S-11 1 a2242415zs-11.htm S-11

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As filed with the Securities and Exchange Commission on October 2, 2020

Registration Statement No. 333-                


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



Form S-11
FOR REGISTRATION
UNDER THE SECURITIES ACT OF 1933
OF SECURITIES OF CERTAIN REAL ESTATE COMPANIES



Aspire Real Estate Investors, Inc.
(Exact name of registrant as specified in its governing instruments)



1920 Main Street, Suite 150
Irvine, California 92614
Tel: (949) 269-4700


(Address, including zip code, and telephone number, including area code, of registrant's principal executive offices)

Daryl J. Carter
1920 Main Street, Suite 150
Irvine, California 92614
Tel: (949) 269-4700


(Name, address, including zip code, and telephone number, including area code, of agent for service)



With copies to:

Daniel M. LeBey, Esq.
Zachary A. Swartz, Esq.
Vinson & Elkins LLP
901 East Byrd Street, Suite 1500
Richmond, VA 23219
Tel: (804) 327-6310

 

Jay L. Bernstein, Esq.
Jacob A. Farquharson, Esq.
Clifford Chance US LLP
31 West 52nd Street
New York, New York 10019
Tel: (212) 878-8000



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this registration statement.

          If any of the Securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act, check the following box:    o

          If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.    o

          If delivery of the prospectus is expected to be made pursuant to Rule 434, check the following box.    o

          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 the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer o   Accelerated filer o   Non-accelerated filer ý   Smaller reporting company ý

Emerging growth company ý

          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 7(a)(2)(B) of the Securities Act.    o

CALCULATION OF REGISTRATION FEE

       
 
Title of Securities
To Be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee

 

Common Stock, $0.01 par value per share

  $100,000,000   $10,910

 

(1)
Estimated solely for purposes of calculating the registration fee in accordance with Rule 457(o) under the Securities Act of 1933, as amended.

(2)
Includes shares of common stock subject to the underwriters' option to purchase additional shares.



          The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, as amended, or until this registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to Section 8(a), may determine.

   


Table of Contents

The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

SUBJECT TO COMPLETION,
DATED OCTOBER 2, 2020

PROSPECTUS

          Shares

LOGO

Aspire Real Estate Investors, Inc.

Common Stock

         Aspire Real Estate Investors, Inc. is a newly incorporated Maryland corporation formed to invest in, develop, redevelop and manage a portfolio of primarily affordable and workforce multifamily properties located in Opportunity Zones, as designated by the Tax Cuts and Jobs Act of 2017, within dynamic, U.S. metropolitan areas. We are externally managed and advised by Aspire REIT Manager, LLC, a newly-formed entity controlled by affiliates of Avanath Capital Management, LLC and MacFarlane Partners, LLC, two of the largest African American-owned real estate companies in the U.S.

         This is our initial public offering. No public market currently exists for our common stock.

         We are selling all of the shares of common stock offered by this prospectus. We expect the initial public offering price to be between $        and $        per share. We intend to apply to list our common stock on the New York Stock Exchange under the symbol "            ."

         Concurrently with the closing of this offering, we will sell shares of our common stock to members of our senior management team, affiliates of our Manager and investors in our Manager in a separate private placement, at the initial public offering price per share, for an aggregate investment equal to $        . In addition, concurrently with the closing of this offering, we will sell shares of our common stock to investors in certain Avanath-managed funds and certain other accredited investors in the private placement, at the initial public offering price per share, for an aggregate investment equal to $            .

         We intend to elect and qualify as a qualified opportunity fund, or Opportunity Zone Fund, for U.S. federal income tax purposes commencing with the month of closing of this offering and to be taxed as a real estate investment trust, or REIT, for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2020. We believe we will be the first Opportunity Zone Fund listed for trading on a national securities exchange. To assist us in qualifying as a REIT, stockholders generally will be restricted from owning more than 9.8% in value or in number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock. In addition, our charter contains various other restrictions on the ownership and transfer of our common stock. See "Description of Capital Stock—Restrictions on Ownership and Transfer."

         We are an "emerging growth company" under U.S. federal securities laws and will be subject to reduced public company reporting requirements. You should consider the risks described in "Risk Factors" beginning on page 47 of this prospectus for risks relevant to an investment in our common stock.

       
 
 
  Per Share
  Total
 

Public offering price

  $   $
 

Underwriting discount

  $   $
 

Proceeds, to us, before expenses

  $   $

 

         The underwriters may purchase up to an additional            shares of our common stock from us, at the initial public offering price less the underwriting discount, within 30 days after the date of this prospectus.

         Neither the United States Securities and Exchange Commission nor any state or non-U.S. securities commission or authority has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

         The underwriters expect to deliver the shares on or about        , 2020.

         Joint Book-Running Managers

Morgan Stanley   B. Riley Securities   Wells Fargo Securities   BMO Capital Markets   KeyBanc Capital Markets

   

The date of this prospectus is        , 2020.


TABLE OF CONTENTS

PROSPECTUS SUMMARY

    1  

RISK FACTORS

    47  

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

    86  

USE OF PROCEEDS

    88  

DISTRIBUTION POLICY

    89  

CAPITALIZATION

    90  

DILUTION

    91  

SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA

    93  

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    99  

MARKET OPPORTUNITY

    124  

BUSINESS AND PROPERTIES

    134  

MANAGEMENT

    170  

OUR MANAGER AND THE MANAGEMENT AGREEMENT

    183  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

    192  

STRUCTURE AND FORMATION OF OUR COMPANY

    194  

POLICIES WITH RESPECT TO CERTAIN ACTIVITIES

    197  

PRINCIPAL STOCKHOLDERS

    201  

DESCRIPTION OF CAPITAL STOCK

    202  

CERTAIN PROVISIONS OF MARYLAND LAW AND OF OUR CHARTER AND BYLAWS

    207  

SHARES ELIGIBLE FOR FUTURE SALE

    214  

MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

    216  

ERISA CONSIDERATIONS

    252  

UNDERWRITING

    255  

LEGAL MATTERS

    261  

EXPERTS

    261  

WHERE YOU CAN FIND MORE INFORMATION

    261  

INDEX TO FINANCIAL STATEMENTS

    F-1  



        You should rely only on the information contained in this prospectus or any free writing prospectus prepared by us. We have not, and the underwriters have not, authorized any other person to provide you with different or additional information. If anyone provides you with different or additional information, you should not rely on it. We are not, and the underwriters are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the cover of this prospectus. Our business, financial condition, liquidity, results of operations and prospects may have changed since that date.




Market Data

        We use market data, demographic data, industry forecasts and industry projections throughout this prospectus. Unless otherwise indicated, we have obtained such market and industry data from publicly available industry publications. These sources generally state that the information they provide has been obtained from sources believed to be reliable, but that the accuracy and completeness of the information are not guaranteed. The industry forecasts and projections are based on historical market data and the preparers' experience in the industry, and there is no assurance that any of the projected amounts will be achieved. We believe that the market and industry research others have performed are reliable, but we have not independently verified this information.

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Certain Terms Used in This Prospectus

        The following terms are used throughout this prospectus and, unless the context otherwise requires or indicates, these terms are defined as follows:

    "2017 Tax Act" means the Tax Cuts and Jobs Act of 2017.

    "affordable housing" is defined by us to mean housing that is generally not leased to households earning more than 60% of AMI.

    "AMI" means area median income, which is the midpoint of a region's income distribution calculated annually by HUD to determine the income eligibility requirements of federal housing programs in every metropolitan region in the country. Half of the families in a region earn more than the AMI, and half earn less than the AMI.

    "Aspire Real Estate Investors Predecessor I" means a combination of real estate entities and operations that are under common ownership and management of Avanath Affordable Housing I, LLC.

    "Aspire Real Estate Investors Predecessor II" means a combination of real estate entities and operations that are under common ownership and management of Avanath Affordable Housing II, LLC.

    "Aspire TRS" means Aspire Real Estate TRS, LLC, a Delaware limited liability company, the general partner of our subsidiary partnership and a TRS of ours.

    "Avanath" means Avanath Capital Management, LLC and its controlled affiliates.

    "Code" means the Internal Revenue Code of 1986, as amended.

    "concurrent private placement" means the sale by us to members of our senior management team, affiliates of our Manager, investors in our Manager and certain Avanath-managed funds and certain other accredited investors, in a separate private placement that will close concurrently with the closing of this offering, of $             million of our common stock, or a total of                        shares, at a price per share equal to the public offering price per share in this offering, without payment of any placement fee or underwriting discount.

    "cost burdened" means for those families that pay more than 30% of their household income for housing, including rent and utilities.

    "Equity Incentive Plan" means the Aspire Real Estate Investors, Inc. 2020 Equity Incentive Plan.

    "formation transactions" means the transactions described under "Structure and Formation of Our Company" that we have consummated or intend to consummate prior to, concurrently with or shortly after the closing of this offering, including the acquisition of our initial portfolio.

    "higher quality affordable and workforce housing assets" refer to affordable or workforce housing properties that are in good to excellent condition, require little to no capital improvements and offer amenities to residents (such as a clubhouse, pool and laundry facilities).

    "HUD" means the United States Department of Housing and Urban Development.

    "initial portfolio" means the portfolio of six multifamily projects located in Opportunity Zones and three Non-OZ Investments that we will acquire in connection with the formation transactions, as described in "Prospectus Summary—Our Initial Properties" and "Business and Properties—Our Initial Properties".

    "Investment Company Act" means the Investment Company Act of 1940, as amended.

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    "MacFarlane" means MacFarlane Partners, LLC and its controlled affiliates.

    "Manager" means Aspire REIT Manager, LLC, a Delaware limited liability company, our external manager and an entity controlled by affiliates of Avanath and MacFarlane.

    "market-rate" means housing that is not subject to rent restrictions.

    "Opportunity Zone" means a population census tract that is a low-income community that has been designated by the governor or other chief executive of the relevant state (including the District of Columbia) or territory as a "qualified opportunity zone" for U.S. federal income tax purposes and certified as such by the U.S. Department of the Treasury pursuant to the 2017 Tax Act.

    "Opportunity Zone Business" means a trade or business of an Opportunity Zone Fund (or a partnership or corporate subsidiary thereof) that, in accordance with the 2017 Tax Act and the final Treasury regulations thereunder: (1) holds at least 70% of its tangible property (by value) as Opportunity Zone Business Property; (2) derives at least 50% of its gross income from the active conduct of a trade or business in an Opportunity Zone; (3) uses at least 40% of its intangible property in such trade or business; (4) holds less than 5% of its property (by unadjusted basis) in the form of certain nonqualified financial property; and (5) does not operate (or lease more than 5% of its property to) any of several enumerated "sin businesses."

    "Opportunity Zone Business Property" means tangible property used in a trade or business of an Opportunity Zone Fund (or a partnership or corporate subsidiary thereof) that, in accordance with the 2017 Tax Act and the final Treasury regulations thereunder: (1) was acquired by (a) purchase from an unrelated party, (b) self-construction, or (c) lease, in each case after December 31, 2017; (2) (a) for which the "original use" of the property commences with the Opportunity Zone Fund, (b) is "substantially improved" by the Opportunity Zone Fund, or (c) is leased pursuant to arm's-length, market rate terms; and (3) for which, during at least 90% of the Qualified Opportunity Fund's holding period for the property, was used at least 70% in an Opportunity Zone.

    "Opportunity Zone Fund" means an investment vehicle which is organized as a corporation or a partnership for U.S. federal income tax purposes for the purpose of investing in Qualified Property (other than another Opportunity Zone Fund) that holds at least 90% of its assets in Qualified Property, determined by the average of the percentage of Qualified Property held in the Opportunity Zone Fund as measured (1) on the last day of the first 6-month period of the taxable year of the Opportunity Zone Fund, and (2) on the last day of the taxable year of the Opportunity Zone Fund.

    "Opportunity Zone Partnership Interest" means any capital or profits interest in a U.S. entity classified as a partnership for U.S. federal income tax purposes if (1) such interest was acquired by the Opportunity Zone Fund after December 31, 2017 from the partnership solely in exchange for cash, (2) such partnership was an Opportunity Zone Business as of the time such interest was acquired (or, in the case of a new partnership, such partnership was being organized for purposes of being an Opportunity Zone Business), and (3) during at least 90% of the Opportunity Zone Fund's holding period for such interest, such partnership qualified as an Opportunity Zone Business.

    "Opportunity Zone Stock" means any stock in a U.S. entity classified as a corporation for U.S. federal income tax purposes if (1) such stock was acquired by the Opportunity Zone Fund after December 31, 2017 at its original issuance (directly or through an underwriter) solely in exchange for cash, (2) such corporation was an Opportunity Zone Business at the time such stock was issued (or, in the case of a new corporation, such corporation was being organized for purposes of being an Opportunity Zone Business), and (3) during at least 90% of the

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      Opportunity Zone Fund's holding period with respect to such stock, such corporation qualified as an Opportunity Zone Business.

    "our Predecessors" means Aspire Real Estate Investors Predecessor I and Aspire Real Estate Investors Predecessor II, collectively.

    "Qualified Property" means (1) Opportunity Zone Stock, (2) Opportunity Zone Partnership Interests, and/or (3) Opportunity Zone Business Property.

    "REIT" means a real estate investment trust for U.S. federal income tax purposes.

    "Section 8 Housing" refers to Project-Based Section 8 or Housing Choice Vouchers funded through HUD.

    "stabilized" refers to properties that have achieved a long-term stabilized occupancy rate after exposure for leasing in the open market for at least six months.

    "TRS" means a "taxable REIT subsidiary" within the meaning of Section 856(l) of the Code.

    "value add" refers to properties that have in-place cash flow where we will seek to increase that cash flow over time by making improvements to or repositioning the properties.

    "we," "our," "us" and "our company" mean Aspire Real Estate Investors, Inc., a Maryland corporation, together with its consolidated subsidiaries.

    "workforce housing" means housing that is generally leased to households earning between 60% and 120% of AMI.

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PROSPECTUS SUMMARY

        The following summary highlights information contained elsewhere in this prospectus. This summary is not complete and does not contain all of the information that you should consider before investing in our common stock. You should read the entire prospectus carefully, including the section entitled "Risk Factors," as well as the financial statements and related notes included elsewhere in this prospectus, before making an investment decision.

        Unless otherwise indicated, the information contained in this prospectus assumes that (i) the underwriters' option to purchase up to an additional                 shares of our common stock is not exercised, (ii) the shares of our common stock to be sold in this offering are sold at $            per share, which is the mid-point of the initial public offering price range set forth on the front cover of this prospectus, and (iii) the sale in the concurrent private placement to members of our senior management team, affiliates of our Manager and investors in our Manager, certain Avanath-managed funds and certain other accredited investors of shares of our common stock for an aggregate investment equal to $            . In addition, unless otherwise indicated, the information in this prospectus assumes that this offering and the formation transactions have been completed.

Our Company

        We are a newly incorporated Maryland corporation formed to invest in, develop, redevelop and manage a portfolio of primarily affordable and workforce multifamily properties in dynamic U.S. metropolitan areas. We will be the first publicly traded REIT to pursue a strategy focused on affordable and workforce multifamily housing. These sectors historically have been fragmented in ownership and underserved by institutional capital, yet they comprise a majority of the U.S. multifamily market (by units) and offer strong long-term fundamentals to generate attractive returns for investors. Moreover, we intend to elect and qualify as the first publicly traded Opportunity Zone Fund REIT listed on a national securities exchange, which we expect will provide our investors with meaningful tax benefits available as part of the Opportunity Zone tax legislation ("QOZ Tax Benefits").

        Our strategy is to focus on acquiring existing income producing affordable and workforce multifamily properties, some of which we intend to redevelop by upgrading existing housing units, adding additional units to existing buildings, and/or constructing new buildings within the property or on adjacent land that we purchase. We will also undertake ground up development of new affordable and workforce multifamily housing in vibrant, supply-constrained markets, in circumstances where we believe we will be able to leverage our management team's experience and relationships to generate strong risk-adjusted returns for our stockholders. Up to 30% of our portfolio may be comprised of stabilized and value add properties for which we do not intend to undertake significant redevelopment work, including properties located outside of Opportunity Zones. We believe that the affordable and workforce housing sectors offer attractive risk-adjusted returns, with superior supply and demand dynamics and greater fragmentation of existing ownership than the market-rate segment of the multifamily market.

        Our initial portfolio will be comprised of nine multifamily projects (our "initial properties"), six of which are located in Opportunity Zones. The combined estimated total project cost for our initial properties, including initial purchase prices plus development and redevelopment costs, which include capitalized construction loan interest expenses, if any, is approximately $582.4 million. Consistent with our strategy, three of the initial properties are stabilized existing operating properties (approximately 17% of estimated total project cost), five of the initial properties are redevelopments of existing operating properties (approximately 76% of estimated total project cost) and one of the initial properties is a ground up development (approximately 7% of estimated total project cost). Our initial portfolio will be concentrated in vibrant, supply-constrained markets where our management team has strong existing relationships. In addition to our initial portfolio, we maintain an acquisition pipeline of

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additional prospective investments located both within and outside of Opportunity Zones, focused on assets in high growth metropolitan areas with close proximity to mass transportation, healthcare and social infrastructure.

    Experienced Manager with Decades of Affordable and Workforce Housing and Development Experience

        We will be externally managed and advised by our Manager, which is majority owned and controlled by an affiliate of Avanath, a real estate investment manager that invests in property markets nationwide on behalf of pension funds and other institutional investors through commingled funds. Our President and CEO Daryl J. Carter, an investment executive with a 39-year track record in building and managing successful commercial real estate enterprises, founded Avanath in 2008. Avanath is principally focused on the affordable and workforce multifamily housing sectors and is one of the leading national investors and one of the few institutional investors operating at scale in these fragmented sectors. Avanath's primary strategy is to invest in high-quality multifamily apartment communities in established residential neighborhoods in markets with high income growth and a significant supply/demand imbalance. Apartment communities owned and operated by Avanath typically enjoy amenities such as pools, gyms, clubhouses and well-appointed unit interiors. Avanath has a long track record of investing in areas now categorized as Opportunity Zones under the 2017 Tax Act. As of June 30, 2020, Avanath had approximately $2.2 billion in gross assets under management from 49 institutional investors, and its managed funds owned 80 apartment communities with approximately 10,560 units. This managed portfolio includes 11 apartment communities containing approximately 1,936 units located in areas now designated as Opportunity Zones. Five of these apartment communities located in Opportunity Zones are included in our initial portfolio, which we will acquire in the formation transactions. These properties will contain a total of approximately 1,679 units upon completion of their redevelopment. Our initial portfolio will also include one workforce housing development project located in an Opportunity Zone that an affiliate of Avanath is in the process of acquiring from unaffiliated third parties. Additionally, three apartment communities from Avanath-managed funds not located in Opportunity Zones containing approximately 633 total units will be included in our initial portfolio.

        Our Manager's expertise in the affordable and workforce multifamily sectors will be enhanced by its access to the real estate investment platform of MacFarlane, which also owns an interest in our Manager. MacFarlane is an experienced real estate investment and development firm that focuses on urban property markets. Over the past three decades, MacFarlane has managed more than $20 billion in real estate assets in nearly 40 metropolitan areas nationwide. The firm is recognized as a pioneer of the urban investment concept, having formed one of the institutional investment management industry's first urban ventures in 1996. Victor MacFarlane, Chairman and CEO of MacFarlane, will serve as the Chairman of our Board upon completion of this offering.

        Through various ventures and initiatives, Messrs. Carter and MacFarlane enjoy a working relationship that has spanned over three decades. The combined sponsorship of Avanath and MacFarlane, under the leadership of Messrs. Carter and MacFarlane, will provide our company with the benefit of decades of experience in affordable and workforce housing and urban development in under-invested communities. We believe that this will enhance our ability to identify investment opportunities consistent with our target strategy, execute on such investments quickly and effectively and efficiently manage our properties to generate attractive returns for our shareholders.

        Our development and redevelopment strategies include engaging smaller developers with local market expertise, including minority owned and controlled real estate developers. In our development projects, we will focus on employing contractors and property level employees from the immediate area, and we will seek to engage minority contractors when and wherever reasonably possible. In addition, we will work with local non-profit organizations in order to provide supportive services for our residents.

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    Attractive Risk-Adjusted Returns Supported by Strong Long-Term Market Dynamics

        We believe attractive risk-adjusted returns in affordable and workforce housing can be achieved by: (i) investing in vibrant markets with high income growth; (ii) targeting acquisition of properties on an off-market basis through existing relationships; and (iii) implementing operational improvements through expense management and providing community-based services and activities that enhance the lifestyle of our residents. Capitalization rates for stabilized, higher quality affordable and workforce housing assets generally trade in the range of 4.0% to 5.5% depending on market, age of the property, unit mix, nature and timing of any rent restrictions and economic and market conditions. Market-rate assets in our target markets generally trade for capitalization rates in the range of 3.75% to 5.0%. For our redevelopment and development investments, we intend to undertake projects which underwrite to approximately 50 to 150 basis points of additional yield on cost upon stabilization compared to acquisitions of stabilized properties in the same market.

        Given the scarcity of available units in affordable and workforce housing, lease up of new units tends to be faster and more predictable and tenants tend to reside in their units longer, resulting in less volatility in occupancy and reduced unit turnover costs (i.e., lower ongoing capital expenditure requirements) as compared to the market-rate segment of the multifamily market, with rent growth in line with market-rate units. We believe redevelopment properties within Opportunity Zones are particularly attractive as the properties provide current cash flow to our company while the redevelopment is in process. We seek to generate strong risk-adjusted returns that are independent of the incremental QOZ Tax Benefits available to our stockholders.

        Moreover, the demand for affordable and workforce housing is very strong, as a high percentage of renters in the United States spend more than 30% of their household income on housing, including rent and utilities. Additionally, most of the new supply in the multifamily sector over the last several years has been focused on higher rent product and often specific submarkets catering to higher earning millennials. Furthermore, very little new affordable housing has been built for renters earning less than 60% of AMI and very little new product has been built in submarkets now designated as Opportunity Zones. See the section of this prospectus entitled "Market Opportunity" for more detail on these attractive supply and demand dynamics.

    First Publicly Traded REIT Listed on a National Securities Exchange to Qualify as an Opportunity Zone Fund

        We intend to elect and qualify as an Opportunity Zone Fund, and we would be the first publicly traded REIT listed on a national securities exchange to achieve this qualification. An Opportunity Zone Fund is a special type of company that was created by Congress in the 2017 Tax Act to incentivize long-term private sector investments in low-income, economically distressed communities. Provided that we qualify and maintain our qualification as a REIT, our company will generally be free from U.S. federal corporate income tax to the extent we distribute our net taxable income to our stockholders. In addition, so long as we qualify and maintain our qualification as an Opportunity Zone Fund, our stockholders will be eligible for QOZ Tax Benefits, including the right to (i) temporarily defer capital gain from other investments to the extent such gain is invested in shares of our common stock generally within 180 days after such gain is incurred by the stockholder (provided that, if an investor's 180-day period was to expire on or after April 1, 2020 and before December 31, 2020, such investor has until December 31, 2020 to invest such gain), (ii) permanently exclude up to 10% of that gain if the investment in our common stock is made by December 31, 2021 and is held for a period of at least five years, and (iii) permanently exclude all capital gain arising out of their investment in shares of our common stock attributable to periods through December 31, 2047, provided certain conditions are satisfied, including a requirement to hold shares of our common stock for at least ten years. Following the closing of this offering, it is expected that investors that purchase outstanding shares of

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our common stock from an existing investor utilizing eligible capital gains will be eligible for QOZ Tax Benefits.

        To qualify as an Opportunity Zone Fund, we will be required to invest a significant amount of our capital in real properties that are located within designated Opportunity Zones and will be required to be the original user of the property (as defined in the Opportunity Zone tax legislation) or to make substantial improvements (as defined in the Opportunity Zone tax legislation) to each property by investing additional capital that generally doubles the tax basis of the existing real property improvements (excluding land value) within the time periods specified by the final Treasury regulations promulgated under the 2017 Tax Act and applicable Internal Revenue Service ("IRS") guidance. Our strategy is to focus primarily on investments in the affordable and workforce segments of the multifamily housing sector, which we believe offer attractive risk/return dynamics and are specifically well suited for Opportunity Zone investing.

        We expect to acquire our initial properties through a partnership subsidiary that is expected to qualify as being engaged in an Opportunity Zone Business. Although a portion of our investments will not be qualifying investments for Opportunity Zone purposes ("Non-OZ Investments"), consistent with the requirements of the Opportunity Zone legislation, our investment policy will require that at least 70% of the value of the properties in which our subsidiary partnership invests qualify as Opportunity Zone Business Property. We will target affordable and workforce multifamily housing investments both inside and outside of Opportunity Zones primarily in transitioning metropolitan markets that have vibrant, growing economies. We will also selectively target stabilized and value add properties both inside and outside of Opportunity Zones where we do not plan to double the tax basis of the real property improvements of the property. We will limit our Non-OZ Investments so as to allow us to maintain our Opportunity Zone Fund status. We intend to invest primarily in locations close to mass transportation, healthcare, employment and social infrastructure.

Our Initial Properties

        Concurrently with or shortly after the closing of this offering and the concurrent private placement, we will contribute, directly and indirectly through Aspire TRS, the net proceeds of the offering and concurrent private placement to our subsidiary partnership in exchange for interests therein. Our subsidiary partnership will acquire an initial portfolio comprised of nine multifamily properties across six states for an aggregate purchase price of approximately $260.4 million in cash. The combined estimated total project cost for our initial properties, including initial purchase prices plus development and redevelopment costs, which include capitalized construction loan interest expenses, if any, is approximately $582.4 million.

        Our initial portfolio will include three stabilized multifamily properties that are not located in Opportunity Zones. We will purchase these three properties (Country Wood, Coopers Crossing and Wellington Woods) from a private investment fund that is managed by Avanath for an aggregate purchase price of approximately $82.5 million. The purchase price for these properties is based on third party appraisals, which approximate fair value.

        Six of the properties in our initial portfolio are located in Opportunity Zones. The combined estimated total project cost for the six Opportunity Zone properties, including the purchase price and future estimated development and redevelopment costs, which include capitalized construction loan interest expenses, if any, is approximately $485.4 million. Five of the Opportunity Zone properties in our initial portfolio (Arbors at Cary, Academy at Waterford Lakes, Woodside Senior, Oak Village and Seaport Village) are existing operating properties which we will purchase from a private investment fund that is managed by Avanath for an aggregate purchase price of approximately $176.4 million. The purchase price for these properties is based on a combination of third party appraisals, broker opinions of value and the current book value of the properties, which approximates fair value. The sixth

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Opportunity Zone property (North End Landings) is a proposed ground up workforce housing multifamily development project. We will acquire from an Avanath affiliate certain parcels of land that it currently controls as well as additional parcels of land from third parties, including City of Detroit Land Bank Authority. The aggregate purchase price for these land parcels is expected to be $1.5 million. The purchase prices for the land parcels that comprise this project were negotiated with private land owners, Vanguard Community Development Corporation and the City of Detroit Land Bank Authority. The total project cost for North End Landings is estimated to be $43.2 million.

        We will enter into purchase and sale contracts to purchase the nine properties comprising our initial portfolio. The acquisition of these properties is still subject to, among other things, the completion of this offering, customary closing conditions and the satisfactory completion of due diligence. Accordingly, we cannot assure you that we will acquire these properties on the terms described above or at all.

        The following provides certain information about the properties in our initial portfolio.

Name of Property
  Location   Description   Occupancy
Six Months
ended
June 30,
2020(1)
  2019
Average
Monthly
Rent
  2019
Total
Revenues
(in
millions)
  2019
Net
Operating
Income
(in
millions)(2)
  Current
Units
  Projected
Units
  Purchase
Price (in
millions)
  Est.
Total
Project
Cost(3)
(in
millions)
  Est.
Start
Date
  Est.
Completion
Date
 

Stabilized:

                                                                     

Country Wood

 

Naperville, IL

 

Affordable

   
96.9

%

$

982
 
$

2.2
 
$

0.8
   
180
   
180
 
$

20.0
 
$

23.9
   
N/A(4

)
 
N/A
 

Wellington Woods                 

 

Kissimmee, FL

 

Affordable

   
99.1

%

$

854
 
$

4.1
 
$

2.0
   
360
   
360
 
$

51.0
 
$

59.5
   
N/A(4

)
 
N/A
 

Coopers Crossing                 

 

Irving, TX

 

Affordable

   
95.5

%

$

1,066
 
$

1.2
 
$

0.4
   
93
   
93
 
$

11.5
 
$

13.6
   
N/A(4

)
 
N/A
 

Subtotals/Weighted Average:

                $ 920   $ 7.5   $ 3.2     633     633   $ 82.5   $ 97.0              

Redevelopments:

                                                                     

Arbors at Cary

 

Cary, NC

 

Workforce Housing

   
68.7%

(5)

$

820
 
$

1.9
 
$

0.1

(6)
 
248
   
268
 
$

19.8
 
$

45.7
   
Dec-20
   
Nov-22
 

Academy at Waterford Lakes

 

Orlando, FL

 

Affordable

   
99.1

%

$

817
 
$

2.4
 
$

1.1
   
228
   
378
 
$

24.0
 
$

52.6
   
Jan-21
   
Dec-22
 

Seaport Village

 

Long Beach, CA

 

Workforce Housing

   
97.0

%

$

1,564
 
$

7.0
 
$

3.6
   
358
   
637
 
$

89.9

(7)

$

244.0

(8)
 
Dec-20

(8)
 
Apr-24

(8)

Woodside Senior

 

Ontario, CA

 

Affordable

   
95.7

%

$

1,124
 
$

1.9
 
$

1.0
   
144
   
216
 
$

23.0

(7)

$

48.3

(9)
 
Dec-20

(9)
 
Feb-23

(9)

Oak Village

 

Oakland, CA

 

Affordable

   
98.4

%

$

1,318
 
$

2.1
 
$

0.8
   
117
   
180
 
$

19.7
 
$

51.6
   
Dec-20
   
Jun-23
 

Subtotals/Weighted Average:

                $ 1,168   $ 15.3   $ 6.6     1,095     1,679   $ 176.4   $ 444.2              

Ground Up Developments:

 

 

 

 

   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
   
 
 

North End Landings

 

Detroit, MI

 

Workforce Housing

   
N/A
   
N/A
   
N/A
   
N/A
   
N/A
   
187
 
$

1.5
 
$

43.2

(9)
 
Jul-21

(9)
 
Nov-22

(9)

Subtotals:

                  N/A     N/A     N/A     N/A     187   $ 1.5   $ 43.2              

Totals:

                $ 1,074   $ 22.8   $ 9.8     1,728     2,499   $ 260.4   $ 582.4              

(1)
Average occupancy is the weighted average daily occupied units for the reporting period divided by the daily average of total units available for rent during the reporting period.

(2)
Net operating income is a non-GAAP financial measure. For a description of net operating income and a statement of why our management believes the presentation of this metric provides useful information to investors, see "Management's Discussion and Analysis of Financial Condition and Results of Operations—Net Operating Income."

(3)
Including purchase price.

(4)
We expect to make certain renovations to this property in the future upon expiration of applicable income restrictions. See "Business and Properties—Our Initial Properties."

(5)
Occupancy for the six months ended June 30, 2020 was 68.7% including units intentionally held vacant pending redevelopment. Occupancy for the six months ended June 30, 2020 was 95.2% excluding units intentionally held vacant pending redevelopment.

(6)
Commencing in September 2018, units requiring significant capital expenditures were intentionally held vacant pending redevelopment. This caused a reduction in 2019 net operating income.

(7)
Purchase price does not include additional parcels not currently owned by Avanath, which we expect to acquire in the future. The estimated purchase prices for such parcels are included in the estimated total project cost.

(8)
The estimated total project cost and estimated project start and completion dates shown here assume acquisition of and new construction on privately owned adjacent parcels. We are also considering alternate approaches, including a plan with a greater focus on developing new units on our existing land, which includes 3.92 recently reclaimed acres, and which would have a different estimated total project cost and different estimated project start and completion dates.

(9)
The estimated total project cost and estimated project start and completion dates shown here assume acquisition of and new construction on privately owned adjacent parcels.

