Loans Payable

9 Months Ended

Sep. 30, 2024

Loans Payable

Loans Payable

5.      Loans Payable

Mortgages Payable

The Company’s mortgages payables, net consists of the following:

							September 30,
	Monthly		Interest				2024		December 31,
Property	Payment		Rate		Maturity	(unaudited)		2023
Franklin Square (a)		Interest only	3.808	%	December 2031	$	13,250,000	$	13,250,000
Ashley Plaza (b)	$	52,795	3.75	%	September 2029		10,518,121		10,708,557
Brookfield Center (c)	$	22,876	3.90	%	November 2029		4,500,282		4,571,410
Parkway Center (d)	$	28,161	Variable		November 2031		4,828,899		4,870,403
Wells Fargo Mortgage Facility (e)	$	103,438	4.50	%	June 2027		17,617,641		17,939,276
Unamortized issuance costs, net							(495,574)		(566,873)
Total mortgages payable, net						$	50,219,369	$	50,772,773

(a) The mortgage loan for the Franklin Square Property bears interest at a fixed rate of 3.808% and is interest only until January 6, 2025, at which time the monthly payment will become $61,800, which includes interest and principal based on a thirty-year amortization schedule. The mortgage loan includes covenants for the Company to maintain a net worth of $13,250,000, excluding the assets and liabilities associated with the Franklin Square Property and for the Company to maintain liquid assets of no less than $1,000,000. As of September 30, 2024 and December 31, 2023, the Company believes that it is compliant with these covenants. The Company has guaranteed the payment and performance of the obligations of the mortgage loan.

(b) The mortgage loan for the Ashley Plaza Property bears interest at a fixed rate of 3.75% and was interest only for the first twelve months of its term.  Beginning on October 1, 2020, the monthly payment became $52,795 for the remaining term of the loan, which includes interest at the fixed rate, and principal, based on a thirty-year amortization schedule. Effective on December 26, 2023, the Company assumed certain guaranty obligations under the Ashley Plaza Property mortgage loan related to the Guaranty Substitution (see below).  These obligations include covenants for the Company to maintain a net worth of $11,400,000, excluding the liabilities associated with the mortgage loan for the Ashley Plaza Property, and for the Company to maintain liquid assets of no less than $1,140,000. As of September 30, 2024 and December 31, 2023, the Company believes that it is compliant with these covenants.

(c) The mortgage loan for the Brookfield Center Property bears interest at a fixed rate of 3.90% and was interest only for the first twelve months of the term.  Beginning on November 1, 2020, the monthly payment became $22,876 for the remaining term of the loan, which includes interest at the fixed rate, and principal, based on a thirty-year amortization schedule.  Effective on December 26, 2023, the Company assumed certain guaranty obligations under the Brookfield Center Property mortgage loan related to the Guaranty Substitution (see below).  These obligations include covenants for the Company to maintain a net worth of $4,850,000, excluding the liabilities associated with the mortgage loan for the Brookfield Center Property, and for the Company to maintain liquid assets of no less than $485,000. As of September 30, 2024 and December 31, 2023, the Company believes that it is compliant with these covenants.

(d) The interest rate for the mortgage loan for the Parkway Property was originally based on ICE LIBOR plus 225 basis points, with a minimum rate of 2.25%.  After the discontinuation of LIBOR on June 30, 2023, the ICE LIBOR index was replaced by Term SOFR, with an adjusted margin of 236.44 basis points.  Under the terms of the mortgage, the interest rate payable each month shall not change by greater than 1% during any six-month period and 2% during any 12-month period.  As of September 30, 2024 and December 31, 2023 the rate in effect for the Parkway Property mortgage was 7.57% and 7.05%, respectively. The monthly payment, which varies based on the interest rate in effect each month, includes interest at the variable rate, and principal based on a thirty-year amortization schedule.  The mortgage loan for the Parkway Property includes a covenant to maintain a debt service coverage ratio of not less than 1.30 to 1.00 on an annual basis.  As of September 30, 2024 and December 31, 2023, the Company believes that it is compliant with this covenant.

