An offering statement pursuant to Regulation A relating to these securities has been filed with the Securities and Exchange Commission. Information contained in this Preliminary Offering Circular is subject to completion or amendment. These securities may not be sold nor may offers to buy be accepted before the offering statement filed with the Commission is qualified. This Preliminary Offering Circular shall not constitute an offer to sell or the solicitation of an offer to buy nor may there be any sales of these securities in any state in which such offer, solicitation or sale would be unlawful before registration or qualification under the laws of any such state. We may elect to satisfy our obligation to deliver a Final Offering Circular by sending you a notice within two business days after the completion of our sale to you that contains the URL where the Offering Circular was filed may be obtained.

 

Preliminary Offering Circular

September 28, 2018

Subject to Completion

 

GK INVESTMENT HOLDINGS, LLC

257 East Main Street, Suite 200

Barrington, IL 60010

(847) 277-9930

 

7% Unsecured Bonds

$50,000,000 Maximum Offering Amount (50,000 Bonds)

$5,000 Minimum Purchase (5 Bonds)

 

Explanatory Note

 

This Offering Circular is part of the postqualification amendment we filed in order to update the financial statements contained herein in accordance with Rule 252(f)(2)(i) of Regulation A. In addition to updating the financial statements presented herein, this amendment updates portfolio, financial and statistical data, and extends the offering termination date to September 30, 2019. All material terms of this offering otherwise remain the same.

 

 

GK Investment Holdings, LLC, a Delaware limited liability company, referred to herein as our company, is offering 7% unsecured bonds, or the Bonds. The purchase price per Bond is $1,000, with a minimum purchase amount of $5,000. We may issue Bonds at volume-weighted discounts to certain investors. See “Plan of Distribution – Volume-Weighted Discount” for more information. The Bonds will mature on September 30, 2022 and will bear interest at a fixed rate of 7% per annum. Interest on the Bonds will be paid monthly on the 15th day of the month. The first interest payment on a Bond will be paid on the 15th day of the month following the issuance of such Bond. The Bonds will be offered to prospective investors on a best efforts basis by our Managing BrokerDealer, JCC Advisors, LLC, or JCC. “Best efforts” means that JCC is not obligated to purchase any specific number or dollar amount of Bonds, but will use its best efforts to sell the Bonds. JCC may engage additional brokerdealers, or Selling Group Members, who are members of the Financial Industry Regulatory Authority, or FINRA, to assist in the sale of the Bonds. At each closing date, the proceeds for such closing will be disbursed to our company and Bonds relating to such proceeds will be issued to their respective investors. We commenced the sale of the Bonds on September 30, 2016. The offering will continue through the earlier of September 30, 2019 or the date upon which all $50,000,000 in offering proceeds have been received. As of the date of this Offering Circular, we have sold 19,458 Bonds, or $19,458,000, in the offering.

  

	Price to Public	Managing Broker-Dealer Fee, Commissions and Expense Reimbursements(1)(2)	Proceeds to Issuer	Proceeds to Other Persons
Per Bond:	$1,000.00(3)	$81.20	$918.80	$0
Maximum Offering Amount:	$50,000,000.00	$4,060,000.00	$45,940,000.00	$0

_________

 

(1)	This includes selling commissions of 5% and a Managing Broker-Dealer Fee of up to 3% of the gross proceeds of this offering to be paid on Bonds offered on a best efforts basis. All such amounts will be paid to JCC, who may reallow up to the entire amount of selling commissions and Managing-Broker Dealer Fee to Selling Group Members. JCC shall be entitled to retain, out of the Managing Broker-Dealer Fee, an amount equal to 0.57% of the gross proceeds of the offering. JCC may re-allow and pay to wholesalers and other participants in the offering up to the entirety of the remaining 2.43% portion of the Managing Broker-Dealer Fee. Any amount of the Managing Broker-Dealer Fee in excess of the 0.57% JCC is entitled to retain that is not re-allowed shall be returned to the Issuer. This also includes due diligence expense reimbursements of up to $60,000, 0.12% of the maximum offering amount. See “Use of Proceeds” and “Plan of Distribution” for more information.
(2)	The table above does not include anticipated organizational and offering expenses of $275,000, blue sky fees of $75,000 and a promotional fee of 1.88% of the gross proceeds of this offering ($940,000 if the maximum offering amount is sold) to be paid to GK Development, Inc. in compensation for promoting this offering.
(3)	Assumes no Bonds are sold at a discount

 

Generally, no sale may be made to you in this offering if the aggregate purchase price you pay is more than 10% of the greater of your annual income or net worth. Different rules apply to accredited investors and non-natural persons. Before making any representation that your investment does not exceed applicable thresholds, we encourage you to review Rule 251(d)(2)(i)(C) of Regulation A. For general information on investing, we encourage you to refer to www.investor.gov.

 

An investment in the Bonds is subject to certain risks and should be made only by persons or entities able to bear the risk of and to withstand the total loss of their investment. Currently, there is no market for the Bonds being offered, nor does our company anticipate one developing. Prospective investors should carefully consider and review that risk as well as the RISK FACTORS beginning on page 8 of this Offering Circular.

 

THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION, OR THE COMMISSION, DOES NOT PASS UPON THE MERITS OR GIVE ITS APPROVAL TO ANY SECURITIES OFFERED OR THE TERMS OF THE OFFERING, NOR DOES IT PASS UPON THE ACCURACY OR COMPLETENESS OF ANY OFFERING CIRCULAR OR OTHER SELLING LITERATURE. THESE SECURITIES ARE OFFERED PURSUANT TO AN EXEMPTION FROM REGISTRATION WITH THE COMMISSION; HOWEVER, THE COMMISION HAS NOT MADE AN INDEPENDENT DETERMINATION THAT THE SECURITIES OFFERED ARE EXEMPT FROM REGISTRATION.

 

FORM S-11 DISCLOSURE FORMAT IS BEING FOLLOWED.

The date of this Offering Circular is September 28, 2018.

 

 

TABLE OF CONTENTS

 

Contents
OFFERING CIRCULAR SUMMARY			1
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS			6
RISK FACTORS			7
USE OF PROCEEDS			23
PLAN OF DISTRIBUTION			25
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			32
GENERAL INFORMATION AS TO OUR COMPANY			35
POLICY WITH RESPECT TO CERTAIN ACTIVITIES			37
INVESTMENT POLICIES OF OUR COMPANY			38
DESCRIPTION OF REAL ESTATE			42
MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS			48
DESCRIPTION OF BONDS			51
LEGAL PROCEEDINGS			59
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT			59
DIRECTORS AND EXECUTIVE OFFICERS			60
EXECUTIVE COMPENSATION			62
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS			63
SELECTION, RETENTION AND CUSTODY OF COMPANY’S INVESTMENTS			65
POLICIES WITH RESPECT TO CERTAIN TRANSACTIONS			66
COMPENSATION OF OUR MANAGER AND ITS AFFILIATES			67
LIMITATIONS ON LIABILITY			71
EXPERTS			72
LEGAL MATTERS			73
WHERE YOU CAN FIND ADDITIONAL INFORMATION			74
INDEX TO FINANCIAL STATEMENTS			F-1
APPENDIX			A-1

 

 

OFFERING CIRCULAR SUMMARY

 

This summary highlights information contained elsewhere in this Offering Circular. This summary does not contain all of the information that you should consider before deciding whether to invest in our Bonds. You should carefully read this entire Offering Circular, including the information under the heading “Risk Factors” and all information included in the Offering Circular.

 

Our Company. GK Investment Holdings, LLC was formed on September 14, 2015 to acquire existing income producing commercial rental properties. Our company, through wholly-owned subsidiaries, holds title to (i) a commercial rental property located in Henderson, Nevada, and more commonly known as Lake Mead Crossing; and (ii) an office building located at the corner of North Via Monte and Ygnacio Road in Walnut Creek, California, or 2700 Ygancio.

 

Upon acquisition, Lake Mead Crossing consisted of multiple buildings aggregating approximately 221,200 square feet of rentable commercial space. Lake Mead Crossing is part of a larger shopping center, anchored by a Target. Lake Mead Crossing is owned by two of our subsidiaries. Upon acquisition, Lake Mead Partners, LLC, a wholly-owned subsidiary of Lake Mead Parent, LLC, a wholly-owned subsidiary of our company, owned a portion of Lake Mead Crossing consisting of approximately 155,100 square feet of rentable commercial space. Upon acquisition, Lake Mead Development, LLC, a wholly-owned subsidiary of our company, owned the other portion of Lake Mead Crossing consisting of approximately 66,000 square feet of rentable commercial space.

 

On January 30, 2017, our Company, through 2700 Ygnacio Partners, LLC, a wholly-owned subsidiary of our Company, or Ygnacio Partners, acquired 2700 Ygnacio, from an unaffiliated seller. 2700 Ygnacio is a three-story, Class A office building with approximately 108,000 rentable square feet. As of June 30, 2018, it is 77.98% leased to numerous tenants under leases expiring on various dates between 2018 and 2022. Corrollo Engineers is the anchor tenant on the property, occupying 37,156 rentable square feet, or 34.41% of the property, under a lease currently scheduled to expire on October 31, 2019.

 

After the acquisition of Lake Mead Crossing, the Company, through LM Partners, entered into a Purchase and Sale Agreement with Pacific Dental Services, LLC, or PDCS, a former tenant in Lake Mead Crossing, whereby LM Partners agreed to sell to PDCS the building partially occupied by PDCS, containing approximately 7,800 rentable square feet, for $4,000,000, excluding prorations. The sale closed on March 20, 2017 and sale proceeds were used to pay down existing indebtedness related to our acquisition of Lake Mead Crossing.

 

As of June 30, 2018, the portion of Lake Mead Crossing owned by LM Partners is 97.2% leased and the portion of Lake Mead Crossing owned by LM Development is 52.5% leased.

 

Mr. Garo Kholamian is the beneficial owner of 67.81% of the outstanding units of our company, and his wife, Mrs. Nancy Kholamian, is the beneficial owner of 12.61% of the outstanding units of our company. Our company is solely managed by GK Development, Inc., or GK Development or our manager. GK Development was formed on May 19, 1994 under the laws of Illinois, and Mr. Garo Kholamian is the sole director and shareholder of GK Development. As a result, Mr. Garo Kholamian will effectively manage our company.

 

Our company does not intend to act as a land developer in that it is has no intent to invest in, acquire, own, hold, lease, operate, manage, maintain, redevelop, sell or otherwise use undeveloped real property or “raw land,” as a ground up development. Our company, engaging in its commercial real estate activities, may have the opportunity to acquire commercial real property which includes unimproved pad sites for future development and lease-up opportunities. In such instances, our company will retain the unimproved pad sites for ground lease, build-to-suit and/or sell opportunities. In situations where our company has the opportunity to acquire commercial real property which includes a large tract of developable raw land, the developable raw land will not be acquired by our company, but may be acquired by an entity affiliated with GK Development. Our company may choose to redevelop real property for an alternative use than intended when originally acquired or developed.

 

Our company is focused on investments in existing, income producing commercial rental properties that will benefit from GK Development’s real estate operating and leasing skills, including releasing, redeveloping, renovating, refinancing, repositioning, and selling. GK Development intends to actively participate in the management of our company’s properties rather than hold the properties as passive investments.

 

Certain affiliates of GK Development have agreed to loan us all cash flows received from equity interests they own in certain real property located at 5775 Beckley Road, Battle Creek, Michigan 49015 and more commonly known as Lakeview Square Mall, or Lakeview Square, and that certain real property located at 1888 Green Oaks Road, Fort Worth, Texas 76116 and more commonly known as Ridgmar Mall, or Ridgmar, in order to ensure we have sufficient reserves of cash and cash equivalents to fund 120% of our debt service obligations under the terms of the Bonds, or the Bond Service Obligations, for a period of three (3) months. The affiliates of GK Development that have agreed to lend us the cash flows received from Lakeview Square and Ridgmar are (i) Garo Kholamian and GKPI I Partners (Lakeview Square), LLC, or the Lakeview Lenders, which own an indirect 72% interest in Lakeview Square, and (ii) 1551 Kingsbury Partners, L.L.C., or Ridgmar Lender, which owns an indirect 12.5% interest in Ridgmar. Ridgmar Lender and Lakeview Lenders, together with any future parties to a Cash Flow Loan Agreement are referred to herein as, the Cash Flow Lenders. See “Description of Bonds - Certain Covenants” for more information.

 

Management. The sponsor of our company, GK Development, is a Barrington, Illinois based real estate acquisition and development company specializing in the acquisition, management, and redevelopment of commercial rental properties. Its management provides years of experience successfully acquiring, redeveloping and managing commercial rental properties. Mr. Garo Kholamian is the President and founder of GK Development. Prior to GK Development, Mr. Kholamian was Senior Vice President of Development for Homart Development Co., the real estate development arm of Sears Roebuck. In this position, he was instrumental in the development of shopping centers across the United States. See “Directors and Executive Officers” for more information on Mr. Kholamian and the seven other individuals responsible for the management of GK Development.

 

The Offering. Our company is offering to investors the opportunity to purchase up to a maximum of $50,000,000 of Bonds. See “Plan of Distribution   Who May Invest” for further information. We commenced the sale of the Bonds on September 30, 2016. As of the date of this Offering Circular, we have sold 19,548 Bonds, or $19,548,000, in the offering. The offering will continue through the earlier of September 30, 2019 or the date upon which all $50,000,000 in offering proceeds have been received, or the Offering Termination. Our company will conduct closings in this offering at its discretion, or the Closing Dates and each, a Closing Date, until the Offering Termination. On each Closing Date, offering proceeds for that closing will be disbursed to our company and the respective Bonds will be issued to investors in the offering, or the Bondholders. The offering is being made on a bestefforts basis through JCC.

 

Issuer		GK Investment Holdings, LLC.
Securities Offered		$50,000,000, aggregate principal amount of the Bonds.
Maturity Date		September 30, 2022.
Interest Rate		7% per annum computed on the basis of a 365-day year.
Interest Payment Dates		Commencing on the 15th of the month following the issuance of such Bond and continuing monthly until the Maturity Date.
Price to Public		$1,000 per Bond.
Ranking		The Bonds are senior unsecured indebtedness of our company. They rank equally with our other senior unsecured indebtedness and are effectively subordinated to our secured indebtedness and structurally subordinated to all indebtedness of our subsidiaries.

Volume-Weighted Discount

We are offering a volume-weighted discount to the Price to the Public, or the Discount, for certain purchases of Bonds. The Discount is as follows:

 

Use of Proceeds		We estimate that the net proceeds from this offering, after deducting the estimated offering costs and expenses payable by our company, will be approximately $44,650,000. This assumes that we sell the maximum offering amount without the application of the Discount. We intend to use the net proceeds from this offering to pay down existing indebtedness and acquire commercial rental properties in our target asset class.
Certain Covenants		The Bonds are being issued under an indenture, or the Indenture, dated as of September 30, 2016, between us and UMB Bank, as the trustee. The Indenture contains covenants that limit our ability to incur, or permit our subsidiaries to incur, third party indebtedness if certain debt to asset value and/or interest coverage ratios would be exceeded. These covenants are subject to a number of important exceptions, qualifications, limitations and specialized definitions. See “Description of Company’s Securities Certain Covenants” in this Offering Circular. The Bonds will be unsecured. however, our company will be required to own real property with aggregate equity value of at least 70% of the outstanding principal of the Bonds, or the EquityBond Ratio. For properties owned or acquired, directly or indirectly, by our company, the equity value for purposes of the EquityBond Ratio will initially be the equity invested into the applicable property. Each property will be required to be appraised, by an independent third party appraiser, annually during the term of the Bonds, and following any such appraisal, our company’s equity value from a newly appraised property will be adjusted to equal the appraised value of the property less the outstanding indebtedness secured by such property (and multiplied by our company’s ownership interest in the applicable property in the event we acquire a partial interest in any property). Our company will also be required to retain cash and cash equivalents, as defined by GAAP, equal to at least 120% of our company’s Bond Service Obligations for a period of three (3) months, or the Cash Coverage Ratio.
Forced Sale Agreements		Our company may be a party to certain agreements with UMB Bank and certain of GK Development's affiliates, whereby the trustee will be able to force the sale of the property underlying such agreement as a remedy if our company defaults on the Bonds, the trustee (or the bondholders if permitted) accelerates the maturity of the Bonds, and our company is otherwise unable to pay off the Bonds, in order to comply with the Equity-Bond Ratio. We refer to any such agreements as Forced Sale Agreements. During the pendency of any Forced Sale Agreements, the value of the equity in the underlying properties shall be included in the equity of our company for the purposes of calculating the Equity-Bond Ratio.

 

 

Cash Flow Loans		In order to assist us in meeting the Cash Coverage Ratio covenant, the Cash Flow Lenders have agreed that they will loan us up to all of the monthly cash flow received from their respective ownership interests in Ridgmar, Lakeview Square or any other equity interest subject to a Cash Flow Loan, upon our request and representation to them that we need such funds in order to comply with the Cash Coverage Ratio. We refer to any such loan as a Cash Flow Loan. The Cash Flow Loans will bear interest at the IRS imputed rate of interest and will mature on the Maturity Date. Nothing in the agreements governing the Cash Flow Loans precludes the sale of the equity ownership of the Cash Flow Lenders, or the real properties underlying them to third parties, and you will have no right to any proceeds of any such sale. However, we may enter into additional Cash Flow Loans with other affiliates of GK Development.
Change of Control - Offer to Purchase		If a Change of Control Repurchase Event as defined under “Description of Bonds - Certain Covenants” in this Offering Circular, occurs, we must offer to repurchase the Bonds at 1.02 times the Price to Public if on or before September 30, 2019; 1.015 times the Price to Public if such event occurs after September 30, 2019 but on or before the September 30, 2020; 1.01 times the Price to Public if such event occurs after September 30, 2020 but on or before September 30, 2021; and at the Price to Public if such event occurs after September 30, 2021, plus any accrued and unpaid interest to, but not including the repurchase date.
Optional Redemption		Prepayment penalties for calling Bonds early are as follows: Any accrued and unpaid interest up to but not including the repurchase rate plus 1.02 times the Price to Public if such event occurs on or before September 30, 2019; 1.015 times the Price to Public if such event occurs after September 30, 2019 but on or before September 30, 2020; 1.01 times the Price to Public if such event occurs after September 30, 2020 but on or before September 30, 2021; or at the Price to Public if such event occurs after September 30, 2021. See “Description of Bonds – Optional Redemption” for more information. In addition, due to death or incapacity, the Bondholders may be able to request a redemption of some or all of their Bonds. See “Description of Bonds – Redemption Upon Death or Disability” for more information.
Default		The Indenture contains events of default, the occurrence of which may result in the acceleration of our obligations under the Bonds in certain circumstances. Events of Default, (as defined herein) other than payment defaults, are subject to our company’s right to cure within 120 days of such Event of Default. Our company has the right to cure any payment default within 30 days before the trustee may declare a default and exercise the remedies under the indenture. See “Description of Company’s Securities - Event of Default” for more information.