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    Stabilized Properties

        Our initial portfolio will include three stabilized multifamily properties that are not located in Opportunity Zones.

    Country Wood

        Country Wood is an existing, stabilized, 180-unit affordable, multifamily residential property in Naperville, Illinois that was originally constructed in 1995 under the LIHTC Program. As a stabilized investment, the business plan is to implement light interior unit renovations within the existing 180 units, as well as selective exterior upgrades and replacements. The property is income restricted with 10% of units restricted to families earning at or below 50% of AMI and 90% of units restricted to families earning at or below 60% of AMI. These income restrictions are scheduled to expire in 2026. As of June 2020, the average rents at the property are approximately 20% below market for properties of comparable quality. See "Business and Properties—Our Initial Properties."

    Wellington Woods

        Wellington Woods is an existing, stabilized, 360-unit affordable, multifamily residential property in Kissimmee, Florida that was originally constructed in 1994 under the LIHTC Program. As a stabilized investment, the business plan is to implement light interior unit renovations within the existing 360 units, as well as selective exterior upgrades and replacements. The property is income restricted with 100% of units restricted to families earning at or below 60% of AMI. These income restrictions are scheduled to expire in 2024. As of June 2020, the average rents at the property are approximately 30% below market for properties of comparable quality. See "Business and Properties—Our Initial Properties."

    Coopers Crossing

        Coopers Crossing is an existing, stabilized, 93-unit affordable, multifamily residential property in Irving, Texas that was originally constructed in 1995 under the LIHTC Program. As a stabilized investment, the business plan is to implement light interior unit renovations within the existing 93 units, as well as selective exterior upgrades and replacements. The property is income restricted with 100% of units restricted to families earning at or below 60% of AMI. These income restrictions are scheduled to expire in 2026. As of June 2020, the average rents at the property are approximately 10% below market for properties of comparable quality. See "Business and Properties—Our Initial Properties."

    Redevelopment Properties

        Our initial portfolio will include five redevelopment properties located in Opportunity Zones.

    Arbors at Cary

        Arbors at Cary is a 248-unit workforce housing multifamily property in Cary, North Carolina that was originally constructed between 1967 and 1971. The business plan is to renovate 232 of the existing units that includes aesthetic, structural and system upgrades and enhancements. Certain units at the property have been held vacant pending redevelopment. Two buildings (16 units) will be demolished and replaced with 36 new townhouse rental units. The large floorplans of the townhouse units are expected to appeal especially to families with young children enrolled in the local public school system. The redevelopment will position the property to be more competitive with newer properties in the Cary market. The property is located in an Opportunity Zone that is surrounded by one of the best performing submarkets in the Raleigh MSA. As of June 2020, the average rents at the property are approximately 37% below market for properties of comparable quality after taking into account our planned rehab for the property. See "Business and Properties—Our Initial Properties."

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Table of Contents

    Academy at Waterford Lakes

        Academy at Waterford Lakes is a 228-unit affordable (income restricted) multifamily property in Orlando, Florida that was originally constructed in 1997 under the Low-Income Housing Tax Credit Program (the "LIHTC Program"). The business plan is to renovate the existing 228 units and build approximately 150 new affordable family units on vacant land currently designated as a wetland conservation area. The existing property is income restricted with 15% of units at 35% of AMI and 85% of units at 60% of AMI and benefits from a 50% property tax abatement. As of June 2020, the average rents at the property are approximately 33% below market for properties of comparable quality. See "Business and Properties—Our Initial Properties." We expect that the new units will be at market rate. The market rate rents are expected to generate higher returns on new construction.

    Seaport Village

        Seaport Village is an existing 358-unit workforce housing multifamily property in Long Beach, California that was originally constructed in 1963 and has undergone several renovations under previous ownership. The business plan is to renovate the existing 358 units and common areas, acquire and demolish an adjacent retail center, and develop approximately 279 market rate units on the former retail center site. As of June 2020, the average rents at the property are approximately 17% below market for properties of comparable quality after taking into account our planned rehab for the property. See "Business and Properties—Our Initial Properties." We expect that the new units will be at market rate. The market rate rents are expected to generate higher returns on new construction. Because of its location in the supply constrained Long Beach market and the potential to generate higher rents on new units and renovated existing units, we believe the property is an attractive investment candidate.

    Woodside Senior

        Woodside Senior is a 144-unit affordable (income restricted), age restricted (55+ years old) multifamily property in Ontario, California that was originally constructed in 1984. The property is located on two separate parcels consisting of 60 units and 84 units. In between the two Woodside Senior parcels, there is a two-story office building consisting of 19,248 square feet. The office building is situated on 1.22 acres. We are currently under a purchase contract with the owner of the office building to sell the property to us. The business plan is to renovate the existing 144 units and common areas, acquire and demolish the office building, and develop approximately 72 new, age restricted units on the office building site.

        The existing property is income restricted with 9% of units at 50% of AMI, 11% of units at 80% of AMI and 80% of units at 110% of AMI. As of June 2020, the average rents at the property are approximately 36% below market for properties of comparable quality. See "Business and Properties—Our Initial Properties." We expect that the new units will be at market rate. The market rate rents are expected to generate higher returns on new construction. The Greater Ontario/Rancho Cucamonga area has some of the most attractive demand-drivers in the region, including its proximity to Greater Los Angeles employment centers.

    Oak Village

        Oak Village is a 117-unit affordable (income restricted) multifamily property in Oakland, California that was originally constructed in 1973 and underwent extensive renovation in 2004 under the LIHTC Program. The business plan is to renovate the existing 117 units and build approximately 63 new units on an adjacent parking lot that is on the property. The existing property is income restricted with 20% of units at 50% of AMI, and 80% of units at 60% of AMI. As of June 2020, the average rents at the property are approximately 45% below market for properties of comparable quality. See

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"Business and Properties—Our Initial Properties." We expect that 20% of the new units will be at 80% of AMI and the remaining 80% of the new units will be at market rate. The market rate rents are expected to generate higher returns on new construction. The property benefits from a property tax abatement. The general shortage of affordable housing in the overall Bay Area has led to greater demand for housing in Oakland which has experienced a general revitalization and economic renaissance in many neighborhoods in the city. These trends, which we expect to continue, have resulted in improving rental rates in properties located in Oakland.

    Ground-up Development Property

        Our initial portfolio will include one ground-up development property located in an Opportunity Zone.

    North End Landings

        North End Landings is a proposed workforce housing multifamily development in Detroit, Michigan. The project will be built in multiple phases, with the initial phase consisting of approximately 187 multifamily units. We are currently in discussions with the City of Detroit regarding a partial property tax abatement for the property. The project is located in Detroit's Historic North End, which is located just north of Downtown Detroit and adjacent to Wayne State University. The project is also near one of Detroit's main transit corridors, Woodward Avenue. Detroit has continued to show strong job and economic growth, with Quicken Loans employing more than 17,000 people and JPMorgan Chase planning to invest $200 million in Detroit prior to 2022. Downtown Detroit continues to see new and creative commercial and multifamily developments.

Our Acquisition Pipeline

        In addition to the nine initial properties, as of the date of this prospectus, we are evaluating acquisition opportunities of properties within and outside of Opportunity Zones from third parties, which we may acquire for cash or in exchange for partnership interests in our subsidiary partnership, subject to compliance with the Opportunity Zone program. The estimated aggregate acquisition, development and redevelopment cost for these properties is approximately $1.1 billion. We consider a property to be under evaluation if it satisfies the following criteria: (i) the owner has advised us that the property is available for sale, (ii) we have had active discussions with the owner regarding a potential purchase of the property and such discussions have not been terminated by either party and (iii) we are considering the preparation of a written proposal for delivery to the owner regarding a potential purchase of the property. These investments are under general review, and we have not conducted due diligence nor submitted indications of interest to, or entered into non-binding letters of intent with, the owners of these properties. There can be no assurance that we will be able to secure these investments as we may not have access to capital or may not be able to negotiate acquisition terms that are reasonable to us.

        We do not view any of the acquisition opportunities discussed above as probable at this time.

Our Manager and our Property Manager

        Upon the closing of this offering, we will enter into a management agreement with our Manager pursuant to which our Manager will manage our business and affairs, subject to the oversight of our board of directors. Additionally, upon the closing of this offering, our subsidiary partnership will enter into property management agreements with a property manager that is affiliated with our Manager (our "Property Manager") pursuant to which our Property Manager will manage, operate, maintain and lease all of the properties in our initial portfolio. Our Property Manager is an affiliate of Avanath and MacFarlane.

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        Under the management agreement, our Manager will be responsible for, among other things, providing us with a management team, each of whom is currently a member of the management team at Avanath. In addition to Daryl J. Carter, our President and Chief Executive Officer, our Manager will provide us with our other executive officers including Jun Sakumoto, our Senior Vice President and Chief Operating Officer, Wesley Wilson, our Senior Vice President, Chief Financial Officer and Treasurer, and Ellen Guccione, our Secretary.

        Our Property Manager's approach to property management is built around reduced risk, improved tenant retention, enhanced long-term property values and reduced operating costs, while maintaining a superior living environment for tenants. Our Property Manager's vertically integrated property management platform includes a 218 person in-house property management team as well as a dedicated nine person property compliance team. Through innovative and rigorous property management strategies, our Property Manager will seek to maintain high levels of occupancy and tenant satisfaction, and will provide cost containment, accounting, energy management and sustainability practices that will allow for operational and financial efficiency.

        Our management team has a track record of investing in markets that have been underserved by institutional capital. Members of our executive team have been responsible for raising institutional capital across multiple real estate investment funds and separate account mandates. Our management team is diverse with respect to gender and ethnicity. Our inclusive investment team seeks to identify attractive investment opportunities in underserved markets. As a result, Avanath is often an early-stage investor in emerging real estate markets that have been overlooked by traditional institutional investors. Avanath has successfully executed on redeveloping and repositioning a variety of investments across numerous asset classes with an emphasis on multifamily throughout major urban markets nationwide. We will leverage our management team's expertise in these markets to execute our Opportunity Zone real estate investment strategy.

        Additionally, Avanath is a signatory to the Principles for Responsible Investing ("PRI"), a United Nations sponsored initiative consisting of a network of international investors working together to implement environmental, social and governance ("ESG") principles. Avanath also participates in the California Organized Investment Network ("COIN"), which facilitates insurance industry investments that provide solid returns to investors and yield environmental and social benefits to underserved communities. COIN is a collaborative effort between the California Department of Insurance, the insurance industry, economic development organizations, and community advocates. Starting in the third quarter of 2021, Avanath will report to the Global Real Estate Sustainability Benchmark ("GRESB"), which provides a global standard for sustainability performance in real assets, offering standardized and validated ESG data to the capital markets. More than 80 institutional investors use GRESB data and analytical tools. Avanath's participation in these organizations underscores its commitment to be a responsible and inclusive investor in U.S. commercial real estate markets, which differentiates the firm from many competitive organizations in the industry. We believe we will be the first ESG affordable and workforce multifamily REIT listed for trading on a national securities exchange.

    Avanath Background

        Founded in 2008 by Daryl J. Carter, Avanath is a real estate investment manager that invests on behalf of pension funds and other institutional investors, including ESG and socially responsible investors. Avanath has a focus in the affordable and workforce multifamily housing sectors which enjoy strong long-term fundamentals and are underserved by institutional capital. Avanath acquires value-oriented multi-family properties that were originally developed under the LIHTC Program or with other similar structures, with the goals of enhancing the physical properties and maintaining long-term affordability. Avanath invests in high-quality multifamily apartment communities in established residential neighborhoods and focuses primarily on markets with high income growth and a significant

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supply/demand imbalance. Avanath's apartment communities typically enjoy amenities found in market-rate multifamily properties, such as a pool, gym, clubhouse and well-appointed unit interiors. As of June 30, 2020, Avanath had approximately $2.2 billion in gross assets under management from 49 institutional investors and owned 80 apartment communities with approximately 10,560 units.

        In addition to investing in physical properties, Avanath embraces a culture of commitment, investing in community-based services and activities that enhance the lifestyle of its residents. Avanath promotes these responsible investment practices throughout its portfolio. Avanath implements unique social programs that truly enhance resident life. For example, Avanath incorporates activities such as arts & crafts and exercise classes at its age restricted senior properties and provides transportation services to its senior residents. Avanath offers after-school programs for kids, summer youth programs, computer training and career workshops at its family properties. Avanath also recently launched its Activate Health and Wellness Program at its Maryland properties, where Avanath has partnered with University of Maryland Capital Region Health to offer vital health screenings and health education to residents.

        Avanath also promotes responsible investment through environmental sustainability initiatives, including, but not limited to, the installation of solar panels, drought tolerant landscaping and LED lights at its properties. Recently, in select deregulated energy markets, Avanath has entered into fixed-rate energy contracts to purchase renewable energy at a discount to current market rates offered by local utilities.

        Avanath has successfully deployed capital from Avanath Affordable Housing I, LLC, Avanath's first fund ("Avanath I"), with $117 million of equity capital commitments; Avanath Affordable Housing II, LLC ("Avanath II"), with $188 million of equity capital commitments, including co-investment capital; and Avanath Affordable Housing III, LLC ("Avanath III"), with $388 million of equity capital commitments, including co-investment capital. Currently, Avanath is seeking $850 million of equity commitments for Avanath Affordable Housing IV, LLC ("Avanath IV"), which will target value-oriented rentals in high-growth, high-cost markets in the U.S. Avanath IV will focus on acquisitions of core plus and value add properties with comparably lower levels of renovation than we expect will be required in the redevelopment projects undertaken by our company. Avanath IV is prohibited from investing in ground up development. Therefore, Opportunity Zone projects, which generally require doubling the cost basis of existing property, are not compatible with Avanath IV's investment mandate. Our management agreement contains a provision that is intended to enable us to share equitably with other clients of our Manager and its affiliates in all opportunities that may be suitable for us and such other clients and that will provide us with priority allocation of all investment opportunities that are suitable for us but are unsuitable for Avanath IV, including investment opportunities that require development and stabilized properties owned or controlled by Avanath. Prior to the expiration of its investment period, Avanath IV will have priority allocation with respect to those investment opportunities that may be suitable for Avanath IV. Upon the expiration of Avanath IV's investment period, and with no change to the allocation provision set forth in our management agreement, we will have priority access to all investment opportunities sourced by our Manager and its affiliates. Avanath IV's investment period ends upon the earlier of deployment of 90% of Avanath IV's commitments and May 31, 2022, provided that the investment period can be extended for one year with the approval of a majority of Avanath IV's advisory committee. The investment allocation policy described above could be waived or revised at any time by a majority of our independent directors without the consent of our stockholders. This prospectus does not constitute an offer to sell or a solicitation of offers to purchase any securities of Avanath IV or its current or prospective investors.

        Avanath is registered with the United States Securities and Exchange Commission (the "SEC") as an investment advisor and is headquartered in Irvine, California, with additional offices in Alexandria, Virginia and Chicago, Illinois, and as of June 30, 2020 has 309 employees. Avanath has received a number of industry awards, including the 2016 Management Company of the Year award by the

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Apartment Association of California Southern Cities. Avanath was one of the companies highlighted in the Inc. Magazine 2019 annual guide to the 5,000 fastest growing privately held companies in the United States. Mr. Carter has received the Distinguished Mentor Award by the Urban Land Institute and the Distinguished Alumni Award from MIT Sloan School of Management.

    MacFarlane Background

        Founded in 1987 by Victor B. MacFarlane, MacFarlane has provided real estate investment management services to pension funds and other institutional investors through commingled funds and separate accounts, building a track record that spans multiple market cycles and a broad range of property sectors, geographic areas, capital structures, and investment strategies, including core, value add and opportunistic. Over the past three decades, the firm has managed more than $20 billion in real estate assets in nearly 40 metropolitan areas nationwide. MacFarlane has acquired stabilized properties, renovated and repositioned existing assets, developed new projects and taken over underperforming properties and portfolios—all with the objective of managing real estate to higher values and achieving attractive investment returns.

        Today, MacFarlane focuses exclusively on real estate investments that promote smart growth, urban revitalization and sustainability in urban and high-density suburban submarkets of select "gateway cities" of the United States, acquiring and developing properties itself and through joint ventures with others. The firm is recognized as a pioneer of the urban investment concept, having formed one of the institutional investment management industry's first urban ventures in 1996. Since that time, it has invested in approximately $13 billion in properties in markets nationwide through its urban real estate program, totaling eight million square feet of commercial space and 15,000 multifamily housing units. MacFarlane has served as an investor or development partner for a number of multifamily, office and mixed-use projects, including The Hotel & Residences at L.A. LIVE and the recently completed Park Fifth and Trademark developments in Los Angeles, California; Bay Street Emeryville in Emeryville, California; Time Warner Center in New York, New York; Mark on 8th in Seattle, Washington; and 55 M Street in Washington, D.C. MacFarlane's controlled development pipeline includes approximately 800 affordable housing units and 2,700 market-rate units.

        MacFarlane also owns a minority interest in LDP Holdings, LLC, which does business as Jair Lynch Real Estate Partners, a real estate operating and development company based in Washington, D.C., that will also be a potential source of investments for our company. MacFarlane acquired the equity interest in the company through its Emerging Managers Fund I, which was formed in 2008 with equity from the California State Teachers' Retirement System to invest both in and with early and mid-stage real estate operating companies, focusing on minority- and women-owned firms active in urban and high-density suburban property markets. The fund acquired equity stakes in such companies, nurtured their growth and provided them with investment capital for their real estate strategies. Its objective was to incubate the next generation of real estate talent and enable those firms to fully manage property assets for institutional investors. Jair Lynch Real Estate Partners became the sole focus of Emerging Managers Fund I and successfully "graduated" from that program in 2017. The fund was liquidated as part of that process.

        Jair Lynch Real Estate Partners was founded in 1998 by Jair Lynch, a graduate of Stanford University, a Harvard Graduate School of Design Loeb Fellow, and a silver medal winner (men's parallel bars) at the 1996 Summer Olympics. Based in Washington, D.C., Jair Lynch Real Estate Partners specializes in the socially responsible transformation of walkable urban places and sustainable neighborhoods. From 2007 through 2017, Lynch invested in 15 properties in Washington, D.C. and its suburbs in partnership with MacFarlane through Emerging Managers Fund I and another investment entity.

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        MacFarlane is headquartered in San Francisco, California and operates a regional office in Los Angeles, California. Properties developed by MacFarlane, either directly or in partnership with others, have received awards and honors from real estate industry groups such as the Urban Land Institute, the National Association of Home Builders, the National Association of Office and Industrial Properties, and the Los Angeles Business Council; as well as from publications such as Multi-Housing News, Real Estate Forum and the San Francisco Business Times.

    Avanath Investment Performance

        Since its inception in 2008, Avanath has closed three commingled funds with equity commitments, including co-investment capital, totaling $694 million. Avanath recapitalized its first fund with an additional $122 million in equity commitments. Avanath is also currently in the process of raising $850 million of equity commitments for its fourth fund, Avanath IV, which will target value-oriented rentals in high-growth, high-cost markets in the U.S. This prospectus does not constitute an offer to sell or a solicitation of offers to purchase any securities of Avanath IV or its current or prospective investors.

        Avanath has investment experience in 12 states across the U.S., primarily focusing on larger metropolitan statistical areas on both coasts. Avanath has generated the following investment track record:

        As of June 30, 2020, Avanath I has achieved the following:

    Raised approximately $117.1 million of equity capital commitments and deployed capital for the acquisition of 18 investments (2,804 units) for $232.3 million in total acquisition cost from 2011 through 2014.

    Invested in high-cost and high-growth markets in California, the upper Midwest, Florida, Texas and the Northeast.

    Disposed of four assets, which generated $140.7 million of proceeds (versus an aggregate project cost of approximately $57.7 million).

    Recapitalized the remaining portfolio in March 2019 and redeemed the initial investors' equity capital at a $248 million redemption price.

    Generated a gross internal rate of return of 20.6% and equity multiple of 2.1x and a net internal rate of return of 16.2% and equity multiple of 1.8x for the initial investors.

    Currently managing the remaining portfolio for a UBS-led consortium of new institutional investors.

        As of June 30, 2020, Avanath II has achieved the following:

    Raised approximately $168.1 million of equity capital commitments and deployed/committed capital for the acquisition of 15 investments (18 assets, 3,287 units) for $414.8 million in total acquisition cost from 2014 through 2016.

    Invested in high-cost and high-growth markets in California, Washington, the Northeast and the Southeast.

    Based on two actual realizations and appraisals as of December 31, 2019, generated a mark-to-market gross internal rate of return of 14.2% and an equity multiple of 1.9x and a net internal rate of return of 10.8% and equity multiple of 1.6x.

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        As of June 30, 2020, Avanath III has achieved the following:

    Raised approximately $338.3 million of equity capital commitments and deployed capital across 25 investments (46 assets, 4,016 units) for $580.2 million in total acquisition cost from 2016 to 2019.

    Invested in high-cost and high growth markets in California, Washington, Colorado, Texas, Florida, the upper Midwest, and the Northeast.

    Given recent date of acquisitions, no assets have been sold and estimated return data is not relevant at this date.

        Currently, Avanath is raising equity commitments for Avanath IV, which:

    Has raised approximately $437.6 million of a cap of $850 million of equity capital commitments and invested approximately $150.4 million in total acquisition cost across nine investments with a total of 1,556 units from June 2019 to June 30, 2020. Avanath IV originally had a cap of $550 million of equity capital commitments which has been upsized to its current cap of $850 million.

    Targets value-oriented rentals in high-growth, high-cost markets in the U.S. and focuses on acquisitions of core plus and value add affordable and workforce housing properties with comparably lower levels of renovation than expected to be required in the redevelopment projects undertaken by the Opportunity Zone Fund.

    Is prohibited from investing in ground up development.

    Given recent date of acquisitions, no assets have been sold and estimated return data is not relevant at this date.

        The information above sets forth certain historical investment performance data about Avanath I, Avanath II, Avanath III and its parallel fund, and Avanath IV (the "Avanath Funds"). This information is a reflection of the past performance of the Avanath Funds and is not intended to be indicative of, or a guarantee or prediction of, the returns that we, our Manager, Avanath, MacFarlane or the Avanath Funds may achieve in the future. Gross internal rates of return and equity multiples represent contributions and distributions between the applicable fund and its investors as if no investment management fees or incentive fees had been incurred. Net internal rates of return and equity multiples are calculated using actual contributions and distributions between the applicable fund and its investors and are net of investment management fees and incentive fees. In the case of Avanath II, the unrealized net asset value of the fund (net of incentive fee for net returns) is considered a distribution on the effective date of the calculation.

Market Opportunity

        We will be the first publicly traded REIT to pursue a strategy focused on affordable and workforce multifamily housing. We believe these sectors present a compelling opportunity for us to generate attractive, stable returns for our stockholders. Demand for affordable housing far exceeds supply, tends to be higher when compared to other types of multifamily properties, and is generally more consistent across economic cycles. As a result of the significant supply/demand imbalance in these sectors, property lease up at affordable and workforce rental properties is typically faster, tenant tenure is typically longer and unit vacancy is typically shorter compared to market-rate multifamily properties, resulting in lower operating costs and more stable returns. We also believe that the size and fragmented nature of the affordable and workforce housing sectors will provide significant opportunities for us to acquire, develop and redevelop additional properties and grow our portfolio over time. As a public company with enhanced access to capital, we expect our business to be well positioned to take advantage of these opportunities.

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Large and Fragmented Market

        Affordable housing represents approximately half of the multifamily housing sector in the United States. According to "The Affordable Housing Asset Class", a September 2019 report prepared by RCLCO (the "RCLCO 2019 Report"), there are approximately 10.2 million affordable housing units in the United States, representing approximately half of all housing units in the multifamily market. The 10.2 million affordable housing units include both rent-regulated and unregulated housing and are comprised of approximately 5.3 million naturally occurring units and 4.9 million subsidized units. Despite the size of the affordable housing segment, the market remains fragmented and underserved by institutional capital, which we attribute to high barriers to entry, including the costs necessary to develop or redevelop affordable housing projcts, limited availability of tax credits and the experience and specialized knowledge required to own and manage rent-regulated properties in compliance with applicable regulations.

Demand Driven by Significant Number of Cost-Burdened Renters

        Demand for affordable housing in the United States has consistently outpaced supply and continues to rise due to increasingly expensive rents for market rate units combined with wage stagnation for middle-income and lower-income households. Across the U.S., many lower-income and moderate-income households find it challenging to cover their basic living expenses, as housing costs comprise a significant proportion of their incomes. According to the "America's Rental Housing 2020" report by the Joint Center for Housing Studies of Harvard University (the "JCHS 2020 Report"), in 2018 approximately 20.8 million renter households were cost-burdened, spending more than 30% of income on rent and utilities. More than half of those renter households, or approximately 10.9 million households, were severely cost-burdened, spending in excess of 50% of income on housing costs.

        As shown in the charts below, 47.5% of renters in the U.S. were cost-burdened in 2018 and, in 46 states, more than 40% of renters were cost-burdened. Despite improvements since the peak in 2011, the overall share of cost-burdened renters was 6.9% higher in 2018 than 2001, while the share of severely cost-burdened renters increased by 4.6%. According to the JHCS 2020 Report, these longer-term increases reflect the fact that renter incomes grew just 1.4% from 2001 to 2018 while rents increased by 13.9%. Further, the aggregate number of cost-burdened rental households grew by approximately 3 million from 2008 through 2018, a period during which real median household income grew at a 0.7% compounded annual growth rate, according to the U.S. Census Bureau.

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GRAPHIC


"Renters with Cost Burdens" are defined to be households with housing costs that represent more than 30% of household income.

Source (left): JCHS 2020 Report; data tabulated from US Census Bureau, 2018 American Community Survey 1-Year Estimates; households with zero or negative income are assumed to have burdens, while households paying no cash rent are assumed to be without burdens

Source (right): JCHS, "Nearly Half of American Renters Are Cost Burdened", 2020

Substantial Shortage in Supply of Affordable and Workforce Multifamily Housing

        While the number and share of cost-burdened renters remain near record highs, there is a substantial shortage of affordable and available rental units in the U.S. According to "The Gap: A Shortage of Affordable Homes", a March 2020 report by the National Low Income Housing Coalition (the "NLIHC"), there was a shortage of 7.5 million affordable and available rental units for households with income at or below 50% of AMI in 2018, with 57 units affordable and available for every 100 households. For households with income at or below 30% of AMI, there was a shortage of approximately 7.0 million units, with 36 units affordable and available for every 100 households.

        As illustrated in the chart below, the higher-rent segment of the multifamily market has grown in recent years while the lower-cost segment has declined. According to the JCHS 2020 Report, during the period from 2012 to 2017, the number of units with monthly contract rent of under $600 decreased by 3.1 million units, while the number of units with monthly contract rent of $1,000 per month or more increased by 5.0 million units. Supply for units with monthly contract rent of $600-$999 declined by

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450,000 units. The decline in low-cost units brought their share of the national rental stock down from 33% in 2012 to just 25% in 2017, with decreases in every state.

GRAPHIC


Rental units may be occupied, vacant for rent, or rented but unoccupied and exclude units occupied without cash rent. Dollar values are adjusted for inflation using the CPI-U for all items less shelter. Contract rent excludes all utilities paid separately.

Source: JCHS tabulations of US Census Bureau, American Community Survey 1-Year Estimates via IPUMS USA

        Construction of new rental units has not addressed the shortfall in affordable housing and has largely targeted the higher-rent segment of the market due in part to limited availability of tax credits and rising costs of land, labor and materials. According to the Survey of Market Absorption, only 9% of apartments in unsubsidized multifamily buildings completed in the first quarter of 2018 had asking rents below $1,050, and only 4% rented for less than $850. In addition, as illustrated in the chart below, according to data from Fannie Mae, only 4% of apartments built since 2013 and only 2% of apartments under construction as of the fourth quarter of 2019 had asking rents or anticipated rents of less than or equal to $1,000.

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GRAPHIC


Source: Fannie Mae data, as of the fourth quarter of 2019; assumes 30% of income needed to afford apartment; excludes federally subsidized units

        The focus of new construction on higher-cost units has shifted the overall distribution of rents upward. Rising construction costs and added amenities have also pushed up asking rents for all units, including affordable units. According to data from the JCHS, in 2011 the median asking rent for new rentals was 48% ($350 per month) higher than the median contract rent. By comparison, the 2018 median asking rent for new rental units was $1,620, or 78% ($700 per month) higher than existing apartments. Further, according to the JCHS 2020 Report, during the five year period from the third quarter of 2014 through the third quarter of 2019, overall apartment rents rose by approximately 18% nationally.

        As indicated above, the supply of affordable housing has declined in recent years and additional units are at risk of loss from the affordable stock. According to JCHS's "The State of the Nation's Housing 2018", citing a Hudson Institute analysis, 60% of low-cost rental units in 1985 were lost by 2013 through permanent removal (27%), conversions to other uses (18%) or upgrading to higher rents (12%). Further, as illustrated in the chart below, affordability restrictions are set to expire on 1.2 million rental units by 2029 which, absent new investment, will further diminish the supply of affordable housing.

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GRAPHIC


Data includes properties with active subsidies as of January 1, 2019. Other includes units funded by HOME Rental Assistance, Section 236 Insurance, Section 202 Direct Loans, USDA Section 515 Rural Rental Housing Loans, and units with more than one subsidy type expiring on the same day.

Source: JCHS tabulations of data from Public and Affordable Housing Research Corporation and NLIHC

Supply/Demand Imbalance Drives Occupancy and Rent Growth

        The affordable and workforce housing segment continues to experience increasing demand for, and a shortage in supply of, available units. As a result of this supply/demand imbalance, property lease up at affordable and workforce rental properties is typically faster, tenant tenure is typically longer and unit vacancy is typically shorter as compared to market-rate multifamily properties. This reduced turnover results in lower operating costs and more stable returns, benefiting the overall performance of the properties. According to the RCLCO 2019 Report, during the period from 2010 to 2017, affordable

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housing has supplied stable, consistent rent growth, with only one-third of the volatility of market-rate rent growth, at a level supportive of consistent occupancies greater than 95%.

GRAPHIC


Source: RCLCO 2019 Report

    Affordable and Workforce Housing Programs

        Rent-regulated housing is an important component of the multifamily sector and comprises 24% of all multifamily properties. There are 4.9 million rent-regulated units across the United States and more than $100 billion in private equity capital has been generated from the sale of tax credits since the inception of the LIHTC Program. Founded in 1986, the LIHTC Program uses tax credits to encourage private developers to create and preserve affordable housing for a fixed period of time (generally 15 years). Once the affordability period is over, owners can generally seek regulatory relief from the LIHTC covenants on their property. Residents who choose to rent an apartment home in a LIHTC community should expect to meet stringent screening criteria pertaining to set-aside limits based on a percentage of the AMI in exchange for a discounted rent. Not only do residents qualify ahead of their initial move-in, they recertify annually in order to ensure compliance. Property owners who fail to adequately supervise and ensure resident compliance with property covenants can face significant

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consequences, including fines. The compliance skillset required is highly specialized, and, as a result, owners of rent-regulated housing must employ certified professionals to coach and supervise the on-site employees with regard to record keeping, policies and processes or risk facing significant consequences. Avanath has a track record of acquiring LIHTC properties, and we plan to participate in the LIHTC Program and other affordable programs to finance the redevelopment of our properties, including certain of the properties in our initial portfolio.

        Aside from the LIHTC Program, Section 8 Housing is another affordable housing program option. There are two Section 8 Housing options: Project Based Section 8, which signifies an apartment community or property that has a pre-established HUD funding layer that runs with the property, and a Section 8 (Housing Choice Voucher) that is portable and held by the renter. In either instance, the resident generally pays no more than 40% of their income toward their rent. Both the Section 8 Housing and LIHTC Programs are among the most successful tools utilized by the federal government in response to housing needs. In the recent budget year, HUD received approximately $54 billion in funding, and more than $20.5 billion of that funding is spent on housing choice vouchers.

