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 November 10, 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, changes in the availability and price of insurance coverage 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 U.S. Securities and Exchange Commission (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)
| September 30, 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 | ||||||||
| Debt | $ | $ | ||||||
| Lease liabilities | ||||||||
| Accounts payable | ||||||||
| Accrued expenses and other liabilities | ||||||||
| Total liabilities | ||||||||
| Commitments and contingencies (Note 12) | ||||||||
| Members’ Capital | ||||||||
| Class A units, units authorized, and units issued and outstanding at September 30, 2023 and December 31, 2022, respectively | ||||||||
| Class B units, units authorized, units issued and outstanding at September 30, 2023 and December 31, 2022 | ||||||||
| Class M unit, unit authorized, unit issued and outstanding at September 30, 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 September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenue | ||||||||||||||||
| Rental revenue | $ | $ | $ | $ | ||||||||||||
| Total revenue | ||||||||||||||||
| Expenses | ||||||||||||||||
| Property expenses | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Depreciation and amortization | ||||||||||||||||
| Impairment of real estate | ||||||||||||||||
| Total expenses | ||||||||||||||||
| Other income | ||||||||||||||||
| Interest income | ||||||||||||||||
| Other (expense) income | ( | ) | ( | ) | ( | ) | ||||||||||
| Total other income | ||||||||||||||||
| Loss before income taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Provision for income taxes | ( | ) | ( | ) | ||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss 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)
| Class A units | Class B units | Class M unit | Total Members’ Capital Excluding Noncontrolling | Noncontrolling | Total Members’ | |||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | Interests | Interests | Capital | ||||||||||||||||||||||||||||
| Balance at January 1, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Acquisition of noncontrolling interest (Note 5) | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Offering costs | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net (loss) income | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Issuance of units | — | — | ||||||||||||||||||||||||||||||||||
| Capital distribution | — | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||
| Offering costs | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Contributions from noncontrolling interests | — | — | — | |||||||||||||||||||||||||||||||||
| Net (loss) income | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at June 30, 2023 | $ | $ | $ | $ | $ | | $ | | ||||||||||||||||||||||||||||
| Issuance of units | — | — | ||||||||||||||||||||||||||||||||||
| Offering costs | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at September 30, 2023 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| 3 |
| Class A units | Class B units | Class M unit | Total Members’ Capital Excluding Noncontrolling |
Noncontrolling | Total Members’ | |||||||||||||||||||||||||||||||
| Units | Amount | Units | Amount | Units | Amount | Interest | Interest | Capital | ||||||||||||||||||||||||||||
| Balance at January 1, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Offering costs | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net (loss) income | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | | $ | | ||||||||||||||||||||||||||||
| Issuance of units | — | — | ||||||||||||||||||||||||||||||||||
| Acquisition of ownership in CMC Storrs SPV, LLC (Note 5) | — | — | — | |||||||||||||||||||||||||||||||||
| Offering costs | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at June 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
| Issuance of units | — | — | ||||||||||||||||||||||||||||||||||
| Offering Costs | — | ( | ) | — | — | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Net loss | — | ( | ) | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
See accompanying notes to consolidated financial statements.
| 4 |
Belpointe PREP, LLC
Consolidated Statements of Cash Flows
(Unaudited)
(in thousands)
| Nine Months Ended September 30, | ||||||||
| 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 | ( | ) | ( | ) | ||||
| Impairment of real estate | ||||||||
| Unrealized gain on interest rate derivative, net | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Increase (decrease) in due to affiliates | ( | ) | ||||||
| Decrease in other assets | ||||||||
| Increase (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 | ( | ) | ( | ) | ||||
| Acquisitions of real estate | ( | ) | ( | ) | ||||
| Purchase of interest rate cap | ( | ) | ||||||
| Other investing activity | ( | ) | ( | ) | ||||
| Proceeds from interest rate cap | ||||||||
| Funding of loans receivable | ( | ) | ||||||
| Repayment of loan receivable | ||||||||
| Cash acquired from CMC | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities | ||||||||
| Proceeds from units issued | ||||||||
| Payment of deferred financing costs | ( | ) | ||||||
| Payment of offering costs | ( | ) | ( | ) | ||||
| Contributions from noncontrolling interests | ||||||||
| Other financing activities | ( | ) | ( | ) | ||||
| Capital distribution to noncontrolling interests | ( | ) | ||||||
| Proceeds from issuance of debt | ||||||||
| Proceeds from subscriptions receivable | ||||||||
| Repayment of debt | ( | ) | ||||||
| Net cash 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 | $ | $ | ||||||
See accompanying notes to consolidated financial statements.
| 5 |
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 collectively, 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 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. Our Manager calculates our NAV within approximately 60 days of the last day of each quarter, and any adjustments take effect as of the first business day following its public announcement. On September 1, 2023, we announced that our NAV as of June 30, 2023 was equal to $ per Class A unit.
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.
| 6 |
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 September 30, 2023, and for the three and nine months ended September 30, 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 interests 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.
| 7 |
The following table presents the financial data of the consolidated VIEs included in the consolidated balance sheets as of September 30, 2023 and December 31, 2022, respectively (amounts in thousands):
| September 30, 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 | ||||||||
| Debt | $ | $ | ||||||
| Due to affiliates | ||||||||
| 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, our 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.
| 8 |
Impairment of Long-Lived Assets
We evaluate our tangible and identifiable intangible real estate assets for impairment when events such as delays or changes in development, declines in a property’s operating performance, deteriorating market conditions, or environmental or legal concerns bring recoverability of the carrying value of one or more assets into question. When qualitative factors indicate the possibility of impairment, the total undiscounted cash flows of the property, including proceeds from disposition, are compared to the net book value of the property. If the carrying value of the asset exceeds the undiscounted cash flows of the asset, an impairment loss is recorded in earnings to reduce the carrying value of the asset to fair value, calculated as the discounted net cash flows of the property.
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):
| September 30, 2023 |
|
December 31, 2022 | ||||||
| (unaudited) | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Restricted cash (1) (2) | ||||||||
| Total cash and cash equivalents and restricted cash | $ | $ | ||||||
| (1) | |
| (2) |
Derivative Instruments
Our derivative instruments are measured at fair value and are recorded as either assets or liabilities in our unaudited consolidated balance sheets depending on the pertinent rights or obligations under the applicable derivative contract. The derivative contracts that we may enter into are generally concurrent with obtaining floating rate debt and are intended to manage the economic risk of increases in benchmark interest rates. Our derivative instruments are not designated as hedges for accounting purposes, and therefore we account for changes in the fair value of the derivative instruments as either a gain or loss in the unaudited consolidated statements of operations.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). 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.
| 9 |
The following table summarizes the components of lease revenues (amounts in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| 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.
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 September 30, 2023.
Lessee Accounting
Ground Lease
As
further described in Note 5 – Real Estate, Net, on August 24, 2023, through an indirect majority-owned subsidiary of our Operating
Company, we purchased land located in Sarasota, Florida, which we previously leased. Therefore, there is
There are no operating leases for which we are the lessee; therefore, there are no related ROU assets or lease liabilities in our consolidated balance sheets as of September 30, 2023 and December 31, 2022.
| 10 |
Note 4 – Related Party Arrangements
Our Relationship with Our Manager and Sponsor
Our Manager and its affiliates, including our Sponsor, 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 our relevant agreements with such parties (amounts in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
| Amounts included in the Consolidated Statements of Operations | ||||||||||||||||
| Management fees (1) | $ | $ | $ | $ | ||||||||||||
| Costs incurred by our Manager and its affiliates (2) | ||||||||||||||||
| Insurance (3) | ||||||||||||||||
| Director compensation | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| Capitalized costs included in the Consolidated Balance Sheets | ||||||||||||||||
| Development fee and reimbursements | $ | $ | $ | $ | ||||||||||||
| Insurance (3) | ||||||||||||||||
| $ | $ | $ | $ | |||||||||||||
| (1) | |
| (2) | |
| (3) |
The following table presents a summary of amounts included in Due to affiliates in the unaudited consolidated balance sheets (amounts in thousands):
| September 30, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Due to affiliates | ||||||||
| Development fees | $ | $ | ||||||
| Employee cost sharing and reimbursements (1) | ||||||||
| Management fees | ||||||||
| Director compensation | ||||||||
| $ | $ | |||||||
| (1) |
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Public Offering Expenses
Our Manager and its affiliates, including our Sponsor, are 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 in October 2021.
There were no Public Offering expenses incurred by our Manager and its affiliates during the three and nine months ended September 30, 2023 and 2022.
Other Operating Expenses
Pursuant to the terms of the management agreement between us, our Operating Companies and our Manager (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 terms of the employee and cost sharing agreement between us, our Operating Companies, our Manager and our Sponsor, 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 and nine months ended September 30, 2023, 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
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 and nine months ended September 30, 2023, we incurred development fees earned during the construction phase of $
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During
the three and nine months ended September 30, 2023, we incurred employee reimbursement expenditures to our affiliates acting as development
managers of $
On
April 25, 2023, each of the indirect majority-owned subsidiaries for our Nashville investments entered into development management
agreements with certain development entities in which immediate family members of our Chief Executive Officer have a passive
indirect minority beneficial ownership interest (collectively, the “Nashville DMAs”). The aggregate development fees
payable under the Nashville DMAs are equal to
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 and nine months ended September 30, 2023, we obtained insurance premiums in the aggregate amount of
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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 Public Offerings 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 our Manager and its affiliates are unable to provide us with the services we have engaged them to provide, we would be required to find alternative service providers.
