UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For
the quarterly period ended |
or
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
| For the transition period from ____ to ____ |
Commission
File Number:
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
(Address or principal executive offices)
(Registrant’s telephone number, including area code)
Not Applicable
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
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 | ☐ | Accelerated filer | ☐ | |
| ☒ | Smaller reporting company | |||
| Emerging growth company |
| If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
☐
As of May 5, 2023, the registrant had Class A units, Class B units and Class M unit outstanding.
TABLE OF CONTENTS
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q (this “Form 10-Q”) contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), which reflect the current views of Belpointe PREP, LLC, a Delaware limited liability company (together with its subsidiaries, the “Company,” “we,” “us,” or “our”) with respect to, among other things, our future results of operations and financial performance. In some cases, you can identify forward-looking statements by words such as “anticipate,” “approximately,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “outlook,” “plan,” “potential,” “predict,” “seek,” “should,” “will,” and “would” or the negative version of these words or other comparable words or statements that do not relate strictly to historical or factual matters. By their nature, forward-looking statements speak only as of the date they are made, are not statements of historical fact or guarantees of future performance and are subject to risks, uncertainties, assumptions or changes in circumstances that are difficult to predict or quantify, including those risks described under Item 1A. “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022, a copy of which may be accessed here, and, in particular due to rising interest rates, increasing inflation and recent instability in the banking system, and the projected impact of such factors on our business, financial performance and operating results. Our expectations, beliefs and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs and projections will result or be achieved, and actual results may vary materially from what is expressed in or indicated by the forward-looking statements.
We caution you that the risks, uncertainties and other factors referenced above may not contain all of the risks, uncertainties and other factors that are important to you. There may be other factors that cause our actual results to differ materially from any forward-looking statements, including factors discussed in Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of this Form 10-Q, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at www.sec.gov. You should evaluate all forward-looking statements made in this Form 10-Q in the context of these risks and uncertainties. In addition, we cannot assure you that we will realize the results, benefits or developments that we expect or anticipate or, even if substantially realized, that they will result in the consequences or affect us or our business in the way expected. In light of the significant uncertainties inherent in these forward-looking statements, the inclusion of this information should not be regarded as a representation by us or any other person that our plans, strategies and objectives, which we consider to be reasonable, will be achieved. All forward-looking statements in this Form 10-Q apply only as of the date made and are expressly qualified in their entirety by the cautionary statements included in this Form 10-Q and in other filings we make with the SEC. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances, except as required by law.
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements
Belpointe PREP, LLC
Consolidated Balance Sheets
(in thousands, except unit and per unit data)
| March 31, 2023 | December 31, 2022 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Real estate | ||||||||
| Land | $ | $ | ||||||
| Building and improvements | ||||||||
| Intangible assets | ||||||||
| Real estate under construction | ||||||||
| Total real estate | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Real estate, net | ||||||||
| Cash and cash equivalents | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| $ | $ | |||||||
| Lease liabilities | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Members’ Capital | ||||||||
| Class A units, units authorized, units issued and outstanding at March 31, 2023 and December 31, 2022 | ||||||||
| Class B units, units authorized, units issued and outstanding at March 31, 2023 and December 31, 2022 | ||||||||
| Class M units, unit authorized, unit issued and outstanding at March 31, 2023 and December 31, 2022 | ||||||||
| Total members’ capital excluding noncontrolling interests | ||||||||
| Noncontrolling interests | ||||||||
| Total members’ capital | ||||||||
| Total liabilities and members’ capital | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 1 |
Belpointe PREP, LLC
Consolidated Statements of Operations (Unaudited)
(in thousands, except unit and per unit data)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenue | ||||||||
| Rental revenue | $ | $ | ||||||
| Total revenue | ||||||||
| Expenses | ||||||||
| Property expenses | ||||||||
| General and administrative | ||||||||
| Depreciation and amortization expense | ||||||||
| Total expenses | ||||||||
| Other (loss) income | ||||||||
| Interest income | ||||||||
| Other (expense) income | ( | ) | ( | ) | ||||
| Total other (loss) income | ( | ) | ||||||
| Net loss | ( | ) | ( | ) | ||||
| Net income attributable to noncontrolling interests | ( | ) | ( | ) | ||||
| Net loss attributable to Belpointe PREP, LLC | $ | ( | ) | $ | ( | ) | ||
| Loss per Class A unit (basic and diluted) | ||||||||
| Net loss per unit | $ | ( | ) | $ | ( | ) | ||
| Weighted-average units outstanding | ||||||||
See accompanying notes to consolidated financial statements.
| 2 |
Belpointe PREP, LLC
Consolidated Statements of Changes in Members’ Capital (Unaudited)
(in thousands, except unit and per unit data)
| Total | ||||||||||||||||||||||||||||||||||||
| Members’ | ||||||||||||||||||||||||||||||||||||
| Capital | ||||||||||||||||||||||||||||||||||||
| Excluding | Total | |||||||||||||||||||||||||||||||||||
| Class A units | Class B units | Class M unit | Noncontrolling | Noncontrolling | Member’s | |||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount |
Interests |
Interests | Capital | ||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Acquisition of Non-Controlling Interest (Note 5) | — | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||||
| Offering costs | — | ( |
) | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Net (loss) income | — | ( |
) | — | — | ( |
) | ( |
) | |||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||||||||||||||
| Members’ | ||||||||||||||||||||||||||||||||||||
| Capital | ||||||||||||||||||||||||||||||||||||
| Excluding | Total | |||||||||||||||||||||||||||||||||||
| Class A units | Class B units | Class M unit | Noncontrolling | Noncontrolling | Member’s | |||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | Interest | Interest | Capital | ||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Offering Costs | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net (loss) income | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
| 3 |
Belpointe PREP, LLC
Consolidated Statements of Cash Flows (Unaudited)
(in thousands)
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to net loss | ||||||||
| Depreciation and amortization | ||||||||
| Accretion of rent-related intangibles and deferred rental revenue | ( | ) | ( | ) | ||||
| Increase in due to affiliates | ||||||||
| Decrease (increase) in other assets | ( | ) | ||||||
| Decrease in accounts payable | ( | ) | ( | ) | ||||
| Increase in accrued expenses and other liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| Cash flows from investing activities | ||||||||
| Development of real estate | ( | ) | ( | ) | ||||
| Other investing activity | ( | ) | ( | ) | ||||
| Funding of loans receivable | ( | ) | ||||||
| Acquisitions of real estate | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Payment of offering costs | ( | ) | ( | ) | ||||
| Other financing activities | ( | ) | ||||||
| Proceeds from subscriptions receivable | ||||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Net decrease in cash and cash equivalents and restricted cash | ( | ) | ( | ) | ||||
| Cash and cash equivalents and restricted cash, beginning of period | ||||||||
| Cash and cash equivalents and restricted cash, end of period | $ | $ | ||||||
| Cash paid during the period for interest, net of amount capitalized | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 4 |
BELPOINTE PREP, LLC
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note 1 - Organization, Business Purpose and Capitalization
Organization and Business Purpose
Belpointe PREP, LLC (together with its subsidiaries, the “Company,” “we,” “us,” or “our”) is focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within “qualified opportunity zones.” We were formed on January 24, 2020 as a Delaware limited liability company and qualify as a partnership and qualified opportunity fund for U.S. federal income tax purposes.
At least 90% of our assets consist of qualified opportunity zone property, and all of our assets are held by, and all of our operations are conducted through, one or more operating companies (each an “Operating Company” and together, our “Operating Companies”), either directly or indirectly through their subsidiaries. We are externally managed by Belpointe PREP Manager, LLC (our “Manager”), an affiliate of our sponsor, Belpointe, LLC (our “Sponsor”). Subject to the oversight of our board of directors (our “Board”), our Manager is responsible for managing our affairs on a day-to-day basis and for identifying and making acquisitions and investments on our behalf.
Capitalization
On
May 9, 2023, the U.S. Securities and Exchange Commission (the “SEC”) declared effective our registration statement
on Form S-11, as amended (File No. 333-271262) (the “Follow-on Registration Statement”), registering the offer and sale of
up to $
In
connection with the Follow-on Registration Statement, we entered into a non-exclusive dealer manager agreement with Emerson Equity LLC
(“Dealer Manager”), a registered broker-dealer, for the sale of our Class A units through the Dealer Manager. The Dealer
Manager will enter into participating dealer agreements and wholesale agreements with other broker-dealers, referred to as “selling
group members,” to authorize those broker-dealers to solicit offers to purchase our Class A units. We will pay our Dealer Manager
commissions of up to
In
addition, the Follow-on Registration Statement constitutes a post-effective amendment to the registration statement on Form S-11, as
amended (File No. 333-255424), registering the offer and sale of our ongoing initial public offering of up to $
The purchase price for Class A units in the Public Offering will be the lesser of (i) the current net asset value (the “NAV”) of our Class A units, and (ii) the average of the high and low sale prices of our Class A units on the NYSE American (the “NYSE”) during regular trading hours on the last trading day immediately preceding the investment date on which the NYSE was open for trading and trading in our Class A units occurred. As of May 9, 2023 the assumed NAV of our Class A units was equal to $ per Class A unit. Our Manager will calculate our NAV within approximately 60 days of the last day of each quarter (the “Determination Date”). Any adjustment to our NAV will take effect as of the first business day following its public announcement. Our adjusted NAV will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date.
Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting and conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and Article 8 of Regulation S-X of the rules and regulations of the U.S. Securities and Exchange Commission.
| 5 |
In the opinion of management, all adjustments considered necessary for a fair presentation of our financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The consolidated financial statements as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, are unaudited and may not include year-end adjustments necessary to make them comparable to audited results. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2022, included in our Annual Report on Form 10-K. The operating results for interim periods are not necessarily indicative of operating results for any other interim period or for the entire year.
Basis of Consolidation
The accompanying unaudited consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portion of members’ capital in controlled subsidiaries that are not attributable, directly or indirectly, to us are presented in noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.
We have evaluated our economic interest in entities to determine if they are deemed to be variable interest entities (“VIEs”) and whether the entities should be consolidated. An entity is a VIE if it has any one of the following characteristics: (i) the entity does not have enough equity at risk to finance its activities without additional subordinated financial support; (ii) the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. The distinction between a VIE and other entities is based on the nature and amount of the equity investment and the rights and obligations of the equity investors. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered VIEs unless the limited partners hold substantive kick-out rights or participation rights.
Significant judgment is required to determine whether a VIE should be consolidated. We review all agreements and contractual arrangements to determine whether (i) we or another party have any variable interests in an entity, (ii) the entity is considered a VIE, and (iii) which variable interest holder, if any, is the primary beneficiary of the VIE. Determination of the primary beneficiary is based on whether a party (a) has the power to direct the activities that most significantly impact the economic performance of the VIE, and (b) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.
| 6 |
The following table presents the financial data of the consolidated VIEs included in the consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively (amounts in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Assets | ||||||||
| Real estate | ||||||||
| Land | $ | $ | ||||||
| Building and improvements | ||||||||
| Intangible assets | ||||||||
| Real estate under construction | ||||||||
| Total real estate | ||||||||
| Accumulated depreciation and amortization | ( | ) | ( | ) | ||||
| Real estate, net | ||||||||
| Cash and cash equivalents | ||||||||
| Other assets | ||||||||
| Total assets | $ | $ | ||||||
| Liabilities | ||||||||
| $ | $ | |||||||
| Lease liabilities | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
An interest in a VIE requires reconsideration when an event occurs that was not originally contemplated. At each reporting period we will reassess whether there are any events that require us to reconsider our determination of whether an entity is a VIE and whether it should be consolidated.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jump Start Our Business Startups Act of 2012 (“JOBS Act”). Under Section 107 of the JOBS Act, emerging growth companies are permitted to use an extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards that have different effective dates for public and private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company, or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, these consolidated financial statements may not be comparable to the consolidated financial statements of companies that comply with public company effective dates.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and the accompanying notes. Actual results could materially differ from those estimates.
Restricted Cash
Restricted cash consists of amounts required to be reserved pursuant to contractual obligations and amounts held in escrow on behalf of the company. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the unaudited consolidated statements of cash flows (amounts in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash (1) | ||||||||
| Total cash and cash equivalents and restricted cash | $ | $ | ||||||
| (1) |
| 7 |
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduces a new model for estimating credit losses based on current expected credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 does not apply to receivables arising from operating leases, which are within the scope of ASU 2016-02, Leases (Topic 842).
We adopted ASU 2016-13 on January 1, 2023 using the modified retrospective method. The adoption of this standard did not have a material impact on our unaudited consolidated financial statements, and no cumulative-effect adjustment was recorded to retained earnings.
Note 3 – Leases
Lessor Accounting
We own rental properties which are leased to tenants under operating leases with current expirations ranging from 2023 to 2040, with options to extend or terminate the leases. Revenues from such leases are reported as Rental revenue in our unaudited consolidated statements of operations, and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. We do not separate non-lease components from the related lease components as allowed under the Accounting Standards Codification (“ASC”) 842 practical expedient, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842.
Fixed lease revenues represent the base rent that each tenant is required to pay in accordance with the terms of their respective leases reported on a straight-line basis over the non-cancelable term of the lease. Variable lease revenues include payments based on (i) tenant reimbursements, (ii) changes in the index or market-based indices after the inception of the lease, (iii) percentage rents, or (iv) the operating performance of the property. Variable lease revenues are not recognized until the specific events that trigger the variable payments have occurred.