(e) On June 13, 2022, the Company entered into a mortgage loan facility with Wells Fargo Bank, National Association (the “Wells Fargo Mortgage Facility”) in the principal amount of $18,609,500.  The proceeds of this mortgage were used to finance the acquisition of the Salisbury Marketplace Property and to refinance the mortgages payable on the Lancer Center Property and the Greenbrier Business Center Property.  On October 2, 2024, the Company and Wells Fargo Bank, National Association,

entered into an Amendment to the Wells Fargo Mortgage Facility that added, as cross collateral, the Citibank Property.  The Wells Fargo Mortgage Facility bears interest at a fixed rate of 4.50% for a five-year term.  The monthly payment, which includes interest at the fixed rate, and principal, based on a twenty-five-year amortization schedule, is $103,438.  The Company has provided an unconditional guaranty of the payment of and performance under the terms of the Wells Fargo Mortgage Facility.  The Wells Fargo Mortgage Facility credit agreement includes covenants to maintain a debt service coverage ratio of not less than 1.50 to 1.00 on an annual basis, a combined minimum debt yield of 9.5% on the Salisbury Marketplace Property, the Lancer Center Property, the Greenbrier Business Center Property, and the Citibank Property, and the maintenance of liquid assets of not less than $1,500,000.  As of September 30, 2024 and December 31, 2023, the Company believes that it is compliant with these covenants.  

Guaranty Substitution

Pursuant to the terms of the Termination Agreement, during December 2023, the Company entered into consent agreements with lenders for the Ashley Plaza Property, Brookfield Property, Franklin Square Property and Parkway Property mortgages under which the Company replaced certain guaranty obligations of Messrs. Messier and Elliott.  Under these agreements, the Company assumed guaranties related to environmental waste and acts of fraud, among others, and consented to certain covenants (discussed above) to maintain minimum net worth and liquidity levels.  For the Franklin Square Property mortgage loan, the termination of the Management Agreement was considered an event of default.  Under the consent agreement for the Franklin Square Property mortgage loan, the lender agreed to waive the event of default in exchange for the payment of a $132,500 consent fee, and the Company’s agreement to fully guaranty the Franklin Square Property mortgage loan.  The $132,500 consent fee was recorded as part of the management restructuring fee on the condensed consolidated statement of operations for the year ended December 31, 2023.  No such expenses were recorded for the three and nine months ended September 30, 2024 and 2023.  

Mortgages payable, net, associated with assets held for sale

The Company’s mortgages payables, net, associated with assets held for sale, consists of the following:

						Balance
							September 30,
	Monthly		Interest				2024		December 31,
Property	Payment		Rate		Maturity		(unaudited)	2023
Hanover Square (a)	$	78,098	6.94	%	December 2027	$	—	$	9,640,725
Unamortized issuance costs, net							—		(51,837)
Total mortgages payable, net, associated with assets held for sale						$	—	$	9,588,888

(a) The mortgage loan for the Hanover Square Property bore interest at a fixed rate of 4.25% until January 1, 2023, when the interest rate adjusted to a fixed rate of 6.94%, which was determined by adding 3.00% to the daily average yield on United States Treasury securities adjusted to a constant maturity of five years, as made available by the Federal Reserve Board, with a minimum of 4.25%. As a result of the interest rate change, as of February 1, 2023, the fixed monthly payment of $56,882 increased to $78,098 which included interest at the fixed rate, and principal, based on a twenty-five-year amortization schedule.  On March 13, 2024, the Company sold the Hanover Square Shopping Center Property and repaid the mortgage loan for the Hanover Square Property.  

Loss on Extinguishment of Debt – Hanover Square Property Mortgage Payable

On March 13, 2024, the Company sold the Hanover Square Shopping Center Property and repaid the mortgage loan for the Hanover Square Property. The Company accounted for the repayment of the mortgage payable under debt extinguishment accounting in accordance with ASC 470. During the nine months ended September 30, 2024, the Company recorded a loss on extinguishment of debt of $51,837 consisting of unamortized loan issuance costs. No such loss was recorded during the three months ended September 30, 2024 or three and nine months ended September 30, 2023.

Interest rate protection transaction

On October 28, 2021, the Company entered into an interest rate protection transaction to limit its exposure to increases in interest rates on the variable rate mortgage loan on the Parkway Property (the “Interest Rate Protection Transaction”).  Under this

agreement, the Company’s interest rate exposure is capped at 5.25% if USD 1-Month ICE LIBOR exceeds 3%. Effective on July 1, 2023, the interest rate index under the Interest Rate Protection Transaction automatically converted to SOFR.  SOFR was 4.85% and 5.35% as of September 30, 2024 and December 31, 2023, respectively.  In accordance with the guidance on derivatives and hedging, the Company records all derivatives on the balance sheet at fair value under other assets. The Company determines fair value based on the three-level valuation hierarchy for fair value measurement.  Level 1 inputs are quoted prices in active markets for identical assets or liabilities.  Level 2 inputs are quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets in markets that are not active; and inputs other than quoted prices. Level 3 inputs are unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. The fair value of the Interest Rate Protection Transaction is valued by an independent, third-party consultant which uses observable inputs such as yield curves, volatilities and other current market data, all of which are considered Level 2 inputs. As of September 30, 2024 and December 31, 2023, the fair value of the Interest Rate Protection Transaction was $96,730 and $173,715, respectively, and is recorded under other assets on the Company’s condensed consolidated balance sheets. The Company reports changes in the fair value of the derivative in other income on its condensed consolidated statements of operations.