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
On
August 24, 2023, through an indirect majority-owned subsidiary of our Operating Company, we acquired land located in Sarasota, Florida,
that was previously subject to a ground lease (See Note 3 – Leases for additional information) for a purchase price of $
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):
| September 30, 2023 | December 31, 2022 | |||||||
| (unaudited) | ||||||||
| Beginning balance | $ | $ | ||||||
| Capitalized costs (1) (2) | ||||||||
| Land held for development (3) | ||||||||
| Impairment charges (4) | ( | ) | ||||||
| Capitalized interest | ||||||||
| $ | $ | |||||||
| (1) | |
| (2) | |
| (3) | |
| (4) |
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Real
estate under construction includes non-cash investing activity of $
Note 6 – Intangible Assets and Liabilities
Intangible assets and liabilities are summarized as follows (amounts in thousands):
| September 30, 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 leases and development rights 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 $
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On
February 23, 2022, we provided an approximately $
Interest
income from loans receivable was
Note 8 – Debt
On
May 12, 2023, our indirect majority-owned subsidiary (the “Borrower”) entered into a variable-rate construction loan agreement
(the “1991 Main Loan Agreement”) for up to $
In
connection with the 1991 Main Construction Loan, we provided a carveout guaranty to the Lender (the “Guaranty”) pursuant
to which we guaranteed the Borrower’s obligations to the Lender with respect to certain non-recourse carveout events, such as “bad
acts,” environmental conditions, and violations of certain provisions of the loan documents.
Together with the Borrower, we also provided a customary environmental indemnity agreement to the Lender pursuant to which we agreed to protect, defend, indemnify, release and hold harmless the Lender from and against certain environmental liabilities related to 1991 Main.
The
direct costs of $
Note 9 – 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.
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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.
Recurring Fair Value Measurements
Assets measured at fair value on a recurring basis is comprised of our interest rate cap. The valuation of our interest rate cap is prepared by an independent third-party and is classified as Level 2 in the fair value hierarchy, as the valuation is approximated using market values of similar instruments in active markets.
Note 10 – Derivative Instruments
The
1991 Main Loan Agreement required the Borrower to enter into an interest rate cap agreement with a one-month SOFR rate based strike
price of
The following table details our derivative financial instrument as of September 30, 2023 (amounts in thousands):
| Interest Rate Derivative | Notional Amount | Strike | Maturity Date | Fair Value (1) | ||||||||||
| 1991 Main Interest Rate Cap | $ | % | $ | |||||||||||
| (1) |
The following table details the effect of our derivative financial instrument (amounts in thousands):
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||
| Interest Rate Derivative | Location of Gain (Loss) | 2023 | 2022 | 2023 | 2022 | |||||||||||||
| (unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||||
| 1991 Main Interest Rate Cap | $ | ( | ) | $ | $ | $ | ||||||||||||
Note 11 – 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, and 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.
During the three and nine months ended September 30, 2023, we issued and Class A units, respectively. During the three and nine months ended September 30, 2022, we issued and Class A units, respectively. As of September 30, 2023 and December 31, 2022, there were and Class A units, respectively, 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.
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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
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 and nine months ended September 30, 2023, the basic and diluted weighted-average units outstanding were and ,
respectively. For the three and nine months ended September 30, 2023, net loss attributable to Class A units was $
For
the three and nine months ended September 30, 2022, the basic and diluted weighted-average units outstanding were and ,
respectively. For the three and nine months ended September 30, 2022, net loss attributable to Class A units was $
Note 12 – Commitments and Contingencies
As of September 30, 2023, we were not subject to any material litigation nor were we aware of any material litigation threatened against us.
In
connection with the development of our commercial real estate assets, we have entered into separate construction management agreements
for each asset which contain terms and conditions that are customary for the related scope of work. As of September 30, 2023, we have
two development projects with an aggregate unfunded commitment of $
Note 13 – 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.
On October 30,
2023, we borrowed $
On November 8, 2023, we drew down $
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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 collectively, the “Operating Companies”), and each of the Operating Companies’ subsidiaries, collectively.
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 our Manager, which is an affiliate of our Sponsor.
On May 9, 2023, the SEC declared effective our registration statement on Form S-11, as amended (File No. 333-271262), 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.
In connection with the Follow-on Registration Statement, we entered into a non-exclusive dealer manager agreement with the Dealer Manager 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. As of September 30, 2023, we have not sold any Class A units in connection with 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 $517,724,350 remained unsold as of September 30, 2023.
The purchase price for Class A units in our Public Offerings will be the lesser of (i) 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 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. Our Manager calculates our NAV within approximately 60 days of the last day of each quarter, and any adjustments take effect as of the first business day following its public announcement. On September 1, 2023, we announced that our NAV as of June 30, 2023 was equal to $98.58 per Class A unit.
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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 (Aster & Links) – 1991 Main is a 5.13-acre site which was 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. On August 24, 2023, we acquired an adjacent land parcel that was previously subject to a ground lease for a purchase price of $4.9 million, inclusive of transaction costs.
On May 12, 2023, the Borrower entered into a variable-rate construction loan agreement for up to $130.0 million in principal amount with the Lender, which is secured by 1991 Main, and which matures on May 12, 2027, subject to a one-year extension option. Advances under the loan bear interest at a per annum rate equal to the one-month term SOFR plus 3.45%, subject to a minimum all-in per annum rate of 8.51%. As required under the terms of the loan agreement, the Borrower also entered into an interest rate cap agreement, effective July 10, 2023, which has a notional amount of approximately $42.6 million, a strike price 5.07%, and which is due to mature on July 10, 2024.
In connection with the loan, we provided a the Guaranty to the Lender with respect to certain non-recourse carveout events, such as “bad acts,” environmental conditions, and violations of certain provisions of the loan documents. The Guaranty also contains financial covenants requiring that we maintain liquid assets of no less than $20.0 million and a net worth of no less than $130.0 million. Together with the Borrower we also provided a customary environmental indemnity agreement to the Lender.
Please see “Note 8 – Debt” and “Note 10 – Derivative Instruments” in our unaudited consolidated financial statements in this Form 10-Q for additional information regarding the loan and interest rate cap agreement.
1991 Main is being developed as two 10 story buildings with over 900 garage and surface-level parking spaces, that we have named “Aster & Links.” Aster & Links will feature 424-apartments including a mix of one-bedroom, two-bedroom and three-bedroom apartments, four-bedroom townhome-style penthouse apartments, and six guest suite apartments, with approximately 51,000 square feet of retail space located on the first level. In May 2023, we announced the signing of a definitive lease agreement with Sprouts Farmers Market (“Sprouts”), one of the fastest growing specialty retailers of fresh, natural and organic food in the United States. Sprouts will occupy approximately 23,000 square feet of retail space at Aster & Links.
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Aster & Links 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 Aster & Links. 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 $119.0 million, inclusive of the GMP, and are building to an estimated unlevered yield of greater than 6%. The property is currently under construction, and we expect initial occupancies to occur in the first half of 2024. Construction on both buildings is expected to be completed by the end of 2024.
Aster & Links is located within the historic downtown Sarasota at the intersection of Main Street and Links Avenue 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 intend to demolish the building and use part of the property for additional parking to complement our Sprouts lease at Aster & Links. We currently anticipate holding the remainder of the property for the development of future retail space.
1000 First Avenue North and 900 First Avenue North – St. Petersburg, Florida (Viv) – We have consolidated several parcels, comprising 1.6-acres of land (previously referred to as 902-1020 First Avenue North, St. Petersburg, Florida), which we acquired for an aggregate purchase price of $12.1 million, inclusive of transaction costs, into a single parcel, 1000 First Avenue North, St. Petersburg, Florida (“1000 First”). 1000 First is being developed into a 15-story high-rise building marketed under the name “Viv.” Viv will be comprised of two 11-story residential towers above a 4-story parking garage, featuring approximately 269-apartment homes with a mix of studio, one-bedroom, two-bedroom and three-bedroom units, with approximately 15,500 square feet of retail space located on the first level. Amenities at Viv 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 1000 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 $62.7 million.
Viv is located in the downtown district of St. Petersburg, one mile west of Tampa Bay and the downtown waterfront district and only one block away from Tropicana Field, home to the Tampa Bay Rays professional baseball team 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 1000 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).
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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 front 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 is located in a high foot traffic area close to a number of popular restaurants and retail establishments.
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 wetlands some of which includes walking trails. We initially 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 497-501 Middle will be developed into an approximately 262-apartment home community and amenities will include a leasing office, clubroom with chef’s 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 nearly a quarter 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” is a 3.2-acre land assemblage, which we acquired for an aggregate purchase price of $19.7 million, inclusive of transaction costs.
