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Related Party Transactions

12 Months Ended

Dec. 31, 2019

The table below outlines fees and expense reimbursements incurred that are payable by the Company to the Advisor and the Dealer Manager, Hines and its affiliates for the years ended December 31, 2019, 2018 and 2017 and amounts unpaid as of December 31, 2019 and 2018 (in thousands):



	Incurred During the Years Ended December 31,						Unpaid as of
Type and Recipient	2019		2018		2017		12/31/2019		12/31/2018
Selling Commissions- Dealer Manager	$	7,481	$	837	$	4,021	$	—	$	4
Dealer Manager Fee- Dealer Manager	1,337		146		1,744		—		3
Distribution & Stockholder Servicing Fees- Dealer Manager	17,696		2,411		4,947		22,479		8,332
Organization and Offering Costs- the Advisor	4,445		3,273		4,753		7,763		9,001
Acquisition Fees- the Advisor	—		—		6,741		—		—
Asset Management Fees- the Advisor	7,985		5,004		4,940		2,353		1,317
Other- the Advisor ⁽¹⁾	2,846		2,316		1,827		1,106		691
Performance Participation Allocation- the Advisor	7,713		5,954		251		7,713		5,954
Interest Expense- Hines and its affiliates ⁽²⁾	1,288		926		676		443		151
Property Management Fees- Hines and its affiliates	1,866		1,093		858		287		78
Development and Construction Management Fees- Hines and its affiliates	413		472		236		30		28
Leasing Fees- Hines and its affiliates	601		388		263		344		228
Expense Reimbursements- Hines and its affiliates (with respect to management and operations of the Company's properties)	4,506		2,168		1,599		264		235
Total	$	58,177	$	24,988	$	32,856	$	42,782	$	26,022


(1)	Includes amounts the Advisor paid on behalf of the Company such as general and administrative expenses and acquisition-related expenses. These amounts are generally reimbursed to the Advisor during the month following the period in which they are incurred.


(2)	Includes amounts paid related to the Hines Credit Facility.

As described more fully in Note 1 — Organization, the Company commenced its Initial Offering in August 2014 and commenced the Follow-on Offering in December 2017. Described below are the fees payable to Hines and its affiliates in connection with the Initial Offering the Follow-on Offering.

Dealer Manager Agreement

Initial Offering

The table below summarizes the fees paid to the Dealer Manager with respect to the sale of IPO Shares in the Initial Offering. The upfront selling commissions and dealer manager fees were a percentage of the gross offering proceeds of the shares sold in the primary offering. No upfront selling commissions or dealer manager fees were paid with respect to shares issued under the Company’s distribution reinvestment plan.



	Class AX Shares	Class TX Shares	Class IX Shares
Selling Commissions	7.00%	2.00%	None
Dealer Manager Fee Paid by the Company from Offering Proceeds	1.50%	1.25%	None
Advisor Payment of a Portion of the Dealer Manager Fee⁽¹⁾	1.50%	1.50%	1.50%
Annual Distribution and Stockholder Servicing Fee⁽²⁾	None	1.00%	0.25%

(1)

Pursuant to the Dealer Manager Agreement for the Initial Offering, the Advisor paid a portion of the dealer manager fees payable to the Dealer Manager in an amount equal to 1.5% of the gross offering proceeds with respect to Class AX shares, Class TX shares, and Class IX shares sold in the primary portion of the Initial Offering on and after August 2, 2016. The Advisor was not reimbursed by the Company in any way for the payment of such dealer manager fees.

(2)

In addition, the Dealer Manager received annual distribution and stockholder servicing fees of 1.0% or 0.25% of the gross offering price per share through October 2, 2017 and now, since we are no longer offering IPO shares, continues to receive 1.0% or 0.25% of the most recently determined NAV per share for the Class TX shares and Class IX shares purchased and outstanding. The Company will cease paying the distribution and stockholder servicing fees with respect to any particular Class TX share or Class IX share and that Class TX share or Class IX share will convert into a number of Class AX shares or Class JX shares, respectively, on the occurrence of earlier of: (i) a listing of the Class A shares on a national securities exchange; (ii) a merger or consolidation of the Company with or into another entity, or the sale or other disposition of all or substantially all of the Company’s assets; (iii) the end of the month in which the Dealer Manager determines that total underwriting compensation paid in the Initial Offering including the distribution and stockholder servicing fees paid on all IPO Shares sold in the Initial Offering is equal to 10.0% of the gross proceeds of the Offering from the sale of the IPO Shares; (iv) the end of the month in which the transfer agent, on behalf of the Company, determines that underwriting compensation paid in the primary offering including the distribution and stockholder servicing fee paid with respect to the Class TX shares or Class IX shares held by a stockholder within his or her particular account equals 10.0% of the gross offering price at the time of investment of the Class TX shares or Class IX shares held in such account; and (v) on any Class TX share or Class IX share that is redeemed or repurchased.

