POS AM 1 mnrt-posam_071514.htm POST-EFFECTIVE AMENDMENT mnrt-posam_071514.htm


As filed with the Securities and Exchange Commission on July 29, 2014
 
Registration No. 333-179521 

 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
__________________
 
 
Post-Effective Amendment No. 5
to
Form S-11
FOR REGISTRATION UNDER
THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES
 
__________________
 
 
Moody National REIT I, Inc.
(Exact name of registrant as specified in its governing instruments)
6363 Woodway Drive, Suite 110
Houston, Texas 77057
(713) 977-7500
(Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
 
__________________
 
 
Brett C. Moody
6363 Woodway Drive, Suite 110
Houston, Texas 77057
(713) 977-7500
(Name, address, including zip code and telephone number,
including area code, of agent for service)
 
__________________
 
 
Copies to:
 
 
Mary E. Smith
Rosemarie A. Thurston
Moody National REIT Sponsor, LLC
Gustav F. Bahn
6363 Woodway Drive,
Alston & Bird LLP
Suite 110
1201 West Peachtree Street
Houston, Texas 77057
Atlanta, Georgia 30309
  (713) 977-7500
(404) 881-7000
 
__________________
 
 
          Approximate date of commencement of proposed sale to the public:   as soon as practicable after the registration statement becomes effective.
 
__________________
 
 
          If any of the securities being registered on this form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: x
          If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o
          If this form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o
          If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.   o
          If delivery of this prospectus is expected to be made pursuant to Rule 434, check the following box.   o
          Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):


       
Large accelerated filer o
Accelerated filer o
Non-accelerated filer o
Smaller reporting company x
 (Do not check if a smaller reporting company)
                                     
 
          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 
 

 
This Post-Effective Amendment No. 5 consists of the following:
   
1.
The registrant’s prospectus dated April 29, 2014 (the "Prospectus");
   
2.
Supplement No. 5 to the Prospectus, included herewith, which will be delivered as an unattached document along with the Prospectus;
   
3.
Part II, included herewith; and
   
4.
Signatures, included herewith.
 
 
 



 
MOODY NATIONAL REIT I, INC.
 
 
 
$1,000,000,000 Maximum Offering
 
 
          Moody National REIT I, Inc. is a Maryland corporation formed in January 2008 to acquire a portfolio of real estate investments, primarily in the hospitality sector, real estate securities and debt-related investments. We are externally managed by Moody National Advisor I, LLC, which we refer to as our advisor. We have elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes beginning with the taxable year ended December 31, 2011. As of the date of this prospectus, our investment portfolio is comprised of five hotel properties and a joint venture interest in a mortgage loan secured by a hotel property.
 
 We commenced our initial public offering of up to $1,100,000,000 in shares of our common stock on April 15, 2009. In our initial public offering we offered up to 100,000,000 shares of our common stock to the public at $10.00 per share in the primary offering and up to 10,526,316 shares of our common stock pursuant to our distribution reinvestment plan at $9.50 per share. Our initial public offering terminated on October 12, 2012. As of the termination of our initial public offering on October 12, 2012, we had accepted investors’ subscriptions for, and issued, 1,126,253 shares of our common stock in our initial public offering, including 29,582 shares of our common stock issued pursuant to our distribution reinvestment plan, resulting in offering proceeds of $10,966,713.
 
          We are offering up to $1,000,000,000 in shares of our common stock in this follow-on offering. We are offering $900,000,000 in shares of our common stock to the public in our primary offering and $100,000,000 in shares of our common stock to our stockholders pursuant to our distribution reinvestment plan. We are initially offering shares to the public in our primary offering at a price of $10.00 per share. Our board of directors may change this price from time to time during the offering, but not more frequently than quarterly, to reflect changes in our estimated per-share value and other factors our board of directors deems relevant. Shares sold under our distribution reinvestment plan are initially being sold for $9.50 per share. Our board of directors may also change this price from time to time, but not more frequently than quarterly. We have no obligation to adjust the offering price of shares of our common stock and any adjustment in our offering price or the price of shares sold pursuant to our distribution reinvestment plan will be made in the sole and absolute discretion of our board of directors. We reserve the right to reallocate the shares of common stock we are offering between the primary offering and the distribution reinvestment plan. As of December 31, 2013, we had accepted subscriptions for, and issued, 3,267,967 shares of our common stock in our initial public offering and our follow-on offering, including 79,116 shares of our common stock issued pursuant to our distribution reinvestment plan, resulting in aggregate gross offering proceeds of $31,888,503. Neither we nor any of our affiliates is related to Moody’s Investors Services.
 
          This investment involves a high degree of risk. You should purchase shares of our common stock only if you can afford a complete loss of your investment. See “Risk Factors” beginning on page 14. These risks include, among others:
 
 
We commenced operations in May 2010, have a limited operating history, have experienced losses in the past and may experience losses in the future. There is no assurance that we will be able to successfully achieve our investment objectives.
     
 
No public trading market exists for shares of our common stock and we are not required to effectuate a liquidity event by a certain date. As a result, it will be difficult for you to sell your shares of our common stock. If you are able to sell your shares, you will likely sell them at a substantial discount.
     
 
There are restrictions and limitations on your ability to have all or a portion of your shares of our common stock repurchased under our share redemption program, and if you are able to have your shares repurchased pursuant to our share redemption program, it may be for a price less than the price you paid for the shares and the then current value of the shares.
     
 
The offering price of our shares of common stock for this offering was not determined on an independent basis and bears no relationship to the book or net value of our assets or to our expected operating income.
     
 
The price of our shares may be adjusted periodically to reflect changes in the net asset value of our assets and therefore future adjustments may result in an offering price lower than the price you paid for your shares.
     
 
The amount of distributions we make, if any, is uncertain. Our distributions may exceed our earnings, particularly during the period before we have acquired a substantial portfolio of real estate assets. Our distributions may be paid from other sources such as borrowings, offering proceeds or deferral of fees and expense reimbursements by our advisor, in its sole discretion. We have not established a limit on the amount of proceeds from this offering that we may use to fund distributions. Therefore, portions of the distributions that we make may represent a return of capital to you, which will lower your tax basis in our shares. To date, a portion of our distributions have been paid from offering proceeds and may be paid from offering proceeds or other sources other than cash from operations, such as borrowings, in the future.
     
 
This is considered to be a “blind pool” offering because we have made a limited number of investments and, other than any potential acquisitions discussed in this prospectus, we have not identified any other specific assets to acquire with the proceeds from this offering. As a result, you will not have the opportunity to evaluate our future investments prior to purchasing shares of our common stock.
     
 
This is a “best efforts” offering and if we are unable to raise substantial funds then we will be limited in the number and type of investments we may make.
     
 
We rely on our advisor and its affiliates for our day-to-day operations and the selection of our investments. We will pay substantial fees to our advisor, which were not determined on an arm’s-length basis.
     
 
Our advisor and other affiliates face conflicts of interest as a result of compensation arrangements, time constraints and competition for investments and for tenants, including (1) conflicts related to compensation payable by us to our advisor and other affiliates that may not be on terms that would result from arm’s-length negotiations between unaffiliated parties, (2) the allocation of time between advising us and other real estate investment programs and (3) the recommendation of investments on our behalf when other affiliated programs are seeking similar investments.
     
 
We are the first publicly-offered investment program sponsored by our sponsor or its affiliates. Because previous programs and investments sponsored by affiliates of our sponsor were conducted through privately-held entities, not subject to either the up-front commissions, fees and expenses associated with this offering or all of the laws and regulations we are subject to, you should not assume that the prior performance of these programs will be indicative of our future performance.
     
 
Our use of leverage increases the risk of loss on our investments.
     
 
We are subject to risks generally incident to the ownership of real property.
     
 
We have elected to be taxed as a REIT for federal income tax purposes. If we fail to qualify as a REIT or lose our REIT status, it would adversely affect our operations and our ability to make distributions to our stockholders because we will be subject to U.S. federal income tax at regular corporate rates with no ability to deduct distributions made to our stockholders.
 
          Neither the Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities or determined if this prospectus is truthful or complete. The Attorney General of the State of New York has not passed on or endorsed the merits of this offering. Any representation to the contrary is unlawful. Projections or forecasts cannot be used in this offering. Any representation to the contrary and no prediction, written or oral, as to the amount or certainty of any present or future cash benefit or tax consequence which may flow from an investment in our common stock is permitted. The shares of common stock offered hereby are subject to certain restrictions on transfer and ownership. See "Description of Common Stock."
 
 
   
Price to Public(1)
   
Sales
Commission(1)(2)
   
Dealer
Manager Fee(1)(2)
   
Proceeds to
Moody National
REIT I, Inc.
Before Expenses(1)(3)
Primary Offering Per Share
  $ 10.00     $ 0.65     $ 0.35     $ 9.00
Total Primary Offering
  $ 900,000,000     $ 58,500,000     $ 31,500,000     $ 810,000,000
Distribution Reinvestment Plan Offering Per Share
  $ 9.50           $     $ 9.50
Total Distribution Reinvestment Plan
  $ 100,000,000           $     $ 100,000,000

____________________
(1)
Assumes we sell $900,000,000 in the primary offering and $100,000,000 pursuant to our distribution reinvestment plan.
   
(2)
Discounts are available for certain categories of purchasers.
   
(3)
Proceeds are calculated before reimbursing our advisor for organization and offering expenses.
 
          Moody Securities, LLC, an affiliate of our advisor and the dealer manager of this offering, is not required to sell any specific number of shares or dollar amount of our common stock but will use its best efforts to sell the shares offered hereby. The minimum investment is $2,500. This offering will terminate no later than October 12, 2014 (two years from the effective date of the registration statement relating to this offering) unless extended.
 
 
This prospectus is dated April 29,  2014
 
 
 

 
 
SUITABILITY STANDARDS
 
          The shares of common stock we are offering are suitable only as a long-term investment for persons of adequate financial means. We do not expect to have a public market for shares of our common stock which means that it may be difficult for you to sell your shares. On a limited basis, you may be able to have shares redeemed through our share redemption program, and in the future we may also consider various forms of additional liquidity. You should not buy shares of our common stock if you need to sell them immediately or if you will need to sell them quickly in the future.
 
          In consideration of these factors, we have established suitability standards for initial stockholders and subsequent transferees. These suitability standards require that a purchaser of shares of our common stock have either:
 
 
a net worth (excluding the value of an investor’s home, furnishings and automobiles) of at least $250,000; or
     
 
a gross annual income of at least $70,000 and a net worth (excluding the value of an investor’s home, furnishings and automobiles) of at least $70,000.
 
          In addition to the suitability requirements set forth above, the following states have established additional suitability standards:
 
          Alabama—An Alabama investor must have represented to us that such investor has a liquid net worth of at least 10 times their investment in us and other similar programs and that such investor otherwise meets our suitability standards.
 
  California—A California investor’s aggregate investment in this offering may not exceed 10% of the investor’s liquid net worth.
 
   Iowa—An Iowa investor’s maximum investment in us and our affiliated programs cannot exceed 10% of the investor’s net worth.
 
          Kansas—It is recommended by the Office of the Kansas Securities Commissioner that Kansas investors not invest in the aggregate more than 10% of their liquid net worth in this and similar direct participation investments. Liquid net worth is defined as that portion of net worth which consists of cash, cash equivalents and readily marketable securities.
 
          Kentucky—A Kentucky investor’s aggregate investment in this offering may not exceed 10% of the investor’s liquid net worth.
 
  Maine—The Maine Office of Securities recommends that an investor’s aggregate investment in this offering and similar offerings not exceed 10% of the investor’s liquid net worth. For this purpose, “liquid net worth” is defined as that portion of net worth that consists of cash, cash equivalents and readily marketable securities.
 
          Michigan — A Michigan investor’s maximum investment in us and our affiliated programs cannot exceed 10% of the investor’s net worth.
 
          New Jersey—A New Jersey investor’s total investment in this offering and any similar program may not exceed 10% of the investor’s liquid net worth. For this purpose, “liquid net worth” is defined as that portion of net worth that consists of cash, cash equivalents and readily marketable securities.
 
  New Mexico—A New Mexico investor’s aggregate investment in this offering and any affiliated program may not exceed 10% of the investor’s liquid net worth.
 
  Tennessee—A Tennessee investor's maximum investment in us and in our affiliates cannot exceed 10% of their net worth.
 
          Due to minimum offering requirements, this offering is currently not available to residents of Ohio and Pennsylvania.
 
          In the case of sales to fiduciary accounts (such as an individual retirement account, or IRA, Keogh plan or pension or profit sharing plan), these suitability standards must be met by the fiduciary account, by the person who directly or indirectly supplied the funds for the purchase of the shares of our common stock or by the beneficiary of the account.
 
          These suitability standards are intended to help ensure that, given the long-term nature of an investment in shares of our common stock, our investment objectives and the relative illiquidity of shares of our common stock, shares of our common stock are an appropriate investment for those of you who become stockholders. Our sponsor and each participating broker-dealer must make every reasonable effort to determine that the purchase of shares of our common stock is a suitable and appropriate investment for each stockholder based on information provided by the stockholder in the subscription agreement. In making this determination, the sponsor and each person selling shares on our behalf shall ascertain that the prospective stockholder meets the minimum income and net worth standards, can reasonably benefit from an investment in us based on the prospective stockholder’s overall investment objectives and portfolio structure, is able to bear the economic risk of the investment based on the prospective stockholder’s overall financial situation, and has apparent understanding of the fundamental risks of the investment, the risk that the stockholder may lose the entire investment, the relative illiquidity of our shares of common stock, the restrictions on transferability and ownership of our shares of common stock and the tax consequences of an investment in us. The sponsor and each person selling
 
 
i

 
 
shares on our behalf will make this determination on the basis of information it has obtained from a prospective stockholder regarding the prospective stockholder’s financial situation and investment objectives. Relevant information for this purpose includes age, investment objectives, investment experience, income, net worth, financial situation, and other investments of prospective stockholders, as well as any other pertinent factors. Each person selling shares on our behalf shall maintain records of the information used to determine that an investment in shares of our common stock is suitable and appropriate for a stockholder for at least six years.
 
          The minimum purchase amount is $2,500. After you have satisfied the applicable minimum purchase requirement, additional purchases must be in increments of $500. To satisfy the minimum purchase requirements for retirement plans, unless otherwise prohibited by state law, a husband and wife may jointly contribute funds from their separate IRAs, provided that each such contribution is made in increments of $500. You should note that an investment in shares of our common stock will not, in itself, create a retirement plan and that to create a retirement plan you must comply with all applicable provisions of the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code.
 
          Purchases of shares of our common stock pursuant to our distribution reinvestment plan may be in amounts less than set forth above and are not required to be made in increments of $500.
 
HOW TO SUBSCRIBE
 
          Investors who meet the suitability standards described herein may purchase shares of our common stock. See “Suitability Standards” and “Plan of Distribution.” Investors seeking to purchase shares of our common stock should proceed as follows:
 
 
Read this entire prospectus and any appendices and supplements accompanying this prospectus.
     
 
Complete the execution copy of the subscription agreement. A specimen copy of the subscription agreement, including instructions for completing it, is included in this prospectus as Appendix B.
     
 
Deliver a check for the full purchase price of the shares of our common stock being subscribed for along with the completed subscription agreement to the soliciting broker-dealer. Your check should be made payable to “Moody National REIT I, Inc.”
 
          By executing the subscription agreement and paying the total purchase price for the shares of our common stock subscribed for, each investor agrees to be bound by all of its terms and attests that he meets the minimum income and net worth standards as described herein.
 
          Subscriptions will be effective only upon our acceptance, and we reserve the right to reject any subscription in whole or in part. Subscriptions will be accepted or rejected within 30 days of receipt by us, and if rejected, all funds will be returned to subscribers without deduction for any expenses within 10 business days from the date the subscription is rejected. We are not permitted to accept a subscription for shares of our common stock until at least five business days after the date you receive the final prospectus.
 
          An approved trustee must process and forward to us subscriptions made through IRAs, Keogh plans and 401(k) plans. In the case of investments through IRAs, Keogh plans and 401(k) plans, we will send the confirmation and notice of our acceptance to the trustee.
 
 
ii

 
 
IMPORTANT INFORMATION ABOUT THIS PROSPECTUS
 
          Please carefully read the information in this prospectus and any accompanying prospectus supplements, which we refer to collectively as the prospectus. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. This prospectus may only be used where it is legal to sell these securities. You should not assume that the information contained in this prospectus is accurate as of any date later than the date hereof or such other dates as are stated herein or as of the respective dates of any documents or other information incorporated herein by reference.
 
          This prospectus is part of a registration statement that we filed with the Securities and Exchange Commission, or the SEC, using a continuous offering process. Periodically, as we make material investments or have other material developments, we will provide a prospectus supplement that may add, update or change information contained in this prospectus. Any statement that we make in this prospectus will be modified or superseded by any inconsistent statement made by us in a subsequent prospectus supplement. The registration statement we filed with the SEC includes exhibits that provide more detailed descriptions of the matters discussed in this prospectus. You should read this prospectus and the related exhibits filed with the SEC and any prospectus supplement, together with additional information described herein under “Additional Information.”
 
          The registration statement containing this prospectus, including exhibits to the registration statement, provides additional information about us and the securities offered under this prospectus. The registration statement can be read at the SEC website (www.sec.gov) or at the SEC public reference room. See “Additional Information.”
 
 
iii

 
 
TABLE OF CONTENTS
 
     
 
i
 
ii
 
iii
 
v
 
1
 
14
 
42
 
43
DILUTION   46
 
47
DESCRIPTION OF INVESTMENTS   60
 
63
 
74
 
80
 
85
 
89
 
92
 
93
 
103
 
123
 
124
 
130
 
135
 
135
EXPERTS  
135
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE  
135
 
136
 
A-1
 
B-1
 
C-1
 
 
iv

 
QUESTIONS AND ANSWERS ABOUT THIS OFFERING
 
      Set forth below are some of the more frequently asked questions and answers relating to our structure, our management and an offering of this type.
 
Q:
What is a “REIT”?
     
A:
In general, a REIT is a company that:
     
 
offers the benefits of a diversified real estate portfolio under professional management;
     
 
is required to make distributions to investors of at least 90% of its taxable income for each year;
     
 
avoids the federal “double taxation” treatment of income that generally results from investments in a corporation because a REIT is not generally subject to federal corporate income taxes on the portion of its net income that is distributed to the REIT’s stockholders; and
     
 
combines the capital of many investors to acquire or provide financing for real estate assets.
     
Q:
How will you structure the ownership and operation of your assets?
     
A:
We own substantially all of our assets and conduct our operations through an operating partnership, Moody National Operating Partnership I, L.P., which was organized in Delaware on January 18, 2008. We are the sole general partner of Moody National Operating Partnership I, L.P., which we refer to as our “operating partnership.” Because we will conduct substantially all of our operations through an operating partnership, we are organized in what is referred to as an “UPREIT” structure.
     
Q:
What is an “UPREIT”?
     
A:
UPREIT stands for Umbrella Partnership Real Estate Investment Trust. We use the UPREIT structure because a contribution of property directly to us is generally a taxable transaction to the contributing property owner. In this structure, a contributor of a property who desires to defer taxable gain on the transfer of his or her property may transfer the property to the operating partnership in exchange for limited partnership units and defer taxation of gain until the contributor later exchanges his or her limited partnership units, typically on a one-for-one basis, for shares of the common stock of the REIT. We believe that using an UPREIT structure gives us an advantage in acquiring desired properties from persons who may not otherwise sell their properties because of unfavorable tax results.
     
Q:
Do you currently own any assets?
     
A:
Yes. Our portfolio is currently comprised of five hotel properties with an aggregate of 587 rooms and a joint venture interest in a mortgage loan secured by a hotel property. Please also see "Description of Investments" for additional information regarding our portfolio. 
 
This is considered to be a “blind pool” offering because we have made a limited number of investments and, other than any potential acquisitions discussed in this prospectus, we have not identified any other specific assets to acquire with the proceeds from this follow-on offering. As a result, you will not have the opportunity to evaluate our future investments prior to purchasing shares of our common stock. If we are delayed or unable to find suitable investments, we may not be able to achieve our investment objectives.
     
Q:
How has your portfolio performed to date?
     
A:
This question is best answered with a summary presentation of our selected financial data.
   
 
Summary Selected Financial Data
   
 
The following selected financial data should be read in conjunction with our consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” contained in our Annual Report on Form 10-K for the year ended December 31, 2013, incorporated by reference into this prospectus. Our historical results are not necessarily indicative of results for any future period.
 
    As of December 31  
 
 
2013
   
2012
 
Selected Financial Data
           
BALANCE SHEET DATA:
           
Total assets
 
$
70,917,596
   
$
29,086,245
 
Total liabilities
 
$
46,281,943
   
$
18,383,618
 
Special partnership units     1,000        1,000  
Total equity
 
$
24,634,653
   
$
10,701,627
 
 
   
Year Ended
 December 31, 2013
   
Year Ended
December 31, 2012
 
STATEMENT OF OPERATIONS DATA:
           
Total revenue
 
$
8,245,685
   
$
1,094,920
 
Total expenses
 
$
9,613,342
   
$
1,280,740
 
Total income from discontinued operations   $ -     $
1,179,933
 
Net income (loss)
 
$
(1,367,657
 
$
994,113
 
                 
STATEMENT OF CASH FLOWS DATA:
               
Net cash provided by operating activities
 
$
1,367,849
   
$
387,070
 
Net cash used in investing activities
 
$
13,007,494    
$
2,595,923
 
Net cash provided by financing activities
 
$
14,253,859
   
$
3,852,064
 
                 
OTHER DATA:
               
Distributions declared
 
$
1,773,715
   
$
761,640
 
 
Q:
Who will choose which investments to make?
     
A:
Our advisor, Moody National Advisor I, LLC, selects investments for us based on specific investment objectives and criteria and subject to the direction, oversight and approval of our board of directors.
     
Q:
What kind of offering is this?
     
A:
Through our dealer manager, we are offering a maximum of $900,000,000 in shares of our common stock in our primary offering on a “best efforts” basis at an initial price of $10.00 per share. Our board of directors may change this price from time to time during the offering, but not more frequently than quarterly, to reflect changes in our estimated per-share net asset value and other factors our board of directors deems relevant. Our advisor will calculate the per-share net asset value by dividing our net asset value by the number of shares of our common stock outstanding. Net asset value will be determined by subtracting (1) our liabilities, including
 
v

 

 
the accrued fees and other expenses attributable to this offering and our operations, from (2) our assets, which will consist almost entirely of the value of our interest in our operating partnership. The value of our operating partnership is the excess of the fair value of its assets (including real estate properties, real estate related assets and other investments) over the fair value of its liabilities (including debt and the expenses attributable to its operations), as determined by our advisor. If we revise our offering price, we will disclose the method of calculating the estimated net asset value per share in a supplement to this prospectus.
   
 
We are also offering $100,000,000 in shares of our common stock pursuant to our distribution reinvestment plan at $9.50 per share to those stockholders who elect to participate in such plan as described in this prospectus. Our board of directors may also change this price from time to time, but not more frequently than quarterly. We have no obligation to adjust the price of our shares and any adjustment in our offering price or the price of shares sold pursuant to our distribution reinvestment plan will be made in the sole and absolute discretion of our board of directors. We reserve the right to reallocate the shares of common stock we are offering between the primary offering and the distribution reinvestment plan.
   
Q:
How does a “best efforts” offering work?
   
A:
When shares of common stock are offered to the public on a “best efforts” basis, the broker-dealers participating in the offering are only required to use their best efforts to sell the shares of our common stock. Broker-dealers do not have a firm commitment or obligation to purchase any of the shares of our common stock. Therefore, no specified dollar amount is guaranteed to be raised.
   
Q:
How long will this offering last?
   
A:
We expect to sell the shares of our common stock offered in the primary offering over a two year period. If we have not sold all of the shares to be offered in the primary offering by October 12, 2014, we may continue the primary offering until October 12, 2015 (three years from the date of the commencement of this offering), provided that, under rules promulgated by the SEC, in some circumstances we could continue the primary offering until as late as April 9, 2016.  If we decide to continue the primary offering beyond October 12, 2014, we will provide that information in a prospectus supplement. In many states, we will need to renew the registration statement or file a new registration statement to continue this offering beyond one year from the date of this prospectus. We may terminate this offering at any time.
   
Q:
Will I receive a stock certificate?
   
A:
No. You will not receive a stock certificate unless expressly authorized by our board of directors. We anticipate that all shares of our common stock will be issued in book-entry form only. The use of book-entry registration protects against loss, theft or destruction of stock certificates and reduces offering costs.
   
Q:
Who can buy shares of common stock in this offering?
   
A:
In general, you may buy shares of our common stock pursuant to this prospectus provided that you have either (1) a net worth of at least $70,000 and an annual gross income of at least $70,000 or (2) a net worth of at least $250,000. For this purpose, net worth does not include your home, home furnishings and personal automobiles. Generally, you must initially invest at least $2,500. After you have satisfied the applicable minimum purchase requirement, additional purchases must be in increments of $500, except for purchases made pursuant to our distribution reinvestment plan, which are not subject to any minimum purchase requirement. These minimum net worth and investment levels may be higher in certain states, so you should carefully read the more detailed description under “Suitability Standards.”
 
 
vi

 
 
 
Our affiliates may also purchase shares of our common stock. The sales commissions and dealer manager fees that are payable by other investors in this offering may be reduced or waived for our affiliates.
     
Q:
Are there any special restrictions on the ownership of shares?
     
