by the Stockholder do not, and the Stockholder’s performance of its obligations under this Agreement will not: (a) conflict with or violate any order, decree or judgment applicable to the Stockholder; or (b) result in any breach of or constitute a default (with notice or lapse of time, or both) under, or give to others any rights of termination, amendment, acceleration or cancellation of, or result in the creation of any Lien on, any of its Shares pursuant to any agreement to which the Stockholder is a party or by which the Shareholder is bound or affected.

 

 

 

 

9.2           Modifications. This Agreement may not be amended, altered or modified except by a writing signed by the Company and Stockholders holding 50 % or more of the Shares then outstanding (which consent must also include that of Donnie Schrader).

 

9.3           Remedies Not Exclusive. No remedy conferred by any of the specific provisions of this Agreement is intended to be exclusive of any other remedy, and each and every remedy will be cumulative and will be in addition to every other remedy given hereunder or now or hereafter existing at law or in equity or by statute or otherwise. The election of any one or more remedies will not constitute a waiver of the right to pursue other available remedies.

 

9.4           Notices. All notices under this Agreement will be in writing and will be delivered by personal service or telegram, telecopy or certified mail (if such service is not available, then by first class mail), postage prepaid, to such address as may be designated from time to time by the relevant party.. Any notice sent by certified mail will be deemed to have been given three (3) days after the date on which it is mailed. Any notice sent by telecopy will be deemed to have been given on that date if it is received between the hours of 8:00 a.m. to 4:00 p.m. on a business day; otherwise it will be deemed to be given on the following business day. All other notices will be deemed given when received. No objection may be made to the manner of delivery of any notice actually received in writing by an authorized agent of a party. Notices will be addressedto such address as the party to whom the same is directed will have specified in conformity with the foregoing.

 

9.5           Parties. Except as otherwise expressly provided herein, (i) none of the provisions of this Agreement will be for the benefit of, or enforceable by, any third party beneficiary; and (ii) this Agreement will be binding upon and inure to the benefit of the parties, their respective successors and permitted assigns, including, but not limited to, the understanding that the rights of the Company may be assigned to any successor to the Company’s business.

 

9.6           Governing Law. Arizona law, not including Arizona’s conflict of law laws, shall govern the interpretation and enforcement of this Agreement. Any request to any judicial authority in accord with the Parties’ arbitration agreement herein shall be made to a court of competent jurisdiction in Maricopa County, Arizona. This Agreement may be modified or amended only by a writing hand signed by the Parties. No action or inaction in enforcing any provision of this Agreement shall be deemed to constitute waiver, estoppel or laches.

 

 

 

 

9.7        Arbitration. The Parties to this Agreement agree that any controversy or claim arising out of or relating to or touching upon this Agreement or any of the matters addressed in either agreement, shall be settled by binding arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The arbitrator(s) shall award the successful party in any such arbitration its reasonable attorneys’ fees, costs of suit and forum fees. The locale of any such arbitration shall be Phoenix, Arizona. The foregoing shall not preclude the Company from also seeking relief further to Section 8.8.

 

9.8        Attorneys' Fees. In any dispute between the parties hereto or their representatives concerning any provision of this Agreement or the rights and duties of any Person hereunder, the party or parties substantially prevailing in such dispute will be entitled, in addition to such other relief as may be granted, to the attorneys' fees and court costs incurred by reason of such dispute.

 

9.9         Rules of Construction.

 

9.9.1         Headings. The headings in this Agreement are inserted only as a matter of convenience, and in no way define, limit, or extend or interpret the scope of this Agreement or of any particular section.

 

9.9.2         Tense and Case. Throughout this Agreement, as the context may require, references to any word used in one tense or case will include all other appropriate tenses or cases, and the term "including" means "including but not limited to.”

 

9.9.3          Severability. The validity, legality or enforceability of the remainder of this Agreement will not be affected even if one or more of the provisions of this Agreement will be held to be invalid, illegal or unenforceable in any respect.

 

9.9.4          Counterparts and Facsimile. This Agreement may be executed in two or more counterparts and by facsimile, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

 

*** [NEXT PAGE IS SIGNATURE PAGE] ***

 

 

 

 

Signature Page to Stockholders’ Agreement

 

IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed as of the date first above written.

 

  CALIBERCOS INC.
     
  By:               
     
  Name: John C. Loeffler
   
  Title: Chief Executive Officer

 

The “Stockholders”

 

     
  John C. Loeffler  
     
     
  Jennifer Schrader  
     
     
  Donnie Schrader  

 

 

 

 

SCHEDULE I

 

Definitions

 

"Affiliate" means (i) any Person directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with, a Stockholder; (ii) any Person in which any Stockholder has a material financial interest; or (iii) any family member of a Stockholder. The term "control," as used in the immediately preceding sentence, includes, with respect to a corporation or limited liability company, the right to exercise, directly or indirectly, more than ten percent (10%) of the voting rights or economic interest in attributable to the controlled corporation or limited liability company and, with respect to any individual, partnership, trust, other entity or association, the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled entity.

 

“Board” means the Company’s board of directors, as duly elected and acting in accordance with the Company’s Bylaws.

 

“Business” means the origination or servicing of residential mortgages, trust services, asset management or small business lending and any other business as the Board shall determine from time to time.

 

"Confidential Information" means confidential or proprietary information related to the business, operations or finances of the Company, including, without limitation, information relating to processes, systems, methods, contract forms, prices, volume of sales, marketing methods and plans, promotional methods, and lists of names or classes of customers of the Company, and any other subsidiaries of the Company. Information shall for purposes of this Agreement be considered to be confidential unless known by the public generally, even though such information may have been disclosed to one or more third parties whether pursuant to consulting agreements, joint marketing agreements, or other agreements entered into by the Company or otherwise. Confidential Information includes information developed by Schrader in the course of Schrader’s engagement by the Company prior to the Effective Date of the Founder’s Transition Agreement. Confidential Information also includes the confidential information of others with which or whom the Company has a business relationship.

 

“Drag-Along Sale” means a single bona fide arm’s length transaction or a series of related bona fide arm’s length transactions: (i) pursuant to which one or more Persons (who are not Affiliates or Permitted Transferees of any Stockholder) acquire Shares representing a majority of the outstanding Stock on a fully diluted basis (whether by merger, consolidation, recapitalization, reorganization, purchase of the outstanding Stock or otherwise), or all or substantially all of the consolidated assets of the Company and its subsidiaries, (ii) that has been approved by the Board, and (iii) pursuant to which all Stockholders will receive the same form of consideration and the same portion of the aggregate net consideration (net of any adjustments or provision for indemnities and following the payment of the reasonable expenses incurred by the Company in connection with such Drag-Along Sale).

 

 

 

 

“Exercise Notice” is defined in Section 2.1.

 

“Founding Stockholder” shall mean each of John C. Loeffler, Jennifer Schrader and Donnie Schrader.

 

“Offered Shares” is defined in Section 2.1.

 

"Percentage Interest" means, with respect to each Stockholder, (a) the result obtained by dividing the number of such Stockholder’s Shares by the total outstanding Shares, (b) multiplied by 100.

 

“Permitted Transferee” means (i) in the case of any Stockholder that is not a natural person, any Affiliate of such Stockholder, and (ii) in the case of a Stockholder who is a natural person, such Stockholder’s parents, spouse and lineal descendants and the lineal descendants of such Stockholder’s spouse, or trusts for the benefit of, or corporations, limited liability companies or partnerships, the Stockholders, members or general and/or limited partners of which include only such Stockholder and/or such Stockholder’s parents, spouse or lineal descendants or the lineal descendants of such Stockholder’s spouse; provided that (i) the Stockholder shall deliver prior written notice to the other Stockholders of such transfer, such shares of Shares shall at all times remain subject to the terms and restrictions set forth in this Agreement and such transferee shall, as a condition to such issuance, deliver a counterpart signature page to this Agreement as confirmation that such transferee shall be bound by all the terms and conditions of this Agreement as a Stockholder (but only with respect to the securities so transferred to the transferee); and (ii) that such transfer is made pursuant to a transaction in which there is no consideration actually paid for such transfer.

 

"Person" means an individual, general partnership, limited partnership, limited liability company, corporation, trust, estate, real estate investment trust association or any other entity.

 

"Remaining Stockholder" means, with regard to any transaction, any Stockholder who is not a Transferring Stockholder.

 

“Repurchase Notice” is defined in Section 5.3.

 

“Shares” means shares of the capital stock of the Company held by any Stockholder treated on an as converted basis (with respect to any shares of convertible preferred stock of the Company so held by any Stockholder); provided however, that if the Company effects a merger or share exchange with an entity where upon the closing of such transaction the stockholders of the Company immediately prior to the closing of said transaction own a majority of the shares of common stock of the acquiring company, then the term “Shares” will mean shares of the common stock of the acquiring entity.

 

 

 

 

“Spousal Equivalent” means an individual who is registered with any state governmental entity as a domestic partner of the relevant person to whom such individual may be a Spousal Equivalent (a “Registered Domestic Partner”) or who (a) irrespective of whether or not the relevant person to whom such individual may be a Spousal Equivalent and the Spousal Equivalent are the same sex, they are the sole spousal equivalent of the other for the last twelve (12) months, (b) they intend to remain so indefinitely, (c) neither are married to anyone else nor a Registered Domestic Partner with anyone else, (d) both are at least 18 years of age and mentally competent to consent to contract, (e) they are not related by blood to a degree of closeness that which would prohibit legal marriage in the state in which they legally reside, (f) they are jointly responsible for each other’s common welfare and financial obligations, and (g) they reside together in the same residence for the last twelve (12) months and intend to do so indefinitely.

 

“Stock Purchase Agreement” means that Stock Purchase Agreement of even date hereof by and between Caliber and Donnie Schrader.

 

“Tag Along Notice” is defined in Section 3.

 

"Transfer" means any sale, transfer, assignment, hypothecation or pledge, encumbrance or other disposition, whether voluntary or involuntary, whether by gift, bequest or otherwise, of any interest in Shares. In the case of a hypothecation, the Transfer shall be deemed to occur both at the time of the initial pledge and at any pledgee's sale or a sale by any secured creditor.

 

“Transfer Notice” is defined in Section 2.1.

 

"Transferee” means any person to whom a Stockholder wishes to Transfer any Shares.

 

"Transferring Stockholder" means, with regard to any transaction, any Stockholder who attempts to Transfer his Shares or with regard to whose Shares an option is exercised pursuant to this Agreement.

 

“Voting LLC” means a to-be-formed Delaware limited liability company to be equally owned by John C. Loeffler and Jennifer Schrader.

 

 

 

 

Exhibit A

 

Stockholdings

 

NAME OF STOCKHOLDER  TOTAL SHARES
HELD		 
     
Jennifer Schrader   6,239,846 
Donnie Schrader   6,239,846 
John C. Loeffler II   6,234,846 

 

 

 

 

Exhibit B

 

CONSENT OF SPOUSE

 

I am a spouse of a Stockholder of CaliberCos Inc. and acknowledge and agree as follows:

 

1.          I have carefully read the foregoing Stockholders’ Agreement (the “Agreement”) and know its contents.

 

2.          I know that my spouse has agreed to sell all of his or her shares in the Company, including any community interest I may have, on the occurrence of certain events.

 

3.          I hereby consent to any such sale, approve the provisions of the Agreement and agree that the Shares and my interest in them, if any, are subject to the provisions of the Agreement.

 

4.          I understand that whatever rights I may have in the economic value of the Shares my spouse holds under contract or family law, I will not be able to hold the Shares my spouse holds in my own name or exercise any of the rights in such the Shares without the written consent of the Company and of the Remaining Stockholders.

 

5.          I will take no action at any time to hinder operation of the Agreement with regard to the Shares my spouse holds or my economic interest, if any, in it.

 

All capitalized terms not otherwise defined herein shall have the meaning ascribed to such terms in the Agreement.

 

   
  Signature
   
   
  Print Name

 

 

 EX1A-3 HLDRS RTS 4 filename4.htm

 

Exhibit 3.2

 

STOCK PURCHASE AGREEMENT

 

THIS STOCK PURCHASE AGREEMENT (the “Agreement”) is dated September 21 , 2018 and is by and between CaliberCos Inc., a Delaware corporation (the “Company” or “Caliber”), and Donnie Ray Schrader (“Schrader”). Caliber and Schrader are referred to herein from time to time, collectively, as the “Parties”.

 

WITNESSETH:

 

WHEREAS, Schrader currently owns 6,239,846 shares of record in Caliber (the “Schrader Shares”);

 

WHEREAS, Schrader desires to sell to Caliber and Caliber desires to purchase from Schrader the Shares upon the terms and conditions herein set forth;

 

NOW, THEREFORE, in consideration of the promises and mutual covenants and agreements contained herein, the parties hereto do hereby agree as follows:

 

ARTICLE I

DEFINITIONS

 

1.1       Definitions. The following terms as used herein have the following meanings:

 

“Agreement” has the meaning set forth in the introductory paragraph hereto.

 

“Caliber” has the meaning set forth in the introductory paragraph hereto.

 

“Confidential Information” has the meaning set forth in the Stockholders’ Agreement.

 

“Founder’s Transition Agreement” means that Founder’s Transition Agreement dated effective as of February 19, 2016 by and between Schrader and Caliber.

 

“Initial Public Offering” means an underwritten public offering by the Caliber of its Shares pursuant to a registration statement (other than a registration statement relating solely to an employee benefit plan or transaction covered by Rule 145 of the Securities Act) that has been filed under the Securities Act and declared effective by the Securities Exchange Commission.

 

“Parties” has the meaning set forth in the introductory paragraph hereto.

 

“Schrader” has the meaning set forth in the introductory paragraph hereto.

 

“Schrader Shares” has the meaning set forth in the Recitals.

 

“Shares” means the shares of common stock of Caliber.

 

 

 

 

“Stockholders Agreement” means that Stockholders’ Agreement of even date herewith by and among Schrader, John C. Loeffler, Jennifer Schrader and the Company, a copy of which is attached hereto as Exhibit “A”.

 

ARTICLE II

SALE OF STOCK.

 

2.1       Incorporation of Recitals. The Parties each acknowledge the truth, accuracy, and materiality of the recitals set forth above and expressly incorporate them into and as part of this Agreement.

 

2.2       Share Buyback. Subject to the terms and conditions hereof, Schrader agrees to sell, assign, transfer and deliver or cause to be delivered to Caliber and Caliber agrees to buy from Schrader, that number of the Schrader Shares (the “Share Buyback”) each month, on the first of every month ( each a “Purchase Date”), at a price of $2.70 per Schrader Share (the “Purchase Price”) as follows: (i) from October 2018 through the earlier of any termination of the Share Buyback further to Section 2.6 or October 2019, 8,500 Shares, (ii) from November 2019 through the earlier of any termination of the Share Buyback further to Section 2.6 or March 2020, 6,000 Shares and (ii) April 2020 (if the Share Buyback is still in effect) through the termination of the Share Buyback further to Section 2.6, 6,000 Shares unless Section 2.3 is then in effect in which case it shall be 10,000 Shares.

 

2.3       Increase in Share Buyback. If the Company has not effected an Initial Public Offering or become subject to the reporting requirements of Section 12 of the Securities Exchange Act of 1934, as amended, and have its common stock is listed for trading on a national securities exchange or the OTC on or before that date which is eighteen (18) months from the date hereof, beginning April 1, 2020, Caliber shall purchase from Schrader 10,000 Shares each month, on each Purchase Date . In addition, the Company reserves the right in its sole discretion at any time prior to the termination of the Share Buyback referenced in Section 2.6 to purchase more of the Schrader Shares than are subject to the Share Buyback at the Purchase Price up to a maximum of 750,000 additional Shares; any purchases over said 750,000 amount shall require the prior written consent of Schrader.

 

2.4        Possible Acceleration of Share Buyback. The parties acknowledge of the 8,500 Share amount referenced in Section 2.2 (i), 2,500 of Shares represents a monthly repurchase of an aggregate of 30,000 Shares over the referenced 12 month period (the “30,000 Shares”). Caliber agrees that to the extent that Caliber receives operating liquidity that would allow it to accelerate the purchase of the 30,000 Shares at a faster pace than described in Section 2.2(i), it will make best efforts to do so. The parties acknowledge and agree that at no time is Caliber obligated to accelerate the purchase of these 30,000 Shares, there are no audit rights to liquidity or cash balances, and the decision to accelerate this purchase shall be subject to the sole discretion of Caliber's executive management.

 

2.5       Delivery of Schrader Shares. Upon receipt of the Purchase Price, on each Purchase Date , Schrader shall deliver to Caliber an Assignment Separate from Certificate for the Schrader Shares so purchased, and hereby authorizes the appropriate officer(s) of Caliber to reflect the transfer of such Shares in the stock ledger of the Company.

 

 

 

 

2.6       Share Buyback Duration. The Share Buyback shall continue on a monthly basis indefinitely; provided, however, that the Parties obligations pursuant to this Agreement shall terminate immediately upon occurrence of any of the following events:

 

(a) written agreement of Schrader and Caliber;

 

(b) upon the effective date of an Initial Public Offering or at such time as Caliber (or its successor) becomes subject to the reporting requirements of Section 12 of the Securities Exchange Act of 1934, as amended, and its common stock is listed for trading on a national securities exchange or the OTC – provided however that if there is a Market Standoff Agreement in effect with respect to the Shares as further described in Section 8.5 of the Stockholders’ Agreement, the monthly Share Buyback shall continue for each month such Agreement is in effect and the monthly Share Buyback amount shall be an amount equal to the total dollar amount of the Share Buyback required for said month further to Section 2.2 or 2.3, as the case may be, less the gross dollar amount of Shares that the underwriter allows Schrader to sell in the open market, if any, further to the Market Standoff Agreement;

 

(c) upon a sale by the Caliber’s stockholders, in one transaction or series of related transactions, of equity securities that represent, immediately prior to such transaction or transactions, at least a majority by voting power of the equity securities of Caliber pursuant to an agreement approved by the Board and entered into by Caliber;

 

(d) at such time as Schrader (or any entity which holds shares of common stock of Caliber beneficially owned by Schrader) ceases to be the legal and beneficial holder of record of any Shares in Caliber; or

 

(e) at such time as it is determined further to Section 8.7 of the Stockholders’ Agreement that Caliber has the right to offset against the Schrader Shares.

 

ARTICLE III

REPRESENTATIONS/RELEASES/INDEMNITY.

 

3.1       Representations. Schrader represents and warrants to Caliber that he has not (i) previously disclosed any Confidential Information to any third party or (ii) given any third party access to any Confidential Information. or (iii) violated any provision of Sections 9 or 11 or Exhibit A to the Founder’s Transition Agreement.

 

3.2       Releases. Except specifically as it relates to the representations of Schrader set forth in Section 3.1, Caliber and Schrader hereby acknowledge and affirm that all terms and conditions set forth in the Founder’s Transition Agreement have been complied with and that such Agreement is without further force and effect. Caliber and Schrader hereby waive and release, to the maximum extent permitted by law, and covenant not to sue for, any and all Claims they may have against the other, including without limitation any such Claims arising out of any statements, actions or omissions occurring at any time prior to the date hereof; notwithstanding the foregoing; notwithstanding the forgoing, such waiver and release shall not apply with respect to any breach by Schrader of the provisions of Section 3.1 herein. This release is made on behalf of the Parties and any person claiming by, though or under them. The term “Claims” means all claims or rights that Schrader or Caliber have, had, or may have against either other, including but not limited to any and all claims, damages, demands, liabilities, obligations, causes, and causes of action of whatever kind or nature based on any cause, circumstance, fact, matter, thing, event, act, or failure to act whatsoever, arising at law or in equity, in whole or in part, whether known, unknown, foreseen or unforeseen, but does not mean any rights or claims that may arise after the date hereof or any of the Parties’ rights under this Agreement. This release includes a release of any Claim, as defined herein, of the Parties, their officers, directors, owners, agents, managers and employees to the extent that any such Claim arose out of, in whole or in part, the released party’s actions or omissions in the conduct of the business of Caliber.

 

 

 

 

3.3       Indemnity. Caliber agrees to indemnify Schrader to the fullest extent provided for by applicable law, Caliber’s articles of incorporation or bylaws for damages from any third party claim specifically resulting from any intentional and wrongful failure to act, intentional and wrongful omission, professional error, mistake, negligence, or gross misconduct of Caliber, John Loeffler or Jennifer Schrader arising out of violation of any laws or breach of any agreement relating to the business of Caliber prior to the date hereof only to the extent that Schrader took no action to cause or bring about or intentionally and wrongfully failed to act in connection with any such claim, which action includes, but is not limited to, any breach of Section 3.1 herein.

 

3.4       Access. Set forth on Exhibit 3.4 is a list of all third parties that Donnie Schrader has given unauthorized access to Confidential Information..

 

ARTICLE IV

GENERAL PROVISIONS.

 

4.1       Caliber Website. Within ten (10) business days of the date hereof and continuing for the duration of the Share Buyback, Caliber shall list Schrader on the Caliber website with the title “Founder” and include a biography of Schrader, which the contents of such biography shall be mutually agreed upon between the Parties. Caliber shall immediately remove Schrader from the Caliber website upon Schrader’s written request.

 

4.2       Stockholder Information. Caliber shall provide Schrader with all communications, documents, and information as Caliber provides any other stockholder. Until such time as Schrader (or any entity which holds shares of common stock of Caliber beneficially owned by Schrader) ceases to be the legal and beneficial holder of record of any Shares in Caliber, Caliber shall send Schrader notice of all stockholder meetings in accordance with the Caliber bylaws.

 

 

 

 

4.3       Governing Law. Arizona law, not including Arizona’s conflict of law laws, shall govern the interpretation and enforcement of this Agreement. Any request to any judicial authority in accord with the Parties’ arbitration agreement herein shall be made to a court of competent jurisdiction in Maricopa County, Arizona. This Agreement may be modified or amended only by a writing hand signed by the Parties. No action or inaction in enforcing any provision of this Agreement shall be deemed to constitute waiver, estoppel or laches

 

4.4       Arbitration. The Parties to this Agreement agree that any controversy or claim arising out of or relating to or touching upon this Agreement or any of the matters addressed in either agreement, shall be settled by binding arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules, and judgment on the award rendered by the arbitrator(s) may be entered in any court having jurisdiction thereof. The arbitrator(s) shall award the successful party in any such arbitration its reasonable attorneys’ fees, costs of suit and forum fees. The locale of any such arbitration shall be Phoenix, Arizona.

 

4.5       Attorneys' Fees. In any dispute between the parties hereto or their representatives concerning any provision of this Agreement or the rights and duties of any Person hereunder, the party or parties substantially prevailing in such dispute will be entitled, in addition to such other relief as may be granted, to the attorneys' fees and court costs incurred by reason of such dispute.

 

4.6       Successors and Assigns; Execution. This Agreement shall be binding upon and inure to the benefit of the Parties hereto and their respective heirs, representatives, successors and assigns. This Agreement may be executed in any number of counterparts and each such counterpart hereof shall be deemed to be an original instrument, but all such counterparts together shall constitute but one Agreement.

 

4.7       References and Titles. All references in this Agreement to Articles, Sections, Subsections and other subdivisions refer to corresponding Articles, Sections, Subsections and other subdivisions of this Agreement unless expressly provided otherwise. Titles appearing at the beginning of any subdivision are for convenience only and do not constitute any part of such subdivision and shall be disregarded in constructing the language contained in such subdivision. The words “this Agreement,” “this instrument,” “herein,” “hereof,” “hereby,” “hereunder,” and words of similar import refer to this Agreement as a whole and not to any particular subdivision unless expressly so limited. Pronouns in masculine, feminine and neuter genders shall be construed to include any other gender, and words in the singular form shall be construed to include the plural and vice versa, unless the context otherwise requires.

 

[SIGNATURE PAGE TO FOLLOW]

 

 

 

 

IN WITNESS WHEREOF, executed this Agreement as of the day and year first above written.

 

CaliberCos Inc.   Donnie Ray Schrader
     
By:      
     
Its:     Date:  
     
Date:      

 

 

 

 

EXHIBIT A

 

STOCKHOLDERS’ AGREEMENT

 

 

 

 

EXHIBIT 3.4

 

ACCESS

 

None

 

 

 

 EX1A-3 HLDRS RTS 5 filename5.htm

 

Exhibit 3.3

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS SUCH SALE, TRANSFER, PLEDGE OR HYPOTHECATION IS IN ACCORDANCE WITH SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.

 

Warrant No.                         

 

No. of Shares of Common Stock:                             

 

WARRANT

 

to Purchase Common Stock of

 

CaliberCos Inc.
a Nevada Corporation

 

This Warrant certifies that ________________ (“Purchaser”), is entitled to purchase from CaliberCos Inc., a Nevada corporation (the “Company”), _______________ shares of Common Stock (or any portion thereof) at an exercise price of $1.70 per share of Common Stock, all on the terms and conditions hereinafter provided.

 

Section 1.  Certain Definitions. As used in this Warrant, unless the context otherwise requires:

 

“Articles” shall mean the Articles of Incorporation of the Company, as in effect from time to time.

 

“Common Stock” shall mean the Company’s authorized common stock, par value $0.001 per share.

 

“Exercise Price” shall mean the exercise price per share of Common Stock set forth above, as adjusted from time to time pursuant to Section 3 hereof.

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

“Warrant” shall mean this Warrant and all additional or new warrants issued upon division or combination of, or in substitution for, this Warrant. All such additional or new warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised.

 

“Warrant Stock” shall mean the shares of Common Stock purchasable by the holder of this Warrant upon the exercise of such Warrant.

 

 

 

 

“Warrantholder” shall mean the Purchaser, as the initial holder of this Warrant, and its nominees, successors or assigns, including any subsequent holder of this Warrant to whom it has been legally transferred.

 

Section 2.  Exercise of Warrant.

 

(a)  At any time after the date hereof through a date that is two and one-half years from the date hereof, the Purchaser may at any time and from time to time exercise this Warrant, in whole or in part.

 

(b)  (i) The Warrantholder shall exercise this Warrant by means of delivering to the Company at its office identified in Section 14 hereof (i) a written notice of exercise, including the number of shares of Warrant Stock to be delivered pursuant to such exercise (a “Subscription Form”), (ii) this Warrant and (iii) payment equal to the Exercise Price in accordance with Section 2(b)(ii). In the event that any exercise shall not be for all shares of Warrant Stock purchasable hereunder, the Company shall deliver to the Warrantholder a new Warrant registered in the name of the Warrantholder, of like tenor to this Warrant and for the remaining shares of Warrant Stock purchasable hereunder, within ten (10) days of any such exercise. Such notice of exercise shall be in the Subscription Form set out at the end of this Warrant.

 

(ii) The Warrantholder may elect to pay the Exercise Price to the Company either (1) by cash, certified check or wire transfer, (2) by converting the Warrant into Common Stock (“Warrant Conversion”) or (3) any combination of the foregoing, and specifying such election(s) in the Subscription Form. If the Warrantholder elects to pay the Exercise Price through Warrant Conversion, the Company shall deliver to the Warrantholder (without payment by the Warrantholder of any cash or other consideration) that number of shares of Common Stock equal to the difference of (I) the total number of shares of Common Stock issuable upon exercise of this Warrant minus (II) that number of Shares of Common Stock having an aggregate “Value” (as defined herein) equal to the aggregate Exercise Price. For purposes of this Section 2, “Value” per share of Common Stock shall be the difference, as of the date of exercise, between the Exercise Price and the Fair Market Value (as determined in good faith by the Company’s Board of Directors) of the Warrant Stock.

 

(c)  Upon exercise of this Warrant and delivery of the Subscription Form with proper payment relating thereto, the Company shall cause to be executed and delivered to the Warrantholder a certificate or certificates representing the aggregate number of fully-paid and nonassessable shares of Common Stock issuable upon such exercise.

 

(d)  The stock certificate or certificates for Warrant Stock to be delivered in accordance with this Section 2 shall be in such denominations as may be specified in said notice of exercise and shall be registered in the name of the Warrantholder or such other name or names as shall be designated in said notice. Such certificate or certificates shall be deemed to have been issued and the Warrantholder or any other person so designated to be named therein shall be deemed to have become the holder of record of such shares, including to the extent permitted by law the right to vote such shares or to consent or to receive notice as stockholders, as of the time said notice is delivered to the Company as aforesaid.

 

 2 

 

 

(e)  The Company shall pay all expenses payable in connection with the preparation, issue and delivery of stock certificates under this Section 2, including any transfer taxes resulting from the exercise of the Warrant and the issuance of Warrant Stock hereunder.

 

(f)  All shares of Warrant Stock issuable upon the exercise of this Warrant in accordance with the terms hereof shall be validly issued, fully paid and nonassessable, and free from all liens and other encumbrances thereon, other than liens or other encumbrances created by the Warrantholder.

 

(g)  In no event shall any fractional share of Common Stock of the Company be issued upon any exercise of this Warrant. If, upon any exercise of this Warrant, the Warrantholder would, except as provided in this paragraph, be entitled to receive a fractional share of Common Stock, then the Company shall deliver in cash to such holder an amount equal to such fractional interest.

 

Section 3.  Adjustment of Exercise Price and Warrant Stock.

 

(a)  If, at any time prior to the Expiration Date, the number of outstanding shares of Common Stock is (i) increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, or (ii) decreased by a combination of shares of Common Stock, then, following the record date fixed for the determination of holders of Common Stock entitled to receive the benefits of such stock dividend, subdivision, split-up, or combination, the Exercise Price shall be adjusted to a new amount equal to the product of (I) the Exercise Price in effect on such record date and (II) the quotient obtained by dividing (x) the number of shares of Common Stock outstanding on such record date (without giving effect to the event referred to in the foregoing clause (i) or (ii)), by (y) the number of shares of Common Stock which would be outstanding immediately after the event referred to in the foregoing clause (i) or (ii), if such event had occurred immediately following such record date. In addition, the Exercise Price may be adjusted in other circumstances set forth in Article 5 of Exhibit A of the Articles.

