Related Party Transactions

3 Months Ended

Mar. 31, 2013

Related Party Transactions [Abstract]

Related Party Transactions

8.

Related Party Transactions

ZAIS Group, LLC The Company is externally managed and advised by the Advisor, a subsidiary of ZAIS. Subject to certain restrictions and limitations, the Advisor is responsible for managing the Company's affairs on a day-to-day basis and for, among other responsibilities, (i) the selection, purchase and sale of the Company's portfolio of assets (ii) the Company's financing activities, and (iii) providing the Company with advisory services. The Company pays to its Advisor an advisory fee, calculated and payable quarterly in arrears, equal to 1.5% per annum of (i) prior to an IPO, the Company's net asset value and (ii) following the completion of an IPO, the Company's stockholders' equity, as defined in the amended and restated investment advisory agreement between the Company and the Advisor, dated as of December 13, 2012, as amended from time to time (the "Investment Advisory Agreement"). The Advisor will be paid or reimbursed for the documented cost of its performing certain services for the Company, which may include legal, accounting, due diligence tasks and other services, that outside professionals or outside consultants otherwise would perform, provided that such costs and reimbursements are in amounts which are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm's-length basis. In addition, the Company may be required to pay its portion of rent, telephone, utilities, office furniture, equipment, machinery and other office, internal and overhead expenses of the Advisor and its affiliates required for the Company's operations. To date, the Advisor has not sought reimbursement for the services and expenses described in the two preceding sentences. The Advisor may seek such reimbursement in the future, as a result of which the expense ratio of the Company may increase. The Company will also pay directly, or reimburse the Advisor for, products and services provided by third parties to the Company, other than those operating expenses required to be borne by the Advisor under the Investment Advisory Agreement. Following the IPO and after an initial three-year term, the Advisor may be terminated annually upon the affirmative vote of at least two-thirds of the Company's independent directors or by a vote of the holders of at least two-thirds of the outstanding shares of the Company's common stock based upon (i) unsatisfactory performance by the Advisor that is materially detrimental to the Company or (ii) a determination that the advisory fees payable to the Advisor are not fair, subject to the Advisor's right to prevent such termination due to unfair fees by accepting a reduction of advisory fees agreed to by at least two-thirds of the Company's independent directors. Additionally, upon such a termination without cause, the Investment Advisory Agreement provides that the Company will pay the Advisor a termination fee equal to three times the average annual advisory fee earned by the Advisor during the prior 24-month period immediately preceding such termination, calculated as of the end of the most recently completed fiscal year before the date of termination.

For the three months ended March 31, 2013, the Company incurred $488,385 in advisory fee expense. For the three months ended March 31, 2012, the Company incurred $227,295 in advisory fee expense. At March 31, 2013, $488,385 in advisory fee expense was included in accounts payable and other liabilities in the consolidated balance sheet. During this period, the advisory fee was calculated and payable quarterly in arrears at 1.5% per annum of (i) prior to the IPO, the Company's net asset value and (ii) following the IPO, the Company's stockholders' equity, as defined in the Investment Advisory Agreement.

Other assets in the consolidated balance sheets at March 31, 2013 includes approximately $1.0 million in receivables due from the Advisor related to IPO offering costs in excess of $1.2 million that was paid by the Company.

For the three months ended March 31, 2013, the Company acquired RMBS with a principal balance of $17.4 million for $15.7 million from a fund managed by ZAIS.