 

 

Form		The Bonds are evidenced by global bond certificates deposited with nominee holders. The nominee holders are the Depository Trust Company, or DTC, or its nominee, Cede & Co., for those purchasers purchasing through a DTC participant subsequent to the Bonds gaining DTC eligibility and Direct Transfer LLC, or Direct Transfer, for those purchasers not purchasing through a DTC participant. See “Description of Company’s Securities - Book-Entry, Delivery and Form” for more information.
Denominations		We will issue the Bonds only in denominations of $1,000.
Payment of Principal and Interest		Principal and interest on the Bonds will be payable in U.S. dollars or other legal tender, coin or currency of the United States of America.
Future Issuances		We may, from time to time, without notice to or consent of the Bondholders, increase the aggregate principal amount of the Bonds outstanding by issuing additional bonds in the future with the same terms of the Bonds, except for the issue date and offering price, and such additional bonds shall be consolidated with the Bonds and form a single series.

 

 

Liquidity		This is a Tier 2, Regulation A offering where the offered securities will not be listed on a registered national securities exchange upon qualification. This offering is being conducted pursuant to an exemption from registration under Regulation A of the Securities Act of 1933, as amended. We may apply for these qualified securities to be eligible for quotation on an alternative trading system or over the counter market, if we determine that such market is appropriate given the structure of the Bonds and our company and our business objectives. There is no guarantee that the Bonds will be publicly listed or quoted or that a market will develop for them. Please review carefully “Risk Factors - Investment Risk” for more information.
Trustee, Registrar and Paying Agent		We have designated UMB Bank as paying agent for the Bonds and Direct Transfer LLC as sub-paying agent in respect of Bonds registered to it. UMB Bank will act as trustee under the Indenture and registrar for the Bonds. The Bonds are being issued in book-entry form only, evidenced by global certificates, as such, payments are being made to DTC, its nominee or to Direct Transfer.
Governing Law		The Indenture and the Bonds are governed by the laws of the State of Delaware.
Material Tax Considerations		You should consult your tax advisors concerning the U.S. federal income tax consequences of owning the Bonds in light of your own specific situation, as well as consequences arising under the laws of any other taxing jurisdiction.
Risk Factors		We expect that any equity in a property that is subject to a Forced Sale Agreement may be financed using debt. We expect the terms of such debt to provide that the borrower will be in default if the ownership interest in the property, directly or indirectly, changes without lender consent. We expect that under terms of such loans, if the borrower is in default, the lender has the ability to accelerate the debt and charge certain penalties payable by the borrower. As a result, it may not be possible or it may be prohibitively expensive to sell the equity subject to a Forced Sale Agreement without lender consent. See “Risk Factors – Risks Related to the Offering – The Effectiveness of our trustee’s remedy to force a sale of equity subject to a Forced Sale Agreement and call the loans of Lake Mead Crossing, 2700 Ygnacio and future acquired properties may be limited by covenants and penalties in debt documents for senior mortgages secured by the respective underlying properties” and “Risk Factors – Risks Related to the Offering – Our trustee’s remedy to force a sale of equity subject to a Forced Sale Agreement may be limited due to covenants contained in the senior and mezzanine debt secured by those properties” for more information.   The existing Cash Flow Loan Agreements and any future Forced Sale Agreements or Cash Flow Loan Agreements are not expected to limit the rights of the Cash Flow Lenders, or any other holder of equity subject to such an agreement, to sell their equity, nor do those agreements preclude a sale of the underlying real properties. In either circumstance, we would lose our rights to Cash Flow Loans relative to the interest sold, and the value of the interest sold would no longer be available to support the Equity-Bond Ratio or the repayment of the Bonds in the event the trustee exercised its rights under the Forced Sale Agreements. See “Risk Factors – Risks Related to the Offering – Neither any future Forced Sale Agreements nor any current or future Cash Flow Loan Agreements limit the rights of the Cash Flow Lenders to sell their indirect equity in Lakeview Square, Ridgmar, or any equity subject to a future Forced Sale Agreement or Cash Flow Loan to an unaffiliated third party, nor do they preclude the sale of the underlying real properties” for more information.   We may enter into Forced Sale Agreements with affiliates. If we do, we anticipate the terms of the Forced Sale Agreements to be substantially similar to the expired Forced Sale Agreements related to Ridgmar and Lakeview Square, which were filed as exhibits to our Current Report on Form 1-U, filed with the SEC on October 6, 2016. As a result, the risks associated with the Forced Sale Agreements are expected to include, but not be limited to (i) the inability to effectively sell the affected equity due to restrictions contained in the underlying senior and mezzanine debt documents, (ii) the ability of the property owner to sell the property without the consent of the trustee, and (iii) the ability of the holder of the affected equity to sell the affected equity without the consent of the trustee.   An investment in our Bonds involves certain risks. You should carefully consider the risks above, as well as the other risks described under “Risk Factors” beginning on page 6 of this Offering Circular before making an investment decision.

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Offering Circular contains certain forward-looking statements that are subject to various risks and uncertainties. Forward-looking statements are generally identifiable by use of forward-looking terminology such as “may,” “will,” “should,” “potential,” “intend,” “expect,” “outlook,” “seek,” “anticipate,” “estimate,” “approximately,” “believe,” “could,” “project,” “predict,” or other similar words or expressions. Forward-looking statements are based on certain assumptions, discuss future expectations, describe future plans and strategies, contain financial and operating projections or state other forward-looking information. Our ability to predict results or the actual effect of future events, actions, plans or strategies is inherently uncertain. Although we believe that the expectations reflected in our forward-looking statements are based on reasonable assumptions, our actual results and performance could differ materially from those set forth or anticipated in our forward-looking statements. Factors that could have a material adverse effect on our forward-looking statements and upon our business, results of operations, financial condition, funds derived from operations, cash flows, liquidity and prospects include, but are not limited to, the factors referenced in this Offering Circular, including those set forth below.

 

When considering forward-looking statements, you should keep in mind the risk factors and other cautionary statements in this Offering Circular. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which reflect our views as of the date of this Offering Circular. The matters summarized below and elsewhere in this Offering Circular could cause our actual results and performance to differ materially from those set forth or anticipated in forward-looking statements. Accordingly, we cannot guarantee future results or performance. Furthermore, except as required by law, we are under no duty to, and we do not intend to, update any of our forward-looking statements after the date of this Offering Circular, whether as a result of new information, future events or otherwise.

 

 

RISK FACTORS

 

An investment in our Bonds is highly speculative and is suitable only for persons or entities that are able to evaluate the risks of the investment. An investment in our Bonds should be made only by persons or entities able to bear the risk of and to withstand the total loss of their investment. Prospective investors should consider the following risks before making a decision to purchase our Bonds. To the best of our knowledge, we have included all material risks to investors in this section.

 

Risks Related to the Offering

 

The Bonds are unsecured obligations of our company and not obligations of our subsidiaries and are subordinated to any of our company’s current and future secured indebtedness to the extent of the value of the assets securing such indebtedness and effectively subordinated to any future obligations of our company’s subsidiaries. Structural subordination increases the risk that we will be unable to meet our obligations on the Bonds.

 

The Bonds are unsecured, subordinated obligations of our company and will rank equally in right of payment with all of our company’s other unsecured indebtedness and senior in right of payment to any of our company’s future obligations that are by their terms expressly subordinated or junior in right of payment to the Bonds. The Bonds are effectively subordinated to any of our company’s existing or future secured indebtedness to the extent of the value of the assets securing such indebtedness.

 

The Bonds are obligations exclusively of our company and not of any of its subsidiaries. None of our company’s subsidiaries is a guarantor of the Bonds and the Bonds are not required to be guaranteed by any subsidiaries our company may acquire or create in the future. The Bonds are also effectively subordinated to all of the liabilities of our company’s subsidiaries, to the extent of their assets, since they are separate and distinct legal entities with no obligation to pay any amounts due under our company’s indebtedness, including the Bonds, or to make any funds available to make payments on the Bonds. Our company’s right to receive any assets of any subsidiary in the event of a bankruptcy or liquidation of the subsidiary, and therefore the right of our company’s creditors to participate in those assets, will be effectively subordinated to the claims of that subsidiary’s creditors, including trade creditors, in each case to the extent that our company is not recognized as a creditor of such subsidiary. In addition, even where our company is recognized as a creditor of a subsidiary, our company’s rights as a creditor with respect to certain amounts are subordinated to other indebtedness of that subsidiary, including secured indebtedness to the extent of the assets securing such indebtedness.

 

Our covenants require only a 70% real property equity to principal ratio; therefore, if our trustee were to exercise its remedy to force the sale of our properties, such a sale may not generate sufficient proceeds to repay the aggregate principal amount of the Bonds.

 

One of our trustee’s and Bondholders’ principal remedies in the event of a default is to force the sale of the rental properties we acquire, or any equity interest subject to a Forced Sale Agreement. Under the Indenture we must maintain a ratio of 70% equity (inclusive of those equity interests subject to the Forced Sale Agreements) to the principal amount of outstanding Bonds, subject to our right to cure any deficiency within one hundred twenty (120) days of the occurrence of such deficiency. See “Description of Bonds - Event of Default” for more information. Because the amount of real property equity we are required to maintain will not cover the full principal amount of the Bonds, if we default on the Bonds and our trustee forces a sale of our real property, or exercises its rights under the Forced Sale Agreements, the proceeds of such sales may not be sufficient to fully repay the outstanding Bondholders.

 

The Bonds do not restrict or eliminate our company’s or its subsidiaries’ ability to incur additional debt or take other action that could negatively impact holders of the Bonds.

 

Subject to specified limitations in the Indenture and as described under “Description of Bonds - Certain Covenants,” the Indenture does not contain any provisions that would directly limit our company’s ability or the ability of its subsidiaries to incur indebtedness, including indebtedness that would be senior to the Bonds. The only limitation on our company’s or its subsidiaries’ ability to take on additional debt is the requirement to maintain our Equity-Bond Ratio.

 

The Effectiveness of our trustee’s remedy to force a sale of equity subject to a Forced Sale Agreement and call the loans of Lake Mead Crossing, 2700 Ygancio and future acquired properties may be limited by covenants and penalties in debt documents for senior mortgages secured by the respective underlying properties.

 

Our Bonds are unsecured and the primary remedy in the event of a default will be for our trustee (or sufficient Bondholders) to trigger sales of properties we own or any equity interest subject to a Forced Sale Agreement. We expect that any such properties may be financed with debt and that the terms of such debt will require that the ownership interest of such property, directly or indirectly, cannot change without lender’s consent. If the ownership changes without lender consent, the respective borrower under the respective loan will be in default. If either of the direct or indirect owners of such a property is found to be in default under any loans, your investment will be adversely affected. Lake Mead Crossing was financed using mortgage debt, mezzanine debt and interim debt. The loan documents evidencing both the mortgage debt and mezzanine debt carry prepayment penalties. 2700 Ygnacio was financed using mortgage debt and interim debt. The loan documents evidencing the mortgage debt carry prepayment penalties. Further, on newly acquired properties by our company following this Offering, we anticipate using senior secured debt to acquire each new property we purchase. Often senior lender loans secured by real property contain prepayment penalties and/or requirements of defeasance. Any such prepayment penalties or defeasance requirements may reduce the proceeds of any forced sale of our properties or may render such a sale prohibitively expensive. This would materially and adversely affect the repayment of your investment in the event of a default.

 

Lake Mead Crossing and 2700 Ygnacio were purchased using a mixture of mortgage debt, mezzanine debt and interim debt. Due to prepayment penalties on the mortgage debt and mezzanine debt, we may be unable to pay down a portion of the indebtedness secured by the property.

 

Our company may use offering proceeds to pay down existing indebtedness secured by Lake Mead Crossing. More specifically, it may be prudent for our company to use offering proceeds to pay down the mezzanine debt held by an affiliate of our company. The mezzanine debt carries an interest rate of 8% and has a current outstanding principal balance of approximately $6,417,483. However, if we prepay the mezzanine debt, we may be required to pay prepayment penalties equal to 12-14% of the principal prepaid. If we are required to pay the prepayment penalty, we may not be able to or may not be willing to pay off that indebtedness. If we do not pay off our mezzanine debt, our debt service obligations may reduce our ability to make payments on the Bonds.

  

Our company may also use proceeds from this offering to pay down mortgage debt. Lake Mead Partners, LLC is a party to a mortgage loan secured by Lake Mead Crossing. That mortgage debt carries an interest rate of 4% and has a principal of approximately $25,537,783. However, if we prepay that debt, we may be required to pay prepayment penalties equal to 1% of the principal prepaid. If we are required to pay the prepayment penalty, we may not be able to or may not be willing to pay off that indebtedness. If we do not pay off that debt, our debt service obligations may reduce our ability to make payments on the Bonds.

 

The cash flow indirectly received from Lake Mead Crossing and 2700 Ygnacio will be significantly impacted by the debt burden on the property.

 

We financed the purchase of Lake Mead Crossing using no equity and three layers of debt financing (mortgage debt, mezzanine debt and interim debt). We financed 2700 Ygnacio with limited equity and two layers of debt financing. We are required to make the debt service payments on each of these loans before making distributions to Bondholders. The debt burden is substantially higher on Lake Mead Crossing due to the amount of debt and the high interest rate on the mezzanine debt and interim debt. As a result, our ability to make payments to Bondholders when they become due may be adversely affected by the debt burden on Lake Mead Crossing and 2700 Ygnacio.

 

If we sell substantially less than all of the Bonds we are offering, our investment objectives may become more difficult to reach.

 

While we believe we will be able to reach our investment objectives regardless of the amount of the raise, it may be more difficult to do so if we sell substantially less than all of the Bonds. Such a result may negatively impact our liquidity and increase our dependence on higher interest debt to acquire target properties. In that event, our investment costs will increase, which may decrease our ability to make payments to Bondholders.

 

Our trustee’s remedy to force a sale of equity subject to a Forced Sale Agreement may be limited due to covenants contained in the senior and mezzanine debt securing such property.

 

In order to comply with the Equity-Bond Ratio, we may enter into Forced Sale Agreements with affiliates whereby an equity interests of a property may be sold if our company does not comply with certain covenants in the Indenture. In such a circumstance, we expect that any such property will be financed with debt, the terms of each which will likely provide that the borrower will be in default if the property is transferred, pledged or otherwise encumbered without lender consent. Terms will also likely provide that the borrower will be in default if the ownership interest in the property or the ownership interest of any entity directly or indirectly owning the property changes without lender consent. As a result, it may not be possible or it may be prohibitively expensive to sell the equity interests subject to a Forced Sale Agreement without lender consent.

 

Neither any future Forced Sale Agreements nor any current or future Cash Flow Loan Agreements limit the rights of the Cash Flow Lenders to sell their indirect equity in Lakeview Square, Ridgmar, or any equity subject to a future Forced Sale Agreement or Cash Flow Loan to an unaffiliated third party, nor do they preclude the sale of the underlying real properties.

 

Any future Forced Sale Agreements and any current or future Cash Flow Loan Agreements will not limit the rights of the holders of such equity to sell their equity, nor do those agreements preclude a sale of the underlying real properties. In either circumstance, we would lose our rights to Cash Flow Loans relative to the interest sold, and the value of the interest sold would no longer be available to support the Equity-Bond Ratio or the repayment of the Bonds in the event the trustee exercised its rights under the Forced Sale Agreements.

 

Our trustee shall be under no obligation to exercise any of the rights or powers vested in it by the Indenture at the request, order or direction of any of the Bondholders, pursuant to the provisions of the Indenture, unless such Bondholders shall have offered to the trustee reasonable security or indemnity against the costs, expenses and liabilities that may be incurred therein or thereby.

 

The Indenture provides that in case an Event of Default (as herein defined) in the Indenture shall occur and not be cured, the trustee will be required, in the exercise of its power, to use the degree of care of a reasonable person in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Bondholder, unless the Bondholder has offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense.

 

Investment Risks

 

The Bonds will have limited transferability and liquidity.

 

There is no active market for the Bonds. Although we may apply for quotation of the Bonds on an alternative trading system or over the counter market, even if we obtain that quotation, we do not know the extent to which investor interest will lead to the development and maintenance of a liquid trading market. Further, the Bonds will not be quoted on an alternative trading system or over the counter market until after the termination of this offering, if at all. Therefore, investors will be required to wait until at least after the final termination date of this offering for such quotation. The initial public offering price for the Bonds has been determined by us. You may not be able to sell the Bonds you purchase at or above the initial offering price.

 

Alternative trading systems and over the counter markets, as with other public markets, may from time to time experience significant price and volume fluctuations. As a result, the market price of the Bonds may be similarly volatile, and Bondholders may from time to time experience a decrease in the value of their Bonds, including decreases unrelated to our operating performance or prospects. The price of the Bonds could be subject to wide fluctuations in response to a number of factors, including those listed in this “Risk Factors” section of this Offering Circular.

 

No assurance can be given that the market price of the Bonds will not fluctuate or decline significantly in the future or that Bondholders will be able to sell their Bonds when desired on favorable terms, or at all. Further, the sale of the Bonds may have adverse federal income tax consequences.

 

Our limited prior operating history makes it difficult for you to evaluate this investment.

 

We have limited prior operating history and may not be able to successfully operate our business or achieve our investment objectives. We may not be able to conduct our business as described in our plan of operation.

 

You will not have the opportunity to evaluate our investments before we make them and we may make real estate investments that would have changed your decision as to whether to invest in our Bonds.

 

As of the date of this offering circular, we own two properties, Lake Mead Crossing and 2700 Ygnacio. We are not able to provide you with information to evaluate our additional investments prior to acquisition. We will seek to invest substantially all of the offering proceeds available for investment, after the payment of fees and expenses, in the acquisition of real estate and real estate related investments. We have established criteria for evaluating potential investments. See “Investment Policies of Company” for more information. However, you will be unable to evaluate the transaction terms, location, and financial or operational data concerning the investments before we invest in them. You will have no opportunity to evaluate the terms of transactions or other economic or financial data concerning our investments prior to our investment. You will be relying entirely on the ability of GK Development and its management team to identify suitable investments and propose transactions for GK Development, our sole manager, to oversee and approve. These factors increase the risk that we may not generate the returns that you seek by investing in our Bonds.

 

The inability to retain or obtain key personnel, property managers and leasing agents could delay or hinder implementation of our investment strategies, which could impair our ability to honor our obligations under the terms of Bonds and could reduce the value of your investment.

 

Our success depends to a significant degree upon the contributions of GK Development’s management team. We do not have employment agreements with any of these individuals nor do we currently have key man life insurance on any of these individuals. If any of them were to cease their affiliation with us or GK Development, GK Development may be unable to find suitable replacements, and our operating results could suffer. We believe that our future success depends, in large part, upon GK Development’s property managers’ and leasing agents’ ability to hire and retain highly skilled managerial, operational and marketing personnel. Competition for highly skilled personnel is intense, and GK Development and any property managers we retain may be unsuccessful in attracting and retaining such skilled personnel. If we lose or are unable to obtain the services of highly skilled personnel, property managers or leasing agents, our ability to implement our investment strategies could be delayed or hindered, and our ability to pay our Bond Service Obligations and repay principal may be materially and adversely affected.

