Related Party Arrangements

The Company has entered into the Advisory Agreement with the Advisor. Pursuant to the Advisory Agreement, the Company is obligated to pay the Advisor specified fees upon the provision of certain services related to the investment of funds in real estate and real estate-related investments, the management of the Company’s investments and for other services (including, but not limited to, the disposition of investments). Subject to the limitations described below, the Company is also obligated to reimburse the Advisor and its affiliates for organization and offering costs incurred by the Advisor and its affiliates on behalf of the Company, and the Company is obligated to reimburse the Advisor and its affiliates for acquisition and origination expenses and certain operating expenses incurred on behalf of the Company or incurred in connection with providing services to the Company.

Amounts attributable to the Advisor and its affiliates incurred (earned) for the years ended December 31, 2018, 2017 and 2016 are as follows:



	Incurred (Earned) For the Year Ended December 31,
	2018			2017			2016
Consolidated Statements of Operations:
Expensed
Investment management fees⁽¹⁾	$	9,799,335		$	13,823,000		$	14,075,818
Acquisition fees⁽¹⁾	—			—			960
Acquisition expenses⁽²⁾	444,475			—			—
Property management:
Fees⁽¹⁾	4,059,216			6,278,850			6,406,479
Reimbursement of onsite personnel⁽³⁾	12,857,437			18,716,284			18,751,492
Other fees⁽¹⁾	1,598,991			1,771,620			1,673,724
Other fees - property operations⁽³⁾	138,235			170,067			—
Other fees - G&A⁽²⁾	86,542			133,419			168,037
Other operating expenses⁽²⁾	988,367			1,244,264			1,232,493
Disposition fees⁽⁴⁾	5,893,800			6,706,200			—
Disposition transaction costs⁽⁴⁾	84,222			56,922			—
Loan coordination fee⁽¹⁾	422,160			86,675			3,283,737
Property insurance⁽⁵⁾	1,597,712			1,285,490			311,794
Insurance proceeds⁽⁶⁾	(75,000		)	(102,147		)	(113,853		)
Consolidated Balance Sheets:
Capitalized
Construction management:
Fees⁽⁷⁾	209,829			526,866			1,493,999
Reimbursement of labor costs⁽⁷⁾	95,631			239,015			367,204
Capital expenditures⁽⁷⁾	39,680			74,709			17,654
Deferred financing costs⁽⁸⁾	—			12,930			139,229
Capitalized costs on investment in unconsolidated joint venture⁽⁹⁾	58,386			65,113			—
Acquisition expenses⁽¹⁰⁾	245,048			3,226			—
Acquisition fees⁽¹⁰⁾	705,722			—			—
	$	39,249,788		$	51,092,503		$	47,808,767

________________


(1)	Included in fees to affiliates in the accompanying consolidated statements of operations.


(2)	Included in general and administrative expenses in the accompanying consolidated statements of operations. Reflects acquisition expenses that did not meet the capitalization criteria under ASU 2017-01.


(3)	Included in operating, maintenance and management in the accompanying consolidated statements of operations.


(4)	Included in gain on sales of real estate, net in the accompanying consolidated statements of operations.

(5)

Property related insurance expense and the amortization of the prepaid insurance deductible account are included in general and administrative expenses in the accompanying consolidated statements of operations. The amortization of the prepaid property insurance is included in operating, maintenance and management expenses in the accompanying consolidated statements of operations. The prepaid insurance is included in other assets in the accompanying consolidated balance sheets upon payment.


(6)	Included in tenant reimbursements and other in the accompanying consolidated statements of operations.


(7)	Included in building and improvements in the accompanying consolidated balance sheets.


(8)	Included in mortgage notes payable, net in the accompanying consolidated balance sheets.


(9)	Included in investment in unconsolidated joint venture in the accompanying consolidated balance sheets.


(10)	Included in total real estate, cost in the accompanying consolidated balance sheets. Reflects acquisition expenses that did meet the capitalization criteria under ASU 2017-01.

Amounts attributable to the Advisor and its affiliates paid (received) for the years ended December 31, 2018, 2017 and 2016 are as follows:



	Paid (Received) For the Year Ended December 31,
	2018		2017			2016
Consolidated Statements of Operations:
Expensed
Investment management fees	$	8,158,850	$	15,008,001		$	14,060,587
Acquisition fees	—		—			960
Acquisition expenses	233,287		—			—
Property management:
Fees	4,126,954		6,410,591			6,392,550
Reimbursement of onsite personnel	13,040,470		18,748,974			18,650,009
Other fees	1,604,623		1,781,318			1,671,282
Other fees - property operations	138,235		170,067			—
Other fees - G&A	86,542		133,419			168,037
Other operating expenses	960,376		1,341,997			1,098,568
Disposition fees	4,407,675		6,139,575			—
Disposition transaction costs	84,222		56,922			—
Loan coordination fee	508,835		—			3,283,737
Property insurance	1,555,825		1,322,247			361,490
Insurance proceeds	—		(102,147		)	(113,853		)
Consolidated Balance Sheets:
Capitalized
Construction management:
Fees	213,652		536,866			1,548,701
Reimbursement of labor costs	95,730		245,889			474,155
Capital expenditures	39,680		74,709			17,654
Deferred financing costs	—		12,930			139,229
Capitalized costs on investment in unconsolidated joint venture	58,386		65,113			—
Acquisition expenses	245,048		3,226			—
Acquisition fees	705,722		—			—
	$	36,264,112	$	51,949,697		$	47,753,106

