8.	Related Party Arrangements

In March 2012, the Company’s board of directors approved an expense support and conditional reimbursement agreement with its Advisor (the “Original Expense Support Agreement”) whereby, effective April 1, 2012, reimbursement of operating-related personnel expenses and asset management fees to the Advisor and its affiliates were deferred and subordinated until certain performance metrics are met.

In March 2014, the Company entered into the Amended and Restated Expense Support Agreement with its Advisor. Pursuant to the Amended and Restated Expense Support Agreement, effective January 1, 2014, the Advisor agreed to accept Restricted Stock in lieu of cash in payment for up to the full amount of asset management fees and operating-related personnel expenses owed by the Company to the Advisor under the advisory agreement for services rendered after December 31, 2013. The amount of such expense support is equal to the positive excess, if any, of (i) aggregate stockholder cash distributions declared in the applicable quarter, over (ii) the Company’s aggregate modified funds from operations (as defined and revised in the Amended and Restated Expense Support Agreement) for such quarter, determined each calendar quarter on a non-cumulative basis (the “Expense Support Amount”). The number of shares of Restricted Stock to be issued to the Advisor in a given quarter is determined by dividing (x) the Expense Support Amount for the applicable quarter, by (y) the most recent public offering price per share of the Company’s common stock, unless and until such time as the Company determines an estimated net asset value (“NAV”) per share of its common stock, at which time the most recent NAV per share shall be used.

Generally, Restricted Stock will vest immediately prior to or upon the occurrence of a listing of the Company’s common stock, a merger, a sale of all or substantially all of the Company’s assets, or another liquidity or exit event, as described in the Amended and Restated Expense Support Agreement (an “Exit Event”). In order for the Restricted Stock to vest upon the occurrence of an Exit Event, however, the consideration or other value attributable to the Company’s common stock as a result of the Exit Event, plus total distributions received by the Company’s stockholders since inception, excluding distributions received by the Advisor, must exceed, and only to the extent that it exceeds, an amount equal to 100% of the stockholder’s invested capital, excluding the Advisor’s invested capital, plus a cumulative 6% priority return on investment (the “Vesting Threshold”).

The Restricted Stock will also vest immediately in the event the advisory agreement is terminated without cause by the Company before the occurrence of an Exit Event, provided that the most recent NAV, plus total distributions received by stockholders, other than the Advisor, prior to such termination of the advisory agreement exceeds, and only to the extent that it exceeds, the Vesting Threshold. Restricted Stock shall be immediately and permanently forfeited under various circumstances, including certain circumstances relating to a termination of the advisory agreement. The Amended and Restated Expense Support Agreement was effective beginning January 1, 2014 and continues until terminated by the Advisor in writing with 120 days’ notice.

For the nine months ended September 30, 2014, approximately $0.9 million in asset management fees and $0.3 million in operating-related personnel expenses (of which $0.2 million and $0.1 million is included in discontinued operations, respectively) were forgone as payable in cash in accordance with the terms of the Amended and Restated Expense Support Agreement, including $0.3 million and $0.1 million, respectively, for the quarter ended September 30, 2014. In accordance therewith, the Company determined that approximately 0.12 million shares of Restricted Stock were issuable to the Advisor related to the nine months ended September 30, 2014, including 0.04 million shares related to the quarter ended September 30, 2014 to be issued by November 14, 2014. The number of restricted shares was determined using a share price of $10 based on the last offering. Since the vesting conditions were not met during the nine months ended September 30, 2014, no fair value was assigned to the Restricted Stock accepted by the Advisor in exchange for providing asset management fees and operating-related personnel expenses. As a result, for the nine months ended September 30, 2014, asset management fees and operating expenses were reduced by $0.9 million and $0.3 million, respectively, including $0.3 million and $0.1 million, respectively, for the quarter ended September 30, 2014, as a result of the expense support provided under the Amended and Restated Expense Support Agreement.

For the quarter and nine months ended September 30, 2014, the Company recorded approximately $8,000 and $15,000, respectively, in the form of cash distributions to the Advisor related to Restricted Stock it had received through such date. Such amounts were recognized as compensation expense and included in general and administrative expense in the accompanying condensed consolidated statements of operations for the quarter and nine months ended September 30, 2014.

