10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 

For the quarterly period ended March 31, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from             to            

Commission File Number: 001-38010

CLIPPER REALTY INC.

(Exact name of Registrant as specified in its charter)  

Maryland	47-4579660
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

4611 12^th Avenue, Suite 1L

Brooklyn, New York 11219

(Address of principal executive offices) (Zip Code)

(718) 438-2804

(Registrant's telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes ☒    No ☐ 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  ☒     No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 

Large accelerated filer  ☐	Accelerated filer  ☒
Non-accelerated filer  ☐	Smaller reporting company  ☒
	Emerging growth company  ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ☐  No  ☒

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol	Name of each exchange on which registered
Common Stock, par value $0.01 per share	CLPR	New York Stock Exchange

As of May 11, 2020, there were 17,814,672 shares of the Registrant’s Common Stock outstanding.

TABLE OF CONTENTS

	Page
PART I – FINANCIAL INFORMATION
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
ITEM 1.    CONDENSED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS AS OF MARCH 31, 2020 (UNAUDITED) AND DECEMBER 31, 2019	3
CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)	4
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)	5
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019 (UNAUDITED)	6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)	7
ITEM 2.    MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	22
ITEM 3.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	28
ITEM 4.    CONTROLS AND PROCEDURES	29
PART II – OTHER INFORMATION
ITEM 1.  LEGAL PROCEEDINGS	29
ITEM 1A.  RISK FACTORS	30
ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS	30
ITEM 4.  MINE SAFETY DISCLOSURE	30
ITEM 5.  OTHER INFORMATION	30
ITEM 6.  EXHIBITS	31
SIGNATURES	32

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PART I – FINANCIAL INFORMATION

Cautionary Note Concerning Forward-Looking Statements

All statements other than statements of historical fact included in this Quarterly Report on Form 10-Q for Clipper Realty Inc. (the “Company”), including, without limitation, statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding the Company’s financial position, business strategy and the plans, objectives, expectations, or assumptions of management for future operations, are forward-looking statements. When used in this Quarterly Report on Form 10-Q, words such as “may,” “will,” “should,” “could,” “expect,” “anticipate,” “believe,” “estimate,” “project,” “predict,” “believe,” “expect,” “intend,” “continue,” “potential,” “plan,” “goal” or other words that convey the uncertainty of future events or outcomes are intended to identify forward-looking statements, which are generally not historical in nature. These statements involve risks and uncertainties that could cause actual results to differ materially from those described in such statements. These risks, contingencies and uncertainties include, but are not limited to, the following:

● the effect of the ongoing novel strain of coronavirus (“COVID-19”) pandemic, and measures intended to curb its spread, including its effect on our tenants’ ability or willingness to pay rents and on demand for housing in the New York metropolitan area;

● the severe economic, market and other disruptions worldwide caused, and likely to continue to be caused, by the COVID 19 pandemic;

● market and economic conditions affecting occupancy levels, rental rates, the overall market value of our properties, our access to capital and the cost of capital and our ability to refinance indebtedness;

● economic or regulatory developments in New York City;

● the single government tenant in our commercial buildings may suffer financial difficulty;

● changes in rent stabilization regulations or claims by tenants in rent-stabilized units that their rents exceed specified maximum amounts under current regulations;

● our ability to control operating costs to the degree anticipated;

● the risk of damage to our properties, including from severe weather, natural disasters, climate change and terrorist attacks;

● risks related to financing, cost overruns and fluctuations in occupancy rates and rents resulting from development or redevelopment activities and the risk that we may not be able to pursue or complete development or redevelopment activities or that such development or redevelopment activities may not be profitable;

● concessions or significant capital expenditures that may be required to attract and retain tenants;

● the relative illiquidity of real estate investments;

● competition affecting our ability to engage in investment and development opportunities or attract or retain tenants;

● unknown or contingent liabilities in properties acquired in formative and future transactions;

● the possible effects of departure of key personnel in our management team on our investment opportunities and relationships with lenders and prospective business partners;

● conflicts of interest faced by members of management relating to the acquisition of assets and the development of properties, which may not be resolved in our favor;

● a transfer of a controlling interest in any of our properties may obligate us to pay transfer tax based on the fair market value of the real property transferred; and

● other risks and risk factors or uncertainties identified from time to time in our filings with the Securities and Exchange Commission (“SEC”).

Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, it can give no assurance that such expectations will prove to have been correct. Reference is made to a more complete discussion of forward-looking statements and applicable risks contained under the captions “Cautionary Note Concerning Forward-Looking Statements” and “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 12, 2020, and other reports filed from time to time with the SEC. Clipper Realty Inc. undertakes no obligation to update or revise any of its forward-looking statements, whether as a result of new information, future events or otherwise.

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ITEM 1. CONDENSED FINANCIAL STATEMENTS

Clipper Realty Inc.

Consolidated Balance Sheets

(In thousands, except for share and per share data)

	March 31, 2020			December 31, 2019
	(unaudited)
ASSETS
Investment in real estate
Land and improvements	$	540,859		$	540,859
Building and improvements		607,353			602,547
Tenant improvements		3,051			3,051
Furniture, fixtures and equipment		11,865			11,707
Real estate under development		32,894			31,787
Total investment in real estate		1,196,022			1,189,951
Accumulated depreciation		(114,903	)		(109,418	)
Investment in real estate, net		1,081,119			1,080,533
Cash and cash equivalents		36,298			42,500
Restricted cash		17,572			14,432
Tenant and other receivables, net of allowance for doubtful accounts of $3,692 and $3,361, respectively		4,750			4,187
Deferred rent		1,073			1,274
Deferred costs and intangible assets, net		8,560			8,782
Prepaid expenses and other assets		8,581			14,499
TOTAL ASSETS	$	1,157,953		$	1,166,207
LIABILITIES AND EQUITY
Liabilities:
Notes payable, net of unamortized loan costs of $10,958 and $11,528, respectively	$	997,752		$	997,903
Accounts payable and accrued liabilities		9,793			13,029
Security deposits		7,637			7,570
Below-market leases, net		1,496			1,625
Other liabilities		4,416			4,297
TOTAL LIABILITIES		1,021,094			1,024,424
Equity:
Preferred stock, $0.01 par value; 100,000 shares authorized (including 140 shares of 12.5% Series A cumulative non-voting preferred stock), zero shares issued and outstanding		—			—
Common stock, $0.01 par value; 500,000,000 shares authorized, 17,814,672 shares issued and outstanding		178			178
Additional paid-in-capital		93,461			93,431
Accumulated deficit		(38,393	)		(36,375	)
Total stockholders’ equity		55,246			57,234
Non-controlling interests		81,613			84,549
TOTAL EQUITY		136,859			141,783
TOTAL LIABILITIES AND EQUITY	$	1,157,953		$	1,166,207

See accompanying notes to these consolidated financial statements.

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Clipper Realty Inc.

Consolidated Statements of Operations

(In thousands, except per share data)

(Unaudited)

	Three Months Ended March 31,
	2020			2019
REVENUES
Residential rental income	$	23,718		$	20,772
Commercial rental income		7,168			6,880
TOTAL REVENUES		30,886			27,652
OPERATING EXPENSES
Property operating expenses		7,159			7,563
Real estate taxes and insurance		6,864			5,731
General and administrative		2,323			1,668
Depreciation and amortization		5,558			4,549
TOTAL OPERATING EXPENSES		21,904			19,511
INCOME FROM OPERATIONS		8,982			8,141
Interest expense, net		(9,788	)		(8,274	)
Net loss		(806	)		(133	)
Net loss attributable to non-controlling interests		480			79
Net loss attributable to common stockholders	$	(326	)	$	(54	)
Basic and diluted net loss per share	$	(0.02	)	$	(0.01	)

See accompanying notes to these consolidated financial statements.

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Clipper Realty Inc.

Consolidated Statements of Changes in Equity

(In thousands, except for share data)

(Unaudited)

	Number of common shares		Common stock		Additional paid-in- capital		Accumulated deficit			Total stockholders’ equity			Non- controlling interests			Total equity
Balance December 31, 2019		17,814,672	$	178	$	93,431	$	(36,375	)	$	57,234		$	84,549		$	141,783
Amortization of LTIP grants		—		—		—		—			—			158			158
Dividends and distributions		—		—		—		(1,692	)		(1,692	)		(2,584	)		(4,276	)
Net loss		—		—		—		(326	)		(326	)		(480	)		(806	)
Reallocation of noncontrolling interests		—		—		30		—			30			(30	)		—
Balance March 31, 2020		17, 814,672	$	178	$	93,461	$	(38,393	)	$	55,246		$	81,613		$	136,859

	Number of common shares		Common stock		Additional paid-in- capital		Accumulated deficit			Total stockholders’ equity			Non- controlling interests			Total equity
Balance December 31, 2018		17,812,755	$	178	$	92,945	$	(27,941	)	$	65,182		$	96,303		$	161,485
Amortization of LTIP grants		—		—		—		—			—			156			156
Dividends and distributions		—		—		—		(1,692	)		(1,692	)		(2,569	)		(4,261	)
Net loss		—		—		—		(54	)		(54	)		(79	)		(133	)
Reallocation of noncontrolling interests		—		—		35		—			35			(35	)		—
Balance March 31, 2019		17,812,755	$	178	$	92,980	$	(29,687	)	$	63,471		$	93,776		$	157,247

See accompanying notes to these consolidated financial statements.

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Clipper Realty Inc.

Consolidated Statements of Cash Flows

(In thousands)

(Unaudited)

	Three Months Ended March 31,
	2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(806	)	$	(133	)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation		5,485			4,361
Amortization of deferred financing costs		304			504
Amortization of deferred costs and intangible assets		192			307
Amortization of above- and below-market leases		(99	)		(424	)
Deferred rent		201			634
Stock-based compensation		158			156
Changes in operating assets and liabilities:
Tenant and other receivables		(563	)		672
Prepaid expenses, other assets and deferred costs		5,918			5,812
Accounts payable and accrued liabilities		(1,926	)		(646	)
Security deposits		67			67
Other liabilities		119			640
Net cash provided by operating activities		9,050			11,950
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, and improvements		(7,101	)		(10,208	)
Purchase of interest rate cap		(14	)		—
Net cash used in investing activities		(7,115	)		(10,208	)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of mortgage notes		(897	)		(711	)
Proceeds from mortgage notes		176			—
Dividends and distributions		(4,276	)		(4,261	)
Net cash used in financing activities		(4,997	)		(4,972	)
Net decrease in cash and cash equivalents and restricted cash		(3,062	)		(3,230	)
Cash and cash equivalents and restricted cash - beginning of period		56,932			45,864
Cash and cash equivalents and restricted cash - end of period	$	53,870		$	42,634
Cash and cash equivalents and restricted cash – beginning of period:
Cash and cash equivalents	$	42,500		$	37,028
Restricted cash		14,432			8,836
Total cash and cash equivalents and restricted cash – beginning of period	$	56,932		$	45,864
Cash and cash equivalents and restricted cash – end of period:
Cash and cash equivalents	$	36,298		$	29,379
Restricted cash		17,572			13,255
Total cash and cash equivalents and restricted cash – end of period	$	53,870		$	42,634
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest of $300 and $1,836 in 2020 and 2019, respectively	$	9,532		$	8,290
Non-cash interest capitalized to real estate under development		280			348
Additions to investment in real estate included in accounts payable and accrued liabilities		2,581			6,656

See accompanying notes to these consolidated financial statements.

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Clipper Realty Inc.

Notes to Condensed Consolidated Financial Statements

(In thousands, except for share and per share data and as noted)

(Unaudited)

INTRODUCTION TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

The unaudited condensed consolidated financial statements of Clipper Realty Inc. (the “Company” or “we”) and subsidiaries have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019, filed with the SEC on March 12, 2020.

The financial information presented reflects all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, cash flows and financial position for the interim periods presented. Certain reclassifications have been made to the prior period financial statements in order to conform to the current year presentation. These reclassifications did not have an impact on net income previously reported. These results are not necessarily indicative of a full year’s results of operations.

1. Organization

The Company was organized in the state of Maryland on July 7, 2015. On August 3, 2015, we completed certain formation transactions and the sale of shares of common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies (“LLCs”) that comprised the predecessor of the Company (the “Predecessor”) in exchange for Class A LLC units in such LLCs and became the managing member of such LLCs. The owners of the LLCs exchanged their interests for Class B LLC units and an equal number of special, non-economic, voting stock in the Company. The Class B LLC units, together with the special voting shares, are convertible into common shares of the Company on a one-for-one basis and are entitled to distributions.

On June 27, 2016, the Operating Partnership acquired the Aspen property at 1955 First Avenue in Manhattan, New York.

On February 9, 2017, the Company priced an initial public offering of 6,390,149 primary shares of its common stock (including the exercise of the over-allotment option, which closed on March 10, 2017) at a price of $13.50 per share (the “IPO”). The net proceeds of the IPO were approximately $78.7 million. We contributed the proceeds of the IPO to the Operating Partnership, in exchange for units in the Operating Partnership.

On May 9, 2017, the Company completed the purchase of 107 Columbia Heights (subsequently renovated and rebranded “Clover House”), a 158-unit apartment community located in Brooklyn Heights, New York.

On October 27, 2017, the Company completed the acquisition of an 82-unit residential property at 10 West 65th Street in the Upper West Side neighborhood of Manhattan, New York.

On November 8, 2019, the Company completed the acquisition of 1010 Pacific Street located in the Prospect Heights neighborhood of Brooklyn, New York; the Company plans to redevelop the property as a 175-unit residential building.

As of March 31, 2020, the properties owned by the Company consist of the following (collectively, the “Properties”):

• Tribeca House in Manhattan, comprising two buildings, one with 21 stories and one with 12 stories, containing residential and retail space with an aggregate of approximately 483,000 square feet of residential rental Gross Leasable Area (“GLA”) and 77,000 square feet of retail rental and parking GLA;

7

• Flatbush Gardens in Brooklyn, a 59-building residential housing complex with 2,496 rentable units;

• 141 Livingston Street in Brooklyn, a 15-story office building with approximately 216,000 square feet of GLA;

• 250 Livingston Street in Brooklyn, a 12-story office and residential building with approximately 370,000 square feet of GLA (fully remeasured);

• Aspen in Manhattan, a 7-story building containing residential and retail space with approximately 166,000 square feet of residential rental GLA and approximately 21,000 square feet of retail rental GLA;

•      Clover House in Brooklyn, a 11-story residential building with approximately 102,000 square feet of residential rental GLA;

•      10 West 65^th Street in Manhattan, a 6-story residential building with approximately 76,000 square feet of residential rental GLA; and

•      1010 Pacific Street in Brooklyn, which the Company plans to redevelop as a 9-story residential building with approximately 119,000 square feet of residential rental GLA.

During 2019, we entered into a joint venture in which we own a 50% interest through which we are paying certain legal and advisory expenses in connection with various rent laws and ordinances which govern certain of our properties. The Company committed to contribute $0.4 million towards the joint venture. During the three months ended March 31, 2020, the Company incurred $0.2 million of such expenses which are recorded as part of general and administrative in the Condensed Consolidated Statements of Operations and the Company has fulfilled its commitment in the joint venture.

The operations of Clipper Realty Inc. and its consolidated subsidiaries are carried on primarily through the Operating Partnership. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections 856 through 860 of the Internal Revenue Code (the “Code”). The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprised the Predecessor.

At March 31, 2020, the Company’s interest, through the Operating Partnership, in the LLCs that own the properties generally entitles it to 40.4% of the aggregate cash distributions from, and the profits and losses of, the LLCs.

The Company determined that the Operating Partnership and the LLCs are variable interest entities (“VIEs”) and that the Company was the primary beneficiary. The assets and liabilities of these VIEs represented substantially all of the Company’s assets and liabilities.

2. Issuance of Common Stock

On April 9, 2019, the Company issued 1,917 primary shares of its common stock to one of our directors, in connection with the conversion of vested long-term incentive plan (“LTIP”) units on a one-for-one basis. The Company did not receive any proceeds from the issuance.

3. Significant Accounting Policies

Segments

At March 31, 2020, 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 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.

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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.

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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 March 31, 2020.

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 no 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	10–44 years
Tenant improvements	Shorter of useful life or lease term
Furniture, fixtures and equipment	3–15 years

The capitalized above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the capitalized 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. No 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.

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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 Income (Loss)

Comprehensive income (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 three months ended March 31, 2020 and 2019, 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. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. 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.

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.

As of March 31, 2020 and December 31, 2019, there were 881,067 LTIP units outstanding, with a weighted average grant date fair value of $12.70 per unit. As of March 31, 2020, and December 31, 2019, there was $1.3 million and $1.4 million, respectively, of total unrecognized compensation cost related to unvested share-based compensation arrangements granted under share incentive plans. As of March 31, 2020, the weighted average period over which the unrecognized compensation expense will be recorded is approximately 1.1 years.

In April 2020, the Company granted 450,623 LTIP units with a weighted average grant date fair value of $4.75 per unit.

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 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, no provision has been made for federal, state or local income or franchise taxes in the accompanying consolidated financial statements.

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On March 27, 2020, the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act was enacted to provide economic relief to companies and individuals in response to the COVID-19 pandemic. Included in the CARES Act are tax provisions which increase allowable interest expense deductions for 2019 and 2020 and increase the ability for taxpayers to use net operating losses. While we do not expect these provisions to have a material impact on the Company’s taxable income or tax liabilities, we will continue to analyze the provisions of the CARES Act and related guidance as it is published.

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.

Fair Value Measurements

Refer to Note 9, “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 (loss) (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 March 31, 2020, the Company has no 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 March 31, 2020 and 2019, 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 March 31, 2020 or 2019.

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 net loss per share for the periods indicated (unaudited):

	Three Months Ended March 31,
(in thousands, except per share amounts)	2020			2019
Numerator
Net loss attributable to common stockholders	$	(326	)	$	(54	)
Less: income attributable to participating securities		(84	)		(69	)
Subtotal	$	(410	)	$	(123	)
Denominator
Weighted average common shares outstanding		17,815			17,813
Basic and diluted net loss per share attributable to common stockholders	$	(0.02	)	$	(0.01	)

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Recently Issued Pronouncements 

In March 2020, the FASB issued ASU 2020-04, “ Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Topic 848). ASU 2020-04 provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU 2020-04 is effective beginning on March 12, 2020, and may be applied prospectively to such transactions through December 31, 2022. We will apply ASU 2020-04 prospectively as and when we enter into transactions to which this guidance applies.

In March 2019, FASB issued ASU 2019-01, “Leases (Topic 842), Codification Improvements.” There are three codification updates to Topic 842 covered by this ASU: Issue 1 provides guidance on how to compute fair value of leased items for lessors who are non-dealers or manufacturers; Issue 2 relates to cash flow presentation for lessors of sales-type and direct financing leases; and Issue 3 clarifies that certain transition disclosures will only be required in annual disclosures.

In December 2018, FASB issued ASU 2018-20, “Leases (Topic 842), Narrow-Scope Improvements for Lessors.” This ASU modifies ASU 2016-02 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.

In 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 2014-09 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 2014-09 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 within annual reporting periods beginning after December 15, 2019. 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. 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 did not have a material impact on the timing or amounts of the Company’s revenues.

In February 2016, FASB issued ASU 2016-02, “Leases.” ASU 2016-02 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. These pronouncements are effective for fiscal years beginning after December 15, 2020, and early adoption is permitted. The Company will adopt this standard effective January 1, 2021 and is currently evaluating the impact of adoption on its consolidated financial statements. As lessor, the Company expects that the adoption of ASU 2016-02 (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. 

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In 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 in fiscal years beginning after December 15, 2019 with early adoption permitted. The adoption of this standard did not have a material impact on the Company’s financial statement reporting.

In 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.” The Company adopted this standard effective January 1, 2020. The adoption of this standard did not have a material impact on the Company’s consolidated financial statements as it has not historically issued share-based payments in exchange for goods or services to be consumed within its operations.

In February 2017, FASB issued ASU 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20),” 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 2017-05 reduces the number of potential accounting models that might apply and clarifies which model does apply in various circumstances. ASU 2017-05 is effective for the Company for its annual reporting beginning after December 15, 2018, including interim reporting periods beginning after December 15, 2019. The Company adopted this standard effective January 1, 2019. The adoption of this standard did not have a material impact on our consolidated financial statements.

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4. Acquisitions

On November 8, 2019, the Company acquired the 1010 Pacific Street property, a parcel of land, for $31,129,

including acquisition costs of $129.

5. Deferred Costs and Intangible Assets

Deferred costs and intangible assets consist of the following:

	March 31, 2020			December 31, 2019
	(unaudited)
Deferred costs	$	348		$	348
Above-market leases		—			444
Lease origination costs		1,385			1,385
In-place leases		859			859
Real estate tax abatements		9,142			9,142
Total deferred costs and intangible assets		11,734			12,178
Less accumulated amortization		(3,174	)		(3,396	)
Total deferred costs and intangible assets, net	$	8,560		$	8,782

Amortization of deferred costs, lease origination costs and in-place lease intangible assets was $73 and $188 for the three months ended March 31, 2020 and 2019, respectively; $749 of fully amortized lease origination costs and in-place leases was written off during the three months ended March 31, 2019. Amortization of real estate tax abatements of $119 and $119 for the three months ended March 31, 2020 and 2019, respectively, is included in real estate taxes and insurance in the consolidated statements of operations; $3,428 of fully amortized real estate tax abatements was written off during the three months ended March 31, 2019. Amortization of above-market leases of $30 and $30 for the three months ended March 31, 2020 and 2019, respectively, is included in commercial rental income in the consolidated statements of operations. $444 of fully amortized above-market leases was written off during the three months ended March 31, 2020.

Deferred costs and intangible assets as of March 31, 2020, amortize in future years as follows:

2020 (Remainder)	$	579
2021		775
2022		743
2023		597
2024		552
Thereafter		5,314
Total	$	8,560

6. Below-Market Leases, Net

The Company’s below-market lease intangibles liabilities are as follows:

	March 31, 2020			December 31, 2019
	(unaudited)
Below-market leases	$	4,087		$	4,087
Less accumulated amortization		(2,591	)		(2,462	)
Below-market leases, net	$	1,496		$	1,625

Rental income included amortization of below-market leases of $129 and $454 for the three months ended March 31, 2020 and 2019, respectively.

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Below-market leases as of March 31, 2020, amortize in future years as follows:

2020 (Remainder)	$	388
2021		493
2022		423
2023		192
Total	$	1,496

7. Notes Payable

The mortgages, loans and mezzanine notes payable collateralized by the properties, or the Company’s interest in the entities that own the properties and assignment of leases, are as follows:

Property	Maturity	Interest Rate		March 31, 2020			December 31, 2019
Flatbush Gardens, Brooklyn, NY (a)	3/1/2028		3.50%	$	246,000		$	246,000
250 Livingston Street, Brooklyn, NY (b)	6/6/2029		3.63%		125,000			125,000
141 Livingston Street, Brooklyn, NY (c)	6/1/2028		3.875%		75,429			75,817
Tribeca House, Manhattan, NY (d)	3/6/2028		4.506%		360,000			360,000
Aspen, Manhattan, NY (e)	7/1/2028		3.68%		66,520			66,862
Clover House, Brooklyn, NY (f)	12/1/2029		3.53%		82,000			82,000
10 West 65th Street, Manhattan, NY (g)	11/1/2027		3.375%		34,128			34,295
1010 Pacific Street, Brooklyn, NY (h)	12/24/2020		LIBOR + 3.60%		19,633			19,457
Total debt				$	1,008,710		$	1,009,431
Unamortized debt issuance costs					(10,958	)		(11,528	)
Total debt, net of unamortized debt issuance costs				$	997,752		$	997,903

(a) The $246,000 mortgage note agreement with New York Community Bank (“NYCB”), entered into on February 21, 2018, matures on March 1, 2028, and bears interest at 3.5% through February 2023 and thereafter at the prime rate plus 2.75%, with an option to fix the rate subject to the payment of a fee that fluctuates depending on the date the election is made. The note requires interest-only payments through August 2020, and monthly principal and interest payments thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

On May 8, 2020, the Company refinanced the above Flatbush Gardens loan with a $329 million, twelve-year secured first mortgage note with NYCB. The note matures on June 1, 2032, and bears interest at 3.125% through May 2027 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note requires interest-only payments through May 2027, and monthly principal and interest payments thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

(b) The $125,000 mortgage note agreement with Citi Real Estate Funding Inc., entered into on May 31, 2019, matures on June 6, 2029, bears interest at 3.63% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note within three months of maturity, without a prepayment premium.

(c) The $79,500 mortgage note agreement with NYCB matures on June 1, 2028, and bears interest at 3.875%. The note required interest-only payments through June 2017, and monthly principal and interest payments of $374 thereafter based on a 30-year amortization schedule.

(d) The $360,000 loan with Deutsche Bank, entered into on February 21, 2018, matures on March 6, 2028, bears interest at 4.506% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the loan prior to the maturity date, subject to a prepayment premium if it occurs prior to December 6, 2027.

(e) The $70,000 mortgage note agreement with Capital One Multifamily Finance LLC matures on July 1, 2028, and bears interest at 3.68%. The note required interest-only payments through July 2017, and monthly principal and interest payments of $321 thereafter based on a 30-year amortization schedule. The Company has the option to prepay the note prior to the maturity date, subject to a prepayment premium.

(f) The $82,000 mortgage note agreement with MetLife Investment Management, entered into on November 8, 2019, matures on December 1, 2029, bears interest at 3.53% and requires interest-only payments for the entire term. The Company has the option, commencing on January 1, 2024, to prepay the note prior to the maturity date, subject to a prepayment premium if it occurs prior to September 2, 2029.

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(g) On October 27, 2017, the Company entered into a $34,350 mortgage note agreement with NYCB, related to the 10 West 65^th Street acquisition. The note matures on November 1, 2027, and bears interest at 3.375% through October 2022 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note required interest-only payments through October 2019, and monthly principal and interest payments of $152 thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

(h) On December 24, 2019, the Company entered into a $18,600 mortgage note agreement with CIT Bank, N.A., related to the 1010 Pacific Street acquisition. The Company also entered into a pre-development bridge loan secured by the property with the same lender that will provide up to $2,987 for eligible pre-development and carrying costs, of which $1,033 was drawn as of March 31, 2020. The notes mature on December 24, 2020, are subject to a one-year extension option, require interest-only payments and bear interest at one-month LIBOR plus 3.60% (4.6% as of March 31, 2020).

The following table summarizes principal payment requirements under terms as of March 31, 2020:

2020 (Remainder)	$	23,979
2021		8,553
2022		8,866
2023		9,191
2024		9,521
Thereafter		948,600
Total	$	1,008,710

8. Rental Income under Operating Leases

The Company’s commercial properties are leased to commercial tenants under operating leases with fixed terms of varying lengths. As of March 31, 2020, the minimum future cash rents receivable (excluding tenant reimbursements for operating expenses) under non-cancelable operating leases for the commercial tenants in each of the next five years and thereafter are as follows:

2020 (Remainder)	$	18,242
2021		29,634
2022		29,348
2023		27,552
2024		26,864
Thereafter		24,704
Total	$	156,344

The Company has commercial leases with the City of New York that comprised approximately 17% and 19% of total revenues for the three months ended March 31, 2020 and 2019, respectively.

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9. Fair Value of Financial Instruments

GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a three-tiered approach. Fair value measurements are classified and disclosed in one of the following three categories:

• Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

• Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

• Level 3: prices or valuation techniques where little or no market data is available that require inputs that are both significant to the fair value measurement and unobservable.

When available, the Company utilizes quoted market prices from an independent third-party source to determine fair value and classifies such items in Level 1 or Level 2. In instances where the market for a financial instrument is not active, regardless of the availability of a nonbinding quoted market price, observable inputs might not be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent third party may rely more on models with inputs based on information available only to that independent third party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do not appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases, may not be realized in an immediate settlement of the instrument.

The financial assets and liabilities in the consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, interest rate caps, accounts payable and accrued liabilities, security deposits and notes payable. The carrying amount of cash and cash equivalents, restricted cash, receivables, accounts payable and accrued liabilities, and security deposits reported in the consolidated balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of notes payable, which are classified as Level 2, is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates.

The carrying amount and estimated fair value of the notes payable are as follows:

	March 31, 2020		December 31, 2019
	(unaudited)
Carrying amount (excluding unamortized debt issuance costs)	$	1,008,710	$	1,009,431
Estimated fair value	$	1,151,495	$	1,058,083

The Company purchased interest rate caps in connection with the loans obtained for the Clover House acquisition, the 250 Livingston Street loan obtained on December 6, 2018, and the 1010 Pacific Street loan obtained on December 24, 2019. The fair value of the interest rate caps, which are classified as Level 2, is estimated using market inputs and credit valuation inputs.

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The estimated fair values of the interest rate caps are as follows:

Notional Amount		Related Property Loans	Maturity Date	Strike Rate		Estimated Fair Value at March 31, 2020		Estimated Fair Value at December 31, 2019
	$73,700	Clover House	May 9, 2020		3.0%	$	—	$	—
	$75,000	250 Livingston Street	December 15, 2020		4.0%		—		—
	$21,587	1010 Pacific Street	December 24, 2020		3.6%		—		—
Total fair value of derivative instruments included in prepaid expenses and other assets						$	—	$	—

These interest rate caps were not designated as hedges. Accordingly, changes in fair value of the 250 Livingston Street instrument are recognized in earnings. Changes in fair value of the Clover House instrument were recognized in real estate under development during construction and are recognized in earnings following completion of development. Changes in fair value of the 1010 Pacific Street instrument are recognized in real estate under development. Fair value of the 250 Livingston Street instrument did not change during each of the three months ended March 31, 2020 and 2019. Fair value of the Clover House instrument did not change during the three months ended March 31, 2020; decrease in fair value of the Clover House instrument of $22 for the three months ended March 31, 2019, is recognized in interest expense and capitalized to real estate under development. Decrease in fair value of the 1010 Pacific Street instrument of $14 for the three months ended March 31, 2020, is recognized in interest expense and capitalized to real estate under development.

The above disclosures regarding fair value of financial instruments are based on pertinent information available as of March 31, 2020, and December 31, 2019, respectively. Although the Company is not aware of any factors that would significantly affect the reasonableness of the estimated fair value amounts, such amounts have not been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value may differ significantly from the amounts presented herein.

10. Commitments and Contingencies

Legal

On July 3, 2017, the Supreme Court of the State of New York (the “Court”) ruled in favor of 41 present or former tenants of apartment units at the Company’s buildings located at 50 Murray Street and 53 Park Place in Manhattan, New York, who brought an action against the Company alleging that they were subject to applicable rent stabilization laws with the result that rental payments charged by the Company exceeded amounts permitted under these laws because the buildings were receiving certain tax abatements under Real Property Tax Law (“RPTL”) 421-g. The Court also awarded the plaintiffs-tenants their attorney’s fees and costs. The Court declared that the plaintiffs-tenants were subject to rent stabilization requirements and referred the matter to a special referee to determine the amount of rent over-charges, if any. On July 18, 2017, the Court, pursuant to the parties’ agreement, stayed the Court’s ruling; the Company subsequently appealed the decision to the Appellate Division, First Department. On January 18, 2018, the Appellate Division unanimously reversed the Court’s ruling and ruled in favor of the Company, holding that the Company acted properly in de-regulating the apartments. The plaintiffs-tenants thereafter moved for leave to appeal to the Court of Appeals, which motion was granted on April 24, 2018. On June 25, 2019, the New York Court of Appeals reversed the Appellate Division’s order and ruled in favor of the plaintiffs-tenants, holding that apartments in buildings receiving RPTL 421-g tax benefits are not subject to luxury deregulation. The Court of Appeals also remitted the matter for further proceedings consistent with its opinion. As a result of the Court of Appeals’ order, Company management believes that payments may be required to be made to the 41 present or former tenants comprising the plaintiff group, that other tenants may attempt to make similar claims, and that the special referee process referred to above will be used to determine the timing and the amount of any claims that must be paid. On July 25, 2019, the Company filed a motion for reargument with the New York Court of Appeals, which was denied on September 12, 2019. On August 13, 2019, the Court, in effect, reinstated its prior order and referred the calculation of rent overcharges and attorneys’ fees for a hearing before a special referee.  The special referee’s hearing was scheduled for October 23, 2019. On October 17, 2019, the Company made a motion in the Appellate Division for a stay of the special referee’s hearing pending the Company’s appeal from the August 13 order. On such date, the Appellate Division granted an interim stay of the special referee’s hearing, pending the determination of the underlying motion. On January 7, 2020, the Appellate Division granted the Company’s motion for a full stay of the special referee’s hearing pending appeal. The appeal had been scheduled to be argued during the May 2020 term, but on March 16, 2020, the parties filed a stipulation adjourning the appeal to the September 2020 term. On October 24, 2019, the Company filed a Petition for a Writ of Certiorari with the United States Supreme Court, seeking permission to have that Court hear the Company’s appeal on Constitutional grounds from the Court of Appeals’ order. On January 13, 2020, the United States Supreme Court denied the Company’s Petition for a Writ of Certiorari, meaning that the Court of Appeals’ order is final. On November 18, 2019, the same law firm which filed the Kuzmich case above filed a second action involving a separate group of 26 tenants (captioned Crowe et al v 50 Murray Street Acquisition LLC, Supreme Court, New York County, Index No. 161227/19), which action advances the same exact claims as in Kuzmich. The Company’s deadline to answer or otherwise respond to the complaint in Crowe has been extended to June 30, 2020. The Company cannot predict what the timing or ultimate resolution of these matters will be, and accordingly, at this time, the Company has not recorded any liability for the potential settlement of these matters.

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In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business, including a claim under the Americans with Disabilities Act of 1990 at the 141 Livingston Street property. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.

Commitments

The Company is obligated to provide parking availability through August 2025 under a lease with a tenant at the 250 Livingston Street property; the current cost to the Company is approximately $205 per year.

Contingencies

Recently, the COVID-19 pandemic has adversely impacted global economic activity and contributed to significant declines and volatility in financial markets. The COVID-19 pandemic and associated government actions intended to curb its spread are creating disruption in, and adversely impacting, many industries and could negatively impact our business in a number of ways, including affecting our tenants’ ability or willingness to pay rents and reducing demand for housing in the New York metropolitan area. In some cases, we may restructure rent obligations on terms that are less favorable to us than those currently in place. Additionally, the outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown which may ultimately decrease occupancy levels and pricing across our portfolio as residents reduce their spending. The rapid development and fluidity with which the situation is developing precludes any prediction as to the ultimate material adverse impact of the COVID-19 pandemic. Nevertheless, COVID-19 presents uncertainty and risk with respect to the Company’s tenants, which could adversely affect the Company’s financial performance.

Concentrations

The Company’s properties are located in the Boroughs of Manhattan and Brooklyn in New York City, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio.

The breakdown between commercial and residential revenue is as follows:

	Commercial			Residential			Total
Three months ended March 31, 2020		23	%		77	%		100	%
Three months ended March 31, 2019		25	%		75	%		100	%

11. Related-Party Transactions

The Company recorded office and overhead expenses pertaining to a related company in general and administrative expense of $88 and $87 for the three months ended March 31, 2020 and 2019, respectively.

The Company paid legal and advisory fees to firms in which two of our directors were principals or partners of $5 and $0 for the three months ended March 31, 2020 and 2019, respectively.

12. Segment Reporting

The Company has classified its reporting segments into commercial and residential rental properties. The commercial reporting segment includes the 141 Livingston Street property and portions of the 250 Livingston Street, Tribeca House and Aspen properties. The residential reporting segment includes the Flatbush Gardens property, the Clover House property, the 10 West 65^th Street property, the 1010 Pacific Street property and portions of the 250 Livingston Street, Tribeca House and Aspen properties.

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The Company’s income from operations by segment for the three months ended March 31, 2020 and 2019, is as follows:

Three months ended March 31, 2020	Commercial		Residential		Total
Rental income	$	7,168	$	23,718	$	30,886
Total revenues		7,168		23,718		30,886
Property operating expenses		1,137		6,022		7,159
Real estate taxes and insurance		1,491		5,373		6,864
General and administrative		337		1,986		2,323
Depreciation and amortization		1,019		4,539		5,558
Total operating expenses		3,984		17,920		21,904
Income from operations	$	3,184	$	5,798	$	8,982

Three months ended March 31, 2019	Commercial		Residential		Total
Rental income	$	6,880	$	20,772	$	27,652
Total revenues		6,880		20,772		27,652
Property operating expenses		1,141		6,422		7,563
Real estate taxes and insurance		1,236		4,495		5,731
General and administrative		279		1,389		1,668
Depreciation and amortization		946		3,603		4,549
Total operating expenses		3,602		15,909		19,511
Income from operations	$	3,278	$	4,863	$	8,141

The Company’s total assets by segment are as follows, as of:

	Commercial		Residential		Total
March 31, 2020	$	283,031	$	874,922	$	1,157,953
December 31, 2019		285,103		881,104		1,166,207

The Company’s interest expense by segment for the three months ended March 31, 2020 and 2019, is as follows:

	Commercial		Residential		Total
Three months ended March 31,
2020	$	1,987	$	7,801	$	9,788
2019		1,734		6,540		8,274

The Company’s capital expenditures by segment for the three months ended March 31, 2020 and 2019, are as follows:

	Commercial		Residential		Total
Three months ended March 31,
2020	$	1,783	$	4,288	$	6,071
2019		908		10,306		11,214

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion of our financial condition and results of operations in conjunction with the more detailed information set forth under the caption, “Cautionary Note Concerning Forward-Looking Statements,” and in our financial statements and the related notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q.

Overview of Our Company

Clipper Realty Inc. (the “Company” or “we”) is a self-administered and self-managed real estate company that acquires, owns, manages, operates and repositions multifamily residential and commercial properties in the New York metropolitan area, with a current portfolio in Manhattan and Brooklyn. Our primary focus is to own, manage and operate our portfolio and to acquire and reposition additional multifamily residential and commercial properties in the New York metropolitan area. The Company has been organized and operates in conformity with the requirements for qualification and taxation as a real estate investment trust (“REIT”) under the U.S. federal income tax law and elected to be treated as a REIT commencing with the taxable year ended December 31, 2015.

The Company was incorporated on July 7, 2015. On August 3, 2015, we closed a private offering of shares of our common stock, in which we raised net proceeds of approximately $130.2 million. In connection with the private offering, we consummated a series of investment and other formation transactions that were designed, among other things, to enable us to qualify as a REIT for U.S. federal income tax purposes.

In February 2017, the Company sold 6,390,149 primary shares of common stock (including the exercise of the over-allotment option, which closed on March 10, 2017) to investors in an initial public offering (“IPO”) at $13.50 per share. The proceeds, net of offering costs, were approximately $78.7 million. The Company contributed the IPO proceeds to the Operating Partnership in exchange for units in the Operating Partnership.

On May 9, 2017, the Company completed the purchase of 107 Columbia Heights (since rebranded as “Clover House”), a 158-unit apartment community located in Brooklyn Heights, New York, for $87.5 million.

On October 27, 2017, the Company completed the acquisition of an 82-unit residential property at 10 West 65th Street in Manhattan, New York, for $79.0 million.

On November 8, 2019, the Company completed the acquisition of property located at 1010 Pacific Street in Prospect Heights, New York, for $31.0 million.

As of March 31, 2020, the Company owns:

• two neighboring residential/retail rental properties at 50 Murray Street and 53 Park Place in the Tribeca neighborhood of Manhattan;

• one residential property complex in the East Flatbush neighborhood of Brooklyn consisting of 59 buildings;

• two primarily commercial properties in downtown Brooklyn (one of which includes 36 residential apartment units);

• one residential/retail rental property at 1955 1^st Avenue in Manhattan;

• one residential rental property at 107 Columbia Heights in the Brooklyn Heights neighborhood of Brooklyn;

• one residential rental property at 10 West 65^th Street in the Upper West Side neighborhood of Manhattan; and

• one property at 1010 Pacific Street in the Prospect Heights neighborhood of Brooklyn, to be redeveloped as a residential rental building.

These properties are located in the most densely populated major city in the United States, each with immediate access to mass transportation.

On May 8, 2020, the Company refinanced the existing Flatbush Gardens loan with a $329 million, twelve-year secured first mortgage note with New York Community Bank. The note matures on June 1, 2032, and bears interest at 3.125% through May 2027 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note requires interest-only payments through May 2027, and monthly principal and interest payments thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

The Company’s ownership interest in its initial portfolio of properties, which includes the Tribeca House, Flatbush Gardens and the two Livingston Street properties, was acquired in the formation transactions in connection with the private offering. These properties are owned by the LLC subsidiaries, which are managed by the Company through the Operating Partnership. The Operating Partnership’s interests in the LLC subsidiaries generally entitle the Operating Partnership to all cash distributions from, and the profits and losses of, the LLC subsidiaries other than the preferred distributions to the continuing investors who hold Class B LLC units in these LLC subsidiaries. The continuing investors own an aggregate amount of 26,317,396 Class B LLC units, representing 59.6% of the Company’s common stock on a fully diluted basis. Accordingly, the Operating Partnership’s interests in the LLC subsidiaries entitle the Operating Partnership to receive 40.4% of the aggregate distributions from the LLC subsidiaries. The Company, through the Operating Partnership, owns all of the ownership interests in the Aspen property, the Clover House property, the 10 West 65^th Street property and the 1010 Pacific Street property.

COVID-19 Pandemic

Recently, the COVID-19 pandemic has adversely impacted global economic activity and contributed to significant declines and volatility in financial markets. The COVID-19 pandemic and associated government actions intended to curb its spread are creating disruption in, and adversely impacting, many industries and could negatively impact our business in a number of ways, including affecting our tenants’ ability or willingness to pay rents and reducing demand for housing in the New York metropolitan area. In some cases, we may restructure rent obligations on terms that are less favorable to us than those currently in place. Additionally, the outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown which may ultimately decrease occupancy levels and pricing across our portfolio as residents reduce their spending. The rapid development and fluidity with which the situation is developing precludes any prediction as to the ultimate adverse impact of the COVID-19 pandemic on our business. Nevertheless, COVID-19 presents uncertainty and risk with respect to the Company’s tenants, which could adversely affect the Company’s business, financial condition, liquidity and results of operations.

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Despite these very challenging circumstances, our business has remained durable. Our properties have remained open and operational throughout the pandemic. We are taking the necessary steps to keep our employees and tenants safe in compliance with state and local shelter-in-place orders, and we continue to provide typical services to our residents. Our April 2020 rent collections were equal to 94% of our March 2020 rent collections, prior to the impact of COVID-19. We expect our properties and the New York City market to remain desirable to a broad range of tenants and our operations to return to a more normal state over time.

Results of Operations

Our focus throughout 2019 and year-to-date 2020 has been to manage our properties to optimize revenues and control costs, while continuing to renovate and reposition certain properties. The discussion below highlights the specific properties contributing to the changes in the results of operations, and focuses on the properties that the Company owned and operated for the full period in each comparison.

Income Statement for the Three Months Ended March 31, 2020 and 2019 (in thousands)

	2020			Less: Clover House			2020 excluding Clover House			2019			Increase (decrease)			%
Revenues
Residential rental income	$	23,718		$	1,722		$	21,996		$	20,772		$	1,224			5.9	%
Commercial rental income		7,168			5			7,163			6,880			283			4.1	%
Total revenues		30,886			1,727			29,159			27,652			1,507			5.4	%
Operating Expenses
Property operating expenses		7,159			239			6,920			7,563			(643	)		(8.5	)%
Real estate taxes and insurance		6,864			369			6,495			5,731			764			13.3	%
General and administrative		2,323			145			2,178			1,668			510			30.6	%
Depreciation and amortization		5,558			582			4,976			4,549			427			9.4	%
Total operating expenses		21,904			1,335			20,569			19,511			1,058			5.4	%
Income from operations		8,982			392			8,590			8,141			449			5.5	%
Interest expense, net		(9,788	)		(755	)		(9,033	)		(8,274	)		759			9.2	%
Net loss	$	(806	)	$	(363	)	$	(443	)	$	(133	)	$	(310	)		233.1	%

Revenue. Residential rental income, excluding Clover House, increased from $20,772 for the three months ended March 31, 2019, to $21,996 for the three months ended March 31, 2020, primarily due to increases in rental rates at the Flatbush Gardens and Tribeca House properties. Base rent per square foot increased at the Flatbush Gardens property from $24.04 at March 31, 2019, to $24.95 at March 31, 2020. Base rent per square foot increased at the Tribeca House property from $69.14 at March 31, 2019, to $70.75 at March 31, 2020.

Commercial rental income, excluding Clover House, increased from $6,880 for the three months ended March 31, 2019, to $7,163 for the three months ended March 31, 2020, primarily due to adjustments in straight line rent and amortization of below market leases.

Property operating expenses. Property operating expenses include property-level costs such as compensation costs for property-level personnel, repairs and maintenance, supplies, utilities and landscaping. Property operating expenses, excluding Clover House, decreased from $7,563 for the three months ended March 31, 2019, to $6,920 for the three months ended March 31, 2020, primarily due to lower legal expenses and lower utility expenses across the portfolio.

Real estate taxes and insurance. Real estate taxes and insurance expenses, excluding Clover House, increased from $5,731 for the three months ended March 31, 2019, to $6,495 for the three months ended March 31, 2020, due to increased real estate taxes and property insurance across the portfolio.

General and administrative. General and administrative expenses, excluding Clover House, increased from $1,668 for the three months ended March 31, 2019, to $2,178 for the three months ended March 31, 2020, primarily due to increases in legal expenses (including non-recurring litigation-related expenses).

Depreciation and amortization. Depreciation and amortization expense, excluding Clover House, increased from $4,549 for the three months ended March 31, 2019, to $4,976 for the three months ended March 31, 2020, due to additions to real estate across the portfolio.

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Interest expense, net. Interest expense, net, excluding Clover House, increased from $8,274 for the three months ended March 31, 2019, to $9,033 for the three months ended March 31, 2020. The increase primarily resulted from the refinancing of the 250 Livingston property in May 2019 and lower interest income related to the construction at Clover House. Interest expense, excluding Clover House, included amortization of loan costs and changes in fair value of interest rate caps of $272 and $504 for the three months ended March 31, 2020 and 2019, respectively.

Net loss.   As a result of the foregoing, net loss, excluding Clover House, increased from $133 for the three months ended March 31, 2019, to $443 for the three months ended March 31, 2020.

Liquidity and Capital Resources

As of March 31, 2020, we had $997.8 million of indebtedness (net of unamortized issuance costs) secured by our properties, $36.3 million of cash and cash equivalents, and $17.6 million of restricted cash. See Note 7 of the accompanying “Notes to Consolidated Financial Statements” for a discussion of the Company’s property-level debt.

As a REIT, we are required to distribute at least 90% of our REIT taxable income, computed without regard to the dividends paid deduction and excluding net capital gains, to stockholders on an annual basis. We expect that these needs will be met from cash generated from operations and other sources, including proceeds from secured mortgages and unsecured indebtedness, proceeds from additional equity issuances and cash generated from the sale of property.

Short-Term and Long-Term Liquidity Needs

Our short-term liquidity needs will primarily be to fund operating expenses, recurring capital expenditures, property taxes and insurance, interest and scheduled debt principal payments, general and administrative expenses and distributions to stockholders and unit holders. We generally expect to meet our short-term liquidity requirements through net cash provided by operations, and we believe we will have sufficient resources to meet our short-term liquidity requirements.

Our principal long-term liquidity needs will primarily be to fund additional property acquisitions, major renovation and upgrading projects, and debt payments and retirements at maturity. We do not expect that net cash provided by operations will be sufficient to meet all of these long-term liquidity needs. We anticipate meeting our long-term liquidity requirements by using cash as an interim measure and funds from public and private equity offerings and long-term secured and unsecured debt offerings.

We believe that as a publicly traded REIT, we will have access to multiple sources of capital to fund our long-term liquidity requirements. These sources include the incurrence of additional debt and the issuance of additional equity. However, we cannot provide assurance that this will be the case. Our ability to secure additional debt will depend on a number of factors, including our cash flow from operations, our degree of leverage, the value of our unencumbered assets and borrowing restrictions that may be imposed. Our ability to access the equity capital markets will depend on a number of factors as well, including general market conditions for REITs and market perceptions about our company.

We believe that our current cash flows from operations, coupled with additional mortgage debt, will be sufficient to allow us to continue operations, satisfy our contractual obligations and make distributions to our stockholders and the members of our LLC subsidiaries for at least the next twelve months. However, no assurance can be given that we will be able to refinance any of our outstanding indebtedness in the future on favorable terms or at all.