        Because rental rates are tied to AMI, increases in rental rates on rent-regulated housing are generally less dramatic than those of conventional, market rate housing. This creates greater stability for renters and leads to less turnover for property owners as a result. However, as year 15 approaches and rent-regulated housing nears the expiration of its initial affordability period, residents of rent-regulated housing units are at risk of losing this stability as a property owner may choose to convert the property from rent-regulated to market rate housing without consequence.

        With diminishing rent restricted supply, renters continue to spend more of their income towards rent. This makes it more difficult for renters to build the financial wherewithal necessary to obtain the financing that they need in order to purchase a home. This dynamic, combined with a lack of affordable options for first time homebuyers, makes owning a home out of reach for many renters in even the most affordable housing markets in the United States, creating even more demand for lower cost rental housing.

    Opportunity Zones

        The Opportunity Zone program was established by Congress in the 2017 Tax Act as an innovative approach to incentivize long-term private sector investments in low-income, economically distressed communities. The goal of the program is to economically revitalize underserved markets and create jobs. The Opportunity Zone program is unique in that it provides a vehicle for investors to defer taxes on prior capital gains and reduce subsequent taxes, depending on their holding period and date of investment, which is not possible through most traditional investment vehicles. Opportunity Zone Funds use the capital invested to make qualifying investments in real estate property or businesses that are located and operate within Opportunity Zone-designated census tracts. The U.S. Department of the Treasury has certified over 8,760 individual census tracts across all 50 states, six territories, and the District of Columbia as Opportunity Zones.

        The market potential for the program is significant, with $6.1 trillion in unrealized capital gains held as of March 2018 by U.S. corporations and households, according to the Economic Innovation Group ("EIG"). The diverse makeup of Opportunity Zones, both in terms of geography and underlying development opportunity, is central to our investment strategy. We believe the potential for a diversified portfolio of Opportunity Zone real property investments across a range of markets at different stages of development will help manage the risks associated with an investment strategy focused on underserved real property markets.

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Our Business and Growth Strategies

        Our primary business objective is to provide our stockholders with stable, tax-advantaged returns, with the opportunity for liquidity and value enhancement over time by investing in Qualified Property in Opportunity Zones. We believe we can achieve this objective by pursuing the following strategies:

    Pursue high-quality projects sourced by our Manager.  We will target affordable and workforce multifamily housing investments sourced by our Manager both inside and outside of Opportunity Zones primarily in transitioning metropolitan markets that have vibrant, growing economies. Specifically, we intend to invest primarily in locations close to mass transportation, healthcare and social infrastructure. We will focus on acquiring existing income producing properties that can be improved through upgrading existing housing units or by adding additional units to existing buildings or through the construction of new buildings within the property or on adjacent land. We will also undertake ground up development of new affordable and workforce multifamily housing in vibrant, supply-constrained markets and in circumstances where we believe we will be able to leverage our management team's experience and relationships to generate strong risk-adjusted returns for our stockholders. We believe that the Opportunity Zone program will help transform the areas in which our properties are located from low-income, underserved markets into more attractive mixed-income and higher-performing areas. We believe these changes will ultimately translate into higher property rents, occupancy and operating cash flows, in addition to more attractive capitalization rates and higher valuations. With a portfolio of 80 apartment communities consisting of approximately 10,560 units, Avanath is one of the most active acquirers in the affordable housing market. We believe the industry relationships our Manager has cultivated with government agencies, leading developers, owners, brokers and other industry participants will provide us with attractive opportunities to acquire properties located in Opportunity Zones and grow our portfolio over time.

    Focus on tenant relationships.  According to a 2020 report from Affordable Housing Finance Magazine, Avanath is among the largest institutional investors in the affordable housing space. Avanath believes it is essential to focus on providing quality affordable housing for its tenants. Avanath embraces a culture of commitment, investing in community-based services and activities that enhance the lifestyle of its residents. Avanath implements unique social programs that truly enhance resident life. For example, Avanath incorporates activities, such as arts & crafts and exercise classes, at its age restricted senior properties and provides transportation services to senior residents. Avanath offers after-school programs, summer youth programs, computer training and career workshops at its family properties. Avanath also recently launched its Activate Health and Wellness Program at its Maryland properties, where Avanath has partnered with University of Maryland Capital Region Health to offer vital health screenings and health education to residents. In order to build long term relationships with our tenants, Avanath expects to bring these practices and programs to our properties.

    Focus on the affordable and workforce segments within the multifamily property sector.  We believe that our focus on the affordable and workforce segments of the multifamily property sector will allow us to provide our stockholders with stable returns. Demand for affordable housing far exceeds the supply, tends to be higher when compared to other types of multifamily properties, and is generally more consistent in all economic cycles. On the other hand, supply for affordable housing is constrained by high barriers to entry, including the costs necessary to develop or redevelop affordable housing projects, limited availability of tax credits and the experience and specialized knowledge required to own and manage rent-regulated properties in compliance with applicable regulations. A consequence of this supply/demand imbalance is that property lease up is typically faster, tenant tenure is typically longer and unit vacancy is typically shorter as compared to market-rate multifamily properties. This reduced turnover results in lower operating costs, benefiting the overall performance of the properties.

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    Preserve QOZ Tax Benefits for our stockholders.  We intend to operate in a manner so that QOZ Tax Benefits will be available to our stockholders. As discussed elsewhere in this prospectus, the availability to our stockholders of QOZ Tax Benefits requires that we qualify as an Opportunity Zone Fund under the U.S. federal income tax laws. In order for us to qualify as an Opportunity Zone Fund, we must meet a number of requirements relating to the acquisition, improvement and use of the properties in which we invest. We will also generally hold our investments for longer periods of time than non-Opportunity Zone Funds in order to allow our investors to take full advantage of the QOZ Tax Benefits. One such benefit is the ability to exclude from income capital gain dividends to stockholders arising out of our sales of Qualified Property, which requires that a stockholder have held its interest in our company for at least ten years at the time we identify such capital gain dividend.

    Leverage access to capital to create value.  In connection with this offering, we will become a publicly traded company with enhanced access to capital as we pursue our business plan. We anticipate that we will have access to capital through a revolving credit facility that we anticipate obtaining concurrently with or shortly after the completion of this offering. We may engage in other forms of capital raising available to other public REITs such as conducting offerings of preferred stock or common equity. We intend to leverage our ability to access capital to pursue value-creation strategies at our properties.

    Actively direct capital to underserved markets.  In executing investments for our stockholders in these underserved markets, we will seek attractive, risk-adjusted returns, but we will also invest in the spirit in which the Opportunity Zone program was created, connecting financial capital with human potential. Likewise, we believe there is a large market for opportunistic, yet compassionate investing in lower income areas being sensitive to issues of gentrification and displacement. Given our industry presence and the deep experience of our senior management team in these types of markets, we believe we are in prime position to benefit from this opportunity. We will seek to include employment from the immediate area and endeavor that minority contractors be used, when and wherever possible, in all of our Opportunity Zone developments. In addition, we will work with local non-profit organizations in the provision of supportive services for our residents.

    Work with strategic and diverse partners.  We have established relationships with local developers, major financial institutions, leading property service companies, government agencies and other market participants. We plan to leverage our extensive experience and strong network of relationships in the commercial real estate industry to source and execute investments. In particular, Messrs. Carter and MacFarlane are founding members of the Real Estate Executive Council, a leading professional trade association composed of men and women of color in the commercial real estate industry. Our development strategy includes partnering with smaller developers with local market expertise, including minority developers that are developing in Opportunity Zones and have limited access to capital. We are currently collaborating with Laurel Street, a woman-owned affordable housing developer on the redevelopment of the Arbors at Cary and Academy at Waterford Lakes properties. For the Woodside Senior property in Ontario, California, we are working with Silverado Canyon Partners, a Latino-owned real estate developer of multifamily housing. For the North End Landings project in Detroit, Avanath is working with Vanguard Community Development Corporation and RMC Development. Vanguard was founded in 1994 by Bishop Edgar Vann to facilitate the revitalization of the North End community in Detroit. RMC Development is an African American-owned developer of mixed-use, transit oriented, military based redevelopment and student housing.

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Our Competitive Strengths

        We believe that the following competitive strengths will enable us to implement our business and growth strategies and compete effectively in the Opportunity Zone market:

    Experienced management team with a successful track record raising and managing third-party capital.  We believe the significant experience, expertise and relationships of our management team, which has a track record of investing in underserved markets, will drive our business and growth. Members of our executive team have been responsible for raising institutional capital across multiple real estate investment funds and separate account mandates and deploying such capital in our target properties and markets. Mr. Carter was an early proponent of urban investing, partnering with the California Public Employees' Retirement System ("CalPERS") through the pension fund's CURE program to make capital investments in inner cities and other underserved communities. This $220 million partnership with CalPERS provided mezzanine, preferred and joint venture equity investments in urban multifamily properties with seasoned operating partners. Mr. Carter is a former independent director on the boards of Catellus Development Corporation, Silver Bay Realty Trust and Whitestone REIT. Mr. Carter is currently on the National Advisory Council for KeyBank N.A.

    Access to attractive off-market and target marketed acquisition and investment opportunities.  We anticipate that the industry relationships we have cultivated with government agencies, leading developers, owners, brokers and other industry participants will generate attractive Opportunity Zone investment opportunities for us. Our pipeline properties are transactions sourced through existing relationships of our management team and our Manager, and we believe these relationships will provide us with additional off-market acquisition and investment opportunities, as well as target-marketed opportunities that are strategically presented to a limited number of real estate investors. We believe such off-market and target-marketed transactions may not be available to many of our competitors and will therefore provide us with the opportunity to purchase properties outside the competitive bidding process. In general, we believe the number of competitive bidders for affordable and workforce housing opportunities to be substantially less than market rate assets.

    High quality initial portfolio and identified future investment opportunities.  Upon or shortly following the completion of this offering and the formation transactions, we will acquire an initial portfolio comprised of nine multifamily properties across six states for an aggregate purchase price of approximately $260.4 million in cash. Three of these properties (Country Wood, Coopers Crossing and Wellington Woods) are stabilized operating properties that are not located in Opportunity Zones. The aggregate purchase price for these three stabilized properties is approximately $82.5 million, and they are estimated to generate annualized base rent of approximately $7.6 million, based on monthly rent in June 2020. The remaining six of our initial properties (Arbors at Cary, Academy at Waterford Lakes, Woodside Senior, Seaport Village, Oak Village, and North End Landings) are located in Opportunity Zones. The combined estimated total project cost for these six Opportunity Zone properties, including the purchase price and future estimated development and redevelopment costs, which include capitalized construction loan interest expenses, if any, is approximately $485.4 million. In addition to our initial properties, we maintain a pipeline of additional prospective investments located both within and outside of Opportunity Zones, as described above under "—Our Acquisition Pipeline." We intend to engage in a combination of redevelopment and ground up development. We believe redevelopment properties within Opportunity Zones are particularly attractive as the properties will provide current cash flow to our company while the redevelopment is in process.

    Experience navigating barriers to entry.  As discussed in the section of this prospectus entitled "Market Opportunity," supply for affordable housing is constrained by high barriers to entry,

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      including the costs necessary to develop or redevelop affordable housing projects, limited availability of tax credits and the experience and specialized knowledge required to own and manage rent-regulated properties in compliance with applicable regulations. Our management team has been able to overcome these barriers through the development of sophisticated operating strategies and reporting procedures and through the implementation of cost management strategies. We have also established strong relationships with many governmental and regulatory agencies. We intend to leverage this experience to pursue development and redevelopment projects that our competitors may be unable or unwilling to pursue.

    Sourcing and underwriting capabilities.  We expect to capitalize on the extensive industry relationships of our Manager and its affiliates to source potential investment opportunities. Our Manager utilizes market research and surveys of industry conditions to identify prospective investments. When a prospective property has passed a preliminary "broad market" review, our Manager conducts due diligence and underwriting, which encompasses a detailed assessment of demographics, supply and demand factors, third-party research, property condition and improvements, legal considerations, financial analyses (including a pro forma budget and cash flows) and exit strategies. Furthermore, our Manager's acquisitions team initially performs an internal analysis and audit of a prospective investment's operating statements, rent roll and other financial information. In preparing financial projections, our Manager employs conservative underwriting assumptions for rental rates, rent growth projections and borrowing costs and capitalization rates that are based on historical levels. The acquisitions team then carefully evaluates a project's location, local demographics, school systems, local amenities, highway access, tenant make-up, average area income and redevelopment potential to determine the proper balance of improvements and amenities that will appeal to prospective tenants and ultimately enhance cash flow.

    Access to MacFarlane development expertise.  We expect to benefit from the significant real estate development and financing capabilities of MacFarlane. See "Business and Properties—Our Manager and our Property Manager—MacFarlane Background." We anticipate that we will engage MacFarlane to develop or redevelop certain of our projects. MacFarlane has served as an investor or development partner for a number of multifamily, office and mixed use projects, including The Hotel & Residences at L.A. LIVE and the recently completed Park Fifth and Trademark developments in Los Angeles, California; Bay Street Emeryville in Emeryville, California; Time Warner Center in New York, New York; Mark on 8th in Seattle, Washington; and 55 M Street in Washington, D.C. MacFarlane's controlled development pipeline includes approximately 800 affordable housing units and 2,700 market-rate units.

    Proactive asset management.  Our Manager will proactively manage the assets in our portfolio. Once a property is acquired, our Manager will create and implement a formal business plan for the property, including a capital improvement and operating budget. Our Manager will regularly review the performance and material events impacting our investments and monitor overall capital and real estate market issues, which will allow our Manager to anticipate and proactively address potential property or market issues.

    Access to capital for value creation.  We believe many owners of affordable and workforce housing lack the access to capital necessary to make strategic capital investments that enhance the cash flow of affordable and workforce properties. Conversely, we are undertaking this offering to become a publicly traded company in order to provide us with enhanced access to capital and capital flexibility as we pursue our business plan. In addition, we anticipate that we will have access to capital through a revolving credit facility that we anticipate obtaining concurrently with or shortly after the completion of this offering. We anticipate that our ability to access capital will allow us to pursue value-creation strategies at our properties. Specific examples that have been implemented or planned for the Company's investments include: (i) construction of a new

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      leasing office and conversion of an existing leasing office into a rentable apartment unit, (ii) installation of washers and dryers in individual units, (iii) installation of solar panels and low-water-usage landscaping, which translate into lower utility costs, (iv) extensive upgrading of kitchens and bathrooms and (v) construction of new buildings on available land within or next to the existing property.

    Tax-advantaged investment vehicle with secondary market trading.  We intend to qualify as an Opportunity Zone Fund. Assuming we qualify as an Opportunity Zone Fund, our stockholders will have access to the unique QOZ Tax Benefits. Given the numerous attractive elements of the program to investors seeking tax advantages, we expect that there will be numerous Opportunity Zone Funds offered to the market to invest in Opportunity Zones. We believe that most of these funds are commingled closed-end fund vehicles that are not expected to be traded in a public or secondary market. However, final Treasury regulations under the Opportunity Zone program provide that a purchase of outstanding interests in an Opportunity Zone Fund from an existing investor utilizing eligible capital gains will be eligible for QOZ Tax Benefits. In connection with this offering, we will register the shares of our common stock offered hereby with the SEC and seek to list such shares on a national securities exchange. As such, we believe that we will be the first Opportunity Zone Fund listed for trading on a national securities exchange. We believe registration and listing of our common stock will provide liquidity to our stockholders through secondary trading, thereby transforming our company into a vehicle in which smaller retail investors can invest. We believe access to liquidity will differentiate our company from other Opportunity Zone Funds as investors may consider the 10 years or greater holding periods necessary to take advantage of all of the QOZ Tax Benefits to be too long. As such, our stockholders will be able to make decisions based on their liquidity needs, and some stockholders may want to recognize their capital gains and match capital losses they have prior to the end of that period and sell their shares to an investor seeking to defer gain by making an investment in an Opportunity Zone Fund. Alternatively, other stockholders may decide to sell after the step up in basis but not take advantage of the QOZ Tax Benefit of holding our shares for ten years. In general, we believe this overall added liquidity will make our vehicle more attractive to many investors who fear that they will have limited or no liquidity options in closed end funds. Given the compelling nature of our investments and focus on low income communities, we expect our shares will also attract non-tax driven investors, such as social impact funds and those investors focused on ESG issues.

    Substantial alignment of interests with our Manager and commited private capital.  We believe the interests of our Manager and its management team and our stockholders are strongly aligned. Members of our senior management team, affiliates of our Manager and investors in our Manager will purchase $             million in shares of our common stock (at the same price per share as investors in this offering) concurrently with the consummation of this offering. These shares will be subject to a 180-day lockup. In addition, our Manager will have the ability to earn incentive fees based on our total stockholder return exceeding an 8% cumulative annual hurdle rate. The incentive fee will be payable in LTIP Units issued by our subsidiary partnership. See "Our Manager and the Management Agreement—Management Agreement—Incentive Fee." In addition to the investment by members of our senior management team and affiliates of and investors in our Manager, we have received equity commitments from investors in certain Avanath-managed funds and certain other accredited investors to purchase an aggregate of $        million in shares of our common stock in the concurrent private placement at the initial public offering price per share.

    Culturally diverse organization with strong presence in Opportunity Zone markets.  Our management team is diverse and includes women and people of color. Our inclusive investment team seeks to identify attractive investment opportunities in underserved markets. As a result, we believe that

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      we will often be an early-stage investor in emerging real estate markets. The management team has successfully executed on redeveloping and repositioning a variety of investments across numerous asset classes with an emphasis on multifamily throughout major urban markets nationwide. We will leverage our management team's expertise and prior investment experience in these markets and property classes to execute our Opportunity Zone strategy. Underwriting, developing, financing and operating affordable multifamily housing projects requires an in-depth understanding of the complex and sometimes tangled web of regulatory, tax and political considerations that prevail in the affordable housing sector. We will draw upon the expertise of our management team to navigate these complexities. In particular, Avanath has a track record of acquiring LIHTC properties and obtaining property tax exemptions in states such as California, Florida and Washington.

Overview of Opportunity Zone Program

        As established by the 2017 Tax Act, Opportunity Zones are generally low-income census tracts nominated by governors and certified by the U.S. Department of the Treasury into which investors can now put capital to work financing new projects and enterprises by investing in Opportunity Zone Funds in exchange for QOZ Tax Benefits. The U.S. Department of the Treasury has certified over 8,760 individual census tracts across all 50 states, six territories, and the District of Columbia as Opportunity Zones.

        An Opportunity Zone Fund is generally an investment vehicle organized as a corporation (including a REIT) or as a partnership for the purpose of investing in Opportunity Zones. In order to qualify as an Opportunity Zone Fund, a number of requirements must be met relating to the acquisition and use of property by the Opportunity Zone Fund and any Opportunity Zone Businesses in which the Opportunity Zone Fund invests, including the requirements that at least 90% of the Opportunity Zone Fund's property consist of Qualified Property and that at least 70% of the tangible property of each Opportunity Zone Business is Opportunity Zone Business Property. See "Material U.S. Federal Income Tax Considerations—Opportunity Zone Fund Considerations" for further discussion of the requirements for qualification as an Opportunity Zone Fund.

        In order to qualify for QOZ Tax Benefits, a taxpayer must invest in an Opportunity Zone Fund in an amount equal to gain from the sale to, or exchange with, an unrelated person of any property (the "Deferred Gain Amount") generally within 180 days of generating the Deferred Gain Amount prior to January 1, 2027, provided that, if a taxpayer's 180-day period was to expire on or after April 1, 2020 and before December 31, 2020, such taxpayer has until December 31, 2020 to invest such gain. Eligible gains include capital gains, whether short-term or long-term, from sales of real estate and non-real estate investments, including stock, bonds and other publicly traded securities. Final Treasury regulations provide that Section 1231 gains are eligible gains on a gross basis, unreduced by Section 1231 losses. Only the gain or profit from the sale of property (and not the principal invested in the property) needs to be invested in an Opportunity Zone Fund, and any amounts invested in an Opportunity Zone Fund in excess of such gain do not qualify for any of the QOZ Tax Benefits. In addition, final Treasury regulations under the Opportunity Zone program provide that a purchase of outstanding interests in an Opportunity Zone Fund from an existing investor utilizing eligible capital gains will be eligible for QOZ Tax Benefits.

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        The Opportunity Zone program has the following potential QOZ Tax Benefits for investing in low-income communities through an Opportunity Zone Fund:

Hold Period
  Potential Benefits
Fewer Than 5 Years  

Temporary deferral of U.S. federal income tax on Deferred Gain Amounts until the earlier of:

 

1.    the date on which the interest in the Opportunity Zone Fund is sold or exchanged; and

 

2.    December 31, 2026


 

 

 

5 Years or More
(Investment Made by December 31, 2021)

 

Elimination of 10% of the Deferred Gain Amount

Temporary deferral of U.S. federal income tax on Deferred Gain Amounts until the earlier of:

 

1.    the date on which the interest in the Opportunity Zone Fund is sold or exchanged; and

 

2.    December 31, 2026


 

 

 

Greater Than 10 Years

 

No U.S. federal income tax on post-investment appreciation through December 31, 2047

 

If investment made by December 31, 2021, elimination of 10% of the Deferred Gain Amount

 

Temporary deferral of U.S. federal income tax on Deferred Gain Amounts until December 31, 2026


OZ Incremental Returns—Illustrative Example

GRAPHIC

        The above graph presents an illustrative incremental internal rate of return ("IRR") an investor in an Opportunity Zone Fund can expect to earn over a standard after-tax IRR by investing in an Opportunity Zone Fund across various holding periods. The scenario assumes the taxpayer achieves a pre-tax rate of return of 10% in both standard and Opportunity Zone scenarios, the taxpayer faces a capital gains tax rate of 23.8% (excluding state taxes), no dividends are paid out, and the same basis is

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used for both standard after-tax IRR and Opportunity Zone IRR. The QOZ Tax Benefits generally increase after-tax returns by more than 200 basis points from year 1 to 9 and then nearly 400 basis points once the 10-year QOZ Tax Benefit of elimination of capital gains on the new qualifying Opportunity Zone investment comes into effect. The information above is presented for informational purposes only and is not intended to be indicative of, or a guarantee or prediction of, the returns that an investor in our company may achieve in the future. In particular, we note that, as a REIT, our company will be required to distribute as dividends to our stockholders at least 90% of our REIT taxable income (excluding net capital gain and without regard to the deduction for dividends paid).

Summary Risk Factors

        An investment in shares of our common stock involves a high degree of risk. If any of the factors enumerated below or in the section entitled "Risk Factors" occurs, our business, financial condition, liquidity, results of operations and prospects could be materially and adversely affected. In that case, the market price of our common stock could decline, and you may lose some or all of your investment. Some of the more significant risks relating to this offering and an investment in our common stock include:

    our lack of prior operating history;

    our ability to qualify and maintain our qualification as an Opportunity Zone Fund under the 2017 Tax Act;

    our ability to consummate the acquisition, development and/or redevelopment of our properties in the time frame, on the terms or in the manner we currently anticipate;

    the impact of development and construction delays and cost overruns;

    the risks related to the illiquidity of real estate investments;

    our ability to successfully identify and consummate acquisitions of properties within Opportunity Zones;

    the impact of potential declines in real estate valuations and impairment charges;

    our exposure to adverse economic or regulatory developments, including rent control and variations in AMI, in the municipalities and states in which our properties are located;

    the impact of pandemics such as the recent outbreak of novel coronavirus ("COVID-19") or other sudden or unforeseen events that disrupt the economy;

    our ability to properly value our investments;

    the focus of our business on real estate investments in Opportunity Zones, which are generally lower-income areas;

    the impact on our business from delays in our locating suitable investments in Opportunity Zones;

    the impact of competition for a limited supply of properties for us to develop, redevelop or acquire;

    the impact of conflicts of interest between us, our Manager, our Property Manager and their affiliates;

    our ability to qualify as a REIT or thereafter maintain our qualification as a REIT;

    our ability to make distributions to our stockholders; and

    the lack of a public market for shares of our common stock.

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Our Formation and Operating Structure

        Prior to or in connection with this offering, we will engage in certain formation transactions as a result of which we will acquire the initial properties, become externally managed by our Manager pursuant to the management agreement and be able to qualify as an Opportunity Zone Fund commencing with the month of the closing of this offering and as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2020. In connection with the formation transactions, the following transactions have occurred or will occur prior to, concurrently with, or shortly after, the completion of this offering:

    Aspire Real Estate Investors, Inc. was formed as a Maryland corporation on January 8, 2020.

    On January 8, 2020, we issued and sold 100 shares of our common stock to Daryl J. Carter, our President and Chief Executive Officer, for a purchase price of $1,000. Such shares will be repurchased by us at the closing of this offering for $1,000.

    On August 26, 2020, we formed Aspire TRS, which will be the general partner of our subsidiary partnership. Aspire TRS elected to be treated as a TRS of ours effective as of August 26, 2020.

    Concurrently with the closing of this offering, we will sell shares of our common stock to members of our senior management team, affiliates of our Manager, investors in our Manager and certain Avanath-managed funds and certain other accredited investors in the concurrent private placement, at the initial public offering price per share, for an aggregate investment equal to $            .

    We will sell            shares of our common stock in this offering (or            shares if the underwriters exercise their option to purchase additional shares of common stock in full).

    We will enter into the management agreement with our Manager.

    Our subsidiary partnership will enter into property management agreements with our Property Manager.

    We will contribute, directly and indirectly through Aspire TRS, the net proceeds from this offering and the concurrent private placement to our subsidiary partnership in exchange for interests therein.

    Investors in our Manager and certain Avanath-managed funds will purchase a 1.0% limited partnership interest in our subsidiary partnership, at a price per unit equal to the initial public offering price per share, for an aggregate investment of $            .

    Our subsidiary partnership will issue        long-term incentive plan units ("LTIP Units") to certain key members of our Manager.

    Our subsidiary partnership will acquire our nine initial properties by cash purchase.

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        We may acquire certain development projects through joint venture structures in which we would hold a controlling interest. The following diagram illustrates our organizational structure:

GRAPHIC

Our Financing Strategy

        We are undertaking this offering to become a publicly traded company in order to provide us with substantial access to capital and capital flexibility as we pursue our business plan. In addition, we anticipate that we will have access to capital through a revolving credit facility that we anticipate obtaining concurrently with or shortly after the completion of this offering.

        We do not currently expect to use permanent, company-level debt. However, if our investments are leveraged, we expect that total debt financing across all our investments will not exceed 55% of the aggregate market value of our investments (determined at the time any such financing or incremental financing is obtained), but we may borrow up to 65% of the market value of an asset or project in which a given investment is made. We will leverage our investments with debt financing provided by commercial banks, life insurance companies and government sponsored enterprises such as Fannie Mae, Freddie Mac and HUD/FHA, or through other debt capital markets transactions.

        We may engage in other forms of capital raising available to other public REITs such as conducting offerings of preferred stock or common equity.

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Our Management Agreement and our Property Management Agreements

        Upon completion of this offering and the formation transactions, we will enter into the management agreement with our Manager. Pursuant to this agreement, our Manager will manage the day-to-day operations of our company in accordance with our investment guidelines, which may be modified or supplemented by our board of directors from time to time.

        Upon completion of this offering and the formation transactions, our subsidiary partnership will enter into property management agreements with our Property Manager, an affiliate of Avanath and MacFarlane. Pursuant to these agreements, our Property Manager will manage, operate, maintain and lease our properties.

        The following table summarizes the fees and expense reimbursements that we will pay to our Manager and our Property Manager:

Type
  Description
Base Management Fee   1.5% of our Equity per annum (0.375% per fiscal quarter), calculated quarterly for the most recently completed fiscal quarter and payable in quarterly installments in arrears. For purposes of calculating the base management fee, Equity means, as of a particular date, (i) the sum of the net cash proceeds and the value of non-cash consideration from all issuances of equity securities by our company and any subsidiary of our company since our inception, less (ii) any amount that we have paid to repurchase shares of our common stock or to repurchase or redeem other equity securities since our inception. Equity includes all securities, including preferred equity securities, included in stockholders' equity calculated in accordance with accounting principles generally accepted in the United States of America ("GAAP") and shown on the face of our consolidated balance sheets. Equity may be adjusted to exclude one-time events pursuant to changes GAAP and certain non-cash items after discussions between our Manager and our independent directors and with any adjustments approved in advance by a majority of our independent directors.

Incentive Fee

 

An annual incentive fee, if any, with respect to each measurement period, in the amount equal to the product of (a) 20% multiplied by (b) the outperformance amount multiplied by (c) the weighted average shares.


 

 

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Type
  Description
    For purposes of calculating the incentive fee under the management agreement:

 

"outperformance amount" means, with respect to any measurement period, (i) our total stockholder return with respect to such measurement period, minus (ii) the cumulative hurdle;

 

"total stockholder return" means, with respect to any measurement period, an amount equal to (i) the final share price, plus (ii) all dividends with respect to a share of our common stock paid since the beginning of such measurement period (whether paid in cash or a distribution in kind), minus (iii) the high water price;

 

"cumulative hurdle" means an amount equal to an 8% cumulative annual return on the high water price;

 

"final share price" means, with respect to any measurement period, the volume weighted average trading price for a share of our common stock on the NYSE (or any other securities exchange on which our common stock is principally traded) over the ten consecutive trading days ending on the last trading day of such measurement period;

 

"high water price" means, with respect to any measurement period, the volume weighted average trading price for a share of our common stock on the NYSE (or any other securities exchange on which our common stock is principally traded) over the ten consecutive trading days ending on the last trading day immediately prior to the beginning of such measurement period; provided, however, that the high water price with respect to the first measurement period will not be lower than the initial public offering price per share of the shares of common stock sold in this offering; provided, further, that the high water price for any measurement period will never be less than the highest high water price for any preceding measurement period;

 

"measurement period" means each period beginning on January 1 after the last measurement period with respect to which the incentive fee shall have been payable (January 1, 2021 with respect to the first measurement period) and ending on December 31 of the applicable calendar year, provided that if the management agreement expires or is terminated other than on December 31, the last measurement period will end on the last complete trading day for our common stock on the NYSE (or any other securities exchange on which our common stock is principally traded) prior to such termination or expiration; and

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Type
  Description

 

"weighted average shares" means, with respect to any measurement period, the weighted average fully diluted number of shares of our common stock issued and outstanding during such measurement period, as determined in accordance with GAAP.


 

 

Any incentive fee earned by our Manager will be paid in the form of LTIP units issued by our subsidiary partnership.

Expense Reimbursement

 

We are required to reimburse our Manager for operating expenses related to us that are incurred by our Manager, including expenses relating to legal, accounting, due diligence and other services. Our Manager will be responsible for the expenses related to any personnel of our Manager and its affiliates who provide services to us pursuant to the management agreement (including our executive officers), including salaries, bonus and other wages, payroll taxes and the cost of employee benefit plans of such personnel, and costs of insurance with respect to such personnel. However, if any personnel of our Manager (including our executive officers) provide us with legal, tax, accounting, consulting, auditing and other similar services, we will reimburse our Manager for the costs of such services in amounts which are no greater than those which would be payable to outside professionals or consultants engaged to perform such services pursuant to agreements negotiated on an arm's-length basis. Our reimbursement obligations are not subject to any dollar limitation. Expenses will be reimbursed in cash on a quarterly basis.

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Type
  Description
Termination Fee   Upon any termination of the management agreement by us (other than for cause), any non-renewal of the management agreement by us or any termination of the management agreement by our Manager due to our material breach of the management agreement, our Manager will be paid a termination fee equal to three times the sum of (i) the average annual base management fee earned by our Manager during the 24-month period immediately preceding the most recently completed calendar quarter prior to the termination date and (ii) the average annual incentive fee, if any, earned by our Manager during the two most recently completed measurement periods prior to the termination date; provided, that, (a) in the case of the average annual base management fee, if 24 months have not elapsed since the effective date of the management agreement at the time of the effective termination date, the average annual base management fee will be the actual base management fee (in either case paid or payable) for the preceding 12 months, or if 12 months have not elapsed since the effective date of the management agreement at the time of the effective termination date, the average annual base management fee will be calculated on an annualized basis, and (b) in the case of the average annual incentive fee, if two full measurement periods have not elapsed since the effective date of the management agreement at the time of the effective termination date, the average annual incentive fee will be the actual incentive fee (in either case paid or payable), if any, for the most recently completed measurement period, or if a measurement period has not elapsed since the effective date of the management agreement at the time of the effective termination date, the average annual incentive fee will be calculated on an annualized basis.