A:
Yes. Our charter prohibits the ownership of more than 9.8% in value of our outstanding shares of capital stock (which includes common stock and preferred stock we may issue) and more than 9.8% in value or number of shares, whichever is more restrictive, of our then outstanding common stock, unless exempted by our board of directors. This prohibition may discourage large investors from purchasing our shares and may limit your ability to transfer your shares. To comply with tax rules applicable to REITs, we will require our record holders to provide us with detailed information regarding the beneficial ownership of our shares on an annual basis. These restrictions are designed to enable us to comply with the ownership restrictions imposed on REITs by the Internal Revenue Code. See “Description of Capital Stock—Restriction on Ownership of Shares of Capital Stock.”
     
Q:
How do I subscribe for shares of common stock?
     
A:
Investors who meet the suitability standards described herein may purchase shares of our common stock. Investors seeking to purchase shares of our common stock should proceed as follows:
     
 
read this entire prospectus and any appendices and supplements accompanying this prospectus;
     
 
complete the execution copy of the subscription agreement. A specimen copy of the subscription agreement, including instructions for completing it, is included in this prospectus as Appendix B; and
     
 
deliver a check for the full purchase price of the shares of our common stock being subscribed for along with the completed subscription agreement to the registered broker-dealer or investment advisor. Your check should be made payable to “Moody National REIT I, Inc.”
     
 
By executing the subscription agreement and paying the total purchase price for the shares of our common stock subscribed for, each investor represents that the investor meets the minimum income and net worth standards as stated in the subscription agreement.
     
 
Subscriptions will be effective only upon our acceptance and we reserve the right to reject any subscription in whole or part. Subscriptions will be accepted or rejected within 30 days of receipt by us and, if rejected, all funds shall be returned to subscribers without deduction for any expenses within 10 business days from the date the subscription is rejected. We are not permitted to accept a subscription for shares of our common stock until at least five business days after the date you receive the final prospectus.
     
 
An approved trustee must process and forward to us subscriptions made through individual IRAs, Keough plans and 401(k) plans. In the case of investments through IRAs, Keough plans and 401(k) plans, we will send the confirmation and notice of our acceptance to the trustee.
 
 
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Q:
How does the payment of fees and expenses affect my invested capital?
   
A:
We pay sales commissions and dealer manager fees in connection with this offering. In addition, we reimburse our advisor for our cumulative organizational and offering expenses and we pay our advisor acquisition and origination fees for substantial services provided in the acquisition of investments. The payment of fees and expenses reduce the funds available to us for investment in real estate assets. Depending primarily upon the number of shares we sell in the primary offering and assuming a $10.00 purchase price for shares sold in the primary offering, we estimate that we will use between 83.3% and 87.2% of our gross offering proceeds for investments and 1.3% of our gross offering proceeds for the payment of acquisition and origination fees to our advisor. The payment of fees and expenses will also reduce the book value of your shares of common stock. However, you will not be required to pay any additional amounts in connection with the fees and expenses described in this prospectus.
   
Q:
How much in compensation has been paid to the advisor and its affiliates to date?
   
A:
The following chart indicates the compensation paid to our advisor and its affiliates for the years ended December 31, 2013 and 2012. The following table should be read in conjunction with “Management Compensation.”
 
     
Year Ended December 31,
 
 
Type of Fee or Reimbursement
 
2013
   
2012
 
 
Offering Stage:
           
 
Selling commissions (1)
  $ 1,387,952     $ 595,905  
 
Dealer manager fees (1)
    422,906       167,783  
 
Organization and offering expense reimbursement (2)   
    563,000       914,000  
 
Operational Stage:
               
 
Acquisition fee   
    577,650       180,000  
 
Origination fee   
           
 
Debt financing fee   
    271,000        
 
Asset management fee (1)  
    227,306       33,303  
 
Property management and accounting fee     
    292,787       15,602  
 
Operating expense reimbursement (3)    
           
 
Acquisition expense reimbursement  
           
 
Disposition Stage:
               
 
Disposition fee  
           
 
 
(1)
All selling commissions, dealer manager fees and asset management fees incurred as of  December 31, 2013 and 2012 had been paid as of such dates as indicated in the table above.
 
(2)
As of December 31, 2013, we had reimbursed offering costs of $1,888,458 and organization costs of $28,083 and had offering costs
receivable from our advisor of $36,674. As of December 31, 2013, no oganization costs were payable to our advisor.
 
(3)
As of December 31, 2013, we had reimbursed  $56,000 of operating expense to our advisor and had no operating expense payable to our advisor.
 
Q:
If I buy shares, will I receive distributions and how often?
   
A: In order that investors may generally begin earning distributions immediately upon our acceptance of their subscription, our board of directors authorizes and we declare distributions based on daily record dates. Since we commenced real estate operations in May 2010, we have authorized and declared distributions based on daily record dates for each day calculated at a rate of $0.002192 per share of our common stock per day, which, if paid each day over a 365-day period, is equivalent to an 8.0% annualized distribution rate based on a purchase price of $10.00 per share of our common stock. We pay these distributions on a monthly basis. As of December 31, 2013, including shares issued pursuant to our distribution reinvestment plan, approximately 68% of our distributions have been funded from cash flow from operations and approximately 32% have been funded from offering proceeds. For more information on our distribution policy, see “Description of Capital Stock—Distributions.”
   
Q:
May I reinvest my distributions?
   
A:
Yes. Our distribution reinvestment plan allows stockholders to reinvest distributions at a price currently set at $9.50 per share. Our board of directors may change this price from time to time, but not more frequently than quarterly, to reflect changes in our estimated per-share net asset value and other factors our board of directors deems relevant. The terms of our distribution reinvestment plan may also be amended or terminated by our board in its discretion upon at least 10 days’ prior written notice. Please see “Description of Capital Stock—Distribution Reinvestment Plan” for more information regarding our distribution reinvestment plan.
   
Q:
If I buy shares of common stock in this offering, how may I later sell them?
   
A:
At the time you purchase the shares of our common stock, the shares will not be listed for trading on any national securities exchange. As a result, if you wish to sell your shares, you may not be able to do so promptly, or at all, or you may only be able to sell them at a substantial discount from the price you paid. In general, however, you may sell your shares to any buyer that meets the applicable suitability standards unless such sale would cause the buyer to own more than 9.8% of the value of our then outstanding shares of capital stock (which includes common stock and any preferred stock we may issue) or more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock. See “Suitability Standards” and “Description of Capital Stock—Restriction on Ownership of Shares of Capital Stock.” We have adopted a share redemption program which may provide limited liquidity for some of our stockholders. For more information on our share redemption program, see “Description of Capital StockShare Redemption Program.”
   
Q:
What is your exit strategy?
   
A:
We presently intend, but are not required, to complete a transaction providing liquidity for our stockholders within four to six years from the termination of our initial public offering, which occurred on October 12, 2012. Our charter does not require our board of directors to pursue a liquidity event. However, we expect that our board of directors will determine to pursue a liquidity event when it believes that then-current market conditions are favorable for a liquidity event, and that such a transaction is in the best interests of our stockholders. A liquidity event could include (1) the sale of all or substantially all of our assets either on a portfolio basis or individually followed by a liquidation, (2) a merger or another transaction approved by our board of directors in which our stockholders will receive cash or shares of a publicly traded company or (3) a listing of our shares on a national securities exchange. There can be no assurance as to when a suitable transaction will be available.
   
Q:
Will the distributions I receive be taxable?
   
A:
For any year that we qualify as a REIT, distributions that you receive, including the market value of our common stock received pursuant to our distribution reinvestment plan, will generally be taxed as ordinary income to the extent they are paid out of our current or accumulated earnings and profits. However, if we recognize a long-term capital gain upon the sale of one of our assets, a portion of our distributions may be designated and treated as a long-term capital gain. In addition, we expect that some portion of your distributions may not be subject to
 
 
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tax in the year received due to the fact that depreciation expenses reduce earnings and profits but do not reduce cash available for distribution. Amounts distributed to you in excess of our earnings and profits will reduce the tax basis of your shares of common stock and will not be taxable to the extent thereof, and distributions in excess of tax basis will be taxable as an amount realized from the sale of your shares of common stock. This, in effect, would defer a portion of your tax until your investment is sold or we are liquidated, at which time you may be taxed at capital gains rates. However, because each investor’s tax considerations are different, we suggest that you consult with your tax advisor.
   
Q:
When will I get my detailed tax information?
   
A:
We intend to mail your Form 1099 tax information, if required, by January 31 of each year.
   
Q:
Where can I find updated information regarding the company?
   
A:
You may find updated information on our website, www.moodynationalreit.com. In addition, we are subject to the informational reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Under the Exchange Act, we file reports, proxy statements and other information with the SEC. See “Additional Information” for a description of how you may read and copy the registration statement, the related exhibits and the reports, proxy statements and other information we file with the SEC. In addition, you will receive periodic updates directly from us, including three quarterly financial reports and an annual report.
   
Q:
Who can answer my questions?
   
A:
If you have additional questions about this offering or if you would like additional copies of this prospectus, you should contact your registered representative or:
 
 
Moody National REIT I, Inc.
6363 Woodway Drive
Suite 110
Houston, Texas 77057
(713) 977-7500
Attn: Investor Relations
 
 
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PROSPECTUS SUMMARY
 
This summary highlights selected information contained elsewhere in this prospectus. Because it is a summary, it may not contain all of the information that is important to you. To understand this offering fully, you should read the entire prospectus carefully, including the “Risk Factors” section, before making an investment decision. The use of the words “we,” “us” or “our” refers to Moody National REIT I, Inc. and its subsidiaries, including Moody National Operating Partnership I, L.P., except where the context otherwise requires.
 
Moody National REIT I, Inc.
 
We were formed as a Maryland corporation on January 15, 2008 to invest in a diversified portfolio of real estate investments, primarily in the hospitality sector. To a lesser extent, we may also invest in multifamily, office, retail and industrial properties and real estate securities and debt-related investments. We rely on our advisor’s unique investment strategy, referred to as “Moody Core Plus Plus,” which is described below. We have elected to qualify to be taxed as a real estate investment trust, or REIT, under the Internal Revenue Code of 1986, as amended, or the Internal Revenue Code, commencing with the taxable year ended December 31, 2011.
 
On April 15, 2009, our Registration Statement on Form S-11 (SEC File No. 333­-150612), registering a public offering of up to $1,100,000,000 in shares of our common stock, was declared effective by the SEC and we commenced our initial public offering. In our initial public offering we offered up to 100,000,000 shares of our common stock to the public at $10.00 per share in the primary offering and up to 10,526,316 shares of our common stock pursuant to our distribution reinvestment plan at $9.50 per share. Our initial public offering terminated on October 12, 2012. As of  October 12, 2012, we had accepted investors’ subscriptions for, and issued, 1,126,253 shares of our common stock in our initial public offering, including 29,582 shares of our common stock issued pursuant to our distribution reinvestment plan, resulting in offering proceeds of $10,966,713. 
 
Prior to the termination of our initial public offering, on February 14, 2012, we filed a registration statement on Form S-11 with the SEC to register a follow-on public offering of up to $1,000,000,000 in shares of our common stock. We are offering up to $900,000,000 in shares of our common stock to the public and up to $100,000,000 in shares of our common stock to our stockholders pursuant to our distribution reinvestment plan in our follow-on public offering. On October 12, 2012, our follow-on offering was declared effective by the SEC and we terminated our initial public offering and commenced our follow-on offering. As of December 31, 2013, we had accepted subscriptions for, and issued, 3,267,967 shares of our common stock in our initial public offering and our follow-on offering, including 79,116 shares of our common stock issued pursuant to our distribution reinvestment plan, resulting in aggregate offering proceeds of $31,888,503.

        We are externally managed by Moody National Advisor I, LLC, an affiliate of ours which we refer to as our advisor. Our advisor’s team of real estate professionals has substantial discretion with respect to the selection of specific investments consistent with our investment objectives and strategy, subject to the approval of our board of directors. Our advisor’s management team has substantial experience in the real estate industry and has successfully completed approximately 46 fully subscribed private placements in real estate programs of multiple property types with over 1,308 investors across the United States.
 
Our sponsor, Moody National REIT Sponsor, LLC, a Delaware limited liability company, is owned and managed by Brett C. Moody, who also serves as our Chief Executive Officer and President and the Chief Executive Officer and President of our advisor. We refer to Moody National REIT Sponsor, LLC as our sponsor or Moody National. Neither we nor any of our affiliates is related to Moody’s Investors Services.
 
Our office is located at 6363 Woodway Drive, Suite 110, Houston, Texas 77057, and our main telephone number is 713-977-7500.
 
Investment Strategy and Objectives: Moody Core Plus Plus
 
Our investment objectives are to:
 
 
preserve, protect and return stockholders’ capital contributions;
 
 
pay regular cash distributions to stockholders; and
 
 
realize capital appreciation upon the ultimate sale of the real estate assets we acquire.
 
          The cornerstone of our investment strategy is to provide investors seeking a general real estate allocation with an investment in a diversified portfolio of real estate properties, real estate securities and debt-related investments, which we refer to collectively as real estate assets. We expect to continue to invest primarily in hotel properties located in the United States that we own exclusively or in joint ventures or other co-ownership arrangements with other persons. We may also invest in other property types consisting of multifamily, office, retail and industrial assets located in the United States and Canada as well as real estate securities and debt-related investments. We may also make opportunistic investments in properties that may be under-developed or newly constructed and in properties that we believe are undervalued.
 
          In identifying investments, we rely upon the Moody Core Plus Plus investment strategy. The Core Plus Plus strategy utilizes an acquisition philosophy that capitalizes on market inefficiencies and a disciplined approach to analyzing economic fundamentals and demographic trends in major metropolitan markets to identify undervalued real estate investment opportunities. “Core” refers to a stabilized, Class A asset in a major metropolitan market, which can provide predictable and attractive net operating income. However, we believe that a core buying strategy, without a supply-demand imbalance, offers minimal growth potential along with an increased risk of asset devaluation. “Core Plus” builds upon a foundation of a core buying strategy by also targeting core markets, which are major metropolitan areas with stable population growth, high barriers to entry and multiple demand generators. Our Core Plus strategy seeks to capitalize upon potential supply-demand imbalances that we believe will create a technical pressure on a particular asset or asset class. We intend to identify these technical pressures created by demographic, business and industry changes which lead to supply and demand imbalances in a particular market. By utilizing this Core Plus strategy of purchasing undervalued assets with underlying
 
 
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intrinsic value, we believe a core asset will create greater value at disposition. Core Plus Plus builds further upon the acquisition philosophy of Core Plus to combine our real property investments with real estate securities and debt-related investments, including (1) mortgage and mezzanine loans, (2) debt and derivative securities related to real estate, including mortgage-backed securities, and (3) the equity securities of other REITs and real estate companies.
 
          The Moody Core Plus Plus investment strategy employs an acquisition model that utilizes a market optimization strategy for identifying supply and demand imbalances in our investments in real estate assets. This acquisition model tracks the standard deviations of rental rates for markets, submarkets and asset classes to guide us to the investments that we believe offer the greatest risk-adjusted returns. Through this acquisition model, we seek to purchase real estate assets on a diversified (non-homogeneous) basis, emphasizing market direction rather than properties available on the market. The Moody Core Plus Plus strategy focuses on market forces and the cyclical nature of real estate to pursue acquisitions in anticipation of an increase in demand of a particular type of real estate property. Due to current supply and demand imbalances in the hospitality industry, we believe the hospitality industry provides, and will continue to provide, unique opportunities for attractive, risk- adjusted returns on investment during the period in which we will be investing the proceeds of this offering. Please see “Investment Strategy, Objectives and Policies—Primary Focus—Real Property Investments—The Hospitality Industry” for an overview of the hospitality industry.
 
Investment Portfolio
 
          Our portfolio is comprised of (1) five hotel properties located in three states with an aggregate of 587 rooms and (2) a 74.5% joint venture interest in a mortgage note in the original principal amount of $13,000,000, secured by a hotel property. For additional details regarding our investments, see “Description of Investments.”
 
Borrowing Policy
 
          Under our Articles of Amendment and Restatement, or our charter, we are prohibited from borrowing in excess of 300% of the value of our net assets. “Net assets” for purposes of this calculation is defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities. The preceding calculation is generally expected to approximate 75% of the aggregate cost of our assets before non-cash reserves and depreciation. However, we may temporarily borrow in excess of these amounts if such excess is approved by a majority of our independent directors and disclosed to stockholders in our next quarterly report, along with an explanation for such excess. In such event, we will review our debt levels at that time and take action to reduce any such excess as soon as practicable. We do not intend to exceed our charter’s leverage limit except in the early stages of building our portfolio when the costs of our investments are most likely to exceed our net offering proceeds. Our aggregate borrowings, secured and unsecured, is reviewed by the board of directors at least quarterly. As of December 31, 2013, our debt-to net assets ratio did not exceed 300%.
 
Summary of Risk Factors
 
An investment in shares of our common stock involves significant risks, including the following:
 
 
We commenced operations in May 2010, have a limited operating history, have experienced losses in the past and may continue to experience losses in the future. There is no assurance that we will be able to successfully achieve our investment objectives.
     
 
No public trading market exists for shares of our common stock and we are not required to effectuate a liquidity event by a certain date. As a result, it will be difficult for you to sell your shares of our common stock. If you are able to sell your shares, you will likely sell them at a substantial discount.
     
 
There are restrictions and limitations on your ability to have all or a portion of your shares of our common stock repurchased under our share redemption program, and if you are able to have your shares repurchased pursuant to our share redemption program, it may be for a price less than the price you paid for the shares and the then current value of the shares.
     
 
The offering price of our shares of common stock for this offering was not determined on an independent basis and bears no relationship to the book or net value of our assets or to our expected operating income.
     
 
The price of our shares may be adjusted periodically to reflect changes in the net asset value of our assets and therefore future adjustments may result in an offering price lower than the price you paid for your shares.
 
 
2

 
 
 
The amount of distributions we make, if any, is uncertain. Our distributions may exceed our earnings, particularly during the period before we have acquired a substantial portfolio of real estate assets. Our distributions may be paid from other sources such as borrowings, offering proceeds or deferral of fees and expense reimbursements by our advisor, in its sole discretion. We have not established a limit on the amount of proceeds from this offering that we may use to fund distributions. Therefore, portions of the distributions that we make may represent a return of capital to you, which will lower your tax basis in our shares. As of December 31, 2013, including shares issued pursuant to our distribution reinvestment plan, approximately 68% of our distributions have been funded from cash flow from operations and approximately 32% have been funded from offering proceeds.
     
 
This is considered to be a “blind pool” offering because we have made a limited number of investments and, other than any potential acquisitions described in this prospectus, we have not identified any other specific assets to acquire with the proceeds from our initial public offering or this follow-on offering. As a result, you will not have the opportunity to evaluate our future investments prior to purchasing shares of our common stock.
     
 
This is a “best efforts” offering and if we are unable to raise substantial funds then we will be limited in the number and type of investments we may make.
     
 
We rely on our advisor and its affiliates for our day-to-day operations and the selection of our investments. We will pay substantial fees to our advisor, which were not determined on an arm’s-length basis.
     
 
Our advisor and other affiliates face conflicts of interest as a result of compensation arrangements, time constraints and competition for investments and for tenants, including (1) conflicts related to compensation payable by us to our advisor and other affiliates that may not be on terms that would result from arm’s-length negotiations between unaffiliated parties, (2) the allocation of time between advising us and other real estate investment programs and (3) the recommendation of investments on our behalf when other affiliated programs are seeking similar investments.
     
 
We are the first publicly-offered investment program sponsored by our sponsor or its affiliates. Because previous programs and investments sponsored by affiliates of our sponsor were conducted through privately-held entities, not subject to either the up-front commissions, fees and expenses associated with this offering or all of the laws and regulations we are subject to, you should not assume that the prior performance of these programs will be indicative of our future performance.
     
 
Our use of leverage increases the risk of loss on our investments.
     
 
We are subject to risks generally incident to the ownership of real property.
     
 
We have elected to be taxed as a REIT for federal income tax purposes.  If we lose our REIT status, it would adversely affect our operations and our ability to make distributions to our stockholders because we will be subject to U.S. federal income tax at regular corporate rates with no ability to deduct distributions made to our stockholders.
 
Our Board of Directors
 
We operate under the direction of our board of directors, the members of which are accountable to us and our stockholders as fiduciaries. The board of directors is responsible for the management and control of our affairs. We have four members on our board of directors, three of whom are independent of us, our advisor and our respective affiliates. Our directors are elected annually by our stockholders. Our board of directors has established an investment committee and an audit committee. The names and biographical information of our directors and officers are set forth under “Management—Directors and Executive Officers.”
 
Our Advisor
 
Moody National Advisor I, LLC, our advisor, was formed as a Delaware limited liability company in January 2008. Mr. Brett C. Moody controls and indirectly owns our advisor. We rely on our advisor to manage our day-to-day activities and to implement our investment strategy. In addition, our advisor uses its best efforts, subject to the oversight, review and approval of our board of directors, to, among other things, research, identify, review and make investments in and dispositions of real estate assets on our behalf consistent with our investment strategy and objectives. Our advisor’s real estate professionals have engaged in investing and managing real estate assets in 46 privately held real estate programs, including performing portfolio management, acquisitions, asset management, dispositions, finance, research, valuation, investor relations, legal and accounting functions.
 
Our advisor performs its duties and responsibilities as our fiduciary under an advisory agreement. The term of the current advisory agreement ends on April 15, 2014, subject to renewals by
 
 
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the board of directors for an unlimited number of successive one-year periods. Our officers and our affiliated director are all officers of our advisor.
 
Our Sponsor
 
Moody National REIT Sponsor, LLC, our sponsor, was formed as a Delaware limited liability company in January 2008. Mr. Moody controls and indirectly owns our sponsor. Our sponsor has not sponsored any other real estate programs to date. However, Mr. Moody has closed more than 200 commercial real estate transactions totaling over $2.0 billion and has experience owning, financing and managing hotel, multifamily, office, and retail assets throughout the country. Mr. Moody has assembled a team of real estate professionals who have been through multiple real estate cycles in their careers and have the expertise gained through hands-on experience in acquisitions, asset management, dispositions, development, leasing and property and portfolio management. We believe that the experience of Mr. Moody and the team of real estate professionals assembled to manage our operations and their disciplined investment approach will allow us to successfully execute our investment strategy. Since 2005, the experience of these individuals includes (as of December 31, 2013):
 
 
sponsoring 46 privately offered prior real estate programs;
     
 
raising over $427.9 million of equity from more than 1,308 investors through these privately offered prior real estate programs;
     
 
acquiring over 67 hotels throughout the United States, with a value totaling approximately $1.4 billion; and
     
 
operating and/or asset managing over 40 hotels located throughout the United States.
 
Our Operating Partnership
 
We own our investments through Moody National Operating Partnership I, L.P., our operating partnership, or its subsidiaries. We are the sole general partner of our operating partnership, and the initial limited partners of our operating partnership are Moody National LPOP I, LLC, an affiliate of our sponsor, or Moody National LPOP, and Moody OP Holdings I, LLC, or Moody OP Holdings. Moody National LPOP has invested $1,000 in our operating partnership in exchange for common limited partnership units, or common units, and Moody OP Holdings has invested $1,000 in our operating partnership and has been issued a separate class of limited partnership units, which we refer to as the special units and which are described below under “—Compensation to Our Advisor and Affiliates.”
 
Our Affiliates
 
Various affiliates of ours are involved in this offering and our operations. Moody Securities, LLC, which is a member of the Financial Industry Regulatory Authority, Inc., or FINRA, is the dealer manager for this offering and will provide dealer manager services to us in this offering. Mr. Robert W. Engel, our Chief Financial Officer, is an officer of our dealer manager. Our dealer manager is indirectly owned by Mr. Moody. For more information regarding our officers and the officers of our advisor and dealer manager, see the “Management” section of this prospectus. Another affiliate, Moody National Management, L.P., our property manager, will perform certain property management services for us and our operating partnership. Our property manager is indirectly owned and controlled by Mr. Moody. We refer to our advisor, our property manager and other of our affiliates, each as a “Moody National affiliate” and collectively, as “Moody National affiliates.”
 
 
4

 
 
Our Structure
 
The chart below shows the relationships among various Moody National affiliates. We are the sole general partner of our operating partnership. In the future, we may issue limited partnership units to third parties from time to time in connection with acquisitions of real estate properties. In order for the income from any hotel property investments to constitute “rents from real properties” for purposes of the gross income test required for REIT qualification, the income we earn cannot be derived from the operation of any of these hotels. Therefore, we lease each hotel property to a subsidiary of our operating partnership, which we intend to be treated as a taxable REIT subsidiary, or TRS.
 