Distributions

In order to qualify as a REIT for Federal income tax purposes, we must currently distribute at least 90% of our taxable income to our shareholders. During the three months ended March 31, 2020 and 2019, we paid dividends and distributions on our common shares, Class B LLC units and LTIP units totaling $4.3 million and $4.3 million, respectively.

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Cash Flows for the Three Months Ended March 31, 2020 and 2019 (in thousands)

	Three Months Ended March 31,
	2020			2019
Operating activities	$	9,050		$	11,950
Investing activities		(7,115	)		(10,208	)
Financing activities		(4,997	)		(4,972	)

Cash flows provided by (used in) operating activities, investing activities and financing activities for the three months ended March 31, 2020 and 2019, were as follows:

Net cash flow provided by operating activities was $9,050 for the three months ended March 31, 2020, compared to $11,950 for the three months ended March 31, 2019. The net decrease during the 2020 period reflected an increase of $30 of cash flow from operating results, offset by a decrease of $2,930 of cash generated by operating assets and liabilities.

Net cash used in investing activities was $7,115 for the three months ended March 31, 2020, compared to $10,208 for the three months ended March 31, 2019. The cash in the respective periods was spent on capital projects (with $14 spent on the purchase of an interest rate cap in the 2020 period).

Net cash used in financing activities was $4,997 for the three months ended March 31, 2020, compared to $4,972 for the three months ended March 31, 2019. Cash was used in the three months ended March 31, 2020, for scheduled debt amortization ($897) partially offset by additional borrowings related to the development at 1010 Pacific Street ($176); and in the three months ended March 31, 2019, primarily for scheduled debt amortization ($711). The Company paid distributions of $4,276 and $4,261 in the three months ended March 31, 2020 and 2019, respectively.

Income Taxes

No provision has been made for income taxes since all of the Company’s operations are held in pass-through entities and accordingly the income or loss of the Company is included in the individual income tax returns of the partners or members.

We elected to be treated as a REIT for U.S. federal income tax purposes, beginning with our first taxable three months ended March 31, 2015. As a REIT, we generally will not be subject to federal income tax on income that we distribute to our stockholders. If we fail to qualify as a REIT in any taxable year, we will be subject to federal income tax on our taxable income at regular corporate tax rates. We believe that we are organized and operate in a manner that will enable us to qualify and be taxed as a REIT and we intend to continue to operate so as to satisfy the requirements for qualification as a REIT for federal income tax purposes.

Inflation

Inflation in the United States has been relatively low in recent years and did not have a significant impact on the results of operations for the Company’s business for the periods shown in the consolidated financial statements. We do not believe that inflation currently poses a material risk to the Company. The leases at our residential rental properties, which comprise approximately 77% of our revenue, are short-term in nature. Our longer-term commercial and retail leases would generally allow us to recover some increased costs in the event of significant inflation.

Although the impact of inflation has been relatively insignificant in recent years, it does remain a factor in the United States economy and could increase the cost of acquiring or replacing properties in the future.

Off-Balance Sheet Arrangements

As of March 31, 2020, we do not have any off-balance sheet arrangements that have had or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital resources or capital expenditures.

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Non-GAAP Financial Measures

In this Quarterly Report on Form 10-Q, we disclose and discuss funds from operations (“FFO”), adjusted funds from operations (“AFFO”), adjusted earnings before interest, income taxes, depreciation and amortization (“Adjusted EBITDA”) and net operating income (“NOI”), all of which meet the definition of “non-GAAP financial measure” set forth in Item 10(e) of Regulation S-K promulgated by the SEC.

While management and the investment community in general believe that presentation of these measures provides useful information to investors, neither FFO, AFFO, Adjusted EBITDA, nor NOI should be considered as an alternative to net income (loss) or income from operations as an indication of our performance. We believe that to understand our performance further, FFO, AFFO, Adjusted EBITDA, and NOI should be compared with our reported net income or income from operations and considered in addition to cash flows computed in accordance with GAAP, as presented in our consolidated financial statements.

Funds From Operations and Adjusted Funds From Operations

FFO is defined by the National Association of Real Estate Investment Trusts (“NAREIT”) as net income (computed in accordance with GAAP), excluding gains (or losses) from sales of property and impairment adjustments, plus depreciation and amortization, and after adjustments for unconsolidated partnerships and joint ventures. Our calculation of FFO is consistent with FFO as defined by NAREIT.

AFFO is defined by us as FFO excluding amortization of identifiable intangibles incurred in property acquisitions, straight-line rent adjustments to revenue from long-term leases, amortization costs incurred in originating debt, interest rate cap mark-to-market adjustments, amortization of non-cash equity compensation, acquisition and other costs, loss on extinguishment of debt, gain on involuntary conversion and non-recurring litigation-related expenses, less recurring capital spending.

Historical cost accounting for real estate assets implicitly assumes that the value of real estate assets diminishes predictably over time. In fact, real estate values have historically risen or fallen with market conditions. FFO is intended to be a standard supplemental measure of operating performance that excludes historical cost depreciation and valuation adjustments from net income. We consider FFO useful in evaluating potential property acquisitions and measuring operating performance. We further consider AFFO useful in determining funds available for payment of distributions. Neither FFO nor AFFO represent net income or cash flows from operations computed in accordance with GAAP. You should not consider FFO and AFFO to be alternatives to net income (loss) as reliable measures of our operating performance; nor should you consider FFO and AFFO to be alternatives to cash flows from operating, investing or financing activities (computed in accordance with GAAP) as measures of liquidity.

Neither FFO nor AFFO measure whether cash flow is sufficient to fund all of our cash needs, including principal amortization, capital improvements and distributions to stockholders. FFO and AFFO do not represent cash flows from operating, investing or financing activities computed in accordance with GAAP. Further, FFO and AFFO as disclosed by other REITs might not be comparable to our calculations of FFO and AFFO.

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The following table sets forth a reconciliation of FFO and AFFO for the periods presented to net loss, computed in accordance with GAAP (amounts in thousands):

	Three Months Ended March 31,
	2020			2019
FFO
Net loss	$	(806	)	$	(133	)
Real estate depreciation and amortization		5,558			4,549
FFO	$	4,752		$	4,416
AFFO
FFO	$	4,752		$	4,416
Amortization of real estate tax intangible		119			119
Amortization of above- and below-market leases		(99	)		(424	)
Straight-line rent adjustments		201			634
Amortization of debt origination costs		304			504
Amortization of LTIP awards		158			156
Non-recurring litigation-related expenses		264			—
Recurring capital spending		(145	)		(153	)
AFFO	$	5,554		$	5,252

Adjusted Earnings Before Interest, Income Taxes, Depreciation and Amortization

We believe that Adjusted EBITDA is a useful measure of our operating performance. We define Adjusted EBITDA as net income (loss) before allocation to non-controlling interests, plus real estate depreciation and amortization, amortization of identifiable intangibles, straight-line rent adjustments to revenue from long-term leases, amortization of non-cash equity compensation, interest expense (net), acquisition and other costs, loss on extinguishment of debt and non-recurring litigation-related expenses, less gain on involuntary conversion.

We believe that this measure provides an operating perspective not immediately apparent from GAAP income from operations or net income (loss). We consider Adjusted EBITDA to be a meaningful financial measure of our core operating performance.

However, Adjusted EBITDA should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating Adjusted EBITDA, and accordingly, our Adjusted EBITDA may not be comparable to that of other REITs.

The following table sets forth a reconciliation of Adjusted EBITDA for the periods presented to net loss, computed in accordance with GAAP (amounts in thousands):

	Three Months Ended March 31,
	2020			2019
Adjusted EBITDA
Net loss	$	(806	)	$	(133	)
Real estate depreciation and amortization		5,558			4,549
Amortization of real estate tax intangible		119			119
Amortization of above- and below-market leases		(99	)		(424	)
Straight-line rent adjustments		201			634
Amortization of LTIP awards		158			156
Interest expense, net		9,788			8,274
Non-recurring litigation-related expenses		264			—
Adjusted EBITDA	$	15,183		$	13,175

Net Operating Income

We believe that NOI is a useful measure of our operating performance. We define NOI as income from operations plus real estate depreciation and amortization, general and administrative expenses, acquisition and other costs, amortization of identifiable intangibles and straight-line rent adjustments to revenue from long-term leases. We believe that this measure is widely recognized and provides an operating perspective not immediately apparent from GAAP income from operations or net income (loss). We use NOI to evaluate our performance because NOI allows us to evaluate the operating performance of our company by measuring the core operations of property performance and capturing trends in rental housing and property operating expenses. NOI is also a widely used metric in valuation of properties.

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However, NOI should only be used as an alternative measure of our financial performance. Further, other REITs may use different methodologies for calculating NOI, and accordingly, our NOI may not be comparable to that of other REITs.

The following table sets forth a reconciliation of NOI for the periods presented to income from operations, computed in accordance with GAAP (amounts in thousands):

	Three Months Ended March 31,
	2020			2019
NOI
Income from operations	$	8,982		$	8,141
Real estate depreciation and amortization		5,558			4,549
General and administrative expenses		2,323			1,668
Amortization of real estate tax intangible		119			119
Amortization of above- and below-market leases		(99	)		(424	)
Straight-line rent adjustments		201			634
NOI	$	17,084		$	14,687

Critical Accounting Policies

Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these consolidated financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses. Management bases its estimates on historical experience and assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe that there have been no material changes to the items that we disclosed as our critical accounting policies under Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” in our Form 10-K for the year ended December 31, 2019.

Recent Accounting Pronouncements

See Note 3, “Significant Accounting Policies” of our consolidated financial statements for a discussion of recent accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our future income, cash flows and fair value relevant to our financial instruments depends upon prevailing market interest rates. Market risk refers to the risk of loss from adverse changes in market prices and interest rates. Based upon the nature of our operations, the principal market risk to which we are exposed is the risk related to interest rate fluctuations. Many factors, including governmental monetary and tax policies, domestic and international economic and political considerations, and other factors that are beyond our control, contribute to interest rate risk. To manage this risk, we purchased interest rate caps on the $64.7 million of Clover House debt outstanding (prior to the Clover House debt refinancing on November 8, 2019), the $75.0 million of 250 Livingston Street debt outstanding (prior to the 250 Livingston Street debt refinancing on May 31, 2019) and the $19.6 million of 1010 Pacific Street debt outstanding as of March 31, 2020, that would provide interest rate protection if one-month LIBOR exceeds 3.0% for the Clover House loans, 4.0% for the 250 Livingston Street loan and 3.6% for the 1010 Pacific Street loans.

A one percent change in interest rates on our $19.6 million of variable rate debt as of March 31, 2020, would impact annual net income by approximately $0.2 million.

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The fair value of the Company’s notes payable was approximately $1,151.5 million and $1,058.1 million as of March 31, 2020, and December 31, 2019, respectively.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our CEO and CFO have concluded that as of March 31, 2020, our disclosure controls and procedures are designed at a reasonable assurance level and are effective to provide reasonable assurance that information we are required to disclose in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Control 

There were no changes in our internal control over financial reporting identified in management’s evaluation pursuant to Rules 13a-15(d) or 15d-15(d) of the Exchange Act during the period covered by this Quarterly Report on Form 10-Q that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on Effectiveness of Controls and Procedures

In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply judgment in evaluating the benefits of possible controls and procedures relative to their costs.

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDIngs

On July 3, 2017, the Supreme Court of the State of New York (the “Court”) ruled in favor of 41 present or former tenants of apartment units at the Company’s buildings located at 50 Murray Street and 53 Park Place in Manhattan, New York, who brought an action against the Company alleging that they were subject to applicable rent stabilization laws with the result that rental payments charged by the Company exceeded amounts permitted under these laws because the buildings were receiving certain tax abatements under Real Property Tax Law (“RPTL”) 421-g. The Court also awarded the plaintiffs-tenants their attorney’s fees and costs. The Court declared that the plaintiffs-tenants were subject to rent stabilization requirements and referred the matter to a special referee to determine the amount of rent over-charges, if any. On July 18, 2017, the Court, pursuant to the parties’ agreement, stayed the Court’s ruling; the Company subsequently appealed the decision to the Appellate Division, First Department. On January 18, 2018, the Appellate Division unanimously reversed the Court’s ruling and ruled in favor of the Company, holding that the Company acted properly in de-regulating the apartments. The plaintiffs-tenants thereafter moved for leave to appeal to the Court of Appeals, which motion was granted on April 24, 2018. On June 25, 2019, the New York Court of Appeals reversed the Appellate Division’s order and ruled in favor of the plaintiffs-tenants, holding that apartments in buildings receiving RPTL 421-g tax benefits are not subject to luxury deregulation. The Court of Appeals also remitted the matter for further proceedings consistent with its opinion. As a result of the Court of Appeals’ order, Company management believes that payments may be required to be made to the 41 present or former tenants comprising the plaintiff group, that other tenants may attempt to make similar claims, and that the special referee process referred to above will be used to determine the timing and the amount of any claims that must be paid. On July 25, 2019, the Company filed a motion for reargument with the New York Court of Appeals, which was denied on September 12, 2019. On August 13, 2019, the Court, in effect, reinstated its prior order and referred the calculation of rent overcharges and attorneys’ fees for a hearing before a special referee.  The special referee’s hearing was scheduled for October 23, 2019. On October 17, 2019, the Company made a motion in the Appellate Division for a stay of the special referee’s hearing pending the Company’s appeal from the August 13 order. On such date, the Appellate Division granted an interim stay of the special referee’s hearing, pending the determination of the underlying motion. On January 7, 2020, the Appellate Division granted the Company’s motion for a full stay of the special referee’s hearing pending appeal. The appeal had been scheduled to be argued during the May 2020 term, but on March 16, 2020, the parties filed a stipulation adjourning the appeal to the September 2020 term. On October 24, 2019, the Company filed a Petition for a Writ of Certiorari with the United States Supreme Court, seeking permission to have that Court hear the Company’s appeal on Constitutional grounds from the Court of Appeals’ order. On January 13, 2020, the United States Supreme Court denied the Company’s Petition for a Writ of Certiorari, meaning that the Court of Appeals’ order is final. On November 18, 2019, the same law firm which filed the Kuzmich case above filed a second action involving a separate group of 26 tenants (captioned Crowe et al v 50 Murray Street Acquisition LLC, Supreme Court, New York County, Index No. 161227/19), which action advances the same exact claims as in Kuzmich. The Company’s deadline to answer or otherwise respond to the complaint in Crowe has been extended to June 30, 2020. The Company cannot predict what the timing or ultimate resolution of these matters will be, and accordingly, at this time, the Company has not recorded any liability for the potential settlement of these matters.

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In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business, including a claim under the Americans with Disabilities Act of 1990 at the 141 Livingston Street property. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will not have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.

item 1a. RISK FACTORS

The risk factors disclosed in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, set forth information relating to various risks and uncertainties that could materially adversely affect our business, financial condition, liquidity and operating results. Such risk factors continue to be relevant to an understanding of our business, financial condition, liquidity and operating results. Moreover, many of the risks described in the risk factors set forth in our Annual Report on Form 10-K may be more likely to impact us as a result of the COVID-19 pandemic.

The risk factor set forth below supplements, and should be read together with, the risk factors disclosed in our Annual Report on Form 10-K for the year ended December 31, 2019.

The ongoing COVID-19 pandemic, and measures intended to curb its spread, could have a material adverse impact on our business, financial condition, liquidity and results of operations.

The COVID-19 pandemic, which was declared a pandemic by the World Health Organization in March 2020, has led governments and other authorities around the world, including federal, state and local authorities in the United States, to impose measures intended to control the spread of the virus, including restrictions on freedom of movement and business operations such as travel bans, border closings, business closures, quarantines and shelter-in-place orders.

The impact of the COVID-19 pandemic and measures enacted by governmental authorities to curb its spread could negatively impact our businesses in a number of ways, including affecting our tenants’ ability or willingness to pay rents and reducing demand for housing in the New York metropolitan area. In some cases, we may restructure rent obligations on terms that are less favorable to us than those currently in place. In the event of resident nonpayment, default or bankruptcy, we may incur costs in protecting our investment and re-leasing our property. Additionally, local and national authorities may enact, expand or extend certain measures imposing restrictions on our ability to enforce tenants’ contractual rental obligations. In addition, restrictions restricting our employees’ and other brokers’ ability to meet with existing and potential residents may disrupt our ability to lease apartments which could adversely impact our rental rate and occupancy levels.

The COVID-19 pandemic has also caused, and is likely to continue to cause, severe economic, market and other disruptions worldwide. We cannot assure you conditions will not continue to deteriorate as a result of the COVID-19 pandemic. In addition, the deterioration of global economic conditions as a result of the COVID-19 pandemic may ultimately decrease occupancy levels and pricing across our portfolio as residents and commercial tenants reduce their spending.

The full extent of the COVID-19 pandemic’s effect on our business, financial condition, liquidity and results of operations will depend on future developments, including the duration, spread and intensity of the outbreak and the measures intended to curb its spread, all of which are uncertain and difficult to predict. As a result of the rapid development and fluidity with which the situation is developing, we are unable to estimate the effect of these factors on our business, but if such events lead to a significant or prolonged impact on capital or credit markets or economic growth, then our business, financial condition, liquidity and results of operations could be adversely affected.

ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Not applicable.

ITEM 4.  MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5.  OTHER INFORMATION

On May 8, 2020, the Company refinanced the existing Flatbush Gardens loan with a $329 million, twelve-year secured first mortgage note with New York Community Bank. The note matures on June 1, 2032, and bears interest at 3.125% through May 2027 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note requires interest-only payments through May 2027, and monthly principal and interest payments thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

30

ITEM 6. EXHIBITS

Exhibit Number	Description
*†10.1	Employment Agreement, dated April 7, 2020, between Clipper Realty Inc. and Michael Frenz
*10.2	Amended and Restated Mortgage Note, dated May 8, 2020, between Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G, and New York Community Bank
*10.3	Mortgage, Assignment of Leases and Rents and Security Agreement, dated May 8, 2020, between Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G, and New York Community Bank
*31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
*31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
*32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
*32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
**101.INS	XBRL Instance Document.
**101.SCH	XBRL Taxonomy Extension Schema Document.
**101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
**101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
**101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
**101 DEF	XBRL Taxonomy Extension Definition Linkbase Document

*Filed herewith

**Submitted electronically with the report

† Indicates management contract or compensation plan

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned.

	Clipper realty inc.
May 11, 2020	By:	/s/ David Bistricer
		David Bistricer
		Co-Chairman and Chief Executive Officer

32

EX-10.1

Exhibit 10.1

EXECUTION VERSION

April 7, 2020

Michael Frenz
4611 12th Avenue, Suite 1L
Brooklyn, New York 11219

Re: Terms of Employment

Dear Michael,

This letter (this “Letter”) sets forth the term of your employment with Clipper Realty L.P., a Maryland limited partnership (the “Company”).

1. Commencement Date

This Letter is being entered into in connection with your appointment as Chief Financial Officer of Clipper Realty Inc., a Maryland corporation (“Parent”). Your employment under this Letter is effective as of June 30, 2019 (the “Commencement Date”).

2. Term

Your employment under this Letter is effective as of the Commencement Date and will continue until either you or the Company terminates such employment. Your employment with the Company will be for an unspecified duration and constitutes “at will” employment. Your employment may be terminated at any time for any reason or no reason, at the option of you or the Company, subject to the obligations under this Letter. Upon termination of your employment with the Company, at the request of the Company you will promptly resign from any officer position, directorship or any other position in which you act as a fiduciary of or for the Company, Parent or any of their subsidiaries (collectively, the “Group”).

3. Position and Duties

3.1 Position and Reporting. You will serve the Company and Parent in the position of Chief Financial Officer (your “Position”). In those capacities, you will report directly to the Company’s Chief Executive Officer. You understand, acknowledge and agree that you will be employed by the Company but will be providing services to both the Company and, to the extent appropriate or necessary, Parent.

Michael Frenz
April 7, 2020
Page 2

3.2 Duties and Responsibilities. You are required to perform the duties that are customarily associated with and appropriate to the Position, or which are delegated to you, from time to time, by the Company’s Chief Executive Officer or the Company’s Board of Directors (the “Board”). Unless otherwise designated by the Company’s Chief Executive Officer or the Board, you will primarily perform such duties at the Company’s office in Brooklyn, New York (your “Primary Work Site”), subject to required travel where appropriate to execute such duties and such other terms and conditions provided in this Letter.

3.3 Performance. You will devote substantially all of your business time and attention to the Group and will use good faith efforts to discharge your responsibilities under this Letter to the best of your ability. Unless you have the Company’s written consent, you may not: (i) engage in any activities, including but not limited to directorships or personal business activities, where a conflict might arise as between those activities and the Group’s interests; or (ii) perform any other work which interferes with your ability to perform your duties for the Group, whether or not a conflict of interest might arise as between that other work and the Group’s interests. You also understand, acknowledge and agree that you will comply with the Investment Policy while you are employed by the Company.

4. Compensation

4.1 Salary. Your annual base salary is $225,000 (as may be increased or decreased from time to time, your “Salary”), payable in accordance with the Company’s normal practices for senior executives. The Compensation Committee of the Board will review your Salary at least annually and may increase it at any time for any reason. However, your Salary may not be decreased at any time (including after any increase) other than as part of an across-the-board salary reduction that applies in the same manner to all senior executives, and any increase in your Salary will not reduce or limit any other obligation to you under this Letter.

4.2 Future Annual Cash Bonus. Beginning with the calendar year ending December 31, 2019, you will be entitled to earn an annual cash incentive bonus (your “Bonus”) for each calendar year of the Company ending during your employment (for the avoidance of doubt, your Bonus for 2019 will not be subject to proration). Your target Bonus opportunity will be 66.7% of your Salary (e.g., $150,000 for 2019), and your actual Bonus will range from 0% to 100% of your target bonus opportunity based on actual performance against performance metrics established by the Compensation Committee of the Board and be paid within two and one half months after the end of the calendar year to which it relates. The Compensation Committee of the Board, in its sole discretion, will establish the specific performance targets for each calendar year. Your Bonus will be subject to the terms of the Group plan under which it is awarded (including applicable performance metrics and any deferral requirements) and any Group clawback or recoupment policy in effect from time to time. You expressly agree to comply with any such policy in all regards.

4.3 Equity Awards.

Beginning in 2019 and for any future calendar years during your employment, you will be eligible to receive a long-term incentive compensation award (“LTI Award”) in form, including vesting restrictions, and amount determined in the sole discretion of the Board (or the Compensation Committee of the Board). Your LTI Awards, including the LTI Award granted in 2019, will be subject to the terms of the Parent equity plan under which it is granted and the applicable award agreement.

Michael Frenz
April 7, 2020
Page 3

5. Benefits

During your employment, you will be entitled to participate in each of the Group’s employee benefit and welfare plans, including plans providing retirement benefits or medical, dental, hospitalization, life or disability insurance, on a basis that is at least as favorable as that generally provided to other senior executives of the Group. You will be entitled to paid time off and other types of leave on a basis that is at least as favorable as that provided to other senior executives of the Group. You will be reimbursed for all reasonable business and entertainment expenses incurred by you in performing your responsibilities under this Letter that are submitted in accordance with the Group’s policy.

6. Indemnification and Advancement of Expenses

To the extent permitted by law and subject to the Parent’s articles of incorporation and bylaws, the Company will indemnify you against any actual or threatened action, suit or proceeding against you, whether civil, criminal, administrative or investigative, arising by reason of your status as a director, officer, employee and/or agent of the Group during your employment. In addition, to the extent permitted by law and subject to the Parent’s articles of incorporation and bylaws, the Company will advance or reimburse any expenses, including reasonable attorney’s fees, you incur in investigating and defending any actual or threatened action, suit or proceeding for which you may be entitled to indemnification under this Section 6. However, you agree to repay any expenses paid or reimbursed by the Company if it is ultimately determined that you are not legally entitled to be indemnified by the Company.

7. Company Property

7.1 All material, including but not limited to written material whether in hard copy or electronic format, created by you or which comes into your possession or control in the course of your employment with the Group, is the property of the Group.

7.2 When your employment with the Company ends, or when otherwise directed by the Company, you must return all of the Group’s property in your possession or control including, but not limited to, all material (whether written material in hard copy or electronic format), keys, access cards, vehicles owned or leased by the Group, phones, computers or discs. When directed by the Company, instead of returning such property to the Group, you must destroy it and certify in writing to the Company that you have done so.

Michael Frenz
April 7, 2020
Page 4

7.3 You agree that any intellectual property created or developed by you (whether by yourself or with others) in the course of your employment with the Group will belong exclusively to the Group. By signing this Letter you: (i) assign to the Group all rights in any intellectual property (including all rights of copyright and patent) created or developed by you (whether by yourself or with others) in the course of your employment, including the right to develop, make, use, sell, license or otherwise benefit from the intellectual property; and (ii) agree to execute any documents necessary or desirable to give effect to your obligations in this Section 7.3.

7.4 You consent to the Group doing or omitting to do anything that would otherwise infringe your rights in any copyright works created or developed by you (whether alone or with others) in the course of your employment with the Company.

8. Confidential Information

8.1 You agree that during your employment with the Company, and after your employment with the Company ends, you must not use or disclose to any person any Proprietary Information which you acquire during your employment with the Company, except if that use or disclosure is in the proper course of your employment for the Group’s benefit, with the Company’s written consent, or as required by law. You agree that during your employment you will use your best endeavors to maintain proper and secure custody of any Proprietary Information and to prevent the publication, use or disclosure of any Proprietary Information, including by a third party.

“Proprietary Information” means confidential or proprietary information, knowledge or data concerning (i) the Group’s businesses, strategies, operations, financial affairs, organizational matters, personnel matters, budgets, business plans, marketing plans, studies, policies, procedures, products, ideas, processes, software systems, trade secrets and technical know-how, (ii) any other matters relating to the Group and (iii) any matter relating to clients of the Group or other third parties having relationships with the Group. Proprietary Information includes (i) information regarding any aspect of your tenure as an employee of the Group or the termination of your employment, (ii) the names, addresses, and phone numbers and other information concerning clients and prospective clients of the Group, (iii) investment techniques and trading strategies used in, and the performance records of, client accounts or other investment products, and (iv) information and materials concerning the personal affairs of employees of the Group. In addition, Proprietary Information may include information furnished to you orally or in writing (whatever the form or storage medium) or gathered by inspection, in each case before or after the date of this Letter.

8.2 These obligations do not apply to Proprietary Information which is publicly available, unless that information is publicly available because you have, directly or indirectly, breached any of your obligations with respect to that information. If it is uncertain whether any information is publicly available, the information is deemed not to be publicly available, unless the Company informs you in writing to the contrary.

Michael Frenz
April 7, 2020
Page 5

8.3 Nothing in this Letter prohibits you from providing truthful testimony concerning the Group to governmental, regulatory or self-regulatory authorities, including your right to make disclosures under the whistleblower provisions of federal law or regulation, so long as you give the Company written notice of such testimony (if legally permitted) as soon as practicable under the circumstances to enable the Group to seek a protective order, confidential treatment or other appropriate relief and cooperate with the Group in seeking to do so.

9. Termination of Employment

9.1 Related Definitions.

(a) “Cause” means the occurrence of any of the following: (i) your conviction of, or plea of guilty or no contest to, any felony or any crime involving fraud or moral turpitude under the laws of the United States or any state thereof or under the laws of any other jurisdiction; (ii) your engagement in gross misconduct that causes material financial or reputational harm to the Group; (iii) your material violation of this Letter or any written Company policy (including, but not limited to, the Investment Policy) or (iv) your disqualification or bar by any governmental or self-regulatory authority from serving in the capacity required by your job description or your loss of any governmental or self-regulatory license that is reasonably necessary for you to perform your duties or responsibilities, in each case as an employee of the Group. The Group may place you on unpaid leave for up to 60 consecutive days while it is determining whether there is a basis to terminate your employment for Cause.

(b) “Disability” will have the meaning provided in the Group’s disability policy, as may be amended from time to time.

9.2 Without Cause. If the Company terminates your employment without Cause, subject to Section 9.5, the only further obligations the Group will have to you are:

(a) The Company will:

(i) within 30 days of your termination, pay you (A) your unpaid Salary; (B) your Salary for any accrued but unused paid time off; and (C) reimbursement of any business expenses submitted in accordance with the Group’s policy; and

(ii) provide to you, in accordance with the then-existing employee benefit plans, policies and practices of the Group, all other accrued and vested benefits

((i) and (ii) together, your “Accrued Compensation”).

(b) The Company will pay you your Earned Bonus, as hereinafter defined, at the time such Earned Bonus would otherwise have been paid had your employment not ended. Your “Earned Bonus” means any earned but unpaid Bonus for any calendar year ending before the end of your employment and, to the extent it has not been determined before the end of your employment, determined based on actual performance consistent with this Letter and the Group plan under which it was awarded.

Michael Frenz
April 7, 2020
Page 6

(c) The Company will pay you your Prorated Bonus, as hereinafter defined, at the time such Prorated Bonus would otherwise have been paid had your employment not ended. Your “Prorated Bonus” means the Bonus for the calendar year in which your termination occurs based on the actual performance of the Company consistent with this Letter and the Group plan under which it was awarded, and prorated for the number of days you worked for the Company during such year.

(d) The Company will pay you cash severance under, and pursuant to the terms of, the Company’s general severance plan or policy as in effect on your termination date (the “Severance Payment”).

(e) The Company will, at the Company’s election, either (i) continue to provide to you benefits under the Company’s group health insurance, vision and dental plans at the level provided to you immediately prior to your termination date through the 12-month anniversary date of such termination date, at which time you may be eligible to elect to continue health care and dental coverage under COBRA, or (ii) pay you a lump-sum cash payment equal to 12 times the monthly COBRA cost of continued health and medical coverage for you and, as applicable, your covered spouse and/or dependents at the level provided to you immediately prior your termination date, with such payment grossed up for applicable taxes.

(f) Any outstanding LTI Awards will continue to vest on the vesting date(s) specified in the applicable award agreement, as if you had remained employed through such date(s), subject to your continued compliance with the restrictive covenants contained in Sections 8 and 11 of this Letter and in any other agreement with the Group.

9.3 For Cause or Resignation for Any Reason. If the Company terminates your employment for Cause or you terminate your employment for any reason, the Company will pay you your Accrued Compensation. The Group will have no further obligations to you, and you will forfeit your Earned Bonus, Prorated Bonus, and any unvested portion of your LTI Awards.

9.4 Death or Disability. If your employment terminates as a result of your death or Disability, the only further obligations the Group will have to you are: (i) the Company will pay you your Accrued Compensation, your Earned Bonus and your Prorated Bonus, and (ii) your LTI Awards will vest in accordance with the terms of the applicable award agreement, subject to your continued compliance with the restrictive covenants contained in Sections 8 and 11 of this Letter and in any other agreement with the Group.

Michael Frenz
April 7, 2020
Page 7

9.5 Release. Notwithstanding anything to the contrary, the Company will not be required to make the payments and provide the benefits in Sections 9.2 (other than the Accrued Compensation) unless you execute and deliver to the Company an agreement releasing from all liability each member of the Group and any of their respective past or present officers, directors, employees or agents (the “Release”). For the avoidance of doubt, the parties acknowledge that your right to elect COBRA coverage is not subject to your execution of a Release. The Release will be in the form normally used by the Company for senior executives at the time and will be provided to you no later than two days after your separation from service, and must be executed by you and become effective (i.e., the period for revocation must have expired) and not be revoked by you by the 55th day following your separation of service (the period following your termination until the Release becomes effective, the “Release Period”). Any payments or benefits that would have been paid or provided to you during the Release Period will be paid or provided on the next regularly scheduled Company payroll date following the Release Period.

9.6 If you violate any of the restrictive covenants contained in Sections 8 and 11 of this Letter, you will (i) forfeit any LTI Awards to the extent that they have not vested at the time of such violation and (ii) forfeit any unpaid Severance Payment. Nothing in this Section 9.6 will be construed as prohibiting the Company from pursuing any other remedies available to it in the event of a violation of Sections 8 or 11.

10. Deductions

Either during your employment or when your employment with the Company ends, you authorize the Group to deduct any amount of money that you owe the Group from any amount of money the Group owes you.

11. Post-Employment Obligations

11.1 Non-Competition and Non-Solicitation. You agree that during your employment with the Group and for a period of 3 months from the date your employment with the Group ends for any reason, you must not, without the Company’s prior written consent (a) engage in a Competitive Enterprise or (b) directly or indirectly (including via a corporate entity) Solicit or entice, or endeavor to Solicit or entice, from the Group any officer or employee of the Group with whom you have had direct or indirect contact or dealings, or knowledge of, during the 12 months prior to your termination date.

11.2 Related Definitions.

(a) “Competitive Enterprise” means any (i) multi-family or commercial property located in the metropolitan New York City area or (ii) business enterprise that holds a 25% or greater equity, voting or profit participation interest in any such property; provided that a Competitive Enterprise will not include (1) any “Excluded Assets” (as defined in the Investment Policy) or (2) any investment opportunity which has been offered to the Company and the Board (or an independent committee of the Board), and either (A) such offeree has determined that the Company will not pursue such investment opportunity or (B) such offeree has not responded to indicate that the Company shall pursue such investment opportunity within 30 days after such offer was made.

Michael Frenz
April 7, 2020
Page 8

(b) “Solicit” means any direct or indirect communication, regardless of who initiates it, that in any way invites, advises, encourages or requests any person to take or refrain from taking any action.

11.3 Notice to New Employers. Before you either apply for or accept employment with any other person or entity while Section 11.1 is in effect, you will provide the prospective employer with written notice of the provisions of this Section 11 and will deliver a copy of the notice to the Company.

11.4 Future Cooperation. You agree that, upon the Company’s reasonable request following your termination of employment, you will use reasonable best efforts to assist and cooperate with the Company in connection with the defense or prosecution of any claim that may be made against or by the Group arising out of events occurring during your employment, or in connection with any ongoing or future investigation or dispute or claim of any kind involving the Group, including any proceeding before any arbitral, administrative, regulatory, self-regulatory, judicial, legislative, or other body or agency. You will be entitled to reimbursement for reasonable out-of-pocket expenses (including travel expenses) incurred in connection with providing such assistance.

11.5 Non-Disparagement. You agree that you will not at any time publicly disparage or encourage or induce others to publicly disparage the Group (or any of its employees, officers, directors, shareholders, owners, representatives, independent contractors, agents, businesses or services) and/or engage in any conduct that is in any way injurious to the reputation or interests of the Group, including without limitation, any negative or derogatory statements or writings.

11.6 Your Importance to the Group and the Effect of this Section 11. You acknowledge that:

(a) In the course of your involvement in the Group’s activities, you will have access to Proprietary Information and the Group’s client base and will profit from the goodwill associated with the Group. In light of your access to Proprietary Information and your importance to the Group, if you compete with the Group for some time after your employment, the Group will likely suffer significant harm. In return for the benefits you will receive from the Group and to induce the Group to enter into this Letter, and in light of the potential harm you could cause the Group, you agree to the provisions of this Section 11. The Company would not have entered into this Letter if you did not agree to this Section 11.

(b) This Section 11 limits your ability to earn a livelihood in a Competitive Enterprise and your relationships with clients. You acknowledge, however, that complying with this Section 11 will not result in severe economic hardship for you or your family.

Michael Frenz
April 7, 2020
Page 9

12. Effect of 280G Excise Tax

12.1 In the event that the payments and other benefits provided for in this Letter or otherwise payable to you (collectively, “Benefits”) (i) constitute “parachute payments” within the meaning of Section 280G of the Internal Revenue Code of 1986 (the “Code”) and (ii) but for this Section 12.1, would be subject to the excise tax imposed by Section 4999 of the Code, then your Benefits will be either:

(a) delivered in full, or

(b) delivered as to such lesser extent which would result in no portion of such Benefits being subject to the excise tax under Section 4999 of the Code,

whichever of the foregoing amounts, taking into account the applicable federal, state and local income taxes and the excise tax imposed by Section 4999 of the Code, results in the receipt by you, on an after-tax basis, of the greatest amount of Benefits. The Benefits to be reduced under this Section 12.1 will be determined in a manner which has the least economic cost to you and, to the extent the economic cost is equivalent, will be reduced in the inverse order of when the Benefits would have been made to you.

12.2 The determinations to be made with respect to Section 12.1 will be made by a certified public accounting firm (the “Accountant”) designated by the Company. As part of such determinations, the Accountant will conduct a valuation of any restrictions on your ability to compete. The Company will be responsible for all charges of the Accountant.

13. Section 409A

13.1 This Letter is intended to comply with Section 409A of the Code (“Section 409A”) to the extent it is subject thereto, and the Letter will be interpreted on a basis consistent with such intent. If and to the extent that any payment or benefit under this Letter, or any plan, award agreement or arrangement of the Group, constitutes “non-qualified deferred compensation” subject to Section 409A, such payments and benefits may only be made or satisfied under this Letter upon an event and in a manner permitted by Section 409A. Each payment of compensation under this Letter will be treated as a separate payment of compensation for purposes of Section 409A to the extent Section 409A applies to such payments.

13.2 Notwithstanding anything in this Letter to the contrary, if you are considered a “specified employee” for purposes of Section 409A, (i) if payment of any amounts under this Letter is required to be delayed for a period of six months after separation from service pursuant to Section 409A, payment of such amounts will be delayed as required by Section 409A and will, subject to Section 9.5, be paid in a lump sum payment within fifteen days after the end of the six-month period and (ii) in the event any equity-based awards held by you that vest upon termination of your employment constitute “non-qualified deferred compensation” subject to Section 409A, the delivery of shares or cash (as applicable) in settlement of such awards will be made on the earliest permissible payment date (including the date that is six months after separation from service pursuant to Section 409A) or event under Section 409A on which the shares or cash would otherwise be delivered or paid. If you die during the postponement period prior to the payment of any amounts or benefits or delivery of shares, the amounts and entitlements delayed on account of Section 409A will be paid or provided to the personal representative of your estate within 60 days after the date of your death.

Michael Frenz
April 7, 2020
Page 10

13.3 All payments to be made upon a termination of employment under this Letter that constitute “non-qualified deferred compensation” subject to Section 409A may only be made upon a “separation from service” under Section 409A. In no event may you, directly or indirectly, designate the calendar year of a payment. All reimbursements and in-kind benefits provided under this Letter will be made or provided in accordance with the requirements of Section 409A, including, where applicable, the requirement that (i) the amount of expenses eligible for reimbursement, or in-kind benefits provided, during a calendar year may not affect the expenses eligible for reimbursement, or in-kind benefits to be provided, in any other calendar year; (ii) the reimbursement of an eligible expense will be made no later than the last day of the calendar year following the year in which the expense is incurred; and (iii) the right to reimbursement or in-kind benefits is not subject to liquidation or exchange for another benefit.

14. Dispute Resolution

14.1 Mandatory Arbitration. Subject to the provisions of this Section 14, any dispute involving your employment or this Letter will be finally settled by binding arbitration in the County of Manhattan administered by the American Arbitration Association, the FINRA, JAMS/Endispute, or any other similar association mutually agreed to by the Company and you. The award of the arbitrators will be final and binding and judgment upon the award may be entered in any court having jurisdiction thereof. This procedure will be the exclusive means of settling any disputes that may arise under this Letter. Each party will bear its own attorney’s fees and legal expenses and will share equally the fees and expenses of the arbitration; provided that if you prevail on any material issue (as determined by the arbitrators), the Company will reimburse you for reasonable attorney’s fees and legal expenses incurred in connection with such claim.

14.2 Injunctions and Enforcement of Arbitration Awards. You or the Group may bring an action or special proceeding in a state or federal court of competent jurisdiction sitting in the County of Manhattan to enforce any arbitration award under Section 14.1. Also, the Group may bring such an action or proceeding, in addition to its rights under Section 14.1 and whether or not an arbitration proceeding has been or is ever initiated, to temporarily, preliminarily or permanently enforce any part of Sections 8 and 11. You agree that (i) your violating any part of Sections 8 and 11 would cause damage to the Group that cannot be measured or repaired, (ii) the Group therefore is entitled to an injunction, restraining order or other equitable relief restraining any actual or threatened violation of those Sections, (iii) no bond will need to be posted for the Group to receive such an injunction, order or other relief, (iv) no proof will be required that monetary damages for violations of those Sections would be difficult to calculate and that remedies at law would be inadequate and (v) that the General Counsel of the Company is irrevocably appointed as your agent for service of process in connection with any such action or proceeding (the General Counsel will promptly advise you of any such service of process).

Michael Frenz
April 7, 2020
Page 11

14.3 Waiver of Jury Trial. To the extent permitted by law, you and the Group waive any and all rights to a jury trial with respect to any dispute involving your employment or this Letter.

14.4 Governing Law. This Letter is governed by the laws of the State of New York.

15. General Provisions

15.1 Effect on Other Agreements. This Letter is the entire agreement between you and the Company with respect to the relationship contemplated by this Letter and supersedes any earlier agreement, written or oral, with respect to the subject matter of this Letter. In entering into this Letter, no party has relied on or made any representation, warranty, inducement, promise or understanding that is not in this Letter.

15.2 Withholding. You and the Group will treat all payments to you under this Letter as compensation for services. Accordingly, the Group may withhold from any payment any taxes that are required to be withheld under any law, rule or regulation.

15.3 No Mitigation. You do not need to seek other employment or take any other action to mitigate any amounts owed to you under this Letter, and those amounts will not be reduced if you do obtain other employment.

15.4 Survival. Upon any termination of your employment with the Group or of this Letter, this Letter will continue in full force and effect as is necessary or appropriate to enforce the covenants and agreements in Sections 8 and 11.

15.5 Notices. All notices, requests, demands and other communications under this Letter must be in writing and will deemed given (i) on the business day sent, when delivered by hand or facsimile transmission (with confirmation) during normal business hours, (ii) on the business day after the business day sent, if delivered by a nationally recognized overnight courier or facsimile transmission (with confirmation) outside normal business hours or (iii) on the third business day after the business day sent if delivered by registered or certified mail, return receipt requested, in each case to the following address or number (or to such other addresses or numbers as may be specified by notice that conforms to this Section 15.5):

If to you, then to your last address on the payroll records of the Company unless otherwise directed in writing by you by notice that conforms to this Section 15.5.

If to the Company or any other member of the Group, to:

     Clipper Realty L.P.
     4611 12th Avenue, Suite 1L
     Brooklyn, New York 11219

     Attention: Chief Executive Officer
     Facsimile: (718) 435-3848

Michael Frenz
April 7, 2020
Page 12

15.6 Consideration. This Letter is in consideration of the mutual covenants contained in it. You and the Group acknowledge the receipt and sufficiency of the consideration to this Letter and intend this Letter to be legally binding.

15.7 Waiver and Exercise of Rights. Any provision of this Letter may be amended or waived but only if the amendment or waiver is in writing and signed, in the case of an amendment, by you and the Company or, in the case of a waiver, by the party that would have benefited by the provision waived. Except as this Letter otherwise provides, no failure or delay by you or the Company to exercise any right or remedy under this Letter will operate as a waiver, and no partial exercise of any right or remedy will preclude any further exercise.

15.8 Severability. Every term of this Letter is an independent and severable term. If any provision of this Letter is found by any court of competent jurisdiction (or legally empowered agency) to be illegal, invalid or unenforceable for any reason, then (i) the provision will be amended automatically to the minimum extent necessary to cure the illegality or invalidity and permit enforcement and (ii) the remainder of this Letter will not be affected.

15.9 Successors. You may not assign this Letter without the Company’s consent. Any attempt to effect any of the preceding in violation of this Section 15.9, whether voluntary or involuntary, will be void. The Company may assign this Letter to any of its affiliates or a successor of the Company, in which case the affiliate or successor, as applicable, will be treated for all purposes as the Company under this Letter. If you die and any amounts become payable under this Letter, we will pay those amounts to your estate.

15.10 Third Party Beneficiaries. This Letter will be binding on, inure to the benefit of and be enforceable by the parties and their respective heirs, personal representatives, successors and assigns. In addition, Parent shall be a third party beneficiary to all the rights of the Company set forth herein and may assert them as if it were the Company. This Letter does not confer any rights, remedies, obligations or liabilities to any entity or person other than you, the Company and Parent and your and the Company’s and Parent’s permitted successors and assigns, although this Letter will inure to the benefit of the Group.

15.11 Counterparts. This Letter may be executed in counterparts, each of which will constitute an original and all of which, when taken together, will constitute one agreement.

THIS CONTRACT CONTAINS AN ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.

A copy of this Letter is enclosed for your records. Please sign the acknowledgement below, and return this Letter to me. Please do not hesitate to contact me if you have any questions.

Yours sincerely,

Clipper Realty L.P.

/s/ David Bistricer

By:        David Bistricer
Title:     Co-Chairman and Chief Executive Officer

Acceptance

I acknowledge that I have read and understood this Letter. I accept the Position with Clipper Realty L.P., on the terms set out in this Letter and acknowledge that I have not relied on any representations other than those set out in this Letter.

Signed:

/s/ Michael Frenz

Name: Michael Frenz

Date: April 7, 2020

EX-10.2

Exhibit 10.2

AMENDED AND RESTATED MORTGAGE NOTE

US $329,000,000.00 As of May 8, 2020

FOR VALUE RECEIVED, the undersigned ("Borrower") jointly and severally (if more than one) promises to pay to the order of New York Community Bank, a New York banking corporation, the principal sum of Three Hundred Twenty Nine Million and 00/100 Dollars (US $329,000,000.00), with interest accruing at the Interest Rate on the unpaid principal balance from the Disbursement Date until fully paid.

1.     Defined Terms. In addition to defined terms found elsewhere in this Note, as used in this Note, the following definitions shall apply:

Adjustable Rate Period: June 1, 2027 to and including the last day of May, 2032.

Amortization Period: Three Hundred Sixty (360) months.

Business Day: Any day other than a Saturday, Sunday or any other day on which Lender is not open for business.

Debt Service Amounts: Amounts payable under this Note, the Security Instrument or any other Loan Document.

Default Rate: A rate equal to the lesser of (a) twenty percent (20%) per annum or (b) the maximum interest rate which may be collected from Borrower under applicable law.

Disbursement Date: The date of disbursement of Loan proceeds hereunder.

First Payment Date: July 1, 2020.

Indebtedness: The principal of, interest on, and any other amounts due at any time under this Note, the Security Instrument or any of the other Loan Documents, including, without limitation, prepayment premiums, late charges, default interest, legal fees and advances, plus interest thereon, to protect the security of the Security Instrument, made under the Security Instrument or any other Loan Document.

Index: The highest prime rate as published in The New York Times on each applicable Rate Change Date. In the event the Index is no longer available, the Lender shall compute the interest rate by application of a comparable index selected by the Lender.

Initial Period: From the date hereof to and including the last day of May, 2027.

Amended and Restated Mortgage Note

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Interest Rate: From the date hereof through the end of the Initial Period, the annual rate of Three and One Eighth percent (3.125%).

Thereafter, the interest rate shall be adjusted on every Rate Change Date to a rate which is equal to the sum of the Index and the Margin and rounded up to the next one-eighth of one percentage point (0.125%). The interest rate, as so adjusted from time to time, is referred to as the “Adjusted Interest Rate” and, as so calculated, shall remain in effect until the next ensuing Rate Change Date.

At no time shall the interest rate pursuant to this paragraph be less than 3.125% or more than 16.00% per annum.

Lender: The holder of this Note.

Loan: The loan evidenced by this Note.

Loan Term: One Hundred Forty Four (144) months.

Margin: Two Hundred Seventy-Five (275) basis points.

Maturity Date: June 1, 2032, or any earlier date on which the unpaid principal balance of this Note becomes due and payable by acceleration or otherwise.

Payment Change Date: The first day of the month following each Rate Change Date.

Property Jurisdiction: The jurisdiction in which the Land is located.

Rate Change Date: Every June 1^st during the Adjustable Rate Period.

Remaining Amortization Period: As of the applicable Payment Change Date, the original Amortization Period minus the number of scheduled monthly payments that have elapsed since the date of this Note. In the event the fixed interest option is elected as set forth in Schedule B to this Note, the Remaining Amortization Period shall be the original Amortization Period minus the number of scheduled monthly payments required during the Initial Period.

Security Instrument: The Consolidation, Modification and Extension Agreement, Assignment of Leases and Rents, and Security Agreement dated as of the date of this Note.