Follow-On Offering

The table below summarizes the fees payable to the Dealer Manager effective as of December 6, 2017, the effective date of the Restructuring with respect to the sale of Follow-On Offering Shares. The upfront selling commissions and dealer manager fees are based on a percentage of the gross offering proceeds of the shares sold in the primary offering. No upfront selling commissions or dealer manager fees are payable with respect to shares issued under the Company’s distribution reinvestment plan.



	Class T shares ⁽¹⁾	Class S shares ⁽¹⁾	Class D shares	Class I shares
Upfront Selling Commission and Dealer Manager Fee	3.5%	3.5%	None	None
Ongoing Distribution and Stockholder Servicing Fee (as a percentage of NAV)⁽²⁾	1.0%	1.0%	0.25%	None

(1) With respect to Class T Shares, there is a maximum upfront sales load of up to 3.5% of the gross offering proceeds from the sale of such shares in the primary offering, consisting of any combination of selling commissions and dealer manager fees. With respect to Class S shares, the upfront sales load of up to 3.5% of the gross proceeds from the sale of such shares in the primary offering consists solely of selling commissions.

(2)

The Company records distribution and stockholder servicing fees as a reduction to additional paid-in capital and the related liability in an amount equal to the maximum fees payable on the date the shares are issued. The liability will be relieved over time, as the fees are paid to the Dealer Manager, or it will be adjusted if the fees are no longer payable. For the years ended December 31, 2019 and 2018, the Company has recorded a liability of $22.5 million and $8.3 million, respectively, related to these fees, which is included in due to affiliates on the consolidated balance sheets.

The Company will cease paying distribution and stockholder servicing fees with respect to any Class T share, Class S share or Class D share at the end of the month in which the transfer agent, on the Company’s behalf, determines that the total upfront selling commissions, dealer manager fees and distribution and stockholder servicing fees paid with respect to such Class T shares, Class S shares or Class D shares, as applicable, held by a stockholder within his or her particular account equals 8.75% (or, in the case of shares sold through certain participating broker dealers, a lower limit as set forth in any applicable agreement between our Dealer Manager and a participating broker dealer) of the gross proceeds from the sale of such Class T shares, Class S shares or Class D shares (including the gross proceeds of any shares issued under the Company’s distribution reinvestment plan with respect thereto).

In addition, the Company will cease paying distribution and stockholder servicing fees with respect to Class T shares, Class S shares and Class D shares on the earlier to occur of the following: (i) a listing of the Company’s common shares, (ii) the Company’s merger or consolidation with or into another entity, or the sale or other disposition of all or substantially all of

our assets or (iii) the date following the completion of the primary portion of the Follow-On Offering on which, in the aggregate, underwriting compensation from all sources in connection with the Follow-On Offering, including upfront selling commissions, dealer manager fees, distribution and stockholder servicing fees and other underwriting compensation, is equal to 10% of the gross proceeds from our Follow-On Offering.

Advisory Agreement

Pursuant to the Advisory Agreement and the Operating Partnership Agreement (as amended and restated on March 6, 2018), the Company is required to pay the following fees and expense reimbursements:

Acquisition Fee

Prior to December 6, 2017, the effective date of the Restructuring, the Advisor received acquisition fees of 2.25% of (i) the purchase price of real estate investments acquired, including any debt attributable to such investments, or the total principal amounts borrowed under any loans made or acquired directly by the Company, or (ii) when the Company made an investment or made or acquired a loan indirectly through another entity, such investment’s pro rata share of the gross asset value of real estate investments held by that entity, including any debt attributable to such investments, or the total principal amount borrowed under any loans made or acquired by that entity. As of the effective date of the Restructuring, we will no longer pay acquisition fees to the Advisor.

Asset Management Fee

The Advisor also receives asset management fees of 0.0625% per month of the cost of the Company’s real estate investments at the end of each month; provided that, with respect to real estate investments included in the Company’s board of director’s most recent determination of the Company’s NAV per share, the asset management fees will be equal 0.0625% per month of the most recently determined value of such real estate investments at the end of each month. As of the effective date of the Restructuring, the asset management fee cannot exceed an amount equal to 1/12th of 1.25% of the Company’s NAV at the end of each applicable month. Additionally, as of the effective date of the Restructuring, the asset management fee can be paid, at the Advisor’s election, in cash, Class I shares or Class I OP units of the Operating Partnership.

Performance Participation Allocation

As of the effective date of the Restructuring, the Advisor is also entitled to an annual performance participation allocation of 12.5% of the total return earned on an investment in the Company’s shares each year. This performance participation allocation is subject to investors earning a 5% annual return, after considering the effect of any losses carried forward from the prior year (as defined in the Operating Partnership agreement). The performance participation allocation accrues monthly and is payable after the completion of each calendar year.

Acquisition Expense Reimbursements

The Company reimburses the Advisor and its affiliates for out-of-pocket expenses in connection with the selection, evaluation, structuring, acquisition, origination, financing and development of properties and real estate-related securities, whether or not such investments are acquired.