 
Terms of the Offering
 
We are offering up to $1,000,000,000 in shares of our common stock, $900,000,000 of which are being offered to the public in our primary offering, and $100,000,000 of which are being offered pursuant to our distribution reinvestment plan. We are initially offering shares to the public in our primary offering at a price of $10.00 per share. Our board of directors may change this price from time to time during the offering, but not more frequently than quarterly, to reflect changes in our estimated per-share net asset value and other factors our board of directors deems relevant. If our board determines to change the price per share in this offering, our advisor will calculate the per-share net asset value by dividing our net asset value by the number of shares of our common stock outstanding. Net asset value will be determined by subtracting (1) our liabilities, including the accrued fees and other expenses attributable to this offering and our operations, from (2) our assets, which will consist almost entirely of the value of our interest in our operating partnership. The value of our operating partnership is the excess of the fair value of its assets (including real estate properties, real estate related assets and other investments) over the fair value of its liabilities (including debt and the expenses attributable to its operations), as determined by our advisor. If we
 
 
5

 
 
revise our offering price, we will disclose the method of calculating the estimated net asset value per share in a supplement to this prospectus. Shares sold under our distribution reinvestment plan will initially be sold for $9.50 per share. Our board of directors may also change this price from time to time, but not more frequently than quarterly. We have no obligation to adjust the price of our shares and any adjustment in our offering price or the price of shares sold pursuant to our distribution reinvestment plan will be made in the sole and absolute discretion of our board of directors. Our board of directors did not change the offering price during our intial public offering. We reserve the right to reallocate the shares of common stock we are offering between the primary offering and our distribution reinvestment plan. This is a best efforts offering, which means that our affiliate Moody Securities, LLC, which is the dealer manager for this offering, will use its best efforts to sell our shares of common stock, but is not required to sell any specific amount of shares.
      
           We expect to sell the shares of our common stock offered in the primary offering over a two year period. If we have not sold all of the shares to be offered in the primary offering by October 12, 2014, we may continue the primary offering until October 12, 2015 (three years from the date this offering commenced), provided that, under rules promulgated by the SEC, in some circumstances we could continue the primary offering until as late as April 9, 2016.  If we decide to continue the primary offering beyond October 12, 2014, we will provide that information in a prospectus supplement. In many states, we will need to renew the registration statement or file a new registration statement to continue this offering beyond one year from the date of this prospectus. We reserve the right to terminate this offering at any time. We generally accept subscriptions for shares in this offering on a weekly basis.
 
Compensation to Our Advisor and Affiliates
 
           Our advisor and other affiliates will receive compensation and fees for services related to this offering and for the investment and management of our assets, subject to review and approval of our independent directors. In addition, Moody OP Holdings, a wholly-owned subsidiary of our sponsor, has been issued special units in our operating partnership constituting a separate series of partnership interests with special distribution rights. Equity interests in Moody OP Holdings will be issued in the future to certain management personnel, which will serve as an incentive to our advisor’s management to perform services on our behalf consistent with our investment objectives.
 
           Set forth below is a summary of all of the compensation and fees, including reimbursement of expenses, paid or reimbursed by us to our dealer manager and our advisor and its affiliates for the years ended December 31, 2013 and December 31, 2012 related to our initial public offering and this offering. The estimated maximum dollar amounts reflected in the table assume that we sell all shares in this offering at the highest possible sales commissions and dealer manager fees (with no discounts for any categories of purchasers) and are based on the sale of the maximum of $900,000,000 in shares to the public in the primary offering. The estimated maximum dollar amount does not include compensation and fees paid to our dealer manager, advisor and its affiliates in our initial public offering, which terminated on October 12, 2012. See “Management Compensation Table” for a more detailed explanation of the fees and expenses payable to our advisor and its affiliates in this offering and for a more detailed description of the special units.
 
Compensation/ Reimbursement and Recipient
 
Description and Method of Computation
 
Amounts Paid or Reimbursed for the Year Ended December 31, 2013/2012
 
Estimated Amount
Maximum Offering
             
   
Organizational and Offering Stage
       
             
Sales Commission—Dealer
   Manager
 
6.5% of the gross offering proceeds from the sale of shares in the primary offering (all or a portion of which may be reallowed to participating broker-dealers).
 
$1,387,952/$595,905
 
$58,500,000
             
Dealer Manager Fee—Dealer
   Manager
 
3.5% of the gross offering proceeds from the sale of shares in the primary offering, a portion of which may be reallowed to participating broker-dealers (excluding funds retained for the payment of wholesaling commissions, training and education costs and overhead expenses).
 
$422,906/$167,783
 
$31,500,000
             
Organizational and Offering
   Expense
   Reimbursement—Advisor or its affiliates
 
Reimbursement for organizational and offering expenses incurred on our behalf, but only to the extent that such reimbursements do not exceed actual expenses incurred by
 
$563,000/$914,000
 
$19,800,000
 
 
6

 
 
Compensation/ Reimbursement and Recipient
 
Description and Method of Computation
  Amounts Paid or Reimbursed for the Year Ended December 31, 2013/2012  
Estimated Amount
Maximum Offering
             
   
the advisor and would not cause the cumulative sales commission, the dealer manager fee and other organization and offering expenses borne by us to exceed 15.0% of gross offering proceeds from the sale of shares in the primary offering as of the date of reimbursement. We estimate that organization and offering expenses (excluding sales commissions and dealer manager fees) will represent approximately 2.2% of gross proceeds from our primary offering, or approximately $19,800,000, if we raise the maximum offering.
       
             
   
Operational Stage
       
             
Acquisition Fees—Advisor or its affiliates
 
1.5% of (1) the cost of investments we acquire or (2) our allocable cost of investments acquired in a joint venture, in each case including purchase price, acquisition expenses and any debt attributable to such investments. With respect to investments in and origination of loans, we will pay an origination fee to our advisor in lieu of an acquisition fee.
 
$577,650/$180,000
 
$11,853,000 (assuming no leverage is used to purchase real estate assets). $47,412,000 (assuming a leverage ratio of 75%).
             
Origination Fees—Advisor or its affiliates
 
1.5% of the amount funded by us to acquire or originate mortgage, mezzanine or bridge loans, including any third-party expenses related to such investment and any debt we use to fund the acquisition or origination of the loan. We will not pay an acquisition fee with respect to such loans.
 
$0/$0
 
$11,853,000 (assuming no leverage is used to acquire or originate the loan). $47,412,000 (assuming a leverage ratio of 75%).
             
Debt Financing Fee—Advisor or its affiliates
 
1.0% of the amount available under any loan or line of credit we obtain and use to acquire properties or other permitted investments, which will be in addition to the acquisition fee paid to our advisor. Our advisor may pay some or all of the fees to third parties if it subcontracts to coordinate financing. No fee will be paid in connection with (1) the refinancing of a real estate asset already refinanced for which our advisor received a fee and (2) loan proceeds from any line of credit until such time as we have invested all net offering proceeds.
 
$271,000/$0
 
Actual amounts depend upon the amount of debt obtained and services provided, and, therefore, cannot be determined at this time. If we utilize a 75% leverage ratio, the fees would be $23,706,000.
 
 
7

 
 
Compensation/ Reimbursement and Recipient
 
Description and Method of Computation
  Amounts Paid or
Reimbursed for the
Y
ear Ended December
31, 2013/
2012
 
Estimated Amount
Maximum Offering
             
Reimbursement of Acquisition
   Expenses—Advisor
 
Reimbursement of actual expenses related to the selection and acquisition of real estate investments.
 
$0/$0
 
$3,951,000 (assuming no leverage is used to purchase assets). $15,804,000 (assuming a leverage ratio of 75%).
             
Asset Management Fees—Advisor
 
A monthly amount equal to one-twelfth of 1.0% of the sum of the cost of all real estate investments we acquire.
 
$227,306/$33,303
 
$645,330 (assuming no leverage is used to purchase assets). $2,581,320 (assuming a leverage ratio of 75%).
             
Property Management and Leasing
   Fees—Moody National Management, L.P.
 
A monthly market-based fee, which will depend on geographic location and asset class as determined by a survey of brokers and agents in the area, for services in connection with operating and managing real property, including accounting services. Our property manager may pay some or all of these fees to third parties for management or leasing services. In the event that we contract directly with a non-affiliated third-party property manager, we will pay our property manager a market-based oversight fee.
 
$292,787/$15,602
 
Actual amounts depend upon the gross revenue of the properties and customary leasing fees in the region in which properties are acquired, and, therefore, cannot be determined at this time.
             
Operating Expenses—Advisor
 
We will reimburse our advisor for all expenses paid or incurred by our advisor in connection with the services provided to us, including our allocable share of the advisor’s overhead, such as rent, personnel costs, utilities and IT costs; provided, however, that we will not reimburse our advisor or its affiliates for employee costs in connection with services for which our advisor or its affiliates receives acquisition, origination, disposition or asset management fees or for the personnel costs our advisor pays with respect to persons who serve as our executive officers.
 
$0/$0
 
Actual amounts are dependent upon expenses paid or incurred and, therefore, cannot be determined at the present time.
 
 
8

 
 
Compensation/ Reimbursement and Recipient
 
Description and Method of Computation
  Amounts Paid or Reimbursed for the Year Ended December 31, 2013/2012  
Estimated Amount
Maximum Offering
             
Director Compensation/Long-Term
   Incentive Plan—Independent Directors and Advisor
 
We pay each of our independent directors an annual retainer of $50,000. We also pay our independent directors for attending meetings as follows: (1) $2,000 for each in-person board meeting attended, (2) $1,500 for each in-person committee meeting attended and (3) $1,000 for each teleconference board meeting attended. The audit committee chairman receives an additional $10,000 annual retainer. All directors receive reimbursement of reasonable out-of-pocket expenses incurred in connection with attendance at meetings of the board of directors.
 
We granted each of our independent directors an initial grant of 5,000 shares of restricted stock, which we refer to as the “initial restricted stock grant,” upon raising the minimum offering amount of $2,000,000 in our initial public offering. Going forward, each new independent director that subsequently joins the board of directors will receive the initial restricted stock grant on the date he or she joins the board of directors. Additionally, on the date of each of the first four annual meetings of our stockholders at which an independent director is re-elected to the board of directors, we grant to such directors 2,500 shares of restricted stock. On each of August 24, 2011, August 14, 2012 and August 13, 2013 each of our then current independent directors received 2,500 shares of restricted stock upon his reelection to the board of directors at our annual stockholders meeting. Although we do not currently intend to grant awards under the incentive compensation plan to employees of our advisor, such awards may be granted in the future.
 
$250,000/$291,000
 
Actual amounts are dependent upon the total number of board and committee meetings that each independent director attends and the type and amount of awards granted under our long-term incentive plan; we cannot determine these amounts at the present time.
             
   
Liquidity Stage
       
             
Disposition Fees—Advisor or its affiliates
 
If our advisor provides a substantial amount of services, as determined by our independent directors, in connection with the sale of a property or other investment (except for such investments that are traded on a national securities exchange), up to one-half of the brokerage commission paid but in no event an amount greater than 3.0% of the contract sales price of each property or other
 
$0/$0
 
Actual amounts depend upon the sale price of properties, and, therefore, cannot be determined at this time.
 
 
9

 
 
Compensation/ Reimbursement and Recipient
 
Description and Method of Computation
  Amounts Paid or Reimbursed for the Year Ended December 31, 2013/2012  
Estimated Amount
Maximum Offering
             
   
investment sold; provided, however, in no event may the aggregate of the disposition fees paid to our advisor and any real estate commissions paid to unaffiliated third parties exceed 6.0% of the contract sales price. With respect to a property held in a joint venture, the foregoing commission will be reduced to a percentage of such amount reflecting our economic interest in the joint venture.
       
             
Special Units—Moody OP Holdings I, LLC
 
Moody OP Holdings, an affiliate of our advisor, was issued special units upon its initial investment in our operating partnership, and as the holder of the special units will be entitled to receive (1) 15% of specified distributions made upon the disposition of our operating partnership’s assets, and (2) a one time payment, in the form of shares of our common stock, a non-interest bearing promissory note payable solely from the proceeds of asset sales, or a combination thereof, in conjunction with the redemption of the special units upon the occurrence of a listing of our shares on a national securities exchange or upon the occurrence of certain events that result in a termination or non-renewal of our advisory agreement, but in each case only after the other holders of our operating partnership’s units, including us, have received (or have been deemed to have received), in the aggregate, cumulative distributions equal to their capital contributions plus an 8.0% cumulative non compounded annual pre tax return on their net contributions. The holder of special units is not entitled to receive any other distributions.
 
$0/$0
 
Actual amounts depend on the sale price of real estate assets, and, therefore, cannot be determined at this time.
 
 
10

 
 
Prior Investment Programs
 
          The section of this prospectus entitled “Prior Performance Summary” contains a discussion of the programs sponsored by Moody National and its affiliates. Certain financial data relating to these programs is also provided in the “Prior Performance Tables” in Appendix A to this prospectus. The prior performance of our affiliates’ previous real estate programs may not be indicative of our ultimate performance and, thus, you should not assume that you will experience financial performance and returns comparable to those experienced by investors in these prior programs. You may experience a small return or no return on, or may lose some or all of, your investment in our shares.
 
Conflicts of Interest
 
Our advisor and certain of our other affiliates will experience conflicts of interest in connection with this offering and the management of our business affairs, including the following:
 
 
although our advisor does not currently manage other real estate programs, the directors, officers and key personnel of our advisor and our affiliated property manager must allocate their time between advising us and managing other real estate projects and business activities in which they may be involved, including 46 privately offered real estate programs sponsored by affiliates of our sponsor, all of which have investment objectives generally similar to this offering;
     
 
the compensation payable by us to our advisor and other affiliates may not be on terms that would result from arm’s-length negotiations between unaffiliated parties, and fees such as the acquisition fees, origination fees and asset management fees payable to our advisor and property management fees payable to our affiliated property manager are payable, in most cases, regardless of the quality of the assets acquired, the services provided to us or whether we make distributions to our stockholders;
     
 
although our sponsor has agreed generally to provide us with the first opportunity to acquire stabilized and income-producing properties for which we have sufficient uninvested funds, our sponsor will be required to make this determination in its discretion and will be subject to certain conflicts of interest in recommending acquisitions on our behalf when other affiliated programs are also seeking investments;
     
 
our property manager is an affiliate of our advisor and, as a result, may benefit from our advisor’s determination to retain our assets while our stockholders may be better served by the sale or disposition of our assets; and
     
 
our dealer manager is an affiliate of ours and, as a result, you will not have the benefit of an independent due diligence review and investigation of the type normally performed by an unaffiliated, independent underwriter in connection with a securities offering.
 
Distribution Policy
 
We have elected REIT status commencing with the taxable year ended December 31, 2011. To qualify as a REIT, we are required to distribute to our stockholders 90% of our annual REIT taxable income, determined without regard to the dividends paid deduction and excluding net capital gain. 
 
In order that investors may generally begin earning distributions immediately upon our acceptance of their subscription, our board of directors authorizes and we declare distributions based on daily record dates. Since we commenced real estate operations in May 2010, we have authorized and declared distributions based on daily record dates for each day calculated at a rate of $0.002192 per share of our common stock per day, which, if paid each day over a 365-day period, is equivalent to an 8.0% annualized distribution rate based on a purchase price of $10.00 per share of our common stock.  We pay these distributions on a monthly basis.
 
Generally, our policy is to pay distributions from cash flow from operations. Because we may receive income from interest or rents at various times during our fiscal year and because we may need cash flow from operations during a particular period to fund capital expenditures and other expenses, we expect that at least during the early stages of building our portfolio, we will declare distributions in anticipation of cash flow that we expect to receive during a later period and we will pay these distributions in advance of our actual receipt of these funds. We may fund such distributions from offering proceeds, advances from our advisor or sponsor, from our advisor’s deferral of its fees, from the net proceeds from the sale of real estate and from the receipt of principal payments on our real estate-related investments.
 
Our distribution policy is not to use the proceeds of this offering to pay distributions. However, our board has the authority under our organizational documents, to the extent permitted by Maryland law, to pay distributions from any source, including proceeds from this offering or the proceeds from the issuance of securities in the future or borrowings. As of December 31, 2013, including shares issued pursuant to our distribution reinvestment plan, approximately 68% of our distributions have been funded from cash flow from operations and approximately 32% have been funded from offering proceeds.
 
 
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Distribution Reinvestment Plan
 
You may participate in our distribution reinvestment plan and elect to have the cash distributions you receive reinvested in shares of our common stock at an initial price of $9.50 per share. Our board of directors, in its sole discretion, may change this price from time to time or otherwise amend or terminate the distribution reinvestment plan at its discretion at any time upon 10 days’ prior written notice to you. Following any termination of the distribution reinvestment plan, all subsequent distributions to stockholders will be made in cash.
 
Distributions Paid
 
On May 20, 2010, our board of directors authorized and declared a cash distribution to our stockholders contingent upon the closing of our acquisition of our first investment, which occurred in May 2010. The distribution (1) began to accrue daily to our stockholders of record as of the close of business on each day commencing on May 27, 2010; (2) is payable in cumulative amounts on or before the 15th day of each calendar month; and (3) is calculated at a rate of $0.002192 per share of our common stock per day, which, if paid each day over a 365-day period, is equivalent to an 8.0% annualized distribution rate based on a purchase price of $10.00 per share of our common stock.

The following table summarizes the distributions we paid in cash and pursuant to our distribution reinvestment plan (DRIP) for the period from July 2010 (the month we first paid distributions) through December 31, 2013:
 
         
Net Cash Provided by
 
   
Distributions Paid(1)
   
(used in)
 
Period
 
Cash
   
DRIP(3)
   
Total
   
Operating Activities
 
Period From May 20, 2010 to June 30, 2010(2)
 
$
   
$
   
$
   
$
(161,881
)
Third Quarter 2010
   
40,388
     
20,901
     
61,289
     
114,490
 
Fourth Quarter 2010
   
39,639
     
26,375
     
66,014
     
156,857
 
First Quarter 2011
   
42,398
     
27,746
     
70,144
     
(9,178
Second Quarter 2011
   
46,591
     
29,343
     
75,934
     
63,341
 
Third Quarter 2011
   
52,391
     
31,474
     
83.865
     
(27,056
Fourth Quarter 2011
   
67,284
     
29,758
     
97,042
     
27,835
 
First Quarter 2012     90,374       26,723       117,097       (25,151 )
Second Quarter 2012     114,446       35,856       150,302       199,325  
Third Quarter 2012     148,527       52,850       201,377       132,140  
Fourth Quarter 2012     177,655       61,594       239,249       80,756  
First Quarter 2013     200,579       72,609        273,188       153,310  
Second Quarter 2013      283,395        89,775        373,170       438,908  
Third Quarter 2013      347,881        107,695        455,576       480,257  
Fourth Quarter 2013      406,378        138,908        545,286       295,374  
Total
 
$
2,057,926
   
$
751,607
   
$
2,809,533
   
$
1,919,327
 
 
 
(1)
Distributions are paid on a monthly basis. Distributions for all record dates of a given month are paid approximately 15 days following the end of such month.
 
(2)
Distributions accrued for the period from May 27, 2010 through June 30, 2010 were paid on July 15, 2010, the date we first paid a distribution.
 
(3)
Amount of distributions paid in shares of common stock pursuant to our distribution reinvestment plan.
 
For the year ended December 31, 2013, we paid aggregate distributions of $1,647,220, which was comprised of $1,238,233 in cash distributions and $408,987 in shares issued pursuant to our distribution reinvestment plan. For the same period, our net cash provided by operating activities was $1,367,849, and our funds from operations, or FFO, was $(26,678). For the year ended December 31, 2012, we paid aggregate distributions of $708,025. For the same period, our net cash provided by operating activities was $387,070 and our FFO was $(324,661). For the period from July 15, 2010 (the date we first paid distributions) to December 31, 2013, we paid aggregate distributions of $2,809,533. Of the $2,809,533 in distributions we paid in the period from July 15, 2010 to December 31, 2013, $2,057,926, or approximately 73.2%, was paid in cash, and $761,607, or approximately 26.8%, was paid pursuant to our distribution reinvestment plan in the form of additional shares of common stock. Of the $2,809,533 in distributions we paid during the period from our inception through December 31, 2013, including shares issued pursuant to our distribution reinvestment plan, approximately 68% was funded from cash flow from operations and approximately 32% was funded from offering proceeds. Our net income (loss) from our inception through December 31, 2013 was $(635,766). From inception through December 31, 2013, net cash provided by operations was $1,919,327. From inception through December 31, 2013, our FFO was ($295,774). For a discussion of how we calculate FFO, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations —Funds From Operations and Modified Funds From Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2013, which is incorporated by reference into this prospectus.  
  
The tax composition of our distributions declared for the period from July 2010 (the month we first paid distributions) through December 31, 2013 was as follows:
 
Ordinary Income
   
21.4
%
Capital Gain    
23.9
%
Return of Capital
   
54.7
%
Total
   
100.0
%
 
Share Redemption Program
 
Our share redemption program may provide a limited opportunity for our stockholders to have shares of our common stock redeemed, subject to certain restrictions and limitations, at a price equal to, or at a discount from, the current offering price per share for the shares being redeemed.
 
Share Purchase Anniversary
 
Redemption Price as a
Percentage of
Current Offering Price
 
Less than 1 year
 
No Redemption Allowed
 
1 year
    92.5 %
2 years
    95.0 %
3 years
    97.5 %
4 years and longer
    100.0 %
 
Notwithstanding the foregoing, following the conclusion of our public offering, shares of common stock will be redeemed, subject to certain restrictions and limitations, at a price equal to, or at a discount from, a price based upon our current per-share net asset value and other factors that our board of directors deems relevant, including the then-current reinvestment price under our distribution reinvestment plan and general market conditions.
 
Unless the shares are being redeemed in connection with a stockholder’s death or qualifying disability, we may not redeem shares unless you have held the shares for one year. Redemption requests made within two years of the death or qualifying disability of a stockholder will be redeemed at a price equal to the then-current public offering price.
 
We are not obligated to redeem shares of our common stock under the share redemption program. Our board of directors may, in its sole discretion, accept or reject any share redemption request made by any stockholder at any time. If our board of directors accepts share redemptions, the number of shares to be redeemed during any calendar year is limited to (1) 5.0% of the weighted average number of shares of our common stock outstanding during the prior calendar year and (2) those that could be funded from the net proceeds from the sale of shares under the distribution reinvestment plan in the prior calendar year plus such additional funds as may be reserved for that purpose by our board of directors; provided, however that the above volume limitations shall not apply to redemptions requested within two years after the death of a stockholder.
 
 
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Our board of directors may, in its sole discretion, amend, suspend or terminate the share redemption program at any time upon 30 days’ prior written notice if it determines that the funds available to fund the share redemption program are needed for other business or operational purposes or that amendment, suspension or termination of the share redemption program is in the best interest of our stockholders. The share redemption program will terminate if the shares of our common stock are listed on a national securities exchange.
 
Estimated Use of Proceeds

We will only use the proceeds raised in this offering for the purposes set forth in this prospectus and in a manner approved by our board of directors. After paying the sales commission, the dealer manager fee and offering expenses, we will use the net proceeds of the offering to make investments in accordance with our investment strategy and policies and to fund repurchases under our share repurchase program, subject to the limitations set forth therein. Generally, our policy is to pay distributions from cash flow from operations. However, our board of directors has the authority under our charter to fund distributions from any source, including, without limitation, the net proceeds of this offering, advances from our advisor or sponsor, our advisor’s deferral of its fees and the net proceeds from the sale of investments. We have not established a limit on the amount of proceeds from this offering we may use to fund distributions.

Assuming we sell the maximum of $900,000,000 in shares of our common stock pursuant to the primary offering and no shares of our common stock pursuant to our distribution reinvestment plan, and that the full sales commissions and dealer manager fee are paid on all shares sold in the primary offering, we estimate that approximately 86.0% of the funds raised in this offering will be available to fund our investments. See “Estimated Use of Proceeds” for a more detailed explanation of our use of the proceeds from this offering.
 
Liquidity Strategy
 
We presently intend, but are not required, to complete a transaction providing liquidity for our stockholders within four to six years from the termination of our initial public offering, which occured on October 12, 2012. Our charter does not require our board of directors to pursue a liquidity event. However, we expect that our board of directors will determine to pursue a liquidity event when it believes that then-current market conditions are favorable for a liquidity event, and that such a transaction is in the best interests of our stockholders. A liquidity event could include (1) the sale of all or substantially all of our assets either on a portfolio basis or individually followed by a liquidation, (2) a merger or another transaction approved by our board of directors in which our stockholders will receive cash or shares of a publicly traded company or (3) a listing of our shares on a national securities exchange. There can be no assurance as to when a suitable transaction will be available.
 
Investment Company Act Considerations
 
We intend to conduct our operations so that neither we, nor our operating partnership nor the subsidiaries of our operating partnership are required to register as investment companies under the Investment Company Act of 1940, as amended, or the Investment Company Act.
 
Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the “40% test.” Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. Accordingly, under Section 3(a)(1) of the Investment Company Act, in relevant part, a company is deemed to be an “investment company” if: (1) 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 (2) it is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and 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 believe that we, our operating partnership and most of the subsidiaries of our operating partnership will not fall within either definition of an investment company as we intend to invest primarily in real property, rather than in securities, through our wholly and majority owned subsidiaries, the majority of which we expect to have at least 60% of their assets in real property. As these subsidiaries would be investing either solely or primarily in real property, they would be outside of the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. As we are organized as a holding company that conducts its businesses primarily through our operating partnership, which in turn is a holding company conducting its business through its wholly owned or majority owned subsidiaries, both we and our operating partnership intend to conduct our operations so that they comply with the 40% test. We will monitor our holdings to ensure continuing and ongoing compliance with this test.

In addition, we believe neither we nor our operating partnership will be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because neither we nor our operating partnership will engage primarily or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our operating partnership’s wholly owned or majority owned subsidiaries, we and the operating partnership will be primarily engaged in the non-investment company businesses of these subsidiaries, namely the business of purchasing or othewise acquiring real property.
 
