NOTE 6 • COMMITMENTS AND CONTINGENCIES

Litigation. The Company is not a party to any legal proceedings which are expected to have a material effect on the Company's liquidity, financial position, cash flows or results of operations. The Company is subject to a variety of legal actions for personal injury or property damage arising in the ordinary course of its business, most of which are covered by liability insurance. Various claims of resident discrimination are also periodically brought, most of which also are covered by insurance. While the resolution of these matters cannot be predicted with certainty, management believes that the final outcome of such legal proceedings and claims will not have a material effect on the Company's liquidity, financial position, cash flows or results of operations.

Insurance. IRET carries insurance coverage on its properties in amounts and types that the Company believes are customarily obtained by owners of similar properties and are sufficient to achieve IRET's risk management objectives.

Purchase Options. The Company has granted options to purchase certain IRET properties to tenants in these properties, under lease agreements. In general, the options grant the tenant the right to purchase the property at the greater of such property's appraised value or an annual compounded increase of a specified percentage of the initial cost of the property to IRET. As of January 31, 2015, the total property cost of the 15 properties subject to purchase options was $120.5 million, and the total gross rental revenue from these properties was $7.7 million for the nine months ended January 31, 2015. The tenant in the Company's Nebraska Orthopaedic Hospital property has exercised its option to purchase the property. The Company and its tenant are currently engaged in an arbitration proceeding pursuant to the lease agreement to determine the purchase price. The Company currently can give no assurance that the sale of the property pursuant to the purchase option will be completed.

Environmental Matters. 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 costs of removal of, or remediation of, certain hazardous or toxic substances in, on, around or under the property. While IRET currently has no knowledge of any material violation of environmental laws, ordinances or regulations at any of its properties, there can be no assurance that areas of contamination will not be identified at any of the Company's properties, or that changes in environmental laws, regulations or cleanup requirements would not result in material costs to the Company.

Restrictions on Taxable Dispositions. Approximately 95 of IRET's properties, consisting of 4.1 million square feet of the Company's combined commercial segments' properties and 4,831 apartment units, are subject to restrictions on taxable dispositions under agreements entered into with some of the sellers or contributors of the properties. The real estate investment amount of these properties (net of accumulated depreciation) was $726.9 million at January 31, 2015. The restrictions on taxable dispositions are effective for varying periods. The terms of these agreements generally prevent the Company from selling the properties in taxable transactions. The Company does not believe that the agreements materially affect the conduct of the Company's business or decisions whether to dispose of restricted properties during the restriction period because the Company generally holds these and the Company's other properties for investment purposes, rather than for sale. Historically, however, where IRET has deemed it to be in the shareholders' best interests to dispose of restricted properties, it has done so through transactions structured as tax-deferred transactions under Section 1031 of the Internal Revenue Code.

Redemption Value of Units. The limited partnership units of the Company's operating partnership, IRET Properties, are redeemable at the option of the holder for cash, or, at our option, for the Company's common shares of beneficial interest on a one-for-one basis, after a minimum one-year holding period. All Units receive the same cash distributions as those paid on common shares. Units are redeemable for an amount of cash per Unit equal to the average of the daily market price of an IRET common share for the ten consecutive trading days immediately preceding the date of valuation of the Unit. As of January 31, 2015 and 2014, the aggregate redemption value of the then-outstanding Units of the operating partnership owned by limited partners was approximately $122.0 million and $186.9 million, respectively.

Joint Venture Buy/Sell Options. Certain of IRET's joint venture agreements contain buy/sell options in which each party under certain circumstances has the option to acquire the interest of the other party, but do not generally require that the Company buy its partners' interests. The Company currently has one joint venture, the Company's Southgate apartment project in Minot, North Dakota, in which the Company's joint venture partner can, for a four-year period beginning twelve months after the last certificate of occupancy is received for the project, compel the Company to acquire the partner's interest, for a price to be determined in accordance with the provisions of the joint venture agreement. The joint venture partner's interest is reflected as a redeemable noncontrolling interest on the Condensed Consolidated Balance Sheets.

Tenant Improvements. In entering into leases with tenants, IRET may commit itself to fund improvements or build-outs of the rented space to suit tenant requirements. These tenant improvements are typically funded at the beginning of the lease term, and IRET is accordingly exposed to some risk of loss if a tenant defaults prior to the expiration of the lease term, and the rental income that was expected to cover the cost of the tenant improvements is not received. As of January 31, 2015, the Company is committed to fund $9.3 million in tenant improvements, within approximately the next 12 months.