In connection with our acquisition of 900 8th Avenue South, 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 Code. The 900 Eighth Promissory Note was repaid in full in April 2022.
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900 8th Avenue South is located in central Nashville at the north end of the 8th Avenue south district, within walking distance of a number of popular retail, dining and nightlife establishments in downtown Nashville.
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 two-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 an expected 226-apartment home community consisting of one-bedroom, two-bedroom and three-bedroom units, with approximately 6,400 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, 330-space garage and 7 stories of apartments above, including a clubroom, fitness center and courtyard with a swimming pool, 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 5th best place to live in the United States for 2023-2024, number two among the fastest growing places in the U.S., and the 11th 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 forecast to be 11,950 new units through August 2023, but only 3,250 housing units are expected to be delivered in that timeframe causing a short fall of 8,700 units by the completion of construction.
1700 Main is located within the historic downtown Sarasota area along Main Street, in a high foot traffic area next to a number of popular restaurants and retail establishments.
690/1106 Davidson Street – Nashville, Tennessee – Our second investment in Nashville, Tennessee (“690/1106 Davidson Street”) 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 690/1106 Davidson Street 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.
1130 Davidson Street – Nashville, Tennessee – Our third investment in Nashville, Tennessee (“1130 Davidson Street”) 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 2024, with the ability to continue month to month thereafter.
1400 Davidson Street – Nashville, Tennessee – Our fourth investment in Nashville, Tennessee (“1400 Davidson Street”) 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 1400 Davidson Street 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.
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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 apartments. 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 (“901-909 Central Avenue”) is a 0.13-acre site consisting of a 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.
Results of Operations
The following table sets forth information regarding our unaudited consolidated results of operations during the three and nine months ended September 30, 2023 and 2022 (amounts in thousands):
| Three Months Ended September 30, | Nine Months Ended September 30, | |||||||||||||||||||||||||||||||
| 2023 | 2022 | $ Change | % Change | 2023 | 2022 | $ Change | % Change | |||||||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||||||||||
| Rental revenue | $ | 468 | $ | 338 | $ | 130 | 38 | % | $ | 1,743 | $ | 979 | $ | 764 | 78 | % | ||||||||||||||||
| Total revenue | 468 | 338 | 130 | 38 | % | 1,743 | 979 | 764 | 78 | % | ||||||||||||||||||||||
| Expenses | ||||||||||||||||||||||||||||||||
| Property expenses | 1,020 | 973 | 47 | 5 | % | 3,027 | 2,804 | 223 | 8 | % | ||||||||||||||||||||||
| General and administrative | 1,482 | 794 | 688 | 87 | % | 4,469 | 3,908 | 561 | 14 | % | ||||||||||||||||||||||
| Depreciation and amortization | 485 | 349 | 136 | 39 | % | 1,685 | 899 | 786 | 87 | % | ||||||||||||||||||||||
| Impairment of real estate | 795 | — | 795 | 100 | % | 2,961 | — | 2,961 | 100 | % | ||||||||||||||||||||||
| Total expenses | 3,782 | 2,116 | 1,666 | 79 | % | 12,142 | 7,611 | 4,531 | 60 | % | ||||||||||||||||||||||
| Other income | ||||||||||||||||||||||||||||||||
| Interest income | 92 | 450 | (358 | ) | (80 | )% | 93 | 1,500 | (1,407 | ) | (94 | )% | ||||||||||||||||||||
| Other (expense) income | (80 | ) | (1 | ) | (79 | ) | 7900 | % | 126 | (27 | ) | 153 | (567 | )% | ||||||||||||||||||
| Total other income | 12 | 449 | (437 | ) | (97 | )% | 219 | 1,473 | (1,254 | ) | (85 | )% | ||||||||||||||||||||
| Loss before income taxes | (3,302 | ) | (1,329 | ) | (1,973 | ) | 148 | % | (10,180 | ) | (5,159 | ) | (5,021 | ) | 97 | % | ||||||||||||||||
| Provision for income taxes | — | (1 | ) | 1 | (100 | )% | — | (112 | ) | 112 | (100 | )% | ||||||||||||||||||||
| Net loss | (3,302 | ) | (1,330 | ) | (1,972 | ) | 148 | % | (10,180 | ) | (5,271 | ) | (4,909 | ) | 93 | % | ||||||||||||||||
| Net loss attributable to noncontrolling interests | 18 | 285 | (267 | ) | (94 | )% | 6 | 324 | (318 | ) | (98 | )% | ||||||||||||||||||||
| Net loss attributable to Belpointe PREP, LLC | $ | (3,284 | ) | $ | (1,045 | ) | $ | (2,239 | ) | 214 | % | $ | (10,174 | ) | $ | (4,947 | ) | $ | (5,227 | ) | 106 | % | ||||||||||
Revenue
Rental Revenue
During the three and nine months ended September 30, 2023 as compared to the same period in 2022, rental revenue increased by $0.1 million and $0.8 million, respectively. This increase is primarily due to the acceleration of below-market lease intangibles as a result of tenants vacating 901-909 Central Avenue during the nine months ended September 30, 2023, and due to our acquisition of additional properties during 2022.
Expenses
Property Expenses
During the three and nine months ended September 30, 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 and nine months ended September 30, 2023, as compared to the same period in 2022, property expenses increased by less than $0.1 million and $0.2 million, respectively. This increase is primarily due to annual increases in real estate taxes and an increase in third-party property management fees.
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General and Administrative
During the three and nine months ended September 30, 2023 and 2022, general and administrative expenses primarily consisted of employee cost sharing expenses (pursuant to the Management Agreement and employee and cost sharing agreement), marketing expenses, legal, audit, tax and accounting fees. During the three and nine months ended September 30, 2023 as compared to the same period in 2022, general and administrative expenses increased by $0.7 million and $0.6 million, respectively. This increase is primarily due to higher allocation of costs incurred by our Manager and its affiliates and dead deal costs incurred during the three months ended September 30, 2023.
Depreciation and Amortization
During the three and nine months ended September 30, 2023 as compared to the same period in 2022, depreciation and amortization increased by $0.1 million and $0.8 million, respectively. This increase is primarily due to our acquisition of operating properties during 2022 as well as the acceleration of in-place lease intangibles during the current year periods as a result of tenants vacating 901-909 Central Avenue.
Impairment of Real Estate
During the three and nine months ended September 30, 2023, we recorded impairment charges of $0.8 million and $3.0 million, respectively, in relation to one of our real estate assets located in Nashville, Tennessee, based on our conclusion that the estimated fair market value of the real estate asset was lower than the carrying value, and as a result, we reduced the carrying value to the fair market value.
Other Income
Interest Rate Derivative
On May 12, 2023, our indirect majority-owned subsidiary entered into a variable-rate construction loan agreement for up to $130.0 million in principal amount with Bank OZK, which, as required under the terms of the loan agreement, is secured by 1991 Main. During the three and nine months ended September 30, 2023, we recognized a unrealized loss of $0.1 million, and an unrealized gain of $0.1 million in Other (expense) income on the unaudited consolidated statements of operations. Please see “Note 10 – Derivative Instruments” in our unaudited consolidated financial statements in this Form 10-Q for additional information regarding our interest rate cap agreement.
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. 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, 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. 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.
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For the three months ended September 30, 2022, interest income was $0.5 million and is primarily related to interest of $0.4 million earned on the QOZB Loan and $0.1 million earned on the Visco Loan. For the nine months ended September 30, 2022, interest income was $1.5 million and is primarily related to interest of $0.7 million earned on the Norpointe Loan, $0.4 million earned on the QOZB Loan, $0.2 million earned on the CMC Loan, and $0.2 million earned on the Visco Loan. There was no comparable activity during the three and nine months ended September 30, 2023 since all loans were repaid in full during 2022.
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 the 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 Public Offering fees and expenses incurred by our Manager and its affiliates during the three and nine months ended September 30, 2023 and 2022. During the three months ended September 30, 2023 and 2022, our Manager and its affiliates, including our Sponsor, incurred operating expenses of $0.4 million and $0.4 million, respectively, on our behalf. During the nine months ended September 30, 2023 and 2022, our Manager and its affiliates, including our Sponsor, incurred operating expenses of $1.7 million and $1.3 million, respectively, on our behalf.
During the year ended December 31, 2022, our indirect majority-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 (Astor & Links).” 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 September 30, 2023, we had an unfunded capital commitment of $78.8 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 $119.0 million (inclusive of the aforementioned unfunded capital commitment).
During the nine months ended September 30, 2023, our indirect majority-owned subsidiary entered into a variable-rate construction loan agreement for up to $130.0 million in principal amount to fund the development of 1991 Main. Advances under the construction loan bear interest at a per annum rate equal to the one-month term SOFR plus 3.45%, subject to a minimum all-in per annum rate of 8.51%. The construction loan has an initial maturity date of May 12, 2027 and contains a one-year extension option, subject to certain restrictions. As of September 30, 2023, we have drawn down less than $0.1 million on the construction loan. Please see “Note 8 – Debt” in our unaudited consolidated financial statements in this Form 10-Q for additional information regarding the construction loan.