For the quarter and nine months ended September 30, 2013, approximately $0.3 million and $0.9 million, respectively, in asset management fees and approximately $0.08 million and $0.5 million, respectively, in operating-related personnel expenses were deferred and subordinated in accordance with the terms of the Original Expense Support Agreement. The conditional reimbursement provisions of the Original Expense Support Agreement survived under the terms of the Amended and Restated Expense Support Agreement, and the Company continues to be obligated to repay amounts previously deferred as of December 31, 2013 of up to $2.8 million, contingent on the subordination conditions of certain performance metrics being met within three years of the applicable deferrals. The Company will record such amounts as operating expenses in future periods to the extent, if any, it determines that these amounts are probable of being reimbursed to the Advisor. As of September 30, 2014, the Company determined it was not probable that the performance hurdles would be achieved within the applicable reimbursement period due to the cumulative nature of such metrics; therefore, the Company has not recognized any expense for the amounts deferred.

During the quarter and nine months ended September 30, 2014 and 2013, the Company incurred the following fees and reimbursable expenses due to the managing dealer of the Company’s Offering, an affiliate of the Company’s Advisor, the Advisor, its affiliates and other related parties:


	Quarter Ended September 30,					Nine months Ended September 30,
	2014		2013			2014		2013
Offering fees:
Selling commissions ⁽¹⁾	$	—	$	—		$	—	$	1,300,803
Marketing support fees ⁽¹⁾		—		—			—		571,295

		—		—			—		1,872,098

Reimbursable expenses:
Offering costs ⁽¹⁾		—		—			—		989,277
Operating and acquisition expenses ⁽²⁾⁽³⁾		25,845		96,616			94,822		604,578

		25,845		96,616			94,822		1,593,855


Asset management fees ⁽³⁾⁽⁴⁾		—		301,529			—		904,587
Property management fees ⁽⁴⁾⁽⁵⁾		101,483		97,308			295,031		304,720
Expense support adjustment⁽⁶⁾		—		(378,136	)		—		(1,355,727	)

	$	127,328	$	117,317		$	389,853	$	3,319,533

FOOTNOTES:

⁽¹⁾	Amounts are recorded as stock issuance and offering costs in the accompanying condensed consolidated statements of stockholders’ equity.

⁽²⁾	In general, amounts are recorded as general and administrative expenses in the accompanying condensed consolidated statements of operations.

⁽³⁾

For the quarter and nine months ended September 30, 2014, the Company incurred $0.3 million and $0.9 million, respectively, in asset management fees and $0.1 million and $0.3 million, respectively, in operating-related personnel expenses for which the Advisor agreed to receive Restricted Stock in lieu of cash pursuant to the terms of the Amended and Restated Expense Support Agreement. Since the vesting conditions were not met, no fair value was assigned to the Restricted Stock, and as a result, during the nine months ended September 30, 2014, asset management fees and operating expenses were reduced by $0.9 million and $0.3 million, respectively, including $0.3 million and $0.1 million, respectively, during the quarter ended September 30, 2014.

⁽⁴⁾	Asset management fees and property management fees, as well as the expense support adjustment related to the Company’s entities classified as held for sale, are included in income from discontinued operations for each period presented.

⁽⁵⁾	Includes amounts paid directly by subsidiaries of the Company to a sub-advisor of the Advisor for the quarter and nine months ended September 30, 2013. Prior to its acquisition by BlackRock, Inc., (NYSE:BLK), the sub-advisor was indirectly affiliated with one of the Company’s former directors.

⁽⁶⁾	See description of the Amended and Restated Expense Support Agreement above.

Amounts due to related parties for fees and reimbursable costs and expenses were as follows as of:


	September 30, 2014		December 31, 2013
Due to the Property Manager:
Property management fees	$	39,016	$	62,748

		39,016		62,748

Due to the Advisor and its affiliates:
Reimbursable operating expenses⁽¹⁾		115,763		191,504

		115,763		191,504

	$	154,779	$	254,252

FOOTNOTES:

⁽¹⁾	Amounts due to related parties of $0.01 million and $0.03 million for reimbursable costs and operating expenses are included in liabilities held for sale as of September 30, 2014 and December 31, 2013, respectively.