Significant Accounting Policies

Segments

December 31, 2018,

the Company had

two

reportable operating segments, Residential Rental Properties and Commercial Rental Properties. The Company’s chief operating decision maker

may

review operational and financial data on a property basis.

Basis of Consolidation

The accompanying consolidated financial statements of the Company are prepared in accordance with generally accepted accounting principles in the United States (“GAAP”). The effect of all intercompany balances has been eliminated. The consolidated financial statements include the accounts of all entities in which the Company has a controlling interest. The ownership interests of other investors in these entities are recorded as non-controlling interest.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of commitments and contingencies at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could materially differ from these estimates.

Investment in Real Estate

Real estate assets held for investment are carried at historical cost and consist of land, buildings and improvements, furniture, fixtures and equipment. Expenditures for ordinary repair and maintenance costs are charged to expense as incurred. Expenditures for improvements, renovations, and replacements of real estate assets are capitalized and depreciated over their estimated useful lives if the expenditures qualify as betterment or the life of the related asset will be substantially extended beyond the original life expectancy.

In accordance with ASU

2017

01,

"Business Combinations – Clarifying the Definition of a Business,” the Company evaluates each acquisition of real estate or in-substance real estate to determine if the integrated set of assets and activities acquired meets the definition of a business and needs to be accounted for as a business combination. If either of the following criteria is met, the integrated set of assets and activities acquired would

not

qualify as a business:

• Substantially all of the fair value of the gross assets acquired is concentrated in either a single identifiable asset or a group of similar identifiable assets; or

• The integrated set of assets and activities is lacking, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs (i.e., revenue generated before and after the transaction).

An acquired process is considered substantive if:

• The process includes an organized workforce (or includes an acquired contract that provides access to an organized workforce) that is skilled, knowledgeable and experienced in performing the process;

• The process cannot be replaced without significant cost, effort or delay; or

• The process is considered unique or scarce.

Generally, the Company expects that acquisitions of real estate or in-substance real estate will

not

meet the revised definition of a business because substantially all of the fair value is concentrated in a single identifiable asset or group of similar identifiable assets (i.e., land, buildings and related intangible assets) or because the acquisition does

not

include a substantive process in the form of an acquired workforce or an acquired contract that cannot be replaced without significant cost, effort or delay.

Upon acquisition of real estate, the Company assesses the fair values of acquired tangible and intangible assets including land, buildings, tenant improvements, above-market and below-market leases, in-place leases and any other identified intangible assets and assumed liabilities. The Company allocates the purchase price to the assets acquired and liabilities assumed based on their fair values. In estimating fair value of tangible and intangible assets acquired, the Company assesses and considers fair value based on estimated cash flow projections that utilize appropriate discount and capitalization rates, estimates of replacement costs, net of depreciation, and available market information. The fair value of the tangible assets of an acquired property considers the value of the property as if it were vacant.

The Company records acquired above-market and below-market lease values initially based on the present value, using a discount rate which reflects the risks associated with the leases acquired based on the difference between (i) the contractual amounts to be paid pursuant to each in-place lease and (ii) management’s estimate of fair market lease rates for each corresponding in-place lease, measured over a period equal to the remaining term of the lease for above-market leases and the initial term plus the term of any below-market fixed renewal options for the below-market leases. Other intangible assets acquired include amounts for in-place lease values and tenant relationship values (if any) that are based on management’s evaluation of the specific characteristics of each tenant’s lease and the Company’s overall relationship with the respective tenant. Factors to be considered by management in its analysis of in-place lease values include an estimate of carrying costs to execute similar leases. In estimating carrying costs, management includes real estate taxes, insurance and other operating expenses and estimates of lost rentals at market rates during the expected lease-up periods, depending on local market conditions. In estimating costs to execute similar leases, management considers leasing commissions, legal and other related expenses.

The Company reviews long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset

may

not

be recoverable. A property’s value is impaired if management’s estimate of the aggregate future cash flows (undiscounted and without interest charges) to be generated by the property is less than the carrying value of the property. To the extent impairment has occurred, a write-down is recorded and measured by the amount of the difference between the carrying value of the asset and the fair value of the asset. In the event that the Company obtains proceeds through an insurance policy due to impairment, the proceeds are offset against the write-down in calculating gain/loss on disposal of assets. Management of the Company does

not

believe that any of its properties within the portfolio are impaired as of

December 31, 2018.