Even if the value of investment securities held by one of our subsidiaries were to exceed 40% of the value of its total assets, we expect that subsidiary to be able to rely on the exclusion from the definition of “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act, which is available for entities “primarily engaged in the business of purchasing or otherwise acquiring mortgages and other liens on and interests in real estate.” This exclusion generally requires that at least 55% of a subsidiary’s portfolio be comprised of qualifying real estate assets and at least 80% of its portfolio must be comprised of qualifying real estate assets and real estate-related assets (and no more than 20% comprised of miscellaneous assets). For purposes of the exclusion provided by Sections 3(c)(5)(C), we will classify our investments based in large measure on no-action letters issued by the SEC staff and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate-related asset. Although we intend to monitor our portfolio periodically and prior to each investment acquisition and disposition, there can be no assurance that we will be able to maintain this exclusion for each of these subsidiaries.
 
There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including more specific or different guidance regarding these exclusions that may be published by the SEC or its staff, will not change in a manner that adversely affects our operations. We cannot assure you that the SEC or its staff will not take action that results in our, our operating partnership’s or any of our subsidiaries’ failure to maintain an exception or exemption from the Investment Company Act.
 
In the event that we, or our operating partnership, were to acquire assets that could make either entity fall within the definition of investment company under Section 3(a)(1) of the Investment Company Act, we believe that we would still qualify for an exclusion from the definition of “investment company” provided by Section 3(c)(6). Although the SEC staff has issued little interpretive guidance with respect to Section 3(c)(6), we believe that we and our operating partnership may rely on Section 3(c)(6) if 55% of the assets of our operating partnership consist of, and at least 55% of the income of our operating partnership is derived from, qualifying real estate assets owned by wholly owned or majority owned subsidiaries of our operating partnership.
 
Remaining outside the definition of investment company or maintaining compliance with Investment Company Act exceptions will limit our ability to make certain investments. To the extent that the SEC staff provides 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 staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the strategies we have chosen.
 
 
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RISK FACTORS
   
 
An investment in our common stock involves various risks and uncertainties. You should carefully consider the risks described below in conjunction with the other information contained in this prospectus before purchasing shares of our common stock. The risks and uncertainties described below represent those risks and uncertainties that we believe are material to us. Additional risks and uncertainties not presently known to us may also harm our business.
   
INVESTMENT RISKS
   
 
There is no public trading market for shares of our common stock and we are not required to effectuate a liquidity event by a certain date. As a result, it will be difficult for you to sell your shares of common stock and, if you are able to sell your shares, you are likely to sell them at a substantial discount.
   
 
There is no current public market for the shares of our common stock and we have no obligation to list our shares on any public securities market or provide any other type of liquidity to our stockholders. It will therefore be difficult for you to sell your shares of common stock promptly or at all. Even if you are able to sell your shares of common stock, the absence of a public market may cause the price received for any shares of our common stock sold to be less than what you paid or less than your proportionate value of the assets we own. We have adopted a share redemption program but it is limited in terms of the amount of shares that stockholder may sell back to us each quarter. Our board of directors may amend, suspend or terminate our share redemption program upon 30 days’ prior notice to our stockholders. Additionally, our charter does not require that we consummate a transaction to provide liquidity to stockholders on any date certain or at all. As a result, you should purchase shares of our common stock only as a long-term investment, and you must be prepared to hold your shares for an indefinite length of time.
   
 
Since the commencement of our initial public offering in 2009, we have raised a relatively limited amount of offering proceeds and have made a limited number of investments.
   
 
Based upon our operating history to date and our limited portfolio of investments, there can be no assurance that we will be able to successfully operate our business or achieve our investment objectives.  On April 15, 2009, we commenced our initial public offering. On May 18, 2010, we raised the minimum offering amount of $2,000,000 in our initial public offering and all of the subscription proceeds held in an escrow account, plus interest, were released to us. During the period from the commencement of our initial public offering on April 15, 2009 to December 31, 2013, we accepted investors’ subscriptions for, and issued, 3,267,967 shares of our common stock in our initial public offering, including 79,116 shares of our common stock pursuant to our distribution reinvestment plan, resulting in gross offering proceeds of approximately, $31,888,503.  As of the date hereof we have made only seven investments, one of which, our joint venture interest in the Residence Inn hotel located in Atlanta, Georgia, or the Residence Inn property, we disposed of in August 2012. If we are unable to raise sufficient proceeds in our public offering, we will not be able to meet our investment objectives, which could have an adverse effect on our results of operations and ability to make distributions to our stockholders. Further, there is no guarantee that we will be able to sell all of the $900 million in shares of our common stock registered for sale to the public in this offering.
   
 
We have experienced annual net losses in the past and may experience similar losses in the future.
   
 
We incurred a net operating loss for the years ended December 31, 2009, 2010, 2011 and 2013. Our losses can be attributed, in part, to the initial start-up costs and operating expenses incurred prior to making investments in properties. In addition, depreciation and amortization expenses substantially reduced our income. We cannot assure you that we will continue to be profitable in the future or that we will realize growth in the value of our assets.
   
   We are subject to compliance with securities law which exposes us to potential liabilities, including potential rescission rights.  
 
Pannell Kerr Forster of Texas, P.C., or PKF, served as our independent auditor beginning in November 10, 2010 through February 8, 2012. On February 7, 2012, PKF informed our board of directors that it could not be considered independent in accordance with Rule 201 of SEC Regulation S-X for the 2011 fiscal year. On February 10, 2012, PKF informed our board that it could not be considered independent for the 2009 and 2010 fiscal years. Consequently, from March 31, 2011 (the date PKF first issued a report on our financial statemtents) to February 8, 2012, the offer and sale of securities in our continuous initial public offering may have failed to comply fully with Section 5 of the Securities Act which may trigger a right of rescission under the Securities Act for investors that purchased shares of our common stock during this period.  Such stockholders may have the right to rescind their purchase of shares of our common stock and require us to reacquire their shares at a price equal to the price originally paid for such shares with interest, less the amount of any income received with respect to such shares. An investor who acquired shares of our common stock during this period who no longer owns the shares they acquired may have the right to collect damages from us in lieu of the rescission rights described above.  If stockholders were successful in seeking rescission and/or damages, we would face financial demands that could adversely affect our business and operations. Additionally, we may become subject to penalties imposed by the SEC and state securities agencies.  As of the date hereof, we have not received a claim for rescission. If stockholders seek rescission and/or damages or we conduct a rescission offer, we may or may not have the resources to fund the repurchase of the securities.
   
 
This is a “blind pool” offering, and as a result, you will not have the opportunity to evaluate our future investments prior to purchasing shares of our common stock.
 
This is considered to be a “blind pool” offering because we have made a limited number of investments and, other than the potential acquisition discussed in this prospectus, we have not identified any other specific assets to acquire with the proceeds from our initial public offering or this follow-on offering. As a result, you will not have the opportunity to evaluate our investments, aside from our limited number of existing investments, prior to purchasing shares of our common stock. You must rely on our advisor and our board of directors to implement our investment policies, to evaluate our investment opportunities and to structure the terms of our investments. Because investors are not able to evaluate our future investments in advance of purchasing shares of our common stock, this offering may entail more risk than other types of offerings. This additional risk may hinder your ability to achieve your own personal investment objectives related to portfolio diversification, risk-adjusted investment returns and other objectives.
   
 
We commenced operations on May 27, 2010 and therefore we have a limited operating history and there is no assurance that we will be able to successfully achieve our investment objectives.
 
We commenced operations on May 27, 2010 with the acquisition of our first investment, have a limited operating history and have made only seven investments, one of which, our joint venture interest in the Residence Inn property, we disposed of in August 2012. As a result, we may not be able to successfully operate our business or achieve our investment objectives. An investment in our shares of common stock may entail more risk than an investment in the shares of common stock of a real estate investment trust with a substantial operating history. In addition, you should not rely on the past performance of real property, real estate securities or debt-related investments owned by other Moody National affiliates to predict our future results. Our investment strategy and key employees differ from the investment strategies and key employees of our affiliates in the past and present and may continue to do so in the future.
   
 
This is a “best efforts” offering and if we are unable to raise substantial funds, we will be limited in the number and type of investments we may make, which could negatively impact your investment.
 
This offering is being made on a “best efforts” basis, whereby the broker-dealers participating in the offering are only required to use their best efforts to sell shares of our common stock and have no firm commitment or obligation to purchase any of the shares of our common stock. If we are unable to raise sufficient funds in this offering or any subsequent offering, we will make fewer investments, resulting in less diversification in terms of the number of investments owned, the geographic regions in which our real estate assets are located and the types of investments that we make. Further, if we are not able to achieve portfolio diversification consistent with our longer-term
 
 
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investment objectives, the likelihood that any single investment’s poor performance will materially affect our overall investment performance will increase. Our inability to raise substantial funds will also increase our fixed operating expenses as a percentage of gross income. Each of these factors could have an adverse effect on our financial condition and ability to make distributions to our stockholders.
   
 
Our ability to successfully conduct this offering is dependent, in part, on the ability of our dealer manager to successfully establish, operate and maintain a network of broker-dealers.
 
The dealer manager for this offering is Moody Securities, LLC, which we refer to as Moody Securities. Other than serving as dealer manager for this offering and our initial public offering, Moody Securities has no experience acting as a dealer manager for a public offering. The success of this offering, and correspondingly our ability to implement our business strategy, is dependent upon the ability of our dealer manager to establish and maintain a network of licensed securities broker dealers and other agents. If our dealer manager fails to perform, we may not be able to raise sufficient proceeds through this offering to implement our investment strategy. If we are unsuccessful in implementing our investment strategy, you could lose all or a part of your investment.
   
 
We presently intend to effect a liquidity event within four to six years from the completion of our initial public offering; however, there can be no assurance that we will effect a liquidity event within such time or at all. If we do not effect a liquidity event, it will be very difficult for you to have liquidity in your investment in shares of our common stock.
 
In the future, our board of directors will consider various forms of liquidity events, including, but not limited to, (1) the sale of all or substantially all of our real estate assets for cash or other consideration, (2) our sale or merger in a transaction that provides our stockholders with cash and/or securities of a publicly traded company and (3) the listing of our common stock on a national securities exchange. We presently intend to effect a liquidity event within four to six years from the termination of our initial public offering, which occurred on October 12, 2012. However, there can be no assurance that we will cause a liquidity event to occur within such time or at all. If we do not effect a liquidity event, it will be very difficult for you to have liquidity for your investment in shares of our common stock other than limited liquidity through our share redemption program.
   
 
Payment of fees to our advisor and its affiliates reduces cash available for investment, which may result in stockholders not receiving a full return of their invested capital.
 
Because a portion of the offering proceeds from the sale of our shares and cash flow generated from our operations has been and will continue to be used to pay substantial expenses and fees to our advisor and its affiliates, the amount of cash available for investments in real estate assets will be reduced. As a result, stockholders will only receive a full return of their invested capital if we either (1) sell our assets or our company for a sufficient amount in excess of the original purchase price of our assets or (2) the market value of our company after we list our shares of common stock on a national securities exchange is substantially in excess of the original purchase price of our assets.
   
 
Investors who invest in us at the beginning of this offering may realize a lower rate of return than later investors.
 
There can be no assurances as to when we will begin to generate sufficient cash flow to fully fund the payment of distributions. As a result, investors who invest in us before we generate significant cash flow may realize a lower rate of return than later investors. We expect to have little cash flow from operations available for distribution until we make substantial investments. In addition, to the extent our investments are in development or redevelopment projects or in properties that have significant capital requirements, our ability to make distributions may be negatively impacted, especially during our early periods of operation. Therefore, until such time as we have sufficient cash flow from operations to fully fund the payment of distributions, some or all of our distributions will be paid from other sources, such as from the proceeds of our public offerings, cash advances to us by our advisor, cash resulting from a waiver of fees by our advisor, and borrowings. As of December 31, 2013, including shares issued pursuant to our distribution reinvestment plan, approximately 68% of our distributions have been funded from cash flow from operations and approximately 32% have been funded from offering proceeds.
   
 
The offering price of our shares of common stock for this offering was not determined on an independent basis, and therefore it may not accurately represent the current value of our assets at any particular time.
 
The offering price of our shares of common stock for this offering was not determined on an independent basis and bears no relationship to our book or asset values or to any other established criteria for valuing shares. Because the offering price is not based upon any independent valuation, the offering price may not be indicative of the proceeds that you would receive upon our liquidation. Further, the offering price may be significantly more than the price at which our shares of common stock would trade if they were to be listed on an exchange or actively traded by broker-dealers.
   
 
Until 18 months after we have completed our offering stage, we expect to use the price paid to acquire a share of our common stock in our most recent offering as the estimated per share value of our shares. Even when determining the estimated per share value of our common stock from and after 18 months after completion of our offering stage, the estimated per share value of our shares will be based upon a number of assumptions that may not be accurate or complete.
 
To assist FINRA members and their associated persons that participate in this offering, we will disclose in each of our annual reports an estimated per share value of our common stock, the method by which the estimated per share value of our common stock was developed and the date of the data used to develop the estimated per share value of our common stock. In addition, our advisor will prepare annual statements of the estimated per share value of our common stock to assist fiduciaries of retirement plans subject to the annual reporting and valuation requirements of ERISA in the preparation of their reports relating to an investment in our shares. Our advisor intends to use the most recent price paid to acquire a share of our common stock in the primary offering (disregarding purchase price discounts for certain categories of purchasers) or a subsequent follow-on public offering as the estimated per share value of our common stock until 18 months after we have completed our offering stage (as defined below). Although this initial estimated per share value of our common stock will represent the most recent price at which most investors will purchase our shares, this estimated per share value of our common stock will likely differ from the price at which a stockholder could resell his or her shares because there will be no public trading market for the shares at that time and the estimated per share value of our common stock will not reflect, and will not be derived from, the fair market value of our assets, nor will it represent the amount of net proceeds that would result from an immediate liquidation of our assets. We will consider our offering stage complete on the first date that we are no longer publicly offering equity securities that are not listed on a national securities exchange, whether through this offering or a follow-on public offering, provided we have not filed a registration statement for a follow-on public offering as of such date (for purposes of this definition, we do not consider “public offerings” to include offerings on behalf of selling stockholders or offerings related to a distribution reinvestment plan, employee benefit plan or the redemption of interests in our operating partnership). If our board of directors determines that it is in our best interest, we may conduct additional follow-on offerings upon the termination of this offering. Our charter does not restrict our ability to conduct offerings in the future.
 
When determining the estimated per share value of our common stock from and after 18 months after the completion of our offering stage, our advisor, or another firm chosen for that purpose, will estimate the per share value of our common stock based upon a number of assumptions that may not be accurate or complete, and our board of directors will approve such estimated per share value of our common stock. We do not currently anticipate obtaining independent appraisals or valuations of our properties or other assets in connection with determining the estimated per share value of our common stock and, accordingly, the estimated per share values should not be viewed as an accurate reflection of the fair market value of our assets or the amount of net proceeds that would result from an immediate sale of our assets.
   
 
If we internalize our management functions, your interest in us could be diluted and we could incur other significant costs associated with being self-managed.
 
Our board of directors may decide in the future to internalize our management functions. If we do so, we may elect to negotiate to acquire our advisor’s assets and personnel. At this time, we cannot anticipate the form or amount of consideration or other terms relating to any such acquisition. Such consideration could take many forms, including cash payments, promissory notes and shares of our common stock. The payment of such consideration could result in dilution of your interests as a stockholder and could reduce the earnings per share and funds from operations per share attributable to your investment.
 
Additionally, while we would no longer bear the costs of the various fees and expenses we pay to our advisor under the advisory agreement, our direct expenses would include general and administrative costs, including legal, accounting and other expenses related to corporate governance, SEC reporting and compliance. We would also be required to employ personnel and would be subject to potential liabilities commonly faced by employers, such as workers disability and compensation claims, potential labor disputes
 
 
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and other employee-related liabilities and grievances as well as incur the compensation and benefits costs of our officers and other employees and consultants that we now expect will be paid by our advisor or its affiliates. We may issue equity awards to officers, employees and consultants, which awards would decrease net income and funds from operations and may further dilute your investment. We cannot reasonably estimate the amount of fees to our advisor we would save or the costs we would incur if we became self-managed. If the expenses we assume as a result of an internalization are higher than the expenses we avoid paying to our advisor, our earnings per share and funds from operations per share would be lower as a result of the internalization than it otherwise would have been, potentially decreasing the amount of funds available to distribute to our stockholders and the value of our shares.
 
If we internalize our management functions, we could have difficulty integrating these functions as a stand-alone entity. Currently, our advisor and its affiliates perform asset management and general and administrative functions, including accounting and financial reporting, for multiple entities. These personnel have a great deal of know-how and experience which provides us with economies of scale. We may fail to properly identify the appropriate mix of personnel and capital needs to operate as a stand-alone entity. An inability to manage an internalization transaction effectively could thus result in our incurring excess costs and suffering deficiencies in our disclosure controls and procedures or our internal control over financial reporting. Such deficiencies could cause us to incur additional costs, and our management’s attention could be diverted from most effectively managing our real estate assets.
 
 
If we were to internalize our management or if another investment program, whether sponsored by our sponsor or otherwise, hires the employees of our advisor in connection with its own internalization transaction or otherwise, our ability to conduct our business may be adversely affected.
 
We rely on persons employed by our advisor and its affiliates to manage our day-to-day operations. If we were to effectuate an internalization of our advisor, we may not be able to retain all of the employees of our advisor and its affiliates or to maintain a relationship with our sponsor. In addition, some of the employees of our advisor and its affiliates may provide services to one or more other investment programs. These programs or third parties may decide to retain some or all of our advisor’s key employees in the future. If this occurs, these programs could hire certain of the persons currently employed by our advisor and its affiliates who are most familiar with our business and operations, thereby potentially adversely impacting our business.
 
   
 
You are limited in your ability to sell your shares of common stock pursuant to our share redemption program. You may not be able to sell any of your shares of our common stock back to us, and if you do sell your shares, you may not receive the price you paid.
 
Our share redemption program may provide you with a limited opportunity to have your shares of common stock redeemed by us at a price equal to or at a discount from the current offering price per share for the shares being redeemed. Following the conclusion of our public offering, shares of common stock will be redeemed, subject to certain restrictions and limitations, at a price equal to, or at a discount from, a price based upon the per-share net asset value of the company and other factors our board of directors deems relevant. Shares of our common stock are redeemed on a quarterly basis. However, our share redemption program contains certain restrictions and limitations, including those relating to the number of shares of our common stock that we can redeem at any given time and limiting the redemption price. Specifically, we limit the number of shares to be redeemed during any calendar year to no more than (1) 5.0% of the weighted average of the shares of our common stock outstanding during the prior calendar year and (2) those that could be funded from the net proceeds from the sale of shares under the distribution reinvestment plan in the prior calendar year plus such additional funds as may be reserved for that purpose by our board of directors; provided, however, that the above limitation does not apply to redemptions requested within two years after the death of a stockholder. In addition, our board of directors reserves the right to reject any redemption request for any reason or no reason or to amend, suspend or terminate the share redemption program at any time upon 30 days’ prior written notice. Therefore, you may not have the opportunity to make a redemption request prior to a termination of the share redemption program and you may not be able to sell any of your shares of common stock back to us pursuant to our share redemption program. Moreover, if you do sell your shares of common stock back to us pursuant to the share redemption program, you may not receive the same price you paid for any shares of our common stock being redeemed.
 
The actual value of shares that we repurchase under our share redemption program may be substantially less than what we pay.
 
Under our share redemption program, shares currently may be repurchased at varying prices depending on (a) the number of years the shares have been held, (b) the purchase price paid for the shares and (c) whether the redemptions are sought upon a stockholder’s death or qualifying disability. The current maximum price that may be paid under the program is $10.00 per share, which is the offering price of our shares of common stock in our primary offering (ignoring purchase price discounts for certain categories of purchasers). The offering price of our shares of common stock for this offering was not determined on an independent basis, may not accurately represent the current value of our assets at any particular time, and is likely to differ from the price at which a stockholder could resell his or her shares. Thus, when we repurchase shares of our common stock at $10.00 per share, the actual value of the shares that we repurchase will be less, and the repurchase will be dilutive to our remaining stockholders. Even at lower repurchase prices, the actual value of the shares may be substantially less than what we pay and the repurchase may be dilutive to our remaining stockholders.
   
 
Our cash distributions are not guaranteed, may fluctuate and may constitute a return of capital or taxable gain from the sale or exchange of property.
 
We began paying a distibution in July 2010 at a rate which, if paid each day over a 365-day period, is equivalent to an 8.0% annualized distribution rate based on a purchase price of $10.00 per share of our common stock.  The actual amount and timing of distributions will be determined by our board of directors and typically will depend upon the amount of funds available for distribution, which will depend on items such as current and projected cash requirements and tax considerations. As a result, our distribution rate and payment frequency may vary from time to time. Our long-term strategy is to fund the payment of monthly distributions to our stockholders entirely from our funds from operations. However, we can give no assurance as to when we will be able to pay distributions solely from funds from operations.To the extent we do not have sufficient funds, or sources, of funds to pay distributions, we may be forced to reduce the rate at which we pay distributions or stop paying distributions entirely. Distributions payable to our stockholders may also include a return of capital, rather than a return on capital.
 
We have and may continue to pay distributions from sources other than our cash flow from operations. To the extent that we pay distributions from sources other than our cash flow from operations, we will have reduced funds available for investment and the overall return to our stockholders may be reduced.
 
Our organizational documents permit us to pay distributions from any source, including net proceeds from our public offerings, borrowings, advances from our sponsor or advisor and the deferral of fees and expense reimbursements by our advisor, in its sole discretion. Since our inception, our cash flow from operations has not been sufficient to fund all of our distributions, and as a consequence we have funded a significant portion of our distributions with the net proceeds of our public offerings. Of the $2,809,533 in total distributions we paid during the period from our inception through December 31, 2013, including shares issued pursuant to our distribution reinvestment plan, approximately 68% was funded from cash flow from operations and approximately 32% was funded from offering proceeds. In the future, our cash flow from operations may not be sufficient to fund our distributions and we may continue to fund all or a portion of our distributions from offering proceeds or other sources other than cash flow from operations. Until we make substantial investments, we may continue to fund distributions from the net proceeds from this offering or sources other than cash flow from operations. We have not established a limit on the amount of offering proceeds, or other sources other than cash flow from operations, which we may use to fund distributions.
 
If we are unable to consistently fund distributions to our stockholders entirely from our cash flow from operations, the value of your shares upon a listing of our common stock, the sale of our assets or any other liquidity event may be reduced. To the extent that we fund distributions from sources other than our cash flow from operations, our funds available for investment will be reduced relative to the funds available for investment if our distributions were funded solely from cash flow from operations, our ability to achieve our investment objectives will be negatively impacted and the overall return to our stockholders may be reduced. In addition, if we make a distribution in excess of our current and accumulated earnings and profits, the distribution will be treated first as a tax-free return of capital, which will reduce the stockholder’s tax basis in its shares of common stock. The amount, if any, of each distribution in excess of a stockholder’s tax basis in its shares of common stock will be taxable as gain realized from the sale or exchange of property. For further information regarding the tax consequences in the event we make distributions other than from cash flow from operations, please see “Federal Income Tax Considerations–Taxation of Taxable U.S. Stockholders.”
 
 
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Payments to the holder of the special units of our operating partnership may reduce cash available for distribution to our stockholders and the value of our shares of common stock upon consummation of a liquidity event.
 
Moody OP Holdings I, LLC, as the holder of the special units of our operating partnership, may be entitled to receive 15% of specified distributions made upon dispositions of our operating partnership’s assets and a promissory note, cash or shares of our common stock of such amount upon the occurrence of specified events, including, among other events, a listing of our shares on an exchange or the termination or non-renewal of the advisory agreement. Payments to the holder of the special units upon dispositions of our operating partnership’s assets and redemptions of the special units may reduce cash available for distribution to our stockholders and the value of shares of our common stock upon consummation of a liquidity event.  See Management Compensation Table.
   
 
The price of our shares of common stock may be adjusted to a price less than the price you paid for your shares of common stock.
 
The price of our shares of common stock may be adjusted periodically, in the sole and absolute discretion of our board of directors, to reflect changes in the net asset value of our assets and other factors our board of directors deems relevant and therefore future adjustments may result in an offering price lower than the price you paid for your shares.
 
 
Recently enacted and potential further financial regulatory reforms could have a significant impact on our business, financial condition and results of operations.
 
On July 21, 2010, President Barack Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the “Dodd-Frank Act,” into law. The Dodd-Frank Act represents a significant change in the American financial regulatory environment and impacts nearly every aspect of the U.S. financial services industry. The Dodd-Frank Act requires various federal agencies to adopt hundreds of new rules to implement the Dodd-Frank Act and to deliver to Congress numerous studies and reports that may influence future legislation. The Dodd-Frank Act leaves significant discretion to federal agencies as to exactly how to implement the broad provisions of the Dodd-Frank Act. To date, many of the details and much of the impact of the Dodd-Frank Act is not known and may not be known for some time. The changes resulting from the Dodd-Frank Act may impact the profitability of business activities, require changes to certain business practices, impose more stringent capital, liquidity and leverage requirements or otherwise adversely affect our business.
 
Further, we may be required to invest significant management attention and resources to evaluate and make any changes necessary to comply with new statutory and regulatory requirements under the Dodd-Frank Act, which may negatively impact our results of operations and financial condition.
 
RISKS RELATED TO OUR BUSINESS
   
 
We, our sponsor and our advisor have limited experience in operating a public company or a REIT, and our failure to operate successfully or profitably could have a material adverse effect on our ability to generate cash flow.
 