The following table summarizes the components of lease revenues (amounts in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Fixed lease revenues | $ | $ | ||||||
| Variable lease revenues (1) | ||||||||
| Lease revenues (2) (3) | $ | $ | ||||||
| (1) |
| (2) |
| (3) |
In certain of our leases, the tenant is obligated to pay the real estate taxes, insurance, and certain other expenses directly to the vendor. These obligations, which have been assumed by the tenants, are not reflected in our unaudited consolidated financial statements. To the extent any such tenant defaults on its lease or if it is deemed probable that the tenant will fail to pay for such obligations, a liability for such obligations would be recorded.
| 8 |
We assess the collectability of substantially all lease payments due by reviewing a tenant’s payment history or financial condition. Changes to collectability are recognized as a current period adjustment to rental revenue. We have assessed the collectability of all recorded lease revenues as probable as of March 31, 2023.
Lessee Accounting
Ground Lease
We
are a lessee under a ground lease in Sarasota, Florida, which is classified as a financing lease. As of March 31, 2023, we have
exercised an option to acquire the underlying property, and the acquisition is expected to close in the third quarter of 2023.
Accordingly, finance lease liabilities of $
There are no operating leases for which we are the lessee, therefore there are no related ROU assets or lease liabilities as of March 31, 2023 and December 31, 2022.
Note 4 – Related Party Arrangements
Our Relationship with Our Manager and Sponsor
Our Manager and its affiliates, including our Sponsor, will receive fees or reimbursements in connection with our Public Offerings and the management of our investments.
The following table presents a summary of fees incurred on our behalf by, and expenses reimbursable to, our Manager and its affiliates, including our Sponsor, in accordance with the terms of the relevant agreements (amounts in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| (unaudited) | (unaudited) | |||||||
| Amounts included in the Consolidated Statements of Operations | ||||||||
| Costs incurred by our Manager and its affiliates (1) | $ | $ | ||||||
| Management fees | ||||||||
| Insurance | ||||||||
| Director compensation | ||||||||
| $ | $ | |||||||
| Capitalized costs included in the Consolidated Balance Sheets | ||||||||
| Development fee and reimbursements | $ | $ | ||||||
| Insurance (2) | ||||||||
| $ | $ | |||||||
| (1) |
| (2) |
| 9 |
The following table presents a summary of amounts included in Due to affiliates in the consolidated balance sheets (amounts in thousands):
| March 31, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Due to affiliates | ||||||||
| Development fees | $ | $ | ||||||
| Employee cost sharing and reimbursements (1) | ||||||||
| Management fees | ||||||||
| Director compensation | ||||||||
| $ | $ | |||||||
| (1) |
Public Offering Expenses
Our Manager and its affiliates, including our Sponsor, will be reimbursed, for offering expenses incurred in connection with our Public Offerings. We became liable to reimburse our Manager and its affiliates, including our Sponsor, when the first closing was held in connection with our Primary Offering, which occurred in October 2021.
There were no Primary Offering expenses incurred by our Manager and its affiliates during the three months ended March 31, 2023 and 2022.
Other Operating Expenses
Pursuant to the Management Agreement, we reimburse our Manager, Sponsor and their respective affiliates for actual expenses incurred on our behalf in connection with the selection, acquisition or origination of investments, whether or not we ultimately acquire or originate an investment. We also reimburse our Manager, Sponsor and their respective affiliates for out-of-pocket expenses paid to third parties in connection with providing services to us.
Pursuant
to the Employee and Cost Sharing Agreement, we reimburse our Sponsor and our Manager for expenses incurred for our allocable share of
the salaries, benefits and overhead of personnel providing services to us. During the three months ended March 31, 2023 and 2022, our
Manager and its affiliates, including our Sponsor, incurred operating expenses of $
Management Fee
Subject to the limitations set forth in our Amended and Restated Limited Liability Company Operating Agreement (our “Operating Agreement”) and the oversight of our Board, our Manager is responsible for managing our affairs on a day-to-day basis and for the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including but not limited to commercial real estate loans, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses.
Pursuant
to the Management Agreement, we pay our Manager a quarterly management fee in arrears of one-fourth of
| 10 |
Development Fees and Reimbursements
Affiliates of our Sponsor are entitled to receive (i) development fees on each project in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project, and (ii) reimbursements for their expenses, such as employee compensation and other overhead expenses incurred in connection with the project.
During
the three months ended March 31, 2023 and 2022, we incurred development fees earned during the construction phase of $
During
the three months ended March 31, 2023 and 2022, we incurred employee reimbursement expenditures to our affiliates acting as development
managers of $
Acquisition Fees
We
will pay our Manager, Sponsor, or an affiliate of our Manager or Sponsor, an acquisition fee equal to
Insurance
Certain immediate family members of our Chief Executive Officer have a passive indirect minority beneficial ownership interest in Belpointe Specialty Insurance, LLC (“Belpointe Specialty Insurance”). Belpointe Specialty Insurance has acted as our broker in connection with the placement of insurance coverage for certain of our properties and operations. Belpointe Specialty Insurance earns brokerage commissions related to the brokerage services that it provides to us, which commissions vary, are based on a percentage of the premiums that we pay and are set by the insurer. We have also engaged Belpointe Specialty Insurance to provide us with contract insurance consulting services related to owner-controlled insurance programs, for which we pay an administration fee.
During
the three months ended March 31, 2023 and 2022, we obtained insurance premiums in the aggregate amount of $
Economic Dependency
Under various agreements we have engaged our Manager and its affiliates, including in certain cases our Sponsor, to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition services, supervision of our Primary Offering and any other offerings we conduct, as well as other administrative responsibilities for the Company, including, without limitation, accounting services and investor relations services. As a result of these relationships, we are dependent upon our Manager and its affiliates, including our Sponsor. In the event that these companies are unable to provide us with the services we have engaged them to provide, we would be required to find alternative service providers.
| 11 |
Note 5 – Real Estate, Net
Acquisitions of Real Estate During 2023
On
June 28, 2022, through an indirect majority-owned subsidiary of our Operating Company, we acquired a
Depreciation
expense was $
Real Estate Under Construction
The following table provides the activity of our Real estate under construction in the consolidated balance sheets (amounts in thousands):
| March 31, 2023 | December 31, 2022 | ||
| (unaudited) | |||
| Beginning balance | $ |
$ | |
| Capitalized costs (1) (2) | |||
| Land held for development (3) | |||
| Capitalized interest | |||
| $ |
$ |
| (1) |
| (2) |
| (3) |
Real
estate under construction includes non-cash investing activity of $
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Note 6 – Intangible Assets and Liabilities
Intangible assets and liabilities are summarized as follows (amounts in thousands):
| March 31, 2023 | December 31, 2022 | |||||||||||||||||||||||
| Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | Gross Carrying Amount | Accumulated Amortization | Net Carrying Amount | |||||||||||||||||||
| (unaudited) | (unaudited) | (unaudited) | ||||||||||||||||||||||
| Finite-Lived Intangible Assets | ||||||||||||||||||||||||
| In-place leases | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Indefinite-Lived Intangible Assets | ||||||||||||||||||||||||
| Development rights | ||||||||||||||||||||||||
| Total intangible assets | $ | $ | ( | ) | $ | $ | $ | ( | ) | $ | ||||||||||||||
| Finite-Lived Intangible Liabilities | ||||||||||||||||||||||||
| Below-market leases | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
| Total intangible liabilities | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||||||
In-place lease and development right intangible assets, noted above, are included in Intangible assets on the consolidated balance sheets. Below-market lease liabilities, noted above, are included in Lease liabilities on the consolidated balance sheets.
Amortization
of in-place lease intangible assets was $
Amortization
of below-market lease liabilities was $
Note 7 – Loans Receivable
On
September 30, 2021, we lent approximately $
On
January 3, 2022, we provided a $
On
February 23, 2022, we provided an approximately $
Interest
income from loans receivable was
Note 8 – Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date under current market conditions (i.e., the exit price).
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We categorize our financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities recorded on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs).
Level 3 – Valuation generated from model-based techniques that use inputs that are significant and unobservable in the market. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow methodologies or similar techniques, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.
We estimated that our financial assets and liabilities had fair values that approximated their carrying values as of March 31, 2023 and December 31, 2022.
Note 9 – Members’ Capital
Our Operating Agreement generally authorizes our Board to issue an unlimited number of units and options, rights, warrants and appreciation rights relating to such units for consideration or for no consideration and on the terms and conditions as determined by our Board, in its sole discretion, in most cases without the approval of our members. These additional securities may be used for a variety of purposes, including in future offerings to raise additional capital and acquisitions. Our Operating Agreement currently authorizes the issuance of an number of Class A units, Class B units and Class M unit.
There were no units issued during the three months ended March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022, there were Class A units, Class B units and Class M unit issued and outstanding.
Class A units
Upon payment in full of any consideration payable with respect to the initial issuance of our Class A units, the holder thereof will not be liable for any additional capital contributions to the Company. Holders of Class A units are not entitled to preemptive, redemption or conversion rights. Holders of our Class A units are entitled to one vote per unit on all matters submitted to a vote of our members. Matters must generally be approved by a majority (or, in the case of the election of directors, by a plurality) of the votes entitled to be cast.
Holders of our Class A units share ratably in any distributions we make, subject to any statutory or contractual restrictions on distributions and to any restrictions on distributions imposed by the terms of any preferred units we issue.
Upon our dissolution, liquidation or winding up, after payment of all amounts required to be paid to creditors and holders of preferred units, if any, holders of our Class A units are entitled to receive our remaining assets available for distribution.
Class B units
All of our Class B units are currently held by our Manager and were issued on September 14, 2021. Holders of our Class B units are not entitled to preemptive, redemption or conversion rights. Holders of our Class B units are entitled to one vote per unit on all matters submitted to a vote of our members. Matters must generally be approved by a majority (or, in the case of the election of directors, by a plurality) of the votes entitled to be cast.
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Holders
of our Class B units are entitled to share ratably as a class in
Upon our dissolution, liquidation or winding up, after payment of all amounts required to be paid to creditors and holders of preferred units, if any, holders of Class B units will be entitled to receive any accrual of gains or distributions otherwise distributable pursuant to the terms of the Class B units, regardless of whether the holders of our Class A units have received a return of their capital.
Class M unit
The Class M unit is currently held by our Manager and was issued on September 14, 2021. The holder of our Class M unit is not entitled to preemptive, redemption or conversion rights. The holder of our Class M unit is entitled to that number of votes equal to the product obtained by multiplying (i) the sum of the aggregate number of outstanding Class A units plus Class B units, by (ii) 10, on matters on which the Class M unit has a vote. Our Manager will continue to hold the Class M unit for so long as it remains our manager.
The holder of our Class M unit does not have any right to receive ordinary, special or liquidating distributions.
Preferred units
Under our Operating Agreement, our Board may from time to time establish and cause us to issue one or more classes or series of preferred units and set the designations, preferences, rights, powers and duties of such classes or series.
Basic and Diluted Loss Per Class A Unit
For
the three months ended March 31, 2023, the basic and diluted weighted-average units outstanding were . For the three months
ended March 31, 2023, net loss attributable to Class A units was $
For
the three months ended March 31, 2022, the basic and diluted weighted-average units outstanding were . For the three months
ended March 31, 2022, net loss attributable to Class A units was $
Note 10 – Commitments and Contingencies
As of March 31, 2023, we were not subject to any material litigation nor were we aware of any material litigation threatened against us.
During
the three months ended March 31, 2022, we entered into a construction management agreement in connection with the development of one
of our commercial real estate properties. As of March 31, 2023, we had an unfunded capital commitment of $
Note 11 – Subsequent Events
Management has evaluated subsequent events to determine if events or transactions occurring after the balance sheet date through the date the unaudited consolidated financial statements were available for issuance require potential adjustment to or disclosure in the unaudited consolidated financial statements and has concluded that, except as set forth below, all such events or transactions that would require recognition or disclosure have been recognized or disclosed.
In
April 2023, we entered into a construction management agreement in connection with the development of one of our commercial real estate
properties. The construction management agreement contains terms and conditions that are customary for a project of this type and will
be subject to a guaranteed maximum price of $
In
May 2023, BPOZ 1991 Main, LLC, an indirect wholly-owned subsidiary of our Operating Company, entered into a variable-rate
construction loan agreement for $
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
In this Quarterly Report on Form 10-Q (this “Form 10-Q”), unless context otherwise requires, references to “we,” “us,” “our” “Belpointe” or the “Company” refer to Belpointe PREP, LLC, its operating companies, Belpointe PREP OC, LLC, and Belpointe PREP TN OC, LLC (each an “Operating Company” and, together, the “Operating Companies”), and each of the Operating Companies’ subsidiaries, taken together.
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited consolidated financial statements and related notes appearing elsewhere in this Form 10-Q and our audited consolidated financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “Annual Report”) filed with the U.S. Securities and Exchange Commission on March 31, 2023, a copy of which may be accessed here. As discussed in the section entitled “Forward-Looking Statements,” the following discussion and analysis contains forward-looking statements that involve risks and uncertainties, as well as assumptions that, if they never materialize or prove incorrect, could cause our results to differ materially from those expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified below, and those discussed in the section entitled “Risk Factors” included our Annual Report.