During the nine months ended September 30, 2023, our indirect majority-owned subsidiary entered into a construction management agreement for the development of 1000 First. For additional details regarding our acquisition of 1000 First, see “—Our Investments—1000 First Avenue North and 900 First Avenue North – St. Petersburg, Florida (Viv).” 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 September 30, 2023, we had an unfunded capital commitment of $37.2 million under the terms of this agreement. We currently anticipate that the remaining funding for construction and soft costs associated with the development of 1000 First will be a minimum of approximately $151.6 million (inclusive of the aforementioned unfunded capital commitment).
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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 nine months ended September 30, 2023 and 2022 (amounts in thousands):
| Nine Months Ended September 30, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows used in operating activities | $ | (5,243 | ) | $ | (4,483 | ) | ||
| Cash flows used in investing activities | (101,231 | ) | (62,950 | ) | ||||
| Cash flows provided by financing activities | 1,189 | 15,987 | ||||||
| Net decrease in cash and cash equivalents and restricted cash | $ | (105,285 | ) | $ | (51,446 | ) | ||
As of September 30, 2023 and 2022, cash and cash equivalents and restricted cash totaled approximately $39.7 million and $140.9 million, respectively.
Cash flows used in operating activities during the nine months ended September 30, 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 nine months ended September 30, 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, QOZB Loan and CMC Loan during the period. For additional details regarding our Norpointe Loan, QOZB Loan and CMC Loan see “—Results of Operations—Other Income (Loss)—Interest Income.”
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Cash flows used in investing activities during the nine months ended September 30, 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 nine months ended September 30, 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 nine months ended September 30, 2023 primarily relates to net proceeds received from our Primary Offering partially offset by deferred financing costs paid in connection with obtaining a construction loan for our 1991 Main investment. Cash flows provided by financing activities for the nine months ended September 30, 2022 primarily relates to net proceeds received from our Primary Offering partially offset by the repayment of the Acquisition Loan. 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 U.S. GAAP. 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 nine months ended September 30, 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.
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.
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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 September 30, 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, 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 September 30, 2023, we did not sell any equity securities that were not registered under the Securities Act.
Use of Proceeds from Registered Sales of Securities
On September 30, 2021, 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 $98.58 per Class A unit, of which $517,724,350 remained unsold as of September 30, 2023.
On May 9, 2023, the SEC declared effective our registration statement on Form S-11, as amended (File No. 333-271262), 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. 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 the Dealer Manager 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 a Class A unit sold in the Public Offerings. As of September 30, 2023, we have not sold any Class A units in connection with the Follow-on Offering.
The purchase price for Class A units in our Public Offerings will be the lesser of (i) the current 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 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 June 30, 2023 the assumed NAV of our Class A units was equal to $98.58 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 the public announcement of our NAV. 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.
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.
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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 nine months ended months ended September 30, 2023, we issued 56,062 Class A units in connection with our Public Offerings. Together with the gross proceeds raised in prior offerings by Belpointe REIT, Inc., as of September 30, 2023, we have raised aggregate gross offering cash proceeds of $351.3 million.
The following tables summarize certain information about the Public 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 September 30, 2023:
| Offering proceeds | ||||
| Class A units sold | 2,329,401 | |||
| Gross offering proceeds | $ | 232,265,650 | ||
| Selling commissions | — | |||
| Offering costs (1) (2) (3) | 1,694,105 | |||
| Net offering proceeds | $ | 230,571,545 | ||
| (1) | Includes $0.3 million of reimbursements to an affiliate for costs incurred on our behalf. |
| (2) | Direct or indirect payments of $1.4 million have been made to others, including payments for legal, accounting, transfer agent, FINRA, and filing fees, as of September 30, 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 (in thousands) | ||||
| Purchases and development of real estate (1) | $ | 130,564 | ||
| Funding of loans receivable (2) | 34,955 | |||
| Working capital (3) (4) | 19,891 | |||
| $ | 185,410 | |||
| (1) | Includes direct or indirect payments of $9.6 million to directors, officers and affiliates as of September 30, 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 $8.3 million to directors, officers and affiliates as of September 30, 2023 for management fees, insurance premiums and employee cost sharing expenses (pursuant to the 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 $2.7 million to others, including payments for legal, accounting, marketing, transfer agent and filing fees, as of September 30, 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.
| 31 |
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: November 14, 2023 | By: | /s/ Brandon E. Lacoff |
| Brandon E. Lacoff | ||
| Chief Executive Officer and Chairman of the Board | ||
| (Principal Executive Officer) | ||
| Date: November 14, 2023 | By: | /s/ Martin Lacoff |
| Martin Lacoff | ||
| Chief Strategic Officer, Principal Financial Officer and Director | ||
| (Principal Financial Officer) | ||
| 32 |
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: November 14, 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: November 14, 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 September 30, 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: November 14, 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 September 30, 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: November 14, 2023 | By: | /s/ Martin Lacoff |
| Martin Lacoff | ||
| Chief Strategic Officer, Principal Financial Officer and Director | ||
| (Principal Financial Officer) | ||
Consolidated Balance Sheets (Parenthetical) - shares |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2022 |
|
| Common Class A [Member] | ||
| Common stock authorized unlimited | Unlimited | Unlimited |
| Common stock shares, issued | 3,579,511 | 3,523,449 |
| Common stock shares, outstanding | 3,579,511 | 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 | 9 Months Ended | |||||
|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
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| Revenue | |||||||
| Rental revenue | $ 468 | $ 338 | $ 1,743 | $ 979 | |||
| Total revenue | 468 | 338 | 1,743 | 979 | |||
| Expenses | |||||||
| Property expenses | 1,020 | 973 | 3,027 | 2,804 | |||
| General and administrative | 1,482 | 794 | 4,469 | 3,908 | |||
| Depreciation and amortization | 485 | 349 | 1,685 | 899 | |||
| Impairment of real estate | 795 | 2,961 | [1] | ||||
| Total expenses | 3,782 | 2,116 | 12,142 | 7,611 | |||
| Other income | |||||||
| Interest income | 92 | 450 | 93 | 1,500 | |||
| Other (expense) income | (80) | (1) | 126 | (27) | |||
| Total other income | 12 | 449 | 219 | 1,473 | |||
| Loss before income taxes | (3,302) | (1,329) | (10,180) | (5,159) | |||
| Provision for income taxes | (1) | (112) | |||||
| Net loss | (3,302) | (1,330) | (10,180) | (5,271) | |||
| Net loss attributable to noncontrolling interests | 18 | 285 | 6 | 324 | |||
| Net loss attributable to Belpointe PREP, LLC | $ (3,284) | $ (1,045) | $ (10,174) | $ (4,947) | |||
| Net loss per unit basic | $ (0.92) | $ (0.30) | $ (2.87) | $ (1.45) | |||
| Net loss per unit diluted | $ (0.92) | $ (0.30) | $ (2.87) | $ (1.45) | |||
| Weighted-average units outstanding basic | 3,577,857 | 3,430,090 | 3,542,765 | 3,400,201 | |||
| Weighted-average units outstanding Diluted | 3,577,857 | 3,430,090 | 3,542,765 | 3,400,201 | |||
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Organization, Business Purpose and Capitalization |
9 Months Ended |
|---|---|
Sep. 30, 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 collectively, 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. As of September 30, 2023, we have not sold any Class A units in connection with 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 $517,724,350 remained unsold as of September 30, 2023 (our “Primary Offering” and, together with our Follow-on Offering, our “Public Offerings”).
The purchase price for Class A units in the 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. Our Manager calculates our NAV within approximately 60 days of the last day of each quarter, and any adjustments take effect as of the first business day following its public announcement. On September 1, 2023, we announced that our NAV as of June 30, 2023 was equal to $ per Class A unit.
|
Summary of Significant Accounting Policies |
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| Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 September 30, 2023, and for the three and nine months ended September 30, 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 interests 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 September 30, 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, our 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.
Impairment of Long-Lived Assets
We evaluate our tangible and identifiable intangible real estate assets for impairment when events such as delays or changes in development, declines in a property’s operating performance, deteriorating market conditions, or environmental or legal concerns bring recoverability of the carrying value of one or more assets into question. When qualitative factors indicate the possibility of impairment, the total undiscounted cash flows of the property, including proceeds from disposition, are compared to the net book value of the property. If the carrying value of the asset exceeds the undiscounted cash flows of the asset, an impairment loss is recorded in earnings to reduce the carrying value of the asset to fair value, calculated as the discounted net cash flows of the property.
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):
Derivative Instruments
Our derivative instruments are measured at fair value and are recorded as either assets or liabilities in our unaudited consolidated balance sheets depending on the pertinent rights or obligations under the applicable derivative contract. The derivative contracts that we may enter into are generally concurrent with obtaining floating rate debt and are intended to manage the economic risk of increases in benchmark interest rates. Our derivative instruments are not designated as hedges for accounting purposes, and therefore we account for changes in the fair value of the derivative instruments as either a gain or loss in the unaudited consolidated statements of operations.
Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). 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 September 30, 2023.
Lessee Accounting
Ground Lease
As further described in Note 5 – Real Estate, Net, on August 24, 2023, through an indirect majority-owned subsidiary of our Operating Company, we purchased land located in Sarasota, Florida, which we previously leased. Therefore, there is no longer a right of use (“ROU”) asset or lease liabilities in our unaudited consolidated balance sheet as of September 30, 2023. As of December 31, 2022, we were a lessee under the aforementioned ground lease which was classified as a financing lease. Accordingly, a finance lease liability of $5.0 million is included in Lease liabilities in our consolidated balance sheet as of December 31, 2022, which represented our obligation to make payments under this ground lease, and a of $5.0 million is included in Other assets in our consolidated balance sheet as of December 31, 2022, which represented our right to use the underlying asset during the lease term. During the nine months ended months ended September 30, 2023, we capitalized $0.3 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 in our consolidated balance sheets as of September 30, 2023 and December 31, 2022.
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Related Party Arrangements |
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| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Related Party Arrangements | Note 4 – Related Party Arrangements
Our Relationship with Our Manager and Sponsor
Our Manager and its affiliates, including our Sponsor, 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 our relevant agreements with such parties (amounts in thousands):
The following table presents a summary of amounts included in Due to affiliates in the unaudited consolidated balance sheets (amounts in thousands):
Public Offering Expenses
Our Manager and its affiliates, including our Sponsor, are 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 in October 2021.
There were no Public Offering expenses incurred by our Manager and its affiliates during the three and nine months ended September 30, 2023 and 2022.
Other Operating Expenses
Pursuant to the terms of the management agreement between us, our Operating Companies and our Manager (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 terms of the employee and cost sharing agreement between us, our Operating Companies, our Manager and our Sponsor, 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 and nine months ended September 30, 2023, our Manager and its affiliates, including our Sponsor, incurred operating expenses of $0.4 million and $1.7 million, respectively, on our behalf. During the three and nine months ended September 30, 2022, our Manager and its affiliates, including our Sponsor, incurred operating expenses of $0.4 million and $1.3 million, respectively, on our behalf. The expenses are payable, at the election of the recipient, either in cash, by issuance of our Class A units at the then-current NAV, or through some combination of the foregoing. As of September 30, 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 in effect at the end of the quarter. For the three and nine months ended September 30, 2023, we incurred management fees of $0.7 million and $2.0 million, respectively, and $0.6 million and $1.9 million for the three and nine months ended September 30, 2022, 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 and nine months ended September 30, 2023, we incurred development fees earned during the construction phase of $1.2 million and $4.8 million, respectively. During the three and nine months ended September 30, 2022, we incurred development fees earned during the construction phase of $0.5 million and $2.8 million, respectively. Such development fees are included in Real estate under construction in our unaudited consolidated balance sheets. As of September 30, 2023 and December 31, 2022, $7.5 million and $4.3 million, respectively, remained due and payable to our affiliates for development fees.
During the three and nine months ended September 30, 2023, we incurred employee reimbursement expenditures to our affiliates acting as development managers of $0.3 million and $1.0 million, respectively, of which $0.2 million and $0.8 million, respectively, is included in Real estate under construction in our unaudited consolidated balance sheets, and $0.1 million and $0.3 million, respectively, is included in General and administrative expenses in our unaudited consolidated statements of operations. During the three and nine months ended September 30, 2022, we incurred employee reimbursement expenditures to our affiliates acting as development managers of $0.3 million and $1.0 million, respectively, of which $0.3 million and $0.8 million, respectively, is included in Real estate under construction in our unaudited consolidated balance sheets, and less than $0.1 million and $0.2 million, respectively, is included in General and administrative expenses in our unaudited consolidated statements of operations. As of September 30, 2023 and December 31, 2022, $1.2 million and $0.3 million, respectively, remained due and payable to our affiliates for employee reimbursement expenditures.
On April 25, 2023, each of the indirect majority-owned subsidiaries for our Nashville investments entered into development management agreements with certain development entities in which immediate family members of our Chief Executive Officer have a passive indirect minority beneficial ownership interest (collectively, the “Nashville DMAs”). The aggregate development fees payable under the Nashville DMAs are equal to 55% of 4.5% of the development budget or hard costs, as applicable. During the nine months ended months ended September 30, 2023, we incurred $0.4 million of development fees related to the Nashville DMAs, which were capitalized to Real estate under construction in our unaudited consolidated balance sheets, with the remaining development fees payable upon our achieving various milestones throughout the development of our Nashville investments. As of September 30, 2023, $0.4 million in development fees related to the Nashville DMAs remained outstanding and payable.
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 and nine months ended September 30, 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 and nine months ended September 30, 2023, we obtained insurance premiums in the aggregate amount of zero and $2.4 million, respectively, from which Belpointe Specialty Insurance earned commissions of zero and $0.2 million, respectively. During the three and nine months ended September 30, 2022, we obtained insurance premiums in the aggregate amount of zero and $4.6 million, respectively, from which Belpointe Specialty Insurance earned commissions of zero and $0.4 million, respectively. During the three and nine months ended September 30, 2023 and 2022, Belpointe Specialty Insurance earned administration fees of zero and 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 September 30, 2023 and 2022, $0.6 million and $0.5 million, respectively, and for the nine months ended September 30, 2023, and 2022, $1.6 million and $1.1 million, respectively, were amortized into Real estate under construction on the unaudited consolidated balance sheets. As it pertains to our operating properties, for both the three months ended September 30, 2023 and 2022, $0.1 million, and for both the nine months ended September 30, 2023 and 2022, $0.3 million was 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 Public Offerings 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 our Manager and its affiliates 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 | 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 nine months ended September 30, 2023). As a result of the forfeiture, we indirectly own a 100% controlling interest in CMC.
On August 24, 2023, through an indirect majority-owned subsidiary of our Operating Company, we acquired land located in Sarasota, Florida, that was previously subject to a ground lease (See Note 3 – Leases for additional information) for a purchase price of $4.9 million, inclusive of transaction costs of $0.1 million. We accounted for the transaction as an asset acquisition. As the acquired land is being held for development, the total purchase price was allocated to Real estate under construction on the unaudited consolidated balance sheet as of September 30, 2023.
Depreciation expense was $0.2 million for both the three months ended September 30, 2023 and 2022, and $0.6 million and $0.5 million for the nine months ended September 30, 2023 and 2022, respectively, and is included in Depreciation and amortization 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 $28.1 million for the nine months ended months ended September 30, 2023 (inclusive of unpaid development fees of $5.7 million and unpaid employee cost sharing and reimbursements of $0.8 million) and $13.9 million for the year ended December 31, 2022 (inclusive of unpaid development fees of $4.3 million and unpaid employee cost sharing and reimbursements of $0.3 million).
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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 leases and development rights 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 $0.2 million for the three months ended September 30, 2023 and 2022, respectively, and $1.1 million and $0.4 million for the nine months ended September 30, 2023 and 2022, respectively, and is included in Depreciation and amortization on the unaudited consolidated statements of operations.
Amortization of below-market lease liabilities was $0.1 million for both the three months ended September 30, 2023 and 2022, and $0.7 million and $0.2 million for the nine months ended September 30, 2023 and 2022, respectively, and is included in Rental revenue on the unaudited consolidated statements of operations.
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Loans Receivable |
9 Months Ended |
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Sep. 30, 2023 | |
| 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 Internal Revenue Code of 1986, as amended (the “Code”), and the 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 September 30, 2023 and 2022, respectively, and zero and $1.5 million for the nine months ended September 30, 2023 and 2022, respectively, and is included in Interest income in our unaudited consolidated statements of operations.
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Debt |
9 Months Ended |
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Sep. 30, 2023 | |
| Debt Disclosure [Abstract] | |
| Debt | Note 8 – Debt
On May 12, 2023, our indirect majority-owned subsidiary (the “Borrower”) entered into a variable-rate construction loan agreement (the “1991 Main Loan Agreement”) for up to $130.0 million in principal amount (the “1991 Main Construction Loan”) with Bank OZK (the “Lender”), which is secured by our investment in 1991 Main Street, Sarasota, Florida (“1991 Main”). Advances under the 1991 Main Construction Loan bear interest at a per annum rate equal to the one-month term SOFR plus 3.45%, subject to a minimum all-in per annum rate of 8.51%, and may be used to fund the development of 1991 Main. The 1991 Main Construction Loan has an initial maturity date of May 12, 2027 and contains a one-year extension option, subject to certain restrictions. As of September 30, 2023, we have drawn down less than $0.1 million on the 1991 Main Construction Loan.