Internalization of Management

 

Our Manager has agreed to present to us an initial proposal to acquire all of the assets or equity interests in our Manager, subject to the procedures described below. No later than 90 days following the date on which our company has achieved a fully-diluted equity market capitalization of $750,000,000 based on the volume-weighted average price of our common stock on the NYSE over 20 consecutive trading days (an "Internalization Event"), our Manager will offer to contribute to us all of the assets or equity interests in our Manager (an "internalization") on such terms and conditions included in a written offer provided by our Manager. Upon receipt of our Manager's initial internalization offer, a special committee comprised solely of independent members of our board of directors (the "Special Committee") may accept our Manager's proposal or submit a counter offer to our Manager.

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Type
  Description
    The offer price (the "Offer Price") will be equal to the lesser of the following amounts: (i) one times the base management fee earned by our Manager during the 12-month period ended as of the end of the most recently completed fiscal quarter prior to the date on which a definitive agreement relating to the internalization is entered into, and (ii) 2% of our equity market capitalization based on the volume-weighted average price of our common stock on the NYSE over 20 consecutive trading days ended on the date immediately preceding the date on which a definitive agreement relating to the internalization is entered into; provided that the Offer Price shall not exceed the amount that will allow the internalization transaction to be accretive on an estimated FFO per share basis over the 12-month period beginning on the first day of the quarter following the closing of the internalization transaction, as determined by the Special Committee based on discussions with our Manager.

 

 

See "Our Manager and the Management Agreement—Management Agreement—Internalization of Our Manager."

Property Management Fee

 

5.5% of monthly gross receipts, paid on the first business day of the following month, collected from the operation of a property of ours, including, without limitation, all rent and other sums and charges received from all prospective tenants, tenants and lessees and payments made in consideration of the cancellation of any tenant leases or damages by reason of any default, security deposits to the extent applied to rent, tenant application fees, late rent charges, non-sufficient fund check charges, miscellaneous administrative charges, convenience fees, utility reimbursement, proceeds from rental interruption insurance, net receipts from vending machines, concessions and other commercial operations conducted on the property.

Construction Management Fee

 

5.0% of the total project cost of any contracted capital expenditure performed on a property of ours that is not routine in nature or related to ground-up construction, offset by any construction management fee we pay to any third-party construction manager.

Development Fee

 

In connection with any development services provided by MacFarlane, MacFarlane and Avanath will be entitled to a development fee equal to up to 5.0% of the total project costs associated with the development, depending upon the size, complexity and development status of the property, offset by any development fees we pay to any third-party who provides us with development services on the property.

        See "Our Manager and the Management Agreement—Management Agreement" and "—Property Management Agreements" for a more detailed description of the terms of the management agreement and the property management agreements.

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Additional Activities of Our Manager; Allocation of Investment Opportunities; Conflicts of Interest

        We do not expect to have any employees and we will rely completely on our Manager to manage our day-to-day operations and business affairs. Certain of our officers and directors, and the officers and other personnel of our Manager, also serve or may serve as officers, directors or partners of Avanath and MacFarlane. Accordingly, the ability of our Manager and its officers and other personnel to engage in other business activities may reduce the time our Manager spends managing our business. In addition, officers and other personnel of our Manager may have obligations to those entities, the fulfillment of which might not be in the best interests of us or our stockholders.

        Our management agreement expressly provides that it does not (1) prevent our Manager or any of its affiliates, officers, directors or employees from engaging in other businesses or from rendering services of any kind to any other person or entity, (2) in any way restrict or otherwise limit our Manager or any of its affiliates, officers, directors or employees from buying, selling or trading any securities or commodities for their own accounts or for the account of others for whom our Manager or any of its affiliates, officers, directors or employees may be acting, or (3) prevent our Manager or any of its affiliates from receiving fees or other compensation or profits from activities described in clause (1) or (2) above, which will be for our Manager's (and/or its affiliates') sole benefit.

        Currently, Avanath is seeking $850 million of equity commitments for Avanath IV, which will target value-oriented rentals in high-growth, high-cost markets in the U.S. Avanath IV will focus on acquisitions of core plus and value add properties with comparably lower levels of renovation than we expect will be required in the redevelopment projects undertaken by our company. Avanath IV is prohibited from investing in ground up development, and Opportunity Zone projects, which require doubling the basis of existing property, as such projects are not compatible with Avanath IV's investment mandate. Our management agreement contains a provision that is intended to enable us to share equitably with other clients of our Manager and its affiliates in all opportunities that may be suitable for us and such other clients and that will provide us with priority allocation of all investment opportunities that are suitable for us but are unsuitable for Avanath IV, including investment opportunities that require development and stabilized properties owned or controlled by Avanath. Prior to the expiration of its investment period, Avanath IV will have priority allocation with respect to those investment opportunities that may be suitable for Avanath IV. Upon the expiration of Avanath IV's investment period, and with no change to the allocation provision set forth in our management agreement, we will have priority access to all investment opportunities sourced by our Manager and its affiliates. Avanath IV's investment period ends upon the earlier of deployment of 90% of Avanath IV's commitments and May 31, 2022, provided that the investment period can be extended for one year with the approval of a majority of Avanath IV's advisory committee. The investment allocation policy described above could be waived or revised at any time by a majority of our independent directors without the consent of our stockholders. Any transaction by and between one or more of our Manager, Avanath, MacFarlane, or their respective affiliates and us will contain terms no more favorable than if the transaction were the result of arms' length negotiations with an unaffiliated third party and will require the approval of a majority of our independent directors.

Our Tax Status

        We intend to elect and qualify as an Opportunity Zone Fund commencing with the month of the closing of this offering. If we qualify as an Opportunity Zone Fund, stockholders will be eligible to (i) temporarily defer capital gain from other investments to the extent such gain is invested in shares of our common stock within 180 days after such gain is incurred by the stockholder (subject to special rules for eligible gain realized through an investment in a pass-through entity, REIT, or regulated investment company ("RIC") and provided that, if an investor's 180-day period was to expire on or after April 1, 2020 and before December 31, 2020, such investor has until December 31, 2020 to invest such gain), (ii) permanently exclude up to 10% of that gain if the investment in our common stock is

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made by December 31, 2021 and is held for a period of at least five years, and (iii) permanently exclude all capital gain arising out of their investment in shares of our common stock attributable to periods through December 31, 2047, provided certain conditions are satisfied, including a requirement to hold such shares for at least ten years. In connection with this offering, we will receive an opinion from Vinson & Elkins L.L.P. that, commencing with the month of the closing of this offering, we will be organized in a manner that will allow us to qualify as an Opportunity Zone Fund under the U.S. federal income tax laws and our proposed method of operations will enable us to satisfy the requirements for qualification as an Opportunity Zone Fund under the U.S. federal income tax laws. Investors should be aware that Vinson & Elkins L.L.P.'s opinion is based upon customary assumptions, will be conditioned upon certain representations made by us as to factual matters, including representations regarding the nature of our assets and the conduct of our business, is not binding upon the IRS or any court and speaks as of the date issued. In addition, Vinson & Elkins L.L.P.'s opinion will be based on existing U.S. federal income tax law governing qualification as an Opportunity Zone Fund, which is subject to change either prospectively or retroactively. Moreover, our qualification an Opportunity Zone Fund depends upon our ability to meet on a continuing basis, through actual annual operating results, certain qualification tests set forth in the U.S. federal tax laws. Vinson & Elkins L.L.P. will not review our compliance with those tests on a continuing basis.

        We may be subject to penalties if we do not meet the requirements for qualification as an Opportunity Zone Fund. If we do not satisfy the 90% Asset Test and our failure was not due to reasonable cause, we will be subject to a penalty for each month we do not meet the 90% Asset Test. For our 2020 taxable year, IRS guidance provides that any such failure will automatically be deemed to be due to reasonable cause and no penalty will apply. Any penalty is an amount calculated as the amount equal to (i) the excess of 90% of our aggregate assets, over the aggregate amount of Qualified Property held by us on the last day of the month, multiplied by (ii) the federal short-term rate (as determined by the IRS) plus 3%, and divided by (iii) 12. In addition, if our interest in our subsidiary partnership failed to qualify as an Opportunity Zone Partnership Interest, and we were not able to establish reasonable cause or qualify for a one-time cure, we generally would be subject to a penalty based on the value of our interest in our subsidiary partnership, as determined by financial statements or our cost, as applicable. The Opportunity Zones rules were recently enacted and final Treasury regulations have only recently been issued. There is no assurance that we will meet the requirements necessary to qualify as an Opportunity Zone Fund or that any stockholder will be able to realize any QOZ Tax Benefits as a result of an investment in us.

        We also intend to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes commencing with our taxable year ending December 31, 2020 and expect to operate in a manner that will allow us to continue to be classified as such. Our qualification as a REIT depends upon our ability to meet, on a continuing basis, through actual investment and operating results, various complex requirements under the Code, relating to, among other things, the sources of our gross income, the composition and value of our assets, our distribution levels, and the diversity of ownership of our shares. In connection with this offering, we will receive an opinion from Vinson & Elkins L.L.P. that, commencing with our taxable year ending December 31, 2020, we will be organized in conformity with the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws and our proposed method of operations will enable us to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for our taxable year ending December 31, 2020 and subsequent taxable years. Investors should be aware that Vinson & Elkins L.L.P.'s opinion is based upon customary assumptions, will be conditioned upon certain representations made by us as to factual matters, including representations regarding the nature of our assets and the conduct of our business, is not binding upon the IRS or any court and speaks as of the date issued. In addition, Vinson & Elkins L.L.P.'s opinion will be based on existing U.S. federal income tax law governing qualification as a REIT, which is subject to change either prospectively or retroactively. Moreover, our qualification and taxation as a REIT depend upon our ability to meet on a continuing basis, through

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actual annual operating results, certain qualification tests set forth in the U.S. federal tax laws. Vinson & Elkins L.L.P. will not review our compliance with those tests on a continuing basis. Accordingly, no assurance can be given that our actual results of operations for any particular taxable year will satisfy such requirements.

        If we qualify to be taxed as a REIT, we generally will not be subject to U.S. federal income tax on our net taxable income that we distribute currently to our stockholders. If we fail to qualify to be taxed as a REIT in any taxable year and do not qualify for certain statutory relief provisions, we would be subject to U.S. federal income tax at regular corporate rates and would be precluded from re-electing to be taxed as a REIT for the subsequent four taxable years following the year during which we lost our REIT qualification. Even if we qualify to be taxed as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income or property, and the income of and any taxable REIT subsidiary of ours will be subject to taxation at regular corporate rates.

        The Code generally requires that a REIT distribute annually at least 90% of its REIT taxable income, determined without regard to the deduction for dividends paid and excluding net capital gains, and that it pay tax at regular corporate rates to the extent that it distributes annually less than 100% of its net taxable income, including capital gains. We intend to make distributions to our stockholders to comply with the REIT requirements of the Code and to avoid paying entity level tax. If our operations do not generate sufficient cash flow to allow us to satisfy the REIT distribution requirements, we may be required to fund distributions from working capital, pay a portion in shares, borrow funds, sell assets or reduce such distributions.

Our Distribution Policy

        We intend to make distributions to our stockholders to comply with the REIT requirements of the Code and to avoid paying entity level tax. Any distributions we make will be at the sole discretion of our board of directors and will depend upon a number of factors, including our actual and projected financial condition, liquidity, results of operations, cash flow generated by our operations, operating expenses, debt service requirements, capital expenditure requirements, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, restrictions on making distributions under Maryland law and such other factors as our board of directors deems relevant.

        We anticipate that our distributions generally will be taxable as ordinary income to our stockholders, although a portion of the distributions may constitute a return of capital or may be designated by us as qualified dividend income or capital gain. Distributions to our stockholders may impact the QOZ Tax Benefits discussed above with regard to investments in Opportunity Zone Funds. In particular, because a stockholder electing to treat an investment in us as an investment qualifying for deferral of gains will initially have a zero tax basis with respect to shares of our common stock purchased with such gains, distributions constituting a return of capital will generally be treated as resulting in a taxable sale of such shares, effectively ending the deferral on a portion of such gains. In such a case, a stockholder could reinvest the return of capital in shares of our common stock or in another Opportunity Zone Fund within 180 days to defer current recognition of gain, although such stockholder would have a new holding period with respect to the new interest, including for purposes of determing future QOZ Tax Benefits. We intend to provide our stockholders with additional information about how to reinvest return of capital in shares of our common stock before we pay our first dividend.

        We anticipate that our estimated cash available for distribution will allow us to satisfy the annual distribution requirements applicable to REITs and to avoid the payment of tax on undistributed taxable income. However, under some circumstances, our cash available for distribution may be less than the amount required to meet the annual distribution requirements applicable to REITs, and we may be

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required to make distributions in excess of cash available for distribution in order to meet these distribution requirements, and we may need to borrow funds, sell certain of our properties or use proceeds from this or future offerings of equity or debt to make certain distributions. Although we currently have no intention to do so, we may under certain circumstances satisfy our annual distribution requirements through a taxable distribution of our common stock or debt securities. However, to the extent that our holders of stock or debt securities receive a taxable distribution of our common stock or debt securities, such holders will be taxed on such securities as if such holders had received the equivalent value in cash.

Our Corporate Information

        We were incorporated in January 2020. Our principal executive offices are located at 1920 Main Street, Suite 150, Irvine, California 92614. Our telephone number is (949) 269-4700.

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The Offering

Common stock offered by us

              shares (plus up to an additional          shares that we may issue and sell upon the exercise of the underwriters' option to purchase additional shares)

Common stock to be outstanding after this offering and the concurrent private placement

 

            shares(1)

Use of proceeds

 

We expect to receive net proceeds from this offering and the concurrent private placement of approximately $            million (or approximately $             million if the underwriters exercise in full their option to purchase additional shares), assuming an initial public offering price of $             per share, which is the mid-point of the initial public offering price range set forth on the front cover of this prospectus, after deducting the underwriting discount and estimated offering expenses payable by us. We expect to receive net proceeds from the concurrent private placement of approximately $             million, assuming a price of $            per share, which is the mid-point of the initial public offering price range set forth on the front cover of this prospectus. We intend to contribute the net proceeds from this offering and the concurrent private placement to our subsidiary partnership in exchange for interests therein. Our subsidiary partnership will utilize such proceeds to acquire the nine multifamily projects that will comprise our initial portfolio for an aggregate cash purchase price of approximately $260.4 million, to develop or redevelop the six properties in our initial portfolio that are located in Opportunity Zones, and to acquire and, if they are located in Opportunity Zones, develop or redevelop other properties, which may include properties in our acquisition pipeline, and for general corporate and working capital purposes. See "Use of Proceeds."

New York Stock Exchange symbol

 

"                "

Risk factors

 

Investing in our common stock involves risks. You should carefully read and consider the information set forth under "Risk Factors" beginning on page 38 of this prospectus and all other information in this prospectus before making a decision to invest in our common stock.


(1)
Includes (a)             shares of our common stock to be issued in this offering, (b)             shares of our common stock to be issued and sold to members of our senior management team, affiliates of our Manager, investors in our Manager and certain Avanath-managed funds and certain other accredited investors in the concurrent private placement, and (c) an aggregate of              shares of restricted common stock to be granted to our independent directors upon the completion of this offering pursuant to the Equity Incentive Plan. Excludes (a)             shares of our common stock issuable upon the exercise in full of the underwriters' option to purchase additional shares, (b) 100 shares of our common stock that were issued to Daryl J. Carter, our President and Chief Executive Officer, for $1,000 in connection with our initial capitalization and that will be repurchased by us at the closing of this offering and (c)             shares of our common stock available for future issuance pursuant to the Equity Incentive Plan.

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Summary Selected Historical and Other Data—Aspire Real Estate Investors Predecessor I

        Set forth below is summary selected financial information and other data presented on a historical basis for Aspire Real Estate Investors Predecessor I. Aspire Real Estate Investors Predecessor I is not a legal entity but rather a combination of real estate entities and operations invested in the properties that we refer to as Wellington Woods, Coopers Crossing and Country Wood. We have not presented historical data for Aspire Real Estate Investors, Inc. because we have not had any corporate activity since our formation other than the issuance of 100 shares of common stock in connection with our initial capitalization and activity in connection with this offering and the formation transactions. Accordingly, we do not believe that a presentation of the historical results of Aspire Real Estate Investors, Inc. would be meaningful. Prior to or concurrently with the completion of this offering, we will consummate the formation transactions pursuant to which, among other things, we will contribute the net proceeds to our subsidiary partnership in exchange for interests therein. Our subsidiary partnership will acquire the nine multifamily projects that will comprise our initial portfolio by cash purchase. For more information regarding the formation transactions, please see "Structure and Formation of Our Company."

        Aspire Real Estate Investors Predecessor I's historical combined balance sheet data as of December 31, 2019 and 2018 and historical combined operating data for the years ended December 31, 2019 and 2018 have been derived from Aspire Real Estate Investors Predecessor I's audited historical combined financial statements included elsewhere in this prospectus. The historical combined financial data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance.

        Aspire Real Estate Investors Predecessor I's historical combined balance sheet data as of June     , 2020 and historical combined operating data for the six months ended June 30, 2020 and 2019 have been derived from Aspire Real Estate Investors Predecessor I's unaudited historical combined financial statements included elsewhere in this prospectus. Aspire Real Estate Investors Predecessor I's unaudited historical combined financial statements, in management's opinion, have been prepared in accordance with GAAP on the same basis as its audited historical combined financial statements included elsewhere in this prospectus and, in the opinion of management, reflect all adjustments consisting only of normal recurring adjustments that management considers necessary to state fairly the financial information as of and for the periods presented. The unaudited interim financial and operating data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance, and results for any interim period are not necessarily indicative of the results for any full year.

        You should read the following summary selected historical financial and other data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business and Properties" and the historical and pro forma financial statements and related notes appearing elsewhere in this prospectus.

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Operating Data:

 
  (Dollars in thousands)  
 
  For the Six
Months Ended
June 30, 2020
  For the Six
Months Ended
June 30, 2019
  For the Year
Ended
December 31,
2019
  For the Year
Ended
December 31,
2018
 

Revenue

                         

Rental revenue

  $ 3,651   $ 3,354   $ 6,961   $ 6,524  

Other revenue

    174     241     449     459  

Total revenue

    3,825     3,595     7,410     6,983  

Operating Expenses

                         

General and administrative

    198     187     391     418  

Depreciation

    1,051     1,073     2,165     2,097  

Property operating and maintenance

    1,121     1,250     2,474     2,564  

Real estate taxes and insurance

    505     480     998     875  

Management fee

    189     188     377     419  

Total operating expenses

    3,064     3,178     6,405     6,373  

Other Income and (Expenses)

                         

Interest expense

    (548 )   (558 )   (1,119 )   (1,142 )

Total other income (and expenses)

    (548 )   (558 )   (1,119 )   (1,142 )

Net income (loss) and comprehensive income (loss)

  $ 213   $ (141 ) $ (114 ) $ (532 )

Balance Sheet Data:

 
  (Dollars in thousands,
except per share amounts)
 
 
  As of
June 30, 2020
  As of
December 31,
2019
  As of
December 31,
2018
 

Assets

                   

Real estate investments, net

  $ 39,883   $ 40,586   $ 41,537  

Cash and cash equivalents

    787     511     666  

Restricted cash

    1,197     1,568     1,288  

Accounts receivable

    28     22     8  

Other assets

    271     77     65  

Total assets

  $ 42,166   $ 42,764   $ 43,564  

Liabilities and Equity

                   

Mortgage notes payable, net

  $ 25,204   $ 25,460   $ 25,948  

Accounts payable and accrued expenses

    750     659     642  

Security deposits, prepaid rent and other liabilities

    340     340     384  

Due to related parties

        75     29  

Total liabilities

    26,294     26,534     27,003  

Commitments and contingencies

                   

Equity

    15,872     16,230     16,561  

Total liabilities and equity

  $ 42,166   $ 42,764   $ 43,564  

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Summary Selected Historical and Other Data—Aspire Real Estate Investors Predecessor II

        Set forth below is summary selected financial information and other data presented on a historical basis for Aspire Real Estate Investors Predecessor II. Aspire Real Estate Investors Predecessor II is not a legal entity but rather a combination of real estate entities and operations invested in the properties that we refer to as Academy at Waterford Lakes, Arbors at Cary, Woodside Senior, Seaport Village and Oak Village. We have not presented historical data for Aspire Real Estate Investors, Inc. because we have not had any corporate activity since our formation other than the issuance of 100 shares of common stock in connection with our initial capitalization and activity in connection with this offering and the formation transactions. Accordingly, we do not believe that a presentation of the historical results of Aspire Real Estate Investors, Inc. would be meaningful. Prior to or concurrently with the completion of this offering, we will consummate the formation transactions pursuant to which, among other things, we will contribute the net proceeds to our subsidiary partnership in exchange for interests therein. Our subsidiary partnership will acquire the nine multifamily projects that will comprise our initial portfolio by cash purchase. For more information regarding the formation transactions, please see "Structure and Formation of Our Company."

        Aspire Real Estate Investors Predecessor II's historical combined balance sheet data as of December 31, 2019 and 2018 and historical combined operating data for the years ended December 31, 2019 and 2018 have been derived from Aspire Real Estate Investors Predecessor II's audited historical combined financial statements included elsewhere in this prospectus. The historical combined financial data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance.

        Aspire Real Estate Investors Predecessor II's historical combined balance sheet data as of June 30, 2020 and historical combined operating data for the six months ended June 30, 2020 and 2019 have been derived from Aspire Real Estate Investors Predecessor II's unaudited historical combined financial statements included elsewhere in this prospectus. Aspire Real Estate Investors Predecessor II's unaudited historical combined financial statements, in management's opinion, have been prepared in accordance with GAAP on the same basis as its audited historical combined financial statements included elsewhere in this prospectus and, in the opinion of management, reflect all adjustments consisting only of normal recurring adjustments that management considers necessary to state fairly the financial information as of and for the periods presented. The unaudited interim financial and operating data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance, and results for any interim period are not necessarily indicative of the results for any full year.

        You should read the following summary selected historical financial and other data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business and Properties" and the historical and pro forma financial statements and related notes appearing elsewhere in this prospectus.

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Operating Data:

 
  (Dollars in thousands)  
 
  For the Six
Months Ended
June 30, 2020
  For the Six
Months Ended
June 30, 2019
  For the Year
Ended
December 31,
2019
  For the Year
Ended
December 31,
2018
 

Revenue

                         

Rental revenue

  $ 7,350   $ 7,122   $ 14,367   $ 14,008  

Other revenue

    292     545     848     696  

Total revenue

    7,642     7,667     15,215     14,704  

Operating Expenses

                         

General and administrative

    399     448     796     777  

Depreciation and amortization

    2,140     2,088     4,186     4,220  

Property operating and maintenance

    2,556     2,487     5,188     4,723  

Real estate taxes and insurance

    979     911     1,876     1,967  

Management fee

    408     406     810     866  

Total operating expenses

    6,482     6,340     12,856     12,553  

Other Income and (Expenses)

                         

Interest income

    3     3     8     3  

Interest expense

    (1,305 )   (1,327 )   (2,660 )   (2,709 )

Total other income (and expenses)

    (1,302 )   (1,324 )   (2,652 )   (2,706 )

Net income (loss) and comprehensive income (loss)

  $ (142 ) $ 3   $ (293 ) $ (555 )

Balance Sheet Data:

 
  (Dollars in thousands,
except per share amounts)
 
 
  As of
June 30, 2020
  As of
December 31,
2019
  As of
December 31,
2018
 

Assets

                   

Real estate investments, net

  $ 102,651   $ 104,498   $ 107,710  

Cash and cash equivalents

    1,140     1,834     1,489  

Restricted cash

    2,337     2,075     1,938  

Accounts receivable, net

    243     135     293  

Other assets

    385     126     114  

Total assets

  $ 106,756   $ 108,668   $ 111,544  

Liabilities and Equity

                   

Mortgage notes payable, net

  $ 64,643   $ 65,316   $ 66,592  

Accounts payable and accrued expenses

    939     732     921  

Security deposits, prepaid rent and other liabilities

    743     804     774  

Due to related parties

    452     165     71  

Total liabilities

    66,777     67,017     68,358  

Commitments and contingencies

                   

Equity

    39,979     41,651     43,186  

Total liabilities and equity

  $ 106,756   $ 108,668   $ 111,544  

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Pro Forma Financial Information

        Set forth below is summary selected financial information and other data presented on a pro forma basis for our company after giving effect to the completion of this offering, the formation transactions and the other adjustments described in the unaudited pro forma combined financial statements beginning on page F-2 of this prospectus. Prior to or concurrently with the completion of this offering, we will consummate the formation transactions pursuant to which, among other things, we will contribute the net proceeds to our subsidiary partnership in exchange for interests therein. Our subsidiary partnership will acquire the nine multifamily projects that will comprise our initial portfolio by cash purchase. For more information regarding the formation transactions, please see "Structure and Formation of Our Company."

        The summary selected pro forma financial and operating data as of June 30, 2020 and for the six months ended June 30, 2020 and for the year ended December 31, 2019 assume the completion of this offering, the concurrent private placement and other formation transactions, and the other adjustments described in the unaudited pro forma combined financial statements had occurred on June 30, 2020 for purposes of the unaudited pro forma combined balance sheet data and on January 1, 2019 for purposes of the unaudited pro forma combined statements of operations data. Our pro forma financial information is not necessarily indicative of what our actual financial position and results of operations would have been had the formation transactions and other adjustments described occurred as of the date and for the period indicated, nor does it purport to represent our future financial position or results of operations.

Operating Data:

 
  (Dollars in thousands)  
 
  For the Six
Months Ended
June 30, 2020
Pro Forma
  For the Year
Ended
December 31,
2019
Pro Forma
 

Revenue

             

Rental revenue

  $ 11,001   $ 21,328  

Other revenue

    466     1,297  

Total revenue

    11,467     22,625  

Operating Expenses

             

General and administrative

    597     1,187  

Depreciation and amortization

    3,811     14,100  

Property operating and maintenance

    3,677     7,662  

Real estate taxes and insurance

    2,145     4,200  

Management fee

    616     1,215  

Total operating expenses

    10,846     28,364  

Other Income and (Expenses)

             

Interest income

    3     8  

Interest expense

         

Asset management fee

                           

Total other income (and expenses)

             

Net loss and comprehensive loss

  $     $    

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Balance Sheet Data:

 
  (Dollars
in thousands,
except per
share
amounts)
 
 
  As of
June 30, 2020
Pro Forma
 

Assets

       

Real estate investments, net

  $ 252,809  

Cash and cash equivalents

                  

Restricted cash

    3,534  

Accounts receivable

    271  

Other assets

    7,135  

Total assets

  $    

Liabilities and Equity

       

Mortgage notes payable, net

  $  

Accounts payable and accrued expenses

    1,689  

Security deposits, prepaid rent and other liabilities

    1,083  

Due to related parties

    452  

Total liabilities

    3,224  

Commitments and contingencies

       

Equity

       

Total liabilities and equity

  $    

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RISK FACTORS

        Investing in our common stock involves risks. Before you invest in our common stock, you should carefully consider the risk factors below together with all of the other information included in this prospectus. If any of the risks discussed in this prospectus were to occur, our business, financial condition, liquidity, cash flows, results of operations and prospects and our ability to service our debt and make distributions to our stockholders could be materially and adversely affected (which we refer to collectively as "materially and adversely affecting us" or having "a material adverse effect on us" and comparable phrases), the market price of our common stock could decline significantly, and you could lose all or part of your investment in our common stock. Some statements in this prospectus, including statements in the following risk factors, constitute forward-looking statements. Please refer to the section in this prospectus entitled "Special Note Regarding Forward-Looking Statements."


Risks Related to Our Business and Properties

We have no prior operating history, and the prior performance of Avanath and MacFarlane or other real estate investment opportunities sourced by Avanath or MacFarlane may not be indicative of our future results.

        We are a recently formed company and have no operating history. We have not made any investments, although we have identified the properties to be included in our initial portfolio. Even though Avanath and MacFarlane have substantial experience in real estate investments, you should not assume that our performance will be similar to the past performance of other real estate investment opportunities sourced by Avanath or MacFarlane. Our lack of an operating history significantly increases the risk and uncertainty you face in making an investment in our common stock.

There is no assurance we will be successful in qualifying as an Opportunity Zone Fund under the 2017 Tax Act or that any stockholder will qualify for QOZ Tax Benefits with respect to an investment in us.

        We were organized for the express purpose of qualifying as an Opportunity Zone Fund under the 2017 Tax Act. However, the 2017 Tax Act is a relatively new law and its provisions regarding Opportunity Zone Funds are as yet untested. Although the IRS has issued final Treasury regulations, there remains uncertainty regarding the interpretation of certain issues. In addition, future legislation or guidance from the IRS may negatively affect our ability to qualify as an Opportunity Zone Fund or your ability to qualify for QOZ Tax Benefits with respect to an investment in us. Therefore, you should not assume we will be successful in meeting our investment objectives, including qualifying as an Opportunity Zone Fund or obtaining QOZ Tax Benefits for our stockholders.

The acquisition and development or redevelopment of the properties in our initial portfolio is subject to a number of conditions which could delay or materially adversely affect the timing of its completion, or prevent it from occurring.

        The acquisition and development or redevelopment of the properties in our initial portfolio may not occur or may be delayed as a result of, among other things, one or more of the closing conditions failing to occur, including, but not limited to, obtaining any necessary regulatory approvals, receipt of title, completion of due diligence and our satisfactory review of the zoning, land use, building, environmental and other rules, laws or regulations applicable to the properties. The acquisition of the properties in our initial portfolio is subject to a number of other conditions beyond our control that may prevent, delay or otherwise materially adversely affect its completion. We cannot predict whether and when these conditions will be satisfied.

        Our development or redevelopment of the properties in our initial portfolio will be subject to negotiation of definitive documentation, receipt of any necessary approvals by us and certain of our lenders and regulatory agencies, and other conditions. There can be no assurance that we will be able to enter into applicable definitive agreements, obtain any necessary approvals or satisfy all of the

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closing conditions or that the closing conditions beyond our control will be satisfied or waived. As such, the consummation of the development or redevelopment projects may not be completed at all, or may not be completed in the time frame, on the terms or in the manner currently anticipated. No assurance can be given that, if we do complete the development or redevelopment projects, the actual cost or completion dates of the developments or redevelopments will not exceed our estimate or that our expected returns will be achieved.

        In addition, our plans for the redevelopment of the Seaport Village and Woodside Senior properties and the development of the North End Landings property include the purchase of additional parcels not currently owned by Avanath and there can be no assurance that we will be able to acquire such parcels in the timeframe or at the prices we have estimated or at all and as a result our plans for the redevelopment or development of such properties may be adversely impacted including in terms of the estimated total project cost, estimated project start and completion dates, expected total number of units and revenues expected to be generated from such number of units.

Potential development and construction delays and resultant increased costs and risks may hinder our operating results and impact our revenues and may cause us to abandon the redevelopment projects, in whole or in part.

        We intend to "substantially improve" the properties in our initial portfolio and other properties we may acquire in order for them to qualify as assets that satisfy the requirements for us to be treated as an Opportunity Zone Fund. The success of the development of the properties in our initial portfolio and such other properties will be subject to the uncertainties associated with the development and construction of real property, including those related to re-zoning land for development, environmental concerns of governmental entities and/or community groups and our builders' ability to build in conformity with plans, specifications, budgeted costs and timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase or the construction contract or to compel performance. A builder's performance may also be affected or delayed by conditions beyond the builder's control. Delays in completing construction could also give tenants the right to terminate preconstruction leases, if any. We may incur additional risks when we make periodic progress payments or other advances to builders before they complete construction. In addition, we expect to incur a number of non-recurring costs associated with the redevelopment projects. We expect that the majority of non-recurring expenses will be comprised of transaction and regulatory costs related to the consummation of the redevelopment projects. These and other factors may increase costs for the development of the properties in our initial portfolio or other projects, materially and adversely impact the operating and financial results of our redevelopment efforts, cause us to abandon the redevelopment projects, in whole or in part, and result in loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly constructed projects. We also must rely on rental income and expense projections and estimates of the fair market value of property upon completion of construction when agreeing upon a purchase price at the time we acquire the property. If our projections are inaccurate, we may pay too much for a property, and the return on our investment could suffer. In addition, to the extent we make or acquire loans to finance construction or renovation projects, risks of cost overruns and non-completion of the construction or renovation of the properties we acquire may adversely affect our investments.