 

We rely on JCC Advisors, LLC to sell our Bonds pursuant to this offering. If JCC Advisors, LLC is not able to market our Bonds effectively, we may be unable to raise sufficient proceeds to meet our business objectives.

 

We have engaged JCC Advisors, LLC to act as our Managing Broker-Dealer for this offering, and we rely on JCC Advisors, LLC to use its best efforts to sell the Bonds offered hereby. It would also be challenging and disruptive to locate an alternative Managing Broker-Dealer for this offering. Without improved capital raising, our portfolio will be smaller relative to our general and administrative costs and less diversified than it otherwise would be, which could adversely affect the value of your investment in us.

 

There are limited covenants to the Indenture.

 

The Indenture does not directly prevent our company from incurring unsecured indebtedness that is equal or subordinate in right of payment to the Bonds. For that reason, you should not consider the covenants in the Indenture as a significant factor in evaluating whether to invest in the Bonds.

 

An increase in the level of our outstanding indebtedness, or other events, could have an adverse impact on our business, properties, capital structure, financial condition, results of operations or prospects, which could adversely impact the Bonds. Any such event could also adversely affect our cost of borrowing, limit our access to the capital markets or result in more restrictive covenants in future debt arrangements.

 

Under certain circumstances, we may redeem the Bonds before maturity, and you may be unable to reinvest the proceeds at the same or a higher rate of return.

 

We may redeem all or a portion of the Bonds at any time. See “Description of Company’s Securities - Optional Redemption” for more information. While we are required to pay certain prepayment premiums on or prior to September 30, 2021, if redemption occurs, you may be unable to reinvest the money you receive in the redemption at a rate that is equal to or higher than the rate of return on the Bonds.

 

Risks Related to This Offering and Our Corporate Structure

 

Because we are dependent upon GK Development and its affiliates to conduct our operations, any adverse changes in the financial health of GK Development or its affiliates or our relationship with them could hinder our operating performance and our ability to meet our financial obligations.

 

We are dependent on GK Development and its affiliates to manage our operations and acquire and manage our portfolio of real estate assets. Our sole manager, GK Development makes all decisions with respect to the management of our company. GK Development depends upon the fees and other compensation that it receives from us in connection with the purchase, management and sale of our properties to conduct its operations. Any adverse changes in the financial condition of GK Development or our relationship with GK Development could hinder its ability to successfully manage our operations and our portfolio of investments.

 

You will have no control over changes in our policies and day-to-day operations, which lack of control increases the uncertainty and risks you face as an investor in our Bonds. In addition, our sole manager and sponsor, GK Development, may change our major operational policies without your approval.

 

Our sole manager and sponsor, GK Development determines our major policies, including our policies regarding financing, growth, debt capitalization, and distributions. GK Development may amend or revise these and other policies without your approval. As a Bondholder, you will have no rights under the limited liability company agreement of our company, or our Operating Agreement. See “General Information as to Our Company - Operating Agreement” herein for a detailed summary of our Operating Agreement. 

 

GK Development is responsible for the day-to-day operations of our company and the selection and management of investments and has broad discretion over the use of proceeds from this offering. Accordingly, you should not purchase our Bonds unless you are willing to entrust all aspects of the day-to-day management and the selection and management of investments to GK Development. Specifically, GK Development is controlled by Mr. Garo Kholamian as sole stockholder and sole director, and as a result, he will be able to exert significant control over our operations. Our company has no board of managers and Mr. Kholamian has exclusive control over the operations of GK Development, Inc. and our company, as our manager. As a result, we are dependent on Mr. Kholamian rather than a group of managers to properly choose investments and manage our company. In addition, GK Development may retain independent contractors to provide various services for our company, and you should note that such contractors will have no fiduciary duty to you or the other Bondholders and may not perform as expected or desired.

 

Bondholders will have no right to remove our manager or otherwise change our management, even if we are underperforming and not attaining our investment objectives.

 

Only the members of our company have the right to remove our manager, and only if our manager has made a decision to file a voluntary petition or otherwise initiate proceedings to have it adjudicated insolvent, or to seek an order for relief as debtor under the United States Bankruptcy Code (11 U.S.C. §§ 101 et seq.); to file any petition seeking any composition, reorganization, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy laws or any other present or future applicable federal, state or other statute or law relative to bankruptcy, insolvency, or other relief for debtors; to seek the appointment of any trustee, receiver, conservator, assignee, sequestrator, custodian, liquidator (or other similar official) of our company or of all or any substantial part of the assets of our company, to make any general assignment for the benefit of creditors of our company, to admit in writing the inability of our company to pay its debts generally as they become due, or to declare or effect a moratorium on our company’s debt or to take any action in furtherance of any of the above proscribed actions. Bondholders will have no rights in the management of our company. As an investor in this offering, you will have no ability to remove our manager.

 

Our manager and its executive officers will have limited liability for, and will be indemnified and held harmless from, the losses of our company.

 

GK Development, our manager and its executive officers and their agents and assigns, will not be liable for, and will be indemnified and held harmless (to the extent of our company’s assets) from any loss or damage incurred by them, our company or the members in connection with the business of our company resulting from any act or omission performed or omitted in good faith, which does not constitute fraud, willful misconduct, gross negligence or breach of fiduciary duty. A successful claim for such indemnification could deplete our company’s assets by the amount paid. See “General Information as to Our Company - Operating Agreement - Indemnification” below for a detailed summary of the terms of our Operating Agreement. Our Operating Agreement is filed as an exhibit to the Offering Statement of which this Offering Circular is a part.

 

If we sell substantially less than all of the Bonds we are offering, the costs we incur to comply with the rules of the Securities and Exchange Commission, or the SEC, regarding financial reporting and other fixed costs will be a larger percentage of our net income and may reduce the return on your investment.

 

We expect to incur significant costs in maintaining compliance with the financial reporting for a Tier II Regulation A issuer and that our management will spend a significant amount of time assessing the effectiveness of our internal control over financial reporting. We do not anticipate that these costs or the amount of time our management will be required to spend will be significantly less if we sell substantially less than all of the Bonds we are offering.

 

Risks Related to Conflicts of Interest

 

Our sole manager, its executive officers and their affiliates face conflicts of interest relating to the purchase and leasing of properties, and such conflicts may not be resolved in our favor, which could limit our investment opportunities, impair our ability to make distributions and reduce the value of your investment.

 

We rely on GK Development to identify suitable investment opportunities. We may be buying properties at the same time as other entities that are affiliated with or sponsored by GK Development. Other programs sponsored by GK Development or its affiliates also rely on GK Development, its executive officers and their affiliates for investment opportunities. GK Development has sponsored privately offered real estate programs and may in the future sponsor privately and publicly offered real estate programs that have investment objectives similar to ours. Therefore, GK Development and its affiliates could be subject to conflicts of interest between our company and other real estate programs. Many investment opportunities would be suitable for us as well as other programs. GK Development could direct attractive investment opportunities or tenants to other entities. Such events could result in our investing in properties that provide less attractive returns or getting less attractive tenants, impairing our ability to honor our obligations under the terms of the Bonds and the value of your investment. See “Selection, Retention and Custody of Company’s Investments” and “Policies with Respect to Certain Transactions” for more information.

 

 

Payment of fees to GK Development and its affiliates will reduce cash available for investment and payment of our Bond Service Obligations.

 

GK Development and its affiliates perform services for us in connection with the selection and acquisition of our properties and other investments, and possibly the development, management and leasing of our properties. They are paid fees for these services, which reduces the amount of cash available for investment and for payment of our Bond Service Obligations. Although customary in the industry, the fees to be paid to GK Development and its affiliates were not determined on an arm’s-length basis. We cannot assure you that a third party unaffiliated with GK Development would not be willing to provide such services to us at a lower price. If the maximum offering amount is raised, without the application of any Discount we estimate that 2.55% of the gross proceeds of this offering will be paid to GK Development, its affiliates and third parties for upfront fees and expenses associated with the offer and sale of the Bonds. The expenses we actually incur in connection with the offer and sale of the Bonds, excluding acquisition and origination fees and expenses, may exceed the amount we expect to incur. In addition to this, GK Development will receive a 2% acquisition fee based on the purchase price of assets acquired from nonaffiliated, third party sellers, a 2% financing fee based on the amount of debt raised to acquire new assets or refinance existing assets, exclusive of any lender fees, and a 2% disposition fee based on the sales price of assets sold, exclusive of any brokerage fees. See “Selection, Retention and Custody of Company’s Investments” and “Policies with Respect to Certain Transactions” for more information.

 

GK Development will receive certain fees regardless of the performance of our company or an investment in the Bonds.

 

GK Development will receive a promoter’s fee equal to 1.88% of the gross offering proceeds, an acquisition fee equal to 2% of the purchase price of each acquired asset from non-affiliated, third party sellers, and a financing fee equal to 2% of the amount of debt raised to acquire new assets or refinance existing assets of our company. These fees will be paid regardless of our company’s success and the performance of the Bonds.

 

GK Development, as our manager, may increase the fees payable to it and/or its affiliates with the consent of a majority of the Bonds.

 

GK Development will have the power to contractually bind our company as its manager. As a result, GK Development may agree to increase the fees payable to it and/or its affiliates with the consent of a majority of the Bonds. For this purpose, a Bondholder will be deemed to have consented with respect to its Bonds if the Bondholder has not objected in writing within five (5) calendar days after the receipt of the consent request. As a result, GK Development may increase fees paid to it or its affiliates without the affirmative consent of the Bondholders.

 

GK Development and its affiliates, including our officers, face conflicts of interest caused by compensation arrangements with us and other programs sponsored by affiliates of GK Development, which could result in actions that are not in the long-term, best interests of our Bondholders.

 

GK Development and its affiliates receive fees from us. These fees could influence GK Development’s advice to us, as well as the judgment of the affiliates of GK Development who serve as our officers. Among other matters, the compensation arrangements could affect their judgment with respect to property acquisitions from, or the making of investments in, other programs sponsored by GK Development, which might entitle affiliates of GK Development to disposition fees and other possible fees in connection with its services for the seller. See “Selection, Retention and Custody of Company’s Investments” and “Policies with Respect to Certain Transactions” for more information.

 

Considerations relating to their compensation from other programs could result in decisions that are not in the best interests of our Bondholders, which could hurt our ability to perform our obligations due under the Bonds or result in a decline in the value of your investment.

 

If the competing demands for the time of GK Development, its affiliates and our officers result in them spending insufficient time on our business, we may miss investment opportunities or have less efficient operations, which could reduce our profitability and impair our ability to honor our obligations under the Bonds.

 

We do not have any employees. We rely on the employees of GK Development and its affiliates for the day to day operation of our business. The amount of time that GK Development and its affiliates spend on our business will vary from time to time and is expected to be greater while we are raising money and acquiring properties. GK Development and its affiliates, including our officers, have interests in other programs and engage in other business activities. As a result, they will have conflicts of interest in allocating their time between us and other programs and activities in which they are involved. Because these persons have competing interests on their time and resources, they may have conflicts of interest in allocating their time between our business and these other activities. During times of intense activity in other programs and ventures, they may devote less time and fewer resources to our business than are necessary or appropriate to manage our business. We expect that as our real estate activities expand, GK Development will attempt to hire additional employees who would devote substantially all of their time to our business. There is no assurance that GK Development will devote adequate time to our business. If GK Development suffers or is distracted by adverse financial or operational problems in connection with its operations unrelated to us, it may allocate less time and resources to our operations. If any of these things occur, our ability to honor obligations under the Bonds may be adversely affected.

 

Our subsidiaries have mezzanine debt held by an affiliate of our manager, and there is nothing restricting us from procuring future debt financing from affiliates of our manager.

 

In order to finance Lake Mead Crossing, we received financing in the form of mezzanine debt from an affiliate of our manager, GK Secured Income IV, LLC, with a current outstanding principal balance of approximately $6,417,483 and interest rate of 8% per annum. We may use offering proceeds to repay this debt. There is nothing restricting us from receiving future debt financing from affiliates of our manager to make future investments. We believe the terms of the current loan are, and any future loans from an affiliate of our manager will be, fair and at market rates for such loans. However, we cannot assure you that a third party unaffiliated with GK Development would not be willing to provide current loan financing on better terms.

 

Risks Related to Investments in Commercial Rental Real Estate

 

Our operating results may be affected by economic conditions that have an adverse impact on the commercial real estate market in general, and may cause us to be unable to realize appreciation in the value of our commercial real estate properties.

 

Our operating results are subject to risks generally associated with the ownership of commercial real estate, including, but not limited to changes in general economic conditions, changes in interest rates and the availability of mortgage funds that may make the sale a of commercial real estate difficult. Although we intend to hold our commercial real estate and related investments until such a time as our sole manager, GK Development, determines that a sale or other disposition appears to be advantageous to our overall investment objectives; we cannot predict the various market conditions affecting commercial real estate investments that will exist at any particular time in the future. Because of this uncertainty, we cannot assure you that we will realize any appreciation in the value of our commercial real estate properties.

 

Competition from other commercial rental properties for tenants could reduce our profitability and impair our ability to honor our obligations under the terms of the Bonds.

 

The commercial rental property industry is highly competitive. This competition could reduce occupancy levels and revenues at our commercial rental properties, which would adversely affect our operations. We face competition from many sources. We face competition from other commercial rental properties both in the immediate vicinity and in the larger geographic market where our commercial rental properties will be located. Overbuilding of commercial rental properties may occur. If so, this will increase the number of units available and may decrease occupancy and rental rates. In addition, increases in operating costs due to inflation may not be offset by increased rental rates.

 

Increased construction of similar properties that compete with our commercial rental properties in any particular location could adversely affect the operating results of our commercial rental properties and our cash available to honor our obligations under the terms of the Bonds.

 

We may acquire commercial rental properties in locations which experience increases in construction of properties that compete with our properties. This increased competition and construction could:

 

 

We compete with numerous other parties or entities for commercial real estate assets and tenants and may not compete successfully.

 

We compete with numerous other persons or entities engaged in commercial real estate investment activities, many of which have greater resources than we do. Some of these investors may enjoy significant competitive advantages that result from, among other things, a lower cost of capital and enhanced operating efficiencies. Our competitors may be willing to offer space at rates below our rates, causing us to lose existing or potential tenants.

 

Many of our investments will be dependent on tenants for revenue, and lease terminations could reduce our revenues from rents, resulting in the decline in the value of your investment.

 

The underlying value of our commercial properties and the ability to honor our obligations under the terms of the Bonds depend upon the ability of the tenants of our commercial properties to generate enough income to pay their rents in a timely manner, and the success of our investments depends upon the occupancy levels, rental income and operating expenses of our commercial properties and our company. Tenants’ inability to timely pay their rents may be impacted by employment and other constraints on their personal finances, including debts, purchases and other factors. These and other changes beyond our control may adversely affect our tenants’ ability to make lease payments. In the event of a tenant default or bankruptcy, we may experience delays in enforcing our rights as landlord and may incur costs in protecting our investment and re-leasing the premises. We may be unable to re-lease the premises for the rent previously received. We may be unable to sell a commercial property with low occupancy without incurring a loss. These events and others could impair our ability to honor our obligations under the terms of the Bonds and may also cause the value of your investment to decline.

 

Our operating results and distributable cash flow depend on our ability to generate revenue from leasing our commercial properties to tenants on terms favorable to us.

 

Our operating results depend, in large part, on revenues derived from leasing space in our commercial properties. We are subject to the credit risk of our tenants, and to the extent our tenants default on their leases or fail to make rental payments we may suffer a decrease in our revenue. In addition, if a tenant does not pay its rent, we may not be able to enforce our rights as landlord without delays and we may incur substantial legal costs. We are also subject to the risk that we will not be able to lease space in our commercial properties or that, upon the expiration of leases for space located in our commercial properties, leases may not be renewed, the space may not be re-leased or the terms of renewal or re-leasing (including the cost of required renovations or concessions to customers) may be less favorable to us than current lease terms. If vacancies continue for a long period of time, we may suffer reduced revenues which would impair our ability to honor our obligations under the terms of the Bonds. In addition, the resale value of the commercial property could be diminished because the market value of a particular property will depend principally upon the value of the leases of such property. Further, costs associated with commercial real estate investment, such as real estate taxes and maintenance costs, generally are not reduced when circumstances cause a reduction in income from the investment. These events would cause a significant decrease in revenues and could impair our ability to honor our obligations under the terms of the Bonds.

 

 

Costs incurred in complying with governmental laws and regulations may reduce our net income and the cash available for distributions.

 

Our company and the commercial properties we own and expect to own are subject to various federal, state and local laws and regulations relating to environmental protection and human health and safety. Federal laws such as the National Environmental Policy Act, the Comprehensive Environmental Response, Compensation, and Liability Act, the Solid Waste Disposal Act as amended by the Resource Conservation and Recovery Act, the Federal Water Pollution Control Act, the Federal Clean Air Act, the Toxic Substances Control Act, the Emergency Planning and Community Right to Know Act and the Hazard Communication Act and their resolutions and corresponding state and local counterparts govern such matters as wastewater discharges, air emissions, the operation and removal of underground and above-ground storage tanks, the use, storage, treatment, transportation and disposal of solid and hazardous materials and the remediation of contamination associated with disposals. The commercial properties we acquire will be subject to the Americans with Disabilities Act of 1990 which generally requires that certain types of buildings and services be made accessible and available to people with disabilities. These laws may require us to make modifications to our properties. Some of these laws and regulations impose joint and several liability on tenants, owners or operators for the costs to investigate or remediate contaminated properties, regardless of fault or whether the acts causing the contamination were illegal. Compliance with these laws and any new or more stringent laws or regulations may require us to incur material expenditures. Future laws, ordinances or regulations may impose material environmental liability. In addition, there are various federal, state and local fire, health, life-safety and similar regulations with which we may be required to comply, and which may subject us to liability in the form of fines or damages for noncompliance.

 

Our commercial properties may be affected by our tenants’ activities or actions, the existing condition of land when we buy it, operations in the vicinity of our commercial properties, such as the presence of underground storage tanks, or activities of unrelated third parties. The presence of hazardous substances, or the failure to properly remediate these substances, may make it difficult or impossible to sell or rent such property. Any material expenditures, fines, or damages we must pay will impair our ability to honor our obligations under the terms of the Bonds and may reduce the value of your investment.

 

Any uninsured losses or high insurance premiums will reduce our net income and the amount of our cash available to honor our obligations under the terms of the Bonds.

 

Our company will attempt to obtain adequate insurance to cover significant areas of risk to us, as a company, and to our commercial properties. However, there are types of losses at the property level, generally catastrophic in nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution or environmental matters, which are uninsurable or not economically insurable, or may be insured subject to limitations, such as large deductibles or co-payments. We may not have adequate coverage for such losses. If any of our commercial properties incur a casualty loss that is not fully insured, the value of our assets will be reduced by any such uninsured loss. In addition, other than any working capital reserve or other reserves we may establish, we have no source of funding to repair or reconstruct any uninsured damaged property. Also, to the extent we must pay unexpectedly large amounts for insurance, we could suffer reduced earnings that would impair our ability to honor our obligations under the terms of the Bonds.

 

As part of otherwise attractive properties, we may acquire some properties with existing lock out provisions, which may inhibit us from selling a commercial property, or may require us to maintain specified debt levels for a period of years on some properties.