For long-lived assets to be disposed of, impairment losses are recognized when the fair value of the assets less estimated cost to sell is less than the carrying value of the assets. Properties classified as real estate held-for-sale generally represent properties that are actively marketed or contracted for sale with closing expected to occur within the next

twelve

months. Real estate held-for-sale is carried at the lower of cost, net of accumulated depreciation, or fair value less cost to sell, determined on an asset-by-asset basis. Expenditures for ordinary repair and maintenance costs on held-for-sale properties are charged to expense as incurred. Expenditures for improvements, renovations, and replacements related to held-for-sale properties are capitalized at cost. Depreciation is

not

recorded on real estate held-for-sale.

If a tenant vacates its space prior to the contractual termination of the lease and

rental payments are being made on the lease, any unamortized balances of the related intangibles are written off. The tenant improvements and origination costs are amortized to expense over the remaining life of the lease (or charged against earnings if the lease is terminated prior to its contractual expiration date).

Depreciation is computed using the straight-line method over the estimated useful lives of the assets as follows:

Building and improvements (years)	10	–	44
Tenant improvements	Shorter of useful life or lease term
Furniture, fixtures and equipment (years)	3	–	15

The above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the below-market lease values are amortized as an increase to base rental revenue over the remaining initial terms plus the terms of any below-market fixed rate renewal options of the respective leases. The value of in-place leases is amortized to expense over the remaining initial terms of the respective leases.

Cash and Cash Equivalents

Cash and cash equivalents are defined as cash on hand and in banks, plus all short-term investments with a maturity of

three

months or less when purchased. The Company maintains some of its cash in bank deposit accounts, which, at times,

may

exceed the federally insured limit.

losses have been experienced related to such accounts.

Restricted Cash

Restricted cash generally consists of escrows for future real estate taxes and insurance expenditures, repairs and capital improvements and security deposits.

Tenant and Other Receivables and Allowance for Doubtful Accounts

Tenant and other receivables are comprised of amounts due for monthly rents and other charges. The Company periodically performs a detailed review of amounts due from tenants to determine if accounts receivable balances are impaired based on factors affecting the collectability of those balances. If a tenant fails to make contractual payments beyond any allowance, the Company

may

recognize additional bad debt expense in future periods.

Deferred Costs

Deferred lease costs consist of fees incurred to initiate and renew operating leases. Lease costs are being amortized using the straight-line method over the terms of the respective leases.

Deferred financing costs represent commitment fees, legal and other

third

-party costs associated with obtaining financing. These costs are amortized over the term of the financing and are recorded in interest expense in the consolidated financial statements. Unamortized deferred financing costs are expensed when the associated debt is refinanced or repaid before maturity. Costs incurred in seeking financing transactions which do

not

close are expensed in the period the financing transaction is terminated.

Comprehensive Loss

Comprehensive loss is comprised of net loss adjusted for changes in unrealized gains and losses, reported in equity, for financial instruments required to be reported at fair value under GAAP. For the years ended

December 31, 2018,

2017

and

2016,

the Company did

not

own any financial instruments for which the change in value was

not

reported in net loss accordingly and its comprehensive loss was its net loss as presented in the consolidated statements of operations.

Revenue Recognition

Rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Rental income attributable to residential leases and parking is recognized as earned, which is

not

materially different from the straight-line basis. Leases entered into by residents for apartment units are generally for

one

-year terms, renewable upon consent of both parties on an annual or monthly basis. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements.

Reimbursements for operating expenses due from tenants pursuant to their lease agreements are recognized as revenue in the period the applicable expenses are incurred. These costs generally include real estate taxes, utilities, insurance, common area maintenance costs and other recoverable costs.

Stock-based Compensation

The Company accounts for stock-based compensation pursuant to Financial Accounting Standards Board Accounting Standards Codification (“FASB ASC”) Topic

718,

“Compensation — Stock Compensation.” As such, all equity-based awards are reflected as compensation expense in the Company’s consolidated financial statements over their vesting period based on the fair value at the date of grant.

The following is a summary of awards during the years ended

December 31, 2018,

2017

and

2016.

Unvested Restricted Shares and LTIP Units	LTIP Units			Weighted Grant-Date Fair Value
Unvested at December 31, 2015		378,333		$	13.50
Granted		123,150		$	13.50
Vested		(20,742	)		—
Forfeited		—			—
Unvested at December 31, 2016		480,741		$	13.50
Granted		151,853		$	11.15
Vested		(11,112	)		—
Forfeited		—			—
Unvested at December 31, 2017		621,482		$	12.93
Granted		71,112		$	9.00
Vested		(509,818	)	$	13.11
Forfeited		—			—
Unvested at December 31, 2018		182,776		$	10.89

As of

December 31, 2018

and

2017,

the Company had

$0.8

million and

$2.1

million, respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under share incentive plans. As of

December 31, 2018,

the weighted-average period over which the unrecognized compensation expense will be recorded is approximately

1.9

years.