        Such costs may materially and adversely impact the operating and financial results of the redevelopment projects and may cause us to abandon the redevelopment projects, in whole or in part.

Our performance will depend on the collection of rent from our tenants, those tenants' financial condition and the ability of those tenants to maintain their leases.

        A substantial portion of our income will be derived from rental income from real property. As a result, our performance will depend on the collection of rent from our tenants at the properties in our

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portfolio. Our income would be negatively affected if a significant number of our tenants at the properties in our portfolio, among other things: (1) decline to extend or renew leases upon expiration; (2) renew leases at lower rates; (3) fail to make rental payments when due; or (4) become bankrupt or insolvent. Any of these actions could result in the termination of the tenant's lease and our loss of rental income. We cannot be certain that any tenant whose lease expires will renew or that we will be able to re-lease space on economically advantageous terms. The loss of rental revenues from a number of tenants and difficulty replacing such tenants may adversely affect our profitability and our ability to meet our financial obligations.

The illiquidity of real estate investments could significantly impede our ability to respond to changing economic, financial, and investment conditions or changes in the operating performance of our properties, which could adversely affect our business, financial condition, results of operations and cash flows.

        Real estate investments are relatively illiquid and this lack of liquidity may limit our ability to react promptly to changes in the economy or other conditions. Significant expenditures associated with real estate investments, such as secured mortgage payments, real estate taxes, insurance and maintenance costs, are generally not reduced when circumstances cause a reduction in rental revenue. As a result of the illiquidity of the real estate investments, we may not be able to sell a property or properties quickly or on favorable terms in response to changing economic, financial and investment conditions or changes in the property's operating performance when it otherwise may be prudent to do so. We cannot predict whether we will be able to sell any property we desire to sell for the price or on the terms set by us or whether any price or other terms offered by a prospective purchaser would be acceptable to us. We also cannot predict the length of time needed to find a willing purchaser and to close the sale of a property. We may be required to expend funds to correct defects or to make improvements before a property can be sold, and we cannot provide any assurances that we will have funds available to correct such defects or to make such improvements. Our inability to dispose of assets at opportune times or on favorable terms could materially and adversely affect our business, financial condition, results of operations and cash flows. In addition, properties that we own may be subject to takings or eminent domain by the government, which could adversely affect our business, financial condition, results of operations and our ability to make distributions on, and the value of, our common stock.

        Furthermore, the Code imposes restrictions on a REIT's ability to dispose of properties that are not applicable to other types of real estate companies. In particular, the tax laws applicable to REITs require that we hold our properties for investment, rather than primarily for sale in the ordinary course of business, which may cause us to forego or defer sales of properties that otherwise would be in our best interests. Therefore, we may not be able to vary our portfolio promptly in response to economic or other conditions or on favorable terms, which could adversely affect our business, financial condition, results of operations and our ability to make distributions on, and the value of, our common stock.

        In addition, our ability to dispose of properties could be constrained by their tax attributes. Properties which we own for a significant period of time may have low tax bases. If we dispose of these properties outright in taxable transactions, we may be required to distribute the taxable gain to our stockholders under the requirements of the Code applicable to REITs or to pay tax on that gain, either of which, in turn, would impact our cash flow and increase our leverage. To dispose of low basis properties efficiently, we may from time to time use like-kind exchanges, which qualify for non-recognition of taxable gain, but can be difficult to consummate and result in the property for which the disposed assets are exchanged inheriting their low tax bases and other tax attributes.

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Our long-term growth depends in part on successfully identifying and consummating acquisitions of additional properties within Opportunity Zones and the failure to make such acquisitions could materially impede our growth.

        We intend to continue to develop and acquire properties from time to time consistent with our investment strategy as long as we believe such properties offer an attractive total return opportunity, even if real estate markets are not as favorable as they have been in the recent past. Except for the properties in our initial portfolio, you will have no prior opportunity to evaluate the economic merits or the terms of our investments before making a decision to invest in our common stock. We can provide no assurances that we will be successful in identifying attractive properties within Opportunity Zones or that, once identified, we will be successful in consummating an acquisition.

        We expect to finance future acquisitions through a combination of the use of retained cash flows, bank loan borrowings and offerings of equity and debt securities, which may not be available on advantageous terms, or at all. We may also acquire properties in exchange for partnership interests in our subsidiary partnership, subject to compliance with the Opportunity Zone program. We may spend significant time and money on potential acquisitions, including those that we do not consummate. Any delay or failure on our part to identify, negotiate, finance on favorable terms, consummate and integrate such acquisitions could materially impede our growth. If we are unsuccessful in locating suitable investments, other than the properties in our initial portfolio, we may ultimately decide to liquidate. In the event we are unable to timely locate suitable investments, we may be unable or limited in our ability to make distributions on our common stock and we may not be able to meet our business objectives.

Potential declines in real estate valuations and impairment charges could materially and adversely affect our business, financial condition and results of operations.

        We will continuously monitor events and changes in circumstances, including those resulting from an economic downturn that could indicate that the carrying value of the real estate and related intangible assets in which we have an ownership interest may not be recoverable. Examples of such indicators may include a significant decrease in market price, a significant adverse change in the extent or manner the property is being used or in its physical condition, an accumulation of costs significantly in excess of the amount originally expected for the acquisition or development or a history of operating or cash flow losses. When such impairment indicators exist, we review an estimate of the future undiscounted net cash flows (excluding interest charges) expected to result from the real estate investment's use and eventual disposition and compare it to the carrying value of the property. We consider factors such as future operating income, trends and prospects, leasing demand, competition and other factors. If our future undiscounted net cash flow evaluation indicates that we are unable to recover the carrying value of a real estate investment, an impairment loss is recorded to the extent that the carrying value exceeds the estimated fair value of the property. These losses have a direct impact on our net income because recording an impairment loss results in an immediate negative adjustment to net income. The evaluation of anticipated cash flows is highly subjective and is based on numerous assumptions, including future operating income and property operating expenses and capital requirements that could differ materially from actual results in future periods. A worsening real estate market may cause us to re-evaluate the assumptions used in our impairment analysis. Impairment charges could adversely affect our business, financial condition, results of operations and our ability to make distributions on, and the value of, our common stock.

        Projections of expected future cash flows require management to make assumptions to estimate future operating income, property operating expenses and the number of years the property is held for investment, among other factors. The subjectivity of assumptions used in the future cash flow analysis, including discount and capitalization rates, could result in an incorrect assessment of the property's fair value and, therefore, could result in the misstatement of the carrying value of our real estate and

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related intangible assets on our balance sheet and our results of operations. Adverse market and economic conditions and market volatility will likely make it difficult to value the future properties owned by us, as well as the value of our intangible assets. As a result of adverse market and economic conditions and market volatility, there may be significant uncertainty in the valuation, or in the stability of, the cash flows, discount rates and other factors related to such assets that could result in a substantial decrease in their value.

Adverse economic or regulatory developments in the municipalities and states in which we are invested could negatively affect our business, results of operations and financial condition and ability to make distributions on our common stock.

        In the event this offering and the concurrent private placement is consummated and we are able to close on the acquisition of the properties in our initial portfolio, our business will be dependent on the condition of the economy in the municipalities and states in which we are invested. Following the completion of the formation transactions and this offering, the nine properties in our initial portfolio will be located in six states and nine municipalities including Cary, North Carolina; Orlando, Florida; Kissimmee, Florida; Detroit, Michigan; Naperville, Illinois; Irving, Texas; Ontario, California; Long Beach, California; and Oakland, California. This concentration may expose us to greater economic risks than if we owned a more geographically diverse portfolio. We will be susceptible to adverse developments in the economic and regulatory environments of the municipalities in which we are invested (such as business layoffs or downsizing, industry slowdowns, relocations of businesses, rent control, variations in AMI, social unrest, increases in real estate and other taxes, costs of complying with governmental regulations or increased regulation). In addition, we will be subject to similar localized economic conditions with respect to our future investments. Such adverse developments could materially reduce the value of our real estate portfolio and our rental revenues, and thus adversely affect our business, financial condition, results of operations and our ability to make distributions on, and the value of, our common stock.

If we overestimate the value or income-producing ability or incorrectly price the risks of our investments, we may experience losses.

        Analysis of the value or income-producing ability of the properties in our initial portfolio or any property we may acquire in the future is highly subjective and may be subject to error. Our Manager will value our potential investments based on yields and risks, taking into account estimated future losses on select commercial real estate equity investments, and the estimated impact of these losses on expected future cash flows and returns. In the event that we underestimate the risks relative to the price we pay for a particular investment, we may experience losses with respect to such investment.

Our business focuses on real estate investments in Opportunity Zones.

        Our business focuses on real estate investments located in Opportunity Zones. These investments may carry the risks associated with the concentration of real property in economically depressed areas. We may experience losses as a result of such concentration. If economic conditions worsen or fail to improve in line with our expectations in Opportunity Zones in which our investments will be concentrated, our business, financial condition and results of operations could be adversely affected.

Rent control and other changes in similar laws as well as variations in AMI could adversely affect our operations.

        Lower revenue growth or significant unanticipated expenditures may result from our need to comply with changes in (i) rent control or rent stabilization laws or other similar residential landlord/tenant laws, or (ii) variations in AMI. Such changes could limit our ability to raise rents based solely on market conditions. Depending on the nature of such laws or regulations or variations in AMI and the

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number of our apartment communities that become subject to any such resulting restrictions on rent increases, our revenues and net income could be adversely affected.

We may suffer from delays in locating suitable investments in Opportunity Zones, which could limit our ability to make distributions on our common stock and lower the overall return on your investment.

        We will rely upon our Manager's real estate professionals to identify suitable investments. To the extent that our Manager's real estate professionals face competing demands upon their time in instances when we have capital ready for investment, we may face delays in execution.

        Additionally, the current market for properties that meet our investment objectives is often competitive, as is the leasing market for such properties. Except for the properties in our initial portfolio, you will have no prior opportunity to evaluate the terms of transactions or other economic or financial data concerning our future investments. You must rely entirely on the oversight and management ability of our Manager. We cannot be sure that our Manager will be successful in obtaining suitable investments in Opportunity Zones on financially attractive terms.

        We could also suffer from delays in locating suitable investments as a result of the more limited scope of our intended investments in Opportunity Zones and our reliance on our Manager at times when its officers, employees, or agents are simultaneously seeking to locate suitable investments for other programs sponsored by Avanath or MacFarlane. Furthermore, where we acquire properties prior to the start of construction or during the early stages of construction, it will typically take several months to complete construction and rent available space. Therefore, you could suffer delays in the receipt of distributions on our common stock attributable to those particular properties.

There may be a limited supply of multifamily real-estate related assets for us to develop, redevelop or acquire in our existing or target markets, and we will have to compete for opportunities with companies that are larger and have more resources than we do.

        We intend to focus our development and acquisition efforts primarily on multifamily real-estate related assets in underserved, attractive U.S. urban markets. As a result of our strategic focus on these locations and assets within Opportunity Zones, there may be a limited supply of existing properties or vacant land that matches our selection criteria. We will have significant competition with respect to our acquisition of properties and other investments with many other companies, including REITs, insurance companies, commercial banks, private investment funds, hedge funds, specialty finance companies, online investment platforms and other investors, many of which may have greater resources and name recognition than us. Consequently, we may not be able to compete successfully for investments. When we enter new markets or expand in markets where we and our Manager have only a limited presence and limited experience, we face competition from local real estate developers and market participants who may have more established local knowledge and relationships than we do. Such competition is significant, and our failure to successfully compete for the limited supply of properties or locations that match our selection criteria could materially and adversely affect our ability to grow.

        In addition, the number of entities and the amount of funds competing for suitable investments may increase. If we acquire properties and other investments at higher prices than our competitors and/or by using less-than-ideal capital structures, our returns will be lower and the value of our assets may not increase or may decrease significantly below the amount we paid for such assets. If such events occur, you may experience a lower return on your investment in our common stock.

        Furthermore, there may be changes in laws or regulations, or the interpretation thereof, impacting the availability or value of federal or state tax credits and other development incentives. Any decrease in the supply of these designated properties or the availability of tax credits or other development incentives, or any decrease in the investment value of tax credits or incentives, could further limit the

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availability or appeal of properties or locations in our target markets, which could materially and adversely affect our ability to grow, or cause us to alter our current strategy.

Our assets will be subject to the risks typically associated with real estate investments.

        Our assets will be subject to the risks typically associated with real estate investments. The value of real estate may be adversely affected by a number of risks, including:

    natural disasters such as hurricanes, earthquakes and floods;

    acts of war or terrorism, including the consequences of terrorist attacks, such as those that occurred on September 11, 2001;

    adverse changes in national and local economic and real estate conditions;

    the impact of pandemics such as the recent outbreak of COVID-19 or other sudden or unforeseen events that disrupt the economy;

    an oversupply of (or a reduction in demand for) space in the areas where particular properties are located and the attractiveness of particular properties to prospective tenants;

    changes in governmental laws and regulations, fiscal policies and zoning ordinances and the related costs of compliance and the potential for liability under applicable laws;

    costs of remediation and liabilities associated with environmental conditions affecting properties; and

    the potential for uninsured or underinsured property losses.

        The value of real estate properties is typically affected significantly by their ability to generate cash flow and net income, which in turn depends on the amount of rental or other income that can be generated net of expenses required to be incurred with respect to the property. Many expenditures associated with properties (such as operating expenses and capital expenditures) cannot be reduced when there is a reduction in income from the properties. These factors may have a material adverse effect on the value that we can realize from our assets and our business, financial condition and results of operations and our ability to make distributions on, and the value of, our common stock could be adversely affected.

Actual or threatened epidemics, pandemics, outbreaks, or other public health crises may have an adverse impact on our tenants, our tenants' ability to pay rent pursuant to their leases and the profitability of the properties in our portfolio.

        Our tenants and our business could be materially and adversely affected by the risks, or the public perception of the risks, related to an epidemic, pandemic, outbreak, or other public health crisis, such as the recent outbreak of COVID-19. As a result of shutdowns, quarantines, actual viral health issues or loss of employment, tenants at our properties may experience reduced or no wages for a prolonged period of time, may file for personal bankruptcy, or may experience other hardships that affect their ability or willingness to make their rental payments. In the event our tenants are unable or unwilling to make their rental payments to us, in addition to lost rent, we may incur costs in protecting our investment and re-leasing our property. Additionally, local and national authorities may expand or extend certain measures imposing restrictions on our ability to enforce tenants' contractual rental obligations. Local and national authorities may also reduce or discontinue stimulus and relief programs, implemented in response to such events, which may be providing benefits to our residents (or employers of our residents) which may impact their ability to make their rental payments. We have elected in response to the COVID-19 pandemic to discount rent and offer forbearance plans to residents, and may do so in the future, and these practices have resulted, and may in the future result

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in foregone revenue. Due to the COVID-19 pandemic, we have also incurred, and we may in the future as a result of COVID-19 or other epidemics, pandemics, outbreaks or other public health crises incur, an increase in operating expenses related to cleaning and sanitization supplies and temporary increases in our labor costs. In addition, our Property Manager may be limited in its ability to properly maintain our properties and our ability to complete the ground-up development or refurbishment of the properties in our initial portfolio may be inhibited due to social distancing or other restrictions implemented in response to such events. Restrictions inhibiting our employees' ability to meet with existing and potential residents has disrupted and could in the future further disrupt our ability to lease apartments which could adversely impact our rental rate and occupancy levels. We may also face an increased risk of cyber attacks due to an increased reliance on remote working as a result of an epidemic, pandemic, outbreak or other public health crisis. In addition, the deterioration of global economic conditions and increases in unemployment as a result of an epidemic, pandemic, outbreak or other public health crisis may ultimately decrease occupancy levels and pricing across our portfolio as residents reduce or defer their spending.

        Epidemics, pandemics, outbreaks or other public health crises have caused, and may cause in the future, severe economic, market and other disruptions worldwide. Market fluctuations may affect our ability to obtain necessary funds for our operations from lenders. In addition, we may be unable to obtain financing for the acquisition of investments on satisfactory terms, or at all.

        The ultimate extent of the impact of any epidemic, pandemic, outbreak or other public health crisis, including the COVID-19 pandemic, on our business, financial condition and results of operations will depend on future developments, which are highly uncertain, and cannot be predicted, including new information that may emerge concerning the severity of such epidemic, pandemic, outbreak or other public health crisis and actions taken to contain or prevent their further spread, among others. These and other potential impacts of an epidemic, pandemic, outbreak or other public health crisis, such as the COVID-19 pandemic, could therefore materially and adversely affect our business, financial condition and results of operations.

Design, development, redevelopment and construction risks could adversely impact our profitability.

        We intend to invest in, develop, redevelop and manage a portfolio of commercial real estate properties located in Opportunity Zones. These activities may expose us to a number of risks that may increase our construction costs and decrease our profitability, including the following:

    construction delays or cost overruns;

    problems with the construction companies we hire to build or renovate our properties and with their subcontractors, including delays in performance, defective performance, failure to perform and contract disputes, including disputes regarding change orders;

    increased labor costs, labor shortages or labor disruptions;

    increased construction commodity prices, particularly lumber, steel and concrete;

    costs to address or remediate unforeseen or concealed structural deficiencies, termite damage or damage from other pests, environmental, health or safety hazards and other unanticipated problems not contemplated in a project's budget;

    inability to obtain, or delays in obtaining, necessary zoning, land-use, building, licenses, occupancy, and other required permits, authorizations, inspections and approvals;

    opposition from local community or political groups;

    damage or alleged damage to adjacent property owners;

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    health and safety incidents, site accidents and structural failures, which may cause significant property damage, personal injury or loss of life;

    other difficulties related to construction in urban areas such as the need for heightened security measures, higher crime rates, vagrancy, parking and access constraints, protests, civil unrest, interruptions or failure of utilities;

    difficulties complying with complex building codes and other local regulations; and

    incurrence of costs related to the abandonment of development opportunities we pursue and subsequently deem unfeasible.

        Our inability to successfully implement our development, redevelopment, architecture and design and construction strategy could adversely affect our results of operations and our ability to satisfy our financial obligations.

Ongoing requirements for renovations and capital improvements may reduce our profitability and adversely impact our liquidity.

        Acquisitions and developments of properties require significant capital expenditures, and properties that we acquire may need significant renovations and capital improvements at the time of acquisition. All of our properties require periodic capital expenditures for renovations and upgrades to remain competitive. We will have ongoing needs for renovations and capital improvements with respect to the properties that we will own. We may need to make renovations and capital improvements to comply with applicable laws and regulations, to remain competitive with other hotel, apartment and mixed-use properties and to maintain the economic value of our properties.

        We may also undertake other renovations, expansions or additions of new features at our existing properties that involve significant capital expenditures. We may not be able to fund developments and capital improvements solely from cash provided from our operating activities. Consequently, we will rely upon the availability of debt or equity capital to fund developments and improvements. Consequently, our ability maximize the value of our portfolio may be limited if we cannot obtain satisfactory debt or equity financing, which will depend on market conditions and our future performance. The costs of renovations and capital improvements we are required or choose to make could reduce the funds available for other purposes and may reduce our profitability and adversely impact our liquidity.

Many real estate costs are fixed, even if revenue from properties in the initial portfolio or any properties we acquire in the future decreases.

        Many real estate costs, such as real estate taxes, insurance premiums and maintenance costs, are not reduced even when a property is not fully occupied, rental rates decrease, a tenant fails to pay rent or other circumstances cause a reduction in property revenues. In the event that rentable space in properties in the initial portfolio or any other property we may acquire in the future remains vacant, we will still be obligated to pay real estate taxes, insurance premiums and maintenance costs. In addition, neither the properties in the initial portfolio nor any other property we acquire in the future may produce significant revenues immediately, and any such property's operating cash flow may be insufficient to pay the operating expenses and, if financed with debt, the debt service associated with these new properties. If we are unable to offset real estate costs with sufficient revenues from our properties, our business, financial condition and results of operations and our ability to make distributions on, and the value of, our common stock could be materially and adversely affected.

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Increased competition and increased affordability of apartment homes could limit our ability to obtain and retain residents, lease apartment homes or increase or maintain rents at the properties in our initial portfolio and multifamily properties we may acquire or develop.

        The multifamily properties in our initial portfolio that we intend to develop and multifamily properties we may acquire or develop will compete with numerous housing alternatives in attracting residents, including other multifamily properties and single-family rental homes, as well as owner occupied single and multifamily homes. Competitive housing in a particular area and an increase in the affordability of owner occupied single and multifamily homes due to, among other things, declining housing prices, oversupply, mortgage interest rates and tax incentives and government programs to promote home ownership, could adversely affect our ability to retain residents, lease apartment homes and increase or maintain rents.

We could be negatively impacted by the condition of the Federal National Mortgage Association, which we refer to as Fannie Mae, or the Federal Home Loan Mortgage Corporation, which we refer to as Freddie Mac.

        Fannie Mae and Freddie Mac are a major source of financing for secured multifamily rental properties. We may depend heavily on Fannie Mae and Freddie Mac to finance growth by purchasing or guaranteeing apartment loans. In September 2008, the U.S. government assumed control of Fannie Mae and Freddie Mac and placed both companies into a government conservatorship under the Federal Housing Finance Agency. In December 2009, the Obama administration pledged to cover unlimited losses through 2012 for both companies, lifting an earlier cap of $400 billion. In February 2011, the U.S. Department of the Treasury and the Department of Housing and Urban Development released a report to Congress entitled "Reforming America's Housing Finance Market" in which they proposed to reduce or eliminate the role of Fannie Mae and Freddie Mac in mortgage financing. However, the report calls for an expansion of federal financing of multifamily real estate in order to provide greater support for rental housing.

        While we believe Fannie Mae and Freddie Mac will continue to provide liquidity to the multifamily sector, should they discontinue doing so, have their mandates changed or reduced or be disbanded, consolidated or reorganized by the government, it could significantly reduce our access to debt capital and adversely affect our ability to finance or refinance existing indebtedness at competitive rates and it may adversely affect our ability to sell assets. Uncertainty in the future activity and involvement of Fannie Mae and Freddie Mac as a source of financing could negatively impact our ability to make acquisitions and make it more difficult or not possible for us to sell properties or may adversely affect the price we receive for properties that we do sell, as prospective buyers may experience increased costs of debt financing or difficulties in obtaining debt financing. Further, a decision by the government to eliminate Fannie Mae or Freddie Mac or reduce their acquisitions or guarantees of apartment loans may adversely affect interest rates, capital availability, and the development of multifamily properties.

        Governmental actions could also make it easier for individuals to finance loans for single-family homes, which would make renting a less attractive option and could adversely affect our occupancy or rental rates.

Actions of any joint venture partners that we may have in the future could reduce the returns on joint venture investments.

        We may enter into joint ventures to acquire properties and other assets. Subject to compliance with Opportunity Zone program, we may also develop other properties we may acquire in the future in joint ventures or in partnerships, co-tenancies or other co-ownership arrangements. Such investments may involve risks not otherwise present with other methods of investment, including, for example, the following risks:

    that our co-venturer, co-tenant or partner in an investment could become insolvent or bankrupt;

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    that such co-venturer, co-tenant or partner may at any time have economic or business interests or goals that are or that become inconsistent with our business interests or goals;

    that such co-venturer, co-tenant or partner may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives; or

    that disputes between us and our co-venturer, co-tenant or partner may result in litigation or arbitration that would increase our expenses and prevent our officers and directors from focusing their time and effort on our operations.

        Any of the above might subject a property to liabilities in excess of those contemplated and adversely affect our business, financial condition and results of operations and our ability to make distributions on, and the value of, our common stock.

Our projects may encounter significant opposition from local community or political groups or unions, which may damage our goodwill and reputation and adversely affect our financial condition and results of operations.

        We may from time to time face opposition from local community or political groups or unions with respect to the design, development, redevelopment and construction of our properties. For instance, in the past, certain redevelopment efforts in economically depressed and concentrated areas have encountered criticism, skepticism and distrust from within these communities, manifesting in resident protests and petition campaigns. There is a risk that we may face potential opposition to future projects, which may delay or prevent their completion, increase costs, damage our reputation and potentially result in impairment of our goodwill.

        Moreover, any damage to our reputation may limit our ability to develop or maintain local relationships and community ties, which may affect our ability to acquire or develop new properties or obtain financing on favorable terms, and thereby lead to projects and operations that may not be optimal. As a result, if we are unable to effectively manage real or perceived issues that could negatively impact sentiments toward us, our results of operations and financial condition could be adversely affected.

The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property or of paying personal injury or other damage claims could negatively and adversely affect our business, financial condition and results of operations and our ability to make distributions on our common stock.

        Under various federal, state and local environmental laws, ordinances and regulations, a current or previous real property owner or operator may be liable for the cost of removing or remediating hazardous or toxic substances on, under or in such property. These costs could be substantial. Such laws often impose liability whether or not the owner or operator knew of, or was responsible for, the presence of such hazardous or toxic substances. Environmental laws also may impose restrictions on the manner in which property may be used or businesses may be operated, and these restrictions may require substantial expenditures or prevent us from entering into leases with prospective tenants that may be impacted by such laws. Environmental laws provide for sanctions for noncompliance and may be enforced by governmental agencies or, in certain circumstances, by private parties. Certain environmental laws and common law principles could be used to impose liability for the release of and exposure to hazardous substances, including asbestos-containing materials and lead-based paint. Third parties may seek recovery from real property owners or operators for personal injury or property damage associated with exposure to released hazardous substances and governments may seek recovery for natural resource damage. The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property, or of paying personal injury, property damage or natural resource damage claims could reduce our

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revenues and consequently our business, financial condition and results of operations and our ability to make distributions on, and the value of, our common stock.

        We expect that all of our properties will be subject to Phase I environmental assessments at the time they are acquired; however, such assessments may not provide complete environmental histories due, for example, to limited available information about prior operations at the properties or other gaps in information at the time we acquire the property. A Phase I environmental assessment is an initial environmental investigation to identify potential environmental liabilities associated with the current and past uses of a given property. If any of our properties were found to contain hazardous or toxic substances after our acquisition, the value of our investment could decrease below the amount paid for such investment. In addition, real estate-related investments in which we invest may be secured by properties with recognized environmental conditions. Where we are secured creditors, we will attempt to acquire contractual agreements, including environmental indemnities, that protect us from losses arising out of environmental problems in the event the property is transferred by foreclosure or bankruptcy; however, no assurances can be given that such indemnities would fully protect us from responsibility for costs associated with addressing any environmental problems related to such properties.

Costs imposed pursuant to governmental laws and regulations may reduce our revenues and the cash available to make distributions on our common stock.

        Real property and the operations conducted on real property are subject to federal, state and local laws and regulations relating to protection of the environment and human health. We could be subject to liability in the form of fines, penalties or damages for noncompliance with these laws and regulations. These laws and regulations generally govern wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials, the remediation of contamination associated with the release or disposal of solid and hazardous materials, the presence of toxic building materials and other health and safety-related concerns.

        Some of these laws and regulations may impose joint and several liability on the tenants, owners or operators of real property for the costs to investigate or remediate contaminated properties, regardless of fault, whether the contamination occurred prior to purchase, or whether the acts causing the contamination were legal. Activities of our tenants, the condition of properties at the time we buy them, operations in the vicinity of our properties, such as the presence of underground storage tanks, or activities of unrelated third parties may affect our properties.

        The presence of hazardous substances, or the failure to properly manage or remediate these substances, may hinder our ability to sell, rent or pledge such property as collateral for future borrowings. Any material expenditures, fines, penalties or damages we must pay will reduce our ability to make distributions and may reduce the value of your investment.

Compliance with the Americans with Disabilities Act and fire, safety and other regulations may require us to make expenditures that adversely affect our cash flows.

        The properties in our initial portfolio are, and the other properties we may acquire in the future will be, required to comply with the Americans with Disabilities Act ("ADA"). The ADA has separate compliance requirements for "public accommodations" and "commercial facilities," but generally requires that buildings be made accessible to people with disabilities. Compliance with the ADA requirements could require removal of access barriers, and non-compliance could result in imposition of fines by the United States government or an award of damages to private litigants, or both. We could be required to expend substantial funds to comply with the provisions of the ADA, which could adversely affect our results of operations and financial condition. In addition, we are required to

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operate our properties in compliance with fire and safety regulations, building codes and other land use regulations, as they may be adopted by governmental agencies and bodies and become applicable to our properties. We may be required to make substantial capital expenditures to comply with, and we may be restricted in our ability to renovate our properties subject to, those requirements. The resulting expenditures and restrictions could have an adverse effect on our cash flows and our ability to make distributions on our common stock.

Uninsured losses relating to real property or excessively expensive premiums for insurance coverage could reduce our cash flows and the return on an investment in our common stock.

        There are types of losses, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, that are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. Insurance risks associated with potential acts of terrorism could sharply increase the premiums we pay for coverage against property and casualty claims. We will carry commercial liability, property and rental loss insurance covering the properties in our initial portfolio. We expect to select policy specifications and insured limits which we believe to be appropriate given the relative risk of loss, the cost of the coverage and industry practice. We do not expect to carry insurance for generally uninsurable losses such as loss from war. If any of our properties incurs a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss, which may reduce the value of your investment. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced net income that would result in lower distributions on our common stock.

        In addition, insurance may not cover all potential losses on properties that we may acquire, which may impair our security and harm the value of our assets. There are certain types of losses, generally of a catastrophic nature, such as earthquakes, floods and hurricanes that may be uninsurable or not economically insurable. Inflation, changes in building codes and ordinances, environmental considerations, and other factors also might make it infeasible to use insurance proceeds to replace a property if it is damaged or destroyed. Under such circumstances, the insurance proceeds, if any, might not be adequate to restore the economic value of properties in our portfolio, which might decrease the value of such property.

Certain of our properties may be subject to ground leases. If these ground leases are terminated unexpectedly, our interests in such properties could be materially and adversely affected.

        A ground lease is a lease of land, usually on a long-term basis, that does not include buildings or other improvements on the land. Normally, any real property improvements made by the lessee during the term of the lease will revert to the owner at the end of the lease term. We may acquire properties in the future that are subject to ground leases. If these ground leases were to expire or terminate unexpectedly, our interests in such properties could be materially and adversely affected.

Future disruptions in the financial markets or deteriorating economic conditions could adversely impact the commercial real estate market as well as the market for equity-related investments generally, which could hinder our ability to implement our business strategy and generate returns to you.

        We intend to acquire a diversified portfolio of urban multifamily and mixed-use assets located in Opportunity Zones. Economic conditions greatly increase the risks of these investments. The success of our business is significantly related to general economic conditions and, accordingly, our business could be harmed by an economic slowdown and downturn in real estate asset values, property sales and leasing activities. Periods of economic slowdown or recession, significantly rising interest rates, declining employment levels, decreasing demand for real estate, declining real estate values, or the public

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perception that any of these events may occur, can reduce volumes for many of our business lines. These economic conditions could result in a general decline in acquisition, disposition and leasing activity, as well as a general decline in the value of real estate and in rents, which in turn would reduce revenue from property management fees and brokerage commissions derived from property sales, leases and mortgage brokerage as well as revenues associated with investment management and/or development activities. In addition, these conditions could lead to a decline in property sales prices as well as a decline in funds invested in existing commercial real estate assets and properties planned for development.

        Future disruptions in the financial markets or deteriorating economic conditions may also impact the market for our investments and the volatility of our investments. The returns available to investors in our targeted investments are determined, in part, by the supply and demand for such investments and the existence of a market for such investments, which includes the ability to sell or finance such investments. During periods of volatility, the number of investors participating in the market may change at an accelerated pace. If either demand or liquidity increases, the cost of our targeted investments may increase. As a result, we may have fewer funds available to make distributions on our common stock.