Event of Default and other capitalized terms used but not defined in this Note (including all Schedules hereto) shall have the meanings given to such terms in the Security Instrument or other Loan Documents.

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

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2.     Address for Payment. All payments due under this Note shall be payable at New York Community Bank, NYCB Plaza, 102 Duffy Avenue - 3rd Floor, Hicksville, New York 11801, or such other place as may be designated by written notice to Borrower from or on behalf of Lender.

3.     Payment of Principal and Interest. Principal and interest shall be paid as follows:

(a)     Short Month Interest. If disbursement of principal is made by Lender to Borrower on any day other than the first day of the month, interest for the period beginning on the Disbursement Date and ending on and including the last day of the month in which such disbursement is made shall be payable simultaneously with the execution of this Note.

(b)     Interest Computation. Interest under this Note shall be computed on the basis of a 360-day year consisting of twelve 30-day months.

(c)     Monthly Installments. During the Initial Period, consecutive monthly installments of interest only at the Interest Rate, each in the amount of Eight Hundred Fifty Six Thousand Seven Hundred Seventy and 83/100 Dollars (US $856,770.83), shall be payable on the First Payment Date and on the first day of every month thereafter to and including June 1, 2027.

Thereafter, during the Adjustable Rate Period, consecutive monthly installments of principal and interest, each in the amount of the Required Monthly Payment (defined below), shall be payable on the first day of each month beginning on the first Payment Change Date until the entire unpaid principal balance evidenced by this Note is fully paid. The initial Required Monthly Payment shall be the amount required to amortize the unpaid principal balance of this Note in equal monthly installments, including accrued interest at the then applicable Adjusted Interest Rate, over the then Remaining Amortization Period. Thereafter, to the extent that the Adjusted Interest Rate has changed, the Required Monthly Payment shall change on each Payment Change Date, and shall be set to such amount required to amortize the unpaid principal balance of the Note in equal monthly installments, including accrued interest at the then applicable Adjusted Interest Rate, over the then Remaining Amortization Period. The amount of all Required Monthly Payments shall be calculated utilizing a 30/360 interest calculation payment schedule.

Any remaining principal and interest, if not sooner paid, shall be due and payable on the Maturity Date. The unpaid principal balance shall continue to bear interest after the Maturity Date at the Default Rate until and including the date on which the Indebtedness is paid in full.

(d)     Payments Before Due Date. Any regularly scheduled monthly installment of principal and interest that is received by Lender before the date it is due shall be deemed to have been received on the due date solely for the purpose of calculating interest due.

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

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(e)     Accrued Interest. Any reference herein to "accrued interest" shall refer to accrued interest which has not been paid and which has not become part of the unpaid principal balance. Any amount added to principal pursuant to the Loan Documents or otherwise due under the Loan Documents shall bear interest at the applicable rate or rates specified in this Note (including at the Default Rate, if in effect) and shall be payable with such interest upon demand by Lender (or as otherwise provided for in the Loan Documents) and absent such demand (or such other applicable Loan Document provision), as provided in this Note for the payment of principal and interest.

4.     Application of Payments. If at any time Lender receives, from Borrower or otherwise, any amount applicable to the Indebtedness which is less than all amounts due and payable at such time, Lender may apply that payment to amounts then due and payable in any manner and in any order determined by Lender, in Lender's discretion. Borrower agrees that neither Lender's acceptance of a payment from Borrower in an amount that is less than all amounts then due and payable nor Lender's application of such payment shall constitute or be deemed to constitute either a waiver of the unpaid amounts or an accord and satisfaction.

5.     Security. The Indebtedness is secured, among other things, by the Security Instrument, and reference is made to the Security Instrument for other rights of Lender concerning the collateral for the Indebtedness.

6.     Acceleration. If an Event of Default has occurred and is continuing, the entire unpaid principal balance, any accrued interest, the prepayment premium payable under Paragraph 10, if any, and all other amounts payable under this Note and any other Loan Document shall at once become due and payable, at the option of Lender, without any prior notice to Borrower, unless otherwise set forth in the Security Instrument. Lender may exercise this option to accelerate regardless of any prior forbearance.

7.     Late Charge. If any monthly installment due hereunder is not received by Lender on or before the 15^th day of each month or if any other amount payable under this Note or under the Security Instrument or any other Loan Document (other than the payment of the Indebtedness at the Maturity Date) is not received by Lender within 15 days after the date such amount is due, counting from and including the date such amount is due, Borrower shall pay to Lender, immediately and without demand by Lender, a late charge equal to five percent (5.00%) of such monthly installment or other amount due. Borrower acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan and that it is extremely difficult and impractical to determine those additional expenses. Borrower agrees that the late charge payable pursuant to this Paragraph represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional expenses Lender will incur by reason of such late payment. The late charge is payable in addition to, and not in lieu of, any interest payable at the Default Rate pursuant to Paragraph 8, however, (i) in the event of acceleration of payment of the entire principal balance and accrued interest as set forth above in this Section 7, or (ii) after the Maturity Date as set forth above, no additional late charge will be assessed provided, further, that those late charges which had previously been assessed shall continue to be due and payable.

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

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8.     Default Rate. The Interest Rate shall automatically convert to, accrue at and be charged at the Default Rate on the entire Indebtedness upon the occurrence of any of the following:

(a) any Event of Default which continues beyond any applicable notice and cure period;

(b) failure to pay the unpaid principal balance, all accrued interest and all other charges due under this Note, the Security Instrument and any other Loan Document on the Maturity Date; or

(c) the acceleration of the Indebtedness in accordance with Section 6 of this Note or in accordance with any applicable provision of any Loan Document including the Security Instrument.

Borrower also acknowledges that the occurrence of any of the events set forth in sub-sections (a) through (c), above, will cause Lender to incur additional expenses in servicing and processing the Loan, that during the occurrence of any Event of Default, Lender will incur additional review burdens, costs and fees related to such Event of Default and that it is extremely difficult and impractical to determine any of those additional costs and expenses. Borrower also acknowledges that during the occurrence of any Event of Default, Lender's risk of nonpayment of this Note will be materially increased and Lender is entitled to be compensated for such increased risk. Borrower agrees that the increase in the rate of interest payable under this Note to the Default Rate represents a fair and reasonable estimate, taking into account all circumstances existing on the date of this Note, of the additional costs and expenses Lender will incur by reason of the occurrence of any of the events set forth in sub-sections (a) through (c), above, and the additional compensation Lender is entitled to receive for the increased risks of nonpayment associated with a loan which is in default.

9.     Limits on Personal Liability.

(a)     Except as otherwise provided in this Paragraph 9, Borrower shall have no personal liability under this Note, the Security Instrument or any other Loan Document for the repayment of the Indebtedness or for the performance of any other obligations of Borrower under the Loan Documents, and Lender's only recourse for the satisfaction of the Indebtedness and the performance of such obligations shall be Lender's exercise of its rights and remedies with respect to the Mortgaged Property (as such term is defined in the Security Instrument) and any other collateral held by Lender as security for the Indebtedness. This limitation on Borrower's liability shall not limit or impair Lender's enforcement of its rights against any guarantor or indemnitor of the Indebtedness or any guarantor or indemnitor of any obligations of Borrower.

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(b)     Borrower shall be personally liable to Lender for the repayment of a portion of the Indebtedness equal to any loss or damage actually suffered by Lender as a result of:

(1)     failure of Borrower to pay to Lender upon demand after an Event of Default, all Rents to which Lender is entitled under the Security Instrument and the amount of all unapplied security deposits collected by Borrower from tenants then in residence;

(2)     failure of Borrower to apply all insurance proceeds and condemnation proceeds as required by the Security Instrument;

(3)     failure of Borrower to comply with Article 10 of the Security Instrument relating to the delivery of books and records, statements, schedules and reports;

(4)     fraud or written material misrepresentation by Borrower, any guarantor or indemnitor of all or part of the Indebtedness or any officer, director, partner, principal, manager, member, agent or employee of Borrower in connection with the application for or creation of the Indebtedness or any request for any action or consent by Lender or in connection with any Loan Document;

(5)     failure to apply Rents, first, to the payment of reasonable operating expenses as they become due and payable (other than Property management fees that are not currently payable pursuant to the terms of an Assignment of Management Agreement or any other agreement with Lender executed in connection with the Loan) and then to Debt Service Amounts, except that Borrower will not be personally liable (i) to the extent that Borrower lacks the legal right to direct the disbursement of such sums because of a bankruptcy, receivership or similar judicial proceeding, or (ii) with respect to Rents that are distributed if Borrower has paid all operating expenses and Debt Service Amounts as they become due and payable;

(6)     failure of Borrower to comply with Article 8 of the Security Instrument relating to Environmental Hazards;

(7)     fraud or intentional misrepresentation by or on behalf of any guarantor or indemnitor of the Indebtedness;

(8)     misapplication or misappropriation of tenant security deposits or Rents;

(9)     physical waste of any or all of the Property by Borrower and/or Guarantor;

(10)      removal or disposal of all or any portion of the Property other than in accordance with the terms of the Security Instrument;

(11)     failure to pay the insurance premium(s) on any or all of the insurance policies required under the Security Instrument, to the extent of gross revenues from the Mortgaged Property in respect of the period during which said premium(s) accrued are sufficient to pay such premiums;

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(12)     any fees or commissions paid by Borrower after the occurrence and during the continuance of an Event Of Default beyond applicable notice and/or cure periods under the Security Instrument or Loan Documents to any affiliate of Borrower or any guarantor or indemnitor in violation of the terms of any of the Loan Documents;

(13)     gross negligence, or criminal acts committed by, or otherwise allowed to continue by Borrower or any Guarantor or Indemnitor resulting in forfeiture, seizure or loss of any portion of the Mortgaged Property;

(14)     the failure by Borrower to pay any real property taxes or assessments relating to the Mortgaged Property, to the extent of gross revenue from the Mortgaged Property in respect of the period when such taxes or assessments accrued;

(15)     any failure by Borrower to timely comply with any and all laws, rules and regulations of any applicable governmental authority with respect to (i) limitations on rentals which may be charged to residential tenants and/or (ii) real estate tax benefits and/or abatements granted in connection with such limitations on residential rents;

(16)     any failure to pay any mortgage tax due and payable to the City and State of New York in connection with Substitute Mortgage (B) listed as mortgage (k) in Exhibit A attached hereto, and any penalties and interest associated therewith;

(17)     any or all claims, suits, liabilities (including strict liabilities), actions, demands, proceedings, enforcements, obligations, debts, damages (including punitive and consequential), fines, trials, penalties, charges, diminution of value, injury to a person, property or natural resources, fees (including attorney=s fees and all fees of any experts and other costs of defense or prosecutions or otherwise related thereto), judgments, accounts, orders, adjudications, awards, liens, injunctive relief, causes of action or amounts paid in settlement of whatever kind or nature, arising from Substitute Mortgage (B) listed as mortgage (k) in Exhibit A attached hereto, as spread to the Property;

(18)     any failure by Borrower, and/or its agents, to comply with that certain Order to Repair/Vacate Order #153196 issued by the New York City Department of Housing Preservation and Development for a portion of the Property known as 1414 New York Avenue, Brooklyn, New York 11210.

(c)     Borrower shall become personally liable to Lender for the repayment of all of the Indebtedness upon the occurrence of any of the following:

(1)     Borrower's acquisition of any property or operation of any business not permitted by the Security Instrument;

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(2)     The occurrence of a Prohibited Transfer, or the occurrence of a Sale or Encumbrance of all or any of the Property; or

(3)     if any Proceeding (defined below) shall be filed by, consented to, or acquiesced in by Borrower, or if any proceeding for the dissolution or liquidation of Borrower shall be instituted by, or implemented with respect to, Borrower, or if a receiver, liquidator or trustee of Borrower shall be appointed and Borrower or any affiliate or party related to Borrower shall acquiesce in, collude in or otherwise cooperate with such appointment, or Borrower does not file timely objection to such appointment (unless such cooperation is required by law), or Borrower does not file timely objection to such appointment and otherwise take such appropriate actions as would be taken by a debtor to attempt to prevent such appointment, unless otherwise required by law, or if Borrower shall be adjudicated a bankrupt or insolvent in an involuntary Proceeding and Borrower or any affiliate or party related to Borrower shall acquiesce to, collude in or otherwise cooperate with such adjudication, unless otherwise required by law, or Borrower does not timely object to such adjudication and otherwise take such appropriate actions as would be taken by a debtor to attempt to prevent such adjudication. “Proceeding” means any dissolution, winding up, liquidation, arrangement, reorganization, adjustment, protection, relief or composition of Borrower, or its debts, whether in any bankruptcy, insolvency, arrangement, reorganization, receivership, relief or similar proceedings or upon an assignment for the benefit of creditors or any other marshalling of the assets and liabilities of Borrower, or the sale of all or substantially all of the assets of Borrower.

(d)     To the extent that Borrower has personal liability under this Paragraph 9, Lender may exercise its rights against Borrower personally without regard to whether Lender has exercised any rights against the Property or any other security, or pursued any rights against any guarantor or indemnitor, or pursued any other rights available to Lender under this Note, the Security Instrument, any other Loan Document or applicable law. For purposes of this Paragraph 9, the term "Property" shall not include any funds that (1) have been applied by Borrower as required or permitted by the Security Instrument prior to the occurrence of an Event of Default, or (2) Borrower was unable to apply as required or permitted by the Security Instrument because of a bankruptcy, receivership, or similar judicial proceeding.

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10.     Voluntary and Involuntary Prepayments.

(a)     A prepayment premium shall be payable in connection with any prepayment made under this Note as provided below:

(1)     Borrower may voluntarily prepay all (but not less than all) of the unpaid principal balance of this Note and only if Borrower has complied with all of the following:

(i) Borrower must give Lender at least 30 days, but not more than 60 days, prior written notice of Borrower's intention to make a prepayment (the "Prepayment Notice"). The Prepayment Notice shall be given in writing (via facsimile, email, U.S. Postal Service or overnight courier) and addressed to Lender. The Prepayment Notice shall include, at a minimum, the Business Day upon which Borrower intends to make the prepayment (the "Intended Prepayment Date").

(ii) Any prepayment shall be made by paying (A) the amount of principal being prepaid, (B) all accrued interest (calculated to the date of prepayment), (C) all other sums due Lender at the time of such prepayment, and (D) the prepayment premium calculated pursuant to Schedule A.

(iii) If, for any reason, Borrower fails to prepay this Note (A) within five (5) Business Days after the Intended Prepayment Date or (B) if the prepayment occurs in a month other than the month stated in the original Prepayment Notice, then Lender shall have the right, but not the obligation, to recalculate the prepayment premium based upon the date that Borrower actually prepays this Note. For purposes of such recalculation, such new prepayment date shall be deemed the "Intended Prepayment Date."

(2)     Upon Lender's exercise of any right of acceleration under this Note, Borrower shall pay to Lender, in addition to the entire unpaid principal balance of this Note outstanding at the time of the acceleration, (i) all accrued interest and all other sums due Lender under this Note and the other Loan Documents, and (ii) the prepayment premium calculated pursuant to Schedule A.

(3)     Any application by Lender of any collateral or other security to the repayment of any portion of the unpaid principal balance of this Note prior to the Maturity Date and in the absence of acceleration shall be deemed to be a partial prepayment by Borrower, requiring the payment to Lender by Borrower of a prepayment premium.

(b)     Notwithstanding the provisions of Paragraph 10(a), no prepayment premium shall be payable with respect to any prepayment occurring as a result of the application of any insurance proceeds or condemnation award under the Security Instrument.

(c)     Schedule A is hereby incorporated by reference into this Note.

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(d)     Any required prepayment of less than the entire unpaid principal balance of this Note shall not extend or postpone the due date of any subsequent monthly installments or change the amount of such installments, unless Lender agrees otherwise in writing.

(e)     Borrower recognizes that any prepayment of the unpaid principal balance of this Note, whether voluntary or involuntary or resulting from a default by Borrower, will result in Lender's incurring loss, including reinvestment loss, additional expense and frustration or impairment of Lender's ability to meet its commitments to third parties. Borrower agrees to pay to Lender upon demand damages for the detriment caused by any prepayment, and agrees that it is extremely difficult and impractical to ascertain the extent of such damages. Borrower therefore acknowledges and agrees that the formula for calculating prepayment premiums set forth on Schedule A represents a reasonable estimate of the damages Lender will incur because of a prepayment.

(f)     Borrower further acknowledges that the prepayment premium provisions of this Note are a material part of the consideration for the Loan, and acknowledges that the terms of this Note are in other respects more favorable to Borrower as a result of the Borrower's voluntary agreement to the prepayment premium provisions.

11.     Costs and Expenses. Borrower shall pay on demand all expenses and costs, including fees and out-of-pocket expenses of attorneys and expert witnesses and costs of investigation, incurred by Lender as a result of any default under this Note or in connection with efforts to collect any amount due under this Note, or to enforce the provisions of any of the other Loan Documents, including those incurred in post-judgment collection efforts and in any bankruptcy proceeding (including any action for relief from the automatic stay of any bankruptcy proceeding) or judicial or non-judicial foreclosure proceeding.

12.     Forbearance. Any forbearance by Lender in exercising any right or remedy under this Note, the Security Instrument, or any other Loan Document or otherwise afforded by applicable law, shall not be a waiver of or preclude the exercise of that or any other right or remedy. The acceptance by Lender of any payment after the due date of such payment, or in an amount which is less than the required payment, shall not be a waiver of Lender's right to require prompt payment when due of all other payments or to exercise any right or remedy with respect to any failure to make prompt payment. Enforcement by Lender of any security for Borrower's obligations under this Note shall not constitute an election by Lender of remedies so as to preclude the exercise of any other right or remedy available to Lender.

13.     Waivers. Except as otherwise provided in the Security Instrument, presentment, demand, notice of dishonor, protest, notice of acceleration, notice of intent to demand or accelerate payment or maturity, presentment for payment, notice of nonpayment, grace, and diligence in collecting the Indebtedness are waived by Borrower and all endorsers, guarantors and indemnitors of this Note and all other third party obligors.

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Page 10

14.     Loan Charges. Borrower agrees to pay an effective rate of interest equal to the sum of the Interest Rate provided for in this Note and any additional rate of interest resulting from any other charges of interest or in the nature of interest paid or to be paid in connection with the Loan and any other fees or amounts to be paid by Borrower pursuant to any of the other Loan Documents. Neither this Note nor any of the other Loan Documents shall be construed to create a contract for the use, forbearance or detention of money requiring payment of interest at a rate greater than the maximum interest rate permitted to be charged under applicable law. If any applicable law limiting the amount of interest or other charges permitted to be collected from Borrower in connection with the Loan is interpreted so that any interest or other charge provided for in any Loan Document, whether considered separately or together with other charges provided for in any other Loan Document, violates that law, and Borrower is entitled to the benefit of that law, that interest or charge is hereby reduced to the extent necessary to eliminate that violation. The amounts, if any, previously paid to Lender in excess of the permitted amounts shall be applied by Lender to reduce the unpaid principal balance of this Note. For the purpose of determining whether any applicable law limiting the amount of interest or other charges permitted to be collected from Borrower has been violated, all Indebtedness that constitutes interest, as well as all other charges made in connection with the Indebtedness that constitute interest, shall be deemed to be allocated and spread ratably over the stated term of the Note. Unless otherwise required by applicable law, such allocation and spreading shall be effected in such a manner that the rate of interest so computed is uniform throughout the stated term of the Note.

15.     Commercial Purpose. Borrower represents that the Indebtedness is being incurred by Borrower solely for the purpose of carrying on a business or commercial enterprise, and not for personal, family or household purposes.

16.     Counting of Days. Except where otherwise specifically provided, any reference in this Note to a period of "days" means calendar days, not Business Days.

17.     Governing Law. This Note shall be governed by the law of the jurisdiction in which the Land is located.

18.     Captions. The captions of the paragraphs of this Note are for convenience only and shall be disregarded in construing this Note.

19.     Notices. All notices, demands and other communications required or permitted to be given by Lender to Borrower pursuant to this Note shall be given in accordance with Section 15 of the Security Instrument.

20.     Consent to Jurisdiction and Venue. Borrower agrees that any controversy arising under or in relation to this Note shall be litigated exclusively in the Property Jurisdiction. The state and federal courts and authorities with jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over all controversies which shall arise under or in relation to this Note. Borrower irrevocably consents to service, jurisdiction, and venue of such courts for any such litigation and waives any other venue to which it might be entitled by virtue of domicile, habitual residence or otherwise.

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Page 11

21.     WAIVER OF TRIAL BY JURY. BORROWER AND LENDER EACH (A) AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS NOTE OR THE RELATIONSHIP BETWEEN THE PARTIES AS LENDER AND BORROWER THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.

[Signature Pages Follow]

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Page 12

ATTACHED SCHEDULES. The following Schedules are attached to this Note:

:          Schedule A      Prepayment Premium (required)

:          Schedule B      Modifications to Amended and Restated Mortgage Note

IN WITNESS WHEREOF, Borrower has signed and delivered this Note or has caused this Note to be signed and delivered by its duly authorized representative.

Renaissance Equity Holdings LLC A

By:     _______________________

Name:     David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC B

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC C

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC D

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC E

By:     _______________________

Name:    David Bistricer

Title:      Manager

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Signature Page 1

Renaissance Equity Holdings LLC F

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC G

By:     _______________________

Name:    David Bistricer

Title:      Manager

State of New York	)
	: ss.:
County of Kings	)

On the _____ day of May, 2020, before me, the undersigned, personally appeared David Bistricer, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity, and that by his signature on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

____________________________

 Notary Public

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Signature Page 2

SCHEDULE A

PREPAYMENT PREMIUM

Any prepayment premium payable under Paragraph 10 of this Note shall be computed as follows:

●     from the date hereof through the last day of May, 2021 the prepayment premium shall be 4%;

●     from June 1, 2021 through the last day of May, 2022 the prepayment premium shall be 3%;

●     from June 1, 2022 through the last day of May, 2023 the prepayment premium shall be 2%;

●     from June 1, 2023 through the last day of May, 2024 the prepayment premium shall be 2%

●     from June 1, 2024 through the last day of May, 2025 the prepayment premium shall be 1%;

●     from June 1, 2025 through the last day of May, 2026 the prepayment premium shall be 1%;

●     from June 1, 2026 through the last day of March, 2027 the prepayment premium shall be 1%;

Unless the Borrower elects the option to fix the interest rate pursuant to Paragraph 1 of Schedule B, there shall be no prepayment premium for prepayment made after the last day of March, 2027. In the event the Borrower elects the option to fix the interest rate pursuant to Paragraph 1 of Schedule B, during the Fixed Option Interest Rate Period, the prepayment premium is as follows:

●     from June 1, 2027 through the last day of May, 2028 the prepayment premium shall be 5%;

●     from June 1, 2028 through the last day of May, 2029 the prepayment premium shall be 4%;

●     from June 1, 2029 through the last day of May, 2030 the prepayment premium shall be 3%;

●     from June 1, 2030 through the last day of May, 2031 the prepayment premium shall be 2%;

●     from June 1, 2031 through the last day of March, 2032 the prepayment premium shall be 1%;

●     there shall be no prepayment premium from April 1, 2032 through the last day of May, 2032.

[Signature Pages Follow]

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Sched A. Page 1

Renaissance Equity Holdings LLC A

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC B

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC C

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC D

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC E

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC F

By:     _______________________

Name:    David Bistricer

Title:      Manager

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Sched A Signature Page 1

Renaissance Equity Holdings LLC G

By:     _______________________

Name:    David Bistricer

Title:      Manager

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Sched A Signature Page 1

SCHEDULE B

MODIFICATIONS TO AMENDED AND RESTATED MORTGAGE NOTE

The Amended and Restated Mortgage Note dated as of the 8th day of May, 2020, in the original principal amount of $329,000,000.00 issued by Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F, and Renaissance Equity Holdings LLC G and payable to the order of New York Community Bank is hereby amended as follows:

1.     Subject to the terms and conditions hereinafter set forth, Borrower, at its option, may elect, in lieu of the adjustable rate of interest as set forth in the Note, to fix the interest rate for the five (5) years following the Initial Period (the “Fixed Option Interest Rate Period”) at a rate equal to the sum of the FHLBNY Index (defined below) and the Spread (defined Below) rounded up to the next one-eighth of one percentage point (0.125%). The “FHLBNY Index” is the Five (5) Year Fixed Rate Advance of the Federal Home Loan Bank of New York in effect as of the first business day of the month which is three (3) months prior to the initial Rate Change Date. The “Spread” is 300 basis points. In the event the FHLBNY Index is not available, the Lender may substitute the FHLBNY Index with a comparable index. In no event will the interest rate be fixed lower than 3.125%. The interest rate during the Fixed Option Interest Rate Period as so calculated is called the “Fixed Option Interest Rate”.

The exercise of this option is contingent upon Borrower meeting the following precedent conditions:

(a)     Borrower is not in default of the terms and conditions of the Note, Security Instrument or any other Loan Documents during the Initial Period (including, but not limited to, the obligations to make timely monthly payments) beyond the expiration of all applicable notice, grace and cure periods;

(b)     Borrower gives written notice to Lender of its election to exercise this option at least thirty (30) days (but no more than one hundred twenty (120) days) prior to the end of the Initial Period;

(c)     Borrower must pay Lender an amount equal to one (1%) percent of the outstanding principal balance as of the time of its election to exercise this option.

If the Borrower so elects the fixed interest rate option, then:

i. The prepayment premium during the Fixed Option Interest Rate Period shall be as set forth in Schedule A of this Note; and

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Sched B Page 1

ii. The Borrower shall make consecutive and equal monthly installments of principal and interest on the first day of each month beginning on the first day of the month following the commencement of the Fixed Option Interest Rate Period and on the first day of each and every month thereafter through and including the month prior to the Maturity Date. The said monthly payments during this period shall be in an amount required to amortize the unpaid principal balance of this Note in equal monthly installments, including accrued interest at the then applicable Fixed Option Interest Rate, over the then Remaining Amortization Period. The amount of such monthly payments shall be calculated utilizing a 30/360 interest calculation payment schedule. Any remaining principal and interest and all other charges, if not sooner paid, shall be due and payable on the Maturity Date. The unpaid principal balance shall continue to bear interest after the Maturity Date at the Default Rate until and including the date on which the Indebtedness is paid in full.

2.     The following paragraph is added:

"22.     Amended and Restated Note. This Note consolidates, amends and restates in their entirety the terms and provisions of those certain promissory notes secured by those certain mortgages as more fully described on Exhibit A attached hereto (said promissory notes being hereinafter collectively referred to as the "Existing Notes") so that this Note shall hereafter constitute evidence of but one debt in the principal amount of Three Hundred Twenty Nine Million and 00/100 Dollars (US $329,000,000.00). The conditions contained in this Note shall supersede and control the terms, covenants, agreements, rights, obligations and conditions of the Existing Notes (it being agreed that the modification of the Existing Notes shall not impair the debt evidenced by each of the Existing Notes). This Note does not create new or additional indebtedness but evidences the same indebtedness evidenced by the Existing Notes and secured by the Mortgage."

[Signature Page Follows]

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Sched B Page 2

Renaissance Equity Holdings LLC A

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC B

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC C

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC D

By:     _______________________

Name:    David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC E

By:     _______________________

Name:    David Bistricer

Title:      Manager

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Sched B Signature Page 1

Renaissance Equity Holdings LLC F

By:     _______________________

Name:     David Bistricer

Title:      Manager

Renaissance Equity Holdings LLC G

By:     _______________________

Name:     David Bistricer

Title:      Manager

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Sched B Signature Page 2

Exhibit A

(a)     Mortgage dated October 7, 2005, made by Renaissance Equity Holdings LLC A to New York Community Bank, in the principal amount of $8,400,000.00, recorded in the Office of the Register of the County of Kings (“Register’s Office”) on November 1, 2005 as CRFN 2005000609332 (upon which a mortgage tax of $___________ was paid);

which said Mortgage (a), above described, was thereafter duly modified by the terms of a Note and Mortgage Modification Agreement dated as of December 1, 2009 and recorded in said Register’s Office on March 29, 2010 as CRFN 2010000105029;

(b)     Substitute Mortgage dated October 7, 2005, made by Renaissance Equity Holdings LLC B to New York Community Bank, in the principal amount of $14,830,000.00, recorded in said Register’s Office on November 4, 2005 as CRFN 2005000619203 (upon which a mortgage tax of $0 was paid);

which said Substitute Mortgage (b), above described, is derived from that certain Mortgage Modification and Severance Agreement made by Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC D and Renaissance Equity Holdings LLC E to New York Community Bank dated October 7, 2005, and recorded in said Register’s Office on November 1, 2005 as CRFN 2005000609346;

(c)     Gap Mortgage dated October 7, 2005, made by Renaissance Equity Holdings LLC B to New York Community Bank, in the principal amount of $1,070,000.00, recorded in said Register’s Office on November 4, 2005 as CRFN 2005000619204 (upon which a mortgage tax of $___________ was paid);

which said two (2) Mortgages (b) and (c), above described, were thereafter duly consolidated into one joint lien and first mortgage in the principal sum of $15,900,000.00 and interest, by the terms of a Consolidation, Modification and Extension Agreement dated October 7, 2005 between New York Community Bank and Renaissance Equity Holdings LLC B, and duly recorded in said Register’s Office on November 4, 2005 as CRFN 2005000619205;

which said two (2) Mortgages (b) and (c), above described, as consolidated were thereafter duly modified by the terms of a Note and Mortgage Modification Agreement dated as of December 1, 2009 and recorded in said Register’s Office on March 29, 2010 as CRFN 2010000105030;

(d)     Mortgage dated October 7, 2005, made by Renaissance Equity Holdings LLC C to New York Community Bank, in the principal amount of $25,340,000.00, recorded in said Register’s Office on November 4, 2005 as CRFN 2005000619278 (upon which a mortgage tax of $___________ was paid);

which said Mortgage (d), above described, was thereafter duly modified by the terms of a Note and Mortgage Modification Agreement dated as of December 1, 2009 and recorded in said Register’s Office on March 29, 2010 as CRFN 2010000105031;

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Exhibit A Page 1

(e)     Substitute Mortgage dated October 7, 2005, made by Renaissance Equity Holdings LLC D to New York Community Bank, in the principal amount of $24,590,000.00, recorded in said Register’s Office on November 4, 2005 as CRFN 2005000619221 (upon which a mortgage tax of $0 was paid);

which said Substitute Mortgage (e), above described, is derived from that certain Mortgage Modification and Severance Agreement made by Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC D and Renaissance Equity Holdings LLC E to New York Community Bank dated October 7, 2005, and recorded in said Register’s Office on November 1, 2005 as CRFN 2005000609346;

which said Substitute Mortgage (e), above described, were thereafter duly modified and extended by the terms of a Modification and Extension Agreement dated October 7, 2005 between New York Community Bank and Renaissance Equity Holdings LLC D, and duly recorded in said Register’s Office on November 4, 2005 as CRFN 2005000619222;

which said Substitute Mortgage (e), above described, was thereafter duly modified by the terms of a Note and Mortgage Modification Agreement dated as of December 1, 2009 and recorded in said Register’s Office on March 29, 2010 as CRFN 2010000105032;

(f)     Substitute Mortgage dated October 7, 2005, made by Renaissance Equity Holdings LLC E to New York Community Bank, in the principal amount of $20,580,000.00, recorded in said Register’s Office on November 7, 2005 as CRFN 2005000622120 (upon which a mortgage tax of $0 was paid);

which said Substitute Mortgage (f), above described, was thereafter duly modified and extended by the terms of a Modification and Extension Agreement dated October 7, 2005 between New York Community Bank and Renaissance Equity Holdings LLC D, and duly recorded in said Register’s Office on November 4, 2005 as CRFN 2005000619222;

which said Substitute Mortgage (f), above described, was thereafter duly modified and extended by the terms of a Modification and Extension Agreement dated October 7, 2005 between New York Community Bank and Renaissance Equity Holdings LLC E, and duly recorded in said Register’s Office on November 7, 2005 as CRFN 2005000622121;

which said Substitute Mortgage (f), above described, was thereafter duly modified by the terms of a Note and Mortgage Modification Agreement dated as of December 1, 2009 and recorded in said Register’s Office on March 29, 2010 as CRFN 2010000105033;

(g)     Mortgage dated October 7, 2005, made by Renaissance Equity Holdings LLC F to New York Community Bank, in the principal amount of $19,430,000.00, recorded in said Register’s Office on November 4, 2005 as CRFN 2005000619303 (upon which a mortgage tax of $___________ was paid);

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Exhibit A Page 2

which said Mortgage (g), above described, was thereafter duly modified by the terms of a Note and Mortgage Modification Agreement dated as of December 1, 2009 and recorded in said Register’s Office on March 29, 2010 as CRFN 2010000105034;

(h)     Mortgage dated October 7, 2005, made by Renaissance Equity Holdings LLC G to New York Community Bank, in the principal amount of $5,760,000.00, recorded in said Register’s Office on November 7, 2005 as CRFN 2005000622116 (upon which a mortgage tax of $___________ was paid);

which said Mortgage (h), above described, was thereafter duly modified by the terms of a Note and Mortgage Modification Agreement dated as of December 1, 2009 and recorded in said Register’s Office on March 29, 2010 as CRFN 2010000105035;

(i)     Mortgage dated September 24, 2012, made by Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G to New York Community Bank, in the principal amount of $30,325,674.42, and duly recorded in said Register’s Office on October 19, 2012 as CRFN 2012000414206 (upon which a mortgage tax of $849,119.61 was paid);

which said Mortgages (a) through (i), above described, were thereafter duly consolidated into one joint lien and first mortgage in the principal sum of $150,000,000.00, and interest by the terms of a Consolidation, Modification and Extension Agreement dated September 24, 2012, made between Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G, and New York Community Bank, and duly recorded in said Register’s Office on October 19, 2012 as CRFN 2012000414207;

(j)     Mortgage dated October 31, 2014, made by Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G to New York Community Bank in the principal sum of $20,000,000.00, and interest, and duly recorded in said Register’s Office on November 13, 2014 as CRFN 2014000376339 (upon which a mortgage tax of $560,000.00 was paid);

(k)     Substitute Mortgage B dated as of February 21, 2018, made by 50 Murray Street Acquisition LLC to Deutsche Bank AG, New York Branch, in the principal sum of $78,000,000.00, and interest, and duly recorded in said Register’s Office on February 28, 2018 as CRFN 2018000069983 (upon which no mortgage tax was paid);

[which Substitute Mortgage B described above as mortgage (k), was derived from that certain Mortgage Splitter and Note Severance Agreement dated as of February 21, 2018, between 50 Murray Street Acquisition LLC and Deutsche Bank AG, New York Branch, recorded in said Register’s Office on February 28, 2020 in CRFN #2018000069981, which split certain consolidated mortgages encumbering 53 Park Place and 50 Murray Street a/k/a 110-120 Church Street, New York, New York, also known as Block: 126, Lots: 13 and 27, in the County of New York, upon which all mortgage tax had been paid, and as more particularly set forth therein]

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Exhibit A Page 3

which said mortgage (k), above described, was thereafter duly assigned by Deutsche Bank AG, New York Branch, to New York Community Bank, by instrument of assignment dated as of February 21, 2018, and duly recorded in said Register’s Office on February 28, 2018 as CRFN 2018000069984; which assignment was corrected by assignment recorded on March 9, 2018 as CRFN 2018000082001;

which said mortgage (k), above described, was thereafter modified to (i) spread the lien of said mortgage (k) to encumber the Property as more particularly described in the Security Instrument, and (ii) release the property known as 53 Park Place and 50 Murray Street a/k/a 110-120 Church Street, New York, New York, also known as Block: 126, Lots: 13 and 27, in the County of New York, from the lien of said mortgage (k), by the terms of a Mortgage, Spreader, Modification and Release Agreement, dated as of February 21, 2018, between Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G, 50 Murray Street Acquisition LLC, and New York Community Bank, and duly recorded in said Register’s Office on February 28, 2018 as CRFN 2018000069989;

(l)      Mortgage dated as of February 21, 2018, made by Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G to New York Community Bank in the principal sum of $283,336.96, and duly recorded in said Register’s Office on February 28, 2018 as CRFN 2018000069990 (upon which a mortgage tax of $5,807.65 was paid);

which said Mortgages (a) through (l), above described, were thereafter duly consolidated into one joint lien and first mortgage in the principal sum of $246,000,000.00, and interest by the terms of a Consolidation, Modification and Extension Agreement dated as of February 21, 2018, made between Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G, and New York Community Bank, and duly recorded in said Register’s Office on February 28, 2018 as CRFN 2018000069991;

upon which said mortgages (a) through (l), above described, there now remains an unpaid principal balance of $246,000,000.00, and interest;

(m)      Mortgage dated as of May 8, 2020, made by Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F and Renaissance Equity Holdings LLC G to New York Community Bank in the principal sum of $83,000,000.00, and intended to be recorded in said Register’s Office (upon which a mortgage tax of $________________ was paid).

Amended and Restated Mortgage Note

Loan Number: 111000347 File No.: 123-34098

Exhibit A Page 4

EX-10.3

Exhibit 10.3

EXHIBIT “C”

MORTGAGE,

ASSIGNMENT OF LEASES AND RENTS

AND SECURITY AGREEMENT

Mortgage, Assignment of Leases and Rents and Security Agreement dated as of the 8th day of May, 2020 (“Mortgage”) given by Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F, and Renaissance Equity Holdings LLC G, each a New York limited liability company, and each with a principal place of business at 4611 12th Avenue, Suite 1L, Brooklyn, New York 11219 (individually and collectively, “Borrower” or “Mortgagor”), to New York Community Bank, a New York banking corporation, with a place of business at NYCB Plaza, 102 Duffy Avenue - 3rd Floor, Hicksville, New York 11801 (“Lender” or “Mortgagee”).

Preliminary Statements. Reference is made to the loan of even date herewith in the sum of Three Hundred Twenty Nine Million and 00/100 Dollars (US $329,000,000.00), lawful money of the United States made by Lender to Borrower ("Loan"), to be paid with interest thereon, evidenced by the $329,000,000.00 Amended and Restated Mortgage Note dated as of May 8, 2020 made by Borrower and payable to Lender (as the same may be amended, renewed or restated, the "Note").

Article 1 - Grant

Section 1.1     Property.

Borrower hereby irrevocably mortgages, grants, bargains, sells, pledges, sets over, assigns, warrants, transfers and conveys to Lender, and grants a security interest to Lender in, all of the following property, rights, interests and estates now owned or hereafter created, acquired by Borrower or accruing in Borrower’s favor (collectively, the “Property” or the “Mortgaged Property”):

(1)     Land. All of the estate, right, title and interest of Borrower in and to that certain parcel of real property described in Schedule A annexed hereto and made a part of this Mortgage (“Land”),

(2)     Improvements. All structures, buildings and improvements, including additions, enlargements, extensions, utility services and hook-ups, modifications, repairs, and replacements, of every kind and description now or any time hereafter located or placed on the Land (“Improvements”),

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(3)     Fixtures. All fixtures now or hereafter attached to the Land or Improvements, including all plumbing, heating, air conditioning, lighting, ventilating, refrigerating, disposal and incinerating equipment and all other engines, boilers, dynamos, elevators and tanks (“Fixtures”),

(4)     Other Property Rights. All other rights and interests on, under, above or related to the Land and/or Improvements and/or Fixtures, including all appurtenances, easements, rights of way or uses, strips and gores of land, vaults, streets, ways, alleys, passages, sewer rights and all water, ditch, well, reservoir and drainage rights, mineral rights, air rights and development rights, and all land lying in the bed of any street, road or avenue, in front of or adjoining the Land to the center thereof, or which hereafter shall in any way belong, relate or be appurtenant thereto and all minerals, crops, timber, trees, shrubs, flowers and landscaping features now or hereafter located on, under or above the Land (“Other Property Rights”),

(5)     Real Property Rights. All real property rights, whether at law or in equity, in possession or in expectancy, including all estates, rights, titles, interests, franchises, privileges, licenses, liberties, servitudes, tenements, hereditaments and appurtenances, reversions and remainders, rents, issues, profits and revenue in any way belonging, relating or appertaining to any interests mortgaged hereby including the Land, Improvements, Personal Property, Fixtures and/or Other Property Rights or any part thereof (“Real Property Rights”),

(6)     Personal Property. All personalty including, all furniture, furnishings, goods, equipment, inventory or personal property now or at any time located on, attached to or used in and about the Improvements or in connection with operation of the Improvements, or in connection with activity conducted at the Real Estate, including all machines, engines, boilers, furnaces, fuel oil, coal, motors, dynamos, elevators, tanks, cabinets, awnings, screens, shades, blinds, carpets, draperies and all appliances, plumbing, gas, electric, electric light, heating, air conditioning, lighting, ventilating, refrigerating, disposal, incinerating equipment, vacuum cleaning systems, sprinkler systems and other fire preventing or extinguishing equipment and materials, stoves, ranges, refrigerators, washing machines, clothes dryers, dishwashers, refuse compactors, saunas and all building materials and equipment hereafter situated on or about the Real Estate and all warranties and guaranties relating thereto, and all additions thereto and substitutions and replacements thereof (“Personal Property”),

(7)     Permits and Approvals. All permits and approvals including all water taps, sewer taps, certificates of occupancy, certificates of completion, permits, Governmental Approvals, licenses, authorizations, variances, franchises, certificates, consents, approvals and other permits, rights and privileges now or hereafter obtained in connection with the Real Estate or the Improvements (“Permits”),

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(8)     Leases and Rents. All leases and rents including oil, gas and mineral leases, subleases, occupancies, tenancies, lettings, concessions, licenses and occupancy agreements and all agreements of every kind relating to the use, enjoyment or occupancy of all or any part of the Real Estate, whether written or oral, now or hereafter entered into whether before or after the filing by or against Borrower of any petition for relief under the United States Bankruptcy Code, 11 USC sec. 101, et seq., with any tenant, subtenant, lessee, licensee, occupant or other party (“Tenants”), all as amended or modified from time to time (the “Leases”) and all rents, royalties, issues, deposits, profits, revenue, income and other benefits of the assets specified in this definition of “Property”, including all amounts payable and all rights and benefits accruing to Borrower under the Leases or under any other contract or agreement including housing assistance payment contracts and all such similar contracts (“HAP Contract”) issued by or entered into by any Person including a Governmental Authority (all of the foregoing, collectively, the “Rents”) and all guarantees of, letters of credit covering, and cash or securities deposited to secure performance by the Tenants of their obligations under any Lease, whether said guaranties, letters of credit, cash or securities are to be held until the expiration of the term of the applicable Lease or applied to one or more of the installments of Rent coming due prior to the expiration of said term (“Tenant Security”),

(9)     Reserves. All cash funds, deposit accounts and other rights and evidence of rights to cash, now or hereafter created or held by Lender pursuant to this Mortgage or any other Loan Document (“Reserves”),

(10)     Property Agreements. All contracts and agreements entered into covering or related to the use, operation, maintenance, repair, restoration or management of any or all of the Real Estate and all revenue, income and other benefits thereof, including all track agreements, easement agreements, access agreements, developer’s or utility agreements, management agreements, service contracts, maintenance contracts, equipment leases, personal property leases and contracts or documents relating to construction on any part of the Real Estate (including plans, drawings, surveys, tests, reports, bonds, Governmental Approvals, architectural renderings, models, specifications, studies and data now or hereafter relating to the Real Estate) (“Property Agreements”),

(11)     Utility Deposits. All deposits given to any public or private utility with respect to utility services furnished to all or any part of the Real Estate,

(12)     General Intangibles. All funds, accounts, instruments, accounts receivable, documents, causes of action, claims, general intangibles including trademarks, trade names, service marks and symbols now or hereafter used in connection with any part of the Real Estate, all names by which the Real Estate may be operated or known, all rights to carry on business under such names and all rights, interest and privileges which Borrower has or may have as developer or declarant under any covenants, restrictions or declarations now or hereafter arising from or by virtue of any transactions related to the Real Estate,

(13)      Building Materials and Plans. All building materials, supplies and equipment placed in, on or used in conjunction with the Real Estate,

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(14)     Insurance. All right, title and interest of Borrower in any insurance policies or binders now or hereafter relating to the Property (including title insurance policies and policies of Required Insurance), including any unearned premiums thereon and Borrower’s interest in and to all proceeds of any such insurance policies including the right to collect and receive such proceeds,

(15)     Condemnation. All right, title and interest of Borrower in and to any and all awards, damages, payment or other compensation, and any and all claims therefor and rights thereto, which may result from taking or injury by virtue of the exercise of the power of condemnation or eminent domain to all or any portion of the Property,

(16)     Books and Records. All Books and Records relating to or used in connection with the “Property” including those specified in Article 10,

(17)     Bonds. All right, title and interest of Borrower under completion bonds, performance bonds, payment bonds and other similar bonds and surety agreements and arrangements related to the Property or any party thereof,

(18)     Tax Certiorari. All refunds, rebates or credits in connection with reduction in Real Property Taxes charged or assessed against the Property including those as a result of tax certiorari proceedings, tax protests, tax reduction applications and similar proceedings,

(19)     Causes of Action. All causes of action and claims, including all causes of action or claims arising in tort, by contract, by fraud or by concealment of material fact, against any Person for damages or injury to the Property including those in connection with any transactions financed in whole or in part with proceeds of the Note (“Cause of Action”) and the right, in the name and on behalf of Borrower, to appear in and defend any action or proceeding brought with respect to the Property and to commence any action or proceeding to protect the interest of Lender in the Property,

(20) Additions and Proceeds. All additions, accessions, replacements, substitutions, proceeds and products of the Property, and

(21)     Other Rights. All other greater, lesser or equal rights and interests of every nature in the Property or in the possession or use of the Property including any income therefrom.

Section 1.2     Mortgage and Fixture Filing.

Borrower and Lender agree that (1) this Mortgage is both a real property mortgage and a “security agreement” within the meaning of the applicable Uniform Commercial Code, and (2) this Mortgage constitutes a “fixture filing” for purposes of the applicable Uniform Commercial Code.

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Section 1.3     Secured Obligations.

This Mortgage and the grants, assignments and transfers made in respect of the Property secure the payment of all amounts due and owing or to come due under any of the Loan Documents (“Secured Obligations”) including: (1) the Indebtedness, (2) all interest, including default interest, all fees, including all exit fees, all charges and other payment obligations under this Mortgage and the other Loan Documents, including yield maintenance payments and prepayment premiums, (3) payment and performance of all obligations of Borrower under this Mortgage and each of the other Loan Documents, (4) all sums advanced pursuant to this Mortgage or any other Loan Document, including those advanced to protect and preserve the Property and the Lien created by this Mortgage and (5) all fees, costs, charges and expenses incurred by Lender that Borrower is required to pay to Lender in accordance with the terms of this Mortgage or any other Loan Document including those specified in Section 15.3(H).

Article 2 - Definitions

Section 2.1     Definitions.

For purposes of this Mortgage the following terms have the following meanings:

“Affiliate” means, with respect to any Person, any other Person which directly or indirectly controls, or is controlled by, shares control with or is under common control with such Person. The term “control” means the possession, directly or indirectly, of the power to cause or cause the direction of the management and policies of a Person, whether through the ownership of voting securities, by contract or otherwise.

“Affiliated Manager” has the meaning specified in “Event of Default Definitions” (Section 12.1).

“Assignment of Leases and Rents” has the meaning specified in “Assignment of Leases and Rents” (Section 5.4).

"Bankruptcy Event" means any one or more of the following: (i) the commencement of a voluntary case under one or more of the Insolvency Laws; (ii) a Person is not able to or admits in writing that it is unable to pay such Person’s debts generally as they mature; (iii) the making of a general assignment for the benefit of creditors; (iv) a Person becomes insolvent; (v) an involuntary case under one or more Insolvency Laws; (vi) the petition or application for the appointment of, or the appointment of a receiver, liquidator, custodian, sequestrator, trustee or other similar officer who exercises or attempts to exercise control over a Person or any of the assets of a Person provided that any proceeding or case under subsection (v) or (vi), immediately above, is not dismissed within 45 days after filing.

“Books and Records” has the meaning specified in “Books and Records” Section 1.1(16)).

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“Borrower” means the Borrower described on page 1 of this Mortgage.

“Business Interruption Insurance Deductible” means an amount not to exceed $20,000.00.

“Casualty” means any casualty, damage, injury, destruction or loss occurring to all or any part of the Property.

“Casualty Insurance Deductible” means $20,000.00.