Overview
We are the only publicly traded qualified opportunity fund listed on a national securities exchange. We are a Delaware limited liability company formed on January 24, 2020, and we currently intend to operate in a manner that will allow us to qualify as a partnership for U.S. federal income tax purposes. We are focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within qualified opportunity zones. At least 90% of our assets consist of qualified opportunity zone property. We qualified as a qualified opportunity fund beginning with our taxable year ended December 31, 2020. Because we are a qualified opportunity fund certain of our investors are eligible for favorable capital gains tax treatment on their investments.
All of our assets are held by, and all of our operations are conducted through, one or more of our Operating Companies, either directly or indirectly through their subsidiaries. We are externally managed by Belpointe PREP Manager, LLC (our “Manager”), which is an affiliate of our sponsor, Belpointe, LLC (our “Sponsor”).
On May 9, 2023, the U.S. Securities and Exchange Commission (the “SEC”) declared effective our registration statement on Form S-11, as amended (File No. 333-271262) (the “Follow-on Registration Statement”), registering the offer and sale of up to $750,000,000 of our Class A units on a continuous “best efforts” basis by any method deemed to be an “at the market” offering pursuant to Rule 415(a)(4) under the Securities Act of 1933, as amended (the “Securities Act”), including by offers and sales made directly to investors or through one or more agents (our “Follow-on Offering”).
In connection with the Follow-on Registration Statement, we entered into a non-exclusive dealer manager agreement with Emerson Equity LLC (“Dealer Manager”), a registered broker-dealer, for the sale of our Class A units through the Dealer Manager. The Dealer Manager will enter into participating dealer agreements and wholesale agreements with other broker-dealers, referred to as “selling group members,” to authorize those broker-dealers to solicit offers to purchase our Class A units. We will pay our Dealer Manager commissions of up to 0.25%, and the selling group members commissions ranging from 0.25% to 4.50%, of the principal amount of Class A unit sold in the Follow-on Offering.
In addition, the Follow-on Registration Statement constitutes a post-effective amendment to the registration statement on Form S-11, as amended (File No. 333-255424), registering the offer and sale of our ongoing initial public offering of up to $750,000,000 of our Class A units, declared effective by the SEC on September 30, 2021, of which $522,656,100 remained unsold as of May 9, 2023 (our “Primary Offering” and, together with our Follow-on Offering, our “Public Offerings”).
The purchase price for Class A units in our Public Offerings will be the lesser of (i) the current net asset value (the “NAV”) of our Class A units, and (ii) the average of the high and low sale prices of our Class A units on the NYSE American (the “NYSE”) during regular trading hours on the last trading day immediately preceding the investment date on which the NYSE was open for trading and trading in our Class A units occurred. As of May 9, 2023 the assumed NAV of our Class A units was equal to $100.00 per Class A unit. Our Manager will calculate our NAV within approximately 60 days of the last day of each quarter (the “Determination Date”). Any adjustment to our NAV will take effect as of the first business day following its public announcement. Our adjusted NAV will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date.
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Our Business Outlook
While market conditions for multifamily and mixed-use rental properties have remained strong over the past several quarters, future economic conditions and the demand for multifamily and mixed-use rental properties are, and the real estate industry in general is, subject to uncertainty as a result of a number of factors, including, among others, the rate of unemployment, increasing interest rates, higher rates of inflation, instability in the banking system, the availability of credit, financial market volatility, general economic uncertainty, increasing energy costs, supply chain disruptions and labor shortages. The potential effect of these and other factors and the projected impact of these and other events on our business, results of operations and financial performance, presents material uncertainty and risk with respect to our future performance and financial results, including the potential to negatively impact our costs of operations, our financing arrangements, the value of our investments, and the laws, regulations and governmental and regulatory policies applicable to us. As a result, our past performance may not be indicative of future results.
Given the evolving nature of certain of these factors, the extent to which they may impact our future performance and financial results will depend on future developments which remain highly uncertain and, as a result, at this time we are unable to estimate the impact that these factors may have on our future financial results. Our Manager continuously reviews our investment and financing strategies for optimization and to reduce our risk in the face of the fluidity of these and other factors.
Our Investments
As of the date of this Form 10-Q, our investment portfolio consisted of the following multifamily and mixed-use rental properties:
1991 Main Street – Sarasota, Florida – 1991 Main Street (“1991 Main”) is a 5.13-acre site which was originally acquired for an aggregate purchase price of $20.7 million, inclusive of transaction costs and deferred financing fees. A portion of the aggregate purchase of 1991 Main was funded by a $10.8 million secured loan from First Foundation Bank (the “Acquisition Loan”), which we repaid in full on April 22, 2022.
We currently anticipate that 1991 Main will be developed into a 424-apartment home community consisting of one-bedroom, two-bedroom and three-bedroom apartments, and four-bedroom townhome-style penthouse apartments, as well as six guest suite apartments, with approximately 51,000 square feet of retail space located on the first level. 1991 Main will consist of two high-rise buildings with 7 stories in the front and 10 stories in the rear, and over 900 parking spaces consisting of garage and surface parking. Each building will include a clubroom, fitness room, center courtyard with heated saltwater pool and roof top amenities including a community room and a private dining area for private events as well as outdoor grills and seating. In addition, each building will have its own leasing office located at the entry lobby.
During the year ended December 31, 2022, we entered into a construction management agreement for the development of 1991 Main. The construction management agreement contains terms and conditions that are customary for a project of this type and will be subject to a guaranteed maximum price (a “GMP”). We currently anticipate that the remaining funding for construction and soft costs associated with the development will be a minimum of $189.3 million, inclusive of the GMP, and are building to an estimated unlevered yield of greater than 6%. The development is currently under construction, and we expect initial occupancies to occur in the first half of 2024. Construction is expected to be completed by the end of 2024.
1991 Main is located within the historic downtown Sarasota at the intersection of Main Street and Links Avenue, has a Walk Score® ranking of 90 out of 100, and is located in a high foot traffic area next to a number of popular retail establishments.
1900 Fruitville Road – Sarasota Florida – 1900 Fruitville Road (“1900 Fruitville”) is a 1.2-acre site, consisting of a retail building and parking lot, which we acquired for an aggregate purchase price of $4.7 million, inclusive of transaction costs. The sole tenant in the building vacated in January 2022 and we currently anticipate that the property will be used as a future development site.
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902-1020 First Avenue North and 900 First Avenue North – St. Petersburg, Florida – 902-1020 First Avenue North (“902-1020 First”) consists of several parcels, comprising 1.6-acres of land, which we acquired for an aggregate purchase price of $12.1 million, inclusive of transaction costs. We currently anticipate that 902-1020 First will be developed into a high-rise building featuring approximately 269-apartment homes consisting of studio, one-bedroom, two-bedroom and three-bedroom units, with approximately 15,500 square feet of retail space located on the first level and a four-level parking garage. We currently anticipate that 902-1020 First will consist of a 15-story high-rise building, comprised of two 11-story residential towers above a 4-story parking garage. We currently anticipate amenities will include a clubroom, fitness center, courtyard with a swimming pool, shared working space and a leasing office.
In April 2023, we entered into a construction management agreement in connection with the development of 902-1020 First. The construction management agreement contains terms and conditions that are customary for a project of this type and will be subject to a GMP of $48.6 million.
902-1020 First is located in the downtown district of St. Petersburg, one mile west of Tampa Bay and the downtown waterfront district, as a Walk Score® ranking of 96 out of 100 and features direct access to downtown amenities such as public parking, restaurants, museums and cultural sites.
900 First Avenue North (“900 First”) is a parcel of land with a two-tenant retail building which we acquired for an aggregate purchase price of $2.5 million, inclusive of transaction costs. 900 First will remain a two-tenant retail building and we have taken the additional development rights and added them to 902-1020 First.
St. Petersburg placed 44th on Niche’s 2023 Best Cities to Live in America list, earning an Overall Niche Grade of A. St. Petersburg is the 5th largest city in Florida and the 88th largest city in the United States and has an average annual population growth rate of approximately 1.57% since 2020. Downtown St. Petersburg is one of the fastest growing neighborhoods in the Tampa-St. Petersburg-Clearwater metropolitan statistical area (“MSA”) and has experienced increased demand in recent years because of proximity to the water, sporting events, shopping, bars and restaurants in the neighborhood. The Tampa-St. Petersburg-Clearwater MSA is home to more than 20 corporate headquarters, seven of which are Fortune 1000 companies. The St. Petersburg area also includes a branch of St. Petersburg College and the University of South Florida St. Petersburg and is home to two professional sports teams, the Tampa Bay Rays (Major League Baseball) and the Tampa Bay Rowdies (United Soccer League Championship).
1701, 1702 and 1710 Ringling Boulevard – Sarasota, Florida – 1701 Ringling Boulevard (“1701 Ringling”) and 1710 Ringling Boulevard (“1710 Ringling”) make up a 1.6-acre site, consisting of a six-story office building and a parking lot which we acquired for an aggregate purchase price of $7.0 million, inclusive of transaction costs. We currently anticipate that 1701 Ringling will be renovated into a modern office building, consisting of approximately 80,000 square feet of rentable space, with 1710 Ringling consisting of an approximately 128-space parking lot. Upon acquiring 1701 Ringling, we entered into a new lease agreement with the existing tenant covering approximately 42,000 square feet for an initial term of 20 years, and several lease extension options. Renovations to 1701 Ringling will include the creation of a glass front lobby area, the conversion of the existing freight elevator into an oversized passenger elevator and the reinstallation of windows into the façade.
1702 Ringling Boulevard (“1702 Ringling” and, together with 1701 Ringling and 1710 Ringling, “1701-1710 Ringling”) is a 0.327-acre site consisting of a fully-leased, single-story 1,546 gross square foot single-tenant office building and associated parking lot, which we acquired for an aggregate purchase price of $1.5 million, inclusive of transaction costs. We currently anticipate holding 1702 Ringling for future multifamily development and density and massing studies are underway for conceptual design.
1701-1710 Ringling is located within the historic downtown Sarasota area along Ringling Boulevard, a major two-way arterial road, with good access to the surrounding Sarasota market, as well as easy access to Interstate 75 and the greater Tampa-St Petersburg area. 1701-1710 Ringling has a Walk Score® ranking of 93 out of 100, and is located in a high foot traffic area close to a number of popular restaurants and retail establishments. Overall, the neighborhood is in the stable to growth trend stage of its life cycle.
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497-501 Middle Turnpike and Cedar Swamp Road – Storrs, Connecticut – 497-501 Middle Turnpike (“497-501 Middle”) is an approximately 60.0-acre site, consisting of approximately 30 acres of former golf course and approximately 30 acres of undeveloped hiking and biking trails surrounding wetlands. We acquired a majority ownership interest in CMC Storrs SPV, LLC (“CMC”), the holding company for 497-501 Middle, for an initial capital contribution of $3.8 million.
We currently anticipate that 497-501 Middle will be developed into an approximately 250-apartment home community and that amenities will include a leasing office, clubhouse with a demonstration kitchen, fitness center, game room, study/lounge area, meeting rooms, and an outside AstroTurf meadow.
Cedar Swamp Road (“Cedar Swamp Road”) is a 1.1-acre site immediately adjacent to 497-501 Middle, which we acquired for a purchase price of $0.3 million, inclusive of transaction costs. We currently anticipate adding Cedar Swamp Road to the 497-501 Middle development.
497-501 Middle and Cedar Swamp Road are located less than a mile from the main college campus at the University of Connecticut (“UConn”) in Storrs, Connecticut (“Storrs”), approximately 30 minutes from Hartford, Connecticut, and 90 minutes from Boston, Massachusetts. UConn ranked 26th among “top public universities” nationally in the 2022 U.S. New & World Report (“U.S. News”) collegiate rankings, and, based on a fact sheet published by UConn, over 18,000 undergraduate students attended college at the Storrs campus in 2021, with 75% of those students living off campus. According to U.S. News, UConn has one of the worst housing units to student ratios of major universities in the U.S.
900 8th Avenue South – Nashville, Tennessee – 900 8th Avenue South (“900 8th Avenue South” or “Nashville No. 1”) is a 3.2-acre land assemblage, which we acquired for an aggregate purchase price of $19.7 million, inclusive of transaction costs. We recently completed the demolition of an existing structure on 900 8th Avenue South and currently anticipate a future mixed-use development.
In connection with our acquisition of Nashville No. 1, an unaffiliated third party (the “JV Partner”) assigned the purchase and sale agreement for 900 8th Avenue South together with a previously paid property deposit to the indirect holding company for 900 8th Avenue South in exchange for the JV Partner’s deemed initial capital contribution and a promissory note (the “900 Eighth Promissory Note”) in the amount of $$0.2 million and bearing interest at the greater of (i) 1% per annum, or (ii) the short-term adjusted applicable federal rate for the current month for purposes of Section 1288(b) of the U.S. Internal Revenue Code of 1986, as amended (the “Code”). The 900 Eighth Promissory Note was repaid in full in April 2022.
A 2022 report published by PricewaterhouseCoopers ranked Nashville as the number one real estate market, with the best overall real estate prospects and one of the fastest-growing metro areas. Nashville is headquarters to a diverse group of Fortune 1000 companies, such as HCA Healthcare, Dollar General, Community Healthy Systems, Delek, Tractor Supply, Brookdale Senior Living, Acadia Healthcare, Cracker Barrel, Louisiana-Pacific and Genesco. It is also home to a number of colleges and universities, such as Tennessee State University, Vanderbilt University, Belmont University, Fisk University, Trevecca Nazarene University and Lipscomb University. Nashville is the largest apartment market in the state of Tennessee, and currently the Nashville apartment market has a 94.2% occupancy rate. While COVID-19 disrupted economic growth trends in Nashville, the metro has seen job growth return over the past several months coinciding with the phased reopening of the local economy.