Amounts attributable to the Advisor and its affiliates that are payable (prepaid/receivable) as of December 31, 2018 and 2017 are as follows:



	Payable (Prepaid/Receivable) as of December 31,
	2018			2017
Consolidated Statements of Operations:
Expensed
Investment management fees	$	1,640,485		$	—
Acquisition expenses	211,188			—
Property management:
Fees	334,577			402,315
Reimbursement of onsite personnel	589,551			772,584
Other fees	39,349			44,981
Other operating expenses	115,212			87,221
Disposition fees	2,052,750			566,625
Loan coordination fee	—			86,675
Property insurance	(119,055		)	(160,942		)
Insurance proceeds	(75,000		)	—
Consolidated Balance Sheets:
Capitalized
Construction management:
Fees	2,608			6,431
Reimbursement of labor costs	198			297
	$	4,791,863		$	1,806,187

Investment Management Fee

The Company pays the Advisor a monthly investment management fee equal to one-twelfth of 0.80% of (1) the cost of real properties and real estate-related assets acquired directly by the Company or (2) the Company’s allocable cost of each real property or real estate-related asset acquired through a joint venture. The investment management fee is calculated including acquisition fees, acquisition expenses, cost of development, construction or improvement and any debt attributable to such investments, or the Company’s proportionate share thereof in the case of investments made through joint ventures. The cost of real properties and real estate-related assets that have been sold by the Company during the applicable month is excluded from the fee.

Acquisition Fees and Expenses

The Company pays the Advisor an acquisition fee equal to 2.0% of (1) the cost of investment, as defined in the Advisory Agreement, in connection with the investigation, selection and acquisition (by purchase, investment or exchange) of any type of real property or real estate-related asset; provided, however, that the total acquisition fee payable by the Company to the Advisor or its affiliates shall equal 0.5% of the cost of investment in the event that proceeds from a prior sale of an investment are used to fund the acquisition of an investment, or (2) the Company’s allocable cost of a real property or real estate-related asset acquired in a joint venture, in each case including purchase price, acquisition expenses and any debt attributable to such investments.

In addition to acquisition fees, the Company reimburses the Advisor for amounts directly incurred by the Advisor or its affiliates, including personnel-related costs for acquisition due diligence, legal and non-recurring management services, and amounts the Advisor pays to third parties in connection with the selection, acquisition or development of a property or acquisition of real estate-related assets, whether or not the Company ultimately acquires the property or the real estate-related assets.

The Charter limits the Company’s ability to pay acquisition fees if the total of all acquisition fees and expenses relating to the purchase would exceed 6.0% of the contract purchase price. Under the Charter, a majority of the Company’s board of directors, including a majority of the independent directors, is required to approve any acquisition fees (or portion thereof) that would cause the total of all acquisition fees and expenses relating to an acquisition to exceed 6.0% of the contract purchase price. In connection with the purchase of securities, the acquisition fee may be paid to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the acquisition fee to a firm that is not a registered broker-dealer.

Property Management Fees and Expenses

The Company has entered into Property Management Agreements (as amended from time to time, each a “Property Management Agreement”) with Steadfast Management Company, Inc., an affiliate of the Sponsor (the “Property Manager”), in connection with the acquisition of each of the Company’s properties (other than EBT Lofts, Library Lofts and Stuart Hall Lofts, which are managed by an unaffiliated third-party management company). As of December 31, 2018, the property management fee payable with respect to each property under each Property Management Agreement ranged from 2.50% to 3.50% of the annual gross revenue collected, which is usual and customary for comparable property management services rendered to similar properties in similar geographic markets, as determined by the Advisor and approved by a majority of the members of the Company’s board of directors, including a majority of the independent directors. The Property Manager also receives an oversight fee of 1% of gross revenues at certain of the properties at which it does not serve as a property manager. Generally, each Property Management Agreement has an initial one year term and will continue thereafter on a month-to-month basis unless either party gives 60 days’ prior notice of its desire to terminate the Property Management Agreement, provided that the Company may terminate the Property Management Agreement at any time upon a determination of gross negligence, willful misconduct or bad acts of the Property Manager or its employees or upon an uncured breach of the Property Management Agreement upon 30 days’ prior written notice to the Property Manager.

