ACQUISITIONS AND HELD FOR SALE

12 Months Ended

Jun. 30, 2023

ACQUISITIONS AND HELD FOR SALE [Abstract]

NOTE 5 – ACQUISITIONS AND HELD FOR SALE

Acquisition of General Partnership Interests

As discussed in Note 1, on May 6, 2022, the Operating Partnership purchased 100% of the membership interests in the eight Management Companies that own the general partnership interests in eight limited partnerships, each of which own a Class A or B office property in Napa, Fairfield, Suisun City or Woodland, California. Each Management Company is the sole general partner of each of the limited partnerships as disclosed in the following table:

General Partnership Interests	Management Companies	Total Purchase Price
1300 Main, LP	1300 Main, LLC	$	1,688,000
First & Main, LP	First & Main, LLC		2,237,000
Green Valley Medical Center, LP	Green Valley Medical Center, LLC		3,010,000
Main Street West, LP	Main Street West, LLC		4,708,000
Martin Plaza Associates, LP	Martin Plaza, LLC		725,000
One Harbor Center, LP	One Harbor Center, LLC		4,162,000
Westside Professional Center I, LP	Westside Professional Center, LLC		1,803,000
Woodland Corporate Center Two, LP	Woodland Corporate Center, LLC		-
Total		$	18,333,000

The acquisition of general partnership interests was made in exchange for cash, preferred units in the Operating Partnership, and, in some cases, a contingent liability as shown below:

General Partnership Interests	Number of Preferred Units issued		Amount of Preferred Units issued		Cash Payments		Contingent liability		Total Purchase Price
1300 Main, LP		-	$	-	$	1,688,000	$	-	$	1,688,000
First & Main, LP		99,422.22		2,237,000		-		-		2,237,000
Green Valley Medical Center, LP		-		-		2,410,000		600,000		3,010,000
Main Street West, LP		-		-		3,850,000		858,000		4,708,000
Martin Plaza Associates, LP		26,977.78		607,000		-		118,000		725,000
One Harbor Center, LP		80,266.67		1,806,000		1,571,000		785,000		4,162,000
Westside Professional Center I, LP		-		-		1,449,000		354,000		1,803,000
Woodland Corporate Center Two, LP		-		-		-		-		-
Total		206,666.67	$	4,650,000	$	10,968,000	$	2,715,000	$	18,333,000

The Operating Partnership’s preferred units are issued with a $25 liquidation preference, but because Wiseman agreed to a 4-year “lock-up” we agreed to a discounted issuance price of $22.50 per unit. Thus, the value of the preferred units listed above is $22.50 per unit.

As discussed in Note 1, on July 23, 2022, in addition to the general partnership interest, the Operating Partnership completed the acquisition of 100% of the limited partnership interest in First & Main for total purchase price of $3,376,322, of which $2,711,378 was paid through issuance of 120,505.66 Preferred Units of the Operating Partnership. On October 1, 2022, the Operating Partnership completed the acquisition of 100% of the limited partnership interest in 1300 Main for total purchase price of $6,480,582, all of which was paid in cash. The Operating Partnership completed the acquisition of 100% of the limited partnership interests in Woodland Corporate Center Two on January 3, 2023 for a total purchase price of $5,636,966, of which $3,242,557 was paid through the issuance of 144,113.63 Preferred Units of the Operating Partnership. The Operating Partnership completed the acquisition of 100% of the limited partnership interests in Main Street West on February 1, 2023 for a total purchase price of $8,277,016, all of which were paid in cash.

Contingent Consideration

As discussed in our June 30, 2022 consolidated financial statements, pursuant to the membership interest purchase agreement, the purchase price paid at closing for the general partnership interests was reduced by 20% as of the closing date for the property companies that had not received fully executed and in force leases, the annualized scheduled rents of which are equal to or greater than the target scheduled rent as stated in the membership interest purchase agreement. This 20% holdback will be paid upon a property company reaching the stabilization threshold, reduced by stabilization costs, as defined in the membership interest purchase agreement. Management believes that it is probable that the stabilization thresholds will be reached for each of the property companies that did not meet this threshold at the acquisition date. Hence, the 20% holdback in the amount of $2,715,000 was recorded as a contingent liability as of the acquisition date. During the year ended June 30, 2023, we paid $1,154,125 of the total contingent liability. In addition, we reduced the contingent liability by $57,875 as of June 30, 2023, due to the actual holdback payment on Westside Professional Center I being lower than the original estimated amount. As of June 30, 2023 and 2022, contingent liability amounted to $1,503,000 and $2,715,000, respectively.