Nashville No. 1 is located in central Nashville at the north end of the 8th Avenue south district, has a Walk Score® ranking of 85 out of 100, and is located within walking distance of a number of popular retail, dining and nightlife establishments in downtown Nashville.
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1700 Main Street – Sarasota, Florida – 1700 Main Street (“1700 Main”) is a 1.3-acre site, consisting of a former gas station, a three-story office building with parking lot and a three-story retail building, which we acquired for an aggregate purchase price of $6.9 million, inclusive of transaction costs. We currently anticipate that 1700 Main will be redeveloped into a 168-apartment home community consisting of one-bedroom, two-bedroom and three-bedroom units, with approximately 7,000 square feet of retail space located on the first two levels. We anticipate that 1700 Main will consist of a 10-story podium style building with a 3-story, 360-space garage and 7 stories of apartments above, including a clubroom, fitness center, courtyards with a swimming pool and rooftop terraces as well as a leasing office. We have placed the development of 1700 Main on hold pending re-zoning by the City of Sarasota. We have engaged an architectural firm for conceptual studies so that we can prepare a design to present to the City of Sarasota for approval once the re-zoning is complete.
U.S. News & World Report ranked Sarasota as the ninth best place to live in the United States for 2021-2022, number two among the fastest growing places in the U.S., and the number one best place to retire. Sarasota is headquarters to a diverse group of large companies, such as Boar’s Head Provisions, CAE Healthcare, PGT Innovations, Tervis, Sun Hydraulics and Voalte. The Sarasota area also has a large number of universities including the University of Southern Florida, Florida State University’s College of Medicine campus, Ringling College, State College of Florida, Keiser College and New College of Florida. According to the U.S. Department of Housing and Urban Development (HUD), the housing demand for the Northport-Sarasota-Bradenton MSA is 11,950 new units between August 2020-2023, but only 3,250 housing units will be delivered in that timeframe causing a short fall of 8,700 units by the completion of construction. In addition, Sarasota was included in Forbes’ list of cities that have experienced the highest rental rate jumps year-over-year for the September 2020-2021 period, with an average increase of 21%.
1700 Main is located within the historic downtown Sarasota area along Main Street, has a Walk Score® ranking of 95 out of 100, and is located in a high foot traffic area next to a number of popular restaurants and retail establishments.
Nashville No. 2 – Nashville, Tennessee – Our second investment in Nashville, Tennessee (“Nashville No. 2”) is an approximately 8.0-acre site, consisting of two industrial buildings and associated parking, which we acquired for an aggregate purchase price of $21.0 million, inclusive of transaction costs. We currently anticipate that Nashville No. 2 will be redeveloped into mixed-use residential community consisting of studio, one-bedroom, two-bedroom and three-bedroom apartments. The buildings will have a fitness center, game room, co-working spaces, outdoor heated saltwater swimming pool, riverfront courtyards and rooftop terraces as well as a leasing office.
Nashville No. 3 – Nashville, Tennessee – Our third investment in Nashville, Tennessee, is an approximately 1.7-acre site consisting of a single-story, 10,000 square foot retail building and associated parking lot, which we acquired for an aggregate purchase price of $2.1 million, inclusive of transaction costs. The building is leased back to the seller through November 2023, with the ability to continue month to month thereafter.
Nashville No. 4 – Nashville, Tennessee – Our fourth investment in Nashville, Tennessee, is an approximately 5.9-acre site consisting of an industrial building, which we acquired for an aggregate purchase price of $16.4 million, inclusive of transaction costs. The building is leased back to the seller through June 2024. We currently anticipate that Nashville No. 4 will be redeveloped into a mixed-use residential community consisting of studio, one-bedroom, two-bedroom and three bedroom apartments.
Storrs Road – Storrs, Connecticut – Storrs Road (“Storrs Road”) is a 9.0-acre parcel of land near UConn, which we acquired for an aggregate purchase price of $0.1 million, inclusive of transaction costs. We currently anticipate holding Storrs Road for future multifamily development.
1750 Storrs Road - Storrs, Connecticut - 1750 Storrs Road (“1750 Storrs”) is an approximately 19.0-acre development site near UConn, which we acquired for an aggregate purchase price of $5.5 million, inclusive of transaction costs.
We currently anticipate that 1750 Storrs will be developed into a multifamily mixed-use development, featuring one-bedroom, two-bedroom and three-bedroom townhomes. Amenities are anticipated to include a clubhouse, with state-of-the-art fitness center, chef’s kitchen and more.
901-909 Central Avenue North – St. Petersburg, Florida – 901-909 Central Avenue North is a 0.13-acre site consisting of a fully-leased single-story 5,328 gross square foot retail/office building comprised of 4 units located in St. Petersburg, Florida, which we acquired for an aggregate purchase price of $2.6 million, inclusive of transaction costs.
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Results of Operations
The following table sets forth information regarding our unaudited consolidated results of operations during the three months ended March 31, 2023 and 2022 (amounts in thousands).
| Three Months Ended March 31, | ||||||||||||||||
| 2023 | 2022 | $ Change | % Change | |||||||||||||
| Revenue | ||||||||||||||||
| Rental revenue | $ | 497 | $ | 329 | $ | 168 | 51 | % | ||||||||
| Total revenue | 497 | 329 | 168 | 51 | % | |||||||||||
| Expenses | ||||||||||||||||
| Property expenses | 1,018 | 907 | 111 | 12 | % | |||||||||||
| General and administrative | 1,771 | 1,641 | 130 | 8 | % | |||||||||||
| Depreciation and amortization expense | 512 | 284 | 228 | 80 | % | |||||||||||
| Total expenses | 3,301 | 2,832 | 469 | 17 | % | |||||||||||
| Other (loss) income | ||||||||||||||||
| Interest income | — | 501 | (501 | ) | (100 | )% | ||||||||||
| Other (expense) income | (3 | ) | (7 | ) | 4 | (57 | )% | |||||||||
| Total other (loss) income | (3 | ) | 494 | (497 | ) | (101 | )% | |||||||||
| Net loss | (2,807 | ) | (2,009 | ) | (798 | ) | 40 | % | ||||||||
| Net income attributable to noncontrolling interests | (3 | ) | (7 | ) | 4 | (57 | )% | |||||||||
| Net loss attributable to Belpointe PREP, LLC | $ | (2,810 | ) | $ | (2,016 | ) | $ | (794 | ) | 39 | % | |||||
Revenue
Rental Revenue
During the three months ended March 31, 2023 as compared to the same period in 2022, rental revenue increased by $0.2 million. This increase is primarily due to an increase in lease revenues as a result of a full year of activity related to our 2022 property acquisitions, partially offset by a decrease in rental revenue as a result of the sole tenant vacating 1900 Fruitville.
Expenses
Property Expenses
During the three months ended March 31, 2023 and 2022, property expenses consisted of management fees, property operational expenses, real estate taxes, and utilities and insurance expenses incurred in relation to our property acquisitions.
During the three months ended March 31, 2023, as compared to the same period in 2022, property expenses increased by $0.1 million. This increase is primarily due to our acquisition of additional properties during 2022.
General and Administrative
During the three months ended March 31, 2023 and 2022, general and administrative expenses primarily consisted of employee cost sharing expenses (pursuant to our management agreement and employee and cost sharing agreement), marketing expenses, legal, audit, tax and accounting fees. During the three months ended March 31, 2023 as compared to the same period in 2022, general and administrative expenses were substantially flat.
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Depreciation and Amortization
During the three months ended March 31, 2023 as compared to the same period in 2022, depreciation and amortization increased by $0.2 million. This increase is primarily due to our acquisition of operating properties during 2022.
Other Income (Loss)
Interest Income
On September 30, 2021, we lent approximately $3.5 million to CMC pursuant to the terms of a secured promissory note bearing interest at an annual rate of 12.0% and due and payable on June 27, 2022 (the “CMC Loan”). On June 28, 2022, the CMC Loan was repaid in full, including accrued interest of $0.3 million.
On January 3, 2022, we provided a $30.0 million commercial mortgage loan to Norpointe, LLC (“Norpointe”), an affiliate of our Chief Executive Officer, pursuant to the terms of a secured promissory note bearing interest at an annual rate of 5.0% and due and payable on December 31, 2022 (the “Norpointe Loan”). On June 28, 2022, for purposes of complying with the qualified opportunity fund requirements under the Code and related Treasury Regulations, we restructured the Norpointe Loan through an indirect majority owned subsidiary (the “Restructured Norpointe Loan”). The Restructured Norpointe Loan was evidenced by a secured promissory note bearing interest at an annual rate of 5.0%, due and payable on June 28, 2023. On December 13, 2022, the Restructured Norpointe Loan was repaid in full, including accrued interest of less than $0.1 million.
On February 23, 2022, we provided an approximately $5.0 million commercial mortgage loan to Visco Propco, LLC (“Visco”) pursuant to the terms of a secured promissory note bearing interest at an annual rate of 6.0% and due and payable on February 18, 2023 (the “Visco Loan”). On December 2, 2022, the Visco Loan was repaid in full, including accrued interest of $0.2 million.
During the three months ended March 31, 2022, interest income was $0.5 million and is primarily related to interest of $0.4 million earned on the Norpointe Loan, $0.1 million earned on the CMC Loan, and less than $0.1 million earned on the Visco Loan. There was no comparable activity during the three months ended March 31, 2023 since all loans were repaid in full during 2022.
Other Income (Expense)
For the three months ended March 31, 2023, other income (expense) primarily relates to sales tax in connection with the 1991 Main parking garage easement agreement. For the three months ended March 31, 2022, other income (expense) relates to sales tax in connection with the 1991 Main parking garage easement agreement and interest expense on the 900 Eighth Promissory Note.
Liquidity and Capital Resources
Our primary needs for liquidity and capital resources are to fund our investments, including construction and development costs, pay our Public Offering and operating fees and expenses, pay any distributions that we make to the holders of our units and pay interest on any outstanding indebtedness that we incur.
Our Public Offering and operating fees and expenses include, among other things, legal, audit and valuation fees and expenses, federal and state filing fees, SEC, FINRA and NYSE filing fees, commissions to our Dealer Manager and selling group members, printing expenses, administrative fees, transfer agent fees, marketing and distribution fees, the management fee that we pay to our Manager, and fees and expenses related to acquiring, financing, appraising, and managing our commercial real estate properties. We do not have office or personnel expenses as we do not have any employees.
Where our Manager and its affiliates, including our Sponsor, have funded, and in the future if they continue to fund, our liquidity and capital resource needs by advancing us Public Offering and operating fees and expenses, we reimburse our Manager and its affiliates, including our Sponsor, pursuant to the terms of our management agreement and employee and cost sharing agreement. Fees payable and expenses reimbursable to our Manager and its affiliates, including our Sponsor, may be paid, at the election of the recipient, in cash, by issuance of our Class A Units at the then-current NAV, or through some combination of the foregoing. There were no organization or Primary Offering fees and expenses incurred by our Manager and its affiliates during the three months ended March 31, 2023 and 2022. During the three months ended March 31, 2023 and 2022, our Manager and its affiliates, including our Sponsor, incurred operating expenses of $0.6 million and $0.5 million, respectively, on our behalf.
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During the year ended December 31, 2022, our indirect wholly owned subsidiary entered into a construction management agreement for the development of 1991 Main. For additional details regarding our acquisition of 1991 Main, see “—Our Investments—1991 Main Street – Sarasota Florida.” The construction management agreement contains terms and conditions that are customary for a project of this type and will be subject to guaranteed maximum price. As of March 31, 2023, we had an unfunded capital commitment of $128.8 million under the terms of this agreement. We currently anticipate that the remaining funding for construction and soft costs associated with the development of 1991 Main will be a minimum of $189.3 million (inclusive of the aforementioned unfunded capital commitment).
We expect to obtain the liquidity and capital resources that we need over the short and long-term from the proceeds of our Public Offerings and any future offerings that we may conduct, from the advancement of reimbursable fees and expenses by our Manager and its affiliates, including our Sponsor, from secured or unsecured financings from banks and other lenders and from any undistributed funds from operations. For additional details regarding our Public Offerings, see “—Overview” and “Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds—Use of Proceeds from Registered Sales of Securities.”
We currently anticipate that our available capital resources, including the proceeds from our Public Offerings and the proceeds from any construction or other loans that we may incur, when combined with cash flow generated from our operations, will be sufficient to meet our anticipated working capital and capital expenditure requirements over the next 12 months and beyond.
Leverage
We employ leverage in order to provide more funds available for investment. We believe that careful use of conservatively structured leverage will help us to achieve our diversification goals and potentially enhance the returns on our investments.
Our targeted aggregate property-level leverage, excluding any debt at the Company level or on assets under development or redevelopment, after we have acquired a substantial portfolio of stabilized commercial real estate, is between 50-70% of the greater of the cost (before deducting depreciation or other non-cash reserves) or fair market value of our assets. During the period when we are acquiring, developing and redeveloping our investments, we may employ greater leverage on individual assets. An example of property-level leverage is a mortgage loan secured by an individual property or portfolio of properties incurred or assumed in connection with our acquisition of such property or portfolio of properties. An example of debt at the Company level is a line of credit obtained by us or our Operating Companies.