 

(b)  Upon each adjustment of the Exercise Price as provided in Section 3 (a), the Warrantholder shall thereafter be entitled to subscribe for and purchase, at the Exercise Price resulting from such adjustment, the number of shares of Warrant Stock equal to the product of (i) the number of shares of Warrant Stock existing prior to such adjustment and (ii) the quotient obtained by dividing (I) the Exercise Price existing prior to such adjustment by (II) the new Exercise Price resulting from such adjustment.

 

(c)  If, at any time prior to the Expiration Date, there occurs an event which would cause the automatic conversion (“Automatic Conversion”) of the Warrant Stock into shares of the Company’s common stock (“Common Stock”) in accordance with the Articles, then any Warrant shall thereafter be exercisable, prior to the Expiration Date, into the number of shares of Common Stock into which the Warrant Stock would have been convertible pursuant to the Charter if the Automatic Conversion had not taken place.

 

 3 

 

 

Section 4.  Division and Combination. This Warrant may be divided or combined with other Warrants upon presentation at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Warrantholder or its agent or attorney. The Company shall pay all expenses in connection with the preparation, issue and delivery of Warrants under this Section 4, including any transfer taxes resulting from the division or combination hereunder. The Company agrees to maintain at its aforesaid office books for the registration of the Warrants.

 

Section 5.  Reclassification, Etc. In case of any reclassification or change of the outstanding Common of the Company (other than as a result of a subdivision, combination or stock dividend), or in case of any consolidation of the Company with, or merger of the Company into, another corporation or other business organization (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of the outstanding Common Stock of the Company) at any time prior to the Expiration Date, then, as a condition of such reclassification, reorganization, change, consolidation or merger, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Warrantholder, so that the Warrantholder shall have the right prior to the Expiration Date to purchase, at a total price not to exceed that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable upon such reclassification, reorganization, change, consolidation or merger by a holder of the number of shares of Common Stock of the Company which might have been purchased by the Warrantholder immediately prior to such reclassification, reorganization, change, consolidation or merger, in any such case appropriate provisions shall be made with respect to the rights and interest of the Warrantholder to the end that the provisions hereof (including provisions for the adjustment of the Exercise Price and of the number of shares purchasable upon exercise of this Warrant) shall thereafter be applicable in relation to any shares of stock and other securities and property thereafter deliverable upon exercise hereof.

 

Section 6.  Reservation and Authorization of Capital Stock. The Company shall at all times reserve and keep available for issuance such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants.

 

Section 7.  Stock and Warrant Books. The Company will not at any time, except upon dissolution, liquidation or winding up, close its stock books or Warrant books so as to result in preventing or delaying the exercise of any Warrant.

 

Section 8.  Limitation of Liability. No provisions hereof, in the absence of affirmative action by the Warrantholder to purchase Warrant Stock hereunder, shall give rise to any liability of the Warrantholder to pay the Exercise Price or as a stockholder of the Company (whether such liability is asserted by the Company or creditors of the Company).

 

Section 9.  Registration Rights. The Warrant Stock issuable upon exercise of this Warrant is subject to the provisions of a certain Investor Rights Agreement, dated same date herewith, by and among the Company and the Purchaser.

 

 4 

 

 

Section 10. Transfer. Subject to compliance with the Securities Act and the applicable rules and regulations promulgated thereunder, this Warrant and all rights hereunder shall be transferable in whole or in part in compliance with the terms of the Investor Rights Agreement. Any such transfer shall be made at the office or agency of the Company at which this Warrant is exercisable, by the registered holder hereof in person or by its duly authorized attorney, upon surrender of this Warrant together with the assignment hereof properly endorsed, and promptly thereafter a new warrant shall be issued and delivered by the Company, registered in the name of the assignee. Until registration of transfer hereof on the books of the Company, the Company may treat the Purchaser as the owner hereof for all purposes.

 

Section 11. Investment Representations; Restrictions on Transfer of Warrant Stock. Unless a current registration statement under the Securities Act shall be in effect with respect to the Warrant Stock to be issued upon exercise of this Warrant, the Warrantholder, by accepting this Warrant, covenants and agrees that, at the time of exercise hereof, and at the time of any proposed transfer of Warrant Stock acquired upon exercise hereof, such Warrantholder will deliver to the Company a written statement that the securities acquired by the Warrantholder upon exercise hereof are for the account of the Warrantholder or are being held by the Warrantholder as trustee, investment manager, investment advisor or as any other fiduciary for the account of the beneficial owner or owners for investment and are not acquired with a view to, or for sale in connection with, any distribution thereof (or any portion thereof) and with no present intention (at any such time) of offering and distributing such securities (or any portion thereof).

 

Section 12. Loss, Destruction of Warrant Certificates. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity and/or security satisfactory to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Common Stock.

 

Section 13. Amendments. The terms of this Warrant may be amended, and the observance of any term herein may be waived, but only with the written consent of the Company and the Warrantholder.

 

Section 14. Notices Generally. Any notice, request, consent, other communication or delivery pursuant to the provisions hereof shall be in writing and shall be sent by one of the following means: (i) by registered or certified first class mail, postage prepaid, return receipt requested; (ii) by facsimile transmission with confirmation of receipt; (iii) by nationally recognized courier service guaranteeing overnight delivery; or (iv) by personal delivery, and shall be properly addressed to the Warrantholder at the last known address or facsimile number appearing on the books of the Company, or, except as herein otherwise expressly provided, to the Company at its principal executive office, or such other address or facsimile number as shall have been furnished to the party giving or making such notice, demand or delivery.

 

Section 15. Successors and Assigns. This Warrant shall bind and inure to the benefit of and be enforceable by the parties hereto and their respective permitted successors and assigns.

 

 5 

 

 

Section 16.  Governing Law. In all respects, including all matters of construction, validity and performance, this Warrant and the obligations arising hereunder shall be governed by, and construed and enforced in accordance with the laws of the State of Nevada.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name by its Chief Executive Officer.

 

Dated:                                    [date of Warrant]

 

Expiration Date:                            [2 ½ years later]

 

  CaliberCos Inc.,
  a Nevada Corporation
     
  By:      
  Name:  
  Title:  

 

 6 

 

 

SUBSCRIPTION FORM

 

(to be executed only upon exercise of Warrant)

 

To:CaliberCos Inc.
16074 N. 78th Street, Ste B-104
Scottsdale, AZ 85260

 

[Choose one or both of the paragraphs, as applicable]

 

The undersigned, pursuant to the provisions set forth in the attached Warrant (No. ), hereby irrevocably elects to purchase __________ shares of the Common Stock covered by such Warrant and herewith makes payment of $__________, representing the full purchase price for such shares at the price per share provided for in such Warrant.

 

The undersigned, pursuant to the provisions set forth in the attached Warrant (No. ___), hereby irrevocably elects to exercise the right of conversion represented by the attached Warrant for __________ shares of Common Stock, and as payment therefor hereby directs CaliberCos. Inc. to withhold __________ shares of Common Stock that the undersigned would otherwise be entitled thereunder.

 

Dated:     Name:  
         
      Signature:  
         
      Address:  

 

 

 

 

 EX1A-3 HLDRS RTS 6 filename6.htm

 

Exhibit 3.4

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR REGISTERED OR QUALIFIED UNDER ANY STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE SOLD, TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS SUCH SALE, TRANSFER, PLEDGE OR HYPOTHECATION IS IN ACCORDANCE WITH SUCH ACT AND APPLICABLE STATE SECURITIES LAWS.

 

Warrant No.   

 

No. of Shares of Common Stock:                                

 

WARRANT
to Purchase Common Stock of

 

CaliberCos Inc.
a Nevada Corporation

 

This Warrant certifies that ____________________________ (“Purchaser”), is entitled to purchase from CaliberCos Inc., a Nevada corporation (the “Company”), ______________ shares of Common Stock (or any portion thereof) at an exercise price of $2.00 per share of Common Stock, all on the terms and conditions hereinafter provided.

 

Section 1.  Certain Definitions. As used in this Warrant, unless the context otherwise requires:

 

“Articles” shall mean the Articles of Incorporation of the Company, as in effect from time to time.

 

“Common Stock” shall mean the Company’s authorized common stock, par value $0.001 per share.

 

“Exercise Price” shall mean the exercise price per share of Common Stock set forth above, as adjusted from time to time pursuant to Section 3 hereof.

 

“Securities Act” shall mean the Securities Act of 1933, as amended.

 

“Warrant” shall mean this Warrant and all additional or new warrants issued upon division or combination of, or in substitution for, this Warrant. All such additional or new warrants shall at all times be identical as to terms and conditions and date, except as to the number of shares of Common Stock for which they may be exercised.

 

“Warrant Stock” shall mean the shares of Common Stock purchasable by the holder of this Warrant upon the exercise of such Warrant.

 

“Warrantholder” shall mean the Purchaser, as the initial holder of this Warrant, and its nominees, successors or assigns, including any subsequent holder of this Warrant to whom it has been legally transferred.

 

 1 

 

 

Section 2.  Exercise of Warrant.

 

(a)  At any time after the date hereof through a date that is twenty four months from the date hereof, the Purchaser may at any time and from time to time exercise this Warrant, in whole or in part.

 

(b)  (i)  The Warrantholder shall exercise this Warrant by means of delivering to the Company at its office identified in Section 14 hereof (i) a written notice of exercise, including the number of shares of Warrant Stock to be delivered pursuant to such exercise (a “Subscription Form”), (ii) this Warrant and (iii) payment equal to the Exercise Price in accordance with Section 2(b)(ii). In the event that any exercise shall not be for all shares of Warrant Stock purchasable hereunder, the Company shall deliver to the Warrantholder a new Warrant registered in the name of the Warrantholder, of like tenor to this Warrant and for the remaining shares of Warrant Stock purchasable hereunder, within ten (10) days of any such exercise. Such notice of exercise shall be in the Subscription Form set out at the end of this Warrant.

 

(ii)  The Warrantholder may elect to pay the Exercise Price to the Company either (1) by cash, certified check or wire transfer, (2) by converting the Warrant into Common Stock (“Warrant Conversion”) or (3) any combination of the foregoing, and specifying such election(s) in the Subscription Form. If the Warrantholder elects to pay the Exercise Price through Warrant Conversion, the Company shall deliver to the Warrantholder (without payment by the Warrantholder of any cash or other consideration) that number of shares of Common Stock equal to the difference of (I) the total number of shares of Common Stock issuable upon exercise of this Warrant minus (II) that number of Shares of Common Stock having an aggregate “Value” (as defined herein) equal to the aggregate Exercise Price. For purposes of this Section 2, “Value” per share of Common Stock shall be the difference, as of the date of exercise, between the Exercise Price and the Fair Market Value (as determined in good faith by the Company’s Board of Directors) of the Warrant Stock.

 

(c)  Upon exercise of this Warrant and delivery of the Subscription Form with proper payment relating thereto, the Company shall cause to be executed and delivered to the Warrantholder a certificate or certificates representing the aggregate number of fully-paid and nonassessable shares of Common Stock issuable upon such exercise.

 

(d)  The stock certificate or certificates for Warrant Stock to be delivered in accordance with this Section 2 shall be in such denominations as may be specified in said notice of exercise and shall be registered in the name of the Warrantholder or such other name or names as shall be designated in said notice. Such certificate or certificates shall be deemed to have been issued and the Warrantholder or any other person so designated to be named therein shall be deemed to have become the holder of record of such shares, including to the extent permitted by law the right to vote such shares or to consent or to receive notice as stockholders, as of the time said notice is delivered to the Company as aforesaid.

 

(e)  The Company shall pay all expenses payable in connection with the preparation, issue and delivery of stock certificates under this Section 2, including any transfer taxes resulting from the exercise of the Warrant and the issuance of Warrant Stock hereunder.

 

 2 

 

 

(f)  All shares of Warrant Stock issuable upon the exercise of this Warrant in accordance with the terms hereof shall be validly issued, fully paid and nonassessable, and free from all liens and other encumbrances thereon, other than liens or other encumbrances created by the Warrantholder.

 

(g)  In no event shall any fractional share of Common Stock of the Company be issued upon any exercise of this Warrant. If, upon any exercise of this Warrant, the Warrantholder would, except as provided in this paragraph, be entitled to receive a fractional share of Common Stock, then the Company shall deliver in cash to such holder an amount equal to such fractional interest.

 

Section 3.  Mandatory Exercise. In the event that (i) the Company’s common stock is quoted on the U.S. over-the-counter-markets or on a registered national securities exchange, and (ii) the volume-weighted average price (“VWAP”) of the Company’s Common Stock is in excess of $4.00 per share for 20 consecutive trading days, and (iii) the 90-day average daily trading volume of the Company’s Common Stock is above 40,000 shares, this Warrant shall be deemed automatically exercised in full and all shares then issuable upon full exercise of this Warrant shall be issued in accordance with the terms hereof.

 

Section 4.  Adjustment of Exercise Price and Warrant Stock.

 

(a)  If, at any time prior to the Expiration Date, the number of outstanding shares of Common Stock is (i) increased by a stock dividend payable in shares of Common Stock or by a subdivision or split-up of shares of Common Stock, or (ii) decreased by a combination of shares of Common Stock, then, following the record date fixed for the determination of holders of Common Stock entitled to receive the benefits of such stock dividend, subdivision, split-up, or combination, the Exercise Price shall be adjusted to a new amount equal to the product of (I) the Exercise Price in effect on such record date and (II) the quotient obtained by dividing (x) the number of shares of Common Stock outstanding on such record date (without giving effect to the event referred to in the foregoing clause (i) or (ii)), by (y) the number of shares of Common Stock which would be outstanding immediately after the event referred to in the foregoing clause (i) or (ii), if such event had occurred immediately following such record date. In addition, the Exercise Price may be adjusted in other circumstances set forth in Article 5 of Exhibit A of the Articles.

 

(b)  Upon each adjustment of the Exercise Price as provided in Section 3 (a), the Warrantholder shall thereafter be entitled to subscribe for and purchase, at the Exercise Price resulting from such adjustment, the number of shares of Warrant Stock equal to the product of (i) the number of shares of Warrant Stock existing prior to such adjustment and (ii) the quotient obtained by dividing (I) the Exercise Price existing prior to such adjustment by (II) the new Exercise Price resulting from such adjustment.

 

(c)  If, at any time prior to the Expiration Date, there occurs an event which would cause the automatic conversion (“Automatic Conversion”) of the Warrant Stock into shares of the Company’s common stock (“Common Stock”) in accordance with the Articles, then any Warrant shall thereafter be exercisable, prior to the Expiration Date, into the number of shares of Common Stock into which the Warrant Stock would have been convertible pursuant to the Charter if the Automatic Conversion had not taken place.

 

 3 

 

 

Section 5.  Division and Combination. This Warrant may be divided or combined with other Warrants upon presentation at the aforesaid office of the Company, together with a written notice specifying the names and denominations in which new Warrants are to be issued, signed by the Warrantholder or its agent or attorney. The Company shall pay all expenses in connection with the preparation, issue and delivery of Warrants under this Section 4, including any transfer taxes resulting from the division or combination hereunder. The Company agrees to maintain at its aforesaid office books for the registration of the Warrants.

 

Section 6.  Reclassification, Etc. In case of any reclassification or change of the outstanding Common of the Company (other than as a result of a subdivision, combination or stock dividend), or in case of any consolidation of the Company with, or merger of the Company into, another corporation or other business organization (other than a consolidation or merger in which the Company is the continuing corporation and which does not result in any reclassification or change of the outstanding Common Stock of the Company) at any time prior to the Expiration Date, then, as a condition of such reclassification, reorganization, change, consolidation or merger, lawful provision shall be made, and duly executed documents evidencing the same from the Company or its successor shall be delivered to the Warrantholder, so that the Warrantholder shall have the right prior to the Expiration Date to purchase, at a total price not to exceed that payable upon the exercise of this Warrant, the kind and amount of shares of stock and other securities and property receivable upon such reclassification, reorganization, change, consolidation or merger by a holder of the number of shares of Common Stock of the Company which might have been purchased by the Warrantholder immediately prior to such reclassification, reorganization, change, consolidation or merger, in any such case appropriate provisions shall be made with respect to the rights and interest of the Warrantholder to the end that the provisions hereof (including provisions for the adjustment of the Exercise Price and of the number of shares purchasable upon exercise of this Warrant) shall thereafter be applicable in relation to any shares of stock and other securities and property thereafter deliverable upon exercise hereof.

 

Section 7.  Reservation and Authorization of Capital Stock. The Company shall at all times reserve and keep available for issuance such number of its authorized but unissued shares of Common Stock as will be sufficient to permit the exercise in full of all outstanding Warrants.

 

Section 8.  Stock and Warrant Books. The Company will not at any time, except upon dissolution, liquidation or winding up, close its stock books or Warrant books so as to result in preventing or delaying the exercise of any Warrant.

 

Section 9.  Limitation of Liability. No provisions hereof, in the absence of affirmative action by the Warrantholder to purchase Warrant Stock hereunder, shall give rise to any liability of the Warrantholder to pay the Exercise Price or as a stockholder of the Company (whether such liability is asserted by the Company or creditors of the Company).

 

 4 

 

 

Section 10.  Registration Rights. The Warrant Stock issuable upon exercise of this Warrant is subject to the provisions of a certain Investor Rights Agreement, dated same date herewith, by and among the Company and the Purchaser.

 

Section 11.  Transfer. Subject to compliance with the Securities Act and the applicable rules and regulations promulgated thereunder, this Warrant and all rights hereunder shall be transferable in whole or in part in compliance with the terms of the Investor Rights Agreement. Any such transfer shall be made at the office or agency of the Company at which this Warrant is exercisable, by the registered holder hereof in person or by its duly authorized attorney, upon surrender of this Warrant together with the assignment hereof properly endorsed, and promptly thereafter a new warrant shall be issued and delivered by the Company, registered in the name of the assignee. Until registration of transfer hereof on the books of the Company, the Company may treat the Purchaser as the owner hereof for all purposes.

 

Section 12.  Investment Representations; Restrictions on Transfer of Warrant Stock. Unless a current registration statement under the Securities Act shall be in effect with respect to the Warrant Stock to be issued upon exercise of this Warrant, the Warrantholder, by accepting this Warrant, covenants and agrees that, at the time of exercise hereof, and at the time of any proposed transfer of Warrant Stock acquired upon exercise hereof, such Warrantholder will deliver to the Company a written statement that the securities acquired by the Warrantholder upon exercise hereof are for the account of the Warrantholder or are being held by the Warrantholder as trustee, investment manager, investment advisor or as any other fiduciary for the account of the beneficial owner or owners for investment and are not acquired with a view to, or for sale in connection with, any distribution thereof (or any portion thereof) and with no present intention (at any such time) of offering and distributing such securities (or any portion thereof).

 

Section 13.  Loss, Destruction of Warrant Certificates. Upon receipt of evidence satisfactory to the Company of the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity and/or security satisfactory to the Company or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Company will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same aggregate number of shares of Common Stock.

 

Section 14.  Amendments. The terms of this Warrant may be amended, and the observance of any term herein may be waived, but only with the written consent of the Company and the Warrantholder.

 

Section 15.  Notices Generally. Any notice, request, consent, other communication or delivery pursuant to the provisions hereof shall be in writing and shall be sent by one of the following means: (i) by registered or certified first class mail, postage prepaid, return receipt requested; (ii) by facsimile transmission with confirmation of receipt; (iii) by nationally recognized courier service guaranteeing overnight delivery; or (iv) by personal delivery, and shall be properly addressed to the Warrantholder at the last known address or facsimile number appearing on the books of the Company, or, except as herein otherwise expressly provided, to the Company at its principal executive office, or such other address or facsimile number as shall have been furnished to the party giving or making such notice, demand or delivery.

 

 5 

 

 

Section 16.  Successors and Assigns. This Warrant shall bind and inure to the benefit of and be enforceable by the parties hereto and their respective permitted successors and assigns.

 

Section 17.  Governing Law. In all respects, including all matters of construction, validity and performance, this Warrant and the obligations arising hereunder shall be governed by, and construed and enforced in accordance with the laws of the State of Nevada.

 

IN WITNESS WHEREOF, the Company has caused this Warrant to be signed in its name by its Chief Executive Officer.

 

Dated:                                 [date of Warrant]

 

Expiration Date:                          [24 months later]

 

  CaliberCos Inc.,
  a Nevada Corporation
     
  By:           
  Name: Chris Loeffler
  Title: CEO

 

 6 

 

 

SUBSCRIPTION FORM

 

(to be executed only upon exercise of Warrant)

 

To:CaliberCos Inc.
16074 N. 78th Street, Ste B-104
Scottsdale, AZ 85260

 

[Choose one or both of the paragraphs, as applicable]

 

The undersigned, pursuant to the provisions set forth in the attached Warrant (No. ___), hereby irrevocably elects to purchase _______________ shares of the Common Stock covered by such Warrant and herewith makes payment of $_______________, representing the full purchase price for such shares at the price per share provided for in such Warrant.

 

The undersigned, pursuant to the provisions set forth in the attached Warrant (No. ___), hereby irrevocably elects to exercise the right of conversion represented by the attached Warrant for __________ shares of Common Stock, and as payment therefor hereby directs CaliberCos. Inc. to withhold __________shares of Common Stock that the undersigned would otherwise be entitled thereunder.

 

Dated:     Name:    
         
      Signature:    
         
      Address:  

 

 

 

 EX1A-6 MAT CTRCT 7 filename7.htm

 

Exhibit 6.2

 

MORTGAGE NOTE

 

$14,000,000.00 June 29, 2018

 

FOR VALUE RECEIVED, TUCSON EAST HOLDING, LLC, a Delaware limited liability company having an address of 16704 North 78th Street, Scottsdale, AZ 85260 (“Maker”) promises to pay to CERCO CAPITAL INC, a Delaware corporation (“Payee”) at its office located at 251 Little Falls Drive, Wilmington, DE 19808 or at such other place as may be designated in writing by the holder of this Promissory Note (this “Note”), the principal sum of Fourteen Million and 00/100 Dollars ($14,000,000.00) (the “Loan”), in lawful money of the United States of America, together with interest thereon to be computed from the date hereof at the Applicable Interest Rate, and to be paid in accordance with the terms of this Note.

 

1.           INTEREST. The term “Applicable Interest Rate”, as used herein shall mean an interest rate equal to eight and one-half percent (8.5%) per annum. Interest for any month or fractional part thereof shall be calculated on the basis of a 360-day year and the daily amount so determined shall be multiplied by the actual number of days for which interest is being paid.

 

2.           PAYMENT TERMS

 

2.1          Maker agrees to pay sums under this Note in installments as follows:

 

(a)           Maker shall pay to Payee consecutive equal, monthly installments of accrued interest only, in arrears, commencing on August 1, 2018 and on the first day of each month thereafter (such date, the “Payment Date”) through and until the date on which this Note is indefeasibly paid in full.

 

(b)          All accrued and unpaid interest and the then unpaid principal balance hereon shall be due and payable on the earlier to occur of (i) June 30, 2020 (the “Maturity Date”), or (ii) the date on which the indebtedness otherwise becomes immediately due and payable hereunder.

 

2.2          In the event that the Loan is not repaid in full on or before the Maturity Date, then, from that point forward, the unpaid principal balance shall continue to bear interest after the Maturity Date at the Default Rate set forth in this Note until and including the date on which it is paid in full.

 

2.3          All parties hereto, whether Maker, principal, surety, guarantor or endorser, hereby waive demand, notice of demand, presentment for payment, notice of dishonor, protest and notice of protest.

 

3.           EXTENSION OPTION. Borrower has the right to renew this Loan for one additional six (6) month period (the “Extension Period”), provided there no defaults under the Loan at the date of such Extension. In order to exercise an extension option, Borrower must (i) deliver to Lender a request in writing at least sixty (60) days prior to original Maturity Date of the first Extension Period, as the case may be, (ii) pay a fee equivalent to three-quarters of one percent (0.75%) of the then outstanding principal balance of the Loan; and (iii) deliver any information reasonably requested by Lender in order to update its underwriting and (iv) other customary extension conditions set forth in the Loan Documents are satisfied.

 

 1 

 

 

4.             SECURITY INSTRUMENTS. This Note is secured by (a) a first lien securing a loan in the principal sum of $14,000,000.00 evidenced by that certain Deed of Trust and Assignment of Rents of even date herewith between Maker as Grantor and Payee as Lender therein, and those certain UCC Financing Statements to be filed in the Office of the Secretary of State of the State of Arizona and in the office of the Clerk and Recorder of Pima County, Arizona, (the “Security Instruments”) encumbering real properties located in State of Arizona, as more particularly described in the Security Instruments (the “Premises”) and (b) certain other instruments and agreements dated of even date herewith from Maker (or affiliates of Maker) to Payee or between Maker (or affiliates of Maker) and Payee (collectively such documents and agreements may be referred to herein as the “Loan Documents”). All of the terms, covenants, conditions and agreements contained in the Security Instruments and/or Loan Documents are hereby incorporated herein and made a part hereof.

 

5.           APPLICATION OF PAYMENTS: ESTABLISHMENT OF INTEREST RESERVE

 

5.1          On the date hereof Maker shall pay to Payee the sum of Three Hundred Four Thousand One Hundred Eleven and 52/100 Dollars ($304,111.52) (the “Initial Seasonality Interest Deposit”) which Initial Seasonality Interest Deposit shall be withheld from the proceeds of the Loan. The Deposit shall be held, subject to the terms hereof, by Payee in an account at a financial institution of Payee’s choosing, controlled by Payee and in Payee’s name for the benefit of Maker as an interest reserve and applied to the interest payable described in Section 2.1(b) above for the interest payments due on August 1, 2018, September 1, 2018 and October 1, 2018. Maker and Payee acknowledge that the interest payments due for the months of June, July and August of each year total Three Hundred Four Thousand One Hundred Eleven and 52/100 Dollars ($304,111.52) and that Maker shall deposit with Payee on or before March 31, 2019 and each March 31st thereafter while this Loan is outstanding, the sum of Three Hundred Four Thousand One Hundred Eleven and 52/100 Dollars ($304,11 1.52) (the “Seasonality Interest Reserve Deposit” and collectively with the Initial Seasonality Reserve Interest Deposit, the “Deposit”) in order to fund the interest payments due on July 1, August 1 and September 1 of each year of the term of this Loan.

 

5.2          Monthly installments of interest on the Loan shall be paid on each Payment Date and/or the Maturity Date, from the Deposit for the months of June, July and August until the same is exhausted, and for all other months directly by Maker. All payments received by Payee pursuant to this Note or the Loan Documents shall be applied first to late charges due under this Note or the Loan Documents, second to accrued interest at the rate then in effect under the terms hereof, and third to principal.

 

 2 

 

 

5.3          Following any Event of Default (as defined below), and unless and until such Event of Default is cured to Payee’s satisfaction (in Payee’s reasonable discretion), including but not limited to the payment of any advances, charges, costs or fees (including reasonable attorneys’ fees) incurred by Payee with regard thereto, each monthly installment hereunder shall be applied to the Indebtedness (as hereinafter defined) in such order and in such manner as Payee shall elect in Payee’s sole and absolute discretion. Payee may allocate any and all such payments to interest, principal and other fees and charges due hereunder or to any one or more of them, in such amount, priorities and proportions as the Payee may determine in its sole and absolute discretion in accordance with the terms hereof. It shall be a condition precedent to the disbursement of any portion of the Deposit that there shall be no Event of Default by Maker under the terms and conditions of the Note, the Security Instruments and/or any other document executed in connection with the Loan. Upon the occurrence of an Event of Default by Maker hereunder or under the terms and conditions of the Note, the Security Instruments or any other document executed in connection with the Loan, the Payee shall be entitled to apply the remaining portion of the Deposit to amounts then due and owing under the terms of the Note, the Security Instruments and/or any other document executed in connection with the Loan in such order as the Payee shall elect.

 

5.4          The Payee hereby acknowledges receipt of the Deposit from the Maker as of the date hereof and agrees to hold and disburse the same in accordance with the terms and conditions of this Note.

 

5.5          No interest shall be required to accrue or be payable by Payee to Maker on the Deposit. Maker hereby grants to Payee a first priority security interest in the Deposit.

 

5.6          The Payee shall be deemed to have exercised reasonable care in the custody and preservation of the Deposit by accounting for all money and things of value received by it upon or in respect thereof.