 

Loan provisions could materially restrict us from selling or otherwise disposing of or refinancing commercial properties. These provisions would affect our ability to turn our investments into cash and thus affect cash available to honor our obligations under the terms of the Bonds, including if the trustee exercised its remedy to force the sale of the commercial properties we acquire. Loan provisions may prohibit us from reducing the outstanding indebtedness with respect to commercial properties, refinancing such indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with respect to such properties.

 

Loan provisions could impair our ability to take actions that would otherwise be in the best interests of the Bondholders and, therefore, may have an adverse impact on the value of your investment, relative to the value that would result if the loan provisions did not exist. In particular, loan provisions could preclude us from participating in major transactions that could result in a disposition of our assets or a change in control even though that disposition or change in control might be in the best interests of our Bondholders.

 

If we elect to improve any vacant portions of, or redevelop, our acquired properties, such actions will expose us to additional risks beyond those associated with owning and operating commercial rental properties and could materially and adversely affect us.

 

We may redevelop one or more of our acquired properties or improve vacant portions of our acquired properties, including the vacant pad sites at Lake Mead Crossing. If we elect to do so, we will be subject to additional risks and our business may be adversely affect by:

 

 

 

 

 

 

 

 

 

 

Any of these circumstances could give rise to delays in the start or completion of, or could increase the cost of, redeveloping or improving one or more of our acquired properties. We cannot assure you that we will be able to recover any increased costs by raising our lease rates. Additionally, due to the amount of time required for planning, constructing and leasing of redevelopment projects, we may not realize a significant cash return for several years. Furthermore, any of these circumstances could hinder our growth and materially and adversely affect us. In addition, new redevelopment or improvement activities, regardless of whether or not they are ultimately successful, typically require substantial time and attention from management.

 

 

General Risks Related to Real Estate-Related Investments

 

If we make or invest in mortgage loans as part of our plan to acquire the underlying property, our mortgage loans may be affected by unfavorable real estate market conditions, including interest rate fluctuations, which could decrease the value of those loans and the return on your investment.

 

If we make or invest in mortgage loans, we will be at risk of defaults by the borrowers on those mortgage loans as well as interest rate risks. To the extent we incur delays in liquidating such defaulted mortgage loans; we may not be able to obtain sufficient proceeds to repay all amounts due to us under the mortgage loan. Further, we will not know whether the values of the properties securing the mortgage loans will remain at the levels existing on the dates of origination of those mortgage loans. If the values of the underlying properties fall, our risk will increase because of the lower value of the security associated with such loans.

 

Investments in real estate-related securities will be subject to specific risks relating to the particular issuer of the securities and may be subject to the general risks of investing in subordinated real estate securities, which may result in losses to us.

 

We may invest in real estate related securities of both publicly traded and private real estate companies. Issuers of real estate related equity securities generally invest in real estate or real estate related assets and are subject to the inherent risks associated with real estate related investments discussed in this Offering Circular, including risks relating to rising interest rates.

 

Real estate-related securities are often unsecured and also may be subordinated to other obligations of the issuer. As a result, investments in real estate-related securities are subject to risks of: (1) limited liquidity in the secondary trading market in the case of unlisted or thinly traded securities; (2) subordination to the prior claims of banks and other senior lenders to the issuer; (3) the operation of mandatory sinking fund or call/redemption provisions during periods of declining interest rates that could cause the issuer to reinvest redemption proceeds in lower yielding assets; (4) the possibility that earnings of the issuer may be insufficient to meet its debt service and distribution obligations and (5) the declining creditworthiness and potential for insolvency of the issuer during periods of rising interest rates and economic slowdown or downturn. These risks may adversely affect the value of outstanding real estate-related securities and the ability of the issuers thereof to repay principal and interest or make distribution payments.

 

Investments in real estate-related securities may be illiquid, and we may not be able to adjust our portfolio in response to changes in economic and other conditions.

 

If we invest in certain real estate-related securities that we may purchase in connection with privately negotiated transactions, they will not be registered under the relevant securities laws, resulting in a prohibition against their transfer, sale, pledge or other disposition except in a transaction that is exempt from the registration requirements of, or is otherwise in accordance with, those laws. As a result, our ability to vary our long-term stabilized portfolio in response to changes in economic and other conditions may be relatively limited. The subordinated and bridge loans we may purchase will be particularly illiquid investments due to their short life. Moreover, in the event of a borrower’s default on an illiquid real estate security, the unsuitability for securitization and potential lack of recovery of our investment could pose serious risks of loss to our investment portfolio.

 

Delays in restructuring or liquidating non-performing real estate-related securities could reduce our ability to honor our obligations under the Bonds.

 

If we invest in real estate-related securities, they may become non-performing after acquisition for a wide variety of reasons. Such non-performing real estate investments may require a substantial amount of workout negotiations and/or restructuring, which may entail, among other things, a substantial reduction in the interest rate and a substantial write down of such loan or asset. However, even if a restructuring is successfully accomplished, upon maturity of such real estate security, replacement “takeout” financing may not be available. We may find it necessary or desirable to foreclose on some of the collateral securing one or more of our investments. Intercreditor provisions may substantially interfere with our ability to do so. Even if foreclosure is an option, the foreclosure process can be lengthy and expensive. Borrowers often resist foreclosure actions by asserting numerous claims, counterclaims and defenses, including, without limitation, lender liability claims and defenses, in an effort to prolong the foreclosure action. In some states, foreclosure actions can take up to several years or more to litigate. At any time during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of staying the foreclosure action and further delaying the foreclosure process. Foreclosure litigation tends to create a negative public image of the collateral property and may result in disrupting ongoing leasing and management of the property. Foreclosure actions by senior lenders may substantially affect the amount that we may receive from an investment.

 

  

Your investment return may be reduced if we are required to register as an investment company under the Investment Company Act; if we are subject to registration under the Investment Company Act, we will not be able to continue our business.

 

Neither we, nor any of our subsidiaries intend to register as an investment company under the Investment Company Act. We expect that our subsidiaries’ investments in real estate will represent the substantial majority of our total asset mix, which would not subject us to the Investment Company Act. In order to maintain an exemption from regulation under the Investment Company Act, we intend to engage, through our wholly-owned and majority-owned subsidiaries, primarily in the business of buying real estate, and these investments must be made within a year after this offering ends. If we are unable to invest a significant portion of the proceeds of this offering in properties within one year of the termination of this offering, we may avoid being required to register as an investment company by temporarily investing any unused proceeds in government securities with low returns, which would reduce the cash available for fulfilling our obligations under the Bonds.

 

We expect that most of our assets will be held through wholly-owned or majority-owned subsidiaries of our company. We expect that most of these subsidiaries will be outside the definition of investment company under Section 3(a)(1) of the Investment Company Act as they are generally expected to hold at least 60% of their assets in real property or in entities that they manage or co-manage that own real property. Section 3(a)(1)(A) of the Investment Company Act defines an investment company as any issuer that is or holds itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Section 3(a)(1)(C) of the Investment Company Act defines an investment company as any issuer that is engaged or proposes to engage in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire investment securities having a value exceeding 40% of the value of the issuer’s total assets (exclusive of U.S. government securities and cash items) on an unconsolidated basis, which we refer to as the 40% test. Excluded from the term “investment securities,” among other things, are U.S. government securities and securities issued by majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company set forth in Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act. We believe that we, and our subsidiaries, will not fall within either definition of investment company as we intend to invest primarily in real property, through our wholly-owned or majority-owned subsidiaries, the majority of which we expect to have at least 60% of their assets in real property or in entities that they manage or co-manage that own real property. As these subsidiaries would be investing either solely or primarily in real property, they would be outside of the definition of “investment company” under Section 3(a)(1) of the Investment Company Act. We are organized as a holding company that conducts its businesses primarily through its subsidiaries. Both we and our operating partnership intend to conduct our operations so that they comply with the 40% test. We will monitor our holdings to ensure continuing and ongoing compliance with this test. In addition, we believe that neither we nor our subsidiaries will be considered an investment company under Section 3(a)(1)(A) of the 1940 Act because neither we nor the operating partnership will engage primarily or hold itself out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, through wholly-owned or majority-owned subsidiaries, we will be primarily engaged in the non-investment company businesses of these subsidiaries.

 

In the event that the value of investment securities held by the subsidiaries of our company were to exceed 40%, we expect our subsidiaries to be able to rely on the exclusion from the definition of “investment company” provided by Section 3(c)(5)(C) of the Investment Company Act. Section 3(c)(5)(C), as interpreted by the staff of the SEC, requires each of our subsidiaries relying on this exception to invest at least 55% of its portfolio in “mortgage and other liens on and interests in real estate,” which we refer to as “qualifying real estate assets” and maintain at least 80% of its assets in qualifying real estate assets or other real estate-related assets. The remaining 20% of the portfolio can consist of miscellaneous assets. What we buy and sell is therefore limited to these criteria. How we determine to classify our assets for purposes of the Investment Company Act will be based in large measure upon no action letters issued by the SEC staff in the past and other SEC interpretive guidance. These no action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago. Pursuant to this guidance, and depending on the characteristics of the specific investments, certain mortgage loans, participations in mortgage loans, mortgage-backed securities, mezzanine loans, joint venture investments and the equity securities of other entities may not constitute qualifying real estate assets and therefore investments in these types of assets may be limited. No assurance can be given that the SEC will concur with our classification of our assets. Future revisions to the Investment Company Act or further guidance from the SEC may cause us to lose our exclusion from registration or force us to re-evaluate our portfolio and our investment strategy. Such changes may prevent us from operating our business successfully.

 

In the event that we, or our subsidiaries, were to acquire assets that could make either our company or the respective subsidiary fall within the definition of investment company under Section 3(a)(1) of the Investment Company Act, we believe that we would still qualify for an exclusion from registration pursuant to Section 3(c)(6). Section 3(c)(6) excludes from the definition of investment company any company primarily engaged, directly or through majority-owned subsidiaries, in one or more of certain specified businesses. These specified businesses include the business described in Section 3(c)(5)(C) of the Investment Company Act. It also excludes from the definition of investment company any company primarily engaged, directly or through majority-owned subsidiaries, in one or more of such specified businesses from which at least 25% of such company’s gross income during its last fiscal year is derived, together with any additional business or businesses other than investing, reinvesting, owning, holding, or trading in securities. Although the SEC staff has issued little interpretive guidance with respect to Section 3(c)(6), we believe that we and subsidiaries may rely on Section 3(c)(6) if 55% of the assets of our operating partnership consist of, and at least 55% of the income of our subsidiaries is derived from, qualifying real estate assets owned by wholly-owned or majority-owned subsidiaries of our operating partnership.

 

To ensure that neither we, nor our subsidiaries, are required to register as an investment company, each entity may be unable to sell assets they would otherwise want to sell and may need to sell assets they would otherwise wish to retain. In addition, we or our subsidiaries may be required to acquire additional income or loss-generating assets that we might not otherwise acquire or forego opportunities to acquire interests in companies that we would otherwise want to acquire. Although we and our subsidiaries intend to monitor our portfolio periodically and prior to each acquisition or disposition, any of these entities may not be able to maintain an exclusion from registration as an investment company. If we or our subsidiaries are required to register as an investment company but fail to do so, the unregistered entity would be prohibited from engaging in our business, and criminal and civil actions could be brought against such entity. In addition, the contracts of such entity would be unenforceable unless a court required enforcement, and a court could appoint a receiver to take control of the entity and liquidate its business.

 

Risks Associated with Debt Financing

 

We use debt financing to acquire properties and otherwise incur other indebtedness, which increases our expenses and could subject us to the risk of losing properties in foreclosure if our cash flow is insufficient to make loan payments.

 

We are permitted to acquire real properties and other real estate-related investments including entity acquisitions by assuming either existing financing secured by the asset or by borrowing new funds. In addition, we may incur or increase our mortgage debt by obtaining loans secured by some or all of our assets to obtain funds to acquire additional investments or to pay our Bond Service Obligations under our Bonds. If we mortgage a property and have insufficient cash flow to service the debt, we risk an event of default which may result in our lenders foreclosing on the properties securing the mortgage.

 

High levels of debt or increases in interest rates could increase the amount of our loan payments, which could reduce our ability to honor our obligations under the terms of the Bonds.

 

Our policies do not limit us from incurring debt. High debt levels could cause us to incur higher interest charges, result in higher debt service payments, and may be accompanied by restrictive covenants. Interest we pay reduces cash available to honor our obligations under the terms of the Bonds. Additionally, with respect to any variable rate debt, increases in interest rates may increase our interest costs, which would reduce our cash flow and our ability to honor our obligations under the terms of the Bonds. In addition, if we need to repay debt during periods of rising interest rates, we could be required to liquidate one or more of our investments in properties at times which may not permit realization of the maximum return on such investments and could result in a loss. In addition, if we are unable to service our debt payments, our lenders may foreclose on our interests in the real property that secures the loans we have entered.

 

High mortgage rates may make it difficult for us to finance or refinance properties, which could reduce the number of properties we can acquire, our cash flow from operations and restrict our ability to honor our obligations under the terms of the Bonds.

 

Our ability to acquire properties or to make capital improvements to or remodel properties will depend on our ability to obtain debt or equity financing from third parties or the sellers of properties. If mortgage debt is unavailable at reasonable rates, we may not be able to finance the purchase of properties. If we place mortgage debt on properties, we run the risk of being unable to refinance the properties when the debt becomes due or of being unable to refinance on favorable terms. If interest rates are higher when we refinance the properties, our income could be reduced. We may be unable to refinance properties. If any of these events occur, our cash flow would be reduced. This, in turn, would reduce cash available to honor our obligations under the terms of the Bonds and may hinder our ability to raise additional funds from capital contributions, additional bonds or borrowing more money.

 

We use mezzanine financing to acquire properties, which increases our expenses and could reduce our ability to honor our obligations under the terms of the Bonds.

 

Our policies do not limit us from incurring mezzanine debt. Mezzanine debt generally carries higher interest rates and could result in higher debt service payments, and may be accompanied by restrictive covenants. Interest we pay reduces cash available to honor our obligations under the terms of the Bonds. In addition, if we are unable to service our mezzanine debt payments, our mezzanine lenders may foreclose on our ownership interests securing such mezzanine loans. Some of our mezzanine financing may come from affiliates. See “Certain Relationships and Related Transactions – Mezzanine Debt.”

 

Lenders may require us to enter into restrictive covenants relating to our operations, which could limit our ability to honor our obligations under the terms of the Bonds.

 

When providing financing, a lender may impose restrictions on us that affect our operating policies and our ability to incur additional debt. Loan documents we enter into may contain covenants that limit our ability to further mortgage the property, discontinue insurance coverage, or replace our manager. These or other limitations may limit our flexibility and prevent us from achieving our operating goals. Prepayment penalties or defeasance requirements required by lenders may make it economically infeasible for our trustee to exercise the forced sale remedy regarding our acquired properties.

 

Our ability to obtain financing on reasonable terms would be impacted by negative capital market conditions.

 

Recently, domestic and international financial markets have experienced unusual volatility and uncertainty. Although this condition occurred initially within the “subprime” single family mortgage lending sector of the credit market, liquidity has tightened in overall financial markets, including the investment grade debt and equity capital markets. Consequently, there is greater uncertainty regarding our ability to access the credit market in order to attract financing on reasonable terms. Investment returns on our assets and our ability to make acquisitions could be adversely affected by our inability to secure financing on reasonable terms, if at all.

 

Interest-only indebtedness may increase our risk of default and ultimately may reduce our ability to honor our obligations under the terms of the Bonds.

 

We may finance our property acquisitions using interest-only mortgage indebtedness. During the interest-only period, the amount of each scheduled payment will be less than that of a traditional amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in the case of prepayments) because there are no scheduled monthly payments of principal during this period. After the interest only period, we will be required either to make scheduled payments of amortized principal and interest or to make a lump sum or “balloon” payment at maturity. These required principal or balloon payments will increase the amount of our scheduled payments and may increase our risk of default under the related mortgage loan. If the mortgage loan has an adjustable interest rate, the amount of our scheduled payments also may increase at a time of rising interest rates. Increased payments and substantial principal or balloon maturity payments will reduce the funds available to honor our obligations under the Bonds because cash otherwise available for payment will be required to pay principal and interest associated with these mortgage loans.

 

To hedge against interest rate fluctuations, we may use derivative financial instruments that may be costly and ineffective, may reduce the overall financial benefit of your investment, and may expose us to the credit risk of counterparties.

 

We may use derivative financial instruments to hedge exposures to interest rate fluctuations on loans secured by our assets and investments in collateralized mortgage-backed securities. Derivative instruments may include interest rate swap contracts, interest rate cap or floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging decisions will be determined in light of the facts and circumstances existing at the time of the hedge and may differ from time to time.

 

To the extent that we use derivative financial instruments to hedge against interest rate fluctuations, we will be exposed to financing, basis risk and legal enforceability risks. In this context, credit risk is the failure of the counterparty to perform under the terms of the derivative contract. If the fair value of a derivative contract is positive, the counterparty owes us, which creates credit risk for us. We intend to manage credit risk by dealing only with major financial institutions that have high credit ratings. Basis risk occurs when the index upon which the contract is based is more or less variable than the index upon which the hedged asset or liability is based, thereby making the hedge less effective. We intend to manage basis risk by matching, to a reasonable extent, the contract index to the index upon which the hedged asset or liability is based. Finally, legal enforceability risks encompass general contractual risks, including the risk that the counterparty will breach the terms of, or fail to perform its obligations under, the derivative contract. We intend to manage legal enforceability risks by ensuring, to the best of our ability, that we contract with reputable counterparties and that each counterparty complies with the terms and conditions of the derivative contract. If we are unable to manage these risks effectively, our results of operations, financial condition and ability to honor our obligations under the terms of the Bonds.