        During an economic downturn, it may also take longer for us to dispose of real estate investments or the selling prices may be lower than originally anticipated. As a result, the carrying value of our real estate investments may become impaired and we could record losses as a result of such impairment or we could experience reduced profitability related to declines in real estate values. Further, as a result of our target leverage, our exposure to adverse general economic conditions is heightened.

        These negative general economic conditions could reduce the overall amount of sale and leasing activity in the commercial real estate industry, and hence the demand for our services. We are unable to predict the likely duration and severity of disruptions in financial markets and adverse economic conditions in the United States and other countries. Our revenues and profitability depend on the overall demand for our services from our clients. While it is possible that the increase in the number of distressed sales and resulting decrease in asset prices will eventually translate to greater market activity, an overall reduction in sales transaction volume could materially and adversely impact our business, financial condition and results of operations and our ability to make distributions on, and the value of, our common stock.

        All of the factors described above could adversely impact our ability to implement our business strategy and our ability to make distributions on, and the value of, our common stock.

Our Manager and its affiliates have no prior experience operating a publicly-traded REIT or an Opportunity Zone Fund and therefore may have difficulty in successfully operating our company.

        Our Manager and its affiliates have no prior experience operating a publicly-traded REIT or an Opportunity Zone Fund. Our board of directors and our Manager will have overall responsibility for our management and, while our directors and our Manager have extensive experience in real estate marketing, development, management and finance, and Daryl J. Carter, our President and CEO, and Victor MacFarlane, who will serve as the chairman of our board of directors upon completion of this offering, have experience sitting on boards of publicly traded REITs, none of our directors or our Manager have prior experience in operating our business in accordance with the requirements under the Code applicable to publicly-traded REITs or Opportunity Zone Funds. We will be required to develop and implement substantial control systems, policies and procedures in order to maintain our REIT qualification and our qualification as an Opportunity Zone Fund. We cannot assure you that our Manager's past experience will be sufficient to successfully develop and implement these systems, policies and procedures and to operate our company. Failure to do so could jeopardize our status as a REIT or an Opportunity Zone Fund, and the loss of such status would materially and adversely affect us. See "—Risks Related to Our Qualification and Operation as a REIT" and "—Risks Related to Our Intended Qualification as an Opportunity Zone Fund."

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Our board of directors has approved broad investment guidelines for our Manager and will not approve each investment and financing decision made by our Manager unless required by our investment guidelines.

        Our Manager is authorized to follow broad investment guidelines established by our board of directors. Our board of directors will periodically review our investment guidelines and our portfolio of assets but will not, and will not be required to, review all of our proposed investments, except in limited circumstances as set forth in our investment policies. In addition, in conducting periodic reviews, our board of directors may rely primarily on information provided to them by our Manager. Furthermore, transactions entered into by our Manager may be costly, difficult or impossible to unwind by the time they are reviewed by our board of directors. Our Manager has great latitude within the broad parameters of our investment guidelines in determining the types and amounts of assets in which to invest on our behalf, including making investments that may result in returns that are substantially below expectations or result in losses, which would materially and adversely affect our results of operations, or may otherwise not be in the best interests of our stockholders.

Our business strategies may not be effective or may change over time.

        We may not be able to effectively improve our financial position and maximize the attractiveness of our properties to our tenants in accordance with our business strategy. Even if we can appropriately gauge the needs and desires of our tenants and end-consumers or industry trends, we may not be able to execute our business strategies on a timely basis, if at all. In addition, we may not be able to enhance the tenant or end-consumer experience in our properties for several reasons outside of our control, including a lack of adequate funding, unforeseen changes to end-consumer behavior patterns or internal or branding changes among our tenants. Finally, we may not have sufficient capital or funding sources to fully pursue our business strategies. As a result, our strategies may not effectively grow our business or revenues as intended. We also may change our strategies over time and there can be no assurance that any new strategies will be effective.

We may be subject to litigation or threatened litigation, which may require us to pay damages and expenses or restrict the operation of our business.

        We may be subject to litigation or threatened litigation in the ordinary course of business. In particular, we will be subject to the risk of complaints and threatened or actual litigation by contractors, developers and other professionals involved in the development of the properties in our initial portfolio or any other properties we may acquire in the future and by our tenants involving the lease agreements we enter into and certain of our rights thereunder. We may also be subject to the risk of premises liability claims, which may give rise to litigation or governmental investigations, as well as claims and litigation relating to real estate rights or uses of our properties. Some of these claims may result in significant defense costs and potentially significant judgments against us, some of which are not, or cannot be, insured against. The resolution of any claims could involve the payment of damages or expenses by us, which may be significant, or involve our agreement with terms that restrict the operation of our business. Resolution of these types of matters against us may result in our having to pay significant fines, judgments, or settlements, which, if uninsured, or if the fines, judgments, and settlements exceed insured levels, could adversely impact our earnings and cash flows, thereby having an adverse effect on our financial condition, results of operations, cash flows and our ability to pay distributions on, and the per share market price of, our common stock. Certain litigation or the resolution of certain litigation may affect the availability or cost of some of our insurance coverage and could expose us to increased risks that would be uninsured, and/or adversely impact our ability to attract officers and directors, which could adversely impact our business, financial condition and results of operations and our ability to make distributions on, and the value of, our common stock.

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Our property taxes could increase due to property tax rate changes or reassessments, which may adversely impact our cash flows.

        Even if we qualify as a REIT for U.S. federal income tax purposes, we will be required to pay certain other taxes on our properties. The real property taxes on our properties may increase as property tax rates in jurisdictions in which our properties will be located change or as our properties are assessed or reassessed by taxing authorities. Therefore, the amount of property taxes we pay may increase substantially from time to time. If the property taxes we pay increase, our cash flow may be adversely impacted, and our ability to make distributions on our common stock to our stockholders could be adversely affected.

        Tax changes in jurisdictions in which our properties will be located may have an adverse effect on us.


Risks Related to Our Relationship with Our Manager and the Management Agreement

We have no employees and will be entirely dependent upon our Manager for all the services we require, and we cannot assure you that our Manager will allocate the resources necessary to meet our business objectives.

        Because we are "externally managed," we will not retain our own personnel, but will instead depend upon our Manager and its affiliates for virtually all of the services we require. Our Manager selects and manages the acquisition of properties that meet our investment criteria; administers the collection of rents, monitors lease compliance by our tenants and deals with vacancies and re-letting of our properties; coordinates the sale of our properties; provides financial and regulatory reporting services; communicates with our stockholders, causes us to pay distributions to our stockholders and arranges for transfer agent services; and provides all of our other administrative services. Accordingly, our success is largely dependent upon the expertise and services of the executive officers and other key personnel provided to us through our Manager.

Our Manager may be unable to obtain or retain the executive officers and other key personnel that it provides to us.

        Our success depends to a significant degree upon the executive officers and other key personnel that our Manager provides to us. In particular, we rely on the services of Daryl J. Carter, our President and Chief Executive Officer, Jun Sakumoto, our Senior Vice President and Chief Operating Officer, Wesley Wilson, our Senior Vice President, Chief Financial Officer and Treasurer, and Ellen Guccione, our Secretary. In addition to these executive officers, we also rely on other key personnel that are provided to us through our Manager. We cannot guarantee that all, or any particular one of these executive officers and other key personnel, will remain affiliated with our Manager and us. We do not separately maintain key person life insurance on any person. Failure by our Manager to retain any of the executive officers and other key personnel provided to us through our Manager and to hire and retain additional highly skilled managerial, operational and marketing personnel could have a material adverse effect on our ability to achieve our investment objectives, lessen or eliminate the benefits of potentially becoming self-managed in the future and could result in us incurring excess costs and suffering deficiencies in our disclosure controls and procedures or our internal control over financial reporting.

The base management fee payable to our Manager pursuant to the management agreement is payable regardless of the performance of our portfolio, which may reduce our Manager's incentive to devote the time and effort to seeking profitable investment opportunities for us.

        We pay our Manager a base management fee pursuant to the management agreement, which may be substantial, based on our "Equity" (as defined in the management agreement) regardless of the performance of our portfolio of properties. Our Manager's entitlement to non-performance-based compensation might reduce its incentive to seek profitable investment opportunities for us, which could result in a lower performance of our portfolio and materially adversely affect us.

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The incentive fee payable to our Manager pursuant to the management agreement may cause our Manager to select investments in more risky assets to increase its incentive compensation.

        Our Manager has the ability to earn incentive fees based on our total stockholder return exceeding an 8% cumulative annual hurdle rate, which may create an incentive for our Manager to invest in properties with a purchase price reflecting a higher potential yield, that may be riskier or more speculative, or sell an investment prematurely for a gain, in an effort to increase our short-term gains and thereby increase our stock price and the incentive fees to which it is entitled. If our interests and those of our Manager are not aligned, the execution of our business plan and our results of operations could be adversely affected, which could materially and adversely affect the market price of our common stock and our ability to make distributions to our stockholders.

There are conflicts of interest in our relationships with our Manager and its affiliates, which could result in outcomes that are not in our best interests.

        We are subject to conflicts of interest arising out of our relationships with our Manager and its affiliates. Pursuant to the management agreement, our Manager is obligated to supply us with our management team. However, our Manager is not obligated to dedicate any specific personnel exclusively to us, nor are the personnel provided to us by our Manager obligated to dedicate any specific portion of their time to the management of our business.

        In addition to our initial portfolio, we may acquire or sell properties in which our Manager or its affiliates have or may have an interest. Similarly, our Manager or its affiliates may acquire or sell properties in which we have or may have an interest. Although such acquisitions or dispositions may present conflicts of interest, we nonetheless may pursue and consummate such transactions so long as any such transactions are approved by a majority of our independent directors. Additionally, we may engage in transactions directly with our Manager or its affiliates, including the purchase and sale of all or a portion of a portfolio of assets. If we acquire a property from our Manager or one of its affiliates, such as the properties comprising our initial portfolio, or if we sell a property to our Manager or one of its affiliates, the purchase price we pay to our Manager or one of its affiliates or the purchase price paid to us by our Manager or one of its affiliates may be higher or lower, respectively, than the purchase price that would have been paid to or by us if the transaction were the result of arms' length negotiations with an unaffiliated third party.

        We also may encounter conflicts of interest with respect to Avanath IV or future vehicles managed by our Manager that have similar investment criteria to us, and there can be no assurance that we will benefit from all investments sourced by our Manager that may be suitable for us.

        We have certain policies to address such conflicts of interest. For example, any transaction by and between one or more of the Manager, Avanath, MacFarlane, or their respective affiliates and us will contain terms no more favorable than if the transaction were the result of arms' length negotiations with an unaffiliated third party and will require the approval of a majority of our independent directors. Also, our management agreement contains a provision that is intended to enable us to share equitably with other clients of our Manager and its affiliates in all opportunities that may be suitable for us and such other clients and that will provide us with priority allocation of all investment opportunities that are suitable for us, but are unsuitable for Avanath IV, including investment opportunities that require development and stabilized properties owned or controlled by Avanath. Prior to the expiration of its investment period, Avanath IV will have priority allocation with respect to those investment opportunities that may be suitable for Avanath IV. Upon the expiration of Avanath IV's investment period, and with no change to the allocation provision set forth in our management agreement, we will have priority access to all investment opportunities sourced by our Manager and its affiliates. Avanath IV's investment period ends upon the earlier of deployment of 90% of Avanath IV's commitments and May 31, 2022, provided that the investment period can be extended for one year with

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the approval of a majority of Avanath IV's advisory committee. The investment allocation policy described above could be waived or revised at any time by a majority of our independent directors without the consent of our stockholders. There can be no assurance that our board of directors will not modify any of the policies discussed above or that such policies will be effective.

Our Manager's failure to identify and acquire properties that meet our investment criteria or perform its responsibilities under the management agreement could materially and adversely affect our business, financial condition and results of operations and our ability to make distributions to our stockholders.

        Our ability to achieve our objectives depends on our Manager's ability to identify and acquire properties that meet our investment criteria. Accomplishing our objectives is largely a function of our Manager's structuring of our investment process, our access to financing on acceptable terms and general market conditions. Our stockholders will not have input into our investment decisions. All of these factors increase the uncertainty, and thus the risk, of investing in our common stock. The executive officers and other key personnel provided to us through our Manager have substantial responsibilities under the management agreement. In order to implement certain strategies, our Manager may need to hire, train, supervise and manage new employees successfully. Any failure by our Manager to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations, our ability to qualify and maintain our qualification as a REIT and our ability to make distributions to our stockholders.

Our Manager's liability is limited under the management agreement, and we have agreed to indemnify our Manager against certain liabilities. As a result, we could experience poor performance or losses for which our Manager would not be liable.

        Pursuant to the management agreement, our Manager will not assume any responsibility other than to render the services called for thereunder and will not be responsible for any action of our board of directors in following or declining to follow its advice or recommendations. Our Manager maintains a contractual, as opposed to a fiduciary relationship, with us. Under the terms of the management agreement, our Manager, its officers, members and personnel, any person controlling or controlled by our Manager and any person providing sub-advisory services to our Manager will not be liable to us, any subsidiary of ours, our directors, our stockholders or any subsidiary's stockholders or partners for acts or omissions performed in accordance with and pursuant to the management agreement, except those resulting from acts constituting gross negligence, willful misconduct, bad faith or reckless disregard of our Manager's duties under the management agreement.

        In addition, we have agreed to indemnify our Manager and each of its officers, directors, members, managers and employees from and against any claims or liabilities, including reasonable legal fees and other expenses reasonably incurred, arising out of or in connection with our business and operations or any action taken or omitted on our behalf pursuant to authority granted by the management agreement, except where attributable to gross negligence, willful misconduct, bad faith or reckless disregard of such person's duties under the management agreement. As a result, we could experience poor performance or losses for which our Manager would not be liable.

Termination of the management agreement could be difficult and costly, including as a result of termination fees, and may cause us to be unable to execute our business plan.

        If we fail to renew the management agreement, or terminate the agreement, other than for a termination for cause, we will be obligated to pay our Manager a termination fee as described in "Our Manager and the Management Agreement—Management Agreement—Term; Termination and Termination Fee." Such a payment would likely be a substantial one-time charge that could render unattractive, or not economically feasible, the termination of our Manager, even if it performed poorly. In addition, any termination of the management agreement would end our Manager's obligation to

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provide us with our executive officers and key personnel upon whom we rely for the operation of our business.

If our Manager ceases to be our manager pursuant to the management agreement, counterparties to our agreements may cease doing business with us.

        If our Manager ceases to be our manager, it could constitute an event of default or early termination event under financing and other agreements we may enter into in the future, upon which our counterparties may have the right to terminate their agreements with us. If our Manager ceases to be our manager for any reason, including upon the non-renewal of the management agreement, our business, financial condition and results of operations and our ability to make distributions to our stockholders may be materially adversely affected.

If we internalize our management functions, your interest in our company could be diluted, and we could incur other significant costs associated with being self-managed.

        In the future, our board of directors may consider internalizing the functions performed for us by our Manager by, among other methods, acquiring our Manager's assets or acquiring the equity interests in our Manager. The management agreement will require that an internalization transaction have an Offer Price that shall not exceed the amount that will allow the internalization transaction to be accretive on an estimated FFO per share basis over the 12-month period beginning on the first day of the quarter following the closing of the internalization transaction, as determined by the Special Committee based on discussions with our Manager as described in "Our Manager and the Management Agreement—Management Agreement—Internalization of Our Manager;" however, there is no assurance that internalizing our management functions will be accretive on an FFO per share basis following the closing of the internalization transaction or be beneficial to us or our stockholders. In the event of an internalization of our Manager by us, certain key personnel of our Manager may remain employees of our Manager or its affiliates rather than becoming our employees, which could make it difficult for us to manage our business effectively. An acquisition of our Manager could also result in dilution of your interests as a stockholder. Additionally, we may not realize the perceived benefits or we may not be able to properly integrate our Manager's operations with ours, or we may not be able to effectively replicate the services provided previously by our Manager or its affiliates under the management agreement. In addition, if we become internally managed, our overhead costs may increase by an amount that is greater than the costs of the base management fees, incentive fees and expense reimbursements that we would no longer bear, as we would be responsible for compensation and benefits of all of our officers and other employees, including those who were previously paid by our Manager as well as new employees that we would be required to hire and pay. Internalization transactions, including without limitation, transactions involving the acquisition of external advisors or property managers affiliated with entity sponsors have also, in some cases, been the subject of litigation. Even if these claims are without merit, we could be forced to spend significant amounts of money defending claims which would reduce the amount of funds available for us to invest in properties or other investments and to pay distributions to our stockholders. All of these factors could have a material adverse effect on us.

The management agreement with our Manager and the property management agreements with our Property Manager were not negotiated on an arm's-length basis and may not be as favorable to us as if they had been negotiated with unaffiliated third parties.

        The management agreement with our Manager and the property management agreements with our Property Manager were negotiated between related parties and before our independent directors were elected, and the terms of the management agreement and the property management agreements, including the fees payable to our Manager and our Property Manager, may not be as favorable to us as

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if they had been negotiated with unaffiliated third parties. The terms of the management agreement and the property management agreements may not reflect our long-term best interests and may be overly favorable to our Manager, our Property Manager and their affiliates (other than us and our subsidiaries). Further, we may choose not to enforce, or to enforce less vigorously, our rights under the management agreement or the property management agreements because of our desire to maintain our ongoing relationship with our Manager, our Property Manager and their affiliates.


Risks Related to Our Financing Activities

Our growth depends on external sources of capital that are outside of our control and may not be available to us on commercially reasonable terms or at all.

        In order to qualify and maintain our qualification as a REIT, we will be required under the Code, among other things, to distribute annually at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain. In addition, we will be subject to income tax at the U.S. federal corporate income tax rate to the extent that we distribute less than 100% of our REIT taxable income, determined without regard to the dividends paid deduction and including any net capital gain. Because of these distribution requirements, we may not be able to fund future capital needs, including any necessary acquisition financing, from operating cash flow. Consequently, we may rely on third-party sources to fund our capital needs. We may not be able to obtain financing on favorable terms or at all. Any additional debt we incur will increase our leverage and likelihood of default. Our access to third-party sources of capital depends, in part, on:

    general market conditions;

    the market's perception of our growth potential;

    our current debt levels;

    our current and expected future earnings;

    our cash flow and cash distributions; and

    the market price per share of our common stock.

        If we cannot obtain capital from third-party sources, we may not be able to acquire properties when strategic opportunities exist, meet the capital and operating needs of our existing properties, satisfy our debt service obligations or make the cash distributions to our stockholders necessary to qualify and maintain our qualification as a REIT.

Our organizational documents have no limitation on the amount of additional indebtedness that we may incur in the future. As a result, we may become highly leveraged in the future, which could adversely affect our financial condition.

        After the closing of this offering, the concurrent private placement and the formation transactions, we anticipate entering into a $150 million revolving credit facility and, in the future, we may incur additional indebtedness to finance future acquisitions and redevelopment and renovation projects and for general corporate purposes. There are no restrictions in our charter or bylaws that limit the amount or percentage of indebtedness that we may incur nor restrict the form in which our indebtedness will be incurred (including recourse or non-recourse debt or cross-collateralized debt).

        A substantial level of indebtedness in the future could have adverse consequences for our business, results of operations and financial condition because it could, among other things:

    require us to dedicate a substantial portion of our cash flow from operations to make principal and interest payments on our indebtedness, thereby reducing our cash flow available to fund working capital, capital expenditures and other general corporate purposes, including to pay

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      dividends on our common stock as currently contemplated or necessary to satisfy the requirements for qualification as a REIT;

    increase our vulnerability to general adverse economic and industry conditions and limit our flexibility in planning for, or reacting to, changes in our business and our industry;

    limit our ability to borrow additional funds or refinance indebtedness on favorable terms or at all to expand our business or ease liquidity constraints; and

    place us at a competitive disadvantage relative to competitors that have less indebtedness.

The agreements governing our indebtedness are likely to place restrictions on us and our subsidiaries, reducing operational flexibility and creating default risks.

        The agreements governing our anticipated $150 million revolving credit facility and other indebtedness that we may incur in the future contain or may contain covenants that place restrictions on us and our subsidiaries. These covenants may restrict, among other activities, our and our subsidiaries' ability to:

    merge, consolidate or transfer all or substantially all of our or our subsidiaries' assets;

    sell, transfer, pledge or encumber our stock or the ownership interests of our subsidiaries;

    incur additional debt or issue preferred stock;

    make certain expenditures, including capital expenditures;

    pay dividends on or repurchase our capital stock; and

    enter into certain transactions with affiliates.

        These covenants could impair our ability to grow our business, take advantage of attractive business opportunities or successfully compete. Our ability to comply with financial and other covenants may be affected by events beyond our control, including prevailing economic, financial and industry conditions. A breach of any of these covenants or covenants under any other agreements governing our indebtedness could result in an event of default. Any cross-default provisions in our debt agreements could cause an event of default under one debt agreement to trigger an event of default under our other debt agreements. Upon the occurrence of an event of default under any of our debt agreements, our lenders could elect to declare all outstanding debt under such agreements to be immediately due and payable. If we were unable to repay or refinance the accelerated debt, our lenders could proceed against any assets pledged to secure that debt, including foreclosing on or requiring the sale of any properties securing that debt, and the proceeds from the sale of these properties may not be sufficient to repay such debt in full.

Mortgage debt obligations expose us to the possibility of foreclosure, which could result in the loss of our investment in any property subject to mortgage debt.

        Future borrowings may be secured by mortgages on our properties. Incurring mortgage and other secured debt obligations increases our risk of losses because defaults on secured indebtedness may result in foreclosure actions initiated by lenders and ultimately our loss of the properties securing any loans for which we are in default. If we are in default under a cross-defaulted mortgage loan, we could lose multiple properties to foreclosure. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but would not receive any cash proceeds, which could hinder our ability to meet the REIT distribution requirements imposed by the Code. As we execute our business plan, we may assume or incur new mortgage indebtedness on

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our properties. Any default under any mortgage debt obligation we incur may increase the risk of our default on our other indebtedness, including indebtedness under our anticipated $150 million revolving credit facility.

An increase in interest rates would increase our interest costs on our variable rate debt and could adversely impact our ability to refinance existing debt or sell assets.

        Future borrowings under our anticipated $150 million revolving credit facility will bear interest at variable rates. An increase in interest rates would increase our interest payments and reduce our cash flow available for other corporate purposes. In addition, rising interest rates could limit our ability to refinance debt when it matures and increase interest costs on any debt that is refinanced. Further, an increase in interest rates could increase the cost of financing, thereby decreasing the amount third parties are willing to pay for our properties, which would limit our ability to dispose of properties when necessary or desired.

        In addition, we may enter into hedging arrangements in the future. Our hedging arrangements may include interest rate swaps, caps, floors and other interest rate hedging contracts. Our hedging arrangements could reduce, but may not eliminate, the impact of rising interest rates, and they could expose us to the risk that other parties to our hedging arrangements will not perform or that the agreements relating to our hedges may not be enforceable.

We may not be able to obtain a revolving credit facility on the indicative terms described in this prospectus or at all.

        We intend to enter into a revolving credit facility following completion of this offering and the formation transactions. We have negotiated indicative terms for the facility with the administrative agent, Wells Fargo Bank, National Association, but we have not obtained commitments for the full amount of the anticipated revolving credit facility. We cannot assure you that we will obtain commitments for the full amount of the anticipated revolving credit facility. Furthermore, our ability to obtain the credit facility remains subject to satisfaction of the lenders' due diligence, the negotiation of a definitive credit agreement and other customary closing conditions. These efforts are ongoing, but we may not succeed in obtaining the anticipated revolving credit facility on the indicated terms or at all. Our failure to obtain this credit facility could adversely affect our ability to grow our business and meet our obligations as they come due.


Risks Related to Our Organization and Structure

Our charter contains stock ownership limits, which may delay, defer or prevent a change of control.

        We intend to elect and qualify to be treated as a REIT commencing with our taxable year ending December 31, 2020. In order for us to qualify and maintain our qualification as a REIT for each taxable year thereafter, commencing with our taxable year ending December 31, 2021, no more than 50% in value of our outstanding capital stock may be owned, directly or indirectly, by five or fewer individuals during the last half of any calendar year, and at least 100 persons must beneficially own our stock during at least 335 days of a taxable year of 12 months or during a proportionate portion of a shorter taxable year. "Individuals" for this purpose include natural persons, private foundations, some employee benefit plans and trusts and some charitable trusts. To assist us in complying with these limitations, among other purposes, our charter generally prohibits any person from directly or indirectly owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our capital stock. These ownership limitations could have the effect of discouraging a takeover or other transaction in which holders of our common stock might receive a premium for their shares over the then prevailing market price or which holders might believe to be

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otherwise in their best interests. For further details regarding stock ownership limits, see "Description of Capital Stock—Restrictions on Ownership and Transfer."

        Our charter's constructive ownership rules are complex and may cause the outstanding shares owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity. As a result, the acquisition of less than 9.8% of the outstanding shares of any class or series of our stock by an individual or entity could still cause that individual or entity to own constructively in excess of these percentages of the outstanding shares and thus violate the share ownership limit. Our charter also provides that any attempt to own or transfer shares of such class or series of our common stock or preferred stock (if and when issued) in excess of the stock ownership limit without the consent of our board of directors or in a manner that would cause us to be "closely held" under Section 856(h) of the Code (without regard to whether the shares are held during the last half of a taxable year) or otherwise cause us to fail to qualify as a REIT will result in the shares being automatically transferred to a trustee for a charitable trust or, if the transfer to the charitable trust is not automatically effective to prevent a violation of the share ownership limits or the restrictions on ownership and transfer of our shares, any such transfer of our shares will be null and void.

Our board of directors may change our strategies, policies or procedures without stockholder consent, which may subject us to different and more significant risks in the future.

        Our investment, financing, leverage and distribution policies and our policies with respect to all other activities, including growth, debt, capitalization and operations, will be determined by our board of directors. These policies may be amended or revised at any time and from time to time at the discretion of the board of directors without notice to or a vote of our stockholders. This could result in us conducting operational matters, making investments or pursuing different business or growth strategies than those contemplated in this prospectus. Under these circumstances, we may expose ourselves to different and more significant risks in the future, which could have a material adverse effect on our business and growth. In addition, our board of directors may change our policies with respect to conflicts of interest, provided that such changes are consistent with applicable legal requirements.

We may assume unknown liabilities in connection with the formation transactions, which, if significant, could materially and adversely affect us.

        As part of the formation transactions, we will acquire the properties in our initial portfolio subject to existing liabilities, some of which may be unknown at the time this offering is consummated. Unknown liabilities might include claims of tenants, vendors or other persons dealing with such entities prior to this offering (that had not been asserted or threatened prior to this offering), tax liabilities and accrued but unpaid liabilities incurred in the ordinary course of business. Any unknown or unquantifiable liabilities that we assume in connection with the formation transactions for which we have no or limited recourse could materially and adversely affect us. See "—Risks Related to Our Business and Properties—The costs of defending against claims of environmental liability, of complying with environmental regulatory requirements, of remediating any contaminated property or of paying personal injury or other damage claims could negatively and adversely affect our business, financial condition and results of operations and our ability to make distributions on our common stock." as to the possibility of environmental conditions potentially affecting us.

Our rights and the rights of our stockholders to take action against our directors and officers are limited, which could limit your recourse in the event of actions not in your best interest.

        Our charter eliminates the liability of our present and former directors and officers to us and our stockholders for money damages to the maximum extent permitted under Maryland law. Under current Maryland law, our present and former directors and officers will not have any liability to us or our

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stockholders for money damages other than liability resulting from (i) actual receipt of an improper benefit or profit in money, property or services or (ii) active and deliberate dishonesty by the director or officer that was established by a final judgment and is material to the cause of action. In addition, we intend to enter into indemnification agreements with each of our directors and executive officers that will obligate us to indemnify them to the maximum extent permitted by Maryland law as discussed under "Certain Provisions of Maryland Law and of Our Charter and Bylaws—Limitation of Liability and Indemnification of Directors and Officers" and "Management—Indemnification." As a result, we and our stockholders have limited rights against our present and former directors and officers, which could limit your recourse in the event of actions not in your best interest. See "Certain Provisions of Maryland Law and of Our Charter and Bylaws—Limitation of Liability and Indemnification of Directors and Officers."

We could increase or decrease the number of authorized shares of stock, classify and reclassify unissued stock and issue stock without stockholder approval, which could prevent a change in our control and negatively affect the market price of our common stock.

        Our board of directors, without stockholder approval, has the power under our charter to amend our charter from time to time to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue, to authorize us to issue authorized but unissued shares of our common stock or preferred stock and to classify or reclassify any unissued shares of our common stock or preferred stock into one or more classes or series of stock and set the terms of such newly classified or reclassified shares. See "Description of Capital Stock—Common Stock," "—Preferred Stock" and "—Power to Issue Additional Shares of Common Stock and Preferred Stock." As a result, we may issue series or classes of common stock or preferred stock with preferences, distributions, powers and rights, voting or otherwise, that are senior to the rights of holders of our common stock. Any such issuance could dilute our existing common stockholders' interests. Although our board of directors has no such intention at the present time, it could establish a class or series of preferred stock that could, depending on the terms of such series, delay, defer or prevent a transaction or a change of control that might involve a premium price for our common stock or that our stockholders otherwise believe to be in their best interest.

Our bylaws designate the Circuit Court for Baltimore City, Maryland as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our stockholders and provide that claims relating to causes of action under the Securities Act may only be brought in federal district courts, which could limit stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees and could discourage lawsuits against us and our directors, officers and employees.

        Our bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Circuit Court for Baltimore City, Maryland, or, if that court does not have jurisdiction, the United States District Court for the District of Maryland, Northern Division, will be the sole and exclusive forum for (a) any Internal Corporate Claim, as such term is defined in the Maryland General Corporation Law (the "MGCL"), (b) any derivative action or proceeding brought on our behalf (other than actions arising under federal securities laws), (c) any action asserting a claim of breach of any duty owed by any of our directors, officers or other employees to us or to our stockholders, (d) any action asserting a claim against us or any of our directors, officers or other employees arising pursuant to any provision of the MGCL or our charter or bylaws or (e) any other action asserting a claim against us or any of our directors, officers or other employees that is governed by the internal affairs doctrine. These choice of forum provisions will not apply to suits brought to enforce a duty or liability created by the Securities Act of 1933, as amended (the "Securities Act"), the Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any other claim for which federal courts have exclusive jurisdiction. Furthermore, our bylaws provide that, unless we consent in writing to the selection of an alternative

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forum, the federal district courts of the United States of America shall, to the fullest extent permitted by law, be the sole and exclusive forum for the resolution of any claim arising under the Securities Act.

        These exclusive forum provisions may limit the ability of our stockholders to bring a claim in a judicial forum that such stockholders find favorable for disputes with us or our directors, officers, or employees, which may discourage such lawsuits against us and our directors, officers, and employees. Alternatively, if a court were to find the choice of forum provisions contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition, and operating results. For example, under the Securities Act, federal courts have concurrent jurisdiction over all suits brought to enforce any duty or liability created by the Securities Act, and investors cannot waive compliance with the federal securities laws and the rules and regulations thereunder. In addition, the exclusive forum provisions described above do not apply to any actions brought under the Exchange Act.

We are an "emerging growth company," and we cannot be certain if the reduced SEC reporting requirements applicable to emerging growth companies will make our common stock less attractive to investors, which could make the market price and trading volume of our common stock be more volatile and decline significantly.