“Casualty Insurance Proceeds” means all insurance proceeds which Borrower is entitled to receive or which are payable or due or to come due under any insurance policy as a result of a Casualty, pursuant to the Required Insurance.

“Condemnation” has the meaning specified as “Condemnation Definitions” (Section 7.1).

“Default” means any of the events specified in “Events of Default” (Section 12.2), whether or not any requirement for the giving of notice, the lapse of time, or both, or any other condition, has been satisfied.

“DSCR” means Debt Service Coverage Ratio which is the ratio as determined by the Lender of Net Operating Income to the annual principal and interest payable on the Loan.

“Environmental Laws” has the meaning specified in “Environmental Definitions” (Section 8.1).

“Escrow Fund” has the meaning specified in “Escrow Fund” (Section 4.7).

“Event of Default” has the meaning specified in “Events of Default” (Section 12.2).

“Fixtures” has the meaning specified in “Fixtures” (Section 1.1(3)).

"Governmental Approvals" means any authorization, consent, or approval of any Governmental Authority including any license, permit, or certification issued by, or any exemption of, registration or filing with, or report or notice to, any Governmental Authority.

“Governmental Authority” means any nation or national government including the federal government of the United States of America, any state or state government, any municipality or municipal government, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government and any other subdivision, council, department, branch or agency of any of the foregoing.

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“Guarantor” means Clipper Realty Inc., a Maryland corporation, and each other Person that guarantees payment or performance of all or any part of the Secured Obligations.

“Guaranty” means each guaranty executed by a Guarantor.

“Hazardous Materials” has the meaning specified in “Environmental Definitions” (Section 8.1).

“Improvements” has the meaning specified in “Improvements” (Section 1.1(2)).

“Indemnified Parties” has the meaning specified in “Environmental Definitions” (Section 8.1).

“Indemnitor” means Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F, Renaissance Equity Holdings LLC G, each a New York limited liability company, Clipper Realty Inc., a Maryland corporation, and each other Person that indemnifies Lender in connection with the Loan, the Property or any matter concerning and/or relating to the Loan including any of the Secured Obligations.

“Indemnity Agreement” means each agreement executed by an Indemnitor pursuant to which such Indemnitor provides an indemnity, whether environmental or otherwise.

"Insolvency Laws" means the United States Bankruptcy Code, 11 U.S.C. § 101, et seq., together with any other federal or state law affecting debtor and creditor rights or relating to the bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding or any proceeding (civil or criminal) under which assets are subject to levy, attachment, sequestration, seizure, forfeiture or divestiture.

“Investors” has the meaning specified in “Dissemination of Information” (Section 14.3).

“Land” has the meaning specified in “Land” (Section 1.1(1)).

“Laws” means any present or future domestic or foreign, national, federal, state, provincial, local or municipal statute, law, rule, regulation, ordinance, order, code, decree, policy, requirement or rule of common law, now or hereafter in effect, in each case as amended, and any judicial or administrative interpretation thereof by a Governmental Authority or otherwise, including any judicial or administrative order, decree (including a consent decree or consent order), judgment or agreement with any Governmental Authority, and all permits, licenses, approvals and authorizations issued by any Governmental Authority, and including parking, zoning, building, subdivision and land use Laws.

“Leases” has the meaning specified in “Leases and Rents” (Section 1.1(8)).

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“Lender” means New York Community Bank, the Lender described on page 1 of this Mortgage.

“Lender’s Title Policy” has the meaning set forth in Section 3.1(4).

“License to Collect Rents” has the meaning specified in “Assignment of Leases and Rents” (Section 5.4).

“Lien” means any mortgage, deed of trust, pledge, security interest, hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or otherwise) or preference, priority, or other security agreement or preferential arrangement, charge, or encumbrance of any kind or nature whatsoever, including any conditional sale or other title retention agreement, any financing lease having substantially the same economic effect as any of the foregoing and the filing of any financing statement under the Uniform Commercial Code or comparable Law of any jurisdiction to evidence any of the foregoing.

“Loan Documents” means the Note, this Mortgage and each other document and agreement executed or delivered in connection with the Loan, the Note or this Mortgage.

“Losses” has the meaning specified in “Environmental Definitions” (Section 8.1).

“LTV” means Loan to Value ratio, as determined by the Lender, of the then current unpaid principal balance of the Loan to the lesser of (i) the purchase price of the Real Estate (if purchased in the past twelve months) or (ii) the value of the Real Estate as established by a current appraisal acceptable to the Lender.

“Mortgage” means this Mortgage, Assignment of Leases and Rents and Security Agreement.

“Mortgage Amount” means $329,000,000.00.

“Net Operating Income” shall mean the actual income generated by the Property based upon a then current rent roll (annualized) of the Real Estate less the greater of (i) the actual expenses of the Real Estate or (ii) the expenses set forth in a then current appraisal of the Real Estate acceptable to the Lender.

“Note” has the meaning specified in the Preliminary Statements.

“Obligated Party” has the meaning specified in “Event of Default Definitions” (Section 12.1).

“Other Property Rights” has the meaning specified in “Other Property Rights” (Section 1.1(4)).

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“Organizational Documents” has the meaning specified in “Single Purpose Entity Definitions” (Section 9.1).

“Participations” has the meaning specified in “Transfer of Loan” (Section 14.1).

“Permits” has the meaning specified in “Permits and Approvals” (Section 1.1(7)).

“Permitted Liens” means (1), as of the date hereof, Liens for Real Property Taxes not yet due and payable, (2), subsequent to the date hereof, Liens for Real Property Taxes as to which Lender has sufficient funds in the Escrow Fund to pay and discharge and (3) exceptions shown in the title insurance policy insuring the Lien of this Mortgage.

“Person” means an individual, partnership (including a limited liability partnership), corporation, limited liability company, business trust, joint stock company, trust, unincorporated association, joint venture, tenancy-in-common arrangement, Governmental Authority or other entity of whatever nature.

“Personal Property” has the meaning specified in “Personal Property” (Section 1.1(6).

“Power of Sale” means any Law which permits the holder of this Mortgage to foreclose this Mortgage by power of sale and/or to sell any portion of the Property through either judicial or non-judicial means or at a judicial or non-judicial sale. If the Property is located in the State of New York, the meaning of such term shall also include the power to sell pursuant Article 14 of the Real Property Actions and Proceeding Law of New York and similar Laws.

“Principal of the Borrower” means (i) any member, shareholder or partner of the Borrower, (ii) any other owner of an equity interest in Borrower, (iii) any member, shareholder, partner or equity owner of any entity which either directly or indirectly through any other entity(ies) has an equity interest in Borrower and/or (iv) any member, shareholder, partner or equity owner of any such other entity(ies).

“Prohibited Transfer” has the meaning specified in “Event of Default Definitions” (Section 12.1).

“Property” has the meaning specified in “Property” (Section 1.1).

“Property Agreements” has the meaning specified in “Property Agreements” (Section 1.1(10)).

“Real Estate” means the Land, the Improvements, the Fixtures, the Other Property Rights and the Real Property Rights.

“Real Property Rights” has the meaning specified in “Real Property Rights” (Section 1.1(5)).

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“Real Property Taxes” has the meaning specified in “Escrow Fund” (Section 4.7).

“Release” has the meaning specified in “Environmental Definitions” (Section 8.1).

“Remedial Work” has the meaning specified in “Environmental Definitions” (Section 8.1).

“Rents” has the meaning specified in “Leases and Rents” (Section 1.1(8)).

“Replacement” has the meaning specified in “Application of Condemnation Proceeds” (Section 7.5).

“Required Insurance” has the meaning specified in “Maintenance of Insurance” (Section 6.3).

“Reserves” has the meaning specified in “Reserves” (Section 1.1(9)).

"Restoration" has the meaning specified in "Application of Insurance Proceeds" (Section 6.12).

“Restricted Parties” has the meaning specified in “Event of Default Definitions” (Section 12.1).

“Restrictive Covenants” has the meaning specified in “Compliance with Laws, Permits and Restrictive Covenants” (Section 4.1(4)).

“Sale or Encumbrance” means a voluntary or involuntary transfer or conveyance of a legal or beneficial right, title or interest, whether by sale, lease, assignment, grant of options, right of first refusal, gift, donation, operation of law, or otherwise, or the granting, creation, incurrence, assumption or existence of a Lien or the entering into any agreement to do any of the foregoing.

“Secured Obligations” has the meaning specified in “Secured Obligations” (Section 1.3).

“Securities” has the meaning specified in “Transfer of Loan” (Section 14.1).

“Tenant” has the meaning specified in “Leases and Rents” (Section 1.1(8)).

“Tenant Security” has the meaning specified in “Leases and Rents” (Section 1.1(8)).

“UCC Collateral” has the meaning specified in “Remedies Under the UCC” (Section 13.1(10)).

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“Umbrella Liability Coverage Amount” means umbrella liability insurance in a coverage amount of at least $5,000,000.00 per occurrence.

Section 2.2     Rules of Interpretation.

When used in this Mortgage: (1) “or” is not exclusive, (2) any pronouns used shall include the corresponding masculine, feminine and neuter form, (3) a reference to a Law includes any amendment or modification of such Law, (4) terms defined in the singular have the same meaning when used in the plural and vice versa, (5) a reference to an agreement, instrument or document includes any amendment or modification of such agreement, instrument or document, to the extent and provided that such amendment or modification is in accordance with the terms of such agreement, instrument or document and is permitted under the Loan Documents and (6) the word “including” means “including, but not limited to,”. Capitalized terms have the meanings specified in “Definitions” (Article 2) or as elsewhere defined herein or in the Loan Documents. Terms which are defined in the Note and which are used herein shall have the meanings ascribed to them in the Note. The term “Borrower” shall also mean “Mortgagor” and the term “Lender” shall also mean “Mortgagee”.

Article 3 - Mortgage Lien and Security Interest

Section 3.1     Representations and Warranties.

Borrower represents and warrants to Lender as follows:

(1)     Name of Borrower. The exact legal name of Borrower is the name specified on page 1 of this Mortgage. Borrower has not been known by any other name during the ten (10) years prior to the date of this Mortgage.

(2)     Jurisdiction of Formation of Borrower. Borrower is formed under the laws of the State of New York.

(3)     Location for Filing of Financing Statement. With respect to any item of Property that is personal property in which a security interest can be perfected by the filing of a UCC financing statement, the filing of such a statement with the Secretary of State of New York and the Register’s Office of the City of New York, County of Kings, will perfect the security interest of Lender in such Property.

(4)     No Restrictions on Property. Other than as expressly set forth in the mortgagee title policy delivered to and insuring the Lender in connection with the origination of the Loan “Lender’s Title Policy”), to the best of Borrower’s knowledge, none of the Property is subject to a restriction that prohibits, restricts or limits (a) the grant of a Lien in such Property, (b) the perfection of the Lien granted by this Mortgage (including the priority of such Lien), or (c) the exercise by Lender of its rights, remedies and powers under this Mortgage or otherwise.

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(5)     Lien and Claims. This Mortgage creates a valid Lien in the Property and such Lien secures the payment and performance of all Secured Obligations. The Lien of this Mortgage on the Property is a first priority Lien. Borrower owns the Property free and clear of all Liens, including mechanic’s or similar Liens, except for Permitted Liens.

Section 3.2     Filing of Financing Statement.

Borrower hereby authorizes Lender or its designee at any time and from time to time, to file financing statements and amendments covering the Property in such jurisdictions as Lender may deem necessary or desirable to perfect the Lien granted by Borrower under this Mortgage.

Section 3.3     Actions to Perfect Security Interest.

Borrower agrees that from time to time, it will promptly execute and deliver all instruments and documents, and take all actions, that may be necessary, or that Lender may reasonably request or deem desirable, for the attachment, perfection and maintenance of the priority, of the Lien of this Mortgage on any and all of the Property or to enable Lender to exercise and enforce any and all of its rights, powers and remedies under this Mortgage or otherwise with respect to any and all of the Property.

Section 3.4     Change of Name, Etc.

Borrower agrees not to change its name or jurisdiction of formation. Borrower agrees not to change its principal place of business without giving Lender at least thirty (30) days’ prior notice.

Section 3.5     Reporting Requirements.

Borrower will immediately notify Lender if (1) any claim, including any attachment, levy, execution or other legal process, is made against any or all of the Property, or (2) any representation and warranty included in this Mortgage would no longer be true if made on such date. Borrower will furnish to Lender from time to time statements and schedules further identifying and describing the Property and such other reports in connection with such Property as Lender may request, all in detail as reasonably required by Lender.

Article 4 - Property

Section 4.1     Representations and Warranties.

Borrower represents and warrants that:

(1)     Title. Borrower has good, valid, subsisting, insurable and marketable title to the Real Estate in fee simple and good and marketable title to the rest of the Property, in each case free and clear of all Liens other than Permitted Liens. The Permitted Liens do not (a) interfere with the use or operation of all or any portion of the Property or (b) adversely affect the value of any or all of the Property. All Real Property Taxes due and owing as of the date of this Mortgage have been paid as of the date when due.

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(2)     No Agreements to Transfer the Property. Other than as expressly set forth in Lender’s Title Policy, none of the Property is subject to any agreement which provides for the conveyance of any right, title or interest in such Property, whether through a Sale or Encumbrance, other than the Leases and, with respect to Leases, same contain no option(s) to purchase all or any portion of the Property and contain only those rights which (a) are usually and routinely found in favor of tenants and (b) were made in Borrower’s ordinary course of business.

(3)     Condition of the Property. Other than as set forth in any engineering or other reports obtained by Lender, and to the best of Borrower’s knowledge, the Improvements and Fixtures are structurally sound, in good repair and free of patent or latent defects in materials and workmanship, and all major building systems located within the Improvements, including the heating, air conditioning, electrical and plumbing systems, are in good working order and condition and to the Borrower’s knowledge, the Personal Property is in good repair and free of patent or latent defects in materials and workmanship. The Property is free from damage caused by a Casualty.

(4)     Compliance with Laws, Permits and Restrictive Covenants. Other than as set forth in the title report provided to Lender in connection with this Loan, each item of Property is in compliance with all applicable Laws. Borrower possesses and is in compliance with all Permits required for the ownership and operation of the Property. Other than as set forth in the title report provided to Lender in connection with this Loan, the Property is in compliance with each condition, easement, right-of-way, covenant or restriction affecting the Property (“Restrictive Covenants”). To the Borrower’s knowledge, if there is a Casualty, the damaged Improvements can legally be reconstructed to their condition prior to such Casualty without violating any Law and without the necessity of obtaining any variances or special permits. Except as disclosed in the title report of Madison Title Agency LLC provided to Lender in connection with this loan, the use of the Property is in conformity with the certificate of occupancy presently issued for the Property. Neither the zoning nor any other right to construct, use or operate the Property is in any way dependent upon or related to any other property.

(5)     Encroachment. Other than as expressly set forth in Lender’s Title Policy, none of the Improvements lies outside of the boundaries or building restriction lines of the Land or Improvements and no buildings or other improvements located on adjoining properties encroach upon or encumber the Property. Other than Permitted Liens, there are no easements or other encumbrances upon the Property which encroach upon any of the Improvements so as to affect the value or marketability of the Property.

(6)     Litigation. There is no action, suit or proceeding pending or, to the knowledge of Borrower, threatened against or affecting the Property which would have a material effect upon the Property or the zoning of the Property.

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(7)     Property Agreements. Borrower has entered into each Property Agreement required for the ownership, operation and maintenance of the Property. Borrower represents that (a) each Property Agreement is in full force and effect, (b) no party to any such Agreement has failed to perform any material obligation under any such Agreement, and (c) there are no outstanding defaults under any such Agreement. Borrower represents that (a) no offset or any right of offset exists with respect to continued contributions to be made by any party to any Property Agreement, (b) no exclusions or restrictions on the use, operation, management of, or construction on the Property, including non-compete agreements, exists in any Property Agreement, and (c) no party to any Property Agreement has given notice of a breach or default under any such Agreement.

(8)     Utility Services. All utility services, including electricity, power, gas, oil, water, telephone, and sanitary sewer service, necessary for the use and operation of the Property are available to the Property. All such utility services are located either in the public right-of-way abutting the Property or in recorded easements serving the Property.

(9)     Access to and Use of Property. All streets, roads, highways, bridges and waterways necessary for access to, and full use, occupancy, operation and disposition of the Land and the Improvements are completed, are dedicated to and accepted by all appropriate Governmental Authorities and are open and available to the Land and the Improvements without further condition or cost to Borrower.

(10)     Flood Zone or Wetlands. None of the Land consists of, or is classified as, wetlands, tidelands or swamp or overflow lands and none of the Land is located in an area identified by the Federal Emergency Management Agency as an area having special flood hazards.

(11)     Tax Parcel. The Land is taxed separately without regard to any other real estate and constitutes seven (7) legally subdivided lots under all applicable Law (or, if not subdivided, no subdivision or platting of the Property is required under applicable Law), and for all purposes may be dealt with as an independent parcel in connection with any Sale or Encumbrance of such Land.

(12)     Commercial Property. There is no homestead right or any other similar right or exemption available to Borrower affecting the Property.

(13)     Assessments. There are no pending or, to Borrower’s knowledge, proposed special or other assessments for public improvements or otherwise affecting the Property, nor are there any contemplated improvements to the Property that may result in such special or other assessments.

(14)     Use of Property. The Property consists of fifty nine (59) separate six (6) story buildings and is used exclusively as a multi-family, rental property.

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(15)     Filing and Recording Taxes. All transfer taxes, recording taxes, deed stamps, intangible taxes or other amounts in the nature of transfer taxes required to be paid under applicable Law in connection with the transfer of the Property to Borrower have been paid or are being paid simultaneously herewith. All mortgage, mortgage recording, stamp, intangible or other similar taxes required to be paid under applicable Law in connection with the execution, delivery, recordation, filing, registration, perfection or enforcement of any of the Loan Documents, including this Mortgage, have been paid or are being paid simultaneously herewith. All Real Property Taxes and governmental assessments due and owing in respect of the Property have been paid, or an escrow of funds in an amount sufficient to cover such payments has been established pursuant to this Mortgage or are insured against by the applicable title insurance policy.

Section 4.2     Covenants with Respect to the Property.

Borrower covenants and agrees:

(1)     Ownership of Property. Borrower shall at all times maintain good, indefeasible and marketable title in fee simple to the Real Estate and good and marketable title to the rest of the Property, subject only to Permitted Liens. Borrower agrees to take all actions required to defend and preserve all of its right, title and interest in the Property and the rights granted pursuant to this Mortgage. Borrower will not create, incur, assume or suffer to exist any Lien upon or with respect to any or all of the Property, except Permitted Liens. Any Sale or Encumbrance of the Property in violation of this Mortgage is null and void and of no force and effect.

(2)     Maintenance of Property and Mechanics’ Liens. Borrower shall maintain or cause to be maintained all of the Improvements, Fixtures and Personal Property in good and safe condition and shall maintain same in good rentable condition at all times, whether or not occupied. Borrower shall not commit or suffer any waste of all or any part of the Improvements, Fixtures or Personal Property. Neither the value of the Property nor the Lien hereof will be diminished or impaired in any way by any act or omission of the Borrower or any successor in interest thereto and Borrower will not do or permit to be done to, in, upon or about the Property, that may in any way impair the value thereof or weaken, diminish or impair the Property. Borrower shall promptly repair, restore, replace or rebuild any part of the Property damaged or destroyed. All such repairs shall be on a basis consistent with the operation and maintenance of well maintained commercial properties comparable in type and location to the Property and in compliance with prudent industry practice and all applicable Laws. Lender may make whatever advances it deems necessary as a result of Borrower's Default and/or in order to preserve and protect the Property. Nothing contained herein shall preclude Borrower from defending in good faith any such bills or costs. Borrower will promptly pay when due all bills and costs for labor, materials, utilities and all other services incurred in connection with or rendered to the Property and any other claims or charges which, if unpaid, could result in or permit the creation of a Lien on all or any part of the Property. Borrower will not permit any drilling or exploration for an extraction, removal or production of any minerals from the surface or subsurface of the Land.

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(3)     Changes to Property. Borrower shall not (1) abandon the Property or leave the Property unprotected or deserted, (2) change the use of the Property for which all or any part of the Property was intended at the time this Mortgage was executed, (3) make any structural alterations to the Property without (a) Lender’s prior written consent, which consent shall not be unreasonably withheld, delayed or conditioned, and, (b) in the case of adding apartment units to the Property, satisfying those certain conditions as more particularly set forth in Section D of the Rider to Mortgage attached to this Mortgage, (4) demolish, remove or structurally alter the Improvements or Fixtures, or (5) remove or alter any of the Fixtures or Personal Property from the Property, unless such Fixture or Personal Property is obsolete and of no further utility in operating the Property or such Fixture or Personal Property is replaced by an item of equal or better suitability and value and such replacement item is owned by Borrower free and clear of any Liens other than Permitted Liens.

(4)     Changes Affecting the Real Estate. Borrower shall not (1) cause or permit any partition of the Property, (2) initiate, join in or acquiesce in, or consent to, any change in the zoning classification (including any variance under any existing zoning ordinance applicable to the Property), Restrictive Covenant, zoning Law or other public or private restriction, limiting or defining the uses which may be made of all or any part of the Property, except Borrower shall be permitted to apply to the appropriate agencies of the City of New York for up-zoning to increase the Floor Area Ratio (FAR) for the Property in connection with the Apartment Development at the Property, (3) permit the use of the Property to become a non-conforming use under applicable zoning Laws, (4) file any subdivision or parcel map affecting the Property, (5) amend, modify or consent to any easement or Restrictive Covenant, pertaining to the Property, or (6) take any steps to convert the Property, or any portion thereof, to a or cooperative form of ownership, or a condominium form of ownership.

(5)     Permits, Laws and Restrictive Covenants. Borrower agrees to take all actions required to obtain and maintain all Permits required for the construction, ownership, use and operation of the Property. Borrower agrees to comply with all applicable Laws, Permits and Restrictive Covenants applicable to the construction, use, operation, maintenance, repair and restoration of the Property.

(6)     No Joint Assessment. Borrower shall not suffer, permit or initiate a joint assessment of the Property with any other real property constituting a tax lot separate from the Property.

(7)     Plans and Specifications. To the extent that Borrower possesses same, Borrower shall maintain a complete set of final plans, specifications, blueprints and drawings for the Improvements either at the Property or in a particular office at the headquarters of Borrower to which Lender has access.

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Section 4.3     Property Reporting Requirements.

Borrower shall promptly notify Lender: (1) of any proposed zoning reclassification, variance, conditional or special use permit, subdivision plat or annexation affecting the Real Estate, (2) if any Law, Permit or Restrictive Covenant is violated, and such violation could affect title to the Real Estate or Borrower's existing or intended use of the Real Estate, or result in Liens, fines, or penalties being imposed on the Real Estate, and (3) of all written communications received by Borrower amending, modifying or affecting any Permits then required to be in effect for the ownership, construction, maintenance or operation of the Property.

Section 4.4     Inspection of Property.

Lender and any Persons authorized by Lender shall have the right, upon reasonable advance notice to Borrower and at reasonable times, and subject to the rights of tenants, to (1) enter and inspect the Property, and (2) inspect all work done, labor performed and materials furnished in and about the Improvements.

Section 4.5     Use of Lender’s Name.

Borrower will not use the names either of Lender or any of Lender's Affiliates in connection with the development and operation of the Property.

Section 4.6     Property Payments.

To the extent not escrowed for by the Lender pursuant to Section 4.7, below, or if the amounts maintained within the Escrow Fund are insufficient to pay, when due, any of the following items, Borrower will pay, and upon request of Lender, will submit to Lender receipts evidencing such payments, as they become due, all Real Property Taxes, all personal property taxes and assessments, all fees for utility services rendered to the Property including water and sewer charges (whether metered or assessed on a frontage basis), general and special assessments, insurance premiums for all Required Insurance, Permit fees, inspection fees, license fees, ground rents, maintenance charges and similar charges, franchise fees, equipment rents, all encumbrances of every kind against Borrower or the Property, any charge which, if unpaid, would become a Lien against the Property and any and all amounts required to maintain, protect, repair or restore the Property (and all before such amounts become delinquent and before any interest attaches or penalty is incurred) and, in the event Borrower fails to pay any such amounts or in the event of an emergency, the Lender may in its sole discretion, but shall not have the obligation to, advance and make payment of same.

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Section 4.7     Escrow Fund.

Borrower shall establish a fund (“Escrow Fund”) sufficient to pay and discharge, with respect to the Property, all taxes, assessments, non-metered water and sewer charges, frontage charges, flood insurance (if Land is located in a federal special flood hazard area), hazard, liability and other property insurance premiums (at the option of Lender), municipal charges, governmental impositions and other charges, including vault charges and license fees for the use of vaults, chutes and similar areas adjoining the Land (“Real Property Taxes”). Initial deposits of Real Property Taxes shall be made by Borrower to Lender in amounts determined by Lender in its discretion on the date hereof. Borrower shall pay to Lender on the first day of each calendar month occurring after the date hereof one-twelfth (1/12) of an amount which would be sufficient to pay the Real Property Taxes payable, or estimated by Lender to be payable, upon the due dates established by the appropriate taxing authority(ies) during the next ensuing twelve (12) months. Borrower agrees to notify Lender immediately of any changes to the amounts, schedules and instructions for payment of any Real Property Taxes of which Borrower has obtained knowledge and authorizes Lender or its agent to obtain the bills for Real Property Taxes directly from the appropriate tax authority.

Provided there are sufficient amounts in the Escrow Fund and no Event of Default exists, Lender shall pay the Real Property Taxes as they become due on their respective due dates on behalf of Borrower by applying amounts in the Escrow Fund to the payments of such Real Property Taxes. If the amount of the Escrow Fund exceeds the amounts due for Real Property Taxes, Lender may, in its discretion, return any excess to Borrower or credit such excess against future payments to be made to the Escrow Fund. In allocating such excess, Lender may deal with the Person shown on the records of Lender to be the owner of the Property. If the Escrow Fund is not sufficient to pay the items set forth above, Borrower shall promptly pay to Lender, upon demand, an amount which Lender shall reasonably estimate as sufficient to make up such deficiency. The Escrow Fund shall not constitute a trust fund and may be commingled with other monies held by Lender. Unless required by applicable Law, no earnings or interest on the Escrow Fund shall be payable to Borrower or any other Person.

In the events that (a) water and/or sewer charges are assessed against the Property on a metered basis and (b) the Borrower fails to timely pay such charges to the applicable Governmental Authority, the Lender (y) shall be entitled (but not required) to pay same and/or (z) may require the Borrower to pay to the Lender a sum of money equal to 150% of the amount of such charges (annualized), as determined by Lender on the basis of examination of historical records, current estimated usage or such other data available to Lender, and the Borrower shall immediately pay such sum to the Lender upon demand which funds shall be held by Lender in a non-interest bearing account or may be comingled with its general funds and may be used by Lender to pay such outstanding charges, held as additional collateral or applied in reduction of any amounts due and owing to the Lender.

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Section 4.8     Taxes on Lender/Moratorium Laws.

Borrower will pay any taxes (except income, franchise or similar taxes) now or hereafter imposed on Lender by reason of its ownership of the Note or this Mortgage. In the event of the passage after the date hereof of any Law deducting from the value of Property for the purposes of taxation any Lien thereon or changing in any way the laws of taxation of mortgages or debts secured by mortgages or the manner of the collection of any such taxes, so as to affect this Mortgage, the holder hereof shall have the right to give thirty days' written notice to the owner of the Property requiring the payment in full of the Note and all other sums due hereunder and if such notice is given, the Note and all other sums due hereunder shall become due and payable and collectible at the expiration of said thirty days. If this Mortgage is now or shall hereafter be protected or affected by moratorium laws or by any other statute or statutes preventing Lender from foreclosing for nonpayment of principal upon the Maturity Date (“Moratorium Laws”), Borrower hereby undertakes to continue to pay amortization, plus interest at the Default Rate, monthly to Lender (if Lender so elects and only so long as the Moratorium Laws protect Borrower), such monthly payments to commence on the Maturity Date and monthly thereafter for as long as the Moratorium Laws remain in effect, such amortization based upon the greater of (a) amortization payments due in the last year of this Mortgage prior to the Maturity Date or (b) amortization required by the Moratorium Laws. In the event that Borrower defaults in the payment of any such installment of amortization on any due date, Lender shall have the right to foreclose solely by reason of such default. Upon the expiration of the protection(s) afforded by any Moratorium Laws, the entire unpaid principal balance of the Loan plus all other sums due and owing pursuant to the Note and hereunder shall become immediately due and payable.

Section 4.9     Payment of the Indebtedness Secured Obligations/Terms of Note.

Borrower shall pay the Indebtedness and all other Secured Obligations including any and all other interest, charges, fees, costs and expenses that may come due thereunder or under any Loan Document. The terms and provisions of the Note and all other Loan Documents are incorporated herein by reference.

Article 5 - Leases and Rents and Assignment of Leases and Rents

Section 5.1     Representations and Warranties.

Borrower represents and warrants that (1) Borrower is the sole owner of the entire lessor’s interest in the Leases, Rents and Tenant Security, (2) all existing Leases are in full force and effect and are enforceable in accordance with their respective terms and comply with applicable Law, (3) the certified rent roll of the Property delivered to Lender in connection with the closing of the Loan is true and accurate in all material respects (the “Rent Roll”), (4) Borrower has delivered to Lender a true, correct and complete list of all Tenant Security which have not been applied, all of which are held by Borrower in accordance with the terms of the applicable Lease and applicable Law, (5) there is no Sale or Encumbrance by Borrower of landlord’s interest under any of the Leases and Rents, (6) other than the collection of Rent for the first and/or last month of a Lease, none of the Rents have been collected for more than one (1) month in advance (it being understood that a Tenant Security shall not be deemed Rent collected in advance) and Borrower shall not hereafter collect any Rents more than one (1) month in advance, (7) all work required to be performed by Borrower under each Lease has been performed or is being performed as required and the premises demised under the Leases have been accepted by the applicable Tenant and such Tenant has taken possession of the same on a rent-paying basis, (8) to the Borrower’s knowledge, there exist no offsets or defenses to the payment of any portion of the Rents, (9) no Rent has been waived, released or otherwise discharged or compromised, (10) all payments due under the Leases are current and are consistent with the Rent Roll (or, if there are any Rent delinquencies, same are specified in the Rent Roll), (11) there are no agreements with the Tenants other than expressly set forth in each written Lease, (12) no Lease contains an option to purchase, right of first refusal to purchase, or any other similar provision, (13) no Person has any possessory interest in, or right to occupy, the Property or any part thereof except under and pursuant to a written Lease, (14) each Lease is subordinate to this Mortgage, either pursuant to its terms or a recorded subordination agreement, (15) no Lease has the benefit of a non-disturbance agreement that would be considered unacceptable to prudent institutional mortgagees, (16) no brokerage commissions or finders fees are due and payable regarding any Lease, (17) each Lease is an arms-length transaction and is made at then current market rents and terms, (18) Borrower has not performed, and Borrower covenants and agrees that it will not perform, any acts and has not executed, and shall not execute, any instrument which would prevent Lender from exercising its rights under this Article, (19) Borrower has received no notice from any Tenant challenging the validity or enforceability of any Lease, (20) to the Borrower’s knowledge, there are no material breaches or defaults, or events that with notice or the passage of time, or both, would constitute a material breach or default of any Leases by Borrower or any Tenant, and (21) to the Borrower’s knowledge, no Tenant is subject to a Bankruptcy Event and no Tenant has demonstrated a history of payment problems which suggest financial difficulty.

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Section 5.2     Leases and Rents.

Borrower covenants and agrees that Borrower shall (1) perform all the obligations of the landlord under each Lease, (2) use best efforts to keep the Property leased at all times to Tenants whom Borrower, reasonably and in good faith, believes are creditworthy and at rents not less than comparable existing market rates or applicable rates allowed by law (if lower) for similar properties, (3) promptly send copies to Lender of all notices of material default which Borrower sends or receives with respect to any non-residential Lease, (4) use best efforts to enforce all of the terms, covenants and conditions contained in the Leases upon the part of each Tenant to be observed or performed, (5) other than the collection of Rent for the first and/or last month of a Lease, not collect any of the Rents more than one (1) month in advance, (it being understood that Tenant Security shall not be deemed Rent collected in advance), nor grant any Tenant any right to prepay Rent more than one (1) month in advance, (6) not execute any assignment of the landlord’s interest in the Leases or the Rents, (7) not materially (or adversely to the landlord) change the terms of any Lease, (8) keep in full force and effect and not cancel or terminate any Lease (except for defaults thereunder) or accept a surrender thereof or convey or transfer or suffer or permit a conveyance or transfer of the Property or of any interest therein so as to effect a merger of the estates and rights of, or a termination or diminution of the obligations of, Tenants thereunder, (9) not cancel, release (except upon termination of the applicable Lease) or change the terms of any Tenant Security, (10) not consent to any assignment of, or subletting under, the Leases, unless required to do so under applicable Laws, (11) after the date hereof, only enter into Leases on the standard form of Lease approved by Lender, (12) only enter into Leases that are a result of an arms-length transaction and only enter into Leases with Persons that are not Affiliates of Borrower, (13) not enter into a single Lease or a series of related Leases for more than five percent (5.00%) of the total rentable space of the Property, (14) promptly upon Lender’s request, execute and record (a) any additional assignments of the landlord’s interest under any Lease to Lender and (b) a specific subordination of any Lease to this Mortgage, both in form and substance satisfactory to Lender, (15) not do, or permit to be done, anything to impair the value of the Leases as security for the Secured Obligations, (16) not grant any Tenant any option, right of first refusal or other right to purchase all or any portion of the Property, (17) not enter into any Leases (other than residential Leases, on then market rates and market terms and in accordance with applicable Law) without the consent of Lender, such consent not to be unreasonably withheld or delayed, and (18) not engage in any action(s), omission(s), malfeasance or nonfeasance which would constitute the constructive eviction or attempted constructive eviction of any Tenant. Upon request, Borrower shall furnish Lender with executed copies of all non-residential Leases and upon a Default under the Loan and request by Lender, Borrower shall furnish Lender with executed copies of all residential Leases. Each non residential Lease entered into subsequent to the date hereof shall provide that in the event of the enforcement by Lender of the remedies provided for hereby or by Law, the Tenant thereunder will, upon request and at the option of any Person succeeding to the interest of Borrower as a result of such enforcement, automatically become the lessee of said successor in interest and attorn to said successor in interest, without change in the terms or other provisions of the Lease, provided, however, that (A) said successor in interest shall not be bound by (i) any payment of Rent for more than one (1) month in advance, except prepayments in the nature of Tenant Security to the extent actually received by said successor in interest or (ii) any amendment or modification of the Lease made without the consent of Lender or such successor in interest. Each Lease shall also provide that (a) the Lease is subordinate to this Mortgage and (b) for each non residential Lease upon request by said successor in interest, such Tenant shall execute and deliver an instrument or instruments confirming such attornment. Lender hereby refers to Section 291-f of the Real Property Law of the State of New York and Borrower acknowledges Lender’s rights under the statute, specifically with respect to subparagraphs 5, 7, 8 and 9 as hereinabove set forth. Lender shall have all the rights against lessees of the Mortgaged Property as set forth in Section 291-f of the Real Property Law of New York.

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Borrower shall, promptly upon Lender's request, deliver to Lender an executed copy of each Lease then in effect. All Leases shall be on forms approved by Lender, shall be for initial terms of at least six months and, with respect to individual apartment residential Leases, not more than two years, and shall not include options to purchase. If customary in the applicable market, residential Leases with terms of less than six months may be permitted with Lender's prior written consent.

Borrower shall not lease any portion of the Property for non-residential use except with the prior written consent of Lender, such consent not to be unreasonably withheld or delayed, and Lender's prior written approval of each Lease. Borrower shall not modify the terms of, or extend or terminate, any Lease for non-residential use (including any Lease in existence on the date of this Instrument) without the prior written consent of Lender, such consent not to be unreasonably withheld or delayed. Borrower shall, without request by Lender, deliver an executed copy of each non-residential Lease to Lender promptly after such Lease is signed. All non-residential Leases, including renewals or extensions of existing Leases, shall specifically provide and shall be deemed to include provisions that (1) such Leases are subordinate to the lien of this Instrument (unless waived in writing by Lender); (2) the Tenant shall attorn to Lender and any purchaser at a foreclosure sale, such attornment to be self-executing and effective upon acquisition of title to the Property by any purchaser at a foreclosure sale or by Lender in any manner; (3) the Tenant agrees to execute such further evidences of attornment as Lender or any purchaser at a foreclosure sale may from time to time request; (4) the Lease shall not (unless the Lender determines at any time to the contrary) be terminated by foreclosure or any other transfer of the Property; (5) after a foreclosure sale of the Property, Lender or any other purchaser at such foreclosure sale may, at Lender's or such purchaser's option, accept or terminate such Lease; and (6) the Tenant shall, upon receipt after the occurrence of an Event of Default of a written request from Lender, pay all Rents payable under the Lease to Lender.

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Section 5.3     Tenant Security.

Borrower will not commingle any Tenant Security with any other assets of Borrower.

Section 5.4     Assignment of Leases, Rents.

(1)     As part of the consideration for Lender’s issuance of the Loan to Borrower, Borrower absolutely and irrevocably assigns to Lender all of Borrower's right, title and interest in, to and under all present and future Leases and Rents and Tenant Security and all proceeds from the sale or other disposition of such Leases, Rents and Tenant Security (“Assignment of Leases and Rents”). This Assignment of Leases and Rents is immediately effective and is a present, absolute and irrevocable transfer and assignment, not an assignment for security purposes only, and Lender's right to the Leases and Rents and Tenant Security and the proceeds thereof is not contingent upon, and may be exercised without possession of, all or any portion of the Property and without further action by the Borrower. Promptly upon request by Lender, Borrower agrees to execute and deliver such further assignments as Lender may from time to time require. (Notwithstanding the definition of the term “Property” hereinbefore set forth, for purposes of giving effect to this absolute assignment of the Lease and Rents, and for no other purpose, the Leases and Rents shall not be deemed to be a part of the "Property; however, if this present, absolute and unconditional assignment of the Leases and Rents is not enforceable by its terms under the laws of the Property Jurisdiction, then the Leases and Rents shall be included as a part of the Property and it is the intention of the Borrower that in this circumstance this Mortgage create and perfect a Lien on the Leases and Rents in favor of Lender, which lien shall be effective as of the date of this Instrument.)

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(2)     Notwithstanding such Assignment of Leases and Rents

(i) Lender confers upon Borrower a revocable license to collect and retain the Rents as they become due and payable and not in advance (“License to Collect Rents”). Borrower shall hold the Rents and all sums received pursuant to any Lease or Tenant Security or a portion thereof sufficient to discharge all current sums due on the Secured Obligations, in trust for Lender for use in the payment of such sums and shall apply all Rents to pay the installments of interest and principal then due and payable under the Note and the other amounts then due and payable under the other Loan Documents, including the Escrow Fund and all current costs and expenses of managing, operating and maintaining the Property, including utilities, Real Property Taxes and insurance premiums for Required Insurance, tenant improvements and other capital expenditures. So long as no Event of Default has occurred and is continuing, the Rents remaining after application pursuant to the preceding sentence may be retained and/or subject to the payment of all current debt service and other expenses of maintaining the Property, distributed by Borrower free and clear of, and released from, Lender's rights with respect to Rents under this Instrument.

(ii) As part of the License to Collect Rents, Lender also confers upon Borrower all rights, power and authority granted to Borrower under any Lease (except as otherwise limited by this Article or elsewhere herein), including the right, power and authority to modify the terms of any Lease or extend or terminate any Lease.

(3)     From and after the occurrence and during the existence of an Event of Default, and without the necessity of Lender entering upon and taking and maintaining control of the Property directly, or by a receiver, (i) Borrower's License to Collect Rents shall automatically terminate, (ii) Lender shall without notice be entitled to all Rents as they become due and payable, including Rents then due and unpaid, (iii) the authority granted in Section 5.4(2)(ii) shall be automatically revoked, (iv) Borrower authorizes Lender to collect, sue for and compromise Rents and directs each Tenant to pay all Rents to, or as directed by, Lender, (v) Borrower shall, upon Borrower's receipt of any Rents pay the total amount of such receipts to the Lender, (vi) Borrower shall pay to Lender upon demand all Rents to which Lender is entitled and (vii) Lender immediately shall have all rights, powers and authority granted to Borrower under any Lease, including the right, power and authority to modify the terms of any such Lease, or extend or terminate any such Lease. At any time on or after the date of Lender's demand for Rents, Lender may give, and Borrower hereby irrevocably authorizes Lender to give, notice to all Tenants of the Property instructing them to pay all Rents to Lender, no Tenant shall be obligated to inquire further as to the occurrence or continuance of an Event of Default, and no Tenant shall pay to or be obligated to pay to Borrower any amounts which are actually paid to Lender in response to such a notice. Any such notice by Lender shall be delivered to each Tenant personally, by mail or by delivering such demand to each rental unit. Borrower shall not interfere with and shall cooperate with Lender's collection of such Rents.

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(4)     If an Event of Default has occurred and is continuing, Lender may, regardless of the adequacy of Lender's security or the solvency of Borrower and even in the absence of waste, enter upon and take and maintain full control of the Property in order to perform all acts that Lender in its discretion determines to be necessary or desirable for the operation and maintenance of the Property, including the execution, cancellation or modification of Leases, the collection of all Rents, the making of repairs to the Property and the execution or termination of contracts providing for the management, operation or maintenance of the Property or for such other purposes as Lender in its discretion may deem necessary or desirable.

(5)     Borrower acknowledges and agrees that the exercise by Lender, either directly or by a receiver, of any of the rights conferred under this Article or elsewhere herein shall not be construed to make Lender a mortgagee-in-possession of the Property so long as Lender has not itself entered into actual possession of the Real Estate. The acceptance by Lender of the assignment of the Leases and Rents pursuant to this Article and the exercise of any rights hereunder shall not at any time or in any event obligate Lender to take any action under this Mortgage or to expend any money or to incur any expenses. Lender shall not be liable in any way for any injury or damage to person or property sustained by any person or persons, firm or corporation in or about the Property other than those arising by reason of Lender’s gross negligence or willful misconduct. Lender shall not (i) be obligated to perform any of the terms, covenants and conditions contained in any Lease (or otherwise have any obligation with respect to any Lease); (ii) be obligated to appear in or defend any action or proceeding relating to any Lease or the Property; (iii) be responsible for the operation, control, care, management or repair of all or any portion of the Property; (iv) be responsible or liable for any waste committed on the Property by any Tenant or Person, (v) be responsible for any dangerous or defective condition of the Property, (vi) be responsible for any negligence in the management, upkeep, repair or control of the Property resulting in loss or injury or death to any Tenant, licensee, employee, invitee or other Person, (vii) be responsible for or impose upon Lender any duty to produce Rents or profits, or (viii) be required to exercise any of the rights, remedies or powers granted to Lender under this Mortgage. The execution of this Mortgage by Borrower shall constitute conclusive evidence that all responsibility for the operation, control, care, management and repair of the Property is and shall be that of Borrower.

Article 6 - Insurance

Section 6.1     Insurance Definitions.

For purposes of this Mortgage the following terms have the following meanings:

“Full Replacement Cost” means (1) with respect to the Improvements and Fixtures, the cost of replacing the Improvements and Fixtures without regard to deduction for depreciation, and (2) with respect to Personal Property, the cost of replacing such Personal Property.

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“Rental Income” means the sum of (1) the total of the then ascertainable Rents payable under the Leases, and (2) the total ascertainable amount of all other amounts to be received by Borrower from third parties which are the legal obligations of Tenants.

Section 6.2     Conditions of Property.

Borrower represents and warrants that Borrower has not received notice from any insurance company or bonding company of any defects or inadequacies in any or all of the Property which could (1) adversely affect the insurability of any or all of the Property, (2) cause the imposition of increased premiums or charges or (3) cause the termination of any insurance policy or bond.

Section 6.3     Maintenance of Insurance.

Borrower will maintain at all times the following types of insurance upon or related to the Property (collectively, “Required Insurance”):

(1)     Casualty Insurance. “All risk” coverage insurance against loss or damage to the Property from all risk perils, including acts of terrorism (foreign or domestic), fire, lightning, wind, hail, flood, earthquake, subsidence, vandalism, riot or civil commotion, malicious mischief, burglary and theft. The amount of such insurance shall not be less than one hundred percent (100%) of the Full Replacement Cost of the Improvements, Fixtures, and Personal Property owned by Borrower from time to time. The determination of the amount of the Full Replacement Cost shall be adjusted annually to comply with the requirements of the insurer providing such coverage or, at Lender's election, by reference to such indexes, appraisals or information as Lender determines in its discretion. Absent such annual adjustment, each policy shall contain inflation guard coverage insuring that the policy limit will be increased over time to reflect the effect of inflation. Each policy or policies shall contain a replacement cost endorsement and either an agreed amount endorsement (to avoid the operation of any co-insurance provisions) or a waiver of any co-insurance provisions. Co-insurance is not permitted and, in all events, the amount of such insurance shall be sufficient to prevent Lender from becoming a co-insurer within the terms of the applicable policies and under applicable Law. The maximum deductible under such insurance will not exceed the Casualty Insurance Deductible.

(2)     Comprehensive General Liability Insurance. Commercial general liability insurance for personal injury, bodily injury, death and property damage liability in amounts not less than $1,000,000 per occurrence, $2,000,000 aggregate (exclusive of umbrella coverage). Lender may require Borrower to increase the amount of such liability insurance maintained by Borrower should Lender deem an increase to be reasonably prudent under then existing circumstances. Such policy must include coverage for premises and operations, products and completed operations, independent contractors, blanket contractual liability, hired, owned and non-owned automobile liability, and innkeeper’s legal liability. No deductible is permitted under such liability insurance.

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(3)     Business Interruption Insurance. Business interruption and/or loss of Rental Income insurance in amounts sufficient to avoid any co-insurance penalty and to compensate Borrower for all Rents during a period for twelve (12) months from the date of the Casualty, plus one hundred eighty (180) days extended period of indemnity, subject to a deductible not to exceed the Business Interruption Insurance Deductible. The amount of coverage shall be adjusted annually to reflect the Rents payable during the succeeding twelve (12) month period. Borrower hereby assigns the proceeds of such insurance to Lender, to be applied by Lender in payment of the interest and principal on the Note, insurance premiums for all Required Insurance and Real Property Taxes until such time as the Improvements shall have been restored and placed in full operation, at which time, provided there are no outstanding Events of Default, the balance of such insurance proceeds, if any, held by Lender shall be paid over to Borrower.

(4)     Major Equipment Property Insurance. Broad form boiler and machinery insurance covering the major components of the Real Estate including central heating, air conditioning and ventilating systems, boilers, other pressure vessels, high pressure piping and machinery, elevators and escalators, if any, and other similar equipment installed in the Improvements, in an amount equal to one hundred percent (100%) of the Full Replacement Cost of the Improvements. Such policies shall insure against physical damage to and loss of occupancy and use of the Improvements arising out of an accident or breakdown of any of such equipment.

(5)     Flood Insurance. If the Land or any part thereof is identified by the Secretary of Housing and Urban Development and/or the Federal Emergency Management Agency as being situated in an area now or subsequently designated as having special flood hazards (including those areas designated as Zone A or Zone V), flood insurance in an amount equal to the lesser of (1) one hundred percent (100%) of the Full Replacement Cost of the Improvements, or (2) the maximum amount of available flood insurance. The maximum deductible under such insurance will not exceed $20,000.00.

(6)     Other Customary Insurance. Such other insurance as is usually carried by companies engaged in the same or a similar business as Borrower and similarly situated and such other insurance in such amounts as Lender may require from time to time, including (a) statutory worker’s compensation insurance with respect to any work on or about the Property covering all persons subject to the worker’s compensation laws of the state in which the Property is located, (b), during the period of any construction on the Property or renovation or alteration of the Improvements, a so-called “Builder's All-Risk Completed Value” or “Course of Construction” insurance policy in non-reporting form for any Improvements under construction, renovation or alteration in an amount approved by Lender and with an agreed amount endorsement waiving co-insurance provisions and (c) Blanket Crime Bond covering all employees for employee dishonesty, computer fraud and depositors forgery in an amount of not less than $5,000,000.00.

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(7)     Law and Ordinance Coverage. Law and ordinance coverage in an amount satisfactory to Lender if the Property, or any part thereof, shall now or at any time hereafter constitute a nonconforming use or structure under applicable zoning ordinances, sub-division and building codes or other laws, ordinances, orders and requirements.