March 16, 2018,

and

March 27, 2017,

the Company granted a non-employee director

16,667

and

11,112

LTIP units, respectively, each with an estimated fair value of approximately

$150,000.

Income Taxes

The Company elected to be taxed and to operate in a manner that will allow it to qualify as a REIT under the U.S. Internal Revenue Code (the “Code”). To qualify as a REIT, the Company is required to distribute dividends equal to at least

90%

of the REIT taxable income (computed without regard to the dividends paid deduction and net capital gains) to its stockholders, and meet the various other requirements imposed by the Code relating to matters such as operating results, asset holdings, distribution levels and diversity of stock ownership. Provided the Company qualifies for taxation as a REIT, it is generally

not

subject to U.S. federal corporate-level income tax on the earnings distributed currently to its stockholders. If the Company fails to qualify as a REIT in any taxable year, the Company will be subject to U.S. federal and state income tax on its taxable income at regular corporate tax rates and any applicable alternative minimum tax. In addition, the Company

may

not

be able to re-elect as a REIT for the

four

subsequent taxable years. The entities comprising the Predecessor are limited liability companies and are treated as pass-through entities for income tax purposes. Accordingly,

provision has been made for federal, state or local income or franchise taxes in the accompanying consolidated financial statements.

In accordance with FASB ASC Topic

740,

the Company believes that it has appropriate support for the income tax positions taken and, as such, does

not

have any uncertain tax positions that, if successfully challenged, could result in a material impact on its or the Predecessor’s financial position or results of operations. The prior

three

years’ income tax returns are subject to review by the Internal Revenue Service.

The Tax Cuts and Jobs Act was enacted in

December 2017

and is generally effective beginning in

2018.

This new legislation is

not

expected to have a material adverse effect on the Company’s business and allows non-corporate shareholders to deduct a portion of the Company’s qualified REIT dividends.

The Company has determined that the cash distributed to its stockholders is characterized as follows for Federal income tax purposes:

	Year Ended December 31,
	2018			2017			2016

Ordinary income		—			50	%		—
Capital gain		—			—			—
Return of capital		100	%		50	%		100	%
Total		100	%		100	%		100	%

Fair Value Measurements

Refer to Note

“Fair Value of Financial Instruments”.

Derivative Financial Instruments

FASB derivative and hedging guidance establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. As required by FASB guidance, the Company records all derivatives on the consolidated balance sheets at fair value. The accounting for changes in the fair value of derivatives depends on the intended use of the derivative and the resulting designation.

Derivatives used to hedge the exposure to changes in the fair value of an asset, liability, or firm commitment attributable to a particular risk, such as interest rate risk, are considered fair value hedges. Derivatives used to hedge the exposure to variability in expected future cash flows, or other types of forecast transactions, are considered cash flow hedges. For derivatives designated as fair value hedges, changes in the fair value of the derivative and the hedged item related to the hedged risk are recognized in earnings. For derivatives designated as cash flow hedges, the effective portion of changes in the fair value of the derivative is initially reported in other comprehensive income (outside of earnings) and subsequently reclassified to earnings when the hedged transaction affects earnings, and the ineffective portion of changes in the fair value of the derivative is recognized directly in earnings. The Company assesses the effectiveness of each hedging relationship by comparing the changes in the fair value or cash flows of the derivative hedging instrument with the changes in the fair value or cash flows of the designated hedged item or transaction. For derivatives

not

designated as hedges, changes in fair value would be recognized in earnings. As of

December 31, 2018,

the Company has

derivatives for which it applies hedge accounting.

Loss Per Share

Basic and diluted loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding. As of

December 31, 2018,

2017

and

2016,

the Company had unvested LTIP Units which provide for non-forfeitable rights to dividend equivalent payments. Accordingly, these unvested LTIP Units are considered participating securities and are included in the computation of basic and diluted loss per share pursuant to the

two

-class method. The Company did

not

have dilutive securities as of

December 31, 2018,

2017

2016.