In addition to the property management fee, the Property Management Agreements also specify certain other fees payable to the Property Manager or its affiliates, including fees for benefit administration, information technology infrastructure, licenses, support and training services and capital expenditures. The Company also reimburses the Property Manager for the salaries and related benefits of on-site property management employees.

Upon entering into the Joint Venture with BREIT, the Property Manager entered into Property Management Agreements with each wholly-owned subsidiary of the Joint Venture that directly owned a property in the LANDS Portfolio. Effective December 10, 2018, the Joint Venture terminated the Property Management Agreements with the Property Manager. The property management fee payable by the Joint Venture is a component of equity in loss of unconsolidated joint venture in the consolidated statements of operations.

Construction Management

The Company has entered into Construction Management Agreements with Pacific Coast Land and Construction, Inc., an affiliate of the Sponsor (the “Construction Manager”), in connection with the planned capital improvements and renovation for certain of the Company’s properties. As of December 31, 2018, the construction management fee payable with respect to each property pursuant to the Construction Management Agreements (each a “Construction Management Agreement”) ranged from 6.0% to 12.0% of the costs of the improvements for which the Construction Manager has planning and oversight authority. Generally, each Construction Management Agreement can be terminated by either party with 30 days’ prior written notice to the other party. Construction management fees are capitalized to the respective real estate properties in the period in which they are incurred, as such costs relate to capital improvements and renovations for units taken out of service while they undergo the planned renovation.

The Company may also reimburse the Construction Manager for the salaries and related benefits of certain of its employees for time spent working on capital improvements and renovations at its properties.

Property Insurance

The Company deposits amounts with an affiliate of the Sponsor to fund a prepaid insurance deductible account to cover the cost of required insurance deductibles across all properties of the Company and other affiliated entities. Upon filing a major claim, proceeds from the insurance deductible account may be used by the Company or another affiliate of the Sponsor. In addition, the Company deposits amounts with an affiliate of the Sponsor to cover the cost of property insurance across certain properties of the Company.

Other Operating Expense Reimbursement

In addition to the various fees paid to the Advisor, the Company is obligated to pay directly or reimburse all expenses incurred by the Advisor in providing services to the Company, including the Company’s allocable share of the Advisor’s overhead, such as rent, employee costs, utilities and information technology costs. The Company will not reimburse the Advisor for employee costs in connection with services for which the Advisor or its affiliates receive acquisition fees or disposition fees or for the salaries the Advisor pays to the Company’s executive officers.

The Charter limits the Company’s total operating expenses during any four fiscal quarters to the greater of 2% of the Company’s average invested assets or 25% of the Company’s net income for the same period (the “2%/25% Limitation”). The Company may reimburse the Advisor, at the end of each fiscal quarter, for operating expenses incurred by the Advisor; provided, however, that the Company shall not reimburse the Advisor at the end of any fiscal quarter for operating expenses that exceed the 2%/25% Limitation unless the independent directors have determined that such excess expenses were justified based on unusual and non-recurring factors. The Advisor must reimburse the Company for the amount by which the Company’s operating expenses for the preceding four fiscal quarters then ended exceed the 2%/25% Limitation unless the independent directors have determined that such excess expenses were justified. For purposes of determining the 2%/25% Limitation, “average invested assets” means the average monthly book value of the Company’s assets invested directly or indirectly in equity interests and loans secured by real estate during the 12-month period before deducting depreciation, bad debts or other non-cash reserves. “Total operating expenses” means all expenses paid or incurred by the Company that are in any way related to the Company’s operation, including the Company’s allocable share of Advisor overhead, but excluding (a) the expenses of raising capital such as organization and offering expenses, legal, audit, accounting, underwriting, brokerage, listing, registration and other fees, printing and other such expenses and taxes incurred in connection with the issuance, distribution, transfer, listing and registration of shares of the Company’s common stock; (b) interest payments; (c) taxes; (d) non-cash expenditures such as depreciation, amortization and bad debt reserves; (e) reasonable incentive fees based on the gain in the sale of the Company’s assets; (f) acquisition fees and acquisition expenses (including expenses relating to potential acquisitions that the Company does not close) and investment management fees; (g) real estate commissions on the resale of investments; and (h) other expenses connected with the acquisition, disposition, management and ownership of investments (including the costs of foreclosure, insurance premiums, legal services, maintenance, repair and improvement of real property).

For the year ended December 31, 2018, the Advisor and its affiliates incurred $988,367 of the Company’s operating expenses, including the allocable share of the Advisor’s overhead expenses of $896,144, none of which were in excess of the 2%/25% Limitation and are included in the $6,269,238 of general and administrative expenses recognized by the Company. As of December 31, 2018, the Company’s total operating expenses were 0.1% of its average invested assets and 1.1% of its net income.