In connection with the 1991 Main Construction Loan, we provided a carveout guaranty to the Lender (the “Guaranty”) pursuant to which we guaranteed the Borrower’s obligations to the Lender with respect to certain non-recourse carveout events, such as “bad acts,” environmental conditions, and violations of certain provisions of the loan documents. The Guaranty contains financial covenants requiring that we maintain liquid assets of no less than $20.0 million and a net worth of no less than $130.0 million (the “liquidity covenant”). To satisfy the liquidity covenant, we have maintained a restricted cash balance of $20.0 million, which is recorded in Other assets on our unaudited consolidated balance sheet as of September 30, 2023. As of September 30, 2023, the Company was in compliance with all covenants under the Guaranty.
Together with the Borrower, we also provided a customary environmental indemnity agreement to the Lender pursuant to which we agreed to protect, defend, indemnify, release and hold harmless the Lender from and against certain environmental liabilities related to 1991 Main.
The direct costs of $3.7 million incurred (inclusive of debt discount of $1.4 million) for the 1991 Main Construction Loan are reflected in Other assets in our unaudited consolidated balance sheet as of September 30, 2023. During the construction period, the deferred financing costs are amortized on a straight-line basis to Real estate under construction in our unaudited consolidated balance sheet. As of September 30, 2023, the accumulated amortization for deferred financing costs was $0.4 million. The deferred financing costs accumulated balances will be reclassified as a component of Debt on our unaudited consolidated balance sheet when amounts drawn on the 1991 Main Construction Loan exceed the deferred financing costs incurred.
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Fair Value of Financial Instruments |
9 Months Ended |
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Sep. 30, 2023 | |
| Fair Value Disclosures [Abstract] | |
| Fair Value of Financial Instruments | Note 9 – 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.
Recurring Fair Value Measurements
Assets measured at fair value on a recurring basis is comprised of our interest rate cap. The valuation of our interest rate cap is prepared by an independent third-party and is classified as Level 2 in the fair value hierarchy, as the valuation is approximated using market values of similar instruments in active markets.
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Derivative Instruments |
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| Derivative Instruments | Note 10 – Derivative Instruments
The 1991 Main Loan Agreement required the Borrower to enter into an interest rate cap agreement with a one-month SOFR rate based strike price of 5.07% (the “1991 Main Interest Rate Cap”). The notional amount of the 1991 Main Interest Rate Cap increases in accordance with the schedule set forth in the interest rate cap agreement up to a maximum notional amount of $112.5 million.
The following table details our derivative financial instrument as of September 30, 2023 (amounts in thousands):
The following table details the effect of our derivative financial instrument (amounts in thousands):
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Members’ Capital |
9 Months Ended |
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Sep. 30, 2023 | |
| Equity [Abstract] | |
| Members’ Capital | Note 11 – 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, and 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.
During the three and nine months ended September 30, 2023, we issued and Class A units, respectively. During the three and nine months ended September 30, 2022, we issued and Class A units, respectively. As of September 30, 2023 and December 31, 2022, there were and Class A units, respectively, 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 and nine months ended September 30, 2023, the basic and diluted weighted-average units outstanding were and , respectively. For the three and nine months ended September 30, 2023, net loss attributable to Class A units was $3.3 million and $10.2 million, respectively, and the loss per basic and diluted unit was $ and $, respectively.
For the three and nine months ended September 30, 2022, the basic and diluted weighted-average units outstanding were and , respectively. For the three and nine months ended September 30, 2022, net loss attributable to Class A units was $1.0 million and $4.9 million, respectively, and the loss per basic and diluted unit was $ and $, respectively.
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Commitments and Contingencies |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Commitments and Contingencies Disclosure [Abstract] | |
| Commitments and Contingencies | Note 12 – Commitments and Contingencies
As of September 30, 2023, we were not subject to any material litigation nor were we aware of any material litigation threatened against us.
In connection with the development of our commercial real estate assets, we have entered into separate construction management agreements for each asset which contain terms and conditions that are customary for the related scope of work. As of September 30, 2023, we have two development projects with an aggregate unfunded commitment of $116.0 million. As of September 30, 2023, $20.8 million, inclusive of retainage of $9.3 million, is outstanding and payable in connection with these developments.
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Subsequent Events |
9 Months Ended |
|---|---|
Sep. 30, 2023 | |
| Subsequent Events [Abstract] | |
| Subsequent Events | Note 13 – 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.
On October 30, 2023, we borrowed $1.5 million from Belpointe Development Holding, LLC, an entity in which certain immediate family members of our Chief Executive Officer have a passive indirect minority beneficial ownership interest, pursuant to the terms of an unsecured promissory note (the “BDH Note”). The BDH Note matures on March 31, 2024 and interest accrues on the BDH Note at an annual rate of 4.5%. The proceeds of the loan were used for general corporate purposes.
On November 8, 2023, we drew down $12.0 million on the 1991 Main Construction Loan.
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Summary of Significant Accounting Policies (Policies) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 September 30, 2023, and for the three and nine months ended September 30, 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 interests 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 September 30, 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, our 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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| Impairment of Long-Lived Assets | Impairment of Long-Lived Assets
We evaluate our tangible and identifiable intangible real estate assets for impairment when events such as delays or changes in development, declines in a property’s operating performance, deteriorating market conditions, or environmental or legal concerns bring recoverability of the carrying value of one or more assets into question. When qualitative factors indicate the possibility of impairment, the total undiscounted cash flows of the property, including proceeds from disposition, are compared to the net book value of the property. If the carrying value of the asset exceeds the undiscounted cash flows of the asset, an impairment loss is recorded in earnings to reduce the carrying value of the asset to fair value, calculated as the discounted net cash flows of the property.
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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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| Derivative Instruments | Derivative Instruments
Our derivative instruments are measured at fair value and are recorded as either assets or liabilities in our unaudited consolidated balance sheets depending on the pertinent rights or obligations under the applicable derivative contract. The derivative contracts that we may enter into are generally concurrent with obtaining floating rate debt and are intended to manage the economic risk of increases in benchmark interest rates. Our derivative instruments are not designated as hedges for accounting purposes, and therefore we account for changes in the fair value of the derivative instruments as either a gain or loss in the unaudited consolidated statements of operations.
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| Recently Adopted Accounting Pronouncements | Recently Adopted Accounting Pronouncements
In June 2016, the Financial Accounting Standards Board issued Accounting Standards Update (“ASU”) 2016-13, Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). 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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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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 September 30, 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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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Leases | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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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| Related Party Transactions [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of 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 our relevant agreements with such parties (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 unaudited consolidated balance sheets (amounts in thousands):