The effect of the conversion of the

26,317

Class B LLC units outstanding is

not

reflected in the computation of basic and diluted loss per share, as the effect would be anti-dilutive. The net loss allocable to such units is reflected as noncontrolling interests in the accompanying consolidated financial statements.

The following table sets forth the computation of basic and diluted loss per share for the periods indicated:

	Year Ended December 31,
	2018			2017			2016
(in thousands, except per share amounts)
Numerator
Net loss attributable to common stockholders	$	(3,633	)	$	(2,365	)	$	(3,754	)
Less: income attributable to participating securities		(269	)		(229	)		(120	)
Subtotal		(3,902	)		(2,594	)		(3,874	)
Denominator
Weighted average common shares outstanding		17,813			17,021			11,423

Basic and diluted net loss per share attributable to common stockholders	$	(0.22	)	$	(0.15	)	$	(0.34	)

Recently Issued Pronouncements

December 2018,

FASB issued ASU

2018

20,

“

Leases (Topic

842

), Narrow-Scope Improvements for Lessors.” This ASU modifies ASU

2016

to permit lessors, as an accounting policy election,

not

to evaluate whether certain sales taxes and other similar taxes are lessor costs or lessee costs. Instead, those lessors will account for those costs as if they are lessee costs. Consequently, a lessor making this election will exclude from the consideration in the contract and from variable payments

not

included in the consideration in the contract all collections from lessees of taxes within the scope of the election and will provide certain disclosures (includes sales, use, value-added, and some excise taxes and excludes real estate taxes). The Company has elected

not

to evaluate whether the aforementioned costs are lessor or lessee costs. This ASU also provides that certain lessor costs require lessors to exclude from variable payments, and therefore revenue, specifically lessor costs paid by lessees directly to

third

parties. The amendments also require lessors to account for costs excluded from the consideration of a contract that are paid by the lessor and reimbursed by the lessee as variable payments. A lessor will record those reimbursed costs as revenue.

May 2014,

FASB issued ASU

2014

09,

“Revenue from Contracts with Customers,” which prescribes a single, common revenue standard that supersedes nearly all existing revenue recognition guidance under U.S. GAAP, including most industry-specific requirements. The core principle of ASU

2014

is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU

2014

outlines a

five

step model to achieve this core principle and, in doing so, more judgment and estimates

may

be required within the revenue recognition process than are required under existing U.S. GAAP. The standard is effective for annual periods beginning after

December 15, 2018,

and interim periods therein. The Company’s revenues are primarily derived from rental income, which is scoped out from this standard and is currently accounted for in accordance with ASC Topic

840,

Leases. Less than

of the Company’s revenues in

2018

would have fallen under the scope of this standard and comprises, principally, commercial operating expense reimbursements and garage and other income from residential tenants; for these revenues, the Company adopted this standard effective

January 1, 2019,

using the modified retrospective approach, applying the provisions to open contracts as of the date of adoption. The adoption of this standard is

not

expected to have a material impact on the timing or amounts of the Company’s revenues. However, the recognition of gains on dispositions of properties

may

be impacted prospectively in circumstances under which collectability of the sales price

may

not

be reasonably assured or if the Company has continuing involvement with a sold property.

February 2016,

FASB issued ASU

2016

02,

“Leases

” ASU

2016

supersedes the current accounting for leases and while retaining

two

distinct types of leases, finance and operating, requires lessees to recognize most leases on their balance sheets and makes targeted changes to lessor accounting. In

July 2018,

FASB issued ASU

2018

10,

“Codification Improvements to Topic

842,

Leases,” which provides minor clarifications and corrections to ASU

2016

02,

“Leases (Topic

842

).” Further, in

July 2018,

the FASB issued ASU

2018

11,

“Leases (Topic

842

): Targeted Improvements.” This amendment provides a new practical expedient that allows lessors, by class of underlying asset, to avoid separating lease and associated non-lease components within a contract if certain criteria are met: (i) the timing and pattern of transfer for the non-lease component and the associated lease component are the same and (ii) the stand-alone lease component would be classified as an operating lease if accounted for separately. ASU

2016

is effective for fiscal years beginning after

December 15, 2019,

and early adoption is permitted. The Company will adopt this standard effective

January 1, 2020

and is currently evaluating the impact of adoption on its consolidated financial statements. As lessor, the Company expects that the adoption of ASU

2016

(as amended by subsequent ASUs) will

not

change the timing of revenue recognition of the Company’s rental revenues. As lessee, the Company is party to certain office equipment leases with future payment obligations for which the Company expects to record right-of-use assets and lease liabilities at the present value of the remaining minimum rental payments upon adoption of this standard.