Our Manager may from time to time modify our leverage policy in its discretion in light of then-current economic conditions, relative costs of debt and equity capital, market values of our assets, general conditions in the market for debt and equity securities, growth and acquisition opportunities or other factors. There is no limit on the amount we may borrow with respect to any individual property or portfolio.
Cash Flows
The following table provides a breakdown of the net change in our cash and cash equivalents and restricted cash during the three months ended March 31, 2023 and 2022 (amounts in thousands):
| Three Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows used in operating activities | $ | (1,386 | ) | $ | (1,770 | ) | ||
| Cash flows used in investing activities | (21,169 | ) | (39,128 | ) | ||||
| Cash flows (used in) provided by financing activities | (141 | ) | 20,183 | |||||
| Net (decrease) increase in cash and cash equivalents and restricted cash | $ | (22,696 | ) | $ | (20,715 | ) | ||
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As of March 31, 2023 and 2022, cash and cash equivalents and restricted cash totaled approximately $122.3 million and $171.6 million, respectively.
Cash flows used in operating activities during the three months ended March 31, 2023 primarily relates to the payment of management fees and employee cost sharing expenses as well as payments for legal, marketing, and accounting fees. Cash flows used in operating activities during the three months ended March 31, 2022 primarily relates to the payment of management fees and employee cost sharing expenses as well as payments for legal, marketing, and accounting fees. These outflows were partially offset by interest received on our Norpointe Loan during the period. For additional details regarding our Norpointe Loan see “—Results of Operations—Other Income (Loss)—Interest Income.”
Cash flows used in investing activities during the three months ended March 31, 2023 primarily relates to funding costs for our development properties. For additional details regarding our development properties, see “—Our Investments.” Cash flows used in investing activities during the three months ended March 31, 2022 primarily relates to funding of loan receivables in addition to funding costs for our development properties and investments in real estate. For additional details regarding our loans receivables see “—Results of Operations—Other Income (Loss)—Interest Income.”
Cash flows used in financing activities for the three months ended March 31, 2023 primarily relates to the payment of offering costs incurred in connection with our Public Offerings. Cash flows provided by financing activities for the three months ended March 31, 2022 primarily relates to net proceeds received from the Primary Offering. For additional details regarding our Public Offerings, see “—Overview” and “Part II, Item 2. Unregistered Sales of Equity Securities and Use of Proceeds—Use of Proceeds from Registered Sales of Securities.”
Critical Accounting Policies
The unaudited consolidated financial statements in this Form 10-Q have been prepared in accordance with generally accepted accounting principles in the United States of America. The preparation of these unaudited consolidated financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, expenses, and related disclosures. We evaluate our estimates and assumptions on an ongoing basis. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our actual results could differ from these estimates.
Our significant accounting policies are described in “Note 2—Summary of Significant Accounting Policies,” in our unaudited consolidated financial statements in this Form 10-Q. There have been no changes to our significant accounting policies and estimates during the three months ended March 31, 2023 as compared to those disclosed in “Note 3—Summary of Significant Accounting Policies” included in our Annual Report for the year ended December 31, 2022, a copy of which may be accessed here.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
We are a smaller reporting company, as defined in Item 10(f)(1) of Regulation S-K, and as a result are not required to provide the information required by this Item.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
An evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) of the Exchange Act), as of the end of the period covered by this Form 10-Q, was undertaken by management, with the participation of our principal executive officer and principal financial officer. Based on this evaluation, our principal executive officer and principal financial officer have concluded that, as of the end of the period covered by this Form 10-Q, our disclosure controls and procedures (i) were effective to ensure that the information required to be disclosed in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified by SEC rules and forms, and (ii) include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file or submit under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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Changes in Internal Control Over Financial Reporting
There have been no changes in our internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the period covered by this Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time to time we may be involved in various claims and legal actions arising in the ordinary course of business. As of March 31, 2023, neither we nor any of our subsidiaries were subject to any material legal proceedings nor were we aware of any material legal proceedings threatened against us or any of our subsidiaries.
Item 1A. Risk Factors
There have been no material changes to the risk factors disclosed in Part I, Item 1A under the heading “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022 (our “Annual Report”), a copy of which may be accessed here. You should carefully consider the risk factors set forth in our Annual Report and be aware that these risk factors and other information may not describe every risk facing us. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition or operating results.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered Sales of Securities
During the three months ended March 31, 2023, we did not sell any equity securities that were not registered under the Securities Act of 1933, as amended (the “Securities Act”).
Use of Proceeds from Registered Sales of Securities
On September 30, 2021, the U.S. Securities and Exchange Commission (the “SEC”) declared effective our registration statement on Form S-11, as amended (File No. 333-255424), registering the offer and sale of our ongoing initial public offering of up to $750,000,000 of our Class A units on a continuous “best efforts” basis at an initial price of $100.00 per Class A unit (our “Primary Offering”), of which $522,656,100 remained unsold as of May 9, 2023.
On May 9, 2023, the SEC declared effective our registration statement on Form S-11, as amended (File No. 333-271262) (the “Follow-on Registration Statement”), registering the offer and sale of up to $750,000,000 of our Class A units on a continuous “best efforts” basis by any method deemed to be an “ at the market” offering pursuant to Rule 415(a)(4) under the Securities Act, including by offers and sales made directly to investors or through one or more agents (our “Follow-on Offering” and, together with our Primary Offering, our “Public Offerings”). In addition, the Follow-on Registration Statement constitutes a post-effective amendment to the registration statement for our Primary Offering.
In connection with the Follow-on Registration Statement, we entered into a non-exclusive dealer manager agreement with Emerson Equity LLC (“Dealer Manager”), a registered broker-dealer, for the sale of our Class A units through the Dealer Manager. The Dealer Manager will enter into participating dealer agreements and wholesale agreements with other broker-dealers, referred to as “selling group members,” to authorize those broker-dealers to solicit offers to purchase our Class A units. We will pay our Dealer Manager commissions of up to 0.25%, and the selling group members commissions ranging from 0.25% to 4.50%, of the principal amount of Class A units sold in our Public Offerings.
The purchase price for Class A units in our Public Offerings will be the lesser of (i) the current net asset value (the “NAV”) of our Class A units, and (ii) the average of the high and low sale prices of our Class A units on the NYSE American (the “NYSE”) during regular trading hours on the last trading day immediately preceding the investment date on which the NYSE was open for trading and trading in our Class A units occurred. As of May 9, 2023 the assumed NAV of our Class A units was equal to $100.00 per Class A unit. Our Manager will calculate our NAV within approximately 60 days of the last day of each quarter (the “Determination Date”). Any adjustment to our NAV will take effect as of the first business day following its public announcement. Our adjusted NAV will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date.
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We will file a prospectus supplement with the SEC disclosing quarterly determinations of our NAV per Class A unit. Additionally, if a material event occurs in between quarterly updates of NAV that would cause our NAV to change by 10% or more from the most recently disclosed NAV, we will disclose the updated price and the reason for the change in prospectus supplement as promptly as reasonably practicable.
From the period of October 7, 2021, the date of the first closing held in connection with our Primary Offering, through December 31, 2022, we issued 2,273,339 Class A units in our Primary Offering, raising net offering proceeds of $226.0 million. During the three months ended March 31, 2023, we did not issue any Class A units in connection with our Primary Offering. Together with the gross proceeds raised in Belpointe REIT’s prior offerings, as of March 31, 2023, we have raised aggregate gross offering cash proceeds of $346.3 million.
The following tables summarize certain information about the Primary Offering proceeds and our use of proceeds, including direct or indirect payments to our directors, officers, affiliates or to any person owning 10% or more of any class of our equity securities as of March 31, 2023:
| Offering proceeds | ||||
| Class A units sold | 2,273,339 | |||
| Gross offering proceeds | $ | 227,333,900 | ||
| Selling commissions | — | |||
| Offering costs (1) (2) (3) | 1,412,710 | |||
| Net offering proceeds | $ | 225,921,190 | ||
(1) | Includes $0.3 million of reimbursements to an affiliate for costs incurred on our behalf. |
| (2) | Direct or indirect payments of $1.1 million have been made to others, including payments for legal, accounting, transfer agent, FINRA, and filing fees, as of March 31, 2023. |
| (3) | Includes all offering costs incurred by the Company in connection with any offer and sale of securities by the Company. |
| Uses of net offering proceeds | ||||
| Purchases and development of real estate (1) | $ | 50,653 | ||
| Funding of loans receivable (2) | 34,955 | |||
| Working capital (3) (4) | 7,370 | |||
| $ | 92,978 | |||
| (1) | Includes direct or indirect payments of $7.5 million to directors, officers and affiliates as of March 31, 2023 predominantly for development fees, insurance premiums, and employee reimbursement expenditures. |
| (2) | Includes direct payment of $30.0 million to Norpointe, an affiliate of our Chief Executive Officer. Please see “Part I, Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations—Results of Operations—Other Income (Loss)—Interest Income” for additional detail regarding the Norpointe Loan. |
| (3) | Includes direct or indirect payments of $5.5 million to directors, officers and affiliates as of March 31, 2023 for management fees, insurance premiums and employee cost sharing expenses (pursuant to our management agreement and employee and cost sharing agreement). Please see “Note 3 – Related Party Arrangements” in our unaudited consolidated financial statements in this Form 10-Q for additional information regarding fees incurred on our behalf by, and expenses reimbursable to, our Manager and its affiliates. |
| (4) | Includes direct or indirect payments of $1.8 million to others, including payments for legal, accounting, marketing, transfer agent and filing fees, as of March 31, 2023. |
Item 3. Defaults Upon Senior Securities
Not Applicable.
Item 4. Mine Safety Disclosures
Not Applicable.
Item 5. Other Information
None.
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Item 6. Exhibits
| * | Filed herewith. |
| 27 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| BELPOINTE PREP, LLC | ||
| Date: May 15, 2023 | By: | /s/ Brandon E. Lacoff |
| Brandon E. Lacoff | ||
| Chief Executive Officer and Chairman of the Board | ||
| (Principal Executive Officer) | ||
| Date: May 15, 2023 | By: | /s/ Martin Lacoff |
| Martin Lacoff | ||
| Chief Strategic Officer, Principal Financial Officer and Director | ||
| (Principal Financial Officer) | ||
| 28 |
Exhibit 31.1
CERTIFICATION
I, Brandon E. Lacoff, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Belpointe PREP, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| BELPOINTE PREP, LLC | ||
| Date: May 15, 2023 | By: | /s/ Brandon E. Lacoff |
| Brandon E. Lacoff | ||
| Chief Executive Officer and Chairman of the Board | ||
| (Principal Executive Officer) | ||
Exhibit 31.2
CERTIFICATION
I, Martin Lacoff, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of Belpointe PREP, LLC;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
| BELPOINTE PREP, LLC | ||
| Date: May 15, 2023 | By: | /s/ Martin Lacoff |
| Martin Lacoff | ||
Chief Strategic Officer, Principal Financial Officer and Director | ||
| (Principal Financial Officer) | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Belpointe PREP, LLC (the “Company”) for the period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company
| BELPOINTE PREP, LLC | ||
| Date: May 15, 2023 | By: | /s/ Brandon E. Lacoff |
| Brandon E. Lacoff | ||
| Chief Executive Officer and Chairman of the Board | ||
| (Principal Executive Officer) | ||
Exhibit 32.2
CERTIFICATION
PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report on Form 10-Q of Belpointe PREP, LLC (the “Company”) for the period ended March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that, to the best of my knowledge:
1. The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company
| BELPOINTE PREP, LLC | ||
| Date: May 15, 2023 | By: | /s/ Martin Lacoff |
| Martin Lacoff | ||
| Chief Strategic Officer, Principal Financial Officer and Director | ||
| (Principal Financial Officer) | ||
Consolidated Balance Sheets (Parenthetical) - shares |
3 Months Ended | 12 Months Ended |
|---|---|---|
Mar. 31, 2023 |
Dec. 31, 2022 |
|
| Common Class A [Member] | ||
| Common stock authorized unlimited | Unlimited | Unlimited |
| Common stock shares, issued | 3,523,449 | 3,523,449 |
| Common stock shares, outstanding | 3,523,449 | 3,523,449 |
| Common Class B [Member] | ||
| Common stock shares, issued | 100,000 | 100,000 |
| Common stock shares, outstanding | 100,000 | 100,000 |
| Common stock authorized | 100,000 | 100,000 |
| Class M Units [Member] | ||
| Common stock shares, issued | 1 | 1 |
| Common stock shares, outstanding | 1 | 1 |
| Common stock authorized | 1 | 1 |
Consolidated Statements of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Revenue | ||
| Rental revenue | $ 497 | $ 329 |
| Total revenue | 497 | 329 |
| Expenses | ||
| Property expenses | 1,018 | 907 |
| General and administrative | 1,771 | 1,641 |
| Depreciation and amortization expense | 512 | 284 |
| Total expenses | 3,301 | 2,832 |
| Other (loss) income | ||
| Interest income | 501 | |
| Other (expense) income | (3) | (7) |
| Total other (loss) income | (3) | 494 |
| Net loss | (2,807) | (2,009) |
| Net income attributable to noncontrolling interests | (3) | (7) |
| Net loss attributable to Belpointe PREP, LLC | $ (2,810) | $ (2,016) |
| Loss per Class A unit (basic and diluted) | ||
| Net loss per unit | $ (0.80) | $ (0.60) |
| Weighted-average units outstanding | 3,523,449 | 3,382,149 |
Organization, Business Purpose and Capitalization |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
| Organization, Business Purpose and Capitalization | Note 1 - Organization, Business Purpose and Capitalization
Organization and Business Purpose
Belpointe PREP, LLC (together with its subsidiaries, the “Company,” “we,” “us,” or “our”) is focused on identifying, acquiring, developing or redeveloping and managing commercial real estate located within “qualified opportunity zones.” We were formed on January 24, 2020 as a Delaware limited liability company and qualify as a partnership and qualified opportunity fund for U.S. federal income tax purposes.