        We are an "emerging growth company" as defined in the Jumpstart Our Business Startups Act of 2012, as amended (the "JOBS Act"). We will remain an "emerging growth company" until the earliest to occur of (i) the last day of the fiscal year during which our total annual gross revenue equals or exceeds $1.07 billion (subject to adjustment for inflation), (ii) the last day of the fiscal year following the fifth anniversary of this offering, (iii) the date on which we have, during the previous three-year period, issued more than $1 billion in non-convertible debt securities and (iv) the date on which we are deemed to be a "large accelerated filer" under the Exchange Act. We intend to take advantage of exemptions from various reporting requirements that are applicable to most other public companies, whether or not they are classified as "emerging growth companies," including, but not limited to, an exemption from the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that our independent registered public accounting firm provide an attestation report on the effectiveness of our internal control over financial reporting. An attestation report by our auditor would require additional procedures by them that could detect problems with our internal control over financial reporting that are not detected by management. If our system of internal control over financial reporting is not determined to be appropriately designed or operating effectively, it could require us to restate financial statements, cause us to fail to meet reporting obligations and cause investors to lose confidence in our reported financial information, all of which could lead to a significant decline in the market price of our common stock. The JOBS Act also provides that an "emerging growth company" can take advantage of the extended transition period provided in the Securities Act for complying with new or revised accounting standards. We have elected not to opt out of such extended transition period, which means that when a standard is issued or revised and it has different application dates for public or private companies, we, as an emerging growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison of our financial statements with another public company which is neither an emerging growth company nor an emerging growth company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting standards used.

        We cannot predict if investors will find our common stock less attractive because we intend to rely on certain of these exemptions and benefits under the JOBS Act. If some investors find our common stock less attractive as a result, there may be a less active, liquid and/or orderly trading market for our common stock and the market price and trading volume of our common stock may be more volatile and decline significantly.

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Risks Related to Our Intended Qualification as an Opportunity Zone Fund

We may not meet the requirements to be treated as an Opportunity Zone Fund.

        We intend to operate in conformity with the requirements to be classified as an Opportunity Zone Fund pursuant to Section 1400Z-2 of the Code and any guidance issued thereunder. In general, an Opportunity Zone Fund is any investment vehicle organized as a corporation or a partnership for the purpose of investing in Qualified Property and that holds at least 90% of its assets in Qualified Property (the "90% Asset Test"). We will generally be required to test for compliance with these requirements twice a year. Qualified Property includes, among other assets, Opportunity Zone Partnership Interests. We intend that our direct interest in our subsidiary partnership will be treated as an Opportunity Zone Partnership Interest because we intend to cause our subsidiary partnership to comply with the requirements to be an Opportunity Zone Business, including the Working Capital Safe Harbor (as defined below). However, there can be no assurance that such interests will be so treated. Our indirect interest in our subsidiary partnership held through Aspire TRS will not qualify as an Opportunity Zone Partnership Interest, nor will our interest in Aspire TRS qualify as Opportunity Zone Stock; however, such interest will be not significant.

        In connection with this offering, we will receive an opinion from Vinson & Elkins L.L.P. that, commencing with the month of the closing of this offering, we will be organized in a manner that will allow us to qualify as an Opportunity Zone Fund under the U.S. federal income tax laws and our proposed method of operations will enable us to satisfy the requirements for qualification as an Opportunity Zone Fund under the U.S. federal income tax laws. Investors should be aware that Vinson & Elkins L.L.P.'s opinion is based upon customary assumptions, will be conditioned upon certain representations made by us as to factual matters, including representations regarding the nature of our assets and the conduct of our business, is not binding upon the IRS or any court and speaks as of the date issued. In addition, Vinson & Elkins L.L.P.'s opinion will be based on existing U.S. federal income tax law governing qualification as an Opportunity Zone Fund, which is subject to change either prospectively or retroactively. Moreover, our qualification an Opportunity Zone Fund depends upon our ability to meet on a continuing basis, through actual annual operating results, certain qualification tests set forth in the U.S. federal tax laws. Vinson & Elkins L.L.P. will not review our compliance with those tests on a continuing basis.

        We may be subject to penalties if we do not meet the requirements for qualification as an Opportunity Zone Fund. If we do not satisfy the 90% Asset Test and our failure was not due to reasonable cause, we will be subject to a penalty for each month we do not meet the 90% Asset Test. For our 2020 taxable year, IRS guidance provides that any such failure will automatically be deemed to be due to reasonable cause and no penalty will apply. Any penalty is an amount calculated as the amount equal to (i) the excess of 90% of our aggregate assets, over the aggregate amount of Qualified Property held by us on the last day of the month, multiplied by (ii) the federal short-term rate (as determined by the IRS) plus 3%, and divided by (iii) 12. In addition, if our direct interest in our subsidiary partnership failed to qualify as an Opportunity Zone Partnership Interest, and we were not able to establish reasonable cause or qualify for a one-time cure, we generally would be subject to a penalty based on the value of our interest in our subsidiary partnership, as determined by financial statements or our cost, as applicable.

        The Opportunity Zone program was enacted as part of the 2017 Tax Act. Final Treasury regulations have only recently been issued, and there remains uncertainty regarding the interpretation of certain issues. Accordingly, while we intend to meet the requirements to be treated as an Opportunity Zone Fund, our ability to be treated as an Opportunity Zone Fund is subject to considerable uncertainty. It is possible that we may fail to meet the requirements to be treated as an Opportunity Zone Fund, including the 90% Asset Test, which could subject us to U.S. federal income tax penalties and jeopardize our stockholders' ability to realize any QOZ Tax Benefits. In addition,

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future legislation or guidance from the IRS may negatively affect our ability to qualify as an Opportunity Zone Fund or your ability to qualify for the QOZ Tax Benefits with respect to an investment in us. Accordingly, there can be no guarantee that any stockholder will realize any QOZ Tax Benefits as a result of an investment in our company.

        The various requirements for us to be treated as an Opportunity Zone Fund and for our direct interest in our subsidiary partnership to be treated as an Opportunity Zone Partnership Interest are complex. In addition, given that the Opportunity Zone program was only recently enacted as part of the 2017 Tax Act and final Treasury regulations were only recently promulgated, standard practices for structuring Opportunity Zone Funds have not been established. Investors, therefore, are urged to consult their tax advisors regarding any investment in us, our intended approach for qualifying as an Opportunity Zone Fund and the considerable uncertainty in this area.

Interests in our subsidiary partnership may not qualify as Qualified Property.

        We intend to cause our subsidiary partnership to (i) meet the requirements such that our direct interest in our subsidiary partnership is treated as an Opportunity Zone Partnership Interest and (ii) comply with the requirements to be an Opportunity Zone Business, including the Working Capital Safe Harbor (as defined below). We expect to take the position that cash reserved for investment by our subsidiary partnership will not be treated as nonqualified financial property. The final Treasury regulations permit an Opportunity Zone Business to hold reasonable amounts of working capital as cash, cash equivalents or debt instruments with a term of 18 months or less, provided three tests are satisfied: (i) the Opportunity Zone Business designates in writing that such cash is being held for the development of a trade or business in an Opportunity Zone, including for the acquisition, construction or substantial improvement of tangible property in an Opportunity Zone, (ii) the Opportunity Zone Business prepares a written schedule consistent with the ordinary start-up of a trade or business for expenditure of working capital and the Opportunity Zone Business expends such cash within 31 months of receipt, and (iii) the Opportunity Zone Business actually uses the cash in a manner consistent with the written designation and written schedule (such tests, collectively, the "Working Capital Safe Harbor"). The 31-month period may be applied to two or more serial or overlapping cash infusions provided each application satisfies the Working Capital Safe Harbor and there is a master plan for the use of the working capital, but the total time the Opportunity Zone Business relies on the Working Capital Safe Harbor cannot exceed 62 months. In addition, exceeding the 31-month limitation will not violate the Working Capital Safe Harbor if the delay is attributable to waiting for governmental action on an application that is complete. Finally, both the 31-month Working Capital Safe Harbor period and the cumulative 62-month period may be extended for up to an additional 24 months with respect to working capital held during any period from January 20, 2020 to December 31, 2020 as a result of the nationwide designation of a "federally declared disaster area" in response to COVID-19. We intend to cause our subsidiary partnership to designate in writing permitted use for any cash held, to prepare written schedules for permitted use of such cash, and to expend such cash consistent with the written designations and written schedules. However, our subsidiary partnership may not satisfy the requirements of the Working Capital Safe Harbor and therefore our direct interest in our subsidiary partnership may not be treated as an Opportunity Zone Partnership Interest.

The ability of our board of directors to decertify our status as an Opportunity Zone Fund without stockholder approval may cause adverse consequences to our stockholders.

        Our charter provides that our board of directors may decertify our status as an Opportunity Zone Fund, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as an Opportunity Zone Fund. If we cease to qualify as an Opportunity Zone Fund, stockholders would no longer be eligible for QOZ Tax Benefits, which may have adverse consequences on our total return to our stockholders.

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QOZ Tax Benefits relating to your investment in us will end upon your disposition of our common stock.

        Stockholders who elect to treat their investment in us as an Opportunity Zone Fund investment will lose QOZ Tax Benefits upon the sale or other disposition of their investment in us. Upon the sale or disposition of our common stock, stockholders will be required to include in income an amount up to the full Deferred Gain Amount invested in us (subject to reduction by 10% if the investment is made by December 31, 2021 and is held for at least five years) and if such stockholder holds our common stock for less than 10 years, all post-investment appreciation in excess of such stockholder's adjusted basis in our shares. Because a stockholder investing eligible capital gains in us will initially have a tax basis in our common stock of $0, a stockholder could be required to include as income the full amount received upon a sale of our common stock.

Distributions from the Company in excess of earnings and profits may result in taxable gain.

        Under generally applicable tax rules, distributions from our company in excess of our current or accumulated earnings and profits will not be taxable to a stockholder to the extent that they do not exceed the adjusted tax basis of the stockholder's common stock in respect of which the distributions were made, but rather will reduce the adjusted tax basis of these shares. To the extent that such distributions exceed the adjusted tax basis of a stockholder's common stock, they will be treated as gain from the disposition of the shares and thus will be included in income as long-term capital gain, or short-term capital gain if the shares have been held for one year or less. Because a stockholder investing Deferred Gain Amounts in us will initially have a tax basis in the stockholder's common stock of $0 under the Opportunity Zone legislation, the stockholder should expect that distributions in excess of our current or accumulated earnings and profits may result in the recognition of a portion of the Deferred Gain Amount by the stockholder by investing in us without any amount being treated as a return of capital, and may result in recognition of gain on a portion of post-investment appreciation on later disposition, even if our stock is held for more than 10 years. In such case, a stockholder could reinvest the return of capital in shares of our common stock or in another Opportunity Zone Fund within 180 days to defer current recognition of gain, although such stockholder would have a new holding period with respect to the new interest, including for purposes of determining future QOZ Tax Benefits.

        This tax treatment is generally less favorable than investments in other REITs, where investors generally have sufficient tax basis in the investment to not incur taxable gain on distributions in excess of earnings and profits, or investments in Opportunity Zone Funds that are partnerships, where investors generally have sufficient tax basis in the investment generated by debt of the partnership to not incur taxable gain on distributions.

Investors must make appropriate timely investments and elections in order to take advantage of QOZ Tax Benefits.

        In order for an investor to realize QOZ Tax Benefits, such investor must make a timely investment of gains in us and timely elect to treat such investment as an Opportunity Zone Fund investment under Section 1400Z-2 of the Code. In particular, any Deferred Gain Amount must have been generated from a sale to an unrelated party generally within 180 days of investment in us, provided that, if an investor's 180-day period was to expire on or after April 1, 2020 and before December 31, 2020, such investor has until December 31, 2020 to invest such gain. In addition, each investor must annually report its investment to the IRS and failure to do so will result in a rebuttable presumption that an "inclusion event" (generally an event that reduces the investor's interest in the Opportunity Zone Fund or a distribution by the Opportunity Zone Fund in excess of the investor's tax basis) that would result in recognition of all or a portion of the Deferred Gain Amount has occurred with respect to such investor's investment. We have no control over these circumstances, and investors will have to rely on their tax advisors and determinations.

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An investment in our common stock may have limited liquidity.

        An investment in our common stock may have limited liquidity. The Code provides that gross income of a taxpayer will not include gain from the sale or exchange of any property if the gain is invested by the taxpayer in a qualified Opportunity Zone Fund, generally within 180 days of the sale or exchange, although taxpayers whose 180-day period would end on or after April 1, 2020 and before December 31, 2020 have until December 31, 2020 to make an investment. Final Treasury regulations provide that a taxpayer may make an eligible investment by acquiring an eligible interest in an Opportunity Zone Fund from a person other than the Opportunity Zone Fund. However, the taxpayer selling its investment in such transaction will, at the time of sale, lose the opportunity to realize QOZ Tax Benefits. Consequently, trading volume in our common stock may be limited.

Not all capital gain dividends received with respect to our common stock may be eligible for exclusion from gross income following a ten-year hold period.

        If a stockholder properly elected to treat its investment in our common stock as an Opportunity Zone Fund investment and holds its common stock for ten years or more, and provided we qualify as an Opportunity Zone Fund and as a REIT, then, after such ten-year period, the stockholder will generally be eligible to exclude from gross income certain capital gain dividends designated by us. However, this exclusion only applies to capital gain dividends that are attributable to long-term capital gains on a sale or exchange of Qualified Property realized by us, and may not include, for example, items such as depreciation recapture that may be recharacterized as ordinary income or gain attributable to sales of non-Qualified Property. As a result, even if you hold a qualifying investment in us for at least ten years, no assurance can be given that you would be able to exclude from income all types of capital gains that we may recognize.

You will have income tax consequences related to the Deferred Gain Amount on the Deferred Gain Recognition Date.

        On the earlier of (i) December 31, 2026 or (ii) the date in which you sell your common stock (the "Deferred Gain Recognition Date"), you will be required by Code Section 1400Z-2 to include in income an amount corresponding to your Deferred Gain Amount (subject to reduction by 10% if you make your investment by December 31, 2021 and hold it for at least five years). On or before the Deferred Gain Recognition Date, we may have made an aggregate amount of distributions to you that is less than the Deferred Gain Amount or the tax liability due with respect to the Deferred Gain Amount. Please note that we are not planning on making any special distributions to our stockholders on or before the Deferred Gain Recognition Date to alleviate the impact of the recognition of the Deferred Gain Amount.

We will be subject to penalties if we fail the 90% Asset Test.

        In the event that we do not satisfy the 90% Asset Test, we would be subject to a penalty for each month we do not meet the 90% Asset Test, although, with respect to our 2020 taxable year, IRS guidance provides that no penalty will apply in the event of such a failure. Any penalty is an amount calculated as the amount equal to (i) the excess of 90% of our aggregate assets, over the aggregate amount of Qualified Property held by us on the last day of the month, multiplied by (ii) the federal short-term rate (as determined by the IRS) plus 3%, and divided by (iii) 12. No penalty would be imposed with respect to a failure to meet the 90% requirement if we were able to show that the failure was due to reasonable cause, though there is limited guidance regarding what reasonable cause would entail.

        If our direct interest in our subsidiary partnership failed to qualify as an Opportunity Zone Partnership Interest, and we were not able to establish reasonable cause, we generally would be subject

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to a penalty based on the value of our direct interest in our subsidiary partnership, as determined by financial statements or our cost, as applicable. Such penalty might be significantly greater than if we had invested in Qualified Property directly because the excess amount described in clause (i) above generally would be equal to the fair market value of our direct interest in the subsidiary partnership. However, the final Treasury regulations provide a one-time cure for an Opportunity Zone Fund that fails to meet the 90% Asset Test because of the failure of an Opportunity Zone entity to qualify as an Opportunity Zone Business. Specifically, the regulations provide a 6-month cure period pursuant to which an Opportunity Zone Fund may treat an Opportunity Zone entity as an Opportunity Zone Business even if it does not meet the requirements to be treated as an Opportunity Zone Business on a testing date, so long as the failure to so qualify is cured within 6 months. In the event that we were subject to the penalty, the penalty could materially and adversely impact the total returns of the Opportunity Zone Fund for our stockholders. The October 2018 proposed Treasury regulations announced an intention to publish additional guidance regarding Opportunity Zone Fund decertification. The final Treasury regulations include a voluntary self-decertification process but reserve on involuntary decertifications. However, the final Treasury regulations do provide an example under an anti-abuse rule that recharacterizes an entity as not being an Opportunity Zone Fund if it fails the 90% Asset Test in multiple years, which would effectively function as a decertification. The Treasury and the IRS are continuing to consider the circumstances under which involuntary decertification of an Opportunity Zone Fund would be warranted, and intend to propose future guidance regarding those circumstances.

The QOZ Tax Benefits will end before our investment life.

        We will be set up as an indefinite-life vehicle. We intend to hold assets on a long-term basis and be a public company. However, stockholders will be ineligible to claim QOZ Tax Benefits over time. If investing after December 31, 2021 but before January 1, 2027, a new investor in us will not be eligible for the QOZ Tax Benefit of the exclusion of 10% of their Deferred Gain Amount, but will still be eligible for the QOZ Tax Benefits of deferral of the Deferred Gain Amount and exclusion of post-investment gain attributable to appreciation through December 31, 2047. A new investor in us cannot receive any QOZ Tax Benefits with respect to gains recognized after December 31, 2026. The effect of the diminishing benefits from the Opportunity Zone legislation on investments in our common stock is uncertain, however it is possible that such diminishing benefits may adversely affect the market price of our common stock.

Our investment decisions may be affected by our efforts to qualify as an Opportunity Zone Fund.

        Because we intend to qualify as an Opportunity Zone Fund and to meet the requirements for our shareholders to achieve QOZ Tax Benefits, we may make investment decisions that are different from those we would make if we were not intending to so qualify. For example, we intend to invest substantially all of our commitments in Qualified Property. As a result, our ability to acquire new properties after 2028 may be limited, because at that time the designation of Opportunity Zones will have expired and any property we acquire after such expiration may not be Qualified Property. We may also hold our investments for longer periods than if we were not intending to qualify as an Opportunity Zone Fund (because, for example, in order to take advantage of QOZ Tax Benefits regarding the exclusion of future gain of investing in an Opportunity Zone Fund, a stockholder must hold its interest in our company for at least 10 years). This long-term holding requirement may incentivize us or our stockholders to sell investments at inopportune times and may result in lower returns than if we or our stockholders were to sell each investment when market conditions are most favorable. Furthermore, the largest QOZ Tax Benefit is that it exempts appreciation in the Opportunity Zone Fund investment from taxation if the investment has been held for at least 10 years, while any gains or operating income realized before this time by an Opportunity Zone Fund generally are not exempt. Thus, it is more beneficial for us to seek business models that generate appreciation over time rather than current operating income. This approach may result in us not operating businesses that another investment fund without such limitations would operate due to the fact that we may favor appreciation over operating income.

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The Opportunity Zone program contains certain prohibitions on related-party arrangements.

        It is possible that we will engage in related-party lending arrangements, the purchase of real estate-related assets from a related entity or other related-party transactions. The Opportunity Zone program contains certain prohibitions on transactions with related parties, which may constrain our ability to engage in such related-party transactions.

        For purposes of the Opportunity Zone program, persons are considered to be related to each other through the application of complex attribution rules, which generally treat certain entities and individuals as related if there is a 20% beneficial ownership overlap between entities and the persons that own the entities. While the application of the related-party rules is not entirely clear, we intend to structure any related-party transactions in a manner that avoids the application of the Opportunity Zone related-party rules. For example, any transaction by and between one or more of our Manager, Avanath, MacFarlane, or their respective affiliates and us will contain terms as if the transaction were the result of arms' length negotiations with an unaffiliated third party and will require the approval of a majority of our independent directors. Although we intend to structure our transactions with such parties to avoid the application of the Opportunity Zone related-party rules, there can be no assurance that our related-party transactions will not be subject to such rules, and any such related-party transactions may increase the risk that we will fail to qualify as an Opportunity Zone Fund.

We may not be able to comply with all requirements of IRS Form 8996.

        An Opportunity Zone Fund is required to self-certify annually as to its qualification as an Opportunity Zone Fund on IRS Form 8996. Among other requirements, the Opportunity Zone Fund must report on IRS Form 8996 all dispositions of interests in the Opportunity Zone Fund during a taxable year, including, for each disposition, the name of the investor disposing of the interest, the date of disposal, and the interest disposed of. As we intend to elect and qualify as the first publicly traded Opportunity Zone Fund listed on a national securities exchange, we may not be able to effectively track all dispositions of interests in us. The Treasury has not offered any guidance with respect to compliance with this reporting requirement in the case of a publicly traded Opportunity Zone Fund. As such, we may not be able to comply with this reporting requirement. Moreover, it is unclear what penalty, if any, would apply in the event of a failure to comply with this requirement. It is possible that a failure to report all dispositions could subject us to U.S. federal income tax penalties.

Additional guidance may never be issued or may be issued after you have made your investment and new or amending legislation may be introduced.

        While final Treasury regulations addressed a number of uncertainties with respect to the Opportunity Zone program, there remain areas of uncertainty. It is possible that additional guidance will never be issued or that it will be issued after you have made your investment. It is also possible that any such guidance will be unfavorable with respect to your completed investment. In addition, the Opportunity Zone program remains under review by persons involved in the legislative process and by the IRS and the U.S. Treasury Department, which may result in statutory changes as well as revisions to previously issued Treasury regulations and interpretations. Any such additional or new legislation or guidance could result in your failure to obtain QOZ Tax Benefits and/or result in significant penalties to us for failure to satisfy the 90% Asset Test.

Certain states have not currently adopted QOZ Tax Benefits.

        The state and local income tax consequences of investing in an Opportunity Zone Fund are complex and may vary depending on each investor's particular tax situation and state of residence. While some states automatically adopt the Opportunity Zone legislation through rolling Code conformity, and other states with fixed date conformity have enacted legislation to either adopt or decouple from the Opportunity Zone legislation, other fixed date conformity states have not yet acted to currently adopt or decouple from the Opportunity Zone legislation. A state's failure to adopt the

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Opportunity Zone legislation could result in state and local income tax consequences for an investor without having cash to pay the related state and local income taxes. You are urged to consult with your tax professional in evaluating the amount of state and local income tax you may be subject to in light of your particular tax situation and state of residence.

The income tax rate that will be applied on the Deferred Gain Amount on the Deferred Gain Recognition Date may be higher than the income tax rate that would have otherwise applied at the time the Deferred Gain Amount was invested in us.

        The final Treasury regulations promulgated pursuant to Code Section 1400Z-2 state that when a taxpayer is required to include in income some or all of their Deferred Gain Amount, the gain so included has the same character in the taxable year of inclusion that it would have had if such tax had not been deferred but is subject to the tax rate applicable to the year of inclusion. Accordingly, the tax rate that will apply to the Deferred Gain Amount could be higher than the tax rate that would have otherwise applied to the Deferred Gain Amount. You should take this risk into consideration prior to making your investment.

The requirements under the REIT rules may conflict with the requirements under the Opportunity Zone program, and our intention to qualify under one regime may prevent us from qualifying under the other.

        We intend to operate in conformity with the requirements to be classified as an Opportunity Zone Fund, and we intend to elect and qualify to be taxed as a REIT for U.S. federal income tax purposes. It is possible that, under certain circumstances, the requirements under the Opportunity Zone program may conflict with the requirements under the REIT rules in a manner that does not permit us to qualify under both regimes. In such instances, we may be required to prioritize compliance with the Opportunity Zone program, including meeting the requirements to achieve QOZ Tax Benefits, over compliance with certain REIT rules, or vice versa. Such conflict could result in our failure to qualify or remain qualified as an Opportunity Zone Fund, your failure to obtain QOZ Tax Benefits, or our failure to qualify or remain qualified as a REIT, or could have other adverse effects on us or your investment in our shares of common stock.


Risks Related to Our Qualification and Operation as a REIT

Failure to qualify as a REIT, or failure to remain qualified as a REIT, would cause us to be taxed as a regular corporation, which would substantially reduce funds available for distributions to our stockholders.

        We believe that our organization and proposed method of operation will enable us to meet the requirements for qualification and taxation as a REIT commencing with our taxable year ending December 31, 2020. However, we cannot assure you that we will qualify and remain qualified as a REIT. In connection with this offering, we will receive an opinion from Vinson & Elkins L.L.P. that, commencing with our taxable year ending December 31, 2020, we will be organized in conformity with the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws and our proposed method of operations will enable us to satisfy the requirements for qualification and taxation as a REIT under the U.S. federal income tax laws for our taxable year ending December 31, 2020 and subsequent taxable years. Investors should be aware that Vinson & Elkins L.L.P.'s opinion is based upon customary assumptions, will be conditioned upon certain representations made by us as to factual matters, including representations regarding the nature of our assets and the conduct of our business, is not binding upon the IRS or any court and speaks as of the date issued. In addition, Vinson & Elkins L.L.P.'s opinion will be based on existing U.S. federal income tax law governing qualification as a REIT, which is subject to change either prospectively or retroactively. Moreover, our qualification and taxation as a REIT depend upon our ability to meet on a continuing basis, through actual annual operating results, certain qualification tests set forth in the U.S. federal tax laws. Vinson & Elkins L.L.P. will not review our compliance with those tests on a continuing basis. Accordingly, no assurance can be given that our actual results of operations for any particular taxable year will satisfy such requirements. Vinson & Elkins L.L.P.'s opinion does not foreclose the possibility

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that we may have to use one or more of the REIT savings provisions described in "Material U.S. Federal Income Tax Considerations—REIT Considerations," which could require us to pay an excise or penalty tax (which could be material) in order for us to maintain our REIT qualification. For a discussion of the tax consequences of our failure to qualify as a REIT, see "Material U.S. Federal Income Tax Considerations—Failure to Qualify."

        If we fail to qualify as a REIT in any taxable year, we will face serious tax consequences that will substantially reduce the funds available for distributions to our stockholders because:

    we would not be allowed a deduction for dividends paid to stockholders in computing our taxable income and would be subject to U.S. federal income tax at regular corporate rates;

    we could be subject to increased state and local taxes; and

    unless we are entitled to relief under certain U.S. federal income tax laws, we could not re-elect REIT status until the fifth calendar year after the year in which we failed to qualify as a REIT.

        In addition, if we fail to qualify as a REIT, we will no longer be required to make distributions. As a result of all these factors, our failure to qualify as a REIT could impair our ability to expand our business and raise capital, and it would adversely affect our business, financial condition, results of operations or ability to make distributions to our stockholders and the trading price of our common stock. See "Material U.S. Federal Income Tax Considerations" for a discussion of material U.S. federal income tax consequences relating to us and an investment in our common stock.

Even if we qualify as a REIT, we may face other tax liabilities that could reduce our cash flows and negatively impact our results of operations and financial condition.

        Even if we qualify for taxation as a REIT, we may be subject to certain U.S. federal, state and local taxes on our income and assets, including taxes on any undistributed income, tax on income from certain activities conducted as a result of a foreclosure and state or local income, property and transfer taxes. In addition, under new partnership audit procedures, our subsidiary partnership and any other partnership that we may form or acquire may be liable at the entity level for tax imposed under those procedures. Further, Aspire TRS and any other TRS that we may form in the future will be subject to regular corporate U.S. federal, state and local taxes. The TRS rules also impose a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's-length basis. Any of these taxes would decrease cash available for distributions to stockholders, which, in turn, could materially adversely affect our business, financial condition, results of operations or ability to make distributions to our stockholders and the trading price of our common stock.

Failure to make required distributions would subject us to U.S. federal corporate income tax.

        We intend to operate in a manner so as to qualify and maintain our qualification as a REIT for U.S. federal income tax purposes. In order to qualify and maintain our qualification as a REIT, we generally are required to distribute at least 90% of our REIT taxable income, determined without regard to the dividends paid deduction and excluding any net capital gain, each year to our stockholders. To the extent that we satisfy this distribution requirement, but distribute less than 100% of our net taxable income, we will be subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a 4% nondeductible excise tax on the amount, if any, by which dividends we pay in any calendar year are less than the sum of 85% of our ordinary income, 95% of our capital gain net income, and 100% of our undistributed income (as defined under the excise tax rules) from prior years.

Complying with REIT requirements may cause us to forego otherwise attractive opportunities or liquidate otherwise attractive investments.

        To qualify and maintain our qualification as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other things, the sources of our income, the nature and

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diversification of our assets, the amounts we distribute to our stockholders and the ownership of our stock. In order to meet these tests, we may be required to forego investments we might otherwise make. Thus, compliance with the REIT requirements may hinder our performance.

        In particular, we must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash items, government securities and qualified real estate assets. The remainder of our investment in securities (other than government securities, securities of TRSs and qualified real estate assets) generally cannot include more than 10% of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any one issuer. In addition, in general, no more than 5% of the value of our assets (other than government securities, securities of TRSs and qualified real estate assets) can consist of the securities of any one issuer, no more than 20% of the value of our total assets can be represented by the securities of one or more TRSs and no more than 25% of our assets can be represented by debt of "publicly offered REITs" (i.e., REITs that are required to file annual and periodic reports with the SEC under the Exchange Act), unless secured by real property or interests in real property. If we fail to comply with these requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering adverse tax consequences. As a result, we may be required to liquidate otherwise attractive investments. These actions could have the effect of reducing our income and amounts available for distribution to our stockholders.

Our ability to provide certain services to our tenants may be limited by the REIT rules or may have to be provided through a TRS.

        As a REIT, we generally cannot provide services to our tenants other than those that are customarily provided by landlords, nor can we derive income from a third party that provides such services. If we forego providing such services to our tenants, we may be at a disadvantage to competitors that are not subject to the same restrictions. However, we can provide such non-customary services to tenants or share in the revenue from such services if we do so through a TRS, though income earned by such TRS will be subject to U.S. federal corporate income tax.

The ability of our board of directors to revoke our REIT qualification without stockholder approval may cause adverse consequences to our stockholders.

        Our charter provides that our board of directors may revoke or otherwise terminate our REIT election, without the approval of our stockholders, if it determines that it is no longer in our best interest to continue to qualify as a REIT. If we cease to qualify as a REIT, we would become subject to U.S. federal income tax on our taxable income and would no longer be required to distribute most of our taxable income to our stockholders, which may have adverse consequences on our total return to our stockholders.

There are limits on our ownership of TRSs and our transactions with a TRS will cause us to be subject to a 100% penalty tax on certain income or deductions if those transactions are not conducted on arm's-length terms.

        Overall, no more than 20% of the value of a REIT's assets may consist of stock or securities of one or more TRS. In addition, the Code limits the deductibility of interest paid or accrued by a TRSs to its parent REIT to assure that the TRS is subject to an appropriate level of corporate taxation and, in certain circumstances, other limitations on deductibility may apply. The Code also imposes a 100% excise tax on certain transactions between a TRS and its parent REIT that are not conducted on an arm's-length basis. We will monitor the value of our respective investments in Aspire TRS and any other TRS that we may form for the purpose of ensuring compliance with TRS ownership limitations and will structure our transactions with such TRSs on terms that we believe are arm's length to avoid incurring the 100% excise tax described above. There can be no assurance, however, that we will be able to comply with the 20% limitation or to avoid application of the 100% excise tax.

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You may be restricted from acquiring or transferring certain amounts of our common stock.

        The stock ownership restrictions of the Code for REITs and the 9.8% share ownership limit in our charter may inhibit market activity in our capital stock and restrict our business combination opportunities.

        In order to qualify as a REIT for each taxable year beginning in 2021, five or fewer individuals, as defined in the Code, may not own, beneficially or constructively, more than 50% in value of our issued and outstanding capital stock at any time during the last half of a taxable year. Attribution rules in the Code determine if any individual or entity beneficially or constructively owns our shares of capital stock under this requirement. Additionally, at least 100 persons must beneficially own our shares of capital stock during at least 335 days of a taxable year for each taxable year beginning in 2021. To help insure that we meet these tests, our charter restricts the acquisition and ownership of shares of our capital stock.

        Our charter, with certain exceptions, authorizes our directors to take such actions as are necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of directors, our charter prohibits any person from beneficially or constructively owning more than 9.8% in value or number of shares, whichever is more restrictive, of the outstanding shares of any class or series of our shares of capital stock. Our board of directors may not grant an exemption from this restriction to any proposed transferee whose ownership in excess of 9.8% of the value of our outstanding shares would result in our failing to qualify as a REIT. This as well as other restrictions on transferability and ownership will not apply, however, if our board of directors determines that it is no longer in our best interests to continue to qualify as a REIT.

Dividends payable by REITs do not qualify for the reduced tax rates available for some dividends.