For the period from September 1, 2022 through June 30, 2023, LIBOR, and for the period from July 1, 2023 through September 30, 2024, SOFR exceeded the 3% cap, and payments from the Interest Rate Protection Transaction reduced the Company’s net interest expense. Payments to the Company from the Interest Rate Protection Transaction are recorded as an offset to interest expense on the Company’s condensed consolidated statements of operations for the three and nine months ended September 30, 2024 and 2023.  

Wells Fargo Line of Credit

On June 13, 2022, the Company, through its wholly-owned subsidiaries, entered into a loan agreement with Wells Fargo Bank, National Association for a $1,500,000 line of credit (the “Original Wells Fargo Line of Credit”).  On May 2, 2023, the Company and Wells Fargo Bank, National Association entered into the First Amendment to the Revolving Line of Credit Note which extended the maturity date of the Original Wells Fargo Line of Credit to June 9, 2024. On June 5, 2024, the Company and Wells Fargo Bank, National Association entered into the Second Amended to the Revolving Line of Credit Note which further extended the maturity date of the Original Wells Fargo Line of Credit to October 7, 2024.  As of September 30, 2024 and December 31, 2023 the Original Wells Fargo Line of Credit had an outstanding balance of $0 and $1,000,000, respectively.  Outstanding balances on the Original Wells Fargo Line of Credit bore interest at a floating rate of 2.25% above daily SOFR.  As of September 30, 2024 and December 31, 2023, SOFR was 4.85% and 5.35%, respectively.  The Original Wells Fargo Line of Credit was secured by the Lancer Center Property, the Greenbrier Business Center Property and the Salisbury Marketplace Property, was unconditionally guaranteed by the Company, and any outstanding balances would have been due on the October 7, 2024 maturity date.  

On October 2, 2024, the Company, through its wholly-owned subsidiaries, entered into an amended and restated Revolving Line of Credit Note with Wells Fargo Bank, National Association that increases the line of credit from $1,500,000 to $4,000,000 (the “Expanded Wells Fargo Line of Credit”).  Outstanding balances on the Expanded Wells Fargo Line of Credit will bear interest at a floating rate of 3.10% above Daily Simply SOFR, which, with respect to any day (a “SOFR Rate Day”) means a rate per annum equal to SOFR for the day that is two U.S. Government Securities Business Days prior to (i) if such SOFR Rate Day is a U.S. Government Securities Business Day, such SOFR Rate Day or (ii) if such SOFR Rate Day is not a U.S. Government Securities Business Day, the U.S. Government Securities Business Day immediately preceding such SOFR Rate Day, subject to certain exceptions.  A U.S. Government Securities Business Day is any day except for Saturday, Sunday or a day on which the Securities Industry and Financial Markets Association, or any successor thereto, recommends that the fixed income departments of its members be closed for the entire day for purposes of trading in United States government securities.  The Expanded Wells Fargo Line of Credit is secured by the Lancer Center Property, the Greenbrier Business Center Property, the Salisbury Marketplace Property and the Citibank Property, is unconditionally guaranteed by the Company, and any outstanding balances will be due on the September 30, 2026 maturity date.  The terms of the Expanded Wells Fargo Line of Credit prohibit the Company from using proceeds to directly or indirectly fund the redemption of the Company’s mandatorily redeemable preferred stock.  