We and our advisor were formed in connection with our initial public offering. Other than our company, neither our advisor nor our sponsor nor any of our advisor’s or sponsor’s respective officers or employees in their capacities with our advisor and our sponsor
 
 
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have operated a public company or an entity that has elected, or intends to elect, to be taxed as a REIT, and we may not be able to operate such an entity successfully. You should not rely upon the past performance of other real estate investment programs of our affiliates to predict our future results. As of the date of this prospectus, we have only five investments. You should consider our prospects in light of the risks, uncertainties and difficulties frequently encountered by companies that are, like us, in their development and acquisition stage. To be successful, we must, among other things:
 
 
continue to identify and acquire investments that align with our investment strategies;
     
 
establish and maintain contacts with licensed securities brokers and other agents to successfully complete this offering;
     
 
attract, integrate, motivate and retain qualified personnel to manage our day-to-day operations;
     
 
respond to competition for our targeted real estate properties, real estate securities and debt-related investments as well as for potential investors in our shares; and
     
 
continue to build and expand our operations structure to support our business.
 
Our failure, or our advisor’s or sponsor’s failure, to operate successfully or profitably could have a material adverse effect on our ability to generate cash flow to make distributions to our stockholders and could cause you to lose all or a portion of your investment in our shares.
   
 
Our success is dependent on the performance of our sponsor and Moody National affiliates.
 
Our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our advisor, our sponsor and other affiliates of our sponsor. Our sponsor and its other affiliates are sensitive to trends in the general economy, as well as the commercial real estate and credit markets.
 
The recent market downturn has adversely impacted, and could continue to adversely impact, certain prior real estate programs of our sponsor’s affiliates, resulting in a decrease or deferral of distributions with respect to such programs. Moody National Management, L.P. continues to seek approval to amend its master lease agreements for certain prior real estate programs to provide for either a deferral or a waiver of a portion of lease payments to program investors, and may continue to seek further amendments in the future depending upon the then-current economic conditions. Certain prior real estate programs have also requested additional cash infusions from investors to fund outstanding debt service payments. Further such requests may be necessary in the future depending upon the then-current economic conditions. These adverse developments have resulted in a reduction in payments to investors for certain prior real estate programs. 
 Moody National Management, L.P. has commenced negotiations with lenders to restructure loan terms with respect to certain prior real estate programs in default under existing franchise or loan agreements and may continue to do so in the future. With respect to some of these loans, the lender is pursuing various alternatives simultaneously, including initiation of foreclosure and legal proceedings and loan modifications, and the borrowers are actively working toward loan modifications. However, there is no assurance that final loan modifications will be achieved, and with respect to one of these prior real estate programs, it appears likely that the lender will consummate foreclosure proceedings. With respect to another of these prior real estate programs, the lender has filed for foreclosure and in connection therewith, initiated a lawsuit. The master tenant and borrowers are working towards a settlement of the lawsuit and it appears likely that the lender will obtain the property in an uncontested foreclosure.

With respect to two tenant-in-common programs sponsored by Moody National Realty, the initial lender sold the loans, and the purchaser of the loans initiated foreclosure proceedings resulting in the filing for protection from these proceedings in the United States Bankruptcy Court by an affiliate of Moody National Realty owning an original equity investment in one property of approximately $10,000 and approximately $10,039 in the other property.  These affiliates received court approval of a confirmation plan under which an agreement was reached with the lender and the loans were reinstated.  With respect to one of these properties, the 28 tenant-in-common owners of the Residence Inn Atlanta Midtown, which originally acquired the project with a $7.475 million equity investment, recently allowed the lender to foreclose on the hotel which secured the loan. 

 An affiliate of Moody National Realty and tenant-in-common owners in eight tenant-in-common programs collectively initiated legal proceedings against a lender.  Currently, seven of these tenant-in-common programs have been restructured into a limited liability company owned by the former tenant-in-common owners and a lender affiliate, and the legal proceedings have been dismissed with respect to such programs.  The lender and borrowers on one of the tenant-in-common programs entered into a settlement and reinstatement of the loan, and the legal proceedings have been dismissed with respect to such program.
The 19 tenant-in-common owners of the Westchase Technology Center property, which originally acquired the property with a $4 million equity investment, declined to proceed with a lender’s loan modification proposal and allowed the lender to foreclose on an office building which secured the loan. The 28 tenant-in-common owners of a two-hotel project (consisting of the Springhill Suites Altamonte and the Holiday Inn Express Orlando) which originally acquired the project with a $10.2 million equity investment declined to proceed with a lender’s loan modification proposal and allowed the lender to foreclose on the two hotels which secured the loan.  The 14 tenant-in-common owners of a two-hotel project (consisting of the TownePlace Suite Miami Airport and TownePlace Suites Miami Lakes) which originally acquired the project with a $5.9 million equity investment declined to proceed with a lender’s loan modification proposal and allowed the lender to foreclose on the two hotels which secured the loan. The 16 tenant-in-common owners of the TownePlace Suites Mount Laurel, which originally acquired the property with a $5.6 million equity investment, declined to proceed with a lender’s loan modification proposal and allowed the lender to foreclose on the hotel which secured the loan.   Additionally, the 35 tenant-in-common owners of the Courtyard Columbus Airport, which originally acquired the property with a $11.1 million equity investment, entered into a deed in lieu of foreclosure agreement with the lender. Further, the lender for the Residence Inn Memphis filed foreclosure proceedings and one unaffiliated tenant-in-common owner of the Residence Inn Memphis filed for bankruptcy protection, which resulted in a court-ordered auction sale of the property and a loss of the original $6.93 million equity investment for the 17 tenant-in-common owners.
 
To the extent that any decline in revenues and operating results impacts our sponsor’s ability to provide our advisor with sufficient resources to perform its obligations to us pursuant to the advisory agreement, our results of operations, financial condition and ability to pay distributions to our stockholders could also suffer. Additionally, such adverse conditions could require a substantial amount of time on the part of the management of our advisor and its affiliates, particularly with regard to other real estate programs, thereby decreasing the amount of time they spend actively managing our investments.
 
 
If we are delayed or unable to find suitable investments, we may not be able to achieve our investment objectives.
 
Delays in selecting, acquiring and developing real estate assets could adversely affect investor returns. Because we are conducting this offering on a “best efforts” basis over time, our ability to commit to purchase specific assets will depend, in part, on the amount of proceeds we have received at a given time. If we are unable to access sufficient capital, we may suffer from delays in deploying the capital into real estate assets.
 
 
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The recent downturn in the credit markets has increased the cost of borrowing and has made financing difficult to obtain, each of which may have a material adverse effect on our results of operations and business.
 
Recent events in the financial markets have had an adverse impact on the credit markets and, as a result, the availability of credit has become more expensive and difficult to obtain. Some lenders are imposing more stringent restrictions on the terms of credit and there may be a general reduction in the amount of credit available in the markets in which we conduct business. The negative impact of the tightening of the credit markets may have a material adverse effect on us resulting from, but not limited to, an inability to finance the acquisition of real estate assets on favorable terms, if at all, increased financing costs or financing with increasingly restrictive covenants.
   
 
We are uncertain of our sources for funding our future capital needs. If we cannot obtain debt or equity financing on acceptable terms, our ability to acquire real estate assets and to expand our operations will be adversely affected.
 
The net proceeds from our public offerings will be used for investments in real properties, real estate securities and debt-related investments, for payment of operating expenses and for payment of various fees and expenses such as acquisition fees, origination fees, asset management fees and property management fees. We do not intend to establish a general working capital reserve out of the proceeds from this offering during the offering. Accordingly, in the event that we develop a need for additional capital in the future for investments, the improvement of our real properties or for any other reason, sources of funding may not be available to us. If we cannot establish reserves out of cash flow generated by our real estate assets or out of net sale proceeds in non-liquidating sale transactions, or obtain debt or equity financing on acceptable terms, our ability to acquire real estate assets and to expand our operations will be adversely affected. As a result, we would be less likely to achieve portfolio diversification and our investment objectives, which may negatively impact our results of operations and reduce our ability to make distributions to our stockholders.
 
Non-traded REITs have been the subject of increased scrutiny by regulators and media outlets resulting from inquiries and investigations initiated by FINRA and the SEC. We could also become the subject of scrutiny and may face difficulties in raising capital should negative perceptions develop regarding non-traded REITs. As a result, we may be unable to raise substantial funds which will limit the number and type of investments we may make and our ability to diversify our assets.

            Our securities, like other non-traded REITs, are sold through the independent broker-dealer channel (i.e., U.S. broker-dealers that are not affiliated with money center banks or similar financial institutions). Governmental and self-regulatory organizations like the SEC and FINRA impose and enforce regulations on broker-dealers, investment banking firms, investment advisers and similar financial services companies. Self-regulatory organizations such as FINRA adopt rules, subject to approval by the SEC, that govern aspects of the financial services industry and conduct periodic examinations of the operations of registered investment dealers and broker-dealers.

            FINRA has initiated investigations of broker-dealers with respect to the sales practices related to the sale of shares of non-traded REITS.  These proceedings have resulted in increased regulatory scrutiny from the SEC regarding non-traded REITs. As a result of this increased scrutiny and accompanying negative publicity and coverage by media outlets, FINRA may impose additional restrictions on sales practices in the independent broker-dealer channel for non-traded REITs, and accordingly we may face increased difficulties in raising capital in our offering. This could result in a reduction in the returns achieved on those investments as a result of a smaller capital to base limiting our investments. If we become the subject of scrutiny, even if we have complied with all applicable laws and regulations, responding to such scrutiny could be expensive and distracting our management.
   
RISKS RELATED TO OUR ORGANIZATIONAL STRUCTURE
   
 
Maryland law and our organizational documents limit your right to bring claims against our officers and directors.
 
Maryland law provides that a director will not have any liability as a director so long as he or she performs his or her duties in accordance with the applicable standard of conduct. In addition, our charter provides that, subject to the applicable limitations set forth therein or under Maryland law, no director or officer will be liable to us or our stockholders for monetary damages. Our charter also provides that we will generally indemnify and advance expenses to our directors, our officers, our advisor and its affiliates for losses they may incur by reason of their service in those capacities subject to any limitations under Maryland law or in our charter. Moreover, we have entered into separate indemnification agreements with each of our directors and executive officers. As a result, we and our stockholders may have more limited rights against these persons than might otherwise exist under common law. In addition, we may be obligated to fund the defense costs incurred by these persons in some cases. However, our charter provides that we may not indemnify our directors, our advisor and its affiliates for loss or liability suffered by them or hold our directors or our advisor and its affiliates harmless for loss or liability suffered by us unless they have determined that the course of conduct that caused the loss or liability was in our best interests, they were acting on our behalf or performing services for us, the liability was not the result of negligence or misconduct by our non-independent directors, our advisor and its affiliates or gross negligence or willful misconduct by our independent directors, and the indemnification or obligation to hold harmless is recoverable only out of our net assets, including the proceeds of insurance, and not from the stockholders. See ManagementLimited Liability and Indemnification of Directors, Officers and Others.
 
 
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The limit on the percentage of shares of our common stock that any person may own may discourage a takeover or business combination that may benefit our stockholders.
 
Our charter restricts the direct or indirect ownership by one person or entity to no more than 9.8% of the value of our then outstanding shares of capital stock (which includes common stock and any preferred stock we may issue) and no more than 9.8% of the value or number of shares, whichever is more restrictive, of our then outstanding common stock unless exempted by our board of directors. This restriction may discourage a change of control of us and may deter individuals or entities from making tender offers for shares of our common stock on terms that might be financially attractive to stockholders or which may cause a change in our management. In addition to deterring potential transactions that may be favorable to our stockholders, these provisions may also decrease your ability to sell your shares of our common stock.
   
 
We may issue preferred stock or other classes of common stock, which issuance could adversely affect the holders of our common stock issued pursuant to this offering.
 
Investors in this offering do not have preemptive rights to any shares issued by us in the future. We may issue, without stockholder approval, preferred stock or other classes of common stock with rights that could dilute the value of your shares of common stock. However, the issuance of preferred stock must be approved by a majority of our independent directors not otherwise interested in the transaction, who will have access, at our expense, to our legal counsel or to independent legal counsel. The issuance of preferred stock or other classes of common stock could increase the number of stockholders entitled to distributions without simultaneously increasing the size of our asset base.
 
Our charter authorizes us to issue 450,000,000 shares of capital stock, of which 400,000,000 shares of capital stock are designated as common stock and 50,000,000 shares of capital stock are classified as preferred stock. Our board of directors may amend our charter from time to time to increase or decrease the aggregate number of authorized shares of capital stock or the number of authorized shares of capital stock of any class or series without stockholder approval. If we ever created and issued preferred stock with a distribution preference over common stock, payment of any distribution preferences of outstanding preferred stock would reduce the amount of funds available for the payment of distributions on our common stock. Further, holders of preferred stock are normally entitled to receive a preference payment in the event we liquidate, dissolve or wind up before any payment is made to our common stockholders, likely reducing the amount common stockholders would otherwise receive upon such an occurrence. In addition, under certain circumstances, the issuance of preferred stock or a separate class or series of common stock may render more difficult or tend to discourage:
 
 
a merger, tender offer or proxy contest;
     
 
the assumption of control by a holder of a large block of our securities; and
     
 
the removal of incumbent management.

   
 
We do not currently have a compensation committee, and presently do not intend to form such a committee.
 
We do not have a compensation committee and have no plans to form one. Our board of directors may form a compensation committee in the future, which we expect will occur only when we hire our own employees. We currently do not have any employees nor do we have plans to hire any employees. The role of any compensation committee would be to make recommendations to our board of directors on the compensation of our employees and to administer the granting of awards pursuant to our long term incentive plan and to set the terms and conditions of such awards. Until our board of directors deems it in our best interest to form a compensation committee, our board of directors will directly administer our long term incentive plan and perform such other related duties. Should our board of directors decide in the future to form a compensation committee, such committee will be comprised of a majority of independent directors.
 
 
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Our UPREIT structure may result in potential conflicts of interest with limited partners in our operating partnership whose interests may not be aligned with those of our stockholders.
 
           We are structured as an “UPREIT,” which stands for “umbrella partnership real estate investment trust.” We use the UPREIT structure because a contribution of property directly to us is generally a taxable transaction to the contributing property owner. In the UPREIT structure, a contributor of a property who desires to defer taxable gain on the transfer of a property may transfer the property to our operating partnership in exchange for limited partnership units and defer taxation of gain until the contributor later exchanges his or her limited partnership units, typically on a one-for-one basis, for shares of our common stock. We believe that using an UPREIT structure gives us an advantage in acquiring desired properties from persons who may not otherwise sell their properties because of unfavorable tax results.
 
We may issue limited partner interests of our operating partnership in connection with certain transactions. Limited partners in our operating partnership have the right to vote on certain amendments to the operating partnership agreement, as well as on certain other matters. Persons holding such voting rights may exercise them in a manner that conflicts with the interests of our stockholders. As general partner of our operating partnership, we are obligated to act in a manner that is in the best interest of all partners of our operating partnership. Circumstances may arise in the future when the interests of limited partners in our operating partnership may conflict with the interests of our stockholders. These conflicts may be resolved in a manner stockholders do not believe are in their best interest.
 
In addition, Moody OP Holdings, the holder of special units in our operating partnership, may be entitled to (1) certain cash payments, as described in the “Management Compensation Table,” upon the disposition of certain of our operating partnership’s assets or (2) a one time payment in the form of cash, a promissory note or shares of our common stock in conjunction with the redemption of the special units upon the occurrence of a listing of our shares on a national stock exchange or certain events that result in the termination or non-renewal of our advisory agreement. This potential obligation to make substantial payments to the holder of the special units may reduce our cash available for distribution to stockholders and limit the amount that stockholders will receive upon the consummation of a liquidity event.
 
  Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we are subject to registration under the Investment Company Act, we will not be able to continue our business.
 
Neither we, our operating partnership or any of our subsidiaries intend to register as an investment company under the Investment Company Act. Currently, we own two real estate investments. Our operating partnership’s and subsidiaries’ intended investments in real estate will represent the substantial majority of our total asset mix. In order for us not to be subject to regulation under the Investment Company Act, we intend to engage, through our operating partnership and our wholly and majority owned subsidiaries, primarily in the business of buying real estate. These investments must be made within a year after this offering ends.
 
We expect that most of our assets will be held through wholly-owned or majority-owned subsidiaries of our operating partnership. We expect that most of these subsidiaries will be outside the definition of an “investment company” under Section 3(a)(1) of the Investment Company Act as they are generally expected to hold at least 60% of their assets in real property. Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the “40% test.” Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.
 
We believe that we, our operating partnership and most of the subsidiaries of our operating partnership will not fall within either definition of investment company under Section 3(a)(1) of the Investment Company Act as we intend to invest primarily in real property, through our wholly or majority-owned subsidiaries, the majority of which we expect to have at least 60% of their assets in real property. As these subsidiaries would be investing either solely or primarily in real property, they would be outside of the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. We are organized as a holding company that conducts its businesses primarily through our operating partnership, which in turn is a holding company conducting its business through its subsidiaries. Both we and our operating partnership intend to conduct our operations so that we comply with the 40% test. We will monitor our holdings to ensure continuing and ongoing compliance with this test. In addition, we believe that neither we nor our operating partnership will be considered an investment company under Section 3(a)(1)(A) of the Investment Company Act because neither we nor our operating partnership will engage primarily or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through our operating partnership’s wholly owned or majority owned subsidiaries, we and our operating partnership will be primarily engaged in the non-investment company businesses of these subsidiaries, namely the business of purchasing or otherwise acquiring real property.
 
In the event that the value of investment securities held by a subsidiary of our operating partnership were to exceed 40% of the value of its total assets, we expect that subsidiary to be able to rely on the exclusion from the definition of “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act. Section 3(c)(5)(C), as interpreted by the staff of the SEC, requires each of our subsidiaries relying on this exception to invest at least 55% of its portfolio in “mortgage and other liens on and interests in real estate,” which we refer to as “qualifying real estate assets,” and maintain at least 80% of its assets in qualifying real estate assets or other real estate-related assets. The remaining 20% of the portfolio can consist of miscellaneous assets. What we buy and sell is therefore limited by these criteria. How we determine to classify our assets for purposes of the Investment Company Act will be based in large measure upon no-action letters issued by the SEC staff in the past and other SEC interpretive guidance and, in the absence of SEC guidance, on our view of what constitutes a qualifying real estate asset and a real estate-related asset. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets and therefore investments in these types of assets may be limited. No assurance can be given that the SEC or its staff will concur with our classification of our assets. Future revisions to the Investment Company Act or further guidance from the SEC staff may cause us to lose our exclusion from the definition of investment company or force us to re-evaluate our portfolio and our investment strategy. Such changes may prevent us from operating our business successfully.
 
There can be no assurance that the laws and regulations governing the Investment Company Act status of REITs, including more specific or different guidance regarding these exclusions that may be published by the SEC or its staff, will not change in a manner that adversely affects our operations. In addition, the SEC or its staff could take action that results in our or our subsidiary’s failure to maintain an exception or exemption from the Investment Company Act.
  
In the event that we, or our operating partnership, were to acquire assets that could make either entity fall within one of the definitions of an investment company under Section 3(a)(1) of the Investment Company Act, we believe that we would still qualify for an exclusion from registration pursuant to Section 3(c)(6) of the Investment Company Act. Although the SEC staff has issued little interpretive guidance with respect to Section 3(c)(6), we believe that we and our operating partnership may rely on Section 3(c)(6) if 55% of the assets of our operating partnership consist of, and at least 55% of the income of our operating partnership is derived from, qualifying real estate assets owned by wholly owned or majority-owned subsidiaries of our operating partnership.
 
To ensure that neither we, our operating partnership or any of our subsidiaries are required to register as an investment company, each entity may be unable to sell assets that it would otherwise want to sell and may need to sell assets that it would otherwise wish to retain. In addition, we, our operating partnership or our subsidiaries may be required to acquire additional income- or loss-generating assets that we might not otherwise acquire or forego opportunities to acquire interests in companies that we would otherwise want to acquire. Although we, our operating partnership and our subsidiaries intend to monitor our portfolio periodically and prior to each acquisition and disposition, any of these entities may not be able to remain outside the definition of investment company or maintain an exclusion from the definition of an investment company. If we, our operating partnership or our subsidiaries are required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity. In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.
 
For more information on issues related to compliance with the Investment Company Act, see “Investment Strategy, Objectives and Policies – Investment Company Act Considerations.”
 
 
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RISKS RELATED TO CONFLICTS OF INTEREST
   
 
You will not have the benefit of an independent due diligence review in connection with this offering.
 
Because Moody Securities is an affiliate of ours, investors will not have the benefit of an independent due diligence review and investigation of the type normally performed by an unaffiliated, independent underwriter in connection with a securities offering. The lack of an independent due diligence review and investigation increases the risk of your investment because it may not have uncovered facts that would be important to a potential investor.
   
 
We depend on our advisor and its key personnel and if any of such key personnel were to cease to be affiliated with our advisor, our business could suffer.
 
Our ability to make distributions and achieve our investment objectives is dependent upon the performance of our advisor in the acquisition, disposition and management of real estate assets, the selection of tenants for our real properties and the determination of any financing arrangements. In addition, our success depends to a significant degree upon the continued contributions of certain of the key personnel of Moody National REIT Sponsor, LLC, our sponsor, including Brett C. Moody and Robert W. Engel, each of whom would be difficult to replace. We currently do not have key man life insurance on any of these key personnel. If our advisor were to lose the benefit of the experience, efforts and abilities of one or more of these individuals, our operating results could suffer.
   
 
We may compete with other Moody National affiliates for opportunities to acquire or sell investments, which may have an adverse impact on our operations.
 
We may compete with other Moody National affiliates for opportunities to acquire or sell certain types of real estate assets. We may also buy or sell real estate assets at the same time as other Moody National affiliates are considering buying or selling similar assets.  In this regard, there is a risk that our advisor will select for us a real estate asset that provides lower returns to us than real estate assets purchased by another Moody National affiliate. Certain of our affiliates own or manage real properties in geographical areas in which we expect to own real properties. Therefore, our real properties may compete with other real properties owned or managed by other Moody National affiliates. Our advisor may face conflicts of interest when evaluating opportunities for our real properties and other real properties owned or managed by Moody National affiliates, and these conflicts of interest may have a negative impact on our ability to attract and retain tenants. As a result of our potential competition with other Moody National affiliates, certain investment opportunities that would otherwise be available to us may not in fact be available. This competition may also result in conflicts of interest that are not resolved in our favor.
 
 
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The time and resources that Moody National affiliates devote to us may be diverted, and we may face additional competition due to the fact that Moody National affiliates are not prohibited from raising money for, or managing, another entity that makes the same types of investments that we target.
 
Moody National affiliates are not prohibited from raising money for, or managing, another investment entity that makes the same types of investments as those we target. For example, our advisor’s management currently manages 46 privately offered real estate programs sponsored by affiliates of our sponsor, all of which have investment objectives generally similar to this offering. As a result, the time and resources they could devote to us may be diverted. In addition, we may compete with any such investment entity for the same investors and investment opportunities. We may also co-invest with any such investment entity. Even though all such co-investments will be subject to approval by our independent directors, they could be on terms not as favorable to us as those we could achieve co-investing with a third party.
   
 
Our advisor and its affiliates, including our officers and some of our directors, will face conflicts of interest caused by compensation arrangements with us and other Moody National affiliates, which could result in actions that are not in the best interests of our stockholders.
 
Our advisor and its affiliates will receive substantial fees from us in return for their services and these fees could influence the advice provided to us. Among other matters, the compensation arrangements could affect their judgment with respect to:
 
 
public offerings of equity by us, which allow our dealer manager to earn additional dealer manager fees;
     
 
real estate acquisitions, which allow our advisor to earn acquisition fees upon purchases of assets and increase asset management fees;
     
 
real estate asset sales, since the asset management fees payable to our advisor will decrease and since our advisor will be entitled to disposition fees upon sales; and
     
 
the purchase of real estate assets from other Moody National affiliates, which may allow our advisor or its affiliates to earn additional asset management fees, property management fees and disposition fees.
 
Further, our advisor may recommend that we invest in a particular asset or pay a higher purchase price for the asset than it would otherwise recommend if it did not receive an acquisition fee or origination fee. Certain potential acquisition fees, origination fees and asset management fees payable to our advisor and property management and leasing fees payable to the property manager would be paid irrespective of the quality of the underlying real estate or property management services during the term of the related agreement. These fees may incentivize our advisor to recommend transactions with respect to the sale of a property or properties that may not be in our best interest at the time. Investments with higher net operating income growth potential are generally riskier or more speculative. In addition, the premature sale of an asset may add concentration risk to the portfolio or may be at a price lower than if we held on to the asset. Moreover, our advisor will have considerable discretion with respect to the terms and timing of acquisition, disposition and leasing transactions. In evaluating investments and other management strategies, the opportunity to earn these fees may lead our advisor to place undue emphasis on criteria relating to its compensation at the expense of other criteria, such as the preservation of capital, to achieve higher short-term compensation. Considerations relating to our affiliates’ compensation from us and other Moody National affiliates could result in decisions that are not in the best interests of our stockholders, which could impair our ability to pay you distributions or result in a decline in the value of your investment.
   
 
Our advisor may have conflicting fiduciary obligations if we acquire real estate assets from its affiliates or in joint ventures with its affiliates. As a result, in any such transaction we may not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.
 