At least 90% of our assets consist of qualified opportunity zone property, and all of our assets are held by, and all of our operations are conducted through, one or more operating companies (each an “Operating Company” and together, our “Operating Companies”), either directly or indirectly through their subsidiaries. We are externally managed by Belpointe PREP Manager, LLC (our “Manager”), an affiliate of our sponsor, Belpointe, LLC (our “Sponsor”). Subject to the oversight of our board of directors (our “Board”), our Manager is responsible for managing our affairs on a day-to-day basis and for identifying and making acquisitions and investments on our behalf.
Capitalization
On May 9, 2023, the U.S. Securities and Exchange Commission (the “SEC”) declared effective our registration statement on Form S-11, as amended (File No. 333-271262) (the “Follow-on Registration Statement”), registering the offer and sale of up to $750,000,000 of our Class A units on a continuous “best efforts” basis by any method deemed to be an “at the market” offering pursuant to Rule 415(a)(4) under the Securities Act of 1933, as amended (the “Securities Act”), including by offers and sales made directly to investors or through one or more agents (our “Follow-on Offering”).
In connection with the Follow-on Registration Statement, we entered into a non-exclusive dealer manager agreement with Emerson Equity LLC (“Dealer Manager”), a registered broker-dealer, for the sale of our Class A units through the Dealer Manager. The Dealer Manager will enter into participating dealer agreements and wholesale agreements with other broker-dealers, referred to as “selling group members,” to authorize those broker-dealers to solicit offers to purchase our Class A units. We will pay our Dealer Manager commissions of up to 0.25%, and the selling group members commissions ranging from 0.25% to 4.50%, of the principal amount of Class A unit sold in the Follow-on Offering.
In addition, the Follow-on Registration Statement constitutes a post-effective amendment to the registration statement on Form S-11, as amended (File No. 333-255424), registering the offer and sale of our ongoing initial public offering of up to $750,000,000 of our Class A units, declared effective by the SEC on September 30, 2021, of which $522,656,100 remained unsold as of May 9, 2023 (our “Primary Offering” and, together with our Follow-on Offering, our “Public Offerings”).
The purchase price for Class A units in the Public Offering will be the lesser of (i) the current net asset value (the “NAV”) of our Class A units, and (ii) the average of the high and low sale prices of our Class A units on the NYSE American (the “NYSE”) during regular trading hours on the last trading day immediately preceding the investment date on which the NYSE was open for trading and trading in our Class A units occurred. As of May 9, 2023 the assumed NAV of our Class A units was equal to $ per Class A unit. Our Manager will calculate our NAV within approximately 60 days of the last day of each quarter (the “Determination Date”). Any adjustment to our NAV will take effect as of the first business day following its public announcement. Our adjusted NAV will be equal to our adjusted NAV as of the Determination Date (rounded to the nearest dollar) divided by the number of Class A units outstanding on the Determination Date.
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Summary of Significant Accounting Policies |
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| Summary of Significant Accounting Policies | Note 2 – Summary of Significant Accounting Policies
Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting and conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and Article 8 of Regulation S-X of the rules and regulations of the U.S. Securities and Exchange Commission.
In the opinion of management, all adjustments considered necessary for a fair presentation of our financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The consolidated financial statements as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, are unaudited and may not include year-end adjustments necessary to make them comparable to audited results. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2022, included in our Annual Report on Form 10-K. The operating results for interim periods are not necessarily indicative of operating results for any other interim period or for the entire year.
Basis of Consolidation
The accompanying unaudited consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portion of members’ capital in controlled subsidiaries that are not attributable, directly or indirectly, to us are presented in noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.
We have evaluated our economic interest in entities to determine if they are deemed to be variable interest entities (“VIEs”) and whether the entities should be consolidated. An entity is a VIE if it has any one of the following characteristics: (i) the entity does not have enough equity at risk to finance its activities without additional subordinated financial support; (ii) the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. The distinction between a VIE and other entities is based on the nature and amount of the equity investment and the rights and obligations of the equity investors. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered VIEs unless the limited partners hold substantive kick-out rights or participation rights.
Significant judgment is required to determine whether a VIE should be consolidated. We review all agreements and contractual arrangements to determine whether (i) we or another party have any variable interests in an entity, (ii) the entity is considered a VIE, and (iii) which variable interest holder, if any, is the primary beneficiary of the VIE. Determination of the primary beneficiary is based on whether a party (a) has the power to direct the activities that most significantly impact the economic performance of the VIE, and (b) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.
The following table presents the financial data of the consolidated VIEs included in the consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively (amounts in thousands):
An interest in a VIE requires reconsideration when an event occurs that was not originally contemplated. At each reporting period we will reassess whether there are any events that require us to reconsider our determination of whether an entity is a VIE and whether it should be consolidated.
Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jump Start Our Business Startups Act of 2012 (“JOBS Act”). Under Section 107 of the JOBS Act, emerging growth companies are permitted to use an extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards that have different effective dates for public and private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company, or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, these consolidated financial statements may not be comparable to the consolidated financial statements of companies that comply with public company effective dates.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and the accompanying notes. Actual results could materially differ from those estimates.
Restricted Cash
Restricted cash consists of amounts required to be reserved pursuant to contractual obligations and amounts held in escrow on behalf of the company. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the unaudited consolidated statements of cash flows (amounts in thousands):
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduces a new model for estimating credit losses based on current expected credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 does not apply to receivables arising from operating leases, which are within the scope of ASU 2016-02, Leases (Topic 842).
We adopted ASU 2016-13 on January 1, 2023 using the modified retrospective method. The adoption of this standard did not have a material impact on our unaudited consolidated financial statements, and no cumulative-effect adjustment was recorded to retained earnings.
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Leases |
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| Leases | Note 3 – Leases
Lessor Accounting
We own rental properties which are leased to tenants under operating leases with current expirations ranging from 2023 to 2040, with options to extend or terminate the leases. Revenues from such leases are reported as Rental revenue in our unaudited consolidated statements of operations, and are comprised of (i) lease components, which includes fixed and variable lease payments and (ii) non-lease components which includes reimbursements of property level operating expenses. We do not separate non-lease components from the related lease components as allowed under the Accounting Standards Codification (“ASC”) 842 practical expedient, as the timing and pattern of transfer are the same, and account for the combined component in accordance with ASC 842.
Fixed lease revenues represent the base rent that each tenant is required to pay in accordance with the terms of their respective leases reported on a straight-line basis over the non-cancelable term of the lease. Variable lease revenues include payments based on (i) tenant reimbursements, (ii) changes in the index or market-based indices after the inception of the lease, (iii) percentage rents, or (iv) the operating performance of the property. Variable lease revenues are not recognized until the specific events that trigger the variable payments have occurred.
The following table summarizes the components of lease revenues (amounts in thousands):
In certain of our leases, the tenant is obligated to pay the real estate taxes, insurance, and certain other expenses directly to the vendor. These obligations, which have been assumed by the tenants, are not reflected in our unaudited consolidated financial statements. To the extent any such tenant defaults on its lease or if it is deemed probable that the tenant will fail to pay for such obligations, a liability for such obligations would be recorded.
We assess the collectability of substantially all lease payments due by reviewing a tenant’s payment history or financial condition. Changes to collectability are recognized as a current period adjustment to rental revenue. We have assessed the collectability of all recorded lease revenues as probable as of March 31, 2023.
Lessee Accounting
Ground Lease
We are a lessee under a ground lease in Sarasota, Florida, which is classified as a financing lease. As of March 31, 2023, we have exercised an option to acquire the underlying property, and the acquisition is expected to close in the third quarter of 2023. Accordingly, finance lease liabilities of $5.1 million and $5.0 million are included in Lease liabilities in our consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively, which represent our obligation to make payments under this ground lease. During the three months ended March 31, 2023, we capitalized $0.1 million of interest related to this ground lease on one of our development investments which is included in Real estate under construction in our unaudited consolidated balance sheet.
There are no operating leases for which we are the lessee, therefore there are no related ROU assets or lease liabilities as of March 31, 2023 and December 31, 2022.
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Related Party Arrangements |
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| Related Party Arrangements | Note 4 – Related Party Arrangements
Our Relationship with Our Manager and Sponsor
Our Manager and its affiliates, including our Sponsor, will receive fees or reimbursements in connection with our Public Offerings and the management of our investments.
The following table presents a summary of fees incurred on our behalf by, and expenses reimbursable to, our Manager and its affiliates, including our Sponsor, in accordance with the terms of the relevant agreements (amounts in thousands):
The following table presents a summary of amounts included in Due to affiliates in the consolidated balance sheets (amounts in thousands):
Public Offering Expenses
Our Manager and its affiliates, including our Sponsor, will be reimbursed, for offering expenses incurred in connection with our Public Offerings. We became liable to reimburse our Manager and its affiliates, including our Sponsor, when the first closing was held in connection with our Primary Offering, which occurred in October 2021.
There were no Primary Offering expenses incurred by our Manager and its affiliates during the three months ended March 31, 2023 and 2022.
Other Operating Expenses
Pursuant to the Management Agreement, we reimburse our Manager, Sponsor and their respective affiliates for actual expenses incurred on our behalf in connection with the selection, acquisition or origination of investments, whether or not we ultimately acquire or originate an investment. We also reimburse our Manager, Sponsor and their respective affiliates for out-of-pocket expenses paid to third parties in connection with providing services to us.
Pursuant to the Employee and Cost Sharing Agreement, we reimburse our Sponsor and our Manager for expenses incurred for our allocable share of the salaries, benefits and overhead of personnel providing services to us. During the three months ended March 31, 2023 and 2022, our Manager and its affiliates, including our Sponsor, incurred operating expenses of $0.6 million and $0.5 million, respectively, on our behalf. The expenses are payable, at the election of the recipient, in cash, by issuance of our Class A units at the then-current NAV, or through some combination of the foregoing. As of March 31, 2023, all expenses incurred since inception have been paid in cash.
Management Fee
Subject to the limitations set forth in our Amended and Restated Limited Liability Company Operating Agreement (our “Operating Agreement”) and the oversight of our Board, our Manager is responsible for managing our affairs on a day-to-day basis and for the origination, selection, evaluation, structuring, acquisition, financing and development of our commercial real estate properties, real estate-related assets, including but not limited to commercial real estate loans, and debt and equity securities issued by other real estate-related companies, as well as private equity acquisitions and investments, and opportunistic acquisitions of other qualified opportunity funds and qualified opportunity zone businesses.
Pursuant to the Management Agreement, we pay our Manager a quarterly management fee in arrears of one-fourth of 0.75%. The management fee is based on our NAV at the end of each quarter. As of the quarter ended March 31, 2023, our assumed NAV was $ per Class A unit. Our Manager will calculate and announce our NAV within approximately 60 days of the last day of each quarter. Any adjustment to our NAV will take effect as of the first business day following its public announcement. For the three months ended March 31, 2023 and 2022, we incurred management fees of $0.7 million and $0.6 million, respectively, which are included in Property expenses in our unaudited consolidated statements of operations.
Development Fees and Reimbursements
Affiliates of our Sponsor are entitled to receive (i) development fees on each project in an amount that is usual and customary for comparable services rendered to similar projects in the geographic market of the project, and (ii) reimbursements for their expenses, such as employee compensation and other overhead expenses incurred in connection with the project.
During the three months ended March 31, 2023 and 2022, we incurred development fees earned during the construction phase of $0.7 million and $1.6 million, respectively. As of March 31, 2023 and December 31, 2022, $3.3 million and $4.3 million, respectively, remained to our affiliates for development fees.
During the three months ended March 31, 2023 and 2022, we incurred employee reimbursement expenditures to our affiliates acting as development managers of $0.4 million and $0.3 million, respectively, of which $0.3 million and $0.2 million, respectively, is included in Real estate under construction in our unaudited consolidated balance sheets, and $0.1 million and $0.1 million, respectively, is included in General and administrative expenses in our unaudited consolidated statements of operations. As of March 31, 2023 and December 31, 2022, $0.6 million and $0.3 million, respectively, remained to our affiliates for employee reimbursement expenditures.
Acquisition Fees
We will pay our Manager, Sponsor, or an affiliate of our Manager or Sponsor, an acquisition fee equal to 1.5% of the total value of any acquisition transaction, including any acquisition through merger with another entity (but excluding any transactions in which our Sponsor, or an affiliate of our Manager or Sponsor, would otherwise receive a development fee). We did not incur any acquisition fees during the three months ended March 31, 2023 and 2022, since all investments acquired during these periods were, or will be, subject to payment of development fees.
Insurance
Certain immediate family members of our Chief Executive Officer have a passive indirect minority beneficial ownership interest in Belpointe Specialty Insurance, LLC (“Belpointe Specialty Insurance”). Belpointe Specialty Insurance has acted as our broker in connection with the placement of insurance coverage for certain of our properties and operations. Belpointe Specialty Insurance earns brokerage commissions related to the brokerage services that it provides to us, which commissions vary, are based on a percentage of the premiums that we pay and are set by the insurer. We have also engaged Belpointe Specialty Insurance to provide us with contract insurance consulting services related to owner-controlled insurance programs, for which we pay an administration fee.