For the year ended December 31, 2017, the Advisor and its affiliates incurred $1,244,264 of the Company’s operating expenses, including the allocable share of the Advisor’s overhead expenses of $1,045,532, none of which were in excess of the 2%/25% Limitation and are included in the $6,732,330 of general and administrative expenses recognized by the Company.

For the year ended December 31, 2016, the Advisor and its affiliates incurred $1,232,493 of the Company’s operating expenses, including the allocable share of the Advisor’s overhead expenses of $772,576, none of which were in excess of the 2%/25% Limitation, and are included in the $9,039,171 of general and administrative expenses recognized by the Company.

Disposition Fee

The Company pays the Advisor a disposition fee in connection with a sale of a property or real estate-related asset and in the event of the sale of the entire Company (a “Final Liquidity Event”), in either case when the Advisor or its affiliates provides a substantial amount of services as determined by a majority of the Company’s independent directors. With respect to a sale of a property or real estate-related asset, the Company pays the Advisor a disposition fee equal to 1.5% of the contract sales price of the investment sold. With respect to a Final Liquidity Event, the Company will pay the Advisor a disposition fee equal to (i) 0.5% of the total consideration paid in a Final Liquidity Event if the price per share paid to stockholders is less than or equal to $9.00; (ii) 0.75% of the total consideration paid in a Final Liquidity Event if the price per share paid to stockholders is between $9.01 and $10.24; (iii) 1.00% of the total consideration paid in a Final Liquidity Event if the price per share paid to stockholders is between $10.25 and $11.24; (iv) 1.25% of the total consideration paid in a Final Liquidity Event if the price per share paid to stockholders is between $11.25 and $12.00; and (v) 1.50% of the total consideration paid in a Final Liquidity Event if the price per share paid to stockholders is greater than or equal to $12.01; provided, however, that the price per share paid to stockholders as listed in each of clauses (i) through (v) above shall be adjusted for any special distributions, stock splits, combinations, recapitalizations or any similar transaction with respect to our shares. To the extent the disposition fee is paid upon the sale of any assets other than real property, it will be included as an operating expense for purposes of the 2%/25% Limitation. In connection with the sale of securities, the disposition fee may be paid to an affiliate of the Advisor that is registered as a FINRA member broker-dealer if applicable FINRA rules would prohibit the payment of the disposition fee to a firm that is not a registered broker-dealer. The Charter limits the maximum amount of the disposition fees payable to the Advisor for the sale of any real property to the lesser of one-half of the brokerage commission paid or 3% of the contract sales price, but in no event shall the total real estate commissions paid, including any disposition fees payable to the Advisor, exceed 6% 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 amounts reflecting the Company’s economic interest in the joint venture.

Loan Coordination Fee

The Company pays the Advisor a loan coordination fee equal to 0.50% of the amount of debt financed or refinanced (in each case, other than at the time of the acquisition of a property or a real estate-related asset), or the Company’s proportionate share of the initial amount of new debt financed or refinanced or the amount of any debt refinanced in the case of investments made through a joint venture.

Restricted Stock Agreement

On June 11, 2014, the Company entered into a restricted stock agreement with the Advisor whereby the Company issued to the Advisor 488,281.25 restricted shares of the Company’s common stock at a fair market value of $10.24 per share in satisfaction of certain deferred fees due to the Advisor in the aggregate amount of $5,000,000. Pursuant to the terms of the restricted stock agreement, the shares of restricted stock vested and became non-forfeitable 50% at December 31, 2015 and 50% at December 31, 2016.

Contribution, Settlement and Release Agreements

Certain of the Company’s subsidiaries and the Property Manager were named as defendants in two Texas class action lawsuits alleging violations of the Texas Water Code (collectively, the “Actions”). The Company’s subsidiaries and the Property Manager disputed plaintiffs’ claims in the Actions; however, to avoid the time and expense associated with defending the Actions, the Company’s subsidiaries and other affiliated Steadfast entities (collectively, the “Steadfast Parties”) entered into Settlement Agreements with the plaintiffs that provided for a settlement payment to the class members and a release of claims by plaintiffs and class members against the Steadfast Parties. In connection with the settlement agreements, on April 17, 2017, the Steadfast Parties entered into a contribution, settlement and release agreement whereby all agreed to an allocation of all costs related to the actions and their settlements and a release of all claims a Steadfast Party may have against any other Steadfast Party. The Company’s proportionate share of the settlements was $378,405, which consisted of funds used to pay a portion of (1) the settlement payments to the plaintiffs and class members in the actions and (2) legal costs, less insurance proceeds. During the year ended December 31, 2018, the Company had recorded $305,000 as reimbursement for funds spent by the Company in excess of its proportionate share, all of which was collected from other Steadfast Parties as of December 31, 2018.