Our advisor may cause us to invest in a property owned by, or make an equity or debt-related investment in, one of its affiliates or through a joint venture with its affiliates. For example, we own our interest in a mortgage ntoe secured by a hotel property through a joint venture between a wholly owned subsidiary of our operating partnership and an affiliated entity controlled by Brett C. Moody, our Chairman and Chief Executive Officer. In these circumstances, our advisor will have a conflict of interest when fulfilling its fiduciary obligation to us. In any such transaction, we would not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.
 
 
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We may dispose of assets to our advisor, sponsor or their affiliates, which could cause us to enter into transactions on less favorable terms than we would receive from a third party.
 
We may dispose of assets to our advisor, sponsor or their affiliates. Our advisor, sponsor or their affiliates may make substantial profits in connection with such transactions. Because our independent directors would rely on our advisor in identifying and evaluating any such transaction, these conflicts could result in transactions based on terms that are less favorable to us than we would receive from a third party.
   
 
The fees we pay to affiliates in connection with this offering and in connection with the acquisition and management of our investments were not determined on an arm’s-length basis; therefore, we do not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.
 
The fees to be paid to our advisor, our property manager, our dealer manager and other affiliates for services they provide for us were not determined on an arm’s-length basis. As a result, the fees have been determined without the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties and could be in excess of amounts that we would otherwise pay to third parties for such services.
   
 
We may purchase real estate assets from third parties who have existing or previous business relationships with affiliates of our advisor, and, as a result, in any such transaction, we may not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties.
 
We may purchase assets from third parties that have existing or previous business relationships with affiliates of our advisor. The officers, directors or employees of our advisor and its affiliates and the principals of our advisor who also perform services for other Moody National affiliates may have a conflict in representing our interests in these transactions on the one hand and the interests of such affiliates in preserving or furthering their respective relationships on the other hand. In any such transaction, we will not have the benefit of arm’s-length negotiations of the type normally conducted between unrelated parties, and the purchase price or fees paid by us may be in excess of amounts that we would otherwise pay to third parties.
   
RISKS RELATED TO INVESTMENTS IN REAL ESTATE
   
 
Disruptions in the financial markets and deteriorating economic conditions could have a material adverse impact on our business.
 
We believe the risks associated with our business are more severe during market downturns. For example, a prolonged market downturn could negatively impact our real estate investments as a result of decreased demand for hotel rooms, increased tenant delinquencies and/or defaults under our leases. In addition, lower demand for rentable space and oversupply of rentable space could lead to increased rent concessions, higher tenant improvement expenditures or reduced rental rates in order to maintain occupancies. Because we expect that some of our debt-related investments may consist of loans secured by real property, these same factors could also negatively affect the underlying borrowers and collateral of our investments. Our operations could be negatively affected to a greater extent if a market downturn is prolonged or becomes more severe, which would significantly harm our business, results of operations, cash flows and financial condition, our ability to make distributions to you and the value of your investment.
   
 
Changes in national, regional or local economic, demographic or real estate market conditions may adversely affect our results of operations and returns to our stockholders.
 
We are subject to risks generally attributable to the ownership of real estate assets, including: changes in national, regional or local economic, demographic or real estate market conditions; changes in supply of or demand for similar properties in an area; increased competition for real estate assets targeted by our investment strategy; bankruptcies, financial difficulties or lease defaults by our tenants; changes in interest rates and availability of financing; and changes in government rules, regulations and fiscal policies, including changes in tax, real estate, environmental and
 
 
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zoning laws.
   
 
Changes in supply of, or demand for, similar real properties in a particular area may increase the price of real properties we seek to purchase and decrease the price of real properties when we seek to sell them.
 
The real estate industry is subject to market forces. We are unable to predict certain market changes including changes in supply of, or demand for, similar real properties in a particular area. Any potential purchase of an overpriced asset could decrease our rate of return on these investments and result in lower operating results and overall returns to our stockholders.
   
 
Delays in the acquisition, development and construction of real properties may have adverse effects on our results of operations and returns to our stockholders.
 
Delays we encounter in the selection, acquisition and development of real properties could adversely affect your returns. Where properties are acquired prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, you could suffer delays in receiving cash distributions attributable to those particular real properties. Delays in completion of construction could give tenants the right to terminate preconstruction leases for space at a newly developed project. We may incur additional risks when we make periodic progress payments or other advances to builders prior to completion of construction. Each of those factors could result in increased costs of a project or loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. Furthermore, the price we agree to pay for a real property will be based on our projections of rental income and expenses and estimates of the fair market value of real property upon completion of construction. If our projections are inaccurate, we may pay too much for a property.
   
 
Real properties are illiquid investments, and we may be unable to adjust our portfolio in response to changes in economic or other conditions or sell a property if or when we decide to do so.
 
Real properties are illiquid investments. We may be unable to adjust our portfolio in response to changes in economic or other conditions. In addition, the real estate market is affected by many factors, such as general economic conditions, availability of financing, interest rates and other factors, including supply and demand, that are beyond our control. We cannot predict whether we will be able to sell any real property for the price or on the terms set by us, or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser and to close the sale of a real property.   Additionally, we may be required to expend funds to correct defects or to make improvements before a property can be sold. We cannot assure you that we will have funds available to correct such defects or to make such improvements.
 
In acquiring a real property, we may agree to restrictions that prohibit the sale of that real property for a period of time or impose other restrictions, such as a limitation on the amount of debt that can be placed or repaid on that real property. All these provisions would restrict our ability to sell a property, which could reduce the amount of cash available for distribution to our stockholders.
 
 
Our operating expenses may increase in the future and, to the extent such increases cannot be passed on to tenants, our cash flow and our operating results would decrease.
 
Operating expenses, such as expenses for fuel, utilities, labor and insurance, are not fixed and may increase in the future. There is no guarantee that we will be able to pass such increases on to our tenants. To the extent such increases cannot be passed on to tenants, any such increase would cause our cash flow and our operating results to decrease.
   
 
A market downturn or rise in interest rates could adversely impact occupancy, rental rates and our ability to collect rent from our tenants.
 
A market downturn may significantly affect occupancy, rental rates and our ability to collect rent from our tenants. For example, a market downturn or rise in interest rates could make it more difficult for us to lease real properties, may require us to lease the real properties we acquire at lower rental rates and may lead to an increase in tenant defaults. In addition, these conditions may also make it more difficult for us to dispose of these properties. Each of these events could have a material adverse impact on our cash flows, operating results and carrying value of investment property.
 
 
Our real properties will be subject to property taxes that may increase in the future, which could adversely affect our cash flow.
 
Our real properties are subject to real and personal property taxes that may increase as tax rates change and as the real properties are assessed or reassessed by taxing authorities. We anticipate that certain of our leases will generally provide that the property taxes, or increases therein, are charged to the lessees as an expense related to the real properties that they occupy, while other leases will generally provide that we are responsible for such taxes. In any case, as the owner of the properties, we are ultimately responsible for payment of the taxes to the applicable government authorities. If real property taxes increase, our tenants may be unable to make the required tax payments, ultimately requiring us to pay the taxes even if otherwise stated under the terms of the lease. If we fail to pay any such taxes, the applicable taxing authority may place a lien on the real property and the real property may be subject to a tax sale. We will also generally be responsible for real property taxes related to any vacant space. Additionally, some states may impose an entity level tax directly on us. For example, we could be subject to an entity level tax under amendments to the margins tax in the state of Texas. Such an entity level tax could adversely affect our cash flow.
 
 
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Uninsured losses or premiums for insurance coverage relating to real property may adversely affect your returns.
 
There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. Additionally, mortgage lenders sometimes require commercial property owners to purchase specific coverage against terrorism as a condition for providing mortgage loans. These policies may not be available at a reasonable cost, if at all, which could inhibit our ability to finance or refinance our real properties. In such instances, we may be required to provide other financial support, either through financial assurances or self-insurance, to cover potential losses. Changes in the cost or availability of insurance could expose us to uninsured casualty losses. In the event that any of our real properties incurs a casualty loss which is not fully covered by insurance, the value of our assets will be reduced by any such uninsured loss. In addition, we cannot assure you that funding will be available to us for repair or reconstruction of damaged real property in the future.
 
 
We compete with numerous other parties or entities for real estate assets and may not compete successfully.
 
We will compete with numerous other persons or entities seeking to buy real estate assets or to attract tenants to real properties we acquire. These persons or entities may have greater experience and financial strength than us. There is no assurance that we will be able to acquire real estate assets or attract tenants on favorable terms, if at all. For example, our competitors may be willing to offer space at rental rates below our rates, causing us to lose existing or potential tenants and pressuring us to reduce our rental rates to retain existing tenants or convince new tenants to lease space at our properties. Each of these factors could adversely affect our results of operations, financial condition, value of our investments and ability to pay distributions to you.
 
 
Our ability to make distributions to our stockholders will depend upon the ability of hotel managers to operate our hotels effectively.
 
We currently own five hotel properties and a 74.5% joint venture interest in a mortgage note which is secured by a hotel property, and we expect to invest a portion of the proceeds from our public offerings in additional hotel properties and hotel related investments. To qualify as a REIT, we cannot operate any hotel or directly participate in the decisions affecting the daily operations of any hotel. Our third-party hotel managers for our current hotel properties and any hotel properties we acquire will have direct control of the daily operations of our hotels. We will not have the authority to directly control any particular aspect of the daily operations (e.g., setting room rates) of any hotel that we acquire an interest in. Thus, even if we believe that a hotel is being operated in an inefficient or less than optimal manner, we will not be able to require a change to the method of its operation. Our only alternative for changing the operation of a hotel will be to replace the third-party manager in the situation where the applicable hotel management agreement permits us to do so.
 
Our ability to make distributions to stockholders will be impacted by the performance of our third-party hotel managers in generating sufficient revenues from our hotels in excess of operating expenses. The hotel managers will be affected by factors beyond their control, such as changes in the level of demand for rooms and related services of the hotels, their ability to maintain and increase gross revenues and operating margins at the hotels and other factors. Therefore, any operating difficulties or other factors affecting the hotel managers’ ability to maintain and increase gross revenues and operating margins at our hotels could significantly adversely affect our financial condition and results of operations.
   
 
The recent market downturn has adversely affected the hospitality industry and may affect hotel operations for the hotels we acquire.
 
As part of the effects of the recent market downturn, the hospitality industry has experienced a significant decline in business caused by a reduction in travel for both business and pleasure. Consistent with the rest of the hospitality industry, any hotels that we acquire may experience declines in occupancy and average daily rates due to decline in travel. In addition, it is possible that these factors could have a material adverse effect on the value of any hotels that we acquire.
 
 
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Competition in the hospitality industry and with third parties in acquiring properties may reduce our profitability and the return on your investment.
 
The hospitality industry is generally characterized as being intensely competitive. Our current hotel properties and any additional hotel in which we invest will compete with existing and new hotels in their geographic markets, including with independent hotels, hotels which are part of local or regional chains and hotels in other well-known national chains, including those offering different types of accommodations and services. The principal competitive factors that will affect the hotel properties in which we will seek to invest include, but are not limited to, brand recognition, location, range of services and guest amenities and the quality and price of the hotel rooms and services provided. Any one of the foregoing could impact our profitability and ability to pay distributions.
 
If we decide to invest in additional hotel properties, we expect to face significant competition for attractive hotel investment opportunities from other major real estate investors with significant capital, including both publicly traded REITs and private institutional investment funds. Because of competition from other well-capitalized real estate investors, we can provide no assurance that we will be able to acquire desired hotel properties. Where it is possible to acquire desired hotel properties, we can provide no assurance that we will be able to do so on favorable terms or that such properties will meet our return expectations or conform to our investment criteria. The competition to acquire attractive hotel investment opportunities could have an adverse effect on our financial condition and ability to pay distributions.
 
 
If we do not successfully attract and retain franchise flagships for hotel properties, our business will suffer, and this result will reduce the value of your investment.
 
Generally, we must attract and retain well-known hospitality franchises for our current hotel properties and any additional hotels we may choose to acquire to make these investments profitable. Certain hospitality franchises, including limited-service hotels, impose radius restrictions that limit the number of their hotels allowed within a certain distance of one another. Hospitality franchises also generally require that design and quality standards be met for guest room and common areas before a hospitality franchise will agree to provide the franchise agreement to operate a property. Compliance with these brand standards may impose significant costs upon us. If we are not able to attract and retain franchise flagships for our hotel properties because of location restrictions, the high cost of complying with design and quality standards, or any other reason, our business will suffer, and this result will reduce the value of your investment.
 
 
The hospitality industry is subject to unique, unforeseeable risks that may negatively impact our business and the value of your investment.
 
The hospitality industry is subject to unique, unforeseeable risks, such as natural disasters, pandemics and threats of pandemics, acts of terror and other catastrophes. We have no control over events of this type and they could have a substantial impact on the hospitality industry and our business if we decide to invest in additional hotel properties. Because we are unable to control the timing, duration or magnitude of these unforeseen events, the negative impact upon our business could be great.
 
 
In cases in which one of our tenants is required to pay rent based on a percentage of the tenant’s income from its operations at the real property, the actual rental income we receive under such a lease may be inadequate to cover the operating expenses associated with the real property.
 
Lease payments due under leases for any retail properties we acquire may be based in part on the income of the retail tenant. In such cases where the tenant is required to pay rent based on a percentage of the tenant’s income from its operations at the real property, the actual rental income we receive under such a lease may be inadequate to cover the operating expenses associated with the real property if a tenant’s income is substantially lower than projected. In such case, we may not have access to funds required in the future to pay the operating expenses associated with the real property.
 
 
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Real property that incurs a vacancy could be difficult to sell or re-lease.
 
We may invest in retail, office or industrial properties, which may incur a vacancy either by the continued default of a tenant under its lease or the expiration of leases. In addition, certain of the real properties we acquire may have some level of vacancy at the time of closing. Certain other real properties may be specifically suited to the particular needs of a tenant and may become vacant. Therefore, we may have difficulty obtaining a new tenant for any vacant space we have in our real properties. If the vacancy continues for a long period of time, we may suffer reduced revenues resulting in lower cash distributions to stockholders. In addition, the resale value of the real property could be diminished because the market value may depend principally upon the value of the leases of such real property.
 
 
We are dependent on tenants for revenue and our inability to lease our properties or to collect rent from our tenants may adversely affect our results of operations and returns to our stockholders.
 
We may invest in retail, office or industrial properties, which may be occupied by a single tenant. As a result, the success of such properties will depend on the financial stability of a single tenant. Lease payment defaults by such tenants could cause us to reduce the amount of distributions to stockholders and could force us to find an alternative source of revenue to pay any mortgage loan on the property. In the event of such a tenant default, we may also experience delays in enforcing our rights as landlord and may incur substantial costs in protecting our investment and re-letting our property. If a lease is terminated, we may be unable to lease the property for the rent previously received or sell the property without incurring a loss.
 
 
We may not have funding for future tenant improvements, which may adversely affect the value of our properties, our results of operations and returns to our stockholders.
 
We may invest in retail, office or industrial properties with one or multiple tenants. When a tenant at such a property does not renew its lease or otherwise vacates its space in one of our buildings, it is likely that, to attract one or more new tenants, we will be required to expend substantial funds to construct new tenant improvements in the vacated space. We do not anticipate establishing a general working capital reserve out of the proceeds from this offering. We do not currently have an identified funding source to provide funds which may be required in the future for tenant improvements and tenant refurbishments to attract new tenants. If we do not establish sufficient reserves for working capital or obtain adequate secured financing to supply necessary funds for capital improvements or similar expenses, we may be required to defer necessary or desirable improvements to our real properties. If we defer such improvements, the applicable real properties may decline in value, and it may be more difficult for us to attract or retain tenants to such real properties or the amount of rent we can charge at such real properties may decrease. We cannot assure you that we will have any sources of funding available to us for repair or reconstruction of damaged real property in the future.
   
 
Long-term leases may not result in fair market lease rates over time; therefore, our income and our distributions to our stockholders could be lower than if we did not enter into long-term leases.
 
We may enter into long-term leases with tenants of certain of our properties. Our long-term leases would likely provide for rent to increase over time. However, if we do not accurately judge the potential for increases in market rental rates, we may set the terms of these long-term leases at levels such that even after contractual rental increases the rent under our long-term leases is less than then-current market rental rates. Further, we may have no ability to terminate those leases or to adjust the rent to then-prevailing market rates. As a result, our income and distributions to our stockholders could be lower than if we did not enter into long-term leases.
 
 
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To the extent we invest in multifamily properties, our ability to make distributions to our stockholders may be adversely affected by short-term leases that expose us to the effects of declining market rent.
 
We may invest in multifamily properties. We expect that substantially all of our leases for such properties would be for a term of one year or less. Because these leases generally would permit the residents to leave at the end of the lease term without penalty, our rental revenues could be impacted by declines in market rents more quickly than for longer-term leases, which in turn could affect our ability to make distributions to our stockholders.
   
 
Competition due to overbuilding of multifamily properties may reduce our profitability and the return on your investment.
 
The multifamily property industry is highly competitive. To the extent that we invest in multifamily properties, we will compete with many other entities in the multifamily property industry, including individuals, corporations, bank and insurance company investment accounts, other REITs, real estate limited partnerships, and other entities engaged in real estate investment activities. Because of the large number of competitors in this industry, overbuilding of apartment communities may occur. If so, this will increase the number of apartment units available and may decrease occupancy and apartment rental rates. To the extent we invest in multifamily properties, this competition could reduce occupancy levels and revenues at our apartment communities, which would adversely affect our operations.
   
 
To the extent we invest in retail properties, our performance will be linked to the market for retail space generally.
 
The market for retail space has been and could be adversely affected by weaknesses in the national, regional and local economies, the adverse financial condition of some large retailing companies, the ongoing consolidation in the retail sector, excess amounts of retail space in a number of markets and competition for tenants with other shopping centers in our markets. To the extent that we invest in retail properties, retailers at our properties will face continued competition from discount or value retailers, factory outlet centers, wholesale clubs, mail order catalogues and operators, television shopping networks and shopping via the Internet. Such competition could adversely affect our tenants and, consequently, our revenues and funds available for distribution.
   
 
To the extent that we invest in retail properties, decreased consumer spending may have an adverse affect on tenants of our retail properties.
 
To the extent that we invest in retail properties, decreased consumer spending may adversely affect our retail investments because our income from such investments may be derived from lease payments by tenants whose businesses depend on consumer spending. In addition, our ability to increase our revenues and operating income may depend on steady growth of demand for the products and services offered by the stores and companies located in the retail properties we own. A drop in demand for any reason could result in a reduction in tenant performance and consequently adversely affect us.
   
 
Actions of joint venture partners could negatively impact our performance.
 
We may enter into joint ventures with third parties, including with entities that are affiliated with our advisor. For example, we own our interest in a mortgage note secured by a hotel through a joint venture between a wholly owned subsidiary of our operating partnership and an affiliated entity controlled by Brett C. Moody, our Chairman and Chief Executive Officer. We may also purchase and develop properties in joint ventures or in partnerships, co-tenancies or
 
 
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other co-ownership arrangements with the sellers of the properties, affiliates of the sellers, developers or other persons. Such investments may involve risks not otherwise present with a direct investment in real estate, including, for example:
 
 
the possibility that our venture partner or co-tenant in an investment might become bankrupt;
     
 
that the venture partner or co-tenant may at any time have economic or business interests or goals which are, or which become, inconsistent with our business interests or goals;
     
 
that such venture partner or co-tenant may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives;
     
 
the possibility that we may incur liabilities as a result of an action taken by such venture partner;
     
 
that disputes between us and a venture partner may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our business;
     
 
the possibility that if we have a right of first refusal or buy/sell right to buy out a co-venturer, co-owner or partner, we may be unable to finance such a buy-out if it becomes exercisable or we may be required to purchase such interest at a time when it would not otherwise be in our best interest to do so; or
     
 
the possibility that we may not be able to sell our interest in the joint venture if we desire to exit the joint venture.
 
Under certain joint venture arrangements, neither venture partner may have the power to control the venture and an impasse could be reached, which might have a negative influence on the joint venture and decrease potential returns to you. In addition, to the extent that our venture partner or co-tenant is an affiliate of our advisor, certain conflicts of interest will exist.
   
 
Costs of complying with governmental laws and regulations related to environmental protection and human health and safety may be high.
 
All real property investments and the operations conducted in connection with such investments are subject to federal, state and local laws and regulations relating to environmental protection and human health and safety. Some of these laws and regulations may impose joint and several liability on customers, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were legal.
 
Under various federal, state and local environmental laws, a current or previous owner or operator of real property may be liable for the cost of removing or remediating hazardous or toxic substances on such real property. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. In addition, the presence of hazardous substances, or the failure to properly remediate these substances, may adversely affect our ability to sell, rent or pledge such real property as collateral for future borrowings. Environmental laws also may impose restrictions on the manner in which real property may be used or businesses may be operated. Some of these laws and regulations have been amended so as to require compliance with new or more stringent standards as of future dates. Compliance with new or more stringent laws or regulations or stricter interpretation of existing laws may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. Additionally, our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity of our real properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our real properties. There are also various local, state and federal fire, health, life-safety and similar regulations with which we may be required to comply and which may subject us to liability in the form of fines or damages for noncompliance. In connection with the acquisition and ownership of our real properties, we may be exposed to such costs in connection with such regulations. The cost of defending against environmental claims, of any damages or fines we must pay, of compliance with environmental regulatory requirements or of remediating any contaminated real property
 
 
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could materially and adversely affect our business, lower the value of our assets or results of operations and, consequently, lower the amounts available for distribution to you.
   
 
The costs associated with complying with the Americans with Disabilities Act may reduce the amount of cash available for distribution to our stockholders.
 
Investment in real properties may also be subject to the Americans with Disabilities Act of 1990, as amended, or the ADA. Under the ADA, all places of public accommodation are required to comply with federal requirements related to access and use by disabled persons. The ADA has separate compliance requirements for “public accommodations” and “commercial facilities” that generally require that buildings and services be made accessible and available to people with disabilities. With respect to the properties we acquire, the ADA’s requirements could require us to remove access barriers and could result in the imposition of injunctive relief, monetary penalties or, in some cases, an award of damages. We cannot assure you that we will be able to acquire properties which comply with the ADA or allocate the responsibility for compliance with the ADA to another third party, such as the seller or the tenant of the property.  Any monies we use to comply with the ADA will reduce the amount of cash available for distribution to our stockholders.
 
 
Real property investments made outside of the United States will be subject to currency rate exposure and risks associated with the uncertainty of foreign laws and markets.
 
We may acquire properties in Canada to the extent that opportunities exist that may help us meet our investment objectives. International investments and operations generally are subject to various political and other risks that are different from and in addition to those for U.S. investments and operations. To the extent that we invest in real property located outside of the United States, in addition to risks inherent in the investment in real estate generally discussed in this prospectus, we will also be subject to fluctuations in foreign currency exchange rates and the uncertainty of foreign laws and markets including, but not limited to, unexpected changes in regulatory requirements such as the enactment of laws prohibiting or restricting the foreign ownership of property, political and economic instability in certain geographic locations, difficulties in managing international operations, potentially adverse tax consequences, laws restricting us from removing profits earned from activities within the country to the United States, including the payment of distributions, additional accounting and control expenses and the administrative burden associated with complying with a wide variety of foreign laws. Changes in foreign currency exchange rates may adversely impact the fair values
 
 
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and earnings streams of our international holdings and thus the returns on our non-dollar denominated investments. Although we may hedge our foreign currency risk subject to the REIT income qualification tests, we may not be able to do so successfully and may incur losses on these investments as a result of exchange rate fluctuations.
 
Risks Associated with Real Estate Securities and Debt-Related Investments
   
 
Disruptions in the financial markets and deteriorating economic conditions could adversely impact the commercial mortgage market as well as the market for debt-related investments generally, which could hinder our ability to implement our business strategy and generate returns for our stockholders.
 
As part of our investment strategy, we intend to acquire real estate-related loans, real estate-related debt securities and other real estate-related investments. The returns available to investors on these investments are determined by: (1) the supply and demand for such investments and (2) the existence of a market for such investments, which includes the ability to sell or finance such investments. During periods of volatility, the number of investors participating in the market may change at an accelerated pace. As liquidity or “demand” increases, the returns available to investors will decrease. Conversely, a lack of liquidity will cause the returns available to investors to increase. Recently, concerns pertaining to the deterioration of credit in the residential mortgage market have expanded to almost all areas of the debt capital markets including corporate bonds, asset-backed securities and commercial real estate mortgages and loans. Continued or future instability may interfere with the successful implementation of our business strategy.
   
 
The recent market downturn could negatively impact borrowers’ ability to pay principal and interest payments on mortgage loans we own.
 
The recent market downturn, in addition to other non-economic factors such as an excess supply of properties, has had a material negative impact on the values of commercial real estate. Due to declining real estate values, borrowers may be less able to pay principal and interest on our loans especially if the real estate economy weakens. Further, declining real estate values significantly increase the likelihood that we will incur losses on our loans in the event of default because the value of our collateral may be insufficient to cover our cost on the loan. Any sustained period of increased payment delinquencies, foreclosures or losses could adversely affect both our net interest income from loans in our portfolio as well as our ability to sell loans, which would significantly harm our revenues, results of operations, financial condition, business prospects and our ability to make distributions to you.
   
 
Our mortgage loans may be affected by unfavorable real estate market conditions, which could decrease the value of those loans and the return on your investment.
 
We are at risk of defaults by the borrowers on our mortgage loans. These defaults may be caused by many conditions beyond our control, including interest rate levels and local and other economic conditions affecting real estate values. We will not know whether the values of the properties securing our mortgage loans will remain at the levels existing on the dates of origination of those mortgage loans. If the values of the underlying properties drop, our risk will increase because of the lower value of the security associated with such loans.
   