 

6.           DEFAULT AND ACCELERATION

 

6.1           It is hereby expressly agreed that (a) the whole of the principal sum of this Note, (b) interest, default interest, late charges, fees and other sums, as provided in this Note, (c) all other monies agreed or provided to be paid by Maker in this Note, the Security Instruments and/or any Loan Document, (d) all sums advanced pursuant to the Security Instruments and/or any Loan Document, and (e) all sums advanced and costs and expenses reasonably incurred by Payee in connection with the Indebtedness (as hereinafter defined) or any part thereof, any renewal, extension, or change of or substitution for the Indebtedness or any part thereof, or the acquisition or perfection of the security granted pursuant to the Security Instruments and/or any Loan Document, whether made or incurred at the request of Maker or Payee (the sums referred to in (a) through (e) above shall collectively be referred to as the “Indebtedness”) shall, WITHOUT NOTICE, become immediately due and payable at the option of the Payee or other holder hereof upon the happening of any of the following events (each, an “Event of Default”):

 

(a)           Maker fails to pay the monthly interest payment due to Payee within five (5) business days of the date due under Section 2.1(a) of this Note, or any other amount due under this Note where no due date is provided for, within five (5) business days after written demand therefor is made (however, no late payment of interest paid by Payee pursuant to the terms of Section 4 herein shall constitute an Event of Default under the terms of this Note, unless such late payment was caused by Maker and/or any of its principals or members with a managing interest);

 

 3 

 

 

(b)          Maker fails to pay any amount due and payable to Payee under the Security Instruments or any Loan Document within five (5) business days after written demand therefor is made;

 

(c)          Maker fails to keep, observe or perform any other promise, condition or agreement contained in this Note, the Security Instruments, any Loan Document or any other documents described herein or delivered in connection herewith or is otherwise in default under the terms, covenants and conditions of this Note, the Security Instruments, any Loan Document or any other documents described herein or delivered in connection herewith, and such failure or default is not remedied within thirty (30) days after written notice to Maker thereof, provided, however, that if such failure or default is not capable of being cured or remedied within said thirty (30) day period, then if Maker fails to promptly commence to cure the same and thereafter diligently prosecute such cure to completion in good faith, but in any event within ninety (90) days after written notice thereof;

 

(d)         There is a material misstatement in any certificate and/or certification delivered in connection with this Note, the Security Instruments or the Loan Documents, or any representation, disclosure, warranty, statement, financial information, application and/or other instrument, record, documentation or paper made or furnished by or on behalf of Maker in connection with this Note shall be materially misleading, untrue or incorrect;

 

(e)          A receiver, liquidator or trustee shall be appointed for Maker (or its sole member) or for any of such parties’ property, an assignment shall be made for the benefit of creditors of Maker (or its sole member), Maker (or its sole member) shall be adjudicated a bankrupt or insolvent, or any petition for bankruptcy, reorganization or arrangement pursuant to the Federal Bankruptcy Code, or any similar federal or state statute, shall be filed by or against Maker (or its sole member), unless such appointment, assignment, adjudication or petition was involuntary, in which event only if the same is not discharged, stayed or dismissed within ninety (90) days;

 

(f)          A final judgment for the payment of money which could materially adversely affect Maker’s ability to make payments under this Note shall be rendered against Maker (or its sole member) and such party shall not discharge the same or cause it to be discharged within sixty (60) days from the entry thereof, or shall not appeal therefrom or from the order, decree or process upon which or pursuant to which said judgment was granted, based or entered, within twenty (20) days, and thereafter to secure a stay of execution pending such appeal;

 

(g)          Maker (or its sole member) shall have concealed, removed and/or knowingly permitted to be concealed or removed any substantial part of its property and/or assets with the intent to hinder, delay or defraud Payee of any of its property and/or assets which may be fraudulent under any federal or state bankruptcy, fraudulent conveyance or similar law now or hereafter enacted, or if Maker (or its sole member) shall have made any transfer of any of its property and/or assets to or for the benefit of a creditor at a time when other creditors similarly situated have not been paid, or if Maker (or its sole member) shall have suffered or knowingly permitted to be suffered, while insolvent, any creditor to obtain a lien upon any of its property and/or assets through legal proceedings or distraint which is not vacated within sixty (60) days from the date of entry thereof;

 

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(h)          Any Guarantor of the obligations of Maker hereunder defaults under or attempts to withdraw, cancel or disclaim liability under any pledge, pledges, guaranty or guaranties given to Payee; or

 

(i)         Maker or any Guarantor defaults beyond any applicable notice and cure period under any other note, instrument, agreement, contract, pledge, mortgage or encumbrance evidencing and/or securing the Indebtedness or any other indebtedness of Maker or to Payee.

 

6.2          After the occurrence of an Event of Default, the Payee may accept any payments from the Maker without prejudice to the rights and remedies of the Payee provided herein or in the Security Instruments or the Loan Documents.

 

7.           FINANCIAL STATEMENTS AND RECORDS. Maker shall keep adequate books and records of account in accordance with generally accepted accounting practices consistently applied. Within ten (10) business days of Payee’s request and in any event not prior to 21 days after the end of each calendar month. Maker shall deliver or cause to be delivered to Payee unaudited Maker-prepared financial statements of Maker and any other Maker-prepared financial statement, report or other information Payee may reasonably require from time to time regarding Maker, and/or the Premises each certified by Maker to be true, correct and complete in all material respects. Without limitation, Payee acknowledges that Maker’s financial statements are typically available on or after the 21st day of the immediately succeeding calendar month. Maker authorizes Payee, at any time, prior to payment in full of the Indebtedness, or within one year following foreclosure of the Premises, to obtain any information that Payee may reasonably require, including credit information from other sources (such as credit reporting agencies), concerning Maker, the Premises, and any Guarantor, provided however, if Payee incurs costs in obtaining such information and no Event of Default has occurred. Payee shall bear such costs without reimbursement from Maker. In addition, Maker shall keep and maintain at all times complete and accurate books of account and records adequate to reflect correctly the results of the operation of the Premises and copies of all written contracts, leases (if applicable), and other documents which affect the Premises. Such books, records, contracts, lease and other documents shall be subject to examination, inspection and copying on reasonable notice at any reasonable time by Payee. All books, records, accounts and financial statements required hereunder shall be accurate and complete in all material respects, shall represent fairly the financial position of the Maker and/or the operation of the Premises. Unless waived in writing by Payee, Maker’s financial statements shall be prepared in accordance with generally accepted accounting principles consistently applied.

 

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8.           DEFAULT INTEREST/LATE CHARGES

 

8.1          Upon the occurrence of an Event of Default, then, from and after the date of the Event of Default, interest shall accrue on the unpaid principal sum and any other Indebtedness due and owing at a rate (the “Default Rate”) equal to the lesser of (a) twenty-four percent (24%) per annum computed from the date of the Event of Default until the date of actual repayment (including any post-judgment period), or (b) the highest rate permitted by law, computed from the date of the Event of Default until the date of actual repayment (including any post-judgment period). The Default Rate shall be computed from the date of the Event of Default until the earlier of the date upon which the Event of Default is cured or the date upon which the Indebtedness is paid in full. Interest calculated at the Default Rate shall be added to the Indebtedness, and shall be deemed secured by the Security Instruments. This clause, however, shall not be construed as an agreement or privilege to extend the date of the payment of the Indebtedness, nor as a waiver of any other right or remedy accruing to Payee by reason of the occurrence of any Event of Default.

 

8.2          If any payment (or part thereof, but excluding any maturity payment) provided for herein shall be made after ten (10) days from the applicable date due, a late charge of live percent (5%) of any payment not received on the 10th day of each month so overdue shall become immediately due and payable to the Payee and/or other holder of this Note as liquidated damages for failure to make prompt payment and the same shall be secured by the Security Instruments. Maker agrees that such late charge is to compensate the Payee for costs incurred in connection with the administration of such default, and does not constitute a penalty. Maker further acknowledges that such late charge is a reasonable amount in light of the anticipated harm caused by the default, the difficulties of proof of loss, and the inconvenience and difficulty of otherwise obtaining an adequate remedy. Such charge shall be payable in any event no later than the due date of the next subsequent installment or at the option of Payee, may be deducted from any deposits, including but not limited to the Deposit, held by Payee as additional security for this Note. Nothing herein is intended to or shall extend the due dates set forth for payments under this Note. Such late fee may be charged repeatedly, however, said late fee shall not be compounded on prior late fees, but rather, only on the amount outstanding exclusive of prior late fees. Notwithstanding anything to the contrary contained in this Section 8.2, no late charge shall be imposed: (a) as a result of Payee’s failure to timely apply all or portions of the Deposit as contemplated in this Note; and (b) on the first (1st) delinquent payment made by Maker during any consecutive twelve (12) month period, provided that such payment shall be received by Payee within ten (10) days following the applicable due date.

 

8.3          Should the Indebtedness or any part thereof be collected at law or in equity, or in bankruptcy, receivership or any collected at law or in equity, or in bankruptcy, receivership or any other court proceeding (whether at the trial or appellate level), or should this Note be placed in the hands of attorneys for collection under default. Maker agrees to pay, in addition to the principal, any late payment charge and interest due and payable hereunder, all reasonable and actual costs of collecting or attempting to collect the Indebtedness, including reasonable attorneys’ fees and expenses and court costs, regardless of whether any legal proceeding is commenced hereunder, together with interest thereon at the Default Rate from the date paid or incurred by Payee until such expenses are paid by Maker.

 

8.4          After the entry of a judgment and/or a foreclosure judgment, Payee shall have the right to continue to charge Maker and to increase the amount of the judgment for post-judgment reasonable attorneys’ fees and costs, post-judgment interest at the Default Rate provided for herein, real estate taxes, utilities, maintenance, security and other charges that may be incurred by Payee.

 

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8.5          Notwithstanding anything heretofore set forth to the contrary, in no event shall any interest payable under this Note exceed the maximum interest rate permitted under law or the rate that could subject Payee to either civil or criminal liability as a result of being in excess of the maximum interest rate that Maker is permitted by applicable law to contract or agree to pay. If by the terms of this Note, Maker is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of such maximum rate, the interest rate hereinabove set forth or the Default Rate, as the case may be, shall be deemed to be immediately reduced to such maximum rate and all previous payments in excess of the maximum rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Payee for the use, forbearance, or detention of the Indebtedness, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of this Note until payment in full so that the rate or amount of interest on account of the Indebtedness does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Indebtedness for so long as the Indebtedness is outstanding. Maker agrees to an effective rate of interest that is the rate stated herein plus any additional rate of interest resulting from any other charges in the nature of interest paid or to be paid by or on behalf of Maker, or any benefit received or to be received by Payee, in connection with this Note.

 

9.           WAIVERS

 

9.1          Maker and all parties who may become eligible for the payment of all or any part of the Indebtedness, whether principal, surety, guarantor, pledgor, or endorser, hereby waive demand, notice of demand, presentment for payment, notice of intent to accelerate maturity, notice of acceleration of maturity, notice of dishonor, protest, notice of protest and non-payment and all other notices of any kind, except for notices expressly provided for in this Note or the other Loan Documents.

 

9.2          The liability of any Maker, guarantor, pledgor or endorser shall be unconditional and shall not be in any manner affected by any indulgence whatsoever granted or consented to by the holder hereof, including, but not limited to any extension of time, renewal, waiver or other modification. No release of any security for the Indebtedness or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of this Note, the Security Instruments, or any other Loan Document shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Maker, and any other person or entity who may become liable for the payment of all or any part of the Indebtedness under this Note.

 

9.3          No notice to or demand on Maker shall be deemed to be a waiver of the obligation of Maker or of the right of Payee to take further action without further notice or demand on Maker as provided for in this Note. Any failure of the holder of this Note to exercise any right hereunder shall not be construed as a waiver of the right to exercise the same or any other right at any time and from time to time thereafter. The Payee or any holder may accept late payment, or partial payment, even though marked “payment in full” or containing words of similar import or other conditions, without waiving any of its rights. No amendment, modification or waiver of any provision of this Note nor consent to any departure by the Maker therefrom shall be effective, irrespective of any course of dealing, unless the same shall be in writing and signed by the Payee, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

 

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9.4          THE MAKER AND EACH ENDORSER AGREE THAT ANY ACTION, SUIT OR PROCEEDING IN RESPECT OF OR ARISING OUT OF THIS NOTE MAY BE INITIATED AND PROSECUTED IN THE STATE OR FEDERAL COURTS, AS THE CASE MAY BE, LOCATED IN THE COUNTY AND STATE IN WHICH THE PREMISES, OR ANY OF THEM, ARE LOCATED. THE MAKER AND EACH ENDORSER CONSENT TO AND SUBMIT TO THE EXERCISE OF JURISDICTION OVER THE SUBJECT MATTER, WAIVE PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT AND CONSENT THAT ALL SUCH SERVICE OF PROCESS BE MADE BY REGISTERED MAIL DIRECTED TO THE MAKER OR SUCH ENDORSER AT ITS ADDRESS SET FORTH ABOVE OR TO ANY OTHER ADDRESS AS MAY APPEAR IN THE PAYEE’S RECORDS AS THE ADDRESS OF THE MAKER OR SUCH ENDORSER.

 

9.5           IN ANY ACTION, SUIT, PROCEEDING OR COUNTERCLAIM IN RESPECT OF OR ARISING OUT OF THIS NOTE, THE MAKER AND EACH ENDORSER WAIVE TRIAL BY JURY, WHETHER SUCH ACTION, SUIT, PROCEEDING OR COUNTERCLAIM SHALL BE IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THIS NOTE OR ANY OTHER LOAN DOCUMENT, OR ANY ACTS OR OMISSIONS OF PAYEE, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY MAKER AND EACH ENDORSER, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE.

 

9.6          THE MAKER AND EACH ENDORSER ALSO WAIVE, ABSOLUTELY, UNCONDITIONALLY AND IRREVOCABLY (I) THE RIGHT TO INTERPOSE ANY CREDIT, DEFENSE, RIGHT OF RECOUPMENT, CROSSCLAIM, SET-OFF OR COUNTERCLAIM OF ANY NATURE OR DESCRIPTION, WITH RESPECT TO THE INDEBTEDNESS OR ANY OF THE LOAN DOCUMENTS OR THE OBLIGATIONS OF THE MAKER UNDER ANY OF THE LOAN DOCUMENTS, OR THE OBLIGATIONS OF ANY OTHER PERSON OR ENTITY RELATING TO ANY OF • THE LOAN DOCUMENTS OR OTHERWISE WITH RESPECT TO THE INDEBTEDNESS, IN ANY ACTION OR PROCEEDING BROUGHT BY THE PAYEE TO COLLECT THE INDEBTEDNESS, OR ANY PORTION THEREOF, OR TO ENFORCE, FORECLOSE AND/OR REALIZE UPON THE LIENS AND SECURITY INTERESTS OF THE PAYEE IN ANY SECURITY FOR THIS NOTE, EXCEPT FOR MANDATORY OR COMPULSORY COUNTERCLAIMS.

 

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10.          PREPAYMENT

 

10.1        Maker acknowledges that it is the intent of Payee that this Note not be paid prior to its maturity in order to afford Payee the benefit of the interest payments throughout the term.

 

10.2        Notwithstanding the foregoing, if Maker seeks the right to prepay this Note, and therefore, to induce Payee to accept the prepayment of this Note prior to maturity, Maker agrees to pay separate and additional consideration for the right to so pre-pay the Note in an amount equal to all accrued but unpaid interest hereunder through the date of such prepayment plus such additional amount as shall yield to Payee an amount equal to at least three (3) months of interest under this Note, taking into account interest payments previously made.

 

Notwithstanding anything in this Section 9 to the contrary, in the event that Payee has paid a minimum of three (3) months of interest payments on the Note, Maker may pay the Note in full or in part prior to the Maturity Date with no additional prepayment premium due.

 

11.          NOTICES. All notices to be given pursuant to this Note shall be in writing and sufficient if given by personal service, by guaranteed overnight delivery service, or by being mailed postage prepaid, by registered or certified mail, to the address of the parties first hereinabove set forth or to such other address as either party may request in writing from time to time. Any time period provided in the giving of any notice hereunder shall commence upon the date of personal service, the next business day after delivery to the guaranteed overnight delivery service, or three (3) days after any notices are deposited, postage prepaid, in the United States mail, certified or registered mail. Notices may be given by a party’s attorneys or agents with the same force and effect as though given by such party.

 

12.           USURY. Maker hereby represents that this loan is for commercial use and not for personal, family or household purposes. It is the specific intent of the Maker and Payee that this Note bear a lawful rate of interest, and if any court of competent jurisdiction should determine that the rate herein provided for exceeds that which is statutorily permitted for the type of transaction evidenced hereby, the interest rate shall be reduced to the highest rate permitted by applicable law, with any excess interest theretofore collected being applied against principal or, if such principal has been fully repaid, returned to Maker upon written demand.

 

13.          ALL DUE ON SALE, TRANSFER OR ENCUMBRANCE. In the event of a sale, transfer, assignment of Maker’s interest in or an unpermitted encumbrance upon the real property under the Deed of Trust, this Note shall immediately become all due and payable. A transfer shall include any unpermitted change of ownership in Maker.

 

14.          MISCELLANEOUS

 

14.1        Time shall be of the essence with respect to all provisions of this Note.

 

14.2        Maker represents that Maker has full power, authority and legal right to execute and deliver this Note, and that this Note constitutes the valid and binding obligations of Maker.

 

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14.3        Wherever pursuant to this Note it is provided that Maker pay any costs and expenses, such costs and expenses shall include, without limitation, Payee’s reasonable legal fees and disbursements. Maker shall pay to Payee on demand any and all reasonable expenses, including reasonable attorneys’ fees, incurred or paid by Payee in enforcing this Note and/or related to the repayment of this Note either on the Maturity Date or otherwise.

 

14.4        This Note cannot be changed, modified, amended, waived, extended, discharged or terminated orally or by estoppel or waiver, regardless of any claimed partial performance referable thereto, or by any alleged oral modification or by any act or failure to act on the part of Maker or Payee.

 

14.5        The agreements contained herein shall remain in full force and effect, notwithstanding any changes in the individuals or entities comprising Maker, and the term “Maker,” as used herein, shall include any alternate or successor entity, but any predecessor entity, and its partners or members, as the case may be, shall not thereby be released from any liability. Nothing in the foregoing shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in Maker which may be set forth in this Note, the Security Instruments or the Loan Documents.

 

14.6        Titles of articles and sections are for convenience only and in no way define, limit, amplify or describe the scope or intent of any provision hereof.

 

14.7        If any paragraph, clause or provision of this Note is construed or interpreted by a court of competent jurisdiction to be void, invalid or unenforceable, such voidness, invalidity or unenforceability will not affect the remaining paragraphs, clauses and provisions of this Note, which shall nevertheless be binding upon the parties hereto with the same effect as though the void or unenforceable part had been severed and deleted.

 

14.8        If more than one person is named in this Note as “Maker”, each obligation of Maker shall be the “joint and several” obligation of such party or entity.

 

14.9        Payee may by written instrument assign all or any portion of its rights and obligations under this Note (an “Assignment”) to one or more persons (each such assignee, as well as Payee prior to assignment of all of its rights and obligations hereunder, a “Lender”). Such assignment may be made without the consent of Maker provided that Payee provides a copy of such Assignment to Maker. Maker shall maintain at its office a copy of each Assignment delivered to it and a register for the recordation of the names and addresses of the Lenders, and the commitments of, and principal amounts (and stated interest) of the loans owing to, each Lender pursuant to the terms hereof from time to time (the “Register”). The entries in the Register shall be conclusive absent manifest error, and Maker and the Lenders shall treat each person whose name is recorded in the Register pursuant to the terms hereof as a Payee hereunder for all purposes of this Agreement. The Register shall be available for inspection by any Lender at any reasonable time and from time to time upon reasonable prior notice. Subject to the foregoing, the terms and provision of this Note shall be binding upon and inure to the benefit of Maker and Payee and their respective heirs, executors, legal representatives, successors, successors-in-title, and assigns, whether by voluntary action of the parties or by operation of law. As used herein, the terms “Maker” and “Payee” shall be deemed to include their respective heirs, executors, legal representative, successors, successors-in-title, and assigns, whether by voluntary action of the parties or by operation of law.

 

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14.10       All the terms and words used in this Note, regardless of the number and gender in which they are used, shall be deemed and construed to include any other number, singular or plural, and any other gender, masculine, feminine, or neuter, as the context or sense of this Note or any paragraph or clause herein may require, the same as if such work had been fully and properly written in the correct number and gender.

 

14.11       This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to conflicts of laws principles.

 

14.12       This Note may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement.

 

14.13       The provisions of Section 6.7 of the Security Instruments are hereby incorporated by reference into this Note to the same extent and with the same force as if fully set forth herein.

 

IN WITNESS WHEREOF, the undersigned has executed and delivered this Promissory Note as of the date set forth above.

 

MAKER:

 

TUCSON EAST HOLDING, LLC

 

By: TUCSON EAST MANAGER, LLC, Sole Manager
By: Caliber Hospitality, LLC, Sole Manager
By: Caliber Services, LLC, Sole Member Manager
By: Caliber Companies, LLC, Sole Member Manager
By: CaliberCos Inc, Sole Member Manager

 

By: /s/ Jennifer Schrader  

 

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SCHEDULE A

 

Description of Collateral

 

This financing statement covers the following types (or items) of property:

 

All of Debtor’s buildings, structures, improvements, fixtures, chattels and articles of personal property now owned or hereafter acquired and/or now or hereafter attached to or used in connection on the real property described in Exhibit A (the “Premises”), including but not limited to furnaces, boilers, oil burners, radiators and piping, coal stokers, plumbing and bathroom fixtures, refrigeration, heating, ventilating and air conditioning systems, sprinkler systems, power systems, washtubs, sinks, gas and electric fixtures, stoves, ranges, awnings, screens, window shades, elevators, motors, dynamos, refrigerators, kitchen cabinets, incinerators, cisterns, generators, plants and shrubbery and all other equipment and machinery, building materials and components, appliances, fittings, and fixtures of every kind in or used in the operation of the buildings standing or hereafter erected on any of the Premises, together with any and all replacements thereof and additions thereto, proceeds or products thereof (collectively, the “Equipment”), together with any and all right, title and interest of Mortgagor in and to any Equipment which may be subject to any security agreements, as defined in the Uniform Commercial Code (the “Code”) in effect in the State of Arizona (hereinafter, sometimes referred to as “Security Agreements”), superior in lien to the lien of this Mortgage, all of which are covered by this Mortgage, which shall also constitute a security agreement. The term “fixtures”, as used herein, means all items that are physically attached to buildings, including, without limitation, items such as equipment used to supply air conditioning, heat, gas, water, light, laundry, drying, dishwashing, garbage disposal and other services;

 

TOGETHER with all easements, rights-of-way or use, rights, strips and gores of land, streets, ways, alleys, passages, sewer rights, water, water courses, water rights and powers, air rights and development rights, and all estates, rights, titles, interests, privileges, liberties, servitudes, tenements, hereditaments and appurtenances of any nature whatsoever, in any way now or hereafter belonging, relating or pertaining to the Premises and the improvements and the reversion and reversions, remainder and remainders, and all land lying in the bed of any street, road or avenue, opened or proposed, in front of or adjoining the Premises, to the center line thereof and all the estates, rights, titles, interests, dower and rights of dower, curtesy and rights of curtesy, property, possession, claim and demand whatsoever, both at law and in equity, of Mortgagor of, in and to the Premises and the improvements and every part and parcel thereof, with the appurtenances thereto;

 

TOGETHER with all awards heretofore and hereafter made to Mortgagor for taking by eminent domain the whole or any part of the Land or any easement therein, including any awards for changes of grade of streets, which said awards are hereby assigned to Mortgagee, who is hereby authorized to collect and receive the proceeds of such awards and give proper receipts and acquittances therefor, and to apply the same toward the payment of the mortgage debt, notwithstanding the fact that the amount owing thereon may not then be due and payable; and Mortgagor hereby agrees, upon request, to make, execute, and deliver any and all assignments and other instruments sufficient for the purpose of assigning said awards to Mortgagee, free, clear and discharged of any encumbrances of any kind or nature whatsoever;

 

 

 

 

TOGETHER with the rents, income, issues and profits of all property covered by this Mortgage which are assigned to Mortgagee in accordance with the terms of this Mortgage. The term “rents, income, issues and profits” refer to any monies that Mortgagor may receive by using the Land for income producing purposes;

 

TOGETHER with all accounts, escrows, impounds, reserves, documents, instruments, chattel paper (whether tangible or electronic), claims, deposits and general intangibles, as the foregoing terms are defined in the Code, all promissory notes, and all franchises, trade names, trademarks, copyrights, symbols, service marks, books, records, recorded data of any kind or nature (regardless of the medium), plans, specifications, schematics, designs, drawings, permits, consents, licenses (including liquor licenses, to the extent assignable), license agreements, operating contracts, contract rights (including, without limitation, any contract with any architect or engineer or with any other provider of goods or services for or in connection with any construction, repair, or other work upon the Premises, improvements or Equipment) and all management, franchise, service, supply and maintenance contracts and agreements, and any other agreements, permits or contracts of any nature whatsoever now or hereafter obtained or entered into by or on behalf of Mortgagor with respect to the operation or ownership of the Premises, Improvements or Equipment, and all approvals, actions, refunds, rebates or reductions of real estate taxes and assessments (and any other governmental impositions related to the Premises, improvements or Equipment) resulting as a result of tax certiorari or any applications or proceeding for reduction; and all causes of action that now or hereafter relate to, are derived from or are used in connection with the Premises, Improvements or Equipment, or the use, operation, maintenance, occupancy or enjoyment thereof or the conduct of any business or activities thereon (hereinafter all of the items referred to collectively referred to as the “Intangibles”):

 

TOGETHER with all proceeds of the conversion, voluntary or involuntary, of any of the foregoing into cash or liquidated claims, including without limitation, proceeds of insurance and condemnation awards and all rights of Mortgagor to refunds of real estate taxes and assessments.

 

 

 

 

EXHIBIT A

 

Legal Description of Premises

 

Land is located in City of Tucson, County of Pima, State of AZ, and described as follows:

 

Parcel 1:

 

Lot 1, of the RESUBDIVISION OF BROADWAY PROPER, according to the plat of record in the office of the County Recorder of Pima County, Arizona, recorded in Book 39 of Maps, page 87.

 

Parcel 2:

 

A Reciprocal Easement, according to the terms and conditions contained within that certain Reciprocal Easement Agreement recorded September 13, 1985 in Docket 7618, page 886.

 

Parcel 3:

 

A Reciprocal Easement, according to the terms and conditions contained within that certain Reciprocal Access and Parking Easement Agreement recorded January 23, 1986 in Docket 7707 at page 1098.

 

Parcel 4:

 

An easement for Access over Common Area A, as set forth in the Dedication on the plat of RESUBDIVISION OF BROADWAY PROPER, according to the plat of record in the office of the County Recorder of Pima County, Arizona, recorded July 3, 1985 in Book 39 of Maps, page 87.

 

Commonly known as: 7600 E. Broadway Blvd., Tucson, AZ 85710

 

 

 EX1A-6 MAT CTRCT 8 filename8.htm

 

Exhibit 6.2.1

 

GUARANTY OF RECOURSE OBLIGATIONS

 

This GUARANTY OF RECOURSE OBLIGATIONS (as amended, restated, replaced, supplemented or otherwise modified from time to time, this “Guaranty”) dated as of June 29, 2018, is made by CHRIS LOEFFLER and JENNIFER SCHRADER, each an individual, having an address at 16704 North 78th Street, Scottsdale, AZ 852 (collectively, jointly and severally as “Guarantors”), in favor of CERCO CAPITAL INC, a Delaware corporation (“Payee”) at its office located at 251 Little Falls Drive, Wilmington, DE 19808 (the “Lender”).

 

WITNESSETH:

 

Pursuant to that certain Deed of Trust and Assignment of Rents and those UCC Financing Statements to be filed in the Office of the Secretary of State of the State of Delaware and in the office of the Clerk and Recorder of Pima County, Arizona, dated as of the date hereof (as the same may be amended, modified, supplemented or replaced from time to time, the “Security Instruments”) between TUCSON EAST HOLDING, LLC an Arizona limited liability company (“Borrower”) and Lender, and that certain Mortgage Note dated as of the date hereof (as the same may be amended, modified, supplemented or replaced from time to time, the “Note”) executed by Borrower in favor of Lender, Lender has agreed to make a loan to Borrower in the original principal amount of Fourteen Million and 00/100 Dollars ($14,000,000.00) (the “Loan”) subject to the terms and conditions of the Security Instruments;

 

As a condition to Lender’s making the Loan, Lender is requiring that Guarantors execute and deliver to Lender this Guaranty; and

 

Guarantors hereby acknowledge that Guarantors will materially benefit from Lender’s agreement to make the Loan.

 

NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrower and to extend such additional credit as Lender may from time to time agree to extend under the Loan Documents, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, the parties do hereby agree as follows:

 

Article 1
NATURE AND SCOPE OF GUARANTY

 

Section 1.1           Guaranty of Obligations. Guarantors hereby irrevocably and unconditionally guarantee to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise, subject to and in accordance with the limitations set forth in this Guaranty. Guarantors hereby irrevocably and unconditionally covenant and agree that it is liable for the Guaranteed Obligations as a primary obligor.

 

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Section 1.2           Definition of Guaranteed Obligations.

 

(a)          Guarantors hereby assume liability as a primary obligor for, hereby unconditionally guarantee payment to Lender of, hereby agree to pay, protect, defend and save Lender harmless from and against, and hereby indemnify Lender from and against, any and all actual liabilities, obligations, losses, damages (excluding punitive or exemplary damages or diminution in value of the Property), costs and expenses (including, without limitation, reasonable attorneys’ fees and costs), causes of action, suits, claims, demands and judgments, of any nature or description whatsoever, which may at any time be imposed upon, incurred by or awarded against Lender as a result of any of the following:

 

(i)          Any affirmative acts by Borrower or Guarantors resulting in the violation of any environmental laws;

 

(ii)         material physical waste resulting from Borrower or Guarantors’ gross negligence or willful misconduct except to the extent that: (a) the Property failed to generate sufficient cash flow after debt service, or Lender did not make such cash flow available to Borrower to remedy or avoid such waste; or (b) following a casualty or condemnation event, the insurance proceeds or condemnation awards are not sufficient or are not made available to Borrower to remedy or avoid such waste or, after the occurrence and during the continuance of an Event of Default, the removal or disposal of any portion of the Property by Borrower or Guarantors in violation of the terms and conditions set forth in the Loan Documents;

 

(iii)         the misapplication, misappropriation or conversion by Borrower of (A) any insurance proceeds paid by reason of any loss, damage or destruction to the Property, (B) any awards or other amounts received in connection with the Condemnation of all or a portion of the Property, or (C) any security deposits, advance deposits or any other deposits collected with respect to the Property (including the failure to deliver any such deposits to Lender upon a foreclosure of the Property or an action in lieu thereof, except to the extent any such deposits were applied in accordance with the terms and conditions of the applicable lease (any lease affecting the Property being defined herein as a “Lease”) prior to the occurrence of the Event of Default giving rise to such foreclosure or action in lieu thereof));

 

(iv)         [Intentionally Omitted];

 

(v)          the commission of a criminal act relating to the Property by Borrower, any Guarantor or, to the extent pursuant to the affirmative direction of Borrower and/or Guarantors, any of their respective agents;

 

(vi)         the amendment, modification, termination, or cancellation or acceptance of a surrender of any commercial lease in effect as of the date of this Guaranty (other than: (a) unilateral terminations or cancellation by the tenant thereunder in accordance with the express terms thereof as of the date hereof; and (b) amendments or modifications that: (1) do not diminish any material benefit accruing to the Borrower as landlord under the leases and do not reduce either the term, the rental or the size of the premises; (2) are made in the ordinary course of business; or (3) are made in conformance with commercially reasonable, prudent and sound business practice), or the waiver of any material terms or provisions of any lease, in each case without Lender’s prior written consent (not to be unreasonably withheld, conditioned or delayed);

 

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(vii)        Borrower enters into any without the consent of Lender or, after having entered into same with Lender’s consent any amendment, modification, termination, cancellation or acceptance of a surrender of any Lease, or the waiver of any of the terms or provisions of any Lease, in each case without Lender’s prior written consent other than: (a) unilateral terminations or cancellation by the tenant thereunder in accordance with the express terms thereof as of the date hereof; and (b) amendments or modifications that: (1) do not diminish any material benefit accruing to the Borrower as landlord under the leases and do not reduce either the term, the rental or the size of the premises; (2) are made in the ordinary course of business; or (3) are made in conformance with commercially reasonable, prudent and sound business practice;

 

(viii)       Borrower incurs new indebtedness without the prior written consent offender, except as and to the extent permitted by the Security Instruments; or

 

(ix)         in connection with the Loan or the Property (including, without limitation, any Lease), any Guarantor, any Affiliate of Guarantor or any of their respective agents or representatives, engages in any action constituting fraud, willful and material misrepresentation, gross negligence or willful misconduct.