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Real Estate, Net (Tables) |
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Real Estate [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 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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Derivative Instruments (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2023 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Derivative Instruments and Hedging Activities Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Table Derivative Financial Instrument | The following table details our derivative financial instrument as of September 30, 2023 (amounts in thousands):
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| Schedule of Table Details Effect Derivative Financial Instrument | The following table details the effect of our derivative financial instrument (amounts in thousands):
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Organization, Business Purpose and Capitalization (Details Narrative) - USD ($) |
3 Months Ended | |||||||
|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
May 09, 2023 |
Sep. 30, 2021 |
Sep. 30, 2023 |
Jun. 30, 2023 |
Sep. 30, 2022 |
Jun. 30, 2022 |
Sep. 01, 2023 |
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| Initial public offering | $ 1,088,000 | $ 3,844,000 | $ 4,100,000 | $ 3,130,000 | ||||
| Initial public offering, remained unsold | $ 517,724,350 | |||||||
| Dealer Manager [Member] | Maximum [Member] | ||||||||
| Payments for commissions percentage | 0.25% | |||||||
| Selling Group Members [Member] | Maximum [Member] | ||||||||
| Payments for commissions percentage | 4.50% | |||||||
| Selling Group Members [Member] | Minimum [Member] | ||||||||
| Payments for commissions percentage | 0.25% | |||||||
| Common Class A [Member] | ||||||||
| Offering price per share | $ 98.58 | |||||||
| Common Class A [Member] | Follow On Offering [Member] | ||||||||
| Initial public offering | $ 750,000,000 | |||||||
| Common Class A [Member] | Primary Offering [Member] | ||||||||
| Initial public offering | $ 750,000,000 | |||||||
Schedule of Carrying Value Net Assets (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Real estate | ||
| Land | $ 38,741 | $ 38,741 |
| Building and improvements | 17,929 | 17,843 |
| Intangible assets | 9,172 | 9,495 |
| Real estate under construction | 250,432 | 133,898 |
| Total real estate | 316,274 | 199,977 |
| Accumulated depreciation and amortization | (3,065) | (1,719) |
| Real estate, net | 313,209 | 198,258 |
| Cash and cash equivalents | 15,743 | 143,467 |
| Other assets | 32,275 | 12,270 |
| Total assets | 361,227 | 353,995 |
| Liabilities | ||
| Debt | 1 | |
| Due to affiliates | 9,829 | 5,803 |
| Lease liabilities | 1,413 | 7,126 |
| Accounts payable | 8,939 | 1,686 |
| Accrued expenses and other liabilities | 14,791 | 6,728 |
| Total liabilities | 34,973 | 21,343 |
| Variable Interest Entity [Member] | ||
| Real estate | ||
| Land | 26,059 | 24,967 |
| Building and improvements | 12,942 | 11,297 |
| Intangible assets | 6,816 | 6,725 |
| Real estate under construction | 250,200 | 133,773 |
| Total real estate | 296,017 | 176,762 |
| Accumulated depreciation and amortization | (1,878) | (672) |
| Real estate, net | 294,139 | 176,090 |
| Cash and cash equivalents | 10,829 | 124,159 |
| Other assets | 31,862 | 11,773 |
| Total assets | 336,830 | 312,022 |
| Liabilities | ||
| Debt | 1 | |
| Due to affiliates | 8,698 | 4,399 |
| Lease liabilities | 87 | 5,350 |
| Accounts payable | 8,649 | 1,679 |
| Accrued expenses and other liabilities | 13,895 | 6,064 |
| Total liabilities | $ 31,330 | $ 17,492 |
Schedule of Restricted Cash and Cash Equivalents (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
||||
|---|---|---|---|---|---|---|
| Accounting Policies [Abstract] | ||||||
| Cash and cash equivalents | $ 15,743 | $ 143,467 | ||||
| Restricted cash | [1],[2] | 23,939 | 1,500 | |||
| Total cash and cash equivalents and restricted cash | $ 39,682 | $ 144,967 | ||||
| ||||||
Schedule of Restricted Cash and Cash Equivalents (Details) (Parenthetical) - USD ($) $ in Millions |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Accounting Policies [Abstract] | ||
| Indebtedness | $ 20.0 | |
| Contractual construction obligations | $ 3.9 | $ 1.5 |
Schedule of Components of Lease Revenues (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|||||||
| Leases | ||||||||||
| Fixed lease revenues | $ 241 | $ 217 | $ 773 | $ 627 | ||||||
| Variable lease revenues | [1] | 99 | 72 | 247 | 209 | |||||
| Lease revenues | [2],[3] | $ 340 | $ 289 | $ 1,020 | $ 836 | |||||
| ||||||||||
Schedule of Components of Lease Revenues (Details) (Parenthetical) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Lease intangible amortization | $ 0.1 | $ 0.1 | $ 0.7 | $ 0.2 |
| Maximum [Member] | Straight Line Rent [Member] | ||||
| Lease rent expenses | $ 0.1 | $ 0.1 | $ 0.1 | $ 0.1 |
Leases (Details Narrative) - USD ($) |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Leases | ||
| Finance Lease, Liability | $ 0 | $ 5,000,000.0 |
| Finance Lease, Right-of-Use Asset, after Accumulated Amortization | 0 | $ 5,000,000.0 |
| Finance Lease, Right-of-Use Asset, Statement of Financial Position [Extensible Enumeration] | Other assets | |
| Ground Leases, Net | $ 300,000 |
Schedule of Related Party (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|||||||
| Costs incurred by the manager and its affiliates | $ 1,295 | $ 1,232 | $ 4,198 | $ 3,752 | ||||||
| Other capitalized costs | 2,072 | 1,348 | 7,250 | 4,736 | ||||||
| Management Fees [Member] | ||||||||||
| Costs incurred by the manager and its affiliates | [1] | 662 | 648 | 1,990 | 1,922 | |||||
| Manager and Affliates [Member] | ||||||||||
| Costs incurred by the manager and its affiliates | [2] | 513 | 462 | 1,840 | 1,456 | |||||
| Insurance [Member] | ||||||||||
| Costs incurred by the manager and its affiliates | [3] | 100 | 102 | 308 | 314 | |||||
| Other capitalized costs | [3] | 588 | 531 | 1,578 | 1,099 | |||||
| Director Compensation [Member] | ||||||||||
| Costs incurred by the manager and its affiliates | 20 | 20 | 60 | 60 | ||||||
| Developmen Fee and Reimbursements [Member] | ||||||||||
| Other capitalized costs | $ 1,484 | $ 817 | $ 5,672 | $ 3,637 | ||||||
| ||||||||||
Schedule of Due to Related Party (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
||
|---|---|---|---|---|
| Related Party Transaction [Line Items] | ||||
| Due to affiliates | $ 9,830 | $ 5,803 | ||
| Development Fees [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Due to affiliates | 7,500 | 4,300 | ||
| Development Fees [Member] | Related Party [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Due to affiliates | 7,507 | 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 | 662 | 661 | ||
| Director Compensation [Member] | Related Party [Member] | ||||
| Related Party Transaction [Line Items] | ||||
| Due to affiliates | $ 20 | $ 20 | ||
| ||||
Related Party Arrangements (Details Narrative) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||||
|---|---|---|---|---|---|---|
Apr. 25, 2023 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
|
| Related Party Transaction [Line Items] | ||||||
| Operating expenses | $ 3,782 | $ 2,116 | $ 12,142 | $ 7,611 | ||
| Asset management fee | 700 | 600 | 2,000 | 1,900 | ||
| Development costs | 1,200 | 500 | 4,800 | 2,800 | ||
| Due to affiliates | 9,830 | 9,830 | $ 5,803 | |||
| General and administrative expense | 1,482 | 794 | 4,469 | 3,908 | ||
| Development fee percentage | 55.00% | |||||
| Development budget fee percentage | 4.50% | |||||
| Development fees outstanding and payable | $ 400 | |||||
| Acquisition fee percentage | 1.50% | |||||
| Real estate insurance | 0 | 0 | $ 2,400 | 4,600 | ||
| Insurance commission | 0 | 0 | 200 | 400 | ||
| Administration fees | 0 | 100 | 0 | 100 | ||
| Amortization of insurance to real estate | 600 | 500 | 1,600 | 1,100 | ||
| Amortization of insurance to property expenses | 100 | 100 | 300 | 300 | ||
| General and Administrative Expense [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| General and administrative expense | 100 | 300 | 200 | |||
| General and Administrative Expense [Member] | Maximum [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| General and administrative expense | 100 | |||||
| Development Manager [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Development costs | 200 | 300 | 800 | 800 | ||
| Reimbursement expense | 300 | 300 | 1,000 | 1,000 | ||
| Development Fees [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Due to affiliates | 7,500 | 7,500 | 4,300 | |||
| Employee Expense [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Due to affiliates | 1,200 | $ 1,200 | $ 300 | |||
| Management Agreement [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Property management fee, percent fee | 0.75% | |||||
| Manager and Affliates [Member] | ||||||
| Related Party Transaction [Line Items] | ||||||
| Operating expenses | $ 400 | $ 400 | $ 1,700 | $ 1,300 | ||
Schedule of Real Estate Under Construction (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
|||||||||||
| Real Estate [Abstract] | |||||||||||||||
| Beginning balance | $ 133,898 | $ 76,882 | $ 76,882 | ||||||||||||
| Capitalized costs | [1],[2] | 114,312 | 45,907 | ||||||||||||
| Land held for development | [3] | 4,936 | 10,958 | ||||||||||||
| Impairment charges | $ (795) | (2,961) | [4] | [4] | |||||||||||
| Capitalized interest | 247 | 151 | |||||||||||||