(8)     Umbrella Liability Insurance. In addition to the primary coverage otherwise required by this Mortgage, umbrella liability insurance in an amount equal to or greater than the Umbrella Coverage Liability Amount.

Section 6.4     Insurance Carriers.

All insurance required by this Mortgage shall be provided by an insurance company (1) licensed to do business in the state where the Land is located, and (2) with a policy rating of “B+” or better and a financial rating of at least VIII from A.M. Best Company or any successor thereto.

Section 6.5     Evidence of Insurance.

Borrower shall deliver to Lender an original of each insurance policy required to be maintained, or a certificate of such insurance reasonably acceptable to Lender, together with a copy of the declaration page for each such policy. Not later than fifteen (15) days prior to the expiration of each policy of Required Insurance, Borrower shall deliver a renewed policy or policies, or certificates of insurance, or duplicate original or originals thereof and, if requested by Lender, accompanied by evidence of payment satisfactory to Lender with standard non-contributory mortgage clauses in favor of and acceptable to Lender. Upon request of Lender, Borrower shall use its best efforts to cause its insurance underwriter or broker to certify to Lender in writing that all the requirements of this Mortgage governing insurance have been satisfied.

Section 6.6     Insurance Policy Provisions.

Each Required Insurance policy shall (1) in the case of a liability policy, name Lender and its successors and assigns as additional insured, (2) in the case of a casualty policy, name Lender and its successors and assigns as mortgagee and loss payee, (3) be for a term of not less than one (1) year, (4) include a standard mortgagee clause providing that the interest of Lender shall be insured regardless of any breach or violation by Borrower or any Tenant of any warranties, declarations or conditions in such policy, (5) if any such Required Insurance policy is subject to cancellation, termination or being endorsed to effect a change in coverage for any reason whatsoever, the insurer under such policy shall promptly notify Lender in writing and such cancellation, termination or change shall not be effective as to Lender until thirty (30) days after receipt by Lender of such notice (unless such cancellation is for non-payment, in which case such insurer shall be obligated to provide Lender with not less than ten (10) days written notice), (6) shall include an effective waiver of all subrogation rights against any loss payee, additional insured or named insured, (7) in the case of property damage insurance policies such policies automatically reinstate after a Casualty, (8) provide that no loss payee or additional insured is responsible for any insurance premiums on or assessments pursuant to any such policy, (9) permit Lender to pay the premiums and continue such policy upon failure of Borrower to pay such premium, and (10) to the extent available at commercially reasonable rates, a waiver of subrogation endorsement as to Lender. Lender may, but shall not be obligated to, make premium payments to prevent such cancellation. In addition, each Required Insurance policy shall be subject to the approval of Lender as to insurance company, amounts, content, form of policy, method by which premiums are paid and expiration date.

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Section 6.7     Compliance with Requirements of Insurance Policies.

Borrower shall (1) pay when due all insurance premiums for all Required Insurance, (2) comply with and conform to (a) all provisions of each such Required Insurance policy, and (b) all requirements of the insurers applicable to Borrower or to the Property or to the use, manner of use, occupancy, possession, operation, maintenance, alterations or repair of any of the Property, (3) not use or permit the use of the Property in any manner which permits any insurer to cancel or void any Required Insurance policy.

Section 6.8     Insurance Reporting Requirements.

Borrower shall give Lender prompt notice of, and copies of documents delivered or received by Borrower in connection with, each of the following: (1) any claims made against Borrower for any personal injury, bodily injury or property damage incurred on or about the Property, (2) any Casualty, and (3) any cancellation or non-renewal of any Required Insurance policy.

Section 6.9     Renewal and Replacement of Insurance Policies.

Not less than fifteen (15) days prior to the expiration, termination or cancellation of any insurance policy required to be maintained under this Agreement, Borrower shall renew such policy or obtain a replacement policy or policies (or a binding commitment for such replacement policy or policies), which shall be effective not later than the date of the expiration, termination or cancellation of the previous policy, and shall deliver to Lender a certificate in respect of such policy or policies or a copy of the binding commitment for such policy or policies and confirming that such policy complies with all requirements of this Mortgage.

Section 6.10     Rights of Lender to Obtain Insurance.

If at any time Lender is not in receipt of written evidence that all Required Insurance is in full force and effect, Lender has the right but not the obligation, without notice to Borrower, to obtain such insurance coverage as Lender in its sole discretion deems appropriate. Borrower agrees that all premiums incurred by Lender in connection with obtaining and maintaining such insurance shall be paid by Borrower to Lender upon demand and until paid shall bear interest at the Default Rate. At Lender’s option, said premiums may be paid by Lender from the Escrow Fund.

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Section 6.11     Dealing with Insurance Carriers/Succession to Borrower’s Rights.

Borrower shall obtain Lender's prior written approval, such approval not to be unreasonably withheld, prior to any settlement, adjustment or compromise of any claims for loss, damage or destruction under any Required Insurance policy, and Lender shall have the right to participate with Borrower in negotiation of any such settlement, adjustment or compromise, in such event. Lender shall also have the right to appear with Borrower in any action against an insurer based on a claim for loss, damage or destruction under any policy or policies of insurance. If all or any portion of the Property is sold at a foreclosure sale or Lender acquires title to all or any portion of the Property, Lender shall automatically succeed to all rights of Borrower in and to any insurance policies and unearned insurance premiums and in and to the proceeds resulting from any damage to the Property prior to such sale or acquisition.

Section 6.12     Application of Insurance Proceeds.

Borrower will cause all Casualty Insurance Proceeds to be paid over to Lender. Such Casualty Insurance Proceeds shall be applied first to reimburse Lender for all costs and expenses of Lender incurred in connection with the recovery, maintenance and administration of such Casualty Insurance Proceeds, and then, at the option of Lender in its sole discretion, either (1) to the payment or prepayment of the Secured Obligations in such order as Lender may determine or (2) to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding all or any part of the Property subject to the Casualty (“Restoration”).

Section 6.13     Lender’s Right to Escrow for Insurance.

Upon an Event of Default or if the Lender is compelled by Law, Borrower covenants to pay to Lender, one-twelfth (1/12th) of the annual premiums for fire, flood and other hazard insurance, which sums shall be held by the Lender pursuant to Section 4.7 (and shall be deemed included in the Escrow Fund) and used by it to pay such insurance premiums as the same become due and payable.

Article 7 - Condemnation

Section 7.1     Condemnation Definitions.

For purposes of this Mortgage the following terms have the following meanings:

“Condemnation” means any temporary or permanent taking or requisition of any or all right, title and interest in all or any part of the Property or any change of grade which affects the Property or any roadway providing access to the Property, in each case, as the result of the exercise of any right of condemnation or eminent domain.

“Condemnation Proceeds” means all funds or proceeds received as a result of, in connection with, or in anticipation of, a Condemnation.

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Section 7.2     Condemnation Representations and Warranties.

Borrower represents and warrants that there are no pending or, to the knowledge of Borrower, threatened Condemnation proceedings.

Section 7.3     Condemnation Reporting Requirements.

Borrower will promptly give Lender notice of the actual or threatened commencement of any Condemnation proceeding and shall deliver to Lender copies of each notice and paper served by any party in connection with such a proceeding.

Section 7.4     Condemnation Proceedings.

Borrower authorizes Lender, at Lender's option, to commence, appear in and participate in, in Borrower or Lender's name, in any Condemnation proceeding. If Lender elects to participate in such a proceeding then Borrower will execute and deliver all instruments requested by Lender to permit or facilitate Lender's participation in such a proceeding. If Lender elects not to participate in such a Condemnation proceeding, then Borrower shall, at its expense, diligently prosecute such proceeding. In that case, Borrower will consult with Lender, and will cooperate with Lender in any defense of such proceeding. In either case, Borrower will not settle or compromise such a proceeding without the consent of Lender.

Section 7.5     Application of Condemnation Proceeds.

Borrower will cause all Condemnation Proceeds to be paid directly to Lender. Such Condemnation Proceeds shall be applied first to reimburse Lender for all costs and expenses of Lender incurred in connection with obtaining such Condemnation Proceeds, and then, at the option of Lender, in its sole discretion, either (1) to the payment or prepayment of the Secured Obligations in such order as Lender may determine or (2) to reimburse Borrower for the cost of restoring, repairing, replacing or rebuilding all or any of the Property that was affected by the Condemnation (“Replacement”).

Article 8 – Environmental

Section 8.1     Environmental Definitions.

As used in this Mortgage, the following terms have the following meanings:

“Environmental Laws” means any and all Laws relating to or imposing liability or standards of conduct concerning environmental regulation, environmental protection, Hazardous Materials, pollution, contamination or clean up, including the Clean Air Act, the Clean Water Act, also known as the Federal Water Pollution Control Act, the Federal Insecticide, Fungicide and Rodenticide Act, the Surface Mining Control and Reclamation Act, the Comprehensive Environmental Response, Compensation and Liability Act, as amended by the Superfund Amendment and Reauthorization Act of 1986, the Emergency Planning and Community Right to Know Act, the Resource Conservation and Recovery Act, the Safe Drinking Water Act, the Toxic Substances Control Act, the Hazardous Materials Transportation Act, the Occupational Safety and Health Act, the Water Pollution Control Act, the Endangered Species Act, the River and Harbors Appropriation Act, the Solid Waste Disposal Act and the National Environmental Policy Act.

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“Hazardous Materials” means (1) any and all elements, compounds, mixtures, substances, radioactive materials, hazardous materials, hazardous wastes, hazardous or toxic substances, in quantities or volumes covered by or regulated pursuant to any Environmental Law, including asbestos, gasoline, diesel fuel, motor oil, waste or used oil, heating oil, kerosene and any other petroleum products, including crude oil or any fraction thereof, and material exhibiting the characteristics of ignitability, corrosivity, reactivity or extraction procedure toxicity, as such terms are defined in connection with hazardous materials or hazardous wastes or hazardous or toxic substances in any Environmental Law, and (2) other substances which may have a significant negative impact on human health and safety or the environment if released into or within a structure, the workplace or the environment, including radon, mold, fungus mildew and similar items, but excluding substances of kinds and in amounts ordinarily and customarily used or stored for the purposes of cleaning or other maintenance or operations if such substances are used and stored in compliance with all Environmental Laws. As used herein, the phrase “Hazardous Materials at the Property” shall mean “Hazardous Materials at, in, on, about, above, over, under, into, within, through, across, from, to, near, affecting or emanating from all or any portion of the Property” and the phrase “Hazardous Materials . . . at the Property” shall mean “Hazardous Materials . . . at, in, on, about, above, over, under, into, within, through, across, from, to, near, affecting or emanating from all or any portion of the Property”.

“Indemnified Parties” means (1) Lender, (2) each Person who has been, is or will be involved in the origination of the Loan, (3) each Person who is or will be involved in the servicing of the Loan, (4) each Person in whose name the security interest created by the Mortgage is or will be recorded, (5) each Person who acquires all or part of the Property by foreclosure, power of sale, conveyance in lieu of foreclosure or otherwise, (6) each Person who holds or acquires or will hold or acquire a full or partial interest in the Loan, including investors, participants or prospective investors in the Loan, (7) each custodian, trustee and other fiduciary who has held, holds or will hold a full or partial interest in the Loan for the benefit of third parties, (8) each director, officer, shareholder, member, partner, employee, agent, attorney, servant, representative, contractor, subcontractor, Affiliate, subsidiary, participant, successor and assign of any and all of the foregoing Persons, including any other Person who holds or acquires or will hold a participation or other full or partial interest in the Loan, whether during the term of the Loan or as a part of or following a foreclosure of the Loan or enforcement of any other remedy, including deed-in-lieu of foreclosure, with respect to the Loan, (9) any receiver of the Property and (10) each successor and assign of each of the parties specified above in this definition, including any successors or assigns by merger, consolidation or acquisition of all or substantially all of the assets or business of any such party.

“Losses” means any and all losses, damages, liabilities, costs and expenses incurred by any Indemnified Party in respect of or as a result of any or all claims, suits, liabilities (including strict liabilities), actions, demands, proceedings, obligations, debts, damages (including punitive and consequential to the extent actually imposed), fines, trials, penalties, charges, diminution of value, injury to a person, property or natural resources, Remedial Work, fees, judgments, accounts, orders, adjudications, awards, liens, injunctive relief, causes of action or amounts paid in settlement of whatever kind or nature, including out of pocket attorney’s fees and all fees of experts, including engineers and environmental consultants, and other costs of defense or otherwise related thereto.

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“Release” means, by any Person or by any other source or means, any generation, treatment, use, transportation, transfer, production, processing, manufacture, refinement, handling, storage, holding, control, management, existence, disposition, removal, remediation, disposal, abatement, release, escape, seepage, spillage, discharge, leak, presence, migration or movement (whether any of the foregoing be intentional or unintentional, direct or indirect, foreseeable or unforeseeable, naturally occurring or man-made) of a Hazardous Material or any other activity related to a Hazardous Material.

“Remedial Work” means investigation, inspection, assessment, site monitoring, containment, clean-up, removal, remediation, response, corrective action, mitigation, restoration or other remedial work of any kind or nature because of, in connection with or related to any existing, current or future presence, suspected presence, Release or threatened Release of any Hazardous Materials, including any action to comply with any Environmental Law or directive of any Governmental Authority with regard to any Environmental Laws.

Section 8.2     Environmental Representations and Warranties.

After due inquiry and investigation and except as may be expressly set forth in any third party environmental report of the Property delivered to the Lender in connection with the Lender’s origination of the Loan, Borrower represents and warrants that, to the best of Borrower’s knowledge, (1) the Property is not in violation of any Environmental Law, (2) there are no Hazardous Materials at the Property and neither Borrower nor any prior owner or current or prior tenant, subtenant, or other occupant of all or any part of the Property has used or is using, Hazardous Materials at the Property that (a) would require any Remedial Work, or (b) poses a threat to persons or the environment, except for the use and storage of immaterial amounts of Hazardous Materials at the Property if such use or storage is in connection with the ordinary cleaning and maintenance of the Property so long as such use and storage is in compliance with all applicable Environmental Laws, (3) the Property is not subject to any private or governmental Lien or judicial or administrative notice or action or inquiry, investigation or claim relating to Hazardous Materials, (4) there has been no Release of any Hazardous Materials at the Property (including the period prior to Borrower's acquisition of the Property) other than in compliance with all Environmental Laws and other than releases of Hazardous Materials which have been remediated in compliance with applicable Environmental Laws, (5) no Hazardous Materials are present in, on or under any nearby real property which could migrate to or otherwise affect the Property, (6) no underground storage tanks exist on any of the Property, (7) Borrower has not received any notice from any Person claiming a violation of any Environmental Law, including a Release in violation of any applicable Environmental Law or requiring Remedial Work with regard to the Property and (8) there are no environmental investigations, studies, audits, reviews or other analysis conducted by or in possession of Borrower or any of its Affiliates which have not been made available to Lender.

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Section 8.3     Environmental Covenants.

Borrower agrees that Borrower will (1) comply with all Environmental Laws, including performing all Remedial Work required by Environmental Laws and provide all information required to be delivered to Governmental Authorities, and cause each Tenant to comply with such Laws, (2) keep or cause to be kept the Property in compliance with all Environmental Laws and free from Hazardous Materials, except for the use and storage of immaterial amounts of Hazardous Materials at the Property if such use or storage is in connection with the ordinary cleaning and maintenance of the Property so long as such use and storage is in compliance with all applicable Environmental Laws, (3) keep the Property free and clear of any Liens imposed pursuant to any Environmental Law, and (4) not permit or suffer any Release in violation of any applicable Environmental Laws. If Borrower is aware that Remedial Work is required, whether as a result of governmental inquiries, environmental audits or otherwise, Borrower shall, within thirty (30) days after obtaining such knowledge (or such shorter period of time as may be required under any applicable Environmental Law), commence and thereafter diligently prosecute to completion all such Remedial Work. If requested by Lender, Borrower will insure that all Remedial Work shall be performed by contractors approved in advance by Lender, and under the supervision of a consulting engineer approved by Lender. All costs and expenses of such Remedial Work shall be paid by Borrower. In the event Borrower fails to timely prosecute to completion such Remedial Work, or to contest its obligation to do so, Lender may, but shall not be required to, cause such Remedial Work to be performed, consistent with sound commercial practices designed to protect the Lien hereby created, and all costs and expenses thereof, or incurred in connection therewith, shall become part of the Secured Obligations.

Section 8.4     Environmental Reporting Requirements.

Borrower shall give prompt written notices to Lender: (1) if the Property is in violation of any Environmental Law, (2) of the presence of Hazardous Materials at the Property, (3) of any Release or threatened Release, (4) of any required or proposed Remedial Work on the Property, (5) of any proceeding or inquiry by any Person with respect to the presence of any Hazardous Material at the Property, (6) of all claims made or threatened by any Person against Borrower or the Property relating to any loss or injury resulting from any Hazardous Material, (7) of Borrower's discovery of any occurrence or condition on any real property adjoining or in the vicinity of the Property that could cause the Property to be subject to any investigation or cleanup pursuant to any Environmental Law, (8) of Borrower's receipt of any notice from any Governmental Authority or any other Person relating or pertaining to any Hazardous Materials located or Released at the Property, (9) of any Governmental Authority incurring any cost or expense in connection with the assessment, containment, remediation or removal of any Hazardous Materials located or Released at the Property, and (10) of any actual or potential Lien on the Property pursuant to any Environmental Law.

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Section 8.5     Environmental Inspection.

Upon the request of Lender, after the occurrence of an Event of Default or upon Lender’s reasonable belief that the Property is not in full compliance with Environmental Laws, Borrower will perform, at the expense of Borrower, an environmental audit of the Property and provide a copy of such audit to Lender. Borrower agrees that Lender or any agent or representative acting on behalf of Lender may, but shall not be obligated to, enter upon the Property at any time, to conduct such inspections and tests, at Borrower's sole cost and expense, as may be desired by Lender to determine compliance with Environmental Laws.

Section 8.6     Environmental Audits.

At any time at Lender’s request, after the occurrence of an Event of Default or upon Lender’s reasonable belief that the Property is not in full compliance with Environmental Laws, Borrower shall provide at Borrower's sole expense, an inspection or audit of the Property prepared by a licensed hydro geologist or licensed environmental engineer approved by Lender indicating the presence or absence of Hazardous Materials at the Property. If Borrower fails to provide such inspection or audit within thirty (30) days after such request Lender may order same, and Borrower hereby grants to Lender and its employees and agents access to the Property and a license to undertake such inspection or audit. The cost of such inspection or audit shall be paid by Borrower on demand and shall bear interest thereafter until paid at the highest rate provided in the Note or herein.

Section 8.7     Environmental Legal Proceedings.

Borrower shall permit Lender to join and participate in, as a party if it so elects, any legal proceedings or actions initiated with respect to the Property in connection with any Environmental Law or Hazardous Material, and Borrower shall pay all out of pocket attorney's fees and disbursements incurred by Lender in connection with such proceeding.

Section 8.8     Environmental Indemnification.

Borrower hereby agrees at Borrower’s sole cost and expense to protect, indemnify, defend, and hold harmless each Indemnified Party from and against any and all Losses, arising out of, attributable to, relating to, which may accrue out of, or which may result from (1) a past, present or future violation or alleged violation of any Environmental Laws in connection with the Property by any Person or other source whether related or unrelated to Borrower, (2) any claim brought or threatened, settlement reached, or governmental order relating to a Hazardous Material, including the cost and expense of any Remedial Work, out of pocket attorney and consultant fees and disbursements, investigation fees, court cost and litigation expenses, (3) any presence of any Hazardous Materials at the Property, (4) the failure to timely perform any Remedial Work, (5) any past, present or future activity by any Person or other source whether related or unrelated to Borrower in connection with any actual, proposed or threatened use, treatment, storage, holding, existence, disposition or other release, generation, production, manufacturing, processing, refining, control, management, abatement, removal, handling, transfer or transportation to or from the Property of any Hazardous Materials at the Property, (6) any past, present or future actual, threatened or alleged Release (whether intentional or unintentional, direct or indirect, foreseeable or unforeseeable) to, from, on, within, in, under, near or affecting the Property by any Person or other source, whether related or unrelated to Borrower, (7) the imposition, recording or filing of any Lien on the Property with regard to, or as a result of, any Hazardous Materials or pursuant to any Environmental Law, or (8) any misrepresentation or inaccuracy in any representation or warranty or breach or failure to perform any covenants or other obligations pursuant to this Agreement or relating to environmental matters hereunder or under any of the other Loan Documents.

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The foregoing indemnity shall (a) survive the sale, assignment, transfer, cancellation, release or satisfaction of all or any part of the Mortgage or any of the Secured Obligations, the foreclosure or conveyance in lieu of foreclosure of all or any part of the Property or the exercise by Lender of any of the remedies available under the Mortgage, any other Loan Document or at law or in equity and (b) inure to the benefit of Lender notwithstanding the occurrence of any of the foregoing events.

Notwithstanding anything to the contrary, or in any of the Loan Documents, the foregoing protection, indemnity defense, release and hold harmless obligations shall terminate two (2) years following the payment in full of the Loan by Borrower (referred to herein as the “Environmental Sunset”) provided (i) such payment in full was not as a result of the foreclosure or conveyance in lieu of foreclosure of the Property or any other conveyance or transfer of the Property in connection with the foreclosure of the Property, or the exercise by Lender of any of the remedies available under any of the Loan Documents, and (ii) Lender has received, without cost to Lender, an Acceptable Environmental Assessment (as defined below) dated no earlier than ninety (90) days before the date on which the Loan has been paid in full.  For purposes hereof, the term “Acceptable Environmental Assessment” shall mean a Phase I environmental assessment or study of the Property (or such other form of environmental assessment or study reasonably acceptable to Lender) performed by an environmental engineer or consulting firm reasonably approved by Lender in writing, and which environmental assessment or study shall be in form and substance reasonably acceptable to Lender and shall not indicate the presence of any Hazardous Materials in violation of any Environmental Laws or contain any recommendations for Remedial Work (provided, however, if such environmental assessment recommends Remedial Work, then the Environmental Sunset shall be effective upon the performance and completion of such Remedial Work and delivery to Lender of an update or revision to the previous environmental assessment indicating no further Remedial Work is required at the Property and such environmental assessment shall then be deemed an Acceptable Environmental Assessment).

Article 9 - Single Purpose Entity

Section 9.1     Single Purpose Entity Definitions.

As used in this Mortgage, the following terms have the following meanings:

“Organizational Documents” means all documents and agreements providing for, or related to, the formation, organization and governance of a Person, including (1) if such Person is a corporation, its certificate of incorporation, by-laws and any shareholder agreement related to such corporation, (2) if such a Person is a general partnership, its partnership agreement, (3) if such Person is a limited partnership, its certificate of limited partnership and partnership agreement, and (4) if such Person is a limited liability company, its certificate of formation and operating agreement and any agreement among its members related to such limited liability company.

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Section 9.2     Single Purpose Entity.

Borrower represents, warrants and covenants that Borrower did not previously and in the future will not and shall not (a) acquire any real or personal property other than the Property and Personal Property, (b) operate any business other than the management and operation of the Property; and (c) take any actions or suffer any omissions that would cause its assets to be comingled with the assets of another Person or which would render it difficult to segregate and identify its assets, including any of the following:

(1)     Organizational Documents. Either (a) fail to provide in its Organizational Documents for restrictions substantially similar to those set forth in this Section; or (b) amend any provisions of its Organizational Documents so that Borrower is no longer in compliance with this Section,

(2)     Single Business Purposes. Engage in any business or activity other than the ownership, operation, management and maintenance of the Property, and activities incidental thereto,

(3)     Ownership of a Single Asset. Acquire or own any assets other than the Property,

(4)     Maintenance of Existence. Fail to do all things necessary to preserve its existence in good standing (if applicable) under the laws of the jurisdiction of its organization or formation, or fail to qualify and remain qualified as a foreign entity in each jurisdiction in which such qualification is required,

(5)     Maintain Separate Accounts. Comingle its assets or funds with the assets of any other Person, including its Affiliates, or fail to maintain its assets in such a manner that it is costly or difficult to segregate, ascertain or identify its individual assets from those of any other Person, including its respective Affiliates,

(6)     Guarantees. Pledge any or all of its assets for the benefit of, or to secure the obligations of, any other Person, except for the Liens granted pursuant to the Loan Documents, or (b) hold itself out as responsible for, or assume, guarantee, endorse or otherwise be or become directly or contingently responsible or liable for the obligations of any Person,

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(7)     Investments. Make a loan or advance to a Person, or purchase or otherwise acquire any capital stock, assets, obligations, or other securities of, or make any capital contribution to, or otherwise invest in or acquire any interest in any Person,

(8)     Transactions With Affiliates. Enter into any contract or agreement with any Affiliates, except in the ordinary course of and pursuant to the reasonable requirements of the business of Borrower and upon fair and reasonable terms no less favorable to Borrower than Borrower would obtain in a comparable arm's length transaction with a Person that is not an Affiliate,

(9)     Presentation as Separate Legal Entity. Present itself as a division or department of another Person, or fail to (a) hold itself out to the public as a legal Person separate and distinct from any other Person, (b) conduct its business solely in its own name, and (c) correct any known misunderstanding regarding its separate identity,

(10)     Maintenance of Separate Books and Records. Fail to maintain its records, financial statements, accounting records, books of account, and bank accounts and Organizational Documents separate and apart from those of any other Person, other than in connection with consolidated financial statements with the parent entities provided same is in accordance with commercially sound accounting practices.

Article 10 - Books and Records and Reporting Requirements

Section 10.1     Maintenance of Records.

Borrower will maintain and keep complete and accurate books and records of account in which complete entries reflecting all financial transactions relating to the Borrower and the Property will be made in accordance with accounting methods acceptable to Lender in its reasonable discretion, consistently applied and correctly reflecting the operation, income, revenue, rents, costs and expenses of the Property, such records to include, without limitation, copies of supporting bills and invoices, bank account statements, contracts, leases and all other instruments and financial records which affect or relate to the Property or the Borrower including any reports or documents required by this Article (collectively, the "Books and Records"). Borrower shall keep and maintain the Books and Records at the Property or the management agent's offices. Upon request by Lender, Borrower shall make all Books and Records available for review, inspection and copying by the Lender at the Property and all Books and Records shall be subject to examination, inspection and copying at any reasonable time by Lender. If Borrower fails to provide in a timely manner any Books and Records, Lender shall have the right to have Borrower's Books and Records audited, at Borrower's expense, by independent certified public accountants selected by Lender in order to obtain such statements, schedules and reports, and all related out of pocket costs and expenses of Lender including accountant’s fees and attorney’s fees shall be paid by Borrower to Lender. If an Event of Default has occurred, Borrower shall deliver to Lender upon written demand all Books and Records. If an Event of Default has occurred and Lender has not previously required Borrower to furnish a quarterly statement of income and expense for the Property, Lender may require Borrower to furnish such a statement within 30 days after the end of each fiscal quarter of Borrower following such Event of Default.

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Section 10.2     Right of Inspection.

Lender and any Persons authorized by Lender have the right, upon reasonable advance notice to Borrower and at reasonable times, to examine, review and inspect at the Property any Books and Records, and to make copies and take abstracts therefrom. All Books and Records shall be made available at the Property for such examination, review, inspection and copying. Lender shall have the right to discuss the affairs, finances, assets, business and Books and Records of Borrower with its managers, officers, members, partners, shareholders and/or accountants and Borrower shall make such managers, officers, members, partners, shareholders and/or accountants available for such discussions and direct (and hereby irrevocably directs) such managers, officers, partners, shareholders and/or accountants to answer Lender’s questions concerning the Books and Records and the financial affairs of Borrower and disclose to Lender such financial information of Borrower as Lender may require. Lender shall have the right to discuss the affairs, finances, business and assets of any Guarantor or Indemnitor with each such Guarantor and Indemnitor (and, if applicable, each such Guarantor’s or Indemnitor’s managers, officers, partners, shareholders and/or accountants) and Borrower shall make all such Persons available for such discussions and direct (and hereby irrevocably directs) such Persons to answer Lender’s questions concerning the Books and Records and the financial affairs of Guarantors and Indemnitors and disclose to Lender such financial information of Guarantors and Indemnitors as Lender may reasonably require.

Section 10.3     Reporting Requirements.

Borrower shall furnish to Lender (and to the extent any of the following Books and Records are required of or relate to any Guarantor or Indemnitor, Borrower shall cause such Guarantor and Indemnitor to furnish and such Guarantor and Indemnitor shall furnish to the Lender):

(1)     Financial Statements.

(a)     Semi-Annual Financial Statements. As soon as available and in any event within sixty (60) days after January 1, 2021 and within sixty (60) days of the end of each six (6) month period thereafter, a balance sheet of Borrower as of the end of such previous six (6) month period, a statement of operations and cash flow of Borrower for such six (6) month period commencing at the end of its previous six (6) month period, a full and complete statement of all income and expenses incurred in the operation and maintenance of the Property for the previous six (6) month period and a current rent roll (a “Semi-Annual Income and Expense Statement”), all in reasonable detail and in form required by Lender, stating in comparative form the respective figures for the corresponding date and periods in such previous six (6) month period; it being understood, however, that the detail and form of statements provided to and accepted by Lender prior to the making of the Loan shall be deemed to be satisfactory, provided that the Income and Expense Statement clearly indicates the period or dates which they represent and each are certified and dated as required pursuant to Section 10.5 herein;

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(b)     Annual Financial Statements. As soon as available and in any event within ninety (90) days after the end of each fiscal year of Borrower, a balance sheet of Borrower as of the end of such fiscal year, a statement of operations and cash flow of Borrower for such fiscal year commencing at the end of its previous fiscal year and a full and complete statement of all income and expenses incurred in the operation and maintenance of the Property for the previous fiscal year (an “Income and Expense Statement”), all in reasonable detail and in form required by Lender, stating in comparative form the respective figures for the corresponding date and periods in such previous fiscal year, and prepared, dated and certified as complete an accurate by a licensed certified public accountant;

(2)     Operating Budget. As soon as available and in any event fifteen (15) days prior to the start of each fiscal year of Borrower, an annual operating budget presented on a monthly basis consistent with the current Income and Expense Statement, including cash flow projections for the upcoming year, and all proposed capital replacements and improvements;

(3)     Rent Roll.

(a)     Semi-Annual Rent Roll. As soon as available but no later than sixty (60) days after January 1, 2021 and within sixty (60) days of the end of each six (6) month period thereafter, a rent roll in form required by Lender detailing the names of all Tenants of the Improvements, the portion of the Improvements occupied by each Tenant, the base rent and any other charges payable under each Lease and the term of each Lease, including the expiration date, the extent to which any Tenant is in default under any Lease, and any other information as is reasonably requested by Lender;

(b)     Annual Rent Roll. As soon as available but no later than ninety (90) days after the end of each fiscal year of Borrower, a rent roll in form required by Lender detailing the names of all Tenants of the Improvements, the portion of the Improvements occupied by each Tenant, the base rent and any other charges payable under each Lease and the term of each Lease, including the expiration date, the extent to which any Tenant is in default under any Lease, and any other information as is reasonably requested by Lender;

(4)     Personal Financial Statements. As soon as available but no later than thirty (30) days after January 1, 2021 and within sixty (60) days of the end of each six (6) month period thereafter, a Personal Financial Statement of each Guarantor and of each Indemnitor. Each Personal Financial Statement shall be certified as complete and accurate by each Guarantor and each Indemnitor and contain such schedules and reports as may in the Lender’s determination be necessary, together with such information as the Lender in its reasonable discretion may require (the “Personal Financial Statement”) and, as soon as available and in any event within five (5) days after filing, copies of all tax returns filed by each Guarantor and each Indemnitor; it being understood, however, that the detail and form of statements provided to and accepted by Lender prior to the making of the Loan shall be deemed to be satisfactory.

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(5)     Tax Returns. As soon as available and in any event within five (5) days after filing, copies of all tax returns filed by Borrower.

Lender may also require that any statements required herein be audited at the Borrower’s expense by an independent certified public accountant.

Upon the occurrence and continuance of an Event of Default and request made by Lender, Borrower shall also furnish to Lender (a) such reports described above in this Section 10.3 to Lender at any other time and for such period or periods as Lender may reasonably require (but in no event more than four (4) times a year), and (b) such additional reports as Lender may reasonably require including:

(i) Monthly Operating Statement. As soon as available but no later than twenty (20) days after the end of the calendar month in which such request is made, a monthly operating statement for the Property in the form required by Lender, detailing the revenues received, the expenses incurred and the net operating income before and after debt service (principal and interest) and major capital improvements for such month and containing appropriate year-to-date information;

(ii) Monthly Financial Statements. As soon as available but no later than thirty (30) days after the end of the calendar month in which such request is made, a balance sheet of Borrower as of the end of such month, and a statement of operations and statement of cash flow of Borrower for such month, all in reasonable detail and stating in comparative form the respective figures for the corresponding date and period in the prior fiscal year; it being understood, however, that the detail and form of statements provided to and accepted by Lender prior to the making of the Loan shall be deemed to be satisfactory;

(iii) Quarterly Financial Statements. As soon as available and in any event within forty-five (45) days after the end of each of the first three fiscal quarters of each fiscal year of Borrower, a balance sheet of Borrower as of the end of such quarter, a statement of operations and cash flow of Borrower for such quarter and for the period commencing at the end of its previous fiscal year and ending with the end of such quarter and an Income and Expense Statement for each such quarter, all in reasonable detail and in form required by Lender, stating in comparative form the respective figures for the corresponding date and periods; ; it being understood, however, that the detail and form of statements provided to and accepted by Lender prior to the making of the Loan shall be deemed to be satisfactory;

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(iv) Property Management Report. A property management report for the Property, showing the number of inquiries made and/or rental applications received from Tenants or prospective Tenants and deposits received from Tenants and any other information requested by Lender, in reasonable detail and certified by Borrower to be true and complete;

(v) Accounting for Security Deposits. An accounting of all security deposits held in connection with any Lease, including the name and identification number of the accounts in which such security deposits are held, the name and address of the financial institutions in which such security deposits are held and the name of the person to contact at such financial institution, along with any authority or release necessary for Lender to obtain information regarding such accounts directly from such financial institutions.

During the occurrence and continuance of an Event of Default, Borrower shall furnish each and every of the above reports to Lender within ten (10) days of demand made by Lender therefor.

Section 10.4     Credit Report.

Borrower, each Guarantor and each Indemnitor authorize Lender to obtain a credit report, Dun & Bradstreet report and/or similar reports against Borrower, any Guarantor and any Indemnitor at any time.

Section 10.5     Certification of Chief Financial Officer.

Accompanying all financial statements, reports and Books and Records to be delivered under Section 10.3, Borrower shall deliver to Lender a certificate of the chief financial officer of Borrower or a principal of Borrower authorized to bind Borrower certifying that (a) such statements, reports, Semi-Annual Income and Expense Statement(s) and/or Books and Records are complete and correct and that they fairly present the financial condition of Borrower as of the end of such applicable period and the results of operations for such applicable period, all in accordance with a method of accounting (consistently applied) acceptable to Lender in its reasonable discretion, and (b) no Event of Default has occurred and is continuing, or if an Event of Default has occurred and is continuing, a statement as to the nature of such Event of Default and the action which is proposed to be taken with respect to such Event of Default.

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In addition, each Income and Expense Statement to be delivered under Section 10.3 must be certified by an independent, certified public accountant as complete and accurate and that they fairly present the financial condition of Borrower as of the end of such applicable period and the results of operations for such applicable period.

Section 10.6     Fees for Failure to Provide Required Reports.

All reports required under Section 10.3 shall be furnished within the time period(s) specified above in this Section. In the event that any such report remains outstanding for a period of thirty (30) days beyond its due date, the Lender shall be entitled (in addition to any other remedies available to the Lender) upon fifteen (15) days written notice to increase the Interest Rate by two percent (2%) per annum (i.e., 200 basis points) until such time as the reports required under Section 10.3 are delivered to the Lender’s satisfaction.

Borrower expressly acknowledges that its failure to provide any of the foregoing required reports to the Lender will (a) cause Lender to incur additional and significant costs and expenses in servicing and processing the Loan, including the need for increased attention by the Lender’s servicing department and the possibilities of increased regulatory examination and transfer of the loan to the Lender’s special servicing department or loan recovery unit, (b) potentially subject the Lender to increased reserve or capital requirements and (c) subject Lender to additional review burdens, costs and fees including the need for increased personnel to monitor Borrower’s compliance with the requirements of this Article. Borrower acknowledges that it is extremely difficult and impractical to determine any of those additional costs and expenses and that the Lender is entitled to be compensated for such increased risks. Borrower agrees that the increase in the rate of interest set forth above represents a fair and reasonable estimate of the additional costs and expenses Lender will incur by reason of Borrower’s failure to provide any such report and the additional compensation Lender is entitled to receive on account of such failure.

Article 11 - General Representations and Covenants

Section 11.1     General Representations and Warranties.

Borrower represents, covenants and warrants that:

(1)     Formation, Good Standing, Power and Due Qualification of Borrower. Borrower (a) is a limited liability company, duly formed, validly existing, and in good standing under the laws of the jurisdiction of its formation, (b) has all the requisite power and authority, to own its assets and to transact the business in which it now engages or proposes to engage in, (c) is duly authorized to transact business within the state in which the Property is located, (d) is in good standing under the laws of each other jurisdiction in which such qualification is required and (e) shall maintain, continuously and without interruption, all of the foregoing authorizations, power and authority until the obligations evidenced hereby are fully satisfied.

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(2)     Authority of Borrower. The execution, delivery and performance by Borrower of this Mortgage are within its powers, have been duly authorized by all necessary action, and do not and will not (a) require any consent or approval of its managers or members, as the case may be, which has not been obtained, or (b) contravene its Organizational Documents.

(3)     No Contravention of Borrower. The execution, delivery and performance by Borrower of this Mortgage do not and will not (a) violate any provision of any Law, order, writ, judgment, injunction, decree, determination, or award presently in effect applicable to Borrower, (b) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other agreement, lease, or instrument to which Borrower is a party or by which Borrower or Borrower’s properties may be bound or affected, or (c) result in, or require, the creation or imposition of any Lien upon or with respect to any of the properties now owned or hereafter acquired by Borrower.

(4)     Legally Enforceable. This Mortgage and each other Loan Document to which Borrower is a party is the legal, valid and binding obligation of Borrower, enforceable against Borrower in accordance with its terms, except to the extent that such enforcement may be limited by (a) applicable Insolvency Laws, or (b) general equitable principles, regardless of whether the issue of enforceability is considered in a proceeding in equity or at law.

(5)     Authorization. Other than as has been already obtained, no authorization, approval or other action by, and no notice to or filing with, any Governmental Authority is required (a) for the execution, delivery or performance by Borrower of this Mortgage or any other Loan Document, or (b) for the consummation of the transaction contemplated by the Loan Documents, or (c) for the exercise by Lender of the rights and remedies provided for in this Mortgage or any other Loan Document.

(6)     Information. No information, exhibit, or report furnished by Borrower or any other Person to Lender in connection with the making of the Loan contains any material misstatement of fact or omits to state a material fact or any fact necessary to make the statements contained therein not misleading. There has been no material adverse change in any condition, fact, circumstances, or event that would make any of the information, exhibits or reports furnished in connection with the making of the Loan inaccurate, incomplete or otherwise misleading in any respect. Borrower has disclosed to Lender in writing any and all facts that could result in a material adverse change to the Real Estate or Borrower.

(7)     Financial Information. All information, including all financial statements or information delivered by Borrower and/or any Guarantor, Indemnitor or other Person regarding Borrower, any Guarantor, any Indemnitor and/or the Property, is true and correct as of the respective date of each such statement or report, and accurately reflects the financial condition of Borrower and each such Guarantor, Indemnitor or Person as of the date of such statements or reports. Neither Borrower nor any such Guarantor, Indemnitor or Person has any contingent liabilities, liabilities for taxes, unusual forward or long-term commitments or unrealized or anticipated losses from any unfavorable commitments that could result in a material adverse change to Borrower, such Guarantor, such Indemnitor or such Person, as applicable. There has been no material adverse change to Borrower, or any such Guarantor, Indemnitor or Person since the date of such financial statements or reports. There has been no material adverse change to the Real Estate or Borrower.

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(8)     Tax Returns. Borrower has filed all tax returns (federal, state and local) (“Tax Returns”) required to be filed and has paid all taxes, assessments and governmental charges and levies thereon to be due, including interest and penalties. The charges, accruals and reserves on the books of Borrower for taxes or other governmental charges are adequate. No additional tax liability has been asserted against Borrower or any assessment received by Borrower which remains open and unpaid. Subsequent to the date hereof, Borrower shall file all Tax Returns required to be filed by Borrower and shall pay all taxes, assessments and governmental charges and levies imposed upon Borrower or the Property, including interest and penalties.

(9)     Compliance With Law. Borrower has no knowledge that it is not in compliance in all material respects with all applicable Laws. Borrower possesses and is in compliance with all Governmental Approvals required to conduct its business as now conducted and as presently proposed to be conducted. Neither Borrower nor to the best of Borrower’s knowledge any other Person in occupancy of or involved in the operations or use of the Property has committed any act or omission affording any Governmental Authority the right of forfeiture as against any or all of the Property, any collateral for any or all of the Secured Obligations, or any or all monies paid in performance of Borrower’s obligations under any of the Loan Documents.

(10)     Embargoed Person. None of the funds or other assets of Borrower constitute property of, or are beneficially owned, directly or indirectly, by any Person subject to trade restrictions under U.S. Law with the result that either (1) the investment in Borrower (whether directly or indirectly), or (2) the making of the Loan is in violation of Law. None of the funds of Borrower or any Guarantor or any Indemnitor have been derived from any unlawful activity with the result that either (1) the investment in Borrower, or (2) the making of the Loan is prohibited by Law. The Borrower, all Restricted Parties and their affiliates, subsidiaries or any of their respective agents acting or benefitting in any capacity in connection with the transactions contemplated by this Loan are in full compliance with, and shall continue to comply with any Laws relating to terrorism or money laundering, including without limitation Executive Order No. 13224 (effective September 24, 2001), the USA PATRIOT Act, the laws comprising or implementing the Bank Secrecy Act, and the laws administered by U.S. Department of Treasury Office of Foreign Assets Control (“OFAC”).

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(11)     Litigation. There is no action, suit or proceeding pending or, to the knowledge of Borrower, threatened against or affecting Borrower before any court, arbitration panel or other governmental body, which, in any one case or in the aggregate, could result in a material adverse change to the Real Estate or Borrower.

(12)     No Default or Event of Default. No Default or Event of Default has occurred.

(13)     No Foreign Person. Borrower is not a “foreign person” within the meaning of Section 1445(f)(3) or 7701 of the Internal Revenue Code of 1986.

(14)     Partnership and Joint Ventures. Borrower is not a partner in any partnership, a shareholder in corporation, a member of any limited liability company, a party to a joint venture or an owner, member or principal of any other entity.

(15)     Intellectual Property. Borrower possesses all licenses, franchises, patents, copyrights, trademarks, and trade names, or rights thereto, to conduct its business as now conducted and as presently proposed to be conducted, and Borrower is not in violation of any valid rights of others with respect to any of the items noted above.

(16)     Acts of God. Neither the business nor the properties of Borrower are affected by any fire, explosion, accident, strike, lockout or other labor dispute, drought, storm, hail, earthquake, embargo, act of God or of the public enemy, or other Casualty (whether or not covered by insurance) which has resulted in, or could result in, a material adverse change to the Real Estate or Borrower.

(17)     Labor Matters. Borrower is not a party to any collective bargaining agreement.

(18)     Other Agreements. Borrower is not a party to any indenture, loan, or credit agreement, or to any lease or other agreement or instrument, or subject to any Organizational Document restriction which has resulted in, or could result in, a material adverse change to the Real Estate or Borrower. Borrower is not in default in any respect in the performance, observance or fulfillment of any of the obligations, covenants or conditions contained in any agreement or instrument to which it is a party where such default has resulted in, or could result in, a material adverse change to the Real Estate or Borrower.

(19)     Governmental Regulation. Borrower is not subject to any Law limiting its ability to incur its obligations under any of the Loan Documents.

(20)     J-51/DHCR/Tax Abatements/Rent Registrations. Borrower has complied with, and shall continue to comply with, any and all Laws relating to real estate tax abatements and/or exemptions benefiting the Property, rent regulation, rent control and rent stabilization, including Section 11-243 of the Administrative Code of the City of New York, New York State Real Property Tax Law Section 489, Chapter 5 of Title 28 of the Rules of the City of New York, all Laws commonly known as J-51 tax abatement laws, all Laws commonly known as 421-a tax abatement laws and all Laws related to obtaining reductions or abatements of real estate taxes and/or real estate tax assessments (collectively, the “Tax Abatement Laws”) and the Borrower and/or the Property is/are not subject to any penalty, fine, assessment or adjustment of or repayment of Rents under any of the Tax Abatement Laws. Borrower hereby consents to the review by Lender of all New York State Division of Housing and Community Renewal (“DHCR”) registrations. Borrower further certifies and represents that any DHCR rent registration filings submitted to Lender are true and correct and not subject to overcharge claims (except as disclosed by Borrower to Lender in writing prior to the date hereof). Borrower covenants and agrees to timely file for additional rent increases whenever allowed by applicable rent regulations and whenever commercially prudent.

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(21)     Property Agreements. Each of the Property Agreements is in full force and effect and there are no outstanding defaults by any Person party to such a Property Agreement. No Person party to such Property Agreement (other than a management agreement) has given or received any notice of default under any of the Property Agreements that remains uncured or in dispute. No Property Agreement has as a party an Affiliate of Borrower. All fees and other compensation for services previously performed under the management agreement have been paid in full.

Section 11.2     General Reporting Requirements.

Borrower agrees that Borrower will furnish:

(1)     Litigation. Promptly after their commencement, notice of all actions, suits, and proceedings involving or affecting Borrower or the Property including those brought by, against or before any Governmental Authority or arbitrator, other than eviction proceedings against any individual residential tenant.

(2)     Material Adverse Change. As soon as possible after the occurrence of any Material Adverse Change to Borrower, written notice of such material adverse change.

(3)     Event of Default. Within five (5) days after the occurrence of any Event of Default, notice, and the nature, of such Event of Default.

(4)     General Information. Promptly after request, such other information respecting the status of the business, assets, liabilities, results of operations, condition (financial or otherwise), of Borrower or the Property as Lender may reasonably request from time to time.

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Section 11.3     Trust Fund; Lien Laws.

Borrower will receive the advances made hereunder and secured hereby and will hold the right to receive such advances as a trust fund to be applied first for the purpose of paying the costs of improvements on the Land and will apply the same first to the payment of such costs before using any part of the total of the same for any other purpose and, in the event all or any part of the Land is located in the State of New York, will comply with Section 13 of the New York Lien Law. Borrower will indemnify and hold Lender harmless against any loss or liability, cost or expense, including any judgments, out of pocket attorney’s fees, costs of appeal bonds and printing costs, arising out of or relating to any proceeding instituted by any claimant alleging a violation by Borrower of any applicable lien law, including any section of Article 3-A of the New York Lien Law.

Section 11.4     Estoppel Certificate.

Within 10 days after a request from Lender, but not more than twice a year and at any time after an Event of Default, Borrower shall deliver to Lender a written statement, signed and acknowledged by Borrower, certifying to Lender or any person designated by Lender, as of the date of such statement, (i) that the Loan Documents are unmodified and in full force and effect (or, if there have been modifications, that the Loan Documents are in full force and effect as modified and setting forth such modifications); (ii) the unpaid principal balance of the Note; (iii) the date to which interest under the Note has been paid; (iv) that Borrower is not in default in paying the Secured Obligations or in performing or observing any of the covenants or agreements contained in this Mortgage or any of the other Loan Documents (or, if the Borrower is in default, describing such default in detail satisfactory to Lender); (v) whether or not there are then existing any setoffs or defenses known to Borrower against the enforcement of any right or remedy of Lender under the Loan Documents; and (vi) any additional facts reasonably requested by Lender (“Estoppel Certificate”).

Article 12 - Events of Default

Section 12.1     Event of Default Definitions.

As used in this Mortgage the following terms have the following meanings:

“Affiliated Manager” means any managing agent in which Borrower, any Guarantor or any Indemnitor has, directly or indirectly, any legal, beneficial or economic interest.