August 2018,

FASB issued ASU

2018

13,

“Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement,” which removes, modifies, and adds certain disclosure requirements related to fair value measurements in ASC

820.

This guidance is effective for public companies in fiscal years beginning after

December 15, 2019

with early adoption permitted. The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

August 2018,

the Securities and Exchange Commission issued a final rule that amends certain of its disclosure requirements. The rule simplifies various disclosure requirements for public companies including primarily that it (i) eliminates the requirement for public companies to disclose in their filings a schedule of earnings to fixed charges, (ii) requires an analysis of changes in stockholders’ equity for the current and comparative year-to-date interim periods in interim reports, and (iii) reduces the requirements for market price information disclosures in annual reports. These changes were effective for public companies beginning on

November 5, 2018.

July 2018,

FASB issued ASU

2018

09,

“Codification Improvements.” These amendments provide clarifications and corrections to certain ASC subtopics including the following:

470

(Debt – Modifications and Extinguishments),

480

(Distinguishing Liabilities from Equity – Overall),

718

740

(Compensation – Stock Compensation – Income Taxes),

805

740

(Business Combinations – Income Taxes),

815

(Derivatives and Hedging – Overall) and

820

(Fair Value Measurement – Overall). The Company is currently assessing the impact this guidance will have on its consolidated financial statements.

June 2018,

FASB issued ASU

2018

07,

“Compensation – Stock Compensation (Topic

718

): Improvements to Nonemployee Share-Based Payment Accounting.” These amendments provide specific guidance for transactions for acquiring goods and services from nonemployees and specify that Topic

718

applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic

718

does

not

apply to share-based payments used to effectively provide (i) financing to the issuer or (ii) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic

606,

“Revenue from Contracts with Customers.” This guidance is effective for the Company for fiscal years beginning after

December 15, 2019,

and interim periods beginning after

December 15, 2020.

Early adoption is permitted but

not

earlier than the adoption of Topic

606.

The Company does

not

believe that this guidance will have a material effect on its consolidated financial statements as it has

not

historically issued share-based payments in exchange for goods or services to be consumed within its operations.

May 2017,

FASB issued ASU

2017

09,

“Compensation – Stock Compensation (Topic

718

) Scope of Modification Accounting.” ASU

2017

clarifies Topic

718

such that an entity must apply modification accounting to changes in the terms or conditions of a share-based payment award

unless

all of the following criteria are met:

The fair value of the modified award is the same as the fair value of the original award immediately before the modification. The standard indicates that if the modification does

not

affect any of the inputs to the valuation technique used to value the award, the entity is

not

required to estimate the value immediately before and after the modification.

The vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the modification.

The classification of the modified award as an equity instrument or a liability instrument is the same as the classification of the original award immediately before the modification.

The amendments are effective for all entities for fiscal years beginning after

December 15, 2017,

including interim periods within those fiscal years. The adoption of ASU

2017

did

not

have a material impact on our consolidated financial statements.

February 2017,

FASB issued ASU

2017

05,

“Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic

610

),” to add guidance for partial sales of nonfinancial assets, including partial sales of real estate. Historically, U.S. GAAP contained several different accounting models to evaluate whether the transfer of certain assets qualified for sale treatment. ASU

2017

reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. ASU

2017

is effective for the Company for its annual reporting beginning after

December 15, 2018,

including interim reporting periods beginning after

December 15, 2019.

The adoption of ASU

2017

not

expected to have a material impact on our consolidated financial statements.

November 2016,

FASB issued ASU

2016

“Statement of Cash Flows (Topic

230

) – Restricted Cash”. The ASU requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The ASU does

not

provide a definition of restricted cash or restricted cash equivalents. The ASU is effective for the Company beginning after

December 15, 2018,

and interim periods within fiscal years beginning after

December 15, 2019.

Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the effect that ASU

No.

2016

will have on its consolidated financial statements.

August 2016,

FASB issued ASU

2016

15,

“Statement of Cash Flows (Topic

230

): Classification of Certain Cash Receipts and Cash Payments (A consensus of the Emerging Issues Task Force),” which provides specific guidance on

eight

cash flow classification issues and how to reduce diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for the Company beginning after

December 15, 2018,

and interim periods within fiscal years beginning after

December 15, 2019.

Early adoption is permitted. The Company is currently evaluating the guidance to determine the impact, if any, it will have on its consolidated financial statements.