 

(b)           In addition to, and without limiting the generality of, the foregoing clause (a), and notwithstanding anything to the contrary set forth in this Guaranty or in any of the other Loan Documents, Guarantors hereby acknowledge and agree that the Obligations shall be fully recourse to Guarantors in the event that:

 

(i)           Borrower files a voluntary petition under the Bankruptcy Code or any other federal, state, local or foreign bankruptcy or insolvency law;

  

(ii)          an Affiliate, officer, director or representative, but only to the extent any of the foregoing controls, directly or indirectly, Borrower or Guarantor, files, or joins in the filing of, an involuntary petition against any Borrower under the Bankruptcy Code or any other federal, state, local or foreign bankruptcy or insolvency law, or solicits or causes to be solicited petitioning creditors for any involuntary petition against any Borrower from any Person;

 

(iii)         Borrower or any Guarantor files an answer consenting to, or otherwise acquiescing in, or joining in, any involuntary petition filed against Borrower, by any other Person under the Bankruptcy Code or any other federal, state, local or foreign bankruptcy or insolvency law, or solicits or causes to be solicited petitioning creditors for any involuntary petition from any Person;

 

(iv)         any Affiliate, officer, director or representative, but only to the extent any of the foregoing controls any Borrower, consents to, or acquiesces in, or joins in, an application for the appointment of a custodian, receiver, trustee or examiner for Borrower or any portion of the Property (other than any action brought by Lender);

 

(v)          Borrower makes an assignment for the benefit of creditors; or

 

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(vi)        Borrower, any Guarantor (or any Person comprising any Borrower or any Guarantor), or any Affiliate of any of the foregoing, in connection with any enforcement action or exercise or assertion of any right or remedy by or on behalf of Lender under or in connection with the Note, the Security Instruments, this Guaranty or any other Loan Document, seeks a defense, judicial intervention or injunctive or other equitable relief of any kind or asserts in a pleading filed in connection with a judicial proceeding any defense against Lender or any right in connection with any security for the Loan, which is frivolous and brought in bad faith as finally determined by a court of competent jurisdiction. For avoidance of doubt, nothing contained herein is intended to prevent any of the parties identified in this section above from raising, in good faith, any defense to Lender’s exercise of its rights under the documents evidencing and securing the Loan and the Note (the “Loan Documents”) provided that in no event shall any of such parties seek to challenge the validity of the lien of any of the Security Instruments, the enforceability under applicable law of the Loan Documents taken as a whole or any action in violation of the provisions of the Borrower’s Certificate of Formation and Operating Agreement with respect to the preservation of its status as a single purpose entity and provisions forbidding its filing for or consenting or acquiescing to relief under federal or state bankruptcy or insolvency laws..

 

As used in this Section 1.2. the term “control” means the possession, directly or indirectly, of the power to direct or cause the direction of the management, policies or activities of a Person, whether through ownership of voting securities, by contract or otherwise.

 

(c)          The obligations of Guarantors set forth in clauses (a) and (b) of this Section 1.2. as and to the extent set forth in said clauses (a) and (b) of this Section 1.2. are hereinafter collectively referred to as the “Guaranteed Obligations”.

 

(d)          Notwithstanding anything to the contrary in this Guaranty or in any of the other Loan Documents, Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Guaranteed Obligations or to require that all collateral shall continue to secure all of the Guaranteed Obligations owing to Lender in accordance with the Loan Documents.

 

Section 1.3           Nature of Guaranty. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantors and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantors and after (if Guarantor is a natural person) any Guarantor’s death (in which event this Guaranty shall be binding upon Guarantor’s estate and Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced, pursuant to the Loan Documents, shall not release or discharge the obligation of Guarantors to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment, sale, pledge, transfer, participation or negotiation of all or part of the Note.

 

Section 1.4           Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantors to Lender hereunder shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower or any other party against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

 

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Section 1.5            Payment By Guarantor. If all or any part of the Guaranteed Obligations shall not be paid when due, whether at demand, maturity, acceleration or otherwise, Guarantor shall, within five (5) business days following demand by Lender and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity or any other notice whatsoever, all such notices being hereby waived by Guarantors, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof.

 

Section 1.6            No Duty To Pursue Others. It shall not be necessary for Lender (and Guarantors hereby waive any rights which Guarantors may have to require Lender), in order to enforce the obligations of Guarantors hereunder, first to (i) institute suit or exhaust its remedies against Borrower or others liable on the Loan or the Guaranteed Obligations or any other Person, (ii) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (iii) enforce Lender’s rights against any other guarantors of the Guaranteed Obligations, (iv) join Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (v) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (vi) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

 

Section 1.7            Waivers. To the extent permitted pursuant to applicable law. Guarantors agree to the provisions of the Loan Documents and hereby waive notice of (i) any advances made by Lender to Borrower under the Loan Documents, (ii) acceptance of this Guaranty, (iii) any amendment or extension of the Note, the Security Instruments, or any other Loan Document, (iv) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower’s execution and delivery of any promissory note or other document arising under the Loan Documents or in connection with the Property, (v) the occurrence of (A) any breach by Borrower of any of the terms or conditions of the Security Instruments or any of the other Loan Documents, or (B) an Event of Default, (vi) Lender’s transfer, sale, assignment, pledge, participation or disposition of the Guaranteed Obligations, or any part thereof, (vii) the sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (viii) protest, proof of non-payment or default by Borrower, or (ix) any other action at any time taken or omitted by Lender and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and/or the obligations hereby guaranteed.

 

Section 1.8            Payment of Expenses. In the event that Guarantors should breach or fail to timely perform any provisions of this Guaranty, Guarantors shall, immediately upon demand by Lender, pay Lender all actual and reasonable costs and expenses (including court costs and reasonable attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder, together with interest thereon at the Default Rate from the date requested by Lender until the date of payment to Lender. The covenant contained in this Section shall survive the payment and performance of the Guaranteed Obligations.

 

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Section 1.9            Effect of Bankruptcy. In the event that pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law or any judgment, order or decision thereunder, Lender must rescind or restore any payment or any part thereof received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantors by Lender shall be without effect and this Guaranty shall remain (or shall be reinstated to be) in full force and effect. It is the intention of Borrower and Guarantors that Guarantors’ obligations hereunder shall not be discharged except by Guarantors’ performance of such obligations and then only to the extent of such performance.

 

Section 1.10         Waiver of Subrogation. Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, until such time as the Loan has been paid in full and satisfied, Guarantors hereby unconditionally and irrevocably waive, release and abrogate any and all rights they may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating the Guarantors to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantors under or in connection with this Guaranty or otherwise.

 

Section 1.11         Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in any of the Borrower, as permitted under the Security Instruments.

 

Section 1.12         Payment of the Loan. Subject to any obligations that survive under this Guaranty or the Loan Documents, including, without limitation Section 6.14 hereunder, this Guaranty shall terminate upon payment of the Loan.

 

Article 2
EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTORS’ OBLIGATIONS

 

Guarantors hereby consent and agree to each of the following and agrees that Guarantors’ obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following and waives any common law, equitable, statutory or other rights (including without limitation rights to notice) which Guarantors might otherwise have as a result of or in connection with any of the following:

 

Section 2.1            Modifications/Sales. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Security Instruments, the other Loan Documents or any other document, instrument, contract or understanding between Borrower and Lender or any other parties pertaining to the Guaranteed Obligations, or any sale, assignment or foreclosure of the Note, the Security Instruments, or any other Loan Documents or any sale or transfer of the Property, or any failure of Lender to notify Guarantors of any such action.

 

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Section 2.2            Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor.

 

Section 2.3            Condition of Borrower or Guarantors. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of any Borrower, any Guarantor or any other Person at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of any Borrower or any Guarantor or any sale, lease or transfer of any or all of the assets of any Borrower or any Guarantor or any changes in the shareholders, partners or members, as applicable, of any Borrower or any Guarantor; or any reorganization of Borrower or Guarantor.

 

Section 2.4            Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations or any document or agreement executed in connection with the Guaranteed Obligations for any reason whatsoever, including without limitation the fact that (i) the Guaranteed Obligations or any part thereof exceeds the amount permitted by Legal Requirements, (ii) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (iii) the officers or representatives executing the Note, the Security Instruments, or the other Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (iv) the Guaranteed Obligations violate applicable usury laws, (v) the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from Borrower, (vi) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (vii) the Note, the Security Instruments, or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that Guarantors shall remain liable hereon regardless of whether Borrower or any other Person be found not liable on the Guaranteed Obligations or any part thereof for any reason.

 

Section 2.5           Release of Obligors. Any full or partial release of the liability of Borrower for the Guaranteed Obligations or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantors that Guarantors may be required to pay the Guaranteed Obligations in full without assistance or support from any other Person, and Guarantors have not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other Persons (including Borrower) will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other Persons (including Borrower) to pay or perform the Guaranteed Obligations.

 

Section 2.6           Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

 

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Section 2.7          Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including, without limitation, negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

 

Section 2.8           Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of any collateral, property or security, including, but not limited to, any neglect, delay, omission, failure or refusal of Lender (i) to take or prosecute any action for the collection of any of the Guaranteed Obligations, or (ii) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (iii) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

 

Section 2.9           Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantors that Guarantors are not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectibility or value of any of the collateral for the Guaranteed Obligations.

 

Section 2.10         Representation. The accuracy or inaccuracy of the representations and warranties made by Guarantors herein or by Borrower in any of the Loan Documents.

 

Section 2.11          Offset. The Note, the Guaranteed Obligations and the liabilities and obligations of the Guarantors to Lender hereunder shall not be reduced, discharged or released because of or by reason of any existing or future right of offset, claim or defense of Borrower against Lender, or any other party, or against payment of the Guaranteed Obligations, whether such right of offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

 

Section 2.12          Merger. The reorganization, merger or consolidation of any Borrower or any Guarantor into or with any other Person.

 

Section 2.13         Preference. Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws or for any reason Lender is required to refund such payment or pay such amount to Borrower or to any other Person.

 

Section 2.14         Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantors or increases the likelihood that Guarantors will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it being the unambiguous and unequivocal intention of Guarantors that Guarantors shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

 

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Article 3
REPRESENTATIONS AND WARRANTIES

 

To induce Lender to enter into the Loan Documents and to extend credit to Borrower, Guarantors jointly and severally represent and warrant to Lender as follows:

 

Section 3.1            Benefit. Guarantors are the owners of an indirect interest in Borrower, and have received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.

 

Section 3.2            Familiarity and Reliance. Guarantors are familiar with, and have independently reviewed books and records regarding, the financial condition of the Borrower and are familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however. Guarantors are not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

 

Section 3.3            No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce the Guarantor to execute this Guaranty.

 

Section 3.4           Legality. The execution, delivery and performance by Guarantors of this Guaranty and the consummation of the transactions contemplated hereunder do not and will not contravene or conflict with any law, statute or regulation whatsoever to which Guarantors are subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, charge, lien, or any contract, agreement or other instrument to which Guarantors are a party or which may be applicable to Guarantors. This Guaranty is a legal and binding obligation of Guarantors and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

 

Section 3.5            Survival. All representations and warranties made by Guarantors herein shall survive the execution hereof.

 

Article 4
SUBORDINATION OF CERTAIN INDEBTEDNESS

 

Section 4.1           Subordination of All Guarantors’ Claims. As used herein, the term “Guarantors’ Claims” shall mean all debts and liabilities of Borrower to Guarantors, whether such debts and liabilities now exist or are hereafter incurred or arise, and whether the obligations of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the Person or Persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantors. The Guarantors’ Claims shall include, without limitation, all rights and claims of Guarantors against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantors’ payment of all or a portion of the Guaranteed Obligations. So long as any portion of the Obligations or the Guaranteed Obligations remain outstanding, Guarantors shall not receive or collect, directly or indirectly, from Borrower or any other Person any amount upon the Guarantor Claims.

 

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Section 4.2            Claims in Bankruptcy. In the event of any receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceeding involving Guarantors as debtors, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantors’ Claims. Guarantors hereby assign such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligations, any dividend or payment which is otherwise payable to Guarantors and which, as between Borrower and Guarantors, shall constitute a credit against the Guarantors’ Claims, then, upon payment to Lender in full of the Guaranteed Obligations, Guarantors shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantors’ Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantors’ Claims.

 

Section 4.3            Payments Held in Trust. Notwithstanding anything to the contrary in this Guaranty, in the event that Guarantors should receive any funds, payments, claims or distributions which are prohibited by this Guaranty, Guarantors agree to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims and/or distributions so received except to pay them promptly to Lender, and Guarantors covenant promptly to pay the same to Lender.

 

Section 4.4            Liens Subordinate. Guarantors agree that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guarantors’ Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantors or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender, Guarantors shall not (i) exercise or enforce any creditor’s rights it may have against Borrower, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or the joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantors. The foregoing shall in no manner vitiate or amend, nor be deemed to vitiate or amend, any prohibition in the Loan Documents against Borrower or Guarantors transferring any of their assets to any Person other than Lender.

 

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Article 5
COVENANTS

 

Section 5.1           Covenants. Until all of the Obligations and the Guaranteed Obligations have been paid in full, Guarantors shall not sell, pledge, mortgage, encumber or otherwise transfer any material portion of its assets or any interest therein, on terms materially less favorable than would be obtained in an arms-length transaction.

 

Section 5.2           Prohibited Transactions. Guarantors shall not, at any time while a default in the payment of the Guaranteed Obligations has occurred and is continuing, enter into or effectuate any transaction with any Affiliate which would materially reduce the Net Worth of Guarantors, including sell, pledge, mortgage or otherwise transfer to any Person any of Guarantors’ material assets, or any interest therein. For purposes of this section, “Net Worth” shall mean, as of a give date, (X) the total assets of Guarantors as of such date less (y) Guarantors’ total liabilities as of such date.

 

Article 6
MISCELLANEOUS

 

Section 6.1           Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor any consent to any departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand.

 

Section 6.2           Notices. All notices, demands, requests, consents, approvals or other communications (any of the foregoing, a “Notice”) required, permitted or desired to be given hereunder shall be in writing and shall be sent by registered or certified mail, postage prepaid, return receipt requested, or delivered by hand or by reputable overnight courier, addressed to the party to be so notified at its address hereinafter set forth, or to such other addresses as such party may hereafter specify in accordance with the provisions of this Section 6.2. Any Notice shall be deemed to have been received: (a) three (3) days after the date such Notice is mailed, (b) on the date of delivery by hand if delivered during business hours on a Business Day (otherwise on the next Business Day), and (c) on the next Business Day if sent by an overnight commercial courier, in each case addressed to the parties as follows:

 

If to Lender: Cerco Capital Inc.
  251 Little Falls Drive
  Wilmington, Delaware
   
With a copy to: Fox Rothschild LLP
  997 Lenox Drive, Building 3
  Lawrenceville, New Jersey 08648
  Attention: Matthew H. Lubart, Esq.

 

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If to Guarantors: Chris Loeffler
  Jennifer Schrader
  16704 North 78th Street
  Scottsdale, Arizona 85260
   
With a copy to: Roxanne Veliz, Esq.
  Snell & Wilmer L.L.P.
  One South Church Street, Ste. 1500
  Tucson, Arizona 85701

 

Any party may change the address to which any such Notice is to be delivered by furnishing ten (10) days’ written notice of such change to the other parties in accordance with the provisions of this Section 6.2. Notices shall be deemed to have been given on the date set forth above, even if there is an inability to actually deliver any Notice because of a changed address of which no Notice was given or there is a rejection or refusal to accept any Notice offered for delivery. Notice for any party may be given by its respective counsel.

 

Section 6.3            Governing Law; Submission to Jurisdiction.

 

(a)           THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF ARIZONA, WITHOUT GIVING EFFECT TO CONFLICT OF LAWS PRINCIPALS AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, INDEMNITORS HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVE ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS. ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR GUARANTORS ARISING OUT OF OR RELATING TO THIS GUARANTY MAY, AT LENDER’S OPTION, BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE STATE OF ARIZONA AND GUARANTORS WAIVE ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND GUARANTORS HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING, GUARANTORS DOES HEREBY DESIGNATE AND APPOINT CALIBERCOS INC. AS AGENT FOR SERVICE OF PROCESS AT: 16704 N. 78™ STREET, SCOTTSDALE, AZ 85260

 

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AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON THEIR BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT, AND AGREE THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE MAILED OR DELIVERED TO IN ANY SUCH SUIT, ACTION OR PROCEEDING. GUARANTORS (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN ARIZONA (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN ARIZONA OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR. NOTHING CONTAINED HEREIN SHALL AFFECT THE RIGHT OF LENDER TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST BORROWER IN ANY OTHER JURISDICTIONS.

 

Section 6.4            Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

 

Section 6.5           Amendments. This Guaranty may be amended only by an instrument in writing executed by the party against whom such amendment is sought to be enforced.

 

Section 6.6           Parties Bound; Assignment; Joint and Several. This Guaranty shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, permitted assigns, heirs and legal representatives. Lender may sell, assign, pledge, participate, transfer or delegate, as applicable to one or more Persons all or a portion of its rights and obligations under this Guaranty in connection with any assignment, sale, pledge, participation or transfer of the Loan and the Loan Documents. Any assignee or transferee of Lender shall be entitled to all the benefits afforded to Lender under this Guaranty. Guarantors shall not have the right to delegate, assign or transfer its rights or obligations under this Assignment without the prior written consent of Lender, and any attempted assignment, delegation or transfer without such consent shall be null and void. If Guarantors consist of more than one Person or party, the obligations of each such Person or party shall be joint and several.

 

Section 6.7           Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

 

Section 6.8           Recitals. The recitals and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

 

Section 6.9           Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

 

 13 

 

 

Section 6.10          Rights and Remedies. If Guarantors become liable for any indebtedness owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantors. The exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

 

Section 6.11          Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF GUARANTORS AND LENDER WITH RESPECT TO GUARANTORS’ GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTORS AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTORS AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTORS AND LENDER.

 

Section 6.12          Waiver of Right To Trial By Jury. GUARANTORS HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE SECURITY INSTRUMENTS OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY GUARANTORS, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. LENDER IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER BY GUARANTOR.

 

 14 

 

 

Section 6.13           Cooperation. Guarantors acknowledge that Lender and its successors and assigns may (i) sell this Guaranty, the Note and the other Loan Documents to one or more investors as a whole loan, (ii) participate the Loan secured by this Guaranty to one or more investors, (iii) deposit this Guaranty, the Note and the other Loan Documents with a trust, which trust may sell certificates to investors evidencing an ownership interest in the trust assets, or (iv) otherwise sell the Loan or one or more interests therein to investors (the transactions referred to in clauses (i) through (iv) are hereinafter each referred to as “Secondary Market Transaction”). Guarantors shall reasonably cooperate with Lender in effecting any such Secondary Market Transaction; provided that such persons are bound by written confidentiality agreements protecting Guarantors’ financial information. Guarantors shall provide such information and documents relating to Guarantors, Borrower, the Property and any tenants of the Property as Lender may reasonably request in connection with such Secondary Market Transaction. In addition, Guarantors shall make available to Lender all information concerning its business and operations that Lender may reasonably request. Lender shall be permitted to share all such information with the investment banking firms, accounting firms, law firms and other third-party advisory firms involved with the Loan and the Loan Documents or the applicable Secondary Market Transaction provided that such parties sign a commercially reasonable confidentiality and non-disclosure agreement. Lender and all of the aforesaid third- party advisors and professional firms shall be entitled to rely on the information supplied by, or on behalf of. Guarantors in the form as provided by Guarantors. Lender may publicize the existence of the Loan in connection with its marketing for a Secondary Market Transaction or otherwise as part of its business development.

 

Section 6.14           Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by the Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantors’ obligations hereunder with respect to such payment shall be reinstated as though such payment had been due but not made at such time.

 

Section 6.15          Gender; Number; General Definitions. Unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, (a) words used in this Guaranty may be used interchangeably in the singular or plural form, (b) any pronouns used herein shall include the corresponding masculine, feminine or neuter forms, (c) the word “Borrower” shall mean “each Borrower and any subsequent owner or owners of the Property or any part thereof or interest therein (but only so long as Lender has a mortgage interest in such portion of the Property”, (d) the word “Lender” shall mean “Lender and any subsequent holder of the Note”, (e) the word “Note” shall mean “the Note and any other evidence of indebtedness secured by the Security Instruments, as amended, restated or otherwise modified”, (f) the word “Property” shall include any portion of the Property and any interest therein, and (g) the phrases “attorneys’ fees”, “legal fees” and “counsel fees” shall include any and all reasonable attorneys’, paralegal and law clerk fees and disbursements, including, but not limited to, fees and disbursements at the pre-trial, trial and appellate levels, incurred or paid by Lender in protecting its interest in the Property, the Leases and/or the Rents and/or in enforcing its rights hereunder.

 

[NO FURTHER TEXT ON THIS PAGE]

 

 15 

 

 

IN WITNESS WHEREOF, Guarantors have executed this Guaranty of Recourse Obligations as of the day and year first above written.

 

  GUARANTORS:
   
  /s/ Chris Loeffler
  CHRIS LOEFFLER, Individually
   
  /s/ Jennifer Schrader
  JENNIFER SCHRADER, Individually

 

 16 

 

 EX1A-6 MAT CTRCT 9 filename9.htm

 

Exhibit 6.3

 

PROMISSORY NOTE

 

by

 

44TH AND MCDOWELL HOLDING, LLC
47TH STREET PHOENIX AIRPORT, LLC
CHPH HOLDING, LLC
(Individually and collectively, Borrower)

 

in favor of

 

RCC REAL ESTATE, INC.

(Lender)

 

 

 

TABLE OF CONTENTS

 

 

    Page
     
ARTICLE 1. DEFINED TERMS 1
ARTICLE 2. PAYMENT TERMS 10
ARTICLE 3. ADDITIONAL PAYMENT PROVISIONS 12
ARTICLE 4. DEFAULT AND ACCELERATION 15
ARTICLE 5. DEFAULT INTEREST 15
ARTICLE 6. PREPAYMENT 15
ARTICLE 7. SECURITY 17
ARTICLE 8. SAVINGS CLAUSE 17
ARTICLE 9. LATE CHARGE 17
ARTICLE 10. NO ORAL CHANGE 18
ARTICLE 11. JOINT AND SEVERAL LIABILITY 18
ARTICLE 12. WAIVERS 18
ARTICLE 13. SECONDARY MARKET 18
ARTICLE 14. WAIVER OF TRIAL BY JURY 19
ARTICLE 15. EXCULPATION 19
ARTICLE 16. AUTHORITY 23
ARTICLE 17. APPLICABLE LAW 23
ARTICLE 18. SERVICE OF PROCESS 24
ARTICLE 19. COUNSEL FEES 25
ARTICLE 20. NOTICES 25
ARTICLE 21. MISCELLANEOUS 25
ARTICLE 22. INTEREST RATE CAP AGREEMENT 26
ARTICLE 23. EXTENSION OF MATURITY DATE 28
ARTICLE 24. ADVANCES GENERALLY 29
ARTICLE 25. EARN OUT ADVANCES 30
ARTICLE 26. PARTIAL RELEASES OF INDIVIDUAL PROPERTIES 31
ARTICLE 27. CONTRIBUTIONS AND WAIVERS 34

 

EXHIBITS

 

EXHIBIT A - FORM OF REQUEST

 

i 

 

 

PROMISSORY NOTE

 

$62,245,000.00 New York, New York
  September ___, 2018

 

FOR VALUE RECEIVED, 44TH AND MCDOWELL HOLDING, LLC, a Delaware limited liability company, 47TH STREET PHOENIX AIRPORT, LLC, a Delaware limited liability company, and CHPH HOLDING, LLC, a Delaware limited liability company, as makers, having their collective principal place of business at 8901 East Mountain View Road, Suite 150, Scottsdale, Arizona 85258 (individually and collectively, the “Borrower”), hereby unconditionally promises to pay to the order of RCC REAL ESTATE, INC., a Delaware corporation, as payee, having an address at 717 Fifth Avenue, 12th Floor, New York, New York 10022, and its successors and assigns (collectively, “Lender”), or at such other place as the holder of this Promissory Note (as the same may be amended, restated, supplemented, or otherwise modified from time to time, this “Note”) may from time to time designate in writing, the principal sum of SIXTY TWO MILLION TWO HUNDRED FORTY FIVE THOUSAND AND 00/100 DOLLARS ($62,245,000.00), in lawful money of the United States of America with interest thereon to be computed from the date of this Note at the Applicable Interest Rate (as defined below), and to be paid in accordance with the terms of this Note.

 

ARTICLE 1. DEFINED TERMS

 

For all purposes of this Note, except as otherwise expressly provided herein or unless the context clearly indicates a contrary intent:

 

“Acceptable Counterparty” shall mean a counterparty to the Interest Rate Cap Agreement that (a) has and shall maintain, until the expiration of the applicable Interest Rate Cap Agreement, a long-term unsecured debt rating of not less than “A-” by S&P and “A3” from Moody’s, which rating shall not include a “t” or otherwise reflect a termination risk, or (b) is otherwise acceptable to all Rating Agencies rating any Secondary Market Transaction as evidenced by written confirmation from all such Rating Agencies that such counterparty shall not cause a downgrade, withdrawal or qualification of the ratings assigned, or to be assigned, to the Securities or any class thereof in any Secondary Market Transaction.

 

“Adjusted Alternative Rate” shall mean the Substitute Index as such Substitute Index may change from time to time plus the Spread; provided, however, in no event shall the Substitute Index be deemed to be less than 1.92%.

 

“Adjusted LIBOR Rate” shall mean, with respect to any Interest Period, an interest rate per annum equal to the one-month LIBOR plus the Spread; provided, however, in no event shall LIBOR be deemed to be less than 1.92%.

 

“Allocated Loan Amount” shall mean, with respect to each Individual Property, the portion of the principal allocated to such Individual Property as set forth on Schedule A attached hereto and made a part hereof, as such amount shall increase by any applicable Earn Out Advance until the Loan is fully funded and the portion of the principal allocated to each Individual Property to such Individual Property is the Maximum Allocated Loan Amount.

 

 

 

“Annual Debt Service” shall mean (a) annualized interest based on the Applicable Interest Rate in effect at the time of calculation of Annual Debt Service and the unpaid principal at the date of calculation of Annual Debt Service, plus (b) principal amortization payments, if any, scheduled to become due on the twelve (12) consecutive Payment Dates (excluding the Maturity Date) following the date of calculation (or if fewer than twelve (12) Payment Dates remain (excluding the Maturity Date) the product of (i) twelve (12) and (ii) the principal amortization payment, if any, next due.

 

“Applicable Interest Rate” shall mean (a) from and including the date of this Note through the day immediately preceding the first Determination Date an interest rate per annum equal to 5.91%; and (b) from and including the first Determination Date and for each successive Interest Period through and including the Maturity Date, an interest rate per annum equal to (i) the Adjusted LIBOR Rate or (ii) the Adjusted Alternative Rate, if the Loan begins bearing interest at the Adjusted Alternative Rate in accordance with the provisions of Paragraph (b) of Article 3.

 

“Approved Appraisal” shall mean an M.A.I. appraisal acceptable to Lender prepared by a professional appraiser who is a member in good standing of the Appraisal Institute, which appraisal shall value the Property on an “as is” basis as of the date of such appraisal.

 

“Bankruptcy Code” shall mean Title 11 of the United States Code entitled “Bankruptcy”, as amended from time to time, and any successor statute or statutes and all rules and regulations from time to time promulgated thereunder, and any comparable foreign laws relating to bankruptcy, insolvency or creditors’ rights.

 

“Breakage Costs” shall mean any loss or expense which Lender sustains or incurs as a consequence of (a) any default by Borrower in payment of the principal of or interest on the Loan while bearing interest at the Adjusted LIBOR Rate, including, without limitation, any such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Adjusted LIBOR Rate, (b) any prepayment (whether voluntary or mandatory) of the Loan on a day that (i) is not a Payment Date, or (ii) is a Payment Date if Borrower did not give the prior written notice of such prepayment required pursuant to the terms of this Note, including, without limitation, such loss or expense arising from interest or fees payable by Lender to lenders of funds obtained by it in order to maintain the Adjusted LIBOR Rate hereunder and (c) the conversion (for any reason whatsoever, whether voluntary or involuntary) of the Applicable Interest Rate from the Adjusted LIBOR Rate to the Adjusted Alternative Rate on a date other than the Determination Date immediately following the last day of an Interest Period, including, without limitation, such loss or expenses arising from interest or fees payable or which would be payable by Lender to lenders of funds obtained by it in order to maintain the Adjusted LIBOR Rate hereunder.

 

“Business Day” shall mean any day other than Saturday, Sunday or any other day on which banks are authorized to close in the New York, New York.

 

2

 

 

“Cash Management Agreement” shall mean that certain Cash Management Agreement, dated as of the date hereof, by and among, Borrower, Lender, Wells Fargo Bank, National Association and Manager, as the same may be amended, restated, supplemented, or otherwise modified from time to time.

 

“Closing Date” shall mean the date hereof.

 

“Code” shall mean the U.S. Internal Revenue Code of 1986, as amended.