 

 

USE OF PROCEEDS

 

We estimate that the net proceeds from this offering, after deducting the underwriting compensation and offering costs and expenses payable by us, will be approximately $44,650,000, assuming that the maximum amount of Bonds are purchased and issued. We intend to use the net proceeds from this offering to pay down existing indebtedness and acquire properties in our target asset classes. The remaining proceeds will be used to pay fees and expenses of this offering, and fees and expenses related to selection and acquisition of investments. If we do not sell the maximum number of Bonds, our net proceeds from the offering will be reduced; however, we will still use net proceeds from the offering to pay down existing indebtedness and acquire properties in our target asset class. A summary of the anticipated use of the proceeds is below:

 

	Maximum Offering
	Amount	Percent
Gross offering proceeds(1)	$50,000,000	100.00%
Less offering expenses:
Selling commissions and Managing Broker-Dealer Fee (2)	$4,000,000	8.00%
Due Diligence Expense Reimbursements (3)	$60,000	0.12%
Organization and offering expenses (4)	$275,000	0.55%
Less Promotional Fee (5)	$940,000	1.88%
Less Blue-Sky Filing Fees	$75,000	0.15%
Amount available for investment	$44,650,000	89.30%

______________

 

(1)	This assumes we sell the remaining Bonds at the Price to the Public. We may issue the remaining Bonds with a vonule-weighted discount, or the Discount, of up to 5%. If we issue the remaining Bonds with the maximum Discount, gross offering proceeds will be $48,477,400 and the amount available for investment will be $43,273,778.
(2)	Includes selling commissions equal to 5% of aggregate gross offering proceeds and a Managing Broker-Dealer Fee of up to 3% of aggregate gross offering proceeds, both of which are payable to the Managing Broker-Dealer. Our Managing Broker-Dealer, in its sole discretion, intends to reallow selling commissions of up to 5% of aggregate gross offering proceeds to unaffiliated broker-dealers participating in this offering attributable to the amount of Bonds sold by them. Our Managing-Broker Dealer shall be entitled to retain, out of the Managing Broker-Dealer Fee, an amount equal to 0.57% of the gross proceeds of the offering. JCC may re-allow and pay to wholesalers and other participants in the offering up to the entirety of the remaining 2.43% portion of the Managing Broker-Dealer Fee. Any amount of the Managing Broker-Dealer Fee in excess of the 0.57% JCC is entitled to retain that is not re-allowed shall be returned to the Issuer. See “Plan of Distribution” in this Offering Circular for a description of such provisions.
(3)	We have agreed to pay up to $60,000 in due diligence expense reimbursements to our Managing Broker-Dealer, which it may reallow to participating broker dealers. To date, we have paid $23,458 in due diligence expense reimbursements to our Managing Broker-Dealer.

 

(4)	Organization and offering expenses include all expenses (other than those listed in the chart) to be paid by us in connection with the offering, including our legal, accounting, printing, mailing and filing fees, charge of our escrow holder, and amounts to reimburse our manager for its portion of the salaries of the employees of its affiliates who provide services to our manager and other costs in connection with administrative oversight of the offering and marketing process and preparing supplemental sales materials, holding educational conferences and attending retail seminars conducted by broker-dealers. As of the date of this Offering Circular, organization and offering expenses total $107,514. Start-up and organization costs will be expensed as incurred and syndication costs will be reflected as a reduction of member’s equity and will be allocated to the member’s capital accounts upon the sale or liquidation of our company. Our manager will not be reimbursed for the direct payment of such organization and offering expenses that exceed 0.55% of the aggregate gross proceeds of this offering over the life of the offering. We will not reimburse our manager for any portion of the salaries and benefits to be paid to its executive officers named in “Directors and Executive Officers.”
(5)	We will pay our manager, a 1.88% promotional fee for its services in organizing and structuring this offering. The fee will be paid following each closing of this offering. To date, we have paid our manager $367,502 as a promotional fee.

 

 

(6)	Until required in connection with the acquisition of properties, substantially all of the net proceeds of the offering and, thereafter, any working capital reserves we may have, may be invested in short-term, highly-liquid investments, including government obligations, bank certificates of deposit, short-term debt obligations and interest-bearing accounts. Funds available for investment may be used to acquire or invest in new properties, pay down existing indebtedness (including debt held by affiliates) or for certain development related costs consistent with our business plan. See “Certain Relationships and Related Transactions – Mezzanine Debt” and “Certain Relationships and Related Transactions – Interim Debt” for more details regarding current indebtedness that may be paid down using offering proceeds.
	If we sell substantially less than the maximum offering amount and are unable to acquire properties with the proceeds from this offering and conventional mortgage debt, then we may use all of the proceeds from this offering to pay down and manage our existing debt and future debt used to acquire properties.
	With the proceeds of this offering we may pay down our existing mezzanine debt associated with the acquisition of Lake Mead Crossing. Lake Mead Parent, LLC, the owner of Lake Mead Partners, LLC and Lake Mead Development, LLC received mezzanine debt to purchase Lake Mead Crossing from an affiliate of our manager, GK Secured Income IV, LLC, or GKSI IV. Lake Mead Parent and Lake Mead Development are wholly-owned subsidiaries of our company. Under the promissory note, Lake Mead Parent, LLC and Lake Mead Development, LLC can borrow up to $10,500,000 at 8% interest. The mezzanine loan requires monthly interest payments only. The loan matures on November 12, 2018. Currently, the mezzanine loan has an outstanding principal of approximately $6,417,483. GKSI IV was funded by independent, third party investors. Pursuant to the terms of their investments and the promissory note for the mezzanine loan, if the mezzanine loan is prepaid, which results in GKSI IV being obligated to pay a yield maintenance fee to the members of GKSI IV, Lake Mead Partners, LLC and Lake Mead Development, LLC will be obligated to pay to GKSI IV an amount equal to such yield maintenance fee. If the yield maintenance fee becomes payable (a) during the first year that a member holds a unit in GKSI IV, the yield maintenance fee will be an amount equal to 12% per annum on the repayment amounts for the remainder of such year after the repayment date; (b) during the second year that a member holds a unit, the yield maintenance fee will be an amount equal to 13% per annum on the repayment amounts for the remainder of such year after the repayment date; or (c) during the third year that the member holds a unit, the yield maintenance fee will be an amount equal to 12-14% per annum on the repayment amounts for the remainder of such year after the repayment date. If loan is repaid within the thrid year (ending November 12, 2018), LM Partners and LM Development would be obligated to pay a prepaymoney penalty of approximately $3,341,380. This amount has been measured as of June 30, 2018 using a 128 per annum rate for the first year, 13% per annum rate for the second year and a 14% per annum rate for the thrid year.
	With the proceeds of this offering, we may pay down our existing interim debt associated with the acquisitions of Lake Mead Crossing and 2700 Ygnacio. Lake Mead Partners, LLC received an interim loan from our manager in the amount of $2,608,100 in connection with our acquisition of Lake Mead Crossing. This loan has been fully repaid.   2700 Ygnacio Partners, LLC received an interim loan from our manager in the amount of $2,305,000 in connection with our acquisition of 2700 Ygnacio. This loan has been repaid.

 

PLAN OF DISTRIBUTION

 

Who May Invest

 

As a Tier II, Regulation A offering, investors must comply with the 10% limitation to investment in the offering, as prescribed in Rule 251. The only investor in this offering exempt from this limitation is an accredited investor, an “Accredited Investor,” as defined under Rule 501 of Regulation D. If you meet one of the following tests you qualify as an Accredited Investor:

 

	(i)	You are a natural person who has had individual income in excess of $200,000 in each of the two most recent years, or joint income with your spouse in excess of $300,000 in each of these years, and have a reasonable expectation of reaching the same income level in the current year;
	(ii)	You are a natural person and your individual net worth, or joint net worth with your spouse, exceeds $1,000,000 at the time you purchase the Bonds (please see below on how to calculate your net worth);
	(iii)	You are an executive officer or general partner of the issuer or a manager or executive officer of the general partner of the issuer;
	(iv)	You are an organization described in Section 501(c)(3) of the Internal Revenue Code of 1986, as amended, the Code, a corporation, a Massachusetts or similar business trust or a partnership, not formed for the specific purpose of acquiring the Bonds, with total assets in excess of $5,000,000;
	(v)	You are a bank or a savings and loan association or other institution as defined in the Securities Act, a broker or dealer registered pursuant to Section 15 of the Securities Exchange Act of 1934, as amended, the Exchange Act, an insurance company as defined by the Securities Act, an investment company registered under the Investment Company Act of 1940, as amended, the Investment Company Act, or a business development company as defined in that act, any Small Business Investment Company licensed by the Small Business Investment Act of 1958 or a private business development company as defined in the Investment Advisers Act of 1940;
	(vi)	You are an entity (including an Individual Retirement Account trust) in which each equity owner is an accredited investor;
	(vii)	You are a trust with total assets in excess of $5,000,000, your purchase of the Bonds is directed by a person who either alone or with his purchaser representative(s) (as defined in Regulation D promulgated under the Securities Act) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the prospective investment, and you were not formed for the specific purpose of investing in the Bonds; or
	(viii)	You are a plan established and maintained by a state, its political subdivisions, or any agency or instrumentality of a state or its political subdivisions, for the benefit of its employees, if such plan has assets in excess of $5,000,000.

 

Under Rule 251 of Regulation A, non-accredited, non-natural investors are subject to the investment limitation and may only invest funds which do not exceed 10% of the greater of the purchaser’s revenue or net assets (as of the purchaser’s most recent fiscal year end). A non-accredited, natural person may only invest funds which do not exceed 10% of the greater of the purchaser’s annual income or net worth (please see below on how to calculate your net worth).

 

NOTE: For the purposes of calculating your net worth, Net Worth is defined as the difference between total assets and total liabilities. This calculation must exclude the value of your primary residence and may exclude any indebtedness secured by your primary residence (up to an amount equal to the value of your primary residence). In the case of fiduciary accounts, net worth and/or income suitability requirements may be satisfied by the beneficiary of the account or by the fiduciary, if the donor or grantor is the fiduciary and fiduciary directly or indirectly provides funds for the purchase of the Bonds.

 

Determination of Suitability

 

The Selling Group Members and registered investment advisors recommending the purchase of Bonds in this offering have the responsibility to make every reasonable effort to determine that your purchase of Bonds in this offering is a suitable and appropriate investment for you based on information provided by you regarding your financial situation and investment objectives. In making this determination, these persons have the responsibility to ascertain that you:

 

 

 

 

 

 

 

 

 

 

 

Relevant information for this purpose will include at least your age, investment objectives, investment experience, income, net worth, financial situation, and other investments as well as any other pertinent factors. The Selling Group Members and registered investment advisors recommending the purchase of Bonds in this offering must maintain, for a six-year period, records of the information used to determine that an investment in Bonds is suitable and appropriate for you.

 

The Offering

 

We are offering a maximum of $50,000,000 of Bonds to the public through our Managing Broker-Dealer at a price of $1,000.00 per Bond. As of the date of this Offering Circular, we have sold 19,548 Bonds, or $19,548,000, in the offering.

 

Our manager has arbitrarily determined the selling price of the Bonds and such price bears no relationship to our book or asset values, or to any other established criteria for valuing issued or outstanding Bonds.

 

The Bonds are being offered on a “best efforts” basis, which means generally that the Managing Broker-Dealer is required to use only its best efforts to sell the Bonds and it has no firm commitment or obligation to purchase any of the Bonds. The offering will continue until the Offering Termination. Our company will conduct closings in this offering at its discretion, the Closing Dates and each, a Closing Date, until the Offering Termination. On the Closing Dates, offering proceeds for that closing will be disbursed to our company and the respective Bonds will be issued to investors in the offering, or the Bondholders. The offering is being made on a best-efforts basis through JCC, our Managing Broker-Dealer.

 

 

Managing Broker-Dealer and Compensation We Will Pay for the Sale of Our Bonds

 

Our Managing Broker-Dealer will receive selling commissions of 5% of the gross offering proceeds. Our Managing Broker-Dealer also will receive a Managing Broker-Dealer Fee of up to 3% of the aggregate gross offering proceeds as compensation for acting as the Managing Broker-Dealer. Our Managing Broker-Dealer shall be entitled to retain, out of the Managing Broker-Dealer Fee, an amount equal to 0.57% of the gross proceeds of the offering. In addition, our Managing Broker-Dealer may reallow all or a portion of selling commissions to Selling Group Members. Additionally, we have agreed to pay up to $60,000, in due diligence expense reimbursements to our Managing Broker-Dealer, which it may reallow to participating broker-dealers. Total underwriting compensation to be received by or paid to participating FINRA member broker-dealers, including commissions, Managing Broker-Dealer Fee, and reimbursed due diligence expenses of broker-dealers will not exceed 8.12% of proceeds raised with the assistance of those participating FINRA member broker-dealers.

 

Set forth below is a table indicating the estimated compensation and expenses that will be paid in connection with the offering to our Managing Broker-Dealer.

 

	Per Bond	Total Maximum
Offering:
Price to public	$1,000.00	$50,000,000
Less selling commissions	$50.00	$2,500,000
Less Managing Broker-Dealer Fee	$30.00	$1,500,000
Less Due Diligence Expense Reimbursements	$1.20	$60,000
Remaining Proceeds	$918.80	$45,940,000

 

We have agreed to indemnify our Managing Broker-Dealer, the Selling Group Members and selected registered investment advisors, against certain liabilities arising under the Securities Act. However, the SEC takes the position that indemnification against liabilities arising under the Securities Act is against public policy and is unenforceable.

 

Included within the compensation described above and not in addition to, our manager may pay certain costs associated with the sale and distribution of our Bonds, including salaries of wholesalers. We will not reimburse our manager for such payments. Nonetheless, such payments will be deemed to be “underwriting compensation” by FINRA. In accordance with the rules of FINRA, the table above sets forth the nature and estimated amount of all items that will be viewed as “underwriting compensation” by FINRA that are anticipated to be paid by us and our sponsor in connection with the offering. The amounts shown assume we sell all of the Bonds offered hereby and that all Bonds are sold in our offering through Selling Group Members, which is the distribution channel with the highest possible selling commissions and a Managing Broker-Dealer Fee.

 

It is illegal for us to pay or award any commissions or other compensation to any person engaged by you for investment advice as an inducement to such advisor to advise you to purchase any of our Bonds; however, nothing herein will prohibit a registered broker-dealer or other properly licensed person from earning a sales commission in connection with a sale of the Bonds.

 

Volume-Weighted Discount.

 

We are offering the volume-weighted Discount to the Price to Public of $1,000.00 described below. The Discount applicable to certain sales is specified in the table below.

 

Purchase Amount	Discount	Resulting Price Per Bond
20 – 29 Bonds	3%	$970
30 – 39 Bonds	4%	$960
40 or more Bonds	5%	$950

 

All other terms of the offering and the Bonds, including the Price to Public of $1,000.00 shall remain the same. The Bonds shall continue to be denominated in $1,000.00 increments. Any Discounts applied will reduce net proceeds to the Company.

 

Discounts for Bonds Purchased by Certain Persons

 

We may pay reduced or no selling commissions and/or Managing Broker-Dealer Fees in connection with the sale of Bonds in this offering to:

 

	●	registered principals or representatives of our dealer-manager or a participating broker (and immediate family members of any of the foregoing persons);
	●	our employees, officers and directors or those of our manager, or the affiliates of any of the foregoing entities (and the immediate family members of any of the foregoing persons), any benefit plan established exclusively for the benefit of such persons or entities, and, if approved by our board of directors, joint venture partners, consultants and other service providers;

 

 

	●	clients of an investment advisor registered under the Investment Advisers Act of 1940 or under applicable state securities laws (other than any registered investment advisor that is also registered as a broker-dealer, with the exception of clients who have “wrap” accounts which have asset based fees with such dually registered investment advisor/broker-dealer); or
	●	persons investing in a bank trust account with respect to which the authority for investment decisions made has been delegated to the bank trust department.

 

For purposes of the foregoing, “immediate family members” means such person’s spouse, parents, children, brothers, sisters, grandparents, grandchildren and any such person who is so related by marriage such that this includes “step-” and “-in-law” relations as well as such persons so related by adoption. In addition, participating brokers contractually obligated to their clients for the payment of fees on terms inconsistent with the terms of acceptance of all or a portion of the selling commissions and/or Managing Broker-Dealer Fees may elect not to accept all or a portion of such compensation. In that event, such Bonds will be sold to the investor at a per Bond purchase price, net of all or a portion of selling commissions and/or Managing Broker-Dealer Fees. All sales must be made through a registered broker-dealer participating in this offering, and investment advisors must arrange for the placement of sales accordingly. The net proceeds to us will not be affected by reducing or eliminating selling commissions and/or Managing Broker-Dealer Fees payable in connection with sales to or through the persons described above. Purchasers purchasing net of some or all of the selling commissions and Managing Broker-Dealer Fees will receive Bonds in principal amount of $1,000 per Bond purchased.

 

Either through this offering or subsequently on any secondary market, affiliates of our company may buy bonds if and when they choose. There are no restrictions to these purchases. Affiliates that become Bondholders will have rights on parity with all other Bondholders.

 

How to Invest

 

Subscription Agreement

 

All investors will be required to complete and execute a subscription agreement in the form filed as an exhibit to the Offering Statement of which this Offering Circular is a part. The subscription agreement is available from your registered representative or financial adviser and should be delivered to GK Investment Holdings, LLC, c/o Great Lakes Fund Solutions at 500 Park Avenue, Suite 114, Lake Villa, Illinois 60046, together with payment in full by check or wire of your subscription purchase price in accordance with the instructions in the subscription agreement. We anticipate that we will hold closings for purchases of the Bonds on a semi-monthly or monthly basis.

 

Proceeds will be held with the escrow agent in an escrow account subject to compliance with Exchange Act Rule 15c2-4 until closing occurs. Our Managing Broker-Dealer and/or the Selling Group Members will submit a subscriber’s form(s) of payment in compliance with Exchange Act Rule 15c2-4, generally by noon of the next business day following receipt of the subscriber’s subscription agreement and form(s) of payment.

 

You will be required to represent and warrant in your subscription agreement that you are an accredited investor as defined under Rule 501 of Regulation D or that your investment in the Bonds does not exceed 10% of your net worth or annual income, whichever is greater, if you are a natural person, or 10% of your revenues or net assets, whichever is greater, calculated as of your most recent fiscal year if you are a non-natural person. By completing and executing your subscription agreement you will also acknowledge and represent that you have received a copy of this Offering Circular, you are purchasing the Bonds for your own account and that your rights and responsibilities regarding your Bonds will be governed by the indenture and the form of global bond certificate each filed as an exhibit to the Offering Statement of which this Offering Circular is a part.

 

Book-Entry, Delivery and Form

 

All Bonds are being issued to investors in book-entry only format and will be represented by global bond certificates, or certificates, deposited with a nominee holder. The nominee holders are: (i) the Depository Trust Company, or DTC, or its nominee Cede & Co. for purchasers purchasing through DTC participants; and (ii) Direct Transfer LLC, or Direct Transfer, for purchasers not purchasing through a DTC Participant.

 

We have gained eligibility for the Bonds to be issued and held through the book-entry systems and procedures of DTC and intend for all Bonds purchased through DTC participants to be held via DTC’s book-entry systems and to be represented by certificates registered in the name of Cede & Co. (DTC’s nominee). For investors not purchasing through a DTC participant, the certificates representing their Bonds will be registered in the name of, and held by Direct Transfer. We may, in our sole discretion, alter the nominee for Bonds sold without a DTC participant.

 

So long as nominees as described above are the registered owners of the certificates representing the Bonds, such nominees will be considered the sole owners and holders of the Bonds for all purposes of the Bonds and the Indenture. Owners of beneficial interests in the Bonds will not be entitled to have the certificates registered in their names, will not receive or be entitled to receive physical delivery of the Bonds in definitive form and will not be considered the owners or holders under the Indenture, including for purposes of receiving any reports delivered by us or the trustee pursuant to the Indenture. Accordingly, each person owning a beneficial interest in a Bond registered to DTC or its nominee must rely on either the procedures of DTC or its nominee on the one hand, and, if such entity is not a participant, on the procedures of the participant through which such person owns its interest, in order to exercise any rights of a Bondholder. Purchasers owning a beneficial interest in a Bond registered to Direct Transfer, or another nominee holder as selected by our company, will rely on the procedures of Direct Transfer or such nominee holder in order exercise its rights a Bondholder.