“Obligated Party” means Borrower, each Guarantor and each Indemnitor, or any or all of the foregoing, all as the context may require.

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“Prohibited Transfer” means (1) if a Restricted Party is a corporation, general partnership, limited partnership or limited liability company, any merger or consolidation involving such Party, (2) if a Restricted Party is a corporation, a Sale or Encumbrance of such corporation’s stock or of any profits or proceeds related to such stock or the creation or issuance of new stock, (3) if a Restricted Party is a general partnership, the change, removal, resignation or addition of a partner or the Sale or Encumbrance of any partnership interest of any partner or of any profits or proceeds relating to such partnership interest, or the creation of a new partnership interest, (4) if a Restricted Party is a limited partnership, the change, removal, resignation or addition of a general or limited partner or the Sale or Encumbrance of any general or limited partnership interest of any partner or of any profits or proceeds related to such general or limited partnership interest, or the creation of new general or limited partnership interest, (5) if a Restricted Party is a limited liability company, the change, removal, resignation or addition of a member or the Sale or Encumbrance of any membership interest of a member or of any profits or proceeds related to such membership interest, or the creation or issuance of a new membership interest, or the change, removal, resignation or addition of a managing member or non-member manager, (6) an installment sales contract with respect to all or any portion of the Property, (7) a lease of all or any portion of the Property with an option to buy, (8) a lease of all or any portion of the Property with a term in excess of three (3) years including renewal terms (other than (i) routine residential apartment leases and (ii), with respect to leases of parking or commercial spaces, stores or offices, if any, in the Real Estate, individual commercial, office or store or parking leases, provided all such leases are made in the Borrower’s ordinary course of business and upon then current market terms and rents, are acceptable to the Lender and comply with the provisions of Section 5.1 and Section 5.2 herein, (9) any change in the interests of the Principals of the Borrower as shareholders, partners, members and/or otherwise, including any change in the ownership of any entities which own (either directly or indirectly and/or through one or more sub-entities) any interest in the Borrower, (10) any change in the management of the Property in place at the closing of the Loan, (11) any pledge or mortgaging of, or placing any encumbrance upon, any interest, direct or indirect, in the Borrower, (12) any attempt to convert the Property, or any portion thereof, to a condominium or cooperative form of ownership, and (13) any financing by a Restricted Party in which bonds, debentures or similar instruments are offered for sale to investors, whether privately or publicly, including any sale or offering thereof through a domestic or foreign marketplace and either (a) the underlying asset(s) or credit(s) supporting or serving, as the basis (directly or indirectly) of such financing is/are comprised of, in whole or in part, the Property or any part thereof or (b) where as part of the underlying asset(s) or credit(s) supporting or serving, in whole or in part, as the basis (directly or indirectly) of such financing, the Property has been or will be pooled, grouped with  or considered in conjunction with any other property(ies).

“Restricted Parties” means: (a) Borrower, (b) each Guarantor, (c) each Indemnitor, (d) each Affiliated Manager, (e) each shareholder, partner, member or other principal or member- or non-member manager of any of the foregoing, (f) each direct, indirect, legal or beneficial owner of any of the foregoing (through one or more sub-entities or one or more owning entities) and each shareholder, partner, member or other principal or member- or non-member manager of any such direct, indirect, legal or beneficial owner.

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Section 12.2     Events of Default.

Each of the following events is an “Event of Default”:

(1)     The occurrence of any of the following:

(a)     any failure to pay or deposit when due, beyond any applicable notice and grace period, any amount required by the Note, this Mortgage or any other Loan Document;

(b)     any failure to maintain the insurance coverage required by Article 6 (Insurance);

(c)     any failure to comply with the provisions of Article 9 (Single Purpose Entity);

(d)     fraud or material misrepresentation or material omission by Borrower, or any of Principals of the Borrower, or any Guarantor or Indemnitor in connection with (A) the application for or creation of the Indebtedness, (B) any financial statement, rent roll, or other report or information provided to Lender during the term of this Mortgage or (C) any request for Lender's consent to any proposed action, including a request for disbursement of funds under any Loan Document;

(e)     a Prohibited Transfer or a Sale or Encumbrance of all or any of the Property, of any interest in the Property or of any interest (direct or indirect) in the Borrower or any Restricted Party;

(f)     any exercise by the holder (including Lender) of any other debt instrument secured by a mortgage, deed of trust or deed to secure debt on the Property (whether or not same constitutes a Permitted Encumbrance and regardless of whether same is junior, equal or superior in Lien to the Lien of this Mortgage) of a right to declare all amounts due under that debt instrument immediately due and payable;

(g)     any failure by Borrower to comply with the requirements of Article 10 (Books and Records and Reporting Requirements);

(h)      any Obligated Party is the subject of or becomes subject to a Bankruptcy Event, or all or any part of the Property is the subject of or becomes subject to a Bankruptcy Event;

(i)      if at any time and for any reason the Lien of this Mortgage ceases to be a valid and perfected first priority Lien in, to, on and against the Property;

(j)     if at any time and for any reason any Guaranty, Indemnity Agreement or other Loan Document ceases to be in full force and effect, or is declared null and void; or the validity or enforceability of such Guaranty, Indemnity Agreement or other Loan Document is contested by the applicable Guarantor, Indemnitor or other obligor; or any Guarantor, Indemnitor or other obligor denies it has any further liability or obligation under its Guaranty, Indemnity or other Loan Document; or any Guarantor, Indemnitor or other obligor fails to perform any of its obligations under its Guaranty, Indemnity or other Loan Document;

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(k)     any representation or warranty made by any Obligated Party in any Loan Document or which is contained in any certificate, document, opinion, financial or other statement furnished at any time under, as required by or in connection with any Loan Document, was incorrect in any material respect on or as of the date made;

(l)     any change in the management of the Property currently in effect as of the date hereof without the prior written consent of Lender;

(m)     intentionally omitted;

(n)     any failure by Borrower to perform or abide by any of obligations or covenants as and when required under any Loan Document other than this Mortgage, or to suffer or permit any omission of any of such obligations or covenants under any Loan Document other than this Mortgage or to suffer, permit or engage in any breach of any warranty, representation or covenant made in any Loan Document other that this Mortgage, which continues beyond the applicable cure period, if any, specified in that Loan Document;

(o)     any failure by Borrower to comply with any of the terms, covenants and/or conditions of any other Article contained in this Mortgage.

(2)     Subordination Agreements. At any time and for any reason any subordination agreement ceases to be in full force and effect or is declared null and void, or the validity or enforceability thereof or of any part thereof is contested by any Person or any Person fails to perform its obligations thereunder;

(3)     Loss of Use of Property. If for any reason Borrower is unable to use all or any material part of the Property for the purposes intended as of the date of this Mortgage, including as a result of (a) failure to obtain or comply with any Permit required for the ownership or operation of the Property, (b) any change in any zoning Law, (c) the enactment, adoption or implementation of any Law, (d) a Casualty, if the related Casualty Insurance Proceeds are not used in accordance with the terms of this Mortgage to pay for the cost of the applicable Restoration, or (e) a Condemnation, if the related Condemnation Award is not used in accordance with the terms of this Mortgage to pay for the cost of the applicable Replacement, or (f) issuance of an order by any Governmental Authority;

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(4)     Dissolution or Death. In the case of an Obligated Party that is not an individual, any dissolution, termination, partial or complete liquidation, merger or consolidation of any Obligated Party, or, in the case of a Obligated Party that is an individual, the death or incapacity of such Obligated Party, unless said individual is replaced by a substitute individual satisfactory to the Lender, in its reasonable discretion;

(5)     Prohibition on Payment of Taxes. If it shall be illegal for Borrower to pay any tax referred to in “Taxes on Lender” (Section 4.8) or if the payment of such tax by Borrower would result in the violation of applicable usury Laws;

(6)     Property Agreements. Other than termination on its regularly scheduled termination date, at any time and for any reason any Property Agreement ceases to be in full force and effect or is declared null and void, or the validity or enforceability thereof is contested by any party thereto, or any party thereto denies it has any further liabilities or obligations under such Agreement, or any party to such Agreement fails to perform any of its obligations under such Agreement, unless a substitute property agreement is entered into by Borrower with another reputable party containing commercially reasonable terms and subject to Lender’s reasonable approval.

Article 13 - Remedies and Foreclosure

Section 13.1     Remedies.

If an Event of Default occurs, Lender may, at its option, but without obligation, exercise one or more or all of the following remedies:

(1)     Performance by Lender. Lender may perform, or cause the performance of (but shall not have the obligation to perform), any agreement Borrower fails to perform under this Mortgage or any other Loan Document, including a failure to pay Real Property Taxes or insurance premiums for any Required Insurance.

(2)     Acceleration. Lender may declare the unpaid portion of the Secured Obligations to be immediately due and payable, without any presentment, demand, protest, notice or action of any kind (each of which hereby is expressly waived by Borrower), whereupon the Secured Obligations shall become immediately due and payable.

(3)     Revocation of License to Collect Rents. Upon an Event of Default, Lender may revoke the License to Collect Rents. Upon such revocation Lender may collect and apply the Rents pursuant to the terms of this Mortgage without notice and without taking possession of the Property. All Rents collected by Borrower after the revocation of the License to Collect Rents shall be held by Borrower as trustee under a constructive trust for the benefit of Lender, shall be segregated from the other property or funds of Borrower and shall be immediately delivered to Lender.

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(4)     Exercise Rights of Borrower. Lender may exercise all rights, powers and privileges of Borrower with respect to the Property, whether in the name of Borrower or otherwise, including:

(a)     Possession and Operation of the Property. Taking possession, custody and control of the Property and using, managing and operating the Property,

(b)     Deliveries by Borrower to Lender. Requiring Borrower to deliver to Lender all keys, security deposits, operating accounts, prepaid Rents, past due Rents, the Books and Records and all original counterparts of the Leases and the Property Agreements,

(c)     Collect Rents. All acts permitted under Article 5 including collecting, suing for and giving receipts for the Rents; in furtherance of such right Lender may make demand on each Tenant for the payment to Lender of all rents due and to become due under its Lease, and Borrower for the benefit of Lender and each such Tenant hereby covenants and agrees that the Tenant shall be under no duty to question the accuracy of Lender’s statement of default and shall unequivocally be authorized to pay said Rents to Lender without regard to the truth of Lender’s statement of default and notwithstanding notices from Borrower disputing the existence of an Event of Default such that the payment of Rent by the Tenant to Lender pursuant to such a demand shall constitute performance in full of the Tenant’s obligation under the lease for the payment of Rents by the Tenant to Borrower, and Borrower and each Tenant agrees that the exercise by the Lender of any rights under this subsection “( c)” shall not (i) render the Lender a mortgagee-in-possession, (ii) obligate the Lender to perform any duty or obligation under any Lease or (iii) obligate the Lender to take any action with respect to the Property including the care or maintenance thereof,

(d)     Leases. Taking any action with respect to Leases including entering into, modifying, extending, enforcing, terminating, renewing or accepting surrender of Leases and evicting tenants,

(e)     Property Agreements. Taking any action with respect to any Property Agreement including entering into, modifying, extending, enforcing, terminating or renewing any Property Agreement,

(f)     Proceedings. Bringing any proceeding in connection with the Property or taking any action with respect to such proceeding including appearing in and defending any such proceeding and instituting or continuing any such proceeding to protect the Property as well as Borrower’s or Lender’s respective interests in the Property,

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(g)     Insurance. Maintaining insurance on the Property,

(h)     Construction/Alterations. Completing any construction on the Property in such manner and form as Lender deems advisable and/or making alterations, additions, renewals, replacements and improvements to, or on, the Property, as Lender deems advisable,

(i)     Application of Receipts. After deducting all expenses incurred in connection with the Property, applying the receipts from the Property to the payment of the Secured Obligations, and

(j)     Operation of Property. Operating or managing the Property (through Lender or any Person designated by Lender), without any liability to Borrower in connection with such operations, except to use ordinary care, and Borrower shall repay to Lender all costs, expenses and liabilities incurred by Lender in managing, operating, maintaining, protecting, constructing or preserving the Property.

(5)     Foreclosure Proceedings. Lender may institute proceedings, judicial or otherwise, for the complete or partial foreclosure of this Mortgage and sale of all or any portion of the Property at public auction, the power of sale being hereby specifically granted. Such rights shall include Lender’s right (and Borrower hereby expressly grants to Lender such right) to sell the Property through Power of Sale, as and to the extent such remedy is available to Lender.

With respect to such Power of Sale, if the Property is located in the State of New York: (a) Borrower hereby expressly grants to Lender the power to sell the Property pursuant to Article 14 of the Real Property Actions and Proceedings Law of the State of New York or any Law or similar Law permitting non-judicial sale (“Article 14”); (b) as used in this Mortgage, the term or terms "foreclosure", "action to foreclose", "proceeding to foreclose", "action to collect the mortgage debt" and any similar term or terms used herein shall be deemed to expressly include and refer to Lender's power to sell the Property pursuant to Article 14; and (c) Borrower waives (to the extent permitted by Law) any right granted pursuant to Section 1421 of the Real Property Actions and Proceedings Law of New York or any similar Law, to challenge Lender’s election to enforce this Mortgage by means of such non-judicial foreclosure by Power of Sale.

(6)     Specific Performance. Lender may seek specific performance of any covenant, condition or agreement in this Mortgage or any other Loan Document (without being required to foreclose this Mortgage), or in aid of the execution of any power granted in any Loan Document, or for any foreclosure this Mortgage, or for the enforcement of any other appropriate legal or equitable remedy or otherwise as Lender elects.

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(7)     Sale of Property. Lender may sell for cash or upon credit all or any part of the Property and all estate, claim, demand, right, title and interest of Borrower therein and rights of redemption thereof pursuant to Power of Sale or otherwise, at one or more sales, in one or more parcels, at such time and place, upon such terms and after such notice thereof as may be required or permitted by applicable Law.

(8)     Judgment. Lender may recover judgment on the Note either before, during or after any proceedings for the enforcement of this Mortgage or the other Loan Documents.

(9)     Receiver or Possession.

(a) Lender shall be entitled, as a matter of strict right, without notice to any Person and ex parte, and without regard to the value, condition or occupancy of the security or of the Property, or the solvency of Borrower or of any Guarantor or Indemnitor, or the adequacy of the Property as security for the Note, to have a receiver appointed to enter upon and take possession of the Property, collect the Rents and apply the same in accordance with the terms of this Mortgage, such receiver to have all the rights and powers permitted under the Laws of the jurisdiction in which the Property is located. Borrower hereby waives any requirements on the receiver or Lender to post any surety or other bond. Lender or the receiver may also take possession of, and for these purposes use, any and all Personal Property which is a part of the Property and used by Borrower in the rental or leasing of all or any part of the Property. Borrower is liable for repayment of all of the expenses of any such receiver (including, without limitation, the receiver's fees, counsel fees, costs and agent's compensation) incurred pursuant to the powers herein contained. Lender shall apply such Rents received by it in accordance with the terms of this Mortgage. The right to enter and take possession of the Property, to manage and operate the same, and to collect the Rents, whether by receiver or otherwise, shall be cumulative to any other right or remedy hereunder or afforded by Law, and may be exercised concurrently therewith or independently thereof. Lender shall be liable to account only for such Rents actually received by Lender.

(b) Immediately upon appointment of a receiver or immediately upon the Lender's entering upon and taking possession and control of the Property, Borrower shall surrender possession of the Property to Lender or the receiver, as the case may be, and shall deliver to Lender or the receiver, as the case may be, all Books and Records, Tenant Security and prepaid Rents and any Rents subsequently received. In the event Lender or a receiver takes possession and control of the Property, Lender or such receiver may exclude Borrower and its representatives from the Property. Borrower acknowledges and agrees that the exercise by Lender of any of the rights conferred under this Article shall not be construed to make Lender a mortgagee-in-possession of all or any portion of the Property so long as Lender has not itself entered into actual possession of the Real Estate.

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(c)     If Lender enters the Property, Lender shall be liable to account only to Borrower and only for those Rents actually received. Lender shall not be liable to Borrower, anyone claiming under or through Borrower or anyone having an interest in the Property, by reason of any act or omission of Lender under this Section, and Borrower hereby releases and discharges Lender from any such liability to the fullest extent permitted by law.

(d)     Any entering upon and taking of control of the Property by Lender or the receiver, as the case may be, and any application of Rents as provided in this Instrument shall not cure or waive any Event of Default or invalidate any other right or remedy of Lender under applicable law or provided for in this Instrument.

(10)     Remedies Under the UCC. With respect to each item of Property in which a security interest is granted pursuant to, and such security interest is perfected under, the applicable Uniform Commercial Code (“UCC Collateral”), Lender may exercise in respect of any or all of the UCC Collateral all rights, remedies and powers provided for in this Mortgage, by Law, in equity or otherwise available to it, including all the rights and remedies of a secured party under the applicable Uniform Commercial Code.

(11)     Insurance Policies. Lender may surrender the insurance policies maintained pursuant to “Insurance” (Article 6) and collect the unearned insurance premiums on any and all such policies.

(12)     Application of Reserves. Lender may apply the undisbursed balance of any funds in any Reserve to the payment of the Secured Obligations.

(13)     Blocking Accounts. Lender may prohibit Borrower and anyone claiming for or through Borrower from making use of, or withdrawing any sums from, any lockbox, escrow or similar account.

(14)     Right of Setoff. Borrower agrees that, in addition to, and without limiting, any right of setoff, banker’s lien or counterclaim Lender may otherwise have, and notwithstanding the existence of and without regard to any exculpation language or other similar language, if any, in the Note or Loan Documents limiting recourse against the Borrower and/or any other Person, (a) Lender shall be entitled, at its option, to offset balances (including general or special, time or demand, provisional or final) held by it for the account of Borrower (or any Borrower, if more than one Person comprises the Borrower), at any of the offices of Lender, in U.S. Dollars or any other currency, against any amount due and payable by Borrower to Lender under this Instrument or any other Loan Document which is not paid when due and (b) the exercise of any such right of setoff shall not constitute an election of remedies which would preclude the exercise of any other rights or remedies available to Borrower.

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(15)     Causes of Action. Lender may exercise all rights and remedies under any Causes of Action, whether before or after any sale of the Property by foreclosure, Power of Sale or otherwise, and apply the proceeds of any recovery to the Secured Obligations.

(16)     Other Remedies. Lender may pursue such other remedies as Lender may have under Law or otherwise.

Section 13.2     Lender as Purchaser.

Lender has the right to become the purchaser at any sale held by Lender or by any court, receiver, public officer or other Person, and Lender has the right to credit, upon the amount of the bid made therefor, the amount of Secured Obligations payable to it out of the net proceeds of such sale. Upon any such purchase, Lender shall acquire good title to the Property so purchased, free from the Lien of this Mortgage and free of all rights of redemption, if any, in Borrower.

Section 13.3     Effect of Sale.

Any sale or sales of the Property, whether under the Power of Sale herein granted and conferred or by virtue of judicial proceedings, shall operate to divest all right, title, interest, claim, and demand whatsoever either at law or in equity, of Borrower of, in, and to the Property and the property sold, and shall be a perpetual bar, both at law and in equity, against Borrower, Borrower's successors, and against any and all persons claiming or who shall thereafter claim all or any of the Property sold from, through or under Borrower, or Borrower's successors or assigns. Upon the completion of any sale or sales made by Lender under or by virtue of this Article, Lender, or an officer of any court empowered to do so, shall execute and deliver to the accepted purchaser or purchasers a good and sufficient interest in and to the property and rights sold. Lender is hereby appointed the true and lawful irrevocable attorney of Borrower, in its name and stead, to make all necessary conveyances, assignments, transfers and deliveries of the Property and rights so sold and for that purpose Lender may execute all necessary instruments of conveyance, assignment and transfer, and may substitute one or more Persons with like power, Borrower hereby ratifying and confirming all that its said attorney or such substitute or substitutes shall lawfully do by virtue hereof. Nevertheless, Borrower, if requested by Lender so to do, shall join in the execution and delivery of all proper conveyances, assignments and transfers of the properties so sold.

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Section 13.4     Separate Sales.

Any Property sold pursuant to any judgment or writ of execution issued on a judgment obtained by virtue of this Mortgage or any other Loan Document, or pursuant to any other judicial proceedings under this Mortgage, or pursuant to the Power of Sale granted in this Mortgage, may be sold in one parcel, as an entirety or in such parcels, and in such manner or order as Lender, in its sole discretion, may elect.

Section 13.5     Remedies Cumulative and Not Concurrent.

The rights and remedies of Lender as provided in this Mortgage and in the other Loan Documents shall be cumulative and concurrent and may be pursued concurrently, separately or successively against Borrower or any Guarantor or against other obligors, any Guarantor, any Indemnitor or against the Property, or any one or more of them, at the sole discretion of Lender, and may be exercised as often as occasion therefore shall arise and in any order. Notwithstanding the existence of any other security interests in the Property held by Lender or by any other party, Lender shall have the right to determine, in its sole discretion, the order in which any or all of the Property shall be subjected to the remedies provided in this Mortgage, the Note, any other Loan Document or applicable Law. Lender shall have the right to determine, in its sole discretion, the order in which any or all portions of the Secured Obligations are satisfied from the proceeds realized upon the exercise of such remedies. Lender shall not, by any act, delay, forbearance, stay, omission or otherwise, be deemed to have waived any of its rights or remedies under this Mortgage, any Loan Document or any Law. A waiver by Lender of any right or remedy under this Mortgage, any Loan Document or any Law on any one occasion, shall not (a) be construed as a bar or waiver to the exercise of any such right or remedy by Lender at any time in the future, (b) preclude the exercise of such right or remedy at a later date or (c) preclude the exercise of any of any other right or remedy available to Lender under this Mortgage, any Loan Document or Law; nor shall Lender be liable for exercising or failing to exercise any such right or remedy. Lender’s acceptance of payment of all or any part of the Secured Obligations after the due date of such payment, or in an amount which is less than the required payment, shall not (x) be a waiver of Lender's right to require timely payment of all amounts due under this Mortgage, the Note or any other Loan Document, (y) preclude any right of Lender to insist upon and require full payment at a later date or (z) preclude Lender’s exercise of any remedies available to Lender. Enforcement by Lender of any (i) security for the Secured Obligations, (ii) any Guaranty or (iii) any other remedy(ies) available to Lender under any Loan Document, shall not constitute an election by Lender of remedies so as to preclude the exercise of any other right(s) available to Lender. Any failure by Lender to insist upon strict performance by Borrower, any Guarantor or any Indemnitor of any of the terms and provisions of this Mortgage or any other Loan Document, shall not be deemed to be a waiver of any of the terms or provisions of this Mortgage or such other Loan Document and Lender shall have the right thereafter to insist upon strict performance of any and all of them. Lender's receipt of any of Casualty Insurance Proceeds or Condemnation Proceeds or Condemnation Award(s) shall not operate to cure or waive any Event of Default.

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Section 13.6     No Cure or Waiver.

Neither Lender's nor any receiver's entry upon and taking possession of all or any part of the Property nor any collection of Rents, Insurance Proceeds, Condemnation Proceeds or damages, other security or proceeds of other security, or other sums, nor the application of any collected sum to any Secured Obligations, nor the exercise of any other right or remedy by Lender or any receiver shall impair the status of the security, or cure or waive any Event of Default or nullify the effect of any notice of any Event of Default or sale (unless all Secured Obligations and obligations which are then due have been paid and performed and Borrower has cured all other Defaults), or prejudice Lender in the exercise of any right or remedy, or be construed as an affirmation by Lender of any tenancy, Lease or option or a subordination of the Lien of this Mortgage.

Section 13.7     Proceeds.

If any of the Property is sold by Lender upon credit or for future delivery, Lender shall not be liable for the failure of the purchaser to purchase or pay for the same and, in the event of any such failure, Lender may resell such Property. In no event shall Borrower be credited with any part of the proceeds of sale of any Property until and to the extent cash payment in respect thereof has actually been received by Lender. To the extent any of the Secured Obligations are contingent, cash proceeds received by Lender in respect of any sale of, collection from, or other realization upon all or any part of the Property may, in the discretion of Lender, be held by Lender as collateral for such contingent Secured Obligations. Any cash held by Lender as collateral and all cash proceeds received by Lender in respect of any sale of, collection from, or other realization upon all or any part of the Property may, in the discretion of Lender, be applied, first, to pay all costs and expenses incurred by Lender in connection with or incident to the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any and all of the Property, second, to pay all reasonable attorney’s fees and legal expenses incurred by Lender in connection with or incident to the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any and all of the Property, third, to pay all matured and unpaid Secured Obligations, in whole or in part by Lender against, all or any part of the Secured Obligations in such order as Lender shall elect, fourth, if and to the extent any of the Secured Obligations are unmatured or contingent, to provide cash collateral for all such Secured Obligations, and fifth, in accordance with applicable Law. If the proceeds of the sale of the Property or other collateral, if any, for the Loan are insufficient to pay all of the Secured Obligations, Borrower agrees to pay upon demand any deficiency to Lender, except to the extent, if any, that Borrower’s obligation to make payment therefor may be limited under the terms of the Note.

Section 13.8     Waivers.

To the extent permitted by Law, Borrower waives: (1) the right to assert a counterclaim, other than a mandatory counterclaim, in any action or proceeding in which Lender is a party, (2) the benefit of all Laws now or hereafter in force regarding appraisement, valuation, stay, extension, reinstatement and redemption, (3) all rights of marshalling of assets in the event of any sale hereunder of the Property or any part thereof or any interest therein, (4) any and all rights of redemption from sale under any order or decree of foreclosure of this Mortgage on behalf of Lender, and on behalf of each and every Person acquiring any interest in or title to the Property subsequent to the date of this Mortgage and on behalf of all Persons, (5) any notices of any nature whatsoever from Lender except with respect to matters for which this Mortgage and/or the Loan Documents specifically and expressly provides for the giving of notice by Lender to Borrower and except with respect to matters for which Lender is required by applicable Law to give notice, (6) the pleading, assertion or the defense of any statute of limitations as a defense to payment of the Secured Obligations or performance of any other obligations under any Loan Document, (7) any defense Borrower might assert or have by reason of Lender’s failure to make any Tenant a party defendant in any foreclosure proceeding or action in which Lender is a party and (8) any claim or right to require that any of the Property be sold in the inverse order of alienation or that any of the Property be sold in parcels or as an entirety.

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Section 13.9     Borrower’s Use and Occupancy after Default.

During the continuance of any Event of Default and pending the exercise by Lender of its right to exclude Borrower from all or any part of the Property, Borrower agrees to pay then current market rents for the use and occupancy of the Property or any portion thereof which are in its or any of its Affiliates’ possession for such period and, upon default of any such payment, will vacate and surrender possession of the Property to Lender or to a receiver, if any, and in default thereof may be evicted by any summary action or proceeding for the recovery of possession of Property for non-payment of rent, however designated.

Section 13.10     Transfer Taxes.

Any provisions in this Agreement to the contrary notwithstanding, Borrower hereby agrees to pay any and all State and local real property and other transfer taxes payable in connection with a sale or other conveyance of the Property arising or resulting from Lender's exercise of any right or remedy available to it. Borrower hereby irrevocably appoints Lender its true and lawful attorney to act in Borrower's name and stead in completing any and all returns, questionnaires, notices of sale or other documents which may be required in connection with any such transfer or the payment of any such transfer tax or other tax.

Section 13.11     Late Charge.

If any monthly payment due hereunder or under the Note (other than the final payment due upon the Maturity Date) is not received by Lender on or before the 15th day of each month or if any other amount payable under the Note, this Mortgage any other Loan Document is not received by Lender within 14 days after the date such amount is due, the Borrower shall pay to Lender, immediately and without demand by Lender, a late charge equal to five percent (5.00%) of such monthly installment or other amount due, however, (i) in the event of acceleration of payment of the entire principal balance and accrued interest, or (ii) after the Maturity Date, no additional late charge will be assessed provided, further, that those late charges which had previously been assessed shall continue to be due and payable. Borrower acknowledges that its failure to make timely payments will cause Lender to incur additional expenses in servicing and processing the Loan and that it is extremely difficult and impractical to determine those additional expenses. Borrower agrees that the late charge payable pursuant to this Section represents a fair and reasonable estimate of the additional expenses Lender will incur by reason of such late payment. The late charge is payable in addition to, and not in lieu of, any interest payable at the Default Rate.

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Section 13.12     Default Rate.

At the option of Lender in its sole discretion, interest due and payable hereunder and on the Loan shall convert to, accrue at and be charged at the Default Rate upon the occurrence of any of the following:

(a)      any Event of Default which continues beyond any applicable notice and cure period;

(b)     failure to pay the unpaid principal balance, all accrued interest and all other charges due under the Note, this Mortgage and any other Loan Document on the Maturity Date; or

(c)     the acceleration of the Secured Obligations.

Article 14 - Transfer of Loan

Section 14.1     Transfer of Loan.

Lender may, at any time, sell, transfer or assign the Mortgage, Loan and/or Loan Documents, or grant participations therein (“Participations”) or issue mortgage pass-through- certificates or other securities evidencing a beneficial interest in a rated or unrated public offering or private placement (“Securities”).

Section 14.2     Sale or Delegation of Servicing.

Lender may, at any time, transfer any and all of the servicing rights with respect to the Loan, or delegate any or all of its responsibilities as Lender under the Loan Documents.

Section 14.3     Dissemination of Information.

Lender may forward to any prospective purchaser, transferee, assignee, servicer of, participant in or investor in the Loan, any Participations and/or Securities or any of their respective successors (collectively, “Investors”) or to any rating agency rating the Loan, any Participations and/or Securities, or to any organization maintaining databases on the underwriting and performance of loans, all documents and information (including the Loan Documents) which Lender now has or may hereafter acquire relating to the Secured Obligations and to Borrower, any Guarantor, any Indemnitor and the Property, including financial statements whether furnished by Borrower, any Guarantor, any Indemnitor or otherwise, as Lender determines necessary or desirable. Borrower irrevocably waives any and all rights it may have under applicable Law to prohibit such disclosure, including any right of privacy.

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Section 14.4     Cooperation/Disclosure of Information.

Borrower, each Guarantor and each Indemnitor agree to cooperate with Lender in connection with any transfer made or any Participation and/or Securities created pursuant to this Article, including the delivery of an Estoppel Certificate and such other documents as may be reasonably requested by Lender. Borrower shall execute, acknowledge, and deliver, at its sole cost and expense, all further acts, deeds, conveyances, assignments, estoppel certificates, financing statements, transfers and assurances as Lender may reasonably require from time to time in order to better assure, grant, and convey to Lender the rights intended to be granted, now or in the future, to Lender under this Mortgage and any other Loan Document.

Article 15 - Miscellaneous

Section 15.1     Borrower Remains Liable.

In all events, including the exercise by Lender of any rights or remedies under this Mortgage, Borrower remains liable to perform all of its duties and obligations under the Property Agreements to the same extent as if this Mortgage had not been executed. Lender shall not have any obligation or liability under any Property Agreements by reason of this Mortgage, nor shall Lender be obligated to perform any of the obligations or duties of Borrower under, or to take any action to collect or enforce any claim or rights under, any Property Agreements. The powers conferred on Lender under this Mortgage are solely to protect its interest in the Property and such other interests as the Lender shall elect in its sole discretion to protect, and shall not impose any duty upon it to exercise any such powers.

Section 15.2     Appointment of Lender Attorney-in-Fact.

Borrower hereby irrevocably appoints Lender attorney-in-fact, with full authority in the place and stead of Borrower and in the name of Borrower, Lender or otherwise (1) to take any and all action and exercise all rights and remedies granted to Lender under this Mortgage, and (2) to execute any instrument which Lender may deem necessary or advisable to accomplish the purpose(s) of this Mortgage. Borrower hereby ratifies and approves all acts of Lender as its attorney-in-fact pursuant to this Section, and Lender, as its attorney-in-fact, will not be liable for any acts of commission or omission, nor for any error of judgment or mistake of fact or law, other than those which result from Lender’s gross negligence or willful misconduct. This power, being coupled with an interest, is irrevocable so long as this Mortgage remains in effect.

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Section 15.3     Indemnity/Expenses; Fees and Charges; Protective Advances.

Borrower agrees to indemnify Lender and each of its directors, officers, employees, agents and affiliates from and against any and all claims, losses and liabilities growing out of or resulting from this Mortgage or the transactions contemplated by this Mortgage (including enforcement of any right or remedy under this Mortgage or any Loan Document). Borrower shall pay to Lender, whether or not demand be made, the following amounts:

A.     Any and all costs and expenses, including the fees and out of pocket expenses and disbursements of Lender’s counsel and of any experts and agents, which Lender may incur in connection with any aspect of this Mortgage or any Loan Document including (1) any amendment to this Mortgage, (2) intentionally omitted, (3) out of pocket filing or recording fees or taxes incurred with respect to or in connection with this Mortgage, (4) the custody, preservation, use or operation of, or the sale of, collection from, or other realization upon, any of the Property, (5) the exercise or enforcement of any of the right or remedy of Lender under this Mortgage or any other Loan Document or (6) the failure by Borrower to perform or observe any of the provisions of this Mortgage;

B.     The charge(s), including the fees and charges of Lender’s attorneys and their out of pocket expenses which the Lender may, at its option, impose and/or incur for (a) the processing on its records of any change of ownership or substitution of bondsman or (b) any letter advice as to the amount of principal and interest owing on this Mortgage, (c) any inspection(s) of the Property, including any inspection(s) of the Property permitted hereunder or required in connection with any escrow(s) that may be held by the Lender including those held in connection with payment of Casualty Insurance Proceeds or Condemnation Proceeds or Condemnation Award(s) or (d) any and all other matters, documents, inquiries or agreements relating to, in connection with or arising as a result of this Mortgage, any Loan Document or the Property, including any modification, extension, advance, additional loan, lease, consent (including any consents to a lease, replacement lease, lease modification, subordination and non-disturbance agreement, change in tenant(s), subletting and/or assignment of any lease), subordination, waiver, easement, loan review, loan restructuring, special agreement, reduction certificate, estoppel, assignment, satisfaction and discharge and any matters relating to insurance, the Escrow Fund, completion of construction, repairs, Restoration and Replacement;

C.     All attorney's fees, costs, expenses and disbursements paid or incurred by Lender in connection with any action or proceeding which is threatened or commenced and which relates to, is connected with or concerns the Mortgage, the Lien hereof, the Note, any other Loan Document, the Loan, any Obligated Party or the Property, whether or not suit be brought, whether or not the holder hereof is or is made a party to such action or proceeding, whether or not incurred prior to the commencement of, during or after the completion of any such action or proceeding and whether occurring pre- or post-judgment (including an action to foreclose this Mortgage, an action to collect any part of the Secured Obligations, an action on any Guaranty or Indemnity, any post-judgment collection efforts, any receivership, any proceeding relating to any Insolvency Laws or Bankruptcy Event (whether voluntary or involuntary), any actions or efforts for relief from any stays, any reorganization, any motions, any administrative action or proceeding, any appellate proceeding or motion and any action or proceeding in probate, law, equity or otherwise); and

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D.     All costs and expenses in connection with or concerning this Mortgage, the Lien hereof, the Note, any other Loan Document, the Loan, any Obligated Party or the Property, and the preparation, execution, and delivery of the Mortgage and all Loan Documents including the fees and out of pocket disbursements of counsel appointed by Lender and incurred or paid by Lender, surveys, appraisals, premiums for policies of title and other insurance.

E.     Interest as hereinabove provided shall accrue on such fees, costs, expenses and disbursements from the earlier to occur of (a) the date such fees, costs, expenses or disbursements are incurred or (b) the date such fees, costs, expenses or disbursements are paid.

F.     If Borrower shall fail to perform any of the covenants contained in this Mortgage, Lender may make advances to perform the same on its behalf. The provisions of this Section shall not prevent any default in the observance of any covenant contained herein from constituting an Event of Default.

G.     Any reference to attorneys' or counsels' fees paid or incurred by Lender shall be deemed to and shall include the fees, costs and disbursements of paralegals and legal assistants.

H.     All advances and payments made and/or fees, costs, expenses, disbursements, payments, liabilities, bills, claims and charges paid or incurred and/or any indemnity payment or other payment due, owing or collectible under or pursuant to this Mortgage or any other Loan Document shall be deemed to be and are a Lien upon the Property and shall be deemed to be and are secured by this Mortgage, including those: (a) to preserve or protect the Property; (b) for labor and materials incurred in connection with the Property; (c) in operating, using, managing, inspecting, maintaining, repairing or constructing, or the custody of, the Property including Restoration and Replacement; (d) of Lender’s counsel, experts and agents and any receiver or custodian; (e) in payment of any taxes and fees including mortgage recording tax and recording fees; (f) in the sale of, collection from, or other realization upon, any of the Property or the proceeds thereof; (g) in the exercise or enforcement of any of the right or remedy of Lender; (h) incurred in connection with the failure by Borrower to perform or observe any of the provisions of this Mortgage or any Loan Document; (i) intentionally omitted; (j) of any accountant(s) in auditing or reviewing any Books and Records after an Event of Default; or (k) specified in any provision of this Mortgage or any Loan Document (collectively, “Advances and Expenses”). All Advances and Expenses shall constitute a demand obligation owing by Borrower to Lender and Borrower shall repay to Lender all Advances and Expenses whether or not demand be made. All Advance and Expenses shall bear interest from the earlier to occur of the date of expenditure or the date of incurrence until paid at the rate(s) specified in the Note (including at the Default Rate from the date of effectiveness of the Default Rate) and shall be collectible by Lender in any action or upon the exercise by Lender of any right or remedy including any action to foreclose this Mortgage and shall be deemed to be and are secured hereby.

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Section 15.4     Amendments.

No amendment or waiver of any provision of this Mortgage, nor consent to any departure by Borrower from this Mortgage, shall in any event be effective unless the same shall be in writing and signed by Lender and Borrower, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given.

Section 15.5     Notices.

All notices and other communications provided for under this Mortgage shall be in writing via (a) personal delivery, (b) U.S. mail (via certified mail, return receipt requested), or (c) a reputable overnight delivery service (nationally recognized within the United States of America) which maintains a record of its deliveries and with arrangements for the payment of delivery charges by the party sending notice and addressed, in the case of notice given pursuant “(a)”, “(b)” or “(c)”, above, if to Borrower, to its address set forth in the preamble of this Mortgage and, if to Lender, to its address specified in the preamble of this Mortgage, or, as to either such party, at such other address as shall be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section.

Notice shall be deemed to have been given (a), if made by personal delivery, on the date of such delivery, (b), if made by such overnight delivery service, on the first business day following the day on which such notice was given to such overnight delivery service for delivery in accordance with the preceding paragraph and (c), if made via U.S. mail, on the fourth business day following the deposit of such notice with the U.S. postal service in accordance with the preceding paragraph.

Section 15.6     Transfer of Secured Obligations.

This Mortgage shall be binding upon Borrower and its heirs, executors, administrators, successors, transferees and assigns, with like effect as if such heirs, executors, administrators, successors and assigns were named herein. This Mortgage shall inure to the benefit of Lender and its successors, transferees and assigns. Borrower may not transfer or assign its obligations under this Mortgage. Lender may assign or otherwise transfer all or a portion of its rights or obligations hereunder or with respect to the Secured Obligations to any other party, and such other party shall then become vested with all the benefits in respect of such transferred Secured Obligations and the Lien granted to Lender pursuant to this Mortgage or otherwise.

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Section 15.7     Choice of Law.

This Mortgage, the Note, all other Loan Documents and any determination of deficiency judgments shall be governed, construed, applied and enforced in accordance with the laws of the state in which the Property is located and applicable laws of the United States of America.

Section 15.8     Submission to Jurisdiction.

Borrower hereby irrevocably submits to the jurisdiction of any federal or state court sitting in the County and State in which the Land is located (the “Property Jurisdiction”) over any action or proceeding arising out of or related to this Mortgage, the Note or any other Loan Document and Borrower agrees that personal jurisdiction over Borrower rests with such courts for purposes of any such action. Borrower agrees that any controversy arising under this Mortgage, the Note or any other Loan Document shall be litigated exclusively in the Property Jurisdiction. The state and federal courts and authorities with jurisdiction in the Property Jurisdiction shall have exclusive jurisdiction over all controversies which shall arise under this Mortgage, the Note or any other Loan Document. Borrower irrevocably consents to service, jurisdiction, and venue of such courts for any such litigation and waives any other venue to which it might be entitled by virtue of domicile, habitual residence or otherwise. Borrower hereby waives personal service by manual delivery and agrees that service of process may be made by prepaid certified mail directed to Borrower at the address of Borrower for notices under this Mortgage or at such other address as may be designated in writing by Borrower to Lender pursuant to the provisions of this Mortgage, and that upon mailing of such process such service will be effective as if Borrower was personally served. Borrower agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any manner provided by law. Borrower further waives any objection to venue in any such action or proceeding on the basis of inconvenient forum. Borrower agrees that any action, proceeding, claim, counterclaim, cross-claim, arbitration or the like brought against Lender or any of its officers, directors, employees, affiliates, subsidiaries, partners, successors, assigns, agents, brokers, attorneys or agents (any of the foregoing referred to as a “Defendant”) affecting Lender or the Property or arising out of the Mortgage or any other Loan Document, shall only be brought in the courts having jurisdiction within the Property Jurisdiction, unless Lender consents in writing otherwise.

Section 15.9     Duplicate Originals, Counterparts.

This Mortgage may be executed in any number of duplicate originals and each duplicate original shall be deemed to be an original. This Mortgage may be executed in several counterparts, each of which counterparts shall be deemed an original instrument and all of which together shall constitute a single Mortgage. The failure of any party hereto to execute this Mortgage, or any counterpart hereof, shall not relieve the other signatories from the obligations hereunder.

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Section 15.10     Miscellaneous.

This Mortgage is in addition to and not in limitation of any other rights and remedies Lender may have by virtue of any other instrument or agreement heretofore, contemporaneously herewith or hereafter executed by Borrower or by law or otherwise. If any provision of this Mortgage is contrary to applicable Law, such provision shall be deemed ineffective without invalidating the remaining provisions of this Mortgage. The headings in this Mortgage are for convenience of reference only, and shall not affect the interpretation or construction of this Mortgage.

Section 15.11     Severability.

In the event any one or more of the provisions contained herein or in the Note shall for any reason be held to be invalid, illegal or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provision hereof but this Mortgage shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein or therein, provided however, that if such provision held to be invalid, illegal or unenforceable relates to the payment of any sum under the Note or any other material monetary sum, then Lender may, at its option, declare the Secured Obligations and any other sums secured hereby to be immediately due and payable.

Section 15.12     Substitute Mortgages.

Borrower and Lender shall, upon their mutual agreement to do so, execute such documents as may be necessary in order to effectuate the modification hereof, including the execution of substitute mortgages, so as to create two (2) or more liens on the Property in such amounts as may be mutually agreed upon but in no event to exceed, in the aggregate, the Mortgage Amount. In such event, Borrower covenants and agrees to pay the reasonable fees and expenses of Lender and its counsel in connection with any such modification.

Section 15.13 Satisfaction or Assignment of Mortgage.

Upon payment in full of the Secured Obligations and the performance of all obligations secured hereby in accordance with the terms and conditions of this Mortgage and the other Loan Documents, Lender shall deliver a satisfaction or release of this Mortgage or at Borrower’s option to be exercised in writing, an assignment hereof, in either case in proper form for recording. As a condition to any such satisfaction or assignment, Borrower covenants and agrees to pay Lender’s reasonable fees and expenses (including attorneys’ fees, Lender’s processing fee of up to $1,500.00 and all out of pocket expenses of the Lender) in connection therewith. Upon any such satisfaction or assignment, Lender shall, automatically and without the need for any further documentation, be absolutely and unconditionally released from any and all claims or liabilities in connection with the Loan. In addition, Borrower hereby indemnifies and agrees to hold Lender harmless from and against any and all claims and liabilities arising out of the satisfaction or assignment hereof, such indemnification to survive any such satisfaction or assignment.

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Section 15.14     No Oral Modifications.

The terms and provisions of this Mortgage, the Note and all Loan Documents shall not be changed, modified, or discharged in whole or part except by an instrument in writing signed by the party against whom enforcement of such change, modification or discharge is sought or by its agent thereunto duly authorized in writing.

Section 15.15     Joint and Several.

If more than one Person signs this Mortgage, the obligations of such Persons shall be joint and several.

Section 15.16     No Representation by Lender.

By accepting or approving anything required to be observed, performed or fulfilled, or to be given to Lender, pursuant to this Mortgage or any other Loan Document, including any officer's certificate, balance sheet, statement, survey or appraisal, Lender shall not be deemed to have warranted or represented the sufficiency, legality, effectiveness or legal effect of the same, or of any term, provision or condition thereof, and such acceptance or approval thereof shall not be or constitute any warranty or representation with respect thereto by Lender.

Section 15.17     WAIVER OF JURY TRIAL.

MORTGAGOR AND MORTGAGEE EACH (A) COVENANTS AND AGREES NOT TO ELECT A TRIAL BY JURY WITH RESPECT TO ANY ISSUE ARISING OUT OF THIS MORTGAGE, THE NOTE OR ANY OTHER LOAN DOCUMENT OR THE RELATIONSHIP BETWEEN THE PARTIES AS MORTGAGOR AND MORTGAGEE THAT IS TRIABLE OF RIGHT BY A JURY AND (B) WAIVES ANY RIGHT TO TRIAL BY JURY WITH RESPECT TO ANY SUCH ISSUE TO THE EXTENT THAT ANY SUCH RIGHT EXISTS NOW OR IN THE FUTURE. THIS WAIVER OF RIGHT TO TRIAL BY JURY IS SEPARATELY GIVEN BY EACH PARTY, KNOWINGLY AND VOLUNTARILY WITH THE BENEFIT OF COMPETENT LEGAL COUNSEL.

[Signature Pages Follow]

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IN WITNESS WHEREOF this Mortgage has been executed by Borrower and it shall be effective as of the date first written above.

BORROWER:
Renaissance Equity Holdings LLC A
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC B
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC C
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC D
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC E
By:
Name:	David Bistricer
Title:	Manager

Signature Page 1

Renaissance Equity Holdings LLC F
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC G
By:
Name:	David Bistricer
Title:	Manager

State of New York	)
	: ss.:
County of Kings	)

On the _____ day of May, 2020, before me, the undersigned, personally appeared David Bistricer, personally known to me or proved to me on the basis of satisfactory evidence to be the individual whose name is subscribed to the within instrument and acknowledged to me that he executed the same in his capacity(ies), and that by his signatures on the instrument, the individual, or the person upon behalf of which the individual acted, executed the instrument.

Notary Public

Signature Page 2

SCHEDULE A

Parcel I

All that certain plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Borough of Brooklyn, County of Kings, City and State of New York, bounded and described as follows:

BEGINNING at a point on the southerly side of Newkirk Avenue distant 130 feet easterly from the corner formed by the intersection of the southerly side of Newkirk Avenue and the easterly side of Nostrand Avenue;

RUNNING THENCE southerly parallel with Nostrand Avenue 430 feet to the northerly side of Foster Avenue; 

THENCE easterly along the northerly side of Foster Avenue 139 feet 6 inches;

THENCE northerly parallel with Nostrand Avenue 430 feet to the southerly side of Newkirk Avenue;

THENCE westerly along the southerly side of Newkirk Avenue 139 feet 6 inches to the point or place of BEGINNING.

BEING COMMONLY KNOWN AS 3101/3 Foster Avenue a/k/a 3102/4 Newkirk Avenue, Brooklyn, New York 11210.

Parcel II

All that certain plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Borough of Brooklyn, County of Kings, City and State of New York, bounded and described as follows:

BEGINNING at the corner formed by the intersection of the southerly side of Foster Avenue and the westerly side of New York Avenue;

RUNNING THENCE westerly along the southerly side of Foster Avenue 265 feet;

THENCE southerly parallel with New York Avenue 395 feet to the northerly side of Farragut Place;

THENCE easterly along the northerly side of Farragut Place and parallel with Foster Avenue 60 feet to the easterly side of East 32nd Street;

THENCE southerly along the easterly side of East 32nd Street and parallel with the westerly side of New York Avenue 40 feet;

Schedule A Page 1

THENCE easterly parallel with Foster Avenue 205 feet to the westerly side of New York Avenue;

THENCE northerly along the westerly side of New York Avenue 435 feet to the corner, the point or place of BEGINNING.