 
To the extent we make or invest in mortgage loans, our mortgage loans will be subject to interest rate fluctuations that could reduce our returns as compared to market interest rates and reduce the value of the mortgage loans in the event we sell them; accordingly, the value of your investment would be subject to fluctuations in interest rates.
 
To the extent we invest in fixed-rate, long-term mortgage loans and market interest rates rise, the mortgage loans could yield a return that is lower than then-current market rates, which would lower the proceeds we would receive in the event we sell such assets. If market interest rates decrease, we will be adversely affected to the
 
 
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extent that mortgage loans are prepaid because we may not be able to make new loans at the higher interest rate. To the extent we invest in variable-rate loans and interest rates decrease, our revenues will also decrease. Finally, to the extent we invest in variable-rate loans and interest rates increase, the value of the loans we own at such time would decrease, which would lower the proceeds we would receive in the event we sell such assets. For these reasons, if we invest in mortgage loans, our returns on those loans and the value of your investment will be subject to fluctuations in market interest rates.
   
 
The CMBS and CDOs in which we may invest are subject to several types of risks.
 
Commercial mortgage-backed securities, or CMBS, are bonds which evidence interests in, or are secured by, a single commercial mortgage loan or a pool of commercial mortgage loans. Collateralized debt obligations, or CDOs, are a type of debt obligation that are backed by commercial real estate assets, such as CMBS, commercial mortgage loans, B-notes, or mezzanine paper. Accordingly, the mortgage backed securities we may invest in are subject to all the risks of the underlying mortgage loans.
 
In a rising interest rate environment, the value of CMBS and CDOs may be adversely affected when payments on underlying mortgages do not occur as anticipated, resulting in the extension of the security’s effective maturity and the related increase in interest rate sensitivity of a longer-term instrument. The value of CMBS and CDOs may also change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely affecting the mortgage securities markets as a whole. In addition, CMBS and CDOs are subject to the credit risk associated with the performance of the underlying mortgage properties. In certain instances, third party guarantees or other forms of credit support can reduce the credit risk.
 
CMBS and CDOs are also subject to several risks created through the securitization process. Subordinate CMBS and CDOs are paid interest only to the extent that there are funds available to make payments. To the extent the collateral pool includes a large percentage of delinquent loans, there is a risk that interest payment on subordinate CMBS and CDOs will not be fully paid. Subordinate securities of CMBS and CDOs are also subject to greater credit risk than those CMBS and CDOs that are more highly rated.
   
 
The mezzanine loans in which we may invest would involve greater risks of loss than senior loans secured by income-producing real properties.
 
We may invest in mezzanine loans that take the form of subordinated loans secured by second mortgages on the underlying real property or loans secured by a pledge of the ownership interests of the entity owning the real property, the entity that owns the interest in the entity owning the real property or other assets. These types of investments involve a higher degree of risk than long-term senior mortgage lending secured by income-producing real property because the investment may become unsecured as a result of foreclosure by the senior lender. In the event of a bankruptcy of the entity providing the pledge of its ownership interests as security, we may not have full recourse to the assets of such entity, or the assets of the entity may not be sufficient to satisfy our mezzanine loan. If a borrower defaults on our mezzanine loan or debt senior to our loan, or in the event of a borrower bankruptcy, our mezzanine loan will be satisfied only after the senior debt. As a result, we may not recover some or all of our investment. In addition, mezzanine loans may have higher loan-to-value ratios than conventional mortgage loans, resulting in less equity in the real property and increasing the risk of loss of principal.
   
 
We may make investments in non-U.S. dollar denominated securities, which will be subject to currency rate exposure and risks associated with the uncertainty of foreign laws and markets.
 
Some of our real estate securities investments may be denominated in foreign currencies and, therefore, we expect to have currency risk exposure to any such foreign currencies. A change in foreign currency exchange rates may have an adverse impact on returns on our non-U.S. dollar denominated investments. Although we may hedge our foreign currency risk subject to the REIT income qualification tests, we may not be able to do so successfully and may incur losses on these investments as a result of exchange rate fluctuations. To the extent that we invest in non-U.S. dollar denominated securities, in addition to risks inherent in the investment in securities generally discussed in this prospectus, we will also be subject to risks associated with the uncertainty of foreign laws and markets including, but not limited to, unexpected changes
 
 
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in regulatory requirements, political and economic instability in certain geographic locations, difficulties in managing international operations, potentially adverse tax consequences, additional accounting and control expenses and the administrative burden of complying with a wide variety of foreign laws.
 
RISK ASSOCIATED WITH DEBT FINANCING
   
 
We have incurred, and plan to incur in the future, mortgage indebtedness and other borrowings, which increase our business risks, could hinder our ability to make distributions and could decrease the value of your investment.
 
We have incurred, and plan to incur in the future, financing that is secured by our real estate assets. Under our charter, we are prohibited from borrowing in excess of 300% of the value of our net assets. “Net assets” for purposes of this calculation is defined to be our total assets (other than intangibles), valued at cost prior to deducting depreciation or other non-cash reserves, less total liabilities. Generally speaking, the preceding calculation is expected to approximate 75% of the aggregate cost of our real estate assets before non-cash reserves and depreciation. We may temporarily borrow in excess of these amounts if such excess is approved by a majority of the independent directors and is disclosed to stockholders in our next quarterly report, along with justification for such excess. As of December 31, 2013, our debt-to- net-asset ratio did not exceed 300%. In addition, we may incur mortgage debt and pledge some or all of our real estate assets as security for that debt to obtain funds to acquire additional real estate assets or for working capital. We may also borrow funds as necessary or advisable to ensure we maintain our REIT tax qualification, including the requirement that we distribute at least 90% of our annual REIT taxable income to our stockholders (computed without regard to the distribution paid deduction and excluding net capital gains). Furthermore, we may borrow if we otherwise deem it necessary or advisable to ensure that we maintain our qualification as a REIT for federal income tax purposes. However, there is no assurance that we will be able to obtain such borrowings on satisfactory terms.
 
High debt levels will cause us to incur higher interest charges, which would result in higher debt service payments and could be accompanied by restrictive covenants. If there is a shortfall between the cash flow from a property and the cash flow needed to service mortgage debt on that property, then the amount available for distributions to stockholders may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on indebtedness secured by a property may result in lenders initiating foreclosure actions. In that case, we could lose the property securing the loan that is in default, thus reducing the value of your investment. For tax purposes, a foreclosure on any of our properties will be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we will recognize taxable income on foreclosure, but we would not receive any cash proceeds. If any mortgage contains cross collateralization or cross default provisions, a default on a single property could affect multiple properties. If any of our properties are foreclosed upon due to a default, our ability to pay cash distributions to our stockholders will be adversely affected.
   
 
Disruptions in the financial markets and deteriorating economic conditions could also adversely affect our ability to secure debt financing on attractive terms and the values of investments we make.
 
The capital and credit markets experienced extreme volatility and disruption during the recent recession. Liquidity in the global credit market became severely contracted by these market disruptions, making it costly to obtain new lines of credit or refinance existing debt. We have, and expect in the future to continue to, finance our investments in part with debt. We may not be able to obtain debt financing on attractive terms or at all. If we are unable to obtain debt financing on attractive terms, we may be forced to use a greater proportion of our offering proceeds to finance our acquisitions and originations, which may reduce the number of investments we would otherwise make. If we are unable to obtain debt financing on attractive terms, we may modify our investment strategy in order to optimize our portfolio performance. Our options would include limiting or eliminating the use of debt and focusing on those investments that do not require the use of leverage to meet our portfolio goals.
 
 
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Instability in the debt markets may make it more difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire and the amount of cash distributions we can make to our stockholders.
 
If mortgage debt is unavailable on reasonable terms as a result of increased interest rates or other factors, we may not be able to finance the initial purchase of properties. In addition, if we place mortgage debt on properties, we run the risk of being unable to refinance such debt when the loans come due, or of being unable to refinance on favorable terms. If interest rates are higher when we refinance debt, our income could be reduced. We may be unable to refinance debt at appropriate times, which may require us to sell properties on terms that are not advantageous to us, or could result in the foreclosure of such properties. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available for distribution to you and may hinder our ability to raise more capital by issuing securities or by borrowing more money.
   
 
Increases in interest rates could increase the amount of our debt payments and negatively impact our operating results.
 
Interest we pay on our debt obligations reduces our cash available for distributions. If we incur variable rate debt, increases in interest rates would increase our interest costs, which would reduce our cash flows and our ability to make distributions to you. If we need to repay existing debt during periods of rising interest rates, we could be required to liquidate one or more of our investments at times which may not permit realization of the maximum return on such investments.
   
 
Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to make distributions to our stockholders.
 
When providing financing, a lender may impose restrictions on us that affect our distribution and operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage a property, discontinue insurance coverage, or replace Moody National Advisor I, LLC as our advisor. In addition, loan documents may limit our ability to replace a property’s property manager or terminate certain operating or lease agreements related to a property. These or other limitations may adversely affect our flexibility and our ability to achieve our investment objectives.
   
 
Our derivative financial instruments that we may use to hedge against interest rate fluctuations may not be successful in mitigating our risks associated with interest rates and could reduce the overall returns on your investment.
 
We may use derivative financial instruments to hedge exposures to changes in interest rates on loans secured by our real estate assets, but no hedging strategy can protect us completely. We cannot assure you that our hedging strategy and the derivatives that we use will adequately offset the risk of interest rate volatility or that our hedging transactions will not result in losses. In addition, the use of such instruments may reduce the overall return on our investments. These instruments may also generate income that may not be treated as qualifying REIT income for purposes of the 75% or 95% REIT income test.
 
FEDERAL INCOME TAX RISKS
   
 
Failure to qualify as a REIT could adversely affect our operations and our ability to make distributions.
 
We have elected to be taxed as a REIT for federal income tax purposes commencing with the taxable year ended December 31, 2011.
 
 
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Our qualification as a REIT will depend on our satisfaction of numerous requirements (some on an annual and quarterly basis) established under highly technical and complex provisions of the Internal Revenue Code for which there are only limited judicial or administrative interpretations and involve the determination of various factual matters and circumstances not entirely within our control. The complexity of these provisions and of the applicable income tax regulations that have been promulgated under the Internal Revenue Code is greater in the case of a REIT that holds its assets through a partnership, as we do. Moreover, no assurance can be given that legislation, new regulations, administrative interpretations or court decisions will not change the tax laws with respect to qualification as a REIT or the federal income tax consequences of that qualification.
 
If we were to fail to qualify as a REIT for any taxable year, we would be subject to federal income tax on our taxable income at corporate rates. In addition, after we elect to be taxed as a REIT, if we subsequently lose our REIT status we would generally be disqualified from treatment as a REIT for the four taxable years following the year in which we lose our REIT status. Losing our REIT status would reduce our net earnings available for investment or distribution to stockholders because of the additional tax liability. In addition, distributions to stockholders would no longer be deductible in computing our taxable income, and we would no longer be required to make distributions. To the extent that distributions had been made in anticipation of our qualifying as a REIT, we might be required to borrow funds or liquidate some investments to pay the applicable corporate income tax. In addition, although we intend to operate in a manner intended to qualify as a REIT, it is possible that future economic, market, legal, tax or other considerations may cause our board of directors to recommend that we revoke our REIT election. 
 
We believe that our operating partnership will be treated for federal income tax purposes as a partnership and not as an association or as a publicly traded partnership taxable as a corporation. If the Internal Revenue Service were successfully to determine that our operating partnership should properly be treated as a corporation, our operating partnership would be required to pay federal income tax at corporate rates on its net income. In addition, we would fail to qualify as a REIT, with the resulting consequences described above.
   
 
To qualify as a REIT we must meet annual distribution requirements, which may result in us distributing amounts that may otherwise be used for our operations.
 
To obtain the favorable tax treatment accorded to REITs, we normally will be required each year to distribute to our stockholders at least 90% of our real estate investment trust taxable income, determined without regard to the dividends paid deduction and by excluding net capital gains. We will be subject to federal income tax on our undistributed taxable income and net capital gain and to a 4% nondeductible excise tax on any amount by which distributions we pay with respect to any calendar year are less than the sum of (1) 85% of our ordinary income, (2) 95% of our capital gain net income and (3) 100% of our undistributed income from prior years. These requirements could cause us to distribute amounts that otherwise would be spent on investments in real estate assets and it is possible that we might be required to borrow funds or sell assets to fund these distributions. If we fund distributions through borrowings, then we will have to repay debt using money we could have otherwise used to acquire properties resulting in our ownership of fewer real estate assets. If we sell assets or use offering proceeds to pay distributions, we also will have fewer investments. Fewer investments may impact our ability to generate future cash flows from operations and, therefore, reduce your overall return. Although we intend to make distributions sufficient to meet the annual distribution requirements and to avoid corporate income taxation on the earnings that we distribute, it is possible that we might not always be able to do so.
 
 
Our ownership of our TRSs will be subject to limitations and our transactions with our TRSs will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm’s-length terms.
 
Overall, no more than 25% of the value of a REIT’s assets may consist of stock or securities of one or more TRSs. In addition, the Internal Revenue Code limits the deductibility of interest paid or accrued by a TRS to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation. The Internal Revenue Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm’s-length basis. The 100% tax would apply, for example, to the extent that we were found to have charged our TRS lessees rent in excess of an arm’s length rent. We will monitor the value of our respective investments in our TRSs for the purpose of ensuring compliance with TRS ownership limitations and will structure our transactions with our TRSs on terms that we believe are arm’s-length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 25% TRS limitation or to avoid application of the 100% excise tax.
 
  If the leases of our hotels to the TRS lessees are not respected as true leases for U.S. federal income tax purposes, we will fail to qualify as a REIT.
 
To qualify as a REIT, we must annually satisfy two gross income tests, under which specified percentages of our gross income must be derived from certain sources, such as “rents from real property.” Rents paid to our operating partnership by TRS lessees pursuant to the leases of our hotels will constitute substantially all of our gross income. In order for such rent to qualify as “rents from real property” for purposes of the gross income tests, the leases must be respected as true leases for U.S. federal income tax purposes and not be treated as service contracts, financing arrangements, joint ventures or some other type of arrangement. If our leases are not respected as true leases for U.S. federal income tax purposes, we will fail to qualify as a REIT.
 
 
If any hotel managers that we may engage do not qualify as “eligible independent contractors,” or if our hotels are not “qualified lodging facilities,” we will fail to qualify as a REIT.
 
Rent paid by a lessee that is a “related party tenant” of ours will not be qualifying income for purposes of the two gross income tests applicable to REITs. An exception is provided, however, for leases of “qualified lodging facilities” to a TRS so long as the hotels are managed by an “eligible independent contractor” and certain other requirements are satisfied. We expect to lease all or substantially all of our hotels to TRS lessees, which are disregarded subsidiaries of corporations that are intended to qualify as TRSs, and to engage hotel managers that are intended to qualify as “eligible independent contractors.” Among other requirements, in order to qualify as an eligible independent contractor, the hotel manager must not own, directly or through its stockholders, more than 35% of our outstanding stock, and no person or group of persons can own more than 35% of our outstanding stock and the stock (or ownership interest) of the hotel manager, taking into account certain ownership attribution rules. The ownership attribution rules that apply for purposes of these 35% thresholds are complex, and monitoring actual and constructive ownership of our stock by our hotel managers and their owners may not be practical. Accordingly, there can be no assurance that these ownership levels will not be exceeded.
 
In addition, for a hotel management company to qualify as an eligible independent contractor, such company or a related person must be actively engaged in the trade or business of operating “qualified lodging facilities” (as defined below) for one or more persons not related to the REIT or its TRSs at each time that such company enters into a hotel management contract with a TRS or its TRS lessee. No assurances can be provided that any hotel managers that we may engage will in fact comply with this requirement in the future. Failure to comply with this requirement would require us to find other managers for future contracts, and, if we hired a management company without knowledge of the failure, it could jeopardize our status as a REIT.
 
Finally, each property with respect to which our TRS lessees pay rent must be a “qualified lodging facility.” A “qualified lodging facility” is a hotel, motel, or other establishment more than one-half of the dwelling units in which are used on a transient basis, including customary amenities and facilities, provided that no wagering activities are conducted at or in connection with such facility by any person who is engaged in the business of accepting wagers and who is legally authorized to engage in such business at or in connection with such facility. The REIT provisions of the Internal Revenue Code provide only limited guidance for making determinations under the requirements for qualified lodging facilities, and there can be no assurance that these requirements will be satisfied.
   
 
Recharacterization of sale-leaseback transactions may cause us to lose our REIT status.
 
We may purchase real properties and lease them back to the sellers of such properties.  We cannot guarantee that the Internal Revenue Service will not challenge our characterization of any sale-leaseback transactions. In the event
 
 
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that any such sale-leaseback transaction is challenged and recharacterized as a financing transaction or loan for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed. If a sale-leaseback transaction were so recharacterized, we might fail to satisfy the REIT qualification “asset tests” or the “income tests” and, consequently, lose our REIT status effective with the year of recharacterization. Alternatively, the amount of our REIT taxable income could be recalculated which might also cause us to fail to meet the distribution requirement for a taxable year.
   
 
You may have current tax liability on distributions if you elect to reinvest in shares of our common stock.
 
If you participate in our distribution reinvestment plan, you will be deemed to have received a cash distribution equal to the fair market value of the stock received pursuant to the plan. For federal income tax purposes, you will be taxed on this amount in the same manner as if you have received cash; namely, to the extent that we have current or accumulated earnings and profits, you will have ordinary taxable income.  As a result, unless you are a tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the value of the common stock received.
   
 
Sales of our properties at gains are potentially subject to the prohibited transaction tax, which could reduce the return on your investment.
 
Our ability to dispose of property during the first few years following acquisition is restricted to a substantial extent as a result of our REIT status. Under applicable provisions of the Internal Revenue Code regarding prohibited transactions by REITs, we will be subject to a 100% tax on any gain realized on the sale or other disposition of any property (other than foreclosure property) we own, directly or through a subsidiary entity, including our operating partnership, but excluding our taxable REIT subsidiaries, that is deemed to be inventory or property held primarily for sale to customers in the ordinary course of trade or business. Whether property is inventory or otherwise held primarily for sale to customers in the ordinary course of a trade or business depends on the particular facts and circumstances surrounding each property. We intend to avoid the 100% prohibited transaction tax by (1) conducting activities that may otherwise be considered prohibited transactions through a taxable REIT subsidiary, (2) conducting our operations in such a manner so that no sale or other disposition of an asset we own, directly or through any subsidiary other than a taxable REIT subsidiary, will be treated as a prohibited transaction, or (3) structuring certain dispositions of our properties to comply with certain safe harbors available under the Internal Revenue Code for properties held at least two years. However, no assurance can be given that any particular property will not be treated as inventory or property held primarily for sale to customers in the ordinary course of a trade or business.

 
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In certain circumstances, we may be subject to federal and state taxes as a REIT, which would reduce our cash available for distribution to you.
 
Even if we qualify as a REIT, we may be subject to federal and state taxes. For example, net income from a “prohibited transaction” will be subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes applicable to REITs. We may also decide to retain income we earn from the sale or other disposition of our real estate assets and pay income tax directly on such income. We may also be subject to state and local taxes on our income or property, either directly or at the level of the companies through which we indirectly own our assets. In addition, our TRSs will be subject to federal income tax and applicable state and local taxes on their net income. Any federal or state taxes we pay will reduce our cash available for distribution to you.
   
 
Distributions to tax-exempt investors may be classified as unrelated business taxable income.
 
Neither ordinary nor capital gain distributions with respect to our common stock nor gain from the sale of common stock should generally constitute unrelated business taxable income to a tax-exempt investor. However, there are certain exceptions to this rule. In particular:
 
 
part of the income and gain recognized by certain qualified employee pension trusts with respect to our common stock may be treated as unrelated business taxable income if shares of our common stock are predominately held by qualified employee pension trusts, and we are required to rely on a special look-through rule for purposes of meeting one of the REIT share ownership tests, and we are not operated in a manner to avoid treatment of such income or gain as unrelated business taxable income;
     
 
part of the income and gain recognized by a tax-exempt investor with respect to our common stock would constitute unrelated business taxable income if the investor incurs debt to acquire the common stock; and
     
 
part or all of the income or gain recognized with respect to our common stock by social clubs, voluntary employee benefit associations, supplemental unemployment benefit trusts and qualified group legal services plans which are exempt from federal income taxation under Sections 501(c)(7), (9), (17), or (20) of the Internal Revenue Code may be treated as unrelated business taxable income.

 
Complying with the REIT requirements may cause us to forego otherwise attractive opportunities.
 
To qualify as a REIT for federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and diversification of our assets, the amounts we distribute to our stockholders and the ownership of shares of our common stock. We may be required to make distributions to stockholders at disadvantageous times or when we do not have funds readily available for distribution. Thus, compliance with the REIT requirements may hinder our ability to operate solely on the basis of maximizing profits.
   
 
Complying with the REIT requirements may force us to liquidate otherwise attractive investments.
 
To qualify as a REIT, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets, including shares of stock in other REITs, certain mortgage loans and mortgage-backed securities. The remainder of our investment in securities (other than governmental securities and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities and qualified real estate assets) can consist of the securities of any one issuer and no more than 25% of the value of our total securities can be represented by securities of one or more taxable REIT subsidiaries. If we fail to comply with these requirements at the end of any calendar quarter, we must correct such failure within 30 days after the end of
 
 
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the calendar quarter to avoid losing our REIT status and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments.
   
 
Liquidation of assets may jeopardize our REIT status.
 
To qualify as a REIT, we must comply with requirements regarding our assets and our sources of income. If we are compelled to liquidate our investments to satisfy our obligations to our lenders, we may be unable to comply with these requirements, ultimately jeopardizing our status as a REIT, or we may be subject to a 100% tax on any resultant gain if we sell assets that are treated as dealer property or inventory.
   
 
Legislative or regulatory action could adversely affect investors.
 
In recent years, numerous legislative, judicial and administrative changes have been made to the federal income tax laws applicable to REITs. Additional changes to tax laws are likely to continue to occur in the future, and we cannot assure you that any such changes will not adversely affect the taxation of a stockholder. Any such changes could have an adverse effect on an investment in shares of our common stock. We urge you to consult with your own tax advisor with respect to the status of legislative, regulatory or administrative developments and proposals and their potential effect on an investment in shares of our common stock.
   
 
The failure of a mezzanine loan to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.
 
We may acquire mezzanine loans. If a mezzanine loan satisfies an Internal Revenue Service safe harbor in Revenue Procedure 2003-65, the mezzanine loan will be treated as a real estate asset for purposes of the REIT asset tests and interest derived from the mezzanine loan will be treated as qualifying mortgage interest for purposes of the REIT 75% gross income test. Although the Revenue Procedure provides a safe harbor on which taxpayers may rely, it does not prescribe rules of substantive tax law. We intend to make investments in loans that comply with the various requirements applicable to our qualification as a REIT. We may, however, acquire mezzanine loans that do not meet all of the requirements of this safe harbor. In the event we own a mezzanine loan that does not meet the safe harbor, the Internal Revenue Service could challenge such loan’s treatment as a real estate asset for purposes of the REIT asset tests and could challenge treatment of interest on such loan as qualifying income for purposes of the 75% gross income test, and, if such a challenge were sustained, we could fail to qualify as a REIT.
   
 
The use of TRS lessees will increase our overall tax liability.
 
Our TRS lessees and any other of our domestic taxable REIT subsidiaries will be subject to federal and state income tax on their taxable income, which in the case of our TRS lessees may consist of revenues from hotel properties leased by our TRS lessees net of the operating expenses for such properties and rent payments to us. Accordingly, although our ownership of TRS lessees allows us to participate in the operating income from any hotel properties that may be acquired in addition to receiving rent, that operating income is fully subject to income tax. Such taxes could be substantial. The after-tax net income of our TRS lessees or other taxable REIT subsidiaries would be available for distribution to us.
   
 
Non-U.S. investors may be subject to U.S. federal income tax on the sale of shares of our common stock if we are unable to qualify as a “domestically controlled” REIT.
 
A non-U.S. person disposing of a U.S. real property interest, including shares of a U.S. corporation whose assets consist principally of U.S. real property interests, is generally subject to U.S. federal income tax on
 
 
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the gain recognized on such disposition. A non-U.S. stockholder generally would not be subject to U.S. federal income tax, however, on gain from the disposition of stock in a REIT if the REIT is a “domestically controlled REIT.” A domestically controlled REIT is a REIT in which, at all times during a specified testing period, less than 50% in value of its shares is held directly or indirectly by non-U.S. holders. We cannot assure you that we will qualify as a domestically controlled REIT. If we were to fail to so qualify, gain realized by a non-U.S. investor on a sale of our common stock would be subject to U.S. federal income tax unless our common stock was traded on an established securities market and the non-U.S. investor did not at any time during a specified testing period directly or indirectly own more than 5% of the value of our outstanding common stock.
   
 
If we were considered to actually or constructively pay a “preferential dividend” to certain of our stockholders, our status as a REIT could be adversely affected.
 
In order to qualify as a REIT, we must distribute to our stockholders at least 90% of our annual REIT taxable income (excluding net capital gain), determined without regard to the deduction for dividends paid. In order for distributions to be counted as satisfying the annual distribution requirements for REITs, and to provide us with a REIT-level tax deduction, the distributions must not be “preferential dividends.” A dividend is not a preferential dividend if the distribution is pro rata among all outstanding shares of stock within a particular class, and in accordance with the preferences among different classes of stock as set forth in our organizational documents. If the IRS were to take the position that we paid a preferential dividend, we may be deemed to have failed the 90% distribution test, and our status as a REIT could be terminated if we were unable to cure such failure.
 