During the three months ended March 31, 2023 and 2022, we obtained insurance premiums in the aggregate amount of $0.1 million and $4.5 million, respectively, from which Belpointe Specialty Insurance earned commissions of less than $0.1 million and $0.4 million, respectively. For each of the three months ended March 31, 2023 and 2022, Belpointe Specialty Insurance earned administration fees of less than $0.1 million. Insurance premiums are prepaid and are included in Other assets on the unaudited consolidated balance sheets. With respect to our properties under development, for the three months ended March 31, 2023 and 2022, $0.5 million and less than $0.1 million, respectively, were amortized into Real estate under construction on the unaudited consolidated balance sheets. As it pertains to our operating properties, for the three months ended March 31, 2023 and 2022, $0.1 million and $0.1 million, respectively, were amortized into Property expenses on the unaudited consolidated statements of operations.
Economic Dependency
Under various agreements we have engaged our Manager and its affiliates, including in certain cases our Sponsor, to provide certain services that are essential to the Company, including asset management services, asset acquisition and disposition services, supervision of our Primary Offering and any other offerings we conduct, as well as other administrative responsibilities for the Company, including, without limitation, accounting services and investor relations services. As a result of these relationships, we are dependent upon our Manager and its affiliates, including our Sponsor. In the event that these companies are unable to provide us with the services we have engaged them to provide, we would be required to find alternative service providers.
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Real Estate, Net |
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| Real Estate, Net | Note 5 – Real Estate, Net
Acquisitions of Real Estate During 2023
On June 28, 2022, through an indirect majority-owned subsidiary of our Operating Company, we acquired a 70.2% controlling interest (the “CMC Interest”) in CMC Storrs SPV, LLC (“CMC”), a holding company for an approximately 60-acre site located in Mansfield, Connecticut. As part of the transaction two unaffiliated joint venture partners (the “CMC JV Partners”) were deemed to have made initial capital contributions to CMC. Following our acquisition of the CMC Interest, we discovered that one of the CMC JV Partners had misappropriated cash from the other’s cash account. Accordingly, the CMC JV Partner forfeited $1.0 million, or 29.8%, of their noncontrolling interest in CMC on March 24, 2023 (a non-cash financing activity during the three months ended March 31, 2023). As a result of the forfeiture, we indirectly own a 100% controlling interest in CMC.
Depreciation expense was $0.2 million for each of the three months ended March 31, 2023 and 2022, and is included in Depreciation and amortization expense on the unaudited consolidated statements of operations.
Real Estate Under Construction
The following table provides the activity of our Real estate under construction in the consolidated balance sheets (amounts in thousands):
Real estate under construction includes non-cash investing activity of $9.7 million for the three months ended March 31, 2023 (inclusive of unpaid development fees of $0.7 million, and unpaid employee cost sharing and reimbursements of $0.3 million) and $13.9 million for the year ended December 31, 2022.
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Intangible Assets and Liabilities |
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| Intangible Assets and Liabilities | Note 6 – Intangible Assets and Liabilities
Intangible assets and liabilities are summarized as follows (amounts in thousands):
In-place lease and development right intangible assets, noted above, are included in Intangible assets on the consolidated balance sheets. Below-market lease liabilities, noted above, are included in Lease liabilities on the consolidated balance sheets.
Amortization of in-place lease intangible assets was $0.3 million and $0.1 million for the three months ended March 31, 2023 and 2022, respectively, and is included in Depreciation and amortization expense on the unaudited consolidated statements of operations.
Amortization of below-market lease liabilities was $0.1 million and $0.1 million for each of the three months ended March 31, 2023 and 2022 and is included in Rental revenue on the unaudited consolidated statements of operations.
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Loans Receivable |
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| Receivables [Abstract] | |
| Loans Receivable | Note 7 – Loans Receivable
On September 30, 2021, we lent approximately $3.5 million to CMC pursuant to the terms of a secured promissory note bearing interest at an annual rate of 12.0% and due and payable on June 27, 2022 (the “CMC Loan”). On June 28, 2022, the CMC Loan was repaid in full, including accrued interest of $0.3 million.
On January 3, 2022, we provided a $30.0 million commercial mortgage loan to Norpointe, LLC (“Norpointe”), an affiliate of our Chief Executive Officer, pursuant to the terms of a secured promissory note bearing interest at an annual rate of 5.0% and due and payable on December 31, 2022 (the “Norpointe Loan”). On June 28, 2022, for purposes of complying with the qualified opportunity fund requirements under the Code and related Treasury Regulations, we restructured the Norpointe Loan through an indirect majority owned subsidiary (the “Restructured Norpointe Loan”). The Restructured Norpointe Loan was evidenced by a secured promissory note bearing interest at an annual rate of 5.0%, due and payable on June 28, 2023. On December 13, 2022, the Restructured Norpointe Loan was repaid in full, including accrued interest of less than $0.1 million.
On February 23, 2022, we provided an approximately $5.0 million commercial mortgage loan to Visco Propco, LLC (“Visco”) pursuant to the terms of a secured promissory note bearing interest at an annual rate of 6.0% and due and payable on February 18, 2023 (the “Visco Loan”). On December 2, 2022, the Visco Loan was repaid in full, including accrued interest of $0.2 million.
Interest income from loans receivable was zero and $0.5 million for the three months ended March 31, 2023 and 2022, respectively, and is included in Interest income in our unaudited consolidated statements of operations.
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Fair Value of Financial Instruments |
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| Fair Value Disclosures [Abstract] | |
| Fair Value of Financial Instruments | Note 8 – Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between marketplace participants at the measurement date under current market conditions (i.e., the exit price).
We categorize our financial instruments, based on the priority of the inputs to the valuation technique, into a three-level fair value hierarchy. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument.
Financial assets and liabilities recorded on the consolidated balance sheets are categorized based on the inputs to the valuation techniques as follows:
Level 1 – Quoted market prices in active markets for identical assets or liabilities.
Level 2 – Significant other observable inputs (e.g., quoted prices for similar items in active markets, quoted prices for identical or similar items in markets that are not active, inputs other than quoted prices that are observable such as interest rate and yield curves, and market-corroborated inputs).
Level 3 – Valuation generated from model-based techniques that use inputs that are significant and unobservable in the market. These unobservable assumptions reflect estimates of inputs that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow methodologies or similar techniques, which incorporate management’s own estimates of assumptions that market participants would use in pricing the instrument or valuations that require significant management judgment or estimation.
We estimated that our financial assets and liabilities had fair values that approximated their carrying values as of March 31, 2023 and December 31, 2022.
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Members’ Capital |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Equity [Abstract] | |
| Members’ Capital | Note 9 – Members’ Capital
Our Operating Agreement generally authorizes our Board to issue an unlimited number of units and options, rights, warrants and appreciation rights relating to such units for consideration or for no consideration and on the terms and conditions as determined by our Board, in its sole discretion, in most cases without the approval of our members. These additional securities may be used for a variety of purposes, including in future offerings to raise additional capital and acquisitions. Our Operating Agreement currently authorizes the issuance of an number of Class A units, Class B units and Class M unit.
There were no units issued during the three months ended March 31, 2023 and 2022. As of March 31, 2023 and December 31, 2022, there were Class A units, Class B units and Class M unit issued and outstanding.
Class A units
Upon payment in full of any consideration payable with respect to the initial issuance of our Class A units, the holder thereof will not be liable for any additional capital contributions to the Company. Holders of Class A units are not entitled to preemptive, redemption or conversion rights. Holders of our Class A units are entitled to one vote per unit on all matters submitted to a vote of our members. Matters must generally be approved by a majority (or, in the case of the election of directors, by a plurality) of the votes entitled to be cast.
Holders of our Class A units share ratably in any distributions we make, subject to any statutory or contractual restrictions on distributions and to any restrictions on distributions imposed by the terms of any preferred units we issue.
Upon our dissolution, liquidation or winding up, after payment of all amounts required to be paid to creditors and holders of preferred units, if any, holders of our Class A units are entitled to receive our remaining assets available for distribution.
Class B units
All of our Class B units are currently held by our Manager and were issued on September 14, 2021. Holders of our Class B units are not entitled to preemptive, redemption or conversion rights. Holders of our Class B units are entitled to one vote per unit on all matters submitted to a vote of our members. Matters must generally be approved by a majority (or, in the case of the election of directors, by a plurality) of the votes entitled to be cast.
Holders of our Class B units are entitled to share ratably as a class in 5% of any gains recognized by or distributed to the Company or recognized by or distributed from our Operating Companies or any subsidiary or other entity related to the Company, regardless of whether the holders of our Class A units have received a return of their capital. The allocation and distribution rights that the holders of our Class B units are entitled to may not be amended, altered or repealed, and the number of authorized Class B units may not be increased or decreased, without the consent of the holders of our Class B units. In addition, our Manager, or any other holder of our Class B units, will continue to hold the Class B units even if our Manager is no longer our manager.
Upon our dissolution, liquidation or winding up, after payment of all amounts required to be paid to creditors and holders of preferred units, if any, holders of Class B units will be entitled to receive any accrual of gains or distributions otherwise distributable pursuant to the terms of the Class B units, regardless of whether the holders of our Class A units have received a return of their capital.
Class M unit
The Class M unit is currently held by our Manager and was issued on September 14, 2021. The holder of our Class M unit is not entitled to preemptive, redemption or conversion rights. The holder of our Class M unit is entitled to that number of votes equal to the product obtained by multiplying (i) the sum of the aggregate number of outstanding Class A units plus Class B units, by (ii) 10, on matters on which the Class M unit has a vote. Our Manager will continue to hold the Class M unit for so long as it remains our manager.
The holder of our Class M unit does not have any right to receive ordinary, special or liquidating distributions.
Preferred units
Under our Operating Agreement, our Board may from time to time establish and cause us to issue one or more classes or series of preferred units and set the designations, preferences, rights, powers and duties of such classes or series.
Basic and Diluted Loss Per Class A Unit
For the three months ended March 31, 2023, the basic and diluted weighted-average units outstanding were . For the three months ended March 31, 2023, net loss attributable to Class A units was $2.8 million, and the loss per basic and diluted unit was $.
For the three months ended March 31, 2022, the basic and diluted weighted-average units outstanding were . For the three months ended March 31, 2022, net loss attributable to Class A units was $2.0 million, and the loss per basic and diluted unit was $.
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Commitments and Contingencies |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | Note 10 – Commitments and Contingencies
As of March 31, 2023, we were not subject to any material litigation nor were we aware of any material litigation threatened against us.
During the three months ended March 31, 2022, we entered into a construction management agreement in connection with the development of one of our commercial real estate properties. As of March 31, 2023, we had an unfunded capital commitment of $128.8 million (excluding capitalized interest, development fees and indirect project costs) under the terms of this agreement. We expect to incur this capital commitment incrementally over the course of the next 15 months. As of March 31, 2023, $8.8 million, inclusive of retainage of $3.3 million, is outstanding and payable in connection with this development.
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Subsequent Events |
3 Months Ended |
|---|---|
Mar. 31, 2023 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 11 – Subsequent Events
Management has evaluated subsequent events to determine if events or transactions occurring after the balance sheet date through the date the unaudited consolidated financial statements were available for issuance require potential adjustment to or disclosure in the unaudited consolidated financial statements and has concluded that, except as set forth below, all such events or transactions that would require recognition or disclosure have been recognized or disclosed.
In April 2023, we entered into a construction management agreement in connection with the development of one of our commercial real estate properties. The construction management agreement contains terms and conditions that are customary for a project of this type and will be subject to a guaranteed maximum price of $48.6 million.
In May 2023, BPOZ 1991 Main, LLC, an indirect wholly-owned subsidiary of our Operating Company, entered into a variable-rate construction loan agreement for $130.0 million (the “1991 Main Construction Loan”). The 1991 Main Construction Loan bears interest equal to 1-month term Secured Overnight Financing Rate plus 345 basis points subject to a minimum all-in per annum interest rate of 8.51%, and is for an initial term of four years, with a one-year extension option. In connection with the 1991 Main Construction Loan, we purchased an interest rate cap with a strike price of 5.07% to hedge our variable-rate interest exposure. |
Summary of Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis of Presentation | Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared on the accrual basis of accounting and conform to accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, and Article 8 of Regulation S-X of the rules and regulations of the U.S. Securities and Exchange Commission.
In the opinion of management, all adjustments considered necessary for a fair presentation of our financial position, results of operations and cash flows have been included and are of a normal and recurring nature. The consolidated financial statements as of March 31, 2023, and for the three months ended March 31, 2023 and 2022, are unaudited and may not include year-end adjustments necessary to make them comparable to audited results. These unaudited consolidated financial statements should be read in conjunction with the audited consolidated financial statements as of and for the year ended December 31, 2022, included in our Annual Report on Form 10-K. The operating results for interim periods are not necessarily indicative of operating results for any other interim period or for the entire year.
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| Basis of Consolidation | Basis of Consolidation
The accompanying unaudited consolidated financial statements reflect all of our accounts, including those of our controlled subsidiaries. The portion of members’ capital in controlled subsidiaries that are not attributable, directly or indirectly, to us are presented in noncontrolling interests. All significant intercompany accounts and transactions have been eliminated.