BEING COMMONLY KNOWN AS 3202-3224 Foster Avenue a/k/a 1402-1416 New York Avenue, Brooklyn, New York 11210

Parcel III

All that certain plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Borough of Brooklyn, County of Kings, City and State of New York, bounded and described as follows:

BEGINNING at the corner formed by the intersection of the southerly side of Newkirk Avenue and the westerly side of New York Avenue;

RUNNING THENCE southerly along the westerly side of New York Avenue 430 feet to the northerly side of Foster Avenue;

THENCE westerly along the northerly side of Foster Avenue 455 feet 6 inches;

THENCE northerly parallel with New York Avenue 430 feet to the southerly side of Newkirk Avenue;

THENCE easterly along the southerly side of Newkirk Avenue 455 feet 6 inches to the corner, the point or place of BEGINNING.

BEING COMMONLY KNOWN AS 1368 New York Avenue a/k/a 1350-1372 New York Avenue, Brooklyn, New York 11210.

Parcel IV

All that certain plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Borough of Brooklyn, County of Kings, City and State of New York, bounded and described as follows:

BEGINNING at the corner formed by the intersection of the southerly side of Newkirk Avenue and the easterly side of New York Avenue;

RUNNING THENCE southerly along the easterly side of New York Avenue 430 feet to the northerly side of Foster Avenue;

THENCE easterly along the northerly side of Foster Avenue 720 feet to the westerly side of Brooklyn Avenue;

Schedule A Page 2

THENCE northerly along the westerly side of Brooklyn Avenue 197 feet 6 inches;

THENCE westerly parallel with Foster Avenue 200 feet to the easterly side of East 35th Street;

THENCE southerly along the easterly side of East 35th Street 20 feet;

THENCE westerly parallel with Foster Avenue and along the southerly side of Victor Road 320 feet to the westerly side of East 34th Street;

THENCE northerly along the westerly side of East 34th Street 252 feet 6 inches to the southerly side of Newkirk Avenue;

THENCE westerly along the southerly side of Newkirk Avenue 200 feet to the corner, the point or place of BEGINNING.

BEING COMMONLY KNOWN AS 1351-1355 New York Avenue a/k/a 3301-3505 Foster Avenue, Brooklyn, New York 11210.

Parcel V

All that certain plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Borough of Brooklyn, County of Kings, City and State of New York, bounded and described as follows:

BEGINNING at the corner formed by the intersection of the southerly side of Foster Avenue and the easterly side of New York Avenue;

RUNNING THENCE southerly along the easterly side of New York Avenue 435 feet;

THENCE easterly parallel with Foster Avenue 200 feet to the westerly side of East 34th Street;

THENCE northerly along the westerly side of East 34th Street and parallel with New York Avenue 40 feet to the northerly side of Brooklyn Road;

THENCE easterly along the northerly side of Brooklyn Road and parallel with Foster Avenue 131 feet;

THENCE northerly parallel with New York Avenue 395 feet to the southerly side of Foster Avenue;

THENCE westerly along the southerly side of Foster Avenue 331 feet to the corner the point or place of BEGINNING.

BEING COMMONLY KNOWN AS 1401 New York Avenue a/k/a 1401-1419 New York Avenue, Brooklyn, New York 11210.

Schedule A Page 3

Parcel VI

All that certain plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Borough of Brooklyn, County of Kings, City and State of New York, bounded and described as follows:

BEGINNING at the corner formed by the intersection of the southerly side of Foster Avenue and the westerly side of Brooklyn Avenue;

RUNNING THENCE southerly along the westerly side of Brooklyn Avenue 435 feet;

THENCE westerly parallel with Foster Avenue 200 feet to the easterly side of East 35th Street;

THENCE northerly along the easterly side of East 35th Street and parallel with Brooklyn Avenue 40 feet to the northerly side of Brooklyn Road;

THENCE westerly along the northerly side of Brooklyn Road and parallel with Foster Avenue 189 feet;

THENCE northerly parallel with Brooklyn Avenue 395 feet to the southerly side of Foster Avenue;

THENCE easterly along the southerly side of Foster Avenue 389 feet to the corner, the point or place of BEGINNING.

BEING COMMONLY KNOWN AS 1402 Brooklyn Avenue a/k/a 1402-1420 Brooklyn Avenue, Brooklyn, New York 11210.

Parcel VII

All that certain plot, piece or parcel of land, with the buildings and improvements thereon erected, situate, lying and being in the Borough of Brooklyn, County of Kings, City and State of New York, bounded and described as follows:

BEGINNING at the corner formed by the intersection of the southerly side of Foster Avenue and the easterly side of Brooklyn Avenue;

RUNNING THENCE southerly along the easterly side of Brooklyn Avenue 475 feet; 

THENCE easterly parallel with Foster Avenue 100 feet;

THENCE northerly parallel with Brooklyn Avenue 475 feet to the southerly side of Foster Avenue;

THENCE westerly along the southerly side of Foster Avenue 100 feet to the corner, the point or place of BEGINNING.

BEING COMMONLY KNOWN AS 1405 Brooklyn Avenue a/k/a 1421 & 1425 Brooklyn Avenue, Brooklyn, New York 11210.

Schedule A Page 4

Borrower:	Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F, Renaissance Equity Holdings LLC G
Lender:	New York Community Bank
Premises:	(1) 3101/3 Foster Avenue a/k/a 3102/4 Newkirk Avenue, Brooklyn, NY Block:          4964, Lot:          47
	(2) 3202-3224 Foster Avenue a/k/a 1402-1416 New York Avenue, Brooklyn, NY Block:          4995, Lot:          30
	(3) 1368 New York Avenue a/k/a 1350-1372 New York Avenue, Brooklyn, NY Block:          4964,      Lot:          40
	(4) 1351-1355 New York Avenue a/k/a 3301-3505 Foster Avenue, Brooklyn, NY Block:          4967,      Lot:          40
	(5) 1401 New York Avenue a/k/a 1401-1419 New York Avenue, Brooklyn, NY Block:          4981, Lot:          1
	(6) 1402 Brooklyn Avenue a/k/a 1402-1420 Brooklyn Avenue, Brooklyn, NY Block:          4981,      Lot:          50
	(7) 1405 Brooklyn Avenue a/k/a 1421 & 1425 Brooklyn Avenue, Brooklyn, NY Block:          5000, Lot:          200

All properties in Kings County

1.	☐	The attached mortgage covers real property improved by a one or two family dwelling only.
2.	☐	The attached mortgage covers real property principally improved or to be improved by one or more structures containing in the aggregate not more than six residential dwelling units, each having their own separate cooking facilities.
3.	☒	The attached mortgage does not cover real property improved as described above.

[Signature Pages Follow]

Certification Page 1

Date: As of May 8, 2020	BORROWER:
	Renaissance Equity Holdings LLC A
	By:
	Name:	David Bistricer
	Title:	Manager
	Renaissance Equity Holdings LLC B
	By:
	Name:	David Bistricer
	Title:	Manager
	Renaissance Equity Holdings LLC C
	By:
	Name:	David Bistricer
	Title:	Manager
	Renaissance Equity Holdings LLC D
	By:
	Name:	David Bistricer
	Title:	Manager
	Renaissance Equity Holdings LLC E
	By:
	Name:	David Bistricer
	Title:	Manager

Certification Signature Page 1

Renaissance Equity Holdings LLC F
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC G
By:
Name:	David Bistricer
Title:	Manager

Certification Signature Page 2

RIDER TO MORTGAGE

This rider is attached to and made a part of that certain Mortgage, Assignment of Leases and Rents and Security Agreement dated as of the 8th day of May, 2020 (“Mortgage”) given by Renaissance Equity Holdings LLC A, Renaissance Equity Holdings LLC B, Renaissance Equity Holdings LLC C, Renaissance Equity Holdings LLC D, Renaissance Equity Holdings LLC E, Renaissance Equity Holdings LLC F, Renaissance Equity Holdings LLC G, collectively, as Borrower, to New York Community Bank, as Lender. The following provisions modify or supplement the terms and provisions of the foregoing Mortgage. In the event of any conflict between the terms and provisions of this Rider and the terms and provisions of the foregoing Mortgage, the terms and provisions of this Rider shall control.

A.     EXCEPTIONS TO DUE-ON-TRANSFER PROVISIONS

Notwithstanding the provisions of Section 12.2(1)(e) of the Mortgage, the Lender agrees that, provided the Loan hereunder is not in default, declared or undeclared, beyond applicable notice, grace and cure periods and current management maintains managerial control of Borrower after any such transfer, the following transfers shall not constitute a Prohibited Transfer:

i. transfers of limited partnership interests of Clipper Realty L.P., a Delaware limited partnership (“Clipper LP”), from existing limited partners to immediate family members, existing limited partners or partners or to trusts for the benefit of themselves and/or members of their families, existing limited partners or entities comprised of same for estate planning purposes, and by operation of law, provided Guarantor, Clipper Realty, Inc., remains the sole general partner of Clipper LP;

ii. the issuance by Guarantor of additional common stock or other ownership interests, and the subsequent transfer of any such stock or ownership interests; provided:

a. David Bistricer and Sam Levinson remain on the Board of Directors of Guarantor after any such transfer; and

b. David Bistricer, or entities controlled by his immediate family, and Sam Levinson, or entities controlled by his immediate family, maintain in the aggregate not less than thirty three percent (33%) of the ownership interests of Guarantor after any such transfer.

B.     NOTICE AND CURE

Notwithstanding any of the provisions contained herein to the contrary, the Lender shall provide Borrower written notice of any default herein. If Borrower is in default in the payment to Lender of any sum or amount of money which may fall due or be payable from time to time under the term of the mortgage hereunder (“a monetary default”), Borrower shall have a period of ten (10) days after Lender’s giving of such notice within which time such default must be cured. If Borrower is in default, other than a monetary default, Borrower shall have a period of thirty (30) days after Lender’s giving of such notice within which time such default must be cured. However, in the event such default cannot, in the sole determination of Lender, be cured within such thirty (30) day period, and provided Borrower has immediately commenced to take all action necessary to cure said default and continues to proceed diligently, without interruption and in good faith, to cure such default, the Lender may in its sole discretion grant Borrower an additional thirty (30) day period within which time all actions required as set forth in Lender’s notice of default under this paragraph shall be completed. Any such default not cured within said thirty (30) day period shall be subject to all of the other terms and provisions contained in this Agreement. It is further agreed that no such notice or grace period provided in this paragraph shall apply in the case of any such failure which could, in Lender's judgment, absent immediate exercise by Lender of a right or remedy under this Mortgage, result in harm to Lender, impairment of the Note or this Mortgage or any other security given under any other Loan Document.

Rider Page 1

C.     INSURANCE PROCEEDS FOR RESTORATION

Notwithstanding the provisions of Section 6.12 of the Mortgage, the Lender shall permit the usage of Casualty Insurance Proceeds for Restoration if the conditions set forth in “Conditions to Use of Insurance Proceeds for Restoration” (Section 6.14) are satisfied, provided, however, that all business interruption or rent loss insurance proceeds shall be applied in accordance with “Business Interruption Insurance “(Section 6.3(3)).

Section 6.14 Conditions to Use of Insurance Proceeds for Restoration. Before Borrower can use any of the Casualty Insurance Proceeds to pay for the cost of the Restoration, Borrower must satisfy each of the following conditions: (1) other than the occurrence of the Casualty, no Event of Default has occurred or occurs after the occurrence of the Casualty, (2) Borrower notifies Lender in writing within ten (10) days of the occurrence of the Casualty; (3) less than thirty-five percent (35%) of the total floor area of the Improvements has been damaged, destroyed or rendered unusable as a result of the Casualty, (4) the Property can be restored, in Lender’s determination, within twelve (12) months of the Casualty and at least one (1) year prior to the maturity of the Note to an economic condition not materially less valuable and not less useful than the same was prior to the occurrence of the Casualty and which will result in a loan to value ratio no higher than the loan to value ratio as of the date of this Mortgage and with a debt service coverage ratio no lower than the debt service coverage ratio as of the date of this Mortgage, as determined by Lender, (5) after such Restoration the Property and the use of the Property will be in compliance with all Laws, (6) if such Casualty results in the loss of access to the Property or the Improvements then such access is replaced by new Improvements to the Property or an access easement, (7) the Casualty Insurance Proceeds are deposited with Lender, (8) the insurance carrier has not denied liability to Borrower, (9) Borrower submits plans and specifications for such Restoration and such plans and specifications are approved by Lender, (10) Borrower submits a budget for such Restoration, together with satisfactory evidence to support such budget, and such budget is approved by Lender, (11) Borrower obtains all Permits required for the Restoration and provides copies of all such Permits to Lender, (12) Lender determines, in its sole discretion, that the Casualty Insurance Proceeds together with additional sums, if any, provided by Borrower and deposited with Lender to pay for the Restoration (“Additional Restoration Funds”) are sufficient to pay all costs related to the Restoration as nearly as possible to its value, condition and character immediately prior to such Casualty and in accordance with sub-section “(4)”, immediately above, (13) Borrower provides evidence satisfactory to Lender that, as a result of either the Casualty or the Restoration, the income from the Property, proceeds of business interruption insurance and other monies provided by Borrower can achieve a 1.20:1.00 DSCR based upon a thirty (30) year amortization, (14) Borrower delivers to Lender a pro forma computation, satisfactory to Lender, demonstrating that during the period of time required to complete the Restoration and for the twelve (12) months thereafter, Borrower will be able to make all payments of principal and interest required under the Loan Documents and that Borrower will be able to meet all other operating costs and other expenses relating to the Property and (15) Borrower maintains all Required Insurance. If the Casualty Insurance Proceeds are made available to Borrower, then Borrower agrees to commence and shall diligently prosecute the Restoration to completion. If Borrower at any time fails to satisfy any such condition then Lender may apply all such Casualty Insurance Proceeds to a reduction or discharge of the Secured Obligations whether or not then due and payable in such order as Lender may elect.

Rider Page 2

Section 6.15 Conditions to Release of Casualty Proceeds to Restore or Repair. If Lender has authorized the use of the Casualty Insurance Proceeds to pay for the Restoration and all of the conditions set forth in "Conditions to Use of Insurance Proceeds for Restoration" (Section 6.14) are satisfied then the Casualty Insurance Proceeds, together with any Additional Restoration Funds, shall be placed in a separate non-interest bearing account (“Restoration Account”) to be used to pay for the Restoration. Funds will be released from the Restoration Account from time to time if and when the following conditions are satisfied in the case of each such release: (1) there exists no Default or Event of Default, (2) Borrower commences Restoration within sixty (60) days of the adjustment of the Casualty by the insurer; (3) Borrower is diligently pursuing the Restoration, and the Restoration is in compliance with all applicable Laws, (4) all work, the cost of which exceeds $250,000.00, to be performed in connection with the Restoration is pursuant to a written contract previously approved by Lender, (5) Lender is satisfied, at all times, that the funds in the Restoration Account are sufficient to complete the Restoration and to pay all related expenses, (6) there are no notices of pendency, stop orders, mechanic’s or materialman’s Liens or notices of intention to file any of the foregoing, or other Liens on the Property other than Permitted Liens and those to be discharged with the requested release of funds, (7) a satisfactory bring-down or continuation of title insurance on the Property is delivered to Lender, (8) receipt of satisfactory evidence of the state of completion and performance of the work in a good and workmanlike manner and in accordance with the contracts, plans and specifications acceptable to Lender, together with such related documentation and information as Lender may request, including architect's certificates, waivers of lien, contractor's sworn statements, bonds, plats of survey and such other reasonable evidences of cost, payment and performance as Lender may reasonably require and approve, including receipted bills, and (9) such other conditions as are customarily imposed by institutional construction mortgagees. In each case the release of funds shall not exceed the cost of the work completed to be paid for with such funds and ten (10%) percent of each requested release may be retained until the Restoration is completed. Such retained funds will not be released until (1) the Restoration is complete, (2) all Permits for the re-occupancy and use of the Property have been obtained and (3) the cost of the Restoration have been paid in full or will be paid in full out of such retained funds. To the extent that any funds remain after payment for the Restoration, the same shall be applied against the Secured Obligations in such order as Lender may elect.

Rider Page 3

Section 6.16 Minimum Insurance Claims. Notwithstanding the other provisions of this Mortgage, if the maximum potential Casualty Insurance Proceeds with respect to any Casualty or series of related Casualties is equal to or less than $250,000.00, then, provided no Default or Event of Default exists, Borrower shall have the right to settle such insurance claims and to retain such Casualty Insurance Proceeds to pay for the cost of the Restoration. In that case Borrower agrees to restore the Property to its condition prior to such Casualty, in a good and workmanlike manner, in compliance with any applicable Laws and the requirements of any Leases, free and clear of Liens, other than Permitted Liens. To the extent that any funds remain after payment for the Restoration, the same shall be paid to Lender and applied against the Secured Obligations in such order as Lender may elect.

As used herein, the following terms have the following meanings:

“Additional Restoration Funds” has the meaning specified in “Conditions to Use of Insurance Proceeds for Restoration” (Section 6.14).

“Restoration Account” has the meaning specified in “Conditions to Release of Casualty Proceeds to Restore or Repair” (Section 6.15).

D.     SECONDARY FINANCING

Notwithstanding the provisions of Section 12.2(1)(e) of the Mortgage, the Lender agrees that during the Loan term hereof, provided the Loan hereunder is not in default, declared or undeclared, beyond applicable notice, grace and cure periods, and upon thirty (30) days prior written notice to Lender, Borrower may request and Lender hereby agrees to review an application for secondary mortgage financing from Lender (the “Second Mortgage Loan”),  provided the aggregate principal balance due hereunder plus the additional funds requested do not exceed seventy five percent (75%) of the economic or market value of the Property, whichever is less, and the Property can support a minimum 1.25:1.00 debt service coverage ratio based on a 30 year amortization schedule, as indicated in an updated appraisal of the Property by the Lender or an appraiser selected by the Lender with the cost thereof to be paid by the Borrower.  In the event the Borrower applies for the Second Mortgage Loan, it shall be secured by a second mortgage on the Property.  The interest rate for the Second Mortgage Loan shall be at a fixed rate, which shall be set based upon the Lender’s prevailing interest rate for comparable properties and in no event shall the interest rate for the Second Mortgage Loan be less than three and one half percent (3.125%).  At the time of closing of the Second Mortgage Loan, Borrower shall pay to Lender a fee equal to one (1%) percent of the Second Mortgage Loan.  Additionally, Borrower shall pay all costs related to the updated appraisal and any and all costs attendant to closing of the Second Mortgage Loan, including legal fees related to documentation required to properly evidence the Second Mortgage Loan.  Lender’s obligation to consummate any Second Mortgage Loan is conditioned upon (a) Lender is then extending loans of this nature; and (b) an inspection of the Property and a credit review of Borrower and the principals of the Borrower, both of which shall be satisfactory to Lender, in its sole discretion.  Furthermore, any such Second Mortgage Loan is a one-time only opportunity and will not survive a transfer of title, excluding transfers pursuant to Paragraph A of this Rider to Mortgage.  Any default under any of the terms, covenants and/or conditions of the Second Mortgage Loan shall be deemed a default hereunder.  The Second Mortgage Loan shall run co-terminus with the Loan secured hereby.

Rider Page 4

E.     RIGHT TO DEVELOP

Notwithstanding anything herein to the contrary, Lender hereby agrees to allow the Borrower to (I) develop and construct additional apartment units in a three (3) building cluster at the Property (the “Apartment Development”), and (II) secure subordinate, mezzanine financing for such development and construction at the Property not to exceed $75,000,000.00 (the “Mezzanine Loan”), subject to the following conditions:

(a)	The Borrower shall identify the three (3) buildings subject to the Apartment Development, and provide the amount of the Mezzanine Loan, in writing to Lender not less than sixty (60) days in advance of Borrower’s targeted closing date on the Mezzanine Loan;
(b)	The plans and specifications for the Apartment Development must be approved by Lender, the City of New York Department of Buildings (“DOB”), and the Mezzanine Loan lender, before the Apartment Development may proceed (written evidence of same satisfactory to Lender to be provided by Borrower to Lender);
(c)	(i) The Mezzanine Loan when combined with the unpaid principal balance of the Loan (the “Combined Debt”) shall not exceed a LTV of eighty percent (80%) and in no event exceed $75,000,000.00, as determined by Lender based upon a then current appraisal conducted by an appraiser engaged by the Lender (and paid for by the Borrower) of the Property (excluding the proposed apartment units to be added with the Apartment Development); and (ii)The Property shall achieve a DSCR of not less than 1.05:1.00 for the Combined Debt, utilizing a thirty (30) year amortization, and based upon Lender’s underwriting of the then in-place (actual) Net Operating Income (excluding the Loan Reserve and Insurance Expense Escrow held by Lender), as determined solely by Lender;
(d)	Prior to the closing of the Mezzanine Loan, there must be an inter-creditor agreement with the Mezzanine Loan lender satisfactory to Lender and its counsel in all respects;
(e)	The Borrower covenants and agrees to maintain a DSCR of not less than 1.05:1.00 for the Combined Debt throughout the construction period and for so long such Mezzanine Loan remains outstanding;
(f)	The Apartment Development must not negatively impact the in-place (actual) cash flow as underwritten as Lender, and in the event the DSCR for the Combined Debt falls below 1.05:1.00, the Borrower shall be required to establish a debt service reserve (the “Debt Service Reserve”) and deposit an amount determined by Lender into such Debt Service Reserve, that when combined with the Net Operating Income from the Property, generates a DSCR of not less than 1.05:1.00. The terms of such Debt Service Reserve will be set forth in a debt service reserve agreement to be drafted by Lender’s attorneys and executed by Borrower at the time of such deposit. The Borrower shall not be permitted to draw from the Debt Service Reserve, and upon (i) an Event of Default that remains uncured beyond any applicable notice and cure periods under the applicable Loan Documents, or (ii) acceleration of the Loan by Lender pursuant to this Mortgage, the Lender, at its option and sole discretion, may apply any of the monies in the Debt Service Reserve to the monthly payments due and payable under the Loan or to the repayment of the then unpaid principal balance of the Loan and/or interest accrued on the Loan, and/or any other amounts due and owing under the Loan Documents executed by Borrower evidencing the Loan;

Rider Page 5

(g)	The Borrower and Guarantor must sign a completion guaranty in favor of Lender at or prior to the closing of the Loan, which completion guaranty shall be effective upon commencement of the Apartment Development, and released upon (i) Lender’s receipt of a certification of completion of the Apartment Development by an engineer satisfactory to Lender; (ii) Lender’s receipt of a final certificate of occupancy from the DOB for the buildings affected by the Apartment Development (reflecting the apartment units added by the Apartment Development); and (iii) all apartments in the buildings affected by the Apartment Development (including the apartment units added by the Apartment Development) are compliant with any and all federal, City and State of New York rent regulations (supported by written documentation to be supplied to Lender, including then current DHCR rent registrations for the apartment units added by the Apartment Development, satisfactory in all respects);
(h)	The Apartment Development shall be monitored by, and progress reports to be supplied to Lender by, Lender’s engineers, at Borrower’s sole cost and expense;
(i)	Borrower to provide written evidence satisfactory to Lender of the availability of funds necessary to complete the cost of construction at the inception of the Apartment Development and throughout the duration of the Apartment Development;
(j)	Borrower to provide a timeline for the completion of the Apartment Development acceptable to Lender, but in no event shall the Apartment Development exceed twenty four (24) months; and
(k)	Borrower to provide a tenant protection plan for the existing Tenants at the Property acceptable to Lender in all respects, and approved by the governing agency of City and/or State of New York (if so required), prior to the commencement of the Apartment Development.

The abovementioned conditions precedent (a) through (k) shall be hereinafter collectively referred to as the “Apartment Development Conditions”. Failure to comply with the Apartment Development Conditions shall be an Event of Default. Upon compliance with all Apartment Development Conditions as determined by Lender, and payment in full of the Mezzanine Loan, the Borrower shall be permitted to develop and construct additional apartment units in another cluster of buildings at the Property subject to the Apartment Development Conditions.

Rider Page 6

All costs and disbursements incurred by Lender in connection with the Apartment Development Conditions, including the reasonable fees of Lender's attorneys, shall be paid by the Borrower. In connection with any determination regarding the DSCR, Borrower hereby agrees to provide Lender with (x) a then current Income and Expense Statement for the most recent six (6) month period, (y) a rent collections schedule for the most recent six (6) month period, and (z) a then current Rent Roll, and any other information reasonably required by Lender; (x), (y), and (z) must be submitted for the Property and each must to be certified as true and correct by an authorized officer or signatory of the Borrower.

[Signature Pages Follow]

Rider Page 7

Renaissance Equity Holdings LLC A
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC B
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC C
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC D
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC E
By:
Name:	David Bistricer
Title:	Manager

Rider Signature Page 1

Renaissance Equity Holdings LLC F
By:
Name:	David Bistricer
Title:	Manager
Renaissance Equity Holdings LLC G
By:
Name:	David Bistricer
Title:	Manager

Rider Signature Page 2

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, David Bistricer, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Clipper Realty Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 11, 2020	By:	/s/ David Bistricer
			David Bistricer
			Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Michael C. Frenz, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Clipper Realty Inc.;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b) Designed such internal controls over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting.

5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):

(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and

(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.

Date:	May 11, 2020	By:	/s/ Michael C. Frenz
			Michael C. Frenz
			Chief Financial Officer

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report on Form 10-Q of Clipper Realty Inc. (the "Company") for the period ended March 31, 2020, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

     1.   The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

     2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 11, 2020	Signed:	/s/ David Bistricer
			David Bistricer
			Chief Executive Officer

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with this Quarterly Report on Form 10-Q of Clipper Realty Inc. (the "Company") for the period ended March 31, 2020, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

     1.   The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and

     2.   The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date:	May 11, 2020	Signed:	/s/ Michael C. Frenz
			Michael C. Frenz
			Chief Financial Officer

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Note 5 - Deferred Costs and Intangible Assets (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Deferred Costs and Intangible Assets [Table Text Block]

	March 31, 2020			December 31, 2019
	(unaudited)
Deferred costs	$	348		$	348
Above-market leases		—			444
Lease origination costs		1,385			1,385
In-place leases		859			859
Real estate tax abatements		9,142			9,142
Total deferred costs and intangible assets		11,734			12,178
Less accumulated amortization		(3,174	)		(3,396	)
Total deferred costs and intangible assets, net	$	8,560		$	8,782

Schedule of Deferred Costs and Intangible Assets, Future Amortization Expense [Table Text Block]

2020 (Remainder)	$	579
2021		775
2022		743
2023		597
2024		552
Thereafter		5,314
Total	$	8,560

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Note 9 - Fair Value of Financial Instruments (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Fair Value, by Balance Sheet Grouping [Table Text Block]

	March 31, 2020		December 31, 2019
	(unaudited)
Carrying amount (excluding unamortized debt issuance costs)	$	1,008,710	$	1,009,431
Estimated fair value	$	1,151,495	$	1,058,083

Schedule of Derivative Instruments [Table Text Block]

Notional Amount		Related Property Loans	Maturity Date	Strike Rate		Estimated Fair Value at March 31, 2020		Estimated Fair Value at December 31, 2019
	$73,700	Clover House	May 9, 2020		3.0%	$	—	$	—
	$75,000	250 Livingston Street	December 15, 2020		4.0%		—		—
	$21,587	1010 Pacific Street	December 24, 2020		3.6%		—		—
Total fair value of derivative instruments included in prepaid expenses and other assets						$	—	$	—

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Consolidated Balance Sheets (Current Period Unaudited) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
ASSETS
Land and improvements	$ 540,859	$ 540,859
Building and improvements	607,353	602,547
Tenant improvements	3,051	3,051
Furniture, fixtures and equipment	11,865	11,707
Real estate under development	32,894	31,787
Total investment in real estate	1,196,022	1,189,951
Accumulated depreciation	(114,903)	(109,418)
Investment in real estate, net	1,081,119	1,080,533
Cash and cash equivalents	36,298	42,500
Restricted cash	17,572	14,432
Tenant and other receivables, net of allowance for doubtful accounts of $3,692 and $3,361, respectively	4,750	4,187
Deferred rent	1,073	1,274
Deferred costs and intangible assets, net	8,560	8,782
Prepaid expenses and other assets	8,581	14,499
TOTAL ASSETS	1,157,953	1,166,207
LIABILITIES AND EQUITY
Notes payable, net of unamortized loan costs of $10,958 and $11,528, respectively	997,752	997,903
Accounts payable and accrued liabilities	9,793	13,029
Security deposits	7,637	7,570
Below-market leases, net	1,496	1,625
Other liabilities	4,416	4,297
TOTAL LIABILITIES	1,021,094	1,024,424
Equity:
Preferred stock, $0.01 par value; 100,000 shares authorized (including 140 shares of 12.5% Series A cumulative non-voting preferred stock), zero shares issued and outstanding
Common stock, $0.01 par value; 500,000,000 shares authorized, 17,814,672 shares issued and outstanding	178	178
Additional paid-in-capital	93,461	93,431
Accumulated deficit	(38,393)	(36,375)
Total stockholders’ equity	55,246	57,234
Non-controlling interests	81,613	84,549
TOTAL EQUITY	136,859	141,783
TOTAL LIABILITIES AND EQUITY	$ 1,157,953	$ 1,166,207

XML

Consolidated Statements of Cash Flows (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (806)	$ (133)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation	5,485	4,361
Amortization of deferred financing costs	304	504
Amortization of deferred costs and intangible assets	192	307
Amortization of above- and below-market leases	(99)	(424)
Deferred rent	201	634
Stock-based compensation	158	156
Changes in operating assets and liabilities:
Tenant and other receivables	(563)	672
Prepaid expenses, other assets and deferred costs	5,918	5,812
Accounts payable and accrued liabilities	(1,926)	(646)
Security deposits	67	67
Other liabilities	119	640
Net cash provided by operating activities	9,050	11,950
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to land, buildings, and improvements	(7,101)	(10,208)
Purchase of interest rate cap	(14)
Net cash used in investing activities	(7,115)	(10,208)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments of mortgage notes	(897)	(711)
Proceeds from mortgage notes	176
Dividends and distributions	(4,276)	(4,261)
Net cash used in financing activities	(4,997)	(4,972)
Net decrease in cash and cash equivalents and restricted cash	(3,062)	(3,230)
Cash and cash equivalents and restricted cash - beginning of period	56,932	45,864
Cash and cash equivalents and restricted cash - end of period	53,870	42,634
Cash and cash equivalents - beginning of period	42,500	37,028
Restricted cash - beginning of period	14,432	8,836
Cash and cash equivalents - end of period	36,298	29,379
Restricted cash - end of period	17,572	13,255
Supplemental cash flow information:
Cash paid for interest, net of capitalized interest of $300 and $1,836 in 2020 and 2019, respectively	9,532	8,290
Non-cash interest capitalized to real estate under development	280	348
Additions to investment in real estate included in accounts payable and accrued liabilities	$ 2,581	$ 6,656

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Note 9 - Fair Value of Financial Instruments - Interest Rate Caps in Connection With Mortgage Loans (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Notional amount	$ 21,587
Maturity date	Dec. 24, 2020
Strike rate	3.60%
Estimated fair market value
Derivative, Maturity Date	Dec. 24, 2020
Interest Rate Cap 1 [Member]
Notional amount	$ 73,700
Maturity date	May 09, 2020
Strike rate	3.00%
Estimated fair market value
Derivative, Maturity Date	May 09, 2020
Interest Rate Cap 2 [Member]
Notional amount	$ 75,000
Maturity date	Dec. 15, 2020
Strike rate	4.00%
Derivative, Maturity Date	Dec. 15, 2020

XML

Note 8 - Rental Income Under Operating Leases (Details Textual)	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Total Revenue [Member] | Customer Concentration Risk [Member] | City of New York [Member]
Concentration Risk, Percentage	17.00%	19.00%

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Note 6 - Below-market Leases, Net (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Amortization of Below Market Lease	$ 129	$ 454

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Note 4 - Acquisitions (Details Textual) - Residential Property in Brooklyn, NY [Member] $ in Thousands	Nov. 08, 2019 USD ($)
Business Combination, Consideration Transferred, Total	$ 31,129
Business Combination, Acquisition Related Costs	$ 129

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Note 11 - Related-party Transactions

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Related Party Transactions Disclosure [Text Block]

11.

Related-Party Transactions

The Company recorded office and overhead expenses pertaining to a related company in general and administrative expense of

$88

and

$87

for the

three

months ended

March 31, 2020

and

2019,

respectively.

The Company paid legal and advisory fees to firms in which

two

of our directors were principals or partners of

$5

and

$0

for the

three

months ended

March 31, 2020

and

2019,

respectively.

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Note 3 - Significant Accounting Policies

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Significant Accounting Policies [Text Block]

3.

Significant Accounting Policies

Segments

At

March 31, 2020,

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 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

March 31, 2020.

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

no

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

The capitalized above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the capitalized 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.

No

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 Income (Loss)

Comprehensive income (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

three

months ended

March 31, 2020

and

2019,

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. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. 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.

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.

As of

March 31, 2020

and

December 31, 2019,

there were

881,067

LTIP units outstanding, with a weighted average grant date fair value of

$12.70

per unit. As of

March 31, 2020,

and

December 31, 2019,

there was

$1.3

million and

$1.4

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

March 31, 2020,

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

1.1

years.

In

April 2020,

the Company granted

450,623

LTIP units with a weighted average grant date fair value of

$4.75

per unit.

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 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,

no

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

On

March 27, 2020,

the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act was enacted to provide economic relief to companies and individuals in response to the COVID-

19

pandemic. Included in the CARES Act are tax provisions which increase allowable interest expense deductions for

2019

and

2020

and increase the ability for taxpayers to use net operating losses. While we do

not

expect these provisions to have a material impact on the Company’s taxable income or tax liabilities, we will continue to analyze the provisions of the CARES Act and related guidance as it is published.

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.

Fair Value Measurements

Refer to Note

9,

“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 (loss) (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

March 31, 2020,

the Company has

no

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

March 31, 2020

and

2019,

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

March 31, 2020

or

2019.

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 net loss per share for the periods indicated (unaudited):

	Three Months Ended March 31,
(in thousands, except per share amounts)	2020			2019
Numerator
Net loss attributable to common stockholders	$	(326	)	$	(54	)
Less: income attributable to participating securities		(84	)		(69	)
Subtotal	$	(410	)	$	(123	)
Denominator
Weighted average common shares outstanding		17,815			17,813
Basic and diluted net loss per share attributable to common stockholders	$	(0.02	)	$	(0.01	)

Recently Issued Pronouncements 

In

March 2020,

the FASB issued ASU

2020

-

04,

“ Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Topic

848

). ASU

2020

-

04

provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU

2020

-

04

is effective beginning on

March 12, 2020,

and

may

be applied prospectively to such transactions through

December 31, 2022.

We will apply ASU

2020

-

04

prospectively as and when we enter into transactions to which this guidance applies.

In

March 2019,

FASB issued ASU

2019

-

01,

“Leases (Topic

842

), Codification Improvements.” There are

three

codification updates to Topic

842

covered by this ASU: Issue

1

provides guidance on how to compute fair value of leased items for lessors who are non-dealers or manufacturers; Issue

2

relates to cash flow presentation for lessors of sales-type and direct financing leases; and Issue

3

clarifies that certain transition disclosures will only be required in annual disclosures.

In

December 2018,

FASB issued ASU

2018

-

20,

“

Leases (Topic

842

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

2016

-

02

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.

In

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

-

09

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

-

09

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 within annual reporting periods beginning after

December 15, 2019. 

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. 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 did

not

have a material impact on the timing or amounts of the Company’s revenues.

In

February 2016,

FASB issued ASU

2016

-

02,

“Leases

.

” ASU

2016

-

02

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. These pronouncements are effective for fiscal years beginning after

December 15, 2020,

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

January 1, 2021

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

2016

-

02

(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. 

In

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 in fiscal years beginning after

December 15, 2019

with early adoption permitted. The adoption of this standard did

not

have a material impact on the Company’s financial statement reporting.

In

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.” The Company adopted this standard effective

January 1, 2020.

The adoption of this standard did

not

have a material impact on the Company’s consolidated financial statements as it has

not

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

In

February 2017,

FASB issued ASU

2017

-

05,

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

610

-

20

),” 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

-

05

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

2017

-

05

is effective for the Company for its annual reporting beginning after

December 15, 2018,

including interim reporting periods beginning after

December 15, 2019.

The Company adopted this standard effective

January 1, 2019.

The adoption of this standard did

not

have a material impact on our consolidated financial statements.

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Note 7 - Notes Payable

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Long-term Debt [Text Block]

7.

Notes Payable

The mortgages, loans and mezzanine notes payable collateralized by the properties, or the Company’s interest in the entities that own the properties and assignment of leases, are as follows:

Property	Maturity	Interest Rate		March 31, 2020			December 31, 2019
Flatbush Gardens, Brooklyn, NY (a)	3/1/2028		3.50%	$	246,000		$	246,000
250 Livingston Street, Brooklyn, NY (b)	6/6/2029		3.63%		125,000			125,000
141 Livingston Street, Brooklyn, NY (c)	6/1/2028		3.875%		75,429			75,817
Tribeca House, Manhattan, NY (d)	3/6/2028		4.506%		360,000			360,000
Aspen, Manhattan, NY (e)	7/1/2028		3.68%		66,520			66,862
Clover House, Brooklyn, NY (f)	12/1/2029		3.53%		82,000			82,000
10 West 65 th Street, Manhattan, NY (g)	11/1/2027		3.375%		34,128			34,295
1010 Pacific Street, Brooklyn, NY (h)	12/24/2020		LIBOR + 3.60%		19,633			19,457
Total debt				$	1,008,710		$	1,009,431
Unamortized debt issuance costs					(10,958	)		(11,528	)
Total debt, net of unamortized debt issuance costs				$	997,752		$	997,903

(a) The

$246,000

mortgage note agreement with New York Community Bank (“NYCB”), entered into on

February 21, 2018,

matures on

March 1, 2028,

and bears interest at

3.5%

through

February 2023

and thereafter at the prime rate plus

2.75%,

with an option to fix the rate subject to the payment of a fee that fluctuates depending on the date the election is made. The note requires interest-only payments through

August 2020,

and monthly principal and interest payments thereafter based on a

30

-year amortization schedule. The Company has the option to prepay all (but

not

less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

On

May 8, 2020,

the Company refinanced the above Flatbush Gardens loan with a

$329

million,

twelve

-year secured

first

mortgage note with NYCB. The note matures on

June 1, 2032,

and bears interest at

3.125%

through

May 2027

and thereafter at the prime rate plus

2.75%,

subject to an option to fix the rate. The note requires interest-only payments through

May 2027,

and monthly principal and interest payments thereafter based on a

30

-year amortization schedule. The Company has the option to prepay all (but

not

less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

(b) The

$125,000

mortgage note agreement with Citi Real Estate Funding Inc., entered into on

May 31, 2019,

matures on

June 6, 2029,

bears interest at

3.63%

and requires interest-only payments for the entire term. The Company has the option to prepay all (but

not

less than all) of the unpaid balance of the note within

three

months of maturity, without a prepayment premium.

(c) The

$79,500

mortgage note agreement with NYCB matures on

June 1, 2028,

and bears interest at

3.875%.

The note required interest-only payments through

June 2017,

and monthly principal and interest payments of

$374

thereafter based on a

30

-year amortization schedule.

(d) The

$360,000

loan with Deutsche Bank, entered into on

February 21, 2018,

matures on

March 6, 2028,

bears interest at

4.506%

and requires interest-only payments for the entire term. The Company has the option to prepay all (but

not

less than all) of the unpaid balance of the loan prior to the maturity date, subject to a prepayment premium if it occurs prior to

December 6, 2027.

(e) The

$70,000

mortgage note agreement with Capital One Multifamily Finance LLC matures on

July 1, 2028,

and bears interest at

3.68%.

The note required interest-only payments through

July 2017,

and monthly principal and interest payments of

$321

thereafter based on a

30

-year amortization schedule. The Company has the option to prepay the note prior to the maturity date, subject to a prepayment premium.

(f) The

$82,000

mortgage note agreement with MetLife Investment Management, entered into on

November 8, 2019,

matures on

December 1, 2029,

bears interest at

3.53%

and requires interest-only payments for the entire term. The Company has the option, commencing on

January 1, 2024,

to prepay the note prior to the maturity date, subject to a prepayment premium if it occurs prior to

September 2, 2029.

(g) On

October 27, 2017,

the Company entered into a

$34,350

mortgage note agreement with NYCB, related to the

10

West

65

th

Street acquisition. The note matures on

November 1, 2027,

and bears interest at

3.375%

through

October 2022

and thereafter at the prime rate plus

2.75%,

subject to an option to fix the rate. The note required interest-only payments through

October 2019,

and monthly principal and interest payments of

$152

thereafter based on a

30

-year amortization schedule. The Company has the option to prepay all (but

not

less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

(h) On

December 24, 2019,

the Company entered into a

$18,600

mortgage note agreement with CIT Bank, N.A., related to the

1010

Pacific Street acquisition. The Company also entered into a pre-development bridge loan secured by the property with the same lender that will provide up to

$2,987

for eligible pre-development and carrying costs, of which

$1,033

was drawn as of

March 31, 2020.

The notes mature on

December 24, 2020,

are subject to a

one

-year extension option, require interest-only payments and bear interest at

one

-month LIBOR plus

3.60%

(

4.6%

as of

March 31, 2020).

The following table summarizes principal payment requirements under terms as of

March 31, 2020:

2020 (Remainder)	$	23,979
2021		8,553
2022		8,866
2023		9,191
2024		9,521
Thereafter		948,600
Total	$	1,008,710

XML

Note 5 - Deferred Costs and Intangible Assets - Future Amortization Expense (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
2020 (Remainder)	$ 579
2021	775
2022	743
2023	597
2024	552
Thereafter	5,314
Total	$ 8,560	$ 8,782

XML

Note 3 - Significant Accounting Policies - Basic and Diluted Earnings (Details) - USD ($) $ / shares in Units, $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Net loss attributable to common stockholders	$ (326)	$ (54)
Less: income attributable to participating securities	(84)	(69)
Subtotal	$ (410)	$ (123)
Weighted average common shares outstanding (in shares)	17,815	17,813
Basic and diluted net loss per share (in dollars per share)	$ (0.02)	$ (0.01)

XML

Note 4 - Acquisitions

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Business Combination Disclosure [Text Block]

4.

Acquisitions

On

November 8, 2019,

the Company acquired the

1010

Pacific Street property, a parcel of land, for

$31,129,

including acquisition costs of

$129.

XML

Note 8 - Rental Income Under Operating Leases

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Lessor, Operating Leases [Text Block]

8.

Rental Income under Operating Leases

The Company’s commercial properties are leased to commercial tenants under operating leases with fixed terms of varying lengths. As of

March 31, 2020,

the minimum future cash rents receivable (excluding tenant reimbursements for operating expenses) under non-cancelable operating leases for the commercial tenants in each of the next

five

years and thereafter are as follows:

2020 (Remainder)	$	18,242
2021		29,634
2022		29,348
2023		27,552
2024		26,864
Thereafter		24,704
Total	$	156,344

The Company has commercial leases with the City of New York that comprised approximately

17%

and

19%

of total revenues for the

three

months ended

March 31, 2020

and

2019,

respectively.

XML

Note 12 - Segment Reporting

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Segment Reporting Disclosure [Text Block]

12.

Segment Reporting

The Company has classified its reporting segments into commercial and residential rental properties. The commercial reporting segment includes the

141

Livingston Street property and portions of the

250

Livingston Street, Tribeca House and Aspen properties. The residential reporting segment includes the Flatbush Gardens property, the Clover House property, the

10

West

65

th

Street property, the

1010

Pacific Street property and portions of the

250

Livingston Street, Tribeca House and Aspen properties.

The Company’s income from operations by segment for the

three

months ended

March 31, 2020

and

2019,

is as follows:

Three months ended March 31, 2020	Commercial		Residential		Total
Rental income	$	7,168	$	23,718	$	30,886
Total revenues		7,168		23,718		30,886
Property operating expenses		1,137		6,022		7,159
Real estate taxes and insurance		1,491		5,373		6,864
General and administrative		337		1,986		2,323
Depreciation and amortization		1,019		4,539		5,558
Total operating expenses		3,984		17,920		21,904
Income from operations	$	3,184	$	5,798	$	8,982

Three months ended March 31, 2019	Commercial		Residential		Total
Rental income	$	6,880	$	20,772	$	27,652
Total revenues		6,880		20,772		27,652
Property operating expenses		1,141		6,422		7,563
Real estate taxes and insurance		1,236		4,495		5,731
General and administrative		279		1,389		1,668
Depreciation and amortization		946		3,603		4,549
Total operating expenses		3,602		15,909		19,511
Income from operations	$	3,278	$	4,863	$	8,141

The Company’s total assets by segment are as follows, as of:

	Commercial		Residential		Total
March 31, 2020	$	283,031	$	874,922	$	1,157,953
December 31, 2019		285,103		881,104		1,166,207

The Company’s interest expense by segment for the

three

months ended

March 31, 2020

and

2019,

is as follows:

	Commercial		Residential		Total
Three months ended March 31,
2020	$	1,987	$	7,801	$	9,788
2019		1,734		6,540		8,274

The Company’s capital expenditures by segment for the

three

months ended

March 31, 2020

and

2019,

are as follows:

	Commercial		Residential		Total
Three months ended March 31,
2020	$	1,783	$	4,288	$	6,071
2019		908		10,306		11,214

XML

Note 6 - Below-market Leases, Net (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Below-Market Lease Intangibles Liabilities [Table Text Block]

	March 31, 2020			December 31, 2019
	(unaudited)
Below-market leases	$	4,087		$	4,087
Less accumulated amortization		(2,591	)		(2,462	)
Below-market leases, net	$	1,496		$	1,625

Below Market Lease, Future Amortization Income [Table Text Block]

2020 (Remainder)	$	388
2021		493
2022		423
2023		192
Total	$	1,496

XML

Note 10 - Commitments and Contingencies (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedules of Concentration of Risk, by Risk Factor [Table Text Block]

	Commercial			Residential			Total
Three months ended March 31, 2020		23	%		77	%		100	%
Three months ended March 31, 2019		25	%		75	%		100	%

XML

Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended	12 Months Ended
	Mar. 31, 2020	Dec. 31, 2019
Allowance for doubtful accounts	$ 3,692	$ 3,361
Unamortized loan costs	$ 10,958	$ 11,528
Preferred stock, par value (in dollars per share)	$ 0.01	$ 0.01
Preferred stock, shares issued (in shares)	0	0
Preferred stock, shares outstanding (in shares)	0	0
Preferred stock, shares authorized (in shares)	100,000	100,000
Common stock, par value (in dollars per share)	$ 0.01	$ 0.01
Common stock, shares authorized (in shares)	500,000,000	500,000,000
Common stock, shares issued (in shares)	17,814,672	17,814,672
Common stock, share outstanding (in shares)	17,814,672	17,814,672
Series A Cumulative Non-Voting Preferred Stock [Member]
Preferred stock, shares authorized (in shares)	140	140
Preferred stock, dividend rate, percentage	12.50%	12.50%

XML

Consolidated Statements of Cash Flows (Unaudited) (Parentheticals) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Capitalized interest	$ 300	$ 1,836

XML

Note 9 - Fair Value of Financial Instruments - Carrying Amount and Fair Value of Mortgage Notes Payable (Details) - Mortgages [Member] - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Reported Value Measurement [Member]
Mortgage notes payable	$ 1,008,710	$ 1,009,431
Estimate of Fair Value Measurement [Member]
Mortgage notes payable	$ 1,151,495	$ 1,058,083

XML

Note 7 - Notes Payable - Summary of Principal Payment Requirements (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
2020 (Remainder)	$ 23,979
2021	8,553
2022	8,866
2023	9,191
2024	9,521
Thereafter	948,600
Total	$ 1,008,710	$ 1,009,431

XML

Note 12 - Segment Reporting - Income From Operations by Segment (Details) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019	Dec. 31, 2019
Total revenues	$ 30,886	$ 27,652
Property operating expenses	7,159	7,563
Real estate taxes and insurance	6,864	5,731
General and administrative	2,323	1,668
Depreciation and amortization	5,558	4,549
Total operating expenses	21,904	19,511
Income from operations	8,982	8,141
Total Assets	1,157,953		$ 1,166,207
Interest expense	9,788	8,274
Capital expenditures	6,071	11,214
Rental Income [Member]
Total revenues	30,886	27,652
Commercial Segment [Member]
Total revenues	7,168	6,880
Property operating expenses	1,137	1,141
Real estate taxes and insurance	1,491	1,236
General and administrative	337	279
Depreciation and amortization	1,019	946
Total operating expenses	3,984	3,602
Income from operations	3,184	3,278
Total Assets	283,031		285,103
Interest expense	1,987	1,734
Capital expenditures	1,783	908
Commercial Segment [Member] | Rental Income [Member]
Total revenues	7,168	6,880
Residential Segment [Member]
Total revenues	23,718	20,772
Property operating expenses	6,022	6,422
Real estate taxes and insurance	5,373	4,495
General and administrative	1,986	1,389
Depreciation and amortization	4,539	3,603
Total operating expenses	17,920	15,909
Income from operations	5,798	4,863
Total Assets	874,922		$ 881,104
Interest expense	7,801	6,540
Capital expenditures	4,288	10,306
Residential Segment [Member] | Rental Income [Member]
Total revenues	$ 23,718	$ 20,772

XML

Note 6 - Below-market Leases, Net

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Below Market Lease Intangibles Disclosure [Text Block]

6.