 

As a result:

 

	●	you will not be entitled to receive a certificate representing your interest in the Bonds;
	●	all references in this Offering Circular to actions by Bondholders will refer to actions taken by DTC upon instructions from its direct participants, or by Direct Transfer by Bondholders holding beneficial interests in the Bonds registered in its name; and
	●	all references in this Offering Circular to payments and notices to Bondholders will refer either to (i) payments and notices to DTC or Cede & Co. for distribution to you in accordance with DTC procedures, or (ii) payments and notices to Direct Transfer or such other nominee holder for distribution to you in accordance with their applicable procedures.

 

The Depository Trust Company

 

We have obtained the information in this section concerning DTC and its book-entry systems and procedures from sources that we believe to be reliable. The description of the clearing system in this section reflects our understanding of the rules and procedures of DTC as they are currently in effect. DTC could change its rules and procedures at any time.

 

DTC will act as securities depositary for the Bonds registered in the name of its nominee, Cede & Co. DTC is:

 

	●	a limited-purpose trust company organized under the New York Banking Law;
	●	a “banking organization” under the New York Banking Law;
	●	a member of the Federal Reserve System;
	●	a “clearing corporation” under the New York Uniform Commercial Code; and
	●	a “clearing agency” registered under the provisions of Section 17A of the Exchange Act.

 

 

DTC holds securities that its direct participants deposit with DTC. DTC facilitates the settlement among direct participants of securities transactions, such as transfers and pledges, in deposited securities through electronic computerized book-entry changes in direct participants’ accounts, thereby eliminating the need for physical movement of securities certificates.

 

Direct participants of DTC include securities brokers and dealers, banks, trust companies, clearing corporations and certain other organizations. DTC is owned by a number of its direct participants. Indirect participants of DTC, such as securities brokers and dealers, banks and trust companies, can also access the DTC system if they maintain a custodial relationship with a direct participant.

 

Purchases of Bonds under DTC’s system must be made by or through direct participants, which will receive a credit for the Bonds on DTC’s records. The ownership interest of each beneficial owner is in turn to be recorded on the records of direct participants and indirect participants. Beneficial owners will not receive written confirmation from DTC of their purchase, but beneficial owners are expected to receive written confirmations providing details of the transaction, as well as periodic statements of their holdings, from the direct participants or indirect participants through which such beneficial owners entered into the transaction. Transfers of ownership interests in the Bonds are to be accomplished by entries made on the books of participants acting on behalf of beneficial owners. Beneficial owners will not receive certificates representing their ownership interests in the Bonds.

 

Conveyance of notices and other communications by DTC to direct participants, by direct participants to indirect participants and by direct participants and indirect participants to beneficial owners will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

 

Direct Transfer LLC

 

All Bonds not purchased through a DTC participant will be registered in the name of Direct Transfer. Direct Transfer is a Delaware corporation. Direct purchasers of Bonds registered through Direct Transfer will receive a credit for Bonds on Direct Transfer’s records. Beneficial owners registered through Direct Transfer will receive written confirmation from UMB Bank, our Bond registrar, upon closing of their purchases. Transfers of Bonds registered to Direct Transfer will be accomplished by entries made on the books of UMB Bank at the behest of Direct Transfer acting on behalf of its beneficial holders.

 

Book-Entry Format

 

Under the book-entry format, UMB Bank, as our paying agent, will pay interest or principal payments to Cede & Co., as nominee of DTC, and to Direct Transfer. DTC will forward all payments it receives to the direct participants, who will then forward the payment to the indirect participants or to you as the beneficial owner. Direct Transfer will forward payments directly to beneficial owners of Bonds registered to Direct Transfer. You may experience some delay in receiving your payments under this system. Neither we, the trustee, nor any paying agent or sub-paying agent has any direct responsibility or liability for the payment of principal or interest on the Bonds to owners of beneficial interests in the certificates.

 

DTC is required to make book-entry transfers on behalf of its direct participants and is required to receive and transmit payments of principal, premium, if any, and interest on the Bonds. Any direct participant or indirect participant with which you have an account is similarly required to make book-entry transfers and to receive and transmit payments with respect to the notes on your behalf. We and the trustee under the Indenture have no responsibility for any aspect of the actions of DTC or any of its direct or indirect participants or of Direct Transfer or Great Lakes. In addition, we and the trustee under the Indenture have no responsibility or liability for any aspect of the records kept by DTC or any of its direct or indirect participants or Direct Transfer or Great Lakes relating to or payments made on account of beneficial ownership interests in the Bonds or for maintaining, supervising or reviewing any records relating to such beneficial ownership interests. We also do not supervise these systems in any way.

 

 

The trustee will not recognize you as a Bondholder under the Indenture, and you can only exercise the rights of a Bondholder indirectly through DTC and its direct participants or through Direct Transfer, as applicable. DTC has advised us that it will only take action regarding a Bond if one or more of the direct participants to whom the Bond is credited directs DTC to take such action and only in respect of the portion of the aggregate principal amount of the Bonds as to which that participant or participants has or have given that direction. DTC can only act on behalf of its direct participants. Your ability to pledge Bonds, and to take other actions, may be limited because you will not possess a physical certificate that represents your Bonds.

 

If the global bond certificate representing your Bonds is held by DTC, conveyance of notices and other communications by the trustee to the beneficial owners, and vice versa, will occur via DTC. The trustee will communicate directly with DTC. DTC will then communicate to direct participants. The direct participants will communicate with the indirect participants, if any. Then, direct participants and indirect participants will communicate to beneficial owners. Such communications will be governed by arrangements among them, subject to any statutory or regulatory requirements as may be in effect from time to time.

 

If the global bond certificate representing your Bonds is held by Direct Transfer, conveyance of notices and other communications by the trustee to the beneficial owners, and vice versa, will occur via Direct Transfer. The trustee will communicate directly with Direct Transfer, which will communicate directly or through Great Lakes Fund Solutions, who may be designated by Direct Transfer to handle investor communications on its behalf, with the beneficial owners.

 

The Trustee

 

UMB Bank has agreed to be the trustee under the Indenture. The Indenture contains certain limitations on the rights of the trustee, should it become one of our creditors, to obtain payment of claims in certain cases, or to realize on certain property received in respect of any claim as security or otherwise. The trustee will be permitted to engage in other transactions with us and our affiliates.

 

The Indenture provides that in case an Event of Default (as defined herein) specified in the Indenture shall occur and not be cured, the trustee will be required, in the exercise of its power, to use the degree of care of a reasonable person in the conduct of his own affairs. Subject to such provisions, the trustee will be under no obligation to exercise any of its rights or powers under the Indenture at the request of any Bondholder, unless the Bondholder has offered to the trustee security and indemnity satisfactory to it against any loss, liability or expense.

 

Resignation or Removal of the Trustee.

 

The trustee may resign at any time, or may be removed by the holders of a majority of the principal amount of then-outstanding Bonds. In addition, upon the occurrence of contingencies relating generally to the insolvency of the trustee, we may remove the trustee or a court of competent jurisdiction may remove the trustee upon petition of a holder of certificates. However, no resignation or removal of the trustee may become effective until a successor trustee has been appointed.

 

We are offering the Bonds pursuant to an exemption to the Trust Indenture Act of 1939, or the Trust Indenture Act. As a result, investors in our Bonds will not be afforded the benefits and protections of the Trust Indenture Act. However, in certain circumstances, our Indenture makes reference to the substantive provisions of the Trust Indenture Act.

 

Registrar and Paying Agent

 

We have designated UMB Bank as paying agent for the Bonds and Direct Transfer as sub-paying agent in respect of Bonds registered to it. UMB Bank will also act as registrar for the Bonds. The Bonds will be issued in book-entry form only, evidenced by global certificates, as such, payments will be made to DTC, its nominee or to Direct Transfer.

 

 

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

 

General

 

We are focused on acquiring income producing commercial rental properties for the purpose of holding and operating the acquired properties, and if the need arises, to redevelop the rental properties for an alternative use other than the intended use at the time of acquisition. We expect that most of the acquired assets will be held through wholly- owned or majority-owned subsidies and the assets will be acquired by assuming either existing financing secured by the asset or by borrowing new funds.

 

We filed an offering statement on Form 1-A with the United States Securities and Exchange Commission, or the SEC, on December 23, 2015, which offering statement was qualified by the SEC on September 30, 2016. Pursuant to the offering statement, we are offering up to a maximum of $50,000,000 of 7% unsecured bonds, or the Bonds. The purchase price per Bond is $1,000, with a minimum purchase amount of $5,000. Assuming that the maximum amount of Bonds purchased and issued, we anticipate that the net proceeds will be $44,650,000 and will be used to pay down existing indebtedness and acquire rental properties in our target asset class. As of June 30, 2018, we had sold $11,948,000 of Bonds.

  

We are managed by GK Development, Inc., or GK Development, a real estate acquisition, development and management company located in Barrington, Illinois, formed in 1994. We benefit from GK Development’s real estate operating and leasing skills, including releasing, redeveloping, renovating, refinancing, repositioning and selling.

 

Lake Mead Crossing

 

On November 12, 2015, we acquired, through wholly-owned subsidiaries, a commercial rental property located in Henderson, Nevada, known as Lake Mead Crossing, for a total purchase price of $42,065,000, excluding prorations. Upon acquisition, Lake Mead Crossing consisted of multiple buildings aggregating approximately 221,200 square feet of rentable commercial space. Lake Mead Crossing is part of a larger shopping center shadow anchored by a Target consisting of approximately 152,000 square feet. Lake Mead Crossing is owned by two of our subsidiaries, Lake Mead Partners, LLC, or LM Partners, and Lake Mead Development, LLC, or LM Development. Lake Mead Parent, LLC, or LM Parent, which is our wholly-owned subsidiary, is the sole member of LM Partners. Upon acquisition, LM Partners owned a portion of Lake Mead Crossing, consisting of approximately 155,100 square feet of rentable commercial space. Upon acquisition, LM Development, owned the other portion of Lake Mead Crossing consisting of approximately 66,000 square feet of rentable commercial space.

 

Lake Mead Crossing was purchased with the use of mortgage debt and mezzanine debt. LM Partners received mortgage debt of $29,500,000 from Nevada State Bank, and LM Development received mortgage debt of $2,700,000 from Barrington Bank & Trust Co., N.A., or Barrington Bank. In addition to the mortgage financing, LM Partners and LM Development entered into mezzanine loan agreements with GK Development and GK Secured Income IV, LLC or GKSI IV, an affiliate of GK Development. The mezzanine loan agreement with GKSI IV is in the maximum amount of $10,500,000 at 8% interest, allocated between LM Partners and LM Development, of which $6,417,483 was outstanding as of June 30, 2018. The mezzanine loan agreement with GK Development is in the maximum amount of $2,608,100, or the GK Development Loan, allocated between LM Partners and LM Development, all of which was repaid as of December 31, 2017. For more details on the terms of the financing, please see “Item 3. Financial Statements” herein and “Certain Relationships and Related Transactions” in the Offering Statement.

  

After the acquisition of Lake Mead Crossing, the Company, through LM Partners, entered into a Purchase and Sale Agreement with Pacific Dental Services, LLC, or PDCS, a former tenant in Lake Mead Crossing, whereby LM Partners agreed to sell to PDCS the building partially occupied by PDCS, containing approximately 7,800 rentable square feet, for $4,000,000, excluding prorations. The sale closed on March 20, 2017 and $2,700,000 of the sale proceeds was used to reduce the outstanding principal balance on the Nevada State Bank note payable and $980,000 of the sales proceeds was used to reduce the outstanding principal balance on the GK Development Loan.

 

As of June 30, 2018, the portion of Lake Mead Crossing owned by LM Partners is 97.2% leased and the portion of Lake Mead Crossing owned by LM Development is 52.5% leased.

 

2700 Ygnacio

 

On January 30, 2017, our Company, through 2700 Ygnacio Partners, LLC, a wholly-owned subsidiary of our Company, or Ygnacio Partners, acquired an office building located at the corner of North Via Monte and Ygnacio Road in Walnut Creek, California, or 2700 Ygnacio, from an unaffiliated seller for $14,905,290, excluding prorations. 2700 Ygnacio is a three-story, Class A office building with approximately 108,000 rentable square feet.

 

As of June 30, 2018, 2700 Ygnacio is 77.0% leased to numerous tenants and the leases are expiring on various dates between 2018 and 2022. Corrollo Engineers is the anchor tenant on the property, occupying 37,156 rentable square feet, or 34.41% of the property, under a lease currently scheduled to expire on October 31, 2019.

 

The purchase of 2700 Ygnacio was financed using (i) a first mortgage loan in the amount of $11,325,000 from Mutual of Omaha Bank, all of which was funded upon acquisition, (ii) an interim loan from GK Development of $2,305,000, or the GK Development Loan II, and (iii) proceeds from this offering of $1,750,000. For more details on the terms of the financing, please see “Item 3. Financial Statements” herein and “Certain Relationships and Related Transactions” in the Offering Statement.

 

We used Bond proceeds to repay the GK Development Loan II in 2017.

 

Financial Summary

 

For the six-month period ended June 30, 2017, GK Investment Holdings, Inc $2,960,627, consolidated net income before depreciation, amortization and gain on sale of rental property of $395,247 and consolidated net income of $467,999.

 

In the most recent six-month period ending June 30, 2018, we had revenue of $2,905,125, consolidated net income before depreciation, and consolidated net loss of $1,093,358.

 

Results of Operation

 

We operate on a calendar year. Set forth below is a discussion of our operating results for the first half of 2018, from January 1, 2018 to June 30, 2018.

 

As of June 30, 2018, we had the following two assets, (i) a commercial rental property located in Henderson, Nevada, known as Lake Mead Crossing, which consists of multiple buildings aggregating approximately 213,400 square feet of rentable commercial space, taking into account the sale of a portion of Lake Mead Crossing to PDCS, and (ii) a Class A office building located in Walnut Creek, California consisting of approximately 108,000 square feet of rentable commercial space. Lake Mead Crossing was acquired on November 12, 2015 and GK Development assumed management responsibilities on May 1, 2016. 2700 Ygnacio was acquired on January 30, 2017 and GK Development assumed management responsibilities on the acquisition date.

 

For the six months ended June 30, 2018, our total revenues from operations amounted to $2,905,125. Operating costs for the same period, including depreciation and amortization of $1,441,872 but excluding interest expense of $1,658,484, amounted to $2,346,715. This resulted in operating income of $558,410. Net loss for the same period amounted to $1,093,358 after taking into account interest expense of $1,658,484, and miscellaneous income of $6,520.

 

For the six months ended June 30, 2017, our total revenues from operations amounted to $2,960,627. Operating costs for the same period, including depreciation and amortization of $1,666,130 but excluding interest expense of $1,615,817, amounted to $2,619,009. This resulted in operating income of $341,618. Net gain for the same period amounted to $126,381 after taking into account interest expense of $2,381,086 and miscellaneous income of $3,305.

 

We are working diligently to identify assets in our target asset class and to acquire such assets in the timeframe that is customary in the real estate industry.

 

 

Liquidity and Capital Resources

 

Our principal demands for cash are for acquisition costs, including the purchase price of any additional properties, loans and securities we acquire, improvement costs, the payment of our operating and administrative expenses, and all continuing debt service obligations, including our Bond Service Obligations. Generally, we will fund additional acquisitions from the net proceeds of this offering. We intend to acquire additional assets with cash and mortgage or other debt, but we also may acquire assets free and clear of permanent mortgage or other indebtedness by paying the entire purchase price for the asset in cash. As we are dependent on capital raised in this offering to conduct our business, our investment activity over the next twelve (12) months will be dictated by the capital raised in this offering. We expect to acquire additional properties and meet our business objectives regardless of the amount of capital raised in this offering. If the capital raised in this offering is insufficient to purchase additional properties solely with conventional mortgage debt, we will implement a strategy of utilizing a mix of capital, mortgage debt and mezzanine debt (similar to the Lake Mead Crossing and 2700 Ygnacio acquisitions) to acquire properties. Further, our company expects that it will be able to meet its cash requirements regardless of the amount of capital raised by drawing upon the Cash Flow Loans and the cash flows of properties we own.

 

We expect to use debt financing as a source of capital. We have no limits on the amount of leverage we may employ; however, senior property debt is generally expected to be approximately 65% of the cost of our investments. See “Investment Policies” for more information.

 

We anticipate that adequate cash will continue to be generated from operations to fund our operating and administrative expenses, and all continuing debt service obligations, including the Bond Service Obligations. However, our ability to finance our operations is subject to some uncertainties. Our ability to generate working capital is dependent on our ability to attract and retain tenants and the economic and business environments of the various markets in which our properties are located. Our ability to sell our assets is partially dependent upon the state of real estate markets and the ability of purchasers to obtain financing at reasonable commercial rates. In general, we intend to pay debt service from cash flow from operations. If cash flow from operations is insufficient then our Cash Flow Lenders are obligated to make the Cash Flow Loans to us. If we have not generated sufficient cash flow from our operations and other sources, such as from borrowings, including the Cash Flow Loans, we may use funds out of the Debt Service Reserve. Moreover, our manager may change this policy, in its sole discretion, at any time. See “Description of Company’s Securities - Certain Covenants” in this Offering Circular for more information.

 

Potential future sources of capital include secured or unsecured financings from banks or other lenders, establishing additional lines of credit, proceeds from the sale of properties and undistributed cash flow. Note that, currently, we have not identified any additional source of financing, other than the proceeds of this offering, and there is no assurance that such sources of financing will be available on favorable terms or at all.

 

As of June 30, 2018, we had cash on hand of $1,569,096 and restricted cash (funded reserves) of $687,829. The funded reserves are required as a condition precedent of the mortgage loans payable and the Indenture related to the Bonds, which requires 7% of the gross proceeds from the offering of our Bonds be placed into a reserve account held by the Bond trustee until October 17, 2017. We are currently offering investors the opportunity to purchase up to a maximum of $50,000,000 of Bonds. of which, $11,948,000 were sold as of June 30, 2018. We anticipate that the total net proceeds of the offering, if successful, and assuming we sell the remaining Bonds at the Price to the Public, will amount to $44,650,000, which will enable us to pursue acquisitions of commercial real estate assets in our target asset class and thereby increase cash flows.

 

The Company is offering $50,000,000 of the Bonds at a purchase price of $1,000 per Bond, subject to the volume-weighted discount. The Bonds, which bear interest at a fixed rate of 7% per annum, will mature on September 30, 2022. As of June 30, 2018, $11,948,000 of Bonds have been sold and through September 26, 2018, $19,458,000 have been sold. The proceeds from the offering received to date have been used for the acquisition of 2700 Ygnacio, and it is our intention to use future proceeds to repay a portion of existing mezzanine debt and other existing indebtedness and acquire additional commercial rental properties in our target asset class.

 

 

GENERAL INFORMATION AS TO OUR COMPANY

 

GK Investment Holdings, LLC is a Delaware limited liability company formed on September 14, 2015 that invests in and operates commercial rental properties, leases such properties to multiple tenants, and makes such other real estate related investments as are consistent with its investment objectives and that GK Development, Inc., GK Development, our manager, deems appropriate. Our company, through wholly-owned subsidiaries, owns and operates one such property, Lake Mead Crossing. The office of our company and GK Development are located at 257 East Main Street, Suite 200, Barrington, IL 60010, and the telephone number is (847) 277-9930.