 

“Crowne Plaza Borrower” shall mean CHPH HOLDING, LLC, a Delaware limited liability company.

 

“Crowne Plaza Franchise Agreement” shall mean that certain License Agreement dated as of or around the date hereof by and between Holiday Hospitality Franchising, LLC and Crowne Plaza Borrower.

 

“Debt” shall have the meaning set forth in Article 4 hereof.

 

“Debt Service” shall mean, with respect to any particular period of time, scheduled interest payments due under this Note.

 

“Debt Service Coverage Ratio” shall mean a ratio for the applicable period in which: (a) the numerator is the Net Operating Income, without deduction for amounts paid to any reserves held by Lender, less reserve payments equal to the greater of (1) assumed reserve contributions in the aggregate equal to four percent (4%) of the gross revenue generated by the Property and (2) the actual FF&E Reserve contributions, as determined by Lender, and (b) the denominator is Annual Debt Service.

 

“Debt Yield” shall mean, as of any date of calculation, the ratio (expressed as a percentage) obtained by dividing the Net Operating Income during the twelve (12) month period ending one month prior to the date on which the Debt Yield is to be calculated by the outstanding principal balance of the Loan.

 

“Default” shall mean any event or circumstance which, with the passage of time or the giving of notice, shall constitute an Event of Default.

 

“Default Rate” shall have the meaning set forth in Article 5 hereof.

 

“Determination Date” shall mean the first day of the Interest Period for which the Applicable Interest Rate is being determined.

 

“Earn Out Advances” shall mean advance of the Loan as set forth in Article 24 herein.

 

“Earn Out Portion” shall have the meaning set forth in Article 24 herein.

 

“Event of Default” shall have the meaning set forth in the Security Instrument.

 

3

 

 

“Excluded Taxes” shall mean any of the following Income Taxes imposed on or with respect to a Lender or required to be withheld or deducted from a payment to a Lender, (a) Income Taxes imposed on or measured by net income (however denominated), including franchise taxes and branch profits taxes, in each case, (i) imposed as a result of such Lender being organized under the laws of, or having its principal office or its applicable lending office located in, the jurisdiction imposing such Income Tax (or any political subdivision thereof) or (ii) that are Income Taxes imposed as a result of a present or former connection between such Lender and the jurisdiction imposing such Income Tax (other than connections arising from such Lender having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction pursuant to or enforced any Loan Document, or sold or assigned an interest in any Loan or Loan Document), (b) U.S. federal withholding Income Taxes imposed on amounts payable to or for the account of such Lender with respect to an applicable interest in a Loan pursuant to a law in effect on the date on which (i) such Lender acquires such interest in the Loan (other than pursuant to an assignment request by the Borrower) or (ii) such Lender changes its lending office, except in each case to the extent that, pursuant to Section 3(d), amounts with respect to such Income Taxes were payable either to such Lender's assignor immediately before such Lender became a party hereto or to such Lender immediately before it changed its lending office, (c) Income Taxes attributable to such Lender’s failure to comply with Section 21(c), and (d) any U.S. federal withholding Income Taxes imposed under FATCA.

 

“Exit Fee” shall mean an amount equal to one quarter of one percent (0.25%) of the original principal amount of this Note, determined as of the date such amount is due and payable under this Note.

 

“Extended Maturity Date” shall mean the First Extended Maturity Date if the First Extension Option is effectuated in accordance with Article 23 hereof, or the Second Extended Maturity Date if the Second Extension Option is effectuated in accordance with Article 23 hereof.

 

“Extension Fee” shall mean (a) in connection with Borrower’s exercise of the First Extension Option, an amount equal to one quarter of one percent (0.25%) of the outstanding principal amount of this Note, determined as of the Initial Maturity Date, or (b) in connection with Borrower’s exercise of the Second Extension Option, an amount equal to one half of one percent (0.50%) of the outstanding principal amount of this Note, determined as of the First Extended Maturity Date.

 

“Extension Option” shall have the meaning set forth in Article 23 hereof.

 

“Extension Term” shall mean the period from the Initial Maturity Date to and including the First Extended Maturity Date (hereinafter defined) if the First Extension Option is effectuated in accordance with Article 23 hereof, and the period from the First Extended Maturity Date to and including the Second Extended Maturity Date (hereinafter defined) if the Second Extension Option is effectuated in accordance with Article 23 hereof.

 

4

 

 

“FATCA” shall mean Sections 1471 through 1474 of the Code, as of the date of this Note (or any amended or successor version that is substantively comparable and not materially more onerous to comply with), any current or future regulations promulgated thereunder or official administrative interpretations thereof, any applicable agreement entered into pursuant to Section 1471(b)(1) of the Code, and any applicable intergovernmental agreement with respect thereto.

 

“FF&E Reserve” shall have the meaning set forth in the Reserve and Security Agreement.

 

“First Extension Monthly Amortization Payment” shall mean the required payment on a Payment Date to Lender of principal in an amount determined by Lender based upon (i) a thirty (30) year amortization schedule, (ii) an interest rate equal to the Applicable Interest Rate in effect for the Interest Period ending on the day preceding such Payment Date, and (iii) the outstanding principal balance of the Loan in effect on the immediately preceding Payment Date.

 

“First Extension Option” shall have the meaning set forth in Article 23 hereof.

 

“First Extension Term” shall mean the period from the Initial Maturity Date to and including the First Extended Maturity Date if the First Extension Option is effectuated in accordance with Article 23 hereof.

 

“Fitch” shall mean Fitch, Inc.

 

“Franchise Agreement” shall mean, collectively, (i) the Crowne Plaza Franchise Agreement, (ii) the Hilton Franchise Agreement, and (iii) the Holiday Inn Franchise Agreement.

 

“Governmental Authority” shall mean any court, board, agency, commission, office or authority of any nature whatsoever for any governmental unit (federal, state, county, district, municipal, city or otherwise) whether now or hereafter in existence.

 

“Guarantor” shall mean CaliberCos, Inc., a Delaware corporation, Jennifer Schrader, John C. Loeffler, II, Frank Heavlin, and Replacement Guarantor, and any replacement guarantor approved by Lender.

 

“Hilton Borrower” shall mean 47TH STREET PHOENIX AIRPORT, LLC, a Delaware limited liability company.

 

“Hilton Franchise Agreement” shall mean that certain Franchise Agreement dated as of or around the date hereof by Hilton Franchise LLC, a Delaware limited liability company and Hilton Borrower.

 

“Holiday Inn Borrower” shall mean 44TH AND MCDOWELL HOLDING, LLC, a Delaware limited liability company.

 

5

 

 

“Holiday Inn Franchise Agreement” shall mean that certain License Agreement dated June 30, 2015 by Holiday Hospitality Franchising, LLC (formerly known as Holiday Hospitality Franchising, Inc.) and Holiday Inn Borrower.

 

“Income Taxes” shall mean all present or future taxes, levies, imposts, duties, deductions, withholdings (including backup withholding), assessments, fees or other charges imposed by any Governmental Authority, imposed on or with respect to any payment made by or on account of any obligation of Borrower with respect to any Loan or under any Loan Document, including any interest, additions to tax or penalties applicable thereto.

 

“Indemnified Taxes” shall mean Income Taxes, other than Excluded Taxes.

 

“Individual Property” shall mean each discrete portion of the Property referenced on Schedule A attached hereto and made a part hereof, and the term “Individual Borrower” as used herein shall mean each discrete entity which together are collectively defined as “Borrower” herein.

 

“Initial Advance” shall mean the advance of the Loan made on the Closing Date, in the amount of FIFTY SIX MILLION FOUR HUNDRED SEVENTY THOUSAND AND 00/100 DOLLARS ($56,470,000.00).

 

“Initial Maturity Date” shall mean October 5, 2021.

 

“Interest Period” shall mean, in connection with the calculation of interest accrued with respect to any specified Payment Date, one month periods commencing on the Payment Date occurring in the immediately preceding calendar month and ending on the day immediately preceding the subject Payment Date; provided, however, the Interest Period for the payment to be made in accordance with Section 2(a)(i) hereof shall be the period commencing on the Closing Date, and ending on the calendar day preceding the first Payment Date.

 

“Interest Rate Cap Agreement” shall mean, collectively, one or more interest rate protection agreements (together with the confirmation and schedules relating thereto) acceptable to Lender, between an Acceptable Counterparty and Borrower obtained by Borrower as and when required pursuant to Article 22 hereof, as the same may be amended, restated, supplemented, or otherwise modified from time to time. After delivery of a Replacement Interest Rate Cap Agreement to Lender, the term “Interest Rate Cap Agreement” shall be deemed to mean such Replacement Interest Rate Cap Agreement and such Replacement Interest Rate Cap Agreement shall be subject to all requirements applicable to the Interest Rate Cap Agreement.

 

“IRS” shall mean the U.S. Internal Revenue Service.

 

“Last Advance Date” shall mean April 5, 2021.

 

6

 

 

“LIBOR” shall mean, with respect to each Interest Period, the rate determined by Lender to be (i) the per annum rate for deposits in U.S. dollars for a period equal to the applicable Interest Period, which appears on the Reuters Screen LIBOR01 (or any successor thereto) as the London Interbank Offering Rate as of 11:00 a.m., London time, on the day that is two (2) London Business Days prior to that respective Interest Period’s Determination Date (rounded upwards, if necessary, to the nearest 1/100 of 1%); (ii) if such rate does not appear on said Reuters Screen LIBOR01, the arithmetic mean (rounded as aforesaid) of the offered quotations of rates obtained by Lender from the Reference Banks for deposits in U.S. dollars for a period equal to the applicable Interest Period to prime banks in the London interbank market as of approximately 11:00 a.m., London time, on the day that is two (2) London Business Days prior to that Determination Date and in an amount that is representative for a single transaction in the relevant market at the relevant time; or (iii) if fewer than two (2) Reference Banks provide Lender with such quotations, the rate per annum which Lender determines to be the arithmetic mean (rounded as aforesaid) of the offered quotations of rates which major banks in New York, New York selected by Lender are quoting at approximately 11:00 a.m., New York City time, on the Determination Date for loans in U.S. dollars to leading European banks for a period equal to the applicable Interest Period in amounts of not less than U.S. $1,000,000.00. Lender’s determination of LIBOR shall be binding and conclusive on Borrower absent manifest error. LIBOR may or may not be the lowest rate based upon the market for U.S. Dollar deposits in the London Interbank Eurodollar Market at which Lender prices loans on the date which LIBOR is determined by Lender as set forth above.

 

“Loan” shall mean the loan made by Lender to Borrower in the original principal amount set forth in, and evidenced by, this Note.

 

“Loan Documents” shall have the meaning set forth in Article 7 hereof.

 

“Loan to Value Ratio” shall mean, as of any date of determination, the ratio of the then outstanding principal balance of the Loan to the then current value of the Individual Properties that are not being released and have not previously been released, as determined by Lender or, in Lender’s discretion as determined by a new Approved Appraisal.

 

“London Business Day” shall mean any day other than a Saturday, Sunday or any other day on which commercial banks in London, England are not open for business.

 

“Manager” shall mean Heavlin Management Company, LLC, an Arizona limited liability company or such other property manager with respect to the Property approved by Lender.

 

“Maturity Date” shall mean the Initial Maturity Date, the First Extended Maturity Date if the First Extension Option is effectuated in accordance with the terms of Article 23 hereof, the Second Extended Maturity Date if the Second Extension Option is effectuated in accordance with the terms of Article 23 hereof, or such other date on which the outstanding principal balance of this Note, accrued interest and all other sums payable under this Note and the other Loan Documents becomes due and payable, as herein or therein provided, whether at such stated maturity date, by acceleration or otherwise.

 

7

 

 

“Maximum Allocated Loan Amount” shall mean, with respect to each Individual Property, the portion of the principal allocated to such Individual Property as set forth on Schedule A attached hereto and made a part hereof.

 

“Moody’s” shall mean Moody’s Investors Service, Inc.

 

“Net Operating Income” means (A) all receipts, revenues, income and proceeds of sales or services of every kind received by Borrower or Manager (on behalf of Borrower), directly or indirectly, from operating the Property for the twelve (12) full calendar months immediately prior to the month of the date of determination, calculated on an accrual basis in accordance with GAAP and the Uniform System, whether in cash or on credit, including but not limited to (i) all Rent, expense pass-throughs, fees and service charges to tenants, subtenants, licensees or other occupants of commercial or retail space in the Property including lease termination fees, revenues from the use or rental of guest rooms and suites and conference and banquet rooms, revenues from food and beverage service and facilities, including off-site catering, telephone services, guest laundry services, vending, including mini-bars, television, recreational and health club facilities and parking in the Property and other fees and charges resulting from the operations of the Property by Borrower or Manager in the ordinary course of business, and (ii) deposits forfeited and not refunded (“Gross Income”), less (B) all Operating Expenses (as defined in the Cash Management Agreement) for the twelve (12) month period immediately prior to the date of determination and any Extraordinary Expenses approved by Lender and applicable to such twelve (12) month period.

 

“Officer’s Certificate” shall mean a certificate delivered to Lender by Borrower which is signed by an authorized officer of the general partner or managing member of Borrower.

 

“Partial Prepayment Exit Fee” shall mean an amount equal to one quarter of one percent (0.25%) of the principal amount being prepaid.

 

“Payment Date” shall mean the fifth (5th) day of the second full calendar month following the date hereof, and the fifth (5th) day of each and every month thereafter until and including the Maturity Date, or if such day is not a Business Day, the immediately preceding Business Day.

 

“Person” shall mean any individual, corporation, partnership, joint venture, limited liability company, estate, trust, unincorporated association, any Federal, state, county or municipal government or any bureau, department or agency thereof and any fiduciary acting in such capacity on behalf of any of the foregoing.

 

“Prepayment Consideration” shall have the meaning set forth in Article 6 hereof.

 

“Property” shall have the meaning set forth in Article 7 hereof.

 

“Property Refinance” shall have the meaning set for in Article 26 hereof.

 

“Property Sale” shall have the meaning set forth in Article 26 hereof.

 

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“Rating Agencies” shall mean each of S&P, Moody’s and Fitch, or any other nationally recognized statistical rating agency which has been approved by Lender.

 

“Reference Banks” shall mean four major banks in the London interbank market selected by Lender.

 

“Refinance Request” shall mean a written request submitted to Lender for the release relating to a Property Refinance.

 

“Release Price” shall mean, with respect to each Individual Property (A) identified in a Sale Request, an amount equal to the greater of (i) one hundred twenty-five percent (125%) of the Allocated Loan Amount applicable to such Individual Property or (ii) ninety percent (90%) of proceeds from the sale, or (B) identified in a Refinance Request, an amount equal to the greater of (i) one hundred percent (100%) of the refinancing proceeds or (ii) one hundred twenty-five percent (125%) of the Allocated Loan Amount applicable to such Individual Property.

 

“Replacement Guarantor” shall have the meaning set forth in the Guaranty.

 

“Replacement Interest Rate Cap Agreement” shall mean, collectively, one or more interest rate protection agreements, acceptable to Lender, from an Acceptable Counterparty, with terms identical to the Interest Rate Cap Agreement except that the same shall be effective as of the date required in Article 22 hereof; provided that to the extent any such interest rate protection agreements do not meet the foregoing requirements, a “Replacement Interest Rate Cap Agreement” shall be such interest rate protection agreements approved in writing by Lender, in each case, as the same may be amended, restated, supplemented, or otherwise modified from time to time.

 

“Request” shall mean Borrower’s written request for an Earn Out Advance, substantially in a form specified or otherwise approved by Lender.

 

“Reserve Agreement” shall mean that certain Reserve and Security Agreement, dated as of the date hereof, by and between Borrower and Lender, as the same may be amended, restated, supplemented, or otherwise modified from time to time.

 

“Reuters Screen LIBOR01 Page” shall mean the display designated as "Reuters Screen LIBOR01 Page" on the Reuters service (or such other page as may replace LIBOR01 Page on that service or such other service as may be nominated by the British Bankers’ Association as the information vendor for the purpose of displaying British Bankers’ Association Interest Settlement Rates for U.S. Dollar deposits).

 

“S&P” shall mean Standard & Poor’s Ratings Group, a division of the McGraw-Hill Companies.

 

“Second Extended Maturity Date” shall have the meaning set forth in Article 23 hereof.

 

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“Second Extension Monthly Amortization Payment” shall mean a required payment on a Payment Date to Lender of principal in an amount determined by Lender based upon (i) a twenty-five (25) year amortization schedule, (ii) an interest rate equal to the Applicable Interest Rate in effect for the Interest Period ending on the day preceding such Payment Date, and (iii) the outstanding principal balance of the Loan in effect on the immediately preceding Payment Date.

 

“Second Extension Option” shall have the meaning set forth in Article 23 hereof.

 

“Second Extension Term” shall mean the period from the First Extended Maturity Date to and including the Second Extended Maturity Date if the Second Extension Option is effectuated in accordance with Article 23 hereof.

 

“Security Instrument” shall have the meaning set forth in Article 7 hereof.

 

“Spread” shall mean 3.75%.

 

“Strike Price” shall mean 4.00%.

 

“Substitute Index” shall mean any verifiable rate index selected by Lender from time to time that is beyond the control of Lender that in Lender’s sole judgment adequately reflects Lender’s cost of funds to fund or maintain the Loan. At Lender’s sole election the Substitute Index may consist of the highest rate actually paid by Lender to any financial institution with whom Lender has entered into a repurchase agreement or other contractual arrangement to provide funds in order to enable Lender to fund or maintain the Loan.

 

“Uniform System” shall mean the Uniform System of Accounts for the Lodging Industry (Eleventh Revised Edition).

 

“U.S. Person” shall mean a “United States person” under Section 7701(a)(30) of the Code.

 

“Working Day” shall mean any day on which dealings in foreign currencies and exchange are carried on in London, England and in New York, New York.

 

All capitalized terms not otherwise defined herein shall have the meanings ascribed to such terms in the Security Instrument. Whenever used, the singular number shall include the plural, the plural number shall include the singular, and the words “Lender” and “Borrower” shall include their respective successors, assigns, heirs, executors and administrators.

 

ARTICLE 2. PAYMENT TERMS

 

(a)           Borrower agrees to pay sums under this Note in installments as follows:

 

(i)           A payment on the date hereof of all interest that will accrue on the Initial Advance from and after the date hereof through and including the fourth (4th) calendar day of the first full calendar month following the date hereof;

 

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(ii)          A monthly payment of interest only on each Payment Date; plus

 

(iii)         in addition to each monthly payment of interest, in the event the First Extension Option is effectuated in accordance with Article 23 hereof, a monthly payment of principal in the amount of the First Extension Monthly Amortization Payment on each Payment Date during the First Extension Term; plus

 

(iv)         in addition to each monthly payment of interest, in the event the Second Extension Option is effectuated in accordance with Article 23 hereof, a monthly payment principal in the amount of Second Extension Monthly Amortization Payment on each Payment Date during the Second Extension Term; and

 

(v)          The outstanding principal balance of this Note, all interest accrued thereon, and all other sums due and payable under this Note and the Loan Documents, together with the Exit Fee shall be due and payable on the Maturity Date.

 

(b)           Except as otherwise specifically provided herein, all payments and prepayments under this Note shall be made to Lender not later than 2:00 P.M., New York City time, on the date when due and shall be made in lawful money of the United States of America in immediately available funds at Lender’s office or as otherwise directed by Lender, and any funds received by Lender after such time shall, for all purposes hereof, be deemed to have been paid on the next succeeding Business Day. Interest on the principal sum of this Note shall be calculated at the Applicable Interest Rate on the basis of a three hundred sixty (360) day year based on the actual number of days elapsed. In computing the number of days during which interest accrues, the day on which funds are initially advanced shall be included regardless of the time of day such advance is made, and the day on which funds are repaid shall be included unless repayment is credited prior to close of business. All payments required to be made by Borrower hereunder or under the Security Instrument or the other Loan Documents shall be made irrespective of, and without deduction for, any setoff, claim or counterclaim and shall be made irrespective of any defense thereto.

 

(c)           For purposes of this Note, if the Payment Date in a given month shall not be a Business Day, then, for purposes of determining the date on which Borrower is required to make any payment due hereunder and the date on which Lender is required to make any Advance hereunder, but not the accrual of interest, the Payment Date for such month shall be the immediately preceding Business Day.

 

(d)           In the event that at any time any payment received by Lender hereunder shall be deemed by a court of competent jurisdiction to have been a voidable preference or fraudulent conveyance under any bankruptcy, insolvency or other debtor relief law, then the obligation to make such payment shall survive any cancellation or satisfaction of this Note or return thereof to Borrower and shall not be discharged or satisfied with any prior payment thereof or cancellation of this Note, but shall remain a valid and binding obligation enforceable in accordance with the terms and provisions hereof, and such payment shall be immediately due and payable upon demand.

 

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ARTICLE 3. ADDITIONAL PAYMENT PROVISIONS

 

(a)           Interest shall be charged and payable on the outstanding principal amount of the Loan at a rate per annum equal to the Applicable Interest Rate, but in no event shall such rate exceed the maximum rate permitted under applicable law. Subject to the terms and conditions of Section 3(b) below, Borrower shall pay interest on the outstanding principal amount of the Loan at the Applicable Interest Rate for the applicable Interest Period. Any change in the Applicable Interest Rate due to a change in the Alternative Adjusted Rate shall become effective as of the opening of business on the first day on which such change in the Alternative Adjusted Rate shall become effective. Each determination by Lender of the Applicable Interest Rate shall be conclusive and binding for all purposes, absent manifest error.

 

(b)           In the event that Lender shall have reasonably determined (which determination shall be conclusive and binding upon Borrower absent manifest error) that by reason of circumstances affecting the interbank eurodollar market, U.S. dollar deposits, in an amount approximately equal to the outstanding principal balance of the Loan, are not generally available at such time in the interbank eurodollar market or that adequate and reasonable means do not exist for ascertaining LIBOR, then Lender shall forthwith give notice by telephone of such determination, confirmed in writing, to Borrower at least one (1) day prior to the last day of the then current Interest Period. If such notice is given, the Loan shall bear interest at the Adjusted Alternative Rate beginning on the first day of the next succeeding Interest Period.

 

(c)           If, pursuant to the terms of this Note, the Loan is bearing interest at the Adjusted Alternative Rate and Lender shall reasonably determine (which determination shall be conclusive and binding upon Borrower absent manifest error) that the event(s) or circumstance(s) which resulted in such conversion shall no longer be applicable, Lender shall give notice thereof to Borrower by telephone of such determination, confirmed in writing, to Borrower at least one (1) day prior to the last day of the then current Interest Period. If such notice is given, the Loan shall bear interest at the Adjusted LIBOR Rate beginning on the first day of the next succeeding Interest Period. Notwithstanding any provision of this Note to the contrary, in no event shall Borrower have the right to elect to have the Loan bear interest at either the Adjusted LIBOR Rate or the Adjusted Alternative Rate.

 

(d)           All payments made by Borrower hereunder shall be made free and clear of, and without any deduction or withholding for or on account of any Income Taxes, except as required by applicable law. If any Income Taxes are required to be withheld by Borrower from any amounts payable to Lender hereunder, the Borrower shall withhold such amounts and timely pay over the full amount deducted or withheld to the relevant Governmental Authority in accordance with applicable law, and to the extent such Income Taxes are Indemnified Taxes, then the sum payable by Borrower shall be increased as necessary so that after such deduction or withholding has been made (including such deductions and withholdings applicable to additional sums payable under this Section 3(d)) Lender receives an amount equal to the sum it would have received had no such deduction or withholding been made. Whenever any Income Tax is payable pursuant to applicable law by Borrower, as promptly as possible thereafter, Borrower shall send to Lender an original official receipt, if available, or certified copy thereof, or such other evidence of payment reasonably acceptable to Lender, showing timely payment in full of such Income Tax. Borrower shall indemnify Lender, within 10 days after demand therefor, for the full amount of any Indemnified Taxes (including Indemnified Taxes imposed or asserted on or attributable to amounts payable under this Section 3.2(d)) payable or paid by Lender or required to be withheld or deducted from a payment to Lender and any reasonable expenses arising therefrom or with respect thereto, whether or not such Indemnified Taxes were correctly or legally imposed or asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability delivered to Borrower by Lender shall be conclusive absent manifest error.

 

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(e)           If any requirement of law or any change therein, or in the interpretation or application thereof, shall hereafter make it unlawful for Lender in good faith to make or maintain the Loan bearing interest at the Adjusted LIBOR Rate, (i) any obligation of Lender hereunder to make the Loan bearing interest at the Adjusted LIBOR Rate shall be canceled forthwith and (ii) the Loan shall automatically bear interest at the Adjusted Alternative Rate on the next succeeding Interest Period or within such earlier period as required by law. Borrower hereby agrees promptly to pay Lender, upon demand, any additional amounts necessary to compensate Lender for any costs incurred by Lender in making any conversion in accordance with this Note, including, without limitation, any interest or fees payable by Lender to lenders of funds obtained by it in order to make or maintain the Loan hereunder. Upon written demand from Borrower, Lender shall demonstrate in reasonable detail the circumstances giving rise to Lender’s determination and the calculation substantiating the Adjusted Alternative Rate and any additional costs incurred by Lender in making the conversion, which, upon written notice thereof from Lender, as certified to Borrower, shall be conclusive absent manifest error. In the event Lender shall determine in its good faith (which determination shall be conclusive and binding upon Borrower) that the aforesaid circumstances no longer exist, the Applicable Interest Rate shall be converted to the Adjusted LIBOR Rate effective as of the first Determination Date which occurs at least ten (10) Working Days after such determination by Lender.

 

(f)            In the event that any change in any requirement of law or in the interpretation or application thereof, or compliance in good faith by Lender with any request or directive (whether or not having the force of law) hereafter issued by any central bank or other Governmental Authority:

 

(i)           shall hereafter impose, modify or hold applicable any reserve, special deposit, compulsory loan or similar requirement against assets held by, or deposits or other liabilities in or for the account of, advances or loans by, or other credit extended by, or any other acquisition of funds by, any office of Lender which is not otherwise included in the determination of LIBOR hereunder;

 

(ii)          shall hereafter have the effect of reducing the rate of return on Lender’s capital as a consequence of its obligations hereunder to a level below that which Lender could have achieved but for such adoption, change or compliance (taking into consideration Lender’s policies with respect to capital adequacy) by any amount deemed by Lender to be material; or

 

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(iii)         shall hereafter impose on Lender any other condition and the result of any of the foregoing is to increase the cost (including costs attributable to taxes other than Indemnified Taxes and Excluded Taxes) to Lender of making, renewing or maintaining loans or extensions of credit or to reduce any amount receivable hereunder;

 

then, in any such case, Borrower shall promptly pay Lender, upon demand, any additional amounts necessary to compensate Lender for such additional cost or reduced amount receivable which Lender deems to be material, as determined by Lender. If Lender becomes entitled to claim any additional amounts pursuant to this Section 3(f), Lender shall provide Borrower with not less than ten (10) days’ prior written notice specifying in reasonable detail the event or circumstance by reason of which it has become so entitled and the additional amount required to fully compensate Lender for such additional cost or reduced amount. A certificate as to any additional costs or amounts payable pursuant to the foregoing sentence submitted by Lender to Borrower shall be conclusive in the absence of manifest error. This provision shall survive payment of this Note and the satisfaction of all other obligations of Borrower under this Note and the other Loan Documents.

 

(g)           Borrower agrees to indemnify Lender and to hold Lender harmless from any Breakage Costs. This provision shall survive payment of this Note and the satisfaction of all other obligations of Borrower under the Loan Documents.

 

(h)           Lender shall not be entitled to claim compensation pursuant to this Article 3 for any Indemnified Taxes, increased cost or reduction in amounts received or receivable hereunder, or any reduced rate of return, which was incurred or which accrued more than the earlier of (i) ninety (90) days before the date Lender notified Borrower of the change in law or other circumstance on which such claim of compensation is based and delivered to Borrower a written statement setting forth in reasonable detail the basis for calculating the additional amounts owed to Lender under this Article 3, which statement shall be conclusive and binding upon all parties hereto absent manifest error, or (ii) any earlier date provided that Lender notified Borrower of such change in law or circumstance and delivered the written statement referenced in clause (i) within one hundred eighty (180) days after Lender received written notice of such change in law or circumstance.

 

(i)            Lender will use reasonable efforts (consistent with legal and regulatory restrictions) to maintain the availability of the Adjusted LIBOR Rate and to avoid or reduce any increased or additional costs payable by Borrower under this Article 3, including, if requested by Borrower, a transfer or assignment of the Loan to a branch or office of Lender in another jurisdiction, or a re-designation of its lending office with respect to the Loan, in order to maintain the availability of the Adjusted LIBOR Rate or to avoid or reduce such increased or additional costs, provided that the transfer or assignment or re-designation (i) would not result in any additional costs, expenses or risk to Lender that are not reimbursed by Borrower and (ii) would not be disadvantageous in any other respect to Lender as determined by Lender in its sole discretion.

 

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ARTICLE 4. DEFAULT AND ACCELERATION

 

(a)           The whole of (a) the principal sum of this Note, (b) interest, default interest, late charges, the Exit Fee and other sums, as provided in this Note or the other Loan Documents, (c) all other monies agreed or provided to be paid by Borrower in this Note or the other Loan Documents, (d) all sums advanced pursuant to the Security Instrument to protect and preserve the Property (defined below) and the lien and the security interest created thereby, and (e) all sums advanced and costs and expenses incurred by Lender in connection with the Debt (defined below) or any part thereof, any renewal, extension, or change of or substitution for the Debt or any part thereof, or the acquisition or perfection of the security therefor, whether made or incurred at the request of Borrower or Lender (all the sums referred to in (a) through (e) above shall collectively be referred to as the “Debt”) shall without notice become immediately due and payable at the option of Lender upon the occurrence of an Event of Default.