Below-Market Leases, Net

The Company’s below-market lease intangibles liabilities are as follows:

	March 31, 2020			December 31, 2019
	(unaudited)
Below-market leases	$	4,087		$	4,087
Less accumulated amortization		(2,591	)		(2,462	)
Below-market leases, net	$	1,496		$	1,625

Rental income included amortization of below-market leases of

$129

and

$454

for the

three

months ended

March 31, 2020

and

2019,

respectively.

Below-market leases as of

March 31, 2020,

amortize in future years as follows:

2020 (Remainder)	$	388
2021		493
2022		423
2023		192
Total	$	1,496

XML

Note 10 - Commitments and Contingencies

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Commitments and Contingencies Disclosure [Text Block]

10.

Commitments and Contingencies

Legal

On

July 3, 2017,

the Supreme Court of the State of New York (the “Court”) ruled in favor of

41

present or former tenants of apartment units at the Company’s buildings located at

50

Murray Street and

53

Park Place in Manhattan, New York, who brought an action against the Company alleging that they were subject to applicable rent stabilization laws with the result that rental payments charged by the Company exceeded amounts permitted under these laws because the buildings were receiving certain tax abatements under Real Property Tax Law (“RPTL”)

421

-g. The Court also awarded the plaintiffs-tenants their attorney’s fees and costs. The Court declared that the plaintiffs-tenants were subject to rent stabilization requirements and referred the matter to a special referee to determine the amount of rent over-charges, if any. On

July 18, 2017,

the Court, pursuant to the parties’ agreement, stayed the Court’s ruling; the Company subsequently appealed the decision to the Appellate Division, First Department. On

January 18, 2018, 

the Appellate Division unanimously reversed the Court’s ruling and ruled in favor of the Company, holding that the Company acted properly in de-regulating the apartments. The plaintiffs-tenants thereafter moved for leave to appeal to the Court of Appeals, which motion was granted on

April 24, 2018.

On

June 25, 2019,

the New York Court of Appeals reversed the Appellate Division’s order and ruled in favor of the plaintiffs-tenants, holding that apartments in buildings receiving RPTL

421

-g tax benefits are

not

subject to luxury deregulation. The Court of Appeals also remitted the matter for further proceedings consistent with its opinion. As a result of the Court of Appeals’ order, Company management believes that payments

may

be required to be made to the

41

present or former tenants comprising the plaintiff group, that other tenants

may

attempt to make similar claims, and that the special referee process referred to above will be used to determine the timing and the amount of any claims that must be paid. On

July 25, 2019,

the Company filed a motion for reargument with the New York Court of Appeals, which was denied on

September 12, 2019.

On

August 13, 2019,

the Court, in effect, reinstated its prior order and referred the calculation of rent overcharges and attorneys’ fees for a hearing before a special referee.  The special referee’s hearing was scheduled for

October 23, 2019.

On

October 17, 2019,

the Company made a motion in the Appellate Division for a stay of the special referee’s hearing pending the Company’s appeal from the

August 13

order. On such date, the Appellate Division granted an interim stay of the special referee’s hearing, pending the determination of the underlying motion. On

January 7, 2020,

the Appellate Division granted the Company’s motion for a full stay of the special referee’s hearing pending appeal. The appeal had been scheduled to be argued during the

May 2020

term, but on

March 16, 2020,

the parties filed a stipulation adjourning the appeal to the

September 2020

term. On

October 24, 2019,

the Company filed a Petition for a Writ of Certiorari with the United States Supreme Court, seeking permission to have that Court hear the Company’s appeal on Constitutional grounds from the Court of Appeals’ order. On

January 13, 2020,

the United States Supreme Court denied the Company’s Petition for a Writ of Certiorari, meaning that the Court of Appeals’ order is final. On

November 18, 2019,

the same law firm which filed the

Kuzmich

case above filed a

second

action involving a separate group of

26

tenants (captioned

Crowe et al v

50

Murray Street Acquisition LLC

, Supreme Court, New York County, Index

No.

161227/19

), which action advances the same exact claims as in

Kuzmich

. The Company’s deadline to answer or otherwise respond to the complaint in

Crowe

has been extended to

June 30, 2020.

The Company cannot predict what the timing or ultimate resolution of these matters will be, and accordingly, at this time, the Company has

not

recorded any liability for the potential settlement of these matters.

In addition to the above, the Company is subject to certain legal proceedings and claims arising in connection with its business, including a claim under the Americans with Disabilities Act of

1990

at the

141

Livingston Street property. Management believes, based in part upon consultation with legal counsel, that the ultimate resolution of all such claims will

not

have a material adverse effect on the Company’s consolidated results of operations, financial position or cash flows.

Commitments

The Company is obligated to provide parking availability through

August 2025

under a lease with a tenant at the

250

Livingston Street property; the current cost to the Company is approximately

$205

per year.

Contingencies

Recently, the COVID-

19

pandemic has adversely impacted global economic activity and contributed to significant declines and volatility in financial markets. The COVID-

19

pandemic and associated government actions intended to curb its spread are creating disruption in, and adversely impacting, many industries and could negatively impact our business in a number of ways, including affecting our tenants’ ability or willingness to pay rents and reducing demand for housing in the New York metropolitan area. In some cases, we

may

restructure rent obligations on terms that are less favorable to us than those currently in place. Additionally, the outbreak could have a continued material adverse impact on economic and market conditions and trigger a period of global economic slowdown which

may

ultimately decrease occupancy levels and pricing across our portfolio as residents reduce their spending. The rapid development and fluidity with which the situation is developing precludes any prediction as to the ultimate material adverse impact of the COVID-

19

pandemic. Nevertheless, COVID-

19

presents uncertainty and risk with respect to the Company’s tenants, which could adversely affect the Company’s financial performance.

Concentrations

The Company’s properties are located in the Boroughs of Manhattan and Brooklyn in New York City, which exposes the Company to greater economic risks than if it owned a more geographically dispersed portfolio.

The breakdown between commercial and residential revenue is as follows:

	Commercial			Residential			Total
Three months ended March 31, 2020		23	%		77	%		100	%
Three months ended March 31, 2019		25	%		75	%		100	%

XML

Note 5 - Deferred Costs and Intangible Assets (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Amortization of Lease Origination Costs and In-place Lease Intangible Assets	$ 73	$ 188
Write off of Fully Amortized Lease Origination Costs and In-place Leases	749
Amortization of Real Estate Abatements	119	119
Write off of Fully Amortized Real Estate Tax Abatements		3,428
Amortization of Intangible Assets, Total	30	$ 30
Impairment of Intangible Assets, Finite-lived	$ 444

XML

Note 2 - Issuance of Common Stock (Details Textual) - Director [Member] $ in Thousands	Apr. 09, 2019 USD ($) shares
Shares Issued, Shares, Share-based Payment Arrangement, after Forfeiture, Total (in shares) | shares	1,917
Proceeds from Issuance of Common Stock | $	$ 0

XML

Note 6 - Below-market Leases, Net - Below-market Lease Intangibles Liabilities (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Below-market leases	$ 4,087	$ 4,087
Less accumulated amortization	(2,591)	(2,462)
Total	$ 1,496	$ 1,625

XML

Note 1 - Organization (Details Textual) $ / shares in Units, $ in Millions		3 Months Ended	12 Months Ended
	Feb. 09, 2017 USD ($) $ / shares shares	Mar. 31, 2020 USD ($) ft² a	Dec. 31, 2019 USD ($)	Nov. 08, 2019	Oct. 27, 2017	May 09, 2017	Aug. 03, 2015
Formation Transaction, Units Converted to Commons Shares, Ratio							1
Percentage of Aggregate Cash Distributions From, and Profits and Losses		40.40%
Corporate Joint Venture [Member]
Joint Venture, Ownership Percentage			50.00%
Joint Venture, Committed Capital | $			$ 0.4
Corporate Joint Venture [Member] | General and Administrative Expense [Member]
Joint Venture Expense | $		$ 0.2
Residential Rental [Member] | Residential Property At 10 West 65th Street [Member]
Number of Units					82
Residential Rental [Member] | Property Located Brooklyn, New York [Member]
Number of Units				175
107 Columbia Heights in Brooklyn, NY [Member] | Apartment Building [Member]
Number of Units						158
Tribeca House properties in Manhattan [Member]
Number of Buildings		2
Tribeca House properties in Manhattan [Member] | Residential Rental [Member]
Gross Leasable Area (Square Foot)		483,000
Tribeca House properties in Manhattan [Member] | Rental Retail and Parking [Member]
Gross Leasable Area (Square Foot)		77,000
Tribeca House properties in Manhattan, Building One [Member]
Number of Stories		21
Tribeca House properties in Manhattan, Building Two [Member]
Number of Stories		12
Flatbush Gardens in Brooklyn [Member] | Multifamily [Member]
Number of Buildings		59
Number of Rentable Units		2,496
141 Livingston Street in Brooklyn [Member] | Office Building [Member]
Number of Stories		15
Gross Leasable Area (Square Foot)		216,000
250 Livingston Street in Brooklyn [Member] | Office and Residential Building [Member]
Number of Stories		12
Gross Leasable Area (Square Foot) | a		370,000
Aspen [Member]
Number of Stories		7
Aspen [Member] | Residential Rental [Member]
Gross Leasable Area (Square Foot)		166,000
Aspen [Member] | Retail Site [Member]
Gross Leasable Area (Square Foot)		21,000
Clover House [Member]
Number of Stories		11
Clover House [Member] | Apartment Building [Member]
Gross Leasable Area (Square Foot)		102,000
Property at 10 W 65th St. Manhattan, NY [Member] | Residential Rental [Member]
Number of Stories		6
Gross Leasable Area (Square Foot)		76,000
Residential Property in Brooklyn, NY [Member] | Residential Rental [Member]
Number of Stories		9
Property Located Brooklyn, New York [Member] | Residential Rental [Member]
Area of Real Estate Property (Square Foot)		119,000
IPO [Member] | Common Stock [Member]
Stock Issued During Period, Shares, New Issues (in shares) | shares	6,390,149
Shares Issued, Price Per Share (in dollars per share) | $ / shares	$ 13.50
Proceeds from Issuance Initial Public Offering | $	$ 78.7

XML

Note 3 - Significant Accounting Policies (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Earnings Per Share, Basic and Diluted [Table Text Block]

	Three Months Ended March 31,
(in thousands, except per share amounts)	2020			2019
Numerator
Net loss attributable to common stockholders	$	(326	)	$	(54	)
Less: income attributable to participating securities		(84	)		(69	)
Subtotal	$	(410	)	$	(123	)
Denominator
Weighted average common shares outstanding		17,815			17,813
Basic and diluted net loss per share attributable to common stockholders	$	(0.02	)	$	(0.01	)

XML

Note 8 - Rental Income Under Operating Leases (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Lessor, Operating Lease, Payment to be Received, Fiscal Year Maturity [Table Text Block]

2020 (Remainder)	$	18,242
2021		29,634
2022		29,348
2023		27,552
2024		26,864
Thereafter		24,704
Total	$	156,344

XML

Note 8 - Rental Income Under Operating Leases - Minimum Future Cash Rents Receivable (Details) $ in Thousands	Mar. 31, 2020 USD ($)
2020 (Remainder)	$ 18,242
2021	29,634
2022	29,348
2023	27,552
2024	26,864
Thereafter	24,704
Total	$ 156,344

XML

Note 7 - Notes Payable (Details Textual) - USD ($)						12 Months Ended	60 Months Ended	132 Months Ended
	May 08, 2020	Mar. 31, 2020	Dec. 24, 2019	May 31, 2019	Feb. 21, 2018	Dec. 24, 2020	Nov. 01, 2027	Jul. 31, 2028	Jun. 30, 2028	Dec. 31, 2019	Nov. 08, 2019	Oct. 27, 2017	Jun. 27, 2016	May 11, 2016
Long-term Debt, Gross		$ 1,008,710,000								$ 1,009,431,000
Metlife Real Estate Lending LLC [Member] | Clover House Loans [Member]
Long-term Debt, Gross											$ 82,000,000
Debt Instrument, Interest Rate, Effective Percentage											3.53%
Secured First Mortgage Loan [Member] | New York Community Bank [Member]
Long-term Debt, Gross					$ 246,000,000
Debt Instrument, Interest Rate, Stated Percentage					3.50%
Debt Instrument, Interest Only Payments Period (Year)					30 years
Secured First Mortgage Loan [Member] | New York Community Bank [Member] | Subsequent Event [Member]
Debt Instrument, Interest Rate, Stated Percentage	3.125%
Debt Instrument, Interest Only Payments Period (Year)	30 years
Debt Instrument, Face Amount	$ 329,000,000
Debt Instrument, Term (Year)	12 years
Secured First Mortgage Loan [Member] | New York Community Bank [Member] | Prime Rate [Member]
Derivative, Basis Spread on Variable Rate					2.75%
Secured First Mortgage Loan [Member] | New York Community Bank [Member] | Prime Rate [Member] | Subsequent Event [Member]
Derivative, Basis Spread on Variable Rate	2.75%
First Mortgage Loan With Interest-only Payments [Member] | Citi Real Estate Funding Inc. [Member]
Debt Instrument, Interest Rate, Stated Percentage				3.63%
Proceeds from Issuance of Long-term Debt, Total				$ 125,000,000
Debt Instrument, Prepayment Option, Number of Months Before Maturity (Month)				90 days
Mortgages 2 [Member] | New York Community Bank [Member] | 141 Livingston Street, Brooklyn [Member]
Long-term Debt, Gross														$ 79,500,000
Debt Instrument, Interest Rate, Stated Percentage														3.875%
Mortgages 2 [Member] | New York Community Bank [Member] | 141 Livingston Street, Brooklyn [Member] | Forecast [Member]
Debt Instrument, Periodic Payment, Total									$ 374,000
Fixed Interest Rate Financing [Member]
Long-term Debt, Gross					$ 360,000,000
Debt Instrument, Interest Rate, Stated Percentage					4.506%
Mortgages [Member] | New York Community Bank [Member] | Property at 10 W 65th St. Manhattan, NY [Member]
Long-term Debt, Gross												$ 34,350,000
Debt Instrument, Interest Rate, Stated Percentage												3.375%
Mortgages [Member] | New York Community Bank [Member] | Prime Rate [Member] | Property at 10 W 65th St. Manhattan, NY [Member] | Forecast [Member]
Derivative, Basis Spread on Variable Rate							2.75%
Debt Instrument, Periodic Payment, Total							$ 152,000
Mortgages [Member] | Capital One Multifamily Finance LLC [Member] | Aspen [Member]
Long-term Debt, Gross													$ 70,000,000
Debt Instrument, Interest Rate, Stated Percentage													3.68%
Mortgages [Member] | Capital One Multifamily Finance LLC [Member] | Aspen [Member] | Forecast [Member]
Debt Instrument, Periodic Payment, Total								$ 321,000
Mortgages [Member] | Citibank NA [Member] | Residential Property At 1010 Pacific Street [Member]
Long-term Debt, Gross			$ 18,600,000
DebtInstrumentExtensionOptionPeriod (Year)						1 year
Mortgages [Member] | Citibank NA [Member] | London Interbank Offered Rate (LIBOR) [Member] | Residential Property At 1010 Pacific Street [Member]
Derivative, Basis Spread on Variable Rate		4.60%	3.60%
Construction Loans [Member] | Citibank NA [Member] | Residential Property At 1010 Pacific Street [Member]
Debt Agreement Maximum Borrowing Capacity		$ 1,033	$ 2,987,000

XML

Note 10 - Commitments and Contingencies (Details Textual) $ in Thousands	Mar. 31, 2020 USD ($)
Obligated to Provide Parking [Member]
Other Commitment, Total	$ 205

XML

Document And Entity Information - shares	3 Months Ended
	Mar. 31, 2020	May 11, 2020
Document Information [Line Items]
Entity Registrant Name	Clipper Realty Inc.
Entity Central Index Key	0001649096
Trading Symbol	clpr
Current Fiscal Year End Date	--12-31
Entity Filer Category	Accelerated Filer
Entity Current Reporting Status	Yes
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Small Business	true
Entity Interactive Data Current	Yes
Entity Common Stock, Shares Outstanding (in shares)		17,814,672
Entity Shell Company	false
Document Type	10-Q
Document Period End Date	Mar. 31, 2020
Document Fiscal Year Focus	2020
Document Fiscal Period Focus	Q1
Amendment Flag	false
Title of 12(b) Security	Common Stock, par value $0.01 per share

XML

Consolidated Statements of Equity (Unaudited) - USD ($) $ in Thousands	Common Stock [Member]	Additional Paid-in Capital [Member]	Retained Earnings [Member]	Parent [Member]	Noncontrolling Interest [Member]	Total
Balance (in shares) at Dec. 31, 2018	17,812,755
Balance at Dec. 31, 2018	$ 178	$ 92,945	$ (27,941)	$ 65,182	$ 96,303	$ 161,485
Amortization of LTIP grants					156	156
Dividends and distributions			(1,692)	(1,692)		(4,261)
Dividends and distributions					(2,569)
Dividends and distributions			(1,692)	(1,692)		(4,261)
Net (loss) income			(54)	(54)	(79)	(133)
Reallocation of noncontrolling interests		35		35	(35)
Balance (in shares) at Mar. 31, 2019	17,812,755
Balance at Mar. 31, 2019	$ 178	92,980	(29,687)	63,471	93,776	157,247
Balance (in shares) at Dec. 31, 2019	17,814,672
Balance at Dec. 31, 2019	$ 178	93,431	(36,375)	57,234	84,549	141,783
Amortization of LTIP grants					158	158
Dividends and distributions			(1,692)	(1,692)		(4,276)
Dividends and distributions					(2,584)
Dividends and distributions			(1,692)	(1,692)		(4,276)
Net (loss) income			(326)	(326)	(480)	(806)
Reallocation of noncontrolling interests		30		30	(30)
Balance (in shares) at Mar. 31, 2020	17,814,672
Balance at Mar. 31, 2020	$ 178	$ 93,461	$ (38,393)	$ 55,246	$ 81,613	$ 136,859

XML

Note 2 - Issuance of Common Stock

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Sale of Common Stock and Formation Transactions [Text Block]

2.

Issuance of Common Stock

On

April 9, 2019,

the Company issued

1,917

primary shares of its common stock to

one

of our directors, in connection with the conversion of vested long-term incentive plan (“LTIP”) units on a

one

-for-

one

basis. The Company did

not

receive any proceeds from the issuance.

XML

Significant Accounting Policies (Policies)

3 Months Ended

Mar. 31, 2020

Accounting Policies [Abstract]

Segment Reporting, Policy [Policy Text Block]

Segments

At

March 31, 2020,

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.

Consolidation, Policy [Policy Text Block]

Basis of Consolidation

The accompanying consolidated financial statements of the Company are prepared in accordance with 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, Policy [Policy Text Block]

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.

Real Estate, Policy [Policy Text Block]

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

March 31, 2020.

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

no

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

The capitalized above-market lease values are amortized as a reduction to base rental revenue over the remaining terms of the respective leases, and the capitalized 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, Policy [Policy Text Block]

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.

No

losses have been experienced related to such accounts.

Cash and Cash Equivalents, Restricted Cash and Cash Equivalents, Policy [Policy Text Block]

Restricted Cash

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

Receivables, Trade and Other Accounts Receivable, Allowance for Doubtful Accounts, Policy [Policy Text Block]

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 Charges, Policy [Policy Text Block]

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 Income, Policy [Policy Text Block]

Comprehensive Income (Loss)

Comprehensive income (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

three

months ended

March 31, 2020

and

2019,

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 [Policy Text Block]

Revenue Recognition

Rental revenue for commercial leases is recognized on a straight-line basis over the terms of the respective leases. Deferred rents receivable represents the amount by which straight-line rental revenue exceeds rents currently billed in accordance with lease agreements. 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.

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.

Share-based Payment Arrangement [Policy Text Block]

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.

As of

March 31, 2020

and

December 31, 2019,

there were

881,067

LTIP units outstanding, with a weighted average grant date fair value of

$12.70

per unit. As of

March 31, 2020,

and

December 31, 2019,

there was

$1.3

million and

$1.4

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

March 31, 2020,

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

1.1

years.

In

April 2020,

the Company granted

450,623

LTIP units with a weighted average grant date fair value of

$4.75

per unit.

Income Tax, Policy [Policy Text Block]

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 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,

no

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

On

March 27, 2020,

the President signed into law the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). The CARES Act was enacted to provide economic relief to companies and individuals in response to the COVID-

19

pandemic. Included in the CARES Act are tax provisions which increase allowable interest expense deductions for

2019

and

2020

and increase the ability for taxpayers to use net operating losses. While we do

not

expect these provisions to have a material impact on the Company’s taxable income or tax liabilities, we will continue to analyze the provisions of the CARES Act and related guidance as it is published.

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.

Fair Value of Financial Instruments, Policy [Policy Text Block]

Fair Value Measurements

Refer to Note

9,

“Fair Value of Financial Instruments”.

Derivatives, Policy [Policy Text Block]

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 (loss) (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

March 31, 2020,

the Company has

no

derivatives for which it applies hedge accounting.

Earnings Per Share, Policy [Policy Text Block]

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

March 31, 2020

and

2019,

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

March 31, 2020

or

2019.

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 net loss per share for the periods indicated (unaudited):

	Three Months Ended March 31,
(in thousands, except per share amounts)	2020			2019
Numerator
Net loss attributable to common stockholders	$	(326	)	$	(54	)
Less: income attributable to participating securities		(84	)		(69	)
Subtotal	$	(410	)	$	(123	)
Denominator
Weighted average common shares outstanding		17,815			17,813
Basic and diluted net loss per share attributable to common stockholders	$	(0.02	)	$	(0.01	)

New Accounting Pronouncements, Policy [Policy Text Block]

Recently Issued Pronouncements 

In

March 2020,

the FASB issued ASU

2020

-

04,

“ Reference Rate Reform: Facilitation of the Effects of Reference Rate Reform on Financial Reporting” (Topic

848

). ASU

2020

-

04

provides temporary optional expedients and exceptions to ease financial reporting burdens related to applying current GAAP to modifications of contracts, hedging relationships and other transactions in connection with the transition from the London Interbank Offered Rate (“LIBOR”) and other interbank offered rates to alternative reference rates. ASU

2020

-

04

is effective beginning on

March 12, 2020,

and

may

be applied prospectively to such transactions through

December 31, 2022.

We will apply ASU

2020

-

04

prospectively as and when we enter into transactions to which this guidance applies.

In

March 2019,

FASB issued ASU

2019

-

01,

“Leases (Topic

842

), Codification Improvements.” There are

three

codification updates to Topic

842

covered by this ASU: Issue

1

provides guidance on how to compute fair value of leased items for lessors who are non-dealers or manufacturers; Issue

2

relates to cash flow presentation for lessors of sales-type and direct financing leases; and Issue

3

clarifies that certain transition disclosures will only be required in annual disclosures.

In

December 2018,

FASB issued ASU

2018

-

20,

“

Leases (Topic

842

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

2016

-

02

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.

In

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

-

09

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

-

09

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 within annual reporting periods beginning after

December 15, 2019. 

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. 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 did

not

have a material impact on the timing or amounts of the Company’s revenues.

In

February 2016,

FASB issued ASU

2016

-

02,

“Leases

.

” ASU

2016

-

02

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. These pronouncements are effective for fiscal years beginning after

December 15, 2020,

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

January 1, 2021

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

2016

-

02

(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. 

In

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 in fiscal years beginning after

December 15, 2019

with early adoption permitted. The adoption of this standard did

not

have a material impact on the Company’s financial statement reporting.

In

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.” The Company adopted this standard effective

January 1, 2020.

The adoption of this standard did

not

have a material impact on the Company’s consolidated financial statements as it has

not

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

In

February 2017,

FASB issued ASU

2017

-

05,

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

610

-

20

),” 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

-

05

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

2017

-

05

is effective for the Company for its annual reporting beginning after

December 15, 2018,

including interim reporting periods beginning after

December 15, 2019.

The Company adopted this standard effective

January 1, 2019.

The adoption of this standard did

not

have a material impact on our consolidated financial statements.

XML

Note 7 - Notes Payable (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Long-term Debt Instruments [Table Text Block]

Property	Maturity	Interest Rate		March 31, 2020			December 31, 2019
Flatbush Gardens, Brooklyn, NY (a)	3/1/2028		3.50%	$	246,000		$	246,000
250 Livingston Street, Brooklyn, NY (b)	6/6/2029		3.63%		125,000			125,000
141 Livingston Street, Brooklyn, NY (c)	6/1/2028		3.875%		75,429			75,817
Tribeca House, Manhattan, NY (d)	3/6/2028		4.506%		360,000			360,000
Aspen, Manhattan, NY (e)	7/1/2028		3.68%		66,520			66,862
Clover House, Brooklyn, NY (f)	12/1/2029		3.53%		82,000			82,000
10 West 65 th Street, Manhattan, NY (g)	11/1/2027		3.375%		34,128			34,295
1010 Pacific Street, Brooklyn, NY (h)	12/24/2020		LIBOR + 3.60%		19,633			19,457
Total debt				$	1,008,710		$	1,009,431
Unamortized debt issuance costs					(10,958	)		(11,528	)
Total debt, net of unamortized debt issuance costs				$	997,752		$	997,903

Schedule of Maturities of Long-term Debt [Table Text Block]

2020 (Remainder)	$	23,979
2021		8,553
2022		8,866
2023		9,191
2024		9,521
Thereafter		948,600
Total	$	1,008,710

XML

Note 12 - Segment Reporting (Tables)

3 Months Ended

Mar. 31, 2020

Notes Tables

Schedule of Segment Reporting Information, by Segment [Table Text Block]

Three months ended March 31, 2020	Commercial		Residential		Total
Rental income	$	7,168	$	23,718	$	30,886
Total revenues		7,168		23,718		30,886
Property operating expenses		1,137		6,022		7,159
Real estate taxes and insurance		1,491		5,373		6,864
General and administrative		337		1,986		2,323
Depreciation and amortization		1,019		4,539		5,558
Total operating expenses		3,984		17,920		21,904
Income from operations	$	3,184	$	5,798	$	8,982

Three months ended March 31, 2019	Commercial		Residential		Total
Rental income	$	6,880	$	20,772	$	27,652
Total revenues		6,880		20,772		27,652
Property operating expenses		1,141		6,422		7,563
Real estate taxes and insurance		1,236		4,495		5,731
General and administrative		279		1,389		1,668
Depreciation and amortization		946		3,603		4,549
Total operating expenses		3,602		15,909		19,511
Income from operations	$	3,278	$	4,863	$	8,141

	Commercial		Residential		Total
March 31, 2020	$	283,031	$	874,922	$	1,157,953
December 31, 2019		285,103		881,104		1,166,207

	Commercial		Residential		Total
Three months ended March 31,
2020	$	1,987	$	7,801	$	9,788
2019		1,734		6,540		8,274

	Commercial		Residential		Total
Three months ended March 31,
2020	$	1,783	$	4,288	$	6,071
2019		908		10,306		11,214

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Note 10 - Commitments and Contingencies - Summary of Concentration Risk by Segment (Details) - Total Revenue [Member] - Geographic Concentration Risk [Member] - New York City [Member]	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Three months ended March 31, 2020	100.00%	100.00%
Commercial Segment [Member]
Three months ended March 31, 2020	23.00%	25.00%
Residential Segment [Member]
Three months ended March 31, 2020	77.00%	75.00%

XML

Note 9 - Fair Value of Financial Instruments (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Not Designated as Hedging Instrument [Member] | Interest Rate Cap 1 [Member]
Derivative, Gain (Loss) on Derivative, Net, Total	$ 14	$ 22

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Note 7 - Notes Payable - Mortgages and Mezzanine Note Payable (Details) - USD ($) $ in Thousands		3 Months Ended
		Mar. 31, 2020	Dec. 31, 2019
Debt, gross		$ 1,008,710	$ 1,009,431
Unamortized debt issuance costs		(10,958)	(11,528)
Total debt, net of unamortized debt issuance costs		$ 997,752	997,903
Mortgages and Mezzanine Notes 1[Member] | Flatbush Gardens, Brooklyn, NY [Member]
Maturity date	[1]	Mar. 01, 2028
Interest rate	[1]	3.50%
Debt, gross	[1]	$ 246,000	246,000
Interest rate	[1]	3.50%
Mortgages and Mezzanine Notes 1[Member] | 250 Livingston Street in Brooklyn [Member]
Maturity date	[2]	Jun. 06, 2029
Debt, gross	[2]	$ 125,000	125,000
Mortgages and Mezzanine Notes 1[Member] | 250 Livingston Street in Brooklyn [Member] | London Interbank Offered Rate (LIBOR) [Member]
Interest rate	[2]	3.63%
Mortgages and Mezzanine Notes 1[Member] | Tribeca House Properties [Member]
Maturity date	[3]	Mar. 06, 2028
Interest rate	[3]	4.506%
Debt, gross	[3]	$ 360,000	360,000
Interest rate	[3]	4.506%
Mortgages and Mezzanine Notes 1[Member] | Aspen [Member]
Maturity date	[4]	Jul. 01, 2028
Interest rate	[4]	3.68%
Debt, gross	[4]	$ 66,520	66,862
Interest rate	[4]	3.68%
Mortgages and Mezzanine Notes 1[Member] | Clover House [Member]
Maturity date	[5]	Dec. 01, 2029
Debt, gross	[5]	$ 82,000	82,000
Mortgages and Mezzanine Notes 1[Member] | Clover House [Member] | London Interbank Offered Rate (LIBOR) [Member]
Interest rate	[5]	3.53%
Interest rate	[5]	3.53%
Mortgages and Mezzanine Notes 1[Member] | Property at 10 W 65th St. Manhattan, NY [Member]
Maturity date	[6]	Nov. 01, 2027
Interest rate	[6]	3.375%
Debt, gross	[6]	$ 34,128	34,295
Interest rate	[6]	3.375%
Mortgages and Mezzanine Notes 1[Member] | Residential Property At 1010 Pacific Street [Member]
Maturity date	[7]	Dec. 24, 2020
Interest rate	[7]	3.60%
Debt, gross	[7]	$ 19,633	19,457
Interest rate	[7]	3.60%
Mortgages and Mezzanine Notes 2 [Member] | 250 Livingston Street in Brooklyn [Member]
Maturity date	[8]	Jun. 01, 2028
Interest rate	[8]	3.875%
Debt, gross	[8]	$ 75,429	75,817
Interest rate	[8]	3.875%
Mortgages and Mezzanine Notes [Member]
Unamortized debt issuance costs		$ (10,958)	$ (11,528)

[1] The $246,000 mortgage note agreement with New York Community Bank (“NYCB”), entered into on February 21, 2018, matures on March 1, 2028, and bears interest at 3.5% through February 2023 and thereafter at the prime rate plus 2.75%, with an option to fix the rate subject to the payment of a fee that fluctuates depending on the date the election is made. The note requires interest-only payments through August 2020, and monthly principal and interest payments thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

[2] The $125,000 mortgage note agreement with Citi Real Estate Funding Inc., entered into on May 31, 2019, matures on June 6, 2029, bears interest at 3.63% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note within three months of maturity, without a prepayment premium.

[3] The $360,000 loan with Deutsche Bank, entered into on February 21, 2018, matures on March 6, 2028, bears interest at 4.506% and requires interest-only payments for the entire term. The Company has the option to prepay all (but not less than all) of the unpaid balance of the loan prior to the maturity date, subject to a prepayment premium if it occurs prior to December 6, 2027.

[4] The $70,000 mortgage note agreement with Capital One Multifamily Finance LLC matures on July 1, 2028, and bears interest at 3.68%. The note required interest-only payments through July 2017, and monthly principal and interest payments of $321 thereafter based on a 30-year amortization schedule. The Company has the option to prepay the note prior to the maturity date, subject to a prepayment premium.

[5] The $82,000 mortgage note agreement with MetLife Investment Management, entered into on November 8, 2019, matures on December 1, 2029, bears interest at 3.53% and requires interest-only payments for the entire term. The Company has the option, commencing on January 1, 2024, to prepay the note prior to the maturity date, subject to a prepayment premium if it occurs prior to September 2, 2029.

[6] On October 27, 2017, the Company entered into a $34,350 mortgage note agreement with NYCB, related to the 10 West 65th Street acquisition. The note matures on November 1, 2027, and bears interest at 3.375% through October 2022 and thereafter at the prime rate plus 2.75%, subject to an option to fix the rate. The note required interest-only payments through October 2019, and monthly principal and interest payments of $152 thereafter based on a 30-year amortization schedule. The Company has the option to prepay all (but not less than all) of the unpaid balance of the note prior to the maturity date, subject to certain prepayment premiums, as defined.

[7] On December 24, 2019, the Company entered into a $18,600 mortgage note agreement with CIT Bank, N.A., related to the 1010 Pacific Street acquisition. The Company also entered into a pre-development bridge loan secured by the property with the same lender that will provide up to $2,987 for eligible pre-development and carrying costs, of which $1,033 was drawn as of March 31, 2020. The notes mature on December 24, 2020, are subject to a one-year extension option, require interest-only payments and bear interest at one-month LIBOR plus 3.60% (4.6% as of March 31, 2020).

[8] The $79,500 mortgage note agreement with NYCB matures on June 1, 2028, and bears interest at 3.875%. The note required interest-only payments through June 2017, and monthly principal and interest payments of $374 thereafter based on a 30-year amortization schedule.

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Note 1 - Organization

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Organization, Consolidation and Presentation of Financial Statements Disclosure [Text Block]

1.

Organization

The Company was organized in the state of Maryland on

July 7, 2015.

On

August 3, 2015,

we completed certain formation transactions and the sale of shares of common stock in a private offering. We contributed the net proceeds of the private offering to Clipper Realty L.P., our operating partnership subsidiary (the “Operating Partnership”), in exchange for units in the Operating Partnership. The Operating Partnership in turn contributed such net proceeds to the limited liability companies (“LLCs”) that comprised the predecessor of the Company (the “Predecessor”) in exchange for Class A LLC units in such LLCs and became the managing member of such LLCs. The owners of the LLCs exchanged their interests for Class B LLC units and an equal number of special, non-economic, voting stock in the Company. The Class B LLC units, together with the special voting shares, are convertible into common shares of the Company on a

one

-for-

one

basis and are entitled to distributions.

On

June 27, 2016,

the Operating Partnership acquired the Aspen property at

1955

First Avenue in Manhattan, New York.

On

February 9, 2017,

the Company priced an initial public offering of

6,390,149

primary shares of its common stock (including the exercise of the over-allotment option, which closed on

March 10, 2017)

at a price of

$13.50

per share (the “IPO”). The net proceeds of the IPO were approximately

$78.7

million. We contributed the proceeds of the IPO to the Operating Partnership, in exchange for units in the Operating Partnership.

On

May 9, 2017,

the Company completed the purchase of

107

Columbia Heights (subsequently renovated and rebranded “Clover House”), a

158

-unit apartment community located in Brooklyn Heights, New York.

On

October 27, 2017,

the Company completed the acquisition of an

82

-unit residential property at

10

West

65th

Street in the Upper West Side neighborhood of Manhattan, New York.

On

November 8, 2019,

the Company completed the acquisition of

1010

Pacific Street located in the Prospect Heights neighborhood of Brooklyn, New York; the Company plans to redevelop the property as a

175

-unit residential building.

As of

March 31, 2020,

the properties owned by the Company consist of the following (collectively, the “Properties”):

• Tribeca House in Manhattan, comprising two buildings, one with 21 stories and one with 12 stories, containing residential and retail space with an aggregate of approximately 483,000 square feet of residential rental Gross Leasable Area (“GLA”) and 77,000 square feet of retail rental and parking GLA;

• Flatbush Gardens in Brooklyn, a 59 -building residential housing complex with 2,496 rentable units;

• 141 Livingston Street in Brooklyn, a 15 -story office building with approximately 216,000 square feet of GLA;

• 250 Livingston Street in Brooklyn, a 12 -story office and residential building with approximately 370,000 square feet of GLA (fully remeasured);

• Aspen in Manhattan, a 7 -story building containing residential and retail space with approximately 166,000 square feet of residential rental GLA and approximately 21,000 square feet of retail rental GLA;

•      Clover House in Brooklyn, a

11

-story residential building with approximately

102,000

square feet of residential rental GLA;

•     

10

West

65

th

Street in Manhattan, a

6

-story residential building with approximately

76,000

square feet of residential rental GLA; and

•     

1010

Pacific Street in Brooklyn, which the Company plans to redevelop as a

9

-story residential building with approximately

119,000

square feet of residential rental GLA.

During

2019,

we entered into a joint venture in which we own a

50%

interest through which we are paying certain legal and advisory expenses in connection with various rent laws and ordinances which govern certain of our properties. The Company committed to contribute

$0.4

million towards the joint venture. During the

three

months ended

March 31, 2020,

the Company incurred

$0.2

million of such expenses which are recorded as part of general and administrative in the Condensed Consolidated Statements of Operations and the Company has fulfilled its commitment in the joint venture.

The operations of Clipper Realty Inc. and its consolidated subsidiaries are carried on primarily through the Operating Partnership. The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) under Sections

856

through

860

of the Internal Revenue Code (the “Code”). The Company is the sole general partner of the Operating Partnership and the Operating Partnership is the sole managing member of the LLCs that comprised the Predecessor.

At

March 31, 2020,

the Company’s interest, through the Operating Partnership, in the LLCs that own the properties generally entitles it to

40.4%

of the aggregate cash distributions from, and the profits and losses of, the LLCs.

The Company determined that the Operating Partnership and the LLCs are variable interest entities (“VIEs”) and that the Company was the primary beneficiary. The assets and liabilities of these VIEs represented substantially all of the Company’s assets and liabilities.

XML

Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
REVENUES
TOTAL REVENUES	$ 30,886	$ 27,652
OPERATING EXPENSES
Property operating expenses	7,159	7,563
Real estate taxes and insurance	6,864	5,731
General and administrative	2,323	1,668
Depreciation and amortization	5,558	4,549
TOTAL OPERATING EXPENSES	21,904	19,511
INCOME FROM OPERATIONS	8,982	8,141
Interest expense, net	(9,788)	(8,274)
Net loss	(806)	(133)
Net loss attributable to non-controlling interests	480	79
Net loss attributable to common stockholders	$ (326)	$ (54)
Basic and diluted net loss per share (in dollars per share)	$ (0.02)	$ (0.01)
Residential Rental [Member]
REVENUES
TOTAL REVENUES	$ 23,718	$ 20,772
Commercial Real Estate [Member]
REVENUES
TOTAL REVENUES	$ 7,168	$ 6,880

XML

Note 11 - Related-party Transactions (Details Textual) - USD ($) $ in Thousands	3 Months Ended
	Mar. 31, 2020	Mar. 31, 2019
Firms in Which Two Directors Were Principals or Partners [Member]
Related Party Transaction, Amounts of Transaction	$ 5	$ 0
General and Administrative Expense [Member] | Overhead Charged Related to Office Expenses [Member]
Related Party Transaction, Amounts of Transaction	$ 88	$ 87

XML

Note 5 - Deferred Costs and Intangible Assets

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Deferred Costs and Intangible Assets Disclosure [Text Block]

5.

Deferred Costs and Intangible Assets

Deferred costs and intangible assets consist of the following:

	March 31, 2020			December 31, 2019
	(unaudited)
Deferred costs	$	348		$	348
Above-market leases		—			444
Lease origination costs		1,385			1,385
In-place leases		859			859
Real estate tax abatements		9,142			9,142
Total deferred costs and intangible assets		11,734			12,178
Less accumulated amortization		(3,174	)		(3,396	)
Total deferred costs and intangible assets, net	$	8,560		$	8,782

Amortization of deferred costs, lease origination costs and in-place lease intangible assets was

$73

and

$188

for the

three

months ended

March 31, 2020

and

2019,

respectively;

$749

of fully amortized lease origination costs and in-place leases was written off during the

three

months ended

March 31, 2019.

Amortization of real estate tax abatements of

$119

and

$119

for the

three

months ended

March 31, 2020

and

2019,

respectively, is included in real estate taxes and insurance in the consolidated statements of operations;

$3,428

of fully amortized real estate tax abatements was written off during the

three

months ended

March 31, 2019.

Amortization of above-market leases of

$30

and

$30

for the

three

months ended

March 31, 2020

and

2019,

respectively, is included in commercial rental income in the consolidated statements of operations.

$444

of fully amortized above-market leases was written off during the

three

months ended

March 31, 2020.

Deferred costs and intangible assets as of

March 31, 2020,

amortize in future years as follows:

2020 (Remainder)	$	579
2021		775
2022		743
2023		597
2024		552
Thereafter		5,314
Total	$	8,560

XML

Note 9 - Fair Value of Financial Instruments

3 Months Ended

Mar. 31, 2020

Notes to Financial Statements

Fair Value Disclosures [Text Block]

9.

Fair Value of Financial Instruments

GAAP requires the measurement of certain financial instruments at fair value on a recurring basis. In addition, GAAP requires the measure of other financial instruments and balances at fair value on a non-recurring basis (e.g., carrying value of impaired real estate and long-lived assets). Fair value is defined as the price that would be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The GAAP fair value framework uses a

three

-tiered approach. Fair value measurements are classified and disclosed in

one

of the following

three

categories:

• Level 1: unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;

• Level 2: quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, and model-derived valuations in which significant inputs and significant value drivers are observable in active markets; and

• Level 3: prices or valuation techniques where little or no market data is available that require inputs that are both significant to the fair value measurement and unobservable.

When available, the Company utilizes quoted market prices from an independent

third

-party source to determine fair value and classifies such items in Level

1

or Level

2.

In instances where the market for a financial instrument is

not

active, regardless of the availability of a nonbinding quoted market price, observable inputs might

not

be relevant and could require the Company to make a significant adjustment to derive a fair value measurement. Additionally, in an inactive market, a market price quoted from an independent

third

party

may

rely more on models with inputs based on information available only to that independent

third

party. When the Company determines the market for a financial instrument owned by the Company to be illiquid or when market transactions for similar instruments do

not

appear orderly, the Company uses several valuation sources (including internal valuations, discounted cash flow analysis and quoted market prices) and establishes a fair value by assigning weights to the various valuation sources.

Changes in assumptions or estimation methodologies can have a material effect on these estimated fair values. In this regard, the derived fair value estimates cannot be substantiated by comparison to independent markets and, in many cases,

may

not

be realized in an immediate settlement of the instrument.

The financial assets and liabilities in the consolidated balance sheets include cash and cash equivalents, restricted cash, receivables, interest rate caps, accounts payable and accrued liabilities, security deposits and notes payable. The carrying amount of cash and cash equivalents, restricted cash, receivables, accounts payable and accrued liabilities, and security deposits reported in the consolidated balance sheets approximates fair value due to the short-term nature of these instruments. The fair value of notes payable, which are classified as Level

2,

is estimated by discounting the contractual cash flows of each debt instrument to their present value using adjusted market interest rates.

The carrying amount and estimated fair value of the notes payable are as follows:

	March 31, 2020		December 31, 2019
	(unaudited)
Carrying amount (excluding unamortized debt issuance costs)	$	1,008,710	$	1,009,431
Estimated fair value	$	1,151,495	$	1,058,083

The Company purchased interest rate caps in connection with the loans obtained for the Clover House acquisition, the

250

Livingston Street loan obtained on

December 6, 2018,

and the

1010

Pacific Street loan obtained on

December 24, 2019.

The fair value of the interest rate caps, which are classified as Level

2,

is estimated using market inputs and credit valuation inputs.

The estimated fair values of the interest rate caps are as follows:

Notional Amount		Related Property Loans	Maturity Date	Strike Rate		Estimated Fair Value at March 31, 2020		Estimated Fair Value at December 31, 2019
	$73,700	Clover House	May 9, 2020		3.0%	$	—	$	—
	$75,000	250 Livingston Street	December 15, 2020		4.0%		—		—
	$21,587	1010 Pacific Street	December 24, 2020		3.6%		—		—
Total fair value of derivative instruments included in prepaid expenses and other assets						$	—	$	—

These interest rate caps were

not

designated as hedges. Accordingly, changes in fair value of the

250

Livingston Street instrument are recognized in earnings. Changes in fair value of the Clover House instrument were recognized in real estate under development during construction and are recognized in earnings following completion of development. Changes in fair value of the

1010

Pacific Street instrument are recognized in real estate under development. Fair value of the

250

Livingston Street instrument did

not

change during each of the

three

months ended

March 31, 2020

and

2019.

Fair value of the Clover House instrument did

not

change during the

three

months ended

March 31, 2020;

decrease in fair value of the Clover House instrument of

$22

for the

three

months ended

March 31, 2019,

is recognized in interest expense and capitalized to real estate under development. Decrease in fair value of the

1010

Pacific Street instrument of

$14

for the

three

months ended

March 31, 2020,

is recognized in interest expense and capitalized to real estate under development.

The above disclosures regarding fair value of financial instruments are based on pertinent information available as of

March 31, 2020,

and

December 31, 2019,

respectively. Although the Company is

not

aware of any factors that would significantly affect the reasonableness of the estimated fair value amounts, such amounts have

not

been comprehensively revalued for purposes of these financial statements since those dates, and current estimates of fair value

may

differ significantly from the amounts presented herein.

XML

Note 6 - Below-market Leases, Net - Future Amortization Income (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
2020 (Remainder)	$ 388
2021	493
2022	423
2023	192
Total	$ 1,496	$ 1,625

XML

Note 5 - Deferred Costs and Intangible Assets - Deferred Costs and Intangible Assets (Details) - USD ($) $ in Thousands	Mar. 31, 2020	Dec. 31, 2019
Deferred costs	$ 348	$ 348
Above-market leases		444
Lease origination costs	1,385	1,385
In-place leases	859	859
Real estate tax abatements	9,142	9,142
Total deferred costs and intangible assets	11,734	12,178
Less accumulated amortization	(3,174)	(3,396)
Total	$ 8,560	$ 8,782

XML

Note 3 - Significant Accounting Policies (Details Textual) $ / shares in Units, $ in Thousands	1 Months Ended	3 Months Ended		9 Months Ended	12 Months Ended
	Apr. 30, 2020 $ / shares shares	Mar. 31, 2020 USD ($) $ / shares	Mar. 31, 2020 USD ($) shares	Sep. 30, 2019 USD ($) shares	Dec. 31, 2019 USD ($) $ / shares shares
Number of Operating Segments					2
Share-based Payment Arrangement, Nonvested Award, Excluding Option, Cost Not yet Recognized, Amount | $		$ 1,300	$ 1,300		$ 1,400
Share-based Payment Arrangement, Nonvested Award, Cost Not yet Recognized, Period for Recognition (Year)			1 year 36 days
Percent of Distributed Dividends Equal to Taxable REIT Income				90.00%
Income Tax Expense (Benefit), Total | $				$ 0
Weighted Average Number Diluted Shares Outstanding Adjustment, Total (in shares)				0
Class B LLC Units [Member]
Antidilutive Securities Excluded from Computation of Earnings Per Share, Amount (in shares)				26,317
LTIP Units [Member] | Subsequent Event [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)	450,623
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share) | $ / shares	$ 4.75
LTIP Units [Member] | Non-employee Director [Member]
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period (in shares)			881,067		881,067
Share-based Compensation Arrangement by Share-based Payment Award, Equity Instruments Other than Options, Grants in Period, Weighted Average Grant Date Fair Value (in dollars per share) | $ / shares		$ 12.70			$ 12.70