 

GK Development is an Illinois corporation. GK Development is responsible for managing our company’s affairs and for identifying and making acquisitions and dispositions on our company’s behalf. GK Development is a commercial real estate acquisition and development company specializing in the acquisition, management and redevelopment of commercial rental properties such as regional malls and neighborhood shopping centers. GK Development controls a portfolio of real estate assets currently valued at over $500,000,000, the majority of which are commercial rental properties.

 

GK Development’s management team is comprised of operation managers who are responsible for the day-to-day operation of GK Development and our company. See “Directors and Executive Officers” for more information on the management team of GK Development and our company.

 

Operating Agreement

 

Formation and Purpose

 

Our company was formed on September 14, 2015. Our company is governed by its operating agreement, dated as of September 14, 2015 and entered into under the laws of the State of Delaware, or the Operating Agreement. Under the Operating Agreement, our company was formed with the intent to acquire, own, redevelop, and operate commercial real estate. Notwithstanding the intended purposes of our company, pursuant to the Operating Agreement, our company is permitted to transact any lawful business not required to be stated specifically in the Operating Agreement and for which limited liability companies may be formed under the Delaware Limited Liability Company Act (Title 6, Subtitle II, Chapter 18), as amended from time to time. See “Risk Factors – Risks Related to this Offering and Our Corporate Structure” for more information.

 

Management

 

The management of our company is entrusted solely to GK Development for as long as it remains the sole manager of our company. Only the members of our company have the right to remove our manager, and only if our manager has made a decision to file a voluntary petition or otherwise initiate proceedings to have it adjudicated insolvent, or to seek an order for relief as debtor under the United States Bankruptcy Code (11 U.S.C. §§ 101 et seq.); to file any petition seeking any composition, reorganization, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy laws or any other present or future applicable federal, state or other statute or law relative to bankruptcy, insolvency, or other relief for debtors; to seek the appointment of any trustee, receiver, conservator, assignee, sequestrator, custodian, liquidator (or other similar official) of our company or of all or any substantial part of the assets of our company, to make any general assignment for the benefit of creditors of our company, to admit in writing the inability of our company to pay its debts generally as they become due, or to declare or effect a moratorium on our company’s debt or to take any action in furtherance of any of the above proscribed actions. Bondholders will have no rights in the management of our company.

 

Under the Operating Agreement, certain powers are reserved for our manager. The approval of our manager is required for the following actions with respect to our company:

 

 

	●	Amendment of the Certificate of Formation or the Operating Agreement;
	●	The conversion of our company to another type of entity organized within or without the state of Delaware, including without limitation, a limited partnership;

 

 

	●	Merger, equity interest exchange, business combination or consolidation with any other entity, excepting a wholly-owned subsidiary;
	●	Creating or authorizing any new class or series of units or equity, or selling, issuing or granting additional units;
	●	A decision to file a voluntary petition or otherwise initiate proceedings to have our company adjudicated insolvent, or seeking an order for relief of our company as debtor under the United States Bankruptcy Code (11 U.S.C. §§ 101 et seq.); to file any petition seeking any composition, reorganization, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy laws or any other present or future applicable federal, state or other statute or law relative to bankruptcy, insolvency, or other relief for debtors with respect to our company; or to seek the appointment of any trustee, receiver, conservator, assignee, sequestrator, custodian, liquidator (or other similar official) of our company or of all or any substantial part of the assets of our company, or to make any general assignment for the benefit of creditors of our company, or to admit in writing the inability of our company to pay its debts generally as they become due, or to declare or effect a moratorium on our company’s debt or to take any action in furtherance of any of the above proscribed actions;
	●	Any decision to dissolve or liquidate our company, except as specifically set forth in the Operating Agreement;
	●	Approving any budget or strategic or business plan for our company or any of its affiliates;
	●	Except with respect to an affiliate of our company, making any investment in any entity;
	●	Encumbering all of the assets of our company or any affiliate of our company; and
	●	Making any distributions of Company cash or other property except as specifically provided in the Operating Agreement.

 

Membership

 

Our company has one class of units, Class A Units. Mr. Garo Kholamian owns a 10.209% Membership Interest, individually, and he controls an additional 57.60% through certain members that he controls. As a result, Mr. Garo Kholamian has a beneficial Membership Interest of 67.81%. Mrs. Nancy Kholamian owns a 6.21% Membership Interest, and she controls an additional 6.40% through a certain member that she controls. As a result, Mrs. Nancy Kholamian has a beneficial Membership Interest of 12.61%.

 

Membership provides certain protections and rights to the members. Pursuant to the Operating Agreement, upon approval by GK Development and recommendation to the members, a majority of the members, either present and voting at a meeting duly called and held or acting by written consent shall be required to approve the following actions with respect to our company:

 

	●	Amendment of the Certificate of Formation or, subject to Section 10.13, the Operating Agreement;
	●	Merger, equity interest exchange, business combination or consolidation with any other Person, except a wholly-owned subsidiary, in which our company is not the surviving entity;
	●	A Terminating Capital Transaction;
	●	A decision to file a voluntary petition or otherwise initiate proceedings to have our company adjudicated insolvent, or seeking an order for relief of our company as debtor under the United States Bankruptcy Code (11 U.S.C. §§ 101 et seq.); to file any petition seeking any composition, reorganization, readjustment, liquidation, dissolution or similar relief under the present or any future federal bankruptcy laws or any other present or future applicable federal, state or other statute or law relative to bankruptcy, insolvency, or other relief for debtors with respect to our company; or to seek the appointment of any trustee, receiver, conservator, assignee, sequestrator, custodian, liquidator (or other similar official) of our company or of all or any substantial part of the assets of our company, or to make any general assignment for the benefit of creditors of our company, or to admit in writing the inability of our company to pay its debts generally as they become due, or to declare or effect a moratorium on our company’s debt or to take any action in furtherance of any of the above proscribed actions; or
	●	Any decision to dissolve or liquidate our company, except as specifically set forth in this Agreement.

 

Indemnification

 

Our Operating Agreement limits the liability of our manager, GK Development and certain other persons or entities. See “Limitations on Liability” in this Offering Circular for more information.

 

 

 POLICY WITH RESPECT TO CERTAIN ACTIVITIES

 

Issuance of Additional Securities

 

Except for those actions specifically discussed in this Offering Circular, the issuing of the Bonds will not impose any restrictions on the ability of our company to issue additional bonds, debt, preferred equity or other security. The Bonds will be our direct, senior unsecured obligations and will:

 

	●	rank equally with each other and with all of our existing and future unsecured and unsubordinated indebtedness outstanding from time to time;
	●	rank senior to all of our future indebtedness that by its terms is expressly subordinate to the Bonds;

 

	●	effectively rank junior to any of our future secured indebtedness to the extent of the value of the assets securing such indebtedness; and
	●	effectively be structurally subordinated to all existing and future indebtedness and other obligations of each of our subsidiaries, including the claims of mortgage lenders holding secured indebtedness, as to the specific property receiving each lender’s mortgage and other secured indebtedness.

 

See “Description of Bonds - Certain Covenants” for more information.

 

Reports

 

We will furnish the following reports to each Bondholders:

 

Reporting Requirements under Tier II of Regulation A. We are required to comply with certain ongoing disclosure requirements under Rule 257 of Regulation A. We are required to file: an annual report with the SEC on Form 1-K; a semi-annual report with the SEC on Form 1-SA; current reports with the SEC on Form 1-U; and a notice under cover of Form 1-Z. The necessity to file current reports is triggered by certain corporate events, similar to the ongoing reporting obligation faced by issuers under the Exchange Act, however the requirement to file a Form 1-U is expected to be triggered by significantly fewer corporate events than that of the Form 8-K. Parts I & II of Form 1-Z will be filed by us if and when we decide to and are no longer obligated to file and provide annual reports pursuant to the requirements of Regulation A.

 

Annual Reports. As soon as practicable, but in no event later than one hundred twenty (120) days after the close of our fiscal year, ending December 31st, our manager will cause to be mailed or made available, by any reasonable means, to each Bondholder as of a date selected by our manager, an annual report containing financial statements of our company for such fiscal year, presented in accordance with GAAP, including a balance sheet and statements of operations, Company equity and cash flows, with such statements having been audited by an accountant selected by our manager. Our manager shall be deemed to have made a report available to each Bondholder as required if it has either (i) filed such report with the SEC via its Electronic Data Gathering, Analysis and Retrieval (EDGAR) system and such report is publicly available on such system or (ii) made such report available on any website maintained by our company and available for viewing by the Bondholders.

 

 

INVESTMENT POLICIES OF OUR COMPANY

 

Investment Strategy

 

Our company focuses on investments in existing, income-producing, commercial rental real estate that will benefit from GK Development’s real estate operating and leasing skills, including releasing, redevelopment, renovation, refinancing, repositioning and sale. Our company, through wholly-owned subsidiaries, currently owns and operates Lake Mead Crossing and 2700 Ygnacio. GK Development intends to actively participate in the management of our company’s properties, rather than holding the properties as passive investments. The objective of this strategy is to maximize cash flow and property value at the time of final disposition. By doing this, GK Development maximizes the potential of our company to pay its obligations under the Bonds as they become due. Holding periods for our company’s investments will vary depending on a number of factors.

 

Our company’s investment strategy is focused primarily on rental-based commercial real estate that has current income. Targeted property types include but are not limited to established regional malls, neighborhood shopping centers, power centers, grocery-anchored centers, lifestyle centers, office buildings, multi-family and other commercial properties. The selection of solid investment opportunities is based, in part, upon the properties’ potential for enhancement in cash flows and market value.

 

Our company has acquired, and plans to acquire, properties on a leveraged basis, operate them in a manner to maximize their value (including execution of any of the aforementioned strategies), and then sell or refinance them to realize a return.

 

Our company generally will purchase individual properties, but in some cases, it may consider the purchase of a portfolio of properties. Neither the Operating Agreement nor the Indenture limits the amount our company may invest in a single property; however, GK Development intends to diversify our company’s real estate investments.

 

Our company does not intend to act as a land developer in that it is has no intent to invest in, acquire, own, hold, lease, operate, manage, maintain, redevelop, sell or otherwise use undeveloped real property or “raw land,” as a ground up development. Our company, engaging in its commercial real estate activities, may have the opportunity to acquire commercial real property which includes unimproved pad sites for future development and lease-up opportunities. In such instances, our company will retain the unimproved pad sites for ground lease, build-to-suit and/or sell opportunities. In situations where our company has the opportunity to acquire commercial real property which includes a large tract of developable raw land, the developable raw land will not be acquired by our company, but by an entity affiliated with GK Development. Our company may choose to redevelop real property for an alternative use than intended when originally acquired or developed.

 

Other than Lake Mead Crossing and 2700 Ygnacio, our company does not own any properties, nor has it identified any properties which are probable for acquisition, as of the date of this Offering Circular.

 

Dispositions

 

We may from time to time dispose of properties if, based upon management’s periodic review of our portfolio, our manager determines such action would be in our best interest. In addition, we may elect to enter into joint ventures or other types of co-ownership with respect to properties that we already own, either in connection with acquiring interests in other properties or from investors to raise equity capital.

 

Leverage of Properties

 

Our company borrows money to acquire its properties when GK Development determines that it is advantageous to our company. By operating on a leveraged basis, our company expects that it will have more funds available for investment in properties and other investments. This will allow our company to make more investment than would otherwise be possible, resulting in a more diversified portfolio. Although our company expects its liability for the repayment of indebtedness to be limited to the value of the specific property securing the liability and the rents or profits derived therefrom, our company’s use of leverage increases the risk of default on the mortgage payments and a resulting foreclosure of a particular property. See “Risk Factors” for more information.

 

 

Our company may borrow any amount necessary to enable our company to invest the proceeds of this offering in properties. Our company intends to borrow up to the maximum amount available from its lenders, thus increasing the number of properties that our company can acquire as well as enhancing the yield to our company. GK Development’s experience with prior real estate programs with similar commercial rental properties has been that lender’s preferences will be to make loans with an approximately 60-70% loan-to-value ratio in respect to the properties in the class targeted by our company. Therefore, our company believes that its aggregate loan-to-value on its portfolio will be approximately 65%.

 

Currently, Lake Mead Crossing has been assessed an aggregate value of approximately $47,400,000. The $42,065,000 purchase price of Lake Mead Crossing was funded by: (i) mortgage loans aggregating $32,200,000; (ii) a mezzanine loan of $8,530,000 and (iii) interim loans aggregating $1,335,000. Although current loan-to-value ratio of Lake Mead Crossing is approximately 80.8%, using the current outstanding balances for all loans. Our company plans to use proceeds from this offering to repay the mezzanine and interim loans. If our company repays these loans in their entirety, the loan-to-value ratio for Lake Mead Crossing will be reduced to 59.9%. With respect to the Lake Mead Crossing acquisition, management determined the fair value of the total identifiable net assets with the assistance of a third party appraiser using the income approach methodology of valuation. The income approach methodology utilizes the remaining non-cancelable lease terms as defined in lease agreements, market rental data, and discount rates. Key assumptions used includes a capitalization rate of 7.5%, growth rates for market rentals of 3.0%, and a discount rate of 9.0%. The fair value is allocated to the acquired tangible assets (consisting of land, buildings and improvements), and acquired intangible assets and liabilities (consisting of above-market and below-market leases, leasing commissions and acquired in-place leases).

 

2700 Ygnacio has been assessed an aggregate value of approximately $18,000,000. The $14,905,200 purchase price of 2700 Ygnacio was funded by: (i) a mortgage loan of $11,325,000; (ii) an interim loan of $2,305,000 and (iii) equity from this offering aggregating $1,750,000. The current loan-to-value ratio for 2700 Ygnacio is approximately 67.2%, using the current outstanding balances for all loans. With respect to the 2700 Ygnacio acquisition, management determined the fair value of the total identifiable net assets with the assistance of a third party appraiser using the income approach methodology of valuation. The income approach methodology utilizes the remaining non-cancelable lease terms as defined in lease agreements, market rental data, and discount rates. Key assumptions used includes a capitalization rate of 7.5%, growth rates for market rentals of 3.0%, and a discount rate of 8.75%. The fair value is allocated to the acquired tangible assets (consisting of land, buildings and improvements), and acquired intangible assets and liabilities (consisting of above-market and below-market leases, leasing commissions and acquired in-place leases).

 

GK Development may choose to refinance our company’s properties during the term of a loan. The benefits of refinancing may include an increased cash flow resulting from reduced debt service requirements, thus an increase in cash available for payments under the Bonds, and an increase in property ownership if refinancing proceeds are reinvested in real estate.

 

Investments in Real Estate Mortgages

 

Our business objectives emphasize equity investments in commercial rental property. Although we do not presently intend to invest in mortgages or deeds of trust, other than in a manner that is ancillary to an equity investment, we may elect, in our discretion, to invest in mortgages and other types of real estate interests, including, without limitation, participating or convertible mortgages. Investments in real estate mortgages run the risk that one or more borrowers may default under certain mortgages and that the collateral securing certain mortgages may not be sufficient to enable us to recoup our full investment.

 

Investment in Other Securities

 

Other than as described above, we do not intend to acquire any additional securities such as bonds, preferred stocks or common stock, for investment purposes. From time to time, we may elect to acquire properties through co-investment or joint venture structures. In such an instance, we intend to structure such investments so that we maintain control of the property-owning subsidiary.

 

 

Investment Company Act Considerations

 

We intend to conduct our operations so that our company and our subsidiaries are each exempt from registration as an investment company under the Investment Company Act. Under the Investment Company Act, in relevant part, a company is an “investment company” if:

 

	●	pursuant to Section 3(a)(1)(A), it is, or holds itself out as being, engaged primarily, or proposes to engage primarily, in the business of investing, reinvesting or trading in securities; and
	●	pursuant to Section 3(a)(1)(C), it is engaged, or proposes to engage, in the business of investing, reinvesting, owning, holding or trading in securities and owns or proposes to acquire “investment securities” having a value exceeding 40% of the value of its total assets on an unconsolidated basis. “Investment securities” does not include U.S. Government securities and securities of majority-owned subsidiaries that are not themselves investment companies and are not relying on the exception from the definition of investment company under Section 3(c)(1) or Section 3(c)(7) of the Investment Company Act.

 

We intend to conduct our operations so that our company and most, if not all, of its wholly-owned and majority-owned subsidiaries own or proposes to acquire “investment securities” having a value of not more than 40% of the value of its total assets (exclusive of government securities and cash items) on an unconsolidated basis. We will continuously monitor our holdings on an ongoing basis to determine the compliance of our company and each wholly-owned and majority-owned subsidiary with this test. We expect that most, if not all, of our company’s wholly-owned and majority-owned subsidiaries will not be relying on exemptions under either Section 3(c)(1) or 3(c)(7) of the Investment Company Act. Consequently, interests in these subsidiaries (which are expected to constitute most, if not all, of our assets) generally will not constitute “investment securities.” We believe that our company and most, if not all, of its wholly-owned and majority-owned subsidiaries will not be considered investment companies under Section 3(a)(1)(C) of the Investment Company Act.

 

In addition, we believe that neither our company nor any of its wholly-owned or majority-owned subsidiaries will be considered investment companies under Section 3(a)(1)(A) of the Investment Company Act because they will not engage primarily or hold themselves out as being engaged primarily in the business of investing, reinvesting or trading in securities. Rather, our company and its subsidiaries will be primarily engaged in non-investment company businesses related to real estate. Consequently, our company and its subsidiaries expect to be able to conduct their respective operations such that none of them will be required to register as an investment company under the Investment Company Act.

 

We will classify our assets for purposes of the Investment Company Act, including our 3(c)(5)(C) exclusion, in large measure upon no-action positions taken by the SEC staff in the past. These no-action positions were issued in accordance with factual situations that may be substantially different from the factual situations we may face, and a number of these no-action positions were issued more than ten years ago. No assurance can be given that the SEC staff will concur with our classification of our assets. In addition, the SEC staff may, in the future, issue further guidance that may require us to re-classify our assets for purposes of the Investment Company Act. If we are required to re-classify our assets, we may no longer be in compliance with the exclusion from the definition of an investment company provided by Section 3(c)(5)(C) of the Investment Company Act.

 

For purposes of determining whether we satisfy the 55%/80% tests, we will classify the assets in which we invest as follows:

 

●

Real Property. Based on the no-action letters issued by the SEC staff, we will classify our fee interests in real properties as qualifying assets. In addition, based on no-action letters issued by the SEC staff, we will treat our investments in joint ventures, which in turn invest in qualifying assets such as real property, as qualifying assets only if we have the right to approve major decisions affecting the joint venture; otherwise, such investments will be classified as real estate-related assets. We expect that no less than 55% of our assets will consist of investments in real property, including any joint ventures that we control.