 

ARTICLE 5. DEFAULT INTEREST

 

Borrower does hereby agree that upon the occurrence of an Event of Default, Lender shall be entitled to receive and Borrower shall pay interest on the entire unpaid principal sum at a rate equal to the lesser of (a) five percent (5%) plus the Applicable Interest Rate and (b) the maximum interest rate which Borrower may by law pay (the “Default Rate”). The Default Rate shall be computed from the occurrence of an Event of Default until the earlier of the date upon which the Event of Default is cured or the date upon which the Debt is paid in full. Interest calculated at the Default Rate shall be added to the Debt and shall be deemed secured by the Security Instrument. Nothing in this Article 5 shall be construed as an agreement or privilege to extend the date of the payment of the Debt nor as a waiver of any other right or remedy accruing to Lender by reason of the occurrence of an Event of Default.

 

ARTICLE 6. PREPAYMENT

 

(a)           Borrower may prepay the Loan in whole but not in part; provided, however, with respect to any prepayment, (i) no Default or Event of Default exists; (ii) Borrower gives Lender not less than thirty (30) and not more than ninety (90) days’ prior written notice specifying the date of prepayment and the amount of the Loan that Borrower intends to prepay; and (iii) Borrower pays to Lender, in addition to the outstanding principal amount of the Loan to be prepaid, (A) if the prepayment is not made on a Payment Date, all interest which would have accrued on the amount of such prepayment through and including the Payment Date next occurring following the date of such prepayment; (B) all other sums then due and payable under this Note and the other Loan Documents, including, but not limited to, the Breakage Costs and all of Lender’s costs and expenses (including reasonable attorneys’ fees and disbursements) incurred by Lender in connection with such prepayment, (C) if the prepayment of the Loan occurs prior to the eighteenth (18th) Payment Date, an amount (together with the amount described in clause (B) above, the “Prepayment Consideration”) equal to all then-scheduled monthly payments through and including the eighteenth (18th) Payment Date (with such payments computed, solely for purposes of computing the Prepayment Consideration, utilizing the Applicable Interest Rate in effect for the Interest Period during which the date of prepayment occurs); and (iv) Borrower pays to Lender the Exit Fee. If a notice of prepayment is given by Borrower to Lender pursuant to this Article 6, the amount designated for prepayment and the other sums required under this Article 6 shall be due and payable on the prepayment date specified in such notice. No tender of a prepayment with respect to which the Prepayment Consideration is due shall be effective unless such prepayment is accompanied by the Prepayment Consideration.

 

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(b)           Full or partial prepayments of this Note shall be permitted in order to apply insurance or condemnation proceeds in accordance with the terms of the Security Instrument, in which event no prepayment fee or premium shall be due, provided that payment of the Exit Fee applicable to such prepayment shall be required. Any such prepayment of principal shall be applied on the next succeeding Payment Date following Lender’s receipt of such insurance or condemnation proceeds and determination to apply such sums against the outstanding principal balance of this Note in accordance with the terms of the Security Instrument. No notice of prepayment shall be required under the circumstances specified in this Section 6(b).

 

(c)           Following an Event of Default and acceleration of this Note, if Borrower or anyone on Borrower’s behalf makes a tender of payment of the amount necessary to satisfy the indebtedness evidenced by this Note and secured by the Security Instrument at any time prior to foreclosure sale (including, but not limited to, sale under power of sale under the Security Instrument), or during any redemption period after foreclosure, the tender of payment shall constitute an evasion of Borrower’s obligation to pay any Prepayment Consideration due under this Note and such payment shall, therefore, to the maximum extent permitted by law, include a premium equal to the Prepayment Consideration that would have been payable on the date of such tender had this Note not been so accelerated.

 

(d)           The Exit Fee shall be due and payable on the earlier of (i) the date when the outstanding principal balance of this Note is paid in full, (ii) the Maturity Date, and (iii) the date on which the Debt shall have become immediately due and payable at the option of Lender pursuant to the terms and provisions of the Loan Documents after the occurrence of an Event of Default. The Partial Prepayment Exit Fee is due and payable on the date when a portion of the unpaid principal balance of this Note is pad to Lender. The Exit Fee and the Partial Prepayment Exit Fee, as applicable, are deemed earned in full on the date hereof notwithstanding the timing of its required payment as herein provided above. No tender of a prepayment of this Note with respect to which an Exit Fee is due shall be effective unless such prepayment is accompanied by the Exit Fee. If the Debt shall have been declared due and payable by Lender pursuant to Article 4 hereof, then any tender of payment of the Debt must include the Exit Fee. Borrower’s obligation to pay the Exit Fee shall be reduced by any Partial Prepayment Exit Fee previously paid by Borrower to Lender pursuant to this Note, such that the maximum total amount payable to Lender shall equal 0.25% of the original principal amount of the Note.

 

(e)           Notwithstanding the foregoing, Borrower may prepay the Loan in part in connection with a Release or an Extension Option provided that (i) Borrower pay to Lender the Partial Prepayment Exit Fee, (ii) Borrower pay to Lender the Prepayment Consideration, (iii) all other terms and conditions required herein in connection with such Release or Extension Option are satisfied.

 

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ARTICLE 7. SECURITY

 

This Note is secured by the Security Instrument and the other Loan Documents. The term “Security Instrument” means the Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of the date hereof (as the same may be amended, restated, supplemented, or otherwise modified from time to time) in the principal sum of SIXTY TWO MILLION TWO HUNDRED FORTY FIVE THOUSAND AND 00/100 DOLLARS ($62,245,000.00) given by Borrower to (or for the benefit of) Lender, as security for the Debt and other obligations covering the leasehold estate of Crowne Plaza Borrower in the Crowne Plaza Property (as defined in the Security Instrument), and the fee simple estate of Holiday Inn Borrower and Hilton Borrower in the Holiday Inn Property (as defined in the Security Instrument) and Hilton Property (as defined in the Security Instrument), respectively and intended to be duly recorded in Maricopa County, Arizona. The term “Loan Documents” as used in this Note shall mean all and any of the documents including this Note or the Security Instrument now or hereafter executed and/or delivered by Borrower and/or others and by or in favor of Lender, in connection with the Loan, as the same may be amended, restated, supplemented, or otherwise modified from time to time. All of the terms, covenants and conditions contained in the Security Instrument and the other Loan Documents are hereby made part of this Note to the same extent and with the same force as if they were fully set forth herein.

 

ARTICLE 8. SAVINGS CLAUSE

 

This Note is subject to the express condition that at no time shall Borrower be obligated or required to pay interest on the principal balance due hereunder at a rate which could subject Lender to either civil or criminal liability as a result of being in excess of the maximum interest rate which Borrower is permitted by applicable law to contract or agree to pay. If by the terms of this Note, Borrower is at any time required or obligated to pay interest on the principal balance due hereunder at a rate in excess of such maximum rate, the Applicable Interest Rate or the Default Rate, as the case may be, shall be deemed to be immediately reduced to such maximum rate and all previous payments in excess of the maximum rate shall be deemed to have been payments in reduction of principal and not on account of the interest due hereunder. All sums paid or agreed to be paid to Lender for the use, forbearance, or detention of the Debt, shall, to the extent permitted by applicable law, be amortized, prorated, allocated, and spread throughout the full stated term of this Note until payment in full so that the rate or amount of interest on account of the Debt does not exceed the maximum lawful rate of interest from time to time in effect and applicable to the Debt for so long as the Debt is outstanding.

 

ARTICLE 9. LATE CHARGE

 

If any sum payable under this Note or any of the Loan Documents is not paid on or before the fifth (5th) day after the date on which it is due, Borrower shall pay to Lender upon demand an amount equal to the lesser of five percent (5%) of the unpaid sum or the maximum amount permitted by applicable law to defray the expenses incurred by Lender in handling and processing the delinquent payment and to compensate Lender for the loss of the use of the delinquent payment and the amount shall be secured by the Security Instrument and the other Loan Documents. Notwithstanding the foregoing to the contrary, in no event will the late charge provided herein apply to the balloon payment of principal and interest due upon the Maturity Date.

 

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ARTICLE 10. NO ORAL CHANGE

 

This Note may not be modified, amended, waived, extended, changed, discharged or terminated orally or by any act or failure to act on the part of Borrower or Lender, but only by an agreement in writing signed by the party against whom enforcement of any modification, amendment, waiver, extension, change, discharge or termination is sought.

 

ARTICLE 11. JOINT AND SEVERAL LIABILITY

 

If Borrower consists of more than one person or party, the obligations and liabilities of each person or party shall be joint and several.

 

ARTICLE 12. WAIVERS

 

Borrower and all others who may become liable for the payment of all or any part of the Debt do hereby severally waive presentment and demand for payment, notice of dishonor, protest and notice of protest and nonpayment and all other notices of any kind. No release of any security for the Debt or extension of time for payment of this Note or any installment hereof, and no alteration, amendment or waiver of any provision of the Loan Documents made by agreement between Lender or any other person or party shall release, modify, amend, waive, extend, change, discharge, terminate or affect the liability of Borrower, and any other person or entity who may become liable for the payment of all or any part of the Debt, under this Note or the other Loan Documents. No notice to or demand on Borrower shall be deemed to be a waiver of the obligation of Borrower or of the right of Lender to take further action without further notice or demand as provided for in the Loan Documents. If Borrower is a partnership, the agreements herein contained shall remain in force and applicable, notwithstanding any changes in the individuals comprising the partnership. If Borrower is a corporation, the agreements contained herein shall remain in full force and applicable notwithstanding any changes in the shareholders comprising, or the officers and directors relating to, the corporation. If Borrower is a limited liability company, the agreements contained herein shall remain in full force and applicable notwithstanding any changes in the members comprising, or the managers, officers or agents relating to, the limited liability company. The term “Borrower”, as used herein, shall include any alternate or successor partnership, corporation, limited liability company or other entity or person to the Borrower named herein, but any predecessor partnership (and their partners), corporation, limited liability company, other entity or person shall not thereby be released from any liability. Nothing in this Article 12 shall be construed as a consent to, or a waiver of, any prohibition or restriction on transfers of interests in such partnership, corporation or limited liability company which may be set forth in the Security Instrument or any other Loan Document.

 

ARTICLE 13. SECONDARY MARKET

 

The provisions of Article 19 of the Security Instrument are incorporated herein by reference with the same force as if fully set forth herein.

 

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ARTICLE 14. WAIVER OF TRIAL BY JURY

 

BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS NOTE, THE APPLICATION FOR THE LOAN EVIDENCED BY THE LOAN DOCUMENTS OR ANY ACTS OR OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.

 

ARTICLE 15. EXCULPATION

 

(a)           Except as otherwise provided herein, in the Security Instrument or in the other Loan Documents, Lender shall not enforce the liability and obligation of Borrower, to perform and observe the obligations contained in the Loan Documents by any action or proceeding wherein a money judgment shall be sought against Borrower or any partner or member of Borrower, except that Lender may bring a foreclosure action, an action for specific performance or any other appropriate action or proceeding to enable Lender to enforce and realize upon the Loan Documents, and the interests in the Property; and any other collateral given to Lender pursuant to the Security Instrument and other Loan Documents; provided, however, that, except as specifically provided herein, any judgment in any such action or proceeding shall be enforceable against Borrower or any partner or member of Borrower only to the extent of Borrower’s interest in the Property and in any other collateral given to Lender, and Lender, by accepting this Note, the Security Instrument and the other Loan Documents, agrees that it shall not sue for, seek or demand any deficiency judgment against Borrower or any partner or member of Borrower, in any such action or proceeding, under or by reason of or in connection with the Loan Documents. The provisions of this paragraph shall not, however, (A) constitute a waiver, release or impairment of any obligation evidenced or secured by the Loan Documents; (B) impair the right of Lender to name Borrower as a party defendant in any action or suit for foreclosure and sale under the Security Instrument; (C) affect the validity or enforceability of any guaranty or environmental indemnity made in connection with the Loan Documents; (D) impair the right of Lender to obtain the appointment of a receiver; (E) impair the enforcement of any assignment; or (F) constitute a waiver of the right of Lender to enforce the liability and obligation of Borrower, by money judgment or otherwise, to the extent of any loss, damage, cost, expense, liability, claim or other obligation incurred by Lender (including attorneys’ fees and costs reasonably incurred) arising out of or in connection with the following:

 

(i)           fraud or intentional misrepresentation by any or on behalf of any Borrower Related Party (as defined below) in connection with the Loan, made in order to induce Lender to make the Loan;

 

(ii)          the gross negligence or willful misconduct of any Borrower Related Party in connection with the Loan or the Property;

 

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(iii)         the removal or disposal by a Borrower Related Party of any portion of the Property (other than normal replacement of Personal Property) or any other collateral given to secure the Loan after the occurrence of an Event of Default;

 

(iv)         the misapplication or conversion by any Borrower Related Party of (A) any insurance proceeds paid by reason of any loss, damage or destruction to the Property, (B) any awards or other amounts received in connection with the condemnation of all or a portion of the Property, (C) any monies disbursed to Borrower or Manager under the Cash Management Agreement, (D) any Rents or other receipts, revenues, income and proceeds for the sales or services of every kind received by Borrower or Manager (on behalf of Borrower) following an Event of Default, or (E) any Rents paid more than one month in advance by Tenants under Leases;

 

(v)          failure to pay Taxes (provided that the liability of Borrower shall be only for amounts in excess of the amount held by Lender in escrow for the payment of Taxes), assessments, charges for labor or materials or other charges that can create liens on any portion of the Property, unless the income generated by the Property for the applicable period is insufficient to pay all of Borrower’s current liabilities (including such amounts for Taxes, assessments or charges on the Property);

 

(vi)         any security deposits, advance deposits or any other deposits collected with respect to the Property which are not delivered to Lender prior to or upon a foreclosure of the Property or action in lieu thereof, except to the extent any such security deposits were applied in accordance with the terms and conditions of any of the Leases or booking agreements prior to the occurrence of the Event of Default that gave rise to such foreclosure or action in lieu thereof;

 

(vii)        any intentional physical waste of the Property or other collateral securing the Loan resulting from the action or inaction of any Borrower Related Party which materially adversely affects the value of the Property, except that if (a) the Property failed to generate sufficient cash flow after payment of current liabilities, or Lender did not make such cash flow available to Borrower, to remedy or avoid such waste during the period in question, or (b) following a casualty or condemnation, the insurance proceeds of the condemnation awards are not made available to Borrower to remedy such waste;

 

(viii)       failure of any Borrower Related Party or Manager (acting at the direction of any Borrower Related Party) to direct the payment of, or pay any Rents or other receipts, revenues, income and proceeds for the sales or services of every kind received by Borrower or Manager (on behalf of Borrower) to, the Clearing Account (as defined in the Cash Management Agreement) as required by the Loan Documents;

 

(ix)         the failure of any Borrower Related Party or Manager (acting at the direction of any Borrower Related Party) to apply monies disbursed to it as loan proceeds or from the Cash Management Account (as defined in the Cash Management Agreement) (or any sub-account thereof) for the purpose which such disbursement is made;

 

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(x)          a breach of the covenants set forth in Section 4.3 of the Security Instrument;

 

(xi)         Borrower’s failure to obtain and/or maintain the Interest Rate Cap Agreement or Replacement Interest Rate Cap Agreement, as applicable, as required herein;

 

(xii)        any termination (other than at the direction of Lender) of the Management Agreement, or the failure of Borrower to appoint a new Manager upon the request of Lender as permitted under and in accordance with the terms of the Loan Documents;

 

(xiii)       any comfort letter, side letter, promissory note or any other liability associated with any key money, liquidated damages, termination fee or other indebtedness or obligation (other than for services provided for the benefit of Lender) to any manager or franchisor (whether debt or equity) under any franchise agreement, management agreement, key money agreement or any other agreement related thereto, including, without limitation, the Management Agreement, the Franchise Agreement and the Conditional Assignment of Management Agreement between Borrower, Lender and Manager, dated as of the date hereof;

 

(xiv)       any failure by Borrower or Manager to reasonably cooperate with Lender in the transfer of the liquor license for the Property, if any, to Lender, or its designee, in connection with a foreclosure or deed in lieu of foreclosure of the Property;

 

(xv)        the failure of Borrower to appoint a new manager of the Property upon the written request of Lender as permitted under and in accordance with the terms of the Loan Documents;

 

(xvi)       the failure of Borrower to deposit with Lender or to otherwise pay any Seasonality Reserve Deficiency in the Seasonality Reserve (as such terms are defined in the Reserve Agreement); or

 

(xvii)      the forfeiture by Borrower of the Property as a result of any criminal acts of any Borrower Related Party.

 

(b)           Notwithstanding anything to the contrary in the Loan Documents (A) the Debt shall be fully recourse to Borrower; and (B) Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Debt or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents, in the event that:

 

(i)          Any Borrower files a voluntary petition under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;

 

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(ii)         An involuntary petition is filed against any Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law by any Borrower Related Party, or any Borrower Related Party arranges, induces, finances, solicits, colludes with others for, or solicits or causes to be solicited petitioning creditors for the filing by any Person(s) of any involuntary petition against Borrower under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;

 

(iii)         any Borrower Related Party files an answer consenting to or otherwise acquiescing in or joining in any involuntary petition filed against it, by any other Person under the Bankruptcy Code or any other Federal or state bankruptcy or insolvency law;

 

(iv)         any Borrower Related Party consents to or acquiesces in or joins in an application for the appointment of a custodian, receiver, trustee, or examiner for Borrower or any portion of the Property or colludes with or otherwise assists any Person in filing such application;

 

(v)          any Borrower makes an assignment for the benefit of creditors, or admits, in writing or in any legal proceeding, its insolvency or inability to pay its debts as they become due;

 

(vi)         a breach of the covenants set forth in Section 4.3 of the Security Instrument (other than Section 4.3(h) or (r)), provided, however, with respect to a breach of any of the covenants by Borrower described in Sections 4.3(d), (f), (i), (j), (l), (o), (p), or (q), the foregoing recourse shall only be triggered if in connection with a pending bankruptcy or insolvency proceeding a court of competent jurisdiction has ordered the substantive consolidation of the assets and liabilities of Borrower with any other Person;

 

(vii)        any Borrower fails to obtain Lender’s prior written consent to any indebtedness or voluntary lien encumbering the Property, other than any mechanics’ or materialmen’s liens which are being properly contested in accordance with the provisions of the Security Instrument or have been removed;

 

(viii)       any Borrower fails to obtain Lender’s prior written consent to any Transfer, as required by (and in accordance with) the Security Instrument; or

 

(ix)         any Borrower Related Party in connection with any enforcement action or exercise or assertion of any right or remedy in accordance with applicable law (each, an “Action”) by or on behalf of Lender under or in connection with this Note or any other Loan Document resulting from an Event of Default, acts in a manner so as to impede or delay Lender’s rights in connection with any Action, or seeks to raise or raises an affirmative defense or other defense, non-compulsory counterclaim, offset, judicial intervention or injunctive or other equitable relief of any kind, or asserts in a pleading filed in connection with a judicial proceeding arising from such Event of Default any defense against Lender or any right in connection with any security for the Loan (each an “Interference Event”); provided, however, that notwithstanding the foregoing, the filing by Borrower or Guarantor of a legal action or defense to Lender’s exercise of its remedies shall not be deemed to be an Interference Event if it is filed in good faith to assert a material defense to such exercise which has a reasonable basis in fact and in law (including, without limitation, defenses arising from good faith disputes as to the existence or non-existence of any Event of Default), and if it does not seek to challenge the validity of the liens of any of the Loan Documents or the enforceability under applicable law of the Loan Documents taken as a whole;

 

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(x)          the Ground Lease (as defined in the Security Instrument) is terminated, cancelled or otherwise ceases to exist or the Renewal Deadline (as hereinafter defined) occurs and Lender has not received evidence acceptable to Lender of the renewal of the Ground Lease in accordance with its terms. or

 

(xi)         the Franchise Agreement (as defined in the Security Instrument) (or the right to operate the Property thereunder) shall expire, or be cancelled, surrendered or terminated.

 

For purposes of this Article 15, “Borrower Related Party” shall mean Borrower, Guarantor, any Affiliate of Borrower or Guarantor, or Heavlin Management Company, LLC, an Arizona limited liability company (“Heavlin”), or any Affiliate of Heavlin, and “Affiliate” shall mean, with respect to a Person, another Person, directly or indirectly, through one or more intermediaries, controlling, controlled by, or under common control with the Person in question. The term “control” as used in the preceding sentence means the possession, directly or indirectly, of the power to direct or cause the direction of the management or policies of the controlled Person, whether through the ownership of voting securities, by contract or otherwise.

 

ARTICLE 16. AUTHORITY

 

Borrower (and the undersigned representative of Borrower, if any) represents that Borrower has full power, authority and legal right to execute and deliver the Loan Documents and that the Loan Documents constitute valid and binding obligations of Borrower.

 

ARTICLE 17. APPLICABLE LAW

 

THIS NOTE WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY BORROWER AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, AND THE PROCEEDS OF THIS NOTE WERE DISBURSED FROM THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, THIS NOTE AND THE OBLIGATIONS ARISING HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT LAWS) AND ANY APPLICABLE LAW OF THE UNITED STATES OF AMERICA, EXCEPT THAT AT ALL TIMES THE PROVISIONS FOR THE CREATION, PERFECTION, AND ENFORCEMENT OF THE LIENS AND SECURITY INTERESTS CREATED PURSUANT TO THE LOAN DOCUMENTS WITH RESPECT TO THE PROPERTY AND THE DETERMINATION OF DEFICIENCY JUDGMENTS SHALL BE GOVERNED BY AND CONSTRUED ACCORDING TO THE LAW OF THE STATE IN WHICH THE PROPERTY IS LOCATED, TO THE FULLEST EXTENT PERMITTED BY LAW, EXCEPT AS EXPRESSLY SET FORTH HEREIN, BORROWER HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS NOTE, AND THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

 

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ARTICLE 18. SERVICE OF PROCESS

 

ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR BORROWER ARISING OUT OF OR RELATING TO THIS NOTE MAY AT LENDER’S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK, PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND BORROWER WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND BORROWER HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. BORROWER DOES HEREBY DESIGNATE AND APPOINT:

 

CT CORPORATION SYSTEM
111 EIGHTH AVENUE
NEW YORK, NEW YORK 10011

 

AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE MAILED OR DELIVERED TO BORROWER IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON BORROWER IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. BORROWER (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.

 

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ARTICLE 19. COUNSEL FEES

 

In the event that it should become necessary to employ counsel to collect the Debt or to protect or foreclose the security therefor, Borrower also agrees to pay all reasonable fees and expenses of Lender, including, without limitation, reasonable attorney’s fees for the services of such counsel whether or not suit be brought.

 

ARTICLE 20. NOTICES

 

All notices required or permitted hereunder shall be given and shall become effective as provided in Article 16 of the Security Instrument.

 

ARTICLE 21. MISCELLANEOUS

 

(a)           Wherever pursuant to this Note (i) Lender exercises any right given to it to approve or disapprove, (ii) any arrangement or term is to be satisfactory to Lender, or (iii) any other decision or determination is to be made by Lender, the decision of Lender to approve or disapprove, all decisions that arrangements or terms are satisfactory or not satisfactory and all other decisions and determinations made by Lender, shall be in the sole and absolute discretion of Lender and shall be final and conclusive, except as may be otherwise expressly and specifically provided herein.

 

(b)           Wherever pursuant to this Note it is provided that Borrower pay any costs and expenses, such costs and expenses shall include, but not be limited to, reasonable legal fees and disbursements of Lender, whether retained firms, the reimbursement for the expenses of in-house staff, or otherwise.

 

(c)           Each Lender, including each person that becomes a Lender and any participant in the Note, that is a U.S. Person shall deliver to Borrower on or prior to the date on which such person becomes Lender or acquires an interest in the Note (and from time to time thereafter upon the reasonable request of Borrower), executed originals of IRS Form W-9 certifying that such Lender is not subject to U.S. federal backup withholding tax. Each Lender, including each person that becomes a Lender and any participant in the Note, that is not a U.S. Person shall, to the extent it is legally entitled to do so, deliver to Borrower (in such number of copies as shall be requested by Borrower) on or prior to the date on which such person becomes Lender or acquires an interest in the Note (and from time to time thereafter upon the reasonable request of Borrower), whichever of the following is applicable: (i) in the case of a person claiming the benefits of an income tax treaty to which the United States is a party (x) with respect to payments of interest under any Loan Document, executed originals of IRS Form W-8BEN or W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Tax pursuant to the “interest” article of such tax treaty and (y) with respect to any other applicable payments under any Loan Document, IRS Form W-8BEN or W-8BEN-E establishing an exemption from, or reduction of, U.S. federal withholding Income Tax pursuant to the “business profits” or “other income” article of such tax treaty; (ii) executed originals of IRS Form W-8ECI; (iii) in the case of a person claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code, (x) a certificate to the effect that such person is not a “bank” within the meaning of Section 881(c)(3)(A) of the Code, a “10 percent shareholder” of Borrower within the meaning of Section 881(c)(3)(B) of the Code, or a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code (“U.S. Tax Compliance Certificate”), and (y) executed originals of IRS Form W-8BEN or W-8BEN-E; or (iv) to the extent a person is not the beneficial owner, executed originals of IRS Form W-8IMY, accompanied by IRS Form W-8ECI, IRS Form W-8BEN, IRS Form W-8BEN-E, a U.S. Tax Compliance Certificate, IRS Form W-9, and/or other certification documents from each beneficial owner, as applicable.

 

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(d)           If a payment made to a Lender, including each person that becomes a Lender and any participant in the Note, under any Loan Document would be subject to U.S. federal withholding Income Tax imposed by FATCA if such person were to fail to comply with the applicable reporting requirements of FATCA (including those contained in Section 1471(b) or 1472(b) of the Code, as applicable), such person shall deliver to Borrower at the time or times prescribed by law and at such time or times reasonably requested by Borrower such documentation prescribed by applicable law (including as prescribed by Section 1471(b)(3)(C)(i) of the Code) and such additional documentation reasonably requested by Borrower as may be necessary for Borrower to comply with their obligations under FATCA, to determine that such Lender or participant, has complied with its obligations under FATCA, and to determine the amount to deduct and withhold from such payment pursuant to FATCA, if any. Solely for purposes of this Section 21(d), “FATCA” shall include any amendments made to FATCA after the date of this Note.

 

(e)           Any documentation required to be provided by a participant under Section 21(c) or (d) may be provided to the participating Lender instead of Borrower.

 

ARTICLE 22. INTEREST RATE CAP AGREEMENT

 

(a)           Prior to or contemporaneously with Borrower’s execution and delivery of this Note and the commencement of any Extension Term, Borrower shall enter into an Interest Rate Cap Agreement with a LIBOR strike price equal to the Strike Price. The initial term for the Interest Rate Cap Agreement shall be for two (2) years scheduled to mature on October 5, 2020. Not later than five (5) Business Days prior to the maturity of the Interest Rate Cap Agreement, Borrower shall purchase a Replacement Interest Rate Cap Agreement from an Acceptable Counterparty which Replacement Interest Rate Cap Agreement shall be effective commencing on October 5, 2020 and shall have a maturity date not earlier than the Initial Maturity Date, and on such terms and conditions as set forth in Article 22 herein. The Interest Rate Cap Agreement (i) shall at all times be in a form and substance reasonably acceptable to Lender, (ii) shall at all times be with an Acceptable Counterparty, (iii) shall direct such Acceptable Counterparty to deposit directly to Lender pursuant to its instructions any amounts due Borrower under such Interest Rate Cap Agreement so long as any portion of the Debt exists, provided that the Debt shall be deemed to exist if the Property is transferred by judicial or non-judicial foreclosure or deed-in-lieu thereof, (iv) shall be for a period equal to the term of the Loan, except as otherwise set forth herein, and (v) shall at all times have a notional amount equal to or greater than the principal balance of the Loan and shall at all times provide for the applicable Strike Price. Borrower’s failure to timely provide such Replacement Interest Rate Cap Agreement(s) in accordance with this Section 22(a) shall be an immediate Event of Default hereunder. Borrower shall collaterally assign to Lender, pursuant to the Collateral Assignment of Interest Rate Cap Agreement (as the same may be amended, restated, supplemented, or otherwise modified from time to time, the “Assignment of Interest Rate Cap Agreement”), all of its right, title and interest to receive any and all payments under the Interest Rate Cap Agreement, and shall deliver to Lender an executed counterpart of such Interest Rate Cap Agreement (which shall, by its terms, authorize the assignment to Lender and require that payments be deposited directly to Lender pursuant to its instructions and shall notify the Acceptable Counterparty of such assignment).

 

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(b)           Borrower shall comply with all of its obligations under the terms and provisions of the Interest Rate Cap Agreement. All amounts paid by the Acceptable Counterparty under the Interest Rate Cap Agreement to Borrower or Lender shall be deposited immediately into such account as specified by Lender. Borrower shall take all actions reasonably requested by Lender to enforce Lender’s rights under the Interest Rate Cap Agreement in the event of a default by the Acceptable Counterparty and shall not waive, amend or otherwise modify any of its rights thereunder.

 

(c)           In the event of any downgrade or withdrawal of the rating of the Acceptable Counterparty by any Rating Agency, Borrower shall cause the Acceptable Counterparty to either (i) replace the Interest Rate Cap Agreement with a Replacement Interest Rate Cap Agreement, (ii) provide a guaranty of Counterparty’s obligations under the Interest Rate Cap Agreement from an entity that meets the requirements of an Acceptable Counterparty, or (iii) post sufficient collateral to secure its obligations under the Interest Rate Cap Agreement, in each case not later than thirty (30) Business Days following receipt of notice from Lender of such downgrade or withdrawal.

 

(d)           In the event that Borrower fails to purchase and deliver to Lender the Interest Rate Cap Agreement or fails to maintain the Interest Rate Cap Agreement in accordance with the terms and provisions of this Note, Lender may purchase the Interest Rate Cap Agreement and the cost incurred by Lender in purchasing such Interest Rate Cap Agreement shall be paid by Borrower to Lender with interest thereon at the Default Rate from the date such cost was incurred by Lender until such cost is reimbursed by Borrower to Lender.