We have evaluated our economic interest in entities to determine if they are deemed to be variable interest entities (“VIEs”) and whether the entities should be consolidated. An entity is a VIE if it has any one of the following characteristics: (i) the entity does not have enough equity at risk to finance its activities without additional subordinated financial support; (ii) the at-risk equity holders, as a group, lack the characteristics of a controlling financial interest; or (iii) the entity is structured with non-substantive voting rights. The distinction between a VIE and other entities is based on the nature and amount of the equity investment and the rights and obligations of the equity investors. Fixed price purchase and renewal options within a lease, as well as certain decision-making rights within a loan or joint-venture agreement, can cause us to consider an entity a VIE. Limited partnerships and other similar entities that operate as a partnership will be considered VIEs unless the limited partners hold substantive kick-out rights or participation rights.
Significant judgment is required to determine whether a VIE should be consolidated. We review all agreements and contractual arrangements to determine whether (i) we or another party have any variable interests in an entity, (ii) the entity is considered a VIE, and (iii) which variable interest holder, if any, is the primary beneficiary of the VIE. Determination of the primary beneficiary is based on whether a party (a) has the power to direct the activities that most significantly impact the economic performance of the VIE, and (b) has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE.
The following table presents the financial data of the consolidated VIEs included in the consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively (amounts in thousands):
An interest in a VIE requires reconsideration when an event occurs that was not originally contemplated. At each reporting period we will reassess whether there are any events that require us to reconsider our determination of whether an entity is a VIE and whether it should be consolidated.
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| Emerging Growth Company Status | Emerging Growth Company Status
We are an “emerging growth company,” as defined in the Jump Start Our Business Startups Act of 2012 (“JOBS Act”). Under Section 107 of the JOBS Act, emerging growth companies are permitted to use an extended transition period provided in Section 7(a)(2)(B) of the Securities Act, for complying with new or revised accounting standards that have different effective dates for public and private companies. We have elected to use the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards that have different effective dates for public and private companies until the earlier of the date that we (i) are no longer an emerging growth company, or (ii) affirmatively and irrevocably opt out of the extended transition period provided in Section 7(a)(2)(B). By electing to extend the transition period for complying with new or revised accounting standards, these consolidated financial statements may not be comparable to the consolidated financial statements of companies that comply with public company effective dates.
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| Use of Estimates | Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the unaudited consolidated financial statements and the accompanying notes. Actual results could materially differ from those estimates.
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| Restricted Cash | Restricted Cash
Restricted cash consists of amounts required to be reserved pursuant to contractual obligations and amounts held in escrow on behalf of the company. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the unaudited consolidated statements of cash flows (amounts in thousands):
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| Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments. ASU 2016-13 introduces a new model for estimating credit losses based on current expected credit losses for certain types of financial instruments, including loans receivable, held-to-maturity debt securities, and net investments in direct financing leases, amongst other financial instruments. ASU 2016-13 also modifies the impairment model for available-for-sale debt securities and expands the disclosure requirements regarding an entity’s assumptions, models, and methods for estimating the allowance for losses. ASU 2016-13 does not apply to receivables arising from operating leases, which are within the scope of ASU 2016-02, Leases (Topic 842).
We adopted ASU 2016-13 on January 1, 2023 using the modified retrospective method. The adoption of this standard did not have a material impact on our unaudited consolidated financial statements, and no cumulative-effect adjustment was recorded to retained earnings. |
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Summary of Significant Accounting Policies (Tables) |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Carrying Value Net Assets | The following table presents the financial data of the consolidated VIEs included in the consolidated balance sheets as of March 31, 2023 and December 31, 2022, respectively (amounts in thousands):
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| Schedule of Restricted Cash and Cash Equivalents | Restricted cash consists of amounts required to be reserved pursuant to contractual obligations and amounts held in escrow on behalf of the company. The following table provides a reconciliation of cash and cash equivalents and restricted cash reported within the consolidated balance sheets to the unaudited consolidated statements of cash flows (amounts in thousands):
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Leases (Tables) |
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| Schedule of Components of Lease Revenues | The following table summarizes the components of lease revenues (amounts in thousands):
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Related Party Arrangements (Tables) |
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| Schedule of Non-Cash Activity to Related Party | The following table presents a summary of fees incurred on our behalf by, and expenses reimbursable to, our Manager and its affiliates, including our Sponsor, in accordance with the terms of the relevant agreements (amounts in thousands):
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| Schedule of Due to Related Party | The following table presents a summary of amounts included in Due to affiliates in the consolidated balance sheets (amounts in thousands):
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Real Estate, Net (Tables) |
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| Schedule of Real Estate Under Construction | The following table provides the activity of our Real estate under construction in the consolidated balance sheets (amounts in thousands):
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Intangible Assets and Liabilities (Tables) |
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| Intangible Assets And Liabilities | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Intangible Assets And Liabilities | Intangible assets and liabilities are summarized as follows (amounts in thousands):
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Organization, Business Purpose and Capitalization (Details Narrative) - USD ($) |
May 09, 2023 |
Sep. 30, 2021 |
|---|---|---|
| Common Class A [Member] | Primary Offering [Member] | ||
| Initial public offering | $ 750,000,000 | |
| Subsequent Event [Member] | ||
| Initial public offering, remained unsold | $ 522,656,100 | |
| Subsequent Event [Member] | Dealer Manager [Member] | Maximum [Member] | ||
| Payments for commissions percentage | 0.25% | |
| Subsequent Event [Member] | Selling Group Members [Member] | Maximum [Member] | ||
| Payments for commissions percentage | 4.50% | |
| Subsequent Event [Member] | Selling Group Members [Member] | Minimum [Member] | ||
| Payments for commissions percentage | 0.25% | |
| Subsequent Event [Member] | Common Class A [Member] | ||
| Offering price per share | $ 100.00 | |
| Subsequent Event [Member] | Common Class A [Member] | Follow On Offering [Member] | ||
| Initial public offering | $ 750,000,000 |
Schedule of Restricted Cash and Cash Equivalents (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
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|---|---|---|---|---|
| Accounting Policies [Abstract] | ||||
| Cash and cash equivalents | $ 115,676 | $ 143,467 | ||
| Restricted cash | [1] | 6,595 | 1,500 | |
| Total cash and cash equivalents and restricted cash | $ 122,271 | $ 144,967 | ||
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Schedule of Components of Lease Revenues (Details) - USD ($) $ in Thousands |
3 Months Ended | |||||||
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Mar. 31, 2023 |
Mar. 31, 2022 |
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| Leases | ||||||||
| Fixed lease revenues | $ 266 | $ 212 | ||||||
| Variable lease revenues | [1] | 81 | 70 | |||||
| Lease revenues | [2],[3] | $ 347 | $ 282 | |||||
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Schedule of Components of Lease Revenues (Details) (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
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| Lease intangible amortization | $ 0.1 | $ 0.1 |
| Maximum [Member] | Straight Line Rent [Member] | ||
| Lease rent expenses | $ 0.1 | $ 0.1 |
Leases (Details Narrative) - USD ($) $ in Millions |
Mar. 31, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Leases | ||
| Finance lease liability | $ 5.1 | $ 5.0 |
| Ground expense | $ 0.1 |
Schedule of Non-Cash Activity to Related Party (Details) - USD ($) $ in Thousands |
3 Months Ended | |||||
|---|---|---|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|||||
| Costs incurred by the manager and its affiliates | $ 1,457 | $ 1,295 | ||||
| Other capitalized costs | 1,494 | 1,894 | ||||
| Manager and Affliates [Member] | ||||||
| Costs incurred by the manager and its affiliates | [1] | 670 | 534 | |||
| Management Fees [Member] | ||||||
| Costs incurred by the manager and its affiliates | 661 | 634 | ||||
| Insurance [Member] | ||||||
| Costs incurred by the manager and its affiliates | 106 | 107 | ||||
| Other capitalized costs | [2] | 517 | 41 | |||
| Director Compensation [Member] | ||||||
| Costs incurred by the manager and its affiliates | 20 | 20 | ||||
| Development Fee and Reimbursements [Member] | ||||||
| Other capitalized costs | $ 977 | $ 1,853 | ||||
| ||||||
Schedule of Non-Cash Activity to Related Party (Details) (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| Related Party Transactions [Abstract] | ||
| Insurance premium | $ 0.1 | $ 4.5 |
| Amortization of insurance to real estate | $ 0.5 | $ 0.1 |
Schedule of Due to Related Party (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
||
|---|---|---|---|---|
| Related Party Transaction [Line Items] | ||||
| Due to affiliates | $ 5,689 | $ 5,803 | ||
| Development Fees [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Due to affiliates | 3,300 | 4,300 | ||
| Development Fees [Member] | Related Party [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Due to affiliates | 3,347 | 4,256 | ||
| Employee Cost Sharing And Reimbursements [Member] | Related Party [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Due to affiliates | [1] | 1,641 | 866 | |
| Management Fees [Member] | Related Party [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Due to affiliates | 661 | 661 | ||
| Director Compensation [Member] | Related Party [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Due to affiliates | $ 40 | $ 20 | ||
| ||||
Schedule of Real Estate Under Construction (Details) - USD ($) $ in Thousands |
Mar. 31, 2023 |
Dec. 31, 2022 |
||||||
|---|---|---|---|---|---|---|---|---|
| Real Estate [Abstract] | ||||||||
| Beginning balance | $ 133,898 | $ 76,882 | ||||||
| Capitalized costs | [1],[2] | 23,102 | 45,907 | |||||
| Land held for development | [3] | 91 | 10,958 | |||||
| Capitalized interest | 103 | 151 | ||||||
| Ending balance | $ 157,194 | $ 133,898 | ||||||
| ||||||||
Schedule of Real Estate Under Construction (Details) (Parenthetical) - USD ($) $ in Thousands |
3 Months Ended | 12 Months Ended | |
|---|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
Dec. 31, 2022 |
|
| Development fees and employee reimbursement expenditures | $ 1,000 | $ 5,600 | |
| Direct and indirect projectCosts | 600 | 2,200 | |
| Ground lease payments | 800 | $ 800 | |
| Real Estate [Member] | |||
| Non cash investing activity | 9,700 | $ 13,900 | |
| Unpaid development fees | 700 | ||
| Unpaid employee cost sharing and reimbursements | $ 300 | ||
Real Estate, Net (Details Narrative) $ in Thousands |
3 Months Ended | ||
|---|---|---|---|
|
Jun. 28, 2022
USD ($)
a
|
Mar. 31, 2023
USD ($)
|
Mar. 31, 2022
USD ($)
|
|
| Variable interest entity, ownership percentage | 70.20% | ||
| Area of real estate property | a | 60 | ||
| Forfeiture of amount | $ 1,000 | ||
| Noncontrolling interest percentage | 29.80% | ||
| Controlling interest | 100.00% | ||
| Depreciation expense | $ 512 | $ 284 | |
| Real Estate [Member] | |||
| Depreciation expense | $ 200 | $ 200 | |
Intangible Assets and Liabilities (Details Narrative) - USD ($) $ in Millions |
3 Months Ended | |
|---|---|---|
Mar. 31, 2023 |
Mar. 31, 2022 |
|
| In Place Leases [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Amortization of intangible assets | $ 0.3 | $ 0.1 |
| Below Market Leases [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Amortization of intangible assets | $ 0.1 | $ 0.1 |
Loans Receivable (Details Narrative) - USD ($) |
3 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
Dec. 13, 2022 |
Dec. 02, 2022 |
Jun. 28, 2022 |
Feb. 23, 2022 |
Jan. 03, 2022 |
Mar. 31, 2023 |
Mar. 31, 2022 |
Sep. 30, 2021 |
|
| Interest income on loans receivables | $ 0 | $ 500,000 | ||||||
| Visco Loan [Member] | ||||||||
| Principal loan amount | $ 5,000,000.0 | |||||||
| Interest rate | 6.00% | |||||||
| Increase/decrease in accrued interest receivable, net | $ 200,000 | |||||||
| Maturity date | Feb. 18, 2023 | |||||||
| Norpointe Loan [Member] | ||||||||
| Interest rate | 5.00% | |||||||
| Principal loan amount | $ 30,000,000.0 | |||||||
| Maturity date | Dec. 31, 2022 | |||||||
| Restructured Norpointe Loan [Member] | ||||||||
| Interest rate | 5.00% | |||||||
| Increase/decrease in accrued interest receivable, net | $ 100,000 | |||||||
| Maturity date | Jun. 28, 2023 | |||||||
| CMC Loan [Member] | ||||||||
| Principal loan amount | $ 3,500,000 | |||||||
| Interest rate | 12.00% | |||||||
| Increase/decrease in accrued interest receivable, net | $ 300,000 | |||||||
Commitments and Contingencies (Details Narrative) - Construction Management Agreement [Member] $ in Millions |
Mar. 31, 2023
USD ($)
|
|---|---|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |
| Other commitment | $ 128.8 |
| Accounts payable | 8.8 |
| Retainage payable | $ 3.3 |
Subsequent Events (Details Narrative) - Subsequent Event [Member] - USD ($) $ in Millions |
1 Months Ended | |
|---|---|---|
Apr. 30, 2023 |
May 31, 2023 |
|
| Subsequent Event [Line Items] | ||
| Guaranteed maximum price | $ 48.6 | |
| Construction loan | $ 130.0 | |
| Interest Rate Cap [Member] | ||
| Subsequent Event [Line Items] | ||
| Variable rate interest exposure | 5.07% | |
| Minimum [Member] | ||
| Subsequent Event [Line Items] | ||
| Variable rate interest exposure | 8.51% |
NE.!Z