Development, Expansion and Renovation Projects. As of January 31, 2015, the Company had several development, expansion and renovation projects underway or placed in service during the quarter, the costs for which have been capitalized, as follows:

			(in thousands)				(in fiscal years)
Project Name and Location	Planned Segment	Rentable Square Feet or Number of Units	Anticipated Total Cost		Costs as of January 31, 2015⁽¹⁾		Anticipated Construction Completion
Commons at Southgate - Minot, ND⁽²⁾	Multi-Family Residential	233 units	$	37,201	$	34,612	In Service
Minot Wells Fargo Bank - Minot, ND	Retail	4,998 sq ft		3,288		3,185	In Service
Cypress Court II – St. Cloud, MN⁽³⁾	Multi-Family Residential	64 units		7,028		6,638	In Service
Arcata - Golden Valley, MN	Multi-Family Residential	165 units		33,448		30,384	In Service
Red 20 - Minneapolis, MN⁽⁴⁾	Multi-Family Residential	130 units		29,462		28,330	In Service
Roseville 3075 Long Lake Rd - Roseville, MN	Industrial	202,807 sq ft		13,915		8,900	4Q 2015
Minot Office Center - Minot, ND	Retail	7,963 sq ft		2,923		1,802	1Q 2016
Renaissance Heights - Williston, ND⁽⁵⁾	Multi-Family Residential	288 units		62,362		54,713	1Q 2016
Chateau II - Minot, ND	Multi-Family Residential	72 units		14,711		11,257	1Q 2016
Edina 6565 France SMC III - Edina, MN	Healthcare	57,479 sq ft		34,665		16,668	1Q 2016
Cardinal Point - Grand Forks, ND	Multi-Family Residential	251 units		40,042		19,885	2Q 2016
Deer Ridge – Jamestown, ND	Multi-Family Residential	163 units		24,519		11,202	2Q 2016
PrairieCare Medical - Brooklyn Park, MN	Healthcare	72,895 sq ft		24,251		12,195	2Q 2016
71 France Phase I & II - Edina, MN⁽⁶⁾	Multi-Family Residential	181 units		52,055		20,787	3Q 2016
Other	n/a	n/a		n/a		2,547	n/a
			$	379,870	$	263,105

(1)	Includes costs related to development projects that are placed in service in phases (Renaissance Heights - $46.0 million).

(2)	The Company is currently an approximately 52.9% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity.

(3)	The Company is an approximately 86.1% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity.

(4)	The Company is an approximately 58.6% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity. The anticipated total cost includes approximately 10,625 square feet of retail space.

(5)	The Company is an approximately 70% partner in the joint venture entity constructing this project; the anticipated total cost amount given is the total cost to the joint venture entity.

(6)

The project will be constructed in three phases by a joint venture entity in which the Company has an approximately 52.6% interest. The anticipated total cost amount given in the table above is the total cost to the joint venture entity of the project's first and second phase. The expected total project cost for all three phases is approximately $73.3 million for a total of approximately 241 residential units and approximately 21,772 square feet of retail space.

These development projects are subject to various contingencies, and no assurances can be given that they will be completed within the time frames or on the terms currently expected.

Construction interest capitalized for the three month periods ended January 31, 2015 and 2014, respectively, was $1.4 million and approximately $778,000 for development projects completed and in progress. Construction interest capitalized for the nine month periods ended January 31, 2015 and 2014, respectively, was $3.6 million and $2.1 million for development projects completed and in progress.

Pending Acquisitions. The Company currently has signed purchase agreements for the acquisition of the following properties. These pending acquisitions are subject to various closing conditions and contingencies, and no assurances can be given that the transactions will be completed on the terms currently proposed, or at all:

·	a 119-unit multi-family residential property in Bismarck, North Dakota, for a purchase price of $15.0 million, of which approximately $14.3 million is to be paid in cash with the remainder in limited partnership units of the Operating Partnership valued at approximately $700,000;

·	a 74-unit multi-family residential property in Grand Forks, North Dakota, for a purchase price of $9.3 million, of which approximately $8.9 million is to be paid in cash with the remainder in limited partnership units of the Operating Partnership valued at approximately $400,000;

Pending Dispositions. The Company currently has signed sales agreements for the disposition of the following properties. These pending dispositions are subject to various closing conditions and contingencies, and no assurances can be given that the transactions will be completed on the terms currently proposed, or at all:

·	an office property in Minneapolis, Minnesota, for a sales price of $7.0 million;

·	a portfolio of seven office properties in Burnsville, Plymouth, Eagan and Minnetonka, Minnesota, for a sales price of $26.6 million;

·	an office property in Eagan, Minnesota, for a sales price of $950,000; and

·	a parcel of unimproved land in Eagan, Minnesota, for a sales price of $325,000.