 

(e)           In connection with the Interest Rate Cap Agreement, Borrower shall obtain and deliver to Lender an opinion from counsel (which counsel may be in house counsel for the Acceptable Counterparty) for the Acceptable Counterparty (upon which Lender and its successors and assigns may rely) which shall provide, in relevant part, that:

 

(i)           the Acceptable Counterparty is duly organized, validly existing, and in good standing under the laws of its jurisdiction of incorporation or formation and has the organizational power and authority to execute and deliver, and to perform its obligations under, the Interest Rate Cap Agreement;

 

(ii)          the execution and delivery of the Interest Rate Cap Agreement by the Acceptable Counterparty, and any other agreement which the Acceptable Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been and remain duly authorized by all necessary action and do not contravene any provision of its certificate of incorporation or by laws (or equivalent organizational documents) or any law, regulation or contractual restriction binding on or affecting it or its property;

 

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(iii)         all consents, authorizations and approvals required for the execution and delivery by the Acceptable Counterparty of the Interest Rate Cap Agreement, and any other agreement which the Acceptable Counterparty has executed and delivered pursuant thereto, and the performance of its obligations thereunder have been obtained and remain in full force and effect, all conditions thereof have been duly complied with, and no other action by, and no notice to or filing with any governmental authority or regulatory body is required for such execution, delivery or performance; and

 

(iv)         the Interest Rate Cap Agreement, and any other agreement which the Acceptable Counterparty has executed and delivered pursuant thereto, has been duly executed and delivered by the Acceptable Counterparty and constitutes the legal, valid and binding obligation of the Acceptable Counterparty, enforceable against the Acceptable Counterparty in accordance with its terms, subject to applicable bankruptcy, insolvency and similar laws affecting creditors’ rights generally, and subject, as to enforceability, to general principles of equity (regardless of whether enforcement is sought in a proceeding in equity or at law).

 

ARTICLE 23. EXTENSION OF MATURITY DATE

 

(a)           Borrower shall have two (2) options (“First Extension Option” and “Second Extension Option”, respectively, and each, an “Extension Option”) to extend the Initial Maturity Date to October 5, 2022 (the “First Extended Maturity Date”), and to extend the First Extended Maturity Date to October 5, 2023 (the “Second Extended Maturity Date”), respectively, upon satisfaction of the following terms and conditions:

 

(i)           no Default or Event of Default shall have occurred and be continuing on the date that the applicable Extension Option is exercised and on the date that the applicable Extension Term commences;

 

(ii)          Borrower shall have provided Lender with written notice of its election to extend the Maturity Date, as aforesaid, not later than thirty (30) days and not earlier than one hundred twenty (120) days prior to the date of the then current Maturity Date. Once given, such notice shall be irrevocable;

 

(iii)         if the Interest Rate Cap Agreement is scheduled to mature prior to the Initial Maturity Date, with respect to the First Extension Option, or the First Extended Maturity Date, with respect to the Second Extension Option, Borrower shall have obtained and delivered to Lender not later than five (5) Business Days prior to the first day of applicable Extension Term, one or more Replacement Interest Rate Cap Agreements from an Acceptable Counterparty which Replacement Interest Rate Cap Agreement shall be effective commencing on the first date of such Extension Term and shall have a termination date not earlier than the First Extended Maturity Date with respect to the exercise of the First Extension Option, and the Second Extended Maturity Date with respect to the exercise of the Second Extension Option;

 

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(iv)         Borrower shall have delivered to Lender, together with its notice pursuant to Section 23(a)(ii), and at Lender’s reasonable request on the first day of the applicable Extension Term, an Officer’s Certificate, in form and substance acceptable to Lender, executed by an authorized officer of Borrower, certifying that each of the representations and warranties of Borrower contained in this Note and the other Loan Documents is true, complete and correct as of the date of such Officer’s Certificate to the extent such representations and warranties are not matters which by their nature can no longer be true and correct as a result of the passage of time;

 

(v)          Borrower shall have paid the applicable Extension Fee to Lender in connection with the exercise of each Extension Option, which Extension Fee shall be deemed earned by Lender and non-refundable upon receipt;

 

(vi)         the Debt Service Coverage Ratio for the Property for the twelve (12) full calendar months ending on the last day of the month preceding the month in which the applicable Extension Term commences shall be equal to or greater than 1.30 to 1.0;

 

(vii)        the Loan to Value Ratio of the Property shall be equal to or less than seventy percent (70%);

 

(viii)       the Debt Yield of the Property shall be equal to or greater than eleven and one quarter percent (11.25%).

 

(ix)         in addition to the monthly Debt Service payable on each Payment Date, during any Extension Term, Borrower shall make monthly principal amortization payments on the Loan on each Payment Date as set forth in Sections 2(a)(iii) and (iv) above.

 

(b)           Notwithstanding the foregoing, in the event (vi), (vii), and (viii) hereof, are not satisfied, Borrower may prepay a portion of the Loan, subject to Article 6 herein, in such amount necessary so that the conditions hereof are satisfied (an “Extension Prepayment”).

 

ARTICLE 24. ADVANCES GENERALLY

 

(a)           Subject to and upon the terms and conditions set forth herein, the Loan shall be made in a series of Advances and shall consist of (i) the Initial Advance being made on the Closing Date, and (ii) the Earn Out Advances in an aggregate amount of up to FIVE MILLION SEVEN HUNDRED SEVENTY FIVE THOUSAND AND 00/100 DOLLARS ($5,775,000.00) (the “Earn Out Portion”). Lender’s obligation to make Earn Out Advances after the date hereof is subject to Borrower’s request and the applicable terms, conditions and limitations set forth in this Note. Lender hereby agrees to make and Borrower hereby agrees to accept the Loan on the Closing Date.

 

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(b)           Any amount borrowed and repaid hereunder in respect of the Loan may not be re borrowed.

 

ARTICLE 25. EARN OUT ADVANCES

 

(a)           Subject to the provisions hereof, following the receipt of a Request, which Request must be delivered to Lender at least fifteen (15) days prior to the Payment Date on which a proposed Earn Out Advance is requested to be made, Lender shall make Earn Out Advances from time to time (but not more often than once per calendar month and only on a Payment Date) provided, however, in no event shall the aggregate amount of Earn Out Advances exceed the Earn Out Portion.

 

(b)           Lender’s obligation to make any Earn Out Advance shall be subject to the satisfaction of each of the following conditions precedent to such Earn Out Advance:

 

(i)           Both immediately prior to the making of such Earn Out Advance and also after giving effect thereto, no Default or Event of Default shall have occurred and be continuing;

 

(ii)          The representations and warranties made by Borrower and Guarantor in the Loan Documents and in any guaranty or indemnity shall be true and correct on and as of the date of the making of such Earn Out Advance with the same force and effect as if made on and as of such date;

 

(iii)         Lender shall have received (i) a notice of title continuation or title endorsement, as appropriate, showing that since the making of any prior Advance there has been no change in the state of title to the Property and no survey exceptions with respect to the Property not theretofore approved by Lender, provided, Borrower shall not be required to obtain a survey or update any existing survey in connection with any Earn Out Advance, and that no mechanic’s Liens or other Liens have been filed and remain filed with respect to the Property other than Permitted Encumbrances, and (ii) an endorsement to the title insurance policy issued to Lender, which endorsement shall have the effect of (A) updating the date of such title insurance policy to the date of the making of such Earn Out Advance, and (B) increasing the coverage of such title insurance policy by an amount equal to the amount of the Earn Out Advance then being made;

 

(iv)        All fees and expenses payable to Lender, to the extent then due and payable, shall have been (or contemporaneously are being) paid in full and all title premiums and other title and survey charges shall have been (or contemporaneously are being) paid in full; and

 

(v)         Lender shall have received, together with the Request submitted by Borrower with respect to such Earn Out Advance, the financial statements, certificates, reports and/or information required to Section 3.11 of the Security Instrument, and such other documents relating to such Earn Out Advance as Lender may reasonably request.

 

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(c)           Lender will promptly disburse the Earn Out Advance after satisfaction by Borrower of the requirements in Section 25(b) above.

 

(d)           Notwithstanding Lender’s receipt of a Request, in no event shall Lender have any obligation to make the Earn Out Advance requested therein to the extent such Earn Out Advance is in an amount less than $100,000.00, except with respect to an Earn Out Advance requested to be made on the Last Advance Date.

 

(e)           Notwithstanding anything to the contrary herein, each Earn Out Advance shall be further limited as follows:

 

(i)           the Earn Out Portion shall be limited by reference to an Earn Out Allocation (as defined on Schedule A) for each Individual Property that has not been the subject of a Release. For avoidance of doubt, Earn Out Portion is secured by the Security Instrument, and the Earn Out Allocations are used solely for the purposes of determining the amount of each Earn Out Advance.

 

(ii)          Each Earn Out Advance constituting all or a portion of the Earn Out Allocation, when advanced, shall (x) not cause the Debt Yield (determined for the purposes of this clause (x) clause only, solely with reference to the Allocated Loan Amount (to the extent advanced) and Net Operating Income allocated to the Individual Property to which an Earn Out Allocation applies) to be less than 11.50%, and (y) not to cause the Loan to Value Ratio (determined for the purposes of this clause (y) only, solely with reference to the Allocated Loan Amount allocated to the Individual Property to which an Earn Out Allocation applies and the value of such Individual Property) to be greater than 70%, and

 

(iii)         Each Earn Out Advance constituting all or a portion of an Earn Out Allocation, when advanced (x) shall not cause the Debt Yield to be less than 11.5% (determined with reference to the then outstanding principal balance of the Note and all Individual Properties that have not been the subject of a Release), and (y) shall not cause the Debt Yield (determined for the purposes of this clause (y) only, solely with referenced to the Allocated Loan Amount of each Individual Property and the Net Operating Income for each such Individual Property) to be less than 10.75% for any Individual Property.

 

ARTICLE 26. PARTIAL RELEASES OF INDIVIDUAL PROPERTIES

 

(a)           Release of Individual Properties. Except as set forth in this Article 26, no repayment or prepayment of all or any portion of this Note shall cause, give rise to a right to require, or otherwise result in, the release of the lien of any Security Instrument.

 

(b)           Partial Releases. Notwithstanding anything to the contrary set forth in this Note or the other Loan Documents, in the event that any Individual Borrower desires to refinance one or more of the Individual Properties (each such refinance, a “Property Refinance”) or sell one or more of the Individual Properties to a bona fide third party purchaser who is not an Affiliate of Borrower or any Individual Borrower (each such sale or Property Refinance, a “Property Sale”), Individual Borrowers shall have the right without violating the Loan Documents, to refinance or sell such Individual Property or Individual Properties and obtain a release of such Individual Property or Individual Properties from the lien of the applicable Security Instrument and the other Loan Documents encumbering such Individual Property or Individual Properties (a “Release”), provided that all of the following conditions shall be satisfied with respect to such Property Sale:

 

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(i)           The Individual Borrowers shall have submitted to Lender a written request for release relating to such Property Sale (each, a “Sale Request”) at least thirty (30) days prior to the proposed Property Sale, which Sale Request (i) shall specify the Individual Property or Individual Properties that the Individual Borrowers intend to sell or refinance (collectively, the “Sale Request Properties”) and state the anticipated closing date of such Property Sale or Property Refinance, and (ii) shall include an Officer’s Certificate providing a certification that as of the date of the Sale Request, no Default or Event of Default has occurred and is continuing;

 

(ii)          The Individual Borrowers shall have paid, or shall have arranged to be paid contemporaneously with the closing of the Property Sale, to Lender, and Lender shall have received by wire transfer of immediately available federal funds, in addition to the Release Price, the applicable Prepayment Consideration, based on the Release Price to be paid to Lender as determined by Article 26;

 

(iii)         In addition to the amount set forth in the preceding clause (ii), Borrowers shall have paid, or shall have arranged to be paid, contemporaneously with the closing of the Property Sale, to Lender, and Lender shall have received by wire transfer of immediately available federal funds, an amount equal to the sum of (i) the Release Price for the Sale Request Properties, the proceeds of which Release Price, shall be applied to prepay the Debt in accordance with Article 26; plus (ii) all accrued and unpaid interest on said amounts prepaid in accordance with the terms of this Note, plus (iii) if such prepayment occurs on a day other than a Payment Date, interest under the Loan on the amount so prepaid to, but not including, the next succeeding Payment Date, plus (iv) the Partial Prepayment Exit Fee for the portion of the principal being prepaid in accordance with Article 26;

 

(iv)         The Individual Borrowers shall have paid, in connection with the Sale Request Properties, all of the actual out of pocket reasonable third party legal fees and actual out of pocket reasonable third party expenses incurred by Lender in connection with reviewing and processing each such Sale Request, whether or not any Property Sale which is the subject of a Sale Request actually closes;

 

(v)          No Default or Event of Default shall have occurred and be continuing at the time of the submission by Individual Borrowers of the Sale Request or at the time of the closing of any Property Sale;

 

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(vi)         Those Individual Properties which are not the subject of a Property Sale shall continue to comply with all applicable Legal Requirements, including, without limitation, zoning and/or parking requirements to the extent such compliance is required elsewhere in this Note or other Loan Documents;

 

(vii)        Either (A) The Holiday Inn Borrower shall have renewed the Holiday Inn Franchise Agreement for a term of no less than five (5) years, or Borrower shall have identified a substitute franchisor acceptable to Lender and shall obtained a fully executed franchise agreement acceptable to Lender with such franchisor, or (B) the Holiday Inn shall be subject to a Property Sale;

 

(viii)       Reserved.

 

(ix)         After giving effect to the Property Sale, the Loan to Value Ratio based on the values applicable to the remaining Individual Properties (i.e., excluding the Individual Properties subject to such Property Sale or any prior Property Sale) shall not be greater than the seventy percent (70%).

 

(x)          After giving effect to the Property Sale, the Debt Yield for the annual period immediately prior to the anticipated Property Sale, based on the annual Net Operating Income applicable to the remaining Individual Properties (i.e., excluding the Individual Properties subject to such Property Sale or any prior Property Sale) shall not be less than 11.5%.

 

(xi)         Notwithstanding the foregoing set forth in (viii), (ix) and (x) hereof, after giving effect to the Property Sale, the Loan to Value Ratio shall not be higher, and the Debt Yield shall not be lower than, in each case, the applicable determination immediately prior to the anticipated Property Sale.

 

(xii)        If, after giving effect to the Property Sale, (viii), (ix), (x) and (xi) hereof, are not satisfied, Borrower may prepay a portion of the Loan, subject to Article 6 herein, in such amount necessary so that the conditions hereof are satisfied.

 

(xiii)       Except as set forth in (vii) above, after giving effect to the Property Sale, the remaining Individual Properties shall be that Individual Property known as the Hilton and that Individual Property known as the Holiday Inn (i.e., only that Individual Property known as Crowne Plaza may be the subject of a Release except as set forth in (vii) above).

 

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(c)           Release of Property. With respect to any Property Sale, on or prior to the closing of such Property Sale if all of the conditions set forth in Article 25(b) with respect to such Property Sale have been satisfied, Lender, at the sole cost and expense of Borrowers, shall execute and deliver to Borrowers the releases, satisfactions, discharges and/or assignments, as applicable and as reasonably requested by Borrowers, of the Security Instrument and the other Loan Documents which solely relate to the Individual Property or Individual Properties to be released. Upon the closing of any Property Sale, all references herein or in any of the other Loan Documents to the term “Individual Properties” shall be deemed to exclude the Individual Property or Individual Properties sold pursuant to such Property Sale, as provided for in Article 26. Furthermore, if all Individual Properties owned by any Individual Borrower have been the subject of one or more completed Property Sales, upon the closing of the last completed Property Sale in accordance with this Agreement relating to the Individual Properties owned by such Individual Borrower, such Individual Borrower shall be released from this Note, and any other Loan Document to which such Individual Borrower is a party and shall cease to be a “Borrower” under this Note or any other Loan Document and all references in this Note or any other Loan Document to the term “Borrower” or “Borrowers” shall be deemed to exclude such Individual Borrower.

 

(d)           Definition of Property. Upon giving effect to any completed Property Sale and Borrowers’ satisfaction of the terms and provisions of Article 26 hereof, all references herein or in any of the other Loan Documents to the term “Properties” shall be deemed to exclude the Individual Property covered under such Property Sale.

 

ARTICLE 27. CONTRIBUTIONS AND WAIVERS

 

(a)           As a result of the transactions contemplated by this Note and the other Loan Documents, each Borrower will benefit, directly and indirectly, from each Borrower’s obligation to pay the Debt and perform its obligations hereunder and under the other Loan Documents (collectively, the “Obligations”) and in consideration therefore each Borrower desires to enter into an allocation and contribution agreement among themselves as set forth in this Section to allocate such benefits among themselves and to provide a fair and equitable agreement to make contributions among each of Borrowers in the event any payment is made by any individual Borrower hereunder to Lender (such payment being referred to herein as a “Contribution,” and for purposes of this Section, includes any exercise of recourse by Lender against any Property of a Borrower and application of proceeds of such Property in satisfaction of such Borrower’s obligation, to Lender under the Loan Documents).

 

(b)           Each Borrower shall be liable hereunder with respect to the Obligations only for such total maximum amount (if any) that would not render its Obligations hereunder or under any of the Loan Documents subject to avoidance under Section 548 of the Bankruptcy Code or any comparable provisions of applicable legal requirements.

 

(c)           In order to provide for a fair and equitable contribution among Borrowers in the event that any Contribution is made by an individual Borrower (a “Funding Borrower”), such Funding Borrower shall be entitled to a reimbursement Contribution (“Reimbursement Contribution”) from the other Borrower for all payments, damages and expenses incurred by that Funding Borrower in discharging any of the Obligations, in the manner and to the extent set forth in this Section.

 

(d)           For purposes hereof, the “Benefit Amount” of any individual Borrower as of any date of determination shall be the net value of the benefits to such Borrower and its Affiliates from extensions of credit made by Lender to (i) such Borrower and (ii) to the other Borrower hereunder and the Loan Documents to the extent such other Borrower has guaranteed or mortgaged their property to secure the Obligations of such Borrower to Lender.

 

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(e)           Each Borrower shall be liable to a Funding Borrower in an amount equal to the greater of (i) the (A) ratio of the Benefit Amount of such Borrower to the total amount of Obligations, multiplied by (B) the amount of Obligations paid by such Funding Borrower, or (ii) ninety five percent (95%) of the excess of the fair saleable value of the property of such Borrower over the total liabilities of such Borrower (including the maximum amount reasonably expected to become due in respect of contingent liabilities) determined as of the date on which the payment made by a Funding Borrower is deemed made for purposes hereof (giving effect to all payments made by other Funding Borrowers as of such date in a manner to maximize the amount of such Contributions).

 

(f)            In the event that at any time there exists more than one Funding Borrower with respect to any Contribution (in any such case, the “Applicable Contribution”), then Reimbursement Contributions from the other Borrower pursuant hereto shall be allocated among such Funding Borrowers in proportion to the total amount of the Contribution made for or on account of the other Borrower by each such Funding Borrower pursuant to the Applicable Contribution. In the event that at any time any Borrower pays an amount hereunder in excess of the amount calculated pursuant to this Section above, that Borrower shall be deemed to be a Funding Borrower to the extent of such excess and shall be entitled to a Reimbursement Contribution from the other Borrowers in accordance with the provisions of this Section.

 

(g)           Each Borrower acknowledges that the right to Reimbursement Contribution hereunder shall constitute an asset in favor of Borrower to which such Reimbursement Contribution is owing.

 

(h)           No Reimbursement Contribution payments payable by a Borrower pursuant to the terms of this Section shall be paid until all amounts then due and payable by all of Borrowers to Lender, pursuant to the terms of the Loan Documents, are paid in full in cash. Nothing contained in this Section shall limit or affect in any way the Obligations of any Borrower to Lender under the Loan Documents.

 

(i)           To the extent permitted by applicable legal requirements, each Borrower waives:

 

(i)           any right to require Lender to proceed against any other Borrower or any other Person or to proceed against or exhaust any security held by Lender at any time or to pursue any other remedy in Lender’s power before proceeding against Borrower;

 

(ii)          any defense based upon any legal disability or other defense of any other Borrower, any guarantor of any other Person or by reason of the cessation or limitation of the liability of any other Borrower or any guarantor from any cause other than full payment of all sums payable under the Loan Documents;

 

(iii)         any defense based upon any lack of authority of the officers, directors, partners or agents acting or purporting to act on behalf of any other Borrower or any principal of any other Borrower or any defect in the formation of any other Borrower or any principal of any other Borrower;

 

(iv)         any defense based upon any statute or rule of law which provides that the obligation of a surety must be neither larger in amount nor in any other respects more burdensome than that of a principal;

 

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(v)          any defense based upon any failure by Lender to obtain collateral for the indebtedness or failure by Lender to perfect a lien on any collateral;

 

(vi)         presentment, demand, protest and notice of any kind;

 

(vii)        any defense based upon any failure of Lender to give notice of sale or other disposition of any collateral to any other Borrower or to any other Person or any defect in any notice that may be given in connection with any sale or disposition of any collateral;

 

(viii)       any defense based upon any failure of Lender to comply with applicable laws in connection with the sale or other disposition of any collateral, including any failure of Lender to conduct a commercially reasonable sale or other disposition of any collateral;

 

(ix)         any defense based upon any use of cash collateral under Section 363 of the Bankruptcy Code;

 

(x)          any defense based upon any agreement or stipulation entered into by Lender with respect to the provision of adequate protection in any bankruptcy proceeding;

 

(xi)         any defense based upon any borrowing or any grant of a security interest under Section 364 of the Bankruptcy Code;

 

(xii)        any defense based upon the avoidance of any security interest in favor of Lender for any reason;

 

(xiii)       any defense based upon any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding, including any discharge of, or bar or stay against collecting, all or any of the obligations evidenced by this Note or owing under any of the Loan Documents;

 

(xiv)       any defense or benefit based upon Borrower’s, or any other party’s, resignation of the portion of any obligation secured by the Security Instrument to be satisfied by any payment from any other Borrower or any such party;

 

(xv)        all rights and defenses arising out of an election of remedies by Lender even though the election of remedies, such as non judicial foreclosure with respect to security for the Loan or any other amounts owing under the Loan Documents, has destroyed Borrower’s rights of subrogation and reimbursement against any other Borrower; and

 

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(xvi)       all rights and defenses that Borrower may have because any of the Debt is secured by real property. This means, among other things (subject to the other terms and conditions of the Loan Documents): (1) Lender may collect from Borrower without first foreclosing on any real or personal property collateral pledged by any other Borrower, and (2) if Lender forecloses on any real property collateral pledged by any other Borrower, (I) the amount of the Debt may be reduced only by the price for which that collateral is sold at the foreclosure sale, even if the collateral is worth more than the sale price and (II) Lender may collect from Borrower even if any other Borrower, by foreclosing on the real property collateral, has destroyed any right Borrower may have to collect from any other Borrower. This is an unconditional and irrevocable waiver of any rights and defenses Borrower may have because any of the Debt is secured by real property; and except as may be expressly and specifically permitted herein, any claim or other right which Borrower might now have or hereafter acquire against any other Borrower or any other Person that arises from the existence or performance of any obligations under the Loan Documents, including any of the following: (i) any right of subrogation, reimbursement, exoneration, contribution, or indemnification; or (ii) any right to participate in any claim or remedy of Lender against any other Borrower or any collateral security therefor, whether or not such claim, remedy or right arises in equity or under contract, statute or common law.

 

(j)            Each Borrower hereby restates and makes the waivers made by Guarantor in the Guaranty of Recourse Obligations for the benefit of Lender. Such waivers are hereby incorporated by reference as if fully set forth herein (and as if applicable to each Borrower) and shall be effective for all purposes under the Loan (including, without limitation, in the event that any Borrower is deemed to be a surety or guarantor of the Debt (by virtue of each Borrower being co obligors and jointly and severally liable hereunder, by virtue of each Borrower encumbering its interest in the Property for the benefit or debts of the other Borrower in connection herewith or otherwise)).

 

[Remainder of page intentionally left blank; signature page follows]

 

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SCHEDULE A

 

INDIVIDUAL PROPERTIES AND ALLOCATED LOAN AMOUNTS

 

Address of Individual
Property		  Allocated Loan
Amount		   Earn Out
Allocation		   Maximum
Allocated Loan
Amount		 
Crowne Plaza 4300 E. Washington Street Phoenix, Arizona  $13,250,000.00   $1,490,000.00   $14,740,000.00 
Holiday Inn 1515 N. 44th Street Phoenix, Arizona  $11,630,000.00   $3,780,000.00   $15,410,000.00 
Hilton  2435 S. 47th Street Phoenix, Arizona  $31,590,000.00   $505,000.00   $32,095,000.00 

 

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IN WITNESS WHEREOF, Borrower has duly executed this Note as of the day and year first above written.

 

  BORROWER:
   
  44TH AND MCDOWELL HOLDING, LLC, a Delaware limited liability company
   
  By: /s/ Jennifer Schrader
  Name: Jennifer Schrader
  Title: Authorized Signatory
   
  47TH STREET PHOENIX AIRPORT, LLC, a Delaware limited liability company
   
  By: /s/ Jennifer Schrader
  Name: Jennifer Schrader
  Title: Authorized Signatory
   
  CHPH HOLDING, LLC, a Delaware limited liability company
   
  By: /s/ Jennifer Schrader
  Name: Jennifer Schrader
  Title: Authorized Signatory

 

PROMISSORY NOTE

 

 

  

 EX1A-6 MAT CTRCT 10 filename10.htm

 

Exhibit 6.3.1

 

GUARANTY OF RECOURSE OBLIGATIONS

 

THIS GUARANTY OF RECOURSE OBLIGATIONS (this “Guaranty”) is executed as of September ___, 2018, by CALIBERCOS INC., a Delaware corporation, having an office at 8901 East Mountain View Road, Suite 150, Scottsdale, Arizona 85258, JENNIFER SCHRADER, an individual, having an address at 8901 East Mountain View Road, Suite 150, Scottsdale, Arizona 85258, JOHN C. LOEFFLER, II, an individual, having an address at 8901 East Mountain View Road, Suite 150, Scottsdale, Arizona 85258, and FRANK HEAVLIN, an individual, having an address as 2147 E Baseline Rd, Tempe, Arizona 85283 (individually and collectively, “Guarantor”), for the benefit of RCC REAL ESTATE, INC., a Delaware corporation having an address at 717 Fifth Avenue, 12th Floor, New York, New York 10022, and its successors and assigns (collectively, “Lender”).

 

WITNESSETH:

 

WHEREAS, pursuant to that certain Promissory Note, dated of even date herewith, executed by 44TH AND MCDOWELL HOLDING, LLC, a Delaware limited liability company, 47TH STREET PHOENIX AIRPORT, LLC, a Delaware limited liability company, and CHPH HOLDING, LLC, a Delaware limited liability company (individually and collectively, “Borrower”), payable to the order of Lender in the maximum principal amount of SIXTY TWO MILLION TWO HUNDRED FORTY FIVE THOUSAND AND 00/100 DOLLARS ($62,245,000.00) (as the same may hereafter be amended, restated, renewed, supplemented, replaced, extended or otherwise modified from time to time, the “Note”), Borrower has become indebted, and may from time to time be further indebted, to Lender with respect to a loan (“Loan”) which is secured by the lien and security interest of that certain Deed of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of the date hereof, made by Borrower for the benefit of Lender (as the same may hereafter be amended, restated, renewed, supplemented, replaced, extended or otherwise modified from time to time, the “Security Instrument”), which grants Lender a first lien on the properties encumbered thereby (collectively, the “Property”). All and any of the documents including the Note, the Security Instrument and this Guaranty now or hereafter executed by Borrower and/or others and by or in favor of Lender in connection with the Loan, as the same may be amended, restated, supplemented, or otherwise modified from time to time, are collectively referred to herein as the “Loan Documents.” Capitalized terms used herein shall have the meanings provided in the Note or the Security Instrument, as applicable, unless otherwise provided herein; and

 

WHEREAS, Lender is not willing to make the Loan, or otherwise extend credit, to Borrower unless Guarantor unconditionally guarantees payment and performance to Lender of the Guaranteed Obligations (as herein defined); and

 

WHEREAS, Guarantor is the owner of a direct or indirect interest in Borrower, and Guarantor will directly benefit from Lender’s making the Loan to Borrower.

 

NOW, THEREFORE, as an inducement to Lender to make the Loan to Borrower, and to extend such additional credit as Lender may from time to time agree to extend under the Loan Documents, and for other good and valuable consideration, the receipt and legal sufficiency of which are hereby acknowledged, and intending to be legally bound hereby, the parties do hereby agree as follows:

 

 

 

 

ARTICLE I

 

NATURE AND SCOPE OF GUARANTY

 

1.1         Guaranty of Obligation. Guarantor hereby irrevocably and unconditionally guarantees to Lender and its successors and assigns the payment and performance of the Guaranteed Obligations as and when the same shall be due and payable, whether by lapse of time, by acceleration of maturity or otherwise. Guarantor hereby irrevocably and unconditionally covenants and agrees that it is liable for the Guaranteed Obligations as a primary obligor.

 

1.2         Guaranteed Obligations. (a) The term “Guaranteed Obligations” as used in this Guaranty shall mean all obligations and liabilities of Borrower for which Borrower shall be personally liable pursuant to Article 15 of the Note.

 

(b)          Notwithstanding anything to the contrary in this Guaranty, the Note or any of the other Loan Documents, Lender shall not be deemed to have waived any right which Lender may have under Section 506(a), 506(b), 1111(b) or any other provisions of the Bankruptcy Code to file a claim for the full amount of the Debt or to require that all collateral shall continue to secure all of the Debt owing to Lender in accordance with the Loan Documents

 

1.3         Nature of Guaranty. This Guaranty is an irrevocable, absolute, continuing guaranty of payment and performance and not a guaranty of collection. This Guaranty may not be revoked by Guarantor and shall continue to be effective with respect to any Guaranteed Obligations arising or created after any attempted revocation by Guarantor and after (if Guarantor is a natural person) Guarantor’s death (in which event this Guaranty shall be binding upon Guarantor’s estate and Guarantor’s legal representatives and heirs). The fact that at any time or from time to time the Guaranteed Obligations may be increased or reduced shall not release or discharge the obligation of Guarantor to Lender with respect to the Guaranteed Obligations. This Guaranty may be enforced by Lender and any subsequent holder of the Note and shall not be discharged by the assignment or negotiation of all or part of the Note.