Debt Guaranty

The Wiseman partnerships have mortgage loans with various banks and the loans are guaranteed by Wiseman and its owner, Doyle Wiseman and his trust. The mortgage loans of 1300 Main, LP, One Harbor Center, LP, Martin Plaza Associates, LP, and Main Street West, LP are also guaranteed by the partnerships’ general partner as the co-guarantor.

On July 1, 2022, subsequent to Operating Partnership’s acquisition of the management companies, Wiseman’s owner, Doyle Wiseman and the Operating Partnership entered into an indemnity agreement whereby the Operating Partnership will indemnify Doyle Wiseman for any losses suffered by him through the default of a limited partnership on the mortgage secured by the property owned by the limited partnership. Historically, none of the limited partnerships has had any defaults on any mortgages and Doyle Wiseman has not had to satisfy any mortgage default through a guaranty. Furthermore, each of the limited partnerships is adequately capitalized, has sufficient cash flow from operations to service the mortgage notes and has not required Doyle Wiseman to provide any subordinated financial support to the limited partnerships. Therefore, we have not recorded any liability related to the guaranty on the mortgage loans as of June 30, 2023.

Acquisition of Land

The Operating Partnership acquired a parcel of entitled land of approximately 3 acres located at the corner of Business Center Drive and Healthcare Drive in Fairfield, California from Wiseman on May 6, 2022.

As part of the land acquisition, the Operating Partnership acquired all development agreements and rights, civil, design and building plans, right, benefits and privileges held by Wiseman. The total acquisition price of the land was $3,050,000, of which $750,000 was paid through the issuance of 77,882 Class A units of the Operating Partnership.

Assets and Liabilities Held for Sale

On June 28, 2022, the Addison Property Owner, LLC (the “Addison Property Owner”) entered into a forbearance agreement for the sale of Addison Corporate Center with the lender of the note payable discussed in Note 10. As a result, the Addison Property Owner’s operations met the criteria to be classified as held for sale, which requires us to present the related assets and liabilities as separate line items in our consolidated balance sheets. We recorded these assets and liabilities at fair value less any costs to sell. Therefore, we recorded an impairment loss allowance of $9,126,461 on assets held for sale as of June 30, 2022. Due to an additional decrease in estimated fair value of the property, which was based on the estimated sale price less the estimated closing costs, we recorded an additional impairment loss allowance of $8,121,090 prior to the sale of the property during the year ended June 30, 2023.

On June 14, 2023, we sold Addison Corporate Center to a third party for net sales proceeds of $8,695,764, after $304,236 of closing costs, and recognized a net loss of $352,540. This is included in the net loss on disposal of real estate in the statement of operations.

The following table presents information related to the major classes of assets and liabilities that were classified as held for sale in our consolidated balance sheets:

	June 30, 2023		June 30, 2022

Assets
Real estate assets
Land	$	-	$	6,456,615
Building, fixtures and improvements		-		19,108,041
Intangible lease assets		-		5,154,568
Less: accumulated depreciation and amortization		-		(5,112,309	)
Total real estate assets, net		-		25,606,915
Cash		-		505,186
Investments income, rents and other receivables		-		490,239
Due from related entities		-		401
Prepaid expenses and other assets		-		14,301
Allowance for impairment of assets held for sale		-		(9,126,461	)
Total assets	$	-	$	17,490,581

Liabilities
Deferred rent and other liabilities	$	-	$	410,908
Accounts payable and accrued liabilities		-		334,081
Total liabilities	$	-	$	744,989

We determined that the operations included in the table above did not meet the criteria to be classified as discontinued operations under the applicable guidance.