| Ending balance | $ 250,432 | $ 250,432 | $ 133,898 | ||||||||||||
| |||||||||||||||
Schedule of Real Estate Under Construction (Details) (Parenthetical) - USD ($) $ in Millions |
9 Months Ended | 12 Months Ended |
|---|---|---|
Sep. 30, 2023 |
Dec. 31, 2022 |
|
| Real Estate [Abstract] | ||
| Development fees and employee reimbursement expenditures | $ 6.2 | $ 5.6 |
| Development fees payable | 0.4 | |
| Direct and indirect project costs | 2.4 | 2.2 |
| Ground lease payments | 0.1 | $ 0.8 |
| Impairment charges | $ 3.0 |
Real Estate, Net (Details Narrative) $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||||
|---|---|---|---|---|---|---|---|
|
Aug. 24, 2023
USD ($)
|
Jun. 28, 2022
USD ($)
a
|
Sep. 30, 2023
USD ($)
|
Sep. 30, 2022
USD ($)
|
Sep. 30, 2023
USD ($)
|
Sep. 30, 2022
USD ($)
|
Dec. 31, 2022
USD ($)
|
|
| Asset Acquisition [Line Items] | |||||||
| 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 | $ 485 | $ 349 | $ 1,685 | $ 899 | |||
| Real Estate [Member] | |||||||
| Asset Acquisition [Line Items] | |||||||
| Depreciation expense | $ 200 | $ 200 | 600 | $ 500 | |||
| Non cash investing activity | 28,100 | $ 13,900 | |||||
| Unpaid development fees | 5,700 | 4,300 | |||||
| Unpaid employee cost sharing and reimbursements | $ 800 | $ 300 | |||||
| CMC Storrs SPV LLC [Member] | |||||||
| Asset Acquisition [Line Items] | |||||||
| Purchase price | $ 4,900 | ||||||
| Transaction cost | $ 100 | ||||||
Schedule of Intangible Assets And Liabilities (Details) - USD ($) $ in Thousands |
Sep. 30, 2023 |
Dec. 31, 2022 |
|---|---|---|
| Finite-Lived Intangible Assets [Line Items] | ||
| Gross carrying amount, finite lived intangible assets | $ 9,172 | $ 9,495 |
| Total intangible assets, Gross | 9,172 | 9,495 |
| Total intangible assets, Accumulated amortization | (1,526) | (791) |
| Total intangible assets, Net | 7,646 | 8,704 |
| Gross carrying amount, finite lived intangible liabilities | (2,100) | (2,517) |
| Accumulated amortization, finite lived intangible liabilities | 687 | 411 |
| Net carrying amount, finite lived intangible liabilities | (1,413) | (2,106) |
| Development Rights [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Gross carrying amount, indefinite lived intangible assets | 5,659 | 5,659 |
| Accumulated amortization, indefinite lived intangible assets | ||
| Net carrying amount, indefinite lived intangible assets | 5,659 | 5,659 |
| In Place Leases [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Gross carrying amount, finite lived intangible assets | 3,513 | 3,836 |
| Accumulated amortization, finite lived intangible assets | (1,526) | (791) |
| Net carrying amount, finite lived intangible assets | 1,987 | 3,045 |
| Below Market Leases [Member] | ||
| Finite-Lived Intangible Assets [Line Items] | ||
| Gross carrying amount, finite lived intangible liabilities | (2,100) | (2,517) |
| Accumulated amortization, finite lived intangible liabilities | 687 | 411 |
| Net carrying amount, finite lived intangible liabilities | $ (1,413) | $ (2,106) |
Intangible Assets and Liabilities (Details Narrative) - USD ($) $ in Millions |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| In Place Leases [Member] | ||||
| Finite-Lived Intangible Assets [Line Items] | ||||
| Amortization of intangible assets | $ 0.3 | $ 0.2 | $ 1.1 | $ 0.4 |
| Below Market Leases [Member] | ||||
| Finite-Lived Intangible Assets [Line Items] | ||||
| Amortization of intangible assets | $ 0.1 | $ 0.1 | $ 0.7 | $ 0.2 |
Loans Receivable (Details Narrative) - USD ($) |
3 Months Ended | 9 Months Ended | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|
Dec. 13, 2022 |
Dec. 02, 2022 |
Jun. 28, 2022 |
Jan. 03, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Feb. 23, 2022 |
Sep. 30, 2021 |
|
| Interest income on loans receivables | $ 0 | $ 500,000 | $ 0 | $ 1,500,000 | ||||||
| Visco Loan [Member] | ||||||||||
| Principal loan amount | $ 5,000,000.0 | |||||||||
| Interest rate | 6.00% | |||||||||
| Increase/decrease in accrued interest receivable, net | $ 200,000 | |||||||||
| 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 | |||||||||
Debt (Details Narrative) - USD ($) $ in Millions |
9 Months Ended | |
|---|---|---|
May 12, 2023 |
Sep. 30, 2023 |
|
| Debt Instrument [Line Items] | ||
| Debt convenant | $ 20.0 | |
| Deferred financing costs, gross | 3.7 | |
| Debt discount | 1.4 | |
| Accumulated amortization of deferred financing costs | 0.4 | |
| 1991 Main Loan Agreement [Member] | ||
| Debt Instrument [Line Items] | ||
| Maturity date | May 12, 2027 | |
| Long-Term Debt, Gross | $ 0.1 | |
| Debt convenant | The Guaranty contains financial covenants requiring that we maintain liquid assets of no less than $20.0 million and a net worth of no less than $130.0 million (the “liquidity covenant”). To satisfy the liquidity covenant, we have maintained a restricted cash balance of $20.0 million, which is recorded in Other assets on our unaudited consolidated balance sheet as of September 30, 2023. As of September 30, 2023, the Company was in compliance with all covenants under the Guaranty | |
| Debt convenant | $ 20.0 | |
| Debt convenant networth | $ 130.0 | |
| 1991 Main Loan Agreement [Member] | Secured Overnight Financing Rate (SOFR) Overnight Index Swap Rate [Member] | ||
| Debt Instrument [Line Items] | ||
| Debt Instrument, Interest Rate, Stated Percentage | 3.45% | |
| Maximum [Member] | Ninety Ninety OneMain Loan Agreement [Member] | ||
| Debt Instrument [Line Items] | ||
| Construction loan | $ 130.0 | |
| Minimum [Member] | 1991 Main Loan Agreement [Member] | ||
| Debt Instrument [Line Items] | ||
| Interest rate, per annum | 8.51% |
Schedule of Table Derivative Financial Instrument (Details) - Interest Rate Cap [Member] - 1991 Main Loan Agreement [Member] $ in Thousands |
9 Months Ended | |||
|---|---|---|---|---|
|
Sep. 30, 2023
USD ($)
| ||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Notional amount | $ 42,593 | |||
| Strike rate | 5.07% | |||
| Maturity date | July 2024 | |||
| Fair value | $ 294 | [1] | ||
| ||||
Schedule of Table Details Effect Derivative Financial Instrument (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
|
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Derivative, Gain (Loss), Statement of Income or Comprehensive Income [Extensible Enumeration] | Other (expense) income | Other (expense) income | Other (expense) income | Other (expense) income |
| Derivative gain (loss) | $ 135 | |||
| Interest Rate Cap [Member] | 1991 Main Loan Agreement [Member] | ||||
| Derivative Instruments, Gain (Loss) [Line Items] | ||||
| Derivative gain (loss) | $ (73) | $ 135 | ||
Derivative Instruments (Details Narrative) - Interest Rate Cap [Member] - 1991 Main Loan Agreement [Member] $ in Thousands |
Sep. 30, 2023
USD ($)
|
|---|---|
| Derivative Instruments, Gain (Loss) [Line Items] | |
| SOFR rate strike price | 5.07% |
| Notional amount | $ 42,593 |
| Maximum [Member] | |
| Derivative Instruments, Gain (Loss) [Line Items] | |
| Notional amount | $ 112,500 |
Members’ Capital (Details Narrative) - USD ($) $ / shares in Units, $ in Thousands |
3 Months Ended | 9 Months Ended | 12 Months Ended | ||
|---|---|---|---|---|---|
Sep. 30, 2023 |
Sep. 30, 2022 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Dec. 31, 2022 |
|
| Class of Stock [Line Items] | |||||
| Weighted average units outstanding, basic | 3,577,857 | 3,430,090 | 3,542,765 | 3,400,201 | |
| Weighted average units outstanding, diluted | 3,577,857 | 3,430,090 | 3,542,765 | 3,400,201 | |
| Net loss | $ 3,284 | $ 1,045 | $ 10,174 | $ 4,947 | |
| Loss per basic | $ 0.92 | $ 0.30 | $ 2.87 | $ 1.45 | |
| Loss per diluted | $ 0.92 | $ 0.30 | $ 2.87 | $ 1.45 | |
| Common Class A [Member] | |||||
| Class of Stock [Line Items] | |||||
| Common stock, shares authorized unlimited | Unlimited | Unlimited | |||
| Stock redeemed or called during period, shares | 12,659 | 41,000 | 56,062 | 72,300 | |
| Common stock shares, outstanding | 3,579,511 | 3,579,511 | 3,523,449 | ||
| Common stock shares, issued | 3,579,511 | 3,579,511 | 3,523,449 | ||
| Weighted average units outstanding, basic | 3,577,857 | 3,430,090 | 3,542,765 | 3,400,201 | |
| Weighted average units outstanding, diluted | 3,577,857 | 3,430,090 | 3,542,765 | 3,400,201 | |
| Common Class B [Member] | |||||
| Class of Stock [Line Items] | |||||
| Common stock, shares authorized | 100,000 | 100,000 | 100,000 | ||
| Common stock shares, outstanding | 100,000 | 100,000 | 100,000 | ||
| Common stock shares, issued | 100,000 | 100,000 | 100,000 | ||
| Dividends rate percentage | 5.00% | ||||
| Class M Units [Member] | |||||
| Class of Stock [Line Items] | |||||
| Common stock, shares authorized | 1 | 1 | 1 | ||
| Common stock shares, outstanding | 1 | 1 | 1 | ||
| Common stock shares, issued | 1 | 1 | 1 | ||
Commitments and Contingencies (Details Narrative) - Construction Management Agreement [Member] $ in Millions |
Sep. 30, 2023
USD ($)
|
|---|---|
| Collaborative Arrangement and Arrangement Other than Collaborative [Line Items] | |
| Other commitment | $ 116.0 |
| Accounts payable | 20.8 |
| Retainage payable | $ 9.3 |
Subsequent Events (Details Narrative) - USD ($) $ in Thousands |
9 Months Ended | |||
|---|---|---|---|---|
Oct. 30, 2023 |
Sep. 30, 2023 |
Sep. 30, 2022 |
Nov. 08, 2023 |
|
| Subsequent Event [Line Items] | ||||
| Borrowing amount | $ 1 | |||
| Subsequent Event [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Borrowing amount | $ 1,500 | |||
| Maturity date | Mar. 31, 2024 | |||
| Interest rate, per annum | 4.50% | |||
| Subsequent Event [Member] | 1991 Main Construction Loan [Member] | ||||
| Subsequent Event [Line Items] | ||||
| Construction loan | $ 12,000 | |||