 

1.4         Guaranteed Obligations Not Reduced by Offset. The Guaranteed Obligations and the liabilities and obligations of Guarantor to Lender hereunder, shall not be reduced, discharged or released because or by reason of any existing or future offset, claim or defense of Borrower, or any other party, against Lender or against payment of the Guaranteed Obligations, whether such offset, claim or defense arises in connection with the Guaranteed Obligations (or the transactions creating the Guaranteed Obligations) or otherwise.

 

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1.5         Payment By Guarantor. If all or any part of the Guaranteed Obligations shall not be punctually paid when due, whether at demand, maturity, acceleration or otherwise, Guarantor shall, immediately upon demand by Lender, and without presentment, protest, notice of protest, notice of non-payment, notice of intention to accelerate the maturity, notice of acceleration of the maturity, or any other notice whatsoever, pay in lawful money of the United States of America, the amount due on the Guaranteed Obligations to Lender at Lender’s address as set forth herein. Such demand(s) may be made at any time coincident with or after the time for payment of all or part of the Guaranteed Obligations, and may be made from time to time with respect to the same or different items of Guaranteed Obligations. Such demand shall be deemed made, given and received in accordance with the notice provisions hereof. If Guarantor fails to make when due any payment required to be made by it under this Guaranty (a “Guaranty Payment”), then such Guaranty Payment shall bear interest from such due date until paid at the Default Rate from time to time in effect. Interest accrued hereunder with respect to any Guaranty Payment shall be payable on demand and shall be calculated on the basis of the actual number of days elapsed on a 360-day year.

 

1.6         No Duty To Pursue Others. It shall not be necessary for Lender (and Guarantor hereby waives any rights which Guarantor may have to require Lender), in order to enforce the obligations of Guarantor hereunder, first to (i) institute suit or exhaust its remedies against Borrower or others liable on the Loan or the Guaranteed Obligations or any other person, (ii) enforce Lender’s rights against any collateral which shall ever have been given to secure the Loan, (iii) enforce Lender’s rights against any other guarantors of the Guaranteed Obligations, (iv) join Borrower or any others liable on the Guaranteed Obligations in any action seeking to enforce this Guaranty, (v) exhaust any remedies available to Lender against any collateral which shall ever have been given to secure the Loan, or (vi) resort to any other means of obtaining payment of the Guaranteed Obligations. Lender shall not be required to mitigate damages or take any other action to reduce, collect or enforce the Guaranteed Obligations.

 

1.7         Waivers. To the extent permitted by applicable law, Guarantor agrees to the provisions of the Loan Documents, and hereby waives notice of (i) any loans or advances made by Lender to Borrower, (ii) acceptance of this Guaranty, (iii) any amendment or extension of the Note, the Security Instrument, or of any other Loan Documents, (iv) the execution and delivery by Borrower and Lender of any other loan or credit agreement or of Borrower’s execution and delivery of any promissory notes or other documents arising under the Loan Documents or in connection with the Property, (v) the occurrence of any breach by Borrower or an Event of Default, (vi) Lender’s transfer or disposition of the Guaranteed Obligations, or any part thereof, (vii) sale or foreclosure (or posting or advertising for sale or foreclosure) of any collateral for the Guaranteed Obligations, (viii) protest, proof of non-payment or default by Borrower, or (ix) any other action at any time taken or omitted by Lender, and, generally, all demands and notices of every kind in connection with this Guaranty, the Loan Documents, any documents or agreements evidencing, securing or relating to any of the Guaranteed Obligations and the obligations hereby guaranteed.

 

1.8         Payment of Expenses. In the event that Guarantor should breach or fail to timely perform any provisions of this Guaranty, Guarantor shall, immediately upon demand by Lender, pay Lender all costs and expenses (including court costs and reasonable attorneys’ fees) incurred by Lender in the enforcement hereof or the preservation of Lender’s rights hereunder. The covenant contained in this Section shall survive the payment and performance of the Guaranteed Obligations.

 

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1.9         Effect of Bankruptcy. In the event that, pursuant to any insolvency, bankruptcy, reorganization, receivership or other debtor relief law, or any judgment, order or decision thereunder, Lender must rescind or restore any payment, or any part thereof, received by Lender in satisfaction of the Guaranteed Obligations, as set forth herein, any prior release or discharge from the terms of this Guaranty given to Guarantor by Lender shall be without effect, and this Guaranty shall remain in full force and effect. It is the intention of Borrower and Guarantor that Guarantor’s obligations hereunder shall not be discharged except by Guarantor’s performance of such obligations and then only to the extent of such performance.

 

1.10       Waiver of Subrogation, Reimbursement and Contribution. Notwithstanding anything to the contrary contained in this Guaranty, for as long as the Loan remains outstanding, Guarantor hereby unconditionally and irrevocably waives, releases and abrogates any and all rights it may now or hereafter have under any agreement, at law or in equity (including, without limitation, any law subrogating the Guarantor to the rights of Lender), to assert any claim against or seek contribution, indemnification or any other form of reimbursement from Borrower or any other party liable for payment of any or all of the Guaranteed Obligations for any payment made by Guarantor under or in connection with this Guaranty or otherwise.

 

1.11       Borrower. The term “Borrower” as used herein shall include any new or successor corporation, association, partnership (general or limited), limited liability company, joint venture, trust or other individual or organization formed as a result of any merger, reorganization, sale, transfer, devise, gift or bequest of Borrower or any interest in Borrower.

 

ARTICLE II

 

EVENTS AND CIRCUMSTANCES NOT REDUCING OR DISCHARGING GUARANTOR’S OBLIGATIONS

 

Guarantor hereby consents and agrees to each of the following, and agrees that Guarantor’s obligations under this Guaranty shall not be released, diminished, impaired, reduced or adversely affected by any of the following, and waives (to the extent permitted under applicable law) any common law, equitable, statutory or other rights (including without limitation rights to notice) which Guarantor might otherwise have as a result of or in connection with any of the following:

 

2.1         Modifications. Any renewal, extension, increase, modification, alteration or rearrangement of all or any part of the Guaranteed Obligations, the Note, the Security Instrument, the other Loan Documents, or any other document, instrument, contract or understanding between Borrower and Lender, or any other parties, pertaining to the Guaranteed Obligations or any failure of Lender to notify Guarantor of any such action.

 

2.2         Adjustment. Any adjustment, indulgence, forbearance or compromise that might be granted or given by Lender to Borrower or any Guarantor.

 

2.3         Condition of Borrower or Guarantor. The insolvency, bankruptcy, arrangement, adjustment, composition, liquidation, disability, dissolution or lack of power of Borrower, Guarantor or any other party at any time liable for the payment of all or part of the Guaranteed Obligations; or any dissolution of Borrower or Guarantor, or any sale, lease or transfer of any or all of the assets of Borrower or Guarantor, or any changes in the shareholders, partners or members of Borrower or Guarantor; or any reorganization of Borrower or Guarantor.

 

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2.4         Invalidity of Guaranteed Obligations. The invalidity, illegality or unenforceability of all or any part of the Guaranteed Obligations, or any document or agreement executed in connection with the Guaranteed Obligations, for any reason whatsoever, including without limitation the fact that (i) the Guaranteed Obligations, or any part thereof, exceeds the amount permitted by law, (ii) the act of creating the Guaranteed Obligations or any part thereof is ultra vires, (iii) the officers or representatives executing the Note, the Security Instrument, or the other Loan Documents or otherwise creating the Guaranteed Obligations acted in excess of their authority, (iv) the Guaranteed Obligations violate applicable usury laws, (v) the Borrower has valid defenses, claims or offsets (whether at law, in equity or by agreement) which render the Guaranteed Obligations wholly or partially uncollectible from Borrower, (vi) the creation, performance or repayment of the Guaranteed Obligations (or the execution, delivery and performance of any document or instrument representing part of the Guaranteed Obligations or executed in connection with the Guaranteed Obligations, or given to secure the repayment of the Guaranteed Obligations) is illegal, uncollectible or unenforceable, or (vii) the Note, the Security Instrument, or any of the other Loan Documents have been forged or otherwise are irregular or not genuine or authentic, it being agreed that Guarantor shall remain liable hereon regardless of whether Borrower or any other person be found not liable on the Guaranteed Obligations or any part thereof for any reason.

 

2.5         Release of Obligors. Any full or partial release of the liability of Borrower on the Guaranteed Obligations, or any part thereof, or of any co-guarantors, or any other Person now or hereafter liable, whether directly or indirectly, jointly, severally, or jointly and severally, to pay, perform, guarantee or assure the payment of the Guaranteed Obligations, or any part thereof, it being recognized, acknowledged and agreed by Guarantor that Guarantor may be required to pay the Guaranteed Obligations in full without assistance or support of any other party, and Guarantor has not been induced to enter into this Guaranty on the basis of a contemplation, belief, understanding or agreement that other parties will be liable to pay or perform the Guaranteed Obligations, or that Lender will look to other parties to pay or perform the Guaranteed Obligations.

 

2.6         Other Collateral. The taking or accepting of any other security, collateral or guaranty, or other assurance of payment, for all or any part of the Guaranteed Obligations.

 

2.7         Release of Collateral. Any release, surrender, exchange, subordination, deterioration, waste, loss or impairment (including without limitation negligent, willful, unreasonable or unjustifiable impairment) of any collateral, property or security at any time existing in connection with, or assuring or securing payment of, all or any part of the Guaranteed Obligations.

 

2.8         Care and Diligence. The failure of Lender or any other party to exercise diligence or reasonable care in the preservation, protection, enforcement, sale or other handling or treatment of all or any part of any collateral, property or security, including but not limited to any neglect, delay, omission, failure or refusal of Lender (i) to take or prosecute any action for the collection of any of the Guaranteed Obligations or (ii) to foreclose, or initiate any action to foreclose, or, once commenced, prosecute to completion any action to foreclose upon any security therefor, or (iii) to take or prosecute any action in connection with any instrument or agreement evidencing or securing all or any part of the Guaranteed Obligations.

 

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2.9        Unenforceability. The fact that any collateral, security, security interest or lien contemplated or intended to be given, created or granted as security for the repayment of the Guaranteed Obligations, or any part thereof, shall not be properly perfected or created, or shall prove to be unenforceable or subordinate to any other security interest or lien, it being recognized and agreed by Guarantor that Guarantor is not entering into this Guaranty in reliance on, or in contemplation of the benefits of, the validity, enforceability, collectability or value of any of the collateral for the Guaranteed Obligations.

 

2.10      Intentionally Omitted.

 

2.11      Merger. The reorganization, merger or consolidation of Borrower into or with any other Person.

 

2.12      Preference. Any payment by Borrower to Lender is held to constitute a preference under bankruptcy laws, or for any reason Lender is required to refund such payment or pay such amount to Borrower or someone else.

 

2.13      Other Actions Taken or Omitted. Any other action taken or omitted to be taken with respect to the Loan Documents, the Guaranteed Obligations, or the security and collateral therefor, whether or not such action or omission prejudices Guarantor or increases the likelihood that Guarantor will be required to pay the Guaranteed Obligations pursuant to the terms hereof, it is the unambiguous and unequivocal intention of Guarantor that Guarantor shall be obligated to pay the Guaranteed Obligations when due, notwithstanding any occurrence, circumstance, event, action, or omission whatsoever, whether contemplated or uncontemplated, and whether or not otherwise or particularly described herein, which obligation shall be deemed satisfied only upon the full and final payment and satisfaction of the Guaranteed Obligations.

 

ARTICLE III

 

REPRESENTATIONS AND WARRANTIES

 

To induce Lender to enter into the Loan Documents and extend credit to Borrower, Guarantor represents and warrants to Lender as follows:

 

3.1         Benefit. Guarantor is an affiliate of Borrower, is the owner of a direct or indirect interest in Borrower, and has received, or will receive, direct or indirect benefit from the making of this Guaranty with respect to the Guaranteed Obligations.

 

3.2         Familiarity and Reliance. Guarantor is familiar with, and has independently reviewed books and records regarding, the financial condition of the Borrower and is familiar with the value of any and all collateral intended to be created as security for the payment of the Note or Guaranteed Obligations; however, Guarantor is not relying on such financial condition or the collateral as an inducement to enter into this Guaranty.

 

3.3         No Representation By Lender. Neither Lender nor any other party has made any representation, warranty or statement to Guarantor in order to induce the Guarantor to execute this Guaranty.

 

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3.4         Guarantor’s Financial Condition. (a) As of the date hereof, and after giving effect to this Guaranty and the contingent obligation evidenced hereby, Guarantor is, and will be, solvent, and has and will have assets which, fairly valued, exceed its obligations, liabilities (including contingent liabilities) and debts, and has and will have property and assets sufficient to satisfy and repay its obligations and liabilities.

 

(b)          Net Worth Covenant. At all times prior to the payment of all obligations of Borrower under the Note and the other Loan Documents and of all of the Guaranteed Obligations under this Guaranty, Guarantor shall collectively maintain (i) a book net worth (net of capital events which shall be acceptable to Lender), as determined by Lender in its reasonable discretion based on financial documentation provided by Guarantor to Lender pursuant to Section 3.5, that equals or exceeds Forty Million and 00/100 Dollars ($40,000,000.00) (the “Net Worth Requirement”), and (ii) cash and marketable securities in an amount equal to or greater than Ten Million and 00/100 Dollars ($10,000,000.00) (the “Liquidity Requirement”). In the event either Guarantor fails to comply with any of the foregoing covenants in accordance with this Section 3.4(b), Guarantor shall cure such failure within thirty (30) days after the occurrence thereof. Notwithstanding the foregoing, if Guarantor fails to meet the foregoing, Guarantor shall promptly notify Lender in writing of the same and no default shall occur hereunder so long as an additional guarantor (“Replacement Guarantor”) approved by Lender, which approval shall be granted or denied pursuant to Lender’s customary underwriting procedures, enters into and delivers to Lender, within fifteen (15) Business Days, a guaranty in substantially the same form and content as this Guaranty.

 

(c)          Each Guarantor shall furnish Lender with current financial statements (certified by a duly authorized corporate officer of Guarantor) or other information evidencing the foregoing each calendar quarter and at the end of each calendar year, and as may, from time to time (but not more than once per calendar quarter), be reasonably requested by Lender in form and substance satisfactory to Lender.

 

3.5         Guarantor’s Financial Reports. Guarantor shall to furnish to Lender annually, within one hundred twenty (120) days following the end of each calendar year of Guarantor, a complete copy of Guarantor’s annual financial statements (including, without limitation, statements of financial condition, income and cash flows, net worth and a list of all contingent liabilities) audited by a “Big Four” accounting firm, Marcum Accountants & Advisors, or other independent certified public accountant acceptable to Lender (in Lender’s reasonable discretion) prepared in accordance with GAAP. Guarantor’s annual financial statements shall be accompanied by (i) a certificate from Guarantor acceptable to Lender stating that each such annual financial statement presents fairly the financial condition of Guarantor being reported upon and has been prepared in accordance with GAAP and (ii) an unqualified opinion of a “Big Four” accounting firm or other independent certified public accountant reasonably acceptable to Lender.

 

3.6         Legality. The execution, delivery and performance by Guarantor of this Guaranty and the consummation of the transactions contemplated hereunder do not, and will not, contravene or conflict with any law, statute or regulation whatsoever to which Guarantor is subject or constitute a default (or an event which with notice or lapse of time or both would constitute a default) under, or result in the breach of, any indenture, mortgage, deed of trust, charge, lien, or any contract, agreement or other instrument to which Guarantor is a party or which may be applicable to Guarantor. This Guaranty is a legal and binding obligation of Guarantor and is enforceable in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to the enforcement of creditors’ rights.

 

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3.7         Litigation. There are no actions, suits or proceedings at law or in equity by or before any Governmental Authority or other agency now pending or threatened against or affecting Guarantor.

 

3.8         Survival. All representations and warranties made by Guarantor herein shall survive the execution hereof.

 

ARTICLE IV

 

SUBORDINATION OF CERTAIN INDEBTEDNESS

 

4.1         Subordination of All Guarantor Claims. As used herein, the term “Guarantor Claims” shall mean all debts and liabilities of Borrower to Guarantor, whether such debts and liabilities now exist or are hereafter incurred or arise, or whether the obligations of Borrower thereon be direct, contingent, primary, secondary, several, joint and several, or otherwise, and irrespective of whether such debts or liabilities be evidenced by note, contract, open account, or otherwise, and irrespective of the person or persons in whose favor such debts or liabilities may, at their inception, have been, or may hereafter be created, or the manner in which they have been or may hereafter be acquired by Guarantor. The Guarantor Claims shall include without limitation all rights and claims of Guarantor against Borrower (arising as a result of subrogation or otherwise) as a result of Guarantor’s payment of all or a portion of the Guaranteed Obligations. Upon and during the continuance of an Event of Default or Default, Guarantor shall not receive or collect, directly or indirectly, from Borrower or any other party any amount upon the Guarantor Claims.

 

4.2         Claims in Bankruptcy. In the event of receivership, bankruptcy, reorganization, arrangement, debtor’s relief, or other insolvency proceedings involving Guarantor as debtor, Lender shall have the right to prove its claim in any such proceeding so as to establish its rights hereunder and receive directly from the receiver, trustee or other court custodian dividends and payments which would otherwise be payable upon Guarantor Claims. Guarantor hereby assigns such dividends and payments to Lender. Should Lender receive, for application against the Guaranteed Obligations, any such dividend or payment which is otherwise payable to Guarantor, and which, as between Borrower and Guarantor, shall constitute a credit against the Guarantor Claims, then upon payment to Lender in full of the Guaranteed Obligations, Guarantor shall become subrogated to the rights of Lender to the extent that such payments to Lender on the Guarantor Claims have contributed toward the liquidation of the Guaranteed Obligations, and such subrogation shall be with respect to that proportion of the Guaranteed Obligations which would have been unpaid if Lender had not received dividends or payments upon the Guarantor Claims.

 

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4.3         Payments Held in Trust. In the event that, notwithstanding anything to the contrary in this Guaranty, Guarantor should receive any funds, payment, claim or distribution which is prohibited by this Guaranty, Guarantor agrees to hold in trust for Lender an amount equal to the amount of all funds, payments, claims or distributions so received, and agrees that it shall have absolutely no dominion over the amount of such funds, payments, claims or distributions so received except to pay them promptly to Lender, and Guarantor covenants promptly to pay the same to Lender.

 

4.4         Liens Subordinate. Guarantor agrees that any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guarantor Claims shall be and remain inferior and subordinate to any liens, security interests, judgment liens, charges or other encumbrances upon Borrower’s assets securing payment of the Guaranteed Obligations, regardless of whether such encumbrances in favor of Guarantor or Lender presently exist or are hereafter created or attach. Without the prior written consent of Lender, Guarantor shall not (i) exercise or enforce any creditor’s right it may have against Borrower, or (ii) foreclose, repossess, sequester or otherwise take steps or institute any action or proceedings (judicial or otherwise, including without limitation the commencement of, or joinder in, any liquidation, bankruptcy, rearrangement, debtor’s relief or insolvency proceeding) to enforce any liens, mortgages, deeds of trust, security interests, collateral rights, judgments or other encumbrances on assets of Borrower held by Guarantor.

 

ARTICLE V

 

MISCELLANEOUS

 

5.1         Waiver. No failure to exercise, and no delay in exercising, on the part of Lender, any right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise thereof preclude any other or further exercise thereof or the exercise of any other right. The rights of Lender hereunder shall be in addition to all other rights provided by law. No modification or waiver of any provision of this Guaranty, nor consent to departure therefrom, shall be effective unless in writing and no such consent or waiver shall extend beyond the particular case and purpose involved. No notice or demand given in any case shall constitute a waiver of the right to take other action in the same, similar or other instances without such notice or demand.

 

5.2         Notices. All notices required or permitted hereunder shall be given and shall become effective as provided in Article 16 of the Security Instrument. All notices to Guarantor shall be addressed as follows:

 

Guarantor: CaliberCos Inc.
  8901 East Mountain View Road, Suite 150
Scottsdale, Arizona 85258
Attention:  Jennifer Schrader

 

with a copy to: Snell & Wilmer
  1 S. Church Avenue, #1500
  Tucson, Arizona 85701-1630
  Attention:  M. Roxanne Veliz, Esq.

 

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5.3         Governing Law/Service of Process.

 

(a)          THIS GUARANTY WAS NEGOTIATED IN THE STATE OF NEW YORK, AND MADE BY GUARANTOR AND ACCEPTED BY LENDER IN THE STATE OF NEW YORK, WHICH STATE THE PARTIES AGREE HAS A SUBSTANTIAL RELATIONSHIP TO THE PARTIES AND TO THE UNDERLYING TRANSACTION EMBODIED HEREBY, AND IN ALL RESPECTS, INCLUDING, WITHOUT LIMITING THE GENERALITY OF THE FOREGOING, THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND PERFORMED IN SUCH STATE (WITHOUT REGARD TO PRINCIPLES OF CONFLICT OF LAWS) AND THE APPLICABLE LAWS OF THE UNITED STATES OF AMERICA. TO THE FULLEST EXTENT PERMITTED BY LAW, GUARANTOR HEREBY UNCONDITIONALLY AND IRREVOCABLY WAIVES ANY CLAIM TO ASSERT THAT THE LAW OF ANY OTHER JURISDICTION GOVERNS THIS GUARANTY, AND THIS GUARANTY SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK PURSUANT TO SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

 

(b)          ANY LEGAL SUIT, ACTION OR PROCEEDING AGAINST LENDER OR GUARANTOR ARISING OUT OF OR RELATING TO THIS GUARANTY MAY AT LENDER’S OPTION BE INSTITUTED IN ANY FEDERAL OR STATE COURT IN THE CITY OF NEW YORK, COUNTY OF NEW YORK , PURSUANT TO SECTION 5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW, AND GUARANTOR WAIVES ANY OBJECTIONS WHICH IT MAY NOW OR HEREAFTER HAVE BASED ON VENUE AND/OR FORUM NON CONVENIENS OF ANY SUCH SUIT, ACTION OR PROCEEDING, AND GUARANTOR HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF ANY SUCH COURT IN ANY SUIT, ACTION OR PROCEEDING. GUARANTOR DOES HEREBY DESIGNATE AND APPOINT:

 

CT CORPORATION SYSTEM
111 EIGHTH AVENUE
NEW YORK, NEW YORK 10011

 

AS ITS AUTHORIZED AGENT TO ACCEPT AND ACKNOWLEDGE ON ITS BEHALF SERVICE OF ANY AND ALL PROCESS WHICH MAY BE SERVED IN ANY SUCH SUIT, ACTION OR PROCEEDING IN ANY FEDERAL OR STATE COURT IN NEW YORK, NEW YORK, AND AGREES THAT SERVICE OF PROCESS UPON SAID AGENT AT SAID ADDRESS AND WRITTEN NOTICE OF SAID SERVICE MAILED OR DELIVERED TO GUARANTOR IN THE MANNER PROVIDED HEREIN SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF PROCESS UPON GUARANTOR IN ANY SUCH SUIT, ACTION OR PROCEEDING IN THE STATE OF NEW YORK. GUARANTOR (I) SHALL GIVE PROMPT NOTICE TO LENDER OF ANY CHANGED ADDRESS OF ITS AUTHORIZED AGENT HEREUNDER, (II) MAY AT ANY TIME AND FROM TIME TO TIME DESIGNATE A SUBSTITUTE AUTHORIZED AGENT WITH AN OFFICE IN NEW YORK, NEW YORK (WHICH SUBSTITUTE AGENT AND OFFICE SHALL BE DESIGNATED AS THE PERSON AND ADDRESS FOR SERVICE OF PROCESS), AND (III) SHALL PROMPTLY DESIGNATE SUCH A SUBSTITUTE IF ITS AUTHORIZED AGENT CEASES TO HAVE AN OFFICE IN NEW YORK, NEW YORK OR IS DISSOLVED WITHOUT LEAVING A SUCCESSOR.

 

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5.4         Invalid Provisions. If any provision of this Guaranty is held to be illegal, invalid, or unenforceable under present or future laws effective during the term of this Guaranty, such provision shall be fully severable and this Guaranty shall be construed and enforced as if such illegal, invalid or unenforceable provision had never comprised a part of this Guaranty, and the remaining provisions of this Guaranty shall remain in full force and effect and shall not be affected by the illegal, invalid or unenforceable provision or by its severance from this Guaranty, unless such continued effectiveness of this Guaranty, as modified, would be contrary to the basic understandings and intentions of the parties as expressed herein.

 

5.5         Amendments. This Guaranty may be amended only by an instrument in writing executed by the party or an authorized representative of the party against whom such amendment is sought to be enforced.

 

5.6         Parties Bound; Assignment; Joint and Several. This Guaranty shall be binding upon and inure to the benefit of the parties hereto and their respective successors, assigns and legal representatives; provided, however, that Guarantor may not, without the prior written consent of Lender, assign any of its rights, powers, duties or obligations hereunder. If Guarantor consists of more than one person or party, the obligations and liabilities of each such person or party shall be joint and several.

 

5.7         Headings. Section headings are for convenience of reference only and shall in no way affect the interpretation of this Guaranty.

 

5.8         Recitals. The recital and introductory paragraphs hereof are a part hereof, form a basis for this Guaranty and shall be considered prima facie evidence of the facts and documents referred to therein.

 

5.9         Counterparts. To facilitate execution, this Guaranty may be executed in as many counterparts as may be convenient or required. It shall not be necessary that the signature of, or on behalf of, each party, or that the signature of all persons required to bind any party, appear on each counterpart. All counterparts shall collectively constitute a single instrument. It shall not be necessary in making proof of this Guaranty to produce or account for more than a single counterpart containing the respective signatures of, or on behalf of, each of the parties hereto. Any signature page to any counterpart may be detached from such counterpart without impairing the legal effect of the signatures thereon and thereafter attached to another counterpart identical thereto except having attached to it additional signature pages.

 

5.10       Rights and Remedies. If Guarantor becomes liable for any indebtedness owing by Borrower to Lender, by endorsement or otherwise, other than under this Guaranty, such liability shall not be in any manner impaired or affected hereby and the rights of Lender hereunder shall be cumulative of any and all other rights that Lender may ever have against Guarantor. The exercise by Lender of any right or remedy hereunder or under any other instrument, or at law or in equity, shall not preclude the concurrent or subsequent exercise of any other right or remedy.

 

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5.11       Fully Recourse. All of the terms and provisions of this Guaranty are recourse obligations of Guarantor and not restricted by any limitation on personal liability set forth in any of the Loan Documents..

 

5.12       Entirety. THIS GUARANTY EMBODIES THE FINAL, ENTIRE AGREEMENT OF GUARANTOR AND LENDER WITH RESPECT TO GUARANTOR’S GUARANTY OF THE GUARANTEED OBLIGATIONS AND SUPERSEDES ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS, AND UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER HEREOF. THIS GUARANTY IS INTENDED BY GUARANTOR AND LENDER AS A FINAL AND COMPLETE EXPRESSION OF THE TERMS OF THE GUARANTY, AND NO COURSE OF DEALING BETWEEN GUARANTOR AND LENDER, NO COURSE OF PERFORMANCE, NO TRADE PRACTICES, AND NO EVIDENCE OF PRIOR, CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OR OTHER EXTRINSIC EVIDENCE OF ANY NATURE SHALL BE USED TO CONTRADICT, VARY, SUPPLEMENT OR MODIFY ANY TERM OF THIS GUARANTY. THERE ARE NO ORAL AGREEMENTS BETWEEN GUARANTOR AND LENDER.

 

5.13       Waiver of Right To Trial By Jury. GUARANTOR, AND BY ITS ACCEPTANCE HEREOF, LENDER, EACH HEREBY AGREE NOT TO ELECT A TRIAL BY JURY OF ANY ISSUE TRIABLE OF RIGHT BY JURY, AND WAIVES ANY RIGHT TO TRIAL BY JURY FULLY TO THE EXTENT THAT ANY SUCH RIGHT SHALL NOW OR HEREAFTER EXIST WITH REGARD TO THIS GUARANTY, THE NOTE, THE SECURITY INSTRUMENT, OR THE OTHER LOAN DOCUMENTS, OR ANY CLAIM, COUNTERCLAIM OR OTHER ACTION ARISING IN CONNECTION THEREWITH. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS GIVEN KNOWINGLY AND VOLUNTARILY BY EACH PARTY HERETO, AND IS INTENDED TO ENCOMPASS INDIVIDUALLY EACH INSTANCE AND EACH ISSUE AS TO WHICH THE RIGHT TO A TRIAL BY JURY WOULD OTHERWISE ACCRUE. EACH PARTY HERETO IS HEREBY AUTHORIZED TO FILE A COPY OF THIS PARAGRAPH IN ANY PROCEEDING AS CONCLUSIVE EVIDENCE OF THIS WAIVER.

 

5.14       Secondary Market. The provisions of Article 19 of the Security Instrument are incorporated herein by reference with the same force as if fully set forth herein. Guarantor hereby agrees to reasonably cooperate in fulfilling any obligation of Borrower under Article 19 of the Security Instrument.

 

5.15       Reinstatement in Certain Circumstances. If at any time any payment of the principal of or interest under the Note or any other amount payable by the Borrower under the Loan Documents is rescinded or must be otherwise restored or returned upon the insolvency, bankruptcy or reorganization of the Borrower or otherwise, the Guarantor’s obligations hereunder with respect to such payment shall be reinstated as though such payment has been due but not made at such time.

 

[NO FURTHER TEXT ON THIS PAGE]

 

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EXECUTED as of the day and year first above written.

 

  GUARANTOR:
   
  CALIBERCOS INC., a Delaware corporation
     
  By: /s/ Jennifer Schrader
    Name: Jennifer Schrader
    Title: Authorized Signatory

 

[Signatures continue on following page]

 

GUARANTY

 

 

  GUARANTOR:
   
  /s/ Jennifer Schrader
  Jennifer Schrader, individually
   
  GUARANTOR:
   
  /s/ John C. Loeffler, II
  John C. Loeffler, II, individually

 

[Signatures continue on following page]

 

GUARANTY

 

 

  GUARANTOR:
   
  /s/ Frank Heavlin
  Frank Heavlin, individually

 

GUARANTY

 

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