Expense Reimbursements

The Company reimburses the Advisor for all expenses paid or incurred by the Advisor in connection with the services provided to the Company, subject to the limitation that the Company will not reimburse the Advisor for any amount by which its operating expenses (including the asset management fee and the performance participation allocation) at the end of the four preceding fiscal quarters exceeds the greater of: (A) 2.0% of its average invested assets, or (B) 25.0% of its net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of the Company’s assets for that period (the “2%/25% Limitation”). Notwithstanding the above, the Company may reimburse the Advisor for expenses in excess of this limitation if a majority of the independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the four fiscal quarters ended December 31, 2019, the Company’s total operating expenses did not exceed the 2%/25% Limitation.

Organization and Offering Costs

Organization and offering costs consist of, among other costs, expenses of the Company’s organization, actual legal, accounting, bona fide out-of-pocket itemized and detailed due diligence costs, printing, filing fees, transfer agent costs, postage, escrow fees, data processing fees, advertising and sales literature and other offering-related costs. Organization and offering costs include expenses that are deemed issuer costs and certain expenses that are deemed underwriting compensation, but exclude selling commissions, dealer manager fees and distribution and stockholder servicing fees. Organizational costs, such as expenses associated with the formation of the Company and its board of directors, are expensed as incurred, and offering-related costs are recorded as an offset to additional paid-in capital. Prior to the Restructuring, the Company reimbursed the Advisor and its affiliates for any organization and offering costs deemed issuer costs related to the Initial Offering that it paid on the Company’s behalf. Further, the Advisory Agreement was amended, effective February 29, 2016, to reflect that the Company would not reimburse the Advisor for the cumulative organization and offering costs incurred in connection with the Company’s organization and public offerings, in excess of 2.5% of gross offering proceeds from the Company’s public offerings. On April 14, 2016, the Advisor reimbursed the Company for $4.0 million in organization and offering costs that the Company had previously reimbursed to the Advisor in excess of this 2.5% cap.

Effective as of December 6, 2017, the Advisor agreed to advance all of the Company’s organization and offering costs related to the Follow-On Offering through December 31, 2018. In January 2019, the Company began reimbursing the Advisor for all such advanced expenses as well as any organization and offering costs incurred by the Advisor related to the Initial Offering, and expects to continue to reimburse the Advisor for such expenses ratably through December 31, 2023 to the extent cumulative organization and offering costs do not exceed an amount equal to 2.5% of gross offering proceeds from the Company’s public offerings. Following December 31, 2023, the Company will reimburse the Advisor for any organization and offering costs that it incurs on its behalf, as and when incurred, to the extent that aggregate reimbursements to the Advisor for cumulative organization and offering costs do not exceed an amount equal to 2.5% of the gross offering proceeds from the Company’s public offerings. The total reimbursement related to organization and offering costs, selling commissions, dealer manager fees and the distribution and stockholder servicing fees may not exceed 15.0% of gross proceeds from the Offering.

From inception to December 31, 2019, organization and offering costs incurred by the Advisor on the Company’s behalf totaled $23.6 million. The Company has recorded a liability equal to all unreimbursed organization and offering costs that have been incurred to date to reflect its expectation that all of these amounts will be reimbursed to the Advisor in the future.

Property Management and Leasing Agreements

The Company pays Hines fees for the management and leasing of the Company’s properties. Property management fees will be paid in an amount equal to a market-based percentage of the gross revenues of the properties managed by Hines. In addition, if Hines provides leasing services with respect to a property, the Company will pay Hines leasing fees in an amount equal to the leasing fees charged by unaffiliated persons rendering comparable services in the same geographic area of the applicable property. The Company generally will be required to reimburse Hines for certain operating costs incurred in providing property management and leasing services pursuant to the property management and leasing agreements. Included in this reimbursement of operating costs will be the cost of personnel and overhead expenses related to such personnel located at the property as well as off-site personnel located in Hines’ headquarters and regional offices, to the extent the same relate to or support the performance of Hines’ duties under the agreement.

Hines may perform construction management services for the Company for both re-development activities and tenant construction. These fees are considered incremental to the construction effort and will be capitalized to the associated real estate project as incurred. Costs related to tenant construction will be depreciated over the estimated useful life. Costs related to redevelopment activities will be depreciated over the estimated useful life of the associated project. Leasing activities will generally be performed by Hines on the Company’s behalf. Leasing fees will be capitalized and amortized over the life of the related lease.

Fees for Other Services

The Company retains certain of the Advisor’s affiliates, from time to time, for services relating to the Company’s investments or operations, which may include corporate services, statutory services, transaction support services (including but not limited to coordinating with brokers, lawyers, accountants and other advisors, assembling relevant information, conducting financial and market analyses, and coordinating closing procedures) and loan management and servicing, and within one or more such categories, providing services in respect of asset and/or investment administration, accounting, technology, tax preparation, finance (including but not limited to budget preparation and preparation and maintenance of corporate models), treasury, operational coordination, risk management, insurance placement, human resources, legal and compliance, valuation and reporting-related services, as well as services related to mortgage servicing, group purchasing, healthcare, consulting/brokerage, capital markets/credit origination, property, title and/or other types of insurance, management consulting and other similar operational matters. Any fees paid to the Advisor’s affiliates for any such services will not reduce the asset management fee otherwise payable to the Advisor. Any such arrangements will be at market rates.