RETIREMENT PLAN RISKS
 
There are special considerations for pension or profit-sharing or 401(k) plans, health or welfare plans or individual retirement accounts whose assets are being invested in our common stock due to requirements under the Employee Retirement Income Security Act of 1974, as amended (“ERISA”), and the Internal Revenue Code. Furthermore, a person acting on behalf of a plan not subject to ERISA may be subject to similar penalties under applicable federal, state, local, or non-U.S. law by reason of purchasing our stock.
 
If you are investing the assets of a pension, profit sharing or 401(k) plan, health or welfare plan, or an IRA, or other plan or arrangement subject to ERISA or Section 4975 of the Internal Revenue Code in us, you should consider:
 
 
  
whether your investment is consistent with the applicable provisions of ERISA and the Internal Revenue Code;
 
 
  
whether your investment is made in accordance with the documents and instruments governing your plan, IRA, or other arrangement, including the investment policy;

 
  
whether your investment satisfies the prudence, diversification, and other applicable fiduciary  requirements in Section 404(a) of ERISA;

 
  
whether your investment will impair the liquidity of the plan, IRA, or other arrangement;

 
  
whether your investment will produce unrelated business taxable income, referred to as UBTI and as defined in Sections 511 through 514 of the Internal Revenue Code, to the plan; and

 
  
your need to value the assets of the plan annually.
 
 
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You should consider whether your investment in us will cause some or all of our assets to be considered assets of an employee benefit plan, IRA, or other arrangement. We do not believe that under ERISA and U.S. Department of Labor regulations currently in effect that our assets would be treated as "plan assets" for purposes of ERISA. However, if our assets were considered to be plan assets, transactions involving our assets would be subject to ERISA and Section 4975 of the Internal Revenue Code and some of the transactions we have entered into with our advisor and its affiliates could be considered "prohibited transactions," under ERISA or the Internal Revenue Code. If such transactions were considered "prohibited transactions," our advisor and its affiliates could be subject to liabilities and excise taxes or penalties. In addition, our officers and directors, our advisor and its affiliates could be deemed to be fiduciaries under ERISA, subject to other conditions, restrictions and prohibitions under Part 4 of Title I of ERISA and those serving as fiduciaries of plans investing in us may be considered to have improperly delegated fiduciary duties to us. Additionally, other transactions with "parties-in-interest" or "disqualified persons" with respect to an investing plan might be prohibited under ERISA, the Internal Revenue Code or other governing authority in the case of a government plan. Therefore, we would be operating under a burdensome regulatory regime that could limit or restrict investments we can make or our management of our real estate assets. Even if our assets are not considered to be plan assets, a prohibited transaction could occur if we or any of our affiliates is a fiduciary (within the meaning of ERISA) with respect to an employee benefit plan purchasing shares and, therefore, in the event any such persons are fiduciaries (within the meaning of ERISA) of your plan or IRA, you should not purchase shares unless an administrative or statutory exemption applies to your purchase. For a discussion of the considerations associated with an investment in our shares by an employee benefit plan or an IRA, see "ERISA Considerations.”
 
Failure to satisfy the fiduciary standards of conduct and other requirements of ERISA, the Internal Revenue Code, or other applicable statutory or common law may result in the imposition of civil (and criminal, if the violation was willful) penalties, and can subject the fiduciary to equitable remedies. In addition, if an investment in our common stock constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary that authorized or directed the investment may be subject to the imposition of excise taxes with respect to the amount invested.  Furthermore, to the extent that the assets of a plan or arrangement not subject to the fiduciary provisions of ERISA (for example, governmental plans, non-electing church plans, and foreign plans) will be used to purchase our stock, such plans should consider the impact of applicable federal, state, local, or non-U.S. law on the decision to make such purchase.
 
 
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
Certain statements included in this prospectus that are not historical facts (including any statements concerning investment objectives, other plans and objectives of management for future operations or economic performance, or assumptions or forecasts related thereto) are forward-looking statements. These statements are only predictions. We caution that forward-looking statements are not guarantees. Actual events or our investments and results of operations could differ materially from those expressed or implied in any forward-looking statements. Forward-looking statements are typically identified by the use of terms such as “may,” “should,” “expect,” “could,” “intend,” “plan,” “anticipate,” “estimate,” “believe,” “continue,” “predict,” “potential” or the negative of such terms and other comparable terminology.
 
The forward-looking statements included herein are based upon our current expectations, plans, estimates, assumptions and beliefs that involve numerous risks and uncertainties. Assumptions relating to the foregoing involve judgments with respect to, among other things, future economic, competitive and market conditions and future business decisions, all of which are difficult or impossible to predict accurately and many of which are beyond our control. Although we believe that the expectations reflected in such forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth in the forward-looking statements. Factors which could have a material adverse effect on our operations and future prospects include, but are not limited to:
 
 
our ability to raise proceeds in this offering;
     
 
our ability to effectively deploy the proceeds raised in this offering;
     
 
our ability to identify and acquire real estate and real estate-related assets on terms that are favorable to us;
     
  •  risks inherent in the real estate business, including the lack of liquidity of real estate investments and potential liability relating to environmental matters;
     
  our ability to sucessfully compete in the hospitality industry;
     
  our levels of debt and the terms and limitations imposed on us by our debt agreements;
     
  our ability to obtain financing on acceptable terms;
     
 
adverse developments affecting our sponsor and its affiliates;
     
 
a decrease in the level of participation in our distribution reinvestment plan;
     
 
changes in economic conditions generally and the real estate and debt markets specifically;
     
 
conflicts of interest arising out of our relationship with our advisor and its affiliates; 
     
 
legislative or regulatory changes (including changes to the laws governing the taxation of REITs);
     
 
the availability of capital;
     
 
interest rates; and
     
 
changes to generally accepted accounting principles, or GAAP.
 
          Any of the assumptions underlying forward-looking statements could be inaccurate. You are cautioned not to place undue reliance on any forward-looking statements included in this prospectus. All forward-looking statements are made as of the date of this prospectus and the risk that actual results will differ materially from the expectations expressed in this prospectus will increase with the passage of time. Except as otherwise required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements after the date of this prospectus, whether as a result of new information, future events, changed circumstances or any other reason. In light of the significant uncertainties inherent in the forward-looking statements included in this prospectus, including, without limitation, the risks described under “Risk Factors,” the inclusion of such forward-looking statements should not be regarded as a representation by us or any other person that the objectives and plans set forth in this prospectus will be achieved.
 
 
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ESTIMATED USE OF PROCEEDS
 
           The table below presents information regarding our intended use of the gross and net proceeds from our primary offering and pursuant to our distribution reinvestment plan. The table assumes we sell (1) the mid-point of $450,000,000 in shares of our common stock pursuant to our primary offering and no shares of common stock pursuant to our distribution reinvestment plan, (2) the maximum of $900,000,000 in shares of our common stock pursuant to the primary offering and no shares of our common stock pursuant to our distribution reinvestment plan and (3) the maximum of $900,000,000 in shares of our common stock pursuant to the primary offering and $100,000,000 in shares of our common stock pursuant to our distribution reinvestment plan.
 
           Shares of our common stock are being offered in our primary offering to the public at a price of $10.00 per share. Our board of directors may change this price from time to time during the offering, but not more frequently than quarterly, to reflect changes in our estimated per-share net asset value and other factors our board of directors deems relevant. Our advisor will calculate the per-share net asset value by dividing our net asset value by the number of shares of our common stock outstanding. Net asset value will be determined by subtracting (1) our liabilities, including the accrued fees and other expenses attributable to this offering and our operations, from (2) our assets, which will consist almost entirely of the value of our interest in our operating partnership. The value of our operating partnership is the excess of the fair value of its assets (including real estate properties, real estate related assets and other investments) over the fair value of its liabilities (including debt and the expenses attributable to its operations), as determined by our advisor. If we revise our offering price, we will disclose the method of calculating the estimated net asset value per share in a supplement to this prospectus. Shares sold under our distribution reinvestment plan are being sold for $9.50 per share. Our board of directors may also change this price from time to time, but not more frequently than quarterly. We have no obligation to adjust the price of our shares and any adjustment in our offering price or the price of shares sold pursuant to our distribution reinvestment plan will be made in the sole and absolute discretion of our board of directors. We reserve the right to reallocate the shares of common stock we are offering between the primary offering and the distribution reinvestment plan. The actual use of the capital we raise is likely to be different than the figures presented in the table because we may not raise the entire amounts set forth in the table. Raising less than the full $900,000,000 in the primary offering or the full $100,000,000 pursuant to our distribution reinvestment plan will alter the amounts of commissions, fees and expenses set forth in the table below.
 
           The amounts in the table below assume that the full fees and commissions are paid on all shares of our common stock offered to the public in the primary offering. The sales commission and, in some cases, all or a portion of our dealer manager fee, may be reduced or eliminated in connection with certain categories of sales, such as sales for which a volume discount applies, sales through investment advisors or banks acting as trustees or fiduciaries and sales to our affiliates. The reduction in these fees will be accompanied by a corresponding reduction in the per share purchase price but will not affect the amounts available to us for investments. After paying the sales commission, the dealer manager fee and our organizational and offering expenses, we use the net proceeds of the offering to invest in real estate assets and to pay the fees set forth in the tables below. We have not established a limit on the amount of proceeds from our public offerings that we may use to fund distributions. Because amounts in the following tables are estimates, they may not accurately reflect the actual receipt or use of the offering proceeds.
 
 
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Midpoint of
$450 Million
   
Maximum Primary
Offering
   
Maximum Primary
Offering and Distribution
Reinvestment Plan
 
     
Amount
   
%
   
Amount
   
%
   
Amount
   
%
 
Gross Offering Proceeds
    $ 450,000,000       100.0 %   $ 900,000,000       100.0 %   $ 1,000,000,000       100.0 %
Less Offering Expenses:
                                                 
Sales Commissions
      29,250,000       6.5       58,500,000       6.5       58,500,000       5.9  
Dealer Manager Fee
      15,750,000       3.5       31,500,000       3.5       31,500,000       3.2  
Organization and Offering Expenses(1)
      22,500,000       5.0       19,800,000       2.2       19,800,000       1.9  
Net Proceeds(2)
    $ 382,500,000       85.0 %   $ 790,200,000       87.8 %   $ 890,200,000       89.0 %
Less:
                                                 
Acquisition Fee and/or Origination Fee(3)(4)
      5,737,500       1.3       11,853,000       1.3       13,353,000       1.3  
Acquisition Expense(3)(4)
      1,912,500       0.4       3,951,000       0.4       4,451,000       0.4  
Working Capital Reserve(5)
                                     
Estimated Amount Available for Investments(4)
    $ 374,850,000       83.3 %   $ 774,396,000       86.0 %   $ 872,396,000       87.2 %
 

(1)
Includes all expenses (other than sales commissions and the dealer manager fee) to be paid by us in connection with the offering, including our legal, accounting, printing, mailing and filing fees, charges of our transfer agent, charges of our advisor for administrative services related to the issuance of shares of our common stock in the offering, reimbursing the dealer manager for amounts it may pay to reimburse the bona fide due diligence expenses of broker-dealers supported by detailed itemized invoices, amounts to reimburse our advisor for the salaries of its employees and other costs in connection with preparing supplemental sales materials, the cost of educational conferences held by us and attendance fees and cost reimbursement for employees of our affiliates to attend retail seminars conducted by broker-dealers. Our advisor has agreed to reimburse us to the extent sales commissions, the dealer manager fee and other organization and offering expenses incurred by us exceed 15% of aggregate gross offering proceeds. We expect that our organization and offering expenses will represent a lower percentage of the gross offering proceeds as the amount of proceeds we raise in the offering increases. In the table above, we have assumed organization and offering expenses will constitute approximately 5.0% of gross proceeds from our primary offering if we raise the midpoint of the maximum offering amount and that organization and offering expenses will constitute approximately 2.2% of gross proceeds from our primary offering if we raise the maximum offering amount.
   
(2)
Until required in connection with the acquisition and development of real estate assets, substantially all of the net offering proceeds may be invested in short-term, highly liquid investments, including, but not limited to, government obligations, bank certificates of deposit, short-term debt obligations, interest-bearing accounts and other authorized investments as determined by our board of directors.
   
(3)
This table excludes debt proceeds. To the extent we fund real estate asset acquisitions with debt, as we expect, the amount available for investment and the amount of acquisition fees and origination fees will be proportionately greater. To the extent we use such net proceeds to acquire real estate assets, our advisor would earn the related acquisition fees and origination fees. In addition to the acquisition fee or origination fee, we may also incur customary third-party acquisition expenses in connection with the acquisition (or attempted acquisition) of a real estate asset.
   
(4)
Amounts available for investments include customary third party acquisition expenses that are included in the total acquisition costs of the real estate assets acquired. For real estate assets that are not acquired, these costs are expensed. Third party acquisition expenses may include legal, accounting, consulting, appraisals, engineering, due diligence, title insurance, closing costs and other expenses related to potential investments regardless of whether the asset is actually acquired. Acquisition expenses as a
 
 
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percentage of a real estate asset’s contract purchase price, or the amount actually paid or allocated in respect of the purchase, development, construction or improvement of a property or the amount of funds advanced with respect to a loan, or the amount actually paid or allocated in respect of the purchase of other assets, in each case exclusive of acquisition fees and acquisition expenses, vary. However, in no event will total acquisition fees, origination fees and acquisition expenses on a real estate asset exceed 6.0% of the contract purchase price of the real estate asset. Furthermore, in no event will the total of all acquisition fees, origination fees and acquisition expenses paid by us, including acquisition expenses on real properties which are not acquired, exceed 6.0% of the aggregate contract purchase price of all real estate assets acquired by us. In the table above, we have assumed acquisition expenses will constitute 0.5% of net proceeds. Although it is anticipated that distributions will be funded from operations after we have invested in a substantial portfolio of income-producing investments, funds available for investment may also be used to fund distributions to the extent that our board of directors determines it to be appropriate, which determination will be based, in part, upon our results of operations.
   
(5)
We do not anticipate establishing a general working capital reserve out of the proceeds from this offering during the initial stages of the offering; however, we may establish capital reserves with respect to particular investments. We also may, but are not required to, establish reserves out of cash flow generated by our real estate assets or out of net sale proceeds in non-liquidating sale transactions.
   
 
 
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As of December 31, 2013, our net tangible book value per share was $7.05, compared to our offering price of $10.00 per share pursuant to this offering. Our net tangible book value per share of our common stock was determined by dividing the net book value of our tangible assets (consisting of total assets less intangible assets, which are comprised of deferred financing and leasing costs acquired in-place lease value, net of liabilities to be assumed and noncontrolling interests) as of December 31, 2013 by the number of shares of our common stock outstanding as of December 31, 2013. Net tangible book value is used generally as a conservative measure of net worth that we do not believe reflects our estimated value per share. Net tangible book value is not intended to reflect the value of our assets upon our orderly liquidation in accordance with our investment objectives. However, net tangible book value does reflect certain dilution in value of our common stock from the issue price as a result of (1) accumulated depreciation and amortization of real estate investments, (2) fees paid in connection with our initial public offering and (3) the fees and expenses paid to our advisor and its affiliates in connection with the selection, acquisition and management of our investments. Additionally, investors who purchased shares in this offering will experience dilution in the percentage of their equity investment in us as we sell additional common shares in the future pursuant to this offering, if we sell securities that are convertible into shares of our common stock or if we issue shares upon the exercise of options, warrants or other rights.
 
 
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Investment Strategy
 
           The cornerstone of our investment strategy is to provide investors seeking a general real estate allocation with an investment in a diversified portfolio of real estate properties, real estate securities and debt related investments, which we refer to as “real estate assets.” We expect to continue to invest primarily in hotel properties that we own exclusively or in joint ventures or other co-ownership arrangements with other persons. We may also invest in other property types consisting of multifamily, office, retail and industrial assets located in the United States and Canada as well as real estate securities and debt-related investments. We may also make opportunistic investments in properties that may be under-developed or newly constructed and in properties that we believe are undervalued. Our portfolio currently consists of five hotel properties and a joint venture interest in a mortgage loan secured by a hotel property. For additional details regarding our investments see “Description of Investments.”
 
            Our Core Plus Plus strategy utilizes an acquisition philosophy that capitalizes on market inefficiencies and a disciplined approach to analyzing economic fundamentals and demographic trends in major metropolitan markets to identify undervalued real estate investment opportunities. “Core” refers to a stabilized, Class A asset in a major metropolitan market, which can provide predictable and attractive net operating income. However, we believe that a core buying strategy, without a supply-demand imbalance, offers minimal growth potential along with an increased risk of asset devaluation. Core Plus builds upon a foundation of a core buying strategy by also targeting core markets, which are major metropolitan areas with stable population growth, high barriers to entry and multiple features which spur demand for the targeted property type in the market, referred to as “demand generators.” Our Core Plus strategy seeks to capitalize upon potential supply-demand imbalances that we believe will create a technical pressure on a particular asset or asset class. We intend to identify these technical pressures created by demographic, business and industry changes which lead to supply and demand imbalances in a particular market. By utilizing this Core Plus strategy of purchasing undervalued assets with underlying, intrinsic value, we believe a core asset will create value at disposition. Core Plus Plus builds further upon the acquisition philosophy of Core Plus to combine our real property investments with real estate securities and debt-related investments, including (1) mortgage and mezzanine loans, (2) debt and derivative securities related to real estate, including mortgage-backed securities, and (3) the equity securities of other REITs and real estate companies. The Moody Core Plus Plus investment strategy takes into account a number of micro and macroeconomic factors, including changes in general economic conditions, which we believe will allow us to identify sound economic investments in real estate and real estate related assets even during periods of an economic downturn.
 
           The Moody Core Plus Plus investment strategy employs an acquisition model which takes into account both the current conditions in the real estate market at any given time and the cyclical nature of real estate generally in an effort to anticipate an increase in demand of a specific type of real estate asset and/or an increase in demand for a specific market. Through research and analysis of market data, including demographic, business and industry trends, as well as technical pressures such as competition, product expense and capacity, we intend to identify supply and demand imbalances for real estate assets in particular markets. For example, we seek to identify assets located in markets where new supply may be constrained due to local regulations that limit new development or land and materials that are either cost-prohibitive or simply
 
 
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unavailable. Once we have identified these supply constraints, we further narrow our search to identify properties that are likely to be driven by high demand, such as properties that are:
 
 
well maintained Class A properties;
     
 
located along the East or West Coast or in the Sunbelt Region;
     
 
located in states within the top quartile of U.S. population growth;
     
 
located in major metropolitan centers;
     
 
located in markets with an expanding federal or state government employment base; or
     
 
located near a major university.
 
Additionally, we will focus on properties located in major U.S. cities that benefit from increasing globalization and global economic growth, particularly growth in Brazil, Russia, India and China. These “gateway” cities provide potential for increased growth and demand and include Los Angeles, with its international population and entertainment industry; Boston, Raleigh and Philadelphia, with their major universities; and Houston, with its large concentration of energy companies. Although our focus on acquisitions will be on assets located in major metropolitan areas, we may also invest in suburban markets that have the potential for growth.
 
This focus on market direction requires the evaluation of all categories of real estate assets and various markets, as opposed to a more narrow focus on a single asset type, specific market or product availability. We also measure the standard deviation of historical market and asset performance in order to gauge the risk of investing in any given asset relative to other assets and/or other markets. As a result, the Moody Core Plus Plus investment strategy aims to acquire a risk adverse portfolio based upon an emphasis on the direction of the market.
 
Investment Objectives
 
Our investment objectives are to:
 
 
preserve, protect and return stockholders’ capital contributions;
     
 
pay regular cash distributions to stockholders; and
     
 
realize capital appreciation upon the ultimate sale of the real estate assets we acquire.
 
   We cannot assure you that we will attain these objectives or that the value of our assets will not decrease. Furthermore, within our investment objectives and policies, our advisor has substantial discretion with respect to the selection of specific investments and the purchase and sale of our assets, subject to the approval of our independent directors. Our board of directors reviews our investment policies at least annually to determine whether our investment policies continue to be in the best interests of our stockholders. Each such determination and the basis therefore is set forth in the minutes of the meetings of our board of directors. We may not change our investment objectives without the approval of our stockholders.
 
Primary Focus—Real Property Investments
 
           We intend to invest the majority of our total assets in hotel properties and, to a lesser extent, multifamily, office, retail and industrial assets.
 
 
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We expect the majority of our direct real property investments will consist of “core plus” properties, which are stabilized, income-producing properties that have been fully constructed and that have significant operating histories. In addition, our portfolio may also include a relatively smaller proportion of “value added” investment opportunities that arise in circumstances where a real property may be situationally undervalued or where product repositioning, capital expenditures or improved property management may increase cash flows. We may also invest in “opportunistic” real properties or properties that are under development or construction, that are newly constructed or that have some level of vacancy at the time of acquisition. We have not established any maximum or minimum purchase price for any individual real property investment.
 
           We anticipate that the majority of our direct real property investments will be made in the United States, although we may also invest in Canada to the extent that opportunities exist that may help us meet our investment objectives.
 
           In determining the types of direct real property investments to make, our advisor utilizes the following criteria:
 
 
diversification benefits relative to the rest of the real property assets within our portfolio;
     
 
broad assessment of macro and microeconomic, employment and demographic data and trends;
     
 
regional, market and property specific supply and demand dynamics;
     
 
credit quality of in-place tenants and the potential for future rent increases;
     
 
physical condition and location of the property;
     
 
market rents and opportunity for revenue and net operating income growth;
     
 
opportunities for capital appreciation based on product repositioning, operating expense reductions and other factors;
     
 
risk characteristics of the investment compared to the potential returns and available alternative investments; and
     
 
additional factors considered important to meeting our investment objectives.
     
 
The primary property types in which we intend to invest are as follows:
   
 
Hotels—We expect the majority of our investments will be in hotel properties. To date all of our investments have been in hotel properties or mortgages secured by hotel properties. We intend to target limited service and full-service hotel properties in excess of 75 rooms, typically with national brands or which can be converted to a national brand, located in major urban and resort markets. It is anticipated that the majority of hotels we will acquire will be select-service hotels (sometimes referred to as “limited-service” hotels). Select-service hotels target business-oriented travelers by providing clean rooms with basic amenities. In contrast to lower-cost budget motels, select-service hotels provide amenities such as an exercise room, business facilities and breakfast buffets. In contrast to full-service hotels, select-service hotels typically do not have a full-service kitchen, which are relatively costly to operate.
     
 
Multifamily Properties—including apartment communities of all sizes located in markets expected to exhibit future household formation and job growth and markets with some barriers to entry.
     
 
Office Properties—including low-rise, mid-rise and high-rise office buildings and office parks in urban and suburban locations, especially those that are in or near central business districts or have access to transportation.
     
 
Retail Properties—including neighborhood, community, power and lifestyle shopping centers and focusing on properties located in or nearby populated residential areas that have, or have the ability to attract, strong anchor tenants.
     
 
Industrial Properties—including warehouse and distribution facilities, office/warehouse flex properties, research and development properties and light industrial properties.
 
           We may also invest a portion of the proceeds available for investment in unimproved land upon which improvements are to be constructed or completed. However, we may not invest more than 10.0% of the aggregate cost of the real property assets within our portfolio in unimproved land or real properties which are not expected to produce income within two years of their acquisition. Development of real properties is subject to risks relating to a builder’s ability to control construction costs or to build in conformity with plans,
 
 
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specifications and timetables. To the extent we invest in development properties, to help ensure performance by the builders of real properties that are under construction, we intend to require a guarantee of completion at the price contracted either by an adequate completion bond or performance bond. Our advisor may rely upon the net worth of the contractor or developer or a personal guarantee accompanied by financial statements showing a substantial net worth provided by an affiliate of the person entering into the construction or development contract as an alternative to a completion bond or performance bond. Our advisor may elect to employ one or more project managers (who under some circumstances may be affiliated with our advisor or our property manager) to plan, supervise and implement the development and construction of any unimproved real properties which we may acquire. Such persons would be compensated by us.
 
     The Hospitality Industry

    According to our research, at this time the hotel space has the greatest supply-demand imbalance among all real estate asset classes. We believe that hotel properties are trading below their normal pricing, which creates buying opportunities today; while a supply-demand imbalance should create upward pressure on future room rates.
 
Long-term room night demand has historically been positively correlated with GDP growth. During the past 20 years, hotel demand growth was negative at only three points, most notably during the recent recession, which we refer to as the Great Recession. However, hotel demand rose steadily during periods of economic growth, especially during the late 1990’s and mid-2000’s.  As a result, many industry experts project a continued increase in hotel demand.
 
 
U.S. Market Demand - Hospitality
Demand vs. GDP (1988 - 2015)
 
 
 
          
 
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The hotel industry has been in a period of under-supply since 2001, with the exception of 2008 and 2009. The current slowdown in new supply is due to both the unavailability of new financing and the downturn in hotel rates experienced during the Great Recession. New hotel projects often take several years to complete, especially in the current environment with lenders remaining cautious about approving new projects. Smith Travel Research, or STR, foresees this trend continuing as new hotel supply is expected to grow at a slower pace than the 20-year average of 1.9% per year. Consequently, existing hotel operators should experience the full benefit of the impending hotel recovery because the new supply is not expected to match the growth in demand.
 
U.S. Market Supply – Hotels
Supply Deviation from Average (1988 - 2015)