 

 

	●	Securities. We intend to treat as real estate-related assets debt and equity securities of both non-majority owned publicly traded and private companies primarily engaged in real estate businesses, including REITs and other real estate operating companies, and securities issued by pass-through entities of which substantially all of the assets consist of qualifying assets or real estate-related assets.
	●	Loans. Based on the no-action letters issued by the SEC staff, we will classify our investments in various types of whole loans as qualifying assets, as long as the loans are “fully secured” by an interest in real estate at the time we originate or acquire the loan. However, we will consider loans with loan-to-value ratios in excess of 100% to be real estate-related assets. We will treat our mezzanine loan investments as qualifying assets so long as they are structured as “Tier 1” mezzanine loans in accordance with the guidance published by the SEC staff in a no-action letter that discusses the classifications of Tier 1 mezzanine loans under Section 3(c)(5)(C) of the Investment Company Act.

 

We will classify our investments in construction loans as qualifying assets, as long as the loans are “fully secured” by an interest in real estate at the time we originate or acquire the loan. With respect to construction loans that are funded over time, we will consider the outstanding balance (i.e., the amount of the loan actually drawn) as a qualifying asset. The SEC staff has not issued no-action letters specifically addressing construction loans. If the SEC staff takes a position in the future that is contrary to our classification, we will modify our classification accordingly.

 

Consistent with no-action positions taken by the SEC staff, we will consider any participation in a whole mortgage loan, including B-Notes, to be a qualifying real estate asset only if: (1) we have a participation interest in a mortgage loan that is fully secured by real property; (2) we have the right to receive our proportionate share of the interest and the principal payments made on the loan by the borrower, and our returns on the loan are based on such payments; (3) we invest only after performing the same type of due diligence and credit underwriting procedures that we would perform if we were underwriting the underlying mortgage loan; (4) we have approval rights in connection with any material decisions pertaining to the administration and servicing of the loan and with respect to any material modification to the loan agreements; and (5) if the loan becomes non-performing, we have effective control over the remedies relating to the enforcement of the mortgage loan, including ultimate control of the foreclosure process, by having the right to: (a) appoint the special servicer to manage the resolution of the loan; (b) advise, direct or approve the actions of the special servicer; (c) terminate the special servicer at any time with or without cause; (d) cure the default so that the mortgage loan is no longer non-performing; and (e) purchase the senior loan at par plus accrued interest, thereby acquiring the entire mortgage loan.

 

We will base our treatment of any other investments as qualifying assets and real estate-related assets on the characteristics of the underlying collateral and the particular type of loan (including whether we have foreclosure rights with respect to those securities or loans that have underlying real estate collateral) and we will make these determinations in a manner consistent with guidance issued by the SEC staff.

 

Qualification for exemption from registration under the Investment Company Act will limit our ability to make certain investments. For example, these restrictions may limit the ability of our company and its subsidiaries to invest directly in mortgage-related securities that represent less than the entire ownership in a pool of mortgage loans, debt and equity tranches of securitizations and certain asset-backed securities and real estate companies or in assets not related to real estate. Although we intend to monitor our portfolio, there can be no assurance that we will be able to maintain this exemption from registration for our company or each of our subsidiaries. 

 

A change in the value of any of our assets could negatively affect our ability to maintain our exemption from regulation under the Investment Company Act. To maintain compliance with the Section 3(c)(5)(C) exclusion, we may be unable to sell assets we would otherwise want to sell and may need to sell assets we would otherwise wish to retain. In addition, we may have to acquire additional assets that we might not otherwise have acquired or may have to forego opportunities to acquire assets that we would otherwise want to acquire and would be important to our investment strategy.

 

To the extent that the SEC staff provides more specific guidance regarding any of the matters bearing upon the definition of investment company and the exceptions to that definition, we may be required to adjust our investment strategy accordingly. Additional guidance from the SEC staff could provide additional flexibility to us, or it could further inhibit our ability to pursue the investment strategy we have chosen.

 

If we are required to register as an investment company under the Investment Company Act, we would become subject to substantial regulation with respect to our capital structure (including our ability to use borrowings), management, operations, transactions with affiliated persons (as defined in the Investment Company Act), and portfolio composition, including restrictions with respect to diversification and industry concentration and other matters. Compliance with the Investment Company Act would, accordingly, limit our ability to make certain investments and require us to significantly restructure our business plan.

 

 

DESCRIPTION OF REAL ESTATE

 

We currently own two properties, Lake Mead Crossing and 2700 Ygnacio.

 

Lake Mead Crossing

 

On November 12, 2015, we acquired, through wholly-owned subsidiaries, a commercial rental property located in Henderson, Nevada, known as Lake Mead Crossing, for a total purchase price of $42,065,000, excluding prorations. Upon acquisition, Lake Mead Crossing, which was our sole asset as of December 31, 2016, consisted of multiple buildings aggregating approximately 221,200 square feet of rentable commercial space. Lake Mead Crossing is part of a larger shopping center shadow anchored by a Target consisting of approximately 152,000 square feet. Lake Mead Crossing is owned by two of our subsidiaries, Lake Mead Partners, LLC, or LM Partners, and Lake Mead Development, LLC, or LM Development. Lake Mead Parent, LLC, or LM Parent, which is our wholly-owned subsidiary, is the sole member of LM Partners. Upon acquisition, LM Partners owned a portion of Lake Mead Crossing, consisting of approximately 155,100 square feet of rentable commercial space, and LM Development, owned the other portion of Lake Mead Crossing consisting of approximately 66,000 square feet of rentable commercial space.

 

Lake Mead Crossing was purchased with the use of mortgage debt and mezzanine debt. LM Partners received mortgage debt of $29,500,000 from Nevada State Bank, and LM Development received mortgage debt of $2,700,000 from Barrington Bank & Trust Co., N.A., or Barrington Bank. In addition to the mortgage financing, LM Partners and LM Development entered into mezzanine loan agreements with GK Development and GK Secured Income IV, LLC or GKSI IV, an affiliate of GK Development. The mezzanine loan agreement with GKSI IV is in the maximum amount of $10,500,000 at 8% interest, allocated between LM Partners and LM Development, of which $6,417,483 was outstanding, as of June 30, 2018. The mezzanine loan agreement with GK Development is in the maximum amount of $2,608,100, or the GK Development Loan, allocated between LM Partners and LM Development, of which $0 was outstanding as of June 30, 2018. For more details on the terms of the financing, please see “Certain Relationships and Related Transactions.”

 

After the acquisition of Lake Mead Crossing, the Company, through LM Partners, entered into a Purchase and Sale Agreement with Pacific Dental Services, LLC, or PDCS, a former tenant in Lake Mead Crossing, whereby LM Partners agreed to sell to PDCS the building partially occupied by PDCS, containing approximately 7,790 rentable square feet, for $4,000,000, excluding prorations. The sale closed on March 20, 2017 and $2,700,000 of the sale proceeds was used to reduce the outstanding principal balance on the Nevada State Bank note payable and $980,000 of the sales proceeds was used to reduce the outstanding principal balance on the GK Development Loan.

 

As of June 30, 2018, the portion of Lake Mead Crossing owned by LM Partners is 97.2% leased and the portion of Lake Mead Crossing owned by LM Development is 52.5% leased.

 

Proposed program for the renovation, improvement or development of such properties.

 

With respect to Lake Mead Parent, LLC, the commercial rental property is comprised of 147,400 square feet of rentable space for lease to multiple tenants. As of June 30, 2018, approximately 143,200 square feet (97.2%) was leased to seventeen tenants under various leases expiring on various dates between 2019 and 2028. We plan to lease the vacant retail space and currently, we have no present plans for the improvement of the property.

 

With respect to Lake Development, LLC, the commercial rental property is comprised of 66,044 square feet of rentable space for lease to multiple tenants. As of June 30, 2018, 34,700 square feet (52.5%) was leased to three tenants under various leases expiring on various dates between 2018 and 2023. We plan to lease the vacant retail space. In addition, the commercial rental property includes unimproved pad sites which Lake Mead Development, LLC intends to secure one or more tenants for a buildtosuit opportunity. These could include standalone retailers, medical office facilities and/or restaurants. Currently, no tenants have been secured and there are no present plans for the improvement of the property.

 

Lake Mead Crossing is a multi-tenant retail shopping center located in downtown Henderson, Nevada and management believes it has excellent visibility, access and daytime traffic. The neighborhood is dominated by retail and other commercial development and is also provided with an abundance of residential development properties located in subdivisions scattered throughout the market area. Additionally, Lake Mead Crossing is located in the path of substantial residential growth. Cadence, is a 2,200 acre planned residential development located 0.2 miles from Lake Mead Crossing. Under the plan for Cadence, multiple developers are expected to build up to 13,250 homes.

 

A summary of the key competitive conditions are as follows:

 

	●	Lake Mead Crossing is located in a well performing commercial corridor with very good visibility;
	●	Lake Mead Crossing is the only power center located in downtown Henderson, NV;
	●	Lake Mead Crossing has a good parking ratio;
	●	Lake Mead Crossing lies in the Las Vegas metropolitan area; and
	●	Lake Mead Crossing is shadow anchored by a super Target store.

 

 

Key Tenant Lease Terms

 

Below is a summary of the key lease terms of tenants that currently occupy at least 10% of our gross leasable area, or GLA.

 

	Ross,Dress For Less	Marshalls	PetSmart	Big Lots
Square Footage	30,187	26,000	27,426	30,000
Percentage of GLA	14.2%	12.2%	12.9%	14.1%
Monthly Base Rent	$25,156	$29,250	$56,618	$26,792
Rent/Square Foot	$10.00	$13.50	$24.77	$10.72
Lease Expiration	1/31/2020	3/31/19	3/31/19	1/31/2023

 

Future Minimum Rent
2018 (Remaining six months)	$1,643,069
2019	2,009,212
2020	1,252,788
2021	976,322
2022	827,767
Thereafter	998,345
Total	$7,707,505

 

Schedule of Lease Expirations

 

The following chart shows the number of leases expiring at Lake Mead Crossing in each of the next ten years and the square footage, percentage of overall leased space, and annual rent relating to such expiring leases.

 

	2019	2020	2021	2022	2023	2024	2025	2026	2027	2028	2029
Number of Lease Expirations	8	3	3	2	1	N/A	2	N/A	N/A	1	N/A
Square Footage	80,413	39,487	3,800	6,500	30,000	N/A	16,470	N/A	N/A	1,180	N/A
Annual Rent	$1,778,027	$556,196	$112,512	185,860	324,000	N/A	$282,680	N/A	N/A	$45,595	N/A

 

Components Upon Which Depreciation Are Taken

 

The following chart provides the details of how tax depreciation is calculated at Lake Mead Crossing.

 

		FederalTax Basis				Method			Lifein Years
Land		$	9,241,793			N/A				N/A
Building		$	27,535,723			Straight Line				39
Land Improvements		$	2,448,433			150% Double Declining Balance				15
Tenant Improvements		$	985,304			Straight Line				39
Total Consideration		$	40,211,254

 

Realty Taxes

 

The following chart provides the details of how taxes are assessed at Lake Mead Crossing.

 

	Lake Mead Crossing
Realty Tax Rate	2.90%
Annual Realty Taxes	$211,060

 

Lake Mead Crossing was financed using 100% debt in the form of mortgage debt, mezzanine debt and interim debt. In connection with the financing of Lake Mead Crossing, the following loans are outstanding:

 

	●	Lake Mead Partners, LLC, owner of a portion of the property received mortgage debt totaling $29,500,000 with an additional $500,000 that it can use if it chooses. To date, $216,327 of the additional amount has been used. The debt carries an interest rate of 4% and requires principal and interest payments of $144,703. The loan matures on November 12, 2025.
	●	Lake Mead Development, LLC, owner of a portion of the property received mortgage debt totaling $2,700,000. The debt carries a floating interest rate equal to the LIBOR plus 2.75% and requires monthly principal payments of $5,450 plus interest. The loan matures on November 12, 2022.
	●	Lake Mead Parent, LLC, the owner of Lake Mead Partners and the wholly-owned subsidiary of our company, and Lake Mead Development, LLC received mezzanine debt to purchase Lake Mead Crossing from an affiliate of our manager. Under the promissory note, Lake Mead Parent, LLC and Lake Mead Development, LLC can borrow up to $10,500,000 at 8% interest. The mezzanine loan requires monthly interest payments only. The loan matures on November 12, 2018. The mezzanine loan has outstanding principal of approximately $9,932,483, as of December 31, 2017. This loan has been fully repaid.
	●	Lake Mead Development, LLC received an interim loan from our manager in the amount of $20,000. The interim loan carries interest of 7% until the loan is called by our manager. After the loan is called, the interest rate will increase to 8%. Our manager may call the loan at any time and in its sole discretion. This loan has been fully repaid.

 

Lake Mead Crossing contains two unimproved pad sites, each being 30,000 square feet, for future development and lease-up opportunities. Our company may use the unimproved pad sites for ground lease, build-to-suit and/or sell opportunities.

 

2700 Ygnacio

 

Our Company, through a wholly owned subsidiary 2700 Ygnacio Partners, LLC, acquired an office building located at the corner of North Via Monte and Ygnacio Road in Walnut Creek, California, or 2700 Ygnacio, from an unaffiliated seller for $14,905,290, excluding prorations. 2700 Ygnacio is a three-story, Class A office building with approximately 108,000 rentable square feet. On acquisition, it was 90.0% leased (currently 77.98% leased) to numerous tenants under leases expiring on various dates between 2018 and 2022.

 

The purchase of 2700 Ygnacio was financed using (i) a first mortgage loan in the amount of $11,325,000, all of which was funded upon acquisition, (ii) an interim loan from GK Development of $2,305,000, and (iii) proceeds from this offering of $1,750,000.

 

Corrollo Engineers is the anchor tenant on the property, occupying 37,156 rentable square feet, or 34.41% of the property, under a lease currently scheduled to expire on October 31, 2019.

 

Proposed program for the renovation, improvement or development of such property.

 

2700 Ygnacio is a three-story, Class A office building with approximately 108,000 rentable square feet. The property was built in 1985 and it includes 477 surface parking spaces reflecting an overall parking ratio of 4.4 spaces per 1,000 square feet of net rent area. On acquisition, it was 90.0% leased (77,98% leased, as of June 30, 2018) to numerous tenants under leases expiring on various dates between 2018 and 2022. We plan to lease the vacant space, renew existing leases when they mature and currently, we have no plans for the improvement of the property.

  

2700 Ygnacio is considered to be the premier office property in its submarket, highlighted institutional-quality construction, contiguous perimeter glass window lines that offer panoramic views of Mount Diablo, abundant parking, and an impressive list of nearby amenities. The prominent location and high quality of tenants provides the stability of a “suburban core” investment along with the opportunity to increase income and value over time as rents in the submarket continue to rebound.

 

A summary of key competitive conditions are as follows:

 

	●	2700 Ygnacio is located in a region commonly referred to as North I-680 Corridor, one of the fastest growing regions in the San Francisco Bay Area;
	●	2700 Ygnacio is easy to commute from San Francisco and Oakland;
	●	2700 Ygnacio has (i) access to both executive and employee housing, (ii) access to public schools that are highly regarded, (iii) access to highly-educated workforce and (iv) easy access to mass transit;
	●	2700 Ygnacio has a good parking ratio

 

 

Key Tenant Lease Terms

 

Below is a summary of the key lease terms of tenants that currently occupy at least 10% of our gross leasable area, or GLA.

 

	Stearns Lending, LLC	Carollo Engineers, PC
Square Footage	14,842	37,156
Percent of GLA	13.75%	34.42%
Monthly Base Rent	$28,497	$87,317
Rent/Square Foot	$23.04	$28.20
Lease Expirations	7/31/2021	10/31/2019

 

Future Minimum Rent

 

2018 (remaining six months)	$1,070,135
2019	1,915,969
2020	851,385
2021	599,014
2022	192,950
Thereafter	239,632
Total	$4,869,085

 

Schedule of Lease Expiration

 

The following chart shows the number of leases expiring at 2700 Ygnacio in each of the next six years and the square footage, and current annual rent relating to such expiring leases.

 

	2018	2019	2020	2021	2022	2023
Number of Lease Expirations	5	1	4	0	4	1
Square Footage	909	48,524	1,341	22,273	6,340	3,783
Annual Rent	$21,816	$1,353,518	$36,475	$517,908	$152,757	$129,319

 

Components Upon Which Depreciation Are Taken

 

The following chart provides the details of how tax depreciation is calculated at 2700 Ygnacio.

 

	Federal Tax Basis	Method		Life in Years
Land	$3,742,420	N/A		N/A
Building	$8,640,447	Straight Line		39
Land Improvements	$1,351,422	150% Double Declining Balance		15
Personal Property	$1,171,001	200% Double Declining Balance		7
Tenant Improvements	$1,171,001	Straight Line		39
	$14,905,290

 

Realty Taxes

 

The following chart provides the details of how taxes are assessed at 2700 Ygnacio.

 

	2700 Ygnacio
Realty Tax Rate	1.1009%
Annual Realty Taxes	$188,604

 

  MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS

 

The following discussion is a summary of certain material U.S. federal income tax consequences relevant to the purchase, ownership and disposition of the Bonds, but does not purport to be a complete analysis of all potential tax consequences. The discussion is based upon the Code, current, temporary and proposed U.S. Treasury regulations issued under the Code, or collectively the Treasury Regulations, the legislative history of the Code, IRS rulings, pronouncements, interpretations and practices, and judicial decisions now in effect, all of which are subject to change at any time. Any such change may be applied retroactively in a manner that could adversely affect a holder of the Bonds. This discussion does not address all of the U.S. federal income tax consequences that may be relevant to a holder in light of such holder’s particular circumstances or to holders subject to special rules, including, without limitation:

 

	●	a broker-dealer or a dealer in securities or currencies;
	●	an S corporation;
	●	a bank, thrift or other financial institution;
	●	a regulated investment company or a real estate investment trust;
	●	an insurance company
	●	a tax-exempt organization;
	●	a person subject to the alternative minimum tax provisions of the Code;
	●	a person holding the Bonds as part of a hedge, straddle, conversion, integrated or other risk reduction or constructive sale transaction;
	●	a partnership or other pass-through entity;
	●	a person deemed to sell the Bonds under the constructive sale provisions of the Code;
	●	a U.S. person whose “functional currency” is not the U.S. dollar; or
	●	a U.S. expatriate or former long-term resident.

 

In addition, this discussion is limited to persons that purchase the Bonds in this offering for cash and that hold the Bonds as “capital assets” within the meaning of Section 1221 of the Code (generally, property held for investment). This discussion does not address the effect of any applicable state, local, non-U.S. or other tax laws, including gift and estate tax laws.

 

As used herein, “U.S. Holder” means a beneficial owner of the Bonds that is, for U.S. federal income tax purposes:

 

	●	an individual who is a citizen or resident of the United States;
	●	a corporation (or other entity treated as a corporation for U.S. federal income tax purposes) created or organized in or under the laws of the United States, any state thereof or the District of Columbia;
	●	an estate, the income of which is subject to U.S. federal income tax regardless of its source; or
	●	a trust that (1) is subject to the primary supervision of a U.S. court and the control of one or more U.S. persons that have the authority to control all substantial decisions of the trust, or (2) has a valid election in effect under applicable Treasury Regulations to be treated as a U.S. person.