13. Related Party Transactions

Related party transactions relate to fees paid and costs reimbursed to CRA for services rendered to us.

Prior to the Company terminating the Advisory Agreement effective April 1, 2014, the Company had no employees. CRA was primarily responsible for managing our business affairs and carrying out the directives of our board of directors. The Advisory Agreement entitled CRA to specified fees upon the provision of certain services with regard to the investment of funds in real estate projects, among other services, as well as reimbursement of certain costs and expenses incurred by CRA in providing services to us. Specific fees formerly available to CRA due to provisions in the Advisory Agreement are described below.

Advisory Agreement

Under the terms of the Advisory Agreement, which was terminated effective April 1, 2014, CRA was required to use commercially reasonable efforts to present to us investment opportunities to provide a continuing and suitable investment program consistent with the investment policies and objectives adopted by our board of directors. The Advisory Agreement called for CRA to provide for our day-to-day management and to retain property managers and leasing agents, subject to the authority of our board of directors, and to perform other duties.

The fees and expense reimbursements payable to CRA under the Advisory Agreement are described in our Annual Report filed on Form 10-K for the year ended December 31, 2013.

Organizational and Offering Costs -

From our inception to June 30, 2014, CRA and its affiliates have incurred on our behalf organizational and offering costs totaling $5.6 million including $0.1 million that was expensed and $5.5 million which reduced net proceeds of our Offerings. Of the $5.5 million amount, $4.4 million reduced the net proceeds of our primary offering and $1.1 million (the “Primary Offering”) reduced the net proceeds of our follow-on offering (the “Follow-On Offering” and, collectively with the Primary Offering, the “Offerings”).

On June 10, 2012, our Follow-on Offering terminated. The Advisory Agreement provided for reimbursement by CRA for organizational and offering costs in excess of 3.5% of the gross proceeds from our Primary Offering and Follow-On Offering. Under the Advisory Agreement, within 60 days after the end of the month in which our Follow-on Offering terminates, CRA was obligated to reimburse us to the extent that the organization and offering expenses related to our Follow-on Offering borne by us exceeds 3.5% of the gross proceeds of the Follow-on Offering. As of June 10, 2012, we had reimbursed CRA a total of $1.1 million in organizational and offering costs related to our Follow-on Offering, of which $1.0 million was in excess of the contractual limit. Consequently, in the second quarter of 2012, we recorded a receivable from CRA for $1.0 million reflecting the excess reimbursement. However, based on our evaluation of various factors related to collectability of this receivable, we reserved the full amount of the receivable. As of June 30, 2014 and December 31, 2013, the gross balance of this receivable was $0.7 million and $0.7 million, respectively. CRA has repaid varying amounts against this receivable quarterly during 2013, but no repayment has occurred in 2014. The balance of this receivable has been fully reserved for as of June 30, 2014 and December 31, 2013.

Acquisition Fees and Expenses - For the three months ended June 30, 2014 and 2013, CRA did not earn acquisition fees. For the six months ended June 30, 2014 and 2013, CRA earned $0 and $0.1 million of acquisition fees, respectively. These fees are included in real estate acquisition costs on our Condensed Consolidated Statements of Operations.

Management Fees and Expenses - For the three months ended June 30, 2014 and 2013, CRA earned $0 and $0.2 million, respectively, of asset management fees. For the six months ended June 30, 2014 and 2013, CRA earned $0.2 million and $0.4 million, respectively. These costs are included in asset management fees and expenses in our condensed consolidated statements of operations.

In addition, the Advisory Agreement provided for our reimbursement of CRA for the direct and indirect costs and expenses incurred by CRA in providing asset management services to us, including personnel and related employment costs related to providing asset management services on our behalf. For the three months ended June 30, 2014 and 2013, CRA was reimbursed $0 and $78,000, respectively, of such direct and indirect costs and expenses on our behalf. For the six months ended June 30, 2014 and 2013, CRA was reimbursed $36,000 and $152,000, respectively. These costs are included in asset management fees in our consolidated statements of operations.

In 2013 and 2014, we over paid CRA $32,000 for asset management fees. We have recorded this amount as receivable from related party on our June 30, 2014 Condensed Consolidated Balance Sheet and reserved for the entire amount due to the uncertainty of collectability.

Operating Expenses - For the three months ended June 30, 2014 and 2013, $0 and $0.3 million of such costs were reimbursed and are included in general and administrative expenses in our consolidated statements of operations. For the six months ended June 30, 2014 and 2013, we reimbursed $0.2 million and $0.6 million of operating costs incurred by CRA on our behalf, respectively. These costs are included in general and administrative expenses on our condensed consolidated statements of operations. For certain of the expenses billed to the Company by CRA and paid, we have determined that the Company paid $189,000 in excess operating expense reimbursements to CRA. Accordingly, we have recorded this amount from CRA and recorded a reserve for the entire amount due to the uncertainty of collectability.

Pursuant to provisions contained in our terminated Amended and Restated Advisory Agreement with CRA, our board of directors had the responsibility of limiting our total operating expenses for each trailing four consecutive quarters to amounts that do not exceed the greater of 2% of our average invested assets or 25% of our net income, calculated in the manner set forth in our charter, unless a majority of the directors (including a majority of the independent directors) made a finding that a higher level of expenses was justified (the “2%/25% Test”). In the event that a majority of the directors had not determined that such excess expenses were justified, CRA was required to reimburse to us the amount of the excess expenses paid or incurred (the “Excess Amount”).

For each four-fiscal-quarter period prior to March 31, 2014, our board of directors determined that the Excess Amount was justified and had consequently waived such Excess Amount. For the four-fiscal-quarter period ended March 31, 2014, our total operating expenses exceeded the greater of 2% of our average invested assets and 25% of our net income. We incurred operating expenses of approximately $3.7 million and incurred an Excess Amount of approximately $1.7 million during this period. Our board of directors has determined not to waive this Excess Amount and therefore such Excess Amount is due to the Company from CRA. Accordingly, we have recorded this receivable and reserved for the entire amount due to the uncertainty of collectability.

Property Management and Leasing Fees and Expenses - For the three months ended June 30, 2014 and 2013, CRA earned approximately $0 and $38,000 respectively, of property management fees. For the three months ended June 30, 2014 and 2013, CRA earned approximately $42,000 and $74,000 respectively, of property management fees. For the three months ended June 30, 2014 and 2013, CRA did not earned any leasing fees. For the six months ended June 30, 2014 and 2013, CRA earned $0 and $0.2 million of leasing fees, respectively. These costs are included in property operating and maintenance expenses in our consolidated statements of operations.

Disposition Fee - For the three months ended June 30, 2014 and 2013, CRA earned no disposition fees. For the six months ended June 30, 2014 and 2013, CRA earned disposition fees of $0 and $0.4 million, respectively. These fees are included in loss on sales of real estate on our condensed consolidated statements of operations.

Subordinated Participation Provisions - CRA was entitled to receive a subordinated participation upon the sale of our properties, listing of our common stock or termination of CRA, contingent upon meeting/exceeding certain performance thresholds. For the quarters and six month periods ended June 30, 2014 and 2013, we did not incur any subordinated participation fees, nor do we anticipate there will be any earned in the future based upon the Advisory Agreement termination.