Interest expense

Interest expense, including amortization of capitalized issuance costs consists of the following:

	For the three months ended September 30, 2024
	(unaudited)
			Amortization		Interest rate
	Mortgage		of discounts and		protection		Other
	Interest		capitalized		transaction		interest
	Expense		issuance costs		payments		expense		Total
Franklin Square	$	128,943	$	7,093	$	—	$	—	$	136,036
Ashley Plaza		101,170		4,358		—		—		105,528
Brookfield Center		45,013		2,837		—		—		47,850
Parkway Center		92,553		2,757		(31,353)		—		63,957
Wells Fargo Mortgage Facility		203,344		6,721		—		—		210,065
Amortization and preferred stock dividends on mandatorily redeemable preferred stock		—		66,965		—		100,000		166,965
Other interest		—		—		—		521		521
Total interest expense	$	571,023	$	90,731	$	(31,353)	$	100,521	$	730,922

	For the three months ended September 30, 2023
	(unaudited)
			Amortization		Interest rate
	Mortgage		of discounts and		protection		Other
	Interest		capitalized		transaction		interest
	Expense		issuance costs		payments		expense		Total
Franklin Square	$	128,943	$	7,093	$	—	$	—	$	136,036
Hanover Square		166,532		3,223		—		—		169,755
Ashley Plaza		103,339		4,358		—		—		107,697
Brookfield Center		45,943		2,837		—		—		48,780
Parkway Center		74,047		2,757		(29,953)		—		46,851
Wells Fargo Mortgage Facility		208,298		6,721		—		14,636		229,655
Amortization and preferred stock dividends on mandatorily redeemable preferred stock		—		61,408		—		100,000		161,408
Total interest expense	$	727,102	$	88,397	$	(29,953)	$	114,636	$	900,182

	For the nine months ended September 30, 2024
	(unaudited)
			Amortization		Interest rate
	Mortgage		of discounts and		protection		Other
	Interest		capitalized		transaction		interest
	Expense		issuance costs		payments		expense		Total
Franklin Square	$	384,026	$	21,279	$	—	$	—	$	405,305
Hanover Square		129,248		—		—		—		129,248
Ashley Plaza		302,936		13,073		—		—		316,009
Brookfield Center		134,756		8,512		—		—		143,268
Parkway Center		266,249		8,270		(83,253)		—		191,266
Wells Fargo Mortgage Facility		609,303		20,165		—		—		629,468
Wells Fargo Line of Credit		—		—		—		15,144		15,144
Amortization and preferred stock dividends on mandatorily redeemable preferred stock		—		196,621		—		300,000		496,621
Other interest		—		—		—		4,701		4,701
Total interest expense	$	1,826,518	$	267,920	$	(83,253)	$	319,845	$	2,331,030

	For the nine months ended September 30, 2023
	(unaudited)
			Amortization		Interest rate
	Mortgage		of discounts and		protection		Other
	Interest		capitalized		transaction		interest
	Expense		issuance costs		payments		expense		Total
Franklin Square	$	382,625	$	21,279	$	—	$	—	$	403,904
Hanover Square		506,699		9,668		—		—		516,367
Ashley Plaza		308,208		13,073		—		—		321,281
Brookfield Center		137,001		8,512		—		—		145,513
Parkway Center		155,640		8,270		(74,950)		—		88,960
Wells Fargo Mortgage Facility		621,513		20,165		—		14,636		656,314
Amortization and preferred stock dividends on mandatorily redeemable preferred stock		—		180,303		—		300,000		480,303
Total interest expense	$	2,111,686	$	261,270	$	(74,950)	$	314,636	$	2,612,642

Interest accrued and accumulated amortization of capitalized issuance costs consist of the following:

	As of September 30, 2024
	(unaudited)					As of December 31, 2023
				Accumulated					Accumulated
				amortization of					amortization
	Accrued			capitalized		Accrued			of capitalized
	interest			issuance costs		interest			issuance costs
Franklin Square	$	42,046		$	80,387	$	43,448		$	59,108
Hanover Square		—			—		55,755			71,696
Ashley Plaza		—			88,612		34,580			75,539
Brookfield Center		—			56,756		—			48,244
Parkway Center		30,443			32,160		28,614			23,890
Wells Fargo Mortgage Facility		—			60,496		—			40,331
Amortization and accrued preferred stock dividends on mandatorily redeemable preferred stock		70,004	(1)		1,029,314		70,004	(1)		832,693
Total	$	142,493		$	1,347,725	$	232,401		$	1,151,501

(1) Recorded as accrued interest under accounts payable and accrued liabilities on the Company’s condensed consolidated balance sheets as of September 30, 2024 and December 31, 2023, respectively.

Debt Maturity

The Company’s scheduled principal repayments on indebtedness as of September 30, 2024 are as follows:

		Mortgages Payable
For the remaining three months ending December 31, 2024	$	208,232
2025		1,092,385
2026		1,140,558
2027		17,278,440
2028		721,795
Thereafter		30,273,533
Total principal payments and debt maturities		50,714,943
Less unamortized issuance costs		(495,574)
Net principal payments and debt maturities	$	50,219,369