        The maximum U.S. federal income tax rate applicable to "qualified dividend income" payable to U.S. stockholders that are taxed at individual rates is 20% (plus the 3.8% surtax on net investment income, if applicable). Dividends payable by REITs, however, generally are not eligible for the reduced rates on qualified dividend income. However, for taxable years beginning before January 1, 2026, ordinary REIT dividends constitute "qualified business income" and thus a 20% deduction is available to individual taxpayers with respect to such dividends, resulting in a 29.6% maximum U.S. federal income tax rate (plus the 3.8% surtax on net investment income, if applicable) for individual U.S. stockholders. However, to qualify for this deduction, the stockholder receiving such dividends must hold the dividend-paying REIT stock for at least 46 days (taking into account certain special holding period rules) of the 91-day period beginning 45 days before the stock becomes ex-dividend, and cannot be under an obligation to make related payments with respect to a position in substantially similar or related property. The more favorable rates applicable to regular corporate qualified dividends could cause investors who are taxed at individual rates to perceive investments in REITs to be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely affect the value of the shares of REITs, including our common stock.

We may be subject to adverse legislative or regulatory tax changes, in each instance with potentially retroactive effect, that could reduce the market price of our common stock.

        At any time, the U.S. federal income tax laws governing REITs or the administrative interpretations of those laws may be amended. We cannot predict when or if any new U.S. federal income tax law, regulation or administrative interpretation, or any amendment to any existing U.S. federal income tax law, regulation or administrative interpretation, will be adopted, promulgated or become effective and any such law, regulation or interpretation may take effect retroactively. We and our stockholders could be adversely affected by any such change in the U.S. federal income tax laws, Treasury regulations or administrative interpretations which, in turn, could materially adversely affect our ability to make distributions to our stockholders and the trading price of our common and preferred stock.

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        The 2017 Tax Act made significant changes to the U.S. federal income tax rules for taxation of individuals and corporations. In the case of individuals, the tax brackets were adjusted, the top U.S. federal income tax rate was reduced to 37%, special rules reduced taxation of certain income earned through pass-through entities and the top effective rate applicable to ordinary REIT dividends to 29.6% (through a 20% deduction for ordinary REIT dividends received) and various deductions were been eliminated or limited (including a limit on the deduction for state and local taxes to $10,000 per year). Most of the changes applicable to individuals are temporary and apply only to taxable years beginning after December 31, 2017 and before January 1, 2026. The top corporate income tax rate was reduced to 21%. There were only minor changes to the REIT rules (other than the 20% deduction applicable to individuals for ordinary REIT dividends received). The Coronavirus Aid, Relief, and Economic Security Act of 2020 (the "CARES Act") has temporarily ameliorated some of the limitations in the 2017 Tax Act. Technical corrections and amendments to the 2017 Tax Act or the CARES Act and additional administrative guidance with respect to the 2017 Tax Act and the CARES Act may still be forthcoming. The 2017 Tax Act and the CARES Act made numerous other large and small changes to the tax rules that do not affect REITs directly but may affect our stockholders and may indirectly affect us.


Risks Related to Our Common Stock and this Offering

There has been no public market for our shares prior to this offering and an active trading market may not develop or be sustained or be liquid following this offering, which may cause the market price of our common stock to decline significantly and make it difficult for our stockholders to sell their shares.

        Prior to this offering, there has been no public market for our shares, and there can be no assurance that an active trading market will develop or be sustained or be liquid following this offering or that shares of our common stock will be resold at or above the initial public offering price. The initial public offering price of shares of our common stock will be determined by agreement among us and the underwriters, but there can be no assurance that our common stock will not trade below the initial public offering price following the completion of this offering. The market price of our common stock could be substantially affected by general market conditions, including the extent to which a secondary market develops and is sustained for our common stock following the completion of this offering, the extent of institutional investor interest in us, the general reputation of REITs and the attractiveness of their equity securities in comparison to other equity securities of other entities (including securities issued by other real estate-based companies), our financial performance and prospects and general stock and bond market conditions.

        The stock markets, including the NYSE on which we intend to list shares of our common stock, have from time to time experienced significant price and volume fluctuations. As a result, the market price of our common stock may be similarly volatile, and investors in shares of our common stock may from time to time experience a decrease in the market price of their shares, including decreases unrelated to our financial performance or prospects. The market price of shares of our common stock could be subject to wide fluctuations in response to a number of factors, including those discussed in this "Risk Factors" section, and others, such as:

    our operating performance and the performance of other similar companies;

    actual or anticipated differences in our quarterly or annual operating results than expected;

    changes in our revenues or earnings estimates or recommendations by securities analysts;

    publication of research reports about us or the real estate industry generally;

    increases in market interest rates, which may lead investors to demand a higher distribution yield for shares of our common stock, and could result in increased interest expense on our debt;

    actual or anticipated changes in our and our tenants' businesses or prospects;

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    the current state of the credit and capital markets, and our ability and the ability of our tenants to obtain financing on favorable terms;

    conflicts of interest with our Manager and its affiliates;

    the termination of our Manager or additions and departures of key personnel of our Manager;

    increased competition in our markets;

    strategic decisions by us or our competitors, such as acquisitions, divestments, spin-offs, joint ventures, strategic investments or changes in business or growth strategies;

    the passage of legislation or other regulatory developments that adversely affect us or our industry;

    adverse speculation in the press or investment community;

    actions by institutional stockholders;

    equity issuances by us, common stock resales by our stockholders, or the perception that such issuances or resales may occur;

    actual, potential or perceived accounting problems;

    changes in accounting principles;

    failure to qualify and maintain our qualification as an Opportunity Zone Fund;

    failure to qualify and maintain our qualification as a REIT;

    failure to comply with the rules of the NYSE or maintain the listing of our common stock on the NYSE;

    terrorist acts, natural or man-made disasters or threatened or actual armed conflicts; and

    general market and local, regional and national economic conditions, including factors unrelated to our operating performance and prospects.

        No assurance can be given that the market price of our common stock will not fluctuate or decline significantly in the future or that holders of shares of our common stock will be able to sell their shares when desired on favorable terms, or at all. From time to time in the past, securities class action litigation has been instituted against companies following periods of extreme volatility in their stock price. This type of litigation could result in substantial costs and divert our management's attention and resources.

There can be no assurance that we will be able to make or maintain cash distributions, and certain agreements relating to our indebtedness may, under certain circumstances, limit or eliminate our ability to make distributions to our common stockholders.

        We intend to make cash distributions to our stockholders in amounts such that all or substantially all of our taxable income in each year, subject to adjustments, is distributed. Our ability to continue to make distributions in the future may be adversely affected by the risk factors described in this prospectus. We can give no assurance that we will be able to make or maintain distributions and certain agreements relating to our indebtedness may, under certain circumstances, limit or eliminate our ability to make distributions to our common stockholders. We can give no assurance that rents from our properties will increase, or that future acquisitions of real properties or other investments will increase our cash available for distributions to stockholders. In addition, any distributions will be authorized at the sole discretion of our board of directors, and their form, timing and amount, if any, will depend upon a number of factors, including our actual and projected results of operations, liquidity, cash flows and financial condition, the revenue we actually receive from our properties, our operating expenses, our debt service requirements, our capital expenditures, prohibitions and other limitations under our

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financing arrangements, our REIT taxable income, the annual REIT distribution requirements, applicable law and such other factors as our board of directors deems relevant.

        Distributions are expected to be based upon our financial condition, cash flows and liquidity, debt service requirements and capital expenditure requirements for our properties. If we do not have sufficient cash available for distributions, we may need to fund the shortage out of working capital or borrow to provide funds for such distributions, which would reduce the amount of proceeds available for real estate investments and increase our future interest costs. Our inability to make distributions, or to make distributions at expected levels, could result in a decrease in the per share trading price of our common stock.

The market price of our common stock could be adversely affected by our level of cash distributions.

        We believe the market price of the equity securities of a REIT is based primarily upon the market's perception of the REIT's growth potential, its current and potential future cash distributions, whether from operations, sales or refinancing, and its management and governance structure and is secondarily based upon the real estate market value of the underlying assets. For that reason, our common stock may trade at prices that are higher or lower than our net asset value per share. To the extent we retain operating cash flows for investment purposes, working capital reserves or other purposes, these retained funds, while increasing the value of our underlying assets, may not correspondingly increase the market price of our common stock. If we fail to meet the market's expectations with regard to future operating results and cash distributions, the market price of our common stock could be adversely affected.

Increases in market interest rates may result in a decline in the market price of our common stock.

        One of the factors that will influence the market price of our common stock will be the distribution yield on the common stock (as a percentage of the market price of our common stock) relative to market interest rates. An increase in market interest rates, which are currently at low levels relative to historical rates, may lead prospective purchasers of shares of our common stock to expect a higher distribution yield and higher interest rates would likely increase our borrowing costs and potentially decrease our cash available for distribution. Thus, higher market interest rates could cause the market price of our common stock to decline.

Future issuances of debt securities, which would rank senior to shares of our common stock upon our liquidation, and future issuances of equity securities (including preferred stock), which would dilute the holdings of our then-existing common stockholders and may be senior to shares of our common stock for the purposes of making distributions, periodically or upon liquidation, may materially and adversely affect the market price of our common stock.

        In the future, we may issue debt or equity securities or incur other borrowings. Upon liquidation, holders of our debt securities and other loans and shares of our preferred stock will receive a distribution of our available assets before holders of shares of our common stock. We are not required to offer any debt or equity securities to existing stockholders on a preemptive basis. Therefore, shares of our common stock that we issue in the future, directly or through convertible or exchangeable securities, warrants or options, will dilute the holdings of our then-existing common stockholders and such issuances or the perception of such issuances may reduce the market price of our common stock. Our preferred stock, if issued, would likely have a preference on distribution payments, periodically or upon liquidation, which could limit our ability to make distributions to holders of shares of our common stock. Because our decision to issue debt or equity securities or otherwise incur debt in the future will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing, nature or impact of our future capital raising efforts. Thus, holders of shares of our common stock bear the risk that our future issuances of debt or equity securities or our incurrence of other borrowings may materially and adversely affect the market price of shares of our common stock and dilute their ownership in us.

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Sales of substantial amounts of our common stock in the public markets, or the perception that they might occur, could reduce the price of our common stock and may dilute your voting power and your ownership interest in us.

        Sales of substantial amounts of our common stock in the public market following this offering, or the perception that such sales could occur, could adversely affect the market price of our common stock and may make it more difficult for you to sell your common stock at a time and price that you deem appropriate. Upon the completion of this offering and the concurrent private placement, we expect to have outstanding            shares of our common stock (or            shares of our common stock if the underwriters exercise in full their option to purchase additional shares).

        The shares of our common stock that we are selling in this offering may be resold immediately in the public market unless they are held by "affiliates," as that term is defined in Rule 144 under the Securities Act. The shares of common stock to be purchased in the concurrent private placement will be "restricted securities" within the meaning of Rule 144 under the Securities Act and may not be sold in the absence of registration under the Securities Act unless an exemption from registration is available, including the exemptions contained in Rule 144. Our Manager, directors, director nominees and officers have agreed, subject to certain exceptions, not to sell or otherwise dispose of any shares of our common stock or securities convertible into or exercisable or exchangeable for shares of our common stock from the date of this prospectus continuing through the date 180 days after the date of this prospectus, except with the prior written consent of Morgan Stanley & Co. LLC and B. Riley Securities, Inc. Sales of a substantial number of such shares upon expiration of the lock-up agreements entered into with the underwriters in connection with this offering, the perception that such sales may occur or early release of these agreements, could cause the market price of our common stock to fall or make it more difficult for you to sell your common stock at a time and price that you deem appropriate.

        In addition, upon completion of this offering, our charter will provide that we may issue up to 500,000,000 shares of common stock and 100,000,000 shares of preferred stock, $0.01 par value per share. Moreover, under Maryland law and as will be provided in our charter, a majority of our entire board of directors will have the power to amend our charter to increase or decrease the aggregate number of shares of stock or the number of shares of stock of any class or series that we are authorized to issue without stockholder approval. Future issuances of shares of our common stock or securities convertible or exchangeable into common stock may dilute the ownership interest of our common stockholders. Because our decision to issue additional equity or convertible or exchangeable securities in any future offering will depend on market conditions and other factors beyond our control, we cannot predict or estimate the amount, timing or nature of our future issuances. In addition, we are not required to offer any such securities to existing stockholders on a preemptive basis. Therefore, it may not be possible for existing stockholders to participate in such future issuances, which may dilute the existing stockholders' interests in us.

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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

        This prospectus contains forward-looking statements within the meaning of the federal securities laws. In particular, statements pertaining to our business and growth strategies, investment and leasing activities and trends affecting our business contain forward-looking statements. When used in this prospectus, the words "estimate," "anticipate," "expect," "believe," "intend," "may," "will," "should," "seek," "approximately," or "plan," or the negative of these words and phrases or similar words or phrases that are predictions of or indicate future events or trends and that do not relate solely to historical matters are intended to identify forward-looking statements. You can also identify forward-looking statements by discussions of strategy, plans or intentions of management.

        Forward-looking statements involve numerous risks and uncertainties, and you should not rely on them as predictions of future events. Forward-looking statements depend on assumptions, data or methods that may be incorrect or imprecise, and we may not be able to realize them. We do not guarantee that the transactions and events described will happen as described (or that they will happen at all). The following factors, among others, could cause actual results and future events to differ materially from those set forth or contemplated in the forward-looking statements:

    general business and economic conditions;

    continued volatility and uncertainty in the credit markets and broader financial markets;

    other risks inherent in the real estate business, including tenant defaults, potential liability relating to environmental matters, illiquidity of real estate investments and potential damages from natural disasters;

    the impact of pandemics such as the recent outbreak of COVID-19 or other sudden or unforeseen events that disrupt the economy;

    availability of suitable properties to acquire and our ability to acquire and lease those properties on favorable terms;

    ability to renew leases, lease vacant space or re-lease space as existing leases expire or are terminated;

    the degree and nature of our competition;

    our failure to generate sufficient cash flows to service our outstanding indebtedness;

    access to debt and equity capital markets;

    fluctuating interest rates;

    availability of, and our Manager's ability to attract, retain and make available to us, qualified personnel or the termination of our Manager;

    conflicts of interest with our Manager and its affiliates;

    changes in, or the failure or inability to comply with, government regulation, including Maryland laws;

    failure to qualify and maintain our qualification as an Opportunity Zone Fund;

    failure to qualify and maintain our qualification for taxation as a REIT;

    changes in U.S. tax law and other U.S. laws, whether or not specific to REITs or Opportunity Zone Funds; and

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    additional factors discussed in the sections entitled "Business and Properties," "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in this prospectus.

        You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this prospectus. While forward-looking statements reflect our good faith beliefs, they are not guarantees of future performance. We undertake no obligation to publicly release the results of any revisions to these forward-looking statements that may be made to reflect events or circumstances after the date of this prospectus or to reflect the occurrence of unanticipated events, except as required by law. In light of these risks and uncertainties, the forward-looking events discussed in this prospectus might not occur as described, or at all.

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USE OF PROCEEDS

        We estimate that the net proceeds to us from this offering will be approximately $             million, or $             million if the underwriters exercise in full their option to purchase additional shares, after deducting underwriting discounts and commissions and other estimated expenses. We expect to receive net proceeds from the concurrent private placement of approximately $             million.

        We intend to contribute the net proceeds from this offering and the concurrent private placement to our subsidiary partnership in exchange for interests therein. Our subsidiary partnership will utilize such proceeds to acquire the nine multifamily projects that will comprise our initial portfolio for an aggregate cash purchase price of approximately $260.4 million, to develop or redevelop the six properties in our initial portfolio that are located in Opportunity Zones, and to acquire and, if they are located in Opportunity Zones, develop or redevelop other properties, which may include properties in our acquisition pipeline, and for general corporate and working capital purposes.

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DISTRIBUTION POLICY

        We intend to make distributions to our stockholders to comply with the REIT requirements of the Code and to avoid paying entity level tax. Any distributions we make will be at the sole discretion of our board of directors and will depend upon a number of factors, including our actual and projected financial condition, liquidity, results of operations, cash flow generated by our operations, operating expenses, debt service requirements, capital expenditure requirements, prohibitions and other limitations under our financing arrangements, our REIT taxable income, the annual REIT distribution requirements, restrictions on making distributions under Maryland law and such other factors as our board of directors deems relevant.

        We anticipate that our distributions generally will be taxable as ordinary income to our stockholders, although a portion of the distributions may constitute a return of capital or may be designated by us as qualified dividend income or capital gain. Distributions to our stockholders may impact the QOZ Tax Benefits discussed above. In particular, because a stockholder electing to treat an investment in us as an investment qualifying for deferral of gains will initially have a zero tax basis with respect to shares of our common stock purchased with such gains, distributions constituting a return of capital will generally be treated as resulting in a taxable sale of such shares, effectively ending the deferral on a portion of such gains. In such a case, a stockholder could reinvest the return of capital in shares of our common stock or in another Opportunity Zone Fund within 180 days to defer current recognition of gain, although such stockholder would have a new holding period with respect to the new interest, including for purposes of determining future QOZ Tax Benefits. We intend to provide our stockholders with additional information about how to reinvest return of capital in shares of our common stock before we pay our first dividend.

        We anticipate that our estimated cash available for distribution will allow us to satisfy the annual distribution requirements applicable to REITs and to avoid the payment of tax on undistributed taxable income. However, under some circumstances, our cash available for distribution may be less than the amount required to meet the annual distribution requirements applicable to REITs, and we may be required to make distributions in excess of cash available for distribution in order to meet these distribution requirements, and we may need to borrow funds, sell certain of our assets or use proceeds from this or future offerings of equity or debt to make certain distributions. Although we currently have no intention to do so, we may under certain circumstances satisfy our annual distribution requirements through a taxable distribution of our common stock or debt securities. However, to the extent that our holders of stock or debt securities receive a taxable distribution of our common stock or debt securities, such holders will be taxed on such securities as if such holders had received the equivalent value in cash.

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CAPITALIZATION

        The following table sets forth (i) the actual capitalization of Aspire Real Estate Investors Predecessor I as of June 30, 2020, (ii) the actual capitalization of Aspire Real Estate Investors Predecessor II as of June 30, 2020, and (iii) our capitalization as of June 30, 2020, as adjusted to give effect to this offering and the formation transactions, based on an assumed initial public offering price of $            , which is the mid-point of the initial public offering price range set forth on the front cover of this prospectus. You should read this table in conjunction with "Use of Proceeds," "Selected Historical and Pro Forma Financial and Other Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources" and our unaudited pro forma combined financial statements and related notes and the audited and unaudited financial statements of our Predecessors and related notes appearing elsewhere in this prospectus.

 
  As of June 30, 2020  
(dollars in thousands)
  Aspire Real Estate
Investors
Predecessor I
  Aspire Real Estate
Investors
Predecessor II
  As Adjusted  

Cash and cash equivalents:

  $ 787   $ 1,140   $    

Debt:

                   

Mortgage notes payable, net

  $ 25,204   $ 64,643 (1)      

Equity:

                   

Equity

    15,872     39,979        

Common Stock, $0.01 par value per share(2)

               

Total equity

    15,872     39,979        

Total Capitalization

  $ 41,076   $ 104,622   $    

(1)
Mortgage notes payable, net, includes (a) approximately $64.6 million of mortgage notes payable, (b) approximately $399,000 of unamortized debt premium, which represents the difference between the assumed loan on a project during acquisition and the current market rate and is amortized over the remaining term of the assumed loan, and (c) approximately $(350,000) of unamortized debt issuance costs, which represents the unamortized portion of deferred financing costs and is amortized over the remaining term of the loan.

(2)
Common stock outstanding, as adjusted, includes (a)             shares of our common stock to be issued in this offering, (b)               shares of our common stock to be issued and sold to members of our senior management team, affiliates of our Manager, investors in our Manager and certain Avanath-managed funds and certain other accredited investors in the concurrent private placement, and (c) an aggregate of            shares of restricted common stock to be granted to our independent directors upon the completion of this offering pursuant to the Equity Incentive Plan. Excludes (a)             shares of our common stock issuable upon the exercise in full of the underwriters' option to purchase additional shares, (b) 100 shares of our common stock that were issued to Daryl J. Carter, our President and Chief Executive Officer, for $1,000 in connection with our initial capitalization and that will be repurchased by us at the closing of this offering and (c)             shares of our common stock available for future issuance pursuant to the Equity Incentive Plan.

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DILUTION

        Purchasers of shares of our common stock in this offering will incur an immediate and substantial dilution in net tangible book value per share of their shares of our common stock from the initial public offering price per share, based on an assumed initial public offering price of $            per share, which is the mid-point of the initial public offering price range set forth on the front cover of this prospectus.

        The difference between the initial public offering price paid by purchasers of our common stock in this offering and the net tangible book value per share of our common stock as of                     , 2020 after taking into account the completion of this offering, the concurrent private placement and the formation transactions constitutes the dilution to purchasers in this offering. Net tangible book value per share is determined by dividing our net tangible book value, which is our total tangible assets less total liabilities, by the number of outstanding shares of our common stock.

        As of                    , 2020, Aspire Real Estate Investors Predecessor I's historical net tangible book value was approximately $             million and Aspire Real Estate Investors Predecessor II's historical net tangible book value was approximately $             million. As of                    2020, our pro forma net tangible book value after taking into account the completion of this offering, the concurrent private placement and the formation transactions would have been approximately $             million, or $            per share of our common stock (in each case, assuming an initial public offering price of $            per share, which is the mid-point of the initial public offering price range set forth on the front cover of this prospectus, and no exercise by the underwriters of their option to purchase additional shares). This amount represents an immediate dilution in net tangible book value per share of approximately $            per share of our common stock to purchasers in this offering. The following table illustrates this per share dilution:

Initial public offering price per share

        $    

Net tangible book value per share as of June 30, 2020, after giving effect to our initial capitalization but before the formation transactions, this offering and the concurrent private placement(1)

  $ 10.00        

Net increase in net tangible book value per share attributable to the formation transactions, this offering and the concurrent private placement

  $          

Pro forma net tangible book value per share after the formation transactions, this offering and the concurrent private placement(2)

        $    

Dilution in pro forma net tangible book value per share to new investors(3)

        $    

(1)
Historical net tangible book value per share as of June 30, 2020, after giving effect to the transaction in which we were capitalized with an initial investment of $1,000 in exchange for 100 shares of our common stock. Such shares will be repurchased by us at the closing of this offering for $1,000.

(2)
Pro forma net tangible book value per share after the formation transactions, this offering and the concurrent private placement was determined by dividing net tangible book value of approximately $             million by            shares of common stock deemed to be outstanding after the formation transactions, this offering and the concurrent private placement, which amount excludes the shares and the related proceeds that may be issued and received by us upon exercise of the underwriters' option to purchase additional shares and additional common stock reserved for future issuance under the Equity Incentive Plan.

(3)
The dilution in pro forma net tangible book value per share to new investors was determined by subtracting pro forma net tangible book value per share after the formation transactions, this

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    offering and the concurrent private placement from the assumed initial public offering price paid by a new investor for our common stock.

        A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, which is the mid-point of the initial public offering price range set forth on the front cover of this prospectus, would increase (decrease) the pro forma net tangible book value per share after taking into account the completion of this offering, the concurrent private placement and the formation transactions by $            per share and the dilution by $            per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the underwriting discount and estimated offering expenses payable by us. The information discussed in this paragraph is illustrative only.

        If the underwriters' option to purchase additional shares is exercised in full, the following will occur (based on an assumed initial public offering price of $            per share, which is the mid-point of the initial public offering price range set forth on the front cover of this prospectus):

    the number of shares of our common stock held by purchasers in this offering will increase to            shares, or approximately         % of the total number of issued and outstanding shares of our common stock; and

    the pro forma net tangible book value per share after taking into account the completion of this offering, the concurrent private placement and the formation transactions will be approximately $            per share and the immediate dilution experienced by purchasers in this offering will be approximately $            per share.

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SELECTED HISTORICAL AND PRO FORMA FINANCIAL AND OTHER DATA

Selected Historical and Other Data—Aspire Real Estate Investors Predecessor I

        Set forth below is selected financial information and other data presented on a historical basis for Aspire Real Estate Investors Predecessor I. Aspire Real Estate Investors Predecessor I is not a legal entity but rather a combination of real estate entities and operations invested in the properties that we refer to as Wellington Woods, Coopers Crossing and Country Wood. We have not presented historical data for Aspire Real Estate Investors, Inc. because we have not had any corporate activity since our formation other than the issuance of 100 shares of common stock in connection with our initial capitalization and activity in connection with this offering and the formation transactions. Accordingly, we do not believe that a presentation of the historical results of Aspire Real Estate Investors, Inc. would be meaningful. Prior to or concurrently with the completion of this offering, we will consummate the formation transactions pursuant to which, among other things, we will contribute the net proceeds to our subsidiary partnership in exchange for interests therein. Our subsidiary partnership will acquire the nine multifamily projects that will comprise our initial portfolio by cash purchase. For more information regarding the formation transactions, please see "Structure and Formation of Our Company."

        Aspire Real Estate Investors Predecessor I's historical combined balance sheet data as of December 31, 2019 and 2018 and historical combined operating data for the years ended December 31, 2019 and 2018 have been derived from Aspire Real Estate Investors Predecessor I's audited historical combined financial statements included elsewhere in this prospectus. The historical combined financial data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance.

        Aspire Real Estate Investors Predecessor I's historical combined balance sheet data as of June 30, 2020 and historical combined operating data for the six months ended June 30, 2020 and 2019 have been derived from Aspire Real Estate Investors Predecessor I's unaudited historical combined financial statements included elsewhere in this prospectus. Aspire Real Estate Investors Predecessor I's unaudited historical combined financial statements, in management's opinion, have been prepared in accordance with GAAP on the same basis as its audited historical combined financial statements included elsewhere in this prospectus and, in the opinion of management, reflect all adjustments consisting only of normal recurring adjustments that management considers necessary to state fairly the financial information as of and for the periods presented. The unaudited interim financial and operating data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance, and results for any interim period are not necessarily indicative of the results for any full year.

        You should read the following summary selected historical financial and other data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business and Properties" and the historical and pro forma financial statements and related notes appearing elsewhere in this prospectus.

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Operating Data:

 
  (Dollars in thousands)  
 
  For the Six
Months Ended
June 30, 2020
  For the Six
Months Ended
June 30, 2019
  For the Year
Ended
December 31,
2019
  For the Year
Ended
December 31,
2018
 

Revenue

                         

Rental revenue

  $ 3,651   $ 3,354   $ 6,961   $ 6,524  

Other revenue

    174     241     449     459  

Total revenue

    3,825     3,595     7,410     6,983  

Operating Expenses

                         

General and administrative

    198     187     391     418  

Depreciation

    1,051     1,073     2,165     2,097  

Property operating and maintenance

    1,121     1,250     2,474     2,564  

Real estate taxes and insurance

    505     480     998     875  

Management fee

    189     188     377     419  

Total operating expenses

    3,064     3,178     6,405     6,373  

Other Income and (Expenses)

                         

Interest expense

    (548 )   (558 )   (1,119 )   (1,142 )

Total other income (and expenses)

    (548 )   (558 )   (1,119 )   (1,142 )

Net income (loss) and comprehensive income (loss)

  $ 213   $ (141 ) $ (114 ) $ (532 )

Balance Sheet Data:

 
  (Dollars in thousands,
except per share amounts)
 
 
  As of
June 30, 2020
  As of
December 31,
2019
  As of
December 31,
2018
 

Assets

                   

Real estate investments, net

  $ 39,883   $ 40,586   $ 41,537  

Cash and cash equivalents

    787     511     666  

Restricted cash

    1,197     1,568     1,288  

Accounts receivable

    28     22     8  

Other assets

    271     77     65  

Total assets

  $ 42,166   $ 42,764   $ 43,564  

Liabilities and Equity

                   

Mortgage notes payable, net

  $ 25,204   $ 25,460   $ 25,948  

Accounts payable and accrued expenses

    750     659     642  

Security deposits, prepaid rent and other liabilities

    340     340     384  

Due to related parties

        75     29  

Total liabilities

    26,294     26,534     27,003  

Commitments and contingencies

                   

Equity

    15,872     16,230     16,561  

Total liabilities and equity

  $ 42,166   $ 42,764   $ 43,564  

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Selected Historical and Other Data—Aspire Real Estate Investors Predecessor II

        Set forth below is selected financial information and other data presented on a historical basis for Aspire Real Estate Investors Predecessor II. Aspire Real Estate Investors Predecessor II is not a legal entity but rather a combination of real estate entities and operations invested in the properties that we refer to as Academy at Waterford Lakes, Arbors at Cary, Woodside Senior, Seaport Village and Oak Village. We have not presented historical data for Aspire Real Estate Investors, Inc. because we have not had any corporate activity since our formation other than the issuance of 100 shares of common stock in connection with our initial capitalization and activity in connection with this offering and the formation transactions. Accordingly, we do not believe that a presentation of the historical results of Aspire Real Estate Investors, Inc. would be meaningful. Prior to or concurrently with the completion of this offering, we will consummate the formation transactions pursuant to which, among other things, we will contribute the net proceeds to our subsidiary partnership in exchange for interests therein. Our subsidiary partnership will acquire the nine multifamily projects that will comprise our initial portfolio by cash purchase. For more information regarding the formation transactions, please see "Structure and Formation of Our Company."

        Aspire Real Estate Investors Predecessor II's historical combined balance sheet data as of December 31, 2019 and 2018 and historical combined operating data for the years ended December 31, 2019 and 2018 have been derived from Aspire Real Estate Investors Predecessor II's audited historical combined financial statements included elsewhere in this prospectus. The historical combined financial data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance.

        Aspire Real Estate Investors Predecessor II's historical combined balance sheet data as of June 30, 2020 and historical combined operating data for the six months ended June 30, 2020 and 2019 have been derived from Aspire Real Estate Investors Predecessor II's unaudited historical combined financial statements included elsewhere in this prospectus. Aspire Real Estate Investors Predecessor II's unaudited historical combined financial statements, in management's opinion, have been prepared in accordance with GAAP on the same basis as its audited historical combined financial statements included elsewhere in this prospectus and, in the opinion of management, reflect all adjustments consisting only of normal recurring adjustments that management considers necessary to state fairly the financial information as of and for the periods presented. The unaudited interim financial and operating data included below and set forth elsewhere in this prospectus are not necessarily indicative of our future performance, and results for any interim period are not necessarily indicative of the results for any full year.

        You should read the following summary selected historical financial and other data together with "Management's Discussion and Analysis of Financial Condition and Results of Operations," "Business and Properties" and the historical and pro forma financial statements and related notes appearing elsewhere in this prospectus.

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Operating Data:

 
  (Dollars in thousands)  
 
  For the Six
Months Ended
June 30, 2020
  For the Six
Months Ended
June 30, 2019
  For the Year
Ended
December 31,
2019
  For the Year
Ended
December 31,
2018
 

Revenue

                         

Rental revenue

  $ 7,350   $ 7,122   $ 14,367   $ 14,008  

Other revenue

    292     545     848     696  

Total revenue

    7,642     7,667     15,215     14,704  

Operating Expenses

                         

General and administrative

    399     448     796     777  

Depreciation and amortization

    2,140     2,088     4,186     4,220  

Property operating and maintenance

    2,556     2,487     5,188     4,723  

Real estate taxes and insurance

    979     911     1,876     1,967  

Management fee

    408     406     810     866  

Total operating expenses

    6,482     6,340     12,856     12,553  

Other Income and (Expenses)

                         

Interest income

    3     3     8     3  

Interest expense

    (1,305 )   (1,327 )   (2,660 )   (2,709 )

Total other income (and expenses)

    (1,302 )   (1,324 )   (2,652 )   (2,706 )

Net income (loss) and comprehensive income (loss)

  $ (142 ) $ 3   $ (293 ) $ (555 )

Balance Sheet Data:

 
  (Dollars in thousands,
except per share amounts)
 
 
  As of
June 30, 2020
  As of
December 31,
2019
  As of
December 31,
2018
 

Assets

                   

Real estate investments, net

  $ 102,651   $ 104,498   $ 107,710  

Cash and cash equivalents

    1,140     1,834     1,489  

Restricted cash

    2,337     2,075     1,938  

Accounts receivable, net

    243     135     293  

Other a